| |1. SEC Charges Unregistered Sales of Securities Issued Under EB-5 Immigrant Investor ProgramÏò., 21 ñåíò.[−]
The Securities and Exchange Commission today announced that an Illinois-based regional center, its CEO, and 37 affiliated limited partnerships have agreed to settle charges related to securities issued under the EB-5 Immigrant Investor Program, which provides foreigners who invest in the U.S. a potential path to becoming a U.S. resident.
According to the SEC’s order, from 2011 to 2015, 37 entities affiliated with CMB Export LLC offered EB-5 securities in the form of limited partnership interests without registering them with the SEC and without a valid exemption from registration. The order also found that CMB Export, at the direction of its CEO Patrick Hogan, paid transaction-based compensation to U.S. individuals and entities for soliciting foreign investors to purchase these securities. In 2015, CMB and Hogan began developing and implementing a compliance program to ensure compliance with the federal securities laws.
“All securities, including EB-5 securities, must comply with registration provisions, which are essential to protecting investors,” said Melissa R. Hodgman, Associate Director of the Division of Enforcement. “In the EB-5 industry, strong compliance policies can help ensure that companies meet their registration obligations under the federal securities laws.”
CMB Export and Hogan neither admitted nor denied the findings in the SEC’s order, which requires them to cease and desist from further violations of the broker-dealer registration requirements of the federal securities laws. The CMB limited partnerships neither admitted nor denied the findings in the SEC’s order, which requires them to cease and desist from further violations of registration provisions of the federal securities laws. The order also requires CMB Export to pay a $5.15 million penalty, Hogan to pay a penalty of $515,000, and each of the 37 CMB limited partnerships to pay a penalty of $160,000, for total monetary relief of $11.585 million.
The SEC’s investigation was conducted by Heather A. Powell, Sarah M. Hall, and D. Ashley Dolan and supervised by Melissa A. Robertson of the SEC’s Washington D.C. office. The SEC appreciates the assistance of U.S. Citizenship and Immigration Services.
|↑|2. Public Companies Charged With Failing to Comply With Quarterly Reporting ObligationsÏò., 21 ñåíò.[−]
The Securities and Exchange Commission today announced charges against five public companies for failing to provide financial statements that were reviewed by their independent external auditor when they filed quarterly reports with the Commission on Form 10-Q.
Regulation S-X provides that interim financial statements must be subject to a review conducted by an independent external auditor prior to the statements being included in quarterly reports filed with the Commission. This requirement helps to ensure that investors are provided timely, accurate, and reliable interim financial information on a periodic basis.
According to the SEC’s orders, each of the five companies filed one or more Forms 10-Q with interim financial statements where a review was not conducted prior to filing, as required by Regulation S-X. These actions are the Commission’s first enforcement proceedings against an issuer for violating the Regulation S-X interim review requirement and resulted from a review of filings, staff comment letters and other metrics that indicated potential violations. Each company agreed to settle the SEC’s charges, and the agency assessed a total of $250,000 in penalties.
“The Commission’s reporting rules are designed to help ensure that investors are provided timely access to reliable interim financial information about public companies in quarterly reports,” said Anita B. Bandy, an Associate Director in the SEC’s Enforcement Division. “Our data-driven investigative techniques led us to identify these companies, who had deprived investors of the benefit of the external auditor’s involvement by including financial statements in Forms 10-Q that had not been reviewed in accordance with Regulation S-X.”
The SEC’s orders find that the companies violated their reporting obligations under the Securities Exchange Act of 1934 by failing to comply with Regulation S-X. Without admitting or denying the findings, the five companies agreed to a cease and desist order that made the following findings and requires payment of the following penalties:
- Cardiff Lexington Corporation – Filed one Form 10-Q with unreviewed financial statements. The Florida-based company agreed to pay a penalty of $25,000.
- Cool Technologies Inc. – Filed three Forms 10-Q with unreviewed financial statements. The Florida-based company agreed to pay a penalty of $75,000.
- Dasan Zhone Solutions Inc. – Filed two Forms 10-Q with unreviewed financial statements. The California-based company agreed to pay a penalty of $50,000.
- First Hartford Corporation – Filed two Forms 10-Q with unreviewed financial statements. The Connecticut-based company agreed to pay a penalty of $50,000.
- Infrax Systems Inc. – Filed two Forms 10-Q with unreviewed financial statements. The Florida-based company agreed to pay a penalty of $50,000.
The SEC’s investigation, which is continuing, has been conducted by Kendra Kinnaird and Kristin Dieter and supervised by Fuad Rana. The SEC appreciates the assistance of the Public Company Accounting Oversight Board.
|↑|3. SEC Staff to Host Nov. 15 Roundtable on the Proxy ProcessÏò., 21 ñåíò.[−]
The Securities and Exchange Commission today announced that its staff will host a roundtable on Nov. 15 to hear investor, issuer, and other market participant views about the proxy process and rules.
The proxy process is central to investors’ participation in corporate governance at U.S. public companies. The roundtable will focus on key aspects of the U.S. proxy system, including proxy voting mechanics and technology, the shareholder proposal process, and the role and regulation of proxy advisory firms. Chairman Jay Clayton previously announced that the staff would hold a roundtable on the proxy process in light of changes in the marketplace since the Commission issued a 2010 concept release soliciting feedback on the proxy system.
The roundtable will be held at the SEC’s headquarters at 100 F Street, NE, Washington, DC, and will be open to the public and webcast live on the SEC’s website. Further details on the agenda and participants will be forthcoming.
Members of the public who wish to provide their views on the proxy process and related SEC rules, either in advance of or after the roundtable, may submit comments electronically or on paper. Please submit comments using one method only. Information that is submitted will become part of the public record of the roundtable and posted on the SEC’s website. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make publicly available.
Send paper comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.
All submissions should refer to File Number 4-725, and the file number should be included on the subject line if email is used.
|↑|4. Business Services Company and Former CFO Charged With Accounting Fraud×ò., 20 ñåíò.[−]
The Securities and Exchange Commission today charged the former chief financial officer of Barrett Business Services Inc. for his role in an accounting fraud involving BBSI’s workers’ compensation expenses. The SEC also charged BBSI in the accounting fraud and charged the company’s former controller for his role in improperly approving certain of the CFO’s accounting entries. Both BBSI and the former controller agreed to settle the Commission’s charges against them.
The SEC’s complaint against BBSI’s former CFO James D. Miller, filed in federal district court in the Western District of Washington, alleges that Miller manipulated BBSI’s accounting records to hide the fact that its workers’ compensation expense was increasing relative to its revenue. According to the complaint, Miller took steps to conceal from BBSI’s independent auditor a third-party actuarial report concluding that BBSI needed to add tens of millions of dollars to its workers’ compensation liability. BBSI’s stock dropped 32 percent when the Vancouver, Washington-based firm announced it needed to restate its financial results to reflect increased workers’ compensation expenses.
