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Official announcements highlighting recent actions taken by the SEC and other newsworthy information.
- SEC Obtains Bars and Suspensions Against Individuals and Accounting Firm in Shell Factory Scheme
published on Fri, 16 Feb 2018 13:35:05 -0500
The Securities and Exchange Commission today announced charges against three Israeli residents, a Washington, D.C. attorney, and an Israeli auditor and his Maryland-based accounting firm for their roles in a fraudulent scheme in the creation of numerous public shell companies. Under the terms of their settlements with the SEC, the three Israeli residents will be subject to penny stock bars and the attorney and auditor will be prohibited from appearing and practicing before the Commission. According to a complaint filed by the SEC in federal district court for the Eastern District of New York, Sharone Perlstein, Aric Swartz, and Hadas Yaron created at least 15 shell companies by filing false and misleading registration statements and periodic reports with the SEC, creating phony business plans, and appointing nominal officers and directors, who also acted as straw-man shareholders for the shell companies. The defendants also conducted putative initial public offerings of certain shell companies. In reality, the defendants continued to control the companies’ shares and the defendants subsequently sold certain shell companies at a profit of more than $1.8 million. The SEC also filed complaints in federal district court for the District of Columbia against gatekeepers who provided substantial assistance in the fraudulent scheme. According to the SEC’s complaint against Jonathan Strum, a Washington, D.C.-based attorney, he assisted in drafting false and misleading registration statements and periodic reports and signed fraudulent opinion letters. In its complaint against Alan Weinberg, CPA, an Israeli resident, and his Baltimore-based accounting firm Weinberg & Baer LLC, the SEC alleges that they issued misleading audit reports for at least seven of the shell companies. Despite numerous audit failures and red flags, Weinberg and his firm issued audit reports falsely asserting that the audits had been performed in accordance with the auditing standards promulgated by the Public Company Accounting Oversight Board. The SEC’s complaints charge Perlstein, Swartz, and Yaron with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5; Strum, Weinberg, and Weinberg & Baer with aiding and abetting these violations; Weinberg and Weinberg & Baer with violating Exchange Act Section 10A(a)(2); and Weinberg & Baer with violating Rule 2-02(b)(1) of Regulation S-X. “This matter underscores the SEC’s ongoing determination to protect investors from fraud and abuse, regardless of the location of the violators, and to hold accountable gatekeepers who facilitate fraud and fail to honestly discharge their duties,” said Antonia Chion, Associate Director of the SEC’s Enforcement Division. “The law requires truthful disclosures about a company and its business operations to protect investors,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “Here, we worked closely with foreign authorities to expose how the defendants spun up sham business plans, inserted placeholder shareholders, and with the assistance of gatekeepers filed false documents to reap over $1.8 million from companies that sold as worthless shells.” To settle the SEC’s charges, the defendants agreed, without admitting or denying the allegations, to the entry of permanent injunctions as well as disgorgement and prejudgment interest totaling $1,656,121.18 for Perlstein; $307,510.15 for Swartz; $106,146.64 for Yaron; $62,899.82 for Weinberg and Weinberg & Baer, jointly and severally; and $33,610.89 for Strum. Perlstein, Swartz, and Yaron have also agreed to the entry of penny stock bars. Subject to court approval of the settlements, Weinberg and Weinberg & Baer have also consented to be suspended from appearing and practicing before the SEC as accountants, and Swartz and Strum have consented to the entry of orders suspending them from appearing and practicing before the SEC as attorneys. The SEC also instituted settled administrative proceedings against Simcha Baer, a Maryland-based accountant. According to the SEC’s order, Baer failed to properly perform and document various engagement quality reviews for audits and interim reviews, and repeatedly back-dated and falsified documentation subsequently produced to SEC staff. The SEC’s order finds that Baer engaged in improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the SEC Rules of Practice. Without admitting or denying the findings of the SEC’s order, Baer consented to be permanently barred from appearing and practicing before the SEC as an accountant. On Nov. 4, 2016, the SEC suspended trading in the securities of one of the Perlstein Group’s shell companies based on fraudulent statements contained in the company’s public disclosures. On April 10, 2017, the SEC suspended the registration statements of four of the shell companies. The investigation was conducted in the SEC’s New York Regional Office by Daphne Downes, Joseph Darragh, Peter Pizzani, and Kristine Zaleskas and supervised by Michael D. Paley of the Microcap Fraud Task Force and Sanjay Wadhwa, and in Washington, D.C. by Greg Hillson and Jeffrey Anderson and supervised by Peter Rosario, Yuri B. Zelinsky, and Antonia Chion. Preethi Krishnamurthy and Daniel Maher provided litigation counsel. The SEC appreciates the assistance of the Israel Securities Authority, the Financial and Capital Market Commission of the Republic of Latvia, the British Columbia Securities Commission, the Internal Revenue Service Criminal Investigation Division, the Federal Bureau of Investigation, the Office of the United States Attorney for the Eastern District of New York, the Financial Conduct Authority of the United Kingdom, and the Financial Industry Regulatory Authority.
- SEC Suspends Trading in Three Issuers Claiming Involvement in Cryptocurrency and Blockchain Technology
published on Fri, 16 Feb 2018 09:35:00 -0500
The Securities and Exchange Commission today suspended trading in three companies amid questions surrounding similar statements they made about the acquisition of cryptocurrency and blockchain technology-related assets. The SEC’s trading suspension orders state that recent press releases issued by Cherubim Interests Inc. (CHIT), PDX Partners Inc. (PDXP), and Victura Construction Group Inc. (VICT) claimed that CHIT, PDXP, and VICT acquired AAA-rated assets from a subsidiary of a private equity investor in cryptocurrency and blockchain technology among other things. According to the SEC order regarding CHIT, it also announced the execution of a financing commitment to launch an initial coin offering. According to the SEC’s orders, there are questions regarding the nature of the companies’ business operations and the value of their assets, including in press releases issued beginning in early January 2018. Additionally, the Commission suspended trading in the securities of CHIT because of its delinquency in filing annual and quarterly reports. In August 2017, the SEC warned investors to be on alert for companies that may publicly announce ICO or coin/token related events to affect the price of the company’s common stock. “This is a reminder that investors should give heightened scrutiny to penny stock companies that have switched their focus to the latest business trend, such as cryptocurrency, blockchain technology, or initial coin offerings,” said Michele Wein Layne, Director of the Los Angeles Regional Office. Under the federal securities laws, the SEC can suspend trading in a stock for 10 days and generally prohibit a broker-dealer from soliciting investors to buy or sell the stock again until certain reporting requirements are met. The SEC appreciates the assistance of OTC Markets Group Inc. and the Financial Industry Regulatory Authority. The SEC’s Office of Investor Education and Advocacy has produced a Spotlight on Initial Coin Offerings and Digital Assets to provide investors with more information.
- Kyle Moffatt Named Chief Accountant in Division of Corporation Finance
published on Thu, 15 Feb 2018 16:05:30 -0500
The Securities and Exchange Commission today announced that Kyle Moffatt has been named Chief Accountant in the Division of Corporation Finance. Mr. Moffatt has served as Acting Chief Accountant in the Division since January 2018. In that role, Mr. Moffatt has overseen the Division’s work to assist companies with the implementation of revenue recognition and to develop the Division’s approach to reviewing companies’ disclosures. Mr. Moffatt also led the Division’s efforts in evaluating the implications of recent changes to the tax laws and developing guidance for public companies. As the Division’s Chief Accountant, Mr. Moffatt will continue leading these efforts as well as other ongoing initiatives to make disclosure and financial reporting more effective and relevant for investors and issuers. “I am very happy that Kyle has agreed to serve as the Chief Accountant in the Division,” said Bill Hinman, Director of the Division of Corporation Finance. “Kyle brings a strong combination of accounting expertise and experience in applying the disclosure requirements of the federal securities laws to public companies. His leadership will serve us well as the Division continues its important work to protect investors and facilitate capital formation.” “I am honored to take on this role and work with the talented staff in the Division and across the agency to support our collective efforts to further the Commission’s mission,” said Mr. Moffatt. Prior to his role as Acting Chief Accountant, Mr. Moffatt was an Associate Director overseeing the Division’s disclosure review program. In that role, he oversaw the selective review of transactional and periodic filings by issuers in financial services, healthcare, and insurance, and led staff efforts on a variety of auditor and PCAOB matters. He previously established the Division’s Disclosure Standards Office serving as its first Associate Director providing Division leadership with recommendations to enhance the effectiveness of the disclosure review program. He also served as Associate Chief Accountant in the Division’s Office of Chief Accountant. In 2006, Mr. Moffatt received the agency’s Supervisory Excellence Award in recognition of his contributions as Accounting Branch Chief in the Division’s Office of Telecommunications. Prior to joining the Division of Corporation Finance in 2000 as a Professional Accounting Fellow, Mr. Moffatt was an audit manager with Ernst & Young LLP. He received his Bachelor of Science from the University of Maryland at College Park and is a certified public accountant.
