Archive

September 2, 2015

Investment advisory firm Taberna Capital Management will pay $21 million to settle charges that it fraudulently retained fees belonging to collateralized debt obligation (CDO) clients.  An SEC investigation found that Taberna did not inform CDO clients that it was retaining payments known as “exchange fees” obtained in connection with restructuring transactions.  Retention of the exchange fees was not permitted by the CDO’s governing documents or disclosed to investors in the CDOs. SEC

August 25, 2015

The SEC obtained court authorization to freeze the assets of Mr. Lobsang Fargey, a Bellevue, Washington man accused of defrauding Chinese investors seeking U.S. residency through the EB-5 program.  The SEC alleged that Dargey and his “Path America” companies raised at least $125 million for two Washington-based real estate projects, but Dargey diverted $14 million for unrelated real estate projects and $3 million for personal use.  The court’s order also restrains Dargey from soliciting additional investors and requires him to repatriate funds transferred to overseas bank accounts.  SEC

August 19, 2015

Citigroup Global Markets will pay a $15 million penalty to settle SEC charges that it failed to enforce policies to prevent transactions that involved misuse of material, nonpublic information.  Broker-dealer employees routinely have access to material nonpublic information.  Therefore, federal securities laws require firms to take reasonable steps to prevent misuse of such information.  An SEC investigation found that between 2002 and 2012, Citigroup’s monitoring for such abuse was inadequate because it failed to review thousands of trades executed by its trading desks.  Additionally, the SEC found that Citigroup inadvertently routed more than 467,000 transactions on behalf of advisory clients to an affiliated market maker which executed the transactions as principal at or near prevailing market prices.  SEC

August 18, 2015

BNY Mellon will pay $14.8 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) by providing valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund.  An SEC investigation found that students related to foreign officials were given preferential treatment in that they were not required to meet the normally rigorous criteria of BNY Mellon’s highly competitive internship programs.  This was done to win or retain contracts to manage and service the assets of the sovereign wealth fund the foreign officials were affiliated with.  BNY’s $14.8 million payment includes $8.3 million in disgorgement and a $5 million penalty.  SEC

August 17, 2015

Citigroup affiliates, Citigroup Global Markets, Inc. (CGMI) and Citigroup Alternative Investments LLC (CAI), will pay $180 million to settle charges that they defrauded investors in two hedge funds by claiming that the funds were safe, low-risk, and suitable for traditional bond investors.  An SEC investigation found that even as the funds began to collapse, CGMI and CAI failed to disclose the dire condition of the funds.  Many of the misleading representations were at odds with disclosures in written materials provided to investors.  The funds raised nearly $3 billion from approximately 4,000 investors before collapsing.  CGMI and CAI will bear all costs of distributing the $180 million in settlement funds to harmed investors.  SEC

August 13, 2015

Brokerage firm Edward Jones and the former head of its municipal underwriting desk, Stina Wishman, agreed to settle charges that they overcharged customers in new municipal bonds sales.  This was the SEC’s first case against an underwriter for pricing-related fraud in the primary market for municipal securities.  The SEC’s investigation found that rather than offering customers municipal bonds at their “initial offering price,” Edward Jones and Wishman improperly offered the bonds at higher prices.  This resulted in customers being overcharged by at least $4.6 million.  The SEC also charged Edward Jones with failing to properly supervise dealer markups on secondary market trades that involved the firm purchasing municipal bonds from customers, placing them into its inventory, and selling them to other customers.  The SEC found that Edward Jones’ supervisory system was not designed to monitor whether the markups on these trades were reasonable.  Edward Jones will pay more than $20 million to settle the SEC’s charges, including nearly $5.2 million in disgorgement and prejudgment interest that will be distributed to customers who were overcharged.  SEC

August 12, 2015

Vicente E. Garcia, a former vice president for SAP SE, agreed to pay $92,395 to settle charges by the SEC that he violated the FCPA by bribing Panamanian government officials to procure software license sales for SAP.  An SEC investigation found that Garcia orchestrated a scheme to pay $145,000 in bribes to one government official and promised to pay two others in order to obtain four contracts to sell SAP software to the Panamanian government.  Garcia arranged for SAP’s software to be sold at a steep discount to a Panamanian partner in order to create a slush fund that could be used to pay the Panamanian government officials.  Garcia also received kickbacks from the slush fund.  In a parallel action, the Department of Justice announced a criminal action against Garcia.  SEC

August 12, 2015

Broker Investment Technology Group, Inc. (ITG) and affiliate AlterNet Securities have admitted wrongdoing and agreed to pay $20.3 million to settle SEC charges that they operated a secret trading desk and misused the confidential trading information of dark pool subscribers.  The SEC found that despite claiming to be an “agency-only” broker whose interests wouldn’t conflict with its customers, ITG operated an undisclosed proprietary trading desk known as “Project Omega” for more than a year.  While ITG claimed to protect the confidentiality of its dark pool subscribers’ trading information, Project Omega accessed live feeds of order and execution information of its subscribers and used the information to implement high-frequency algorithmic trading strategies, including one in which it traded against subscribers in POSIT, ITG’s dark pool.  The $20.3 million payment includes an $18 million penalty – the largest to date imposed by the SEC against an alternative trading system.  SEC

August 11, 2015

The SEC announced fraud charges against 32 defendants for taking part in a scheme to hack into newswire services, steal corporate earnings announcements before they were publicly released, and trade on this information.  The SEC’s complaint alleges that defendants generated more than $100 million in illegal profits through the scheme over a five year period.  SEC

August 10, 2015

Guggenheim Partners Investment Management LLC, a subsidiary of global financial services firm Guggenheim Partners LLC, has agreed to pay a $20 million penalty to settle charges by the SEC.  The SEC’s order found that Guggenheim breached its fiduciary duties by failing to disclose a $50 million loan that one of its senior executives received from an advisory client.  Guggenheim failed to disclose the loan, or the potential conflict of interest created by the executive’s receipt of it, to other clients involved in the transactions.  In addition, the SEC’s order found that Guggenheim inadvertently categorized certain investments as managed assets, leading to a client being inappropriately charged approximately $6.5 million in asset management fees.  Despite identifying the error, Guggenheim did not return the fees for almost two years.  Finally, the SEC’s order found Guggenheim’s compliance program was not reasonably designed to prevent violations of the federal securities laws and that the company failed to enforce its code of ethics.  SEC