COMPANY, OWNERS CHARGED IN OFF-EXCHANGE FINANCED TRANSACTIONS

FROM:  COMMODITY FUTURES TRADING COMMISSION 

CFTC Charges Florida-Based Vertical Integration Group LLC and Its Owners, Richard V. Morello and Junior Alexis, with Engaging in Illegal, Off-exchange Commodity Transactions

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a civil injunctive enforcement action in the U.S. District Court for the Southern District of Florida against Vertical Integration Group LLC (Vertical) of Lake Worth, Florida, its owner, Richard V. Morello of Lake Worth, Florida, and Junior Alexis of Boynton Beach, Florida. The CFTC Complaint charges the Defendants with engaging in illegal, off-exchange financed transactions in precious metals with retail customers.

The CFTC Complaint alleges that from July 16, 2011, and continuing through at least February 2013, the Defendants solicited retail customers to buy physical precious metals in off-exchange leveraged transactions. Specifically, the CFTC alleges that customers paid Vertical a portion of the purchase price for the metals, and Vertical financed the remainder of the purchase price, while charging the customers interest on the amount purportedly loaned to customers.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), a financed transaction such as those conducted by Vertical is an illegal off-exchange transaction unless it results in actual delivery of metal within 28 days. The CFTC Complaint alleges that with regard to the financed transactions, Vertical’s customers never took delivery of the precious metals they purportedly purchased.

The CFTC further alleges that when Vertical engaged in these illegal transactions they were acting as a dealer for metals merchant Hunter Wise Commodities, LLC (Hunter Wise), whom the CFTC charged with fraud and other violations in federal court in Florida on December 5, 2012 (see CFTC Press Release 6447-12). As alleged in the CFTC Complaint against Hunter Wise and in the Complaint in this case, neither Vertical, nor Hunter Wise actually purchased or held metal on the customers’ behalf.

In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, disgorgement of ill-gotten gains, trading and registration bans, and a permanent injunction against further violations of the federal commodities laws, as charged.

The CFTC Division of Enforcement staff responsible for this action are Michelle Bougas, Alan I. Edelman, Alison Wilson, Michael Solinsky, Charles Marvine, and Gretchen L. Lowe.

CFTC CHAIRMAN WETJEN MAKES STATEMENT ON BUDGET

FROM:  CFTC 

Acting Chairman Mark Wetjen Statement on CFTC Budget

January 14, 2014

Acting Chairman Mark Wetjen today made the following statement on the Commodity Futures Trading Commission’s (CFTC) budget in the omnibus appropriations bill:

“I am pleased that the House and Senate have agreed to an appropriations bill that includes $215 million for the CFTC,” Wetjen said. “This increase means the CFTC will be better equipped to fulfill our mission – ensuring the derivatives markets work for market participants and the public. This funding level is a step in the right direction, and we will continue working with Congress to secure resources that match our new responsibilities to provide oversight for the vast derivatives markets.”

SEC PRIORITIES FOR EXAMINATIONS IN 2014

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced its examination priorities for 2014, which cover a wide range of issues at financial institutions, including investment advisers and investment companies, broker-dealers, clearing agencies, exchanges and other self-regulatory organizations, hedge funds, private equity funds, and transfer agents.

“We are publishing these priorities to highlight areas that we perceive to have heightened risk,” said Andrew J. Bowden, Director of the SEC’s Office of Compliance Inspections and Examinations.  “This document, along with our Risk Alerts and other public statements, help us to increase transparency, strengthen compliance, and inform the public and the financial services industry about key risks that we are monitoring and examining.”

The examination priorities address market-wide issues and those specific to particular business models and organizations.  The market-wide priorities include fraud detection and prevention, corporate governance and enterprise risk management, technology controls, issues posed by the convergence of broker-dealer and investment adviser businesses and by new rules and regulations, and retirement investments and rollovers.

Based on program area, the priorities include:

For investment advisers and investment companies -- advisers who have never been previously examined, including new private fund advisers, wrap fee programs, quantitative trading models, and payments by advisers and funds to entities that distribute mutual funds.

For broker-dealers -- sales practices and fraud, issues related to the fixed-income market, and trading issues, including compliance with the new market access rule
For market oversight -- risk-based examinations of securities exchanges and FINRA, perceived control weakness at exchanges, and pre-launch reviews of new exchange applicants.

For transfer agents -- timely turnaround of items and transfers, accurate recordkeeping and safeguarding of assets.

For clearing agencies designated as systemically important -- conduct annual examinations as required by the Dodd-Frank Act, and pre-launch reviews of new clearing agency applicants.

