Readout of the President’s Meeting with Federal Reserve Chair Janet Yellen | The White House

Readout of the President’s Meeting with Federal Reserve Chair Janet Yellen | The White House

SEC SANCTIONS 13 FIRMS FOR VIOLATING RULE THAT PROTECTS SMALL INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today sanctioned 13 firms for violating a rule primarily designed to protect retail investors in the municipal securities market.

All municipal bond offerings include a “minimum denomination” that establishes the smallest amount of the bonds that a dealer firm is allowed to sell an investor in a single transaction.  Municipal issuers often set high minimum denomination amounts for so-called “junk bonds” that have a higher default risk that may make the investments inappropriate for retail investors.  Because retail investors tend to purchase securities in smaller amounts, this minimum denomination standard helps ensure that dealer firms sell high-risk securities only to investors who are capable of making sizeable investments and more prepared to bear the higher risk.

In its surveillance of trading in the municipal bond market, the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit detected improper sales below a $100,000 minimum denomination set in a $3.5 billion offering of junk bonds by the Commonwealth of Puerto Rico earlier this year.  The SEC’s subsequent investigation identified a total of 66 occasions when dealer firms sold the Puerto Rico bonds to investors in amounts below $100,000.  The agency instituted administrative proceedings against the firms behind those improper sales: Charles Schwab & Co., Hapoalim Securities USA, Interactive Brokers LLC, Investment Professionals Inc., J.P. Morgan Securities, Lebenthal & Co., National Securities Corporation, Oppenheimer & Co., Riedl First Securities Co. of Kansas, Stifel Nicolaus & Co., TD Ameritrade, UBS Financial Services, and Wedbush Securities.

The enforcement actions are the SEC’s first under Municipal Securities Rulemaking Board (MSRB) Rule G-15(f), which establishes the minimum denomination requirement.  Each firm agreed to settle the SEC’s charges and pay penalties ranging from $54,000 to $130,000.

“These actions demonstrate our commitment to rigorous enforcement of all types of violations in the municipal bond market,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “We will act quickly and use all available tools to protect investors in municipal securities.”

LeeAnn G. Gaunt, Chief of the SEC’s Municipal Securities and Public Pensions Unit added, “These firms violated a straightforward investor protection rule that prohibits the sale of muni bonds in increments below a specified minimum.  We conduct frequent surveillance of trading in the municipal bond market and will penalize abuses that threaten retail investors.”  

The SEC’s orders against the 13 dealers find that in addition to violating MSRB Rule G-15(f) by executing sales below the minimum denomination, they violated Section 15B(c)(1) of the Securities Exchange Act of 1934, which prohibits violations of any MSRB rule.  Without admitting or denying the findings, each of the firms agreed to be censured.  They also agreed to review their policies and procedures and make any changes that are necessary to ensure proper compliance with MSRB Rule G-15(f).

The SEC’s investigation, which is continuing, is being conducted by Joseph Chimienti, Sue Curtin, Heidi M. Mitza, and Jonathon Wilcox with assistance from Kathleen B. Shields.  The case is supervised by Kevin B. Currid and Mark R. Zehner.  The SEC appreciates the assistance of the MSRB.

5 INVESTORS INDICTED FOR BID RIGGING AT FORECLOSURE AUCTIONS

FROM:  U.S. JUSTICE DEPARTMENT 

Tuesday, October 21, 2014

Five Northern California Real Estate Investors Indicted for Bid Rigging and Fraud at Public Foreclosure Auctions

A federal grand jury in San Francisco returned an eight-count indictment against five real estate investors for their role in bid rigging and fraud schemes at foreclosure auctions in Northern California, the Department of Justice announced.

The indictment, filed today in U.S. District Court for the Northern District of California in San Francisco, California, charges Northern California real estate investors Joseph Giraudo, Raymond Grinsell, Kevin Cullinane, James Appenrodt and Abraham Farag with participating in conspiracies to rig bids and schemes to defraud mortgage holders and others.  The indictment alleges that the defendants agreed to stop bidding or to refrain from bidding for properties at public foreclosure auctions in San Mateo County, California, in return for payoffs and concealing the fact that monies were diverted from mortgage holders, homeowners and others to co-schemers.  Additionally, Giraudo, Grinsell and Appenrodt were charged with bid rigging and fraud in San Francisco County, California.  To date, 47 individuals have agreed to plead or have pleaded guilty, as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.