In a parallel action, the U.S. Attorney’s Office for the Western District of Washington today announced criminal charges against Miller.
“Investors depend on public company executives to be up front about their company’s financial condition, not to use accounting gimmicks to hide worrisome trends,” said Erin E. Schneider, Associate Director of the SEC’s San Francisco Regional Office. “As alleged in our complaint, Miller betrayed the trust placed in him by the company and its investors by engaging in a number of accounting shenanigans designed to manipulate BBSI’s financial results.”
The SEC today instituted a settled administrative proceeding against BBSI for violations of the antifraud, books and records, internal accounting controls, and reporting provisions of the federal securities laws, and former Controller Mark Cannon for books and records violations. Without admitting or denying the SEC’s findings, BBSI agreed to pay a $1.5 million civil penalty and Cannon agreed to pay a $20,000 civil penalty and to be suspended from appearing and practicing before the Commission as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Cannon to apply for reinstatement after one year.
BBSI CEO Michael Elich, who was not charged by the SEC, has reimbursed the company for $20,800 in cash bonuses he received during the period of the alleged accounting violations.
The SEC’s investigation was conducted by Rahul Kolhatkar, Michael Foley, Chrissy Filipp, and Jason H. Lee, and the case was supervised by Monique Winkler and Jennifer Lee of the San Francisco Regional Office. The litigation against Miller will be led by Suzy LaMarca and Mr. Kolhatkar. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Western District of Washington and the Federal Bureau of Investigation.
|↑|5. Pamela C. Dyson, Chief Information Officer, to Leave SEC×ò., 20 ñåíò.[−]
The Securities and Exchange Commission today announced that Pamela C. Dyson plans to leave the SEC to serve as executive vice president, head of the Technology Group, and Chief Information Officer (CIO) at the Federal Reserve Bank of New York.
Ms. Dyson joined the SEC in 2010, progressing through several positions of increasing responsibility in the Office of Information Technology (OIT). She became CIO in February 2015 after serving as Acting CIO for several months. During her time as CIO, she delivered the SEC’s 2018-2020 IT Strategic Plan, established the SEC’s core cloud capability in Amazon Web Services as well as its ongoing governance, created the IT Strategy and Innovation program to lead the SEC’s digital transformation efforts, and worked to develop and support the ongoing agency-wide cyber uplift program.
“Pam’s leadership and experience have been critical to maintaining the information technology capabilities we need to fulfill our mission while ensuring we address ever-evolving cyber threats,” said SEC Chairman Jay Clayton. “I thank her immensely for her service to the Commission and to America’s investors.”
“All of us at the Commission are deeply indebted to Pam for the hard work and dedication she has brought to her work as CIO,” said SEC Chief Operating Officer Kenneth Johnson. “We will continue to benefit from the important advances she brought to our technological systems and cybersecurity.”
“It has been an absolute honor to contribute to the important mission of this wonderful agency in its service to the citizens of America,” said Ms. Dyson. “I am equally grateful to have served alongside such a dedicated team of professionals across the Commission, and I am proud of the work we accomplished together.”
Ms. Dyson began her SEC career as Assistant Director for Enterprise Operations. In that capacity, she managed day-to-day operations such as IT infrastructure and all enterprise operations for the SEC’s headquarters and its 11 regional offices. Before joining the SEC staff, Ms. Dyson was the Deputy CIO for the U.S. International Trade Commission.
Ms. Dyson received her Bachelor of Science degree from the University of Maryland in College Park.
Upon Ms. Dyson’s departure, Charles Riddle, the SEC’s Chief Technology Officer, will become the Acting Chief Information Officer.
Mr. Riddle joined the SEC in 2016 from the U.S. Government Publishing Office, where he served as Chief Information Officer beginning in 2011. He worked at the U.S. Department of Agriculture from 2005 to 2011 in several positions relating to information technology including Chief Technology Officer at USDA’s Food Safety Inspection Service. Prior to his government service, Mr. Riddle worked in the private sector at Booz Allen Hamilton and several organizations involved in telecommunications, including BetterWorld Telecom, Cable & Wireless, and NETtel Communications. He received his MBA from Johns Hopkins University and his BA from George Mason University.
|↑|6. Christopher Hetner, Senior Advisor to the Chairman for Cybersecurity Policy, to Leave the AgencyÑð., 19 ñåíò.[−]
The Securities and Exchange Commission today announced that Christopher R. Hetner, Senior Advisor to Chairman Jay Clayton for Cybersecurity Policy, plans to leave the agency. Mr. Hetner will remain in the Chairman's Office during the identification of and transition to his successor.
Mr. Hetner previously served as Senior Advisor for Cybersecurity Policy for former Chair Mary Jo White and former Acting Chairman Michael Piwowar. Mr. Hetner helped to establish the position in 2016 to better coordinate cybersecurity policy efforts across federal financial regulators, enhance the SEC's ability to assess cyber-related market risks and improve the SEC's cybersecurity posture. In this role, Mr. Hetner has led efforts across SEC Divisions and Offices to manage cybersecurity priorities, strengthen cyber incident response planning and enhance threat intelligence capabilities.
Mr. Hetner has served as SEC staff representative to the U.S. Treasury's Financial Banking Information Infrastructure Committee (FBIIC). In this capacity, Mr. Hetner provided leadership on enhancing coordination and cooperation among federal financial regulators through, among other things, expanding efforts to harmonize cybersecurity regulations, respond to cyber-attacks and enhance market-wide cyber threat assessments. Mr. Hetner has also served as SEC representative to the G-7 Cyber Expert Group.
"The rapid evolution of technology and markets in the U.S. and globally continues to present both opportunities and challenges for regulators and market participants," said Chairman Jay Clayton. "During his time at the SEC, Chris has worked diligently to enhance the agency's cybersecurity capabilities and improve cybersecurity coordination among the financial regulatory community in the U.S. and abroad."
Mr. Hetner said, "It has been an honor to work with so many professionals here at the SEC and across the U.S. government, industry and international regulatory community, who are all committed to protecting markets and investors. The implementation of fundamental and strategic improvements across the SEC will enhance its capabilities to protect market participants and the agency from cybersecurity threats."
