January 11, 2016
From at least a numerical standpoint, 2015 was a particularly productive year for the Securities and Exchange Commission’s Division of Enforcement. For the government fiscal year ended September 30, the SEC filed 807 enforcement actions, a 7% rise over fiscal 2014.[1] Perhaps acknowledging past criticism of the use of such statistics[2]–which include more routine matters such as delinquent filings by public companies and follow-on sanctions proceedings against previously-charged securities professionals–the SEC for the first time this year broke down the numbers further, reporting 507 “independent actions for violations of the federal securities laws.” Compared to 413 independent actions in 2014, this represents a sizable leap in new enforcement actions over the past year. Indeed, by this measure, the number of new actions in fiscal 2015 was 50% higher than the 341 filed in 2013.
As has been the case since Chair Mary Jo White and Division of Enforcement Director Andrew Ceresney took the reins in 2013, the Division predominantly touted the growth in activity involving public company reporting. However, while the growing number of such cases was notable, most remain on the smaller size. More significant were the number of cases against auditors, including not just individual accountants but large audit firms. Since the collapse of Arthur Andersen, the SEC has rarely brought cases against large audit firms (aside from cases alleging auditor independence violations), but the past few months saw several significant cases, made even more dramatic by settlement terms requiring certain firms to admit wrongdoing.
Cases against investment advisers, and private fund managers in particular, continued to represent a significant portion of the enforcement docket, with cases challenging the allocation and disclosure of fees and expenses, and the disclosure of conflicts of interest, as recurring themes. Similarly, the Division continued to pursue increasingly complex cases against broker-dealers, particularly involving alternative trading systems and market access.
Before addressing significant enforcement actions from the past six months, we take note of several overarching themes drawn from the SEC’s enforcement program–not surprisingly, most of which have been dominant issues for the past few years.
While the SEC’s increased use of in-house administrative proceedings in lieu of federal courts for litigated enforcement actions has been one of the key SEC trends of recent years, the latter half of 2015 saw some significant developments which could turn back the tide, or at least begin the process of addressing some of the bar’s concerns.
Litigants have continued to push back on administrative proceedings, and while most judicial challenges have proven unsuccessful, several recent court decisions have required the Commission to halt its administrative proceedings on the basis that the manner in which the agency’s administrative law judges (ALJs) are appointed likely is unconstitutional under the Appointments Clause of the U.S. Constitution.
As noted in our mid-year review, Judge May in the Northern District of Georgia held in June that SEC ALJs are inferior officers whose appointments likely contravene the Appointments Clause because they are not appointed by the President, a department head, or the Judiciary.[3] Judge May’s decision prompted Judge Berman in the Southern District of New York to request additional briefing from the government on this issue in Duka v. SEC, and in August, unpersuaded by the government’s arguments, Judge Berman also issued an order enjoining the administrative proceeding in that case.[4] Then, in August, Judge May issued another preliminary injunction halting the pending proceeding in Gray Financial Group v. SEC.[5]
The SEC has given no indication that it will back down on this issue. Instead, the SEC recently disagreed with the findings in Hill, Gray, and Duka and, in a pair of challenges to ALJ initial decisions, held that SEC ALJs are not inferior officers and are therefore not subject to Appointments Clause requirements.[6] The Commission also appealed the decisions in Georgia and New York to the Eleventh and Second Circuits, respectively. The Gray and Hill cases, which have been consolidated in the Eleventh Circuit, are scheduled for oral argument in February 2016, while briefs are still being filed in the Duka case in the Second Circuit.
Nonetheless, the Commission has fended off most of the constitutional challenges by arguing that federal district courts lack jurisdiction to review such challenges pending the conclusion of the Commission’s administrative proceeding. Most recently, the Commission prevailed on such arguments in the Seventh Circuit and the D.C. Circuit, which both issued opinions finding that the Commission has exclusive jurisdiction over constitutional claims throughout the entirety of the administrative process.[7]
Given the multiple pending challenges to the legality of its administrative proceedings, the SEC appears to be pulling back somewhat. An October 2015 Wall Street Journal report found that the SEC has reversed course in recent months, filing the vast majority of litigated cases in federal court.[8] According to the report, the SEC filed 11% of its litigated actions instituted between July and September 2015 administratively, compared to 40% during the same period in 2014.
The controversy surrounding these administrative proceedings did generate one positive outcome. In recognition of the growing concerns regarding the fairness of the SEC’s administrative process, the SEC announced in September that it had voted to propose amendments to rules governing its administrative process.[9] The proposed amendments include the following:
While representing a recognition of some of the concerns raised by litigants over the fairness of administrative proceedings, the proposed amendments still do not afford respondents the same rights and protections as those provided to defendants in federal court actions. To that end, Gibson Dunn in December submitted formal comments encouraging the Commission to alter the text of the proposed rules to expand the rights and protections afforded to respondents in relation to the timing of proceedings and the scope of discovery. In addition, Gibson Dunn recommended a number of additional reforms that would ensure respondents have a meaningful avenue to test the Division’s legal theories, including the right to file for summary disposition prior to the hearing, expanded protections for interlocutory review of certain challenges to ALJ decisions, a right to stay proceedings pending final resolution of a legal challenge, and the provision of a more efficient route for respondents to litigate legal challenges in federal court.[10]
In addition to the pushback on administrative proceedings, the latter half of 2015 also saw courts chide or step in to curb other aggressive enforcement practices by the SEC–intervention that, in one instance, even drew praise from SEC Commissioners. In July, the U.S. Court of Appeals for the D.C. Circuit ruled the SEC could not retroactively apply certain remedial provisions of the Dodd-Frank Act to conduct that preceded Dodd-Frank’s passage in 2010.[11] The court ruled that the SEC could not bar the defendants from associating with municipal advisors or certain statistical rating organizations because these remedial provisions of the law did not apply to conduct that occurred before the Act’s passage. Following this ruling, SEC Commissioners Daniel M. Gallagher and Michael S. Piwowar (who had routinely dissented from SEC actions authorizing such relief) issued a statement saying that they were “pleased with the Court’s holding, which vindicates our vocal opposition to. . . retroactive collateral bars since we joined the Commission.”[12] These Commissioners called on the SEC to “take appropriate action to address all impermissibly retroactive collateral bars that have been misapplied since the enactment of Dodd-Frank.”
Then, in November, a judge in the Southern District of New York upbraided the SEC for the way the agency obtained a freeze order on the assets of a Cayman Islands bank that subsequently collapsed.[13] U.S. District Judge William H. Pauley III issued a freeze order in February for $88 million held by Cayman Islands-based Caledonian Bank Ltd. and Panama-based brokerage Verdmont Capital SA, relying on the SEC’s representation that the entities sold penny stocks of four companies that amounted to a sham “pump-and-dump” fraud scheme. Caledonian, which maintained that it merely acted as a broker for the transactions at issue, said the asset freeze triggered a run on the bank and sought bankruptcy protection within days of the freeze order. The SEC subsequently revised its allegations to say that Verdmont merely acted as a broker for others. In a lengthy order, Judge Pauley wrote that the SEC’s “bureaucratic siloing and missed opportunities” resulted in “significant collateral damage, including the collapse of a Cayman Islands financial institution.” The case, Judge Pauley added, “offers fertile ground for agency self-examination.”
Of course, the SEC also received some good news from the courts. In July, the D.C. Circuit ruled that a provision of Dodd-Frank requiring the SEC to bring a claim against a respondent within 180 days after issuing a Wells notice advising of the agency’s intent to do so did not create a jurisdictional bar.[14] In this particular case, the SEC filed charges on the 187th day after issuing a Wells notice. The D.C. Circuit concluded that the 180-day rule did not act as a statute of limitations; rather, the court accepted the SEC’s position that the provision was “intended to operate as an internal-timing directive, designed to compel [the] staff to complete investigations, examinations, and inspections in a timely matter.”
The SEC’s post-Dodd-Frank whistleblower program has continued to grow in significance. According to the agency’s annual whistleblower report, the SEC received almost 4,000 whistleblowing tips in fiscal year 2015, up 8% from fiscal year 2014 and 30% since fiscal year 2012.[15] Further, the SEC paid out the most it has to date in a single year, distributing more than $37 million to eight whistleblowers (though the lion’s share of that resulted from $30 million awarded to a single individual in September 2014). Since the program’s inception in 2011, the SEC has made 22 total payouts exceeding $54 million. As in past years, the single largest category of tips fell under the category “Corporate Disclosures and Financials” (followed closely by offering frauds and market manipulation claims). California far outstripped all other states as a source of tips (646, with New York generating 261 and Florida and Texas contributing 220 each).
On July 17, the SEC announced the payment of its third highest award to date, $3 million, to a company insider.[16] As with past awards, confidentiality restrictions limited the amount of information shared by the SEC, which noted only that the whistleblower “comprehensively laid out the fraudulent scheme which otherwise would have been very difficult for investigators to detect.”
In November, a “former investment firm employee” received more than $325,000 for similarly providing information that allowed the staff to open an investigation that led to a successful enforcement action.[17] However, the SEC noted that the whistleblower would have been entitled to receive more, but waited until after leaving the firm to report the activity and thus the award had been reduced.
Finally, public reports suggest the possibility of another record-breaking award in the near future. In late December, a law firm announced that its client tipped off the SEC about a major case which resulted in a $267 million SEC settlement announced earlier that month (discussed below).[18] With statutory awards ranging from 10%-30% of any sums recovered by the agency, such a payout would be quite dramatic. However, the SEC would first need to determine that the whistleblower provided the SEC with unique and useful information that contributed to the enforcement action and is otherwise eligible to collect.
As discussed in our past few alerts, the SEC in 2013 revisited its long-standing policy of allowing defendants to settle cases without admitting wrongdoing.[19] Although neither-admit-nor-deny settlements are still the norm, the SEC has continued to roll out a handful of settlements which include party admissions, with perhaps a few dozen such settlements to date. In a significant development, the SEC extracted admissions from two large audit firms in cases involving public company audits, further evidence of the Division of Enforcement’s increasingly aggressive stance in accounting and disclosure cases.
Other settlements drawing admissions of wrongdoing in recent months have arisen in varying contexts, including investment adviser, broker-dealer and insider trading actions, with the types of defendants conceding liability ranging from individuals to small firms to some of the largest financial institutions charged by the agency. Perhaps most notably, many of these cases did not involve fraud charges. While early statements by the SEC staff suggested that admissions would primarily be sought in particularly egregious cases, many (if not most) of the recent cases involving admissions arose in the context of alleged violations of more technical or compliance-oriented securities regulations. For examples, several cases involved alleged failures of securities registrants to provide complete “blue sheet” trading data to the agency staff in connection with ongoing investigations. Other cases involved compliance procedures alleged to be insufficient to prevent insider trading.
