Regulatory Violations

March 27, 2017

Davisco Foods International, Inc. was ordered to pay a $150,000 penalty for acting as a futures commission merchant without registering with the CFTC. The CFTC Order found that between May 2011 and October 2014, Davisco accepted orders from its milk suppliers for the purchase and sale of CME Class III Milk futures contracts and executed those orders on behalf of the suppliers in its own trading accounts. CFTC

March 21, 2017

Neil Pecker and his company Vision Financial Partners, LLC were ordered to pay more than $6.5 million in restitution and civil monetary penalties for fraudulent solicitation and misappropriation in connection with off-exchange binary options. The order was issued by Judge James I. Cohn of the U.S. District Court for the Southern District of Florida. Pecker and Vision Financial Partners were found to have fraudulently solicited approximately $3 million from members of the public to trade off-exchange binary options. CFTC

February 14, 2017

Morgan Stanley Smith Barney will pay an $8 million penalty and admit wrongdoing to settle charges related to single inverse ETF investments it recommended to advisory clients.  The SEC’s order finds that Morgan Stanley did not adequately implement its policies and procedures to ensure that clients understood the risks involved with purchasing inverse ETFs.  Among the order’s findings, Morgan Stanley failed to obtain from several hundred clients a signed client disclosure notice, which stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a hedging strategy.  Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, the securities were held long-term, and many clients experienced losses.  The SEC’s order further found that Morgan Stanley failed to follow through on another key policy and procedure requiring a supervisor to conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client.  Finally, the SEC’s order found that Morgan Stanley failed to monitor the single ETF positions on an on-going basis and did not ensure that certain financial advisers completed single inverse ETF training.  SEC

January 25, 2017

The SEC announced administrative proceedings against New York-based brokerage firm Windsor Street Capital and its former anti-money laundering officer John D. Telfer.  The SEC alleges that the firm, formerly Meyers Associates L.P. failed to file Suspicious Activity Reports (SARs) for $24.8 million in suspicious transactions, including those occurring in accounts controlled by microcap stock financiers Raymond H. Barton and William G. Goode who were separately charged by the SEC with conducting a pump-and-dump scheme.  The SEC alleges that Windsor and Telfer should have known about the suspicious circumstances behind many transactions occurring in customer accounts.  Customers like Barton and Goode allegedly deposited large blocks of penny stocks, liquidated them typically amid substantial promotional activity, and then transferred the proceeds away from the firm.  The SEC further alleges that the shares deposited by Barton and Goode could not be sold legally because no registration statement was in effect and no registration exemption was available.  Rather than conduct a reasonable inquiry into the deposits, Windsor allegedly accepted claims of exemption at face value.  The SEC separately filed a complaint in federal court against Barton and Goode along with Matthew C. Briggs, Kenneth Manzo, and Justin Sindelman.  The complaint alleges that they participated in a pump-and-dump scheme that acquired shares of dormant shell companies supposedly in the dietary supplement business, falsely touted news and products stemming from those companies, and dumped the shares on the market for investors to purchase at inflated prices.  Barton, Goode, Briggs, and Manzo will pay almost $8.8 million collectively to settle the charges brought against them.  SEC

January 18, 2017

New York-based marketing company MDC Partners will pay a $1.5 million penalty to settle charges that it failed to disclose certain perks enjoyed by its former CEO and separately violated non-GAAP financial measure disclosure rules.  The SEC’s order finds that MDC Partners disclosed an annual $500,000 perquisite allowance for its CEO but failed to disclose additional personal benefits the company paid on his behalf, such as private aircraft usage, club memberships, cosmetic surgery, yacht and sports car expenses, jewelry, charitable donations, pet care, and personal travel expenses.  The CEO later resigned and returned $11.285 million worth of perks, personal expense reimbursements, and other items of value improperly received from 2009 to 2014.  The SEC’s order also found improper use of non-GAAP measures.  According to the SEC’s order, MDC Partners presented a metric called “organic revenue growth” that represented the company’s revenue growth excluding the effects of acquisitions and foreign exchange impacts.  But from the second quarter of 2012 to year end 2013, MDC Partners incorporated a third reconciling item into its calculation without informing investors.  This resulted in higher “organic revenue growth” results.  The SEC also found that MDC Partners failed to give GAAP metrics equal or greater prominence to non-GAAP metrics in its earnings releases.  SEC

February 1, 2017

Joseph Charles DiCrisci and Oakmont Financial Inc. were ordered to pay more than $2.9 million in disgorgement and a civil monetary penalty by the U.S. District Court for the Southern District of Florida for engaging in illegal, off-exchange precious metals transactions. The court ordered a payment of $735,329 in disgorgement and over $2.2 million in a civil monetary penalty. CFTC

January 24, 2017

Florida and the Federal Trade Commission announced a settlement with several related debt relief and credit repair services companies and their principal. The settlement resolves allegations that Chastity Valdes and her companies, Consumer Assistance LLC, Consumer Assistance Project Corp. and Palermo Global LLC, engaged in unlawful debt relief operations targeting student loan holders. Among other things, the settlement bans the defendants from operating in the debt relief and credit repair industries. In 2016, Attorney General Bondi’s Office and the FTC filed a joint lawsuit against Valdes and her companies, alleging the defendants took illegal up-front fees in return for their purported debt relief and credit repair services. According to the complaint, the defendants allegedly falsely claimed these services reduced consumers’ student loan debt and repaired consumers’ credit. The complaint also asserted violations of the Florida Deceptive and Unfair Trade Practices Act, the FTC Act, the Telemarketing Sales Rule and the Credit Repair Organizations Act. As part of the settlement, the defendants are banned from selling debt relief and credit repair services and prohibited from making material misrepresentations about any products or services. The order also imposes a judgment of more than $2.3 million, which will be suspended upon the surrender of virtually all of the defendants’ assets. FL

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 17, 2017

CNCGC Hong Kong Ltd. was ordered to pay a $150,000 penalty for failing to file required CFTC Form 304 Cotton On-Call Reports. The form requires trading companies to report its call cotton purchases and sales when it held or controlled at least one hundred cotton futures positions. CNCGC also filed its Form 304 reports late on two occasions. CFTC