Archive

November 19, 2015

The SEC obtained a court order freezing the assets of Lin Zhong and her company EB5 Asset Manager LLC.  The SEC alleges that Zhong and EB5 raised at least $8.5 million for use in job-creating real estate development projects, but they diverted nearly $1 million to purchase a boat, a BMW, and a Mercedes among other improper personal uses of investor funds.  SEC

November 19, 2015

Investment firm Sands Brothers Asset Management LLC and its founders and former chief compliance officer will pay over $1 million to settle charges of violating the custody rule which requires firms to obtain independent verification of assets when they can access or control client money or securities.  Sands Brothers was in trouble twice before with the SEC — in 2010 for violating the custody rule and in 2014 for belatedly providing investors audited financial statements of its private funds.  SEC

November 16, 2015

Investment management firm Virtus Investment Advisers agreed to pay $16.5 million to settle charges that it misled mutual fund investors through advertisements containing false historical performance data about AlphaSector, a major exchange-traded fund (ETF) portfolio strategy.  Virtus publicized a substantially overstated performance track record received from F-Squared, a sub-adviser it had hired for mutual funds and other clients following the AlphaSector strategy.  Virtus accepted F-Squared’s historical performance misrepresentations at face value and ignored red flags that called these claims into question.  During the period in which Virtus used the false and misleading advertisements, its AlphaSector funds’ assets under management grew from $191 million at the end of 2009 to $11.5 billion by 2013.  SEC

November 3, 2015

Private equity firm Fenway Partners and four executives will pay over $10 million to settle SEC charges of failure to disclose conflicts of interest.  An SEC investigation found that Fenway and the charged executives did not fully disclose to a client fund and investors the details of several transactions involving more than $20 million in payments by the client fund or affiliated portfolio companies.  In short, investors were not told that portfolio company fees were rerouted to a Fenway affiliate, allowing Fenway to avoid providing the benefits of those fees to the client in the form of management fee offsets.  SEC

October 28, 2015

The SEC barred two brokers from now-defunct Connecticut brokerage Rochdale Securities.  According to the SEC’s allegations, the two brokers defrauded customers by using their order information to advise two longtime customers to trade ahead of these orders.  As a result, the favored customers profited from the trades, the defrauded customers generally received worse prices than if their orders had been routed directly to the market, and the brokers received double trading commissions.  SEC

October 13, 2015

UBS AG will pay $19.5 million to settle charges that it made false or misleading statements and omissions in offering materials provided to U.S. investors in structured notes linked to a proprietary exchange trading strategy.  This is the first case by the SEC involving misstatements and omissions by an issuer of structured notes, a complex financial product that typically consists of a debt security with a derivative tied to the performance of other securities, commodities, currencies, or proprietary indices.  The return on the structured note is linked to the performance of the derivative over the life of the note.  UBS, one of the largest issuers of structured notes in the world, settled the SEC’s charges that it misled U.S. investors in structured notes tied to the V10 Currency Index with Volatility Cap by falsely stating that the investment relied on a “transparent” and “systematic” currency trading strategy using “market prices” to calculate financial instruments underlying the index, when, in fact, undisclosed hedging trades by UBS reduced the index price by about 5%.  SEC

October 7, 2015

Three private equity fund advisers within The Blackstone Group will pay nearly $39 million to settle charges they failed to fully inform investors about benefits that the advisers obtained from accelerated monitoring fees and discounts on legal fees.  An SEC investigation found  that advisers Blackstone Management Partners, Blackstone Management Partners III, and Blackstone Management Partners IV, failed to adequately disclose the acceleration of monitoring fees paid by fund-owned portfolio companies prior to the companies’ sale or initial public offering.  These payments essentially reduced the value of the portfolio companies prior to the sale, to the detriment of the funds and their investors.  Additionally, the fund investors were not informed about a separate fee arrangement that provided Blackstone with a much greater discount on services by an outside law firm than the discount the law firm provided to the funds.  SEC

September 30, 2015

Latour Trading LLC, a high-frequency proprietary trading firm, will pay more than $8 million to settle charges that Latour violated the SEC’s Market Access Rule and Regulation National Market System over a four-year period in which Latour sent millions of non-compliant orders to U.S. exchanges.  SEC

September 30, 2015

In the SEC’s second round of filings against underwriters under its Municipalities Continuing Disclosure Cooperation (MCDC) Initiative, a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents, the SEC announced enforcement actions against 22 municipal underwriting firms.  The underwriters and the agreed penalty amounts to be paid are as follows: Ameritas Investment Corp. ($200,000), BB&T Securities, LLC ($200,000),Comerica Securities, Inc. ($60,000), Commerce Bank Capital Markets Group($40,000), Country Club Bank ($140,000), Crews & Associates, Inc. ($250,000),Duncan-Williams, Inc. ($250,000), Edward D. Jones & Co., L.P. ($100,000), Estrada Hinojosa & Company, Inc. ($40,000), Fifth Third Securities, Inc. ($20,000), The Frazer Lanier Company, Inc. ($100,000), J.J.B. Hilliard, W.L. Lyson, LLC($420,000), Joe Jolly & Co., Inc. ($100,000), Mesirow Financial, Inc. ($100,000),Northland Securities, Inc. ($220,000), NW Capital Markets Inc. ($100,000), PNC Capital Markets LLC ($500,000), Prager & Co., LLC ($100,000), Ross, Sinclaire & Associates, LLC ($220,000), UBS Financial Services, Inc. ($480,000), UMB Bank, N.A. Investment Banking Division ($420,000), and U.S. Bank Municipal Securities Group, a Division of U.S. Bank National Association ($60,000).  SEC

September 29, 2015

UBS Financial Services Inc. of Puerto Rico (UBSPR) will pay $15 million to settle charges of failing to supervise a former broker who had customers invest in UBSPR affiliated mutual finds using money borrowed from a UBSPR affiliated bank.  The SEC alleged that UBSPR and the bank prohibited using such loans to purchase securities and the practice exposed investors to losses while producing profits for the former UBSPR broker.  SEC