SEC Announces Enforcement Results for FY 2016

We fully attribute the following Press Release to the SEC – October 11, 2016

SEC Announces Enforcement Results for FY 2016

Increase in Actions Involving Investment Advisers, FCPA Violations; Most Ever Whistleblower Money Distributed in a Single Year


Washington D.C., Oct. 11, 2016

The Securities and Exchange Commission today announced that, in fiscal year 2016, it filed 868 enforcement actions exposing financial reporting-related misconduct by companies and their executives and misconduct by registrants and gatekeepers, as the agency continued to enhance its use of data to detect illegal conduct and expedite investigations.
The new single year high for SEC enforcement actions for the fiscal year that ended September 30 included the most ever cases involving investment advisers or investment companies (160) and the most ever independent or standalone cases involving investment advisers or investment companies (98).  The agency also reached new highs for Foreign Corrupt Practices Act-related enforcement actions (21) and money distributed to whistleblowers ($57 million) in a single year.
The agency also brought a record 548 standalone or independent enforcement actions and obtained judgments and orders totaling more than $4 billion in disgorgement and penalties.
“By every measure the enforcement program continues to be a resounding success holding executives, companies and market participants accountable for their illegal actions,” said SEC Chair Mary Jo White.  “Over the last three years, we have changed the way we do business on the enforcement front by using new data analytics to uncover fraud, enhancing our ability to litigate tough cases, and expanding the playbook bringing novel and significant actions to better protect investors and our markets.”
The SEC’s most significant enforcement actions in fiscal year 2016 include:
“This has been a strong year for the Enforcement Division, with groundbreaking insider trading and FCPA cases and other important actions across the full spectrum of the securities laws,” added Andrew J. Ceresney, Director of the SEC’s Enforcement Division.  “Through their hard work and steadfast dedication to our mission, the Division’s committed staff have helped protect investors and made our markets fairer and more reliable.”
The agency also brought impactful first-of-their-kind actions in fiscal year 2016, including charges against: a firm solely for failing to file Suspicious Activity Reports when appropriate;  an audit firm for auditor independence failures predicated on close personal relationships with audit clients; municipal advisors for violating the fiduciary duty for municipal advisors created by the 2010 Dodd-Frank Act and the municipal advisor antifraud provisions of the Dodd-Frank Act; a private equity adviser for acting as an unregistered broker; and an issuer of retail structured notes for misstatements and omissions.  In addition, fiscal year 2016 included a first-of-its-kind trial victory: the first federal jury trial by the SEC against a municipality and one of its officers for violations of the federal securities laws.
Overview of SEC Enforcement in Fiscal Year 2016
The SEC brought many other impactful actions in fiscal year 2016 spanning the entire spectrum of the marketplace, examples of which are discussed below.
Combating Financial Fraud and Enhancing Issuer Disclosure
Holding Gatekeepers Accountable
  • Held attorneys, accountants and other gatekeepers accountable for failures to comply with professional standards.
  • In the second non-independence case against a major audit firm since 2009, chargedGrant Thornton LLP, which admitted wrongdoing, and two of its partners, with ignoring red flags and fraud risks while conducting deficient audits of two publicly traded companies that the SEC had separately charged with improper accounting and other violations.
  • Brought important actions against auditing firms for violating auditor independence rules, including two Grant Thornton firms and Ernst & Young LLP.
  • Charged a private fund administrator with missing or ignoring clear indications of fraud while it was contracted to keep records and prepare financial statements and investor account statements for two client funds that the SEC charged with fraud.
  • Sanctioned a consultant to a Texas-based oil company based on charges that he improperly evaluated the severity of the company’s internal control deficiencies (in addition to charges against the company, senior executives, and an outside auditor).
  • Charged lawyers with allegedly offering EB-5 investments while not registered to act as brokers.
Ensuring Fairness Among Market Participants
  • Sanctioned Barclays Capital Inc. and Credit Suisse Securities (USA) LLC for violating the federal securities laws while operating alternative trading systems (ATSs); Barclays admitted wrongdoing and agreed to pay a $35 million penalty – the largest penalty ever assessed against a dark pool – and Credit Suisse agreed to pay over $54 million in monetary sanctions, representing the largest overall settlement against an ATS.
  • Sanctioned Merrill Lynch for violations of the Market Access Rule, which requires firms to have adequate risk controls in place before providing customers with access to the market and imposed the largest penalty ever assessed in a Market Access Rule case ($12.5 million).
  • Imposed a $1 million penalty on Morgan Stanley Smith Barney LLC for the firm’s failure to adopt written policies and procedures reasonably designed to protect customer records and information.
Rooting Out Insider Trading Schemes Through Innovative Uses of Data and Analytics
Uncovering Misconduct by Investment Advisers and Investment Companies
Fighting Market Manipulation and Microcap Fraud
  • Suspended trading in the securities of 199 issuers in order to combat market manipulation and microcap fraud threats to investors, including 19 issuers arising from a microcap fraud-fighting initiative known as Operation Shell-Expel.
  • Obtained a court order freezing the profits of a foreign trader who allegedly manipulated the stock of a Silicon Valley technology firm through a false EDGAR filing traced to a computer in Pakistan.
  • Obtained an emergency court order to freeze the assets of a United Kingdom residentcharged with allegedly intruding into the online brokerage accounts of U.S. investors to make unauthorized stock trades that allowed him to profit on trades in his own account.
  • Charged several alleged perpetrators behind a $78 million pump-and-dump scheme involving the stock of Jammin’ Java, a company that operates as Marley Coffee.
  • Charged proprietary trading firm Briargate Trading LLP and one of its co-founders with engaging in a manipulative trading strategy known as “spoofing.”
  • Sanctioned three traders for two fraudulent trading schemes involving the mismarking of option orders to obtain execution priority and avoid transaction fees charged by options exchanges and “spoofing” to generate liquidity rebates from an options exchange.
Halting International and Affinity-Based Investment Frauds
Policing the Public Finance Markets
Cracking Down on Misconduct Involving Complex Financial Instruments
  • Sanctioned credit rating agency DBRS Inc. for misrepresenting its surveillance methodology for ratings of certain complex instruments.
Combating Foreign Corrupt Practices
Standing Up for Whistleblowers
Demanding Admissions in Important Cases Enhancing Public Accountability
Successful Litigation
Won five U.S. District Court jury or bench trials in fiscal year 2016.  Obtained favorable jury verdicts in the following cases:
  • Nan Huang was found liable for illegally insider trading on information he obtained while working as a data analyst for credit card issuer Capital One.
  • Former stock brokers Daryl Payton and Benjamin Durant were found liable for insider trading ahead of a $1.2 billion acquisition of SPSS Inc. by IBM Corporation.
  • Stephen Ferrone, the former CEO of biopharmaceutical company Immunosyn Corp., was found liable for fraudulently misleading investors about regulatory approval of the company’s sole product, and for signing and filing false certifications included with Immunosyn’s annual and quarterly reports.
  • The City of Miami and its former budget director Michael Boudreaux were found liable for multiple counts of antifraud violations of the federal securities laws in connection with the city’s disclosures concerning the deteriorating financial condition of the city during 2007 and 2008 and in three separate offerings of municipal securities in 2009.
Enforcement Results: Fiscal Years 2014-2016
 U.S. Government. Securities and Exchange Commission. SEC Announces Enforcement Results for FY 2016. U.S. Securities and Exchange Commission. N.p., 11 Oct. 2016. Web. 11 Oct. 2016.