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Cady Bar the Door Insight & Commentary on SEC Enforcement Actions and Related Issues

Category Archives: Non-scienter-based Violations

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Wrapping up Securities Enforcement Forum 2014

Posted in Non-scienter-based Violations, SEC Litigation, SEC Structure

I was lucky enough to spend Tuesday at Bruce Carton’s Securities Enforcement Forum 2014.  In three years, it has gone from zero to the preeminent securities enforcement law conference anywhere.  I blogged it hurriedly throughout the day, but here are what I think are the most salient points or comments after some reflection: “Broken Windows”… Continue Reading

SEC CustodyFest Vol. 1: A New Beginning

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

Imagine being Andrew Bowden.  As director of the SEC’s Office of Compliance, Inspections and Examinations, you know you don’t have enough staff to conduct reasonably regular exams of registered investment advisers.  You also know that some members of Congress continue to take great delight in beating up the SEC for its failures with the Bernard… Continue Reading

Commercial Bribery on the Table in Diebold FCPA Actions

Posted in FCPA, Non-scienter-based Violations

Last week the SEC and Justice Department brought parallel FCPA enforcement actions charging Ohio-based Diebold, Inc., a global provider of ATMs and bank security systems. From the SEC’s press release: “[S]ubsidiaries of Diebold Inc. in China and Indonesia spent approximately $1.8 million on travel, entertainment, and other improper gifts for senior officials with the ability… Continue Reading

SEC Dings Investment Adviser for Custody Violations, Failure to Supervise

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

Readers of this space – and SEC observers generally – will recall a March 4 risk alert designed to warn investors about the ways U.S. investment advisers had recently been found to have violated the SEC’s asset custody rule.  The number and variety of violations were legion.  Advisers were not assuring themselves that clients were… Continue Reading

Accounting Fraud Not Just for Public Companies Anymore

Posted in Accounting Fraud, Investment Advisers, Non-scienter-based Violations, Private Equity

One of the salient features of the SEC’s enforcement program in recent years has been a dearth of accounting fraud cases.  While those cases used to be the SEC’s bread and butter, and hovered around 200 actions per year, they have dropped off dramatically since 2007, and hit a low of 79 last year.  Only… Continue Reading

SEC Ramps Up Its Private Equity Parade

Posted in Broker-Dealers, Investment Advisers, Non-scienter-based Violations, Private Equity

Bruce Karpati, chief of the SEC’s Asset Management Unit, promised us several weeks ago that enforcement actions against private equity firms were about to heat up.  He wasn’t kidding.  Last Monday, the SEC filed two sets of settled administrative proceedings against private equity firms.  We’ll discuss one of them today, and the second in a… Continue Reading

SEC Issues Risk Alert on Investment Adviser Custody Rule

Posted in Auditors, Compliance, Investment Advisers, Non-scienter-based Violations

The SEC can express its displeasure with a particular securities practice in a number of different ways, with increasing levels of fun for the alleged malefactor.  Here’s a non-exhaustive list: One thing it can do is file an enforcement action in federal or administrative court.  This option is not fun at all.  It’s not as… Continue Reading

SEC Charges Indian Firms with Acting as Unregistered Broker-Dealers

Posted in Broker-Dealers, Non-scienter-based Violations

On November 27th, the SEC charged four Indian financial services firms with acting as unregistered broker-dealers in the United States.  The firms were accused of providing brokerage services to institutional investors in the U.S. without registering with the SEC as required by Section 15(a) of the Exchange Act.  The SEC censured the firms, who paid… Continue Reading

SEC Charges Allianz with FCPA Violations

Posted in FCPA, Non-scienter-based Violations, Whistleblowers

On December 17th, the SEC brought a settled administrative FCPA action against Allianz SE, a German insurance company with a subsidiary in Indonesia.  The order does not allege violations of the FCPA’s antibribery provisions, but does claim violations of its books-and-records and internal controls provisions. As the summary in the SEC’s order says, the proceedings… Continue Reading

SEC’s Asset Management Unit Focuses on Compliance Failures, Vol. 2

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

As we discussed last month, the SEC’s Asset Management Unit has developed a likeness for not just big, headline-grabbing cases, but relatively small compliance-based cases that are designed to prevent minor problems from growing into large ones.  People like to say that the damage is done before the SEC ever gets involved, and that is… Continue Reading

SEC’s Asset Management Unit Focuses on Compliance Failures, Vol. 1

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

The SEC Enforcement Division’s Asset Management Unit has brought some substantial cases over the last year, including a number arising out of its Aberrational Performance Inquiry.  Another focus for the unit has been compliance failures at registered investment advisers.  On November 20th, the unit filed a pair of administrative cases addressing some of those failures. … Continue Reading

