SEC ALJs – Lucia, the Appointments Clause and Remedies

Whether the Commission’s Administrative Law Judges were appointed in accord with the Constitution and thus validly hold their positions will be argued on Monday, April 23, 2018 at 10:00 a.m. before the Supreme Court in Raymond J. Lucia v. Securities and Exchange Commission, No. 17-130. While many believe that the outcome here is a foregone conclusion since the Commission and the Solicitor General confessed error last November, the Court appointed an amicus who is more than ably defending the result of the lower court – there was no violation of the Constitution’s Appointments Clause. And, the Court does not always side with the Solicitor General.

If, however, there was error then the validity the proceeding charging and finding that Mr. Lucia violated the securities laws and that he should be bared from the industry is at stake, and perhaps much more. The Commission has dozens of administrative proceedings at various stages being conducted by its ALJs. Other federal agencies with similar administrative schemes have dozens of other cases at various stages. The validity of all those proceedings would be in question.

The question of remedies was not addressed by the lower court in Lucia or typically in the other cases which have challenged the validity of SEC ALJs under the Appointments Clause in recent years. One option is to concluded that all of the proceedings are a nullity and must be dismissed as Mr. Lucia contends. An alternative might be the approach adopted by the Commission when it confessed error. At that time the SEC appointed its ALJs and essentially directed them to reconsider each of their pending cases. The Court could also simply remand the case to the circuit for further proceedings, subjecting the entire process to what could be months more of litigation and uncertainty. The oral arguments should provide important clues to the ultimate disposition of this critical issue. Below is a brief recap of the briefs of each party and a brief discussion.

Petitioner: Raymond J. Lucia

The Appointments Clause of Article 2 provides for the appointment of “Officers of the United States.” The “Principal” officers must be appointed under the Clause by the President with the advice and consent of the Senate. Congress can also provide for “inferior Officers” under the Clause. They may be appointed in the same manner. Alternatively, Congress may provide for the appointment those officers by the President alone, the Courts of Law or the Heads of Departments. Others holding federal positions are employees. Under the Clause there are thus three classifications of officials under the President. SEC ALJs have traditionally been in the third group.

Petitioners, joined by the Commission and the Solicitor General, contend that SEC ALJs are properly considered to fall in the second group. The Appointments Clause is a significant Constitutional safeguard designed to preclude abuses of power through the appointment process, according to Petitioner. Thus principal officers are appointed by the President and answerable to that office. The appointment of other United States Officers can be provided for by Congress.

The Court has consistently read the term Officer broadly in cases such as Buckley v. Valeo, 529 U.S. 1 (1976) and later Freytag v. Commissioner, 501 U.S. 868 (1991). Under Buckley for example, “Every official whose position is ‘established by law’ and who exercises ‘significant authority pursuant to the laws of the United States is an ‘Officer of the United States, and must, therefore be appointed in the manner prescribed by the Appointments Clause.” (emphasis original, internal quotes omitted). That conclusion is wholly consistent with the purpose of the Clause and the Court’s prior rulings. Reading the Clause in this broad manner is wholly consistent with its purpose as a structural safeguard, Petitioner claims.

The Court’s post Buckley decisions confirm this point. Freytag, the key case here, “held that special trial judges (‘STJs’) of the U.S. Tax Court were officers because they held positions ‘established by Law” and exercised authority ‘so significant that it was inconsistent with the classifications of . . . employees.” (internal quotations omitted). Over the years the Court has applied this test to a variety of officials and confirmed its validity.

SEC ALJs have all the characteristics of Officers, according to Petitioner. They are officers established by law. They exercise significant federal authority. In overseeing SEC administrative proceedings the ALJs exercise authority over a wide range of matters at every stage of the case, confirming that their position is that of an Officer. In this case, for example, the ALJ exercised authority not just in shaping the factual record but also over legal issues. In this case an “unconstitutional official thus established both the legal and factual predicates for the ensuing actions of the SEC and the court of appeals – including the lifetime bar imposed on Lucia.”

The D.C. Circuit incorrectly concluded that Officers must have the “power of final decision.” Confining the term Officer to those who can issue unreviewable final decisions “cannot be reconciled with this Court’s . . .” prior decisions. Freytag, for example, “expressly rejected the argument that inability to make final decisions takes officials outside the Appointments Clause.” While in many cases, including Freytag, STRs lacked the ability to enter the final decision on their own, the Court specifically concluded that fact is not determinative. Rather the fact that STRs exercised significant federal authority was key. Citing Burgess v. FDIC, 871 F. 3d 297 (5th Cir. 2017), Petitioner argued that the D.C. Circuit is the only one to have misread Freytag to require the ability to make a final decision.

