On September 30, 2020, Morgan Stanley & Co. LLC agreed to settle charges against for violations of Regulation SHO, the regulatory framework governing short sales. Morgan Stanley hedged synthetic exposure to swaps by purchasing or selling the securities referenced in the swaps, and it separated its hedges into two aggregation units – one holding only long positions, and the other holding only short positions. Morgan Stanley was able to sell its hedges on the long swaps and mark them as “long” sales without concern for Reg SHO’s short sale requirements. The order finds that Morgan Stanley’s “long” and “short” units failed to qualify for a Reg SHO exception permitting broker-dealers to establish aggregation units because they were not independent and did not have separate trading strategies. The order finds that the units had identical management structures, locations, and business purposes as well as the same strategy or objective. The order further finds that, as a result, Morgan Stanley should have netted the long and short positions of both units together or across the entire broker-dealer and marked the orders as long or short based on that netting. The order finds that the failure to do so resulted in Morgan Stanley improperly marking certain sell orders in violation of Reg SHO. Morgan Stanley consented to a cease-and-desist order imposing a censure and a $5 million penalty. https://www.sec.gov/news/press-release/2020-238
On September 30, 2020, Meredith Simmons, a former chief compliance officer of Mason Capital Management, LLC, a registered investment adviser and of its affiliated broker-dealer, for withholding a compliance record in an SEC examination of her employer. Ms. Simmons settled charges she was directed to memorialize compliance reviews she had conducted in connection with her employer’s decision to invest in the securities of a company shortly before an acquisition announcement. The order finds that Simmons did not do so at the time, and in September 2017, she created two backdated and factually inaccurate versions of a memorandum that purported to memorialize the compliance reviews. The order further finds that, in October 2017, SEC examiners requested all documents relating to these reviews, and Simmons produced the memorandum that she had backdated to a date before the acquisition announcement, and falsely represented that it was created contemporaneously with the events it described. The order further finds that Simmons withheld the other memorandum, which she had backdated to a date after the acquisition announcement, even though both documents were responsive to the examiners’ requests. According to the order, Simmons’s conduct delayed and impeded the SEC staff’s inquiry into her employer’s October 2016 investment. Simmons agreed to pay a civil penalty of $25,000. https://www.sec.gov/enforce/34-90061-s
On September 30, 2020, Great Plains Trust Company, Inc., a chartered trust company, agreed to settle charges for operating unregistered investment companies and for offering and selling unregistered securities. Great Plains began selling investment interests in its trust funds in 1994 and, by the end of 2018, held over $480 million in eighteen regular and retirement trust funds. Great Plains failed to register the trust funds as investment companies and failed to register the securities of the trust funds. The SEC’s order found that the funds did not qualify for registration exemptions available under certain circumstances for funds held by banks, primarily because Great Plains did not exercise substantial investment authority over the funds and, with respect to the non-retirement funds, because the funds were advertised to the general public and were not used solely as an aid to the administration of trust accounts maintained for a fiduciary purpose. Great Plains agreed to a penalty of $300,000. https://www.sec.gov/enforce/33-10869-s
On September 30, 2020, Transamerica Asset Management, Inc. for making misrepresentations regarding expenses charged by four money market funds that TAM managed. From January 2016 through February 2019, TAM required four money market funds that it managed to reimburse fees and expenses that TAM had previously waived, which caused those funds to incur approximately $5.2 million in additional expenses. TAM omitted the additional expenses from a description of the annual operating expenses in the funds’ prospectuses, thereby materially misstating the expenses that investors paid when buying and holding shares of the funds. TAM agreed to pay disgorgement of $5,258,357.30 with prejudgment interest of $688,425.23. The order also finds that the SEC is not imposing a civil penalty because TAM self-reported the conduct and took prompt steps to remediate the violations. https://www.sec.gov/enforce/ia-5599-s
On September 29, 2020, the SEC charged the former president of a Professional Financial Investors, Inc. (PFI), a real estate development and management company, with operating a fraudulent Ponzi scheme and misappropriating over $26 million from more than 1,300 investors – many of whom were elderly and retired. According to the SEC’s complaint, Lewis I. Wallach raised approximately $330 million by falsely telling investors that their money would be used primarily to invest in multi-unit residential and commercial real estate managed by PFI. As alleged in the complaint, many of the defrauded investors were elderly, retired and relying on their investment income for daily living expenses. The complaint alleges that Wallach knew that a significant portion of investor funds was being used in a Ponzi-like fashion to pay existing investors. The complaint further alleges that he personally misappropriated more than $26 million of investor money, including to purchase a vacation home and to invest in a failed land development deal. As cash levels at the company declined and incoming investor money slowed, Wallach allegedly claimed to investors that the company was in a financially strong position. https://www.sec.gov/news/press-release/2020-236
