SEC Fraud Actions

SEC
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The Securities and Exchange Commission (SEC) is the United States agency with primary responsibility for enforcing federal securities laws. The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. The SEC was created a few years after the market crash of 1929 through passage of the Securities Exchange Act of 1934. The SEC’s mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. The federal securities laws, and the SEC’s efforts to enforce them, focus on achieving these goals by: (1) requiring companies offering securities to the public to tell the truth about their businesses, the securities being sold, and the risks involved in investing; and (2) requiring those who sell and trade securities to treat investors fairly and honestly.

In July 2010, in response to the 2008 financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. One important feature of this legislation was the establishment of the SEC whistleblower program. This program encourages those with knowledge of violations of the federal securities laws to share this information with the SEC by providing both monetary rewards and protection against retaliation by employers.

Below are summaries of the most recent enforcement actions litigated by the SEC. If you believe you have information about securities fraud, please click here to contact one of our experienced whistleblower attorneys.

January 12, 2016 - 

BNY Mellon will pay a $6.6 million penalty to settle charges stemming from miscalculations of its risk-based capital ratios and risk-weighted assets reported to investors. An SEC investigation found that BNY Mellon deviated from regulatory capital rules by excluding from its calculations approximately $14 billion in collateralized loan obligation assets that the firm consolidated onto its balance sheet in 2010. BNY Mellon never obtained Federal Reserve Board approval as required under regulatory capital rules to exclude the assets from its calculations. Due to the miscalculations and the firm’s lack of internal accounting controls to ensure its financial statements were being prepared properly, BNY Mellon understated its risk-weighted assets and overstated certain risk-based capital ratios in quarterly and annual reports from the third quarter of 2010 to the first quarter of 2014. SEC

January 12, 2016 - 

Warsaw, Indiana-based medical device manufacturer Biomet will pay more than $30 million to resolve SEC and DOJ investigations into the company’s repeat violations of the Foreign Corrupt Practices Act.  Biomet first faced FCPA charges from the SEC and entered into a deferred prosecution agreement with the DOJ in March 2012 when it also agreed to pay $22 million to settle both cases.  As part of the SEC settlement, Biomet agreed to retain an independent compliance consultant to review its FCPA compliance program.  After the settlement, while implementing recommendations from the consultant, Biomet discovered potential anti-bribery violations in Mexico and Brazil.  The company notified the monitor and the SEC in 2013.  The SEC’s order finds that Biomet continued to interact and improperly record transactions with a known prohibited distributor in Brazil, and used a third-party customs broker to pay bribes to Mexican customs officials to facilitate the importation and smuggling of unregistered and mislabeled dental products. SEC

January 12, 2016 - 

Broker ITG will pay more than $24.4 million to settle charges that it violated federal securities laws when it prompted the issuance of American Depository Receipts (ADRs) without processing the underlying foreign shares. ADRs are U.S. securities that represent shares in a foreign company. For all issued ADRs, there must be a corresponding number of foreign shares in custody. On behalf of counterparties, ITG obtained ADRs from depository banks that administer ADR programs. The SEC’s order found that ITG facilitated transactions known as “pre-releases” of ADRs to its counterparties without owning the foreign shares or taking the necessary steps to ensure they were custodied by the counterparty on whose behalf they were being obtained. Many of the ADRs obtained by ITG through pre-release transactions were ultimately used to engage in short-selling and dividend arbitrage, even though they may not have been backed by foreign shares. SEC

January 11, 2017 - 

January 11, 2017 – Government contractor L-3 Technologies Inc. will pay a $1.6 million penalty to settle charges that it failed to maintain accurate books and records and had inadequate internal accounting controls. According to the SEC’s order, around August 2013, executives in L-3’s Army Sustainment Division developed a “Revenue Recovery Initiative” that identified approximately $50 million in work performed under a contract with the U.S. Army that had not been billed. Because L-3 and the Army had not reached agreement on payment, any revenue recognition for that work was improper. Nonetheless, in December 2013, a senior finance official requested that 69 invoices be generated, but not delivered, causing the division to recognize almost $18 million in revenue. Because of that revenue, division employees just satisfied an internal target for management incentive bonuses. In June 2014, L-3 hired outside consultants to conduct an internal investigation. In addition to the improper revenue recognized in association with the 69 invoices, the consultants identified additional accounting errors in the division’s books from 2011 through 2014. All together, these errors had the effect of overstating the company’s pre-tax income by $169 million. SEC

