Misrepresentations

January 27, 2017

Anthony J. Klatch II, Lindsey Heim, and Assurance Capital Management were charged with fraud, misappropriation, and the issuance of false statements in connection with a commodity pool they operated. Klatch is a repeat offender who was previously subject to criminal and civil suits related to similar financial schemes. In a parallel litigation arising from the same facts, the U.S. District Court for the Southern District of New York entered a final judgment ordering Klatch to pay $12.9 million. CFTC

January 18, 2017

Credit Suisse agreed to pay $5.28 billion to resolve charges it misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) in the years leading up to the Great Recession. As part of the settlement, the bank agreed to a detailed Statement of Facts describing how it knowingly made false and misleading representations to investors about the characteristics of the billions of dollars of mortgage loans it securitized in RMBS. Whistleblower Insider

January 17, 2017

Deutsche Bank agreed to pay $7.2 billion to resolve charges it misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) in the years leading up to the Great Recession. It is the largest RMBS resolution in what has been a string of multi-billion dollar settlements. As part of the settlement, the bank agreed to a detailed Statement of Facts describing how it knowingly made false and misleading representations to investors about the characteristics of the billions of dollars of mortgage loans it securitized in RMBS. Whistleblower Insider

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

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

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

January 13, 2017

The Department of Justice, 21 states, and the District of Columbia reached a nearly $864 million settlement agreement with Moody’s Investors Service Inc., Moody’s Analytics Inc., and their parent, Moody’s Corporation to resolve allegations arising from Moody’s role in providing credit ratings for Residential Mortgage-Backed Securities (RMBS) and Collateralized Debt Obligations (CDO), contributing to the worst financial crisis since the Great Depression. According to the government, "Moody’s failed to adhere to its own credit rating standards and fell short on its pledge of transparency in the run-up to the Great Recession [and] . . . used a more lenient standard than it had itself published." The settlement includes a $437.5 million federal civil penalty, which is the second largest payment of this type ever made to the federal government by a ratings agency. DOJ

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

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  

January 9, 2017

EJS Capital Management, LLC,  Alex Vladimar Ekdeshman, and Edward J. Servider were ordered to pay over $11.6 million in sanctions for their role in a fraudulent, off-exchange foreign currency scheme involving misappropriation of customer funds and false statements to customers to conceal the fraud. The order was entered by the United States District Court for the Southern District of New York. A number of Relief Defendants were ordered to pay $760,375 in disgorgement. CFTC