Regulatory Violations

February 10, 2015

Craig S. Lax, former CEO of a ConvergEx, agreed to pay more than $783,000 and admit wrongdoing to settle charges he participated in a scheme that caused his company’s customers to pay substantially higher amounts than the disclosed commissions for buying and selling securities.  The company previously paid $107M and admitted wrongdoing to settle related charges.  In settling the SEC’s charges, Lax also agreed to be barred from the securities industry for at least five years.  SEC

January 29, 2015

Chicago-based International Capital Group, along with its two co-founders and former chief operating officer, agreed to pay more than $4.3M to settle charges they sold more than nine billion shares of penny stocks through purported stock-based loans, block trades, and other transactions without registering with the SEC as a broker-dealer as required under the federal securities laws.  SEC

January 27, 2015

Oppenheimer & Co. agreed to pay $20M to settle charges of violating federal securities laws by improperly selling penny stocks in unregistered offerings on behalf of customers.  SEC

January 12, 2015

Two exchanges formerly owned by Direct Edge Holdings and since acquired by BATS Global Markets (the EDGA Exchange and EDGX Exchange) have agreed to pay a $14M penalty to settle charges that their rules failed to accurately describe the order types being used on the exchanges.  The penalty is the SEC’s largest against a national securities exchange, and the case is the SEC’s first principally focusing on stock exchange order types.  SEC

December 15, 2014

The SEC charged New Orleans-based oil-and-gas company Treaty Energy Corporation and five executives with running a stock trading scheme in which they claimed to have struck oil in Belize in order to manipulate the price of the company’s stock as they illegally sold restricted shares to the public.  According to the SEC, Treaty Energy issued deceptive press releases touting drilling successes in Belize and Texas to induce investor demand for its unregistered stock, which was then illegally distributed to the public.  The SEC alleges that Treaty Energy’s founder Ronald Blackburn and four company officers – Andrew V. Reid, Bruce A. Gwyn, Lee C. Schlesinger, and Michael A. Mulshine – obtained at least $3.5 million in illicit profits from the scheme.  SEC

December 10, 2014

Morgan Stanley agreed to pay $4M to settle charges it violated the market access rule when it failed to uphold credit limits for a customer firm with a rogue trader who engaged in fraudulent trading of Apple stock.  An SEC investigation found that Morgan Stanley, which offers institutional customers direct market access through an electronic trading desk, did not have the risk management controls necessary to prevent the rogue trader from entering orders that exceeded pre-set trading thresholds.  The trader exploited the market access and, without Morgan Stanley’s knowledge, committed a fraud that eventually shuttered the firm where he worked.  SEC

November 25, 2014

The SEC charged HSBC’s Swiss-based private banking arm HSBC Private Bank (Suisse) with violating federal securities laws by failing to register with the SEC before providing cross-border brokerage and investment advisory services to U.S. clients.  The bank admitted wrongdoing and agreed to pay $12.5M to settle the SEC’s charges.  SEC

November 20, 2014

The SEC announced that Los Angeles-based broker-dealer Wedbush Securities agreed to settle a pending SEC case for market access violations by admitting wrongdoing, paying a $2.44M penalty.  The SEC’s order finds that Wedbush violated the market access rule by failing to have adequate risk controls in place before providing customers with access to the market, including some customer firms with thousands of essentially anonymous overseas traders.  SEC

November 5, 2014

The SEC announced enforcement actions against 10 companies for failing to make the required disclosures about financing deals and other unregistered sales that diluted their stock.  The relevant companies and the penalties they will pay are as follows: APT MotoVox Group Inc., formerly known as Frozen Food Gift Group Inc. ($25,000); CoroWare Inc. ($50,000); ERF Wireless Inc.($50,00); Green Automotive Company ($50,000); MineralRite Corporation($25,000); Mondial Ventures Inc. ($50,000); Monster Arts Inc. ($25,000); Red Giant Entertainment Inc. ($25,000); Seaniemac International Ltd. ($50,000); Worthington Energy Inc. ($25,000).  SEC

October 29, 2014

The SEC announced charges against investment advisory firm Sands Brothers Asset Management LLC and three top officials for violating the “custody rule” that requires firms to follow certain procedures when they control or have access to client money or securities.  Specifically, the government alleges Sands Brothers has been repeatedly late in providing investors with audited financial statements of its private funds, and the firm’s co-founders Steven Sands and Martin Sands along with chief compliance officer and chief operating officer Christopher Kelly were responsible for the firm’s failures to comply with the custody rule.  SEC