Source: http://brandtsrandomgovernmentpressreleases.blogspot.com/2014/04/sec-chair-whites-speech-on-all.html
Timestamp: 2020-01-24 16:18:27
Document Index: 707362826

Matched Legal Cases: ['§ 77', '§ 78', '§ 80', '§ 80', '§ 201', '§ 205']

BRANDT'S RANDOM GOVERNMENT PRESS RELEASES: SEC CHAIR WHITE'S SPEECH ON ALL-ENCOMPASSING ENFORCEMENT TO POLICE MARKETS
SEC CHAIR WHITE'S SPEECH ON ALL-ENCOMPASSING ENFORCEMENT TO POLICE MARKETS
Today, I thought I would talk about the SEC’s Enforcement program, and in particular, the importance of all-encompassing enforcement of the securities laws. By that, I mean the appropriate, but vigorous, use of criminal, civil, and regulatory tools to enforce the securities laws. Before I begin, let me assure Preet Bharara, one of my very distinguished successors as United States Attorney, that Congress did not give the SEC criminal authority as we were flying in last night. And, although I often emphasize how essential our examination function is to achieving comprehensive compliance with all of the regulatory requirements, today’s focus will be the SEC’s enforcement function—investigating and bringing cases.
As you undoubtedly know, essentially any violation of the federal securities laws and regulations can be a criminal violation if done willfully, that is, with intent to violate the law.[1] This means that many of the SEC’s investigations can give rise to criminal cases, although obviously not every one of our cases that could be prosecuted criminally is. But, in the last 20 years, there has been a significant rise in criminal prosecutions of securities cases.
A couple of statistics make the point. When I became U.S. Attorney in 1993, there were 67 criminal cases that were related to SEC proceedings.[2] That number now has doubled.[3] And the number of instances where we grant access to our files to other law enforcement authorities—a rough proxy for the number of cases where we have parallel investigations—has also more than doubled.[4]
In the vast majority of criminal securities fraud prosecutions, the SEC’s Enforcement staff works closely with the criminal authorities, whether it be DOJ, the FBI, or state and local law enforcement. These parallel investigations are entirely appropriate under the law, as long as we conduct our investigations, as we do, independently, but in cooperation with the criminal authorities.[5] Criminal investigations unquestionably bring great value—search warrants, wiretaps, and undercover operations are not in the SEC’s toolbox.
When we work together and bring parallel actions, we will typically file our actions on the same day, unless there is some investigative reason for one of us to act first, such as a need for an emergency asset freeze or to stop a flight risk. Often, you will see that the SEC action names additional defendants who are not part of the criminal case, including those who did not necessarily act with intent to advance the scheme, such as the gatekeeper who permitted the scheme to proceed[6] or the supervisor who failed to appropriately supervise the wrongdoers. [7] We charge these additional defendants because it is very important to proceed broadly against other participants in a scheme to ensure that they too are called to account.
In our standalone cases, we also have unique remedies to protect investors, beyond disgorgement of ill-gotten gains and civil monetary penalties. One of the SEC’s most effective tools is our ability to bar wrongdoers from their particular roles in the securities profession, and, thanks to the Dodd-Frank Act, from the entire securities industry.[8] So whether it is the broker who charged hidden commissions, or the investment adviser who misused investor funds, we can ensure they are not in a position to abuse the trust of investors again. We can also seek orders barring the officer of a public company who committed accounting fraud from serving as an officer or director of any public company, and prevent the microcap promoter from being involved in penny stocks. We also have the authority to prohibit certain professionals who engaged in misconduct from appearing or practicing before the SEC—an accountant can be prohibited from signing an audit report for a public company and an attorney can be prohibited from advising on documents that will be filed with the Commission.[9]
Let me give you one example where we used the trader-based approach and a dogged search for evidence in a parallel action. A couple of weeks ago, the SEC filed a civil action against a registered representative at a large broker-dealer and the managing clerk at a prominent international law firm.[10] The SEC charged that the two engaged in a four-year insider trading scheme that generated $5.6 million in trading profits by trading in advance of more than a dozen corporate transactions for which the law firm provided advice.
Another civil tool we have and use in insider trading cases is our ability to freeze assets and obtain temporary injunctions based on suspicious trading so illicit profits do not disappear while we investigate. We used this tool to great effect in July 2012 when the SEC obtained an emergency asset freeze against unknown traders just days after an announcement of the acquisition of an energy company.[11] The SEC team moved quickly to file an emergency action after discovering that traders using brokerage accounts in Hong Kong and Singapore stood to make millions in potentially illegal profits. Once the freeze was in place, SEC investigators carefully scrutinized the trading records to identify the traders, setting the stage for a string of successful settlements against a number of firms and individuals that unfolded over the next year and a half. Thanks to the staff’s swift action, the SEC recovered nearly $30 million in ill-gotten gains, plus financial penalties from the foreign traders.
