SEC CHARGED RAYMOND JAMES & ASSOCIATES INC. WITH MAKING INACCURATE STATEMENTS

The following excerpt comes from the SEC website:

“Washington, D.C., June 29, 2011 — The Securities and Exchange Commission today charged Raymond James & Associates Inc. and Raymond James Financial Services Inc. for making inaccurate statements when selling auction rate securities (ARS) to customers.

Raymond James agreed to settle the SEC’s charges and provide its customers the opportunity to sell back to the firm any ARS that they bought prior to the collapse of the ARS market in February 2008.
According to the SEC’s administrative order, some registered representatives and financial advisers at Raymond James told customers that ARS were safe, liquid alternatives to money market funds and other cash-like investments. In fact, ARS were very different types of investments. Among other things, representatives at Raymond James did not provide customers with adequate and complete disclosures regarding the complexity and risks of ARS, including their dependence on successful auctions for liquidity.
“Raymond James improperly marketed and sold ARS to customers as safe and highly liquid alternatives to money market accounts and other short-term investments,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Harmed investors who are covered by this settlement will have the opportunity to get full payment for their illiquid ARS.”
The SEC previously announced ARS settlements with Citigroup and UBS, Wachovia, Bank of America, RBC Capital Markets, Deutsche Bank, and TD Ameritrade. As a result of these settlements, more than $67 billion has been returned to ARS customers following the SEC’s investigation into the ARS market collapse of February 2008 that left tens of thousands of investors holding ARS they could not sell.
The SEC’s order against Raymond James finds that the firm willfully violated Section 17(a)(2) of the Securities Act of 1933. The Commission censured Raymond James, ordered it to cease and desist from future violations, and reserved the right to seek a financial penalty against the firm.
Without admitting or denying the SEC’s allegations, Raymond James consented to the SEC’s order and agreed to:
Offer to purchase eligible ARS from its eligible current and former customers.
Use its best efforts to provide liquidity solutions to customers who acted as institutional money managers who are not otherwise eligible customers.
Reimburse excess interest costs to eligible ARS customers who took out loans from Raymond James after Feb. 13, 2008.
Compensate eligible customers who sold their ARS below par by paying the difference between par and the sale price of the ARS, plus reasonable interest.
At the customer’s election, participate in a special arbitration process with those eligible customers who claim additional damages.
Establish a toll-free telephone assistance line and a public Internet page to respond to questions concerning the terms of the settlement.
Investors should be alerted that, in most instances, they will receive correspondence from Raymond James. Investors must then advise Raymond James that they elect to participate in the settlement. If they do not do so, they could lose their rights to sell their ARS to Raymond James. Investors should review the full text of the SEC’s order, which includes the terms of the settlement.
The Commission acknowledges the assistance and cooperation of the State of Florida Office of Financial Regulation, the Texas State Securities Board, and the North American Securities Administrators Association.”

Although financial penalties are becoming more common in cases like the one above criminal penalties are not really increasing. The problem is that it is hard to link upper levels of management with a business decision to commit a crime. A word used like “puffery” when selling a product is often confused with the word “fraud” by over zealous salespeople who are trying to earn a commission or large bonus check and pay their bills. Commission sales by definition; means that Salespeople are paid by their employers to talk up their products and overcome objections. This is a slippery slope and top management is responsible for making sure those directly offering the products to the public do not slip off the “slippery slope” and say things that might earn a nice check now but in the long run will seriously harm the reputation of the firm they are working for.

