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This is a photo of the National Register of Historic Places listing with reference number 7000063

Wednesday, August 27, 2014

MERRILL LYNCH TO PAY CFTC FINE FOR SUPERVISORY FAILURES

FROM:  COMMODITY FUTURES TRADING COMMISSION 

CFTC Orders Merrill Lynch to Pay $1.2 Million Fine for Supervision Failures

Firm’s Supervisory Failures over Fee Processing Led to Client Overcharges at Times

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) for failing to diligently supervise its officers’, employees’, and agents’ processing of futures exchange and clearing fees charged to its customers from at least January 1, 2010 through April 2013. Merrill Lynch is a CFTC-registered Futures Commission Merchant and approved swap firm located in New York, New York.
The CFTC Order finds that Merrill Lynch’s fee reconciliation process for identifying and correcting discrepancies between the invoices from the exchange clearinghouses and the amounts charged its customers had been faulty for more than two years. As a result, Merrill over-accrued fees from some clients and under-accrued fees from others. These fee reconciliations show that Merrill paid more than $318 million in exchange and clearing fees to the CME and Chicago Board of Trade during that time, but had unexplained over-accruals of approximately $451,318 (0.14% of fees paid) from 196 clients, according to the Order.
Additionally, the CFTC Order finds that Merrill Lynch did not hire qualified personnel to conduct and oversee its fee reconciliations and did not provide any completed procedures manuals regarding fee reconciliations to its staff until at least April 2013. The Order also finds that procedures Merrill Lynch did have up until that time were viewed as ”not fit for purpose” because they were “fundamentally flawed.” Merrill Lynch also did not provide any meaningful training to employees regarding how to conduct fee reconciliations until 2013, the Order finds.
The CFTC Order requires Merrill Lynch to pay a $1.2 million civil monetary penalty and cease and desist from violating CFTC Regulation 166.3 governing diligent supervision. The Order also requires Merrill Lynch to comply with undertakings that include, hiring an outside consulting firm to assist in training staff and reviewing and updating its current procedures regarding exchange and clearing fee reconciliations.
The CFTC Division of Enforcement staff members responsible for this case are Susan Gradman, Joseph Patrick, Brigitte Weyls, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

Sunday, August 24, 2014

SEC CHARGES ACCOUNTING FIRM PARTNER FOR INSIDER TRADING BASED ON CONFIDENTIAL INFORMATION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced charges against an accounting firm partner in Atlanta for insider trading in the stock of a restaurant company based on confidential information he learned from a client on the board of directors who came to him for tax advice in advance of a tender offer announcement.

SEC investigators also identified and charged three other traders who traded illegally on tips from the accountant.  The traders were discovered by comparing trading records from stock exchanges with names on the accountant’s client list.

The SEC alleges that Donald S. Toth disregarded his fiduciary duty to a client when he illicitly purchased stock in O’Charley’s Inc. – which operates or franchises restaurants under the brands O’Charley’s, Ninety Nine Restaurant, and Stoney River Legendary Steaks – after the client revealed to him in a tax-planning meeting that Fidelity National Financial was planning to purchase the company.  Toth contacted his financial advisor within the hour after this meeting with the O’Charley’s board member and began making plans to purchase 5,000 shares of O’Charley’s stock.  Toth also tipped two other clients, James A. Nash and Blair G. Schlossberg.  Nash purchased 10,000 shares and tipped others who separately traded.  Schlossberg tipped his business partner Moshe Manoah and they jointly invested in O’Charley’s stock using a brokerage account held in the name of Manoah’s wife. 
According to the SEC’s complaints filed against Toth, Nash, Schlossberg, and Manoah, when the tender offer was publicly announced approximately two months later, the price of O’Charley’s stock closed 42 percent higher than the previous trading day.  The insider trading activity garnered illegal profits of more than $160,000. 

The four have agreed to pay a combined total of more than $420,000 to settle the SEC’s charges.

“As an accountant, Toth had a duty to keep confidential the information shared by his client for tax-planning purposes, but instead he misused it for personal investments and provided the details to other clients for their misuse,” said William P. Hicks, associate director of enforcement in the SEC’s Atlanta Regional Office. 

The SEC’s complaints were filed against Toth and Nash yesterday in federal court in Atlanta and against Schlossberg and Manoah today in federal court in Tampa, Fla.  They are charged with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3.  Without admitting or denying the allegations, they consented to the entry of judgments permanently enjoining them from violating these provisions of the securities laws.  The settlements are subject to court approval.

Toth, who lives in Atlanta, agreed to pay disgorgement of $19,036.00 in trading profits plus prejudgment interest of $1,224.09 and a penalty of $103,935.50 for a total of $124,195.59.
Nash, who lives in Buford, Ga., agreed to pay disgorgement of $52,500.00 – which represents his own trading profits and those of others who he tipped – plus prejudgment interest of $3,375.96 and a penalty of $52,500.00 for a total of $108.375.96.

Schlossberg, who lives in Holmes Beach, Fla., agreed to pay disgorgement of $46,358.50 in trading profits plus prejudgment interest of $2,981.02 and a penalty of $46,358.50 for a total of $95,698.02.

Manoah, who lives in Davie, Fla., agreed to pay disgorgement of $46,358.50 in trading profits plus prejudgment interest of $2,981.02 and a penalty of $46,358.50 for a total of $95,698.02.
The SEC’s investigation was conducted by Elizabeth P. Skola with assistance from Aaron W. Lipson and Robert Schroeder in the Atlanta Regional Office.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.