Thursday, August 25, 2016

SEC Seeks Public Comment on Disclosure Requirements Relating to Management, Security Holders and Corporate Governance Matters

The Securities and Exchange Commission today announced that it is seeking public comment on disclosure requirements in Subpart 400 of Regulation S-K, including those relating to management, certain security holders, and corporate governance matters.

The request for comment is part of the Disclosure Effectiveness Initiative, which is a broad-based staff review of the disclosure requirements and the presentation and delivery of the disclosures. The request for comment also will inform the Commission’s study on Regulation S-K, which is required by the Fixing America’s Surface Transportation (FAST) Act.

The public comment period will remain open for 60 days following publication of the comment request in the Federal Register.  To submit comments, use the SEC’s Internet submission form or send an e-mail to rule-comments@sec.gov.



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.

FINRA to Raise Gift Limits

While it is certainly not earth shattering FINRA is proposing to raise the limit on gifts to individuals from $100 to $175 annually. In our opinion, the whole thing is somewhat silly - while the goal is to avoid conflicts of interest, at $100, or $500, no one is conflicted.



Finra wants to raise the annual gift limit


Investment Advisers Paying Penalties for Advertising False Performance Claims

The Securities and Exchange Commission today announced penalties against 13 investment advisory firms found to have violated securities laws by spreading the false claims made by an investment management firm about its flagship product.

An SEC enforcement sweep of investment advisers found that the 13 firms accepted and negligently relied upon claims by F-Squared Investments that its AlphaSector strategy for investing in exchange-traded funds (ETFs) had outperformed the S&P Index for several years.  The firms repeated many of F-Squared’s claims while recommending the investment to their own clients without obtaining sufficient documentation to substantiate the information being advertised.  F-Squared later admitted in an SEC enforcement case that what was purportedly its real, historical track record was only back-tested performance that turned out to be substantially inflated.

The penalties assessed against the firms range from $100,000 to a half-million dollars based upon the fees each firm earned from AlphaSector-related strategies.

“When an investment adviser echoes another firm’s performance claims in its own advertisements, it must verify the information first rather than merely accept it as fact,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.  “These advisers negligently passed many of F-Squared’s claims onto their own clients, who were consequently relying upon false and misleading information when making investment decisions.”

Anthony S. Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, added, “The Asset Management Unit continues to investigate and pursue similar enforcement actions against other advisers that potentially misled investors and others with advertisements containing F-Squared’s false historical performance data.”

Without admitting or denying the findings, the 13 investment advisers consented to the entry of orders finding that they violated Sections 204 and 206(4) of the Investment Advisers Act of 1940 and Rules 204-2(a)(16) and 206(4)-1(a)(5).

The SEC’s investigations have been conducted by Robert Baker, William Donahue, John Farinacci, Jeffrey Finnell, Corey Schuster, Naomi Sevilla, Rory Alex, Marc Jones, Alicia Reed, and Sonia Torrico.  

*  *  *

SEC Orders and Penalties

AssetMark – $500,000

BB&T Securities – $200,000

Banyan Partners – $200,000

Congress Wealth Management – $100,000

Constellation Wealth Advisors – $100,000

Executive Monetary Management – $100,000

HT Partners – $100,000

Hilliard Lyons – $200,000

Ladenburg Thalmann Asset Management – $200,000

Prospera Financial Services – $100,000

Risk Paradigm Group – $100,000

Schneider Downs Wealth Management Advisors – $100,000

Shamrock Asset Management – $200,000



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 Adopts Rules to Enhance Information Reported by Investment Advisers

The Securities and Exchange Commission today adopted amendments to several Investment Advisers Act rules and the investment adviser registration and reporting form to enhance the reporting and disclosure of information by investment advisers.  The amendments will improve the quality of information that investment advisers provide to investors and the Commission. 

“These amendments are an important step in a series of rulemakings to enhance the SEC’s monitoring and regulation of the asset management industry,” said SEC Chair Mary Jo White.  “Requiring investment advisers to report this additional information will provide investors and the Commission with a better understanding of the risk profile of each adviser and the industry as a whole.”

