The Securities and Exchange Commission charged two brokers for recommending excessive levels of trading that were costly for retail customers but lucrative for the brokers.  

In separate complaints filed in federal court in Manhattan, the SEC alleges that Florida resident Emil Botvinnik and New York resident Jovannie Aquino recommended frequent, short-term trades that generated large commissions for the brokers but were almost guaranteed to lose money for their customers. According to the SEC’s complaints, Botvinnik’s and Aquino’s customers – a number of whom were at or near retirement age – lost approximately $3.6 million as a result of the trades while the brokers pocketed approximately $4.6 million in commissions.  

“We are diligently pursuing deceitful brokers who prey on their customers,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement and Chair of the Enforcement Division’s Broker-Dealer Task Force. “Brokers need to ensure that the level of trading they recommend is suitable for their customers, and investors should be on the lookout for frequent trading in their accounts.”   Read More

The Securities and Exchange Commission charged two Michigan men with fraud for their roles in a fake accounts scheme perpetrated by a phony day-trading firm, Nonko Trading. The SEC alleges that Jeffrey Goldman of West Bloomfield, Michigan, and Christopher Eikenberry of Birmingham, Michigan, participated in and profited from a scheme to defraud Nonko’s customers out of at least $1.4 million. While Nonko marketed itself as a state-of-the-art platform for day-trading professionals, the SEC alleges that it secretly provided customers with training accounts that merely simulated actual trading. Nonko team members allegedly pocketed customers’ deposits and used the money for personal expenses and for Ponzi-like payments to customers who wanted to close their accounts. According to the complaint, Nonko deliberately targeted traders who were inexperienced or had a history of trading losses and lured them by promising generous leverage, low trading commissions, and low minimum deposit requirements.  

“As alleged in our complaint, Goldman and Eikenberry actively concealed their involvement in the alleged fraud and took steps to evade U.S. broker-dealer registration requirements,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “But, behind the scenes, they were active and knowing participants in the scheme, which caused losses to more than 260 investors.”  Read More

The Securities and Exchange Commission announced settled FCPA charges against New Jersey real estate broker Joohyun Bahn arising out of his attempt to bribe a foreign official while acting as a broker for Colliers International Group, Inc.

According to the SEC’s order, Joohyun Bahn attempted to bribe a foreign official of a country in the Middle East as part of an effort to broker the sale of Landmark 72, a high rise commercial building in Vietnam, on behalf of Colliers.  The SEC’s order found that Bahn gave the bribe to an accomplice, expecting him to pass it along to the official.  But the accomplice, who had misrepresented the official’s involvement in the scheme, kept the money for himself, and the official was unaware of the attempted bribe.  The SEC’s order also found that Bahn circumvented Colliers’ internal accounting controls, fabricated documents, created fictitious email messages, and lied to Colliers executives.  Bahn was also found to have falsely represented that a buyer had committed to acquire the building, thereby causing Colliers to improperly record commission revenue that it would never receive.  “Although the fact pattern here is atypical, the underlying violations are straightforward.  Bahn engaged in an egregious bribe scheme that involved a web of lies and false documents as he attempted to bribe a foreign official in order to make a sale. ” said Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit. Read More

The Securities and Exchange Commission charged telecommunications expense management company Tangoe Inc. for its use of fraudulent accounting practices that artificially boosted company revenues between 2013 and 2015.  Four former members of the company’s senior management team were also charged for their roles in the alleged misconduct.

As alleged in the complaint, Tangoe Inc., formerly a public company headquartered in Connecticut, improperly recognized approximately $40 million of revenue out of the total of $566 million reported between 2013 and 2015.  In some instances, Tangoe allegedly reported revenue prematurely for work that had not been performed, including service prepayments, and for transactions that did not produce any revenue at all.  The SEC alleges that Donald J. Farias, a Tangoe executive, falsified business records, some of which were provided to Tangoe’s external auditors to support revenue recognition decisions. Read More

The Securities and Exchange Commission charged a Texas-based investment fund Greenview Investment Partners L.P. and its founder Michael E. Cone with defrauding investors with false promises of massive returns in cannabis-related businesses.  The SEC also issued an alert to warn retail investors about marijuana-related securities offerings.