This methodical work can serve as the genesis for a parallel criminal case. And these cases are uniquely conducive to criminal methods, where cooperators and undercover agents can interact with the wrongdoers and collect very powerful evidence. We, in fact, used these methods when I was United States Attorney and were able to bring cases, along with the SEC, against over 120 defendants on a single day in connection with what we called Operation Uptick.[12]
Parallel investigations only tell part of the microcap fraud story. Here, too, our standalone actions have significant consequences for those trying to manipulate thinly-traded stocks for their own profit. We often bring Section 5 charges under the Securities Act—a strict liability offense—against microcap fraud participants, suing them for directly or indirectly transacting in unregistered securities or aiding and abetting such violations. We can bring cases against not only the issuers, but also the promoters, attorneys, auditors, broker-dealers, and others who give life to and facilitate these elaborate schemes. If they commit fraud, we bring those charges too.[13]
We also rely on our temporary suspension authority to stop trading in securities that are the objects of pumps-and-dumps. Just last month, we suspended trading in 255 companies, any one of which might have been the next vehicle for stock manipulators.[14] There were more than 1,000 similar suspensions over the last two years.[15] These trading suspensions perform a critical investor protection function—not only do they stop trading in the company’s stock for ten days, but they also have the effect of preventing market makers from displaying quotes in those securities until the company updates its public disclosures. We also have been using our trading suspension authority more frequently to cut off trading while the pump-and-dump is in progress.
Obtaining emergency asset freezes is another essential tool in the battle against microcap schemers. Just a couple of weeks ago, the SEC obtained an asset freeze at the outset of a case against a promoter who was charged with directing a sophisticated, international microcap stock promotion operation.[16] We were able to demonstrate a complex series of movements of funds and securities through various foreign and domestic investment and bank accounts and obtain an order to freeze $2.5 million that had just been received from the sale of the alleged wrongdoer’s interest in a private jet that was about to be transferred to an off-shore account.
Just recently, we worked with the Manhattan District Attorney’s Office to bring such a case against the former chairman, executive director, and several accounting personnel from another prominent international law firm.[17] This case required sophisticated analyses of the firm’s accounting systems. Among the accounting misstatements alleged were the treatment of salaried partners as equity partners so that payments to them would not be treated as expenses; reclassifying uncollectible receivables and disbursements as collectible; and treating loans from partners as income received from clients.
Good financial reporting and vigilant auditing obviously go to the heart of the integrity of our markets and strong investor protection—which is why we have again intensified our focus on this area. Last year, we created the Financial Reporting and Audit Task Force, whose objective is to focus on trends or patterns of conduct that are risk indicators for financial fraud, including in areas like revenue recognition, asset valuations, and management estimates, and through their work identify potential cases for investigation. Our Cross-Border Working Group also has been focused on accounting fraud cases against foreign issuers whose shares trade on U.S. exchanges. Nearly all of these cases have been standalone SEC cases. Through this initiative, the SEC has thus far filed fraud actions against over eighty issuers, officers, and directors; instituted proceedings against auditors; revoked the registration of more than sixty issuers; suspended trading in the securities of seven issuers; approved enhancements to listing standards at the three major exchanges; and issued a related investor bulletin.[18] This is all part of the SEC’s all-encompassing internal effort to address serious securities law violations.
[1] See Section 24 of the Securities Act of 1933, 15 U.S.C. § 77x; Section 32(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78ff(a); Section 49 of the Investor Company Act of 1940, 15 U.S.C. § 80a-48; and Section 217 of the Investor Advisor Act of 1940, 15 U.S.C. § 80b-17. In the criminal context, the Court of Appeals for the Second Circuit “has defined willfulness as ‘a realization on the defendant's part that he was doing a wrongful act’ under the securities laws, in a situation where the ‘the knowingly wrongful act involved a significant risk of effecting the violation that has occurred.” United States v. Cassese, 428 F.3d 92, 98 (2d Cir. 2005) (internal citations omitted).
[2] See U.S. Securities and Exchange Commission 1993 Annual Report, at 1, available at http://www.sec.gov/about/annual_report/1993.pdf.
[3] The average for the five most recent fiscal years is 136. See Select SEC and Market Data for Fiscal Years 2009-2013, available at http://www.sec.gov/about/secreports.shtml.
[4] The number of such requests in 1993 was 205. See U.S. Securities and Exchange Commission 1993 Annual Report, at 1, available at http://www.sec.gov/about/annual_report/1993.pdf. The average for the three most recent fiscal years is 535. See U.S. Securities and Exchange Commission FY 2013 Annual Performance Report, at 150, available at http://www.sec.gov/about/reports/sec-fy2013-annual-performance-report.pdf.