The amendments will require investment advisers to provide additional information regarding their separately managed account business, including aggregate data related to the use of borrowings and derivatives, and information about other aspects of their advisory business, including branch office operations and the use of social media.  In addition, the amendments will facilitate streamlined registration and reporting for groups of private fund adviser entities operating a single advisory business.  

Amendments to Investment Advisers Act Rule 204-2 will require advisers to maintain additional records related to the calculation and distribution of performance information. These records will be useful to the Commission’s examinations staff in evaluating adviser performance claim, and could reduce the incidence of misleading or fraudulent advertising and communications by advisers.

The amendments will be published on the Commission’s website and in the Federal Register.  They will become effective 60 days after publication in the Federal Register, and advisers will need to begin complying with the amendments on Oct. 1, 2017.



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.

Wednesday, August 24, 2016

SEC Charges 71 Municipal Issuers in Muni Bond Disclosure Initiative

The Securities and Exchange Commission today announced enforcement actions against 71 municipal issuers and other obligated persons for violations in municipal bond offerings. 

The actions were brought under the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative, a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents.  The initiative offered favorable settlement terms to municipal bond underwriters, issuers, and obligated persons that self-reported certain violations of the federal securities laws.  Obligated persons are typically nonprofit entities such as hospitals and colleges that borrow the proceeds of bond issuances and are obligated to pay principal and interest on the bonds. 

The SEC found that from 2011 to 2014, the 71 issuers and obligated persons sold municipal bonds using offering documents that contained materially false statements or omissions about their compliance with continuing disclosure obligations.  Continuing disclosure provides municipal bond investors with important information, including annual financial reports, on an ongoing basis.  The SEC’s 2012 Municipal Market Report identified issuers’ failure to comply with their continuing disclosure obligations as a major challenge for investors seeking information about their municipal bond holdings. 

“The diversity among the 71 entities in these actions demonstrates that continuing disclosure failures were a widespread and pervasive problem in the municipal bond market,” said Andrew Ceresney, Director of the SEC Enforcement Division. “The MCDC Initiative has brought attention to this important issue and resulted in increased compliance by municipal issuers and underwriters.”

The parties settled the actions without admitting or denying the findings and agreed to cease and desist from future violations.  Pursuant to the terms of the initiative, they also agreed to undertake to establish appropriate policies, procedures, and training regarding continuing disclosure obligations; comply with existing continuing disclosure undertakings, including updating past delinquent filings, disclose the settlement in future offering documents, and cooperate with any subsequent investigations by the SEC.

“The terms of the settlements reflect the credit these issuers earned for their cooperation in self-reporting pursuant to the MCDC initiative,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Public Finance Abuse Unit.  “Because the issuers also voluntarily agreed to take steps to prevent future violations, both they and their investors have benefited from the initiative.” 

The SEC has now filed a total of 142 actions against 143 respondents as part of the MCDC Initiative.  Today’s actions are the first against municipal issuers since the first action under the initiative was announced in July 2014 against a California school district.  The SEC filed actions under the initiative against a total of 72 municipal underwriting firms, comprising 96 percent of the market share for municipal underwritings, in June 2015, in September 2015, and in February 2016.

The MCDC Initiative is being led by Kevin Guerrero of the Enforcement Division’s Public Finance Abuse Unit.  The cases announced today were investigated by members of the unit, including Michael Adler, Joseph Chimienti, Kevin Currid, Susan Curtin, Peter Diskin, Brian Fagel, Natalie Garner, Warren Greth, Sally J. Hewitt, Jason Howard, Jason Lee, Robbie Mayer, Heidi Mitza, William Salzmann, Cori Shepherd, Ivonia K. Slade, Steven Varholik, Jonathan Wilcox, Monique C. Winkler, and Deputy Chief Mark R. Zehner with assistance from Peter Moores and Ellen Moynihan of the Boston Regional Office, Howard Kaplan of the Enforcement Division’s Center for Risk and Quantitative Analytics, and Rebecca Olsen, Hillary Phelps, and Adam Wendell of the Office of Municipal Securities. 