On September 29, 2020, credit ratings agency Kroll Bond Rating Agency Inc. (KBRA) has agreed to pay more than $2 million to settle separate charges relating to the rating of commercial mortgage-backed securities (CMBS) and of collateralized loan obligation combination notes (CLO Combo Notes). KBRA permitted analysts to make adjustments that had material effects on the final ratings but did not require any analytical method for determining when and how those adjustments should be made. Further, the order finds that there was no requirement for recording the rationale for those adjustments. The order finds that KBRA’s internal control structure failed to prevent or detect the ambiguity in KBRA’s record of its methodology for determining the CMBS ratings, such as a comparison of the methodology to the analysis used for specific transactions. The SEC’s order relating to CLO Combo Notes finds that KBRA’s policies and procedures were not reasonably designed to ensure that it rated CLO Combo Notes in accordance with the terms of those securities. The CLO Combo Notes included a defined “Rated Balance” amount and also directed that noteholders were entitled to receive cash flows from the underlying components of the CLO Combo Note after the Rated Balance was reduced to zero. KBRA’s ratings of CLO Combo Notes were limited to repayment of the Rated Balance amount of each CLO Combo Note and did not reflect the risk associated with any cash flows payable to holders of the CLO Combo Note over and above the Rated Balance, even though such amounts could materialize, and would be payable to the holders of the CLO Combo Note. KBRA agreed in the CMBS case to pay a civil penalty of $1.25 million, and in the CLO Combo Notes case to pay a $600,000 civil penalty and more than $160,000 in disgorgement and prejudgment interest, https://www.sec.gov/news/press-release/2020-235
On September 29, 2020, JP. Morgan Securities LLC, a broker-dealer subsidiary of JPMorgan Chase & Co., for fraudulently engaging in manipulative trading of U.S. Treasury securities. J.P. Morgan Securities admitted the findings in the SEC’s order, and agreed to pay disgorgement of $10 million and a civil penalty of $25 million to settle the action. The U.S. Department of Justice and the U.S. Commodity Futures Trading Commission announced parallel actions against JPMorgan Chase & Co. and certain of its affiliates for engaging in manipulative trading in the precious metals and U.S. Treasuries futures and cash markets. A total of more than $920 million, including amounts for criminal restitution, forfeiture, disgorgement, penalties, and fines, is to be paid across the three actions. The DOJ entered into a three-year deferred prosecution agreement with JPMorgan Chase & Co., whereas the CFTC announced settlements with J.P. Morgan Chase & Co., JPMorgan Chase Bank, N.A., and JPMorgan Securities. According to the SEC’s order, between April 2015 and January 2016, certain traders on J.P. Morgan Securities’ Treasuries trading desk employed manipulative trading strategies involving Treasury cash securities. The order finds that the traders placed bona fide orders to buy or sell a particular Treasury security, while nearly simultaneously placing non-bona fide orders, which the traders did not intend to execute, for the same series of Treasury security on the opposite side of the market. The order finds that the non-bona fide orders were intended to create a false appearance of buy or sell interest, which would induce other market participants to trade against the bona fide orders at prices that were more favorable to J.P. Morgan Securities than J.P. Morgan Securities otherwise would have been able to obtain. According to the order, after the traders secured beneficially priced executions for the bona fide orders, they promptly cancelled the non-bona fide orders. J.P. Morgan Securities was ordered to pay disgorgement of $10 million and a civil penalty of $25 million. The civil penalty ordered will be offset by amounts paid by JPMorgan Chase & Co. and its affiliates in the parallel proceedings announced by the DOJ and the CFTC. https://www.sec.gov/news/press-release/2020-233
On September 28, 2020, the SEC announced a roundtable will be held on October 26th at which Commission staff and the Financial Industry Regulatory Authority (FINRA) will discuss initial observations on Regulation Best Interest and Form CRS implementation. https://www.sec.gov/news/press-release/2020-229
On September 25, 2020, Creative Financial Designs, Inc agreed to settle charges that it failed to disclose conflicts of interest arising out of its mutual fund share class selection practices and revenue sharing agreements entered into by Creative’s affiliated broker-dealer, cfd Investments, Inc. Creative failed to adequately disclose that it was purchasing, recommending, or holding for advisory clients mutual fund share classes that charged 12b-1 fees that benefitted cfd Investments and Creative’s investment adviser representatives in their capacity as registered representatives of cfd Investments, instead of lower-cost share classes of the same funds. Creative breached its duty to seek best execution for those transactions by causing certain advisory clients to invest in mutual fund share classes that charged 12b-1 fees when other share classes of the same funds that presented a more favorable value for these clients under the particular circumstances in place at the time of the transactions were available to the clients. The order further finds that Creative failed to disclose compensation that cfd Investments received through revenue sharing agreements with two third-party broker-dealers and conflicts arising from that compensation. Creative consented to pay disgorgement of $569,516 plus prejudgment interest of $108,424 and a civil penalty of $212,300. https://www.sec.gov/enforce/34-90014-s
