Friday, April 19, 2019

Silicon Valley Company Settles Fraud Charge for Misstating Returns to Investors

The Securities and Exchange Commission today announced that Prosper Funding LLC will pay a $3 million penalty for miscalculating and materially overstating annualized net returns to retail and other investors.

San Francisco-based Prosper is a marketplace lender that, through its website, offers and sells securities linked to the performance of its consumer credit loans. According to the SEC's order, from approximately July 2015 until May 2017, Prosper excluded certain non-performing charged off loans from its calculation of annualized net returns that it reported to investors. The order finds that, as a result, Prosper reported overstated annualized net returns to more than 30,000 investors on individual account pages on Prosper's website and in emails soliciting additional investments from investors. Many investors decided to make additional investments based on the overstated annualized net returns. The order also finds that Prosper failed to identify and correct the error despite Prosper's knowledge that it no longer understood how annualized net returns were calculated and despite investor complaints about the calculation.

"For almost two years, Prosper told tens of thousands of investors that their returns were higher than they actually were despite warning signs that should have alerted Prosper that it was miscalculating those returns," said Daniel Michael, Chief of the SEC Enforcement Division's Complex Financial Instruments Unit. "As this case shows, we are committed to holding fintech companies to the same standards applicable to other participants in the securities markets."

Without admitting or denying the findings, Prosper consented to the entry of an SEC order finding that it violated the antifraud provision contained in Section 17(a)(2) of the Securities Act of 1933. In addition to the penalty, the SEC's order requires Prosper to cease and desist from future violations of Section 17(a) of the Securities Act.

The SEC's investigation was conducted by Jason Casey and Daniel Nigro of the Complex Financial Instruments Unit.  Laura Metcalfe supervised the investigation.



SEC Press Release

--- If you believe 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, April 16, 2019

SEC and FINRA to Hold National Compliance Outreach Program for Broker-Dealers on June 27, 2019

The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) today announced the opening of registration for their 2019 National Compliance Outreach Program for Broker-Dealers, which will be held June 27, 2019, in Chicago.

The program is designed to provide an open forum for regulators and industry professionals including compliance, internal audit, and other senior personnel of broker-dealer firms and branch offices to discuss current compliance practices and promote a more effective compliance structure for the protection of investors. 

The SEC's Office of Compliance Inspections and Examinations (OCIE), in coordination with the SEC's Division of Trading and Markets, is sponsoring the program with FINRA. The program will be held at the Federal Reserve Bank of Chicago from 9 a.m. to 3 p.m. CT. The program will focus on insights from leadership, protecting retail investors, and regulatory hot topics such as digital assets and cybersecurity.

"We look forward to our continued engagement with industry professionals at this year’s National Compliance Outreach Program for Broker-Dealers," said Peter Driscoll, Director of OCIE. "This event is a valuable opportunity for us to share our thoughts and observations from recent examinations and to listen to the insights provided by experienced industry professionals about current market and regulatory risks."

"As our regulatory program evolves to meet the challenges of new markets, new products and new rules, FINRA engages with member firms, compliance leaders and other regulators in meaningful discussions that enrich our regulatory efforts and provide broker-dealers with the tools and information needed to better serve investors," said Mike Rufino, Executive Vice President and Head of FINRA Member Regulation—Sales Practice.

There is no cost to attend the event, but in-person attendance is limited to 250 on a first-come, first-served basis.  There will be a maximum of four attendees per firm. For those that cannot attend, a live webcast will be available at http://www.sec.gov/news/otherwebcasts.shtml.

CPE, CRCP and CFP continuing education (CE) credits and a CLE voucher will be available to in-person attendees only.

For additional details on the 2019 National Compliance Outreach Program for Broker-Dealers, including the agenda and information on how to register for the event, visit the SEC’s website at http://www.sec.gov/info/complianceoutreach-bd.htm or FINRA’s website at http://www.finra.org/industry/2019-national-compliance-outreach-program-broker-dealers.