SEC LARGE FINANCIAL COMPANY WITH MAKING INACCURATE STATEMENTS

The following excerpt comes from the SEC website: “Washington, D.C., June 29, 2011 — The Securities and Exchange Commission today charged Raymond James & Associates Inc. and Raymond James Financial Services Inc. for making inaccurate statements when selling auction rate securities (ARS) to customers. Raymond James agreed to settle the SEC’s charges and provide its customers the opportunity to sell back to the firm any ARS that they bought prior to the collapse of the ARS market in February 2008. According to the SEC’s administrative order, some registered representatives and financial advisers at Raymond James told customers that ARS were safe, liquid alternatives to money market funds and other cash-like investments. In fact, ARS were very different types of investments. Among other things, representatives at Raymond James did not provide customers with adequate and complete disclosures regarding the complexity and risks of ARS, including their dependence on successful auctions for liquidity. “Raymond James improperly marketed and sold ARS to customers as safe and highly liquid alternatives to money market accounts and other short-term investments,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Harmed investors who are covered by this settlement will have the opportunity to get full payment for their illiquid ARS.”
The SEC previously announced ARS settlements with Citigroup and UBS, Wachovia, Bank of America, RBC Capital Markets, Deutsche Bank, and TD Ameritrade. As a result of these settlements, more than $67 billion has been returned to ARS customers following the SEC’s investigation into the ARS market collapse of February 2008 that left tens of thousands of investors holding ARS they could not sell. The SEC’s order against Raymond James finds that the firm willfully violated Section 17(a)(2) of the Securities Act of 1933. The Commission censured Raymond James, ordered it to cease and desist from future violations, and reserved the right to seek a financial penalty against the firm. Without admitting or denying the SEC’s allegations, Raymond James consented to the SEC’s order and agreed to: Offer to purchase eligible ARS from its eligible current and former customers. Use its best efforts to provide liquidity solutions to customers who acted as institutional money managers who are not otherwise eligible customers. Reimburse excess interest costs to eligible ARS customers who took out loans from Raymond James after Feb. 13, 2008.
Compensate eligible customers who sold their ARS below par by paying the difference between par and the sale price of the ARS, plus reasonable interest. At the customer’s election, participate in a special arbitration process with those eligible customers who claim additional damages.
Establish a toll-free telephone assistance line and a public Internet page to respond to questions concerning the terms of the settlement.
Investors should be alerted that, in most instances, they will receive correspondence from Raymond James. Investors must then advise Raymond James that they elect to participate in the settlement. If they do not do so, they could lose their rights to sell their ARS to Raymond James. Investors should review the full text of the SEC’s order, which includes the terms of the settlement. The Commission acknowledges the assistance and cooperation of the State of Florida Office of Financial Regulation, the Texas State Securities Board, and the North American Securities Administrators Association.”
Although financial penalties are becoming more common in cases like the one above criminal penalties are not really increasing. The problem is that it is hard to link upper levels of management with a business decision to commit a crime. A word used like “puffery” when selling a product is often confused with the word “fraud” by over zealous salespeople who are trying to earn a commission or large bonus check and pay their bills. Commission sales by definition; means that Salespeople are paid by their employers to talk up their products and overcome objections. This is a slippery slope and top management is responsible for making sure those directly offering the products to the public do not slip off the “slippery slope” and say things that might earn a nice check now but in the long run will seriously harm the reputation of the firm they are working for."

SEC APPROVES RULE TO DEFINE "FAMILY OFFICES"

The following is an excerpt from the SEC website:

Washington, D.C., June 22, 2011 — The Securities and Exchange Commission today approved a new rule to define “family offices” that are to be excluded from the Investment Advisers Act of 1940.

The rulemaking stems from the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“Family offices” are entities established by wealthy families to manage their wealth and provide other services to family members, such as tax and estate planning services. Historically, family offices have not been required to register with the SEC under the Advisers Act because of an exemption provided to investment advisers with fewer than 15 clients.

The Dodd-Frank Act removed that exemption so the SEC can regulate hedge fund and other private fund advisers. However, Dodd-Frank also included a new provision requiring the SEC to define family offices in order to exempt them from regulation under the Advisers Act.

The new rule adopted by the SEC enables those managing their own family’s financial portfolios to determine whether their “family offices” can continue to be excluded from the Investment Advisers Act.

The rule is effective 60 days after its publication in the Federal Register.

# # #

FACT SHEET
Defining A Family Office
How are family offices impacted by the Dodd-Frank Act?
Family offices typically are considered to be investment advisers under the Advisers Act because of the investment advisory services that they provide. As such, they are subject to the registration requirements set forth in that Act. Historically, however, most family offices have been structured to take advantage of an exemption from registration for firms that advise less than fifteen clients and meet certain other conditions.

The Dodd-Frank Act repeals the 15-client exemption to enable the SEC to regulate hedge fund and other private fund advisers. But, the Dodd-Frank Act includes a new provision requiring the SEC to define family offices in order to exempt them from regulation under the Advisers Act.

Today, the Commission is considering adopting a final rule defining family offices that will be excluded from regulation under the Advisers Act.


Which family offices will be excluded from Advisers Act regulation under the rule?

Any company that:

Provides investment advice only to “family clients,” as defined by the rule.

Is wholly owned by family clients and is exclusively controlled by family members and/or family entities, as defined by the rule.

