Archive

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 17, 2015

The SEC announced fraud charges against several alleged perpetrators behind a $78 million pump-and-dump scheme involving the stock of Jammin’ Java, a company that operates as Marley Coffee and uses trademarks of late reggae artist Bob Marley to sell coffee products.  The SEC alleges that Jammin Java’s former CEO Shane Whittle orchestrated the scheme with three others who live abroad and operate entities offshore.  Whittle utilized a reverse merger to secretly gain control of millions of Jammin Java shares, and he spread the stock to the offshore entities controlled by Wayne Weaver of the UK and Canada, Michael Sun of India, and René Berlinger of Switzerland.  The shares were later dumped on the unsuspecting public after the stock price soared following fraudulent promotional campaigns.  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 5, 2015

The SEC filed securities fraud charges against Scottish trader James Alan Craig based on false “tweets” authored by Craig which caused sharp drops in the stock prices of two companies.  Craig created fake twitter accounts designed to look like the twitter accounts of well-known securities research firms.  His false tweets, claiming that the target companies were under investigation, caused the share price of Audience, Inc. to fall 28% and the share price of Sarepta Therapeutics, Inc. to fall 16%.  Craig bought and sold shares of the two companies in a largely unsuccessful attempt to profit from the sharp price swings.  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 27, 2015

The St. Joe Company, a Florida-based real estate developer and landowner, its former top executives, and two former accounting department directors, agreed to pay, collectively, $3.725 million in penalties and disgorgement to settle SEC claims of improperly accounting for the declining value of residential real estate developments during the financial crisis.  According to the SEC’s order instituting settled administrative proceedings, the respondents repeatedly failed to properly apply generally accepted accounting practices in testing St. Joe’s real estate developments for impairment, resulting in the failure to take required write-downs on properties hit hard by the financial crisis.  SEC

October 26, 2015

Credit rating agency DRBS Inc. agreed to pay almost $6 million to settle SEC charges of misrepresenting its surveillance methodology for ratings of certain complex financial instruments during a three-year period.  An SEC investigation found that the firm misrepresented that it would monitor on a monthly basis each of its outstanding ratings of U.S. residential mortgage-backed securities (RMBS) and re-securitized real estate mortgage investment conduits (Re-REMICs) by conducting a three-step quantitative analysis and subjecting each rating to review by a surveillance committee.  In fact, the review was not conducted on a monthly basis and when the committee convened it reviewed only a limited subset of ratings.  DRBS did not have adequate staffing and technological resources to conduct the surveillance promised by its surveillance methodology.  SEC

October 19, 2015

UBS advisory firms, UBS Willow Management LLC and UBS Fund Advisor LLC, agreed to pay $17.5 million to settle SEC charges arising from a failure to disclose a change in investment strategy used by UBS Willow Fund, a closed-end fund they advised.  UBS Willow Fund was marketed as one that primarily invested in distressed debt, a strategy predicated on the debt increasing in value.  In 2008, instead of focusing on investments in debt, UBS Willow Management had the fund purchase large quantities of credit default swaps, a strategy predicated on the debt decreasing in value.  Due to this change in strategy, the fund started incurring large losses and was liquidated in 2012.  UBS Willow Management did not provide adequate disclosure of the change in investment strategy to the fund’s investors or board of directors.  UBS Fund Advisor, which retained ultimate control over the fund, was aware of the change in investment strategy and failed to provide appropriate supervision by allowing the change without adequate disclosure.  SEC

October 14, 2015

As part of its enforcement initiative focused on violations of Rule 105 of Regulation M, the SEC settled enforcement actions against six firms: Auriga Global Investors, Sociedad de Valores, S.A., Harvest Capital Strategies LLC, J.P. Morgan Investment Management Inc., Omega Advisors, Inc., Sabby Management LLC, and War Chest Capital Partners LLC.  Rule 105 is intended to preserve the independent pricing mechanisms of the securities markets and prevent stock price manipulation by prohibiting firms from participating in public stock offerings after selling short those same stocks.  Through its Rule 105 Initiative, first announced in 2013, the SEC has taken action on every Rule 105 violation over a de minimis amount that has come to its attention – promoting a message of zero tolerance for these offenses.  As a result of this Initiative, the SEC has seen a dramatic decrease in Rule 105 violations.  The firms identified in this round of enforcement have agreed to pay over $2.5 million to settle the SEC’s charges.  SEC