SEC Roundup: The Regulator Charges Ex-Deloitte Chief Risk Officer with Auditor Rule Violations, Ex-Clearing Firm Officials With Regulation SHO Violations, & Rafferty Capital Markets with Illegal Trade Facilitation

Ex-Deloitte LLP Chief Risk Officer Charged With Auditor Independence Rule Violations
The U.S. Securities and Exchange Commission is charging certified public accountant James T. Adams, an ex-chief risk officer, with violating auditor independence rules. The rules are there to make sure audit firms stay objective about their clients.

According to the SEC, while Adams was the advisory partner on Deloitte & Touche’s audit of a casino gaming corporation, he repeatedly accepted tens of thousands of dollars in casino markers. He then established a credit line with a casino operated by the gaming corporation client and used the markers to draw on that credit line.

Adams is settling the SEC charges with a two-year suspension that prevents him from working as an accountant for any Commission-regulated entity.

Ex-Penson Financial Services Officials Charged With Regulation SHO Violations
Ex-Penson Financial Services CEO and President Charles W. Yancey, former chief compliance officer Thomas R. Delaney II, and two of its ex-securities lending officials, Lindsey A. Wetzig and Michael H. Johnson, are accused of Regulation SHO violations. The SEC says that the clearing firm’s securities lending practices purposely violated Reg. SHO’s Rule 204. Penson is now bankrupt.

According to the SEC’s Enforcement Division, Delaney knew about the violations involving the sales procedures regarding customer margin securities but didn’t act to ensure compliance. Instead, he enabled the violations. The agency believes Yancey disregarded signs of Delaney’s involvement. The civil charges against Yancey and Delaney will be litigated.

Charges made in administrative proceedings against Wetzig and Johnson have been settled. The SEC is accusing the two of them of knowing about REG SHO’s requirements but purposely not complying.

Rafferty Capital Markets Charged with Illegally Facilitating Trades
Rafferty Capital Markets is now facing SEC charges that it illegally facilitated trades for an unregistered-broker-dealer. According to the Commission’s order, Rafferty agreed to serve as the brokerage firm of record solely in name for about 100 trades in asset-backed securities that the unregistered firm had introduced.

Even though Rafferty had the needed licenses and processed the trades, the unregistered firm was in charge of managing the business. Also, although five of the unregistered firm’s employees became registered Rafferty representatives, they did the work at the unregistered firm and the latter was solely in charge of their trading decisions (as well as deciding their compensation). Meantime, Rafferty executed the trades for the unregistered firm and kept 15% of the compensation.

The SECO says that Rafferty did not preserve communications with the registered representatives that worked for the unregistered firm or make sure the other firm fulfilled its record keeping obligations. As a result, contends the regulator, one of the representatives was able to hide two trades from Rafferty.

Without denying or admitting to the findings, which allege violations of the Securities Exchange Act of 1934 and other rules, Rafferty agreed to a cease-and-desist order. This includes a censure, $637,615 in disgorgement, $82,011 in prejudgment interest, and a $130,000 penalty.

If you suspect that you have been the victim of securities fraud, please contact The SSEK Partners Group today. We represent institutional investors and high net worth individuals.

SEC Announces Charges Against Four Former Officials at Clearing Firm Penson Financial Services for Regulation SHO Violations, SEC.gov, May 19, 2014

Read the SEC Order Against Rafferty Markets Capital (PDF)

Read the SEC Order Against Adams (PDF)


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