SEC.gov | Aligning the Interests of Company Executives and Directors with Shareholders

SEC.gov | Aligning the Interests of Company Executives and Directors with Shareholders

Joint Dissenting Statement Concerning Modifications to Previously-Adopted Regulation SBSR

Joint Dissenting Statement Concerning Modifications to Previously-Adopted Regulation SBSR

SEC CHARGES 4 WITH HAVING ROLES IN INSIDER TRADING RING SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

02/05/2015 12:45 PM EST

The Securities and Exchange Commission today charged a stock research analyst, a corporate insider, and two others involved in a California-based insider trading ring that generated nearly $750,000 in illegal profits by trading in advance of four corporate news announcements.

The SEC alleges that John Gray, then an analyst at Barclays Capital, and his friend Christian Keller traded on confidential merger information that Keller learned while working in finance at two Silicon Valley-based public companies.  Gray and Keller attempted to conceal the trades by placing them in a brokerage account held in the name of Gray’s friend Kyle Martin.  Gray also tipped a fourth participant, Aaron Shepard, with nonpublic information so he could trade in advance of some of the corporate announcements.
Gray, Keller, Martin, and Shepard have agreed to settle the SEC’s charges by paying more than $1.6 million combined.

“Gray and Keller tried to evade detection by trading in another person’s name, using prepaid disposable phones, and making structured cash withdrawals to share profits,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Despite their careful planning, we were able to detect the suspicious trading and effectively use our cooperation program to expose their nefarious scheme.”

According to the SEC’s complaint filed in federal court in the Northern District of California, Gray was primarily responsible for placing the trades in Martin’s account.  Gray and Martin also placed additional trades in other accounts based on Keller’s confidential information that Gray shared with Martin.  Gray provided Keller kickbacks in cash from the trading profits.

The SEC alleges that Gray and Keller first traded on confidential merger information that Keller learned while employed as a financial analyst at Applied Materials Inc.  They illegally traded ahead of the company’s acquisitions of Semitool Inc. in 2009 and Varian Semiconductor Equipment Associates in 2011.  Keller left Applied Materials and joined Rovi Corporation in 2012 as a vice president for investor relations and finance.  The scheme continued as they used confidential information that Keller learned as an insider to profitably trade Rovi securities ahead of negative news announcements by the company about its 2012 first and second quarter financial results.

Gray, Keller, Martin, and Shepard agreed to make the following payments to settle the case, without admitting or denying the allegations.  The settlements are subject to court approval.

• Gray agreed to pay disgorgement of $287,487.55, prejudgment interest of $21,836.88, and a penalty of $448,876.03.  Gray also agreed to be barred from the securities industry and from participating in penny stock offerings.
• Keller agreed to pay disgorgement of $52,000, prejudgment interest of $4,002.03, and a penalty of $417,468.73, which represents the total profits from the secret trades placed in Martin’s brokerage account.  Keller also agreed to be barred from serving as an officer or director of a public company for 10 years.
• Martin agreed to pay disgorgement of $243,276.10 plus prejudgment interest of $21,404.28, and Shepard agreed to pay disgorgement of $161,388.36 plus prejudgment interest of $9,633.07.  They are not being assessed additional penalties due to their significant cooperation during the SEC’s investigation.

The SEC’s investigation was conducted by Jennifer J. Lee and supervised by Steven Buchholz of the San Francisco Regional Office with assistance from John Rymas of the Market Abuse Unit of the Philadelphia Regional Office.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority, and the Options Regulatory Surveillance Authority.

Rule 14a-8: Conflicting Proposals, Conflicting Views

Rule 14a-8: Conflicting Proposals, Conflicting Views

Joint Statement on the Commission’s Proposed Rule on Hedging Disclosures

Joint Statement on the Commission’s Proposed Rule on Hedging Disclosures

SEC IMPOSES SANCTIONS AGAINST 4 CHINA-BASED ACCOUNTING FIRMS RELATING TO NON-COOPERATION IN FRAUD INVESTIGATIONS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION  

02/05/2015

The Securities and Exchange Commission imposed sanctions against four China-based accounting firms that had refused to turn over documents related to investigations of potential fraud.  The China-based firms are members of large international networks associated with the “Big Four” accounting firms and registered with the Public Company Accounting Oversight Board (PCAOB).

As part of the settlement, the Commission censures the firms, which eventually began providing the documents, and requires them to perform specific steps to satisfy SEC requests for similar materials over the next four years.  Under the settlement, the firms each agreed to pay $500,000 and admit that they did not produce documents before the proceedings were instituted against them in 2012.  They agreed to the settlement without admitting or denying other findings in the order.

“As we repeatedly have stated throughout this litigation, obtaining an audit firm’s workpapers is critical to enforcement staff’s ability adequately to protect investors from the dangers of accounting fraud,” said Andrew Ceresney, Director of the SEC’s Enforcement Division.  “This settlement recognizes the SEC’s substantial recent progress in obtaining those documents from registered firms in China.  The settlement also holds four of the firms accountable for previously violating U.S. rules, and makes clear that should production of documents cease, the SEC can restart the administrative proceeding.”

In January 2014, after a 12-day hearing the previous summer, an administrative law judge issued an initial decision finding that the four firms – Deloitte Touche Tohmatsu Certified Public Accountants Limited, Ernst & Young Hua Ming LLP, KPMG Huazhen (Special General Partnership), and PricewaterhouseCoopers Zhong Tian CPAs Limited Company – willfully refused to provide the SEC with workpapers and related documents in connection with their audit work for nine China-based companies that had securities registered in the U.S.  The initial decision found that the firms willfully violated Section 106 of the Sarbanes-Oxley Act, which requires foreign public accounting firms to provide such workpapers to the SEC upon request.

After the hearing, the SEC received multiple productions of workpapers from the firms through assistance provided by the China Securities Regulatory Commission (CSRC).  As these productions were being made, the four firms petitioned the Commission to review the January 2014 initial decision.  The SEC’s Enforcement Division also sought review of aspects of that decision.  

“The settlement is an important milestone in the SEC’s ability to obtain documents from China.  Of course, we hope that it is an enduring milestone,” said Antonia Chion, Associate Director of the Enforcement Division.  “The settlement provides a path forward for obtaining productions and enhanced future cooperation from the Big Four firms.”

Under the settlement, if future document productions fail to meet specified criteria, the Commission retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure.  Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or the resumption of the current proceeding against all four firms.

The proceeding continues against a fifth China-based accounting firm, Dahua CPA Ltd.

The Enforcement Division’s litigation has been led by David Mendel and assisted by Jan Folena, Amy Friedman, Marc E. Johnson, and Douglas Gordimer.  The litigation has been supervised by Matthew Solomon, Antonia Chion, and Kara Brockmeyer.