Archive

March 22, 2019

Merrill Lynch agreed to pay $8 million to settle charges by the SEC that it improperly borrowed ADRs from other brokers when it knew that these other brokers did not own the foreign shares needed to support the pre-released ADRs.  This practice artificially inflates the number of securities that are tradeable for a foreign issuer.  SEC

March 20, 2019

Wells Fargo Securities has been ordered to pay over $800,000 in civil penalties to the SEC for failing to disclose that a video game development project being financed by a bond it underwrote still faced a significant shortfall in funding. The lead banker on the deal, Peter Cannava, was additionally accused of failing to disclose the fees being paid to the firm by startup video game company, 38 Studios. SEC

March 13, 2019

Wedbush Securities, Inc., will pay a $250,000 penalty to resolve an SEC investigation into an alleged failure to supervise its representatives.  Wedbush allegedly ignored evidence that one of its representatives was engaged in a pump-and-dump scheme targeting retail investors.  Wedbush also agreed to undertake specified remedial measures.  SEC

March 12, 2019

Lumber Liquidators agreed to pay $33 million in criminal fines and forfeitures for knowingly making false and misleading statements regarding formaldehyde emissions from laminate flooring imported by the company from China.  In March, 2015, 60 Minutes reported that laminate flooring sold by Lumber Liquidators in the United States did not meet California Air Resources Board (CARB) emission standards for formaldehyde and featured undercover videos and laboratory test results.  The company filed an SEC Form 8-K broadly denying the allegations in the 60 Minutes episode and asserting that Lumber Liquidators complied with CARB regulations. The statement, however, omitted material facts known to the company. The company also entered into a deferred prosecution agreement, agreeing to implement internal control procedures and cooperate with ongoing investigations.   In a separate agreement with the SEC, Lumber Liquidators will also disgorge over $6 million in profits and prejudgment interest, which amount will be credited against the criminal penalties.  DOJ; SEC; USAO ED VA.

March 11, 2019

Having been charged in January, 2018, the former national managing partner for audit quality at firm KPMG LLP, David Middendorf, was convicted after trial for scheming to acquire and use information from the Public Company Accounting Oversight Board (the “PCAOB”) about which KPMG audits the PCAOB would be reviewing in the upcoming year. The PCAOB, which is overseen by the SEC, inspects the largest U.S. accounting firms on an annual basis, choosing a subset of the firm's audits for close inspection. Middendorf and others at KPMG conspired with PCAOB employees including co-defendant Jeffrey Wada, to obtain PCAOB's plans for inspections of KPMG audits, enabling KPMG to analyze and revise audit workpapers in an effort to improve KPMG's performance in PCAOB inspections. USAO SDNY

March 11, 2019

Investment advisers that placed their clients in higher-cost mutual fund share classes, and received a share of the higher 12b-1 fees charged by those investments, but failed to adequately disclose the conflicts of interest where a lower-cost share class was available, will collectively return more than $125 million to their clients, the majority of whom are retail investors.  Seventy-nine investment advisors have agreed to refund the improperly disclosed fees collected by them to individual clients, with interest, as well as to undertake additional compliance procedures.  SEC

March 6, 2019

Baton Holdings LLC, the successor in interest to Bankrate Inc., agreed to pay $28 million to resolve a government investigation into securities fraud committed by former Bankrate executives. According to settlement documents, the executives caused shareholders to suffer $25 million in losses by artificially inflating company earnings and making false statements to independent auditors. Two of the executives, former CFO Edward DiMaria and former VP of finance Hyunjin Lerner, were previously sentenced. DOJ

February 20, 2019

Following charges in 2017, two individuals have been sentenced for their roles in an insider trading scheme that used information from co-conspirator Daniel Rivas, who was employed by an investment bank. Robert Rodriguez was sentenced to one year in prison and Michael Siva was sentenced to 18 months.  Rivas supplied his co-conspirators with information from the investment bank's deal tracking system about upcoming mergers and acquisitions before they were publicly announced.  Rodriguez, Siva, and others in their tipping chains then traded on the information, earning more than $5 million in illicit profits on more than two dozen securities.  USAO SDNY; USAO SDNY

February 15, 2019

Following his conviction at trial for securities fraud and related charges, attorney James M. Schneider of Boca Raton, Florida, was sentenced to seven years in prison and ordered to pay restitution of $19.7 million to over 2,000 investors.  From 2008 to 2013, Schneider and his co-conspirators created approximately 20 shell companies, falsely representing their ownership and control in SEC filings before offering their securities for sale.  The conspirators would then use the shell company shares in pump-and-dump and other manipulation schemes.  USAO SD FL

February 12, 2019

In connection with a pump-and-dump scheme for the stock of Interactive Multi-Media, Jason McDiarmid and Kenneth George Cedric Telford, who promoted the microcap shares, have each been ordered to pay over $4.6 million in penalties, disgorgement, and interest.  SEC