January 10, 2017 - 

The Port Authority of New York and New Jersey will admit wrongdoing and pay a $400,000 penalty to settle charges that it failed to inform bond purchasers of risks to a series of New Jersey roadway projects the bonds were being used to fund. The SEC’s order found that the Port Authority offered and sold $2.3 billion worth of bonds to investors despite internal discussions about whether certain projects outlined in offering documents ventured outside its mandate and potentially weren’t legal to pursue. The Port Authority omitted any mention in its offering documents about these risks to its ability to fund the proposed projects. SEC

January 9, 2017 - 

Connecticut-based investment advisor John W. Rafal will pay more than $575,000 to settle charges that he defrauded a client and then compounded his scheme by attempting to mislead SEC investigators while lying to other clients about the status of the SEC’s investigation. According to the SEC’s order, Rafal secretly paid a lawyer, Peter D. Hershman, to refer one of his clients to Essex Financial Services, an investment advisory firm founded by Rafal. Rafal failed to disclose the referral fee arrangement and instead disguised the payments as payments for legal services purportedly provided by Hershman’s firm. After other Essex officers discovered and stopped Rafal’s payment arrangement, he continued to pay Hershman using other accounts he controlled. The SEC’s order further found that while the SEC’s investigation was on-going, Rafal sent numerous emails to Essex clients falsely stating that the SEC had “fully investigated all matters” and “issued a ‘no action’ letter completely exonerating” him and Essex. Finally, Rafal tried to throw SEC investigators off track by concealing the additional payments he made to Hershman and testifying that Hershman had returned all money paid to him. The U.S. Attorney’s Office for the District of Massachusetts announced a criminal case against Rafal for obstructing the proceedings of a federal agency. Hershman will pay more than $90,000 to settle charges against him related to the payment scheme. Essex will pay more than $180,000 in disgorgement and interest to settle charges related to Rafal’s conduct. SEC

January 9, 2017 - 

The SEC brought fraud charges against Gregory T. Dean and Donald J. Fowler, two New York-based brokers, for using an “in-and-out” trading strategy to generate hefty commissions for themselves despite the fact that the strategy was unsuitable for their customers. The SEC’s complaint alleges that Dean and Fowler did not conduct reasonable diligence to determine whether their investment strategy, which involved frequent buying and selling of securities, could deliver even a minimal profit to their customers. Their strategy, which generally involved selling securities within a week or two of purchase, and charging customers a fee for each transaction, allegedly resulted in substantial losses for at least 27 customers. The SEC also issued an Investor Alert warning about excessive trading and “churning” that can occur in brokerage accounts. SEC

January 6, 2017 - 

The SEC announced an award of more than $5.5 million to a whistleblower who “provided critical information that helped the SEC uncover an ongoing scheme.”  Jane Norberg, Chief of the SEC’s Office of the Whistleblower, lauded the whistleblower for “boldly stepping forward while still employed at the company.”  SEC

December 29, 2016 - 

Kentucky-based wire and cable manufacturer General Cable Corporation will pay more than $75 million to resolve parallel SEC and DOJ investigations related to its violations of the Foreign Corrupt Practices Act.  General Cable will also pay an additional $6.5 million penalty to the SEC to settle separate accounting-related violations.  According to the SEC’s order, General Cable’s overseas subsidiaries made improper payments to foreign government officials for a dozen years to obtain or retain business in Angola, Bangladesh, China, Egypt, Indonesia, and Thailand.  The company’s weak internal controls also failed to detect improper inventory accounting at its Brazilian subsidiary, causing the company to materially misstate its financial statements from 2008 to the second quarter of 2012.  Karl Zimmer, General Cable’s then-senior vice president responsible for sales in Angola will also pay a $20,000 penalty to settle charges of knowingly circumventing internal accounting controls and causing FCPA violations when he approved certain improper payments.  SEC

