The Securities and Exchange Commission announced that it has voted to adopt amendments to certain disclosure requirements that have become duplicative, overlapping, or outdated in light of other Commission disclosure requirements, U.S. Generally Accepted Accounting Principles (GAAP), or changes in the information environment.  

The amendments are intended to simplify and update the disclosure of information to investors, including long-term Main Street investors, and reduce compliance burdens for companies without significantly altering the total mix of information available to investors.

“It is important to review our regulations to ensure that they evolve along with our capital markets and remain effective and efficient,” said SEC Chairman Jay Clayton. “Today’s amendments are an example of how thoughtful reviews can prompt changes for the benefit of investors, public companies, and our capital markets.” Read More

The Securities and Exchange Commission announced that Ameriprise Financial Services Inc. will pay $4.5 million to settle charges that it failed to safeguard retail investor assets from theft by its representatives. 

According to the SEC’s order, five Ameriprise representatives committed numerous fraudulent acts, including forging client documents, and stole more than $1 million in retail client funds over a four-year period. The SEC found that Ameriprise, a registered investment adviser and broker-dealer, failed to adopt and implement policies and procedures reasonably designed to safeguard investor assets against misappropriation by its representatives. 

The five representatives were based in Minnesota, Ohio, and Virginia, and three previously pled guilty to criminal charges. Each of the representatives was terminated by Ameriprise for misappropriating client funds. The SEC’s order found that Ameriprise has implemented a new system to safeguard clients’ money and that Ameriprise reimbursed all impacted clients for the losses they incurred due to the misconduct of the five representatives. Read More

The Securities and Exchange Commission announced that Merrill Lynch, Pierce, Fenner & Smith has agreed to pay approximately $8.9 million to settle charges that it failed to disclose a conflict of interest arising out of its own business interests in deciding whether to continue to offer clients products managed by an outside third-party advisory firm.  

The SEC’s order finds that the conflict of interest arose in Merrill Lynch’s handling of third-party products managed by a U.S. subsidiary of a foreign multinational bank, in which more than 1,500 of Merrill’s retail advisory accounts had invested approximately $575 million. According to the order, Merrill put new investments into these products on hold due to pending management changes at the third party, and Merrill’s governance committee planned to vote on a recommendation to terminate the products and offer alternatives to investors. According to the order, the third-party manager sought to prevent termination and contacted senior Merrill executives, including making an appeal to consider the companies’ broader business relationship. Following those communications, and in a break from ordinary practices, the governance committee did not vote and chose to defer action on termination. The governance committee later lifted the hold and opened the third-party products to new Merrill accounts. The SEC’s order found that Merrill failed to disclose to its clients the conflicts of interest in Merrill’s decision-making process.  Read More

The Securities and Exchange Commission charged the founder of San Francisco-based venture capital funds and his investment advisory firm with overcharging investors to fund personal projects, including sending millions of dollars to his own virtual reality production company.

The SEC’s complaint alleges that Michael B. Rothenberg, 34, marketed his advisory firm, Rothenberg Ventures LLC, as uniquely positioned to identify millennial entrepreneurs and invest in “frontier technology” companies. According to SEC filings, Rothenberg’s funds had nearly 200 investors and more than $64 million in assets. The SEC’s complaint alleges that over a three-year period, Rothenberg and his firm misappropriated millions of dollars from the funds, including an estimated $7 million of excess fees, which Rothenberg used to support personal business ventures he claimed were self-funded and to pay for private parties and events at high-end resorts and Bay Area sporting arenas. Read More

Have you ever played a penny stock?  Or invested in one you believed or hoped was real, perhaps even the Next Big Thing?  If so, you probably know the roads in Pennyland are full of potholes.  Many of the locals are promoters, and they’re aided, wittingly or not, by amateur pumpers who spread the word about hot new “picks” across the social media.  Both stress the potential for short term gains far greater than those achievable on the national exchanges.  They aren’t entirely wrong.  Penny stocks can be extremely volatile; they can run hundreds of percentage points for little reason, or for no reason at all.  

No stock quadruples or quintuples in price over a few days and continues to rise.  What goes up really does come down, usually as quickly as it went up.  When touts say a stock is about to “go parabolic,” that’s often literally the case.  It may well return to the range it traded in before it was pumped.  That process, repeated countless times every year in the OTC market, is called a “pump and dump.”  Pumps and dumps are considered by the SEC to be illegal securities manipulation.  Unfortunately, only the most blatant are investigated by the agency, and their ringleaders eventually sanctioned.  Taken by surprise, the inexperienced and unwary find themselves trapped, stuck with stock they’ll only be able to sell if another pump and dump is launched at some future date.  Even seasoned traders can miscalculate.  If they jump on board too late, and the play peaks too early, they may end up with unexpected losses. Read More

Securities and Exchange Commission Chairman Jay Clayton announced that an additional investor roundtable to discuss the Commission’s recently proposed rules regarding the obligations of financial professionals to investors will be held in Baltimore on the evening of Sept. 20, 2018.  Commissioners Kara Stein and Robert Jackson are expected to join Chairman Clayton and senior SEC staff at this event.

