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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 13, 2017

				 Chilean-based chemical and mining company Sociedad Quimica y Minera de Chile S.A. (SQM) will pay more than $30 million to resolve parallel civil and criminal cases finding that it violated the Foreign Corrupt Practices Act (FCPA).  According to the SEC’s order, SQM made nearly $15 million in improper payments to Chilean political figures and others connected to them over a seven-year period.  Most of the payments were made based on fake documentation submitted to SQM by individuals and entities posing as legitimate vendors.  SQM will pay a $15 million penalty to settle the SEC’s charges and a $15.5 million penalty as part of a deferred prosecution agreement with the Department of Justice.  SEC				 					 

						
Tagged in:
													  FCPA, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 13, 2017

				 Morgan Stanley Smith Barney will pay a $13 million penalty to settle charges that it overbilled more than 149,000 investment advisory clients due to billing system errors.  According to the SEC’s order, Morgan Stanley received more than $16 million in excess fees between 2002 and 2016 due to more than 36 types of billing errors.  Morgan Stanley has reimbursed the full amount plus interest to affected clients.  The SEC’s order also found that Morgan Stanley failed to comply with the annual surprise custody examination requirements for two consecutive years when it did not provide its independent public accountant with an accurate or complete list of client funds and securities for examination.  SEC				 					 

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

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 13, 2017

				 Citadel Securities LLC will pay $22.6 million to settle charges that its business unit handling retail customer orders from other brokerage firms made misleading statements about the way it priced trades.  The SEC’s order finds that Citadel Execution Services suggested to its broker-dealer clients that upon receiving retail orders forwarded from their own customers, it either took the other side of the trade and provided the best price that it observed on various market data feeds (“internalization”), or sought to obtain that price in the marketplace.  Rather, the SEC’s order finds that two algorithms used by Citadel did not internalize retail orders at the best price observed nor sought to obtain the best price in the marketplace.   One strategy, known as “FastFill,” immediately internalized orders at prices that were not the best price Citadel observed.  The other, known as “SmartProvide,” routed orders to market such that they were not priced to immediately obtain the best price observed.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 23, 2017

				 The Securities and Exchange Commission 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:
													  Financial and Investment Fraud, 
													  SEC Whistleblower Reward Program, 
													  Whistleblower Case, 
													  Whistleblower Rewards, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 12, 2016

				 BNY Mellon will pay a $6.6 million penalty to settle charges stemming from miscalculations of its risk-based capital ratios and risk-weighted assets reported to investors. An SEC investigation found that BNY Mellon deviated from regulatory capital rules by excluding from its calculations approximately $14 billion in collateralized loan obligation assets that the firm consolidated onto its balance sheet in 2010. BNY Mellon never obtained Federal Reserve Board approval as required under regulatory capital rules to exclude the assets from its calculations. Due to the miscalculations and the firm’s lack of internal accounting controls to ensure its financial statements were being prepared properly, BNY Mellon understated its risk-weighted assets and overstated certain risk-based capital ratios in quarterly and annual reports from the third quarter of 2010 to the first quarter of 2014. SEC				 					 

						
Tagged in:
													  Accounting Fraud, 
													  Financial and Investment Fraud, 
													  Misrepresentations, 
													  Regulatory Violations, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 12, 2016

				 Warsaw, Indiana-based medical device manufacturer Biomet will pay more than $30 million to resolve SEC and DOJ investigations into the company’s repeat violations of the Foreign Corrupt Practices Act.  Biomet first faced FCPA charges from the SEC and entered into a deferred prosecution agreement with the DOJ in March 2012 when it also agreed to pay $22 million to settle both cases.  As part of the SEC settlement, Biomet agreed to retain an independent compliance consultant to review its FCPA compliance program.  After the settlement, while implementing recommendations from the consultant, Biomet discovered potential anti-bribery violations in Mexico and Brazil.  The company notified the monitor and the SEC in 2013.  The SEC’s order finds that Biomet continued to interact and improperly record transactions with a known prohibited distributor in Brazil, and used a third-party customs broker to pay bribes to Mexican customs officials to facilitate the importation and smuggling of unregistered and mislabeled dental products. SEC				 					 