The SEC’s complaint alleges that Greenview Investment Partners L.P. and its founder Michael E. Cone used misleading marketing materials in raising more than $3.3 million from investors.   Cone allegedly employed boiler room sales staff who made cold calls to investors and promised them up to 24 percent annual returns from investments in Greenview.  According to the complaint, Cone used an alias to conceal his prior criminal convictions, lied about having a former agent from the U.S. Drug Enforcement Administration on staff, and falsely claimed to have a long record of profitably investing millions in cannabis-related businesses.  The complaint alleges that, in reality, Greenview had no track record and its sole investment of $400,000 was in a cannabis company that had yet to harvest a crop.  According to the complaint, Cone spent investors’ money on designer clothes and luxury cars, and on payments to earlier investors to prolong the alleged scheme.  In a parallel criminal proceeding, the U.S. Attorney’s Office for the Central District of California charged Cone and seized approximately $1.4 million in cash and assets. Read More

The Securities and Exchange Commission filed charges against a Buffalo, New York, investment advisory firm and its owner for misleading firm clients about its association with a barred investment adviser, who is also being charged for violating the bar. The SEC’s complaint alleges that in 2014, Walter Grenda sold his investment advisory assets, including his longstanding client base, to Grenda Group LLC and his son, Gregory Grenda, in anticipation of a negative outcome in an SEC fraud investigation.

In 2015, the SEC barred Walter Grenda from association with an investment adviser, but the SEC alleges that Walter Grenda continued to associate with Grenda Group by meeting with a prospective client and current clients in the firm’s offices, as well as making discretionary changes to clients’ investment accounts. The complaint alleges that Grenda Group and Gregory Grenda permitted Walter Grenda’s association with the firm, failed to disclose his bar to their clients, and made misleading statements to clients who inquired about Walter Grenda’s bar. The SEC further alleges that Walter Grenda impersonated a Grenda Group client on a call to the firm’s broker-dealer and, while subject to the associational bar, Walter Grenda repeatedly impersonated his son on calls to the firm’s broker-dealer, after which the broker-dealer terminated its relationship with Grenda Group. The complaint alleges that Grenda Group later made misleading statements to clients and failed to disclose material facts about the termination. Read More

The Securities and Exchange Commission announced that Paris-based pharmaceutical company Sanofi has agreed to pay more than $25 million to resolve charges that its Kazakhstan and the Middle East subsidiaries made corrupt payments to win business.

According to the SEC’s order, the schemes spanned multiple countries and involved bribe payments to government procurement officials and healthcare providers in order to be awarded tenders and to increase prescriptions of its products. In Kazakhstan, distributors were used as part of a kickback scheme to generate funds from which bribes were paid to officials to ensure that Sanofi was awarded tenders at public institutions. The kickbacks were tracked in internal spreadsheets where they were coded as “marzipans.” In the Middle East, various pay-to-prescribe schemes were used to induce healthcare providers to increase their prescriptions of Sanofi products. Read More

The Securities and Exchange Commission charged a professional football player and a former investment banker with insider trading in advance of corporate acquisitions facilitated through coded text messages and FaceTime conversations. The SEC alleges that after meeting at a party, Mychal Kendricks began receiving illegal tips from Damilare Sonoiki, an analyst at an investment bank who had access to confidential, nonpublic information about upcoming corporate mergers. Mychal Kendricks allegedly made $1.2 million in illegal profits by purchasing securities in companies that were soon to be acquired and then selling his positions after the deals were publicly announced, in one instance generating a nearly 400 percent return on his investment in just two weeks.

According to the SEC’s complaint, Mychal Kendricks rewarded Sonoiki for his tips and other assistance, which included setting up an online brokerage account that both men could access, by providing cash kickbacks, free NFL tickets, and an evening on the set of a pop star’s music video in which Mychal Kendricks made a cameo appearance. Read More

The Securities and Exchange Commission announced that Moody’s Investors Service Inc., one of the nation’s largest credit ratings agencies, has agreed to pay a total of $16.25 million in penalties to settle charges involving internal control failures and failing to clearly define and consistently apply credit rating symbols. This marks the first time the SEC has filed an enforcement action involving rating symbol deficiencies.

Moody’s agreed to pay $15 million to settle charges of internal controls failures involving models it used in rating U.S. Residential Mortgage-Backed Securities (RMBS) and will retain an independent consultant to assess and improve its internal controls. Moody’s separately agreed to pay $1.25 million and to review its policies, procedures, and internal controls regarding rating symbols. Moody’s did not admit or deny the SEC’s charges.

