Wednesday, July 23, 2014

SEC Charges Investor Relations Executive With Insider Trading While Preparing Clients’ Press Releases

The SEC charged a partner at a New York-based investor relations firm with insider trading on confidential information he learned about two clients while he helped prepare their press releases. 
The SEC alleges that the partner sold his shares in Misonix Inc. upon learning that the company was set to announce disappointing financial results.  The SEC further alleges that the partner bought stock in Clean Diesel Technologies Inc. when he learned about the company’s impending announcement of positive news, and he profited when its stock price nearly doubled.  The partner’s illicit profits and avoided losses from insider trading in both companies totaled $11,776. 
The partner, who lives in Brooklyn, N.Y., and works at Cameron Associates, agreed to settle the charges by paying disgorgement of $11,776, prejudgment interest of $1,492, and a penalty of $11,776, for a total of $25,044. 

For more information, visit: 

Thursday, July 17, 2014

FINRA Announces Arbitration Task Force

FINRA announced today the formation of a 13-member Arbitration Task Force to consider possible enhancements to its arbitration forum to improve the transparency, impartiality and efficiency of FINRA's securities arbitration forum for all participants.  

Hopefully they ultimately solicit comments from those of us who are representing brokers in the process, rather than relying on a "task force" comprised of professors, customer attorneys and in-house counsel.

For more information, see FINRA Announces Arbitration Task Force - FINRA

Tuesday, July 15, 2014

Citigroup 7 Billion Dollar Mortgage Backed Securities Settlement

Citigroup Inc. (C) agreed to pay $7 billion in fines and consumer relief to resolve government claims that it misled investors about the quality of mortgage-backed bonds sold before the 2008 financial crisis. The bank took a $3.7 billion charge in the second quarter ended June 30 to cover the cost of the settlement.

Citigroup was among lenders including Bank of America Corp. investigated by the Justice Department for allegedly misrepresenting the quality of mortgage-backed bonds as home prices plummeted in 2006 and 2007. JPMorgan Chase & Co. (JPM), the biggest U.S. bank, agreed in November to pay $13 billion to resolve similar federal and state probes

For more information, Citigroup Reaches $7 Billion Mortgage-Bond Settlement - Bloomberg


The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms and brokers nationwide. For more information contact Mark Astarita at 212-509-6544 or email us.

Monday, July 14, 2014

Jennifer Pacella: Bounties for Bad Behavior: Rewarding Culpable Whistleblowers under the Dodd-Frank Act and Internal Revenue Code


In 2012, Bradley Birkenfeld received a $104 million reward or “bounty” from the Internal Revenue Service (“IRS”) for blowing the whistle on his employer, UBS, which facilitated a major offshore tax fraud scheme by assisting thousands of U.S. taxpayers to hide their assets in Switzerland. Birkenfeld does not fit the mold of the public’s common perception of a whistleblower. He was himself complicit in this crime and even served time in prison for his involvement. Despite his conviction, Birkenfeld was still eligible for a sizable whistleblower bounty under the IRS Whistleblower Program, which allows rewards for whistleblowers who are convicted conspirators, excluding only those convicted of “planning and initiating” the underlying action.

In contrast, the whistleblower program of the Securities and Exchange Commission (“SEC”) under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which was modeled after the IRS program, precludes rewards for any whistleblower convicted of a criminal violation that is “related to” a securities enforcement proceeding. Therefore, because of his conviction, Birkenfeld would not have been granted a bounty under Dodd-Frank had he blown the whistle on a violation of the federal securities laws, rather than tax evasion. This Article will explore an area that has been void of much scholarly attention — the rationale behind providing bounties to whistleblowers who have unclean hands and the differences between federal whisteblower programs in this regard.

After analyzing the history and structure of the IRS and SEC programs and the public policy concerns associated with rewarding culpable whistleblowers, this Article will conclude with various observations justifying and supporting the SEC model. This Article will critique the IRS’s practice of including the criminally convicted among those who are eligible for bounty awards by suggesting that the existence of alternative whistleblower incentive structures, such as leniency and immunity, are more appropriate for a potential whistleblower facing a criminal conviction. In addition, the IRS model diverges from the legal structure upon which it is based, the False Claims Act, which does not allow convicted whistleblowers to receive a bounty. In response to potential counterarguments that tax fraud reporting may not be analogous to securities fraud reporting, this Article will also explore the SEC’s recent trend of acting increasingly as a “punisher” akin to a criminal, rather than a civil, enforcement entity like the IRS. In conclusion, this Article will suggest that the SEC’s approach represents a reasonable middle ground that reconciles the conflict between allowing wrongdoers to benefit from their own misconduct and incentivizing culpable insiders to come forward, as such persons often possess the most crucial information in bringing violations of the law to light.