Prior to his current role as a Senior Advisor for Cybersecurity Policy, Mr. Hetner served as the Cybersecurity Leader for the Technology Control Program in the SEC's Office of Compliance Inspections and Examinations (OCIE). Mr. Hetner played an important role in leading the implementation of cyber event monitoring capabilities for Regulation SCI entities, leading industry outreach on cybersecurity topics, enhancing OCIE's cybersecurity examination procedures, and establishing cyber risk assessments for the agency’s Broker Dealer Large Firm Monitoring Program. He also served as a liaison in OCIE to the Division of Enforcement.
Prior to joining the SEC, Mr. Hetner spent 20 years in a variety of senior cybersecurity and technology risk management roles in the private sector. More recently, Mr. Hetner led Ernst and Young's Wealth and Asset Management Cybersecurity practice, served as Global Chief Information Security Officer at GE Capital and led global information security programs as Senior Vice President in Citigroup’s Institutional Client Group.
Mr. Hetner holds industry-leading certifications including the CISSP (Certified Information Systems Security Professional), NSA INFOSEC (National Security Agency Information Security) Assessment Certification, and CISM (Certified Information Security Manager). Mr. Hetner earned his M.S. in Information Assurance from Norwich University and his B.S in Security Management from The City University of New York’s John Jay College of Criminal Justice.
|↑|7. SEC Provides Regulatory Relief and Assistance for Hurricane VictimsÑð., 19 ñåíò.[−]
The Securities and Exchange Commission today announced that it is providing regulatory relief to publicly traded companies, investment companies, accountants, transfer agents, municipal advisors and others affected by Hurricane Florence. The loss of property, power, transportation, and mail delivery due to the hurricane poses challenges for some individuals and entities that are required to provide information to the SEC and shareholders.
To address compliance issues caused by Hurricane Florence, the Commission issued an order that conditionally exempts affected persons from certain requirements of the federal securities laws for periods following the weather event.
The Commission also adopted interim final temporary rules that extend the filing deadlines for specified reports and forms that companies must file pursuant to Regulation Crowdfunding and Regulation A.
* * *
In connection with the Commission relief, issued in the order and interim final temporary rules, the Commission staff will take the following no-action positions with respect to affected parties’ obligations under the Exchange Act, the Securities Act, and the Investment Advisers Act:
- For purposes of eligibility to use Form S-3 (and for well-known seasoned issuer status, which is based in part on Form S-3 eligibility), a company relying on the exemptive order will be considered current and timely in its Exchange Act filing requirements during the relief period if it was current and timely as of the first day of the relief period. After the relief period, a company will continue to be considered current and timely if it files any required report on or before Oct. 29, 2018.
- For purposes of the Form S-8 eligibility requirements and the current public information eligibility requirements of Rule 144(c), a company relying on the exemptive order will be considered current in its Exchange Act filing requirements during the relief period if it was current as of the first day of the relief period. After the relief period, a company will continue to be considered current if it files any required report on or before Oct. 29, 2018.
- Companies that receive an extension on filing Exchange Act annual reports or quarterly reports pursuant to the order will be considered to have a due date of Oct. 29, 2018. As such, those companies will be permitted to rely on Rule 12b-25 if they are unable to file the required reports on or before the due date.
- During the period from Sept. 14, 2018 to Oct. 26, 2018, a registered open-end investment company and a registered unit investment trust will be considered to have satisfied the requirements of Section 5(b)(2) of the Securities Act to deliver a summary or a statutory prospectus, as applicable, to an investor, provided that: (1) the sale of shares to the investor was not an initial purchase by the investor of shares of the company or unit investment trust; (2) the investor’s mailing address for delivery, as listed in the records of the company or unit investment trust, has a ZIP code for which the common carrier has suspended mail service, as a result of Hurricane Florence, of the type or class customarily used by the company or unit investment trust, to deliver summary or statutory prospectuses; and (3) the company, or unit investment trust, or other person promptly delivers the summary or statutory prospectus, as applicable either (a) if requested by the investor, or (b) by the earlier (i) of Oct. 29, 2018 or (ii) the resumption of the applicable mail service.
- A registered investment adviser will be considered to have satisfied Form ADV filing requirements under Section 204(a) of the Advisers Act and Rule 204-1 thereunder, if: (1) the registrant’s Form ADV filing deadline falls within the period from Sept. 14, 2018 to Oct. 26, 2018; (2) the registrant was or is not able to meet its filing deadline due to Hurricane Florence; and (3) the registrant makes the required Form ADV filing by Oct. 29, 2018.
- During the period from Sept. 14, 2018 to Oct. 26, 2018, a registered investment adviser will be considered to have satisfied the requirements of Section 204 of the Advisers Act and Rule 204-3(b) thereunder to deliver the written disclosure statements required thereunder to its advisory client, provided that: (1) the client’s mailing address for delivery, as listed in the records of the investment adviser, has a ZIP code for which the common carrier has suspended mail service, as a result of Hurricane Florence, of the type or class customarily used by the adviser to deliver written disclosure statements; and (2) the investment adviser or other person promptly delivers the written disclosure statement either (a) if requested by the client, or (b) at the earlier of (i) Oct. 29, 2018 or (ii) the resumption of the applicable mail service.
Some companies and other affected persons may require additional or different assistance in their efforts to comply with the requirements of the federal securities laws and therefore are encouraged to contact Commission staff. The Commission staff will address these and any disclosure-related issues on a case-by-case basis in light of their fact-specific nature.
|↑|8. SEC Shuts Down $345 Million Fraud and Obtains Asset FreezeÑð., 19 ñåíò.[−]
The Securities and Exchange Commission today announced it has obtained a court order halting an ongoing Ponzi-like scheme that raised more than $345 million from over 230 investors across the U.S. The SEC also obtained an emergency asset freeze and the appointment of a receiver.
An SEC complaint unsealed yesterday alleges that Kevin B. Merrill, Jay B. Ledford and Cameron Jezierski attracted investors to their scheme by promising significant profits from the purchase and resale of consumer debt portfolios. But in fact, the defendants were allegedly using a web of lies, fabricated documents, and forged signatures in an elaborate scheme to entice investors and perpetuate the fraud. Rather than direct investor funds to the acquisition and servicing of debt portfolios as promised, the defendants allegedly used the funds to make Ponzi-like payments to earlier investors. The SEC also alleges that Merrill and Ledford stole at least $85 million of the investor funds to maintain lavish lifestyles, spending millions of dollars on luxury items, including $10.2 million on at least 25 high-end cars, $330,000 for a 7-carat diamond ring, $168,000 for a 23-carat diamond bracelet, millions of dollars on luxury homes, and $100,000 to a private fitness club.
"The defendants touted their purported investment expertise to siphon millions of dollars from unsuspecting investors," said Stephanie Avakian, Co-Director of the SEC's Division of Enforcement. "We filed this action on an emergency basis to put a stop to this fraud and protect investors from further harm."