If there is any common theme to recent settlements, it is the absence of any discernible pattern to the cases. As such, parties and their counsel remain largely in the dark as to whether an investigation is likely to lead to a demand from the Division of Enforcement for an admission as a condition of settlement.
The Division of Enforcement continued to pursue its “broken windows” strategy of prosecuting either lesser non-fraud violations or serious but smaller cases with enforcement “sweeps” targeting multiple defendants. Early in her tenure, Chair Mary Jo White pledged to “pursue even the smallest infractions,” typically resulting in charges against multiple companies and individuals for violations of securities law provisions that the agency historically viewed as lower priority.[20] In the latter half of 2015, three SEC sweeps alone snared about 50 defendants, with the SEC focusing its sights on both recurring violations and emerging areas of interest.
In July, the SEC charged 34 defendants with fraud, manipulative trading, touting, and registration violations in connection with alleged market manipulation schemes involving microcap stocks, or stocks issued by entities with a market capitalization of between $50 million and $300 million.[21] The action targeted both domestic and foreign entities and their principals, as well as myriad penny stock promoters. While microcap fraud has long been an area of emphasis for the Division of Enforcement, the investigations can be resource-intensive while often netting smaller operators, and the agency has thus increasingly turned to broad sweeps against larger groups of market participants.
In October, the SEC charged six firms with violations of Rule 105 of Regulation M, which prohibits a firm from participating in a public stock offering within five business days of the firm selling short those same stocks.[22] This was the third sweep for Rule 105 violations conducted by the SEC in as many years as part of its Rule 105 Initiative, a “zero tolerance” approach to Rule 105 infractions over even de minimis trading profits. Each of the six defendants agreed to settle the SEC’s charges and pay a combined total of more than $2.5 million in disgorgement, interest, and penalties. In addition, one defendant was subject to a conduct-based order prohibiting it from participating in secondary offerings for a period of one year, based on the firm’s having been previously ensnared in the SEC’s 2013 Rule 105 sweep. In touting the effectiveness of its sweep strategy, the SEC reported that in the fiscal year following the SEC’s announcement of the Rule 105 Initiative, Rule 105 infractions fell by 90 percent compared to the six years preceding the initiative.
Finally, in December, the SEC brought a number of actions against lawyers and law firms involved in the offering of EB-5 investments.[23] Under the federal government’s EB-5 Immigrant Investor Program, foreign investors can seek a path to U.S. residency by investing in certain job-creating U.S. projects. According to the SEC, a number of American lawyers (in New York, New Jersey, Texas, Florida, and California) improperly acted as unregistered brokers through their roles in arranging for the investments, most significantly by receiving commissions for each new investor they brought in and by facilitating the transactions. One attorney was further charged with fraud for failing to disclose commissions he was receiving. While several of the lawyers are litigating, most agreed to settle, paying disgorgement and penalties.
The majority of recent SEC financial reporting cases involved improper revenue recognition practices. For example, in September the SEC sued four former officers (including the CEO and CFO) of a mobile fueling company for overstating revenues by overcharging customers for undelivered fuel and unauthorized fuel surcharges.[24] The SEC alleged that, by recognizing revenue from this overbilling, the company was able to appear profitable when it was actually operating at a net loss. The case remains ongoing.
The SEC also brought a series of revenue recognition cases against now-defunct Internet-based public companies. In September, the SEC announced proceedings against two executives of an online video content services company, alleging that they recognized revenues for undelivered sales and used off-the-book company funds to pay for customer receivables in order to boost the company’s reported revenue.[25] During the same month, the SEC also filed a complaint against two former executives of a now-bankrupt Internet services company for fabricating up to 99 percent of its revenues by executing sham transactions with fake customers.[26] Both cases remain ongoing.
In addition to traditional revenue recognition cases, the SEC also brought several fraud actions for improper corporate disclosures. One such case involved concealment of executive perks and compensation, where the SEC alleged that a company misled investors by failing to report nearly a half-million dollars’ worth of executive perks that included the use of private jets, new cars, and sports memberships.[27] Without admitting or denying the allegations, the company and its executives settled the case, with the company agreeing to pay a $700,000 penalty and the executives agreeing to pay between $30,000 and $150,000 for their roles in the concealment. Perhaps most notably, the SEC charged the company’s former audit committee chair for, in the words of the SEC, “substitut[ing] his wrong interpretation of SEC rules for the views of experts the company had hired.”
The SEC also filed actions for companies’ failure to properly record and disclose corporate assets. In August, the SEC brought litigated fraud charges against Miller Energy Resources and its former CEO for overstating the value of the company’s oil and gas property acquisitions.[28] Rather than report the fair market value of the properties under GAAP, the SEC alleged that the company improperly based its valuations on a reserve report that that did not reflect the fair value of the assets. The SEC claimed that in doing so, the company inflated the value of the properties by more than $400 million. The SEC also charged the company’s outside audit firm and the audit partner on the engagement for fraud. An administrative proceeding in the matter is pending.
In one of several cases that appear to be stragglers from the agency’s work in the wake of the mortgage meltdown, the SEC settled charges against a real estate development company and several former executives and accounting directors for failing to properly account for declining real estate values during the financial crisis.[29] The SEC alleged that the company failed to take necessary write-downs on properties it held. The company agreed to pay a $2.75 million civil penalty, and the individual defendants agreed to civil penalties and disgorgement. Similarly, the SEC charged bank holding company Trinity Capital Corp. and five current and former executives with misrepresenting the value of the bank’s loan portfolio to investors by failing to downgrade and impair delinquent loans that would not be repaid in full.[30] Without admitting or denying the allegations, Trinity Capital reached a settlement with the staff which included a $1.5 million penalty. The staff noted as a factor in the settlement Trinity Capital’s continued cooperation in ongoing investigative efforts. Three former executives also settled similar charges with the SEC, and the matter is ongoing with respect to the other defendants.
In September, the SEC brought a settled action against online consumer finance company Bankrate for manipulating the company’s revenues in order to meet analyst expectations.[31] The SEC claimed that after executives received preliminary reports showing that the company would not meet market expectations, they used fraudulent accounting practices to inflate revenues and avoid booking expenses, thereby overstating net income. Without making any admissions, Bankrate and one former executive agreed to $15 million and $180,000 settlements, respectively. The SEC’s proceedings against the company’s CFO and another former executive remain ongoing.
Finally, the SEC secured large civil penalties against China-based advertising company Focus Media Holdings and its former CEO for accounting fraud in connection with an alleged management buy-out scheme and subsequent acquisition.[32] The SEC alleged that the company dramatically understated the company’s valuation in connection with a management buy-out. In March 2010, Focus Media reported a management buy-out of its online advertising unit based on a total company valuation of $35 million. Less than five months later, the company announced that a private equity firm had agreed to acquire a controlling interest in the company, for a purchase price based on a total company valuation of $200 million. Without admitting or denying the allegations, Focus Media agreed to pay a $35 million civil penalty. Its former CEO also agreed to a settlement including $20 million in civil penalties and disgorgement.
While many of the matters discussed above included an internal controls violation component, the SEC also continued the trend of pursuing a number of stand-alone internal controls actions which did not allege fraud.
In September, Florida-based clothing retailer Stein Mart settled charges that it materially misstated its pre-tax income in certain quarterly filings.[33] According to the SEC, the company had a practice of offering merchandise at a permanent discount, but instead of carrying the merchandise from quarter-to-quarter at its discounted price, Stein Mart did not take the markdowns on its inventory until the quarter in which the merchandise sold. As a result, the company continually overstated its income. The company agreed to pay an $800,000 penalty to settle the charges, with the SEC noting steps the company had taken to enhance internal controls and retain additional accounting personnel.
Also in September, the SEC brought settled administrative proceedings against website developer Idle Media and its CEO for numerous reporting, books and records, and internal control violations after the company restated its financial statements multiple times from August 2012 through December 2013.[34] The SEC found that the company failed to record revenue and expenses generated by a subsidiary, and then rather than correcting the errors, improperly consolidated the subsidiary as a variable interest entity. Ultimately, Idle Media issued three restatements before all of the subsidiary’s revenue and expenses were properly accounted for. Idle Media and its CEO each agreed to pay a $50,000 penalty.
The SEC also filed several internal controls-related cases in the mortgage space. In August, the SEC brought charges against a mortgage foreclosure processing company and its CFO for prematurely recognizing revenues from incomplete foreclosure files.[35] The SEC charged a number of books and records and internal controls charges against the defendants, both of whom settled, and the CFO agreed to pay a $50,000 civil penalty. The SEC also brought charges against a home loan servicing company for failing to maintain adequate internal controls concerning related-party transactions.[36] The company, Home Loan Servicing Solutions, agreed to pay a $1.5 million penalty after its chairman approved certain related party transactions with another entity where he also served as chairman. The SEC order found that the company had no written procedures or policies regarding recusals and that the chairman had approved many transactions between the companies. The SEC also found that the company used an improper methodology to value its primary asset.
As noted earlier, the latter half of 2015 found the SEC bringing a number of cases against public company auditors, including several cases charging large audit firms.
In September, the SEC charged audit firm BDO for dismissing red flags and issuing false and misleading unqualified audit opinions about the financial statements of a staffing services company it audited.[37] The SEC also charged five of the firm’s partners for their roles in the audit, including the engagement partner and concurring reviewer, as well as three consulting partner in the firm’s regional and national practice groups. According to the SEC, the audit client had provided conflicting stories about missing cash and suspicious circumstances around its repayment. (The SEC has also filed separate charges against the former chairman and two former CEOs of the client.) BDO agreed to admit wrongdoing, disgorge certain audit fees of approximately $600,000, and pay a $1.5 million penalty. The five individual auditors also agreed to settlements, without admitting or denying the allegations, which included various penalties and suspensions.
Similarly, a few months later the SEC charged Grant Thornton and two of its audit partners for allegedly ignoring red flags in the course of auditing two separate companies from 2009 to 2011.[38] (The SEC previously charged former company executives from both companies with various accounting and disclosure violations.) According to the SEC, Grant Thornton and its audit partners relied too heavily on management representations and did not exercise the appropriate levels of professional skepticism during their audit activities. Grant Thornton agreed to forfeit approximately $1.5 million in audit fees and pay a $3 million penalty, while the two audit partners, without admitting the allegations, agreed to pay penalties of $10,000 and $2,500 along with five-year and two-year bars, respectively.