SEC Press Release

--- If you believe 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, April 15, 2019

Sara Cortes and David Bartels Named Deputy Chief Counsels of the Division of Investment Management

The Securities and Exchange Commission today announced that Sara Cortes and David P. Bartels have been named Deputy Chief Counsels of the Division of Investment Management. As Deputy Chief Counsels, Ms. Cortes and Mr. Bartels will join a leadership team and staff that are responsible for responding to requests for legal and policy guidance, evaluating applications for exemptive relief, coordinating international and legislative technical assistance, and running the division’s enforcement liaison program. Ms. Cortes will oversee the exemptive applications program and Mr. Bartels will oversee the enforcement liaison program. They will share responsibility for staff legal guidance by the Chief Counsel’s Office.

Ms. Cortes has been a member of the division’s Rulemaking Office since 2013, serving most recently as Assistant Director and head of the Investment Adviser Regulation Office. In that capacity, she has led the development of recommendations for rulemaking and other policy initiatives under the Advisers Act of 1940.

Mr. Bartels has served in a number of capacities in the Division of Investment Management, most recently as Senior Policy Advisor to Director Dalia Blass. His work has encompassed rulemaking, applications for exemptive relief, and requests for legal and policy guidance across diverse subjects under the Investment Company Act and the Advisers Act of 1940.

"I am excited for Sara and David to take on these new leadership roles. I have worked with both of them for many years and I am delighted that the Chief Counsel’s Office will benefit from their extensive experience, deep knowledge of the 1940 Acts and thoughtful leadership skills. They are highly respected by their peers and will be a fantastic addition to the division’s senior leadership team,” said Dalia Blass, Director of the Division of Investment Management.

“I have had the opportunity to work closely with both Sara and David since my return to the Commission. Each is an excellent lawyer with a breadth of experience and demonstrated good judgment. They will be tremendous assets to the important work of the Chief Counsel’s Office on behalf of investors,” said Paul G. Cellupica, Deputy Director and Chief Counsel of the Division of Investment Management.

"The staff of the Chief Counsel’s Office is remarkably talented, and it’s an honor to be part of such a dedicated team,” said Ms. Cortes and Mr. Bartels. “We’re excited about this opportunity to continue serving Main Street investors while working on the kinds of innovative requests that have helped make the U.S. asset management markets vibrant.”

Before joining the Division of Investment Management, Ms. Cortes was Counsel and Senior Adviser to Chairman Elisse Walter. She first joined the agency in the Legal Policy Group of the Office of General Counsel in 2009, advising the Commission on enforcement matters. In 2017, Ms. Cortes received the Commission’s Exceptional Service Award for her leadership on the Commission’s Investment Company Reporting Modernization initiative. Prior to joining the SEC, Ms. Cortes was Counsel in the Legal Division of the Board of Governors of the Federal Reserve System as an enforcement and litigation attorney. Ms. Cortes began her legal career in private practice at Cleary Gottlieb Steen & Hamilton LLP. Ms. Cortes earned her J.D. and Master of Science of Foreign Service, magna cum laude, from Georgetown University and her bachelor’s degree in international studies and French from Rhodes College in Memphis, Tennessee.

Mr. Bartels joined the division in 2010, starting in the Investment Adviser Regulation Office, where he received the Commission’s Law and Policy Award for work on private fund adviser reporting. Mr. Bartels was Branch Chief in the Exemptive Applications and Chief Counsel’s Offices from 2011-2016, focusing on exchange-traded funds, business development companies, funds of funds, and affiliated transactions. Mr. Bartels also served as counsel to Commissioner Kara M. Stein, advising on a wide range of matters under the federal securities laws and supporting the Commission’s Diversity Council. Prior to joining the Division, Mr. Bartels worked in the corporate practice at Sullivan & Cromwell LLP, where he advised clients on securities offerings, mergers and acquisitions, and other corporate transactions. Mr. Bartels received his law degree from Yale Law School and his bachelor’s degree from SUNY Buffalo.