- Karen Garnett, Associate Director of Division of Corporation Finance, to Leave Agency After 23 Years of Service
published on Thu, 15 Feb 2018 16:05:00 -0500
The Securities and Exchange Commission today announced that Karen Garnett, an Associate Director in the Division of Corporation Finance, will leave the agency in February. As an Associate Director overseeing the Division’s disclosure review program, Ms. Garnett led the Division’s selective review of transactional and periodic filings by issuers in a range of industries, including real estate, commodities, insurance and life sciences. As part of this work, she led the evaluation of a broad range of transactions that included novel governance structures and financial products including cryptocurrencies. Ms. Garnett also guided the Division’s implementation of significant rule changes, including those related to loan-level asset disclosure and credit risk retention applicable to asset-backed issuers. In addition, Ms. Garnett led the review of the Commission’s business and financial disclosure requirements in Regulation S-K, resulting in the issuance of a concept release by the Commission. “Investors in our markets have been well served by Karen’s thoughtful approach to protecting investors and facilitating capital formation,” said Bill Hinman, Director of the Division of Corporation Finance. “Her contributions, including her work to develop how our staff evaluates company disclosures, will have a lasting impact.” Ms. Garnett said, “It has been an honor to serve with the dedicated staff in the Division of Corporation Finance and across the agency as we have worked together to protect investors and facilitate capital formation. I am incredibly proud of what we have accomplished together.” Prior to her role as Associate Director, Ms. Garnett served as the Assistant Director of the Division’s Office of Real Estate and Business Services. She previously served as Special Counsel and Attorney Advisor in the Divisions of Corporation Finance and Investment Management. Prior to joining the SEC, Ms. Garnett was an associate at the law firm of Wright, Lindsey & Jennings. She earned her undergraduate degree from Dartmouth College and her law degree from the University of Texas. In 2005, Ms. Garnett received the agency’s Byron Woodside Award in recognition of her contributions to the SEC’s full disclosure program, and in 2016, she received the Chair’s Award for Meritorious Impact in recognition of her leadership of the disclosure effectiveness initiative.
- SEC to Hold National Compliance Outreach Seminar for Investment Companies and Investment Advisers
published on Tue, 13 Feb 2018 15:15:00 -0500
The Securities and Exchange Commission today announced the opening of registration for its compliance outreach program’s national seminar for investment companies and investment advisers. The event is intended to help Chief Compliance Officers (CCOs) and other senior personnel at investment companies and investment advisory firms to enhance their compliance programs for the protection of investors. The SEC’s Office of Compliance Inspections and Examinations (OCIE), Division of Investment Management (IM), and the Asset Management Unit (AMU) of the Division of Enforcement jointly sponsor the compliance outreach program. The national seminar will be held on April 12 at the SEC’s Washington, D.C., headquarters from 8:30 a.m. to 5:30 p.m. ET. In-person attendance is limited to 500; a live webcast will be available at www.sec.gov. The agenda for the national seminar includes discussion of OCIE, IM, and AMU program priorities in 2018, issues related to fees and expenses, portfolio management trends, regulatory hot topics, cybersecurity, compliance, and rulemaking. “Regularly hosting this seminar is one of the key ways we work to improve compliance in the industry,” said OCIE Director Peter Driscoll. “The U.S. capital markets are among the most vibrant, fair, and effective in the world in large part because of the important work that compliance professionals do on a daily basis to ensure risks are addressed, securities laws are followed, and investors are protected. This event allows us to share our thoughts and observations with these professionals and to listen to the ideas and concerns they want to share with us.” “Chief Compliance Officers and their teams play an important role in protecting American investors, a goal that the SEC staff shares. This outreach event is a valuable opportunity to engage and build relationships with these knowledgeable professionals so that we may benefit from their insights as we consider policies affecting investment companies and investment advisers,” said Division of Investment Management Director Dalia Blass. Investment adviser and investment company senior officers may register online to attend the event in-person. If registrations exceed capacity, investment company and investment adviser CCOs will be given priority on a first-registered basis. Registration instructions also will be sent to SEC-registered advisers using the e-mail account on the adviser’s most recent Form ADV filing. The event will also be made available via live and archived audio webcast. For more information, contact: ComplianceOutreach@sec.gov.
- Alberto Arevalo, Associate Director in the Office of International Affairs, to Retire From SEC
published on Tue, 13 Feb 2018 14:30:00 -0500
The Securities and Exchange Commission today announced that Alberto Arevalo, an associate director in the Office of International Affairs, will retire later this month after 28 years of public service. Mr. Arevalo joined the SEC in 2004 and has been an associate director since 2014, with responsibility for international enforcement and supervisory cooperation, and technical assistance programs. “Alberto has played a direct and consequential role in key SEC enforcement cases and initiatives,” said Office of International Affairs Director A. Paul Leder. “He leaves a lasting impact and a reputation as a wonderful colleague, a transformative leader, and a champion of diversity.” “It has been my great privilege to have worked with my dedicated and talented colleagues in the Office of International Affairs and across the Commission. It also been an honor to engage with the SEC’s foreign counterparts to promote the Commission’s goals and to learn from those overseas partners,” Mr. Arevalo said. Mr. Arevalo assisted with numerous SEC enforcement actions including a 2015 settlement with China-based accounting firms that withheld documents sought in investigations of possible fraud; repatriation of $230 million held in an offshore account in a Ponzi scheme case against Francisco Illarramendi and his firm Highview Point Partners LLC; charges in an $8 billion Ponzi scheme involving Robert Allen Stanford and his companies and a settlement with UBS AG for acting as an unregistered broker-dealer and investment adviser, facilitating U.S. clients’ ability to avoid paying taxes on undisclosed accounts in Switzerland and elsewhere outside the U.S. In addition, Mr. Arevalo oversaw the SEC’s comprehensive supervisory cooperation agreement in 2017 with the Hong Kong Securities and Futures Commission, taught anti-corruption and anti-money laundering courses internationally, and served as an advisor to the Argentine National Securities Commission. He also served as co-head of the Cross Border Working Group, a proactive intra-agency working group that was formed to address international issues impacting the SEC and its enforcement mission. Before joining the SEC, Mr. Arevalo spent 14 years as an Assistant U.S. Attorney in the Southern District of California where he served as Deputy Chief of the General Crimes Section and Deputy Chief of the Border Crimes Section. He also worked on special assignment training prosecutors and police in South America and the Caribbean. He began his legal career practicing corporate and securities law in Silicon Valley and San Diego. Mr. Arevalo holds an undergraduate degree from the University of California, Santa Barbara, a master’s degree in Latin American Studies from Stanford University, and a J.D. from Stanford Law School.