Petitioner’s position is supported by Congress which provided that SEC ALJs are executive officers. The federal securities laws, for example, repeatedly refer to SEC ALJs as “officers of the Commission.” Similarly, Congress wrote the Administrative Procedure Act in part to make ALJs “a special class of semi-independent” yet still subordinate hearing officers. In the end, however, while SEC ALJs wield a form of adjudicative power, they are part of the executive branch. By definition all authority in that branch is reviewable and answerable to the President. Nevertheless, the “only question is this case is whether the five SEC ALJs . . . are Officers. As the applicable statutes confirm, that question must be answered in the affirmative. Adjudicators who wield such significant federal power in a manner that affects the liberty and property rights of citizens are precisely the sort of officials whose appointment should be ‘accountable to the political forces and the will of the people,’” quoting Freytag.

Finally, a violation of the Constitution requires a meaningful remedy. Here the violation of the Appointments Clause “taints the entire proceeding.” Therefore an “entirely new proceeding is constitutionally required . . .” Under the circumstances in this case however, it is doubtful that any SEC ALJ could give Petitioner a fair hearing given his challenge to their authority.

Dismissal is warranted. The Commission’s efforts at “radification” are not sufficient. To properly appoint an Officer there must be a Commission vote, the administration of the oath of office and the signing and delivery of a commission. These procedures were not followed here, only a Radification Order was entered. That process was not sufficient. The proceedings should be dismissed.

Solicitor General: Petitioner’s position is supported by a brief filed by the Solicitor General. That brief largely reiterates Petitioner’s arguments regarding the construction of the Appointments Clause and the Court’s prior decisions on the question. It adds one issue not raised in the question presented or by Petitioner regarding limitations on the President’s ability to terminate an SEC ALJ under the Appointments Clause, urging the Court to read those provisions in a restrictive manner in view of Free Enterprise Fund v. Public Co. Accounting Oversight Board, 561 U.S. 477 (2010). The Solicitor General did not address the question of remedies.

Court Appointed Amicus Curiae in support of judgment below

The ALJ who heard the proceedings below were not appointed in accord with the Appointments Clause. To the contrary he, along with others at the agency, were selected by the SEC staff under delegated authority from the Commission. The manner of their appoint, however, is not unlawful — they are not constitutional officers, Amicus argues.

The parties agree that the ultimate question here turns on whether SEC ALJs exercise significant authority under the laws of the United States as stated in Buckley. This “Court has not had occasion to articulate the precise scope of that constitutional precondition But a centuries-old understanding of the term ‘Officers of the United States’ yields a rule fully consistent with the Appointments Clause’s purpose and this Court’s cases: An individual wields ‘significant authority’ only if she holds an office that has been ‘delegat[ed] by legal authority . . . a portion of the sovereign powers of the federal government.” That “criterion is satisfied only if the individual has (i) the power to bind the government or third parties (ii) in her own name rather than in the name of a superior officer.” SEC ALJs do not have this authority.

It has been understood since the earliest days of the Nation that the critical test of officer status is the lawful delegation of authority to exercise legal power and bind the government or third parties for the benefit of the public. Acts that bind the government include filing enforcement actions in court or before an administrative body, making litigation decisions that bind the U.S. and issuing binding interpretations of law. This rule is reflected in state court decisions tracing to 1822 as well as materials from the House of Representatives from 1899. In contrast, a mere employee is a person who lacks such power.

This rule is reflected by the Court’s decisions in Buckley and Freytag. In the latter, for example the “Tax Court special trial judges . . . [had] the power, among other things, to enter final decisions in some cases. This same rule is reflected in the “Court’s earlier cases. As the Solicitor General correctly explains, many of those cases concerned ‘whether Congress intended to treat a position it had created by statute as an ‘office,’ not whether the functions of the position were so significant that the Constitution required that the position be held by an officer’ of the United States.” (emphasis original; internal citations omitted). Even so, the positions that this Court’s earlier cases called ‘offices’ were delegated power to bind the government or alter private rights.” The Court’s prior cases are thus fully consistent with the rule articulated above, according to Amicus.