SEC Press Release

--- If you believe 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, April 11, 2019

SEC Charges Former Woodbridge Directors of Investment With Fraud

The Securities and Exchange Commission today charged two former directors of investments at Woodbridge Group of Companies LLC for their roles in its massive Ponzi scheme. The defendants, California-based Ivan Acevedo and Dane R. Roseman, were separately arrested and charged by criminal authorities, along with Woodbridge owner Robert H. Shapiro. 

The SEC previously charged Woodbridge and Shapiro, and Woodbridge’s highest-earning unregistered brokers. In January, a federal court in Florida ordered Woodbridge, related companies, and Shapiro together to pay $1 billion for operating this Ponzi scheme.

According to the SEC’s complaint, although Acevedo and Roseman were not registered in any capacity with the SEC, they were responsible for fraudulently raising at least $1.2 billion from more than 8,400 retail investors, many of them seniors, and together received more than $3 million in transaction-based and other compensation. 

The complaint, filed in U.S. District Court for the Southern District of Florida, alleges that Acevedo oversaw Woodbridge’s fundraising for Woodbridge’s securities from 2012 until his departure in 2015, when he was succeeded by Roseman. According to the complaint, the defendants were responsible for hiring and training Woodbridge’s sales force, approved fraudulent marketing materials and sales scripts, and helped create the false appearance that Woodbridge was a legitimate operation when in reality it was a Ponzi scheme that used money from new investors to pay existing investors.  

“Instead of telling investors the truth – that Woodbridge’s third-party lending business was a sham almost from inception – we allege that Acevedo and Roseman worked diligently to perpetuate this sham by preparing and disseminating false marketing materials to induce more investments, keeping this massive Ponzi scheme afloat,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “The SEC is committed to continue to hold responsible parties accountable in this far-reaching scheme.”

The SEC’s complaint charges Acevedo and Roseman with violating the securities registration, broker-dealer registration, and anti-fraud provisions of the federal securities laws, and seeks disgorgement of allegedly ill-gotten gains, with interest, and financial penalties.   

The SEC’s investigation, which is continuing, was conducted by Scott A. Lowry, Russell Koonin, Christine Nestor, and Mark Dee in the Miami Regional Office, with assistance from David Baddley, and supervised by Jason R. Berkowitz, Fernando Torres, Thierry Olivier Desmet, and Glenn Gordon. The litigation will be led by Ms. Nestor and Mr. Koonin under the supervision of Andrew O. Schiff. The SEC appreciates the assistance of the Florida Office of Financial Regulation, the U.S. Attorney’s Office for the Southern District of Florida, the Miami field office of the Federal Bureau of Investigation, and the Internal Revenue Service, Criminal Investigations.

The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert to help seniors identify signs of investment fraud and, in conjunction with the Division of Enforcement’s Retail Strategy Task Force, another Investor Alert about Ponzi schemes targeting seniors. The SEC strongly encourages investors to use the agency’s Investor.gov website to check the backgrounds of people selling them investments to quickly identify whether they are registered professionals.



SEC Press Release

--- If you believe 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 Issues Agenda for April 15 Meeting of the Fixed Income Market Structure Advisory Committee

The Securities and Exchange Commission today released the agenda for the April 15 meeting of the Fixed Income Market Structure Advisory Committee.  The Commission established the advisory committee to provide a formal mechanism through which the Commission can receive advice and recommendations on fixed income market structure issues.

The meeting will be held at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., and is open to the public.  The meeting will be webcast live on the SEC’s website, SEC.gov, and will be archived on the website for later viewing.

Members of the public who wish to provide their views on the matters to be considered by the Fixed Income Market Structure Advisory Committee may submit comments either electronically or on paper, as described below.  Please submit comments using one method only.  Information that is submitted will become part of the public record of the meeting.

