Government Enforcement Actions

October 5, 2015

Cayman Islands-based Home Loan Services Solutions Ltd.(HLSS) will pay a $1.5 million penalty to settle SEC charges of making material misstatements about its handling of related party transactions and the value of its primary asset.  According to the SEC’s order instituting a settled administrative proceeding, HLSS misstated its handling of transactions with related parties.  For example, from 2012 to 2014, HLSS stated that to avoid potential conflicts of interest, it required its Chairman (also the Chairman of Ocwen Financial Corp.) to recuse himself from transactions with Ocwen.  However, HLSS had no written policies on recusals for related-party transactions and, in fact, HLSS’ Chairman approved many transactions with Ocwen.  In addition, according to the SEC’s order, HLSS misstated its net income in 2012, 2013, and the first quarter of 2014, because the methodology used to value its primary asset – billions of dollars of mortgage servicing rights purchased from Ocwen – did not conform to generally accepted accounting principles.  SEC

October 5, 2015

New York-based pharmaceutical company Bristol-Myers Squibb will pay $14 million to settle SEC charges that its joint venture in China made cash payments and provided other benefits to health care providers at state-owned and state-controlled hospitals in China in exchange for prescription sales.  According to the SEC’s order instituting settled administrative proceedings, between 2009 and 2014, BMS China sales representatives sought to secure and increase business by providing health care providers in China with cash, jewelry, meals, travel, entertainment, and sponsorships for conferences and meetings.  SEC

October 1, 2015

The SEC announced fraud charges and an asset freeze against the operator of a worldwide pyramid scheme.  California resident Steve Chen and 13 California-based entities, including USFIA Inc. are at the center of the alleged scheme.  According to the SEC’s complaint, USFIA and Chen’s other entities have raised more than $32 million from investors in and outside the U.S. since at least April 2013.  The SEC alleges that Chen and his companies misled investors about a lucrative public offering for USFIA that never happened and about ownership of amber deposits worth billions of dollars.  In addition, the SEC alleges that investors were told their holdings had been converted into “Gemcoins,” a virtual currency supposedly backed by the company’s amber holdings, but which were actually worthless.  SEC

October 1, 2015

Grant Thornton India LLP and Grant Thornton Audit Pty Ltd will pay $365,085 to settle charges of violating auditor independence rules.  According to the SEC’s order, two Grant Thornton Mauritius partners served on the boards of subsidiaries of Grant Thornton audit clients and performed non-audit services prohibited under the SEC’s auditor independence rules.  SEC

September 30, 2015

Focus Media Holding Limited and its CEO Jason Jiang will pay $55.6 million to settle charges of inaccurate disclosures about the company’s partial sale of subsidiary Allyes Online Media Holdings Ltd. to insiders, including Jiang.  In March 2010, Focus Media sold a 38 percent stake in Allyes to company insiders such as Jiang.  The sales price to these insiders represented an implied value of $35 million for the entire subsidiary and was claimed to be based on an independent third-party valuation.  However, unknown to shareholders, before the sale was finalized, a private equity firm had begun discussions with Allyes about acquiring the company for $150 million to $200 million.  The SEC alleges that Allyes asked the potential acquirer to “hold off the deal” until the insiders’ purchase was finalized.  Three months after the insider sale, Focus Media announced that Allyes had been sold to the private equity firm for an amount that valued it at $200 million.  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 30, 2015

The SEC charged David Godwin and Anthony Roth, former executives of ContinuityX, a now bankrupt company that claimed to sell internet services to businesses, with financial fraud.  The SEC alleges that Godwin and Roth engineered a scheme to inflate ContinuityX’s revenues.  ContinuityX reported revenues of $27.2 million from April 2011 to September 2012, but the SEC alleges that 99 percent came from fraudulent and fictitious sales.  Godwin and Roth used the allegedly fraudulent SEC filings to raise millions of dollars from investors in a private offering of ContinuityX securities.  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

September 28, 2015

Trinity Capital Corporation and its wholly-owned subsidiary Los Alamos National Bank will pay $1.5 million to settle accounting fraud charges.  An SEC investigation found that Trinity materially misstated its provision for loan losses and its allowance for loan and lease losses in its SEC filings between 2010 and 2012.  In 2011, Trinity understated its net loss available to common shareholders by $30.5 million, reporting income of $4.9 million instead of a $25.6 million loss.  SEC