Managing Director and Chief Compliance Officer of Private Equity Firm Indicted for Obstruction of Justice / While Employed as a Securities and Exchange Commission Examiner, Defendant Accessed and Disclosed Confidential Information to the Target of an Investigation in Connection with Taking a Job With that Firm (DOJ Release)
[C]ohn previously worked as a Securities Compliance Examiner and Industry Specialist in the SEC's Enforcement Division, where he assisted investigations into violations of securities laws. In approximately October 2018, Cohn left the SEC to join GPB, a private equity firm based in Manhattan and Garden City, New York, that manages over $1.5 billion in assets. However, prior to leaving the SEC, Cohn accessed information on SEC servers relating to an Enforcement Division investigation into GPB. Cohn was not authorized to access this highly sensitive material, which included confidential information, privileged attorney-client work product and contacts with law enforcement and other regulatory agencies. During discussions with GPB personnel about obtaining a job there, Cohn advised them that he had inside information about the SEC's investigation, and on several occasions he disclosed information to members of GPB's senior management about that investigation.
[F]rom 2014 to 2016, Watts and his co-conspirators at a Melville-based boiler room artificially inflated the price and trading volume of Hydrocarb stock. They did so through an illegal cold-calling campaign that used lies and high-pressure sales tactics to lure victim investors, including many elderly victims, into purchasing stock. Watts, who was one of the largest shareholders in Hydrocarb and knew that the business was failing, also used the boiler room to dump more than $2 million worth of Hydrocarb shares that he owned or controlled on unsuspecting investors in the months leading to the company's April 2016 bankruptcy. The government has alleged that the conspiracy's market manipulation fraudulently inflated the stock price of Hydrocarb and four other companies by more than $147 million.
[A]s detailed in the Settlement Order, the proceeding involves anti-money laundering (AML) failures at Aegis Capital Corporation, a FINRA registered broker dealer and Commission registered investment adviser, by Terracciano, who was the firm's AML Compliance Officer (AMLCO) from September 2013 to approximately September 2015. Despite red flags and even despite alerts from Aegis's clearing firm, Aegis failed to file Suspicious Activity Reports (SARs), as required by 31 C.F.R. § 1023.320, on hundreds of suspicious transactions during that period. At most, after being alerted by the clearing firm, Terracciano closed customer accounts after allowing their high-volume questionable transactions in low-priced securities to settle and after becoming aware that no one at Aegis was flagging such transactions despite their raising red flags spelled out in Aegis's written supervisory procedures.Terracciano was employed in the securities industry in a capacity requiring FINRA (or predecessor) registration starting in 1988. Resp. Ex. 1; Eugene William Terracciano BrokerCheck Report, available at http://brokercheck.finra.org (last visited Oct. 11, 2019). His first compliance-related position started in 1995. Tr. 19; Resp. Ex. 1; Terracciano BrokerCheck Report. His last such employment was with Merrill Lynch, Pierce, Fenner & Smith, with which he was registered from November 2015 to January 2017. Tr. 41-45; Resp. Ex. 1; Terracciano BrokerCheck Report. He was let go by Merrill as a result of the investigation that led to this proceeding. Tr. 42-45. He has been unemployed since January 2017. Tr. 17, 50. Since then, he has sought, fruitlessly, employment in the securities industry. Tr. 46-47. None of the positions for which he applied related to AML compliance. Tr. 46. He realizes that if he were barred from the securities industry, even with a right to reapply after a specific time, his career in the securities industry would be over, due to the disincentive to any firm to sponsor him for reregistration. Tr. 49. If he were suspended for a fixed period, he would attempt to reenter the industry as a compliance officer. Tr. 50.Terracciano initially joined Aegis as a director of compliance; when he was interviewed for the position, there was no mention of AML responsibilities. Tr. 22-23. Soon after his arrival at Aegis, he was asked by the Chief Compliance Officer to be AML CO, which he was reluctant to accept. Tr. 23-24. Eventually he yielded to the importunity of the Chief Compliance Officer, who promised support and training, which never materialized. Tr. 24-26, 31-32, 35-36. Terracciano knew that low-price securities, such as those for which SARs should have been filed, might be used in questionable ways. Tr. 53. Terracciano now realizes that actions that he thought sufficient at the time - closing accounts to stop the activity - were insufficient and not a substitute for filing SARs. Tr. 40. He would not now seek or accept a position with AML reporting responsibilities. Tr. 50. In view of the consequences that he experienced from unwillingly accepting the AML responsibilities at Aegis, his representation that he would not do so again is credible.
In her role as Mutual Fund Operations Manager at RCHSS, Pitts had access to funds deposited into RCHSS by employers on behalf of former employees rolling over money from those employers' retirement plans. Pitts electronically transferred specific amounts earmarked for employer-sponsored plan participants to her personal checking and savings accounts. She then created fictitious accounting entries in the auto-reconciliation tool used by RCHSS to cancel out the funds moved to her personal accounts. As a result, RCHSS unwittingly funded the participants' plans with its own money.During the Relevant Period, Pitts converted approximately $100,079 by transferring the proceeds earmarked for approximately 25 plan participants into her personal checking and savings accounts. Pitts knew that the funds did not belong to her, and she made each of the transfers without RCHSS's knowledge or consent. After admitting her misconduct to RCHSS and the Firm, on August 9, 2019, Pitts repaid RCHSS the full amount she had converted.
From March 2013 through December 2015, Yellen exercised discretion while associated with Morgan Stanley in one of Customer A's accounts without written authorization or acceptance of the account as a discretionary account in violation of NASD Rule 2510(b) and FINRA Rule 2010.Yellen also established a second account for Customer A at Morgan Stanley, funded the account with a transfer from Customer A's original account, and placed two trades in the second account - all without Customer A's knowledge or authorization and in violation of FINRA Rule 2010.After Yellen associated with Ameriprise, Yellen again engaged in unauthorized trading from June 2016 to November 2017. Specifically, Yellen entered 16 trades for 10 customers that were beyond the option trading risk levels authorized by the customers in violation of FINRA Rule 2010.Furthermore, between June and November 2016, Yellen mismarked 319 options order tickets as "unsolicited" when they were solicited, causing Ameriprise's books and records to be inaccurate, in violation of FINRA Rules 4511 and 2010.Finally, in March 2016 when Yellen moved to Ameriprise, he took with him non-public personal customer information regarding his Morgan Stanley customers, without the customers' or Morgan Stanley's consent. As a result, Yellen violated FINRA Rule 2010 by causing Morgan Stanley to violate the SEC's Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Personal Information ("Regulation S-P").