For more information - Bounties for Bad Behavior: Rewarding Culpable Whistleblowers under the Dodd-Frank Act and Internal Revenue Code by Jennifer M. Pacella :: SSRN


Friday, July 11, 2014

$3 Million Dollar Morgan Stanley Team joins Steward Partners

The move from wirehouses to independent firmst continues as advisers seek better service for their clients and more freedom for themselves.

Steward Partners Global Advisory LLC, an employee-owned, full service independent partnership, announced today that Kenneth Mathieson and Erik Mathieson, along with their other team members, have left the midtown Manhattan office of Morgan Stanley, to join Steward Partners. The team has over 50 years of combined experience serving clients as Wealth Managers. This move to Steward Partner's newest location, 2 Grand Central Tower, 140 East 45th Street, marks the official opening of a flagship New York City Branch for Steward. The Mathiesons manage $315 million in client assets, and generated over $3 million in production on an annual basis at their prior firm.

For more information, $3 Million Dollar Morgan Stanley Team joins Steward Partners - Yahoo Finance


Planning a move? The attorneys at Sallah Astarita & Cox have spent decades assisting brokers in their transition between firms, and represent firms and brokers in the independent channel. Give Mark Astarita a call to see how we can help - 212-509-6544


Thursday, July 10, 2014

California School District Charged with Securites Fraud

No one is above the law, not even a school district. The SEC has charged a California school district with misleading bond investors about its failure to provide contractually required financial information and notices. 

Seal of the U.S. Securities and Exchange Commi...
The case is important as it is the first under a new SEC initiative to address materially inaccurate statements in municipal bond offering documents. According to the press release, the SEC found that in the course of a 2010 bond offering, Kings Canyon Joint Unified School District affirmed to investors that it had complied with its prior continuing disclosure obligations. The statement was inaccurate because between at least 2008 and 2010, the school district had failed to submit some required disclosures. The California school district agreed to settle the charges without admitting to or denying the findings.

Under the Municipalities Continuing Disclosure Cooperation (MCDC) initiative, the SEC’s Enforcement Division agreed to recommend standardized settlement terms for issuers and underwriters who self-report or were already under investigation for violations involving continuing disclosure obligations. The 2014 initiative, launched on March 10, expires on September 10.

The SEC press release and complaint are here - SEC Charges California School District with Misleading Investors.

Wednesday, July 9, 2014

Taking Section 10(b) Seriously: Criminal Enforcement of SEC Rules - Steven Thel

Professor Thel argues that the Supreme Court has been misreading Section 10(b) of the Exchange Act, and argues that the section does not prohibit anything, and it neither grants the SEC rulemaking power nor limits the rulemaking power granted to the SEC elsewhere in the Exchange Act. Instead, section 10(b) simply triggers criminal sanctions for certain rule violations. This is an important function, but one very different from the one the Supreme Court has ascribed to section 10(b).

From the abstract:

Contrary to conventional wisdom, not all SEC rules are subject to criminal enforcement. Instead, criminal sanctions apply to rules whose violation the statute makes “unlawful.” Section 10(b) triggers criminal sanctions by making it “unlawful” to use or employ manipulative or deceptive devices or contrivances in connection with a security trade in contravention of SEC rules. While this mechanism has long been ignored, it was well understood when the Exchange Act was enacted. By ignoring the language of section 10(b) and the history and structure of the Exchange Act, the Supreme Court has frustrated the will of Congress and needlessly complicated securities law. In the context of SEC enforcement actions, Congress has repeatedly rejected the Court’s approach to section 10(b), which cannot withstand extension to other well-established parts of the statutory regulatory scheme.

The Supreme Court should take responsibility for the private right of action for violations of rule 10b-5, and should consider substantially restricting the fraud on the market class action that it has itself created . On the other hand, inasmuch as section 10(b) has little to do with the SEC, the Court’s restrictive holdings in rule 10b-5 cases should not apply to enforcement actions brought by the Commission, but only to private and, sometimes, criminal actions. For the same reason, the Court’s consistent and insistent rejection of the SEC’s interpretation of section 10(b) turns out to be oddly principled.

For more information - Taking Section 10(b) Seriously: Criminal Enforcement of SEC Rules by Steven Thel :: SSRN