SEC CHARGES WEB-BUSH SECURITIES INC., WITH VIOLATING AGENCY'S MARKET ACCESS RULE

FROM:  U.S. SECURITIES EXCHANGE COMMISSION 

The Securities and Exchange Commission announced charges against a Los Angeles-based market access provider and two officials accused of violating the agency’s market access rule that requires firms to have adequate risk controls in place before providing customers with access to the market.

The SEC’s Enforcement Division alleges that Wedbush Securities Inc., which has consistently ranked as one of the five largest firms by trading volume on NASDAQ, failed to maintain direct and exclusive control over settings in trading platforms used by its customers to send orders to the markets.  Wedbush did not have the required pre-trade controls, failed to restrict trading access to people whom the firm preapproved and authorized, and did not conduct an adequate annual review of its market access risk management controls.  The Enforcement Division alleges that the firm’s violations of the market access rule were caused by Jeffrey Bell, the former executive vice president in charge of Wedbush’s market access business, and Christina Fillhart, a senior vice president in the market access division.

“Wedbush provided market access to overseas traders without preapproval and without ensuring that they complied with U.S. law,” said Andrew J. Ceresney, director of the SEC Enforcement Division.  “We will hold Wedbush accountable for reaping substantial profits while failing to protect U.S. markets from the risks posed by these traders.”

Daniel M. Hawke, chief of the SEC Enforcement Division’s Market Abuse Unit, added, “The market access rule was adopted out of concerns that some broker-dealers did not have effective controls in place for their market access.  This enforcement action against Wedbush is a cornerstone of our ongoing efforts to hold accountable any broker-dealers who fail to effectively implement market access controls and procedures.”

According to the SEC’s order instituting administrative proceedings, the violations began in July 2011 and continued into 2013.  Wedbush allowed the majority of its market access customers to send orders directly to U.S. trading venues by using trading platforms over which Wedbush did not have direct and exclusive control.  Bell was aware of the requirements of the market access rule and should have known that the firm’s risk management controls and supervisory procedures related to market access did not comply with the market access rule.  Fillhart also had responsibility for overseeing Wedbush’s market access business and received inquiries by exchanges about potential violations by Wedbush and its customers.  Despite these red flags, Fillhart did not take adequate steps to prompt the firm to adopt reasonably designed risk management controls.

According to the SEC’s order, in addition to violating the market access rule (Securities Exchange Act Rule 15c3-5), Wedbush violated other regulatory requirements as a result of trading by its market access customers.  These violations include Rule 203(b)(1) of Regulation SHO relating to short sales, Rule 611(c) of Regulation NMS related to intermarket sweep orders, Rule 17a-8 concerning anti-money laundering requirements, and Rule 17a-4(b)(4) concerning the preservation of records.

The proceeding before an administrative law judge will determine whether Wedbush willfully violated these provisions of the federal securities laws, and whether Bell and Fillhart were causes of the firm’s violations of the market access rule.  The judge also will decide what sanctions, if any, are appropriate.

The SEC’s investigation was conducted by Steven Buchholz of the Market Abuse Unit and San Francisco Regional Office as well as Jina Choi, who formerly worked in the Market Abuse Unit and is now director of the San Francisco office.  The case was supervised by Mr. Hawke and Robert Cohen, co-deputy chief of the Market Abuse Unit.  The Enforcement Division’s litigation will be led by Lloyd Farnham and John Yun of the San Francisco office.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

Remarks at SEC Historical Society 2014 Annual Meeting: On the 80th Anniversary of the SEC

Remarks at SEC Historical Society 2014 Annual Meeting: On the 80th Anniversary of the SEC

SEC CHARGES MAN FOR AIDING AND ABETTING FRAUDULENT FOREX TRADING SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Accomplice in Forex Trading Scheme

The Securities and Exchange Commission  filed charges against Steven M. McCraw for aiding and abetting a fraudulent foreign currency exchange (“forex”) trading scheme. The SEC’s case was filed in the U.S. District Court for the Eastern District of Texas.