According to the SEC’s order in the internal controls proceeding, Moody’s failed to establish and document an effective internal control structure as to models that Moody’s had outsourced from a corporate affiliate and used in rating RMBS from 2010 through 2013. Moreover, Moody’s failed to maintain and enforce existing internal controls that should have been applied to the models. Ultimately, Moody’s corrected more than 650 RMBS ratings with a notional value exceeding $49 billion, due, in part, to errors in the models. Also, in 54 instances, Moody’s failed to document its rationale for issuing final RMBS ratings that deviated materially from model-implied ratings. Read More

The Securities and Exchange Commission announced that Legg Mason Inc. will pay over $34 million to resolve an SEC charge that the company violated the Foreign Corrupt Practices Act (FCPA) in a scheme to bribe Libyan government officials.  

According to the SEC’s order, between 2004 and 2010, a former Legg Mason asset management subsidiary, Permal Group Inc., partnered with a French financial services company to solicit investment business from Libyan state-owned financial institutions. These entities engaged in a scheme to pay bribes to Libyan government officials through a Libyan middleman in order to secure investments. As a result of the corrupt scheme, Legg Mason, through its Permal subsidiary, was awarded business tied to $1 billion of investments for the Libyan financial institutions, earning net revenues of approximately $31.6 million. According to the SEC’s order, the middleman used the term “cooking” to describe his ability to cause Libyan government officials to invest by any means necessary, including bribes.

“Companies must take adequate steps to identify and mitigate the risks of bribery and corruption present in their global business. Those risks are particularly acute when, as here, agents and middlemen are used as part of a company’s efforts to obtain business with government clients,” said Charles Cain, Chief of the Enforcement Division’s FCPA Unit.

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The Securities and Exchange Commission announced that in fiscal year 2019 the fees that public companies and other issuers pay to register their securities with the Commission will be set at $121.20 per million dollars.

The securities laws require the Commission to make annual adjustments to the rates for fees paid under Section 6(b) of the Securities Act of 1933 and Sections 13(e) and 14(g) of the Securities Exchange Act of 1934. The Commission must set rates for the fees paid under Section 6(b) to levels that the Commission projects will generate collections equal to annual statutory target amounts. The Commission’s projections are calculated using a methodology developed in consultation with the Congressional Budget Office and the Office of Management and Budget. The statutory target amount for fiscal year 2019 is $660 million.  The annual adjustment to the fee rate under Section 6(b) also sets the annual adjustment to the fee rates under Sections 13(e) and 14(g). Read More

The Securities and Exchange Commission obtained permanent officer-and-director and penny stock bars against the founder of a company who perpetrated a fraudulent initial coin offering (ICO) to fund oil exploration and drilling in California.

According to the SEC’s order, David T. Laurance and Tomahawk Exploration LLC attempted to raise money through the sale of blockchain-based digital tokens called “Tomahawkcoins.” The SEC’s order finds that the defendants’ promotional materials used inflated projections of oil production that were contradicted by the company’s own internal analysis and misleadingly suggested that Tomahawk possessed leases for drilling sites when it did not.  According to the order, the materials described Laurance as having a “flawless background” without disclosing his prior criminal conviction for his role in fraudulent securities offerings. The order also finds that Tomahawk claimed that token owners would be able to convert the Tomahawkcoins into equity and potentially profit from the anticipated oil production and secondary trading of the tokens.  Although the ICO failed to raise money, Tomahawk issued tokens through a “Bounty Program” in exchange for online promotional services.   Read More

On July 16, 2018 The Securities and Exchange Commission charged the former CEO of Energy XXI Ltd. John Schiller with hiding more than $10 million in personal loans that he obtained from company vendors and a candidate for Energy XXI’s board.  At the time of the alleged misconduct, Energy XXI was NASDAQ-listed and one of the largest oil and gas producers on the Gulf of Mexico shelf.

According to the SEC’s complaint, CEO John D. Schiller Jr. maintained an extravagant lifestyle by using a highly leveraged margin account secured by his Energy XXI stock.  The complaint alleges that in 2014, when faced with significant margin calls, Schiller extracted more than $7.5 million in undisclosed personal loans from company vendors in exchange for business contracts with Energy XXI.

Schiller also is alleged to have obtained a $3 million loan from Norman Louie, a portfolio manager at Energy XXI’s largest shareholder Mount Kellett Capital Management LP.  Louie was appointed to Energy XXI’s board just weeks later.  The SEC alleges that Schiller did not disclose the vendor loans or the Louie loan to Energy XXI.

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The Securities and Exchange Commission announced on Aug. 6, 2018 that it has updated its list of unregistered firms that use misleading information to primarily solicit non-U.S. investors, adding 16 soliciting entities, four impersonators of genuine firms, and nine bogus regulators.

The updates by the SEC Division of Enforcement’s Office of Market Intelligence, in coordination with the SEC’s Office of Investor Education and Advocacy and the Office of International Affairs, are part of the agency’s continuing effort to protect retail investors.

