Broker-Dealer Enforcement Cases and Developments: Fines & Restitution Record

Posted on February 26, 2015 by admin

Brokerdealer.com blog update is courtesy of the law firm, Morgan Lewis.

In a record year for enforcement, the SEC brought a landmark number of cases, and FINRA imposed an exceptional level of fines and restitution.

This LawFlash highlights key U.S. Securities and Exchange Commission (the SEC or the Commission) and Financial Industry Regulatory Authority (FINRA) enforcement developments and cases regarding broker-dealers during fiscal year 2014. The full 2014 Year in Review is available here.

The SEC

There were few significant personnel changes at the SEC last year. The Commission’s composition was stable in 2014 with Chair Mary Jo White continuing to lead the SEC. The other commissioners are Luis A. Aguilar, Daniel M. Gallagher, Kara M. Stein, and Michael S. Piwowar. Notable changes were made with appointments in two major SEC divisions (Stephen Luparello was named the director of the Division of Trading and Markets, and Stephanie Avakian was named the new deputy director of the Division of Enforcement). New directors were also appointed to lead the Philadelphia and Atlanta regional offices.

The enforcement statistics compiled by the SEC during fiscal year 2014 (which ran from October 1, 2013 through September 30, 2014) set several records. Other aspects of the enforcement program led the Commission to dub fiscal year 2014 “A Year of Firsts.”

In fiscal year 2014, the SEC brought a record 755 cases, a figure likely boosted by the number of open investigations carried over from the prior year. Moreover, the SEC’s actions resulted in a record tally of monetary sanctions being imposed against defendants and respondents.

With respect to its caseload, in what has become a trend, the SEC brought 7% fewer cases against investment advisers and investment companies—130 cases in fiscal year 2014, compared to 140 actions in fiscal year 2013. To contrast, in fiscal year 2014, the SEC reversed its downward trend from fiscal year 2013, bringing 37% moreactions against broker-dealers—166 in fiscal year 2014, compared to 121 in fiscal year 2013. Nevertheless, taken together, the SEC continues to devote significant resources to investigating regulated entities: cases in these areas have represented about 39% of the Commission’s docket in each of the last two fiscal years.

After a sharp decline in 2013, the Commission brought 52 insider trading cases in fiscal year 2014, an 18% increase from fiscal year 2013, but this increased number is still lower than the fiscal year 2012 total. We will see in the coming year how changes to the legal landscape may affect the SEC’s enforcement in this particular area.

FINRA

An interesting enforcement record emerged at FINRA last year. Although it instituted fewer disciplinary cases in 2014, its fines doubled from the prior year. Moreover, the amount of restitution that FINRA ordered in 2014 more than tripled the amount that had been returned to investors in 2013.

Specifically, in 2014, FINRA brought 1,397 new disciplinary actions, a noticeable decline from the 1,535 cases initiated in 2013. Along the same lines, FINRA resolved 1,110 formal actions last year; 197 fewer cases than it had in the prior year. With respect to penalties and restitution, in 2014, FINRA levied $134 million in fines (versus $60 million in 2013) and ordered $32.3 million to be paid in restitution to harmed investors (versus $9.5 million in 2013).

FINRA’s use of Targeted Examination Letters seems to be declining. In 2014, FINRA posted only two letters on its website, versus three in 2013 and five in 2012. Last year’s letters sought information on cybersecurity threats and order routing/execution quality. (In February 2015, FINRA published its Report on Cybersecurity Practices.)

To read the entire article from Morgan Lewis, click here.

New Fraud Charges After Investment Advisor Tries Paying Old Fraud Charges

Posted on February 9, 2015February 9, 2015 by admin

Brokerdealer.com blog update is courtesy of InvestmentNews’ Mason Braswell.

Jacob Cooper, investment advisor at Total Wealth Management

Investment Advisor firm, Total Wealth Management, was ordered to pay SEC fraud fines in April. After paying the fine, the firm is now being charged with using clients’ money to pay the initial fraud fines.

Investment adviser Jacob Cooper and his firm, Total Wealth Management, face a fresh set of fraud charges after they attempted to use client funds to settle an earlier fraud case with the Securities and Exchange Commission, according to a new complaint filed Wednesday.

The Securities and Exchange Commission filed the charges against Mr. Cooper and his San Diego-based firm after, according to the complaint, they misused investor money for the original settlement and defrauded clients through unexplained “administrative” fees.

The SEC is now seeking to freeze the firm’s assets, appoint a receiver to oversee remaining funds and assess civil penalties.

Total Wealth Management, which Mr. Cooper founded in 2009 and built up through a weekly radio show on investing, allegedly borrowed $150,000 in client funds to help settle an SEC administrative action from April. In that action, the SEC accused him of fraud for pooling around 75% of clients’ $100 million assets into a private fund, which he then invested in unaffiliated funds that paid an undisclosed revenue-sharing fee back to clients.

In addition, the SEC alleged in its most recent complaint that Mr. Cooper was using investor money to pay for legal fees on a related class action brought by clients, who have not been able to withdraw their money or terminate their relationship.