- SEC Launches Share Class Selection Disclosure Initiative to Encourage Self-Reporting and the Prompt Return of Funds to Investors
published on Mon, 12 Feb 2018 14:56:00 -0500
The Division of Enforcement of the Securities and Exchange Commission today announced a self-reporting initiative that seeks to protect advisory clients from undisclosed conflicts of interest and return money to investors. Under the Share Class Selection Disclosure Initiative (SCSD Initiative), the Division will agree not to recommend financial penalties against investment advisers who self-report violations of the federal securities laws relating to certain mutual fund share class selection issues and promptly return money to harmed clients. Section 206 of the Investment Advisers Act of 1940 imposes a fiduciary duty on investment advisers to act in their clients' best interests, including an affirmative duty to disclose all conflicts of interest. A conflict of interest arises when an adviser receives compensation (either directly or indirectly through an affiliated broker-dealer) for selecting a more expensive mutual fund share class for a client when a less expensive share class for the same fund is available and appropriate. That conflict of interest must be disclosed. The Commission has long been focused on the conflicts of interest associated with mutual fund share class selection. Differing share classes facilitate many functions and relationships. However, investment advisers must be mindful of their duties when recommending and selecting share classes for their clients and disclose their conflicts of interest related thereto. In the past several years, the Commission has charged nine firms with failing to disclose these conflicts of interest. These actions included significant penalties against the investment advisers, and collectively returned millions of dollars to clients. In addition, the Commission's Office of Compliance Inspections and Examinations has repeatedly cautioned investment advisers and other market participants to examine their share class selection policies and procedures and disclosure practices. "This focused initiative reflects our effort to allocate our resources in a way that effectively targets the continued failure by some advisers to disclose conflicts of interest around share class selection and, importantly, is intended to facilitate the prompt return of money to victimized investors," said Stephanie Avakian, Co-Director of the Division of Enforcement. "The legal and regulatory requirements in this area are clear, and the Commission will continue to pursue securities violations associated with mutual fund share class selection disclosure failures. We strongly encourage advisers to take advantage of the favorable terms we are offering; these terms will not be available to advisers who do not self-report under this initiative, and we will continue to proactively seek to identify and pursue investment advisers that fail to make the necessary disclosures," said Steven Peikin, Co-Director of the Division of Enforcement. Under the SCSD Initiative, the Enforcement Division will recommend standardized, favorable settlement terms to investment advisers that self-report that they failed to disclose conflicts of interest associated with the receipt of 12b-1 fees by the adviser, its affiliates, or its supervised persons for investing advisory clients in a 12b-1 fee paying share class when a lower-cost share class of the same mutual fund was available for the advisory clients. Among other things, for eligible advisers that participate in the SCSD Initiative, the Division will recommend settlements that will require the adviser to disgorge its ill-gotten gains and pay those amounts to harmed clients, but not impose a civil monetary penalty. The Division warns that it expects to recommend stronger sanctions in any future actions against investment advisers that engaged in the misconduct but failed to take advantage of this initiative. "Proper disclosure of conflicts of interest is of utmost importance, and a necessity for any investment adviser to ensure that it is satisfying its obligations as a fiduciary to its clients," said C. Dabney O'Riordan, Co-Chief of the Asset Management Unit in the Division of Enforcement. "This initiative is designed to promote compliance with these obligations with respect to mutual fund share class selection, while at the same time quickly returning money to harmed clients." Eligibility for the SCSD Initiative is explained in a detailed announcement by the Enforcement Division. Investment advisers must notify the Division of Enforcement of their intent to self-report no later than June 12, 2018, by email to SCSDInitiative@sec.gov or by mail to SCSD Initiative, U.S. Securities and Exchange Commission, Denver Regional Office, 1961 Stout Street, Suite 1700, Denver, Colorado 80294. The SCSD Initiative is being led by the Asset Management Unit.
- Investor Protection, Capital Formation and Market Integrity Are Top Priorities in SEC Budget Request
published on Mon, 12 Feb 2018 12:00:00 -0500
The Securities and Exchange Commission today announced a $1.658 billion budget request for fiscal year 2019 to support its core mission and expand oversight and enforcement in emerging areas such as financial innovation, market structure and cybersecurity. The SEC’s funding is offset by matching collections of fees on securities transactions and is budget and deficit neutral. “This year’s budget request reflects our top priorities of protecting investors and making sure we continue to have the most vibrant and well-functioning capital markets in the world," said Chairman Jay Clayton. “With the exceptional work and commitment of dedicated staff, the SEC will continue striving to maintain and expand an environment conducive to capital formation while ensuring investor protection.” The SEC’s budget request would support 4,628 positions and enable the agency to enhance its efforts in its key market-facing Divisions and Offices, including Enforcement; Compliance, Inspections and Examinations; Trading and Markets; Investment Management; and Corporation Finance, as well as expand cybersecurity capabilities, leverage technology, and better oversee evolving markets. In order to keep up with the rapid pace of technology advancement in the areas the SEC regulates, the request seeks a $45 million increase in funding for information technology enhancements to support the agency’s cybersecurity capabilities, risk and data analysis, enforcement and examinations, and automation of business processes. The fiscal year 2019 budget request level is a 3.5 percent increase over the fiscal year 2018 budget request of $1.602 billion. The SEC was established in 1934 to protect investors, maintain fair and orderly markets, and facilitate capital formation. The agency today oversees more than 4,100 exchange listed public companies, $74 trillion in annual securities trading and the activities of nearly 27,000 registered market participants, including brokers, dealers and investment advisors. The SEC serves as the first line of defense in safeguarding the interests of Main Street investors. The full budget request is available at sec.gov.
- Deutsche Bank to Repay Misled Customers
published on Mon, 12 Feb 2018 09:55:03 -0500
The Securities and Exchange Commission today instituted an enforcement action against Deutsche Bank Securities Inc., which has agreed to repay more than $3.7 million to customers, which includes $1.48 million that was ordered as disgorgement. The SEC’s investigation found that traders and salespeople made false and misleading statements while negotiating sales of commercial mortgage-backed securities (CMBS). According to the SEC’s order, customers overpaid for CMBS because they were misled about the prices at which Deutsche Bank had originally purchased them. According to the SEC’s order, Deutsche Bank failed to have compliance and surveillance procedures in place that were reasonably designed to prevent and detect the misconduct that consequently increased the firm’s profits on CMBS transactions to the detriment of its customers. The SEC’s order finds supervisory failures by the former head trader of Deutsche Bank’s CMBS trading desk, Benjamin Solomon, who did not take appropriate action after becoming aware of false statements made to customers by traders under his supervision, including specific misrepresentations about the prices that Deutsche Bank paid for the CMBS. “We’re committed to ensuring that firms communicate accurate pricing information when transacting with customers in opaque markets,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “Deutsche Bank and Solomon failed to keep watch as traders generated profits for the firm at the expense of CMBS customers by misrepresenting purchase prices and other important details.” To settle the charges, Deutsche Bank agreed to reimburse customers the full amount of firm profits earned on any CMBS trades in which a misrepresentation was made. According to a payment schedule in the order, Deutsche Bank will distribute more than $3.7 million. Deutsche Bank also agreed to pay a $750,000 penalty. Solomon agreed to pay a $165,000 penalty and serve a 12-month suspension from the securities industry. Deutsche Bank and Solomon consented to the SEC’s order without admitting or denying the findings. The order notes that the penalty amounts reflect substantial cooperation by Deutsche Bank and Solomon during the SEC’s investigation, including remedial efforts by the firm to improve its internal controls, compliance training, and surveillance efforts. The SEC’s investigation was conducted by staff in the Complex Financial Instruments Unit and the New York Regional Office, including William Finkel, Elisabeth Goot, and Richard Hong. The case was supervised by Mr. Michael.
- SEC Office of Compliance Inspections and Examinations Announces 2018 Examination Priorities
published on Wed, 07 Feb 2018 09:58:00 -0500
The Securities and Exchange Commission's Office of Compliance Inspections and Examinations (OCIE) today announced its 2018 examination priorities. OCIE publishes its exam priorities annually to improve compliance, prevent fraud, monitor risk, and inform policy. Of particular interest this year will be matters involving critical market infrastructure, duties to retail investors, and developments in cryptocurrency, initial coin offerings, and secondary market trading. "I appreciate OCIE's dedication to maximizing the effectiveness of their resources with a keen eye toward asset verification, market infrastructure, and duties owed to retail investors," said SEC Chairman Jay Clayton. "As the markets continually evolve and the products and services available to investors adapt, OCIE remains committed in its risk-based examination program to prioritizing the interests of retail investors and examining those aspects of securities firms posing risks to investors and the proper functioning of our capital markets," said OCIE Director Pete Driscoll. This year, OCIE's examination priorities are broken down into five categories: (1) compliance and risks in critical market infrastructure; (2) matters of importance to retail investors, including seniors and those saving for retirement; (3) FINRA and MSRB; (4) cybersecurity; and (5) anti-money laundering programs. Compliance and Risks in Critical Market Infrastructure – OCIE will continue to examine entities that provide services critical to the proper functioning of capital markets. OCIE will conduct examinations of these firms which include, among others, clearing agencies, national securities exchanges, and transfer agents, focusing on certain aspects of their operations and compliance with recently effective rules. Retail Investors, Including Seniors and Those Saving for Retirement – Protecting Main Street investors continues to be a priority in 2018. OCIE will focus examinations on the disclosure and calculation of fees, expenses, and other charges investors pay, the supervision of representatives selling products and services to investors, and the execution of customer orders in fixed income securities. OCIE will continue to monitor the growth of cryptocurrencies and initial coin offerings and examine registrants involved in their offer and sale to ensure that investors receive adequate disclosures about the risks associated with these investments. FINRA and MSRB – OCIE will continue its oversight of FINRA by focusing examinations on FINRA's operations and regulatory programs and the quality of FINRA's examinations of broker-dealers and municipal advisors. OCIE will also examine MSRB to evaluate the effectiveness of select operations and internal policies, procedures, and controls. Cybersecurity – Each of OCIE's examination programs will prioritize cybersecurity with an emphasis on, among other things, governance and risk assessment, access rights and controls, data loss prevention, vendor management, training, and incident response. Anti-Money Laundering Programs – Examiners will review for compliance with applicable anti-money laundering requirements, including whether firms are appropriately adapting their AML programs to address their regulatory obligations. The published priorities for 2018 are not exhaustive. Further, additional priorities may be added in light of market conditions or as OCIE identifies emerging risks and trends. The collaborative effort to formulate the annual examination priorities starts with feedback from examination staff, who are uniquely positioned to identify the practices, products, and services that may pose significant risk to investors or the financial markets. OCIE staff also seek advice of the Chairman and Commissioners, staff from other SEC Divisions and Offices, the SEC's Investor Advocate, and the SEC's fellow regulators.