“These defendants corrupted the public foreclosure auctions in San Mateo and San Francisco counties, and they did so to line their pockets with money that rightfully belonged to mortgage holders and others,” said Brent Snyder, Deputy Assistant Attorney for the Antitrust Division’s criminal enforcement program.  “As these charges demonstrate, the Antitrust Division will continue to pursue bidders at foreclosure auctions who violated the Sherman Act and defrauded mortgage holders and others.”

The indictment alleges, among other things, that beginning no later than August 2008 and continuing until January 2011, the defendants conspired to rig bids to obtain numerous properties sold at foreclosure auctions in San Mateo and San Francisco counties, paid others not to bid, accepted payoffs not to bid and, in the process, defrauded mortgage holders, other holders of debt secured by the auctioned properties and, in some cases, the defaulting homeowners.

“These charges demonstrate our continued commitment to investigate and prosecute individuals and organizations responsible for the corruption of the public foreclosure auction process,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office.  “The FBI is committed to work these important cases and remains unwavering in our dedication to bring the members of these illegal conspiracies to justice.”

Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.  Each count of mail fraud carries a maximum sentence of 20 years in prison and a $1 million fine.  The government can also seek to forfeit the proceeds earned from participating in the mail fraud schemes.  The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million.

Today’s charges are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa, and Alameda counties, California.  These investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office.  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-934-5300, or call the FBI tip line at 415-553-7400.  

Today’s charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 93 U.S. Attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,900 mortgage fraud defendants.

COURT ORDER MAN AND COMPANY TO PAY $2.2 MILLION FOR COMMODITY POOL FRAUD

FROM:   COMMODITY FUTURES TRADING COMMISSION 

Federal Court Orders Boston Resident John B. Wilson and His Company, JBW Capital LLC, to Pay a Civil Penalty of More than $2.8 Million for Commodity Pool Fraud

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that the Honorable Richard G. Stearns of the U.S. District Court for the District of Massachusetts entered a Final Judgment against Defendants John B. Wilson and his company, JBW Capital LLC (JBW) (collectively, the Defendants), both of Boston, Massachusetts, for fraud and registration violations of the Commodity Exchange Act (CEA). The court’s Final Judgment orders the Defendants, jointly and severally, to pay a $2.86 million civil penalty; it permanently enjoins the Defendants from further violations of the CEA, as charged; and it imposes permanent trading and registration bans on the Defendants.

The court’s action stems from a CFTC Complaint filed on September 28, 2012, that charged Defendants with violating the anti-fraud provisions of the CEA in connection with a commodity pool by falsely representing to investors on multiple occasions the pool’s Net Asset Value (NAV). The Complaint also charged Defendants with failing to register with the CFTC as Commodity Pool Operators (CPOs) (see CFTC Complaint and Press Release 6372-12).

On May 16, 2014, the court granted Summary Judgment to the CFTC and found that Defendants had defrauded and deceived their pool participants by misrepresenting on multiple occasions the NAV of the pool. For example, in September 2008, the Defendants falsely represented the pool’s NAV to be $2,475,941, when the actual NAV was $1,149,628, according to the court’s findings. The court also found that Defendants had illegally acted as unregistered CPOs.

The CFTC acknowledges the assistance of the Massachusetts Securities Division in this matter.

CFTC staff members responsible for this matter include W. Derek Shakabpa, Judith M. Slowly, David W. Oakland, Patryk Chudy, David Acevedo, Lenel Hickson, Jr., and Manal M. Sultan.

SEC ANNOUNCES INSIDER TRADING CHARGES AGAINST NEW JERSEY MAN IN MONEY IN A SHOE-BOX CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

10/24/2014 01:35 PM EDT

The Securities and Exchange Commission today announced insider trading charges against a New Jersey man who generated nearly $700,000 in illicit profits trading in the securities of two pharmaceutical companies that were about to be acquired.  The SEC charged his source of nonpublic information earlier this month.

The SEC alleges that David Post of Livingston, N.J., was tipped with confidential details about the impending deals by his former business school classmate who was tasked with evaluating potential acquisitions in his financial analyst job at a major pharmaceutical company.  Post and his friend, Zachary Zwerko, used prepaid “burner” cell phones to exchange coded text messages in advance of Post’s trading.  They also used a dummy e-mail account they could both access to draft an e-mail message in code and leave it in the draft folder for the other to read and then delete.  In exchange for the illegal tips, Post paid Zwerko $7,000 at a Halloween party following his profitable trading in 2012, and gave him $50,000 in a shoebox when Zwerko visited his home after additional insider trading occurred earlier this year.