Continuing to doggedly pursue claims of auditor independence violations, the SEC brought settled actions against Deloitte and Grant Thornton. In the first case, the SEC charged that Deloitte violated auditor independence rules by having its consulting affiliate maintain a business relationship with a trustee serving on the boards and audit committees of three funds it audited.[39] The firm agreed to pay more than $1 million without admitting or denying the allegations. In the second case, the SEC alleged that two Grant Thornton entities–based in Australia and India–violated auditor independence by allowing two Grant Thornton Mauritius (located in a small island nation in the Indian Ocean) partners to serve on the board of Mauritius-based subsidiaries of companies that were Grant Thornton audit clients, and performing non-audit services prohibited under the SEC’s auditor independence rules.[40] The various entities involved agreed to disgorge various audit fees and to pay penalties totaling more than $350,000 without admitting or denying the allegations.
In August, the SEC charged Johnson Lambert LLP and one of its partners with improper professional conduct during the course of auditing several insurance entities that focused on so-called “captive insurance” products that were marketed to high-net-worth individuals and small business owners.[41] According to the SEC, the firm was aware that the clients’ prior auditor had issued a qualified audit opinion in the prior year due to its inability to obtain sufficient evidence regarding the existence and valuation of certain investment assets, which were the majority of the entities’ assets. According to the SEC, Johnson Lambert assembled an engagement team that lacked experience auditing alternative investments, and the engagement team failed to perform sufficient substantive procedures to address the risks identified in the prior audit. The defendants agreed to settle the charges by adopting a comprehensive internal compliance program, including the retention of an expert consultant and the submission of remediation effort reports to the Commission.
Finally, the SEC pursued a pair of cases involving falsifying of records by auditors. The SEC brought charges against a Florida-based CPA for issuing bogus audit opinions, including charges of back-dating phony work papers once he learned he was the subject of an SEC investigation.[42] The SEC charged that the CPA performed deficient audits and quarterly reviews for eight publicly traded companies, and issued false and misleading audit opinions for the same. The CPA consented to an order prohibiting him from practicing before the Commission, and agreed to pay disgorgement and penalties of approximately $150,000. The Commission also charged five accountants and two audit firms with similar violations after the SEC determined the firms skipped mandatory quality reviews for their audits and performed deficient quality reviews for audits done by another firm.[43] To cover up these deficiencies, one of the accountants was alleged to have falsified and backdated audit documents. The parties agreed to practice bars of varying lengths and agreed to pay penalties and disgorgement totaling more than $100,000.
Once again, one of the SEC’s primary focus areas in the investment adviser space is the adequacy of disclosures of conflicts of interest. In July, the SEC instituted a settled administrative proceeding against VERO Capital Management and three individual executives.[44] According to the SEC, VERO purchased three notes from an affiliate without issuing written notice or obtaining client consent. It then diverted $2.8 million from its managed funds to a subsidiary as part of an undocumented and undisclosed series of bridge loans–despite telling investors they were liquidating the funds for redemption. The SEC censured VERO and required it to cease advising activities, and barred the individuals from practicing as investment advisers for three years. The SEC also required VERO and its executives to collectively pay $2.9 million in disgorgement and $300,000 each in civil penalties.
That same month, the SEC instituted a settled administrative proceeding against Dion Money Management, alleging the investment adviser failed to disclose payments it received from third parties in exchange for investing clients’ assets in particular mutual funds.[45] In addition, Dion allegedly failed to describe the interplay between different arrangements in its filing to the Commission, understating the maximum payment rate it could receive. The SEC ordered the firm to pay a $50,000 civil penalty.
In November, the SEC instituted settled proceedings against a private equity fund and several principals.[46] According to the SEC, the firm failed to adequately disclose that certain portfolio companies entered into consulting agreements with an affiliate of the firm, which resulted in payments to the affiliate not being subject to a management fee offsets. Without admitting or denying the allegations, the firm and the individuals agreed to pay a total of $7.9 million in disgorgement and $1.5 million in civil penalties.
In December, the SEC filed a litigated action against investment advisor Atlantic Asset Management for allegedly investing $43 million of client funds in bonds without disclosing that the advisor’s parent company, a broker-dealer, received private placement fees for the bond sales.[47]
And in a large matter concluded at the end of the year, the SEC brought a settled action against two wealth management subsidiaries of J.P. Morgan, alleging that they failed to adequately disclose to their clients a preference for investing them in the firm’s own proprietary investment products.[48] According to the SEC, the practice constituted an improper conflict of interest. The SEC also alleged that certain clients were invested in a more expensive mutual fund share class without adequate disclosure. The firm and its affiliates agreed to pay a total of $267 million to settle the charges, while admitting the facts alleged by the SEC.
The SEC also brought three cases against investment advisers for failing to disclose conflicts of interest in illiquid securities investments. In September, the SEC filed suit against Family Endowment Partners LP and its owner in the United States District Court for the District of Massachusetts.[49] The SEC accused Family Endowment of encouraging over a dozen clients to invest over $40 million in illiquid securities without disclosing the owner’s interest in those companies or the significant risk of non-repayment. In October, the SEC sued a hedge fund manager, alleging he misrepresented and concealed loans and investments in illiquid ventures that he either managed or personally invested in.[50] The manager agreed to a partial settlement enjoining him from future violations and subjecting him to possible disgorgement and civil penalties. And in November, the SEC instituted a settled administrative proceeding against fund manager JH Partners for loaning approximately $62 million to its managed funds’ portfolio companies, thereby gaining interests in the portfolio companies that were senior to the equity interests held by the funds.[51] According to the SEC, the firm largely failed to disclose the potential conflicts of interest related to its undisclosed loans, cross-over investments, and acquisition of investments exceeding concentration limits in the funds’ organizational documents. Because the firm undertook prompt remedial efforts to correct its negligent breach of fiduciary duty and cooperated with the SEC, the SEC only censured it and imposed a $225,000 civil penalty.
In August, the SEC announced an almost $180 million settlement with two Citigroup affiliates charged with misstating the risks of two hedge funds which collapsed during the financial crisis.[52] According to the SEC, employees of the firms represented to investors that the funds were safe, low-risk, and suitable for traditional bond investors, despite the fact that these representations were at odds with the firms’ written disclosures.
In September, a manager of collateralized debt obligations (CDOs) agreed to pay $21 million to settle charges that it improperly retained “exchange fees” paid in connection with restructuring transactions.[53] According to the SEC, Taberna Capital Management’s retention of such fees was not disclosed to investors and was contrary to the terms of its clients’ governing documents. The firm agreed not to act as an investment adviser for three years. In addition, the firm’s former managing director and former chief operating officer agreed to pay penalties of $100,000 and $75,000 and to be barred from the securities industry for five years and three years, respectively. Also in September, the SEC charged hedge fund manager Summit Asset Strategies and its CEO with fraudulently inflating the values of investments in the portfolio of a private fund they advised in order to increase their management fees.[54] The parties agreed to pay disgorgement and penalties, and the CEO was barred from the securities industry. The SEC also settled a related administrative proceeding against the fund’s auditors for failing to properly verify the fund’s assets and for otherwise performing a deficient audit.
In October, the SEC instituted settled proceedings against three affiliated private equity advisers for their alleged failure to adequately disclose accelerated monitoring fees charged to fund portfolio companies upon the sale or IPO of the companies.[55] The SEC noted the advisers’ prompt remedial actions and voluntary cooperation. Notably, the SEC’s press release highlighted that the “Division of Enforcement’s Asset Management Unit is continuing its review of private equity fee and expense issues and encourages private equity fund advisers that have identified such issues to self-report them to the staff… [S]elf-reporting is one factor that the Commission considers when evaluating cooperation and determining whether and to what extent to extend credit in settlements.”
The SEC also brought settled charges in October against the advisors to a private fund for allegedly failing to disclose to investors or the fund’s board of directors a change of strategy from primarily investing in distressed debt to purchasing large quantities of credit default swaps.[56] Under the settlement, UBS Willow Management and UBS Fund Advisor agreed to pay a total of approximately $17.5 million in disgorgement and penalties. Later in October, the SEC instituted a settled administrative proceeding against National Asset Management based on several disclosure and compliance-related violations.[57] The firm allegedly failed to disclose over 21,000 securities trades to advisory clients, failed to disclose the disciplinary histories of several of its investment adviser representatives to its clients or the SEC, and failed to enforce its code of ethics when its CEO, several of its directors, and many of its employees failed to submit required reports on their personal securities trading. The firm agreed to pay a $200,000 penalty.
In November, the SEC instituted a settled administrative proceeding against private equity fund advisers Cherokee Investment Partners and Cherokee Advisers.[58] The SEC alleged that the firms improperly allocated certain of their own consulting, legal, and compliance-related expenses to their clients and failed to adopt written policies or procedures designed to prevent such misallocations. The Cherokee entities fully reimbursed the funds for the misallocated expenses and agreed to pay a $100,000 penalty to the SEC. Similarly, the SEC instituted a settled administrative proceeding that month against Cranshire Capital Advisors, based on allegations that the firm negligently charged certain of its own compliance, legal, and operating expenses to its fund client.[59] The firm also failed to adopt policies and procedures to prevent such misallocation of client funds and failed to implement other aspects of its compliance program. The firm agreed to pay a $250,000 penalty to the SEC.
In December, the SEC instituted a settled proceeding against hedge fund manager Canarsie Capital and its principal for allegedly making false statements about the fund’s performance, concealing significant trading losses and misleading investors about the principal’s personal investment in the fund.[60] The SEC further alleged that the fund manager reported fictitious trades the fund’s prime brokers to avoid margin calls. The fund manager agreed to be barred from the industry. And in a matter involving performance advertising, the SEC charged adviser Mackensen & Company and its president with distributing misleading advertisements regarding the investment adviser’s performance and models.[61] The SEC also alleged that the firm failed to adopt and implement appropriate compliance policies and procedures designed to prevent its employees from presenting misleading performance information. Without admitting or denying the allegations, the firm agreed to mail existing clients a copy of its Form ADV and post a copy of the settlement order on its website, and the parties agreed to pay a $100,000 penalty.
Ending the year with a bang, the SEC (as well as the U.S. Attorney for the Eastern District of New York) brought charges in December against Martin Shkreli, the pharmaceutical company CEO who had gained some public notoriety in 2015.[62] The SEC alleged that, in Shkreli’s prior role as a hedge fund manager, he had defrauded fund investors through, among other things, the misappropriation of assets and misleading performance claims. The SEC also filed charges against Shkreli’s counsel for allegedly aiding and abetting certain misconduct. The matter is being litigated.
