Misrepresentations

February 17, 2016

February 17, 2016 – Former Deutsche Bank research analyst Charles Grom will pay $100,000 and be suspended from the security industry for one year, to settle SEC charges that he certified the rating on a stock that was inconsistent with his personal view.  An SEC investigation found that Grom certified that his March 29, 2012 report about discount retailer Big Lots accurately reflected his own beliefs about the company and its securities.  But in private communications with Deutsche Bank research and sales personnel, Grom indicated that he did not downgrade Big Lots from a “buy” recommendation because he wanted to maintain his relationship with Big Lots management.  SEC

February 11, 2016

February 11, 2016 – The SEC charged unregistered broker Gregory Ruehle with fraudulently selling purported stock in medical device company ICB International while pocketing investors’ money and using it to pay gambling debts.  The SEC alleges that Ruehle raised approximately $1.9 million from over 100 investors by claiming that he would sell them his personally-owned securities in ICB International.  However, Ruehle sold far more shares than he in fact owned, owned shares that were non-transferable, and fabricated documents purportedly transferring the shares.  In a parallel action, the U.S. Attorney’s Office for the Southern District of California announced criminal charges against Ruehle.  SEC

February 11, 2016

Morgan Stanley agreed to pay a $2.6 billion penalty “for misleading investors about the subprime mortgage loans underlying the securities it sold” in the period leading up to the financial crisis.  As part of the agreement, Morgan Stanley admitted that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its residential mortgage-backed securities (RMBS) which ultimately caused investors, including federally insured financial institutions, to lose billions of dollars from investing in Morgan Stanley in the 2006-07 timeframe.  The $2.6 billion civil penalty resolves claims under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).  In addition, the states of New York and Illinois announced their own settlements with Morgan Stanley for $550 million and $22.5 million, respectively.  When combined with prior settlements with other regulators -- $225 million to the National Credit Union Administration; $1.25 billion to the Federal Housing Finance Agency; $86.95 million to the Federal Deposit Insurance Corporation; and $275 million to the SEC -- this brings to almost $5 billion the total payout by Morgan Stanley in connection with its fraudulent sales of RMBS.  Whistleblower Insider

February 3, 2016

Manhattan-based lending company, American Growth Funding II LLC (AGF), and its owner, Ralph Johnson, have been charged with fraud for repeatedly lying to investors purchasing high-yield securities.  The SEC alleges that the defendants promised investors 12-percent annual returns, falsely claimed its financial statements were being audited each year, and concealed details about the deteriorating value of assets that could imperil full payment of returns to investors.  The SEC also charged Portfolio Advisors Alliance, the brokerage firm that acted as AGF’s placement agent, and two of its executives, for allegedly continuing to use AGF’s offering documents to solicit sales of its securities when they knew that the documents were inaccurate.  SEC

February 2, 2016

Fourteen municipal underwriting firms will pay civil penalties to settle charges under the SEC’s Municipalities Continuing Disclosure Cooperation (MCDC) initiative.  In all, 72 underwriters (comprising 96% of the municipal underwriting market) have been charged under the voluntary self-reporting program which targets material misstatements and omissions in municipal bond offering documents.  The settling firms and civil penalties paid by the settling firms are as follows: Barclays Capital Inc. ($500,000), Boenning & Scattergood Inc. ($250,000), D.A. Davidson & Co. ($500,000), First Midstate Inc. ($100,000), Hilltop Securities Inc. ($360,000), Janney Montgomery Scott LLC ($500,000), Jefferies LLC ($500,000), KeyBanc Capital Markets Inc. ($440,000), Mitsubishi UFJ Securities  (USA) Inc. ($20,000), Municipal Capital Markets Group Inc. ($60,000), Roosevelt & Cross Inc. ($250,0000), TD Securities (USA) LLC ($500,000), United Bankers’ Bank ($160,000), and Wells Fargo Bank N.A. Municipal Products Group ($440,000).  SEC

January 28, 2016

Manhattan-based advisory firm, QED Benchmark Management LLC, and its Toronto-based founder/manager, Peter Kuperman, will reimburse investors $2.877 million in losses to settle charges that they misled investors about a fund’s investment strategy and historical performance.  According to the SEC’s order, QED and Kuperman avoided disclosing heavy trading losses to investors by using a misleading mixture of actual and hypothetical returns when describing the fund's performance history.  After obtaining millions of dollars from investors based on these misrepresentations, QED and Kuperman then deviated from their stated investment strategy and poured most of the fund’s assets into a single penny stock.  SEC

February 1, 2016

Barclays Capital Inc. and Credit Suisse Securities (USA) LLC will pay a combined $154.3 million to the State of New York and the SEC to settle investigations into false statements and omissions made in connection with the marketing of their respective dark pools and other high-speed electronic equities trading services. Dark pools are private exchanges for trading securities that are not viewable by the general public and are completed outside of public stock exchanges. Barclays admitted to core facts set forth in the Attorney General’s Complaint from June 2014 alleging misrepresentations about how it operated its dark pool, “Barclays LX,” including that it misled investors and violated securities laws. NY

January 20, 2016

Ocwen Financial Corp. will pay $2 million to settle charges that it misstated financial results by using a flawed, undisclosed methodology to value complex mortgage assets.  Ocwen inaccurately disclosed to investors that it independently valued these assets at fair market value according to U.S. Generally Accepted Accounting Principles. In fact, Ocwen merely used, and failed to review, the valuation performed by a related party to which it sold the rights to service certain mortgages.  In addition, the SEC found that Ocwen’s internal controls failed to prevent conflicts of interest involving Ocwen’s executive chairman who played a dual role in many related party transactions.  As a result, Ocwen’s executive chairman was able to approve transactions from both sides, including a $75 million bridge loan to Ocwen from a company where he also served as chairman of the board.  SEC

January 13, 2016

Nine of eleven high-ranking executives and board members of Superior Bank and its holding company have settled charged by the SEC based on their alleged involvement in various schemes designed to conceal the extent of loan losses experienced as the bank was faltering in the wake of the financial crisis.  The defendants propped up Superior’s financial condition through straw borrowers, bogus appraisals, and insider deals, allowing the bank to avoid impairment and the reporting of ever-increasing allowances for loan and lease losses.  As a result, Superior overstated its net income in public filings by 99 percent for 2009 and 50 percent for 2010.  The settling defendants will pay at least $2.8 million collectively and are all permanently barred from serving as officers or directors of a public company.  SEC