August 26, 2015

Former Merrill Lynch Broker Must Pay $1.4M for Insider Trading

Gary Yin, an ex-Bank of America Merrill Lynch (BAC) broker, must pay $1.4M in restitution for helping a client launder money made from insider trading. Yin admitted to helping former Qualcomm Inc. president Jing Wang conceal hundreds of thousands of dollars made in insider trading in that company and another company.

Yin set up brokerage accounts in the British Virgin Islands using a shell company to hide the scam and helped Wang transfer $525,000 to the shell account. He also transported documents to Wang’s brother in China to allegedly help hide the scheme from the FBI.

Now Yin must forfeit $27,000 in profits he made from trades in Qualcomm stock that were set up in a Merrill broker account in his mother-in-law’s name in the British Virgin Islands. He must also pay a $5,000 fine

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August 21, 2015

Citigroup Global Markets to Pay $15M Penalty to the SEC for Surveillance and Compliance Failures

The Securities and Exchange Commission said that Citigroup Global Markets (C) will pay a $15M penalty to settle charges that it did not enforce procedures and policies that would stop and identify securities transactions potentially involving the wrongful use of material, nonpublic information. Citigroup agreed to the SEC’s order without denying or admitting to the regulator’s findings.

The firm also has paid $2.5 million to advisory client accounts that were affected. That amount is how much Citigroup made from the principal transactions that resulted because of the purported compliance and surveillance failures.

According to SEC, which conducted a probe, over a period of ten years, Citigroup failed to review thousands of trades that were made by a number of trading desks. Even though firm personnel looked at reports to assess trades daily, technological errors caused several information sources regarding thousands of key trades to be left out.

As the SEC noted in its order, advanced computer systems are often now involved in automated trading. Technology oversight is key to making sure that compliance is in effect.

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August 20, 2015

FINRA Probes Broker Pay for Conflicts of Interest

The Financial Industry Regulatory Authority has sent a targeted exam letter seeking to examine possible conflicts of interest in the way firms pay brokers. About a dozen brokerage firms received the letter, which the regulator said is aimed at gathering information as opposed to seeking out violations.

In its letter, the self-regulatory organization inquires about each firm’s different compensation practices, including common payout grids, mutual fund fees, and recruiting incentives. FINRA also wants to know about any compensation that firms may receive from product sponsors and how certain products are promoted. It also wants to learn about production thresholds that allow certain brokers to get bonuses and more compensation for additional revenue earned, improved compensation tied to revenue from certain product types, and policies for monitoring conflicts of interest as they relate to compensation.

FINRA Executive Vice President of Regulatory Operations/Shared Services Dan Sibears said that the SRO is conducting the sweeps to see if firms are properly managing conflicts of interest or if additional guidance needs to be issued. Enforcement actions typically do not result from this type of sweep unless egregious violations are discovered.

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August 18, 2015

Citigroup Affiliates to Pay $180M To Resolve Hedge Fund Fraud Charges

Citigroup Global Markets Inc. (CGMI) and Citigroup Alternative Investments LLC (CAI) have consented to pay close to $180M to resolve Securities and Exchange Commission charges accusing them of bilking about 4,000 investors in the Falcon fund and the ASTA/MAT fund. The two hedge funds went on to fail during the financial crisis. The settlement money will go to investors who were hurt in the purported fraud.

According to an SEC probe, the Citigroup (C) affiliates made misleading and false misrepresentations to investors. The two hedge funds, managed by Citigroup Alternative Investments, were highly leveraged and sold only to advisory clients of Smith Barney and Citigroup Private Bank. They were sold by financial advisers associated with Citigroup Global Markets. Together, the hedge funds raised close to $3 billion in capital from investors before they went on to fail.

In its order, the SEC said that the ASTA/MAT fund bought municipal bonds and hedged interest rates by employing a Treasury or LIBOR swap. It described the Falcon fund as multi-strategy, invested in fixed-income strategies (including collateralized loan obligations, collateralized debt obligations, asset-backed securities) as well as in the other hedge fund.