The SEC has continued to stress the importance of developing and abiding by effective compliance programs. Consist with this emphasis, in the second half of 2015, the SEC’s enforcement actions included compliance deficiencies related to supervision failures, the custody rule, and cybersecurity. Notably, the SEC instituted a number of actions against chief compliance officers.
1. Failure to Supervise
In August, the SEC charged both the President and the CCO of Ariston Wealth Management with improperly registering the firm as an investment adviser with the Commission and significantly overstating the firm’s assets under management. Without admitting or denying the allegations, the CCO agreed to undertake compliance training and to pay a fine of $10,000,[63] and the firm’s president agreed to undertake compliance training and to pay a fine of $25,000.[64]
In September, the SEC charged Securus Wealth Management and its CCO with failing to supervise an investment advisory representative associated with the firm who had engaged in a market manipulation scheme.[65] The SEC also alleged that the firm failed to implement the required policies for email review and failed to develop reasonable policies and procedures to monitor trades for market manipulation and conflicts of interest. Without admitting or denying the allegations, Securus agreed to be censured and the CCO agreed to be barred from the securities industry and to pay a fine of $30,000.
In October, the SEC charged the former owners of Professional Investment Management with failing to supervise the firm’s former CCO, who was alleged to have misappropriated more than $840,000 in client assets.[66] Without admitting or denying the allegations, the individuals agreed to be barred from the securities industry for three and two years and to pay fines of $125,000 and $75,000, respectively.
In late December, the SEC brought a settled action against Morgan Stanley Investment Management for its alleged failure to supervise a portfolio manager who had engaged in a bond “parking” scheme.[67] According to the SEC, the portfolio manager, who had since left the firm, had an arrangement with a brokerage firm to liquidate mortgage backed securities at set prices, and then buy back the positions for other accounts at a small markup. Morgan Stanley agreed to pay an $8.8 million penalty without admitting or denying the allegations; the SEC also reached settlements with the portfolio manager, who was barred from the securities industry for five years, as well as the brokerage firm and the individual trader who participated in the arrangement.
On the topic of chief compliance officers, the SEC in November published a risk alert regarding the outsourcing of compliance activities to third parties, such as consultants or law firms.[68] In connection with the risk alert, the SEC conducted twenty examinations of investment advisers and investment companies that outsource their CCOs to unaffiliated third parties. In the risk alert, the SEC noted that a CCO must be empowered with sufficient knowledge and authority to be effective. The SEC also noted that one of the important distinctions between effective and ineffective CCOs was the ability to conduct meaningful risk assessments and reviews of the registrant’s compliance policies and procedures.
2. The Custody Rule
In August, the SEC charged the founder and CCO of The Planning Group of Scottsdale with violating the custody rule by failing to (i) accurately determine the securities over which it had custody, (ii) maintain the securities with a qualified custodian, and (iii) obtain adequate surprise examinations.[69] The parties are currently engaged in settlement talks.[70]
And in November, the SEC charged an investment advisory firm, two owners and the former CCO with violating the custody rule after being reprimanded for similar violations in 2010.[71] Without admitting or denying the allegations, Sands Brothers Asset Management and its co-founders agreed to pay a $1 million penalty and be suspended from raising money from new or existing investors for a year. The firm’s CCO also agreed to pay a $60,000 penalty and to be suspended from acting as CCO or appearing or practicing before the SEC as an attorney for one year.
3. Cybersecurity
In September, the SEC instituted settled proceedings against St. Louis-based adviser R.T. Jones Capital Equities Management for failing to establish required cybersecurity policies and procedures in advance of a breach that compromised the personally identifiable information of approximately 100,000 individuals.[72] According to the SEC, the firm had stored sensitive client information on a third-party hosted web server while failing to conduct periodic risk assessments, implement a firewall, or encrypt the data. The agency noted that the firm promptly retained cybersecurity experts to assess the hacking incident and provided notice to its clients. Without admitting or denying the allegations, R.T. Jones agreed to be censured and to pay a $75,000 penalty.
In September, the SEC brought its first case arising out of its “Distribution-in-Guise” initiative designed to protect mutual fund shareholders from improper use of fund assets for distribution-related services.[73] The SEC charged investment adviser First Eagle Investment Management and its affiliated distributor, FEF Distributors, with improperly using mutual fund assets to market and distribute fund shares. First Eagle and FEF agreed to pay about $25 million in disgorgement and a $12.5 million as a penalty.
The SEC settled another case with relation to mutual funds in November.[74] The SEC charged investment management firm Virtus Investment Advisers with misleading mutual fund investors and others by publicizing false historical performance data about a portfolio strategy that it received from a subadvisor, who settled related charges with the SEC last year. Without admitting or denying the allegations, the firm agreed to pay $13.4 million in disgorgement and a $2 million penalty.
The second half of 2015 saw the SEC bring a wide variety of cases involving disclosure and accounting failures by brokers and other large financial institutions, several of them continuing to arise out of the financial crisis.
Our 2015 Mid-Year Securities Enforcement Update reported that in January, the SEC settled charges against Standard & Poor’s in the agency’s first-ever action against a major ratings firm. In October, the SEC filed another nondisclosure case against a ratings firm, DBRS Inc. The SEC alleged that DBRS made false and misleading statements in connection with its ratings of residential mortgage-backed securities and re-securitized real estate mortgage investment conduits.[75] According to the SEC, DBRS did not comply with its published methodology for monitoring these securities. Specifically, the SEC accused DBRS of: 1) misrepresenting that it would monitor its ratings on a monthly basis and subject each rating to review by a surveillance committee, and 2) failing to disclose that it changed certain surveillance assumptions in its methodology. The SEC stressed that a lack of resources was not a valid excuse for not conducting surveillance in accordance with the company’s public policies. Without admitting or denying the allegations, DBRS agreed to pay a penalty of $2.925 million plus disgorgement of the $2.7 million that it collected in rating surveillance fees.
In another nondisclosure case involving residential mortgage backed securities, the SEC brought litigated fraud charges against three senior traders of brokerage firm Nomura Securities International.[76] The complaint, filed in September, alleged that the traders repeatedly misrepresented RMBS pricing information to customers over the course of several years. According to the SEC, the traders went so far as to create phantom third-party sellers and fictional offers when Nomura already owned the bonds that the traders were pretending to obtain for buyers. Additionally, the traders were alleged to have created a corrupt culture at the trading desk via a campaign to train, coach, and direct junior traders to engage in the same fraudulent conduct. The SEC also noted that it had entered into deferred prosecution agreements with three other individuals who cooperated in the investigation.
Also in September, the SEC accused four former clearing officials of making (or causing to be made) improper margin loans and failing to properly account for losses on those loans.[77] Through these officials, broker-dealer Penson Financial Services extended nearly $100 million in margin loans secured by risky, unrated municipal bonds. When the financial crisis of 2008 set in, the margin collateral plummeted in value and the borrowers failed to satisfy the firm’s margin calls. Thereafter, the firm extended additional loans in violation of federal margin regulations. Instead of extending additional credit, Penson was required under governing accounting standards to recognize losses on the original loans. The failure to observe appropriate accounting standards resulted in inadequate financial disclosures in 2009 and 2010. The officials, who were officers and directors of the firm or its publicly-traded parent, neither admitted nor denied the allegations, but agreed to pay individual penalties ranging from $25,000 to $100,000. In addition, three of the four officials were barred or suspended from serving in specified securities or accounting-related roles.
Also falling under the nondisclosure umbrella was the SEC’s first-ever case involving inadequate disclosure by an issuer of structured notes, debt securities issued by a financial institution in which returns are linked to the performance of a reference asset, such as of other securities, commodities, indices, or currencies. In October, the SEC filed settled charges against UBS relating to the V10 Currency Index.[78] The SEC alleged that the firm marketed its structured notes linked to the V10 as transparent and systematic, while failing to disclose that certain hedging trades negatively impacted the notes. The SEC concluded that the firm lacked an effective policy to alert the employees responsible for reviewing the offering documents to the hedging trades and ensuring the impact was disclosed to investors. Without admitting or denying the allegations, the firm agreed to pay disgorgement of $11.5 million and a penalty of $8 million. In its settlement, the SEC recognized UBS’s substantial cooperation and the fact that UBS implemented remedial measures voluntarily.
In the second half of 2015, the SEC also settled a number of failure to supervise cases against brokers. In August, the SEC settled one such case arising out of an incident in which two employees of Signator Investors defrauded investors.[79] The employees orchestrated the fraud by encouraging unsophisticated investors to invest in a real estate company that one of the employees co-managed and that was not approved by Signator for investment. The two individuals provided false statements to investors about the company’s financial condition and failed to disclose the fact that they had conflicts of interest based on their receipt of commissions from the real estate company. Signator and the employees’ supervisor were charged with failure to supervise, and agreed to settle the charges for $450,000 and $15,000, respectively.
In October, UBS Financial Services of Puerto Rico settled alleged failure to supervise claims arising out of the conduct of a former broker.[80] The former broker allegedly directed customers to invest borrowed money into certain affiliated mutual funds, a practice prohibited by both the firm and the originating lender. Without admitting or denying the allegations, the firm agreed to pay $15 million to settle the claims based on allegations that it lacked adequate procedures to prevent and detect the broker’s misconduct. A former branch manager agreed to settle the same charges for $25,000. Independently, the SEC filed a litigated complaint in federal court against the former broker, alleging that he misled customers about the risks and lied to his branch manager when asked about suspicious transactions.
As reported in our 2014 Year-End Securities Enforcement Update, the Commission has recently heightened its scrutiny of the market access rule, Exchange Act Rule 15c3-5. The market access rule requires broker-dealers to implement adequate risk controls before providing customers with market access. In June, Goldman Sachs agreed to settle allegations that it violated the rule, without admitting the allegations, by failing to maintain adequate risk management controls and supervisory procedures.[81] The SEC’s investigation stemmed from an incident in 2013, when a software configuration error in the firm’s electronic trading functionality caused mispriced options orders to be sent to various options exchanges. The error could have resulted in a significant loss for the firm, but exchange rules governing clearly erroneous trades and the cancellation of various orders ultimately mitigated much of the loss. The SEC found several violations of the market access rule, including allegedly inadequate controls for managing software changes.
