SEC Enforcement

January 14, 2016

State Street Bank and Trust Company will pay $12 million to settle charges that it conducted a pay-to-play scheme to win contracts to service Ohio pension funds.  An SEC investigation found that Vincent DeBaggis, head of State Street’s public funds group, made a deal with Ohio’s then-deputy treasurer under which DeBaggis would make illicit cash payments and political campaign contributions in exchange for three lucrative contracts to safeguard certain funds’ investment assets and effect the settlement of their securities transactions.  DeBaggis will pay almost $275,000 to settle the SEC’s charges.  In related proceedings, attorney Robert Crowe, who worked as a lobbyist and fundraiser for State Street, was charged in federal court for his role in the scheme.  SEC

January 13, 2016

Nine of eleven high-ranking executives and board members of Superior Bank and its holding company have settled charged by the SEC based on their alleged involvement in various schemes designed to conceal the extent of loan losses experienced as the bank was faltering in the wake of the financial crisis.  The defendants propped up Superior’s financial condition through straw borrowers, bogus appraisals, and insider deals, allowing the bank to avoid impairment and the reporting of ever-increasing allowances for loan and lease losses.  As a result, Superior overstated its net income in public filings by 99 percent for 2009 and 50 percent for 2010.  The settling defendants will pay at least $2.8 million collectively and are all permanently barred from serving as officers or directors of a public company.  SEC

January 8, 2016

Steven Cohen, founder and manager of hedge fund S.A.C. Capital Advisors LLC, will be prohibited from supervising funds that manage outside money until 2018.  The SEC found that Cohen ignored red flags of insider trading and failed to supervise a former portfolio manager, Mathew Martoma, who engaged in insider trading in 2008 while employed at C.R. Intrinsic Investors, an investment advisory firm that was a wholly-owned subsidiary of S.A.C. Capital Advisors.  C.R. Intrinsic previously paid more than $600 million to settle SEC charges of insider trading.  Several of Cohen’s entities, including C.R. Intrinsic and S.A.C. Capital Advisors, previously paid $1.2 billion to resolve related criminal charges brought by the U.S. Attorney’s Office for the S.D.N.Y.  SEC

January 6, 2016

J.P. Morgan’s brokerage business will pay $4 million to settle charges that it falsely claimed that its advisors were compensated “based on our clients’ performance.”  An SEC investigation found that J.P. Morgan Securities LLCdid not pay representatives based on client performance.  Rather, advisors were paid a salary and a discretionary bonus based on a number of factors, none of which were tied to portfolio performance.  SEC

December 28, 2015

Two traders in China and Hong Kong, Zhichen Zhou and Yannan Liu, will pay more than $920,000 to settle charges of insider trading.  The traders’ assets were frozen last month when the SEC’s complaint was filed against them.  They will disgorge the entirety of their ill-gotten profits and pay additional penalties.  The SEC’s complaint alleged that Zhou and Liu traded in two healthcare company stocks, MedAssets Inc. and Chindex International, based on nonpublic information about their impending acquisitions by private equity firms.  Liu was an associate at TPG Capital which had ties to both of the deals.  SEC

December 22, 2015

Morgan Stanley Investment Management will pay $8.8 million to settle charges that one of its portfolio managers, Sheila Huang, unlawfully conducted prearranged trading known as “parking” that favored certain advisory client accounts over others.  An SEC investigation found that Huang arranged sales of mortgage-backed securities to brokerage firm SG Americas at predetermined prices that would enable her to buy back the positions at a small markup into other accounts advised by Morgan Stanley.  Huang also sold additional bonds at above-market prices to avoid incurring losses in certain accounts, but repurchased them at unfavorable prices in a fund that she managed without disclosing it to the disadvantaged fund client.  SG Americas also agreed to pay more than $1 million to settle SEC charges related to its role in these transactions.  SEC

December 21, 2015

The SEC charged Donald Toomer, a Las Vegas-based financial advisor, in connection with previously filed fraud charges against Samuel DelPresto.  The SEC alleges that Toomer, to assist DelPresto in demonstrating liquidity and market demand for his microcap stocks, agreed to buy shares of three microcap stocks in client accounts in exchange for hundreds of thousands of dollars in kickbacks.  In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Toomer.  SEC

December 18, 2015

The SEC charged known securities fraudster, Edward Durante, with defrauding investors by selling shares of a shell company he secretly controlled and falsely telling them stock sale proceeds would be used to fund the company’s operations when they were actually tapped for other purposes including Durante’s personal use.  Durante served a 10-year prison term following a previous securities fraud conviction in 2001.  An SEC investigation revealed that he has again been soliciting investors under aliases and between 2012 and 2014 defrauded at least 50 relatively inexperienced investors through at least $11 million in sales of stock in his shell company VGTel.  SEC

December 18, 2015

J.P. Morgan wealth management subsidiaries, J.P. MorganSecurities LLC and JPMorgan Chase Bank N.A., will pay $267 million to settle charges that they failed to disclose conflicts of interest to clients.  An SEC investigation found that the businesses preferred to invest clients in the firm’s own proprietary investment products without properly disclosing this preference.  This preference impacted fundamental aspects of money management — asset allocation and selection of fund managers.  In a parallel action, JP Morgan Chase Bank will pay an additional $40 million penalty to the Commodity Futures Trading Commission.  SEC

December 17, 2015

The SEC charged Martin Shkreli, former CEO of pharmaceutical company Retrophin, with committing fraud during a five-year period when he was also working as a hedge fund manager.  The SEC alleges that Shkreli misappropriated money from two hedge funds he founded and made material misrepresentations to investors among other widespread misconduct, including fraudulently inducing Retrophin to issue stock and make cash payments to certain disgruntled investors in Shkreli’s hedge funds who were threatening legal action.  The SEC also charged Retrophin’s former outside counsel and corporate secretary Evan Greebel with aiding and abetting certain aspects of Shkreli’s alleged fraud.  In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York announced criminal charges against Shkreli and Greebel.  SEC