Articles Posted in SEC Enforcement

The US Securities and Exchange Commission has imposed a $1.75M penalty on Ameriprise (AMP) related to its sale of F-Squared Alpha Sector strategies. The financial firm must also disgorge $7.3M.

According to the regulator, F-Squared Investments made mistakes when calculating the historical performance of its Alpha Sector investment strategies. These sector rotation strategies were predicated upon the use of an algorithm that gave off a “signal” noting whether to sell or purchase certain exchange-traded funds that collectively comprised the industries in the S & P 500 Index.

However, claimed the regulator, F-Squared erred when it implemented these signals prior to when they could have happened. The Commission accused the firm of employing back-tested and hypothetical historical performance data that was inflated, rather than using what the AlphaSector’s performance would have been if there hadn’t been any signal-related errors, to come up with the investment’s track record.

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SEC Awards Whistleblower $4.1M
A company insider who notified the US Securities Exchange Commission about a “widespread, multi-year securities law violation” involving the employer, is getting a $4.1M whistleblower award. The individual, who is a foreign national employed abroad, also provided information and help during the regulator’s probe. Further details about the case have been kept confidential so as to protect the confidentiality and anonymity of the whistleblower.

This is the third whistleblower award issued this month by the SEC. The regulator awarded two other people $8M each for their help in another successful enforcement action.

To date, the SEC whistleblower program has awarded 50 whistleblowers over $179M.

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Nehal Chopra, founder of the hedge fund Ratan Capital Management, and her husband Paritosh Gupta have settled US Securities and Exchange Commission charges alleging that they acted improperly: He, by sharing confidential investment recommendations with her and she, by not disclosing to her clients that her husband was the one who gave her this information.

Gupta worked at Brahman Capital, a hedge fund firm. He later launched Adi Capital Management, also a hedge fund firm. Brahman and Ratan are competitors in their field.

According to the SEC, Gupta provided Chopra with information developed for Brahman’s own clients, as well as the timing of Brahman’s sizes and positions, and he advised her about certain investments. In one example noted by the regulator, Gupta asked his wife about the size of her firm’s position in one security. After she responded, he advised her to increase that position. Ratan would go on to buy more shares that day.

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David Webb, the ex-Illinois mayor of the city of Markham, has agreed to partially resolve fraud charges brought by the SEC accusing him of involvement in a $5.5M municipal bond scam. The regulator accused Webb of taking part in a pay-to-play scheme that involved a $75K bribe from a construction contractor. In return, Webb is accused of directing one of the city’s construction projects to the contractor. The alleged fraud involved a $5.5 muni bond offering that the city offered in 2012.

According to the Commission’s complaint, at a Markham council meeting that year, talks took place to authorize the $5.5M of general obligation bonds to help pay for certain city projects. It was during this conversation that an attendee spoke out saying she’d heard that the owner of a roller rink stood to “improperly benefit.” The owner of the rink was Markham’s city attorney at the time and the roller ring was one of the city projects involved. Webb, however, responded by saying “I don’t make deals” even though he purportedly had recently been paid the bribe to the construction contractor. The regulator claims that the pay-to-play scam involving the city’s Roesner Park development project was already in place.

The bond offering was approved.

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The US Securities and Exchange Commision has awarded $16M to two whistleblowers—$8M each—for the crucial information and help they provided in bringing a successful securities enforcement action. If you consider that a whistleblower may be eligible for 10-30% of funds collected when the monetary sanctions of the SEC action that the individual helped to bring is greater than $1M, the sanctions imposed in this latest case must have been significant.

According to the regulator, one whistleblower reported a “particular misconduct” that became central to the SEC’s enforcement action. The other whistleblower provided additional key information and continued to cooperate with the agency during its probe. The latter’s contributions reportedly saved the Commission time and resources.

These latest awards bring the amount awarded to SEC whistleblowers—49 of them—to over $175M. Alleged wrongdoers accused in the regulators’ cases have been ordered to pay $1B in financial remedies, including over $671M in disgorgement.

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FINRA Orders JPMorgan Securities to Pay $1.25M
The Financial Industry Regulatory Authority said that J.P. Morgan Securities LLC (JPM) will pay $1.25M for not conducting proper background checks—or, in certain instances, conducting them but not in a timely enough manner—from 1/2009 through 5/2017 on 8,600 of its associated persons that were non-registered. According to the self-regulatory organization, this included the failure to properly fingerprint about 2,000 non-registered associated persons. The lapses kept the brokerage firm from knowing whether these individuals should be disqualified from employment.