"We allege that the defendants engaged in a brazen fraud, deceiving investors to perpetuate their wrongdoing and line their pockets with ill-gotten gains," said Kelly L. Gibson, Associate Regional Director of the SEC's Philadelphia Regional Office. "Investors should be warned that low-risk, high-return investments that never lose should be a red flag."
In a parallel action, the U.S. Attorney's Office for the District of Maryland today announced criminal charges against Merrill, Ledford, and Jezierski.
The SEC's complaint, filed on Sept. 13 in federal district court in Maryland, charges Merrill, Ledford, and Jezierski, along with their entities, Global Credit Recovery, LLC, Delmarva Capital, LLC, Rhino Capital Holdings, LLC, Rhino Capital Group, LLC, DeVille Asset Management LTD, and Riverwalk Financial Corporation, with violations of the antifraud provisions of the federal securities laws. The court granted the SEC's request for an asset freeze, temporary restraining order, and the appointment of a receiver. The SEC seeks disgorgement of allegedly ill-gotten gains and prejudgment interest, and financial penalties against the defendants.
The SEC's continuing investigation is being conducted by Norman P. Ostrove, Dustin E. Ruta, and Scott A. Thompson in the Philadelphia Regional Office and supervised by Ms. Gibson. The SEC's litigation is being led by Julia C. Green, Mark R. Sylvester, and Jennifer C. Barry. The SEC appreciates the assistance of the U.S. Attorney's Office for the District of Maryland and the Federal Bureau of Investigation.
|↑|9. SEC Staff to Host Roundtable on Regulatory Approaches to Combating Retail Investor FraudÂò., 18 ñåíò.[−]
The Securities and Exchange Commission announced today that its Division of Trading and Markets will host a roundtable on Sept. 26 on combating retail investor fraud. The Commission staff is interested in views from a broad range of market participants, regulators and industry experts concerning potential steps that might be taken to enhance the ability of regulators, broker-dealers and others to combat retail investor fraud.
The roundtable will be held at the SEC's headquarters at 100 F Street, N.E., Washington, D.C. and will begin at 9:30 a.m. ET. The roundtable will be open to the public and webcast live on the Commission’s website. Information on the agenda and participants will be issued shortly.
Members of the public who wish to provide their views on the topic may submit comments electronically or on paper. Please submit comments using one method only. Information that is submitted will become part of the public record of the roundtable and posted on the Commission's website. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make publicly available.
Use the Commission's Internet comment form or send an e-mail to firstname.lastname@example.org. Please include File Number 265-31 on the subject line.
Send paper comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090.
All submissions should refer to File Number 265-31, and the file number should be included on the subject line if email is used.
|↑|10. Biopharmaceutical Company, Executives Charged With Misleading Investors About Cancer DrugÂò., 18 ñåíò.[−]
The Securities and Exchange Commission today announced that a Boulder, Colorado-based biopharmaceutical company, its CEO, and its former CFO will pay more than $20 million in penalties to settle charges of misleading investors about the company’s developmental lung cancer drug.
The SEC’s complaint filed in federal court in Denver alleges that over a four-month period starting in July 2015, Clovis Oncology Inc. and CEO Patrick Mahaffy misled investors about how well Clovis’ flagship lung cancer drug worked compared to another drug. According to the complaint, the company’s investor presentations, press releases, and SEC filings stated that the drug was effective 60 percent of the time, far higher than suggested by actual results available internally. Clovis raised approximately $298 million in a public stock offering in July 2015, and saw its stock price collapse in November 2015 after disclosing that the effectiveness rate was actually 28 percent. The company stopped development on the drug in May 2016.
“Biopharma companies cannot mislead investors about efficacy results,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “As we allege here, the data available to Clovis and its executives should have alerted them to the inaccuracy of the claims about the effectiveness of its developmental drug.”
According to the SEC’s complaint, in evaluating Clovis’ stock, investors closely followed prospects for its lung cancer drug rociletinib, or Roci, and an important driver was its “efficacy,” or how well the drug worked. In May 2015, Clovis disclosed in an investor presentation that Roci’s efficacy was 60 percent, meaning that in 60 percent of patients Roci caused targeted tumors to shrink. The complaint alleges that soon after, certain data provided to Mahaffy and Erle Mast, the company’s CFO at that time, showed that Roci’s efficacy rate was substantially lower and by early July 2015, Mahaffy and Mast learned that the efficacy for Roci at that time was 42 percent. Clovis continued referring to the 60 percent efficacy figure, including in the solicitation materials for the July 2015 offering and afterward. In November 2015, after Clovis disclosed the true efficacy using the methodology required by the U.S. Food and Drug Administration, its stock price dropped approximately 70 percent.
The SEC’s complaint charges Clovis with violating Section 17(a)(2) of the Securities Act of 1933 and Section 13(a) of the Securities Exchange Act of 1934. The complaint charges Mahaffy with violating Section 17(a)(2) and aiding and abetting Clovis’ violations of Section 13(a). The complaint charges Mast with aiding and abetting Clovis’ federal securities laws violations. The defendants agreed to the settlements without admitting or denying the allegations and the settlements are subject to court approval. Clovis agreed to a $20 million penalty. Mahaffy agreed to a $250,000 penalty. Mast agreed to pay a $100,000 penalty and to provide disgorgement and prejudgment interest of $454,145, attributable to selling Clovis stock during the relevant period at inflated prices. The SEC plans to seek the creation of a Fair Fund for distribution of the penalties to harmed investors.
The SEC’s investigation was conducted by Michael Cates and Kim Greer and supervised by Ian Karpel and Kurt Gottschall in the Denver Regional Office.
|↑|11. SeaWorld and Former CEO to Pay More Than $5 Million to Settle Fraud ChargesÂò., 18 ñåíò.[−]
The Securities and Exchange Commission today announced that SeaWorld Entertainment Inc. and its former CEO have agreed to pay more than $5 million to settle fraud charges for misleading investors about the impact the documentary film Blackfish had on the company’s reputation and business. SeaWorld’s former vice president of communications also agreed to settle a fraud charge for his role in misleading SeaWorld’s investors.
Blackfish criticized SeaWorld’s treatment of its orcas (killer whales) and received significant media attention as the film became more widely distributed in the latter half of 2013. The SEC’s complaint alleges that from approximately December 2013 through August 2014, SeaWorld and former CEO James Atchison made untrue and misleading statements or omissions in SEC filings, earnings releases and calls, and other statements to the press regarding Blackfish’s impact on the company’s reputation and business. According to the SEC’s complaint, on Aug. 13, 2014, when SeaWorld for the first time acknowledged that its declining attendance was partially caused by negative publicity, SeaWorld’s stock price fell, causing significant losses to shareholders.