[5] See United States v. Kordel, 397 U.S. 1, 11 (1970); see also SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1377 (D.C. Cir. 1980); United States v. Stringer, 535 F.3d 929, 939 (9th Cir. 2008).
[6] See “SEC Files Anti-Bribery Charges Against Former Finance Executives and Senior Employees Of Global Tobacco Company” (Apr. 29, 2010) (alleging that a controller formalized the accounting methodology used to record bribes made in violation of the FCPA), available at https://www.sec.gov/litigation/litreleases/2010/lr21509.htm.
[7]See In the Matter of Ronald S. Rollings, Admin. Proc. File No. 3-15392 (Jul. 29, 2013) (finding that a Chief Compliance Officer failed properly to supervise an associated person who was convicted of misappropriating assets from client accounts), available at http://www.sec.gov/litigation/admin/2013/34-70058.pdf; In the Matter of Comprehensive Compliance Mgmt., Inc., Admin. Proc. File No. 3-15393 (Jul. 29, 2013) (finding that the investment advisory firm also failed to supervise the associated person), http://www.sec.gov/litigation/admin/2013/ia-3636.pdf .
[8] See Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 925 (providing for collateral bars in Sections 15, 15B, and 17A of the Exchange Act and Section 203 of the Investment Advisers Act).
[9] 17 CFR § 201.103(f)(2); 17 CFR § 205.2(a)(1)(iii).
[10] Press Release No. 2014-55, “SEC Charges Stockbroker and Law Firm Managing Clerk in $5.6 Million Insider Trading Scheme,” (Mar. 19, 2014) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541172895.
[11] See Press Release No. 2012-145, “SEC Freezes Assets of Insider Traders in Nexen Acquisition (Jul. 27, 2012), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171483502 ; Press Release No. 2014-26, Two Hong Kong-Based Firms to Pay $11 Million for Insider Trading Ahead of Nexen Acquisition by Company in China (Feb. 11, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540775561
[12] See, e.g., “Feds nab 120 for fraud: Mob members, securities dealers, charged with bilking victims of more than $50 million,” (Jun. 14, 2000), available at http://money.cnn.com/2000/06/14/companies/fraud/
[13] See Press Release No. 2013-249 “Penny Stock Financier Agrees to Pay $1.4 Million to Settle SEC Charges” (Nov. 25, 2013), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540410863; Press Release No. 2013-155, “SEC Announces Charges Against Florida-Based Penny Stock Schemes” (Aug. 14, 2013), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539776014; Press Release No. 2013-114, “SEC Charges San Diego-Based Promoter in Penny Stock Scheme,” (Jun. 18, 2013) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171605883; Press Release No. 2013-39, “SEC Charges San Diego Lawyers and Others in an International Market Manipulation Scheme” (Mar. 13, 2013) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513254.
[14] See Press Release No. 2014-21, “SEC Continues Microcap Fraud Crackdown, Proactively Suspends Trading in 255 Dormant Shell Companies,” (Feb. 3, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540714936.
[15] The SEC suspended trading in 371 issuers in fiscal year 2013, and 651 issues in fiscal year 2012. See Select SEC and Market Data for Fiscal Years 2012-2013, available at http://www.sec.gov/about/secreports.shtml.
[16] See Press Release No. 2014-52, “SEC Obtains Asset Freeze Against Promoter Behind Microcap Stock Scalping Scheme,” (Mar. 13, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541128311
[17] See Press Release No. 2014-45, “SEC Charges Five Executives and Finance Professionals Behind Fraudulent Bond Offering by International Law Firm,” (Mar. 6, 2014) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540889964.
[18] See, e.g., Press Release No. 2014-47, “SEC Charges Animal Feed Company and Top Executives in China and U.S. With Accounting Fraud,” (Mar. 11, 2014) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541102314; (Nov. 7, 2013); Press Release No. 2013-205, “SEC Charges New Jersey-Based Accounting Firm and Founding Partner for Failed Audits of China-Based Company,” (Sep. 30, 2013) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539849819; Lit. Release No. 22755, “SEC Files Fraud Charges Against China Intelligent Lighting and Electronics, Inc.; NIVS Intellimedia Technology Group, Inc.; and Their Sibling CEOs,” (Jul. 22, 2013) available at http://www.sec.gov/litigation/litreleases/2013/lr22755.htm.
Labels: CIVIL ENFORCEMENT, CRIMINAL ENFORCEMENT, INSIDER TRADING, MICROCAP FRAUD, PARTNERSHIP, SEC, SEC ACTIONS, SEC CHAIR WHITE