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SEC Enforcement Actions

					
The  Securities and Exchange Commission (SEC) is the United States agency with primary responsibility for enforcing federal securities laws. Whistleblowers with knowledge of violations of the federal securities laws can submit a claim to the SEC under the SEC Whistleblower Reward Program, and may be eligible to receive  monetary rewards and protection against retaliation by employers.


Below are summaries of recent SEC settlements or successful prosecutions. If you believe you have information about fraud which could give  rise to an SEC enforcement action and claim under the SEC Whistleblower Reward Program, please contact us to speak with one of our experienced whistleblower attorneys.

				

			

			
						
					
			

	
		
		

			

				
				
February 7, 2017

				 Private equity adviser Scott M. Landress will pay $1.25 million and has agreed to be permanently barred from the securities industry to settle charges that he improperly withdrew fees from two private equity funds he managed.  The SEC’s order finds that Landress formed the funds to invest in real estate with underlying investments in properties throughout the UK.  His investment advisory firm SLRA Inc. earned management fees based on the net asset value of the underlying investments.  SLRA’s fees shrank and its management costs increased as real estate property values fell during the financial crisis.  The funds’ limited partners declined several requests by Landress for additional compensation to cover the shortfall.  According to the SEC’s order, in 2014, Landress directed SLRA to withdraw 16.25 million pounds from the funds, purportedly as payment for several years of services provided by an affiliate.  SLRA and Landress did not disclose the related-party transaction and the resulting conflict of interest until after the money had been withdrawn.  According to the SEC’s order, Landress and SLRA returned the withdrawn service fees to the funds after the SEC began its investigation.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
February 3, 2017

				 The SEC charged investment adviser Barry Connell with stealing approximately $5 million from client accounts by initiating unauthorized wire transfers and issuing checks to third parties to cover personal expenses.  The SEC alleges that Connell, who worked in the New Jersey office of a major financial institution, conducted more than 100 unauthorized transactions by using falsified authorization forms misrepresenting that he received verbal requests from the clients.  Connell allegedly used money from client accounts to rent a home in suburban Las Vegas and pay for a country club membership and private jet service.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
February 2, 2017

				 The SEC charged Connecticut-based investment advisory business Sentinel Growth Fund Management and its founder Mark J. Varacchi with misrepresenting to investors that money deposited with the firm would be allocated to up-and-coming hedge fund managers for investment purposes.  Instead, according to the SEC’s complaint, Varacchi and Sentinel did not transfer all the money as promised, co-mingled investor assets, and manipulated account activity, account balances, and investment returns as part of a scheme to siphon away investor funds.  Varacchi and his firm allegedly stole at least $3.95 million from investors, including more than $1 million to settle litigation brought by Varacchi’s prior employer.  SEC				 					 

						
Tagged in:
													  Misrepresentations, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 27, 2017

				 The SEC announced fraud charges against Joseph Meli and Matthew Harriton, two New York City men accused of running a Ponzi scheme with money raised from investors to fund businesses purportedly created to purchase and resell tickets to high-demand shows such as Adele concerts and the Broadway musical Hamilton.  The SEC alleges that Meli and Harriton misrepresented to investors that all of their money would be pooled to buy large blocks of tickets that would be resold at a profit to produce high returns for investors.  The bulk of investor funds were allegedly used for other undisclosed purposes, namely making Ponzi payments to prior investors using money from new investors.  Meli and Harriton also allegedly diverted almost $2 million for such personal expenses as jewelry, private school, camp tuition, and casino payments.  According to the SEC’s complaint, the scheme went so far as to misrepresent that an agreement was in place with the producer of Hamilton to purchase 35,000 tickets to the musical.  Investor money was supposedly paying part of that cost with the return on the investment promised within eight months.  The SEC alleges no such agreement or purchase ever happened.  Meli and Harriton allegedly raised more than $81 million from at least 125 investors in 13 states.  The SEC brough charges against Meli and Harriton along with their four purported ticket reselling businesses: Advance Entertainment, Advance Entertainment II, 875 Holdings, and 127 Holdings.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Ponzi Schemes, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 26, 2017

				 – Citigroup Global Markets will pay $18.3 million to settle charges that it overbilled investment advisory clients and misplaced client contracts.  The SEC’s order finds that at least 60,000 advisory clients were overcharged approximately $18 million in authorized fees because Citigroup failed to confirm the accuracy of billing rates entered into its computer systems in comparison to fee rates outlined in client contracts, billing histories, and other documents.  Citigroup also improperly collected fees during time periods when clients suspended their accounts.  The billing errors occurred during a 15-year period, and the affected clients have since been reimbursed.  The SEC’s order further found that Citigroup could not locate approximately 83,000 advisory contracts for accounts opened from 1990 to 2012.  Without the contracts, Citigroup could not properly validate whether the fee rates negotiated by clients when accounts were opened were the same advisory fee rates being billed.  It is estimated that Citigroup received approximately $3.2 million in excess fees from advisory clients whose contracts were lost.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 26, 2017