“This case underscores the need for a company to provide investors with timely and accurate information that has an adverse impact on its business. SeaWorld described its reputation as one of its ‘most important assets,’ but it failed to evaluate and disclose the adverse impact Blackfish had on its business in a timely manner,” said Steven Peikin, Co-Director of the SEC Enforcement Division.
The SEC’s complaint, filed in federal court in New York, charges SeaWorld and Atchison with violating antifraud provisions of the federal securities laws and charges SeaWorld with reporting violations. SeaWorld and Atchison have agreed to settle the SEC’s charges without admitting or denying the allegations, with SeaWorld paying a $4 million penalty and Atchison paying over $1 million in penalty and disgorgement.
SeaWorld’s former vice president of communications, Frederick D. Jacobs, agreed to settle a fraud charge and to pay disgorgement and prejudgment interest of approximately $100,000. He was not assessed a penalty, reflecting his substantial assistance in the SEC’s investigation. All of the settlements are subject to court approval.
The SEC’s investigation was conducted by James Lyman and Lee Robinson and supervised by Ian Karpel and Kurt Gottschall of the Denver office.
|↑|12. SEC and NYU to Host Sept. 21 Forum on High-Frequency Trading and Liquidity ResiliencyÏí., 17 ñåíò.[−]
The U.S. Securities and Exchange Commission's Division of Economic and Risk Analysis and Division of Trading and Markets are 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 on Sept. 21 at the SEC headquarters in Washington, D.C. Panelists will discuss the impact of high-frequency trading and the resiliency of liquidity in securities markets.
"High-frequency trading represents a substantial source of market volume today. It is important for market participants and regulators to understand how this activity is affecting trading, including efficiency, integrity, liquidity and depth," said Chairman Jay Clayton. "I appreciate the efforts of those participating in this symposium and look forward to hearing their comments on how we can improve our public equity markets, focusing on the interests of our Main Street investors — those who are investing today for tomorrow's needs and those who are selling today to meet current needs they invested for in the past."
Discussion topics will include the effects of regulations and self-regulatory organization practices on the increasing focus on speed among traders in securities markets; the evolving state of market making and the role of automation and market quality; and how high-frequency trading has influenced liquidity provision and liquidity resiliency, including spillovers across financial markets.
The event is free and is open to the public, and will commence with welcoming remarks starting at 9:15 a.m. ET with doors opening to the public at 8:30 a.m. ET at the SEC headquarters located at 100 F Street NE, Washington, D.C. Information about the event agenda and webcast will be available at DERA Events. Members of the public planning to attend the forum are asked to register in advance.
|↑|13. Mark Wolfe Named Associate Director in Office of Derivatives Policy and Trading PracticesÏí., 17 ñåíò.[−]
The Securities and Exchange Commission today announced that Mark E. Wolfe has been named Associate Director of the Office of Derivatives Policy and Trading Practices in the agency’s Division of Trading and Markets.
Mr. Wolfe spent nearly seven years at the SEC from 1999 through 2006. He first joined the SEC staff in November 1999 as an attorney in the Office of Compliance Inspections and Examinations’ market oversight program. From April 2003 to September 2006 he was a senior counsel in the Division of Enforcement and investigated cases involving broker-dealer misconduct, financial fraud, insider trading, and market manipulation. After leaving the SEC he worked in regulatory affairs and compliance functions at broker-dealers and investment banks including, most recently, as executive director of equities compliance at J.P. Morgan Securities LLC.
The Office of Derivatives Policy and Trading Practices is responsible for implementing the derivatives provisions of the Dodd-Frank Act and for administering Regulation SHO and other SEC rules involving short selling and market manipulation. The office also provides legal and policy expertise to the Division of Enforcement in enforcement matters pertaining to market regulation and oversight.
“Mark’s broad experience and knowledge makes him extremely well suited for his new position,” said Brett Redfearn, Director of the Division of Trading and Markets. “I am excited to have him join the division and am confident that he will be an important asset in our ongoing efforts to serve the long-term interests of Main Street investors.”
“I am excited and honored to be provided with this opportunity and responsibility. Over the course of my career, I have witnessed directly the important work that is being done by the staff in the Division of Trading and Markets and across the Commission, and I am excited to return to the agency,” said Mr. Wolfe. “I hope to be an asset to the program.”
Mr. Wolfe has a bachelor’s degree from James Madison University, a master’s degree from the University of Maine, and law degree from the University of Baltimore School of Law. At the beginning of his career he clerked for the Hon. Judge Frederick C. Wright III, and was an Assistant State’s Attorney in Baltimore County and later Washington County, Maryland.
|↑|14. SEC Charges Investment Advisers With Defrauding Retail Advisory ClientsÏò., 14 ñåíò.[−]
The Securities and Exchange Commission today charged an Indianapolis-based investment advisory firm and its sole owner with selling approximately $13 million of high-risk securities to more than 120 advisory clients – many of whom are current or former teachers or other workers in public education – without disclosing that the firm and its owner stood to receive commissions of up to 18 percent from the sales.
The SEC’s complaint alleges that from December 2012 to October 2016, Steele Financial Inc. and Tamara Steele sold to advisory clients and other investors more than $15 million of the securities of Behavioral Recognition Systems Inc. (BRS), a private company previously charged with fraud by the SEC. All told, Steele and Steele Financial received commissions of cash and warrants from BRS that were worth more than $2.5 million. Steele and Steele Financial allegedly targeted their own advisory clients who generally did not invest in individual stocks, selling more than 120 clients approximately $13 million of BRS securities without disclosing that the defendants were receiving commissions from BRS. The complaint further alleges that the defendants created false invoices and took other steps to conceal their involvement selling BRS securities.
“We allege that Steele took advantage of her own advisory clients, including clients whom she herself described as ‘two-pension, two Social Security families,’” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement. “Investment advisers must put their clients’ interests ahead of their own and make full and fair disclosure of financial conflicts of interest.”
The SEC’s complaint, filed in federal district court in Indiana, charges the defendants with violating the antifraud and broker-dealer registration provisions of the federal securities laws. The SEC is seeking disgorgement of ill-gotten gains with interest, penalties, and permanent injunctions.
The investigation has been conducted by Peter Fielding and Joseph Griffin and supervised by George Bagnall, Stacy Bogert and Antonia Chion. The litigation will be led by Gregory Bockin and Kevin Lombardi and will be supervised by Cheryl Crumpton.
|↑|15. Whistleblower Receives Award of Approximately $1.5 MillionÏò., 14 ñåíò.[−]
The Securities and Exchange Commission today announced that a whistleblower has earned an award of more than $1.5 million. The whistleblower provided the SEC with vital information and ongoing assistance that proved important to the overall success of an enforcement action. However, the SEC’s order notes that the award was reduced because the whistleblower did not promptly report the misconduct and benefited financially during the delay.