Although the authority to bind the government or private parties is a necessary precondition to Officer status, it is not sufficient. A person holding such a position is not “a constitutional officer if that power cannot be exercised in the appointee’s own name, but only in the name of a superior who is a constitutional officer.” This rule is reflected in actions by the First Congress, earlier decisions by the Court, and opinions of the Executive Branch.

Petitioner and the Solicitor General would have this Court significantly expand the scope of officer status beyond its historical underpinnings. Petitioners reading of Freytag, for example, “would have significant negative practical consequences (including calling into question the constitutionality of more than a century’s worth of presidential and congressional investigative commissions), would not materially advance the purpose of the Appointments Clause, and would be difficult for the political branches to administer.” Such a rule would, for example, make “every government attorney, investigator, and law-enforcement official . . .” a constitutional officer. Yet it would not materially advance the purpose of the Appointments Clause which is “to preserve political accountability relative to important Government assignments.” (internal citation omitted).

Under the Appointments Clause SEC ALJs are not constitutional officers. They cannot bind the government or alter the rights of private parties in their own names. This is clear from the fact that SEC ALJs lack the authority to make final decisions that are binding on private parties or the Commission. While it is clearly true that Congress in the APA sought to make ALJs a special class of semi-independent subordinate hearing officers, that balance was attained by creating limited separation for them from their respective agencies with respect to their tenure and compensation. “Crucially, Congress did not seek to increase ALJ independence – and certainly not SEC ALJ independence – by granting ALJs independent authority to bind the government or private parties. That is the authority that matters, and it is lacking here.” (emphasis original).

While Petitioner correctly notes that the APA originally described ALJs as officers this does not mean they are constitutional Officers under the Appointments Clause. What Petitioner missed is that in 1966 when Title 5 of the Code was restated without substantive change but with a definition of Officer, “Congress simultaneously deleted every reference to ALJs (then called ‘hearing examiners’) as ‘officers,’ and replaced each such reference with ‘employee.’” SEC ALJs are not in the view of Congress or under this Court’s precedents, constitutional officers.

Amicus did not address the question of remedies, noting that the Court did not instruct that issue to be briefed.

Other amicus briefs: A number of other amicus briefs were filed, some of which addressed the question of remedies. The Federal Administrative Law Judges Conference In Support of Neither Party noted that the Court should decide the case in a manner which preserves the independence of ALJs. On the question of remedies the Conference argued that final judgments should not be reopened and that a ratification process would be sufficient for other cases. An amicus brief in support of Petitioners by RD Legal Capital, LLC and Roni Dersovitz in support of Petitioners argues that the ratification process used by the SEC is contrary to the Appointments Clause and, in any event, the process is inappropriate. Another amicus brief in support of Petitioner, filed by the Washington Legal Foundation, urged the Court to consider the question of remedies and argued that ratification would be inappropriate. Rather, if the agency wished to continue with any of the proceedings, a new action should be initiated.


Many observers believed that when the SEC and the Solicitor General confessed error this case was essentially over. A review of the briefs, briefly summarized above, shows otherwise. Important issues of Constitutional law remain.

On the merits the essential difference between Petitioners and Court appointed amicus is a reading of cases such as Frytag. Petitioner read the cases as supporting a rule where the exercise of significant authority by a person holing a statutorily created position is sufficient to require appointment as a constitutional officer under the Appointments Clause. Court appointed amicus details at length the reason this is an incorrect reading of the history of the Clause and the Court’s prior cases. Rather, the Clause requires that the Officer have not just significant authority but the power to bind the government and private parties in its own name. Yet Petitioners must admit that the Special Trial Judges in Frytag do in fact have the authority to act in their own name at least at times as the court appointed amicus states. On the other hand Court appointed amicus essentially admits that none of the Court’s prior cases specifically mandate the precise rule advocated in its brief.

Finally, the question of remedies is not within the question presented to the Court for resolution. That point is graphically illustrated by the statement from Court appointed amicus declining to brief the question. Typically, the Court would remand the case if it agrees there is a Constitutional violation and direct the lower court to consider the question of remedies in view of the opinion issued. If that is the result in this action, the ultimate resolution of this case may be dictated by the D.C. Circuit’s recent ruling in Laccetti v. Securities and Exchange Commission, No. 16-1368 (March 23, 2018). There the court found there was a structural constitutional error in a PCAOB proceeding where the witness in the investigation was denied his constitutional right to counsel because the attorney representing the witness was not permitted to have the assistance of an expert accountant. In view of the nature of the error the court ordered dismissal of the proceedings but allowed that the Board could reinstitute them if the applicable law allowed. If the Supreme Court agrees with Petitioner, the Solicitor General and the SEC this may well be the result for Mr. Lucia. It could also be the result for each respondent in a pending SEC administrative proceeding.

