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posted on 24 October 2015

SEC Announces Enforcement Results For FY 2015

from the Securities and Exchange Commission

The Securities and Exchange Commission announced that in fiscal year 2015, it continued to build a strong record of first-of-their-kind cases that spanned the spectrum of the securities industry. In the fiscal year that ended in September, the SEC filed 807 enforcement actions covering a wide range of misconduct, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties.

Of the 807 enforcement actions filed in fiscal year 2015, a record 507 were independent actions for violations of the federal securities laws and 300 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.

In fiscal year 2014, the SEC filed 755 enforcement actions and obtained orders totaling $4.16 billion in disgorgement and penalties. Of the 755 enforcement actions filed in fiscal year 2014, 413 were independent actions for violations of the federal securities laws and 342 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.

The agency's first-of-their-kind cases included the first action involving: a private equity adviser for misallocating broken deal expenses; an underwriter for pricing-related fraud in the primary market for municipal securities; a "Big Three" credit rating agency; violations arising from a dark pool's disclosure of order types to its subscribers; an FCPA action against a financial institution; an admissions settlement with an auditing firm; and an SEC rule prohibiting the use of confidentiality agreements to impede whistleblower communication with the SEC. Said SEC Chair Mary Jo White:

Vigorous and comprehensive enforcement protects investors and reassures them that our financial markets operate with integrity and transparency, and the Commission continues that enforcement approach by bringing innovative cases holding executives and companies accountable for their wrongdoing sending clear warnings to would-be violators. The Enforcement Division's leveraging of data, quantitative analytics and the expertise of our other divisions contributed significantly to this year's very strong results."

Said Andrew J. Ceresney, Director of the SEC's Enforcement Division:

The Division's hard work, tremendous energy, and efficiency uncovered significant misconduct during the past fiscal year, and helped bring a significant number of high-impact, first-of-their-kind actions. I continue to be proud of the Division's record of accomplishments, and we have already continued to pave new ground in the new fiscal year.

Overview of SEC Enforcement in Fiscal Year 2015

Combating Financial Fraud and Enhancing Issuer Disclosure

Holding Gatekeepers Accountable

  • Held attorneys, accountants and other gatekeepers accountable for failures to comply with professional standards.

  • In the first non-independence case against a major audit firm since 2009, charged BDO USA, LLP with issuing false and misleading unqualified audit opinions about the financial statements of General Employment Enterprises, and five of the firm's partners, including national office personnel, for their roles in the deficient audits.

  • Sanctioned Deloitte & Touche LLP and eight auditing firms for various brokerage firms for violating independence rules.

  • In the SEC's case against MusclePharm Corp., the SEC charged the company's former audit committee chair who substituted his wrong interpretation of SEC rules for those of an outside expert, resulting in an incorrect disclosure.

  • Charged 14 accountants and 10 attorneys for their roles in aiding perpetrators of microcap fraud.

  • Charged Oppenheimer & Co. and current and former E*Trade subsidiaries for failing in their gatekeeping function as broker-dealers by allowing billions of unregistered microcap stock shares to be sold into the market.

Ensuring Exchanges, Traders and Other Market Participants Operate Fairly

  • Sanctioned Morgan Stanley & Co., Goldman, Sachs & Co., and Latour Trading LLC for violations of the market access rule, which requires firms to have adequate risk controls in place before providing customers with access to the market.

  • Obtained the largest penalty to date against an alternative trading system, ITG Inc. and AlterNet Securities, Inc., to settle charges that they operated a secret trading desk and misused the confidential trading information of dark pool subscribers.

  • Charged UBS Securities LLC with disclosure failures and other securities law violations related to the operation and marketing of its dark pool.

  • In the first case involving high frequency trading manipulation, sanctioned Athena Capital Research, a New York City-based high frequency trading firm.

  • In the first case principally focusing on stock exchange order types and the largest penalty for an exchange, charged two exchanges formerly owned by Direct Edge with failing to accurately describe their order types in SEC rule filings.

  • Charged two Merrill Lynch entities with using inaccurate data in executing short sale orders.

Rooting Out Insider and Abusive Trading Schemes through Innovative Uses of Data and Analytics

  • Charged 87 parties in cases involving trading on the basis of inside information. Many of these cases involved complex insider trading rings which were cracked by Enforcement's innovative uses of data and analytics to spot suspicious trading.

  • Charged dozens of defendants in an alleged scheme to profit from hacked nonpublic information about corporate earnings announcements. The underlying investigation was developed through the use of innovative analytical tools designed to find suspicious trading patterns and expose misconduct. Since filing the emergency action, the SEC froze more than $70 million and obtained a $30 million settlement from two of the defendants.

