SEC.gov | The Dominance of Data and the Need for New Tools: Remarks at the SIFMA Operations Conference

SEC.gov | The Dominance of Data and the Need for New Tools: Remarks at the SIFMA Operations Conference

SEC CHARGED FORMER TECHNOLOGY CEO WITH USING CORPORATE FUNDS FOR PERSONAL PURPOSES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
03/31/2015 01:00 PM EDT

The Securities and Exchange Commission charged the former CEO of Silicon Valley-based technology firm Polycom Inc. with using nearly $200,000 in corporate funds for personal perks that were not disclosed to investors.

The SEC alleges that Andrew Miller created hundreds of false expense reports with bogus business descriptions for his personal use of company dollars to pay for meals, entertainment, and gifts.  Furthermore, he used Polycom funds to travel with his friends and girlfriend to luxurious international resorts while falsely claiming the trips were business-related site inspections in advance of company sales retreats.  Miller hid the costs by directing a travel agent to bury them in fake budget line items.  In 2012 alone, Miller charged Polycom for more than $115,000 in personal expenses despite publicly reporting that he received less than $35,000 in perks that year.

The SEC separately charged Polycom in an administrative order finding that the company had inadequate internal controls and failed to report Miller’s perks to investors.  Polycom agreed to pay $750,000 to settle the SEC’s charges, without admitting or denying the SEC’s findings as to the company.  The case against Miller continues in federal court.

“CEOs are stewards of corporate assets and must be held to the highest standard of honesty and integrity,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “We will not hesitate to charge executives with fraud when they allegedly use a public company as a personal expense account and hide it from investors.”

According to the SEC’s complaint filed in the San Francisco Division of U.S. District Court for the Northern District of California, Miller’s undisclosed use of company funds for personal perks was wide-ranging:

More than $80,000 for personal travel and entertainment that Miller hid in falsified invoices or passed off as legitimate business expenses
More than $10,000 for clothing and accessories and more than $5,000 worth of spa gift cards that Miller falsely claimed to have given as gifts to customers and employees.

More than $10,000 for tickets to professional baseball and football games that Miller falsely claimed to have attended with clients.

More than $5,000 for plants and a plant-watering service at Miller’s apartment that he falsely claimed were for the company’s San Francisco office
The SEC’s complaint against Miller alleges that he violated the antifraud, proxy solicitation, periodic reporting, books and records and internal controls provisions of the federal securities laws.  The complaint also alleges that he falsely certified the accuracy of Polycom’s annual reports, which incorporated its proxy statements.

The SEC’s order against Polycom found that its internal controls over Miller’s expenses were inadequate.   For example, Polycom allowed Miller to approve his own expenses that were charged on his assistants’ credit cards, and the company allowed him to book and charge airline flights without providing any descriptions of their purpose.  As a result of Miller’s misconduct, Polycom’s proxy statements contained false compensation information and failed to accurately describe Miller’s perks as required.

“Public companies are required to implement and maintain effective controls over executive compensation and expenses,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Miller allegedly exploited weaknesses in Polycom’s controls to steer himself a series of perks to the detriment of shareholders.”

The SEC’s investigation was conducted by David Berman and John Roscigno of the San Francisco office, and the case was supervised by Tracy Davis.  The SEC’s litigation against Miller will be led by Susan LaMarca and David Johnson.

COURT ORDERS TEXAS COMPANY WITH OPERATING A FRAUDULENT COMMODITY POOL

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION  

April 6, 2015

Federal Court Orders Texas-based RFF GP, LLC, KGW Capital Management, LLC, and Kevin G. White to Pay over $7.5 Million for Operating a Fraudulent Commodity Pool

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Richard A. Schell of the U.S. District Court for the Eastern District of Texas entered a Consent Order for permanent injunction against Defendants RFF GP, LLC, KGW Capital Management, LLC, and Kevin G. White, all of The Woodlands, Texas. The Order, entered on March 30, 2015, requires the Defendants jointly to pay a $4,150,000 civil monetary penalty and restitution of $3,365,888. The Order also imposes permanent trading and registration bans against them.