Investors claim that the two affiliates misrepresented the hedge funds as low-risk, safe, and suitable for bond investors looking for traditional investments, when, in fact, the funds were high risk. They contend that even as the funds started failing, CAI accepted close to $110 million in investments.

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August 17, 2015

Insider Trading Charges Filed Against 32 Defendants in Hacking Scam Involving Newswire Services

The Securities and Exchange Commission has filed financial fraud charges against 32 defendants accused of insider trading by using information obtained from newswire services that were hacked. Two Ukrainians and 30 other defendants in the U.S. and abroad are accused of making $100 million in illegal gains.

According to the regulator, for about five years, Oleksandr Ieremenko and Ivan Turchynov, both from Ukraine, hacked in to at least two newswire services and stole hundreds of corporate earnings announcements before they were issued to the public. Bloomberg says the services are Business Wire, Marketwired, and PRNewswire Association LLC.

The suspected hackers are accused of grabbing over 150,000 news releases that allowed them to anticipate movements in the stock market and make trades that would turn a profit. They also purportedly set up a secret web-based location to transmit the stolen information to traders in numerous countries and U.S. states.

The two men are accused of concealing intrusions with proxy servers to hide their identities and pretending to be newswire service employees and customers. Turchynov and Ieremenko are also accused of using a video highlighting the theft of the earnings data prior to public release to recruit traders.

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August 14, 2015

Goldman Sachs to Pay $272M to Pension Funds In Mortgage Securities Case

Goldman Sachs Group (GS) will pay $272 million to more than 400 bond investors, including two electrical pension funds, to settle a lawsuit alleging that it made misleading disclosures in order to sell mortgage securities backed by faulty loans. The lead plaintiff in the case was the NECA-IBEW Health and Welfare Fund, which is an Illinois-based electrical workers pension fund.

When NECA-IBEW filed its lawsuit against Goldman Sachs in 2008, it contended that not only did it make false statements but also it left out key information about the mortgages it sold into 17 trusts the year before. The plaintiff also said that Goldman misled investors about the underwriting of the loans behind the securities, as well as about the quality of appraisals and whether borrowers were capable of paying back their loans. The fund said that the securities’ prices fell during and after the economic crisis while their credit ratings slipped from triple-A to triple C junk grades.

Writing about the complaint in 2008, HousingWire Publisher Paul Jackson said that some of the claims were over the alleged use of inflated appraisals by the originating entities. He noted that many of the loans in the trusts were of the no-doc, reduced-doc, stated-income ilk, which the plaintiff believes are fraudulent.

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August 13, 2015

ITG, AlterNet Securities to Pay $20.3M to Settle SEC Charges that it Misused Confidential Dark Pool Data, Ran Secret Trading Desk

ITG Inc. and affiliate AlterNet Securities will pay $20.3M to resolve Securities and Exchange Commission charges accusing them of running a secret trading desk and misusing dark pool subscribers’ confidential trading information. As part of the settlement, ITG admitted to wrongdoing.

According to the regulator, even though it told the public it was an “agency-only” broker with interests that were not in conflict with the interests of customers, the firm ran Project Omega, an undisclosed proprietary trading desk, for over a year. The SEC’s probe found that even though ITG said that it protected dark pool subscribers’ trading information, for eight months, the trading desk accessed feeds of order and execution data and used the information to put into place its strategies for high-frequency algorithmic.

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August 12, 2015

Dad of Ex-JPMorgan Banker Pleads Guilty to Insider Trading

The father of a former JPMorgan (JPM) banker has pleaded guilty to taking part in an insider trading ring with his son. Robert Stewart will forfeit $150,000 and faces five years behind bars.

According to the U.S. Justice Department, Stewart’s son, Sean Stewart, allegedly gave his father tips about upcoming deals, including information about a number of acquisitions and mergers. The older Stewart divulged some of the tips to Richard Cunniffe, who has also pleaded guilty in the conspiracy. Cunniffe is now a cooperating witness.

The DOJ said that in early 2011, Sean, who was a JPMorgan Vice President in the Healthcare Investment Banking Group, began tipping his dad about numerous deals. The first one was about the acquisition of Kendle International Inc.—a deal that he worked on. Robert made nearly $8,000 by buying Kendle stock. The second deal involved the acquisition of Kinetic Concepts Inc. After Sean went to go work at Perella Weinberg, he allegedly continued to provide insider tips to his dad.

