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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.

				

			

			
						
					
			

	
		
		

			

				
				
January 23, 2017

				 The SEC announced fraud charges and an emergency asset freeze obtained against Dwayne Edwards, a South Carolina businessman accused of siphoning funds he raised from investors for the stated purpose of purchasing or renovating senior housing facilities.  The SEC alleges that Edwards improperly commingled money from several different municipal bond offerings and the revenues of the facilities underlying the offerings.  The offerings were each supposed to finance a particular assisted living or memory care facility in Georgia or Alabama.  From the commingled funds, Edwards allegedly diverted investor money for personal use as well as to finance other unrelated bond offerings.  The SEC’s company also charges Edwards’ former business partner Todd Barker who agreed to a bifurcated settlement with monetary sanctions to be determined at a later date.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 23, 2017

				 The SEC announced an award of more than $7 million split among three whistleblowers who helped the SEC prosecute an investment scheme.  One whistleblower provided information that was a primary impetus for the start of the SEC’s investigation.  That whistleblower will receive more than $4 million.  Two other whistleblowers jointly provided new information during the SEC’s investigation that significantly contributed to the success of the SEC’s enforcement action.  Those two whistleblowers will split more than $3 million.  SEC				 					 

						
Tagged in:
													  SEC Whistleblower Reward Program, 
													  Securities Fraud, 
													  Whistleblower Rewards, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 19, 2017

				 Seattle-based financial services company HoneStreet Inc. will pay a $500,000 penalty to settle charges that it conducted improper hedge accounting and later took steps to impede potential whistleblowers.  HomeStreet’s treasurer Darrell van Amen will pay a $20,000 penalty to settle charges that he caused the accounting violations.  According to the SEC’s order, HomeStreet originated approximately 20 fixed rate commercial loans and entered into interest rate swaps to hedge the exposure.  The company elected to designate the loans and the swaps in fair value hedging relationships, which can reduce income statement volatility that might exist absent hedge accounting treatment.  Companies are required to periodically assess the hedging relationship and must discontinue the use of hedge accounting if the effectiveness ration falls outside a certain range.  The SEC’s order finds that in certain instances from 2011 to 2014, van Armen saw to it that unsupported adjustments were made in HomeStreet’s hedge effectiveness testing to ensure the company could continue using the favorable accounting treatment.  The test results, based on altered inputs, were provided to HomeStreet’s accounting department, resulting in inaccurate accounting entries.  The SEC’s order further found that after HomeStreet employees reported concerns about accounting errors to management, the company concluded the adjustments to its hedge effectiveness tests were incorrect.  When the SEC contacted the company in April 2015 seeking documents related to hedge accounting, HomeStreet presumed it was in response to a whistleblower complaint and began taking actions to determine the identity of the “whistleblower.”  It was suggested to one individual considered to be a whistleblower that the terms of an indemnification agreement could allow HomeStreet to deny payment for legal costs during the SEC’s investigation.  HomeStreet also required former employees to sign severance agreements waiving potential whistleblower awards or risk losing their severance payments.  SEC				 					 

						
Tagged in:
													  Accounting Fraud, 
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 18, 2017

				 New York-based marketing company MDC Partners will pay a $1.5 million penalty to settle charges that it failed to disclose certain perks enjoyed by its former CEO and separately violated non-GAAP financial measure disclosure rules.  The SEC’s order finds that MDC Partners disclosed an annual $500,000 perquisite allowance for its CEO but failed to disclose additional personal benefits the company paid on his behalf, such as private aircraft usage, club memberships, cosmetic surgery, yacht and sports car expenses, jewelry, charitable donations, pet care, and personal travel expenses.  The CEO later resigned and returned $11.285 million worth of perks, personal expense reimbursements, and other items of value improperly received from 2009 to 2014.  The SEC’s order also found improper use of non-GAAP measures.  According to the SEC’s order, MDC Partners presented a metric called “organic revenue growth” that represented the company’s revenue growth excluding the effects of acquisitions and foreign exchange impacts.  But from the second quarter of 2012 to year end 2013, MDC Partners incorporated a third reconciling item into its calculation without informing investors.  This resulted in higher “organic revenue growth” results.  The SEC also found that MDC Partners failed to give GAAP metrics equal or greater prominence to non-GAAP metrics in its earnings releases.  SEC				 					 

						
Tagged in:
													  Regulatory Violations, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 18, 2017

				 General Motors will pay a $1 million penalty to settle charges that deficient internal accounting controls prevented the company from properly assessing the potential impact on its financial statements of a defective ignition switch found in some vehicles.  When loss contingencies such as a potential vehicle recall arise, accounting guidance requires companies like General Motors to assess the likelihood of whether the potential recall will occur, and provide an estimate of the associated loss or range of loss or otherwise provide a statement that such an estimate cannot be made.  The SEC’s order finds that the company’s internal investigation involving the defective ignition switch wasn’t brought to the attention of its accountants until November 2013 even though other General Motors personnel understood in the spring of 2012 that there was a safety issue at hand.  Therefore, during at least an 18-month period, accountants at General Motors did not properly evaluate the likelihood of a recall occurring or the potential losses resulting from a recall of cars with the defective ignition switch.  SEC				 					 

