Archive

January 24, 2017

Morgan Stanley Smith Barney and Citigroup Global Markets will pay $2.96 million each to settle charges that they made false and misleading statements about a foreign exchange trading program sold to investors.  According to the SEC’s orders, Citigroup held a 49% ownership interest in Morgan Stanley at the time, and registered representatives at both firms were pitching a foreign exchange trading program known as “CitiFX Alpha” to Morgan Stanley customers from August 2010 to July 2011.  The SEC’s orders finds that their written and verbal presentations were based on the program’s past performance and risk metrics, and they failed to adequately disclose that investors could be placed into the program using substantially more leverage than advertised and markups would be charged on each trade.  The undisclosed leverage and markups caused investors to suffer significant losses.  SEC

January 18, 2017

New York-based marketing company MDC Partners will pay a $1.5 million penalty to settle charges that it failed to disclose certain perks enjoyed by its former CEO and separately violated non-GAAP financial measure disclosure rules.  The SEC’s order finds that MDC Partners disclosed an annual $500,000 perquisite allowance for its CEO but failed to disclose additional personal benefits the company paid on his behalf, such as private aircraft usage, club memberships, cosmetic surgery, yacht and sports car expenses, jewelry, charitable donations, pet care, and personal travel expenses.  The CEO later resigned and returned $11.285 million worth of perks, personal expense reimbursements, and other items of value improperly received from 2009 to 2014.  The SEC’s order also found improper use of non-GAAP measures.  According to the SEC’s order, MDC Partners presented a metric called “organic revenue growth” that represented the company’s revenue growth excluding the effects of acquisitions and foreign exchange impacts.  But from the second quarter of 2012 to year end 2013, MDC Partners incorporated a third reconciling item into its calculation without informing investors.  This resulted in higher “organic revenue growth” results.  The SEC also found that MDC Partners failed to give GAAP metrics equal or greater prominence to non-GAAP metrics in its earnings releases.  SEC

January 13, 2017

Morgan Stanley Smith Barney will pay a $13 million penalty to settle charges that it overbilled more than 149,000 investment advisory clients due to billing system errors.  According to the SEC’s order, Morgan Stanley received more than $16 million in excess fees between 2002 and 2016 due to more than 36 types of billing errors.  Morgan Stanley has reimbursed the full amount plus interest to affected clients.  The SEC’s order also found that Morgan Stanley failed to comply with the annual surprise custody examination requirements for two consecutive years when it did not provide its independent public accountant with an accurate or complete list of client funds and securities for examination.  SEC

February 1, 2017

Joseph Charles DiCrisci and Oakmont Financial Inc. were ordered to pay more than $2.9 million in disgorgement and a civil monetary penalty by the U.S. District Court for the Southern District of Florida for engaging in illegal, off-exchange precious metals transactions. The court ordered a payment of $735,329 in disgorgement and over $2.2 million in a civil monetary penalty. CFTC

January 31, 2017

All 50 states and the District of Columbia announced a joint settlement with Colorado-based The Western Union Company, resolving a multistate investigation which focused on complaints of consumers who used Western Union’s wire transfer service to send money to third parties involved in schemes to defraud consumers. The settlement requires Western Union to develop and put into action a comprehensive anti-fraud program designed to help detect and prevent incidents where consumers who have been the victims of fraud use Western Union to wire money to scam artists. Western Union also has agreed to pay a total of $5 million to the states for the states’ costs and fees. In addition to this settlement with the states, Western Union also settled claims related to fraud-induced transfers with the Federal Trade Commission and U.S. Department of Justice, as announced on January 19, 2017. As part of those related settlements, Western Union has agreed to pay $586M to a fund that the Department of Justice will administer to provide refunds to victims of fraud induced wire transfers nationwide. NY, FL, MA, OH, PA

January 30, 2017

Florida announced a $1.5 million life claim settlement agreement reached with subsidiaries of the Ameriprise Group, RiverSource Life Insurance Company and RiverSource Life Insurance Company of New York. The settlement agreement focuses on the one-sided use of the Social Security Administration’s Death Master File to stop paying a deceased person’s annuity, but not using the same information to find and begin paying the deceased’s family or other beneficiaries for life insurance policies. Florida, California, New Hampshire, North Dakota and Pennsylvania conducted the examination into the companies that led to this agreement. Florida’s allocation of the multi-state settlement payment by Ameriprise is more than $111,000, which covers the costs of the investigations and future compliance monitoring. To date, state insurance regulators have either reached settlements or concluded the investigation of 28 of the top 40 companies constituting 80 percent of the total market. Efforts continue to be focused on the examination of the remaining 12 insurers. FL

January 26, 2017

E*TRADE Securities LLC and E*TRADE Clearing LLC were ordered to pay a $280,000 civil monetary penalty by the CFTC for failing to failure to retain required records and failure to diligently supervise. The CFTC found that between October 2009 and January 2014, E*TRADE Securities did not preserve and maintain certain audit trial logs for their customers. CFTC

January 24, 2017

Florida and the Federal Trade Commission announced a settlement with several related debt relief and credit repair services companies and their principal. The settlement resolves allegations that Chastity Valdes and her companies, Consumer Assistance LLC, Consumer Assistance Project Corp. and Palermo Global LLC, engaged in unlawful debt relief operations targeting student loan holders. Among other things, the settlement bans the defendants from operating in the debt relief and credit repair industries. In 2016, Attorney General Bondi’s Office and the FTC filed a joint lawsuit against Valdes and her companies, alleging the defendants took illegal up-front fees in return for their purported debt relief and credit repair services. According to the complaint, the defendants allegedly falsely claimed these services reduced consumers’ student loan debt and repaired consumers’ credit. The complaint also asserted violations of the Florida Deceptive and Unfair Trade Practices Act, the FTC Act, the Telemarketing Sales Rule and the Credit Repair Organizations Act. As part of the settlement, the defendants are banned from selling debt relief and credit repair services and prohibited from making material misrepresentations about any products or services. The order also imposes a judgment of more than $2.3 million, which will be suspended upon the surrender of virtually all of the defendants’ assets. FL

January 23, 2017

The CFPB took separate actions against CitiFinancial Servicing and CitiMortgage, Inc. for creating obstacles for struggling homeowners seeking options to save their homes. The mortgage servicers kept borrowers in the dark about options to avoid foreclosure or burdened them with excessive paperwork demands in applying for foreclosure relief. CitiMortgage has been ordered to pay an estimated $17 million in compensation and another $3 million in civil penalties. CitiFinancial Services is to refund approximately $4.4 million to consumers, and pay a civil penalty of $4.4 million. CFPB

January 19, 2017

Colorado-based global money services business Western Union Company agreed to forfeit $586 million and enter into agreements with DOJ, FTC, and the U.S. Attorney’s Offices for the Middle District of Pennsylvania, the Central District of California, the Eastern District of Pennsylvania and the Southern District of Florida to settle criminal violations relating to the company's failure to maintain an effective anti-money laundering program and aiding and abetting wire fraud. According to company admissions, Western Union violated the Bank Secrecy Act (BSA) and anti-fraud statutes by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme. As part of the scheme, fraudsters contacted victims in the U.S. and falsely posed as family members in need or promised prizes or job opportunities. The fraudsters directed the victims to send money through Western Union to help their relative or claim their prize. Various Western Union agents were complicit in these fraud schemes, often processing the fraud payments for the fraudsters in return for a cut of the fraud proceeds. The company also agreed to pay a $586 million judgement to settle related FTC charges. DOJ