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August 11, 2015

StockCross Financial Services to Pay $800K for Regulation SHO Violations

FINRA says that StockCross Financial Services, Inc. will pay an $800,000 fine for violating Regulation SHO, as well as supervisory violations that went on for over three years. By settling, the firm is not denying or admitting to the charges. It has, however, consented to the entry of the self-regulatory organization’s findings.

FINRA said that from 11/09 to 5/13, StockCross’s system for tracking and monitoring close-out obligations was flawed because the firm had not thought that it was supposed to net flat/long in a security and after shares had been purchased to satisfy its close-out obligation.

The SRO said that after transactions for purchase were made, the firm failed to put restrictions or limits on the rest of the trading activity in that security for the day and its flawed system compelled StockCross to experience delivery failure for several statement days in a row on about 1,826 occasions. Also, StockCross purportedly made more than 4,100 short sales when there were outstanding close-out obligations for these securities.

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August 8, 2015

Pimco Gets Wells Notice Over Markings of Total Return ETF

Pacific Investment Management Co. said that the SEC has sent it a Wells notice indicating that its staff is recommending that the regulator file a civil case against the financial firm over the way securities were marked in its PimcoTotal Return Active Exchange-Traded Fund. That’s the ETF version of Pimco’s Total Return Fund.

The Wells notice is related to the valuation of smaller positions in mortgage-backed securities that the government did not guarantee for several months in 2012, as well as disclosure regarding performance and procedures and policies related to compliance. Bloomberg reports that according to someone that knows bout the investigation, The regulator has been looking at whether the total return ETF bought small lots of bonds at a discount price and marked them up when valuing holdings to artificially inflate returns.

Although the ETF has continued to see deposits, the Total Return mutual fund experienced redemptions, especially after the departure of founder Bill Gross last year. News of his exit came within days of the news that the SEC was probing whether Pimco had inflated ETF returns.

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August 7, 2015

Senate Bill Would Double Statute of Limitations for The SEC to Pursue Securities Violations

U.S. Sen. Jack Reed, D-R.I. has introduced a bill that would give the Securities and Exchange Commission a longer period of time to uncover and impose penalties for financial fraud. Under his proposal the statute of limitations for pursuing civil penalties would be extended from five years to ten years.

The bill comes in the wake of the Supreme Court’s decision in Gabelli v. SEC, in which the Court held that the current five-year statute to take action against wrongdoers begins when the fraud happened and not upon discovery. According to an announcement about the new legislation, which was published on the Senator’s website, the ruling in Gabelli has made it even harder for the Commission to take action against offenders by shortening how much time the regulator has to investigate and pursue violations of securities laws.

The Gabelli case involved allegations of fraud by Marc J. Gabelli, an investment adviser who managed the Gabelli Global Growth Fund, which is a mutual fund. The SEC said that the alleged fraud took place from 1999 and 2002.

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August 5, 2015

Ex-UBS and Citigroup Trader Gets 14 Years in Prison for Libor Rigging

A jury in London has found Tom Hayes, a former trader at Citigroup (C) and UBS (UBS), guilty of multiple counts of conspiring to rig the London interbank offered rate. He was sentenced to 14 years in prison.

Prosecutors accused him of heading up the scam to manipulate the yen Libor. They said that he asked rate setters and traders at UBS and other banks, as well as outside brokers, to manipulate the rate so that his trading positions would benefit. He also is accused of giving brokers incentives to help him get other banks to rig the rate.

Hayes had defended himself, arguing that he acted in line with industry standards and did not think his conduct was improper. He claims that his superiors knew about his activities.

Hayes was considered one of the top traders internationally. He made hundreds of millions of dollars in revenue for UBS by trading interest-rate swaps. After going to Citigroup, he was fired in 2010 for rigging Libor. While he initially denied wrongdoing, he eventually entered into an agreement to plead guilty. As part of that deal he was to testify against alleged co-collaborators.

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