*  *  *

 

SEC orders:

 

Alabama

 

Alaska

 

Arkansas

 

California

 

Colorado

 

Connecticut

 

Delaware

 

Georgia

 

Hawaii

 

Idaho

 

Illinois

 

Indiana

 

Iowa

 

Kansas

 

Kentucky

 

Louisiana

    

Maine

 

Maryland

 

Massachusetts

 

Michigan

 

Minnesota

 

Mississippi

 

Missouri 

 

Montana

 

Nebraska

 

New Hampshire

 

New Jersey

 

New Mexico

 

New York

 

North Carolina

 

North Dakota

 

Ohio

 

Oklahoma

 

Pennsylvania

 

South Carolina

 

South Dakota

 

Tennessee

 

Texas

 

Utah

 

Vermont

 

Virginia

 

Washington

    

West Virginia

 

Wisconsin

 

Wyoming

 



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, August 23, 2016

Apollo Charged With Disclosure and Supervisory Failures

The Securities and Exchange Commission today announced that four private equity fund advisers affiliated with Apollo Global Management have agreed to a $52.7 million settlement for misleading fund investors about fees and a loan agreement and failing to supervise a senior partner who charged personal expenses to the funds.

An SEC investigation found that the Apollo advisers failed to adequately disclose the benefits they received to the detriment of fund investors by accelerating the payment of future monitoring fees owed by the funds’ portfolio companies upon the sale or IPO of those companies.  The lump sum payments received by the Apollo advisers essentially reduced the portfolio companies’ value prior to their sale or IPO and reduced amounts available for distribution to fund investors. 

The SEC also found that one of the Apollo advisers failed to disclose certain information about interest payments made on a loan between the adviser’s affiliated general partner and five funds.  The purpose of the loan was to defer taxes on carried interest due the general partner.  The loan agreement obligated the general partner to pay interest to the funds during the course of the loan, and the funds’ financial statements disclosed that interest was accruing as an asset of the funds.  But that interest was instead ultimately allocated solely to the general partner, which made the disclosures in the financial statements misleading.

“A common theme in our recent enforcement actions against private equity firms is their failure to properly disclose fees and conflicts of interest to fund investors,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.  “Investors in Apollo funds were not adequately informed about accelerated monitoring fees and separately allocated loan interest, and therefore were unable to gauge their impact on their investments.”

According to the SEC’s order instituting the settled administrative proceeding, Apollo’s supervisory failures pertain to a then-senior partner at the firm who was twice caught improperly charging personal items and services to Apollo-advised funds and their portfolio companies.  Other than verbally reprimanding the partner and requiring repayment of improperly submitted expenses, Apollo took no further remedial or disciplinary steps on either occasion.  A firm-wide expense review eventually revealed even more personal expenses the partner improperly charged to fund clients, and this led to the partner’s separation from the firm.

“Apollo failed to take appropriate action to protect its clients upon first learning that a partner was improperly expensing personal items and services to the funds, and its failure resulted in repeated misconduct,” said Anthony S. Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.

Apollo consented to the entry of the SEC’s order finding that it violated Sections 206(2) and 206(4) of the Advisers Act and Rules 206(4)-7 and 206(4)-8.  The order also finds that Apollo failed reasonably to supervise the then-partner pursuant to Section 203(e)(6) of the Advisers Act.  Apollo agreed to cease and desist from further violations without admitting or denying the findings, and must pay $37.527 million in disgorgement, $2,727,552 in interest, and a $12.5 million penalty.  Apollo agreed to distribute the disgorgement and interest amounts to affected fund investors. 

The SEC’s investigation, which is continuing, is being conducted by Donna Norman of the Asset Management Unit and supervised by Mr. Kelly.  A related examination of Apollo was conducted by Majid Mahmood, Michael Devaney, Mandy Poon, Igor Rozenblit, and William Delmage. 



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.

Internaut day: The world's first public website went online 25 years ago today

While it may be subject to some debate, based on your definition of "website" it appears that the first public website went online in August 1991.



