SEC CHARGES EQUITY RESEARCH FIRM OWNER WITH MANIPULATING MARKET FOR PUBLICLY TRADED STOCK

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced charges against a Phoenix-based equity research firm owner who allegedly manipulated the market for a publicly traded stock he was soliciting investors to purchase.

 The SEC Enforcement Division alleges that after a company hired his firm to assist in two private placement offerings, Paul Pollack repeatedly engaged in wash trading, which involves the simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership of the stock.  According to the order instituting an administrative proceeding, Pollack conducted approximately 100 wash trades where the buy or sell orders came within 90 seconds of each other at prices and quantities that were virtually identical.  The wash trades are alleged to have occurred during a nearly one-year period and created the false and misleading appearance of consistent active trading in the otherwise thinly traded stock.

 The SEC Enforcement Division further alleges that Pollack and his firm Montgomery Street Research LLC violated federal securities laws by acting as brokers on behalf of the company without first registering with the SEC.

 Wash trading is an abusive practice that misleads the market about the genuine supply and demand for a stock,” said Thomas J. Krysa, Associate Director of Enforcement in the SEC’s Denver Regional Office.  “In this case, we allege that Pollack engaged in this type of trading, and he and his firm acted as unregistered brokers outside the boundaries of the law by effecting transactions in securities and avoiding SEC oversight and examinations that protect the interests of investors.”

The SEC Enforcement Division alleges that Pollack and Montgomery Street Research raised more than $2.5 million from 11 investors after being hired by the company to raise money and make introductions to potential investors in its stock.  Among other things, they identified and solicited potential investors, provided financial information regarding the issuer, fielded investor inquiries, and in some instances received transaction-based compensation.

The SEC Enforcement Division alleges that Pollack and Montgomery Street willfully violated Section 15(a)(1) of the Securities and Exchange Act of 1934 and that Pollack willfully violated Section 9(a)(1) and Section 10(b) of the Exchange Act of 1934, and Rules 10b-5(a) and 10b-5(c).  The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC Enforcement Division’s investigation was conducted by Kurt L. Gottschall and Marc D. Ricchiute in the Denver Regional Office with assistance from staff in the Enforcement Division’s Center for Risk and Quantitative Analytics.  The Enforcement Division’s litigation will be led by Mr. Ricchiute and Gregory A. Kasper.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

OFFICE OF MUNICIPAL SECURITIES ISSUES GUIDANCE FOR MARKET PARTICIPANTS

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced that its Office of Municipal Securities has issued interpretive guidance to address questions from market participants regarding the implementation of new final SEC rules requiring municipal advisors to register with the SEC.

The staff guidance, in the form of answers to frequently asked questions, or FAQs, covers topics including:

the advice standard, including the general information exclusion and the treatment of business promotional materials used by underwriters
the request for proposals-request for qualifications exemption
the exemption for independent municipal advisors
the exclusion for registered investment advisers
the underwriter exclusion, including engagements as underwriters
issuance of municipal securities and post-issuance advice
remarketing agent services
opinions by citizens in public discourse
the effective date of the final rules and the compliance period for using the final registration forms
State and local governments frequently use paid advisors to help them decide how and when to issue municipal securities and how to invest proceeds from the sales.  The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act required these advisors to register with the SEC like other market intermediaries.  The SEC’s final rule was adopted in September 2013.  Presently, more than 1,100 municipal advisors are registered with the SEC under a temporary registration regime.  The SEC staff may provide periodic updates to the interpretive guidance issued today.