Articles Posted in Securities and Exchange Commission

FINRA Fines LPL Financial $900K

The Financial Industry Regulatory Authority has fined LPL Financial (LPLA) for either not sending or failing to create records showing that it had sent over 1.6 million mandatory account notices to customers over a 36-month period. Under industry rules, account notices have to be sent to customers at three-year intervals which is when determination of suitability is evaluated. FINRA said that LPL did not send more than 25% of such written notices over a period of seven years.

The financial firm accepted the self-regulatory organization’s settlement but is not denying or admitting to the findings. However an LPL spokesperson said in an email that the firm had self-reported the matter and was committed to “enhancing” structures for compliance and risk management.

Port Authority Admits Wrongdoing Related to Failure to Disclose Bond Risks to Investors
The Port Authority of New Jersey and New York will pay a $400K to resolve Securities and Exchange Commission charges accusing the municipal issuer of knowing about the risks involved a number of NJ roadway projects yet failing to tell investors who bought the bonds that would pay for these projects about the risks. The Port Authority admitted wrongdoing.

According to the SEC’s order, the Port Authority sold $2.3B of bonds even though there were questions as to whether certain projects exceeded their mandate and might not be legal to execute. Despite these concerns, the Port Authority did not mention the risks in offering documents.

SEC Cases Seeks to Hold Companies Accountable for FCPA Violations
Already this year, the SEC has brought and/or settled a number of civil cases involving alleged violations of the Foreign Corrupt Practices Act. Early last month, Biomet, a medical device manufacturer, agreed to pay over $30M to settle parallel Justice department and SEC probes over purported repeat FCPA violations.

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The US Securities and Exchange Commission is awarding $7M, to be split between the three whistleblowers who helped the regulator go after an investment scam. This latest whistleblower award, the second issued this year, ups the collective total that the SEC has granted to 41 whistleblowers to $149M.

Of the $7M, about $4M will go to the whistleblower who gave the SEC information that helped start the regulator’s investigation. The other two whistleblowers, who provided additional new information during the probe, will split the $3M.

To date, SEC enforcement actions resulting from whistleblower tips have led to over $935M in financial remedies. Whistleblowers who provide the tips that lead to successful enforcement actions resulting in at least a $1M remedy are eligible to receive 10-30% of the money collected. Because the SEC is committed to protecting the identity and confidentiality of whistleblowers, details from these enforcement cases that could reveal their identities are kept confidential.

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State Street Corp. (STT) will pay $32.3M to the US Securities and Exchange Commission and $32.3 to the federal government to resolve probes accusing the firm of bilking six clients on billions of dollars of trades by charging them secret commissions. As part of the settlement, the Massachusetts-based bank agreed to a deferred prosecution deal and admitted to conspiring to include these secret commissions on the trades conducted. State Street reportedly made at least $20M in commissions without these clients knowing they were paying.

According to prosecutors, from ’10 to ’11, former State Street executive Ross McLellan and ex-senior managing director Edward Pennings conspired to charge the secret commissions involving equity and fixed income trades that were conducted for these clients.

These commissions were in addition to fees that clients had consented to pay even though there had been written instructions given to State Street traders noting that these six customers didn’t have to pay these fees. The clients had been working with a State Street unit that supports institutional customers in liquidating big investment portfolios or moving investments between asset managers.

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News that President-Elect Donald Trump has nominated Wall Street defense attorney Jay Clayton as the next of Securities and Exchange Commission Chair is causing worries that a person who has legally represented big banks may soon be in charge of the agency of the federal government that is tasked with regulating the securities industry.

For example, Clayton was the attorney for Goldman Sachs (GS) when billionaire Warren Buffet gave the firm a $5B capital infusion during the financial crisis of 2008. He also represented Barclays (BARC) when it acquired Lehman Brothers’ assets and he was the attorney for Bear Stearns when JPMorgan (JPM) bought the firm in a fire sale.

Clayton’s wife Gretchen is a Goldman Sachs wealth management advisor and broker. This means that Goldman, one of the firms that he is in charge of regulating, is also providing income to his family through her salary and any bonuses. Although Clayton will have to recuse himself when there are any enforcement rulings involving Goldman, he won’t have to in rulemaking decisions of “general application” that could impact the bank as long as other banks are also affected.