- SEC Halts Ongoing Fraud by Purported Hedge Fund Manager
published on Fri, 02 Feb 2018 13:09:00 -0500
The Securities and Exchange Commission today charged a purported hedge fund manager in New York City with a brazen offering and investment adviser fraud thereby putting an end to an ongoing scheme. The SEC alleges that, since at least 2014, Nicholas Joseph Genovese and his hedge fund Willow Creek Investments LP raised more than $5.3 million from at least six investors by affirmatively misrepresenting his prior money-management, securities industry experience, and size of operations. In particular, the SEC charged that Genovese: falsely stated that he managed $4 billion of the Genovese Drug Store family's assets; falsely stated that his hedge fund's investment adviser had $30-39 billion of assets under management, when, in reality, it appears to have had less than $10 million in assets under management; falsely stated that his advisory firm had between 42 and 60 employees, when, in reality, it had less than 10 employees; and falsely stated that his hedge fund had investment gains of 30-40 percent per year, when, in reality, it sustained losses. In addition, in furtherance of his scheme, Genovese lied about his education and prior work experience, and concealed his criminal past from investors. The SEC also alleges that Genovese and his advisory firm Willow Creek Advisors LLC misappropriated investor funds to fund securities trading in Genovese's personal brokerage account, which sustained over $8 million of trading losses between 2015 and 2017, and Genovese's lifestyle by paying approximately $263,000 for, among other things, ATM cash withdrawals, food, hotel and transportation charges, including being chauffeured in a Bentley. "As alleged in our complaint, Nicholas Genovese represented himself as a successful hedge fund manager with a sterling pedigree and track record. In truth, he was a recidivist convicted felon who lost or outright stole most of the money that investors entrusted to him," said Marc P. Berger, Director of the SEC's New York Regional Office. "In this case, we quickly sought emergency relief to stop Genovese's ongoing fraud and to prevent the further dissipation of investors' remaining funds." According to the SEC's complaint filed in U.S. District Court for the Southern District of New York, Genovese's fraud appears to be ongoing as evidenced by recent money coming into his account as well as a recent refusal of an investor's redemption request. The SEC's complaint charges Genovese and his hedge fund with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and charges Genovese and his advisory firm with violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC is seeking a temporary restraining order to freeze their assets and prohibit them from committing further violations of the federal securities laws. The SEC seeks a final judgment ordering them to disgorge their ill-gotten gains plus prejudgment interest, and for Genovese and his investment advisory firm to pay financial penalties. The U.S. Attorney's Office for the Southern District of New York has filed parallel criminal charges against Genovese. The SEC's investigation, which is continuing, is being conducted by Gerald Gross, Alexander Vasilescu, James Hanson, Karen Lee, and Adam Nowicki of the New York Regional Office. The litigation will be led by Mr. Vasilescu, Mr. Hanson and Ms. Lee. The case is being supervised by Sanjay Wadhwa. The SEC examination that led to the investigation was conducted by Steven Vitulano, Terrence P. Bohan, Edward Janowsky, and Javen Zhong. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation.
- Alleged Perpetrator of Ski Slope Investment Scheme Agrees to Pay Back Investor Money, Surrender Properties
published on Fri, 02 Feb 2018 10:12:00 -0500
The Securities and Exchange Commission today announced that the Miami-based businessman behind an alleged scheme involving investments in a Vermont-based ski resort has agreed to pay back more than $81 million of investor money that he used illegally. According to an SEC complaint filed in 2016 in federal court in Miami, Ariel Quiros allegedly misused more than $50 million in investor funds to purchase a different ski resort and to fund personal expenses such as income taxes and two luxury New York City condominium purchases. Investors were told their money would specifically be used for construction projects at the Jay Peak Resort and a nearby proposed biomedical research facility. Companies owned by Quiros also allegedly failed to contribute approximately $30 million in investor funds toward Jay Peak construction, with two projects going uncompleted. This jeopardized investors' investments as well as their participation in the EB-5 Immigrant Investor Program under which Quiros and his businesses solicited the money. In a settlement subject to court approval, Quiros agreed to be held liable for more than $81 million in disgorgement of ill-gotten gains plus a $1 million penalty, and he must forfeit approximately $417,000 in cash that was frozen after the SEC filed the case. Quiros also agreed to surrender ownership of the two condos and ski resort he purchased with investor funds and give up his stake in more than a dozen other properties, including the Jay Peak Resort. Under the proposed settlement, the properties would be turned over to the court-appointed receiver in the case for the purpose of selling them for the benefit of defrauded investors. "In pursuing fraudulent actors, we seek not only to hold wrongdoers accountable, but also to return as much money as possible to victims," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "This settlement achieves both objectives by stripping Quiros of the proceeds of his fraudulent scheme and requiring him to turn over valuable property for the benefit of harmed investors." "The SEC's emergency action halted an alleged massive fraud that Jay Peak, Quiros, and Stenger perpetrated on more than 700 investors from at least 74 countries," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division. "As a result of the SEC's action, a court-appointed receiver has successfully turned around the resort's finances, and the case will result in hundreds of investors receiving significant portions and, in some cases, all of their investments returned to them," said Steven Peikin, Co-Director of the SEC's Enforcement Division. The SEC also announced that a business associate of Quiros, William Stenger of Newport, Vermont, agreed to settle the charges against him in the SEC's complaint. While Stenger was not alleged to have personally profited from the fraud, he agreed to pay a $75,000 penalty and be barred along with Quiros from participating in any future EB-5 offerings. Quiros and Stenger agreed to their settlements without admitting or denying the allegations in the SEC's complaint. The SEC's litigation has been led by Robert K. Levenson and Christopher Martin and supervised by Andrew O. Schiff. The investigation, which is continuing, has been conducted by Brian Theophilus James, Tricia D. Sindler, Michelle Lama, and Mark Dee, and supervised by Chedly C. Dumornay. The SEC appreciates the assistance of the Vermont Department of Financial Regulation, Office of the Vermont Attorney General, and other authorities in Vermont.
- Michael Maloney, Enforcement’s Chief Accountant, to Leave SEC
published on Tue, 30 Jan 2018 14:40:00 -0500
The Securities and Exchange Commission today announced that Michael F. Maloney, Chief Accountant of the SEC’s Division of Enforcement, is planning to leave the agency next month. Since February 2014, Mr. Maloney has led the Division’s Office of Chief Accountant, providing advice, consultation, and support on all of the Division’s accounting, auditing, and financial reporting enforcement matters. He has provided leadership and support to the Division’s approximately 100 accountants through advice, guidance, and involvement on individual enforcement matters as well as facilitating communication, knowledge sharing, and training on emerging issues. In addition, Mr. Maloney has worked on significant policy issues within the Division and with other Commission staff including the SEC’s Office of the Chief Accountant and the Division of Corporation Finance, and he has played a leadership role in the Division’s coordination with the Public Company Accounting Oversight Board’s enforcement program. “Mike has been a trusted advisor to the Division in accounting, auditing, and reporting matters,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “As the Division’s Chief Accountant, Mike has brought significant expertise and insight to the SEC’s financial fraud investigations. His leadership and integrity have been tremendous assets in our fight against financial fraud, and we will miss his sage advice in these matters.” Mr. Maloney said, “It has been the honor of my career to work with the incredibly talented and dedicated enforcement accountants and attorneys who work every day to protect investors on the Division’s complex and challenging financial reporting matters. I am very proud of the results that the Division has achieved on financial reporting matters over the past four years.” During Mr. Maloney’s tenure as the Division’s Chief Accountant, the SEC has brought financial reporting enforcement actions addressing a wide range of misconduct, including: Weatherford International and two senior executives for fraudulently inflating earnings reported to investors by using deceptive income tax accounting Penn West Petroleum Ltd. and three top finance executives for defrauding investors through an allegedly extensive, multi-year accounting fraud that moved hundreds of millions of dollars in expenses from operating expenses to capital accounts Monsanto Company and three executives for failing to recognize millions of dollars of expenses associated with rebates for a flagship product in the period in which they occurred, resulting in materially misstated earnings over three years ITT Educational Services and two senior executives for allegedly fraudulently concealing from investors the poor performance and looming financial impact of two student loan programs that ITT financially guaranteed Proceedings against BDO USA and five of its partners, Grant Thornton LLP and two of its partners, Ernst & Young LLP and two of its partners, and KPMG LLP and one of its partners for professional failures in audits of clients that faced SEC actions Ernst &Young LLP and three of its partners for auditor independence violations due to close personal relationships between auditors and client personnel Mr. Maloney joined the SEC from Navigant Consulting Inc., where he was a managing director and led the firm’s forensic accounting practice. He was previously a partner at Arthur Andersen LLP. His experience includes performing complex forensic investigations of accounting, auditing, financial reporting, and other fraud matters, providing expert witness support and services, and performing and supervising financial statement audits at public and private entities in a variety of industries. Mr. Maloney earned his B.S. in Accountancy with high honors from the University of Illinois.
