Securities and Exchange Commission

Securities Cases: BlackRock Fund Advisers To Pay $1.5M Over ETF Violation, Wilson-Davis Resolves Market Structure Rule Violation Allegations, & CFTC Adds 71 Foreign Entities to RED List

Published on: April 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Asset Manager Accused of Operating ETF Without Necessary Exemption

The US Securities and Exchange Commission said that BlackRock Fund Advisors (BLK) will pay $1.5M to resolve charges accusing the asset manager of advising an exchange-traded fund to violate the Investment Company Act. BlackRock ran the Russia Fund ETF with out the necessary exemptive order from 12/2010 to 1/2015. The exemptive order is necessary because there are some ETF traits that would cause the fund and dealers to violate the Act were it not for having an order.

According to the Commission, BlackRock was notified in 2011 that the exemptive relief that had been issued to other investment companies that it advised could not be applied to funds that were organized separately. Despite knowing this, BlackRock is said to have kept running the ETF without the necessary exemption. It wasn’t until 2015 when, after more talks with the SEC, that the asset manager merged the Russia Fund ETF with another investment company that it advised. It could then apply another acquired exemptive relief to the Russia Fund ETF.

SEC Insider Trading Cases Lead to Civil Charges, Frozen Brokerage Accounts, and Restitution

Published on: April 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In a Securities and Exchange Commission case linked to parallel criminal charges, the regulator has filed insider trading charges against Avaneesh Krishnamoorthy, the risk management VP of a New York-based investment bank. Krishnamoorthy is accused of trading on confidential information prior to the acquisition of a publicly-traded tech company by a private equity firm. He allegedly made about $48K in illicit profits. Also charged as a relief defendant is his wife Shreya Achar.

According to the SEC, Avaneesh Krishnamoorthy began trading in Neustar Securities after learning that Golden Gate Capital was going to buy the company. He used two brokerage accounts that his employer didn’t know about. Golden Gate Capital had approached the investment bank about financing the acquisition.

Meantime, the U.S. Attorney’s Office for the Southern District of New York has filed its own case against Krishnamoorthy. He faces one criminal securities fraud charge.

Whistleblower Awarded Almost $4M by SEC

Published on: April 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has awarded almost $4M to an individual who gave the regulator specific details regarding “serious misconduct” and provided help, including “specialized” expertise and knowledge, during the agency’s probe into the allegations. In its release announcing the award, the SEC did not provided more details about the case because to do so might give away the identity of the whistleblower, which it always seeks to protect.

Since the SEC Whistleblower Program was established in 2011, the agency has awarded 43 individuals about $153M for voluntarily giving the agency useful and original information that ended up rendering a successful enforcement action Already, such actions stemming from whistleblower-provided information has resulted in over $953M in financial remedies imposed against those found to be have engaged in misconduct or other wrongdoing. Whistleblowers can be awarded anywhere from 10-30% of the money collected if that sum is $1M or greater.

As we mentioned, typically the identities of SEC whistleblowers are kept confidential. One of the reasons for this is so that the whistleblower is protected from professional or financial retaliation, especially if the individual blew the whistle on an employer.

SEC May File Fraud Charges Against Navellier Over F-Squared Investments-Related ETF Strategies

Published on: March 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is expected to charge Navellier & Associates with fraud. The registered investment advisor, in a Form ADV brochure filing, disclosed that the regulator’s enforcement staff had preliminarily determined to recommend that the SEC file a case.

The Commission has been investigating advisory firms that marketed F-Squared Investments-related exchange-traded fund investment strategies. F-Squared Investments admitted that some of its marketing strategy performance records were inflated.

Last year, at least 13 brokerage firms and RIAs settled with the SEC for including the Boston-based firm’s claims in their own marketing collateral, including that the AlphaSector ETF strategy had been out-performing the S & P 500 for a number of years. F-Squared promoted the strategy as utilizing an algorithm that could indicate when it was time to sell.

SEC Charges Chinese Citizens Over Alleged $29M Insider Trading Tied to Comcast-DreamWorks Acquisition

Published on: February 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is charging the partner of a Hong Kong-based private equity firm with securities fraud. The regulator claims that Shaohua (Michael) Yin of Summitview Capital Management Ltd. obtained over $56M of DreamWorks Animation SKG stock by using the US brokerage accounts of five Chinese nationals, including his parents.

When DreamWork’s stock price went up 47.3% after news that Comcast was acquiring it went public, the five accounts made $29M from the DreamWorks trades.

The SEC claims that Yin tried to conceal that he was in charge of the five accounts, which had addresses in Palo Alto and Beijing, but the regulator was still able to identify him as the one behind the suspect trading. Prior to becoming a partner at Summitview Capital, Yin worked for UBS (UBS) and private equity firm Warburg Pincus Asia LLC.

Securities Cases: LPL Financial Fined $900K for Record-Keeping Issues, NY-Based Broker Deal to Pay $100K for Trading Surveillance and Compliance Failures, and Private Equity Adviser is Barred Over Improper Fund Withdrawals

Published on: February 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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 a 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 Financial spokesperson said in an email that the firm had self-reported the matter and was committed to “enhancing” structures for compliance and risk management.

CFTC Orders Citigroup to Pay $25M for Spoofing, Supervisory Failures

Published on: February 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Global Markets Inc. (C) has been ordered to pay $25M penalty by the U.S. Commodity Futures Trading Commission to settle charges alleging spoofing in US Treasury futures markets. The regulator is also accusing the firm of not doing a diligent enough job of supervising agents and employees that were involved with the spoofing orders, which purportedly took place between 7/16/2011 and 12/31/2012.

Spoofing

Spoofing involves a trader making an offer or bid but with the intention of calling off the bid or offer before it actually goes through. According to the CFTC’s order, through five traders, Citigroup took part in spoofing over 2500 times in different Chicago Mercantile Exchange (CME) U.S. Treasury futures products. The spoofing strategy purportedly applied involved making offers or bids of at least one thousand lots but with no intention of allowing them to be executed.

Securities Cases: NY/NJ Port Authority Accused of Not Disclosing Municipal Bond Risks, FINRA Expels Lawson Financial for Fraud, and SEC Brings More FCPA Violation Charges

Published on: January 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Port Authority Admits Wrongdoing Related to Failure to Disclose Municipal 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 municipal bond 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 municipal bond risks in offering these 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.

SEC Issues $7M Whistleblower Award

Published on: January 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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.

State Street to Pay Over $64M to Settle US Probes Over Secret Fees Charged to Institutional Clients

Published on: January 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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.