The Order stems from a CFTC Complaint filed on July 9, 2013 (see CFTC Press Release 6644-13, July 12, 2013), charging the Defendants with fraud and misappropriation of pool participants’ funds while operating a fraudulent commodity pool, Revelation Forex Fund, LP. Defendants duped pool participants into investing in Revelation, a purported hedge fund and commodity pool, which Defendants established for the purpose of trading off-exchange foreign currency (forex), according to the Complaint.

The Order finds that the Defendants fraudulently solicited approximately $7.4 million from more than 20 pool participants. Of this amount, Defendants misappropriated approximately $1.7 million of pool participants’ funds. The Order also finds that White used these misappropriated pool participants’ funds for personal expenses, including a gym membership, retail purchases, meals, travel, and a dog training service, among other things. In making their solicitations through two websites and at a tradeshow presentation, Defendants fabricated Revelation’s performance and lied about White’s investment experience, according to the Order.

Related regulatory and criminal action

In a related regulatory action, the Securities and Exchange Commission filed a Complaint against White contemporaneously with the CFTC’s Complaint (SEC v. White, No. 4:13-cv-00383 (U.S. District Court for the Eastern District of Texas)). The U.S. District Court for the Eastern District of Texas entered interlocutory judgments against White and the other Defendants in this case on March 30, 2015.

In a related criminal action, on February 18, 2015, White was sentenced to 8 years in prison for mail fraud (United States v. White, Case No. 8:13-cr-00035-UA (U.S. District Court for the Eastern District of Texas)). (See CFTC Press Release 7127-15, February 26, 2015.)

The CFTC thanks the U.S. Securities and Exchange Commission’s Fort Worth, Texas, regional office, the U.S. Attorney’s Office for the Eastern District of Texas, the Federal Bureau of Investigation, Dallas Field Office, and the Nevada Office of the Attorney General for their assistance and cooperation on this matter.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

CFTC Division of Enforcement staff members responsible for this case are Harry E. Wedewer, Dmitriy Vilenskiy, John Einstman, and Paul G. Hayeck.

SEC ANNOUNCES JUDGEMENT BARING DEFENDANTS FROM PARTICIPATING IN MUNICIPAL BOND FUNDING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23229 / April 6, 2015

Securities and Exchange Commission v. Gary J. Burtka, Civil Action No. Civil Action No. 14-cv-14278 (Cohn) (E.D. MI)

Securities and Exchange Commission v. Eric C. Waidelich, Civil Action No. Civil Action No. 14-cv-14279 (Cohn) (E.D. MI)

SEC Obtains Final Judgments Against Gary Burtka and Eric Waidelich

The Securities and Exchange Commission announced that on January 28, 2015, the Honorable Avern Cohn of the United States District Court for the Eastern District of Michigan entered final judgments settling fraud charges brought by the Commission in related suits against defendants Gary J. Burtka and Eric C. Waidelich, the mayor and city administrator of Allen Park, Michigan.  Both judgments bar the defendants from participating in any municipal bond offerings and enjoin them from future violations of certain antifraud provisions of the federal securities laws.  The judgment against Burtka also imposed a $10,000 civil penalty.

The Commission’s Complaints, and an administrative proceeding the Commission filed against the City of Allen Park, arose from the city’s issuance of $31 million in general obligation bonds to support a movie studio project.  The Commission alleged that the city began planning the studio project in late 2008 in the hope it would bring much-needed economic development.  The state of Michigan had just enacted legislation that provided significant tax credits to film studios conducting business within the state.  The original plan detailed a $146 million facility with eight sound stages led by a Hollywood executive director, and the city planned to repay investors with $1.6 million in revenue from leases at the site.  The city issued bonds on November 12, 2009 and June 16, 2010 to raise funds to help develop the site.