The SEC alleges that McCraw knowingly or recklessly provided substantial assistance to Kevin G. White and his company, KGW Capital Management, LLC, in perpetrating a fraudulent scheme that raised approximately $7.4 million between September 2011 and July 2013. The SEC’s complaint alleges that White and KGW Capital raised investor funds through Revelation Forex, a purportedly successful “highly specialized hedge fund” that claimed to employ a sophisticated, low-risk, high-return forex trading strategy. McCraw helped White attract potential investors to Revelation Forex by calculating alleged trading returns that were used in various marketing materials and on Revelation Forex’s website. McCraw also took the lead in creating an ostensibly “independent” website that ranked Revelation Forex as one of the best performing forex funds in the world. McCraw also met with potential investors and solicited investments for Revelation Forex.

According to the SEC, Revelation Forex’s actual trading did not generate the positive returns that were represented to investors, but instead lost more than $2 million. Moreover, White used investor funds for various personal expenses and to fund other unrelated and undisclosed investments and businesses, including a propane gas company operated by McCraw. The SEC previously halted White’s fraudulent scheme in SEC v. Kevin G. White, et al., Civil Action No. 4:13-cv-0383 (E.D. Tex. July 9, 2013).

McCraw is charged with violating or aiding and abetting violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. He has agreed to settle the SEC’s charges by consenting to injunctions against future violations of these provisions, injunctions against engaging in certain specific conduct, disgorgement of ill-gotten gains (with prejudgment interest), and civil penalties to be determined by the district court.

NEW CFTC CHAIRMAN SWORN IN

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Timothy Massad Sworn In as Chairman of the U.S. Commodity Futures Trading Commission

Washington, DC — Timothy Massad was officially sworn in today, after being confirmed by the U.S. Senate on June 3, to serve as the Chairman of the U.S. Commodity Futures Trading Commission (CFTC), the federal agency that oversees the commodity futures, options and swaps industry. Mr. Massad will assume his responsibilities immediately.

Mr. Massad joined the agency after serving as the Assistant Secretary for Financial Stability at the U.S. Department of the Treasury. In that capacity, Mr. Massad oversaw the Troubled Asset Relief Program (TARP), the principal U.S. governmental response to the 2008 financial crisis designed to help stabilize the economy and provide help to homeowners. Prior to joining Treasury, Mr. Massad served as a legal advisor to the Congressional Oversight Panel for the Troubled Asset Relief Program, under the leadership of now Sen. Elizabeth Warren. He was also a partner in the law firm Cravath, Swaine & Moore in New York.

Mr. Massad has a B.A. from Harvard College and J.D. from Harvard Law School. He and his wife, Charlotte Hart, live in Washington with their two children.

4TH INSIDER TRADING ACTION FILED BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Brings Fourth Insider Trading Action Relating to Mercer Insurance Group

On May 27, 2014, the Securities and Exchange Commission filed an action in the U.S. District Court for the Eastern District of North Carolina charging Ronald L. Drewery with insider trading in the stock of a publicly-traded insurance company shortly before the announcement of that company's acquisition.

The SEC alleges that Defendant Drewery misappropriated material nonpublic information regarding the impending acquisition of Mercer Insurance Group, Inc. ("Mercer"), an insurance company formerly traded on the NASDAQ, from a longtime friend who was then a member of Mercer's board of directors. On the basis of the information regarding the impending acquisition, and in disregard of his duty of trust and confidence owed to the board member, Drewery purchased 3,500 shares of Mercer between October 13, 2010 and November 19, 2010 at a weighted average cost of $17.95. Following the November 30, 2010 announcement of Mercer's acquisition, Mercer's share price rose sharply closing at $27.89 per share, approximately 48% over its November 30, 2010 closing share price. Drewery subsequently sold the 3,500 shares he controlled at prices between $28.05 and $28.25 per share, realizing illicit profits of at least $35,730.

The SEC's complaint alleges that Drewery violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In settling the SEC's charges, Drewery agreed to fully disgorge ill-gotten gains of $35,730, plus pay prejudgment interest of $3,646.50, as well as pay a penalty of $35,730. Drewery neither admits nor denies the allegations, and his settlement is subject to court approval. This is the third action that the SEC has brought in the U.S. District Court for the Eastern District of North Carolina, and the fourth total action brought, relating to this matter.

The SEC's investigation was conducted in its Atlanta Regional Office by Assistant Regional Director Aaron W. Lipson, and the litigation has been led by Senior Trial Counsel Paul Kim. The SEC thanks the U.S. Attorney's Office of the Eastern District of North Carolina and the Financial Industry Regulatory Authority (FINRA) for their assistance in this matter.

Enhancing Our Equity Market Structure

Enhancing Our Equity Market Structure