SEC CHARGES BHP BILLITON WITH VIOLATING FOREIGN CORRUPT PRACTICES ACT

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today charged global resources company BHP Billiton with violating the Foreign Corrupt Practices Act (FCPA) when it sponsored the attendance of foreign government officials at the Summer Olympics.

BHP Billiton agreed to pay a $25 million penalty to settle the SEC’s charges.

An SEC investigation found that BHP Billiton failed to devise and maintain sufficient internal controls over its global hospitality program connected to the company’s sponsorship of the 2008 Summer Olympic Games in Beijing.  BHP Billiton invited 176 government officials and employees of state-owned enterprises to attend the Games at the company’s expense, and ultimately paid for 60 such guests as well as some spouses and others who attended along with them.  Sponsored guests were primarily from countries in Africa and Asia, and they enjoyed three- and four-day hospitality packages that included event tickets, luxury hotel accommodations, and sightseeing excursions valued at $12,000 to $16,000 per package.

“BHP Billiton footed the bill for foreign government officials to attend the Olympics while they were in a position to help the company with its business or regulatory endeavors,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.  “BHP Billiton recognized that inviting government officials to the Olympics created a heightened risk of violating anti-corruption laws, yet the company failed to implement sufficient internal controls to address that heightened risk.

According to the SEC’s order instituting a settled administrative proceeding, BHP Billiton required business managers to complete a hospitality application form for any individuals they sought to invite to the Olympics, including government officials.  However, the company did not clearly communicate to employees that no one outside the business unit submitting the application would review and approve each invitation.  BHP Billiton failed to provide employees with any specific training on how to complete forms or evaluate bribery risks of the invitations.  Due to these and other failures, a number of the hospitality applications were inaccurate or incomplete, and BHP Billiton extended Olympic invitations to government officials connected to pending contract negotiations or regulatory dealings such as the company’s efforts to obtain access rights.

“A ‘check the box’ compliance approach of forms over substance is not enough to comply with the FCPA,” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement. “Although BHP Billiton put some internal controls in place around its Olympic hospitality program, the company failed to provide adequate training to its employees and did not implement procedures to ensure meaningful preparation, review, and approval of the invitations.”

The SEC’s order finds that BHP Billiton violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.  The settlement, in which the company neither admits nor denies the SEC’s findings, reflects BHP Billiton’s remedial efforts and cooperation with the SEC’s investigation and requires the company to report to the SEC on the operation of its FCPA and anti-corruption compliance program for a one-year period.

The SEC’s investigation was conducted by Dmitry Lukovsky and Devon Leppink Staren, and the case was supervised by Alec Koch.  The SEC appreciates the assistance of the Department of Justice’s Fraud Section, the Federal Bureau of Investigation, and the Australian Federal Police.

SEC ALLEGES INVESTMENT PRO COMMITTED FRAUD AND SELF-DEALING WHILE AT VENTURE CAPITAL FIRM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23260 / May 13, 2015

Securities and Exchange Commission v. Ifitikar Ahmed, et al., Civil Action No. 3:15-cv-00675-JBA (D.Ct., filed May 6, 2015)

SEC Charges Connecticut-Based Investment Professional with Fraud and Self-Dealing

The Securities and Exchange Commission today announced it has obtained an asset freeze and other emergency relief against a Greenwich, Connecticut, investment professional charged with fraud and self-dealing at the venture capital firm where he was employed, Oak Investment Partners.

In a complaint filed in U.S. District Court in Connecticut on last Wednesday and unsealed today, the SEC alleges that Iftikar Ahmed illegally profited by having funds managed by Oak Investment Partners pay inflated prices for two e-commerce investments and by failing to disclose his beneficial interest in a company that the fund transacted with. The complaint alleges that Ahmed transferred approximately $27.5 million in illegal profits to accounts under his control at the expense of investors in the Oak funds, including public pension investors.