“This award reflects the value of the information while underscoring the need for individuals to come forward without delay so that our enforcement staff may quickly leverage the information and prevent further investor harm,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “This is especially critical and, as is the case here, may result in an award reduction where an individual provided valuable information but it came after receiving a benefit from the wrongdoing.”
The SEC’s whistleblower program has now awarded approximately $322 million to 58 individuals since issuing its first award in 2012. In that time, more than $1.6 billion in monetary sanctions have been ordered against wrongdoers based on actionable information received by whistleblowers.
Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards.
By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.
For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.
|↑|16. SEC Charges Citigroup for Dark Pool MisrepresentationsÏò., 14 ñåíò.[−]
The Securities and Exchange Commission today entered an order finding that Citigroup Global Markets Inc. misled users of a dark pool operated by one of its affiliates.
The SEC’s order found that Citigroup misled users with assurances that high-frequency traders were not allowed to trade in Citi Match, a premium-priced dark pool operated by Citi Order Routing and Execution (CORE), when two of Citi Match’s most active users reasonably qualified as high-frequency traders and executed more than $9 billion of orders through the pool.
The SEC order also found that Citigroup failed to disclose that over a period of more than two years, close to half of Citi Match orders were routed to and executed in other trading venues, including other dark pools and exchanges, that did not offer the same premium features as Citi Match. Citigroup also sent trade confirmation messages to certain users that indicated their orders had been executed on Citi Match when in fact those orders had been executed on an outside venue.
The SEC also found that CORE failed to register as a national securities exchange in connection with its operation of Citi Match.
“Market participants deserve to make informed decisions about where they execute their orders,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “All trading venues, regardless of their trade volume, must ensure that their users have accurate information, particularly about key issues like order routing.”
The SEC’s order found that Citigroup violated an antifraud provision of the federal securities laws and that CORE violated a registration provision. Without admitting or denying the findings in the SEC’s order, Citigroup and CORE have agreed to be censured. Citigroup will pay disgorgement and prejudgment interest totaling $5,437,475 and a penalty of $6.5 million. CORE will pay a penalty of $1 million.
The SEC’s investigation was conducted by Vanessa De Simone and Charles Riely of the Market Abuse Unit and Charu A. Chandrasekhar with assistance from Mathew Wong and Mandy Sturmfelz of the Market Abuse Unit. The case was supervised by Mr. Sansone.
|↑|17. SEC Monitoring Impact of Hurricane Florence on Capital Markets×ò., 13 ñåíò.[−]
The Securities and Exchange Commission is closely monitoring the impact of Hurricane Florence on investors and capital markets.
“The SEC is keeping a close eye on the progress of Hurricane Florence and any effects it may have on investors and capital markets. Dedicated staff stand ready to help ensure investors have access to their securities accounts, to evaluate the need to extend deadlines for filings and other regulatory requirements, and to keep a watchful eye for storm-related scams," said SEC Chairman Jay Clayton. “We encourage everyone in the path of the storm to stay safe by heeding the warnings of local officials.”
The SEC divisions and offices that oversee companies, accountants, investment advisers, mutual funds, brokerage firms, transfer agents, and other regulated entities and investment professionals will continue to closely track developments. They will evaluate the possibility of granting relief from filing deadlines and other regulatory requirements for those affected by the storm. Entities and investment professionals affected by Hurricane Florence are encouraged to contact Commission staff with questions and concerns:
- Office of Compliance Inspections and Examinations staff in the Commission's Atlanta Regional Office can be reached by phone at 404-842-7600 or email at email@example.com,
- Office of Compliance Inspections and Examinations staff in the Commission’s Philadelphia Regional Office can be reached by phone at 215-597-3100 or email at Philadelphia@sec.gov,
- Division of Corporation Finance staff can be reached by phone at 202-551-3500 or via online submission at www.sec.gov/forms/corp_fin_interpretive,
- Division of Investment Management staff can be reached by phone at 202-551-6825 or email at firstname.lastname@example.org,
- Division of Trading and Markets staff can be reached by phone at 202-551-5777 or email at email@example.com, and
- Office of Municipal Securities staff can be reached by phone at 202-551-5680 or email at firstname.lastname@example.org.
Individuals experiencing problems accessing their securities accounts or with similar questions or concerns relating to the hurricane are encouraged to contact the SEC’s Office of Investor Education and Advocacy by phone at 1-800-SEC-0330 or email at email@example.com.
Investors should be vigilant for Hurricane Florence-related securities scams and check the background of anyone offering them an investment by using the free and simple search tool on Investor.gov. The Division of Enforcement will vigorously prosecute those who attempt to defraud victims of the storm. The SEC is asking investors to report any suspicious solicitations at www.sec.gov/complaint/tipscomplaint.shtml.
|↑|18. Broker-Dealer to Pay $2.75 Million Penalty for Providing Deficient Blue Sheet Data×ò., 13 ñåíò.[−]
The Securities and Exchange Commission today announced that Convergex Execution Solutions LLC, now known as Cowen Execution Services LLC, will pay $2.75 million to settle charges that the broker-dealer firm provided the SEC with incomplete and deficient securities trading information known as “blue sheet data.”
According to the SEC’s order, for nearly four years as a result of coding errors, a substantial number of the firm’s “blue sheet” submissions were missing data or contained deficiencies, including customer identifying information, order execution times, exchange codes, transaction type identifiers, and other trade information. The order found that from May 1, 2012 to Feb. 28, 2016, approximately 29 percent of Convergex’s submissions contained deficient customer identifying information. Although the Financial Industry Regulatory Authority (FINRA) sanctioned Convergex in March 2012 for deficient blue sheet submissions, the order found that the firm did not take reasonable steps to ensure that its blue sheet submissions to the SEC contained complete and accurate information and failed to identify the deficiencies during this period.
“Broker-dealers must ensure they submit complete and accurate blue sheet data to the SEC because the failure to do so can hinder our ability to detect wrongdoing and protect investors,” said Joseph G. Sansone, Chief of the SEC’s Market Abuse Unit.
The SEC’s order finds that Convergex willfully violated the broker-dealer books and records and reporting provisions. Convergex admitted the findings in the SEC’s cease-and-desist order and agreed to be censured and pay a $2.75 million penalty.
