Opinion ID: 802495
Heading Depth: 2
Heading Rank: 1

Heading: The Order Instituting Proceedings

Text: On December 8, 2008, the SEC Division of Enforcement filed an Order Instituting Proceedings (OIP) against OOOCentreInvest Securities (CI-Moscow), a Moscow-based brokerdealer specializing in the sale of second-tier Russian equities. The Division alleged violations of SEC registration, reporting, and record-keeping requirements from 2003 through 2007. The OIP also named as respondents CI-Moscow’s United States 3 affiliate, CentreInvest, Inc. (CI-New York), along with several of the companies’ United States and Russian employees, including Dan Rapoport. The allegations contained in the OIP form the entirety of the Commission’s case against Rapoport. They are as follows: The OIP alleges that Rapoport, a Russian resident, joined CI-Moscow in 1995, and in 1999, relocated to New York City to work as a managing director of CI-New York. Rapoport returned to CI-Moscow in 2003, where he oversaw both CIMoscow and CI-New York’s brokerage operations. At some point, he was promoted to executive director of CI-Moscow. The OIP alleges that from 2003 until at least November 2007, “CI-New York was under the control of CI-Moscow.” It further alleges that “CI-Moscow and Rapoport controlled” the New York entity by, inter alia, supervising and directing the staff of CI-New York and controlling its budget and finances. It further states that employees of CI-New York referred to Rapoport as the “boss” and to the Moscow entity as the “parent broker-dealer” of CI-New York. The OIP alleges that CI-Moscow never registered as a foreign broker-dealer with the SEC. While Rapoport was working in New York, he was a registered representative, but after his return to Moscow, he was not registered or licensed to sell securities in the United States. Further, from “about 2003 until November 2007,” CI-Moscow and Rapoport “solicited institutional investors in the United States to purchase and sell thinly-traded stocks of Russian companies . . . without registering as a broker-dealer as required by Section 15(a) of the Exchange Act” or meeting the requirements for exemption from registration for foreign broker-dealers under Exchange Act Rule 15a-6(a). The OIP alleges that Rapoport instructed CI-New York’s employees to solicit U.S. institutional investors to 4 transact in the securities and to direct the investors to CIMoscow to complete the transaction, and in some cases, Rapoport solicited the investors directly. It states that Rapoport knew that any CI-Moscow representative soliciting U.S. investors would have to be registered with the Commission or a U.S. self-regulatory organization. The OIP concludes: “As a result of the conduct described above, CI-Moscow and Rapoport willfully violated Section 15(a) of the Exchange Act . . . .” The OIP alleges more generally that all of the respondents benefitted financially from these transactions. Although the OIP leveled somewhat more specific allegations regarding the conduct of other CI-New York employees, the allegations described above represent the extent of the Enforcement Division’s statements in the OIP about Rapoport. It did not cite a single specific instance in which Rapoport or the other respondents solicited a U.S. investor.