Archive for the ‘SEC’ Category

Less than halfway through the process of implementing the 2010 Dodd-Frank Act, the pace of rule-writing by the U.S. Securities and Exchange Commission has slowed by about half.  The agency’s five commissioners haven’t met once in the last four months to approve or propose regulations required under Dodd-Frank, designed to curb the kind of risky practices that fueled the 2008 financial crisis. 

Enacted in 2010, Dodd-Frank requires U.S. regulators to write hundreds of new rules to revamp how the financial sector does business, and more of those rules were assigned to the SEC than any other agency.  Since the law’s one-year anniversary July 21, the register has recorded only 39 rulemaking SEC votes, or about 5.3 a month, the data show.

Goldman Sachs received a so-called Wells notice Feb. 24 from the Securities and Exchange Commission relating to disclosures for a late-2006 offering of $1.3 billion in subprime residential mortgage-backed securities, the firm said today in an annual financial report. Wells Fargo said it also got an SEC notice as the government examines whether it properly described facts and risks in offering documents.

Almost four years after mounting mortgage defaults prompted unprecedented government bailouts of the financial system, regulators are still examining how banks packaged and sold home loans to investors. The SEC is looking for evidence that firms failed to disclose underlying credit weaknesses in mortgage pools and delinquencies, Jason Anthony, special counsel for the agency’s structured products unit, said last week. He didn’t identify companies under scrutiny.

SEC lawyers send Wells notices when they intend to recommend that the agency bring claims.

The Securities and Exchange Commission, in a fundamental policy shift, said Friday that it would no longer allow defendants to say they neither admit nor deny civil fraud or insider trading charges when, at the same time, they admit to or have been convicted of criminal violations.

The change is the first time that the S.E.C. has stepped back from its longstanding practice of allowing companies to settle fraud charges by paying a fine without admitting wrongdoing. The new policy will also apply to cases where a company or an individual enters an agreement with criminal authorities to defer prosecution or to not be prosecuted as part of a settlement.

The U.S. Securities and Exchange Commission appealed a federal judge’s decision to reject its proposed $285 million settlement with Citigroup.  

The appeal, filed today in the US Court of Appeals in New York, challenged U.S. District Judge Jed Rakoff’s rejection last month of the settlement, which involved claims that Citigroup misled investors in a $1 billion financial product linked to risky mortgages.  “We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits,” SEC Enforcement Director Khuzami said today in a statement.

Rakoff criticized the agency’s practice of resolving cases without requiring the subject of the allegations to admit wrongdoing. In his ruling, Rakoff said the settlement didn’t provide him with “any proven or admitted facts” to inform his judgment.  Khuzami said the judge’s decision “is at odds with decades of court decisions that have upheld similar settlements.”. Rakoff’s approach “could in practical terms press the SEC to trial in many more instances, likely resulting in fewer cases overall and less money being returned to investors,” he said in the statement.

The Securities and Exchange Commission has decided to take the unprecedented step of suing the agency that insures U.S. brokerage accounts to force it to pay victims of Allen Stanford’s  alleged $7 billion Ponzi scheme.

The SEC plans to sue the Securities Investor Protection Corp. as early as Monday or Tuesday to compel a liquidation to compensate Stanford customers, according to the Wall Street Journal.

The lawsuit would be the first ever by the SEC against SIPC, according to officials from both agencies, and would come just days after negotiations between the agencies appear to have reached an impasse.

SEC Chairman Mary Schapiro, in a letter sent to senators late Monday, asked Congress to pursue legislation that changes the legal formulas used by the agency to calculate penalties. Ms. Schapiro’s proposals would allow the SEC to impose fines up to nine times greater than the maximum currently allowed by U.S. law.

The changes would include increasing the maximum penalty to triple the net profit made as a result of the alleged wrongdoing, up from the current limit of no more than the profit. Ms. Schapiro also sought power to further triple penalties for repeat offenders, or firms or individuals who have been the subject of another SEC enforcement action or criminal conviction in the previous five years.

The SEC has ordered broker-dealer FTN Financial Securities to pay nearly $2 million for allowing a registered investment advisor, Sentinel Management, to defraud its clients through a reverse repurchase transaction.

FTN Financial Securities, headquartered in Nashville, was ordered to pay disgorgement of $1.5 million and prejudgement interest of about $377,758.73 within ten days of the SEC’s decision. That decision was made on November 17.

By engaging in the reverse repo transaction Sentinel was able to hide its poor financial health, the SEC claims. Sentinel eventually filed for bankruptcy in 2007.

