FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
Chicago-Based R.J. O’Brien & Associates, LLC Sanctioned $300,000 for Supervision Violations
RJO failed to diligently supervise the handling of customer orders over four years
Washington, DC ― The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges against R.J. O’Brien & Associates, LLC (RJO), of Chicago, Ill., a registered Futures Commission Merchant, for failing to diligently supervise its employees in connection with the handling of commodity futures orders of a Guaranteed Introducing Broker (GIB) of RJO and the GIB’s Associated Person (AP), sole principal, and owner.
The CFTC order finds that, from at least January 2003 through February 2007, the GIB’s AP engaged in an unlawful trade allocation scheme for his personal benefit and to the detriment of both the GIB’s customers and a commodity futures pool operated by the AP through accounts held at RJO. The AP was able to allocate trades post-execution, allocating the more profitable trades to his personal accounts, and the unprofitable, or less profitable trades to either the GIB customer accounts or the pool account, the order finds. The GIB’s and AP’s customers sustained losses of up to $183,000, according to the order.
In addition, RJO failed to follow procedures it had in place concerning the placement of bunched orders by account managers, the order finds. For example, RJO failed to ensure that it always received a post-allocation plan prior to, or contemporaneously with, the GIB’s AP’s filing of bunched orders. The order also finds that RJO did not employ adequate procedures to monitor, detect, and deter unusual activity concerning trades that were allocated post-execution, or for supervision of its employees’ handling and processing of bunched orders. By such acts, RJO failed to diligently supervise the handling of customer orders in violation of CFTC regulation 166.3, 17 C.F.R. § 166.3 (2011).
The CFTC order imposes a $300,000 civil monetary penalty and requires RJO to cease and desist from further violations of CFTC regulation 166.3, as charged.
CFTC Division of Enforcement staff was responsible for this case are Kevin S. Webb, Michelle S. Bougas, Heather N. Johnson, James H. Holl, III, Gretchen L. Lowe, and Vincent A. McGonagle.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today the resolution of an enforcement action filed by the Commission on October 19, 2010 in federal district court in Rhode Island against defendants David G. Stern and Online-Registries, Inc. (d/b/a Online Medical Registries) ("OMR") and relief defendant Michele Ritter. The court entered final judgment by consent against Stern on December 5, 2012 and entered a stipulation of dismissal of the claims against the relief defendant on December 27, 2012. The court previously had entered a final judgment by default against OMR on September 25, 2012.
The Commission's complaint alleged that Stern and OMR made false and misleading statements to investors in OMR, a web-based company founded and controlled by Stern, in connection with investors' purchase of stock in OMR. The misrepresentations generally related to OMR's business ventures, the status of its technology, its number of customers, and Stern's personal background, consisting of disbarment from the practice of law and a prior criminal conviction in federal district court in Massachusetts relating to financial wrongdoing. Based upon these and other allegations, including the misuse of investor funds, the Commission obtained a temporary restraining order and asset freeze on October 20, 2010, and a stipulated preliminary injunction on February 28, 2011 against Stern and OMR. On April 3, 2012, the court held Stern in contempt for violations of the preliminary injunction.
Without admitting or denying the allegations in the Commission's complaint, Stern agreed to the entry of a final judgment that: (i) permanently enjoins him from violating Section 17(a) of the Securities Act of 1933 (the "Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder; (ii) holds him liable for disgorgement of $197,875, representing amounts received as a result of the conduct alleged in the Commission's complaint, together with prejudgment interest thereon in the amount of $27,800.71, for a total of $225,675.71; and (iii) waives the payment of disgorgement and prejudgment interest and does not impose a civil penalty based upon the representations in Stern's sworn statement of financial condition. The final judgment by default entered against OMR (i) enjoins OMR from violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and (ii) orders OMR to pay disgorgement of $197,875 and prejudgment interest in the amount of $24,997.22. The Commission had initially charged that relief defendant Michele Ritter received some investor funds from Stern and sought the return of those funds. The Commission has now agreed to dismiss its charges against relief defendant Michele Ritter.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Dec. 26, 2012 — The Securities and Exchange Commission today announced additional charges in an insider trading case against two brokers who traded on nonpublic information ahead of IBM Corporation’s acquisition of SPSS Inc.