The SEC’s investigation was conducted by David S. Brown and supervised by Mr. Sansone and Diana K. Tani of the Market Abuse Unit. The SEC appreciates the assistance of FINRA.
|↑|19. SEC Charges Hedge Fund Adviser With Short-and-Distort SchemeÑð., 12 ñåíò.[−]
The Securities and Exchange Commission today charged a hedge fund adviser and his investment advisory firm with illegally profiting from a scheme to drive down the price of San Diego-based Ligand Pharmaceuticals Inc., reaping more than $1.3 million of gains for the adviser and the hedge fund.
The SEC’s complaint charges that Gregory Lemelson and Massachusetts-based Lemelson Capital Management LLC issued false information about Ligand after Lemelson took a short position in Ligand in May 2014 on behalf of The Amvona Fund, a hedge fund he advised and partly owned. Short-sellers profit when the price of stock declines. According to the SEC’s complaint, Ligand’s stock lost more than one-third of its value during the course of Lemelson’s alleged scheme. After establishing his short position, the complaint charges that Lemelson made a series of false statements to shake investor confidence in Ligand, lower its stock price, and increase the value of his position.
The SEC’s complaint, filed in federal court in Massachusetts, alleges that Lemelson used written reports, interviews, and social media to spread untrue claims, including that Ligand was “teetering on the brink of bankruptcy” and that Ligand’s investor relations firm agreed with his view that its flagship Hepatitis C drug, Promacta, was going to become obsolete. Lemelson also allegedly misled investors by citing a European doctor’s negative views on the same Ligand drug without revealing the doctor was Amvona’s largest investor and had a significant financial interest in seeing Ligand’s stock price decline.
“While short-sellers are free to express their opinions about particular companies, they may not bolster those opinions with false statements, which is what we allege Lemelson did here,” said David Becker, an Assistant Director in the SEC’s Division of Enforcement.
The SEC’s complaint charges Lemelson and Lemelson Capital Management with fraud and seeks to have them return allegedly ill-gotten gains with interest and pay monetary penalties. The complaint names the Amvona Fund as a relief defendant and seeks to have it return gains it obtained as a result of Lemelson and his firm’s alleged misconduct.
The SEC’s investigation was conducted by Virginia Rosado Desilets, Sonia Torrico, and Jennifer Clark, and supervised by David A. Becker. The SEC’s litigation will be led by Marc Jones and Al Day.
|↑|20. SEC Uses Data Analysis to Detect Cherry-Picking By BrokerÑð., 12 ñåíò.[−]
The Securities and Exchange Commission today charged a New Jersey-based broker with misusing his access to customers’ brokerage accounts to enrich himself and family members at the expense of his customers, many of whom had entrusted him with their retirement accounts. The SEC uncovered the alleged fraud with data analysis used to detect suspicious trading patterns.
The SEC filed fraud charges in federal district court against Michael A. Bressman of Montville, New Jersey, alleging that he misused his access to an omnibus or “allocation” account to obtain at least $700,000 in illicit trading profits over a six-year period ending in February. The SEC’s complaint alleges that Bressman placed trades using the allocation account and cherry-picked profitable trades, which he then transferred to his own account and the account of two family members, while placing unprofitable trades in other customers’ accounts.
In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against Bressman.
“SEC data analysis played an important role in identifying the alleged securities law violations,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “We will continue to develop and use data analytics to root out cherry-picking and other frauds.”
The SEC’s complaint, filed in federal court in Massachusetts, charges Bressman with violating antifraud provisions of the federal securities laws and a related SEC antifraud rule. The SEC is seeking return of allegedly ill-gotten gains, plus interest, penalties and a permanent injunction.
The SEC’s investigation was conducted by Vanessa De Simone and Charles Riely of the Market Abuse Unit in the New York Regional Office with assistance from Jonathan Hershaff and Mark Kaplan in the Division of Economic and Risk Analysis and Hugh Beck in the Market Abuse Unit. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts and the Boston field office of the Federal Bureau of Investigation.
|↑|21. United Technologies Charged With Violating FCPAÑð., 12 ñåíò.[−]
The Securities and Exchange Commission today announced that Connecticut-based United Technologies Corporation will pay $13.9 million to resolve charges that it violated the Foreign Corrupt Practices Act (FCPA) by making illicit payments in its elevator and aircraft engine businesses.
According to the SEC’s order, United Technologies subsidiary Otis Elevator Co. made unlawful payments to Azerbaijani officials to facilitate the sales of elevator equipment for public housing in Baku and as part of a kickback scheme to sell elevators in China. The order also found that United Technologies, through its joint venture, made payments to a Chinese sales agent in a bid to obtain confidential information from a Chinese official that would help the company win engine sales to a Chinese state-owned airline. The SEC’s order also found that United Technologies improperly provided trips and gifts to various foreign officials in China, Kuwait, South Korea, Pakistan, Thailand, and Indonesia through its Pratt & Whitney division and Otis subsidiary in order to obtain business.
“U.S. companies with global operations must implement policies and procedures that prevent bribery and motivate employees to perform ethically,” said Tracy L. Price, Deputy Chief of the SEC Enforcement Division’s FCPA Unit. “Issuers with weak internal accounting controls open the door to corruption and other financial misconduct.”
United Technologies consented to the SEC’s order without admitting or denying the findings that it violated the anti-bribery, books and records, and internal accounting controls provisions of the Securities Exchange Act of 1934, and the company agreed to pay disgorgement of $9,067,142 plus interest of $919,392 and a penalty of $4 million.
The SEC’s investigation was conducted by Ilana Z. Sultan and M. Shahriar Masud and supervised by Tracy L. Price. The SEC appreciates the assistance of the Fraud Section of the Department of Justice and the U.S. Postal Inspection Service.
|↑|22. Elad Roisman Sworn In As SEC CommissionerÂò., 11 ñåíò.[−]
Elad L. Roisman has been sworn into office as an SEC Commissioner by SEC Chairman Jay Clayton.
Mr. Roisman was nominated to the SEC by President Donald J. Trump and his nomination was confirmed by the U.S. Senate on September 5.
“It is my honor to welcome Elad back to the Commission,” said SEC Chairman Jay Clayton. “Elad’s broad experience and previous work at the Commission will serve Main Street investors and our markets well.”
“I am excited to have the opportunity to be back working with the talented and hardworking people at the SEC, as well as with my fellow Commissioners,” said Commissioner Roisman. “I look forward to engaging with them and the public to carry out the SEC’s important mission.”
Commissioner Roisman comes to the SEC from the Senate Banking Committee, where he served as Chief Counsel. He previously served as Counsel to SEC Commissioner Daniel Gallagher and prior to that, as a Chief Counsel at NYSE Euronext. He also worked as an attorney at the law firm of Milbank, Tweed, Hadley & McCloy LLP where he served as an associate in the New York office. Commissioner Roisman earned his bachelor’s degree in History at Cornell University and his J.D. at the Boston University School of Law.