- SEC Halts Alleged Initial Coin Offering Scam
published on Tue, 30 Jan 2018 09:35:00 -0500
The Securities and Exchange Commission obtained a court order halting an allegedly fraudulent initial coin offering (ICO) that targeted retail investors to fund what it claimed to be the world’s first “decentralized bank.” According to the SEC’s complaint, filed in federal district court in Dallas on Jan. 25 and unsealed late yesterday, Dallas-based AriseBank used social media, a celebrity endorsement, and other wide dissemination tactics to raise what it claims to be $600 million of its $1 billion goal in just two months. AriseBank and its co-founders Jared Rice Sr. and Stanley Ford allegedly offered and sold unregistered investments in their purported “AriseCoin” cryptocurrency by depicting AriseBank as a first-of-its-kind decentralized bank offering a variety of consumer-facing banking products and services using more than 700 different virtual currencies. AriseBank’s sales pitch claimed that it developed an algorithmic trading application that automatically trades in various cryptocurrencies. The SEC alleges that AriseBank falsely stated that it purchased an FDIC-insured bank which enabled it to offer customers FDIC-insured accounts and that it also offered customers the ability to obtain an AriseBank-branded VISA card to spend any of the 700-plus cryptocurrencies. AriseBank also allegedly omitted to disclose the criminal background of key executives. “We allege that AriseBank and its principals sought to raise hundreds of millions from investors by misrepresenting the company as a first-of-its-kind decentralized bank offering its own cryptocurrency to be used for a broad range of customer products and services. We sought emergency relief to prevent investors from being victimized by what we allege to be an outright scam,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “This is the first time the Commission has sought the appointment of a receiver in connection with an ICO fraud. We will use all of our tools and remedies to protect investors from those who engage in fraudulent conduct in the emerging digital securities marketplace,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office, said, “Attempting to conceal what we allege to be fraudulent securities offerings under the veneer of technological terms like ‘ICO’ or ‘cryptocurrency’ will not escape the Commission’s oversight or its efforts to protect investors.” The court approved an emergency asset freeze over AriseBank, Rice, and Ford and appointed a receiver over AriseBank, including over its digital assets. The SEC intervened to protect the digital assets before they could be dissipated, enabling the receiver to immediately secure various cryptocurrencies held by AriseBank including Bitcoin, Litecoin, Bitshares, Dogecoin, and BitUSD. AriseCoin’s public sale began around Dec. 26, 2017, and was originally scheduled to conclude on Jan. 27, 2018, with distribution to investors on Feb. 10, 2018. The SEC seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains plus interest and penalties, and bars against Rice and Ford to prohibit them from serving as officers or directors of a public company or offering digital securities again in the future. The SEC’s investigation was conducted by David Hirsch and supervised by Jessica Magee and Eric Werner in the Fort Worth Regional Office in coordination with the Enforcement Division’s Cyber Unit. The litigation is being conducted by Timothy Evans, Christopher Davis, and Mr. Hirsch, and supervised by B. David Fraser. The SEC appreciates the assistance of the Federal Bureau of Investigation, U.S. Attorney’s Office for the Northern District of Texas, Federal Deposit Insurance Corporation, U.S. Patent and Trademark Office, and Texas Department of Banking. Investors in the AriseBank ICO who believe they may be a victim are asked to report it to the SEC as a tip or complaint. The SEC’s Office of Investor Education and Advocacy issued an Investor Alert in August 2017 warning investors about scams of companies claiming to be engaging in initial coin offerings.
- SEC Invites Regulated Entities to Voluntarily Submit Self-Assessments of Diversity Policies and Practices
published on Thu, 25 Jan 2018 13:25:00 -0500
The Securities and Exchange Commission (SEC) Office of Minority and Women Inclusion (OMWI) today introduced its Diversity Assessment Report for Entities Regulated by the SEC. OMWI created the Diversity Assessment Report to complement the Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies (Joint Standards) issued by the SEC and five other federal financial regulatory agencies on June 10, 2015. The Diversity Assessment Report is designed to help regulated entities conduct self-assessments of their diversity policies and practices, as envisioned by the Joint Standards, and provides these entities with a template for submitting information about their self-assessments to OMWI. The Joint Standards also encourage regulated entities to publish information related to their self-assessments on their websites. "This is an important step in our efforts to understand the diversity and inclusion efforts of our regulated entities, as well as promote transparency and awareness in this area," said Pamela Gibbs, Director of OMWI. Use of the Joint Standards by regulated entities is voluntary. Likewise, conducting self-assessments and providing diversity assessment information to OMWI are also voluntary. The SEC may use the information from entities' self-assessments to identify which policies and practices reflected in the Joint Standards have been adopted by SEC-regulated entities and to highlight diversity policies and practices that have been successful. SEC-regulated entities will receive an email from OMWI inviting them to complete the Diversity Assessment Report online using a secure web portal. Additionally, OMWI has published a set of Frequently Asked Questions on its webpage to provide more information about the Joint Standards and the Diversity Assessment Report.
- Six Accountants Charged with Using Leaked Confidential PCAOB Data in Quest to Improve Inspection Results for KPMG
published on Mon, 22 Jan 2018 10:59:00 -0500
The Securities and Exchange Commission today announced charges against six certified public accountants – including former staffers at the Public Company Accounting Oversight Board (PCAOB) and former senior officials at KPMG LLP – arising from their participation in a scheme to misappropriate and use confidential information relating to the PCAOB's planned inspections of KPMG. The SEC's Division of Enforcement and Office of the Chief Accountant allege that the former PCAOB officials made unauthorized disclosures of PCAOB plans for inspections of KPMG audits, enabling the former KPMG partners to analyze and revise audit workpapers in an effort to avoid negative findings by the PCAOB. Two of the former PCAOB officials had left the PCAOB to work at KPMG. The SEC's Enforcement Division and Office of the Chief Accountant allege the third official leaked PCAOB data at the time he was seeking employment with KPMG. The three former KPMG partners were all in the firm's national office. According to the SEC's order, the misconduct began in 2015 and persisted until February 2017. Soon after the conduct was discovered, the six respondents were terminated, resigned or placed on leave before separating from KPMG and the PCAOB, respectively. "As alleged, these accountants engaged in shocking misconduct – literally stealing the exam – in an effort to interfere with the PCAOB's ability to detect audit deficiencies at KPMG," said Steven Peikin, Co-Director of the SEC's Enforcement Division. "The PCAOB inspections program is meant to assess whether firms are cutting corners, compromising their independence, or otherwise falling short in their responsibilities. The SEC cannot tolerate any scheme to subvert that important process." In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against the six accountants. The Chairman of the SEC, Jay Clayton, has issued a statement concerning these charges. The SEC stands ready to work with issuers to ensure that collateral effects, if any, to issuers and, in particular, their shareholders are minimized. The SEC's Enforcement Division and Office of the Chief Accountant allege that while preparing to leave his supervisory position at the PCAOB for a job at KPMG, Brian Sweet downloaded confidential and sensitive inspection-related materials that he believed might help him at KPMG. KPMG had recruited him to join the firm at a time when it had a high rate of audit deficiencies. Indeed, nearly half of the KPMG audits that the PCAOB inspected in 2013 were found deficient. After leaving the PCAOB, Sweet allegedly continued to gain access to confidential PCAOB materials through Cynthia Holder, a PCAOB inspector. After Holder joined Sweet at KPMG, a third PCAOB employee, Jeffrey Wada, allegedly leaked confidential information about planned PCAOB inspections of KPMG to Holder. According to the SEC's order, Wada leaked this information while he was seeking employment at KPMG. The SEC's Enforcement Division and Office of the Chief Accountant allege that upon his arrival at KPMG, Sweet told his supervisors in KPMG's national office that he had taken confidential materials from the PCAOB and revealed, for example, the KPMG audit clients that the PCAOB intended to inspect that year. Allegedly encouraging Sweet to divulge the stolen information to them and others at the firm were his supervisors – David Middendorf, KPMG's then-national managing partner for audit quality and professional practice and Thomas Whittle, KPMG's then-national partner-in-charge for inspections and another high-level partner at the firm, David Britt, KPMG's banking and capital markets group co-leader. The SEC's Enforcement Division and Office of the Chief Accountant allege that Middendorf, Whittle, Sweet, Holder, and Britt worked together to review the audit workpapers for at least seven banks they were told the PCAOB would inspect in an effort to minimize the risk that the PCAOB would find deficiencies in those audits. Middendorf and Whittle allegedly instructed that no one disclose that they had confidential PCAOB information. Sweet has agreed to settle to a Commission Order requiring that he cease-and-desist from violating PCAOB ethics rules and barring him from appearing or practicing before the Commission as an accountant based on findings that he, among other things, violated PCAOB ethics rules regarding confidentiality and lacks integrity. The case will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate. The SEC's investigation, which is continuing, has been conducted by Ian Rupell and supervised by Rami Sibay. Along with Mr. Rupell, the litigation will be conducted by Melissa Armstrong, and supervised by Fred Block. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York as well as the U.S. Postal Inspection Service.