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Ex-Visium Fund Manager on Trial for Bond Fraud
Jury selection is scheduled to begin this week in the criminal trial against Stefan Lumiere, an ex-Visium Asset Management LP portfolio manager. Lumiere, who managed the Visium Credit Opportunities Fund, is accused of falsely inflating the value of securities in a fund and committing bond fraud.

Visium Asset Management LP is a New York based-hedge fund. The $8B investment hedge fund shut down in 2016 after a criminal investigation that led to charges against a number of people, including Sanjay Valvani, who  killed himself several months ago following allegations of insider trading.

According to prosecutors, from ’11 to ’13, Lumiere was among a number of people who conspired to bilk investors through the mismarking of securities’ values that were in a fund that invested in healthcare company-issued debt. The prosecution believes that the alleged misconduct caused the net asset value of the fund to be overstated by tens of millions of dollars monthly. Meantime, investors were fooled into thinking the bonds were very liquid even though they were illiquid.

Lumiere pleaded not guilty to securities fraud, conspiracy, and wire fraud charges last year.

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In its first whistleblower award this year, the Securities and Exchange Commission is awarding a tipster who worked for a company accused of wrongdoing and had gone directly to the agency with what he knew with $5.5M.

According to The National Law Journal, This is the first time since the SEC began granting whistleblower awards in 2013 that a whistleblower did not have to abide by rules established by the 2010 Dodd-Frank Act. Under those rules, whistleblower tips need to be submitted in writing by fax, mailed, or submitted through the regulator’s website in order for the person providing the information to be eligible for an award. This whistleblower, however, had started working with the Commission on the case before the tip could be eligible for the awards authorized under Dodd-Frank. This latest award means that the SEC has now awarded 38 whistleblowers a total of $142M.

Meantime, the Commission continues to take action against companies that retaliate against whistleblowers. Last month, the regulator announced that SandRidge Energy Inc. settled charges accusing it of using illegal separation agreements and taking retaliatory action against a whistleblower who had brought concerns to the oil and gas company’s attention regarding the way that reserves were calculated. SandRidge is not denying or admitting to the SEC’s findings. It will, however, pay a $1.4M penalty.

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IT Specialist Accused of Hacking Expedia Executives and Insider Trading

The U.S. Securities and Exchange Commission has filed civil insider trading charges against Jonathan Ly, who worked as a technology specialist for online travel company Expedia. According to the regulator, Ly hacked senior company executives and traded on company secrets ahead of nine announcements between 2013 and 2016.

As a result of his alleged insider trading, Lyn made almost $350K in profits. To settle the SEC case against him, Ly will pay over $348K of disgorgement and more than $27K in interest. This is a deal that still has to be subject to court approval.

Meantime, the U.S. Attorney’s Office for the Western District of Washington has filed parallel criminal charges against Ly.

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A Brazilian-based petrochemical maker that trades its stock in US markets has arrived at a $95M global settlement with the US Securities and Exchange Commission, the US Justice Department, and authorities in Switzerland and Brazil. Braskem SA is accused of violating the Foreign Corrupt Practices Act and generating fake books and records to hide millions of dollars in bribes that it allegedly paid government officials in Brazil for the purposes of either keeping or winning business.

Braskem is accused of making about $325M in profits because of these purported bribes that were made via intermediaries and off-book accounts run by its biggest shareholder. The SEC believes that the petrochemical manufacturer lacked the internal controls to stop it from executing these bribes, which allegedly occurred over eight years.

As part of the settlement, Braskem will pay $325M in disgorgement—$65M of that will go to the SEC and $260 will go to authorities in Brazil. Another $632M will go toward criminal penalties and fines. Braskem will have to work with an independent corporate monitor for a minimum of three years.

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The U.S. Securities and Exchange Commission said that it has awarded a whistleblower over $900K for a tip that allowed the regulator to bring multiple enforcement actions. The regulator announced the award just a days after it awarded another whistleblower $3.5M, also for coming forward with information resulting in an enforcement action.

Since 2012, the regulator’s whistleblower program has awarded about $136M to 37 individuals. The SEC protects the identities of whistleblowers, which is one reason it doesn’t disclose details about the enforcement cases.

It is against the law for companies to retaliate against employers for turning whistleblower, and there are protections, as well as remedies in place in the event of retaliation. Whistleblowers who provide the SEC with unique and helpful information that makes it possible for a successful enforcement action rendering over $1M in monetary sanctions are entitled to 10-30% of the funds collected.

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