In an amended complaint filed in federal court in Manhattan, the SEC is now charging research analyst Trent Martin, who was the brokers’ source of confidential information in an insider trading scheme that yielded more than $1 million in illicit profits. Martin worked at a brokerage firm in Connecticut and specialized in Australian equity investments, and he learned nonpublic information about the impending IBM-SPSS transaction from an attorney friend who was working on the deal. Rather than maintaining the confidence of the information, Martin used the information for his own benefit, purchasing SPSS securities and subsequently tipping his roommate Thomas C. Conradt, who traded and tipped his friend and fellow retail broker David J. Weishaus. Martin was specifically named as their source in instant messages between Conradt and Weishaus about their illegal trading.
The SEC charged Conradt and Weishaus with insider trading on November 29. Martin, who fled the U.S. to Australia soon after learning about the SEC’s investigation, currently lives in Hong Kong.
"Martin is a licensed professional who knowingly disregarded insider trading laws to enrich himself, and then fled the United States when he learned of our investigation," said Daniel M. Hawke, Director of the SEC’s Philadelphia Regional Office. "Martin could run but he could not hide, as the long arm of the SEC will extend to those who flee the United States hoping to avoid the consequences of their unlawful conduct."
The SEC alleges that Martin’s attorney friend expected him to maintain information in confidence and refrain from illegal trading or disclosing it to others. The attorney sought moral support, reassurance, and advice when he privately told Martin about his new assignment working on the IBM-SPSS acquisition. The lawyer disclosed to Martin such details as the anticipated transaction price and the identities of the acquiring and target companies while he was describing the magnitude of the assignment.
According to the SEC’s complaint, Martin attempted to purchase SPSS common stock on the very first business day after learning the nonpublic information from his friend. His first three orders were cancelled because he did not have sufficient funds in the account to make the purchases, but he later wired $50,000 from his checking account into his brokerage account to purchase SPSS shares.
The SEC’s complaint alleges that Martin, Conradt and Weishaus violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest and financial penalties, and a permanent injunction against the brokers.
The SEC’s investigation, which is continuing, is being conducted by Mary P. Hansen, A. Kristina Littman, and John S. Rymas in the SEC’s Philadelphia Regional Office. G. Jeffrey Boujoukos and Catherine E. Pappas in the Philadelphia office are handling the litigation.
The SEC acknowledges the assistance of the Options Regulatory Surveillance Authority (ORSA), the New Zealand Securities Commission, and the Australia Securities and Investments Commission. The SEC also acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Dec. 18, 2012 — The Securities and Exchange Commission today charged a Toronto-based brokerage firm and its top two executives for failing to supervise overseas day traders who used the firm’s order management system to engage repeatedly in a manipulative trading practice known as layering.
In layering, a trader places orders with no intention of having them executed but rather to trick others into buying or selling a stock at an artificial price driven by the orders, which the trader later cancels. The SEC’s investigation found that Biremis – whose worldwide day trading business enabled up to 5,000 traders on as many 200 trading floors in 30 countries to gain access to U.S. markets – failed to address repeated instances of layering by many of the overseas day traders using its system. The firm’s co-founders Peter Beck and Charles Kim ignored repeated red flags indicating that overseas traders were engaging in layering manipulations. Biremis served as the broker-dealer for an affiliated Canadian day trading firm, Swift Trade Inc.
Biremis and the two executives agreed to a settlement in which the firm’s registration as a U.S. broker-dealer is revoked and permanent industry bars are imposed on Beck and Kim, who also will pay a combined half-million dollars to settle the SEC’s charges.
"Engaged and forceful supervisors are the first line of defense against individual misconduct in financial services companies," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "Beck and Kim were neither, as they saw obvious red flags of market manipulation by their firm’s traders but failed to respond or take any steps to prevent the manipulation. They have learned the painful lesson that supervisors who fail to heed repeated red flags of misconduct will no longer have any place in the securities industry."