The Complaints alleged that, by the time the bonds were issued, the city’s plans to implement and pay for the studio project had deteriorated into merely building and operating an onsite vocational school.  However, none of these changes were reflected in the bond offering documents or other public statements.  Investors were left uninformed not only about the project’s deterioration, but also about the substantial impact it would have on the city’s ability to service the bond debt, which comprised approximately 10% of the city’s total budget.  Moreover, the city used outdated budget information in the bond offering documents that did not reflect the city’s budget deficit of at least $2 million for fiscal year 2010.  The studio project collapsed within months of the second bond issuance, and the state appointed an emergency manager in October 2010, citing the failed project as a primary factor in the city’s deteriorating economic condition.

The Complaint against Waidelich alleged that, as city administrator, he reviewed and approved the offering documents provided to investors.  Those documents contained false and misleading statements about the scope and viability of the movie studio project as well as Allen Park’s overall financial condition and its ability to service the bond debt.  The Complaint against Burtka alleged that he was an active champion of the studio project and in a position to control the actions of the city and Waidelich with respect to the fraudulent bond issuances.  Based on this control, the Complaint charged Burtka with liability for violations committed by the city and by Waidelich.  This was the first time the Commission charged a municipal official under a federal statute that provides for “control person” liability.

Burtka and Waidelich consented to the entry of the Commission’s proposed judgments against them.  On November 25, 2014, Judge Avern Cohn held a status conference and asked the Commission for briefing on specific developments that occurred between the issuance of the first and second bonds, the harm caused by the fraud, and whether additional parties should be held responsible.  On January 28, 2015, the Court entered the judgments, imposing a $10,000 civil penalty against Burtka and enjoining him from further violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and enjoining Waidelich from further violations of Section 17(a)(2) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The Court also barred Burtka and Waidelich from participating in any municipal bond offerings.  Judge Cohn also posted comments explaining the basis for his decisions.

SEC CHARGES FORMER TECH CEO WITH USING CORPORATE FUNDS FOR PERSONAL PURPOSES WITHOUT DISCLOSURE TO INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23225 / March 31, 2015

Accounting and Auditing Enforcement Release No. AAER-3646 / March 31, 2015

Securities and Exchange Commission v. Andrew M. Miller, Civil Action No. 3:15-cv-1461

The Securities and Exchange Commission charged the former CEO of Silicon Valley-based technology firm Polycom Inc. with using nearly $200,000 in corporate funds for personal perks that were not disclosed to investors.

The SEC alleges that Andrew Miller created hundreds of false expense reports with bogus business descriptions for his personal use of company dollars to pay for meals, entertainment, and gifts. Furthermore, he used Polycom funds to travel with his friends and girlfriend to luxurious international resorts while falsely claiming the trips were business-related site inspections in advance of company sales retreats. Miller hid the costs by directing a travel agent to bury them in fake budget line items. In 2012 alone, Miller charged Polycom for more than $115,000 in personal expenses despite publicly reporting that he received less than $35,000 in perks that year.

The SEC separately charged Polycom in an administrative order finding that the company had inadequate internal controls and failed to report Miller's perks to investors. Polycom agreed to pay $750,000 to settle the SEC's charges, without admitting or denying the SEC's findings as to the company. The case against Miller continues in federal court.

According to the SEC's complaint filed in the San Francisco Division of U.S. District Court for the Northern District of California, Miller's undisclosed use of company funds for personal perks was wide-ranging:

More than $80,000 for personal travel and entertainment that Miller hid in falsified invoices or passed off as legitimate business expenses.
More than $10,000 for clothing and accessories and more than $5,000 worth of spa gift cards that Miller falsely claimed to have given as gifts to customers and employees.
More than $10,000 for tickets to professional baseball and football games that Miller falsely claimed to have attended with clients.
More than $5,000 for plants and a plant-watering service at Miller's apartment that he falsely claimed were for the company's San Francisco office.
The SEC's complaint against Miller alleges that he violated the antifraud, proxy solicitation, periodic reporting, books and records and internal controls provisions of the federal securities laws. The complaint also alleges that he falsely certified the accuracy of Polycom's annual reports, which incorporated its proxy statements.