In the grand scheme of things, SECLaw.com was right there! We went live in July 1995 only a few years later, at a time when there were no legal mega sites, only a handful of legal topic sites, and virtually no law firm sites.





Internaut day: The world's first public website went online 25 years ago today:




Tuesday, August 16, 2016

Company Punished for Severance Agreements That Removed Financial Incentives for Whistleblowing

The Securities and Exchange Commission today announced that a California-based health insurance provider has agreed to pay a $340,000 penalty for illegally using severance agreements requiring outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistleblower program.

 

According to the SEC’s order, Health Net Inc. violated federal securities laws by taking away from departing employees who wanted to receive severance payments and other post-employment benefits the ability to file applications for SEC whistleblower awards.  Health Net added the provision in August 2011 after the SEC adopted a rule to prohibit any action to impede someone from communicating with the SEC about possible securities law violations.  Health Net removed the SEC-specific language from its severance agreements in June 2013, but retained restrictive language that removed the financial incentive for reporting information until finally amending the agreements to strike all such restrictive language last year.

 

“Financial incentives in the form of whistleblower awards, as Congress recognized, are integral to promoting whistleblowing to the Commission,” said Antonia Chion, Associate Director of the SEC Enforcement Division.  “Health Net used its severance agreements with departing employees to strip away those financial incentives, directly targeting the Commission’s whistleblower program.”

 

Health Net consented to the SEC’s cease-and-desist order without admitting or denying the findings.  The company agreed to make reasonable efforts to inform former employees who signed the severance agreements from Aug. 12, 2011, to Oct. 22, 2015, that Health Net does not prohibit former employees from seeking and obtaining a whistleblower award from the SEC under Section 21F of the Securities Exchange Act.  Health Net further agreed to certify to Enforcement Division staff that it has complied with this undertaking.

 

The SEC’s investigation was conducted by Jennie B. Krasner and supervised by Ricky Sachar and Ms. Chion.



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.

Former Goldman Sachs Trader Settles Fraud Charges

The Securities and Exchange Commission today announced that the former head trader in residential mortgage-backed securities (RMBS) at Goldman Sachs has agreed to be barred from the securities industry and pay $400,000 to settle charges that he repeatedly misled customers and caused them to pay higher prices.  

An SEC investigation found that Edwin Chin generated extra revenue for Goldman by concealing the prices at which the firm had bought various RMBS, then re-selling them at higher prices to the buying customer with Goldman keeping the difference.  On other occasions, Chin misled purchasers by suggesting he was actively negotiating a transaction between customers when he was merely selling RMBS out of Goldman’s inventory.

“With no public exchange showing the price for each RMBS trade as it occurs, investors purchasing these securities rely on dealers to be honest about the purchase price they paid,” said Michael J. Osnato, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.  “Chin repeatedly abused his fundamental duty to serve as an honest transmitter of market information so he could increase Goldman’s trading profits and, indirectly, his own compensation.” 

The SEC’s order finds that Chin’s misconduct began in 2010 and continued until he left Goldman in 2012.  Without admitting or denying the findings, Chin agreed to the entry of the order finding that he violated Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5.  He agreed to pay $200,000 in disgorgement, $50,000 in prejudgment interest, and a $150,000 penalty.

The SEC’s continuing investigation has been conducted by Andrew Feller, David London, and Heidi Mitza, and the case has been supervised by Celia Moore and Michael Osnato.  The SEC appreciates the assistance of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).  



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, August 15, 2016

Hedge Fund Manager Charged in Scheme Involving Terminally Ill

The Securities and Exchange Commission today announced fraud charges against a hedge fund manager and his firm accused of paying terminally ill individuals to use their names on purportedly joint brokerage accounts so he could purchase investments on behalf of his hedge fund and redeem them early by invoking a survivor’s option.