December 28, 2016 - 

Florida-based businessman Jason Adam Ogden has agreed to pay more than $1.2 million to settle charges that he misused investor funds intended to create U.S. jobs through the EB-5 Immigrant Investor Program.  The SEC alleged that Ogden, the CEO of a pair of smoothie and frozen yogurt franchises called Juiceblendz and Yoblendz, formed AJN Investments LLC to conduct an investment offering in conjunction with the EB-5 program which provides foreign investors a path to permanent residency when their investments create at least 10 jobs for American workers.  Investors were allegedly told that their money would help build and operate Juiceblendz and Yoblendz stores in strip malls and create a sufficient amount of jobs for them to qualify for an EB-5 visa and ultimately a green card.  But, according to the SEC’s complaint, Ogden changed his business model midstream without updating the offering materials, and focused on developing kiosks in sports arenas and university campuses rather than following through the construction of full-size stores.  Not only did this result in smaller-than-promised returns for investors, it also jeopardized their EB-5 program status because kiosks don’t stimulate the same job creation as full-size stores and construction projects.  The SEC further alleged that Ogden improperly siphoned off more than $1 million in investor funds for his personal use, making undisclosed cash transfers to his bank account.  SEC

December 27, 2016 - 

The SEC charged California-based attorney Emilio Francisco with defrauding investors seeking to participate in the EB-5 immigrant investor program.  The SEC alleges that Francisco raised $72 million from investors in China, solicited through his marketing firm PDC Capital, to invest in EB-5 projects that included opening Caffe Primo restaurants, developing assisted living facilities, and renovating a production facility for environmentally friendly agriculture and cleaning products.  According to the SEC’s complaint, Francisco and PDC Capital diverted investor funds from one project to another and outright stole at least $9.6 million that was used to finance Francisco’s own business and luxury lifestyle.  SEC

December 27, 2016 - 

The SEC charged three Chinese traders, Iat Hong, Bo Zheng, and Hung Chin, with hacking into the networks of two law firms, stealing confidential information pertaining to firm clients considering mergers or acquisitions, and trading on the nonpublic market-moving information to their benefit.  The SEC alleges that the defendants obtained almost $3 million in illegal profits from their scheme.  According to the SEC’s complaint, the alleged hacking incidents involved installing malware on the law firms’ networks, compromising accounts that enabled access to all email accounts at the firms, and copying and transmitting dozens of gigabytes of emails to remote internet locations.  SEC

December 22, 2016 - 

Teva Pharmaceutical Industries Limited will pay more than $519 million to settle civil and criminal charges that it violated the Foreign Corrupt Practices Act by paying bribes to foreign government officials in Russia, Ukraine, and Mexico.  The SEC’s complaint alleges that Teva made more than $214 million in illicit profits by making the influential payments to increase its market share and obtain regulatory and formulary approvals as well as favorable drug purchase and prescription decisions.  SEC

December 21, 2016 - 

The SEC brought charges against Noris Chamroonrat of Bangkok, Thailand and Adam L. Plumer of Las Vegas for running a phony day-trading firm and pocketing more than $1.4 million in deposits from hundreds of investors in over 30 countries.  The SEC alleges that Chamroonrat recruited Plumer to help him lure investors to day-trade through an unregistered brokerage firm called Nonko Trading with promises of generous leverage, low trading commissions, and low minimum deposit requirements.  According to the SEC’s complaint, rather than using a live securities trading platform, Nonko Trading provided certain investors with training accounts that merely simulated the placement and execution of trade orders.  When these investors sent funds to Nonko Trading and proceeded to place trade orders, the orders were never actually routed to the markets.  The SEC alleges that investor money was instead used to fund Chamroonrat’s personal expenses, pay Plumer and other associates, and make Ponzi-like payments to investors who asked to close out their accounts.  The SEC alleges that the scheme deliberately targeted investors who were inexperienced and more likely to place unprofitable trades, making them less likely to ask to withdraw funds from their accounts.  SEC

December 21, 2016 - 

The SEC announced fraud charges against Navnoor Kang, the former Director of Fixed Income for the New York State Common Retirement Fund, and Greg Schonhorn and Deborah Kelly, registered representatives of two different broker-dealers.  According to the SEC’s complaint, Schonhorn and Kelly orchestrated a pay-to-play scheme in which Kang steered billions of dollars in pension business to certain firms in exchange for luxury gifts, lavish vacations, and tens of thousands of dollars spent on hotel rooms, restaurants, cocaine, and prostitutes.  SEC