On September 25, 2020, Sabra Capital Partners and its managing member, Zvi Rhine settled an enforcement action. These proceedings arise out of misrepresentations by unregistered investment adviser Sabra and Rhine concerning the performance of a hedge fund advised by Sabra. Rhine, through Sabra, managed the Fund since its formation in 2012. From at least January 2018 through April 2019, Sabra and Rhine concealed the Fund’s struggles by misrepresenting the Fund’s performance in updates sent to the Fund’s limited partners. In addition, Sabra Capital and Rhine provided a false audit report to one investor in the Fund that contained misrepresentations about the Fund’s performance in order to conceal their prior misstatements. Rhine agreed to be barred and pay a civil penalty of $80,000. https://www.sec.gov/litigation/admin/2020/ia-5594.pdf
On September 25, 2020, Funding the Gap, LLC (FTG) and its principal, Irene Carroll (“Carroll”), settled an enforcement action. This matter involves unregistered municipal advisory activity by FTG and Carroll. Starting as early as July 2014 and continuing through September 2019, FTG and Carroll provided municipal advice to twelve charter schools in connection with the issuance of municipal bonds. FTG and Carroll provided advice with respect to twelve municipal bond offerings sold via conduit issuers that cumulatively raised $222 million. FTG was paid fees for the services FTG and Carroll provided to the charter schools in connection with these bond offerings. During this period, FTG was not registered as a municipal advisor, and was not subject to any exemptions or exclusions from registration while providing advice to its municipal entity clients. As a result, FTG violated Section 15B(a)(1)(B) of the Exchange Act by failing to register as a municipal advisor, and Carroll caused FTG’s violation. FTG and Carroll each agreed to a civil penalty of $30,000. https://www.sec.gov/litigation/admin/2020/34-90002.pdf
On September 25, 2020, Hancock Whitney Investment Services Inc. (“HWIS”) settled an enforcement action arising out of breaches of fiduciary duty by HWIS, a dually registered investment adviser and broker-dealer, in connection with its mutual fund share class selection practices that resulted in its receipt of three types of fees from its advisory clients’ investments fees received pursuant to Rule 12b1 as a result of its advisory clients’ investments in share classes of mutual funds that paid 12b-1 fees; and, fees received from its clearing broker as a result of advisory clients’ investments in share classes of mutual funds that were eligible for revenue sharing payments by the clearing broker; and, fees received from its clearing broker as a result of sweeping its advisory clients’ cash into share classes of money market mutual funds managed by an affiliate of the clearing broker. Hancock agreed to pay disgorgement of $1,651,686.29 and prejudgment interest of $286,105.79, and pay a civil money penalty in the amount of $400,000. https://www.sec.gov/litigation/admin/2020/34-90004.pdf
On September 25, 2020, Creative Financial Designs settled an enforcement action arising out of breaches of fiduciary duty in connection with its mutual fund share class selection practices and the receipt of certain revenue sharing payments by its affiliated broker-dealer, cfd Investments, Inc. (“CFD”). First, Creative purchased, recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds that were available to the clients. CFD and Creative’s investment adviser representatives, in their capacity as registered representatives of CFD, received 12b-1 fees in connection with these investments, but Creative did not adequately disclose this conflict of interest in its Forms ADV or otherwise. Further, by causing certain advisory clients to invest in mutual fund share classes that charged 12b-1 fees when other share classes of the same funds that presented a more favorable value for these clients under the particular circumstances in place at the time of the transactions were available to the clients, Creative breached its duty to seek best execution for those transactions. Second, Creative failed to disclose to its clients compensation that CFD received through agreements with two third-party broker-dealers (“Clearing Brokers”) and conflicts arising from that compensation. Pursuant to the agreements, the Clearing Brokers agreed to share with CFD certain revenues that the Clearing Brokers received from the mutual funds that Creative recommended to its clients. Clearing Broker 1 agreed to share with CFD a certain percentage of revenue that Clearing Broker 1 received from the mutual funds for performing certain administrative services (referred to as the “networking revenue program”). Clearing Broker 2 agreed to share with CFD a portion of revenue that Clearing Broker 2 received from the mutual funds in Clearing Broker 2’s no-transaction-fee (“NTF”) mutual fund program (the “NTF program”). These payments to CFD created a conflict of interest in that they provided a financial incentive for Creative to favor the mutual funds in the networking revenue and NTF programs over other investments when giving investment advice to its advisory clients. Creative agreed to pay disgorgement of $569,516 and prejudgment interest of $108,424, and pay a civil money penalty in the amount of $212,300. https://www.sec.gov/litigation/admin/2020/34-90014.pdf