Electronic submissions:

Use of the SEC’s Internet submission form or send an e-mail to rule-comments@sec.gov.

Paper submissions:

Send paper submissions in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090.

All submissions should refer to File Number 265-30, and the file number should be included on the subject line if e-mail is used.

* * *


Agenda
April 15, 2019

9:30 a.m.         Welcome and Opening Remarks 

9:45 a.m.         Presentation on Block Pilot and Reference Data Service Proposal

  • Tom Gira, FINRA
  • Jonathan Sokobin, FINRA

10:30 a.m.       Draft Recommendation on Pennying in the Corporate Bond and Municipal Securities Markets

  • Matt Andresen, Headlands Technologies
  • Jude Arena, Bank of America Merrill Lynch
  • John Bagley, MSRB
  • John Cahalane, Tradeweb
  • Peg Henry, Stifel Financial
  • Justin Land, Wasmer Schroeder

11:30 a.m.       Break

11:45 a.m.       Draft Recommendations on Certain Principal Transactions with Advisory Clients

  • Horace Carter, Raymond James
  • Chris Kendall, Charles Schwab
  • Anthony Liotti, UBS
  • Marshall Nicholson, ICE Bonds
  • Peter Sirbu, Ameriprise Financial
  • Brad Winges, Hilltop Securities

12:45 p.m.       Lunch Break

1:30 p.m.         Updates from the Credit Ratings, ETFs and Bond Funds, and Corporate Bond Transparency Subcommittees

2:15 p.m.         LIBOR Transition: Implications for the Corporate Bond and Municipal Securities Markets

  • Tom Deas, National Association of Corporate Treasurers
  • Ed Fitzpatrick, JP Morgan Asset Management
  • David Knutson, Schroders
  • Pat McCoy, Metropolitan Transportation Authority
  • Julian Potenza, Fidelity Management & Research Co.
  • Tom Wipf, Morgan Stanley

3:30 p.m.         Adjournment



SEC Press Release

--- If you believe 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, April 9, 2019

SEC Charges Former SeaWorld Associate General Counsel With Insider Trading

The Securities and Exchange Commission today charged a former senior lawyer at SeaWorld Entertainment Inc. with insider trading based on nonpublic information that the company’s revenue would be better than anticipated for the second quarter of 2018.

The SEC alleges that Paul B. Powers had early access to key revenue information as the company’s associate general counsel and assistant secretary, and he purchased 18,000 shares of SeaWorld stock the day after he received a confidential draft of the 2018 second quarter earnings release that detailed a strong financial performance by the company after a lengthy period of decline.  According to the SEC’s complaint, Powers immediately sold his SeaWorld shares for approximately $65,000 in illicit profits after the company announced its positive earnings and the company’s stock price increased by 17 percent.

“As alleged in our complaint, Powers blatantly exploited his access to nonpublic information by misusing SeaWorld’s confidential revenue data to enrich himself,” said Kurt Gottschall, Director of the SEC’s Denver Regional Office.  “Investors should feel confident in the integrity of corporate officers, particularly attorneys.  The SEC is committed to swiftly pursuing insiders who breach their duties to investors.” 

The SEC’s complaint, filed in federal district court in Orlando, Florida, charges Powers with fraud.  Powers has consented to a permanent injunction with the amounts of disgorgement and penalties, if any, to be decided by the court.  The settlement is subject to court approval.

In a parallel action, the U.S. Department of Justice today announced criminal charges against Powers arising out of the same conduct.

The SEC’s investigation was conducted by L. James Lyman and supervised by Ian Karpel and Mr. Gottschall of the Denver office.  The litigation will be handled by Stephen McKenna.  The SEC appreciates the assistance of the U.S. Department of Justice and the U.S. Department of Homeland Security.