SEC Sues Auditor for Failing to Audit

Posted in Accounting Fraud, Auditors, Financial Fraud, Microcap Fraud, Non-scienter-based Violations

This world has a lot of problems that require fixing, but I dare say that scratch-off lottery tickets is not one of them.  Still, that is the problem that Lee Cole and Linden Boyne ventured to solve through Electronic Game Card, Inc. (EGMI), a company that tried to develop credit card-sized electronic games that could… Continue Reading

FINRA Expels Biremis Corp. for Anti-Money Laundering Abuses

Posted in Broker-Dealers, FINRA, Non-scienter-based Violations

On July 30th, FINRA expelled broker-dealer Biremis Corporation and permanently barred Biremis’s CEO, Peter Beck, from association with any FINRA member firm in any capacity.  FINRA found Biremis and Beck liable for a host of violations.  FINRA alleged that among other things, Biremis failed to implement an adequate anti-money laundering (“AML”) program, failed to maintain… Continue Reading

Khuzami Touts SEC’s Focus on Compliance

Posted in Compliance, Insider Trading, Investment Advisers, Non-scienter-based Violations

The SEC’s Enforcement Director, Rob Khuzami, gave an interview to Thomson Reuters last week that you should read.  These things are always edited, so it’s hard to know in what order he spoke, but as it is written he gets the interview off to an interesting start.  He does not crow about any particularly “big”… Continue Reading

SEC Charges AXA Advisors with Failure to Supervise

Posted in Broker-Dealers, Investment Advisers, Non-scienter-based Violations

The SEC has brought two failure-to-supervise cases in the last several days.  I’ll cover both in the order of their release. The first of this duo was against AXA Advisors, which failed to supervise a registered representative with the comically villainous name of Leo T. Buggy.  Buggy operated out of a single-representative office in Rock… Continue Reading

SEC Amends Settlement Policy! (but not really)

Posted in Non-scienter-based Violations, Parallel Proceedings

I was briefly stunned on Friday to read this headline in the New York Times: SEC Changes Policy on Firms’ Admissions of Guilt.  My shock didn’t last long.  Had the SEC abandoned its longstanding policy of allowing settling defendants to do so without either admitting or denying the allegations in accompanying complaints?  Well, the Commission… Continue Reading

SEC Targets Insider Trading Compliance Failures

Posted in Broker-Dealers, Compliance, Insider Trading, Non-scienter-based Violations

In light of Cady’s recent IA compliance gala celebration, I thought I would spend a post discussing In re Janney Montgomery Scott LLC, Admin. Proc. File No. 3-14459 (July 11, 2011), a compliance matter involving a broker-dealer. The case was based in Section 15(g) of the Exchange Act, which requires all registered broker-dealers to establish, maintain,… Continue Reading

SEC Sues IAs for Compliance Failures, Part III

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

In the final chapter of this Cady Bar the Door investment adviser extravaganza, we examine In re Feltl & Company, Inc., Admin. Proc. File No. 3-14645 (Nov. 28, 2011). Minneapolis-based Feltl & Co. is a dually-registered broker-dealer and investment adviser, and substantially larger than the other two IAs in the trio, OMNI and Asset Advisors…. Continue Reading

SEC Sues Investment Advisers for Compliance Failures, Part II

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

The second of three cases the SEC’s Asset Management Unit brought against registered investment advisers on November 28th, In re OMNI Investment Advisors Inc., Admin Proc. File No. 3-14643 (Nov. 28, 2011), was much like Asset Advisors.  OMNI, based in Draper, Utah, had about 190 clients with approximately $65 million in assets under management.  OMNI… Continue Reading

SEC’s Asset Management Unit Picks Up Its Game

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

The SEC’s Asset Management Unit is making its presence felt.  Last week the unit brought a slew of cases against investment advisers and hedge funds that put the group on the forefront of the Enforcement Division’s efforts to remake itself after the Bernard Madoff fiasco.  Though the two groups of cases were obscured by Judge… Continue Reading

SEC (Smartly) Focuses on Transfer Agents

Posted in Microcap Fraud, Non-scienter-based Violations

Enforcement investigations into microcap, or penny, stocks are difficult and often thankless.  They frequently involve unsavory characters who could as easily be running a real estate scam or Nigerian advance fee fraud as one involving securities.  Proving intent to defraud in cases like this is often very tough, as the players shield their activities behind… Continue Reading