On September 24, 2020, Steven Rosen, Chief Accounting Officer and Chief Financial Officer of TCA Fund Management Group Corp. (“TCA”), Michael Vernon, Senior Analyst and Chief Operating Officer of TCA, settled an enforcement action. TCA and the GP to a master fund with two feeder funds fraudulently inflated the TCA Funds’ net asset value (“NAV”) and performance results through the recording of non-binding transactions from 2010 through December 2016, and through the recording of fees associated with four agreements with other companies to provide investment banking services in late 2016. TCA also misled the TCA Funds’ investors with respect to the performance of the TCA Funds by improperly including a promissory note of $34.3 million as income in the Master Fund’s 2015 financial statements. Respondent Rosen prepared worksheets for the TCA Funds’ monthly NAV that included these non-binding transactions and fees associated with the four investment banking agreements. Rosen then sent this information to an outside independent fund administrator who used it to calculate the TCA Funds’ monthly NAV and performance results. Rosen knew or should have known that the data he was providing to the fund administrator would fraudulently inflate the TCA Funds’ NAV and performance figures. Rosen and Vernon agreed to be suspended for 3 years and pay a civil penalty of $35,000. https://www.sec.gov/litigation/admin/2020/33-10851.pdf
On September 24, 2020, the SEC charged Oscar Haynes Morris, Jr. and the investment adviser he owned, Lakeside Capital Partners, LP, with misappropriating more than $100,000 from two investment partnerships they managed. According to the SEC’s complaint, Morris and Lakeside misappropriated approximately $55,184 from a private oil and gas partnership that was an advisory client of Lakeside, and then used the funds to cover expenses of another entity controlled by Morris. The complaint also alleges that the defendants misappropriated $65,000 in investment returns generated for a second partnership advised by Lakeside, and spent those funds on Morris’s personal expenses, including car payments, club dues, and credit card bills. https://www.sec.gov/litigation/litreleases/2020/lr24916.htm
On September 24, 2020, Platinum Wealth Partners, Inc. (“PWP”) and David L. Potter (“Potter”) settled an enforcement action arising out disclosure violations by PWP, a former registered investment adviser, and its principal, Potter, while selling promissory notes to individual retail investors, including certain advisory clients. After a period of rapid growth, in 2016 PWP began experiencing an increase in liabilities that exceeded its net income. After PWP defaulted on its bank line of credit, PWP turned to borrowing cash from investors in order to cover its business expenses and meet cash flow needs. While soliciting investors to purchase or renew approximately $1.6 million in PWP promissory notes (the “Notes”), PWP, which was directed by its founder, controlling owner, and chief executive officer Potter, gave the impression to investors that the business was profitable and failed to disclose that there was a risk of default associated with the Notes. PWP and Potter agreed to pay jointly disgorgement of $1,204,000, prejudgment interest of $66,847.20, and a civil penalty of $60,000. Potter agreed to be suspended for 12 months. https://www.sec.gov/litigation/admin/2020/33-10852.pdf
On September 24, 2020, Morgan Wilshire Securities, Inc. settled an enforcement action that its registered representatives recommended that a number of their retail brokerage customers buy non-leveraged, inverse exchange-traded funds (“inverse ETFs”), without regard for holding period, without having a reasonable basis for believing those recommendations were suitable, and, in certain cases, without making suitable recommendations in light of certain of these customers’ risk profiles and investment objectives. Morgan Wilshire failed to implement its policies and procedures in order to reasonably supervise its registered representatives in connection with their recommendations to buy inverse ETFs, with a view to preventing and detecting the registered representatives’ violations of Section 17(a)(3) of the Securities Act of 1933. Morgan Wilshire agreed to pay disgorgement of $87,609.09, prejudgment interest of $16,408.08, and a civil monetary penalty of $75,000.00. https://www.sec.gov/litigation/admin/2020/34-89979.pdf
On September 22, 2020, Credit Suisse Securities (USA) LLC settled an enforcement action that it failed to submit to the Commission true and complete data in response to Commission staff electronic blue sheets (“EBS”) requests, resulting in the reporting of EBS that was incomplete or deficient. Credit Suisse consented to a cease-and-desist order, a censure, and a civil penalty of $600,000. https://www.sec.gov/litigation/admin/2020/34-89947.pdf