An SEC examination of investment advisory firm Eden Arc Capital Management uncovered the scheme alleged by the SEC Enforcement Division in an order instituted today.  Donald Lathen of New York City allegedly used contacts at nursing homes and hospices to identify patients with less than six months to live, and he successfully recruited at least 60 of them by paying $10,000 apiece to use their names on accounts.  When a patient died, Lathen allegedly redeemed investments in the accounts by falsely representing to issuers that he and the terminally ill individuals were joint owners of the accounts.  Lathen’s hedge fund was the true owner of the survivor’s option investments.  Issuers paid out more than $100 million in early redemptions as a result of the alleged misrepresentations and omissions by Lathen and Eden Arc Capital.

The SEC Enforcement Division further alleges that Lathen violated the custody rule by failing to properly place the hedge fund’s cash and securities in an account under the fund’s name or in an account containing only clients’ funds and securities, under the investment adviser’s name as agent or trustee for the client.

“We allege that Lathen deceived issuers by falsely claiming that he and the deceased jointly owned the bonds when the hedge fund was the true owner of the investments,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Lathen allegedly put hedge fund client assets at risk by keeping them in accounts in his and the terminally ill individuals’ names rather than following the custody rule.”

The SEC Enforcement Division alleges that Lathen, Eden Arc Capital Management, and Eden Arc Capital Advisors 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.  The Enforcement Division further alleges that Eden Arc Capital Management violated Section 206(4) of the Advisers Act and Rule 206(4)-2, and Lathen aided and abetted and caused those violations.

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.

The SEC’s investigation was conducted by Janna Berke, Judith Weinstock, Frank Milewski, Adam Grace, and Michael Birnbaum.  The case was supervised by Lara Shalov Mehraban and the litigation will be led by Alexander Janghorbani, Ms. Weinstock, and Ms. Berke.  The SEC examiners who detected the wrongdoing during the examination of Eden Arc Capital Management are Kathleen Raimondi, Lawrence Chinsky, and George DeAngelis.



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, August 11, 2016

SEC: Investment Adviser Boasted Phony Assets and Track Record, Stole From Client

The Securities and Exchange Commission today announced fraud charges against a San Francisco man and his investment advisory firm accused of pretending to manage millions of dollars in assets and then stealing money from the first client who invested with them based on their misrepresentations.

The SEC alleges that Nicholas M. Mitsakos and Matrix Capital Markets, which is a state-registered investment adviser in California, solicited investors in a purported hedge fund while falsely marketing themselves as experienced money managers with a highly successful track record.  They claimed assets under management in the millions when in fact they did not manage any client assets at all, and they fabricated a hypothetical portfolio of investments earning 20 to 66 percent annual returns and passed it off to investors as real trading.  When Mitsakos and Matrix Capital Markets were given $2 million in client assets to manage in September 2015, they proceeded to steal approximately $800,000 from that client and used most of it to pay for unauthorized personal and business expenses.

“We allege that Mitsakos and his firm tried to lure prospective investors with a mirage of assets under management and phony performance results, and when they finally won some actual business from a client, they proceeded to steal a large portion of it,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Whenever pitched an investment opportunity with claims of lofty historical performance, it’s important for investors to take the time to verify the information and make sure they’re getting the truth before deciding to invest.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Mitsakos.

The SEC’s complaint was filed in U.S. District Court for the Southern District of New York and charges Mitsakos and Matrix Capital Markets with violating the antifraud provisions of the federal securities laws.  Mitsakos also is charged with aiding and abetting Matrix Capital’s violations.  The SEC seeks permanent injunctions and disgorgement of ill-gotten gains plus penalties.

The SEC’s continuing investigation is being conducted by Alison R. Levine, Kerri Palen, Alex Janghorbani, and Valerie A. Szczepanik, and the case is supervised by Lara S. Mehraban.  The litigation will be led by Alex Janghorbani and Alison R. Levine.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York.



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 Stockbroker and Friend With Insider Trading

The Securities and Exchange Commission today charged a stockbroker and his friend with participating in an insider trading scheme to profit in advance of two major announcements out of a pharmaceutical company. 

