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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 6, 2016

				 San Francisco-based firm Equidate Inc. will pay $80,000 to settle charges that it violated federal securities laws by failing to register security-based swaps that were offered and sold online to shareholders in pre-IPO companies.  The SEC’s order finds that Equidate sought to provide liquidity for employees of private, growth-stage companies in Silicon Valley and others holding restricted shares of their stock by using a platform to match these shareholders with investors seeking to invest in the potential economic return on those shares.  Equidate conducted transactions through contracts that its subsidiary entered into with the shareholders and investors, and payment provisions were triggered by such events as a merger, acquisition, or IPO at the underlying company.  But Equidate never filed a registration statement for the swaps not sold through a national securities exchange as required.  SEC				 					 

						
Tagged in:
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 5, 2016

				 The SEC announced insider trading charges against San Francisco-based information technology specialist Jonathan Ly.  Ly, a technology specialists with online travel company Expedia, allegedly hacked senior executives at his company and illegally traded on company secrets, generating nearly $350,000 in profits on trades undertaken between 2013 and 2016.  According to the SEC’s complaint, Ly exploited administrative access privileges to remotely hack into computers and email accounts of senior executives and review confidential documents and pre-earnings reports.  Ly targeted information prepared by Expedia’s head of investor relations which summarized Expedia’s yet-to-be-announced earnings reports and described how the market could react to particular announcements.  Ly allegedly used this nonpublic information to make highly profitable trades in Expedia securities in advance of the announcements.  Ly has agreed to pay more than $375,000 to settle the SEC’s charges.  SEC				 					 

						
Tagged in:
													  Insider Trading, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 5, 2016

				 The SEC announced the award of approximately $3.5 million to a whistleblower who came forward with information that led to a successful SEC enforcement action.  The award brings the total awards under the program to approximately $135 million.  SEC				 					 

						
Tagged in:
													  SEC Whistleblower Reward Program, 
													  Whistleblower Rewards, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 2, 2016

				 The parent company for United Airlines will pay $2.4 million to settle charges that it violated the books and records and internal accounting controls provisions when it reinstituted a poorly-performing flight route to curry favor with a public official.  According to the SEC’s order, United reinstated a nonstop flight between Newark, N.J. and Columbia, S.C. at the behest of David Samson, the then-chairman of the Port Authority of New York and New Jersey, who wanted a more direct route to his home in South Carolina.  The route had experienced poor financial performance and was canceled by Continental Airlines prior to its merger with United.  Additionally, a preliminary analysis conducted after Samson began privately advocating for the route’s return revealed it would likely lose money again.  Nevertheless, the SEC’s order finds that United officials feared Samson’s influence could jeopardize United’s business interests before the Port Authority, including the approval of a hangar project to help the airline at Newark’s airport.  The route was approved on the same day that the Port Authority’s board approved the lease agreement related to the hangar project.  The route lost approximately $945,000 before it ceased again, roughly around the time of Samson’s resignation from the Port Authority.  SEC				 					 

						
Tagged in:
													  Accounting Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 1, 2016

				 Investment management firm Pacific Investment Management Company (PIMCO) will retain an independent compliance consultant and pay nearly $20 million to settle SEC charges that it misled investors about the performance of one of its first actively managed exchange-traded funds (ETFs) and failed to accurately value certain fund securities.  According to the SEC’s order, PIMCO’s Total Return ETF attracted significant investor attention as it outperformed even its flagship mutual fund in the four months following its launch in February 2012.  The initial performance was attributable to buying smaller-sized bonds known as “odd lots” as part of a strategy to help bolster performance out of the gate.  But in monthly and annual reports to investors, PIMCO provided misleading reasons for the ETF’s early success and failed to disclose that the resulting performance from the odd lot strategy was not sustainable as the fund grew in size.  The SEC’s order also finds that PIMCO’s odd lot strategy caused the Total Return ETF to overvalue its portfolio and consequently fail to accurately price a subset of fund shares.  PIMCO valued these bonds using prices provided by a third-party pricing vendor for round lots, which are larger-sized bonds compared to odd lots.  PIMCO blindly relied on these prices without any reasonable basis to believe they accurately reflected what the fund would receive if it sold the odd lots.  As a result, PIMCO overstated its net asset value almost every day for four months.  SEC

