Articles Posted in Securities and Exchange Commission

Financial Industry Regulatory Authority Fines Merrill Lynch $2.8M

Finra has fined Merrill Lynch, Pierce, Fenner and Smith Inc. $2.8 million. By settling, the firm is not denying or admitting to the self-regulatory organization’s charges.

FINRA said because of system errors, Merrill Lunch inaccurately reported millions of trades.The regulator said that Merrill Lynch’s supervisory system as it relates to specific matters related to documenting, reporting, and records was  not designed in a reasonable manner.


Ernst & Young Settles Audit Failure Charges By Agreeing to Pay Over $11.8M

Ernst & Young LLP has agreed to resolve U.S. Securities and Exchange Commission charges accusing it of audit failures. The monetary settlement, along with the $140M penalty that audit client Weatherford International agreed to pay separately, will go back to investors who were hurt in the accounting fraud.

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A San Francisco-based hedge fund advisory firm has agreed to settle U.S. Securities and Exchange Commission charges alleging its failure to notice that one its employees was engaged in insider trading. Artis Capital Management will disgorge the more than $5.1M  in illicit rating profits made by employee Matthew G. Teeple for the firm plus over $1.1M of interest. The hedge fund firm will also pay a more than $2.5M penalty.

According to the regulator, Artis Capital did not maintain policies and procedures adequate enough to prevent insider trading from taking place at the firm. The Commission contends that Teeple’s supervisor, Michael W. Harden, did not respond as needed when red flags arose to indicate that Teeple was engaging in wrongful behavior.

To settle the SEC charges against him, Harden will pay a $130K penalty and serve a 1-year suspension from the securities industry. He and Artis Capital consented to the regulator’s order. However, they did not deny or admit to the Commission’s findings.

NY Hedge Fund to Pay $413M to Settle Civil and Criminal Charges Over FCPA Violations
Och-Ziff Capital Management Group has settled both criminal and civil charges accusing the New York hedge fund of paying bribes to obtain business in Africa. This is the first hedge fund to face punishment over violating the Foreign Corrupt Practices Act. 
As part of its settlement with the SEC, Och-Ziff will pay almost $200M to the Commission. Meantime, the hedge fund’s CEO, Daniel S. Och, will pay the regulator almost $2.2M to resolve charges accusing him of causing certain violations. CFO Joel M. Frank also agreed to settle the SEC the charges against him and will pay a penalty. 

Deutsche Bank Securities (DB) will pay a $9.5B penalty to the U.S. Securities and Exchange Commission for not properly safeguarding material nonpublic research information. Even though it is settling, Deutsche Bank is not denying or admitting to the findings.

According to the regulator, Deutsche Bank urged its equity research analysts to communicate often with trading personnel, sales staff, and customers, but it did not have in place the proper procedures and policies to stop analysts from disclosing certain information, such as analyses and views that hadn’t been published yet, estimate changes, trading day squawks, short-term trading recommendations, non-deal road shows, and idea dinners. The SEC’s order also found that the bank had put out a research report that had a “BUY” rating for Big Lots, the discount retailer, but that the rating did not line up with the perspective of the analyst who had prepared and certified it as accurate.
This particular individual, analyst Charles Grom, had told others that the discount retailer should have gotten a downgrade. Grom was eventually charged by the SEC with certifying a stock rating in a manner that was not consistent with his own views. He settled the charges with a suspension from the securities industry and by agreeing to pay a $100K penalty.

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New Proposed Amendment Would Shorten Period for Settling Securities Transactions 
The SEC has voted to propose a rule amendment that would abbreviate the typical length of a settlement cycle period for the majority of broker-dealer securities transactions. Instead of having this period run from three business day following the trade date it would be reduced to two days. The hope is that the amendment, if approved, would lower the risks that can occur due to the value and quantity of unresolved securities transactions before a settlement is completed. 
The proposal would modify the Exchange Act’s Rule 15c6-1(a). Under the amendment, a broker-dealer would not be allowed to get into a contract for the sale or purchase of a security that provides fund payments unless it is an exempted security, municipal security, government security, banker’s acceptance, commercial paper, or commercial bill. The regulator hopes that the proposed amendment would reduce the market,  credit, and liquidity risks for all participants in the U.S. market.
SEC Adopts Rules Impacting Securities Clearing Agencies
The Commission has adopted rules to enhance the regulatory framework for securities clearing agencies. The improved standards would preside over the running of and overseeing of securities clearing agencies that are either systemically important or are taking part in security-based swaps and other complex transactions. The SEC also voted to propose that the enhanced standards be applied to other securities clearing agency categories.

