Regulatory Violations

August 13, 2015

Brokerage firm Edward Jones and the former head of its municipal underwriting desk, Stina Wishman, agreed to settle charges that they overcharged customers in new municipal bonds sales.  This was the SEC’s first case against an underwriter for pricing-related fraud in the primary market for municipal securities.  The SEC’s investigation found that rather than offering customers municipal bonds at their “initial offering price,” Edward Jones and Wishman improperly offered the bonds at higher prices.  This resulted in customers being overcharged by at least $4.6 million.  The SEC also charged Edward Jones with failing to properly supervise dealer markups on secondary market trades that involved the firm purchasing municipal bonds from customers, placing them into its inventory, and selling them to other customers.  The SEC found that Edward Jones’ supervisory system was not designed to monitor whether the markups on these trades were reasonable.  Edward Jones will pay more than $20 million to settle the SEC’s charges, including nearly $5.2 million in disgorgement and prejudgment interest that will be distributed to customers who were overcharged.  SEC

August 10, 2015

Guggenheim Partners Investment Management LLC, a subsidiary of global financial services firm Guggenheim Partners LLC, has agreed to pay a $20 million penalty to settle charges by the SEC.  The SEC’s order found that Guggenheim breached its fiduciary duties by failing to disclose a $50 million loan that one of its senior executives received from an advisory client.  Guggenheim failed to disclose the loan, or the potential conflict of interest created by the executive’s receipt of it, to other clients involved in the transactions.  In addition, the SEC’s order found that Guggenheim inadvertently categorized certain investments as managed assets, leading to a client being inappropriately charged approximately $6.5 million in asset management fees.  Despite identifying the error, Guggenheim did not return the fees for almost two years.  Finally, the SEC’s order found Guggenheim’s compliance program was not reasonably designed to prevent violations of the federal securities laws and that the company failed to enforce its code of ethics.  SEC

July 23, 2015

Three former employees of broker-dealer Oppenheimer settled charges stemming from the unregistered sales of billions of shares of penny stocks on behalf of a customer.  This action relates to a previously settled enforcement action against Oppenheimer in which the broker-dealer admitted wrong-doing and paid $20 million to the SEC and the Treasury Department’s Financial Crimes Enforcement Network.  According to the SEC’s order, the former employees failed to make reasonable inquiries or provide appropriate oversight in the face of red flags indicating that their customer’s stock sales were not exempt from registration.  SEC

July 14, 2015

The SEC charged 15 individuals and 19 entities for their roles in alleged schemes to manipulate the trading of microcap stocks.  The defendants include two microcap issuers (Warrier Girl Corp. and Nature’s Peak, formerly Everock, Inc.), six firms alleged to have acted as unregistered broker-dealers for customers wishing to conceal their stock ownership and manipulate the microcap market, owners and employees at these six firms, customers, and stock promoters.  Defendant Moneyline Brokers is alleged to have unlawfully operated as a broker-dealer for U.S.-based customers who engaged in “pump and dump” schemes.  SEC

June 23, 2015

The SEC charged Gregg R. Mulholland, a microcap promoter, with illegally selling more than 83 million penny stock shares that he secretly obtained through at least 10 different offshore front companies.  Mulholland was previously charged by the SEC in 2011 for the fraudulent pump-and-dump manipulation of a sports drink company founded by Daniel “Rudy” Ruettiger, known for having inspired the motion picture “Rudy.”  In 2013, the SEC obtained a monetary judgment against Mulholland for more than $5.3 million. SEC

June 23, 2015

The SEC charged Ireeco LLC and Ireeco Limited with illegally brokering more than $79 million of investments by foreigners seeking U.S. residency through the EB-5 Immigrant Investor Program.  The companies are charged with acting as unregistered brokers for more than 150 EB-5 investors.  SEC

June 17, 2015

The SEC announced an enforcement action against Silicon Valley-based Sand Hill Exchange for illegally offering complex derivatives products to retail investors.  The violations were detected shortly after the offering process began, and with cooperation from the company the platform was shut down before any investor harm occurred.  Sand Hill and two associated individuals agreed to pay a $20,000 penalty to settle the SEC’s charges.  SEC

June 9, 2015

Andrew L. Evans, a trader residing in Canada, agreed to pay more than $1 million to settle charges that through his firm Maritime Asset Management he shorted US stocks in companies planning follow-on offerings and then illegally bought shares in the follow-on offerings to lock in significant profits with little to no market risk. SEC

June 1, 2015

Merrill Lynch agreed to admit wrongdoing and pay nearly $11 million to settle charges that two of its entities used inaccurate data in the course of executing short sale orders.  SEC

May 21, 2015

The SEC announced fraud charges against Atlanta-based investment advisory firm Gray Financial Group, its founder and president Laurence O. Gray, and its co-CEO Robert C. Hubbard IV, for allegedly selling unsuitable investments to pension funds for the city’s police and firefighters, transit workers, and other employees.  SEC