Tuesday, September 27, 2016

SEC to Hold Forum to Discuss Fintech Innovation in the Financial Services Industry

The Securities and Exchange Commission today announced it will host a public forum to discuss financial technology (Fintech) innovation in the financial services industry.  The forum is designed to foster greater collaboration and understanding among regulators, entrepreneurs and industry experts into Fintech innovation and evaluate how the current regulatory environment can most effectively address these new technologies.
The proliferation of Fintech innovation has the potential to transform virtually every aspect of our nation’s financial markets. The panels will discuss issues such as blockchain technology, automated investment advice or robo-advisors, online marketplace lending and crowdfunding, and how they may impact investors.
 
The Fintech forum will be held at the SEC's Washington D.C. headquarters on Nov. 14 and will be open to the public and webcast live on the SEC's website. Information on the agenda and participants will be published in the coming weeks.
 


SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Oil Services Company Paying $140 Million Penalty for Accounting Fraud

The Securities and Exchange Commission today announced that oil services company Weatherford International has agreed to pay a $140 million penalty to settle charges that it inflated earnings by using deceptive income tax accounting.  Two of the company’s senior accounting executives at the time have agreed to settle charges that they were behind the scheme.
 
According to the SEC’s order, Weatherford fraudulently lowered its year-end provision for income taxes by $100 million to $154 million each year so the company could better align its earnings results with its earlier-announced projections and analysts’ expectations.  James Hudgins, who served as Weatherford’s vice president of tax, and Darryl Kitay, who was a tax manager, made numerous post-closing adjustments to fill gaps and meet its previously disclosed effective tax rate (ETR), which is the average rate that a company is taxed on pre-tax profits.  Weatherford regularly touted its favorable ETR to analysts and investors as one of its key competitive advantages, and the fraud created the misperception that Weatherford’s designed tax structure was far more successful than reality.  Weatherford was consequently forced to restate its financial statements on three occasions in 2011 and 2012.
 
“Weatherford denied its investors accurate and reliable financial reporting by allowing two executives to choose their own numbers when the actual financial results fell short of what was previously disclosed to analysts and the public,” said Andrew Ceresney, Director of the SEC’s Enforcement Division.  “This case is part of our continued focus on financial reporting and disclosure fraud.”
 
Weatherford, Hudgins, and Kitay consented to the SEC’s order without admitting or denying the findings that they violated antifraud provisions of federal securities laws.  Weatherford must pay the $140 million penalty, Hudgins must pay $334,067 in disgorgement, interest, and penalty, and Kitay must pay a $30,000 penalty.  Hudgins is barred from serving as an officer or director of a public company for five years, and Hudgins and Kitay are suspended from appearing and practicing before the SEC as accountants, which includes not participating in the financial reporting or audits of public companies.  The order permits Hudgins and Kitay to apply for reinstatement after five years.
 
The SEC’s investigation is continuing.  It’s being conducted by Jim Valentino, Ilana Sultan, and Natalie Lentz with assistance from Kevin Lombardi and Jeff Infelise.  The case is being supervised by Tracy L. Price and Kara Brockmeyer.


SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Monday, September 26, 2016

SEC Charges CEO and Boiler Room Operator With Fraud

The Securities and Exchange Commission today charged a former microcap company CEO and a boiler room operator with defrauding seniors and others who were pressured to invest in a pair of penny stock companies and promised lucrative profits.
 
The SEC alleges that Craig V. Sizer founded Sanomedics Inc. and Fun Cool Free Inc., which were purportedly in the business of selling non-contact infrared thermometers and software applications respectively, and he hired Miguel “Michael” Mesa to help him attract and defraud investors in both companies.  Sizer allegedly provided Mesa with a list of pitch points for use by boiler-room agents hired by Mesa to sell shares of the stocks based on misrepresentations that investor funds would be used for research and development and no sales commissions would be paid out of investor funds.  According to the SEC’s complaint, Sizer and Mesa misappropriated approximately 90 percent of the funds raised from investors, enriching themselves and paying sales commissions to the boiler-room agents.  Several hundred investors nationwide were allegedly defrauded out of a total of approximately $20 million.
 
“We allege that Sizer and Mesa fraudulently touted Sanomedics and Fun Cool Free stocks as profitable investments while in fact only Sizer and Mesa and the sales agents were profiting at the expense of investors, many of whom were seniors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.
 
In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges.
 