 				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Misrepresentations, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
December 1, 2016

				 The SEC announced fraud charges and an asset freeze against Miami Beach-based asset management company Onix Capital LLC and its owner Alberto Chang-Rajii, a Chilean national who fled the U.S. after reports of his fraud began to surface in March 2016.  The SEC alleges that Chang and Onix Capital defrauded investors in Onix promissory notes that “guaranteed” annual returns of 12 to 19 percent and bilked others who were told their funds would be invested in promising start-ups.  According to the SEC’s complaint, Chang and Onix Capital sold more than $5.7 million in Onix promissory notes that they falsely claimed were guaranteed by Chang, and raised more than $1.7 million that Chang promised to invest in companies such as Uber, Snapchat, and Square.  Instead, the SEC alleges that investor funds were diverted to Chang and used to pay other investors.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Ponzi Schemes, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
November 17, 2016

				 The SEC filed fraud charges against California-based renewable energy company 808 Renewable Energy Corp., its founder and CEO Patrick Carter, Chief Operating Officer Peter Kirkbride, sales representatives Martin Kinchloe and Thomas Flowers, and affiliated companies 808 Investments LLC, West Coast Commodities LLC, and T.A. Flowers LLC.  The SEC’s complaint alleges that from at least 2009 through 2013, the defendants fraudulently raised more than $30 million from hundreds of investors.  The SEC alleges that the defendants misled investors by falsely claiming that their investment funds would be used to acquire new equipment and expand 808 Renewable.  Instead, Carter paid millions in “consulting fees” to 808 Investments, a company he owned and controlled, and diverted millions more to support his lavish lifestyle, to pay commissions to sales representatives, and to make Ponzi-like payments to investors.  Flowers and T.A. Flowers have offered to pay over $1.5 million to settle the SEC’s action.  SEC				 					 

						
Tagged in:
													  Ponzi Schemes, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
November 17, 2016

				 JPMorgan Chase & Co. will pay more than $264 million to settle charges that it won business from clients and corruptly influenced government officials in the Asia-Pacific region by giving jobs and internships to their relatives and friends in violation of the Foreign Corrupt Practices Act (FCPA).  JP Morgan will pay over $130 million to the SEC, $72 million to the Department of Justice, and $61.9 million to the Federal Reserve Board of Governors.  According to the SEC’s order, investment bankers at JPMorgan’s subsidiary in Asia created a hiring program for clients that bypassed the firm’s normal hiring process.  Lucrative, career-building employment with JPMorgan was awarded to candidates as a reward to client executives and influential government officials.  During a seven-year period, JPMorgan hired approximately 100 interns and full-time employees at the request of foreign government officials, enabling the firm to win or retain business resulting in more than $100 million in revenues to JPMorgan.  SEC				 					 

						
Tagged in:
													  FCPA, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
November 14, 2016

				 The SEC announced the award of more than $20 million to a whistleblower who “promptly came forward with valuable information that enabled the SEC to move quickly and initiate an enforcement action against wrongdoers before they could squander the money.”  The award is the third-highest since the SEC’s whistleblower program issued its first award in 2012.  SEC				 					 

						
Tagged in:
													  SEC Whistleblower Reward Program, 
													  Whistleblower Rewards, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
November 10, 2016

				 Israeli-based trading firm EZTD Inc. will pay more than $1.7 million for misleading investors into trading binary options over the internet.  Binary options generally have an all-or-nothing payout structure in which investors bet on the increase or decrease in value of a company stock or other securities serving as the underlying asset.  The options contract expires after a fixed time period.  If an investor’s prediction was wrong, then all of the investment can be lost.  According to the SEC’s order, EZTD failed to register as a broker-dealer, failed to register the binary options, and failed to disclose on its trading platforms that there was significantly greater potential for investors to lose rather than earn money.  The SEC’s order found that less than 3 percent of the approximately 4,000 U.S. investors who opened accounts with EZTD actually made any profit on their investment.  The SEC also issued an investor alert detailing red flags that signal binary options fraud and warning investors never to put in more money in an attempt to win back money lost.  SEC				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			


											

						

								

									
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