The U.S. Attorney’s Office for the Southern District of New York announced parallel insider trading cases against Post today and against Zwerko earlier this month.

“Post and Zwerko tried to keep law enforcement authorities in the dark by using prepaid cell phones and a dummy e-mail account to communicate inside information, and Post doled out the kickbacks inside his own home,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “But in the end, the SEC staff’s investigative expertise helped in bringing yet another audacious insider trading scheme to light.”

According to the SEC’s amended complaint filed in U.S. District Court for the Southern District of New York, Post traded on the basis of confidential details about two acquisition targets of the pharmaceutical company where Zwerko then worked.  The insider trading first occurred in 2012 when Zwerko learned his employer was among several other pharmaceutical companies in a competitive bidding process for Ardea Biosciences Inc.  In the several weeks leading up to Ardea’s public announcement, Post received regular updates from Zwerko about the status of confidential negotiations and purchased $227,000 worth of Ardea securities – the most he had ever invested in a single company.  Post had never before purchased Ardea securities.  After Ardea publicly announced that it had accepted an acquisition bid and its stock price rose by 51 percent, Post sold all of his shares and reaped profits of approximately $105,000.

The SEC further alleges that Zwerko tipped Post with confidential details about his employer’s nonpublic negotiations to acquire Idenix Pharmaceuticals Inc. earlier this year.  Although not directly involved in the deal, Zwerko accessed confidential files in the company’s database during the negotiations and gleaned additional nonpublic information in his communications with others at the company.  Post, who had never before purchased Idenix securities, made purchases totaling $219,000 from May 21 to June 6.  After a public announcement was made on June 9, Post sold his Idenix securities for a profit of approximately $579,000.

The SEC’s amended complaint charges Zwerko and Post with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint seeks permanent injunctive relief, disgorgement with prejudgment interest on a joint and several liability basis, and financial penalties.

The SEC’s investigation, which is continuing, has been conducted by Dominick D. Barbieri, Neil Hendelman, and Charles D. Riely.  The SEC’s litigation will be led by Mr. Barbieri.  The case has been supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.

SEC CHARGES HEDGE FUND MANAGER WITH INSIDER TRADING USING MATERIAL, NONPUBLIC INFORMATION IN ADVANCE OF NEWS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23118 / October 24, 2014

Securities and Exchange Commission v. Stephen E. Slawson, Civil Action No. Number1:14-cv-3421

SEC Charges New Jersey-Based Hedge Fund Manager with Insider Trading in Carter's Stock

The Securities and Exchange Commission today filed insider trading charges against a New Jersey-based hedge fund manager who allegedly used material, nonpublic information to trade in advance of market-moving news concerning Carter's Inc.

Stephen Slawson, who lives in Lebanon, N.J., and was co-founder and former manager to a hedge fund named TCMP3 Partners L.P., becomes the eighth individual that the SEC has charged in connection with the agency's investigation into insider trading and other misconduct involving the securities of the Atlanta-based marketer of children's clothing.

According to the SEC's complaint filed in federal court in the Northern District of Georgia, Slawson conducted insider trading on at least eight occasions in the hedge fund's accounts or personal accounts belonging to him or other family members. Slawson was initially tipped with nonpublic information about Carter's by a hedge fund investment consultant named Dennis Rosenberg, who received the inside information from a Carter's executive. Slawson later communicated directly with that executive: Eric Martin, who at the time was vice president and director of investor relations.

The SEC alleges that based on the illegal tips that Slawson received from Rosenberg and Martin, his insider trading in Carter's stock generated more than $500,000 in profits or avoided losses.

The SEC's complaint alleges that Slawson violated the antifraud provisions of the federal securities laws: Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a permanent injunction, disgorgement with prejudgment interest and civil monetary penalties pursuant to Section 21A of the Exchange Act.

Previously, the U.S. Attorney's Office for the Northern District of Georgia announced that a grand jury had indicted Slawson and charged him with one count of conspiracy to commit securities fraud and wire fraud, 25 counts of securities fraud, and nine counts of wire fraud, based on substantially similar conduct as alleged in the SEC's complaint. He is awaiting a trial in the criminal case.

The SEC, whose investigation continues into insider trading of Carter's stock, appreciates the assistance of the U.S. Attorney's Office for the Northern District of Georgia and the Financial Industry Regulatory Authority.