The SEC's order against Polycom found that its internal controls over Miller's expenses were inadequate. For example, Polycom allowed Miller to approve his own expenses that were charged on his assistants' credit cards, and the company allowed him to book and charge airline flights without providing any descriptions of their purpose. As a result of Miller's misconduct, Polycom's proxy statements contained false compensation information and failed to accurately describe Miller's perks as required.

The SEC's complaint against Miller alleges that he violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(b)(5) and 14(a) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, 14a-3 and 14a-9 thereunder, and aided and abetted violations of Sections 13(a), 13(b)(2)(A) and 14(a) of the Exchange Act, and Rules 12b-20, 13a-1, 14a-3 and 14a-9 thereunder.

The SEC's order against Polycom found that it violated Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 14a-3 and 14a-9 thereunder.

The SEC's investigation was conducted by David Berman and John Roscigno of the San Francisco office, and was supervised by Tracy Davis. The SEC's litigation against Miller will be led by Susan LaMarca and David Johnson.

SEC CHAIR'S REMARKS TO INVESTOR ADVISORY COMMITTEE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Opening Remarks to the Investor Advisory Committee

SEC Chair Mary Jo White

April 9, 2015

Good morning and welcome.  Thank you again for making time in your schedules to be here and for all the work you do for the Investor Advisory Committee and the SEC.  Today, I want to give you a couple of updates since your last meeting in February.  And then I will just very briefly touch on some of what lies ahead that I think are of interest to this Committee.

Update on Rulemakings

In March, the Commission adopted rules as required by the JOBS Act to create a new exemption from registration under the Securities Act for offerings of up to $50 million in a 12 month period, which are intended to enhance the ability of small companies to raise capital.  We have come to refer to this rulemaking as Regulation A+, which updates and expands the exemption in existing Regulation A.  In crafting the rules, we sought to both protect investors and address the challenges presented by federal and state securities registration and qualification requirements.  In light of the significant investor protections included in Regulation A+, state registration and qualification requirements were preempted for certain offerings of up to $50 million in an effort to make the exemption more workable.

Importantly, the states will continue to retain their role in certain offerings up to $20 million and issuers will be able to avail themselves of the coordinated review process developed by NASAA on those offerings.  And, the states continue to have their full anti-fraud powers for all Regulation A+ offerings.  As we move forward, the staff will be actively monitoring the implementation and development of the new rules, to assess its impact on capital formation and investor protection.  Staff will report its findings to the Commission, within five years of the adoption of Regulation A+, so that the Commission can consider possible changes to the Regulation A+ offering regime.

Also, in March, the Commission proposed amendments to Rule 15b9‑1, which would require certain active cross-market proprietary trading firms to register with FINRA.  These amendments seek to update the rule and fill a regulatory gap with respect to significant over-the-counter trading by these firms.  This registration requirement should, in my view, help better protect investors and the stability of our markets by requiring this trading to be overseen by both the Commission and the SRO tasked with the primary responsibility of regulating such off-exchange trading.

Going Forward in 2015

As we proceed in 2015, as you know, some front and center priorities are in the market structure and asset management spaces, as well as our disclosure effectiveness initiative and I expect activity in those areas.  The staff is also completing its internal review of the very important definition of “accredited investors.”  On tick size pilot, the Commission has until May 6th to act.

As most of you know from the remarks I made last month on my own behalf, I expect we will be discussing advancing rulemakings to impose a uniform fiduciary duty on broker-dealers and investment advisers under Section 913 of the Dodd-Frank Act and to require a program of third party examinations of investment advisers to increase our exam coverage.

On the mandated rulemaking front, as I said at the end of last year, we will be advancing the remaining Title VII and executive compensation rulemakings under Dodd-Frank Act, including the Section 956 executive compensation rulemaking to be done with our fellow financial regulators.  On the JOBS Act side, adoption of final crowdfunding rules is our last major rulemaking to complete, which is also a priority for 2015.

Closing

Let me conclude on that note.  Again, thank you for all of your hard work.