On September 23, 2020, JonesTrading settled an enforcement action arising out of the failure of JonesTrading to preserve business-related text messages sent or received by several of its registered representatives, including senior management. JonesTrading maintains policies and procedures to ensure it was retaining business-related records, including communications, in conformance with the federal securities laws and the Commission’s regulations thereunder. Among other things, JonesTrading’s Electronic Communications Policy stated: “Electronic business communications must be accessed and transmitted only through firm sponsored systems.” The policy noted, “Regulators require retention of business communications and firm systems are designed to comply with retention requirements.” JonesTrading’s policies expressly prohibited its registered representatives from using text messaging to conduct business-related correspondence. The policy stated, “Text messaging is not approved to conduct business related correspondence” and “Home computers or other personal devices and external systems may not be used for business purposes.” JonesTrading relied on annual employee compliance attestations and trainings to monitor its employees’ adherence to its policies, including the firm’s policy prohibiting the use of unauthorized methods of electronic communication. In late 2019, Commission staff requested certain records from JonesTrading in connection with an ongoing enforcement investigation into a third party. JonesTrading produced communication records referencing the existence of text message communications between JonesTrading registered representatives and a firm customer that were responsive to the staff’s request. But because the text messages were not retained on one of JonesTrading’s firm-sponsored systems, JonesTrading failed to produce the referenced text messages to Commission staff. Upon further investigation, Commission staff learned that in 2018 and 2019, several JonesTrading registered representatives exchanged business-related text messages with each other, with JonesTrading customers, and with other third parties. Among other things, the business-related text messages concerned the size of orders and the timing of trades; product offerings; updates on markets and certain securities prices; and the timing of certain administrative filings with the Commission. JonesTrading did not preserve copies of these text messages in its books and records. JonesTrading’s senior management knew that the firm’s employees were communicating with each other and the firm’s customers in text messages. Indeed, JonesTrading’s senior management, including compliance personnel, themselves sent and received business-related text messages with others at JonesTrading. After the Commission staff alerted JonesTrading to this issue, JonesTrading took certain remedial measures. Among these actions, JonesTrading required additional compliance training. In addition, in November 2019, JonesTrading sent emails to all employees reminding them of JonesTrading’s obligations to record and retain all electronic business communications and reiterating that “employees are not permitted to communicate via text messaging either with colleagues or customers if the content of the message involves business related communications.” The email also stated that, for employees interested in using their personal devices for business purposes, JonesTrading would provide a firm-sponsored software solution that preserves text messages sent or received for business purposes on employees’ personal devices. Respondent JonesTrading shall, within 10 days of the entry of this Order, pay a civil money penalty in the amount of $100,000.00. https://www.sec.gov/litigation/admin/2020/34-89975.pdf
On September 21, 2020, the SEC charged a S&P index manager and his friend with insider trading that generated more than $900,000 in illegal profits. Charged were Yinghang “James” Yang, a senior index manager at the globally recognized index provider, and his friend Yuanbiao Chen, a manager at a sushi restaurant, with perpetrating the scheme. The SEC’s complaint alleges that between June and October of 2019, Yang and Chen repeatedly purchased call or put options of publicly traded companies hours before public announcements that those companies would be added to or removed from a popular stock market index that Yang helped his employer manage. When the options increased in value after the announcements, Yang and Chen allegedly liquidated their options positions for a substantial profit. As alleged in the complaint, the defendants conducted all of the illegal trading in Chen’s brokerage account, which allowed Yang to conceal his trading from his employer. The complaint alleges, for example, that a number of purchase orders were entered in Chen’s brokerage account immediately following logins from IP addresses assigned to Yang’s home address. In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced criminal charges against Yang. https://www.sec.gov/news/press-release/2020-217
On September 21, 2020, Palmer Square Capital Management LLC settled an enforcement action that it executed hundreds of illegal cross trades between its clients’ accounts. The SEC’s order finds that Palmer Square prearranged buys and sells of the same security in the same amount from one client account to another over 350 times. The trades involved approximately forty client accounts, including those of registered investment companies Palmer Square advised. The order finds that Palmer Square failed to engage in a process to determine, on the basis of reasonable inquiry, the average of the highest current independent bid and lowest current independent offer for cross trades involving these registered investment company clients. The order further finds that the Palmer Square clients on the purchasing side of the cross trade always paid a markup, which was retained by the executing broker-dealer, and that Palmer Square inaccurately informed the boards of its registered investment company clients that it had not engaged in cross trades. Because of this conduct, Palmer Square caused its registered investment company clients to violate statutory prohibitions against cross trading, without complying with the requirements for the exemption set forth in Rule 17a-7 under the Investment Company Act of 1940. According to the order, Palmer Square also failed to provide required disclosures to and obtain consent from other clients involved in principal trades, and did not adopt and implement appropriate policies and procedures to prevent its violations. Palmer Square consented to a cease-and-desist order, a censure, and a civil penalty of $450,000. https://www.sec.gov/enforce/ia-5586-s