The priorities listed for 2014 are not exhaustive and may be adjusted throughout the year in light of ongoing risk assessment activities.  They were selected by senior exam staff and managers and other SEC divisions and offices in consultation with the chair and other commissioners, based on a variety of information and risk analytics, including:

Tips, complaints and referrals, including from whistleblowers and investors
Information reported by registrants in required filings with the SEC
Information gathered through examinations conducted by the SEC and other regulators
Communications with other U.S. and international regulators and agencies
Industry and media publications
Data maintained in third party databases
Interactions outside of examinations with registrants, industry groups, and service providers

FDIC AND FRB RELEASE PUBLIC SECTIONS OF RESOLUTION PLANS FOR LARGE BANK HOLDING COMPANIES

FROM:  FEDERAL DEPOSIT INSURANCE CORPORATION 

Agencies Release Public Sections of Resolution Plans

The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) on Friday made available the public portions of resolution plans for 116 institutions that submitted plans for the first time in December 2013, the latest group to file resolution plans with the agencies.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that bank holding companies (and foreign companies treated as bank holding companies) with total consolidated assets of $50 billion or more and nonbank financial companies designated for enhanced prudential supervision by the Financial Stability Oversight Council periodically submit resolution plans to the Federal Reserve Board and the FDIC. Each plan must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company, and include both a public and confidential section.

Companies subject to the resolution plan requirement filed their initial resolution plans on a staggered schedule. The 116 companies whose initial resolution plans were due by December 31, 2013, are those that generally have less than $100 billion in qualifying nonbank assets.

Two groups of institutions have already filed resolution plans. The first group, generally those bank holding companies with $250 billion or more in qualifying nonbank assets, submitted initial plans in July 2012 and their second annual plans in October 2013. The second group, generally those with $100 billion or more, but less than $250 billion, in qualifying nonbank assets, submitted their initial plans in July 2013. The group that was required to file their initial plans last month represents the third group of filers.

The public portions for the 116 companies’ resolution plans, as well as those of institutions that filed previously, are available on the Federal Reserve and FDIC websites.

In addition, the FDIC released the public sections of the recently filed resolution plans of 22 insured depository institutions. The majority of these insured depository institutions are subsidiaries of bank holding companies that concurrently submitted resolution plans. The insured depository institution plans are required by a separate regulation issued by the FDIC. The FDIC’s regulation requires a covered insured depository institution with assets greater than $50 billion to submit a plan under which the FDIC, as receiver, might resolve the institution under the Federal Deposit Insurance Act.

The public portions for the 22 covered insured depository institutions are available on the FDIC website.

Federal Reserve: http://www.federalreserve.gov/bankinforeg/resolution-plans.htm
FDIC: http://www.fdic.gov/regulations/reform/resplans/

SEC COMMUNICATIONS DIRECTOR LEAVING

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced that Myron Marlin will be leaving the SEC after nearly five years as communications director, serving under chairs Mary Jo White, Elisse B. Walter, and Mary L. Schapiro.

Since joining the SEC in March 2009, Mr. Marlin coordinated communications strategy on a range of significant issues including the agency’s landmark policy of seeking admissions in certain enforcement settlements and major rulemakings stemming from the Dodd-Frank Act and the JOBS Act.

“Myron is an extraordinary professional and advisor,” said Chair White.  “His substantial knowledge of the agency, judgment, and keen sense of effective communications have been invaluable to me.  I will miss him and his counsel greatly.”

Mr. Marlin said, “It has been an incredible privilege for me to serve under three chairs and alongside so many talented and dedicated public servants who perform work that is so crucial to investors and our nation’s economic well-being.  I am honored to have been at the SEC during a period of such intense rulemaking, record enforcement activity, and regulatory reform.”

Prior to joining the SEC, Mr. Marlin worked for a communications consulting firm.  Previously as director of public affairs at the U.S. Department of Justice, he received the Edmund J. Randolph Award for outstanding service.  Prior to working at the Department of Justice, he was an associate at a law firm in New York.  Mr. Marlin received his undergraduate degree from the University of Michigan and his law degree from American University.

OFFICE OF MUNICIPAL SECURITIES ISSUES GUIDANCE FOR MARKET PARTICIPANTS

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced that its Office of Municipal Securities has issued interpretive guidance to address questions from market participants regarding the implementation of new final SEC rules requiring municipal advisors to register with the SEC.

The staff guidance, in the form of answers to frequently asked questions, or FAQs, covers topics including:

the advice standard, including the general information exclusion and the treatment of business promotional materials used by underwriters
the request for proposals-request for qualifications exemption
the exemption for independent municipal advisors
the exclusion for registered investment advisers
the underwriter exclusion, including engagements as underwriters
issuance of municipal securities and post-issuance advice
remarketing agent services
opinions by citizens in public discourse
the effective date of the final rules and the compliance period for using the final registration forms
State and local governments frequently use paid advisors to help them decide how and when to issue municipal securities and how to invest proceeds from the sales.  The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act required these advisors to register with the SEC like other market intermediaries.  The SEC’s final rule was adopted in September 2013.  Presently, more than 1,100 municipal advisors are registered with the SEC under a temporary registration regime.  The SEC staff may provide periodic updates to the interpretive guidance issued today.