According to the SEC’s order instituting settled administrative proceedings, Biremis, Beck, and Kim exercised substantial control over the overseas day traders. They backed the traders’ trading with capital from Biremis, determined the amount of Biremis capital available to each individual trader to purchase stocks, and set and enforced daily loss limits on each trader. They also wielded authority to reprimand, restrict, suspend, or terminate traders.
The SEC’s order found that many of the Biremis-affiliated overseas day traders engaged in repeated instances of layering from January 2007 to mid-2010. Beck and Kim learned from numerous sources – including three U.S. broker-dealers and a Biremis employee – that layering was occurring, yet they failed to take any steps to prevent it. For example, in spring 2008, representatives of one U.S. broker-dealer warned Beck and Kim that certain overseas traders were "gaming" U.S. stocks by altering those stocks’ bid and offer prices in order to buy or sell the stock at the altered price. Beck and Kim failed to act on this information.
According to the SEC’s order, Biremis also failed to retain virtually all of its instant messages related to its broker-dealer business, and failed to file any suspicious activity reports (SARs) related to the manipulative trading.
"Broker-dealers must recognize that their supervisory responsibilities over their associated persons don’t end at the U.S. border," said Antonia Chion, Associate Director of the SEC’s Division of Enforcement. "Broker-dealers face severe consequences if they fail to supervise their traders who engage in manipulative trading, whether those traders are located in the U.S. or abroad."
The SEC’s order finds that Biremis, Beck, and Kim failed reasonably to supervise the firm’s associated persons (the overseas day traders) with a view to preventing and detecting their layering manipulations. The order also finds that Biremis willfully violated Exchange Act Section 17(a) and Rule 17a-8 by failing to file SARs and Section 17(a) and Rule 17a-4(b)(4) by failing to retain instant messages.
The SEC’s order revokes Biremis’ registration as a broker-dealer and requires the firm to cease and desist from committing or causing violations of Exchange Act Section 17(a) and Rules 17a-4(b)(4) and 17a-8. The SEC imposed permanent industry bars on Beck and Kim, who each agreed to pay penalties of $250,000. Biremis, Beck, and Kim neither admitted nor denied the findings contained in the SEC’s order.
The SEC’s investigation was conducted by senior counsel Paul J. Bohr and supervised by assistant director Ricky Sachar. The SEC acknowledges the assistance of the Ontario Securities Commission, the U.K. Financial Services Authority, and the Financial Industry Regulatory Authority (FINRA).
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Former Chairman of Board In Connection With A Fraudulent Plan To Evade The Beneficial Ownership Reporting Requirements
The United States Securities and Exchange Commission (Commission) announced today it filed a civil action against Lee S. Rosen, the former Chairman of the Board of publicly traded New Generation Biofuels Holdings, Inc., alleging that he fraudulently evaded the reporting requirements concerning his ownership interest in New Generation shares held in five separate trusts in violation of the antifraud provisions and beneficial reporting provisions of the federal securities laws. According to the Commission's complaint, at various times from June 2007 through May 2010, Rosen, directly or indirectly profited from the sale of New Generation shares held in two of the five trusts and benefited from using shares in two trusts as payment toward an ultimately unsuccessful purchase of a yacht. The complaint alleges that Rosen received at least $666,000 in direct payments from sales of New Generation stock held in three of the trusts and from a trustee's individual brokerage account. The complaint also alleges that Rosen indirectly benefited from using New Generation shares held in two trusts as partial payment in an effort to purchase a yacht. Further, the complaint alleges that Rosen failed to disclose these transactions and his true holdings in New Generation securities in various Commission filings and that Rosen made false and misleading statements and omissions in Commission filings regarding his true beneficial ownership of New Generation shares.
The SEC's complaint, which was filed in the United States District Court for the Southern District of Florida, charges Rosen with violating Section 17(a) of the Securities Act of 1933, and Sections 10(b), 13(d) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13d-1, 13d-2, 16a-3, and 16a-8 thereunder. Rosen has agreed to settle the SEC's charges without admitting or denying the allegations. Rosen consented to a permanent injunction, and an order requiring him to pay $666,000 in disgorgement, plus $50,484 in prejudgment interest, a $195,000 civil money penalty, and barring him from serving as an officer or director.
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