In another case involving alleged violations of the market access rule, high-frequency trading firm Latour Trading agreed to pay over $8 million in penalties, disgorgement, and prejudgment interest to settle allegations that it violated the market access rule and Regulation National Market System (“Regulation NMS”).[82] Rule 611 of Regulation NMS, also known as the Order Protection Rule, is designed to protect against “trade-throughs”–trades executed at prices worse than the best available prices at trade centers. The SEC alleged that Latour failed to exercise “direct and exclusive control” over its financial and regulatory risk management controls. Without the firm’s knowledge, its parent made a coding change to a portion of the companies’ shared trading infrastructure, causing an error in software used to send intermarket sweep orders (“ISOs”) to the market. The error resulted in Latour sending to the market millions of ISOs that failed to comply with Regulation NMS, causing more than 1.1 million trade-throughs. According to the SEC, this error was exacerbated by the fact that the firm failed to maintain adequate post-trade surveillance tools that could have detected the non-compliant ISOs.
The Commission also pursued cases involving the misuse of confidential customer trading information. In August, ITG Inc. and affiliate AlterNet Securities agreed to pay over $20 million to settle charges that they operated a secret trading desk and misused the confidential information of dark pool subscribers.[83] The SEC charged ITG with operating an undisclosed trading desk that used confidential subscriber trading information to implement high-frequency, algorithmic trading strategies in one of its dark pools. The secret desk would access live feeds of subscriber order and execution information, open positions in displayed markets based on the information, and thereafter close on those positions by trading against the subscribers’ orders. This conduct took place even in the face of ITG representations that it 1) protected the confidentiality of its dark pool subscribers’ trading information, and 2) was an “agency-only” broker whose interests did not conflict with its customers. ITG admitted to wrongdoing in the order instituting settled administrative proceedings, and the $18 million civil penalty is the SEC’s largest to date against an alternative trading system.
In October, the SEC settled charges against two brokers for allegedly defrauding customers by giving customer order information to two favored customers to trade ahead of the orders.[84] When customers placed an order, the brokers routinely contacted their favored traders and instructed the favored customers to purchase, from another brokerage firm, the securities necessary to fill the customer orders. Then, the favored traders called the brokers to sell the stock to the brokerage firm. The brokers would then sell that stock to the customer who initially placed the order. The SEC alleged that the brokers shirked their duty of best execution because their scheme resulted in worse prices for their customers than what would be available in the market. Through the scheme, the favored customers profited and the now-defunct brokerage firm earned double trading commissions, by trading once with the favored customer and then again for the original customer’s order. Without admitting or denying the allegations, the former co-head of equities trading agreed to pay a $125,000 civil penalty, and his subordinate agreed to both a clawback of commissions and a $50,000 penalty.
Finally, in the latter half of 2015, several notable cases arose out of allegedly incomplete or false reports to the SEC.
First, Credit Suisse Securities (USA) was sanctioned in September for failing to provide complete and accurate customer trade information, better known as “blue sheet data.”[85] Under Exchange Act Rule 17a-4j, broker-dealers are required, upon request, to electronically provide the SEC with blue sheet data so the agency can use it to identify and analyze trades in the course of investigations and other work. Over the course of a two-year period, Credit Suisse allegedly made several hundred deficient blue sheet submissions. The company said that the violations were the result of both technological and human errors. The company admitted liability for violating the recordkeeping and reporting provisions of federal securities laws, was ordered to cease and desist from future violations of such provisions, and agreed to pay a $4.25 million fine.
This was not the only SEC action dealing with “blue sheet” deficiencies. In July, the SEC charged OZ Management LP, an investment adviser, with providing inaccurate trade data to four prime brokers, which ultimately caused inaccurate reports of data to the SEC in response to its “blue sheet” requests.[86] The SEC also charged the adviser with a violation of SEC Rule 105 based on its purchase of stock during a restricted period for a secondary offering. The firm admitted its wrongdoing, agreed to pay a $4.25 million penalty, and agreed to return $243,427 in ill-gotten trading gains.
Finally, in a far more extreme type of case but one offering an important cautionary message, an executive of a New York brokerage firm pleaded guilty to charges that he obstructed an SEC examination by providing falsified invoices to the SEC.[87] Under the plea agreement, the executive agreed not to appeal a prison term of 1.5 years or less. This case serves as a reminder that an SEC registrant who provides false records to examiners can be faced with criminal charges and a potential jail sentence.
Evidencing the growing sophistication of both insider trading schemes and the SEC’s ability to pursue them, the SEC in August 2015 obtained an asset freeze against more than 30 defendants for their alleged involvement in a hacking and insider trading scheme.[88] The SEC charged that over a five-year period, two Ukrainian men hacked into newswire services and stole hundreds of corporate earnings announcements before newswires released them publicly. The hackers transmitted the stolen data to traders in the US, Russia, and Europe who used the nonpublic information to place illicit trades, generating more than $100 million in profits. The SEC Chair declared it “unprecedented in terms of the scope of the hacking, the number of traders, the number of securities traded and profits generated.” In parallel actions, DOJ announced criminal charges against the two hackers and seven of the traders.
The following month, a Ukraine based investment banking firm and its CEO agreed to pay $30 million to settle its charges in connection with the scheme.[89] Litigation continues against the remaining defendants.
1. Investment Professionals
The SEC maintained its steady stream of cases against professionals accused of abusing their clients’ confidential information. In August, the SEC brought charges, for the second time, against a former high-ranking executive at a Spanish investment bank.[90] The SEC alleged that the bank was advising and underwriting the proposed acquisition of a major fertilizer manufacturer. In July 2014, the executive settled a case alleging that he made illicit purchases of CFDs prior to the public announcement of the bid.[91] After a continued investigation, a year later the SEC alleged that the executive also coordinated with a friend to purchase call options in a Swiss brokerage account. To settle the charges, the executive agreed to pay disgorgement and penalties of $1.9 million.
Also in August, the SEC charged a former investment bank analyst with tipping his close friend about two acquisition deals that he learned from colleagues working on them.[92] The friend allegedly traded on that confidential information–for himself and on behalf of the analyst–and tipped a coworker, resulting in over $672,000 in combined profits. The complaint noted that the trades were typically 100 percent of the daily trading volume of those option series, and that the friend had opened up a brokerage account in the Bahamas one week before one of the acquisitions went public.
In November, the SEC obtained an emergency asset freeze against a former private equity associate and his cousin based on trading in advance of the acquisition of two healthcare companies.[93] The SEC alleged that the associate learned the confidential information through his firm, who was a bidder in both acquisitions. He allegedly tipped his cousin, and funded the majority of his cousin’s $900,000 worth of stock purchases in the companies. The SEC seeks permanent injunctions, disgorgement, civil money penalties, and other relief.
Also in November, the SEC brought charges against a Boston resident for trading on tips received from his girlfriend, who learned about an impending acquisition through her role as a financial analyst at a commercial bank.[94] The girlfriend settled the case, agreeing to pay penalties and disgorgement of an amount to be determined later by the court. Litigation continues against the boyfriend. And later that month, the SEC obtained an asset freeze and charged a former investment bank compliance associate for allegedly stealing nonpublic information in the firm’s email system to trade in advance of client mergers.[95] Ironically, the associate had allegedly received access to employee emails in order to develop software to monitor potential insider trading and other misconduct.
2. Other Professionals
The SEC brought charges against professional service providers outside of the investment industry as well. In July, the SEC charged an attorney based on trading in the stock of an insurance company in advance of the company’s merger announcement.[96] The SEC alleged that the attorney–a partner at a real estate law firm–learned about the announcement from a conversation between an attorney working on the transaction and their shared legal assistant. In a parallel action, DOJ brought charges of securities fraud and making false statements to the FBI against the attorney. A federal judge granted a stay of the SEC suit until the resolution of the criminal case scheduled for February 2016.[97]
In September, the SEC charged a consultant and his friend with insider trading in the options of a restaurant company based on nonpublic information about an impending acquisition offer.[98] The SEC alleged that the he learned about a potential acquisition through his role as executive coaching consultant for a rival restaurant involved in the bidding process. Allegedly, the consultant tipped his friend, and both traded risky out-of-the-money call options.
Also in September, five individuals–including two lawyers and an accountant– agreed to collectively pay $489,000 in disgorgement and penalties to settle charges that they illegally traded on confidential information obtained from a mutual client.[99] The professionals allegedly learned about an impending acquisition of a pharmaceutical company after meeting with a board member of the company regarding his year-end personal tax and estate planning. One of the professionals allegedly tipped two others who also traded on the information.
In September, the SEC brought charges against a father, son, and friend for allegedly trading in advance of a merger of health care companies based on confidential information the father learned from a close friend working at one of the companies.[100] All three settled the case, agreeing to pay $170,000 combined in disgorgement and penalties.
Also in September, the SEC brought charges against a board member of a health care company for allegedly using a family member’s brokerage account to purchase company shares after learning the company would be acquired.[101] To settle the charges, the board member agreed to pay a penalty and to be permanently barred from serving as an officer or director of a publicly traded company.
In October, the SEC charged an energy firm employee and his college friend with entering into an arrangement where the employee would share non-public information about the firm’s parent company with his friend, who would then place trades and split the profits with the employee.[102] The friend settled the case, agreeing to pay penalties and disgorgement of an amount to be later determined by the court, while litigation continues against the alleged corporate insider.
In addition to pursuing insider trading cases, the SEC has continued to focus the attention of its examiners and enforcement staff on advisers and brokers who fail to maintain and enforce policies and procedures to prevent and detect securities transactions that could involve the misuse of material, nonpublic information.
In August, Citigroup agreed to pay $15 million to settle charges that the firm did not review thousands of trades executed by several of its trading desks from 2002 to 2012.[103] The SEC alleged that the firm relied on electronically generated reports which, as a result of technological errors, omitted several sources of information. The agency also alleged that the firm inadvertently routed more than 467,000 transactions through an affiliated market maker who then executed the transactions on a principal basis on behalf of its customers.
And in October, a broker-dealer and affiliated investment adviser firm agreed to pay more than $1 million to settle charges levied by the SEC.[104] The affiliates, in violation of the firms’ policies and procedures, shared their trading position and strategies for an exchange-traded note. The SEC’s order instituting administrative proceedings also found that the information sharing exposed deficiencies in the firms’ policies and procedures.
Expanding on its recent initiatives involving “expert networks” who provide corporate intelligence to analysts and traders, the SEC has turned its attention to “political intelligence” firms who similarly provide insights on political developments that could impact the markets. The SEC announced in November that a political intelligence firm agreed to admit wrongdoing and pay a $375,000 penalty for failing to properly inform compliance officers about instances when analysts obtained potential material nonpublic information from government employees.[105] The firm provided hedge funds and other clients with regulatory updates and analysis about future government actions, and, in gathering this research, analysts’ interactions with government employees increased the likelihood that they would acquire material nonpublic information. Although the firm’s policies required employees to bring material nonpublic information to the attention of the compliance department, analysts allegedly failed to follow the procedures.