Meantime, other non-registered associates persons who were fingerprinted were only screened for criminal convictions as they related to federal banking laws, as well as to list that was “internally created.” Still, said FINRA, four people who warranted disqualification due to a prior criminal conviction were allowed to work as non-registered associated persons.

Under federal securities laws, breakage firms must fingerprint certain associated staff even if they are employed in a non-registered manner because they could still pose a risk to customers otherwise. Fingerprinting allows for the identification of folk convicted of past crimes that may disqualify them from working for a firm in an associated role.

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SEC Files Fraud Charges Against Oyster Bay, NY

The US Securities and Exchange Commission has filed municipal securities fraud charges against the New York City of Oyster Bay along with John Venditto, who was a former supervisor of the town. According to the regulator, the Long Island Town and Venditto defrauded investors through 26 municipal securities offerings from 8/2010 to 12/15. A parallel criminal action has been brought against the ex-town supervisor.

The regulator’s complaint claims Oyster Bay and Venditto hid a number of side deals with a businessman who ran concession stands and restaurants at local facilities. Part of the deals included agreeing to “indirectly guarantee” a number of private loans totaling over $20M to this vendor. “Gifts, bribes, kickbacks, and political support” also were allegedly involved.

The US Securities and Exchange Commission is ordering Wells Fargo & Co.’s (WFC) wealth management unit to pay $3.5M for alleged anti-money laundering reporting violations. Wells Fargo Advisors agreed to pay the penalty. It is settling the charges but without denying or admitting to the regulator’s findings.

According to the SEC, starting in early 2012, new bank managers started pressing compliance officials to cease in their submission of suspicious activity reports. The failure to file these SARs reports, or delay them, reportedly occurred 50 times in a little over a year and involved accounts for international customers who were previously named in such reports.

Federal law mandates that broker-dealers notify the U.S. Treasury Department’s Financial Crimes Enforcement Network about any transactions of at least $5K that they believe may involve illegal activity. The regulator blames a “new senior manager” that was hired in the brokerage firm’s compliance group and placed in charge of the anti-money laundering program.

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The US Securities and Exchange Commission has filed fraud charges against John Rogicki. The New York-based financial adviser, who is the chief compliance officer and managing director of Train, Babcock Advisors, LLC, is accused of defrauding a non-profit charitable foundation of $9M. The founder of the Foundation had named Rogicki, who had been her husband’s financial adviser, as the trustee and trust president in her will.

She and Rogicki became friends in the 1990’s when she was already an elderly woman. She died at 97 in 2001. Just a few years before that, it was Rogicki who introduced her to a trusts and estate attorney. This lawyer executed a trust and will that made all the designations to Rogicki.

Rogicki was also the non-profit’s investment adviser and he was tasked with making all investment decisions for the Foundation, including directing all securities transactions in the latter’s advisory account. The Commission believes that Rogicki committed the alleged fraud between 2004 and 2016.

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The US Securities and Exchange Commission has filed fraud charges against Rio Tinto and its ex-CFO Guy Robert Elliot and former CEO Thomas Albanese. The defendants are accused of hiding the Mozambique coal business’s swift and steep drop in value soon after they acquired it for $3.7B. The mining company later would go on to sell Rio Tinto Coal Mozambique for $50M—a much lower figure than the buying price.

The SEC contends that following the acquisition of the coal assets in 2011, the project experienced problems right away because there was “less coal and of lower quality” than what Rio Tinto, Elliot, and Albanese had anticipated. Also, the country of Mozambique, which is where the acquisition occurred, had turned down the barge application. This means that there was no infrastructure to transport the assets. All of this “significantly eroded” the acquistion’s value.

Rio Tinto and the two ex-executives purportedly knew that publicly disclosing the acquisition as a failure, after a previous acquisition of Canadian company Alcan had rendered big losses, would create doubts over their ability to identify and develop mining assets that were “long-term, low cost, and highly profitable.” This purportedly compelled them to hide the problems that arose with the Mozambique acquisition and issue misleading financial statements prior to a number of US debt offerings.

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