- Robert Jackson and Hester Peirce Sworn In as SEC Commissioners
published on Thu, 11 Jan 2018 16:30:02 -0500
Robert J. Jackson Jr. and Hester M. Peirce were sworn into office as SEC Commissioners this morning by SEC Chairman Jay Clayton. Mr. Jackson and Ms. Peirce were nominated to the SEC by President Donald Trump, and their nominations were confirmed by the U.S. Senate on Dec. 21. Both new commissioners participated in today’s inaugural meeting of the SEC’s Fixed Income Market Structure Advisory Committee. “I look forward to working with Rob and Hester as we continue our focus on our vital mission and ensuring that our markets are working for the benefit of Main Street investors," Chairman Clayton said. “It is clear to me they will bring energy, commitment, and dedication to our work and have our mission at the front of their minds.” “I’m honored to join Chairman Clayton and Commissioners Stein, Piwowar and Peirce in the SEC’s critical mission of ensuring that investors are protected, that our markets provide a level playing field for all Americans, and that entrepreneurs have access to the capital they need to create jobs," said Commissioner Jackson. “The SEC boasts a talented and dedicated staff, and I’ll do all I can to support their efforts to make sure our securities laws keep pace with our ever-changing markets.” “It is such an honor to return to the SEC to work with my colleagues on the Commission and the staff for the benefit of investors and the American economy,” said Commissioner Peirce. Commissioner Jackson comes to the SEC from NYU School of Law, where he was a professor of law. He previously was professor of law and director of the Program on Corporate Law and Policy at Columbia Law School. He also has served as an adviser at the Treasury Department and in the Office of the Special Master for TARP Executive Compensation. Commissioner Jackson earned his BA from the University of Pennsylvania, a BS and MBA in Finance from Wharton, an MPP from Harvard University’s Kennedy School of Government, and his JD from Harvard Law School. Commissioner Peirce comes to the SEC from the Mercatus Center at George Mason University where she served as a Senior Research Fellow and Director of the Financial Markets Working Group. She previously worked for U.S. Senator Richard Shelby on the Senate Committee on Banking, Housing, and Urban Affairs, and, prior to that, as counsel to then-SEC Commissioner Paul S. Atkins and as a Staff Attorney in the Division of Investment Management. Commissioner Peirce earned her BA in economics from Case Western Reserve University and her JD from Yale Law School. Commissioner Jackson fills a term that expires on June 5, 2019, and Commissioner Peirce fills a term that expires on June 5, 2020.
- Dr. Timothy Timura Named Deputy Chief Economist
published on Thu, 11 Jan 2018 11:40:00 -0500
The Securities and Exchange Commission has named Dr. Timothy Timura, CFA, as Deputy Director and Deputy Chief Economist in the agency’s Division of Economic and Risk Analysis (DERA). Dr. Timura joins DERA from the faculty of the Kogod School of Business at American University, where he has been an Executive in Residence. Dr. Timura has more than 30 years of experience serving individual and institutional investors as a professional money manager, and he has held senior management positions with private financial institutions and the State Teachers Retirement System of Ohio. Dr. Timura also taught finance and economics at Ohio State University, Lehigh University, and Albright College. Dr. Timura will assist the Chief Economist on a wide range of agency activities focusing initially on economic policy in agency rulemaking. “Tim brings a wealth of academic knowledge and industry expertise in finance that will significantly help the Commission’s efforts in financial economics and risk analysis,” said Dr. Jeffrey Harris, DERA Director and Chief Economist. “I’m looking forward to working with him and truly appreciate Tim’s willingness to help DERA serve investors.” Dr. Timura said, “It is a great honor to serve the public here at the SEC and I’m excited to have this opportunity to share my experience with the dedicated staff in DERA as we work on behalf of the long-term interests of Main Street investors.” Dr. Timura is a graduate of Dickinson College and has an M.S. from the University of Pennsylvania, an M.B.A. from the University of Wisconsin-Madison, an Ed.D. from the University of Pennsylvania, and a D.M. from Case Western Reserve University. Dr. Timura’s doctoral research focused on the challenges faced by average investors when seeking to secure their own financial futures specifically exploring interactions between investors and investment professionals and how their relationships may be enhanced.
- SEC and NYU to Host Jan. 19 Forum on Relationship Between Companies and Shareholders
published on Thu, 11 Jan 2018 10:10:25 -0500
The U.S. Securities and Exchange Commission’s Division of Economic and Risk Analysis is partnering with New York University’s Salomon Center for the Study of Financial Institutions to bring together regulators, practitioners, and academics for a half-day symposium January 19 at NYU. Panelists will discuss the evolution of shareholder engagement over time and its impact on corporate governance, focusing in particular on the shifting roles and influence of institutional and activist investors. “Shareholder engagement serves as one of the cornerstones of good corporate governance, and the continually-changing landscape for retail participation in our markets means that we must continually examine the role and responsibilities of institutional investors and other intermediaries,” said Dr. Jeffrey Harris, Director of DERA and the SEC’s Chief Economist. “I appreciate our ongoing collaboration with NYU to foster academic dialogue around issues of importance for retail investors.” Attendees can expect discussions focusing on the causes and consequences of current governance practices, the current state of shareholder engagement and its effects on management and shareholders, methods of engagement, and the evolution of key stakeholders’ roles in the corporate governance arena. The event is free and is open to the public, and will kick off with welcoming remarks by SEC Chairman Jay Clayton at 9:15 am at NYU’s Salomon Center located at 44 West 4th Street, New York, NY. Information about the event agenda and webcast will be available at DERA Events. The public is welcome to attend, and are asked to register in advance.