Of course, the focus on information derived from elected officials and their staffs also has complicated political and policy implications. In November, a New York federal district court judge ordered Congress to comply with the SEC’s investigative subpoena relating to trading of certain securities. The SEC alleged that a staff member of the House Ways and Means Committee’s Health Subcommittee spoke with a colleague of a lobbyist who then sent material nonpublic information to a securities analyst. The SEC served subpoenas on the Committee and the staff member in May 2014, and, after a pitched battle, a federal court rejected the Committee and staff member’s arguments that they should not be required to comply.[106] Almost two weeks later, the Committee and staff member filed a notice of appeal with the Second Circuit.[107] Briefing has not yet begun.
On October 5, 2015, the Supreme Court denied the government’s petition for certiorari in United States v. Newman,[108] precluding further review of the Second Circuit’s decision narrowing the scope of tipper-tippee liability. However, since the Ninth Circuit’s decision in US v. Salman where the court concluded that the “gift” of nonpublic information to the alleged tipper’s brother constituted a personal benefit despite the lack of a clear pecuniary benefit,[109] several district courts have followed suit in expanding on the Newman court’s seemingly narrow interpretation of personal benefit.
For example, in assessing whether a defendant’s settlement agreement with the SEC should be vacated after Newman, the United States District Court for the District of New Jersey concluded that the defendant’s disclosure of confidential information to his “companion” and first cousin with the intent to confer a benefit upon them constitutes a personal benefit giving rise to liability for insider trading under the Newman decision.[110] Citing Salman, the court agreed that Newman cannot be read to require the receipt of some tangible benefit for insider trading liability because, in that case, insiders and people in possession of confidential information could disclose information to their relatives, who would be free to trade on it, as long as they asked for no tangible compensation in return.
Although a federal district court in Georgia concluded that the elements of section 10(b) and Rule 10b-5 were not required for the asserted criminal charge, the court opined that the elements would still be sufficiently alleged to survive a motion to dismiss.[111] After noting the Newman court’s “narrow view of what constitutes a personal benefit” and stating that it is not binding authority, the court cited Eleventh Circuit precedent defining “benefit” in very expansive terms, including not only actual pecuniary gain but also seeking to enhance reputation or making a gift to a trading relative or friend.
In denying a defendant’s motion for partial summary judgment, a federal district court in Vermont concluded that a rational jury could find that the tipper received a personal benefit where the SEC offered evidence of the close, longstanding friendship and business relationship between the tipper and tippee.[112] The court noted that Newman made clear that the “personal benefit” required cannot consist of “the mere fact of a friendship, particularly of a casual or social nature[,]” without additional “proof of a meaningfully close personal relationship” and an exchange that presents “at least a potential gain of a pecuniary or similarly valuable nature.” It then cited pre-Newman Second Circuit precedent that defined “personal benefit” to include not only pecuniary gain but also reputational benefits that will translate to future earnings and the benefit of making a gift to a trading relative or friend.
Citing Newman, one federal district court concluded that evidence regarding the nature of the tips, even if it could support an inference that the defendant knew that the information originated from inside the company whose stock was subsequently traded, is not a sufficient basis for a jury to conclude that the defendant knew it was disclosed in breach of a fiduciary duty.[113] Another court found that there was no tipper-tippee liability where the alleged tipper had a contractual obligation to provide the information, precluding the tippee from knowing the tipper was violating a duty by disclosing the information.[114]
Several district courts in the Southern District of New York have discussed Newman in denying Rule 60(b) relief to vacate convictions and sentences.[115] These courts have concluded that Newman did not overturn any prior precedent regarding the meaning of “personal benefit.”[116]
The SEC itself will also have an opportunity to address the Newman decision. In September 2015, an SEC administrative law judge dismissed the Division of Enforcement’s claims against a former Wells Fargo trader who was accused of insider trading for trading on tips of forthcoming ratings changes in healthcare stocks.[117] The ALJ concluded that the Division failed to meet its burden of showing that the tipper gave the trader information in exchange for a personal benefit. The ALJ rejected the Division’s arguments that career mentorship, positive feedback, and friendship were sufficient to meet the personal benefit requirement under Newman.
In October, the Division petitioned the Commission to review the decision, arguing that the ALJ misapplied Newman. The Division contends that the ALJ erred in concluding that the tips were not for a personal benefit, citing evidence of the tipper’s close relationship with the trader and the trader’s positive impact on the tipper’s career. The Division notes evidence of how often the trader and tipper spent time together and even that tipper stayed in the trader’s apartment after they were both fired. The Division argues that it would be illogical to assume that the tipper would repeatedly risk his career if he did not receive some personal benefit.
As discussed in our mid-year update, on June 18, 2015, the SEC Enforcement Division announced its first cases against underwriters under the Municipalities Continuing Disclosure Cooperation Initiative (MCDC). The Initiative, which was launched in March 2014, encourages municipal bond underwriters and issuers to self-report material misstatements and omissions in municipal bond offering documents in exchange for favorable settlement terms. In September 2015, the SEC announced that an additional 22 firms–on top of the 36 charged in June–would pay a total of $4.12 million “to settle allegations that documents on bonds they underwrote contained materially false statements or made omissions about the municipal issuer’s compliance with continuing disclosure obligations.”[118] The firms had also allegedly failed to conduct adequate due diligence in connection with the bond offerings. In settling the charges, each of the 22 firms agreed to pay civil penalties ranging from $20,000 to $500,000 and to retain an independent consultant to review its municipal securities underwriting due diligence policies and procedures.
August 2015 entailed the first case brought by the SEC against an underwriter for pricing-related violations in the municipal securities primary market. On August 13, 2015, the SEC announced a settlement with brokerage firm Edward Jones and the former leader of its municipal underwriting desk, relating to allegations that they overcharged customers in new municipal bond sales.[119] Although municipal bond underwriters are required to offer new bonds to their customers at the initial public offering price, according to the SEC, Edward Jones took certain new bonds into its own inventory, and then improperly offered the bonds to customers at higher prices. On other occasions the firm did not offer the bonds to its customers until after trading started in the secondary market, and then offered the bonds to customers at prices higher than the initial public offering prices. Without admitting or denying the charges, Edward Jones agreed to pay $20 million in disgorgement and penalties. The SEC recognized the firm’s remedial efforts, including that Edward Jones now discloses in writing both the percentage and dollar amount of any markup or markdown on all fixed income retail order trade confirmations in principal transactions. Simultaneously with the announcement of the case, the five SEC Commissioners issued a statement noting the lack of clarity in the rules governing disclosures in the municipal securities markets. The Commissioners urged FINRA and the MSRB to “complete rules mandating transparency of mark-ups and mark-downs, even in riskless principal trades. If not, we believe the Commission should propose rules to address this important issue.”[120]
[1] SEC Press Release, SEC Announces Enforcement Results for FY 2015 (Oct. 22, 2015), available at www.sec.gov/news/pressrelease/2015-245.html.
[2] For an interpretation of SEC enforcement statistics, see Marc Fagel, What the SEC Enforcement Stats Really Tell Us, Law360 (March 3, 2015), available at www.gibsondunn.com/wp-content/uploads/documents/publications/Fagel-What-The-SEC-Enforcement-Stats-Really-Tell-Us-Law360-3.3.2015.pdf.
[3] Hill v. SEC, No. 1:15-cv-01801-LMM, at *34 (Dist. Ga. June 8, 2015).
[4] Duka v. SEC, No. 1:15-cv-003570RMB, 2015 WL 4940083, at *2 (S.D.N.Y. Aug. 12, 2015).
[5] Gray Financial Group v. SEC, No. 1:15-cv-00492-LMM, at *13-14 (Dist. Ga. Aug. 4, 2015).
[6] See In re Raymond J. Lucia Cos., Admin. Proc. File No. 3-15006 (Sept. 3, 2015), available at www.sec.gov/litigation/opinions/2015/34-75837.pdf; In re Timbervest et al., Admin. Proc. File No. 3-15519 (Sept. 17, 2015), available at www.sec.gov/litigation/opinions/2015/ia-4197.pdf.
[7] See Bebo v. S.E.C., 799 F.3d 765 (7th Cir. 2015); Jarkesy v. S.E.C., 803 F.3d 9 (D.C. Cir. 2015).
[8] Jean Eaglesham, SEC Trims Use of In-House Judges, Wall St. J. (Oct. 11, 2015).
[9] SEC Press Release, SEC Proposed Changes to Amend Rules Governing Administrative Proceedings (Sept. 24, 2015), available at www.sec.gov/news/pressrelease/2015-209.html. For more on the topic, see also Gibson Dunn, SEC Moves in the Right Direction (Sept. 28, 2015), available at www.gibsondunn.com/publications/Pages/SEC-Proposed-Amendments-to-Rules-Governing-Administrative-Proceedings.aspx.
[10] Comments on Proposed Amendments to the Commission’s Rules of Practice, filed by Theodore B. Olsen, Gibson, Dunn & Crutcher, LLP, available at www.sec.gov/comments/s7-18-15/s71815-8.pdf.
[11] Koch et al. v. SEC, No. 14-1134 (D.C. Cir. July 14, 2015).
[12] Commissioners D. Gallagher and M. Piwowar, Statement on Decision of the D.C. Circuit on Retroactive Collateral Bars (July 22, 2015), available at www.sec.gov/news/statement/statement-decision-dc-circuit–retroactive-collate.html.
[13] SEC v. Caledonian Bank Ltd., No. 15cv894 (S.D.N.Y. Nov. 10, 2015).
[14] Montford and Co., Inc. v. SEC, No. 14-1126 (D.C. Cir. July. 10, 2015).
[15] SEC, 2015 Annual Report to Congress on the Dodd-Frank Whistleblower Program, available at www.sec.gov/whistleblower/reportspubs/annual-reports/owb-annual-report-2015.pdf.
[16] SEC Press Release, SEC Pays More than $3 Million to Whistleblower (July 17, 2015), available at www.sec.gov/news/pressrelease/2015-150.html.
[17] SEC Press Release, SEC Announces Whistleblower Award of More Than $325,000 (November 4, 2015), available at www.sec.gov/news/pressrelease/2015-252.html.
[18] Ed Beeson, Labaton Chases Whistleblower Record in JPMorgan Case, Law360 (Dec. 18, 2015).