According to the SEC's complaint, Ahmed had Oak funds pay $20 million for a $2 million stake in an Asian e-commerce joint venture in December 2014, pocketing the $18 million difference for himself. It alleges that in another investment in August 2014, an Oak fund overpaid for shares in a China-based e-commerce company, allowing Ahmed to pocket $2 million. In a third transaction, the complaint alleges that in 2013, Ahmed advised an Oak fund to invest $25 million in a U.S.-based e-commerce company without disclosing his interest in I-Cubed Domains LLC, which had a significant stake in the same company. The following year, at Ahmed's advice, the Oak fund paid $7.5 million to I-Cubed to buy shares in the company that I-Cubed had acquired for $2 million. The complaint alleges that Ahmed again failed to disclose his ties to I-Cubed, violating his duty to act in the best interest of the Oak fund investors and avoid self-dealing.

The SEC's complaint charges Ahmed with violating federal antifraud laws and related SEC antifraud rules. The SEC is seeking a preliminary injunction to continue the freeze of Ahmed's assets and seeks to have Ahmed return his allegedly ill-gotten gains with interest and pay civil monetary penalties. The complaint names two firms allegedly controlled by Ahmed, Iftikar Ali Ahmed Sole Prop and I-Cubed Domains LLC, as relief defendants for the purpose of recovering allegedly ill-gotten gains.

The emergency court order obtained by the SEC freezes up to $55,089,446 million of Ahmed's assets, prohibits him from destroying evidence and orders expedited discovery.

The SEC's investigation, which is continuing, has been conducted by Jay A. Scoggins and Jeffrey E. Oraker of the Market Abuse Unit in the Denver Regional Office. The case has been supervised by Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit, and Joseph G. Sansone, Co-Deputy Chief of the Market Abuse Unit. Nicholas P. Heinke and Mark L. Williams of the Denver Regional Office will lead the SEC's litigation. The SEC appreciates the assistance of the U.S. Attorney's Office in Boston, the U.S. Attorney's Office in Connecticut, and the Federal Bureau of Investigations.

SEC CHARGED FATHER AND SON WITH CONDUCTING SERIAL INSIDER TRADING VIA GOLF DISCUSSIONS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

05/14/2015 03:40 PM EDT

The Securities and Exchange Commission today charged a father and son in New York with conducting a serial insider trading scheme involving tips of key nonpublic information in coded e-mail messages disguised as discussions about golf.

The SEC alleges that Sean R. Stewart, currently a managing director at a prominent investment bank, routinely tipped his father Robert K. Stewart with confidential information about future mergers and acquisitions involving clients of two investment banks where he has worked during the past few years.  The elder Stewart, a certified public accountant and CFO of a technology company, cashed in on the tips by placing and directing highly profitable securities trades ahead of at least a half-dozen merger and acquisition announcements.  The scheme generated approximately $1.1 million in illicit proceeds in a four-year period.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against the Stewarts.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Robert Stewart recruited a trading partner to help him hide his illegal trading and the connection to his son as the source of the nonpublic information about investment bank clients.  Trades were conducted in the partner’s account, and the illicit profits were shared in the form small cash payments to Robert Stewart to avoid creating a clear paper trail of the kickbacks.  They also spread trades over numerous stock options series in an attempt to avoid raising red flags with regulators.

“Serial insider traders assume a huge risk that we will detect their pattern of trading and connect them to their source of confidential information,” said Daniel M. Hawke, Chief of the Division of Enforcement’s Market Abuse Unit.  “We have integrated new technological tools to quickly and easily identify relationships among traders and spot suspicious trading across multiple securities.”

According to the SEC’s complaint, there were additional ways that Robert Stewart and his fellow trader attempted to conceal the scheme and evade detection when sharing nonpublic information obtained from Sean Stewart about investment bank clients.  They primarily met in-person or used coded e-mail messages to discuss the scheme and trading plans.  Among examples of e-mail text using golf terminology were “saw local story about high cost of golf reservations since a foreign company purchased all- even more expensive than imagined” and “might have an opportunity to play golf- but would need to book the reservation as soon as the office opens Tuesday morning.”

The SEC’s complaint charges Sean and Robert Stewart with violations of the antifraud provisions of the federal securities laws.