Six roundtable discussions already have taken place in Houston, Atlanta, Miami, Washington, D.C., Philadelphia, and Denver.  In these roundtables, Main Street investors have had the opportunity to speak directly with Chairman Clayton and senior staff about the SEC’s efforts to enhance retail investor protection and promote choice and access to a variety of investment services and products.  

“These investor roundtables have been incredibly valuable, and I have enjoyed engaging directly with our Main Street investors.  It is important to me that we hear retail investors’ perspectives on how our proposed rules can better align standards of conduct with what they expect of their investment professionals,” said Chairman Clayton.  “We have had many insightful discussions and received some great ideas.  I look forward to speaking with more investors in Baltimore about their experiences.” Read More

The Securities and Exchange Commission announced settled charges with two former top officers of Endurance International Group Holdings Inc. for overstating the company’s subscriber base, and charged a former executive of Constant Contact Inc. for making similar misrepresentations. 

The SEC’s orders find that Endurance’s former chief executive Hari Ravichandran and former chief financial officer Waruna Ellawala knowingly provided inflated subscriber figures for the Massachusetts-based online marketing company.  The SEC also filed a complaint in U.S. District Court in Massachusetts alleging that former Constant Contact CFO Harpreet Grewal hid its slowing customer growth from investors and inflated its publicly reported subscriber numbers.  Constant Contact became a subsidiary of Endurance after it was acquired by it in 2016.

The SEC filed a settled enforcement action in June against Endurance and Constant Contact in which Endurance agreed to pay an $8 million penalty.  In the latest action, Ravichandran and Ellawala agreed to settle the charges without admitting or denying them and pay $1.38 million and $34,000 respectively in disgorgement, interest, and penalties.  They also agreed to cease and desist from further violations of various antifraud, reporting, books and records, and internal controls provisions of the federal securities laws.  Read More

The Securities and Exchange Commission announced that Barry D. Miller, Associate Director of Disclosure Review and Accounting in the Division of Investment Management, will retire from the SEC at the end of this month after more than 40 years of public service, including more than 30 years of service at the SEC.

As an associate director overseeing the division’s disclosure and accounting review programs, Mr. Miller has been primarily responsible for the implementation of disclosure and accounting policy that impacts nearly 16,000 investment companies, including open-end, closed-end, exchange-traded funds, unit investment trusts, and business development companies. His work included overseeing the review of many novel funds involving new and unique structures and strategies, including some of the first exchange-traded funds. Mr. Miller also provided key counsel on all rules that impact or include disclosure and accounting requirements, from managing the overhaul of mutual fund disclosures following the 2009 “summary prospectus” reforms to building a new review system for fund annual reports as required by the Sarbanes-Oxley Act. Mr. Miller also has overseen the modernization of how the Division reviews fund disclosures, including incorporating the use of data to target key issues and increase the efficiency of the review process. Read More

On July 13, 2018 The Securities and Exchange Commission charged a stock promoter and four others involved in an alleged series of microcap fraud schemes that were foiled by FBI undercover work and an SEC trading suspension.

According to the SEC’s complaint filed in federal court in southern California on July 6, stock promoter Gannon Giguiere took control of a purported medical device company. Giguiere, together with a Cayman Islands-based broker, then allegedly engaged in a matched trading scheme that caused the company’s share price to rise from zero to $1.20 per share.

Giguiere and the brokerage owner, Oliver-Barret Lindsay, allegedly coordinated their matched trading through an individual who turned out to be an FBI cooperating witness. According to the complaint, despite extensive encrypted communications, the defendants were caught by an undercover FBI operation that recorded their communications, with Lindsay going so far as to tell an individual cooperating with the FBI, “I’m a little hesitant about typing all of these details into this app. … You can just imagine if it finds its way somewhere it’s fairly incriminating.” According to the complaint, the pair’s plan to dump millions of shares in the purported medical device company was thwarted when, this past March, the SEC suspended trading in the securities of the purported medical device company.

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Former CEO Kevin Modany and former CFO Daniel Fitzpatrick are barred from holding senior positions at public companies and ordered to pay penalties in the settlements filed in federal court in Indiana. “Holding individuals accountable – particularly senior executives – is a critical focus of our enforcement program,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “These settlements, entered into on the eve of trial after years of litigation, reflect our commitment to this accountability.”