[19] Marc Fagel, The SEC’s Troubling New Policy Requiring Admissions, Bloomberg BNA (June 24, 2013), available at www.gibsondunn.com/wp-content/uploads/documents/publications/Fagel-SECs-Troubling-New-Policy-Requiring-Admissions.pdf.
[20] Chair Mary Jo White, Remarks at the Securities Enforcement Forum (Oct. 9, 2013), available at www.sec.gov/News/Speech/Detail/Speech/1370539872100.
[21] SEC Press Release, SEC Charges 34 Defendants in Microcap Market Manipulation Schemes (July 14, 2015), available at www.sec.gov/news/pressrelease/2015-146.html.
[22] SEC Press Release, SEC Charges Six Firms for Short Selling Violations in Advance of Stock Offerings (Oct. 14, 2015), available at www.sec.gov/news/pressrelease/2015-239.html.
[23] SEC Press Release, Lawyers Offered EB-5 Investments as Unregistered Brokers (Dec. 7, 2015), available at www.sec.gov/news/pressrelease/2015-274.html.
[24] SEC Press Release, SEC Charges Former Officers of SMF Energy with Fraud (Sept. 25, 2015), available at www.sec.gov/news/pressrelease/2015-210.html.
[25] SEC Press Release, SEC Charges Video Management Company Executives with Accounting Fraud (Sept. 8, 2015), available at www.sec.gov/news/pressrelease/2015-183.html.
[26] SEC Press Release, SEC Charges Executives for Defrauding Investors in Financial Fraud Scheme (Sept. 30, 2015), available at www.sec.gov/news/pressrelease/2015-224.html.
[27] SEC Press Release, SEC Charges Sports Nutrition Company with Failing to Properly Disclose Perks for Executives (Sept. 8, 2015), available at www.sec.gov/news/pressrelease/2015-179.html.
[28] SEC Press Release, Miller Energy Resources, Former CFO, Current COO Charged with Accounting Fraud (Aug. 6, 2015), available at www.sec.gov/news/pressrelease/2015-161.html.
[29] SEC Press Release, Developer, Former Top Execs Charged for Improper Accounting of Real Estate Assets During Financial Crisis (Oct. 27, 2015), available at www.sec.gov/news/pressrelease/2015-247.html.
[30] SEC Press Release, SEC Charges Trinity Capital Corporation and Former Bank Executives with Accounting Fraud (Sept. 28, 2015), available at www.sec.gov/news/pressrelease/2015-215.html.
[31] SEC Press Release, SEC Charges Bankrate and Former Executives with Accounting Fraud (Sept. 8, 2015), available at www.sec.gov/news/pressrelease/2015-180.html.
[32] In re Focus Media Holding Ltd., Admin. Proc. No. 3-16852 (Sept. 30, 2015), available at www.sec.gov/litigation/admin/2015/33-9933.pdf.
[33] SEC Press Release, SEC Charges Retailer for Improper Valuation and Inadequate Internal Accounting Controls (Sept. 22, 2015), available at www.sec.gov/news/pressrelease/2015-200.html.
[34] In re Idle Media, Inc. and Marcus Frasier, Admin. Proc. No. 3-16828 (Sept. 22, 2015), available at www.sec.gov/litigation/admin/2015/34-75963.pdf.
[35] In re DJSP Enterprises, Inc., Admin. Proc. No. 3-16741 (Aug. 12, 2015), available at www.sec.gov/litigation/admin/2015/34-75671.pdf; In re Kumar Gursahaney, Admin. Proc. File No. 3-16744 (Aug. 12, 2015), available at www.sec.gov/litigation/admin/2015/33-9888.pdf.
[36] SEC Press Release, SEC Charges Home Loan Servicing Solutions for Misstatements and Inadequate Internal Controls (Oct. 5, 2015), available at www.sec.gov/news/pressrelease/2015-230.html.
[37] SEC Press Release, SEC Charges BDO and Five Partners in Connection With False and Misleading Audit Opinions (Sept. 9, 2015), available at www.sec.gov/news/pressrelease/2015-184.html.
[38] SEC Press Release, Grant Thornton Ignored Red Flags in Audits (Dec. 2, 2015), available at www.sec.gov/news/pressrelease/2015-272.html.
[39] SEC Press Release, SEC Charges Deloitte & Touche with Violating Auditor Independence Rules (July 1, 2015), available at www.sec.gov/news/pressrelease/2015-137.html.
[40] SEC Press Release, SEC Charges Two Grant Thornton Firms With Violating Auditor Independence Rules (Oct. 1, 2015), available at www.sec.gov/news/pressrelease/2015-225.html.
[41] In re Johnson Lambert LLP, and Bradley Scott Diericx, CPA, Admin. Proc. No. 3-16773 (Aug. 31, 2015), available at www.sec.gov/litigation/admin/2015/34-75795.pdf.
[42] SEC Press Release, SEC Charges Florida-Based CPA with Fraud for Issuing Bogus Audit Opinions (Sept. 17, 2015), available at www.sec.gov/news/pressrelease/2015-195.html. During the course of this investigation, the SEC also uncovered the fact that a former CPA and convicted felon had been serving as the CFO of several public companies, in violation of a 2009 permanent bar (after a felony conviction for wire fraud and attempted tax evasion). The SEC filed a separate action against the CFO, who agreed to settle the charges and pay nearly $500,000 in disgorgement.
[43] SEC Press Release, SEC Suspends Public Accountants for Bad Auditing (Dec. 10, 2015), available at www.sec.gov/news/pressrelease/2015-275.html.
[44] In re VERO Capital Management, LLC, et al., Admin. Proc. No. 3-16328 (July 8, 2015), available at www.sec.gov/litigation/admin/2015/34-75401.pdf.
[45] In re Dion Money Management, LLC, Admin. Proc. No. 3-16702 (July 24, 2015), available at www.sec.gov/litigation/admin/2015/ia-4146.pdf.
[46] SEC Press Release, SEC Charges Private Equity Firm and Four Executives with Failing To Disclose Conflicts of Interest (Nov. 3, 2015), available at www.sec.gov/news/pressrelease/2015-250.html.
[47] SEC Press Release, SEC Announces Fraud Charges Against Investment Adviser (Dec. 15, 2015), available at www.sec.gov/news/pressrelease/2015-280.html.
[48] SEC Press Release, J.P. Morgan to Pay $267 Million for Disclosure Failures (Dec. 18, 2015), available at www.sec.gov/news/pressrelease/2015-283.html.
[49] SEC Press Release, SEC Charges Investment Adviser with Fraud (Sept. 29, 2015), available at www.sec.gov/news/pressrelease/2015-218.html.
[50] SEC Press Release, SEC Charges Charlotte-Based Hedge Fund Manager with Fraud (Oct. 15, 2015), available at www.sec.gov/litigation/litreleases/2015/lr23387.htm.
[51] In re JH Partners, LLC, Admin. Proc. No. 3-16968 (Nov. 23, 2015), available at www.sec.gov/litigation/admin/2015/ia-4276.pdf.
[52] SEC Press Release, Citigroup Affiliates to Pay $180 Million to Settle Hedge Fund Fraud Charges (Aug. 17, 2015), available at www.sec.gov/news/pressrelease/2015-168.html.
[53] SEC Press Release, SEC Charges Advisory Firm with Fraud for Improperly Retaining Fees (Sept. 2, 2015), available at www.sec.gov/news/pressrelease/2015-177.html.
[54] SEC Press Release, SEC Charges Seattle-Area Hedge Fund Adviser with Taking Unearned Management Fees (Sept. 4, 2015), available at www.sec.gov/news/pressrelease/2015-178.html.
[55] SEC Press Release, Blackstone Charged with Disclosure Failures (Oct. 7, 2015), available at www.sec.gov/news/pressrelease/2015-235.html.
[56] SEC Press Release, Two UBS Advisory Firms Settle Charges Arising From Failure to Disclose Change in Investment Strategy (Oct. 19, 2015), available at www.sec.gov/news/pressrelease/2015-241.html.
[57] In re National Asset Management, Inc., Admin. Proc. File No. 3-16925 (Oct. 26, 2015), available at www.sec.gov/litigation/admin/2015/34-76264.pdf.
[58] In re Cherokee Investment Partners, LLC, et al., Admin. Proc. File No. 3-16945 (Nov. 5, 2015), available at www.sec.gov/litigation/admin/2015/ia-4258.pdf.
[59] In re Cranshire Capital Advisors, LLC, Admin. Proc. File No. 3-16969 (Nov. 23, 2015), available at www.sec.gov/litigation/admin/2015/ia-4277.pdf.
[60] SEC Press Release, Hedge Fund Adviser Lied to Investors (Dec. 16, 2015), available at www.sec.gov/news/pressrelease/2015-281.html.
[61] In re Mackensen & Company, Inc. and Warren J. Mackensen, Admin. Proc. File No. 3-16780 (Sept. 3, 2015), available at www.sec.gov/litigation/admin/2015/ia-4188.pdf
[62] SEC Press Release, SEC Charges Martin Shkreli with Fraud (Dec. 17, 2015), available at www.sec.gov/news/pressrelease/2015-282.html.
[63] In re Tamara S. Kraus, Admin. Proc. File No. 3-16759 (Aug. 17, 2015), available at www.sec.gov/litigation/admin/2015/ia-4176.pdf.
[64] In re Bradford D. Szczecinski, Admin. Proc. File No. 3-16760 (Aug. 17, 2015), available at www.sec.gov/litigation/admin/2015/ia-4177.pdf.
[65] In re James Goodland, and Securus Wealth Management, LLC, Admin. Proc. File No. 3-16878 (Sept. 30, 2015), available at www.sec.gov/litigation/admin/2015/ia-4213.pdf.
[66] In re James T. Budden and Alexander W. Budden, Admin. Proc. File No. 3-16892 (Oct. 13, 2015), available at www.sec.gov/litigation/admin/2015/ia-4225.pdf.
[67] SEC Press Release, Morgan Stanley Settles Charges in “Parking” Scheme (Dec. 22, 2015), available at www.sec.gov/news/pressrelease/2015-287.html.
[68] National Exam Program Risk Alert, Examinations of Advisers and Funds That Outsource Their Chief Compliance Officers (Nov. 9, 2015), available at www.sec.gov/ocie/announcement/ocie-2015-risk-alert-cco-outsourcing.pdf.
[69] In re Reid S. Johnson, Admin. Proc. File No. 3-16730 (Aug. 6, 2015), available at https://www.sec.gov/litigation/admin/2015/34-75626.pdf.
