Oppenheimer’s Penny Stocks Results in $20M Fine

Posted on January 28, 2015January 28, 2015 by admin

Oppenheimer fined for failure to report suspicious penny stocks

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

Brokerdealer firm, Oppenheimer & Co. Inc., has reach a deal with the SEC and FinCEN resulting in the firm paying $20 million, pleading guilty, and hiring an independent consultant over improper penny stock trades. The SEC and FinCEN said, firm failed to prevent suspicious penny stock trading and pump-and-dump schemes.

The firm, which runs a retail brokerage operation with around 1,400 financial advisers, failed to properly detect and report suspicious trades in penny stocks, which are thinly traded securities that can be vulnerable to manipulation by stock promoters, according to FinCEN. The regulator identified at least 16 customers in five states who engaged in “patterns of suspicious activity.”

“Broker–dealers face the same money laundering risks as other types of financial institutions,” said FinCEN Director Jennifer Shasky Calvery, in a release. “And by failing to comply with their regulatory responsibilities, our financial system became vulnerable to criminal abuse. This is the second time FinCEN has penalized Oppenheimer for similar violations. It is clear that their compliance culture must change.”

In a parallel action, the SEC pointed to two instances between 2008 and 2010 in which the firm engaged in unregistered sales of penny stocks.

In one case, a financial adviser and his branch manager willfully engaged in unregistered sales of 2.5 billion shares of penny stocks on behalf of a customer, despite the fact that the shares were not exempt from registration, according to the SEC settlement. The trades generated $12 million in proceeds, of which Oppenheimer was paid $588,400 in commissions.

The settlement did not name the broker or branch manager, but said that its investigations into the matter were ongoing.

The other charge revolves around Oppenheimer’s role in possibly assisting allegedly illegal activity by a Bahamas-based brokerage firm, Gibralter Global Securities.

The firm disclosed in quarterly filings earlier this year.

that it was setting aside $12 million to deal with the possible fallout from regulatory investigations, mostly dealing with penny stock issues.

The head of the firm’s retail brokerage, Robert Okin, resigned in December, reportedly to pursue other interests. His Finra BrokerCheck record discloses he is facing an SEC investigation.

A spokesman for Oppenheimer, Stefan Prelog said in an email that the firm was “pleased to put these matters, which involve activity that occurred years ago, behind it.”

The firm has also agreed to hire an independent consultant as part of the settlement.

SEC Sends Former CT BrokerDealer to the Slammer For Cherry-Picking

Posted on January 15, 2015 by admin

BrokerDealer.com blog update courtesy of SEC news release issued Jan 14

The Securities and Exchange Commission announced today that Noah L. Myers of Lyme, Connecticut and the former owner of MiddleCove Capital, LLC, an investment adviser formerly registered with the SEC, was sentenced to 40 months in prison followed by three years of supervised release following his conviction on one count of securities fraud. On October, 20, 2014, Myers waived his right to indictment and pleaded guilty to one count of security fraud.

On January 16, 2013, the SEC accepted offers of settlement from Myers and MiddleCove and instituted a cease-and-desist order against them. The SEC order found that from approximately October 2008 to February 2011, Myers engaged in fraudulent trade allocation – “cherry-picking” – at MiddleCove. Myers executed his cherry-picking scheme by unfairly allocating trades that had appreciated in value during the course of the day to his personal and business accounts and allocating trades that had depreciated in value during the day to the accounts of his advisory clients. Myers did this by purchasing securities in an omnibus account and delaying allocation of the purchases until later in the day (and sometimes the next day), after he saw whether the securities appreciated in value. When a security appreciated in value on the day of purchase, Myers would often sell the security and disproportionately allocate the purchase and the realized day-trading profit to his own accounts or to accounts benefiting himself or his family members. In contrast, for securities that did not appreciate on the day of purchase, Myers would disproportionately allocate these purchases to his clients’ accounts and his clients would hold the position for more than one day. Myers carried out his cherry-picking scheme with regard to several securities, but was most active with an inverse and leveraged exchange traded fund (ETF). Myers finally ceased these practices in February 2011 when one of his employees threatened to contact the Commission.

The SEC’s January 16, 2014 order found that Myers and MiddleCove willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1), 206(2) and 207 of the Investment Advisers Act of 1940. The SEC order revoked the registration of MiddleCove as an investment adviser, barred Myers from the securities industry, and ordered Myers and Middlecove to pay disgorgement of $462,022, prejudgment interest of $26,096, and a civil money penalty of $300,000.

Former Boss of Bosses For BrokerDealers Joins Bitcoin Bandwagon; Ex-SEC Head Arthur Levitt Is on Board

Posted on October 28, 2014 by admin

Brokerdealer.com blog update courtesy of reporting from WSJ and other news outlets

Arthur Levitt, the longest-serving chairman of the Securities and Exchange Commission, is joining the advisory boards of two bitcoin-focused companies.