Commissioner Roisman fills a term that expires on June 5, 2023.
|↑|23. SEC Charges Digital Asset Hedge Fund Manager With Misrepresentations and Registration FailuresÂò., 11 ñåíò.[−]
The Securities and Exchange Commission today announced its first-ever enforcement action finding an investment company registration violation by a hedge fund manager based on its investments in digital assets.
The SEC entered an order finding that Crypto Asset Management LP (CAM) offered a fund that operated as an unregistered investment company while falsely marketing it as the “first regulated crypto asset fund in the United States.” According to the SEC’s order, CAM, a California-based hedge fund manager, and its sole principal Timothy Enneking raised more than $3.6 million over a four-month period in late 2017 while falsely claiming that the fund was regulated by the SEC and had filed a registration statement with the agency. By engaging in an unregistered non-exempt public offering and investing more than 40 percent of the fund’s assets in digital asset securities, CAM caused the fund to operate as an unregistered investment company. After being contacted by the SEC staff, CAM ceased its public offering and offered buy backs to affected investors.
“Hedge funds seeking to ride the digital asset wave continue to proliferate,” said C. Dabney O’Riordan, Co-Chief of the Asset Management Unit. “Investment advisers must be sure that the funds they offer adhere to the applicable registration obligations and must accurately represent their funds’ regulatory status to investors.”
CAM and Enneking agreed to the SEC’s cease-and-desist order and censure without admitting or denying the findings against them, and agreed to pay a penalty of $200,000.
The SEC’s investigation was conducted by Ranah L. Esmaili and supervised by Adam S. Aderton of the Asset Management Unit.
|↑|24. SEC Charges ICO Superstore and Owners With Operating As Unregistered Broker-DealersÂò., 11 ñåíò.[−]
The Securities and Exchange Commission today announced that TokenLot LLC, a self-described “ICO Superstore,” and its owners will settle charges that they acted as unregistered broker-dealers. This is the SEC’s first case charging unregistered broker-dealers for selling digital tokens after the SEC issued The DAO Report in 2017 cautioning that those who offer and sell digital securities must comply with the federal securities laws.
According to the SEC’s order, TokenLot, Lenny Kugel, and Eli L. Lewitt promoted TokenLot’s website as a way to purchase digital tokens during initial coin offerings (ICOs) and also to engage in secondary trading. Michigan-based TokenLot received orders from more than 6,100 retail investors and handled more than 200 different digital tokens, which the SEC found included securities. The business’s profits included trading profits and a percentage of the money that TokenLot raised for ICOs. Their activities required TokenLot, Kugel, and Lewitt to be registered with the SEC as broker-dealers, but they were not. TokenLot operated from July 2017 through late February, with most of its business occurring after The DAO Report on the applicability of securities laws to digital assets. According to the order, in response to the SEC’s investigation, TokenLot voluntarily began winding down and refunding investors’ payments for unfilled orders. TokenLot, Kugel, and Lewitt also were charged with violating the registration provisions in connection with their conduct.
“U.S. securities laws protect investors by subjecting broker-dealers and other gatekeepers to SEC oversight, including those offering ICOs and secondary trading in digital tokens,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “We continue to encourage those developing digital asset trading businesses to contact the SEC staff at FinTech@sec.gov for assistance in analyzing registration and other securities law requirements.”
“The penalties in this case reflect the prompt cooperation and remedial actions by TokenLot, Kugel, and Lewitt,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “TokenLot, Kugel, and Lewitt provided valuable information to Commission staff, stopped the conduct, and refunded money to investors.”
Without admitting or denying the SEC’s findings, TokenLot, Kugel, and Lewitt consented to the SEC’s order and agreed to pay $471,000 in disgorgement plus $7,929 in interest, and they will retain an independent third party to destroy TokenLot’s remaining inventory of digital assets. Kugel and Lewitt also agreed to pay penalties of $45,000 each and agreed to industry and penny stock bars and an investment company prohibition with the right to reapply after three years.
The SEC’s investigation was conducted by Kathleen Hitchins, Ann Rosenfield, and Carolyn Welshhans of the Enforcement Division’s Cyber Unit and supervised by Cyber Unit Chief Robert A. Cohen.
|↑|25. SEC Obtains Relief to Fully Reimburse Retail Investors Sold Unsuitable ProductÂò., 11 ñåíò.[−]
The Securities and Exchange Commission today announced it has obtained monetary relief that will fully reimburse retail investors for losses on a leveraged oil-linked exchange-traded note (ETN) that registered representatives of Syracuse, New York-based broker-dealer and investment adviser Cadaret, Grant & Co. Inc. recommended without a reasonable basis.
The SEC found that Cadaret Grant, president Arthur Grant, and senior vice president Beda Lee Johnson failed reasonably to supervise the firm’s registered representatives who recommended that customers buy and hold the leveraged oil-linked ETN without a reasonable basis. The order found that before recommending the investment, the brokers did not take steps to reasonably research or understand inherent risks of the ETN or the index it tracked. According to the order, the ETN was meant to be a daily trading tool for sophisticated investors and was not designed to be held for more than one day. The brokers mistakenly believed the ETN’s value would increase over time as oil prices increased even though the ETN offered no direct exposure to spot oil prices, and recommended that retail customers buy and hold the ETN indefinitely. The order also finds that Cadaret Grant failed to adopt and implement policies and procedures concerning the sale of exchange traded products in investment advisory accounts.
The SEC charged Eugene Long, the Cadaret Grant broker who recommended the ETN to the greatest number of customers, for recommending the ETN without a reasonable basis. The order found that Long recommended his customers continue to hold the ETN from 2015 and until spring 2016, when his customers’ holdings were sold at an average loss of more than 90 percent of the amounts they invested.
“Brokers have an obligation to understand complex products and their risks before recommending them to customers,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “As this action shows, we will continue to hold people accountable at every level for unsuitable recommendations that harm investors and for the failures that allow those recommendations to be made unchecked.”
Without admitting or denying the SEC’s findings, Cadaret Grant agreed to be censured and pay a $500,000 penalty plus $13,194 in disgorgement and interest. Grant and Johnson each agreed to a 12-month supervisory suspension and will pay penalties of $100,000 and $75,000 respectively. Long agreed to be censured and pay a $250,000 penalty. The penalties, disgorgement and interest amounts paid will be placed in a Fair Fund that will reimburse harmed investors for their incurred losses, plus reasonable interest.
The SEC’s investigation was conducted by Armita Cohen and Brent Mitchell of the Complex Financial Instruments Unit, assisted by John Bowers and supervised by Jeffrey Weiss.