Does not hold itself out to the public as an investment adviser.
Which family members and employees can the family office advise under the exclusion?

Family members. Family members include all lineal descendants (including by adoption, stepchildren, foster children, and, in some cases, by legal guardianship) of a common ancestor (who is no more than 10 generations removed from the youngest generation of family members), and such lineal descendants’ spouses or spousal equivalents.

Key employees. Key employees include:


Executive officers, directors, trustees, general partners, or persons serving in a similar capacity for the family office or its affiliated family office.

Any other employee of the family office or its affiliated family office (other than a clerical or secretarial employee) who, in connection with his or her regular duties, has participated in the investment activities of the family office or affiliated family office, or similar functions or duties for another company, for at least 12 months.

Other family clients. Other family clients generally include:


Any non-profit or charitable organization funded exclusively by family clients.

Any estate of a family member, former family member, key employee, or subject to certain conditions a former key employee.

Certain family client trusts.

Any company wholly-owned by and operated for the sole benefit of family clients.
When will family offices have to register with the Commission under the Advisers Act or with applicable state securities authorities if they do not meet the terms of the exclusion?

By March 30, 2012.

Will existing family office exemptive orders be rescinded?

No. Family offices that obtained exemptive orders from the Commission will be able to continue operating under their existing exemptive orders or they may operate under the new rule.

When will family offices have to register with the Commission under the Advisers Act or with applicable state securities authorities if they do not meet the terms of the exclusion?

That family office will have to obtain a Commission exemptive order or register as an investment adviser.

Grandfathering Provision

The Dodd-Frank Act requires that the Commission not preclude certain family offices from meeting the new exclusion solely because they provide investment advice to certain clients (and provided that advice prior to January 1, 2010). The adopted rule incorporates this grandfathering provision."

SPEECH BY SEC COMMISSIONER KATHLEEN L. CASEY AT SEC OPEN MEETING

The following is a speech given by SEC Commissioner Casey and is an excerpt from the SEC website:

"Speech by SEC Commissioner:
Statement at SEC Open Meeting — Rules Implementing Amendments to the Investment Advisers Act of 1940; Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private Advisers
by
Commissioner Kathleen L. Casey
U.S. Securities and Exchange Commission
Washington, D.C.
June 22, 2011
As always, I join the Chairman in thanking the Staff of the Division of Investment Management, and all other participating divisions and offices, for their work on these releases.

I am able to support the adoption of only one of the two releases presented: the rules defining the scope of three exemptions to registration under the Advisers Act. As has been stated, the Dodd-Frank Act required that the Commission, via rulemaking, define the scope of exemptions from registration for certain types of advisers.

The rule defining “venture capital fund” for purposes of one of these statutory exemptions is particularly significant. The legislative record is replete with evidence that Congress did not regard venture capital funds as posing the kinds of risks that justify registration under the Advisors Act and indeed, was concerned with burdening these important drivers of capital formation and economic growth.

While I believe that our definition of venture capital fund could have been broader, I am ultimately able to support this rule because I believe it recognizes the need for flexibility in these funds’ investment strategies. Importantly, facilitating that flexibility via the basket of non-conforming activity seeks to ensure that funds are not unjustifiably prevented from making the most advantageous investments and from responding to changing market conditions in an efficient way. But at the same time, the rule also seeks to fulfill Congress’s intent that this exemption be applicable to venture capital fund advisers only.

I am, however, unable to support adoption of the companion release which sets out the Advisors Act implementation rules because, as I stated when I opposed the release as proposed, I believe that these rules will needlessly harm innovation and capital formation without a demonstrated, articulable, or measurable benefit to investors or financial stability.

As a consequence of the requirements imposed under the implementing rules, there will be no meaningful relief from the burdens of registration for those advisers that will be able to fit themselves within the boundaries of the Advisers Act exemptions we define today. Venture capital fund advisers, along with mid-sized private fund advisers, although explicitly exempt from registration under the Dodd-Frank Act, have been designated under the rules’ framework to be “exempt reporting advisers,” and are therefore subject to many of the same requirements as registered advisers, including public reporting requirements, and eventually recordkeeping obligations, just as if they were registered.

The Commission today pays lip service to the idea that it must maintain some difference between the reporting requirements imposed on exempt advisers and those for registered advisers, and therefore only adopts a certain subset of the items on Form ADV as applicable to exempt reporting advisers.