The SEC’s list of soliciting entities that have been the subject of investor complaints, known as the Public Alert: Unregistered Soliciting Entities (PAUSE) list, enables investors to better inform themselves and avoid being a victim of fraud. The latest additions are firms that the SEC staff found were providing inaccurate information about their affiliation, location, or registration. Under U.S. securities laws, firms that solicit investors generally are required to register with the SEC and meet minimum financial standards and disclosure, reporting, and record keeping requirements. Read More

The Securities and Exchange Commission announced on July 20, 2018 that two U.S.-based subsidiaries of Deutsche Bank AG will pay nearly $75 million to settle charges of improper handling of “pre-released” American Depositary Receipts (ADRs).

The case stems from a continuing SEC investigation into abuses involving pre-released ADRs. In proceedings against Deutsche Bank Trust Co. Americas, a depositary bank, and Deutsche Bank Securities Inc. (DBSI), a registered broker-dealer, the SEC found that their misconduct allowed pre-released ADRs to be used for abusive practices, including inappropriate short selling and inappropriate profiting around dividend payouts.

ADRs – U.S. securities that represent foreign shares of a foreign company – require a corresponding number of foreign shares to be held in custody at a depositary bank. The practice of “pre-release” allows ADRs to be issued without the deposit of foreign shares, provided brokers receiving them have an agreement with a depositary bank and the broker or its customer owns the number of foreign shares that corresponds to the number of shares the ADR represents. Information about ADRs is available in an SEC Investor Bulletin.

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On July 23, 2018 The Securities and Exchange Commission charged Mizuho Securities USA LLC for its failure to safeguard information pertaining to stock buybacks by its issuer customers.  Mizuho failed to maintain and enforce policies and procedures aimed at preventing the misuse of material nonpublic information, including maintaining effective information barriers between different trading desks and requiring employees to keep client information confidential.  Mizuho agreed to settle the charges and will pay a $1.25 million penalty.

According to the SEC’s order, during a two-year period, Mizuho traders regularly disclosed material nonpublic customer buyback information to other traders and Mizuho’s hedge fund clients.  That information included the identity of the party placing the order, the order size, limit price, and indications that the orders were buyback orders. Such information was routinely communicated across trading desks, notwithstanding that during the relevant period Mizuho executed over 99.8 percent of all buyback orders by using algorithms, rather than through trader-negotiated open market trades.

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The Securities and Exchange Commission announced that Citigroup has agreed to pay $10.5 million in penalties to settle two enforcement actions involving its books and records, internal accounting controls, and trader supervision. The charges stem from $81 million of losses due to trader mismarking and unauthorized proprietary trading and $475 million of losses due to fraudulently-induced loans made by a Mexican subsidiary.  

In the first action, Citigroup Inc. and its U.S. broker-dealer subsidiary Citigroup Global Markets Inc. (CGMI) agreed to pay a $5.75 million penalty to settle charges of inaccurate books and records and CGMI’s failure reasonably to supervise traders. Citigroup and CGMI settled without admitting or denying the SEC’s findings and agreed to cease and desist from future violations.  

The SEC found that from 2013 to 2016, three CGMI traders mismarked illiquid positions in certain proprietary accounts they managed, in two cases covering losses from widespread unauthorized trading. The discovery of the mismarking led to the termination of the traders and the recognition of $81 million in losses not previously reflected in CGMI’s or Citigroup’s books and records. The SEC’s order finds that CGMI failed to detect the traders’ misconduct earlier because it had inadequate supervisory procedures and systems and did not independently verify the valuations of the mismarked positions.  Read More

The Securities and Exchange Commission announced that Ameriprise Financial Services Inc. will pay $4.5 million to settle charges that it failed to safeguard retail investor assets from theft by its representatives. 

According to the SEC’s order, five Ameriprise representatives committed numerous fraudulent acts, including forging client documents, and stole more than $1 million in retail client funds over a four-year period. The SEC found that Ameriprise, a registered investment adviser and broker-dealer, failed to adopt and implement policies and procedures reasonably designed to safeguard investor assets against misappropriation by its representatives. 

The five representatives were based in Minnesota, Ohio, and Virginia, and three previously pled guilty to criminal charges. Each of the representatives was terminated by Ameriprise for misappropriating client funds. The SEC’s order found that Ameriprise has implemented a new system to safeguard clients’ money and that Ameriprise reimbursed all impacted clients for the losses they incurred due to the misconduct of the five representatives. Read More