						
Tagged in:
													  Accounting Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 18, 2017

				 Texas-based medical device company Orthofix International will admit wrongdoing and pay more than $14 million to settle charges that it improperly booked revenue in certain instances and made improper payments to doctors at government-owned hospitals in Brazil to increase sales.  According to the SEC’s order, Orthofix improperly recorded certain revenue as soon as a product was shipped despite contingencies requiring certain events to occur in order to receive payment in the transaction.  In other instances, Orthofix immediately recorded revenue when it had provided customers with significant extensions of time to make payments.  The accounting failures caused the company to materially misstate certain financial statements from at least 2011 to the first quarter of 2013.  Four former Orthofix executives will pay penalties to settle cases related to these accounting failures.  A separate SEC order found that Orthofix violated the Foreign Corrupt Practices ACT (FCPA) when its subsidiary in Brazil schemed to use high discounts and make improper payments through third-party commercial representatives and distributors to induce doctors under government employment to use Orthofix’s products.  Orthofix will pay a $8.25 million penalty to resolve the accounting violations and more than $6 million in disgorgement and penalties to settle the FCPA charges.  SEC				 					 

						
Tagged in:
													  Accounting Fraud, 
													  FCPA, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 17, 2017

				 The SEC announced fraud charges against Thomas M. Henderson, an Oakland, California-based businessman accused of misusing money he raised from investors through the EB-5 immigrant investor program.  The SEC alleges that Henderson and his company San Francisco Regional Center LLC falsely claimed to investors that their $500,000 investments would help create at least 10 jobs within several distinct EB-5 related businesses Henderson created, including a nursing facility, call centers, and a dairy operation.  But according to the SEC’s complaint, Henderson jeopardized investors’ residency prospects and combined the $100 million he raised from investors into a general fund from which he allegedly misused at least $9.6 million to purchase his home and personal items and improperly fund several personal business projects.  Henderson also allegedly improperly used $7.6 million of investor money to pay overseas marketing agents, and shuffled millions of dollars along the EB-5 business to obscure his fraudulent scheme.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Visa Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 17, 2017

				 Allergan Inc. will pay a $15 million penalty for disclosure failures in the wake of a hostile takeover bid.  The SEC’s order finds that Allergan failed to disclose in a timely manner its negotiations with potentially friendlier merger partners in the months following a tender offer from Valeant Pharmaceuticals International and co-bidders in June 2014.  Allergan publicly stated in a disclosure filing that the Valeant bid was inadequate and it was not engaging in negotiations that could result in a merger.  It was required to amend the filing if a material change occurred.  According to the SEC’s order, Allergan never publicly disclosed material negotiations it entered with a different company that would have made it more difficult for Valeant to acquire a larger combined entity.  And after those negotiations failed, the investing public wasn’t informed that Allergan entered into merger talks with Actavis, the company that ultimately acquired Allergan, until the announcement that a merger agreement had been executed.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Misrepresentations, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 17, 2017

				 Ten investment advisory firms will pay penalties of $35,000 to $100,000 each to settle charges that they violated the SEC’s investment adviser pay-to-play rule by receiving compensation from public pension funds within two years after campaign contributions were made by the firms’ associates.  Investment advisers are subject to a two-year timeout from providing compensatory advisory services either directly to a government client or through a pooled investment vehicle after political contributions were made to a candidate who could influence the investment adviser selection process for a public pension fund or appoint someone with such influence.  The SEC’s order found that these 10 firms violated the two-year timeout by accepting fees from city or state pension funds after their associates made campaign contributions to elected officials or political candidates with the potential to wield influence over those pension funds.  The 10 firms and the penalties paid by each are as follows: Adams Capital Management ($45,000), Aisling Capital ($70,456), Alta Communications ($35,000), Commonwealth Venture Management Corporation ($75,000), Cypress Advisors ($35,000), FFL Partners ($75,000), Lime Rock Management ($75,000), NGN Capital ($100,000), Pershing Square Capital Management ($75,000), and The Banc Funds Company ($75,000).  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 17, 2017

				 New York-based asset manager BlackRock Inc. will pay a $340,000 penalty to settle charges that it improperly used separation agreements in which exiting employees were forced to waive their ability to obtain whistleblower awards.  According to the SEC’s order, more than 1,000 departing BlackRock employees signed separation agreements containing violative language stating that they “waive any right to recovery of incentives for reporting of misconduct.”  BlackRock added the waiver provision in October 2011 after the SEC adopted its whistleblower program rules, and the firm continued using it in separation agreements until March 2016.  SEC				 					 

						
Tagged in:
													  SEC Whistleblower Reward Program, 
													  Whistleblower Eligibility, 
													  Whistleblower Protection Laws, 
													  Whistleblower Rewards, 
												
						

					
	
							
	
		
		
	


 			


											

						

								

									
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