A federal judge in New York on Monday threw out a settlement between the Securities and Exchange Commission and Citigroup over a 2007 mortgage derivatives deal, saying that the S.E.C.’s policy of settling cases by allowing a company to neither admit nor deny the agency’s allegations did not satisfy the law.

The judge, Jed S. Rakoff of United States District Court in Manhattan, ruled that the S.E.C.’s $285 million settlement announced last month, is “neither fair, nor reasonable, nor adequate, nor in the public interest” because it does not provide the court with evidence on which to judge the settlement.

The order could throw the S.E.C.’s enforcement efforts into chaos, because a majority of the fraud cases and other actions that the agency brings against Wall Street firms are settled out of court, most often with a condition that the defendant does not admit that it violated the law while also promising not to deny it.

The Securities and Exchange Commission charged a Bethesda, Md. man and several family members and friends with conducting a multi-million dollar Ponzi scheme targeting investors in the Washington D.C. metropolitan area.

The SEC alleges that Garfield M. Taylor lured primarily middle-class residents in his community with little to no investing experience to invest in promissory notes issued by his two companies that engaged in purportedly low-risk options trading. Taylor urged investors to refinance their homes and use any available means to invest, including their personal savings and retirement funds. The SEC alleges that he promised returns as high as 20 percent per year and falsely assured investors that their investments would be protected by a “reserve account” or that he would employ a “covered call” trading strategy that would not touch the principal amount of their investment.

According to the SEC’s complaint filed in federal court in Washington D.C., Taylor and his companies instead engaged in very high-risk, speculative options trading and suffered massive losses. Taylor relied upon money from new investors to pay returns to earlier investors in typical Ponzi scheme fashion. The SEC’s complaint also alleges that he siphoned off $5 million in investor funds to pay family and friends and for other personal uses, including $73,000 to the private school his children attended.

The SEC alleges that the Ponzi scheme defrauded more than $27 million from approximately 130 investors from 2005 to 2010. The scheme ultimately collapsed in the fall of 2010 when the companies’ accounts were depleted by the trading losses and interest payments to investors.

The Securities and Exchange Commission charged a longtime Bernie Madoff employee with fraud for his role in creating fake trades to facilitate the massive Ponzi scheme.

The SEC alleges that David Kugel, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for nearly four decades, was asked by Madoff to provide the firm’s investment advisory operations with backdated arbitrage trade information to be formulated into fictitious trading on investors’ account statements. Kugel’s own account at BMIS was among those in which backdated trades were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years.

The SEC previously charged two other longtime Madoff employees Annette Bongiorno and JoAnn Crupi for their roles in producing phony account statements that were sent to Madoff investors. According to the SEC’s complaint against Kugel filed in U.S. District Court for the Southern District of New York, Bongiorno and Crupi and other staff in Madoff’s investment advisory (IA) operations used the information provided by Kugel to formulate fictitious trades to appear on investor account statements.

The SEC alleges that sometime in the early 1970s after Kugel began his career with Madoff as an arbitrage trader in the firm’s proprietary trading business, Madoff informed Kugel that BMIS managed money for outside clients. He asked Kugel to provide the firm’s IA operations with backdated convertible arbitrage trades for inclusion on investor account statements. Some of these trades replicated successful trades that Kugel had actually made for BMIS proprietary trading operations. Other trades were based on historical information that Kugel obtained from old newspapers.

According to the SEC’s complaint, Bongiorno and Crupi regularly asked Kugel for backdated information about trades amounting to millions of dollars. After Kugel provided the information, Crupi and Bongiorno would then design trades that totaled that amount. These fictitious trades were highly profitable on an annualized basis, and appeared on account statements and trade confirmations sent to investors. Kugel, who opened his own BMIS account, received these account statements and trade confirmations as well.

The SEC alleges that Kugel provided backdated trade information for IA accounts, including his own. He withdrew the purported “profits” of these trades even though he knew they weren’t proceeds of actual trading activity. One trade in S&P index options in 2007 earned Kugel a profit of more than $375,000 in just a few weeks. Kugel withdrew almost $10 million from his BMIS IA accounts from 2001 to 2008.

The U.S. Attorney’s Office for the Southern District of New York has filed parallel criminal charges against Kugel, who has pled guilty and also agreed to settle the SEC’s civil charges. Subject to court approval, the civil case will result in a permanent injunction against Kugel, who must forfeit his ill-gotten monetary gains upon entry of a criminal forfeiture order in the criminal case.

The SEC’s complaint against Kugel alleges that by engaging in this conduct, Kugel violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; aided and abetted violations of Sections 204, 206(1) and 206(2) of the Investment Advisers Act of 1940 and Rule 204-2 thereunder, and Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3 and 17a-3 thereunder.