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This Week In Securities Litigation (Week ending April 20, 2018)

The Commission proposed a package of rules and interpretations focused on retail investors. At the center of the package is proposed Regulation Best Choice focused on the relation between brokers and their clients.

The agency brought another action against an investment adviser centered on false advertising. The case involved a proprietary trading system which was largely marketed without telling investors that it was back tested – or when it was the print was so small as to not be meaningful.

FINRA, joined by five exchanges, brought an action centered on market access. The DOJ secured a guilty plea to a money laundering charge by a foreign official tied to an FCPA/Anti-corruption case. And, the New York AG initiated a fact finding inquiry into the operations of trading platforms for cryptocurrencies.


Proposed rulemakings: The Commission proposed a package of rulemakings and interpretations which include Regulation Best Choice, designed to enhance protections and choices for retail investors. Under the proposals broker-dealers would be required to act in the best interest of their retail customers. The package would also reaffirm and clarify the Commission’s view of the fiduciary duty investment advisers owe to their clients and address investor confusion regarding the nature of their relationships with investment professionals through a short-form disclosure document. The proposals also restrict some uses of the terms “adviser” and “advisors” (here).

Public service announcement: The Commission published a Public Service announcement encouraging investors to check the background of those with whom they might invest (here).

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the SEC filed 4 civil injunctive cases and 2 administrative proceeding, excluding 12j and tag-along proceedings.

Misappropriation: SEC v. Jumper, Civil Action No. 18-cv-02259 (W.D. Tenn. Filed Apr. 17, 2018). Defendant John Jumper was the CEO of, and a registered representative at, his wholly-owned broker-dealer, Alluvion Securities. He was also the President and an investment adviser representative of Alluvion Investments. The firms were located in the Memphis, Tennessee area. In 2006 Mr. Jumper was retained to assist with the sale of Snow Shoe Refractories LLC, a refractory products manufacture based in Clarence, Pennsylvania. Mr. Jumper marketed the firm to an acquaintance residing in Sarasota, Florida. The transaction took place in February 2007 at a purchase price of $8.2 million. Mr. Jumper was paid a $250,000 commission. As part of the transaction New Owner assumed responsibility for the administration of the Snow Shoe Pension Plan. It has assets of about $8.3 million, held at a local bank. The plan was underfunded by about $1.8 million. Despite never holding a position at Snow Shoe, or having any authority over the company or its pension plan, shortly after the deal closing, Mr. Jumper began forging a series of documents regarding the pension plan. He used those documents to move the pension plan assets to a different financial institution. Subsequently he took $5 million from the pension fund in two transactions in exchange for promissory notes using forged documents. He also took other funds from the pension plan, again using forged documents. The complaint alleges as to Mr. Jumper violations of Exchange Act section 10(b) and Securities Act sections 17(a)(1) and (2). A claim was also asserted against certain relief Defendants affiliated with Mr. Jumper where portions of the funds had been transferred. The action is pending. See Lit. Rel. No. 24116 (April 18, 2018). A parallel criminal action was filed by the U.S. Attorney’s Office for the Middle District of Pennsylvania.

Insider trading: In the Matter of Douglas Nelson, Adm. Proc. File No. 18439 (Apr. 16, 2018) centers on the August 14, 2014 announcement by Monster Beverage Corporation and Coca-Cola Company that the latter agreed to purchase 16.7% of the former’s stock. The purchase was made in connection with the execution of an agreement under which Monster would become Coke’s exclusive energy drink provider. Mr. Nelson learned about the proposed arrangement prior to the announcement from a relative who worked on the deal at Monster. Respondent misappropriated the information and purchased 1,005 shares of Monster stock. Following the announcement the share price increased 101% giving him unrealized gains of $15,141.97. The Order alleges violations of Exchange Act section 10(b). To resolve the proceedings Mr. Nelson consented to the entry of a cease and desist order based on the section cited in the Order. He will also pay disgorgement of $15,141.97, prejudgment interest of $1,740.39 and a penalty equal to his trading profits.