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On July 11, 2018 The Securities and Exchange Commission filed fraud charges against a second defendant in connection with a scheme to manipulate the price of Fitbit securities through false regulatory filings.

According to the SEC’s complaint, Mark E. Burns purchased Fitbit call options just minutes before he and his co-conspirator, Robert W. Murray, filed a fake tender offer on the SEC’s EDGAR system purporting to acquire Fitbit’s shares at a substantial premium. The SEC charged Murray last year and he recently was sentenced to prison in a parallel criminal case. The false tender offer was made in the name of ABM Capital LTD – a nonexistent company for which the defendants created an EDGAR account. Fitbit’s stock price temporarily spiked when the tender offer became publicly available on Nov. 10, 2016, and Burns sold all of his options for a 350 percent profit of approximately $13,000.

“We allege that Burns and Murray tried to camouflage their identities and their affiliation with an EDGAR account by using disguised IP and e-mail addresses,” said Robert A. Cohen, Chief of the Cyber Unit. “Despite their sophisticated efforts to avoid detection, we stopped their alleged abuse of our filing system and charged them with being responsible for this manipulation.”

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The Securities and Exchange Commission charged two firms and 18 individuals in a scheme to improperly divert new issue municipal bonds to broker-dealers at the expense of retail investors.  According to the SEC’s complaint, the defendants – known in the industry as “flippers” – purchased new issue municipal bonds, often by posing as retail investors to gain priority in bond allocations. The defendants then “flipped” the bonds to broker-dealers for a fee. The SEC also charged a municipal underwriter for accepting kickbacks from one of the flippers.

The SEC alleges that from at least 2009 to 2016, Core Performance Management LLC, RMR Asset Management Co., their principals, and certain of their associates, misrepresented their identities to gain priority in new issue municipal bond allocations. Municipal issuers typically require underwriters to give retail investor orders the highest priority when allocating new issue bonds, particularly retail investors within the municipal issuer’s jurisdiction. According to the SEC’s complaint, these defendants used fictitious business names, falsely linked their orders to ZIP codes within the issuer’s jurisdiction, and split orders among dozens of accounts. After acquiring the bonds, the SEC alleges that the defendants quickly resold them to broker-dealers, typically for a fixed, pre-arranged commission, and often sought to hide the flipping activity from issuers and underwriters by manipulating sales tickets.

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The Securities and Exchange Commission charged a cloud communications company and two executives with providing misleading quarterly revenue estimates. The company and executives agreed to pay over $1.9 million in penalties to settle the SEC’s charges.

According to the SEC’s order, Sonus Networks Inc.’s former CFO, Mark Greenquist, was aware of red flags which undermined the company’s first quarter 2015 revenue estimates.  These red flags included that Sonus had pulled forward deals initially projected to close in 2015 in order to achieve its revenue guidance for the fourth quarter of 2014.  Despite recognizing these risks, Greenquist said in a press release that he was comfortable with the consensus analyst revenue estimate of $74 million for the first quarter.  About six weeks later, the company issued guidance of $74 million which reflected certain forecasted sales that had been improperly reclassified, due to pressure from Michael Swade, Sonus’s Vice President of Global Sales, in order to support the $74 million estimate. Read More

The New York Stock Exchange (NYSE) corporate governance standards are contained in Section 303A of the NYSE Listed Company Manual. The NYSE corporate governance standards apply to all US companies that are listing or have listed equity securities on the NYSE (see NYSE Listed Company Manual). Foreign Private Issuers must comply with the audit committee standards in Rule 10A-3 of the Securities Exchange Act of 1934 (the “Exchange Act”).

Compliance with SEC Rules

Foreign Private Issuers must have an audit committee that complies with the requirements of Rule 10A-3 under the Exchange Act. Additionally, a Foreign private issuer must disclose how its corporate governance standards in its home country differ from the NYSE corporate governance requirements. Foreign private issuers that are subject to SEC Reporting Requirements and required to file a Form 20-F must disclose this corporate governance information in their Form 20-F report. All other foreign private issuers can provide this information on their websites or in annual reports filed with the SEC. Read More

The New York Stock Exchange (NYSE) corporate governance standards are contained in Section 303A of the NYSE Listed Company Manual. The NYSE corporate governance standards apply to all US companies that are listing or have listed equity securities on the NYSE (see NYSE Listed Company Manual). Foreign Private Issuers must comply with the audit committee standards in Rule 10A-3 of the Securities Exchange Act of 1934 (the “Exchange Act”).