December 21, 2016 - 

Brazilian-based petrochemical manufacturer Braskem S.A. will pay $957 million in a global settlement with the SEC, DOJ, and authorities in Brazil and Switzerland to settle charges that it paid bribes to Brazilian government officials to win or retain business.  Braskem’s stock trades in the U.S.  The SEC’s complaint alleges that Braskem made approximately $325 million in profits through bribes paid through intermediaries and off-book accounts managed by a private company that was Braskem’s largest shareholder.  Bribes were paid to a government official at Brazil’s state-controlled petroleum company as well as Brazilian legislators and political party officials.  Braskem will pay $325 million in disgorgement, including $65 million to the SEC and $260 million to Brazilian authorities.  Braskem also agreed to pay more than $632 million in criminal fines and penalties.  SEC

December 20, 2016 - 

Oklahoma-based oil-and-gas company SandRidge Energy Inc. will pay a $1.4 million penalty, subject to the company’s bankruptcy plan, to settle charges that it used illegal separation agreements and retaliated against a whistleblower who expressed concerns internally about how its reserves were being calculated.  The SEC’s order found that SandRidge regularly used restrictive language in its separation agreements that purported to prohibit outgoing employees from participating in any government investigation or disclosing information potentially harmful or embarrassing to the company.  The SEC’s order further found that SandRidge fired an internal whistleblower who kept raising concerns about the process used by SandRidge to calculate its publicly reported oil-and-gas reserves.  SEC

December 20, 2016 - 

Morgan Stanley & Co. LLC will pay $7.5 million to settle charges it used trades involving customer cash to lower the firm’s borrowing costs in violation of the SEC’s Customer Protection Rule.  The Customer Protection Rule is intended to safeguard customers’ assets so that they can be promptly returned should the broker-dealer fail.  The SEC’s order found that from March 2013 to May 2015, Morgan Stanley had its affiliate Morgan Stanley Equity Financing Ltd. serve as a customer of its U.S. broker-dealer.  This allowed the affiliate to use margin loans from the broker-dealer to finance the costs of hedging swap trades with customers.  The margin loans lowered the borrowing costs incurred to hedge these swap trades and reduced the U.S. broker-dealer’s customer reserve account deposit requirements by tens to hundreds of millions of dollars per day.  According to the SEC’s order, the transactions violated the Customer Protection rule, which prohibits broker-dealers from using affiliates to reduce their customer reserve account deposit requirements.  SEC

December 19, 2016 - 

Virginia-based technology company NeuStar Inc. will pay $180,000 to settle charges involving its severance agreements that impeded at least one former employee from communicating with the SEC.  The SEC’s order found that NeuStar violated a whistleblower protection rule by routinely entering into severance agreements that contained a broad non-disparagement clause forbidding former employees from engaging with the SEC.  Former employees could be compelled to forfeit all but $100 of their severance pay for breaching the clause.  The severance agreements were used with at least 246 departing employees between 2011 and 2015.  NeuStar voluntarily revised its severance agreements promptly after the SEC began investigating and agreed to make reasonable efforts to inform those who signed the severance agreements that NeuStar does not prohibit former employees from communicating any concerns about potential violations of law or regulation to the SEC.  SEC

December 19, 2016 - 

The SEC charged Mark Nordlicht, founder of hedge fund firm Platinum Partners, and two of Platinum’s flagship hedge fund advisory firms, Platinum Management (NY) LLC and Platinum Credit Management LP, with conducting a fraudulent scheme to inflate asset values and illicitly move investor money to cover losses and liquidity problems.  SEC examiners uncovered suspicious activity during an examination of the firms and referred it to SEC enforcement staff for further investigation.  The SEC’s complaint alleges that Nordlicht and the Platinum funds overstated the value of an oil company that was among their largest assets, and concealed a growing liquidity crisis by transferring money between the funds, making preferential redemptions to favored investors, and using misrepresentations to attract new investors to the struggling funds.  The SEC’s complaint further alleges that Nordlicht schemed with colleagues and Jeffrey Shulse, CFO of Black Elk Energy, Platinum’s other major oil investment, to divert almost $100 million from Black Elk Energy to help boost the Platinum funds.  Others charged in the SEC’s complaint include Shulse, David Levy (Platinum Owner and Co-Chief Investment Officer), Daniel Small (former Managing Director and Portfolio Manager of certain Platinum funds), Uri Landesman (former Managing General Partner of certain Platinum funds), Joseph Mann (employee of Platinum’s Investor Relations Department), and Joseph SanFilippo (CFO of a Platinum hedge fund).  Funds managed by Platinum Management are currently in a liquidation proceeding in the Cayman Islands.  SEC

