On January 21, 2015, the Securities and Exchange Commission announced a series of federal securities law violations by Standard & Poor’s Ratings Services involving fraudulent misconduct in its ratings of certain commercial mortgage-backed securities (CMBS). S&P agreed to pay more than $58 million to settle the SEC’s charges, plus an additional $19 million to settle parallel cases announced today by the New York Attorney General’s office ($12 million) and the Massachusetts Attorney General’s office ($7 million). The SEC issued three orders instituting settled administrative proceedings against S&P. One order, in which S&P made certain admissions, addressed S&P’s practices in its conduit fusion CMBS ratings methodology. The SEC alleged that S&P’s public disclosures affirmatively misrepresented that it was using one approach when it actually used a different methodology in 2011 to rate six conduit fusion CMBS transactions and issue preliminary ratings on two more transactions. As part of this settlement, S&P agreed to take a one-year timeout from rating conduit fusion CMBS.
The U.S. Securities and Exchange Commission has sent letters to several companies asking for years of nondisclosure agreements, employment contracts and other documents to investigate whether companies are muzzling corporate whistleblowers, the Wall Street Journal reported. The inquiries come as SEC officials have expressed concern about a possible corporate backlash against whistleblowers, the newspaper said. The 2010 Dodd-Frank Act gave the SEC the power to start a whistleblower program that lets the agency reward people who report misconduct, if that tip leads to the collection of more than $1 million in monetary sanctions.
The Securities and Exchange Commission recently charged an Irving, Texas-based brokerage firm with violating key customer protection rules after failing to adequately supervise registered representatives who misappropriated customer funds. H.D. Vest Investment Securities agreed to settle the charges by paying a financial penalty and retaining an independent compliance consultant to improve its supervisory controls. According to the SEC’s order instituting a settled administrative proceeding, H.D. Vest has more than 4,500 registered representatives typically working as independent contractors who also operate tax businesses outside of their securities businesses. H.D. Vest failed to have proper policies and procedures in place to monitor its representatives’ outside business activities, and as a result some representatives used their outside businesses to defraud brokerage customers in such ways as transferring or depositing customer brokerage funds into their outside business accounts.
FINRA settled a matter involving a registered representative who failed to timely amend his Form U4 to disclose a misdemeanor charge, state tax lien, federal tax lien and civil judgment. In June 2009, the Commonwealth of Pennsylvania’s Department of lnsurance filed a criminal charge against the representative in the Court of Common Pleas of Montgomery County, alleging that the representative paid “an unlicensed person commissions from the sale of fixed insurance products between 2005 and 2007.” In August 2010, the Commonwealth of Pennsylvania filed a tax lien against the representative in the amount of $18,687 for unpaid taxes in 2005, 2006 and 2007. In October 2011, the Internal Revenue Service (IRS) filed a tax lien against the representative in the amount of $50,220 for unpaid taxes in 2005, 2006 and 2007. Finally, in January 2013, the representative was the subject of a civil judgment in the amount of $35,157.
The U.S. Securities and Exchange Commission reached a $682,000 settlement with a former Evercore Partners Inc. investment banker who was sentenced to 30 months in prison for insider trading. Under the terms of the deal, Frank Perkins Hixon Jr., formerly a senior managing director in Evercore’s mining and metals group, would pay the sum and be restrained from future securities violations, according to court documents. The settlement has been in the works since September, court filings said. Hixon pled guilty in April to related criminal charges in New York, admitting that he traded the stocks of Evercore clients based on inside information about upcoming deals in a scam that netted more than $700,000.
Credit Suisse Securities(USA) LLC, Morgan Stanley & Co. Inc. and UBS Securities LLC told a Kansas federal judge Monday that the National Credit Union Association couldn’t use a Tenth Circuit decision to revive multimillion-dollar suits over soured residential mortgage-backed securities previously found to be time-barred.
The Tenth Circuit’s decision in NCUA v. Barclays Capital Inc. found that while a three-year extender to the statute of limitations in the related case could not be paused by a tolling agreement, specific language in that agreement held Barclays from raising any time-related defenses in the case.
The banks told U.S. District Judge John W. Lungstrum in separate filings that the former finding – that the extender wouldn’t pause in spite of a tolling agreement – applied to the cases, making many of the NCUA’s claims time-barred. However, the banks say that any specific language preventing them from pursuing time-related defenses was removed from their tolling agreements, killing any similarity to the Barclays case and decision.
“Plainly, NCUA did not – and could not – rely on a promise that the parties intentionally removed from their agreement. Thus, there is no basis to estop UBS from asserting its defense that, under ‘applicable law,’ the purported tolling of the extender statute by private agreement is void,” UBS’ reply to the motion for reconsideration said. “Accordingly, the claims at issue remain time-barred.”
The Financial Industry Regulatory Authority (FINRA) announced today that it has sanctioned three firms – H. Beck, Inc., LaSalle St. Securities, LLC, and J.P. Turner & Company, LLC – with fines of $425,000, $175,000 and $100,000, respectively, for inadequate supervision of consolidated reports provided to customers and other violations. A consolidated report is a single document that combines information regarding most or all of a customer’s financial holdings, regardless of where those assets are held.
The justices let stand a decision by the federal appeals court in New York last year that threw out insider trading convictions of two high-profile hedge fund managers.
The 2nd U.S. Circuit Court of Appeals overturned the convictions of Anthony Chiasson of Manhattan and Todd Newman, of Needham, Mass., after finding they were too far removed from inside information to be prosecuted.
Prosecutors warned the ruling could hinder the government’s campaign to curb insider trading on Wall Street, a crackdown that has resulted in more than 80 arrests and 70 convictions over several years.
In overturning the convictions, the appeals court said prosecutors needed to show that the person disclosing the information received a clear benefit — something more than the nurturing of a friendship.
The appeals court also said the person being prosecuted had to know about the benefit. That issue wasn’t before the Supreme Court.
The SEC last week ordered the $330 billion mega-firm Blackstone Group to pay $39 million to settle charges related to inadequate disclosure of fees charged to portfolio companies. The Blackstone enforcement action represents the SEC’s fourth PE fees and expenses case, with the others involving KKR, Lincolnshire Management and Clean Energy Capital. The Commission’s enforcement division said it will continue to investigate abuses of fees and expenses by private equity firms. It also cautioned firms that it is better to voluntarily come forward when problems are discovered internally rather than wait for the SEC to find out about them later.
The Securities and Exchange Commission (“SEC”) announced enforcement actions against six firms, including more than $2.5 million in monetary sanctions and, in the case of one previously sanctioned firm, an order barring the firm from participating in stock offerings for a period of one year as part of its ongoing enforcement initiative focused on violations of Rule 105 of Regulation M. Intended to preserve the independent pricing mechanisms of the securities markets and prevent stock price manipulation, Rule 105 prohibits firms from participating in public stock offerings after selling short those same stocks.Through its Rule 105 Initiative, which was first announced in 2013 as an effort to address violations of the rule in an expedited and streamlined way, the Division of Enforcement has taken action on every Rule 105 violation over a de minimis amount that has come to its attention—promoting a message of zero tolerance for these offenses. As a result, based on available information, the SEC has seen a dramatic decrease in Rule 105 violations since the Initiative began. In the first fiscal year after the Initiative was announced, Rule 105 violations, detected through various means available to the SEC, decreased by approximately 90 percent over the previous six years. Rule 105 violations in fiscal year 2015 were similarly lower than before the Initiative.