- SEC Names Richard Best As Regional Director of Atlanta Office
published on Wed, 10 Jan 2018 15:05:00 -0500
The Securities and Exchange Commission today named Richard R. Best as Regional Director of its Atlanta office. Mr. Best will succeed Walter Jospin, who is leaving the agency at the end of this month. For the past two-and-a-half years, Mr. Best has served as Director of the SEC’s Salt Lake office, where he supervises the agency’s enforcement program in Utah. He joined the SEC from the Financial Industry Regulatory Authority (FINRA) in New York, where he was a senior director and chief counsel in its Department of Enforcement. Mr. Best previously held other supervisory and investigative positions within FINRA’s Enforcement function. He also spent approximately 10 years as a prosecutor in the Office of the Bronx County District Attorney, where he handled and supervised high-profile public integrity and organized crime prosecutions, among other matters. Under Mr. Best’s stewardship, the Salt Lake office has investigated, brought and litigated a number of impactful enforcement cases, including the agency’s actions against: Two Las Vegas-based individuals and their company for operating a prime bank investment scheme that promised investors sky-high returns A Cache County, Utah, man who solicited investors, including members from his church congregation, in a bogus scheme involving investments in “top secret” Iraqi currency and oil contracts Marquis Properties LLC and its CEO Chad R. Deucher for orchestrating a $28 million Ponzi scheme that defrauded more than 250 investors throughout the United States Las Vegas-based Hemp Inc., its CEO, and others with engaging in a long-running fraudulent scheme to evade the registration provisions of the federal securities laws The operator of a Utah-based international Ponzi scheme that raised more than $207 million from investors worldwide, primarily in the U.S., India and Russia As Director of the SEC’s Atlanta office, Mr. Best will lead a staff of more than 160 enforcement attorneys, accountants, investigators, and compliance examiners involved in the investigation and prosecution of enforcement actions and the performance of compliance inspections in the Atlanta region, which covers Georgia, North Carolina, South Carolina, Tennessee, and Alabama. “I am excited that Richard is taking over as head of our Atlanta Regional Office, and I thank Walter for his exemplary service,” said SEC Chairman Jay Clayton. “Richard has made a lasting impression in the Salt Lake Regional Office and I am confident that he will continue to protect the long-term interests of American investors through his leadership in Atlanta.” “Richard’s investigative experience, strong knowledge of industry practices and excellent trial skills position him well to lead the SEC’s Atlanta office,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “He is an experienced and inspirational manager who is held in high regard by our team in Salt Lake.” “As leader of the SEC’s Salt Lake Regional Office, Richard has distinguished himself not only by bringing high-impact cases, but also through his creative efforts to connect with investors,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “We are thrilled he will bring his impressive qualities to the SEC’s Atlanta office.” Peter B. Driscoll, Director of the SEC’s Office of Compliance Inspections and Examinations, said, “Richard has been a very strong leader of the Salt Lake Regional Office for several years, and we are delighted to have him lead our dedicated examination staff in Atlanta.” Mr. Best added, “I am excited and honored to serve with such a talented group of professionals in the Atlanta Regional Office. Their dedication and skill is evidenced by the office’s many significant accomplishments. I look forward to working with them to protect investors and maintain fair and orderly markets.” Mr. Best graduated from the State University of New York, College at Old Westbury and earned his law degree from the Howard University School of Law.
- SEC Issues Agenda for Inaugural Meeting of the Fixed Income Market Structure Advisory Committee
published on Mon, 08 Jan 2018 15:55:25 -0500
The Securities and Exchange Commission today released the agenda for the inaugural meeting of the Fixed Income Market Structure Advisory Committee, which will be held on January 11, 2018 beginning at 9:30 a.m. ET. The Commission established the advisory committee to provide a formal mechanism through which the Commission can receive advice and recommendations on fixed income market structure issues. The January 11 meeting will focus on bond market liquidity issues, and will also cover certain administrative items. The meeting will be held at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., and is open to the public. The meeting will be webcast live on the SEC’s website, www.sec.gov, and will be archived on the website for later viewing. Members of the public who wish to provide their views on the matters to be considered by the Fixed Income Market Structure Advisory Committee may submit comments either electronically or on paper, as described below. Please submit comments using one method only. Information that is submitted will become part of the public record of the meeting. Electronic submissions: Send an e-mail to email@example.com Paper submissions: Send paper submissions in triplicate to Brent Fields, Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090. All submissions should refer to File Number 265-30, and the file number should be included on the subject line if e-mail is used. * * * Agenda 9:30 a.m. - Remarks by Chairman Clayton, Commissioner Stein, Commissioner Piwowar, Director, Division of Trading and Markets, Brett Redfearn, and Committee Chairman, Michael Heaney 10:00 a.m. Review and Consideration of Proposed Bylaws 10:10 a.m. Bond Market Liquidity Conditions Research Michael Heaney, Committee Chairman (Moderator) Kevin McPartland, Head of Market Structure and Technology Research, Greenwich Associates Jeff Meli, Co-Head of Research, Barclays Sonali Theisen, Global Head of Market Structure and Data Strategy, Global Credit & Securitized Markets, Citigroup 10:55 a.m. Break 11:10 a.m. Market Participant Perspectives on Bond Market Liquidity Brett Redfearn, Director, Division of Trading and Markets (Moderator) Paul Jakubowski, Global Head of Credit, Vanguard Drew Mogavero, Head of US Flow Credit Trading, Barclays Richie Prager, Head of Trading, Liquidity and Investments Platform, BlackRock Jim Switzer, Global Head of Credit Trading, Alliance Bernstein 12:15 p.m. Lunch Break/Administrative Session 1:45 p.m. FIMSAC Members and Panelists Discussion of Bond Market Liquidity 3:00 p.m. Break 3:15 p.m. FIMSAC Members Discussion of Bond Market Liquidity 4:00 p.m. Discussion of Committee Next Steps, Future Meeting Topics and Subcommittees 4:30 p.m. Adjournment
- Annual Staff Reports on Credit Rating Agencies Show Improvements
published on Fri, 29 Dec 2017 14:43:00 -0500
Credit rating agencies under Securities and Exchange Commission oversight show improved compliance, increased information technology resources, and continued competition, according to two SEC staff reports released today on nationally recognized statistical rating organizations (NRSROs). "NRSROs are continuing to display a greater awareness of their obligations as regulated entities," said Jessica S. Kane, Acting Director of the SEC's Office of Credit Ratings. "The staff will continue to engage with the firms and monitor potential risks to promote compliance, strengthen governance, and ensure that NRSROs provide robust disclosure for the benefit of investors." The annual exam report, required by the 2010 Dodd-Frank Act, summarizes the staff examinations of each NRSRO. The staff observed improvements in the firms' compliance monitoring and internal audit functions. The report notes that NRSROs have further refined their policies, procedures, and controls related to securities laws and rules. The annual report, mandated by the 2006 Credit Rating Agency Reform Act, discusses the state of competition, transparency, and conflicts of interest among NRSROs and identifies applicants for NRSRO registration. The staff notes that smaller NRSROs continue to actively compete with more established rating agencies, and some are specializing in particular rating categories and classes. The following SEC staff contributed to the examinations and reports: Diane Audino, Michael Bloise, David Bobillot, Sondra Boddie, Rita Bolger, Patrick Boyle, Aaron Byrd, Roseann Catania, Kristin Costello, Doreen Crawford, Scott Davey, Franco Destro, Jill Flory, Ilya Fradkin, William Garnett, Kenneth Godwin, Michael Gonzalez, Barry Huang, Julia Kiel, Russell Long, Chichita Nickens, David Nicolardi, Sam Nikoomanesh, Kevin O’Neill, Harriet Orol, Abraham Putney, Jeremiah Roberts, Mary Ryan, Cynthia Sargent, Charles Schiller, Andrew Smith, Alexa Strear, Warren Tong, Evelyn Tuntono, Chris Valtin, Kevin Vasel, Andrew Vita, and Michele Wilham.
