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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.

August 10, 2016

Atlanta-based building products distributor BlueLinx Holdings Inc. will pay a $265,000 penalty to settle charges that it violated securities laws by requiring outgoing employees to sign severance agreements that waived their rights to monetary recovery should they file a charge or complaint with the SEC or other federal agencies.  According to the SEC’s order, BlueLinx added the monetary recovery prohibition to all of its severance agreements in mid-2013, nearly two years after the SEC’s adoption of Rule 21F-17, which prohibits any action to impede someone from communicating with the SEC about possible securities law violations.  SEC

August 10, 2016

August 10, 2016 – The SEC charged former Philadelphia Eagle Merrill Robertson, Jr., his partner Sherman C. Vaughn Jr., and their company Cavalier Union Investments LLC, with defrauding investors by misleading them about their experience and the security of their investments and by diverting investor funds to personal use.  According to the SEC’s complaint, the defendants promised to invest in diversified holdings but instead diverted nearly $6 million of the $10 million raised to pay for personal expenses and repay earlier investors.  Allegedly the scheme targeted seniors and coaches, donors, alumni, and employees of schools where Robertson had attended and played football.  SEC

August 4, 2016

The SEC charged Connecticut cardiologist Dr. Edward Kosinski with insider trading.  Dr. Kosinski was the principal investigator in a drug trial being pursued by Regado Biosciences for a potential new clotting agent designed to be used in patients undergoing coronary angioplasty.  Dr. Kosinski received advance notice that patient enrollment in the trial was being suspended because patients had experienced severe allergic reactions.  In response, he allegedly sold all 40,000 shares of his Regado stock to avoid $160,000 in losses he would have suffered when the news became public and the stock dropped.  A month later, he received advance notice that enrollment would be halted because a patient had died, and he again profited by betting the stock price would drop and purchasing option trades.  SEC

July 28, 2016

The SEC filed an emergency action in federal court and obtained an asset freeze against Matthew E. White, Rodney A. Zehner, and Daniel J. Merandi who allegedly fraudulently issued $1 billion in unsecured corporate bonds out of a shell company they own and claimed invested money would be used to fund a resort project.  In fact, they never came close to raising the funds necessary to start the project.  In the meantime, they pocketed the $5.6 million in investor funds they had raised and used it for personal purchases at Saks Fifth Avenue, Gucci, Louis Vuitton, Prada, and Versace.  SEC

July 26, 2016

State Street Bank and Trust Company will pay $382.4 million in a global settlement for misleading mutual funds and other custody clients by applying hidden markups to foreign currency exchange trades.  As part of its custody bank line of business, State Street safeguards clients’ financial assets and offers such services as indirect foreign currency exchange trading (Indirect FX) for clients to buy and sell foreign currencies as needed to settle their transactions involving foreign securities.  An SEC investigation found that State Street realized substantial revenues by misleading custody clients about Indirect FX, telling some clients that it guaranteed the most competitive rates available on their foreign currency trades, provided “best execution,” or charged “market rates” on the transactions.  Instead, State Street set prices largely driven by predetermined, uniform markups and made no effort to obtain the best possible prices for these clients.  State Street will pay $167.4 million in disgorgement and penalties to the SEC, a $155 million penalty to the Department of Justice, and at least $60 million to ERISA plan clients in an agreement with the Department of Labor.  SEC

July 25, 2016

South American-based LAN Airlines will pay more than $22 million to settle parallel civil and criminal cases related to improper payments it authorized during a dispute between the airline and its union employees in Argentina.  An SEC investigation found that when LAN encountered problems negotiating labor agreements with the unions, it was contacted by a consultant from Argentina, then a Cabinet Advisor with the Department of Transportation, who offered to negotiating on the company’s behalf.  The consultant made clear that he would expect compensation and that payments would be made to third parties who had influence over the unions.  LAN’s CEO approved $1.15 million in payments to the consultant through a sham contract for a purported study of existing air routes in Argentina.  The CEO knew that no actual study would be performed and that it was possible the consultant would pass some portion of the money to union officials in Argentina to settle the wage disputes.  SEC

July 22, 2016

The SEC obtained an asset freeze against James Hugh Brennan III and Douglas Albert Dyer, two former brokers with disciplinary histories who allegedly raised more than $5 million from investors without using the money as promised.  In an emergency action field in federal court, the SEC alleged that Brennan and Dyer sold purported shares in eight similarly named companies to more than 240 investors since 2008 without ever registering the stock as promised.  Instead, according to the SEC’s complaint, Brennan and Dyer transferred investor funds into their personal accounts or those belonging to their wives.  The SEC further alleged that Brennan and Dyer continue to solicit investors while touting their securities industry experience and failing to disclose that Brennan was banned from the brokerage industry and Dyer suspended and fined for executing unauthorized transactions in customers’ accounts.  SEC

July 22, 2016

Accountant Nicholas Bottini will pay a $25,000 penalty and has been permanently suspended from appearing and practicing before the SEC, after conducting a faulty audit of the financial statements of ContinuityX Solutions, Inc., a publicly-traded company that claimed to sell internet services to businesses and whose executives have since been charged by the SEC for allegedly engineering a scheme to grossly overstate the company’s revenue through fraudulent sales.  New York-based accounting firm EFP Rotenberg LLP, where Bottini was a partner at the time, will also pay a $100,000 penalty to settle the SEC’s charges and is prohibited from accepting new public company clients for one year.  SEC

July 14, 2016

Investment advisory firm RiverFront Investment Group will pay $300,000 to settle charges that it failed to properly prepare clients for additional transaction costs beyond the “wrap fees” they expected to pay to cover the costs of bundled services.  In wrap fee programs, subadvisers typically use a sponsoring brokerage firm to execute their trades on behalf of clients and the costs of those trades are included in the annual wrap fee that each client pays.  An SEC investigation found that RiverFront disclosed to investors in ADV forms that client trades were typically executed through the sponsoring broker so the wrap fee would cover the transaction costs.  But RiverFront actually used brokers besides the wrap program sponsor to execute the majority of its wrap program trading, resulting in additional costs to clients for those transactions.  While RiverFront did disclose that some “trading away” from the sponsoring broker could occur, the firm inaccurately described the frequency, rendering its disclosures materially misleading.  SEC

July 12, 2016

Citigroup Global Markets will pay a $7 million penalty and admit wrongdoing to settle charges that a computer coding error caused the firm to provide the agency with incomplete “blue sheet” information about trades it executed.  According to the SEC’s order, the coding error occurred in the software that Citigroup used from May 1999 to April 2014 to process SEC requests for blue sheet data, including the time of trades, types of trades, volume traded, prices, and other customer identifying information.  Consequently, during that period, Citigroup omitted 26,810 securities transactions from its responses to more than 2,300 blue sheet requests.  After discovering the coding error, Citigroup failed to report the incident to the SEC or take any steps to produce the omitted data until nine months later.  SEC
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