Monday, April 20, 2015

SEC News - Rule Violations, Update Failures, Faulty Underwriting

Texas-Based Brokerage Firm Charged With Violating Supervisory and Customer Protection Rules

An Irving, Texas-based brokerage firm has been charged with violating key customer protection rules after failing to adequately supervise registered representatives who misappropriated customer funds.

Corporate Insiders Charged for Failing to Update Disclosures Involving “Going Private” Transactions

Eight officers, directors, or major shareholders are facing charges for failing to update their stock ownership disclosures to reflect material changes, including steps to take the companies private. Each of the respondents, without admitting or denying the SEC’s allegations, agreed to settle the proceedings by paying a financial penalty. 


SEC Charges Nearly Two Dozen Unregistered Broker-Dealers

Nearly two dozen companies and individuals who regularly bought and sold securities on behalf of a suburban Chicago-based trading firm without registering with the SEC as a broker-dealer as required under the federal securities laws are now facing charges.

New York-Based Brokerage Firm Charged With Faulty Underwriting of Public Offering by China-Based Company

A New York-based brokerage firm is now facing charges after being found responsible for underwriting a public offering despite obtaining a due diligence report indicating that the China-based company’s offering materials contained false information.

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The attorneys at Sallah Astarita & Cox, LLC include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including SEC and FINRA investigations, insider trading cases, securities arbitrations and class actions, nationwide. For more information call 212-509-6544 or send an email.

Monday, April 13, 2015

SEC Fines Company for Stifling Whistleblowers

Whistleblowers, and the SEC's Whistleblower program, are a large part of the Dodd-Frank Act. The SEC believes that information from a whistleblower who knows of possible securities law violations can be among the most powerful weapons in its law enforcement arsenal.

In an effort to demonstrate its commitment to whistleblowers, and potential whistleblowers, the SEC  brought its first enforcement action against a company for using improperly restrictive language in confidentiality agreements with the potential to stifle the whistleblowing process. The SEC charged Houston-based global technology and engineering firm KBR Inc. with violating whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act. 

According to the SEC, KBR required witnesses in certain internal investigations interviews to sign confidentiality statements with language warning that they could face discipline and even be fired if they discussed the matters with outside parties without the prior approval of KBR’s legal department.  The SEC claimed, that since these investigations included allegations of possible securities law violations, the SEC found that these terms violated Rule 21F-17, which prohibits companies from taking any action to impede whistleblowers from reporting possible securities violations to the SEC. 

Although that position is not clear from the statute, or the rules pursuant to the statute, KBR agreed to pay a $130,000 penalty to settle the SEC’s charges. The company also voluntarily amended its confidentiality statement by adding language making clear that employees are free to report possible violations to the SEC and other federal agencies without KBR approval or fear of retaliation.

“By requiring its employees and former employees to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC.  We will vigorously enforce this provision.”

For more information, go to SEC.gov | SEC: Companies Cannot Stifle Whistleblowers in Confidentiality Agreements


--- The attorneys at Sallah Astarita & Cox, LLC include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including SEC and FINRA investigations, insider trading cases, securities arbitrations and class actions, nationwide. For more information call 212-509-6544 or send an email.

Thursday, March 19, 2015

Corporate Insiders Individually Charged for Failing to Update SEC Filings

While we all understand that registered individuals rely on their firms to update their required filings, so do corporate officers and shareholders. The problem is that the individuals are still personally responsible for the updates - and for failing to update.

A reminder from the SEC, as it has charged eight officers, directors, or major shareholders for failing to update their stock ownership disclosures to reflect material changes, including steps to take the companies private.

Each of the respondents, without admitting or denying the SEC’s allegations, agreed to settle the proceedings by paying a financial penalty.

More details are available at SEC.gov | Corporate Insiders Charged for Failing to Update Disclosures Involving “Going Private” Transactions.
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The attorneys at Sallah Astarita & Cox include veteran securities litigators, and former SEC and criminal prosecutors. For more information about the firm, and possible representation, email the firm or call 212-509-6544.

Monday, March 16, 2015

SEC News - FCPA Violations, Trade Suspensions, Whistleblower Awards

Goodyear Charged With FCPA Violations

Goodyear Tire & Rubber Company has been charged with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries paid bribes to land tire sales in Kenya and Angola.

A purported venture capital fund manager in Buffalo, N.Y., has been charged with fraudulently using money from three investment funds to pay fictitious returns to investors in a different fund.  The SEC obtained an emergency asset freeze to halt the Ponzi-like scheme.


Trading Suspended in 128 Dormant Shell Companies to Put Them Out of Reach of Microcap Fraudsters

The SEC has suspended trading in 128 inactive penny stock companies to ensure they don’t become a source for pump-and-dump schemes.

A whistleblower payout between $475,000 and $575,000 has been awarded to a former company officer who reported original, high-quality information about a securities fraud that resulted in an SEC enforcement action with sanctions exceeding $1 million.

