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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.

				

			

			
						
					
			

	
		
		

			

				
				
December 20, 2016

				 Oklahoma-based oil-and-gas company SandRidge Energy Inc. will pay a $1.4 million penalty, subject to the company’s bankruptcy plan, to settle charges that it used illegal separation agreements and retaliated against a whistleblower who expressed concerns internally about how its reserves were being calculated.  The SEC’s order found that SandRidge regularly used restrictive language in its separation agreements that purported to prohibit outgoing employees from participating in any government investigation or disclosing information potentially harmful or embarrassing to the company.  The SEC’s order further found that SandRidge fired an internal whistleblower who kept raising concerns about the process used by SandRidge to calculate its publicly reported oil-and-gas reserves.  SEC				 					 

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

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 20, 2016

				 Morgan Stanley & Co. LLC will pay $7.5 million to settle charges it used trades involving customer cash to lower the firm’s borrowing costs in violation of the SEC’s Customer Protection Rule.  The Customer Protection Rule is intended to safeguard customers’ assets so that they can be promptly returned should the broker-dealer fail.  The SEC’s order found that from March 2013 to May 2015, Morgan Stanley had its affiliate Morgan Stanley Equity Financing Ltd. serve as a customer of its U.S. broker-dealer.  This allowed the affiliate to use margin loans from the broker-dealer to finance the costs of hedging swap trades with customers.  The margin loans lowered the borrowing costs incurred to hedge these swap trades and reduced the U.S. broker-dealer’s customer reserve account deposit requirements by tens to hundreds of millions of dollars per day.  According to the SEC’s order, the transactions violated the Customer Protection rule, which prohibits broker-dealers from using affiliates to reduce their customer reserve account deposit requirements.  SEC				 					 

						
Tagged in:
													  Financial Institution Fraud, 
													  Market Manipulation and Trading Violations, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 19, 2016

				 Virginia-based technology company NeuStar Inc. will pay $180,000 to settle charges involving its severance agreements that impeded at least one former employee from communicating with the SEC.  The SEC’s order found that NeuStar violated a whistleblower protection rule by routinely entering into severance agreements that contained a broad non-disparagement clause forbidding former employees from engaging with the SEC.  Former employees could be compelled to forfeit all but $100 of their severance pay for breaching the clause.  The severance agreements were used with at least 246 departing employees between 2011 and 2015.  NeuStar voluntarily revised its severance agreements promptly after the SEC began investigating and agreed to make reasonable efforts to inform those who signed the severance agreements that NeuStar does not prohibit former employees from communicating any concerns about potential violations of law or regulation to the SEC.  SEC				 					 

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

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 19, 2016

				 The SEC charged Mark Nordlicht, founder of hedge fund firm Platinum Partners, and two of Platinum’s flagship hedge fund advisory firms, Platinum Management (NY) LLC and Platinum Credit Management LP, with conducting a fraudulent scheme to inflate asset values and illicitly move investor money to cover losses and liquidity problems.  SEC examiners uncovered suspicious activity during an examination of the firms and referred it to SEC enforcement staff for further investigation.  The SEC’s complaint alleges that Nordlicht and the Platinum funds overstated the value of an oil company that was among their largest assets, and concealed a growing liquidity crisis by transferring money between the funds, making preferential redemptions to favored investors, and using misrepresentations to attract new investors to the struggling funds.  The SEC’s complaint further alleges that Nordlicht schemed with colleagues and Jeffrey Shulse, CFO of Black Elk Energy, Platinum’s other major oil investment, to divert almost $100 million from Black Elk Energy to help boost the Platinum funds.  Others charged in the SEC’s complaint include Shulse, David Levy (Platinum Owner and Co-Chief Investment Officer), Daniel Small (former Managing Director and Portfolio Manager of certain Platinum funds), Uri Landesman (former Managing General Partner of certain Platinum funds), Joseph Mann (employee of Platinum’s Investor Relations Department), and Joseph SanFilippo (CFO of a Platinum hedge fund).  Funds managed by Platinum Management are currently in a liquidation proceeding in the Cayman Islands.  SEC				 					 