December 16, 2016 - 

The SEC announced on-going cease and desist proceedings against Utah-based broker dealer Wilson-Davis & Co, and settled proceedings against a former Wilson-Davis proprietary trader, Anthony Kerrigon, Wilson-Davis’ vice president/head trader Byron Barkley, and Wilson-Davis’ Chairman/CEO Paul Davis for violations of Regulation SHO.  Regulation SHO requires that before a broker-dealer effects a short sale, the broker-dealer must “locate” a source of borrowable securities that can be delivered on the date that delivery is due.  The rule includes a limited exception for short sales executed in connection with bona fide market making.  The SEC alleges that from at least November 2011 to May 2013, Wilson-Davis relied on the bona-fide market making exception for all short sales by its proprietary trading group and that this reliance was improper for certain trades.  While improperly availing itself of the exception, Wilson-Davis engaged in numerous short sales in over-the-counter equity securities which violated Rule 203(b)(1) of Regulation SHO and resulted in improper trading profits.  In addition, Wilson-Davis violated various provisions of the Market Access Rule.  Kerrigone, Barkley, and Davis will pay, collectively, over $700,0000 to settle the charges against them.  SEC

December 16, 2016 - 

Nevada-based stock transfer agent Empire Stock Transfer, and its supervisor of operations Matthew J. Blevins will pay $174,000 and agree to be permanently barred from the securities industry to settle charges  that they transferred large blocks of several penny stock securities without restrictions to offshore nominees despite red flags indicating the shares were likely part of an illegal operation.  The SEC previously charged several offshore entities involved with the illegal sales of unregistered penny stocks made possible by Empire Stock Transfer and Blevins.  SEC

December 16, 2016 - 

Newport Beach, California-based securities lawyer Michael J. Muellerleile accepted a penny stock bar and will pay more than $150,000 to settle charges of authoring false and misleading registration statements used in sham IPOs for five microcap issuers in order to transfer unrestricted shares of penny stocks to offshore market participants.  The SEC also brought charges against Muellerleile’s law firm M2 Law Professional Corp., Lan Phuong Nguyen, an attorney who assisted Meullerleile by signing false and misleading attorney opinion letters, and Joel Felix, the CFO of American Energy Development Corp., one of the issuers.  The SEC suspended trading in American Energy Development Corp.  SEC

December 16, 2016 - 

Deutsche Bank will pay $18.5 million in penalties to the SEC and $18.5 million to the New York Attorney General’s Office to settle charges that it misled clients about the performance of a core feature of its automated order router that primarily sent client orders to dark pools.  According to the SEC’s order, Deutsche made materially misleading statements and omissions concerning the Dark Pool Ranking Model feature of one of its order routers, known as SuperX+.  The Model was intended to measure execution quality and liquidity of venues to which it sent orders.  Deutsche used the Model to determine which venues would receive orders and the sequence in which Deutsche would send them.  Deutsche stated that he Model “smartly routes and selects optimal pools of liquidity on an order by order basis.”  But according to the SEC’s order, due to a coding error, Deutsche updated the ranking model just once during a two-year period, causing at least two dark pools to receive inflated rankings and consequently millions of orders that SuperX+ would have sent elsewhere if the system was operating as described.  SEC

December 12, 2016 - 

The SEC charged New Jersey-based traders Joseph Taub and Elazar Shmalo with manipulating more than 2,000 NYSE- and NASDAQ-traded stocks and reaping more than $26 million in profits from their successful trades.  The SEC alleges that Taub and Shmalo utilized dozens of accounts at various brokerage firms to carry out their scheme undetected, typically using two at a time to engage in a flurry of manipulative trading activity that usually lasted less than five minutes.  According to the SEC’s complaint, they would use one account to buy a position in a stock, and then use a second account to place a series of small buy orders to walk up the price for the first account to sell its larger position into the market at an artificially high price for significant profits.  In some instances, before the first account purchased its position in a stock, Taub and Shmalo would have the second account place a series of smaller sell orders to drive down the price of the stock, allowing the first account to buy its larger position in that stock at an artificially lowered price.  SEC