To be clear, my disagreement with the reporting requirements is not a mere quibble with which and how many Form ADV items are being required. Instead, I am deeply concerned by the wholesale lack of any principled, meaningful distinction drawn in the release between exempt advisers and registered advisers. Indeed, I believe it is not simply a function of degree, but of design. That is to say, I believe that the adoption of the current reporting requirements is only the first step in what will surely be an ongoing process of emptying the distinction between an “exempt reporting adviser” and a “registered” adviser of all meaning.

While the proposing release alluded to the possibility of future additional requirements, the adopting release is not as coy, and clearly refers to the prospect of future regulations, predicting not only a future recordkeeping rule but also explicitly signaling the Commission’s prerogative and intent to further expand the Form ADV and examination obligations. Indeed, the tenor of the release is such that it can only be assumed that the ultimate goal is to promote registration of these funds by nullifying any benefit of exemption through the imposition of comparable regulatory and compliance requirements.

So why does this matter? It matters first because the Commission has failed to meaningfully implement the will of Congress that these advisers be exempt from registration.1 It is true that Congress gave us the authority to require certain reporting and recordkeeping “as the Commission determines are necessary or appropriate in the public interest or for the protection of investors.” But the release before the Commission today provides no substantiated justification on public interest or investor protection grounds for the decision to impose these reporting requirements. Given that Congress instructed us to make these kind of findings before imposing additional requirements on these exempt advisers, the presumptions contained in the release as to the usefulness of the required information are entirely insufficient to meet our statutory obligations.

But more fundamentally, these rules needlessly impose compliance costs on funds that are the incubators of tomorrow’s great companies, companies that our economy necessarily relies on to propel job growth. This, at a time, when policymakers and Congress continue to emphasize the importance of finding ways to further promote capital formation and economic growth.

But we don’t need a white board to contemplate how to promote capital formation — we can start right here by not unnecessarily hampering it. Every dollar that is spent by a venture capital fund to satisfy the Commission’s newly imposed regulatory requirements is a dollar that cannot be invested in the next Google, Apple, or Amazon. These dollars will never reach nascent companies that are developing green tech, cutting-edge biotechnology, or products that are even beyond our dreams today.

I fear here that the Commission has lost sight of the fact that its mission includes the mandate to facilitate capital formation. The implementation rules before the Commission today will, without a doubt, negatively and unduly impact capital formation and economic growth. As a result, I cannot support it.

Thank you and I have no questions.


1 As explained in the legislative history, Section 407 of the Dodd-Frank Act directs the Commission to define "venture capital fund," and "provides that no investment adviser shall become subject to registration requirements for providing investment advice to a venture capital fund." S. REP. NO. 111-176, at 74, 75 (2010)."

SEC CHARGES FORMER MORTGAGE COMPANY CEO WITH HAVING A PART IN A TARP SCHEME

It is taking years for the SEC to handle the huge number of cases related to Mortgage fraud. Still, the SEC is moving ahead with individuals and companies being charged for their part in The Great Mortgage Fraud and Meltdown. Now not only has the SEC to contend with fraud from the mortgage meltdown but, with the fraud committed during the great banking bail-out program that was instituted after the mortgage meltdown. That program was known as TARP. In the news release below the SEC alleges that a former mortgage company CEO is guilty of having a part in a TARP scheme.