						
Tagged in:
													  FCPA, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 12, 2016

				 Broker ITG will pay more than $24.4 million to settle charges that it violated federal securities laws when it prompted the issuance of American Depository Receipts (ADRs) without processing the underlying foreign shares. ADRs are U.S. securities that represent shares in a foreign company. For all issued ADRs, there must be a corresponding number of foreign shares in custody. On behalf of counterparties, ITG obtained ADRs from depository banks that administer ADR programs. The SEC’s order found that ITG facilitated transactions known as “pre-releases” of ADRs to its counterparties without owning the foreign shares or taking the necessary steps to ensure they were custodied by the counterparty on whose behalf they were being obtained. Many of the ADRs obtained by ITG through pre-release transactions were ultimately used to engage in short-selling and dividend arbitrage, even though they may not have been backed by foreign shares. SEC				 					 

						
Tagged in:
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 11, 2017

				 January 11, 2017 – Government contractor L-3 Technologies Inc. will pay a $1.6 million penalty to settle charges that it failed to maintain accurate books and records and had inadequate internal accounting controls. According to the SEC’s order, around August 2013, executives in L-3’s Army Sustainment Division developed a “Revenue Recovery Initiative” that identified approximately $50 million in work performed under a contract with the U.S. Army that had not been billed. Because L-3 and the Army had not reached agreement on payment, any revenue recognition for that work was improper. Nonetheless, in December 2013, a senior finance official requested that 69 invoices be generated, but not delivered, causing the division to recognize almost $18 million in revenue. Because of that revenue, division employees just satisfied an internal target for management incentive bonuses. In June 2014, L-3 hired outside consultants to conduct an internal investigation. In addition to the improper revenue recognized in association with the 69 invoices, the consultants identified additional accounting errors in the division’s books from 2011 through 2014. All together, these errors had the effect of overstating the company’s pre-tax income by $169 million. SEC				 					 

						
Tagged in:
													  Accounting Fraud, 
													  Defense Contract Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 10, 2017

				 The Port Authority of New York and New Jersey will admit wrongdoing and pay a $400,000 penalty to settle charges that it failed to inform bond purchasers of risks to a series of New Jersey roadway projects the bonds were being used to fund. The SEC’s order found that the Port Authority offered and sold $2.3 billion worth of bonds to investors despite internal discussions about whether certain projects outlined in offering documents ventured outside its mandate and potentially weren’t legal to pursue. The Port Authority omitted any mention in its offering documents about these risks to its ability to fund the proposed projects. SEC				 					 

						
Tagged in:
													  Defendants, 
													  Misrepresentations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
January 9, 2017

				 Connecticut-based investment advisor John W. Rafal will pay more than $575,000 to settle charges that he defrauded a client and then compounded his scheme by attempting to mislead SEC investigators while lying to other clients about the status of the SEC’s investigation. According to the SEC’s order, Rafal secretly paid a lawyer, Peter D. Hershman, to refer one of his clients to Essex Financial Services, an investment advisory firm founded by Rafal. Rafal failed to disclose the referral fee arrangement and instead disguised the payments as payments for legal services purportedly provided by Hershman’s firm. After other Essex officers discovered and stopped Rafal’s payment arrangement, he continued to pay Hershman using other accounts he controlled. The SEC’s order further found that while the SEC’s investigation was on-going, Rafal sent numerous emails to Essex clients falsely stating that the SEC had “fully investigated all matters” and “issued a ‘no action’ letter completely exonerating” him and Essex. Finally, Rafal tried to throw SEC investigators off track by concealing the additional payments he made to Hershman and testifying that Hershman had returned all money paid to him. The U.S. Attorney’s Office for the District of Massachusetts announced a criminal case against Rafal for obstructing the proceedings of a federal agency. Hershman will pay more than $90,000 to settle charges against him related to the payment scheme. Essex will pay more than $180,000 in disgorgement and interest to settle charges related to Rafal’s conduct. SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Misrepresentations, 
												
						

					
	
							
	
		
		
	


 			


											

						

								

									
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