Frmer SEC Head Arthur Levitt, photo by Reuters

As an adviser to Atlanta-based BitPay, a bitcoin payment processor, and Vaurum, a Palo Alto-based bitcoin exchange for institutional investors, Mr. Levitt says he hopes to “help them understand the imperative of a robust approach to regulation” if bitcoin is to fulfill its promise to further shake up the world of finance. The appointments will be formally announced Tuesday.

Bitcoin is an independent digital currency in which transactions are verified by a network of computer owners and a universal payments ledger. The model strips out banks, credit card companies and other intermediary institutions from electronic payments and so aims to reduce costs in the system.

Mr. Levitt, who ran the SEC between 1993 and 2001 and who these days works in a variety of consulting roles, is one of the highest-profile members of the U.S. financial establishment to work in the digital-currency industry. In an interview, he said he was drawn to the sector by the innovative energy of the young people behind it, a group that he described as always “thinking beyond the box.”

“The intellectual firepower behind [bitcoin] enterprises is astonishing,” Mr. Levitt said. “But I think in terms of compliance and regulations, they are relatively immature.”

He said bitcoin needs regulation to build the trust of the broader population and boost adoption. Bitcoin firms “must have as their top priority a greater public understanding of what bitcoin is, how it works” and of the improvement it brings by “imposing competitiveness on establishment practices and procedures,” he added.

The BitPay and Vaurum appointments come at a crucial time for bitcoin. After it rallied 9100% against the dollar in the 12 months to December 2013, its price has since fallen by 70% from that peak, in part because of regulatory uncertainty.

Biggest BrokerDealer Compliance Officer Charged In Insider Trading Case

Posted on October 15, 2014 by admin

BrokerDealer.com blog update courtesy of reporting by InvestmentNews.

The Securities and Exchange Commission announced Wednesday that it was taking enforcement action against a former compliance officer at brokerdealer Wells Fargo Advisors who allegedly altered a document before it was provided to the SEC during its investigation into a former broker’s insider trading.

The charges stem from the case of Waldyr Da Silva Prado Neto, whose alleged scheme made more than $2 million from insider trades in Burger King Holdings Inc. stock ahead of an acquisition announcement on Sept. 2, 2010. )

The SEC said that after it charged Mr. Prado in September 2012, Judy K. Wolf, who was responsible for identifying potentially suspicious trading activity at broker-dealer Wells Fargo Advisors, went back and revised a 2010 report to make it appear that she had performed a more thorough review of Mr. Prado.

Initially, she had closed the report into Mr. Prado’s Burger King trades with “no findings” and did not notify any superiors of potential red flags, the SEC said.

To gain greater insight to the global universe of brokerdealers, the BrokerDealer.com database provides information on thousands of brokerdealers throughout the world.

The SEC said in its action that Ms. Wolf should have reported multiple red flags that were noted, including that Mr. Prado and his customers represented the top four positions in Burger King Securities firmwide, he and his customers purchased the securities within 10 days of the announcement, made substantial profits and that he, his customers and the company acquiring Burger King were all Brazilian.

To continue reading this story, please visit InvestmentNews.com

SEC’s Latest Pet Peeve: Grammar. BrokerDealers Beware

Posted on September 13, 2014September 13, 2014 by admin

Brokerdealer.com blog post courtesy of extract from Sep 13 WSJ story by Theo Francis.

After combing through a 19,974-word filing for a securities offering, Securities and Exchange Commission senior counsel Catherine Gordon had some guidance for the company that drafted it.

“In the second paragraph, add a comma,” she wrote to an attorney for the trust, sponsored by Incapital LLC, in December, “to improve readability.”

Meet the stock market’s punctuation police. Corporate securities filings are plagued by some of the world’s most impenetrable prose, but it isn’t for lack of effort. Every year, SEC lawyers and accountants review several thousand of the more than half-million documents that companies file with the agency. And while they are primarily on the prowl for accounting inconsistencies and breaches of securities regulations, they also chase down typos, sentence fragments, jargon, puffery and sloppy punctuation.
Making sure corporate disclosures pass muster falls to the SEC’s 350-member Corporation Finance division—Corp Fin in the trade—which reviews every public company’s primary filings at least once every three years.

Last year alone, the securities industry’s style police sent nearly 8,800 letters to more than 4,600 companies, according to LogixData, which analyzes SEC filings. The letters, which eventually become public, contained more than 66,000 questions, most seeking fuller disclosure or better adherence to accounting rules. But many would have been right at home in freshman English.

SEC staffers asked a brewer to provide the volume of a barrel, a wedding organizer to define “marriage-seeking profiles,” racing companies to describe their horses with complete sentences, a biopharmaceutical maker to explain aplastic anemia and an annuity company to punctuate the end of a sentence.

For the full story from the WSJ, please click here.