[70] In re Reid S. Johnson, Admin. Proc. File No. 3-16730 (Nov. 13, 2015), available at www.sec.gov/alj/aljorders/2015/ap-3314.pdf.
[71] SEC Press Release, SEC Charges Investment Adviser With Failing to Adopt Proper Cybersecurity Policies and Procedures Prior to Breach (Sept. 22, 2015), available at www.sec.gov/news/pressrelease/2015-262.html.
[72] SEC Press Release, Custody Rule Violators Settle Charges (Nov. 19, 2015), available at www.sec.gov/news/pressrelease/2015-202.html.
[73] SEC Press Release, SEC Charges Investment Adviser with Improperly Using Mutual Fund Assets to Pay Distribution Fees (Sept. 21, 2015), available at www.sec.gov/news/pressrelease/2015-198.html.
[74] SEC Press Release, Mutual Fund Adviser Advertised False Performance Claims (Nov. 16, 2015), available at www.sec.gov/news/pressrelease/2015-258.html.
[75] SEC Press Release, SEC Charges Credit Rating Agency with Misrepresenting Surveillance Methodology (Oct. 26, 2015), available at www.sec.gov/news/pressrelease/2015-246.html.
[76] SEC Press Release, SEC Charges Three RMBS Traders with Defrauding Investors (Sept. 8, 2015), available at www.sec.gov/news/pressrelease/2015-181.html.
[77] SEC Press Release, SEC Charges Clearing Firm Officials for Improper Margin Loans, Accounting and Disclosure Failures (Sept. 17, 2015), available at www.sec.gov/news/pressrelease/2015-194.html.
[78] SEC Press Release, UBS to Pay $19.5 Million Settlement Involving Notes Linked to Currency Index (Oct. 13, 2015), available at www.sec.gov/news/pressrelease/2015-238.html.
[79] SEC Press Release, Three Maryland Men Settle Charges They Defrauded Investors in Real Estate Investment Company (Aug. 13, 2015), available at www.sec.gov/news/pressrelease/2015-167.html.
[80] SEC Press Release, SEC Charges UBS Puerto Rico and Two Individuals in Actions Relating to Former Broker’s Fraud (Sept. 29, 2015), available at www.sec.gov/news/pressrelease/2015-217.html.
[81] SEC Press Release, SEC Charges Goldman Sachs with Violating Market Access Rule (June 30, 2015), available at www.sec.gov/news/pressrelease/2015-133.html.
[82] SEC Press Release, Latour Trading Charged with Market Structure Rule Violations (Sept. 30, 2015), available at www.sec.gov/news/pressrelease/2015-221.html.
[83] SEC Press Release, SEC Charges ITG with Operating Secret Trading Desk and Misusing Dark Pool Subscriber Trading Information (Aug. 12, 2015), available at www.sec.gov/news/pressrelease/2015-164.html.
[84] SEC Press Release, SEC Bars Brokers Who Played Favorites to Double Their Commissions (Oct. 28, 2015), available at www.sec.gov/news/pressrelease/2015-248.html.
[85] SEC Press Release, Credit Suisse to Pay $4.25 Million and Admits to Providing Deficient “Blue Sheet” Trading Data (Sept. 28, 2015), available at www.sec.gov/news/pressrelease/2015-214.html.
[86] SEC Press Release, OZ Management LP Admits Provide Inaccurate Data, Impacting Brokers’ Records and “Blue Sheets” (July 14, 2015), available at www.sec.gov/news/pressrelease/2015-145.html.
[87] Nate Raymond, N.Y. Brokerage CEO Pleads Guilty to Obstructing the SEC Examination, Reuters (Nov. 9, 2015), available at http://www.reuters.com/article/usa-brokerage-crime-idUSL1N1343A220151110.
[88] SEC Press Release, SEC Charges 32 defendants in Scheme to Trade on Hacked News Releases (Aug. 11, 2015), available at www.sec.gov/news/pressrelease/2015-163.html.
[89] Lit. Rel. No. 23385, SEC Obtains $30 Million from Traders who Profited on Hacked News Release (Sept. 14, 2015), available at www.sec.gov/litigation/litreleases/2015/lr23385.htm.
[90] SEC Press Release, SEC Files Case Against Former Banco Santander Official for Insider Trading (Aug. 13, 2015), available at www.sec.gov/litigation/litreleases/2015/lr23316.htm.
[91] SEC Press Release, SEC Charges Two Traders in Spain with Insider Trading Ahead of BHP Acquisition Bid (July 30, 2013), available at www.sec.gov/News/PressRelease/Detail/PressRelease/1370539737461.
[92] SEC Press Release, SEC Charges Former Investment Bank Analyst and Two Others with Insider Trading in Advance of Client Deals (Aug. 25, 2015), available at www.sec.gov/news/pressrelease/2015-174.html.
[93] Lit. Rel. No. 23403, SEC Charges Two with Insider Trading Prior to Announcements of Acquisitions (Nov. 15, 2015), available at www.sec.gov/litigation/litreleases/2015/lr23403.htm.
[94] Lit. Rel. No. 23398, SEC Charges Boston Area Resident in Insider Trading Scheme (Nov. 2, 2015), available at www.sec.gov/litigation/litreleases/2015/lr23398.htm.
[95] SEC Press Release, Former Goldman Employee Charged with Insider Trading Before Mergers (Nov. 25, 2015), available at www.sec.gov/news/pressrelease/2015-267.html.
[96] SEC Press Release, SEC Charges Pennsylvania Attorney with Insider Trading in Advance of Merger Announcement (July 16, 2015), available at www.sec.gov/news/pressrelease/2015-149.html.
[97] P.J. D’Annunzio, Insider-Trading Trial Date Set for Ex-Fox Rothschild Partner, The Legal Intelligencer (Oct. 5, 2015), available at www.thelegalintelligencer.com/id=1202738841305/InsiderTrading-Trial-Date-Set-for-ExFox-Rothschild-Partner.
[98] SEC Press Release, SEC Charges Consultant and Friend with Insider Trading in Advance of P.F. Chang’s Merger (Sept. 23, 2015), available at www.sec.gov/news/pressrelease/2015-205.html.
[99] SEC Press Release, SEC Charges Five with Insider Trading, Including Two Attorneys and an Accountant (Sept. 28, 2015), available at www.sec.gov/news/pressrelease/2015-213.html.
[100] SEC Press Release, SEC Charges Father and Son and Friend with Insider Trading (Sept. 9, 2015), available at www.sec.gov/news/pressrelease/2015-185.html.
[101] In re Donald E. Robar, Admin. Proc. File No. 3-16785 (Sept. 4, 2015), available at www.sec.gov/litigation/admin/2015/34-75848.pdf.
[102] Lit. Rel. No. 23385, SEC Charges Energy Company Employee and his Tippee with Insider Trading (Oct. 9, 2015), available at www.sec.gov/litigation/litreleases/2015/lr23385.htm.
[103] SEC Press Release, SEC Charges Citigroup Global Markets for Compliance and Surveillance Failures (Aug. 19, 2015), available at www.sec.gov/news/pressrelease/2015-171.html.
[104] SEC Press Release, Wolverine Affiliates Charged With Failing to Maintain Policies to Prevent Misuse of Material Nonpublic Information (Oct. 8, 2015), available at www.sec.gov/news/pressrelease/2015-237.html.
[105] SEC Press Release, SEC Charges Political Intelligence Firm (Nov. 24, 2015), available at www.sec.gov/news/pressrelease/2015-266.html.
[106] Memorandum Opinion & Order, SEC v. Committee on Ways and Means, No. 1:14-mc-00193, 14 Misc. 193 (S.D.N.Y. Nov. 13, 2015).
[107] Notice of Appeal, SEC v. Committee on Ways and Means, No. 15-3818 (2d Cir. Nov. 25, 2015).
[108] United States v. Newman, 136 S. Ct. 242 (2015) (denying petition for certiorari).
[109] United States v. Salman, 792 F.3d 1087 (9th Cir. 2015).
[110] SEC v. Holley, No. 11-0202, 2015 WL 5554788, at *5 (D.N.J. Sept. 21, 2015), appeal docketed, No. 15-3457 (3d Cir. Oct. 15, 2015).
[111] United States v. Melvin, No. 3:14-cr-00022, — F. Supp. 3d —, 2015 WL 7077258, at *14–15 (N.D. Ga. Nov. 10, 2015).
[112] SEC v. McGinnis, No. 5:14-cv-6, 2015 WL 5643186, at *19 – 20 (D. Vt. Sept. 23, 2015).
[113] Gordon v. Sonar Capital Mgmt. LLC, No 11-cv-9665, — F. Supp. 3d —, 2015 WL 4554194, at *5 (S.D.N.Y. July 30, 2015), appeal docketed, No. 15-2666 (2d Cir. Aug. 19, 2015).
[114] Veleron Holding, B.V. v. Stanley, No. 12 Civ. 5966, — F. Supp. 2d —, 2015 WL 4503580, at *45 (S.D.N.Y. July 23, 2015).
[115] E.g., United States v. Whitman, No. 12 Cr. 125,— F. Supp. 3d —, 2015 WL 4506507 (S.D.N.Y.); SEC v. Conradt, 309 F.R.D. 186 (S.D.N.Y. 2015), appeal docketed, No. 15-2967 (2d Cir. Sept. 21, 2015).
[116] E.g., United States v. Gupta, No. 11 Cr. 907, — F. Supp. 3d —, 2015 WL 4036158, at *2 (S.D.N.Y. July 2, 2015), appeal docketed, No. 15-2712 (2d Cir. Aug. 25, 2015); Whitman, 2015 WL 4506507, at *3, 3 n.5; Conradt, 309 F.R.D. at 188.
[117] In re Bolan & Ruggieri, Admin. Proc. File No. 3-16178, Initial Decision (Sept. 14, 2015), available at www.sec.gov/alj/aljdec/2015/id877jsp.pdf.
[118] SEC Press Release, SEC Sanctions 22 Underwriting Firms for Fraudulent Municipal Bond Offerings (Sept. 30, 2015), available at www.sec.gov/news/pressrelease/2015-220.html.
[119] SEC Press Release, Edward Jones to Pay $20 Million for Overcharging Retail Customers in Municipal Bond Underwritings (Aug. 13, 2015), available at www.sec.gov/news/pressrelease/2015-166.html.
[120] SEC Statement on Edward D. Jones Enforcement Action (Aug. 13, 2015), available at www.sec.gov/news/statement/statement-on-edward-jones-enforcement-action.html.
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