He allegedly charged several Total Wealth investors between $3,500 and $7,500 per account under the guise of “administrative” fees, the agency said.

Then, in a mass email from Total Wealth Management, the firm purportedly told clients: “Many of you were aware of a class action lawsuit brought on by only a few clients causing fee increases for all.”

“The irony is that [the class action] counsel and a very small group of investors have caused a significant amount of those increased fees they have complained about,” the email added.

The SEC disagreed.

“[Mr.] Cooper has an inherent conflict of interest since he is using investor money to defend himself in a lawsuit brought against him by investors,” the complaint stated.

A lawyer for Mr. Cooper, Charles Field of Chapin Fitzgerald Knaier, declined to comment. A number listed for Total Wealth Management was not in working order.

Mr. Cooper has stated that he is in a period of “deep financial stress,” and that he has “no income” and “no job opportunities,” according to the complaint.

He has been writing fantasy novels, however, including one published last July called “Circle of Reign (The Dying Lands Chronicle Book 1).”

Total Wealth Management had about $103 million in assets under management and 773 client accounts, according to its Form ADV from December. The firm found clients through a weekly radio show Mr. Cooper hosted and through free lunches, the SEC said.

For the original article from InvestmentNews, click here

SEC Officials Fight The SEC

Posted on February 6, 2015February 6, 2015 by admin

Brokerdealer.com blog update courtesy of InvestmentNews.

Yes, you read the title right, SEC officials are blasting the commission for turning a blind eye to fining brokerdealer firm Oppenheimer & Co. Inc. for further misconduct. As you may remember a brokerdealer.com blog from last week, Oppenheimer & Co. Inc. was fined $20 million for improper penny stock trades. The SEC said that the firm failed to prevent suspicious penny stock trading and pump-and-dump schemes. Officials are now claiming that further fines should be given to Oppenheimer due to continued misconduct.

Two members of the Securities and Exchange Commission blasted the agency’s decision to spare Oppenheimer Holdings Inc. from additional sanctions related to a recent settlement, saying regulators were turning a “blind eye” to the investment bank’s pattern of misconduct.

SEC Commissioners Luis Aguilar and Kara Stein, both Democrats, said they opposed a waiver of a penalty that would have barred Oppenheimer from raising money for private firms and hedge funds after the company admitted last week to improperly selling billions of shares of penny stocks.

“These violations are just the most recent chapter in a long and unfortunate history of regulatory failures, some more significant than others, but cumulatively indicative of a wholly failed compliance culture,” Mr. Aguilar and Ms. Stein wrote in a statement released Wednesday.

Their dissent is the latest example of partisan disputes at the five-member SEC over how the agency polices Wall Street. The fight over waivers stalled an earlier settlement with Bank of America Corp. and portends future difficulties for companies seeking to end enforcement cases, especially if they are repeat offenders.

Ms. Stein previously criticized a penalty waiver that benefited Royal Bank of Scotland Group Plc and fought to attach more onerous conditions to a reprieve that Bank of America obtained after settling a $16.7 billion mortgage-bond case. SEC Chair Mary Jo White, an independent, and Commissioners Daniel Gallagher and Michael Piwowar, both Republicans, voted in favor of the waiver for Oppenheimer.

The SEC has typically granted waivers to keep from punishing parts of financial companies that weren’t implicated in the wrongdoing at issue.

Oppenheimer spokesman Stefan Prelog said the firm will hire “a fully independent law firm” to review its compliance procedures. The findings and recommendations will be reported to the company’s independent directors, he said.

‘LACKS TEETH’

Mr. Aguilar and Ms. Stein said the SEC’s action “lacks teeth” because it leaves the door open to Oppenheimer hiring a law firm it already uses, which “has every incentive to be accommodating by ignoring or dismissing inadequacies in the firm’s practices.”

Oppenheimer admitted Jan. 27 that it failed to report red flags that its client Gibraltar Global Securities, a Bahamas-based firm, was selling penny-stock shares without being registered in the U.S. The firm acknowledged additional sales of penny stocks for a different customer that resulted in about $588,400 in commissions, according to the SEC. Oppenheimer agreed to pay $20 million to settle the case.

“The company is dedicated to putting these issues behind it through the adoption of a strong compliance infrastructure,” Mr. Prelog said in the statement.

U.S. representative Maxine Waters, a California Democrat, agreed with Mr. Aguilar and Ms. Stein.

“Investors and the American public are greatly disserved when our regulators throw away valuable enforcement tools and adopt a policy of ‘too-big to bar,’” Ms. Waters said in a statement, adding that said she will work with other Democratic lawmakers on legislation that “sends a strong message to the markets that wrongdoers like Oppenheimer will be sufficiently held accountable for their misdeeds.”

Oppenheimer has settled at least 30 separate cases with regulators since 2005, according to Mr. Aguilar and Ms. Stein’s statement. In 2010, the firm agreed to pay $31 million to investors to settle the New York Attorney General’s claims it misrepresented the safety of auction-rate securities. The firm agreed in 2013 to pay $675,000 to the Financial Industry Regulatory Authority Inc. to settle claims that it charged unfair prices to customers buying municipal securities.