The SEC alleges that Paul T. Rampoldi coordinated the insider trading with two other brokers at his firm as well as a then-IT executive at Ardea Biosciences.  The Ardea employee tipped one of the brokers ahead of the company’s announcement of an agreement to license a cancer drug and later tipped him in advance of its acquisition by AstraZeneca PLC.  The SEC charged the other two brokers and the Ardea employee last year.

According to the SEC’s complaint filed in federal court in San Diego today against Rampoldi and William Scott Blythe III, they made approximately $90,000 in illicit profits by trading ahead of those announcements based on nonpublic information that flowed to them through one of the fellow brokers who learned it from the other after he was tipped by the IT executive.  It was decided that in order to evade detection by the compliance department at the brokerage firm where Rampoldi and the others worked, Blythe would fund the purchase of Ardea call option contracts in a brokerage account he held at a different brokerage firm, and they would subsequently divide the profits among them.

“As a stockbroker, Rampoldi should have known better than to allegedly trade on tips about significant corporate events before they were announced,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “We further allege that Rampoldi and Blythe tried to evade detection by hiding their trading elsewhere, but to no avail.”

In a parallel action, the U. S. Attorney’s Office for the Southern District of California today brought criminal charges against Rampoldi and Blythe.

The SEC’s complaint charges Rampoldi and Blythe with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC seeks permanent injunctions as well as disgorgement, interest, and penalties.

The SEC’s investigation was conducted by Patricia A. Paw, John S. Rymas, Daniel Koster, and Brendan P. McGlynn of the Philadelphia office, and supervised by G. Jeffrey Boujoukos.  The litigation will be led by David L. Axelrod and Michael J. Rinaldi.  The SEC appreciates the assistance of the U. S. Attorney’s Office for the Southern District of California, Federal Bureau of Investigation, and 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.

Wednesday, August 10, 2016

SEC Charges Former Professional Football Player With Running $10 Million Fraud

The Securities and Exchange Commission today charged Merrill Robertson Jr., a former player for the Philadelphia Eagles, with defrauding investors, including coaches he knew from his time playing football for the Fork Union Military Academy and the University of Virginia.

The SEC’s complaint, filed in federal court in Richmond, Virginia, charges Robertson, Sherman C. Vaughn Jr., and the company they co-owned, Cavalier Union Investments LLC.  According to the complaint, the defendants promised to invest in diversified holdings but diverted nearly $6 million of the more than $10 million they raised from investors to pay for personal expenses and used other funds to repay earlier investors.

Robertson and Vaughn, both of Chesterfield, Virginia, are alleged to have lied about the unregistered debt securities they sold, saying they would yield as much as 20 percent “while providing safety and security for our investors.”  According to the complaint, the defendants claimed that Cavalier had investment funds operated by experienced investment advisers when it did not have any funds or investment advisers and was functionally insolvent shortly after it was formed.  The defendants allegedly hid this fact from potential investors and relied on cash from new investors to stay afloat.  The complaint further alleges that Cavalier’s only investments were in restaurants that had all failed by 2014, something the defendants never disclosed as they continued soliciting and accepting investors’ money.  The scheme allegedly targeted seniors and coaches, donors, alumni, and employees of schools Robertson had attended.

“Our complaint alleges that Robertson and Vaughn preyed on elderly victims and others who placed their trust in these individuals, only to have their savings stolen,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “We will continue to aggressively pursue fraudsters who exploit their relationship of trust with victims and promise returns that appear to be too good to be true.”   

The SEC encourages investors to check the backgrounds of people selling them investments.  A quick search on the SEC’s investor.gov website would have shown that Robertson and Vaughn are not registered to sell securities.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of Virginia today announced criminal charges against Robertson.

The SEC’s complaint charges Robertson, Vaughn, and Cavalier with violations of the antifraud and registration provisions of the federal securities laws and seeks permanent injunctions, return of allegedly ill-gotten gains with prejudgment interest, and civil penalties.

The SEC’s investigation, which is continuing, has been conducted by Lawrence D. Parrish, Dustin Ruta, and Kingdon Kase of the Philadelphia Office, and was supervised by G. Jeffrey Boujoukos.  The SEC’s litigation will be led by David L. Axelrod and John V. Donnelly.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of Virginia 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.