On September 18, 2020, Northern Trust Hedge Fund Services LLC and Northern Trust Global Fund Services Cayman Limited settled an enforcement action that its personnel failed to adequately escalate concerns they identified regarding an investment adviser to funds in connection with transfers that were accounted for as promissory notes and receivables which were never repaid. Further, Northern Trust failed to identify a civil action filed by an investor against the adviser. Northern Trust agreed to disgorge 15,076 and pay a civil penalty of $150,000. https://www.sec.gov/litigation/admin/2020/ia-5585.pdf
On September 18, 2020, Keyport Venture Advisors, unregistered investment adviser, settled an enforcement action in connection with disclosure violations while selling interests to individual retail investors in a pooled investment vehicle that sought to invest in shares and interests of pre-IPO companies. Keyport Venture Advisors principals misrepresented to potential investors that one particular new series of the fund already held shares of its intended investment, a pre-IPO online rental marketplace. In reality, Respondents knew they were having difficulty locating shares of the company for the new series, and they were not able to secure an offer until July 2020, several months after investors had invested $198,000 in the new series. Keyport Venture Advisors principals each agreed to pay individually a civil penalty of $40,000. https://www.sec.gov/litigation/admin/2020/ia-5584.pdf
On September 17, 2020, the SEC announced settled charges against WCAS Management Corporation (Welsh Carson) in connection with violations by five private funds of the beneficial ownership reporting provisions of the federal securities laws. According to the SEC’s order, in 2016, Welsh Carson, the investment manager of the private funds, began purchasing shares of Hanger, Inc. for the purpose of acquiring the company and taking it private. The order finds that, in July 2016, the funds had acquired 7% of Hanger’s outstanding common stock. The order further finds that, while the funds filed a Schedule 13D, commonly known as a beneficial owner report, disclosing its intent with regard to its purchases, it subsequently failed to file timely Schedule 13D amendments as required in two separate circumstances. First, the funds failed to file an amendment when Welsh Carson abandoned efforts to acquire Hanger and took steps to liquidate the position in June of 2019. Second, the funds failed to file an amendment in July of 2019 when it began selling its entire position in Hanger. The SEC’s order finds that Welsh Carson caused the private funds to violate the beneficial ownership reporting provisions of Section 13(d) of the Exchange Act and Rule 13d-2 thereunder by failing to file timely amendments to the previously filed Schedule 13D. Without admitting or denying the SEC’s findings, Welsh Carson agreed to a cease and desist order and to pay a penalty of $100,000. https://www.sec.gov/enforce/34-89914-s
On September 17, 2020, Gilder Gagnon Howe & Co. LLC, a dually-registered investment adviser and broker-dealer, and Bonnie M. Haupt, its chief compliance officer failed to conduct reviews of its accounts for excessive commissions and trading, as required by its policies and procedures. GGHC and its chief compliance officer did not conduct these reviews despite the fact that the reviews were designed to monitor the firm’s trading strategy, which involves frequent trading. These reviews were especially important because GGHC charges commissions, instead of assessing an asset-based percentage management fee, for its over 4,500 nonretirement advisory accounts. After conducting an examination of GGHC in late 2016, the Financial Industry Regulatory Authority (“FINRA”) informed GGHC of certain deficiencies in its compliance program. Specifically, FINRA found that GGHC failed to establish and enforce an adequate supervisory system as it related to the supervision of trading activity and failed to evidence that it was actively monitoring turnover rate, cost-to-equity ratio, and in-and-out trading. Cost-to-equity ratios measure the commissions charged to a client’s account on an annual basis reflected as a percentage of the account’s value, whereas turnover rates measure the percentage of a client’s account value traded on an annual basis. In response to FINRA’s findings, GGHC implemented policies and procedures requiring it, through its chief compliance officer, to conduct monthly reviews of the cost-to-equity ratio and turnover rate in client accounts and to document this review. These policies and procedures also required GGHC, again through its chief compliance officer, to escalate accounts with a cost-to-equity ratio over 6% to the Managing Members of the firm for additional review. GGHC, however, did not conduct these reviews. In fact, throughout 2017, GGHC’s compliance department, including Haupt, who was required to conduct