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

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 16, 2016

				 The SEC announced on-going cease and desist proceedings against Utah-based broker dealer Wilson-Davis & Co, and settled proceedings against a former Wilson-Davis proprietary trader, Anthony Kerrigon, Wilson-Davis’ vice president/head trader Byron Barkley, and Wilson-Davis’ Chairman/CEO Paul Davis for violations of Regulation SHO.  Regulation SHO requires that before a broker-dealer effects a short sale, the broker-dealer must “locate” a source of borrowable securities that can be delivered on the date that delivery is due.  The rule includes a limited exception for short sales executed in connection with bona fide market making.  The SEC alleges that from at least November 2011 to May 2013, Wilson-Davis relied on the bona-fide market making exception for all short sales by its proprietary trading group and that this reliance was improper for certain trades.  While improperly availing itself of the exception, Wilson-Davis engaged in numerous short sales in over-the-counter equity securities which violated Rule 203(b)(1) of Regulation SHO and resulted in improper trading profits.  In addition, Wilson-Davis violated various provisions of the Market Access Rule.  Kerrigone, Barkley, and Davis will pay, collectively, over $700,0000 to settle the charges against them.  SEC				 					 

						
Tagged in:
													  Market Manipulation and Trading Violations, 
													  Regulatory Violations, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 16, 2016

				 Nevada-based stock transfer agent Empire Stock Transfer, and its supervisor of operations Matthew J. Blevins will pay $174,000 and agree to be permanently barred from the securities industry to settle charges  that they transferred large blocks of several penny stock securities without restrictions to offshore nominees despite red flags indicating the shares were likely part of an illegal operation.  The SEC previously charged several offshore entities involved with the illegal sales of unregistered penny stocks made possible by Empire Stock Transfer and Blevins.  SEC				 					 

						
Tagged in:
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 16, 2016

				 Newport Beach, California-based securities lawyer Michael J. Muellerleile accepted a penny stock bar and will pay more than $150,000 to settle charges of authoring false and misleading registration statements used in sham IPOs for five microcap issuers in order to transfer unrestricted shares of penny stocks to offshore market participants.  The SEC also brought charges against Muellerleile’s law firm M2 Law Professional Corp., Lan Phuong Nguyen, an attorney who assisted Meullerleile by signing false and misleading attorney opinion letters, and Joel Felix, the CFO of American Energy Development Corp., one of the issuers.  The SEC suspended trading in American Energy Development Corp.  SEC				 					 

						
Tagged in:
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 16, 2016

				 Deutsche Bank will pay $18.5 million in penalties to the SEC and $18.5 million to the New York Attorney General’s Office to settle charges that it misled clients about the performance of a core feature of its automated order router that primarily sent client orders to dark pools.  According to the SEC’s order, Deutsche made materially misleading statements and omissions concerning the Dark Pool Ranking Model feature of one of its order routers, known as SuperX+.  The Model was intended to measure execution quality and liquidity of venues to which it sent orders.  Deutsche used the Model to determine which venues would receive orders and the sequence in which Deutsche would send them.  Deutsche stated that he Model “smartly routes and selects optimal pools of liquidity on an order by order basis.”  But according to the SEC’s order, due to a coding error, Deutsche updated the ranking model just once during a two-year period, causing at least two dark pools to receive inflated rankings and consequently millions of orders that SuperX+ would have sent elsewhere if the system was operating as described.  SEC				 					 

						
Tagged in:
													  Dark Pools, 
													  Market Manipulation and Trading Violations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 12, 2016

				 The SEC charged New Jersey-based traders Joseph Taub and Elazar Shmalo with manipulating more than 2,000 NYSE- and NASDAQ-traded stocks and reaping more than $26 million in profits from their successful trades.  The SEC alleges that Taub and Shmalo utilized dozens of accounts at various brokerage firms to carry out their scheme undetected, typically using two at a time to engage in a flurry of manipulative trading activity that usually lasted less than five minutes.  According to the SEC’s complaint, they would use one account to buy a position in a stock, and then use a second account to place a series of small buy orders to walk up the price for the first account to sell its larger position into the market at an artificially high price for significant profits.  In some instances, before the first account purchased its position in a stock, Taub and Shmalo would have the second account place a series of smaller sell orders to drive down the price of the stock, allowing the first account to buy its larger position in that stock at an artificially lowered price.  SEC				 					 

						
Tagged in:
													  Market Manipulation and Trading Violations, 
												
						

					
	
							
	
		
		
	


 			


 			


											

						

								

									
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