On June 17, 2011 the Securities and Exchange Commission (SEC) charged Paul R. Allen, the former chief-executive officer at Taylor, Bean and Whitaker Mortgage Corp. (TBW), which was once the nation's largest non-depository mortgage lender, with aiding-and-abetting the efforts of TBW’s former chairman, Lee B. Farkas, to defraud the U.S. Treasury's Troubled Asset Relief Program (TARP).
According to the SEC's complaint, filed in U.S. District Court for the Eastern District of Virginia, Farkas, with the substantial assistance of Allen, was responsible for a bogus equity investment that caused Colonial Bank to misrepresent that it had satisfied a prerequisite necessary to qualify for TARP funds. When Colonial Bank's parent company — The Colonial BancGroup, Inc. — issued a press release announcing it had obtained preliminary approval to receive $550 million in TARP funds, its stock price jumped 54 percent in the remaining two hours of trading, representing its largest one-day price increase since 1983.
The SEC's complaint alleges that Farkas falsely told BancGroup that a foreign-held investment bank had committed to financing TBW's equity investment in Colonial Bank. Farkas also issued a press release on behalf of TBW announcing that TBW had secured the necessary financing for BancGroup. Contrary to his representations to BancGroup and to the investing public, Farkas never secured financing or sufficient investors to fund the capital infusion. When BancGroup and TBW later mutually announced the termination of their stock purchase agreement, essentially signaling the end of Colonial Bank's pursuit of TARP funds, BancGroup's stock declined 20 percent. Allen substantially assisted Farkas in making these false statements.
The SEC's complaint against Allen charges him with aiding and abetting violations of the antifraud provisions of the Securities Exchange Act of 1934 (Exchange Act). Without admitting or denying the SEC's allegations, Allen consented to the entry of a judgment permanently enjoining him from violation of Section 10(b) of the Exchange Act and Rules 10b-5 thereunder. The preliminary judgment, under which the SEC's requests for financial penalties against Allen remain pending, was entered by the Honorable Leonie M. Brinkema on June 17, 2011.
The SEC's investigation is ongoing. The SEC acknowledges the assistance of the Fraud Section of the U.S. Department of Justice's Criminal Division, the Federal Housing Finance Agency's Office of the Inspector General, the Federal Bureau of Investigation, the Office of the Special Inspector General for the TARP, the Federal Deposit Insurance Corporation's Office of the Inspector General, and the Office of the Inspector General for the U.S. Department of Housing and Urban Development

SEC CHARGES UNLAWFUL PUBLIC OFFERING?

The following is an excerpt from the SEC web site and defines what the SEC calls an “unlawful public offering”:

Litigation Release No. 21967 / May 13, 2011
Securities and Exchange Commission v. Advanced Optics Electronics, Inc., Leslie S. Robins, JDC Swan, Inc. and Jason Claffey, Civil Action No. 11-cv-1321 (S.D.N.Y. February 25, 2011)
SEC Brings Civil Action Against Advanced Optics Electronics, Inc., its Former Chairman Leslie S. Robins, and Stock Seller Jason Claffey For Engaging in an Unlawful Public Offering
Related Administrative and Cease-and-Desist Proceedings Brought against Broker-Dealer Divine Capital Markets, LLC, its CEO Danielle Hughes and associated person Michael Buonomo.
In an action brought in federal district court, the Securities and Exchange Commission on February 25, 2011, charged Advanced Optics Electronics, Inc. (ADOT), its former Chairman Leslie S. Robins, JDC Swan, Inc. and its former President, Jason Claffey with engaging in an unlawful public offering of the securities of ADOT, a development stage Nevada corporation located in New Mexico.
The Commission’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that from at least as early as January 2006, through June 2007, ADOT, acting through Robins, issued a total of over 9.8 billion shares of ADOT to JDC Swan through the use of purchase agreements that represented falsely that the shares were registered and free trading. The complaint further alleges that Claffey arranged to have the ADOT shares sold through a securities account he established at Divine Capital Markets, LLC, a registered broker-dealer located in New York. According to the SEC’s complaint, the defendants raised over $2 million through the offer and sales of ADOT shares into public market without a registration statement on file, or declared effective by the SEC. The complaint alleges that Claffey acquired the shares with a view to distribution and that there was no applicable exemption from registration to the offers and sales.
According to the SEC’s complaint, Claffey retained approximately 30% of the proceeds of the ADOT sales and wired the remainder to an ADOT account controlled by Robins. The complaint further alleges that ADOT, Robins, JDC Swan and Claffey’s offers and sales of ADOT shares violated Sections 5(a) and (c) of the Securities Act.
The SEC’s complaint against ADOT, Robins, JDC Swan and Claffey seeks a final judgment permanently enjoining the defendants from future violations of the Sections 5(a) and (c) and ordering them to pay civil money penalties, disgorge their ill gotten gains, plus prejudgment interest, and prohibiting them from participating in an offering of penny stock pursuant to Section 20(g) of the Securities Act
The Commission also instituted related cease-and-desist and administrative proceedings against registered broker-dealer Divine Capital Markets, LLC (Divine Capital), its CEO and President Danielle Hughes, and Divine Capital employee, Michael Buonomo. In the Matter of Divine Capital Markets, Danielle Hughes and Michael Buonomo, Release No. 34-63980 (Feb. 25, 2011). In the contested proceedings, the Commission’s Division of Enforcement alleges that Divine and Buonomo each violated sections 5(a) and (c) of the Securities Act and that Hughes and Divine failed to supervise Buonomo with a view to preventing his violations. The Division seeks administrative sanctions, penalties and disgorgement against all three respondents.”