Advertising: In the Matter of Arlington Capital Management, Inc., Adm. Proc. File No. 3-18437 (Apr. 16, 2018) names as Respondents the firm, a registered investment adviser during much of the time involved here and a state registered adviser, and Joseph LoPresti, its owner. During the period 2012 through 2015 Respondents marketed what was called the Proactive Asset Allocation Strategy or PAAS, a proprietary investment tool. During the period Respondents continually backtested and then updated the results, sometimes without disclosing they were updated. In many instances the fact that the results were backtested was not disclosed while in others that fact was stated in fine print which made it effectively meaningless. This made the advertisements false and misleading. Mr. LoPresti served at the CCO of the firm. The Order alleges violations of Advisers Act sections 206(2) and 206(4). In resolving the proceedings Respondents will implement certain undertakings which include retaining a consultant and adopting the recommendations. To resolve the proceedings Respondents each consented to the entry of a cease and desist order based on the sections cited in the Order and to a censure. In addition, the firm will pay a penalty of $75,000 while Mr. LoPresti will pay $25,000.

Touting: SEC v. Lidingo Holdings, LLC, Civil Action No. 17-cv-01600 (W.D.Wa.) is a previously filed action against Vincent Cassano. Lidingo Holdings, LLC hired Mr. Cassano and others to publish hundreds of bullish articles on its clients which appeared as independent research articles but in fact were paid advertisements. The Court entered a final judgment by consent which permanently enjoined Defendant Cassano from future violations of Securities Act Sections 17(a) and 17(b) and Exchange Act Section 10(b). The litigation is continuing as to the company and other Defendants. See Lit. Rel. No. 24113 (Apr. 16, 2018).

Offering fraud: SEC v. Chahal, Civil Action No. 1:18-cv-00426 (E.D. Va. Filed Apr. 12, 2018). Defendant Amrit Chahal is the president of Defendant Kane Capital Investment Group, LLC. Despite the fact that he had no investment experience Mr. Chahal raised about $1.4 million from 50 investors beginning in February 2015 and continuing through February 2018. Investors were promised large returns. In fact Mr. Chahal lost much of the investor money through trading while misappropriating other portions. He also misrepresented the investment returns to the investors. The complaint alleges violations of Securities Act section 17(a), Exchange Act section 10(b) and Advisers Act section 206(1). The case is pending. See Lit. Rel. No. 24114 (April 16, 2018); see also U.S. v. Chahal, No. 1:18-mj-70 (E.D. Va.); CFTC v. The Kane Capital Investment Group, Civil Action No. 1:14-cv-00422 (E.D. Va. Filed Apr. 11, 2018). Each case is pending.

Financial fraud: SEC v. Kandelapas, Civil Action No. 18-cv-02637 (N.D. Ill. April 12, 2018) is an action which names as a defendant Andrew Kandelapas, the CEO of Wellness Center USA Inc., a holding company for four subsidiaries operating in the healthcare area. Beginning in 2013, and continuing into 2014, Wellness issued false and misleading Forms 10-K and 10-Q. Specifically, the filings concealed a scheme by Mr. Kandalepas, to misappropriate $450,000 from the firm. The company variously mischaracterized the payments to him as “salary,” “prepayments” or “loans” when in fact they were not. The firm also issued two false press releases in 2015 touting non-existent sales. In addition, the company caused Matthew Mushlin, a consultant, to violate Exchange Act Section 15(a) by acting as an unregistered broker regarding the sale of about $2 million worth of its stock in 2013, 2015 and 2017. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act sections 10(b). The case is pending. See Lit. Rel. No. 24111 (April 13, 2018).


Market access: Instinet, LLC was fined $1.575 million and censured by the regulator and five exchanges for violating the market access rule. The exchanges were BOX Options Exchange LLC, the CBOE BZX Exchange, Inc., Investors Exchange LLC, the NASDAQ Stock Market LLC and the New York Stock Exchange. The market access rule requires brokers who provide market access to clients to have adequate controls regarding the regulatory and financial risks that come with such access. The rule is designed to ensure that brokers appropriately control the risks associated with such access. Here Instinet provided market access to numerous clients but failed to supervise trading to detect and prevent potentially violate and manipulative activity.

