SEC Chair Clayton reviews the SEC's 2018 agenda and discusses plans for 2019, with an emphasis on the regulator's ongoing monitoring of Brexit, the LIBOR transition and cybersecurity risks. Among some of Clayton's observations:
Broker-dealers and investment advisers both provide investment advice to their customers, but have different relationships and are subject to various different regulatory regimes. However, many retail investors do not have a firm grasp of the important differences between broker-dealers and investment advisers -- (1) differences in the variety of services that they offer; (2) how investors pay for those services; and (3) the regulatory frameworks that govern their relationship. This is a complex set of issues, no doubt, but we must also recognize that access to investment advice is increasingly important to our society. And we must recognize that while the current framework needs improvement, it is extensive and in many areas functions well for our Main Street investors, particularly as compared to other jurisdictions
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There was consensus among the panelists that the proxy "plumbing" needs a major overhaul. I encourage market participants to explore what such an overhaul would entail and to consider how technology, including distributed ledger technology, could improve the proxy plumbing. I realize a major overhaul could take time. So, I believe we should focus on what the Commission can do in the interim to improve the current system. The comment box for the roundtable remains open, and I encourage all those interested in improving the proxy plumbing to share their thoughts, particularly regarding actionable, interim improvements.
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Another area where the Commission and staff have spent a significant amount of time relates to distributed ledger technology, digital assets and initial coin offerings (ICOs). I expect that trend will continue in 2019. A number of concerns have been raised regarding the digital assets and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in the traditional equities and fixed income markets, with correspondingly greater opportunities for fraud and manipulation.
The United States Department of Justice alleged that from at least March 21, 2016, to March 20, 2017, Mrs. Fields Original Cookies Inc. (at its Salt Lake City, Utah production and distribution center) required lawful permanent residents to provide specific documentation issued by the Department of Homeland Security to prove their work authorization, while not imposing this requirement on U.S. citizens in violation of the Immigration and Nationality Act. As surprising as it may be to many US citizens, all work-authorized individuals, regardless of citizenship status, have the right to choose which document to present, from a range of valid documents, to demonstrate their authority to work in the United States. DOJ entered into a settlement agreement with Mrs. Fields' Original Cookies Inc. whereby the company will pay $26,400 in civil penalties; be subject to departmental monitoring and reporting requirements; and certain employees will be required to attend training on the requirements of the INA's anti-discrimination provision.READ the Settlement Agreement https://www.justice.gov/opa/press-release/file/1117316/download
The Securities Industry Commentator has obtained an exclusive video of the mandatory training film that the specified employees will be required to view:
In today's featured FINRA expungement arbitration, we praise the impressive effort of a lone FINRA arbitrator, who patiently and intelligently explains what happened, what she considered, and why she recommends the expungement of a customer complaint from a stockbroker's industry record.
In a Complaint filed in the United States District Court for the Northern District of California, the SEC alleged that The founder of venture capital funds and his investment advisory firm Rothenberg Ventures LLC, Michael B. Rothenberg, marketed his firm as uniquely positioned to identify millennial entrepreneurs and invest in "frontier technology" companies. The funds purportedly had about 200 investors and $63 million in assets. The Complaint alleges that Rothenberg and his firm misappropriated over $64 million including $7 million in excess fees; and that Rothenberg used such funds to support personal business venture and to pay for private parties. The Complaint alleges that Rothenberg and his firm violated Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. Without admitting or denying the allegations, Rothenberg and Rothenberg Ventures agreed to settle the charges for a disgorgement and civil money penalties to be determined; and that he agreed to be barred from the brokerage and investment advisory business with a right to reapply after five years.READ the Complaint https://www.sec.gov/litigation/complaints/2018/comp24367.pdf
In a criminal Complaint filed in the United States District Court for the Southern District of New York, Fabio Bretas De Freitas was charged with wire fraud, bank fraud, commodities fraud, and aggravated identity theft in connection with his operation of ("Phy Capital") and ("Absolute"). Allegedly, in 2016, Bretas started Phynance Capital Management LLC and Absolute Experience LLC and ultimately obtained over $5.5 million from various investors based upon representations about intended trading activities. Federal proseuctors allege that Bretas conducted a minimal level of trading and essentially stole investors' funds and converted same for his personal expenses and foreign transfers. After the initiation of a 2017 audit of Bretas's companies by the Commodity Futures Trading Commission and the National Futures Association, Bretas allegedly lied about his affiliation with Absolute, falsely claimed that his victims' funds reflected mere loans to his company, lied about the use of those funds and the solicitation of investments, and ultimately created a fraudulent email account for the purpose of impersonating one victim in communications with the NFA. READ the Complaint https://www.justice.gov/usao-sdny/press-release/file/1117306/download
Randy Want pled guilty in the United States District Court for the Southern District of New York to one count of wire fraud. Wang was employed as a business manager and thereafter as interim Chief Financial Officer for a company that manages a global airline alliance of some 13 international airlines and their affiliates. From 2017 to about October 2017, Wang incurred over $2.2 million of unauthorized charges on the company's credit card account by making retail purchases unrelated to his official duties and not for the company's benefit. Among the purchases were 443 laptop computers, 241 mobile electronic devices, 24 tablet computers, and numerous other electronics. Wang attempted to evade detection by altering the company's accounting records to disguise the nature of the credit card charges.Wang was sentenced to 18 months in prison plus three years of supervised release, a $2,294,982 forfeiture money judgment and a $2,294,982.00 restitution order.