- Commission Staff Provides Regulatory Guidance for Accounting Impacts of the Tax Cuts and Jobs Act
published on Fri, 22 Dec 2017 17:09:00 -0500
The Securities and Exchange Commission today announced publication of staff guidance for publicly traded companies, auditors, and others to help ensure timely public disclosures of the accounting impacts of the Tax Cuts and Jobs Act (the Act). Specifically, the staff of the Office of the Chief Accountant and the Division of Corporation Finance issued the following interpretations: Staff Accounting Bulletin (SAB) No. 118 expresses views of the staff regarding application of U.S. GAAP when preparing an initial accounting of the income tax effects of the Act. Compliance and Disclosure Interpretation 110.02 expresses views of the staff regarding the applicability of Item 2.06 of Form 8-K with respect to reporting the impact of a change in tax rate or tax laws pursuant to the Act. Director of the Division of Corporation Finance Bill Hinman stated, "This guidance recognizes that investors demand and deserve high-quality information, while also recognizing that entities may face challenges in accounting for one of the most comprehensive changes to the U.S. federal tax code since 1986." Chief Accountant Wes Bricker added, "Allowing entities to take a reasonable period to measure and recognize the effects of the Act, while requiring robust disclosures to investors during that period, is a responsible step that promotes the provision of relevant, timely, and decision-useful information to investors." The statements in Staff Accounting Bulletins and Compliance and Disclosure Interpretations are not rules, regulations, or statements of the Commission. They represent interpretations and practices followed by the SEC's Office of the Chief Accountant and the Division of Corporation Finance in administering the disclosure requirements of the federal securities laws. As such, the Commission has neither approved nor disapproved these interpretations. The SEC staff encourages publicly traded companies, auditors, and others to consult with the staff for interpretative assistance with respect to SEC rules, forms, or generally accepted accounting principles. Guidance for consulting is available for the Division of Corporation Finance at https://www.sec.gov/forms/corp_fin_interpretive and for the Office of the Chief Accountant at https://www.sec.gov/info/accountants/ocasubguidance.htm. Fact Sheet The Tax Cuts and Jobs Act represents one of the most significant overhauls to the United States federal taxcode since 1986 and could have a significant impact on an entity's domestic and international tax consequences. ASC Topic 740 provides guidance addressing changes in tax laws or tax rates to be recognized in the financial reporting period that includes the enactment date, which is the date the Act is signed into law — i.e., Dec. 22, 2017. The magnitude of the changes in the Act may give rise to certain operational challenges and constraints for entities when complying with the requirements under ASC Topic 740 upon issuance of an entity's financial statements for the reporting period in which the Act is enacted. New Guidance Contained in SAB 118 The staff is issuing guidance in SAB 118 to address certain fact patterns where the accounting for changes in tax laws or tax rates under ASC Topic 740 is incomplete upon issuance of an entity's financial statements for the reporting period in which the Act is enacted. Under the staff guidance in SAB 118, in the financial reporting period the Act is enacted, the income tax effects of the Act (i.e., only for those tax effects in which the accounting under ASC 740 is incomplete) would be reported as a provisional amount based on a reasonable estimate (to the extent a reasonable estimate can be determined), which would be subject to adjustment during a "measurement period" until the accounting under ASC 740 is complete. The measurement period would be limited under the staff's guidance. The staff's guidance would also describe supplemental disclosures that should accompany the provisional amounts, including the reasons for the incomplete accounting, the additional information or analysis that is needed, and other information relevant to why the registrant was not able to complete the accounting required under ASC 740 in a timely manner. New Guidance Contained in C&DI 110.02 The staff is issuing guidance in C&DI 110.02 to clarify how registrants making use of the measurement period approach in SAB 118 will be expected to comply with their obligations under 2.06 of Form 8-K with respect to disclosure of material impairments of assets.
- Gerald Hodgkins, Associate Director of the SEC's Enforcement Division, to Leave the Agency After 20 Years of Service
published on Thu, 21 Dec 2017 14:56:00 -0500
The Securities and Exchange Commission today announced that Gerald W. Hodgkins, an Associate Director of the Division of Enforcement, will leave the agency at the end of this year for private practice. During his tenure of two decades at the SEC, Mr. Hodgkins has overseen more than 100 enforcement actions covering the full breadth of the agency's jurisdiction, including issuer reporting and disclosure fraud, violations of the Foreign Corrupt Practices Act, and misconduct by entities regulated by the agency. Since being appointed as Associate Director in 2010, Mr. Hodgkins also has served as a founding member of the SEC's Claims Review Staff, which makes recommendations to the Commission concerning when and how much to award whistleblowers under the SEC's whistleblower program. He also has served as a member of the SEC's National Labor Management Forum. "Jerry embodies what it means to be a dedicated public servant," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division. "He will be missed terribly by all of us in the Enforcement Division, but most especially by the scores of lawyers he has mentored and supervised over the years." "Jerry has been an insightful and innovative leader of the SEC's enforcement program, and his contributions will have lasting impact," said Steven Peikin, Co-Director of the SEC's Enforcement Division. Mr. Hodgkins said, "I am grateful for the opportunity to have served U.S. investors for much of my professional career. It was a pleasure and privilege to work alongside the dedicated and talented staff at the SEC, whose commitment to public interest has never wavered." Under Mr. Hodgkins' leadership, the SEC has brought enforcement actions addressing a wide variety of misconduct, including charges against: WorldCom, Inc., which agreed in 2003 to pay a $750 million civil penalty – the largest penalty in SEC history for issuer reporting and disclosure fraud – as well as against WorldCom's former CEO, Bernard J. Ebbers, CFO, Scott D. Sullivan, and controller David F. Myers; MRI International and Edwin Fujinaga, for conducting a massive Ponzi scheme targeting Japanese citizens and against whom the SEC obtained over $580 million in monetary remedies on summary judgment in a civil action filed in 2013; William W. McGuire, M.D., the former CEO and Chairman of UnitedHealth Group Inc., who agreed in 2007 to pay $468 million in what was the first and still largest settlement involving Section 304 of the Sarbanes-Oxley Act of 2002; and Daimler AG, which agreed in 2010 to pay more than $185 million to resolve parallel SEC and U.S. Department of Justice investigations related to its violations of the Foreign Corrupt Practices Act. Mr. Hodgkins also spearheaded a settlement in 2008 with a large financial institution that provided 5,500 individual investors, small businesses, and small charities the opportunity to sell back up to $4.7 billion in auction rate securities (ARS) they purchased before the ARS market collapsed in February 2008. Mr. Hodgkins, 52, joined the SEC in 1997. He became a Branch Chief in 1999, an Assistant Director in 2007, and an Associate Director in 2010. Before joining the SEC, he served as a law clerk to the late Honorable Charles R. Richey of the U.S. District Court for the District of Columbia. He also was a litigation associate in private practice in Washington, D.C. He graduated from the University of Virginia School of Law and received his undergraduate degree from Tufts University.
- SEC Charges Operators of $1.2 Billion Ponzi Scheme Targeting Main Street Investors
published on Thu, 21 Dec 2017 12:10:00 -0500
The Securities and Exchange Commission today announced charges and an asset freeze against a group of unregistered funds and their owner who allegedly bilked thousands of retail investors, many of them seniors, in a $1.2 billion Ponzi scheme. SEC investigators filed this action to prevent further dissipation of investor assets after obtaining court orders in September and November in subpoena enforcement actions that forced the unregistered companies to open their books. According to the SEC’s complaint, unsealed today in federal court in Miami, Florida, Robert H. Shapiro and a group of unregistered investment companies called the Woodbridge Group of Companies LLC formerly headquartered in Boca Raton, Florida, defrauded more than 8,400 investors in unregistered Woodbridge funds. “We allege that through aggressive tactics, Woodbridge and Shapiro swindled seniors into a business model built on lies, which the SEC’s Miami Regional Office staff moved to halt,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “Our complaint alleges that Woodbridge’s business model was a sham,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.” “Our complaint further alleges that Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Shapiro used the scheme to line his pockets with millions of investor dollars.” According to the SEC complaint, Woodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners paying Woodbridge 11-15 percent annual interest for “hard money,” short-term financing. In return, Woodbridge allegedly promised to pay investors 5-10 percent interest annually. Woodbridge and Shapiro allegedly sought to avoid investors cashing out at the end of their terms and boasted in marketing materials that “clients keep coming back to [Woodbridge] because time and experience have proven results. Over 90% national renewal rate!” While Woodbridge claimed it made high-interest loans to third parties, the SEC’s complaint alleges that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments on the loans. The SEC complaint alleges that Shapiro and Woodbridge used investors’ money to pay other investors, and paid $64.5 million in commissions to sales agents who pitched the investments as “low risk” and “conservative.” Shapiro, of Sherman Oaks, California, is alleged to have diverted at least $21 million for his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry. According to the complaint, the scheme collapsed in typical Ponzi fashion in early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection. The Honorable Judge Marcia G. Cooke granted the SEC’s request for a temporary asset freeze against Shapiro and a group of his unregistered investment companies, and ordered them to provide an accounting of all money received from investors. The SEC’s complaint charges Shapiro, Woodbridge, and certain affiliated companies with fraud and violations of the securities and broker-dealer registration provisions of the federal securities laws. The SEC is seeking return of allegedly ill-gotten gains with interest and financial penalties. A court hearing has been scheduled for Dec. 29, 2017 on the SEC’s request to continue the asset freeze. The SEC’s motion for the appointment of a receiver over Woodbridge and the related companies is pending. The SEC’s investigation, which is continuing, has been conducted by Scott A. Lowry, Linda S. Schmidt, Russell Koonin, Christine Nestor, and Mark Dee in the Miami Regional Office with assistance from Alistaire Bambach, David Baddley and Neal Jacobson. The case has been supervised by Jason R. Berkowitz and Fernando Torres, and the litigation will be led by Mr. Koonin, Ms. Nestor, and Mr. Lowry. The SEC appreciates the assistance of the Florida Office of Financial Regulation, California’s Department of Justice and Department of Business Oversight, the Colorado Division of Securities, and the Texas State Securities Board. The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert to help seniors identify signs of investment fraud. The SEC also strongly encourages investors to check the backgrounds of people selling them investments by using the agency’s investor.gov website to quickly identify whether they are registered professionals.