The SEC’s investigation, which is continuing, has been conducted by Kelly L. Gibson, David W. Snyder, and John S. Rymas of the Market Abuse Unit in the Philadelphia Regional Office.  The case has been supervised by Mr. Hawke and Joseph G. Sansone, Co-Deputy Chief of the Market Abuse Unit.  The litigation will be led by David L. Axelrod, Regional Trial Counsel, and Catherine E. Pappas, Senior Trial Counsel, in the Philadelphia office.  The SEC appreciates the assistance of the U.S. Attorney’s Office in the Southern District of New York, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.

Remarks at Veterans Committee Program: Wrapping Up Panelist Tribute to John P. Wheeler, III and Introducing the 2015 Winner of the John P. Wheeler Veterans Charity Award

Remarks at Veterans Committee Program: Wrapping Up Panelist Tribute to John P. Wheeler, III and Introducing the 2015 Winner of the John P. Wheeler Veterans Charity Award

Dissenting Statement Regarding Certain Waivers Granted by the Commission for Certain Entities Pleading Guilty to Criminal Charges Involving Manipulation of Foreign Exchange Rates

Dissenting Statement Regarding Certain Waivers Granted by the Commission for Certain Entities Pleading Guilty to Criminal Charges Involving Manipulation of Foreign Exchange Rates

SEC ALLEGES ITT EDUCATIONAL SERVICES CONCEALED POOR PERFORMANCE FROM INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23259 / May 13, 2015

Securities and Exchange Commission v. ITT Educational Services, Inc., Kevin M. Modany, and Daniel M. Fitzpatrick, Civil Action No. 1:15-cv-00758 (S.D. Indiana, Indianapolis Division, filed May 12, 2015)

SEC Announces Fraud Charges Against ITT Educational Services

On May 12, 2015, the Securities and Exchange Commission filed fraud charges against ITT Educational Services Inc., its chief executive officer Kevin Modany, and its chief financial officer Daniel Fitzpatrick.

The SEC alleges that the national operator of for-profit colleges and the two executives fraudulently concealed from ITT's investors the poor performance and looming financial impact of two student loan programs that ITT financially guaranteed. ITT formed both of these student loan programs, known as the "PEAKS" and "CUSO" programs, to provide off-balance sheet loans for ITT's students following the collapse of the private student loan market. To induce others to finance these risky loans, ITT provided a guarantee that limited any risk of loss from the student loan pools.

According to the SEC's complaint filed in the U.S. District Court for the Southern District of Indiana, the underlying loan pools had performed so abysmally by 2012 that ITT's guarantee obligations were triggered and began to balloon. Rather than disclosing to its investors that it projected paying hundreds of millions of dollars on its guarantees, ITT and its management took a variety of actions to create the appearance that ITT's exposure to these programs was much more limited. Over the course of 2014 as ITT began to disclose the consequences of its practices and the magnitude of payments ITT would need to make on the guarantees, ITT's stock price declined dramatically, falling by approximately two-thirds.

The SEC's complaint alleges that ITT, Modany, and Fitzpatrick engaged in a fraudulent scheme and made a number of false and misleading statements to hide the magnitude of ITT's guarantee obligations for the PEAKS and CUSO programs. For example, ITT regularly made payments on delinquent student borrower accounts to temporarily keep PEAKS loans from defaulting and triggering tens of millions of dollars of guarantee payments, without disclosing this practice. ITT also netted its anticipated guarantee payments against recoveries it projected for many years later, without disclosing this approach or its near-term cash impact. ITT further failed to consolidate the PEAKS program in ITT's financial statements despite ITT's control over the economic performance of the program. ITT and the executives also misled and withheld significant information from ITT's auditor.

The SEC's complaint alleges that this conduct violated the antifraud, reporting, books and records, internal controls, lying to auditors and false certification provisions of the federal securities laws. The SEC's complaint also alleges that Modany and Fitzpatrick failed to comply with Section 304 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties. With respect to Modany and Fitzpatrick, the SEC also seeks officer-and-director bars and reimbursement pursuant to Section 304 of Sarbanes-Oxley.

The SEC's investigation has been conducted by Zachary Carlyle, Jason Casey, and Anne Romero with assistance from Judy Bizu. The case has been supervised by Laura Metcalfe, Reid Muoio, and Michael Osnato of the Complex Financial Instruments Unit. The litigation will be led by Nicholas Heinke, Polly Atkinson, and Mr. Carlyle.