SEC Press Release

--- If you believe 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, April 8, 2019

New SEC Campaign Educates Investors on Where and How to Get Answers

The Securities and Exchange Commission today unveiled a public service campaign to empower Main Street investors to take control of their financial future. The public service announcement (PSA) encourages investors to use the free tools and unbiased information available on the SEC’s online resource for investor education−Investor.gov−to get answers to their questions about investing.

“Main Street investors around the country have consistently told me two things: one, that they wish they were better informed about investing, and two, they wish they had started investing earlier. Asking the right questions of yourself and of those who provide financial services is key to getting started and staying on the right track,” said SEC Chairman Jay Clayton. “Whether you’re an experienced investor or new to the market, Investor.gov can help you identify questions and find answers.”

“This campaign is another way to maximize our education efforts to make investors aware of the information they need to make smart saving and investing decisions,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy. “Starting early and creating a financial plan is the best way to secure your financial future, and Investor.gov is a great place to start.”

The PSA highlights people from various walks of life asking questions about investing topics, such as planning for retirement, reading a 10-K, checking out the background of an investment professional, and understanding fees, IPOs, hedge funds, 529 plans, compound interest, and more. It concludes with asking the question, “Where do I start?” encouraging investors to go to Investor.gov to get answers to their most commonly asked questions.

Investor.gov PSA

Additional information on the PSA can be found here.

More than 12 million new users have accessed Investor.gov since it launched in October 2009.  The SEC expanded its outreach program in 2016 to include PSAs to reach and educate more investors.



SEC Press Release

--- If you believe 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, April 3, 2019

SEC Charges Transportation Company Executives With Accounting Fraud

The Securities and Exchange Commission today charged the former CFO and two former employees of a publicly traded transportation company with fraud for manipulating the company’s financial results in order to meet earnings targets and projections.

The SEC alleges that Peter Armbruster, the former CFO of Roadrunner Transportation Systems Inc., hid incurred expenses by improperly deferring and spreading them across multiple quarters to minimize their impact on Roadrunner’s net earnings.  Armbruster then allegedly manipulated certain reductions to liabilities, creating an income “cushion” that could be accessed in future quarters to offset expenses.  The SEC further alleges that Armbruster as well as Bret Naggs and Mark Wogsland, former controllers of Roadrunner’s Truckload segment, identified and failed to write-off millions of dollars in overvalued assets and overstated receivables at one of Roadrunner’s operating companies.  According to the SEC’s complaint, Armbruster, Naggs, and Wogsland also misled Roadrunner’s outside auditor about these misstated accounts, and as a result Roadrunner materially misstated its operating income, net income, and earnings per share in its annual, quarterly and current reports filed with the SEC.

“Investors depend on reliable financial statements to make informed decisions,” said Joel R. Levin, Director of the SEC’s Chicago Regional Office.  “As we allege, these former, high-ranking executives deprived investors of truthful, reliable information on Roadrunner’s financial health.  Instead, they employed deceptive accounting to manipulate earnings in an effort to chase earnings targets and projections.”

In a parallel action, the Fraud Section of the U.S. Department of Justice has filed criminal charges against Armbruster, Naggs, and Wogsland.

The SEC’s complaint, filed in federal court in Milwaukee, Wisconsin, alleges that Armbruster, Naggs, and Wogsland violated the antifraud and other accounting-related provisions of the federal securities laws.  The complaint seeks permanent injunctions, penalties, and officer-and-director bars against all defendants, disgorgement plus interest from Wogsland, and clawback bonuses and other incentive-related compensation paid to Armbruster while the alleged fraud was taking place.

The SEC’s investigation, which is continuing, was conducted by Aleah Borghard, Wilburn Saylor Jr., and Bradley Lewis of the Chicago Regional Office under the supervision of Brian Fagel and Kathryn A. Pyszka.  The litigation will be handled by Timothy Leiman.  The SEC appreciates the assistance of the Fraud Section of the U.S. Department of Justice.



SEC Press Release

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