				 The SEC charged two former executives at Och-Ziff Capital Management Group with being the driving forces behind a far-reaching bribery scheme that violated the Foreign Corrupt Practices Act (FCPA).  The SEC’s complaint alleges that Michael L. Cohen, former head of Och-Ziff’s European office, and Vanja Baros, an investment executive on Africa-related deals, caused tens of millions of dollars in bribes to be paid to high-level government officials in Africa.  Their alleged misconduct induced the Libyan Investment Authority sovereign wealth fund to invest in Och-Ziff managed funds.  Cohen and Baros also allegedly directed illicit efforts to secure mining deals to benefit Och-Ziff by directing bribes to corruptly influence government officials in Chad, Niger, Guinea, and the Democratic Republic of the Congo.  SEC				 					 

						
Tagged in:
													  FCPA, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 25, 2017

				 The SEC announced administrative proceedings against New York-based brokerage firm Windsor Street Capital and its former anti-money laundering officer John D. Telfer.  The SEC alleges that the firm, formerly Meyers Associates L.P. failed to file Suspicious Activity Reports (SARs) for $24.8 million in suspicious transactions, including those occurring in accounts controlled by microcap stock financiers Raymond H. Barton and William G. Goode who were separately charged by the SEC with conducting a pump-and-dump scheme.  The SEC alleges that Windsor and Telfer should have known about the suspicious circumstances behind many transactions occurring in customer accounts.  Customers like Barton and Goode allegedly deposited large blocks of penny stocks, liquidated them typically amid substantial promotional activity, and then transferred the proceeds away from the firm.  The SEC further alleges that the shares deposited by Barton and Goode could not be sold legally because no registration statement was in effect and no registration exemption was available.  Rather than conduct a reasonable inquiry into the deposits, Windsor allegedly accepted claims of exemption at face value.  The SEC separately filed a complaint in federal court against Barton and Goode along with Matthew C. Briggs, Kenneth Manzo, and Justin Sindelman.  The complaint alleges that they participated in a pump-and-dump scheme that acquired shares of dormant shell companies supposedly in the dietary supplement business, falsely touted news and products stemming from those companies, and dumped the shares on the market for investors to purchase at inflated prices.  Barton, Goode, Briggs, and Manzo will pay almost $8.8 million collectively to settle the charges brought against them.  SEC				 					 

						
Tagged in:
													  Financial Institution Fraud, 
													  Money Laundering, 
													  Regulatory Violations, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 25, 2017

				 Massachusetts-based investment adviser Michael J. Breton will be banned from the securities industry after the SEC uncovered an illegal cherry-picking scheme through its data analysis used to detect suspicious trading patterns.  The SEC filed charges in federal district court against Breton and his firm Strategic Capital Management, alleging they defrauded clients out of approximately $1.3 million.  Breton allegedly placed trades through a master brokerage account and then allocated profitable trades to himself while placing unprofitable trades into the client accounts.  The SEC’s Market Abuse Unit’s analysis of Breton’s trading showed that he defrauded at least 30 clients during a six-year period.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 24, 2017

				 Morgan Stanley Smith Barney and Citigroup Global Markets will pay $2.96 million each to settle charges that they made false and misleading statements about a foreign exchange trading program sold to investors.  According to the SEC’s orders, Citigroup held a 49% ownership interest in Morgan Stanley at the time, and registered representatives at both firms were pitching a foreign exchange trading program known as “CitiFX Alpha” to Morgan Stanley customers from August 2010 to July 2011.  The SEC’s orders finds that their written and verbal presentations were based on the program’s past performance and risk metrics, and they failed to adequately disclose that investors could be placed into the program using substantially more leverage than advertised and markups would be charged on each trade.  The undisclosed leverage and markups caused investors to suffer significant losses.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Financial Institution Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 23, 2017

				 Shipping conglomerate Overseas Shipholding Group (OSG) and its former CFO Myles R. Itkin will pay $5 million and $75,000 respectively for to settle charges that they failed to recognize hundreds of millions in tax liabilities in OSG’s financial statements.  According to the SEC’s order, OSG’s credit agreements from 2000 to the second quarter of 2012 contained a provision making OSG’s controlled foreign subsidiary Overseas International Group Inc. (OIN) and another subsidiary Overseas Bulk Ships (OBS) jointly and severally liable for OSG’s debt.  The provision triggered current income tax liability under Section 956 of the Internal Revenue Service Code which addresses “investments in United States property” for amounts that OSG borrowed, and deferred tax liabilities for amounts not borrowed but available under the credit agreements.  During this period, OSG and Itkin, who participated in the negotiation of the credit agreements and signed them, failed to recognize OSG’s tax liability despite significant indicia that the structure of its credit agreements in effect made OIN a guarantor under the agreements and could trigger tax consequences, including tax memos from outside counsel and communications with the banks during the negotiation phase of the credit agreements.   As a result of the misconduct, OSG materially understated its income tax liabilities by approximately $512 million (17% of its total liabilities).  In November 2012, following discovery of the tax liabilities, OSG filed for bankruptcy protection.  SEC				 					 

						
Tagged in:
													  Accounting Fraud, 
													  Misrepresentations, 
													  Tax Fraud, 
												
						

					
	
							
	
		
		
	


 			


											

						

								

									
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