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Credit Suisse Group AG (CS) has admitted wrongdoing and will pay a penalty of $90 M to the SEC settle civil claims accusing the firm of misrepresenting how much it brought into its wealth management business.

According to the regulator’s probe, Credit Suisse strayed from its methodology for figuring out NNA (net new assets), which it disclosed to the public. This is the metric that investors value to gauge a financial institution’s success in bringing in new business.

Although disclosures said that the bank was assessing assets individually according to each client’s goals and intentions, Credit Suisse would occasionally employ an undisclosed approach that was “results-driven” to determine NNA  to satisfy specific targets that senior management had set. SEC Enforcement Division Director Andrew J. Ceresney said that the bank’s failure to reveal that it was employing a results-driven approach prevented investors from having the chance to properly judge Credit Suisse’ success in drawing in new money.

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SEC Claims Peruvian Attorneys and Broker-Dealer Manager Used Accounts to Insider Trade
The U.S. Securities and Exchange Commission has filed charges against three people in Peru, accusing them of insider trading prior to the merging two mining companies. The regulator wants penalties, disgorgement, and interest.
According to the Commission, HudBay Minerals Inc. employee Nino Coppero del Valle told fellow lawyer and friend Julio Antonio Castro Roca about a tender offer the mining company had turned in to acquire shares in August Resource Corp., which is located in Arizona. Hudbay is based in Canada.
Castro then allegedly traded using this materially nonpublic information via a brokerage account that was held by a shell company in the British Virgin Islands. He is accused of doing this so that the trades couldn’t be traced back to the two of them. They  purportedly made over $112,000 in illicit profits. 

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Merrill Lynch, a Bank of America Corp. (BAC) unit must pay a $12.5M fine to resolve Securities and Exchange Commission allegations accusing the brokerage firm of having weak controls that led to mini-flash crashes. This is the largest penalty ever imposed for alleged market access rule violations.

According to the SEC, at least 15 times from 2012 to 2014, the bank established internal trading limits that were too high and, as a result not effective. These caused disruptions in the market.

Even though there were red flags, said the regulator, Merrill Lynch purportedly did not adequately assess whether it had controls that were reasonably designed and the brokerage firm did not remedy the issues when they arose fast enough. In one example cited by the SEC, Merrill Lynch purportedly applied a 5-million shares/order limit for one stock that traded at only about 69,000 shares/day. Because of this erroneous orders compelled certain stock prices to drop and then recover abruptly within seconds. For example, nearly 3% of Google’s stock dropped in under a second.

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The SEC has filed insider trading civil charges against Leon G. Cooperman and his Omega Advisors. According to the regulator, the hedge fund manager made illicit profits when he bought Atlas Pipeline Partners  securities right before it sold its natural gas processing facility in Oklahoma.
Cooperman is accused of using his position as one of Atlas Pipeline’s biggest shareholder to obtain confidential information about the upcoming sale.  This, even after Cooperman and his firm had agreed not to to make trades using the information he was given. When the sale of the facility, for $682 million, was announced publicly, Atlas Pipeline’s stock price went up by over 31%. 
The SEC, in its complaint, said that when Cooperman’s firm was sent a subpoena regarding its trading involving Atlas Pipeline securities, Cooperman allegedly spoke to the executive who had given him the nonpublic information and attempted to make up a story about the trading. The executive was reportedly upset to find out that Cooperman had traded before the announcement of the sale. 

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The U.S. Securities and Exchange Commission is awarding over $4M to a whistleblower for providing original information that led to a successful fraud case. This is individual is the 34th whistleblower that the SEC’s program has awarded since 2011, upping the total amount granted in such awards to over $111M.
In what was the second biggest award issued by the regulator to date, he SEC awarded $22M to an to an ex- Monsanto Co. financial executive last month. The individual had reported alleged accounting violations involving Roundup, the company’s weed killer. According to media reports, Monsanto offered distributor rebates to raise sales but moved the costs into the following fiscal year. As a result, the company moved up its revenue while postponing the reduction that resulted from the costs. 
Under the SEC Whistleblower program, individuals who voluntarily give the regulator unique information that leads to a successful enforcement case are entitled to 10-30% of the sanctions collected when that amount is over $1M. Since the program’s inception five years ago, the Commission has received over 14,000 tips. 

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