Kristin Snyder Named Co-Head of SEC’s Investment Adviser/Investment Company Examination Program

The Securities and Exchange Commission today announced that Kristin Snyder has been named Co-National Associate Director of the Investment Adviser/Investment Company examination program in the Office of Compliance Inspections and Examinations (OCIE).  She joins Co-National Associate Director Jane Jarcho who has led the program since August 20, 2013 and was named OCIE’s Deputy Director on February 3, 2016.  Together, Ms. Jarcho and Ms. Snyder oversee more than 520 lawyers, accountants, and examiners responsible for inspections of SEC registered investment advisers and investment companies.  

Ms. Snyder has been the Associate Regional Director for Examinations in the SEC’s San Francisco office since November 2011 and will continue in that role while also assuming this new leadership position in the national investment adviser/investment company program.  She joined the SEC in 2003 and spent eight years as a Branch Chief and a Senior Counsel in the San Francisco office’s enforcement program. 

“With Kristin’s experience in examinations and enforcement, she is well-positioned to develop and lead national initiatives in our investment adviser and investment company program that support OCIE’s mission to improve compliance, prevent fraud, monitor risk, and inform policy,”  said OCIE Director Marc Wyatt.

Ms. Snyder said, “I am truly honored by this opportunity to lead OCIE’s IA/IC program with Jane.  I look forward to expanding my role to work with our talented and dedicated colleagues throughout the country as we continue to develop and implement important national initiatives in the asset management industry.”

Prior to joining the SEC, Ms. Snyder practiced law at Sidley Austin Brown & Wood LLP in San Francisco.  She received her law degree from the University of California Hastings College of the Law and received her bachelor’s degree from the University of California at Davis.

OCIE conducts the SEC’s National Examination Program through examinations of SEC-registered investment advisers, investment companies, broker-dealers, self-regulatory organizations, clearing agencies, and transfer agents.  It uses a risk-based approach to examinations to fulfill its mission to promote compliance with U.S. securities laws, prevent fraud, monitor risk, and inform SEC policy.



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.

Company Paying Penalty for Violating Key Whistleblower Protection Rule

The Securities and Exchange Commission today announced that an Atlanta-based building products distributor is settling charges that it violated securities laws by using severance agreements that required outgoing employees to waive their rights to monetary recovery should they file a charge or complaint with the SEC or other federal agencies.

BlueLinx Holdings Inc. has agreed to pay a $265,000 penalty.

According to the SEC’s order, BlueLinx added the monetary recovery prohibition to all of its severance agreements in mid-2013, nearly two years after the SEC’s adoption of Rule 21F-17 that prohibits any action to impede someone from communicating with the SEC about possible securities law violations.  BlueLinx’s restrictive language forced employees leaving the company to waive possible whistleblower awards or risk losing their severance payments and other post-employment benefits.

“We’re continuing to stand up for whistleblowers and clear away impediments that may chill them from coming forward with information about potential securities law violations,” said Stephanie Avakian, Deputy Director of the SEC’s Enforcement Division.

Jane Norberg, Acting Chief of the SEC’s Office of the Whistleblower, added, “Companies simply cannot undercut a key tenet of our whistleblower program by requiring employees to forego potential whistleblower awards in order to receive their severance payments.”

BlueLinx consented to the SEC’s cease-and-desist order without admitting or denying the findings.  The company agreed to two undertakings: (1) to amend its severance agreements to make clear that employees may report possible securities law violations to the SEC and other federal agencies without BlueLinx’s prior approval and without having to forfeit any resulting whistleblower award, and (2) to make reasonable efforts to contact former employees who had executed severance agreements after Aug. 12, 2011 to notify them that BlueLinx does not prohibit former employees from providing information to the SEC staff or from accepting SEC whistleblower awards.  BlueLinx further agreed to certify to Enforcement Division staff that it has complied with its undertakings.

The SEC’s investigation was conducted by Tara Kelly and V.V. Cooke.  The case was supervised by Yuri B. Zelinsky and Antonia Chion.



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.