Senator Ken Paxton, a Republican candidate for Texas Attorney General, violated the Texas Securities Act by soliciting investment clients without being registered. The Texas Securities Board fined him $1,000 and he must now disclose in writing any clients he refers to an investment advisor. Upon further investigation by the state, it found that Paxton engaged in unregistered solicitation activities in 2004, 2005 and 2012. He had been paid 30% commission to refer clients to Mowery Capital Management. Paxton is currently in the running for Attorney General of Texas.
Wednesday, November 26, 2014
The Securities and Exchange Commission (SEC) has settled with HSBC's Swiss unit after they violated the rule that they must register with the SEC before providing advice to American clients. HSBC was hit with a $12.5 million penalty. SEC's case against Credit Suisse in February extracted $196 million. HSBC acknowledged wrongdoing. HSBC's Swiss private banking unit illegally conducted advisory and brokerage business with U.S. customers. Their compliance initiatives were not effectively implemented or monitored. The Justice Department is also investigating the HSBC unit for criminal tax evasion schemes, helping American clients hide their wealth overseas. In 2003, the private banking unit began soliciting U.S. clients. This resulted in 350 accounts garnering $775 million. HSBC sent bankers to solicit U.S. clients on 40 separate occasions to give investment advice. None of the bankers were registered with the SEC.
The Securities and Exchange Commission (SEC) announced it will most likely use emergency court action to stop state and local governments from selling municipal bonds if it believes their offerings to be fraudulent. This comes after comments made by an enforcement division official during a panel discussion at the National Association of Bond Lawyers' Bond Attorneys' Workshop conference. While not unusual for the commission to use emergency action to block a fraudulent offering, it would only be the second time it would be used to block a municipal bond sale. Also discussed was the SEC's continuing stance of offering minimal concrete guidance on participation in its Municipalities Continuing Disclosure Cooperation initiative, which offers lenient settlement terms to issuers and underwriters who self-report instances in the last five years in which their official statements falsely claimed compliance with their continuing disclosure obligations. The association has asked for more guidance on what constitutes "material" disclosure failures, and on how to actually submit the reports. The SEC has suggested issuers use their best judgment and cannot offer much more guidance beyond how issuers should organize their deals for submission.
Tuesday, November 25, 2014
U.S. Senators Sherrod Brown (D-OH), chairman of the Senate Subcommittee on Financial Institutions and Consumer Protection, and Jack Reed (D-RI), a member of the subcommittee along with many other Democrats, are voicing their unease over regulatory institutions such as the Securities and Exchange Commission (SEC) and the New York Federal Reserve Bank's "regulatory capture." The issue at hand has to do with concerns that financial regulators are becoming too cozy with the financial staffers of companies they regulate. The skepticism comes on the heels of a recent subcommittee hearing on alleged regulatory capture at the New York Federal Reserve Bank, the SEC, and after reports of a former New York federal employee and current Goldman Sachs employee received confidential information from the Federal Reserve. It is no wonder that staffers at federal overseers and regulators have become less strict and more protective over the businesses they regulate. With more than 15 institutions managing over 50 billion in assets, the numbers are simply higher. The salaries are higher, too. Companies pay much more than federal salaries, and many federal workers have designs to one day leave their jobs to join the private sector. While the SEC workers who leave their jobs are prohibited from appearing before the agency for 2 years on behalf of companies they directly supervised, they are not banned from appearing before the SEC on behalf of other companies in the same industry. This arrangement is beneficial for both parties in that the employee receives a bigger salary and the regulated company can gain an advantage by hiring someone who knows the ins and outs of the regulatory body. Favors abound in the industry, so it is no wonder the relationships in question have become more intimate and the rules more lax.