Uncovering Misconduct by Investment Advisers and Investment Companies

  • Brought a first-ever action charging a private equity adviser with misallocating so-called "broken deal" expenses against Kohlberg Kravis Robert & Co., related to the firm's misallocation of more than $17 million in expenses to its flagship private equity funds in breach of its fiduciary duty.

  • Brought a first-ever action for failure to report a material compliance matter to a fund board against Blackrock Advisors LLC, arising from the firm's failure to disclose a conflict of interest created by the outside business activity of a top-performing portfolio manager. The SEC also charged Blackrock's former CCO.

  • Brought a first-ever action under the Distribution-in-Guise initiative, a recent SEC initiative to protect mutual fund shareholders from bearing the costs when firms improperly use fund assets to pay for distribution-related services, against New York-based investment adviser First Eagle Investment Management and its affiliated distributor, FEF Distributors.

  • Charged an investment management firm F-Squared Investments, as well as its CEO, for defrauding investors through false performance advertising about its flagship product.

  • Charged a Wisconsin-based investment advisory firm and its owner for fraudulently "cherry-picking" winning options trades which were identified with help from the agency's Division of Economic and Risk Analysis (DERA), which conducted a statistical analysis to determine whether the trades at issue could have resulted from a coincidental or lucky combination of trades.

  • Charged Patriarch Partners, the firm's CEO, and three other entities with fraud in overvaluing assets in three collateralized loan obligations.

Fighting Market Manipulation and Microcap Fraud

Halting International and Affinity-Based Investment Frauds

Upholding Disclosure Standards in Municipal Securities

Cracking Down on Misconduct Involving Complex Financial Instruments

Combating Foreign Corrupt Practices

Standing Up for Whistleblowers

  • The program awarded eight whistleblowers with total awards of approximately $38 million in FY 2015.

  • Awarded $600,000 to a whistleblower for providing key original information that led to a successful enforcement action against Paradigm Capital Management and its owner, which was brought in fiscal year 2014.

  • Brought a first-ever action for violating Exchange Act Rule 21F-17, which prohibits the use of confidentiality agreements or other actions to impede a whistleblower from communicating with the SEC, against KBR Inc.

Demanding Admissions in Important Cases Enhancing Public Accountability

Successful Litigation

  • Won all six U.S. District Court jury or bench trials in fiscal year 2015 and enjoyed strong successes in administrative proceedings. Obtained favorable jury verdicts in the following cases:

  • BankAtlantic Bancorp, now known as BBX Capital Corporation, and its CEO Alan Levan were found liable for fraud in connection with disclosures concerning the state of the bank's loan portfolio early in the financial crisis. The court entered final judgments against BBX and Mr. Levan ordering BBX and Mr. Levan to pay more than $5.8 million in civil penalties and imposing a two year officer-and-director bar on Mr. Levan, and imposed other ancillary relief.

  • Charles Kokesh was found liable for defrauding four business development companies of tens of millions of dollars. The court entered a final judgment against Mr. Kokesh, ordering him to pay over $55 million in monetary relief, and imposed other ancillary relief.

  • Willie Gault was found liable for filing false certifications with the SEC and knowingly circumventing the internal controls of HeartTronics, Inc., a company that claimed to sell a heart monitoring device, while Mr. Gault served as that company's co-CEO.

  • George Levin was found liable for fraud in connection with his and his companies' purchase of discounted legal settlements in the form of promissory notes and limited partnership interests offered by Ft. Lauderdale attorney Scott Rothstein, which turned out to be non-existent and comprised one of the largest-ever Ponzi schemes in South Florida. Following the verdict, the court entered judgment against Mr. Levin and ordered him to pay approximately $50 million in disgorgement, prejudgment interest and a penalty, and imposed other ancillary relief.

  • Ralph Pirtle and his friend and business associate, Morando Berrettini, were found liable for insider trading in the securities of three companies that were acquisition targets for Philips.

Breakout of Enforcement Actions for Fiscal Years 2013 through 2015

The following table breaks down the SEC's enforcement results for FY 2013 through 2015:

Fiscal Year




Independent Enforcement Actions




Follow-on APs




Delinquent Filings




Total Actions




Disgorgement and Penalties Ordered

$3.4 billion

$4.16 billion

$4.19 billion

From 2005 to 2012, independent actions filed by the SEC (excluding contempt actions, which have been excluded from enforcement action numbers for the last three fiscal years) ranged from approximately 318 to 445, and monetary remedies ordered ranged from $1 billion to $3.1 billion.

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