the reviews pursuant to GGHC’s policies, did not review any reports reflecting cost-to-equity ratios for its clients. Furthermore, despite the fact that numerous accounts had cost-to-equity ratios above 6%, none of them were escalated to a Managing Member of the firm by Haupt, who was responsible for doing so. When the Commission’s examination staff (the “Exam Staff”) asked for cost-to-equity and turnover reviews for the period from January through November 2017, as part of its onsite examination that began in December 2017, Haupt provided monthly reports that she had altered to give the misleading appearance that she had contemporaneously reviewed them. GGHC, through Haupt, also produced these altered documents in response to a document request made by the staff of the Division of Enforcement. GGHC and Haupt shall each pay a civil penalty of $1,700,000 and $45,000, respectively. Haupt was barred. https://www.sec.gov/litigation/admin/2020/ia-5582.pdf
On September 17, 2020, the SEC announced settled charges Coordinated Capital Securities, Inc. arising out of its mutual fund share class selection practices. Coordinated Capital failed to adequately disclose the conflict of interest arising from its selection of mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds. In addition, Coordinated breached its duty to seek best execution for its clients by causing certain advisory clients to invest in fund share classes that charged 12b-1 fees when share classes of the same funds that presented a more favorable value for these clients under the particular circumstances in place at the time of the transactions were available to the clients. Coordinated Capital also failed to adopt and implement written policies and procedures reasonably designed to prevent these violations. Coordinated Capital agreed to pay disgorgement of $473,202 plus prejudgment interest of $38,759, and a civil penalty of $70,000, which takes into consideration Coordinated Capital’s financial condition and inability to pay a greater civil penalty amount. https://www.sec.gov/enforce/34-89900-s
On September 14, 2020, John Geraci, is a resident of Florida and was the founder and Chief Executive Officer of Meridian Asset Management, a Cayman Islands-based asset manager during the time of the alleged misconduct. Geraci was also the founder and director of the Meridian Matrix Long Short Equity Fund, which was registered with the Cayman Islands Monetary Authority as a regulated fund and was managed by Meridian. The SEC complaint alleged, among other things, that Geraci made false and misleading statements to investors that all of their funds were fully invested in the Meridian Matrix Fund and earning returns, when Geraci knew that the portfolio manager had misappropriated approximately $800,000 of their money. The Complaint also alleged that Geraci misappropriated approximately $1 million himself from the Meridian Matrix Fund. https://www.sec.gov/litigation/admin/2020/ia-5580.pdf
On September 11, 2020, the SEC charges a film producer (Ryan Felton), rapper (Clifford Harris, Jr. aka T.l. and TIP) , and others for participation in two fraudulent initial coin offerings (ICOs). https://www.sec.gov/news/press-release/2020-207
On September 11, 2020, the SEC released the agenda for the upcoming meeting of the new Asset Management Advisory Committee (“AMAC”). AMAC was formed to provide the Commission with diverse perspectives on asset management and related advice and recommendations. The meeting will include a discussion of matters in the asset management industry relating to the ESG and Private Investments Subcommittees and also include a follow-up discussion on COVID-19 matters relating to AMAC’s prior meeting in May 2020.
On September 10, 2020, the SEC charged Graham Bordelon, a registered investment adviser, with a breach of fiduciary duties in connection with its mutual fund share class selection practices. Graham Bordelon purchased, recommended, or held for advisory clients mutual fund share classes that charged fees pursuant to Rule 12b-1 instead of lower-cost share classes of the same funds which were available to the clients. Graham Bordelon’s associated persons received 12b-1 fees in connection with these investments, but Graham Bordelon did not adequately disclose this conflict of interest in its Forms ADV or otherwise. Graham Bordelon also, by causing certain advisory clients to invest in fund share classes that charged 12b-1 fees when share classes of the same funds that presented a more favorable value for these clients under the particular circumstances in place at the time the transactions were available to the clients, breached its duty to seek best execution for those transactions. Graham Bordelon agreed to disgorge $111,655.10, prejudgment interest of $14,744.11, and pay a civil penalty of $50,000. https://www.sec.gov/litigation/admin/2020/ia-5576.pdf
On September 10, 2020, the SEC charged Dionne Van Zyl invested $23.5 million of his clients’ funds into his own failing start-up companies, and also used clients’ funds for high-frequency forex trading without disclosing how he was using their funds or the associated investment risks. As alleged, Van Zyl also failed to fully disclose his compensation. While his clients lost most of their investment funds as a result of his trading activities, Van Zyl collected nearly $3 million in undisclosed fees, commissions, and other compensation. Dionne Van Zyl consented to a bar. https://www.sec.gov/litigation/admin/2020/ia-5575.pdf