Monday, November 24, 2014
The Securities and Exchange Commission (SEC) has charged Gregory Rorke with making false statements to investors while raising more than $3 million to fund operations for his company, Navagate, Inc. From December 2009 through April 2011, Rorke sold $3.2 million worth of promissory notes issued by Navagate through New Jersey-based broker dealer Middlebury Securities LLC. Middlebury told investors Rorke had millions of dollars in liquid assets to guarantee the purchase of the notes, when in fact, he did not. Rorke claimed to be a legitimate businessman, but he did not possess the liquid assets and real estate that he claimed to. He fraudulently signed and sent a personal financial statement to investors stating that he did. If you invested money with Gregory Rorke, you may be entitled to recover some of you investment losses. Please call out Chicago-based securities law firm at 312-332-4200 to speak to an attorney to find out how we may be able to help you recover some of your investment losses.
The Securities and Exchange Commission (SEC) is investigating several alternative trading systems. It is looking for the "right balance between a principled regulatory approach and an aggressive and comprehensive enforcement effort," Daniel Hawke, chief of the SEC's market abuse unit, stated. The SEC will be focused on regulating "dark pools," private exchanges or forums not accessible by the investing public and known for their complete lack of transparency. SEC chief Mary Jo White has said the agency will update its rules for dark pools in order to come down hard on illegal trading.
Citigroup Global Markets Inc. Fined $15 Million for Supervisory Failures Related to Equity Research and IPO Roadshows
The Financial Industry Regulatory Authority (FINRA) has fined Citigroup Global Markets Inc. $15 million for failing to adequately supervise communications between its equity research analysts and clients and Citigroup sales and trading staff. The company also allowed an analyst to participate in two roadshows promoting Initial Public Offerings (IPOs) to investors. From 2005 until 2014, Citigroup failed to adequately supervise its non-public research to trading staff and clients. Citigroup did detect violations in their client communications, but there were delays in them taking any action or disciplining their staff. Their disciplinary actions were not harsh enough to prevent the actions from occurring again. Citigroup hosted "idea dinners" attended by research analysts, institutional clients and sales and trading personnel. Stock picks were discussed and these picks were not consistent with some published research. Citigroup did not provide guidance on permissible communications to its analysts. In 2011, FINRA also found a Citigroup senior equity research analyst assisted two companies in preparing presentations for investment banking roadshows.
According to the North American Securities Administrators Association, (NASAA) a new computerized data system being established nationwide, will help state securities officials expose troubled brokerage or financial advisory firms. It will also uncover what issues regulators need to focus on. The program, NEMO, has been in existence for many years, but the program is continuing to evolve by sharing information in real time. Next year, state examiners will be able to utilize the database in such a way that they can see how branches of brokerage firms did on exams. All of this will allow examiners and the NASAA to know where to focus their efforts going forward. NEMO has the chance to be a significant game changer when it comes to regulating the securities industry.
Shervin Neman, a Century City, California man was sentenced today for running a $3 million ponzi scheme. His scheme targeted Iranian Jews. He pled guilty to two counts of wire fraud and one count of mail fraud. Neman ran the scheme between 2010 and 2013 by telling investors their money would be used to purchase foreclosed real estate and stocks. Instead, he spent the money on himself and to pay back original investors. Two years ago, the Securities and Exchange Commission filed a civil complaint against him and his company, Neman Financial Inc., for running a multimillion dollar ponzi scheme. A month later, he solicited $2 million from an investor, claiming he could get pre-IPO shares of Facebook. He used that money to try to pay off an earlier investor. If you invested money with Shervin Neman or his company, Neman Financial Inc., you may be able to recover some of your losses. Please call our Chicago-based securities law firm at 312-332-4200 to speak to an attorney.
FINRA and MSRB Release Proposals Requiring Additional Disclosures for Transactions in Fixed Income Securities
The Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB) have released companion proposals that require disclosure of pricing reference information in customer confirmations for transactions in fixed income securities. Specifically, the companion proposals would require bond dealers in fixed income transactions to disclose the price of same-day principal trades and the difference between that price and the price the customer received. Both regulatory authorities are seeking comments on the economic implications of the proposal and on alternative approaches. This is important because bond pricing tends to be very opaque and confusing to retail investors.