SEC News: Brokerage Firm Fined $1M to Resolve Anti-Money Laundering Violations, Ocwen Financial to Pay $2M Over Misstated Financial Results, and Software Company is Accused of FCPA Violations

E.S. Financial Accused of Anti-Money Laundering Violations
The Securities and Exchange Commission is charging E.S. Financial Services, now called Brickell Global Markets, with violating anti-money laundering rules. To resolve the charges, the Miami-based firm will pay a $1M penalty.

According to the regulator, on two occasions E.S. Financial did not provide the needed books and records to identify foreign costumers that they were soliciting and providing with investment advice. U.S. law mandates that financial institutions keep a customer identification program (CIP) that is adequate enough to make sure that the institutions know who their customers are so that don’t inadvertently get involved in terrorist financing or money laundering.

An SEC probe found that the firm’s CIP did not procure and keep up documentation to confirm the identities of certain foreign customers who used a brokerage account set up by a Central Bank affiliate. E.S. Financial has consented to hire an independent monitor to assess its CIP policies and anti-money laundering procedures, policies, and practices.

Ocwen Settles SEC Charges for $2M
Ocwen Financial Corp. will settle civil charges accusing the firm of misstating financial results via the use of an undisclosed, flawed methodology to value complex mortgage assets. The SEC found that Ocwen inaccurately disclosed to investors that assets were valued independently at fair value under GAAP when the firm had actually used valuation conducted by a related party that bought the rights to service certain mortgages that were still a financial liability in the company’s accounting.

The SEC that Ocwen’s audit committee did not examine the methodology with an outside auditor or company management and the valuation that occurred strayed from fair value measures. Because of this, Ocwen misstated its net income for four quarters.

The Commission also said that Ocwen’s internal controls did not succeed in prevent conflicts involving its executive chairman, who played more than one role in a number of party transactions. Although Ocwen told investors that its executive chairman was obligated to recuse himself from transactions involving companies in which he also had a leadership role, the firm did not have written procedures or policies for such transactions. This allowed the executive chairman to approve transactions from two ends, including a $75M bridge loan to Owen involving a company in which he was chairman of the board.

SAP SE to Surrender $3.7M in Sales Profits to Resolve FCPA Charges
The Securities and Exchange Commission said that software manufacturer SAP SE has consented to surrender $3.7M in sales profits to resolve charges accusing the firm of violating the Foreign Corrupt Practices Act. The regulator said that deficient internal controls at SAP made it possible for a former executive to pay a senior Panamanian government official $14K in bribes, as well as offer two people bribes in return for sales contracts. The ex-executive, Vicente E. Garcia, is also facing SEC charges, as well as a parallel criminal action. He is sentenced to 22 months behind bars.

The SEC said that the scam involved giving the Panamanian partner significant discounts. The partner then used the discounts to set up a slush found to pay bribes to government officials for Garcia so that SAP could make sales. The Commission says that SAP lacked requirements for heightened anti-corruption scrutiny and falsely recorded the slush fund as discounts that were legitimate. The numbers were integrated into financial statements.

The SSEK Partners Group is a securities fraud law firm. Contact one of our securities lawyers today.

Read the SEC Order in the ES Financial Case (PDF)

Ocwen Pays $2 Million to Settle Financial Misstatement Claim, Bloomberg, January 20, 2016

Read the SEC Order in the SAP Case (PDF)