Sizer and Mesa have agreed to partial settlements of the SEC’s charges without admitting or denying the allegations.  They both agreed to be barred from future penny stock offerings, and Sizer agreed to be barred from serving as an officer or director of a public company.  Financial sanctions will be decided by the court at a later date.  The SEC’s complaint alleges that Sizer and Mesa violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Mesa also allegedly violated Section 15(a) of the Exchange Act, and Sizer allegedly aided and abetted Mesa’s violations.
 
The SEC’s continuing investigation is being conducted by Gary M. Miller and Eric E. Morales of the Enforcement Division’s Microcap Fraud Task Force in the Miami office, and the case has been supervised by Elisha L. Frank and Jason R. Berkowitz of the Microcap Fraud Task Force.  The SEC’s litigation is being led by Alejandro O. Soto.  The SEC appreciates the assistance of the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of Florida.


SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Merrill Lynch Charged With Trading Controls Failures That Led to Mini-Flash Crashes

Patterson, ex-NY Governor, Fined $25K for Securities Reporting Failure by SEC

Former New York Gov. David A. Paterson, who is currently an adviser at Stifel, was among those charged with violating securities laws in connection with a proposal to build the largest movie studio in North America.


Stifel adviser, an ex-NY governor, pays SEC $25K for reporting failure | On Wall Street:

Friday, September 23, 2016

''Movie Studio'' Executives Charged With Microcap Fraud

The Securities and Exchange Commission today charged three company executives with defrauding investors in a purported project to construct the largest movie studio in North America at a suburban location outside Savannah, Georgia.
 
The SEC alleges that Manu Kumaran, the founder and former chairman and CEO of a startup movie production company called Medient Studios and later Moon River Studios, schemed with his successor CEO Jake Shapiro to make an assortment of false and misleading statements in press releases and corporate filings.  They allegedly claimed that construction was underway and projected dates by which the studio would be operational while knowing full well they did not have anywhere near sufficient funding to begin building the touted "Studioplex."  In addition, Kumaran, Shapiro, and Roger Miguel – the CEO of a separate successor public company called Fonu2 that also operated under the name Moon River Studios – are alleged to have backdated and falsified promissory notes as part of a scheme to issue common stock in exchange for financing. 
 
The SEC further alleges that while the Studioplex never materialized and the company eventually shuttered without releasing a single movie or video game, Kumaran and Shapiro nonetheless enriched themselves in the process.  According to the SEC’s complaint, Kumaran spent an average of $1,700 per day of company funds on his globetrotting travel and personal expenses from April 2014 to June 2014 after claiming publicly that he did not draw a salary and assuring shareholders that all funds were being used to benefit the company.  Shapiro allegedly misappropriated company funds for personal use after becoming CEO and lived in a house worth nearly a million dollars that was paid for by the company.
 
Miguel agreed to settle the charges against him without admitting or denying the allegations.  He agreed to be barred from participating in any penny stock offerings or serving as a public company officer or director for five years, and the court will determine monetary sanctions at a later date.  The settlement is subject to court approval. The litigation continues against Kumaran and Shapiro.  The SEC's complaint was filed in U.S. District Court for the Southern District of Georgia.
 
Three company directors who are not alleged to have participated in the fraud were separately charged with violating federal securities laws by failing to timely report their stock transactions in the company while serving on its board.  Former New York Democratic Governor David A. Paterson and music producer Charles A. Koppelman each agreed to pay $25,000 penalties to settle the charges against them without admitting or denying the findings.  An administrative proceeding was instituted against Matthew T. Mellon II, a businessman and former chairman of the New York Republican Party Finance Committee.  The matter will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.
 
"We allege that Kumaran and Shapiro preyed upon investor interest in the movie industry and financed their own lifestyles rather than build the promised Studioplex,” said Walter Jospin, Director of the SEC’s Atlanta Regional Office.  "Koppelman, Paterson, and Mellon allegedly failed in their personal responsibility to comply with the beneficial ownership reporting requirements of the federal securities laws." 
 
The SEC’s continuing investigation has been conducted by Joshua M. Dickman of the Atlanta office under the supervision of Aaron W. Lipson and William P. Hicks.  The litigation to determine the merits of the allegations against Kumaran and Shapiro will be led by Wm. Shawn Murnahan and M. Graham Loomis with the assistance of Shannon Statkus from the U.S. Attorney’s Office for the Southern District of Georgia.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Georgia.


SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Thursday, September 22, 2016

PNC Employee Wins U-5 Expungement and Damages

A former broker at PNC sued PNC for a dirty U-5, alleging defamation, libel, misconduct, wrongful termination, and wrongdoing in connection with the termination of his employment.

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A FINRA arbitration panel awarded him over $100,000, plus attorneys fees, and ordered his U-5 amended to state that his termination was arbitrary and capricious.

A significant win for the broker. Remember - your CRD Record is forever, and public. You need to make sure it stays clean, and you need to take action to protect and correct it.

Thanks to Bill Singer for alerting use to this award - Defamed PNC Employee Wins Dramatic Expungement 

If you are registered with FINRA and believe that your firm has filed a false U5, call Sallah Astarita & Cox. Their attorneys have decades of experience in representing brokers and firms in employment matters, including U-5 defamation cases.

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Wednesday, September 21, 2016

Blank Check Company Manufacturer Charged With Fraud

The Securities and Exchange Commission today announced fraud charges against a Florida man who was part of a scheme to register and sell stock in blank check companies masked as promising startups to illicitly profit off the investing public.
 
The SEC's order finds that Sheldon R. Rose created more than a dozen blank check companies, which have no operations and no value other than their registered status to sell stock.  Rose installed friends and family as figurehead company officers and shareholders so he could secretly control the companies and their securities.  Registration statements and other corporate filings made it falsely appear that these companies were pursuing real business ventures.  The companies were actually bound for nothing more than reverse mergers by which all their securities, including a pool of purportedly unrestricted shares, were sold to enrich Rose and others. 
 
Rose is connected to a scheme the SEC halted last year with fraud charges against 10 other people.  In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against Rose and a former broker-dealer registered representative named Ian Kass, whom the SEC charged last month. 
 
Rose has agreed to settle the charges and is barred from future penny stock offerings or from serving as an officer or director of a public company.  An administrative law judge will determine monetary sanctions.
 
“Rose illicitly profited by creating a supply chain of blank check companies with the illusion that they were legitimate startups in order to register securities for sale in reverse mergers,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.
 
The SEC’s order finds that Rose and his company MKJJ Consulting LLC violated or aided and abetted violations of the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws. 
 
The SEC’s continuing investigation is being conducted by Jeffrey T. Cook in the Miami Regional Office as part of the Microcap Fraud Task Force.  The case is being supervised by Eric R. Busto.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida and the Federal Bureau of Investigation.


SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

SEC Charges Hedge Fund Manager Leon Cooperman With Insider Trading

The Securities and Exchange Commission today charged hedge fund manager Leon G. Cooperman and his firm Omega Advisors with insider trading based on material nonpublic information he learned in confidence from a corporate executive.
The SEC alleges that Cooperman generated substantial illicit profits by purchasing securities in Atlas Pipeline Partners (APL) in advance of the sale of its natural gas processing facility in Elk City, Oklahoma.  Cooperman allegedly used his status as one of APL’s largest shareholders to gain access to the executive and obtain confidential details about the sale of this substantial company asset.  Cooperman and Omega Advisors allegedly accumulated APL securities despite explicitly agreeing not to use the material nonpublic information for trading purposes, and when APL publicly announced the asset sale its stock price jumped more than 31 percent. 
 
According to the SEC’s complaint, when Omega Advisors received a subpoena nearly a year-and-half later about its trading in APL securities, Cooperman contacted the executive and tried to fabricate a story to tell if questioned about this trading activity.  The executive was shocked and angered when he learned that Cooperman traded in advance of the public announcement. 
 
“We allege that hedge fund manager Cooperman, who as a large APL shareholder obtained access to confidential corporate information, abused that access by trading on this information,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “By doing so, he allegedly undermined the public confidence in the securities markets and took advantage of other investors who did not have this information.”
 
The SEC’s complaint further charges Cooperman with failing to timely report information about holdings and transactions in securities of publicly-traded companies that he beneficially owned, alleging that he violated federal securities laws more than 40 times in this regard. 
 
The SEC’s complaint was filed in federal district court in Philadelphia and seeks disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions against Cooperman and Omega Advisors as well as an officer-and-director bar against Cooperman.
 
The SEC’s investigation was conducted by Brendan P. McGlynn, Oreste P. McClung, Patrick A. McCluskey, and Polly A. Hayes of the Philadelphia Regional Office, and supervised by G. Jeffrey Boujoukos.  The litigation will be led by David L. Axelrod and Mark R. Sylvester.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.


SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Tuesday, September 20, 2016

SEC Issues $4 Million Whistleblower Award

The Securities and Exchange Commission today announced an award of more than $4 million to a whistleblower whose original information alerted the agency to a fraud.

The SEC’s whistleblower program has awarded more than $111 million to 34 whistleblowers since its inception in 2011.

“Our program continues to incentivize whistleblowers to come forward with solid information that helps us bring violators to justice before more wrongdoing can occur,” said Jane Norberg, Acting Chief of the SEC’s Office of the Whistleblower.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

Whistleblowers may be eligible for an award when they voluntarily provide the SEC with unique and useful information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators.  No money has been taken or withheld from harmed investors to pay whistleblower awards.

For more information about the SEC’s whistleblower program and how to report a tip: http://ift.tt/NFydSr



SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.

Monday, September 19, 2016

Ernst & Young, Former Partners Charged With Violating Auditor Independence Rules

The Securities and Exchange Commission today announced that public accounting firm Ernst & Young has agreed to pay $9.3 million to settle charges that two of the firm’s audit partners got too close to their clients on a personal level and violated rules that ensure firms maintain their objectivity and impartiality during audits.

SEC investigations found that the senior partner on an engagement team for the audit of a New York-based public company maintained an improperly close friendship with its chief financial officer, and a different partner serving on an engagement team for the audit of another public company was romantically involved with its chief accounting officer.  Ernst & Young misrepresented in audit reports issued with the companies’ financial statements that it maintained its independence throughout these audits.

“These are the first SEC enforcement actions for auditor independence failures due to close personal relationships between auditors and client personnel,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Ernst & Young did not do enough to detect or prevent these partners from getting too close to their clients and compromising their roles as independent auditors.”

According to the SEC’s order finding that Gregory S. Bednar caused auditor independence rule violations at Ernst & Young from January 2012 to March 2015, he was specifically tasked by the firm to improve its relationship with the New York-based audit client because it was a “troubled account.”  Bednar and the company’s CFO stayed overnight at each other’s homes on multiple occasions and traveled together with family members on overnight trips with no valid business purpose, and they exchanged hundreds of personal text messages, emails, and voicemails during the auditing periods.  Bednar also became friends with the CFO’s son and often treated them to sporting events and other gifts.  Certain Ernst & Young partners became aware of Bednar’s excessive entertainment spending but took no action to confirm that Bednar was complying with his independence obligations.

Bednar and Ernst & Young consented to the SEC’s order without admitting or denying the findings.  The firm agreed to pay $4.975 million in monetary sanctions for these violations.  Bednar must pay a $45,000 penalty and is suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.  The SEC’s order permits Bednar to apply for reinstatement after three years.  Bednar no longer works at Ernst & Young.

According to the SEC’s order finding that Pamela Hartford caused auditor independence rule violations at Ernst & Young from March 2012 to June 2014, she maintained a romantic relationship with financial executive Robert Brehl while she served on the engagement team auditing his company.  Meanwhile another Ernst & Young partner named Michael Kamienski, who supervised Hartford on the audit, became aware of facts suggesting the improper relationship yet failed to perform a reasonable inquiry or raise concerns internally to Ernst & Young’s U.S. independence group. 

According to the SEC’s order, Ernst & Young required audit engagement teams to follow certain procedures to assess their independence, and employees were asked whether they had familial, employment, or financial relationships with audit clients that could raise independence concerns.  But these procedures did not specifically inquire about non-familial close personal relationships that could impair the firm’s independence.

Ernst & Young, Hartford, Kamienski, and Brehl consented to the SEC’s order without admitting or denying the findings.  The firm agreed to pay $4.366 million in monetary sanctions for these violations, and Hartford and Brehl agreed to pay penalties of $25,000 each.  Hartford, Kamienski, and Brehl are suspended from appearing and practicing before the SEC as accountants, which includes not participating in the financial reporting or audits of public companies.  The SEC’s order permits Brehl to apply for reinstatement after one year, and Hartford and Kamienski can apply after three years.  Hartford and Kamienski no longer work at Ernst & Young.

The SEC’s investigation involving the audit of the New York-based issuer was conducted by Vanessa De Simone, John O. Enright, Lisa Knoop, and Thomas P. Smith Jr., and was supervised by Sanjay Wadhwa.  The investigation involving the audit of the other issuer was conducted by Deborah R. Maisel and Amanda deRoo, and was supervised by Jennifer S. Leete.  The SEC appreciates the assistance of the Public Company Accounting Oversight Board.



SEC Press Release

--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.