In a Complaint filed in the United States District Court for the Central District of California, the SEC alleged that Edward and Jean Chen, Home Paradise Investment Center LLC, GH Investment LP, GH Design Group LLC, Golden Galaxy LP, and Mega Home LLC, raised over $22.5 million from 45 investors in China for the development of an interior design center and an 80-unit condominium building. Allegedly, the Chens misappropriated and misused more than $12 million of investors' funds by purchasing residential real estate unrelated to the two EB-5 projects; and the Chens and their controlled companies purportedly provided investors a fake lease for the interior design center that replaced the name of the true lessor with a Chen-controlled entity and overstated the true size of the leased space five-fold. Without admitting or denying the allegations in the complaint, the defendants consented to the entry of final judgments enjoining them from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933, and further enjoin Edward and Jean Chen from participating in the offer or sale of any security which constitutes an investment in a "commercial enterprise" under the USCIS EB-5 visa program. Edward and Jean Chen, GH Investment LP, GH Design Group LLC, Golden Galaxy LP, and Mega Home LLC are ordered to pay jointly and severally disgorgement of $24,655,000, with prejudgment interest of $1,173,098. Edward and Jean Chen are ordered to pay civil penalties of $1,077,500 each. Home Paradise Investment Center LLC is ordered to pay, on a joint and several basis with the other defendants, disgorgement of $2.155 million, with prejudgment interest of $119,583, which has been deemed satisfied by amounts already collected and to be distributed to the investors by the receiver. READ the Complaint https://www.sec.gov/litigation/complaints/2018/comp24366.pdf
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC alleged that IT contractor working in Singapore, Rajeshwar Gannamaneni, provided nonpublic information about impending mergers, acquisitions, and tender offers to his wife, Deepthi Gandra, and his father, Linga Rao Gannamaneni, who lives in India. The Complaint alleges that Rajeshwar Gannamaneni also traded in an account that he controlled that was opened in the name of a family member, who was living in the U.S. at the time. The three Defendants alleged realized about $600,000 in purported insider-trading profits he stole while working in the Singapore branch of an investment bank. READ the Complaint https://www.sec.gov/litigation/complaints/2018/comp-pr2018-273.pdf
In response to the SEC's motion to disniss, on December 6, 2018, the United States District Court for the District of Connecticut dismissed with prejudice, the SEC's Complaint against Jesse Litvak, who was also criminally charged by the United States Attorney for the District of Connecticut based on the same facts underlying the SEC's action. The SEC had charged Litvak, a former managing director of Jefferies & Co., Inc. with making misrepresentations and engaging in misleading conduct while he sold mortgage-backed securities (MBS) during 2009 to 2011. Although Litvak was twice convicted in a parallel criminal case, those convictions were both overturned and the U.S. Attorney's motion to dismiss its criminal case was granted on August 1, 2018.
Andrey Ghinkul a/k/a "Andrei Ghincul" a/k/a "Smilex"pled guilty to in the United States District Court for the Western District of Pennsylvania to conspiracy and damaging a computer in role in a In connection with the guilty plea, the court was advised that the defendant was part of a international criminal conspiracy that disseminated the Bugat malware designed to automate the theft of confidential personal and financial information, such as online banking credentials, from infected computers through the use of keystroke logging and web injects.(also known as Cridex and Dridex). It is further alleged that Ghinkul used malware to steal banking credentials, and then used the stolen credentials to initiate fraudulent electronic funds transfers of millions of dollars from the victims' bank accounts. Ghinkul was sentenced in federal court to time served.
In a Complaint filed in the United States District Court for the Northern District of Illinois, Tracy Monti was charged with fraudulently obtaining over $5 million from over ten investors by misrepresenting that she could purchase tickets for sporting events and concerts at face value or at a discount through purported connections in the event business; and, thereafter re-sell the tickets for a profit. The Complaint alleged that Monti diverted vctims' funds to undertake Ponzi-like payments and to purchase for herself items such as a house in Chicago, a Dodge Challenger, tattoos, vacations, and shopping sprees at Victoria's Secret and Neiman Marcus. Monti pled guilty to one count of wire fraud and was sentenced to 46 months in prison and ordered her to pay $4,997,958 in restitution to victims.