Compliance with SEC Rules

Foreign Private Issuers must have an audit committee that complies with the requirements of Rule 10A-3 under the Exchange Act. Additionally, a Foreign private issuer must disclose how its corporate governance standards in its home country differ from the NYSE corporate governance requirements. Foreign private issuers that are subject to SEC Reporting Requirements and required to file a Form 20-F must disclose this corporate governance information in their Form 20-F report. All other foreign private issuers can provide this information on their websites or in annual reports filed with the SEC. Read More

The Securities and Exchange Commission announced on Aug. 8, 2018  the filing of insider trading charges against Congressman Christopher Collins, the U.S. Representative for New York’s 27th Congressional District, his son, Cameron Collins, and a third individual, Stephen Zarsky. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced related criminal charges.

Christopher Collins, who served as an independent director of an Australian biotech company, Innate Immunotherapeutics Ltd., is charged with tipping Cameron Collins after receiving confidential information about negative clinical trial results for Innate’s multiple sclerosis drug. Cameron Collins and his girlfriend’s father, Stephen Zarsky, are charged with trading and tipping others on the basis of the material, nonpublic information. Read More

The Securities and Exchange Commission announced on July 24, 2018 that New York entrepreneur William Z. (Billy) McFarland, two companies he founded, a former senior executive, and a former contractor agreed to settle charges arising out of an extensive, multi-year offering fraud that raised at least $27.4 million from over 100 investors.

The SEC’s complaint alleges that McFarland fraudulently induced investments into his companies Fyre Media, Inc., Fyre Festival LLC, and Magnises, Inc., including in connection with McFarland’s failed venture to host a “once-in-a-lifetime” music festival in the Bahamas. Read More

On  July 27, 2018 The Securities and Exchange Commission charged Howard Appel with manipulating the stocks of three microcap companies while on supervised release following his criminal conviction for a prior securities fraud.

According to the SEC’s complaint, Howard Appel orchestrated multiple schemes to manipulate the market for trading in shares of Virtual Piggy Inc., (VPIG), Red Mountain Resources Inc. (RDMP), and Rio Bravo Oil Inc. (RIOB), and concealed his activity by using overseas associates and nominee brokerage accounts.  The SEC’s complaint alleges that Howard Appel secretly acquired ownership or control over sufficient shares of the companies so that he and his associates could manipulate their stocks through coordinated trading activity.  As alleged in the complaint, Howard Appel kept tight control over the trading and engaged in matched trading with his associates.  In one instance, Howard Appel allegedly sought to coordinate artificial bidding activity to prevent the price of RDMP from dropping, emailing instructions to his associates: “Have ur guy for 12500 at .87 and another 7500 at .85 in case we get hit by selling today. (My guy above that bidding .87).”  In another example in the complaint, Howard Appel sold 200,000 shares of RIOB to accounts controlled by one of his associates overseas in a series of matched trades that accounted for 80 percent of the reported volume on RIOB’s second day of trading. Read More

SEC Detects Silicon Valley Executive’s Insider Trading

On July 24, 2018, the Securities and Exchange Commission (SEC) announced that Yao Li, a senior executive at a Silicon Valley fiber optics company agreed to settle charges that he made nearly $200,000 in illicit profits by trading on inside information in advance of three disappointing earnings announcements by the company. The case stems from the SEC Market Abuse Unit’s Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns such as improbably successful trading in advance of earnings announcements over time.  Enhanced detection capabilities enabled SEC enforcement staff to identify the unusual trading activity.

The SEC’s order finds that Yao Li, as Vice President of Technology at Alliance Fiber Optic Products, Inc. (AFOP), learned during regular meetings with AFOP’s senior executives that the company was likely going to miss its revenue guidance in three different quarters during 2014 and 2015.  According to the SEC’s order, Li traded on this inside information by short selling AFOP shares for profits as well as selling AFOP shares he already owned to avoid losses before these announcements. Read More

On July 26, 2018, the Securities & Exchange Commission (“SEC”) filed a civil injunctive action against John A. Paulsen, a former managing director and fixed income research analyst at a registered broker-dealer, for aiding and abetting a pay-to-play scheme involving the New York State Common Retirement Fund. As alleged in the SEC’s complaint, from early 2014 until February 2016, Navnoor S. Kang was the Fund’s Director of Fixed Income, with investment responsibility for approximately $50 billion of the Fund’s assets. According to the SEC’s complaint, Kang used his position at the Fund to solicit and receive improper entertainment from Paulsen and Deborah D. Kelley, a registered representative at the broker-dealer. In exchange, Kang directed millions of dollars in state business to the broker-dealer, generating sizable commissions.

The SEC alleges that Paulsen and Kelley planned a ski trip for the purpose of entertaining Kang and his girlfriend. The complaint alleges that Kang told Paulsen and Kelley that the Fund had very strict rules that prohibited him from accepting anything from Paulsen. Yet, according to the complaint, Paulsen and Kelley spent thousands of dollars entertaining Kang and his girlfriend. Read More