On September 9, 2020, a final judgment was entered by consent against Steven Rodemer barring him. The Commission’s complaint alleged that Rodemer misappropriated a total of $451,889 from 2012 to 2019 while authorized as a power of attorney and serving as an investment adviser to an elderly client, outside of his employment at dually-registered broker-dealers and investment advisers. Rodemer used his position of trust to write checks to himself from the client’s brokerage and bank accounts, charge personal expenses on the client’s debit/credit card tied to the brokerage account, and withdraw cash from the brokerage account through ATM transactions. Rodemer used the money to make improvements on his second home and invest in an undisclosed brokerage account in his wife’s name, among other things. https://www.sec.gov/litigation/admin/2020/34-89843.pdf
On September 8, 2020, the SEC charged Alexander Gould, a venture capitalist, with misappropriating more than half a million dollars from Goulden Boy LLC (“Goulden Boy” or the “Fund”), a private venture capital fund he founded and advised. In 2018, Gould used Goulden Boy’s assets to pay for various personal expenses, including his debt to another fund that he had previously managed, and his mortgage, credit card debt and travel expenses. All told, Gould misappropriated $537,460 from the Fund that he never repaid. Gould agreed to disgorgement of over $250,000 and a civil monetary penalty of $200,000. Gould also agreed to be barred. https://www.sec.gov/litigation/admin/2020/ia-5574.pdf
On September 4, 2020, SQN Capital, a registered investment adviser settled an enforcement action in that it failed to timely distribute annual audited financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) to the investors in one private fund that it advised for each fiscal year from 2012 through 2019, and another private fund that it advised for each fiscal year from 2014 through 2019, resulting in violations of the custody rule. SQN Capital also failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder, a violation of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. SQN Capital agreed to a civil monetary penalty of $75,000.
On September 3, 2020, the SEC charged Signature Financial Services, Ltd. with a breach of fiduciary duty in connection with its mutual fund share class selection practices and the receipt of fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 by its associated persons, each of whom also was a registered representative of an unaffiliated broker-dealer registered with the Commission. At times during the period from January 1, 2014 through May 31, 2019, Signature and certain of its associated persons purchased, recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds that were available to the clients. Signature’s associated persons received 12b-1 fees from the unaffiliated broker-dealer in connection with Signature’s clients’ investments in the mutual fund share classes that paid those fees. Signature financially benefitted from these payments of the 12b-1 fees to its associated persons. Signature did not adequately disclose this conflict of interest in its Forms ADV or otherwise. Signature also breached its duty to seek best execution, by causing certain advisory clients to invest in fund share classes that charged 12b-1 fees when share classes of the same funds that presented a more favorable value for these clients under the particular circumstances in place at the time of the transactions were available to the clients. Signature agreed to disgorgement of $252,460.60 and a civil monetary penalty of $75,000.
On September 3, 2020, the SEC charged an adviser with fraud arising from his operation of investment pool. The SEC’s complaint alleges the adviser engaged in a Ponzi-like scheme using the investment fund. The complaint alleges that the adviser guaranteed investors a fixed-rate payout ranging from 8-12% per month, falsely promised that the investments were safe and risk-free, and claimed that all losses would be borne by the fund. According to the complaint, in reality, the adviser operated the fund as a Ponzi-like scheme, investing less than 3% of investors’ money in financial markets, and using new investor funds to pay existing investors their promised returns and the return of their principal. The adviser also allegedly misappropriated or misused investor funds for his own benefit. In a parallel action, the United States Attorney’s Office for the Central District of California announced on September 3 that it filed criminal charges against the adviser arising from the same conduct alleged by the SEC.
On September 3, 2020, the SEC announced settled insider trading charges against a former employee of a private equity firm for unlawfully trading in securities of a U.S.-based acquisition target while he was aware of material, non-public information about a forthcoming acquisition. https://www.sec.gov/enforce/34-89757-s
On September 1, 2020, the SEC charged a Connecticut registered investment adviser with stealing thousands of dollars from an advisory client. The SEC alleges that, beginning in February 2019, the adviser stole over $300,000 from a retired 73-year-old advisory client. According to the SEC’s complaint, the adviser perpetrated the fraud by liquidating securities in the client’s accounts, transferring the proceeds from the sales to a bank account held jointly with the client for investment purposes and to facilitate the payment of miscellaneous monthly expenses, and withdrawing cash from the account on numerous occasions and at different bank locations. The complaint alleges that the client did not know of or approve the withdrawals and did not receive the cash that the adviser withdrew. https://www.sec.gov/litigation/litreleases/2020/lr24881.htm