Archive

July 31, 2014

LA-based broker Michael A. Horowitz agreed to pay more than $850,000 to settle charges he participated in a variable annuities scheme designed to profit from the imminent deaths of the terminally ill. As part of his scheme, he deceived his own brokerage firm to obtain the approvals he needed to sell the annuities and generate hefty sales commissions. He also falsified various broker-dealer forms used by firms to conduct investment suitability reviews, causing some insurance companies to unwittingly issue variable annuities they may not have sold otherwise. SEC

Tagged in: Misrepresentations, Regulatory Violations, Securities Fraud,

July 30, 2014

The SEC charged CEO Marc Sherman and former CFO Edward L. Cummings of Florida-based computer equipment company QSGI Inc. with violating the Sarbanes-Oxley Act by misrepresenting to external auditors and the investing public the state of the company’s internal controls over financial reporting. SEC

Tagged in: Accounting Fraud, Regulatory Violations, Securities Fraud,

July 25, 2014

Citigroup business unit LavaFlow, Inc., which operates an alternative trading system (ATS), agreed to pay $5M to settle charges of failing to protect the confidential trading data of its subscribers. The payment includes a $2.85M penalty which is the SEC’s largest to date against an ATS. SEC

Tagged in: Regulatory Violations, Securities Fraud,

July 24, 2014

Morgan Stanley agreed to pay $275M to settle charges of misleading investors in a pair of residential mortgage-backed securities (RMBS) securitizations it underwrote, sponsored, and issued. In an asset-backed securities offering, federal regulations under the securities laws require the disclosure of delinquency information for the mortgage loans serving as collateral. Morgan Stanley allegedly misrepresented the current or historical delinquency status of mortgage loans underlying two subprime RMBS securitizations that came against a backdrop of rising borrower delinquencies and unprecedented distress in the subprime market. SEC

Tagged in: Accounting Fraud, Financial Institution Fraud, Housing and Mortgage Fraud, Securities Fraud,

July 16, 2014

The SEC charged Natural Blue Resources Inc. with concealing from investors that two lawbreakers actually ran the company. According to the SEC, the company was to create, acquire, or otherwise invest in environmentally-friendly companies. What investors didn’t know was that two individuals with prior fraud violations — James E. Cohen and Joseph Corazzi — secretly controlled the operational and management decisions of Natural Blue while calling themselves outside “consultants.” SEC

Tagged in: Environmental Fraud, Misrepresentations, Regulatory Violations, Securities Fraud,

July 14, 2014

Ernst & Young agreed to pay more than $4M to settle charges of violating auditor independence rules that require firms to maintain their objectivity and impartiality with clients. The SEC found that an Ernst & Young subsidiary lobbied congressional staff on behalf of two audit clients. Such lobbying activities were impermissible under the SEC’s auditor independence rules because they put the firm in the position of being an advocate for those audit clients. Despite providing the prohibited legislative advisory services on behalf of the clients, Ernst & Young repeatedly represented that it was “independent” in audit reports issued on the clients’ financial statements. SEC

Tagged in: Accounting Fraud, Regulatory Violations,

June 16, 2014

Albany, N.Y.-based hedge fund advisory firm Paradigm Capital Management and owner Candace King Weir agreed to pay $2.2M to settle charges of engaging in prohibited principal transactions and then retaliating against the employee who reported the trading activity to the SEC. This is the first time the SEC has filed a whistleblower retaliation case under its new authority to bring such enforcement actions under the Dodd-Frank Act. SEC

Tagged in: Regulatory Violations, Retaliation, SEC Whistleblower Reward Program, Securities Fraud, Whistleblower Case, Whistleblower Rewards,

June 6, 2014

The SEC announced charges against LA-based market access provider Wedbush Securities and two officials accused of violating the agency’s market access rule that requires firms to have adequate risk controls in place before providing customers with access to the market. The SEC’s Enforcement Division alleges the company, which has consistently ranked as one of the five largest firms by trading volume on NASDAQ, failed to maintain direct and exclusive control over settings in trading platforms used by its customers to send orders to the markets. SEC

Tagged in: Regulatory Violations, Securities Fraud,

June 2, 2014

The SEC charged a charter school operator in Chicago with defrauding investors in a $37.5M bond offering for school construction by making materially misleading statements about transactions that presented a conflict of interest. The SEC alleges that UNO Charter School Network Inc. and United Neighborhood Organization of Chicago not only failed to disclose a multi-million-dollar contract with a windows company owned by the brother of one of its senior officers, but investors also weren’t informed about the potential financial impact the conflicted transaction had on its ability to repay the bonds. SEC

Tagged in: Misrepresentations, Regulatory Violations, Securities Fraud,

May 20, 2014

The SEC charged James T. Adams, the former chief risk officer at Deloitte LLP, for causing violations of the auditor independence rules that ensure audit firms maintain their objectivity and impartiality with respect to their clients. Specifically, Adams repeatedly accepted tens of thousands of dollars in casino markers while he was the advisory partner on subsidiary Deloitte & Touche’s audit of a casino gaming corporation. Adams concealed his casino markers from Deloitte & Touche and lied to another partner when asked if he had casino markers from audit clients of the firm. He agreed to settle the SEC’s charges by being suspended for at least two years from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC. SEC

Tagged in: Accounting Fraud, Regulatory Violations,

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