Monday, March 9, 2015

Morgan Stanley breach probe shifts to hacker from fired employee

U.S. authorities are investigating whether a hacker is behind the online publication of a cache of Morgan Stanley's client data and not the financial adviser who was fired in connection with the breach, according to CNN and The Wall Street Journal

For more information, go to Morgan Stanley breach probe shifts to hacker from fired employee: WSJ

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The attorneys at Sallah Astarita & Cox, LLC include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including SEC and FINRA investigations, insider trading cases, securities arbitrations and class actions, nationwide. For more information call 212-509-6544 or send an email.

Monday, March 2, 2015

New Arbitrator Rule - Customer and Firm Attorneys are No Longer Public Arbitrators

The SEC has approved a FINRA rule proposal which will dramatically change the composition of arbitration panels. For years attorneys who solely represent customers have been complaining that there are too many arbitrators with ties to the securities industry. From there, the argument assumes that those arbitrators will violate their duty, their obligations, and their oaths, and rule in favor of the brokerage firm involved in the dispute.

This argument is on its face outrageous, and an affront to the thousands of arbitrators who serve on arbitration panels. Coupled with the fact that customers win a significantly higher percentage of cases in FINRA arbitrations than they do in court, the argument is also specious, and self-serving.

There were hundreds of comment letters submitted, most of them from attorneys who spent their entire careers representing customers - for a percentage of the recovery. Their own bias in the process is clear, and there were many commentators who argued if we are going to assume that a former industry employee or attorney is biased, shouldn't we be assuming that attorneys who spend their time suing firms are also biased?

Let me repeat - I do not agree with this bias argument for a second. I have appeared before hundreds of arbitrators, and with a rare exception, I have found that FINRA arbitrators are dedicated to their role in the process, and are a fair and unbiased as anyone could possibly expect. I have appeared before one or two who seemed to be biased, but I have also appeared before judges who appeared to be biased.

Regardless, FINRA modified its rule proposal, and the SEC approved it. Industry employees are not public arbitrators. Attorneys who represent industry participants, and attorneys who represent customers against industry participants are also not public arbitrators.

Good for the goose is good for the gander? I suppose, but now we have the problem of a lack of qualified arbitrators. Think about it, at the urging of the customer attorneys, FINRA has just lessen the odds of having an attorney who has knowledge of the securities laws as an arbitrator in securities cases.

These attorneys can still serve as arbitrators, if the customer decides to use an industry panel. We will have to see how this plays out, but we can expect to see an increased cost for all parties, as the need for expert witnesses will substantially increase going forward
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The rule approval is available at www.sec.gov/rules/sro/finra/2015/34-74383.pdf
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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We are all now considered to be non-public arbitrators, despite our decades of experience in securities arbitrations, Fortunately, our expertise is still available to our clients - brokers, advisers, and the truly aggrieved investor. For more information call 212-509-6544 or send an email.

SEC News: Insider Trading, Pyramid Schemes, Fraudulent Deception

Charges Against Atlanta Man Accused of Insider Trading in Advance of Tender Offer
An Atlanta resident has been accused of insider trading in the stock of a technology company by exploiting nonpublic information he learned from the friend of a company executive.

An investment adviser to several alternative mutual funds faces charges for maintaining millions of dollars of the funds’ cash collateral at broker-dealer counterparties instead of the funds’ custodial bank.  The violations were uncovered during an SEC examination of the firm and the funds it manages.

Fraud Charges Announced Against Purported Hedge Fund Manager
A purported hedge fund manager in New York City has been charged with stealing money from his investors.

SEC Halts Colorado-Based Pyramid Scheme
Fraud charges and an emergency asset freeze have been announced against two operators of a Colorado-based pyramid and Ponzi scheme that promises investors extraordinary returns of 700 percent through a purported “triple algorithm” and “3-D matrix.”

New York-Based Brokerage Firm and CEO Charged With Committing Fraud During CDO Liquidation Auctions

A New York City-based brokerage firm and its CEO has been charged with fraudulently deceiving other market participants while conducting auctions to liquidate collateralized debt obligations (CDOs).

Brothers-in-Law in Louisiana Charged With Insider Trading
Insider trading charges have been filed against a former Fortune 500 company executive and his brother-in-law whom he allegedly tipped with nonpublic information ahead of the company’s merger.

Wednesday, February 25, 2015

SEC Sued For Unconstitutional Use of Its Own Judges

English: The U.S. Securities and Exchange Comm...
Atlanta-based investment firm Gray Financial Group Inc. has sued the Securities and Exchange Commission in Georgia federal court, challenging the agency's use of its own administrative law judges rather than federal judges to try enforcement cases.

The lawsuit is the latest challenge to an SEC practice that has been increasing since the passage of the 2010 Dodd-Frank financial reform law.

For more information, see SEC sued for using its own judges and our prior commentary on the subject:

With 100% Success Rate, SEC's Use of In-House Judges Questioned by Commissioner Piwowar

SEC Faces Challenges Over the Constitutionality of Some of Its Court Proceedings

Judge Rakoff Questions the SEC's Overuse of Administrative Proceeding

SEC's Use of Administrative Hearings Under Fire

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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 and SEC administrative proceedings, For more information call 212-509-6544 or send an email.