Criminal Cases

Offering fraud: U.S. v. Erb, No. 17-CR-413 (E.D.N.Y) is an action in which Defendant Eric Erb previously pleaded guilty to a charge of wire fraud. On April 13, 2018 he was sentenced to serve 57 months in prison and pay $5.3 million in restitution, and a $5.3 million forfeiture judgment and to forefeit $215,000 in proceeds that he earned from the sale of his former residence. Mr. Erb admitted misappropriating $3 million from 38 investors in connection with a scheme in which he promised to invest the money entrusted to him in accord with investor directives. In fact he used portions of the money for his personal expenses, lost other portions and tried to cover all this up with false earnings statements.

Offering fraud: U.S. v. Haddow, No. 1:17-mj-04939 (S.D.N.Y.). Defendant Renwick Haddow, a U.K. citizen also known as Jonathan Black, was extradited from Morocco and returned to New York last week. In June of 2017 he was charged in a criminal complaint with conducting two fraudulent schemes. Prosecution of the case had to await his extradition. Bitcoin Store Inc. was at the center of one scheme operated by Mr. Haddow. A second scheme focused on Bar Works Inc. Over a three year period, beginning in November 2017, Mr. Haddow solicited investments for his two start-up enterprises. Bitcoin Store claimed to be an online platform for purchasing, selling and storing the digital currency known as “Bitcoin.” Barworks claimed to be engaged in the business of adopting restaurants, bar premises and other locations into co-working spaces. Investors were solicited for the two firms with a series of misrepresentations. Mr. Haddow concealed his interest in Bitcoin Store for example. Rather, he claimed the firm was operated by an experienced team of investment professionals which was false. Defendant Haddow used a similar approach with Barworks. There he claimed that Jonathan Black had an extensive background in finance. Mr. Black also claimed to have had a role in setting up “Car Share,” a car-sharing app. Again the claims were false. Investors were solicited through agent brokers and inCrowd Equity Inc., an app Mr. Haddow controlled. It was claimed to be a kind of crowdfunding portal through which investors could purchase shares of start-ups that supposedly had been vetted by inCrowd. Investors were unaware that Mr. Haddow controlled inCrowd and had interests in the firms being recommended. Defendant Haddow misappropriated the investor funds raised. He has been charged with two counts of wire fraud, one relating to each venture. The case is pending. See also SEC v. Haddow, Civil Action No. 1:17-cv-04950 (S.D.N.Y. Filed June 30, 2017).

Offering fraud: U.S. v Kantor, No. 18-CR-177 (E.D.N.Y.). Defendant Blake Kantor, also known as Bill Gordon, conducted a fraudulent investment scheme in which investor cash was converted to what was represented to be a valuable cryptocurrency – ATM Coin. Beginning in March 2014 Mr. Kantor established the Blue Bit Banc or Blue Bit Analytics, Inc. The firm sold binary options, a form of highly speculative investment that has been banned in some countries. Over a three year period Mr. Kantor and his confederates solicited investors for Blue Bit Bank, raising about $2.1 million from approximately 713 investors. Investors were not told that the computer software used by Blue Bit altered the data used in connection with the binary options in a manner which made it most difficult for them to make a profit. Investors were also not told that the ATM Coin they received was worthless. In October 2017 Mr. Kantor and others involved with the scheme took steps to evade detection. Customer lists were altered after FBI agents told Mr. Kantor that they were investigating. Mr. Kantor also met with the agents and misinformed them about the business, claiming he had not had any involvement with it for a period of time. Defendant Kantor is charged with conspiracy to commit wire fraud, obstruction of an official proceeding and making false statements to Special Agents of the FBI. The case is pending.


U.S. v. DeLeon, No. 4:17-cr-00514 (S.D.Tx.) is an action which named as a Defendant Cesar David Rincon Godoy or Cesar Rincon, the former general manager of Petroleos de Venezuela S.A. or PDVSA, the state owned Venezuela oil firm. He is one of five officials from the firm indicted on money laundering charges. The firm officials solicited bribes from 2011 through 2013 from corporate officials who wanted to do business with their company. At least $27 million in bribes were paid. Mr. Rincon was charged with four counts of money laundering. This week he pleaded guilty to one count of conspiracy to commit money laundering in connection with the scheme. The court imposed a personal money judgment in the amount of $7,033,504.71 against the Defendant who agreed to the entry of an order of forfeiture. Sentencing is scheduled for July 9, 2018.

U.S. v. Koolman, No. 1:18-cr-20276 (S.D. Fla.) is an action in which Egbert Yvan Ferdinard Koolman, a Dutch citizen residing in Florida, pleaded guilty to one count of money laundering. Mr. Koolman was an official of Servicio di Telecommunicacion di Aruba N.V. or Setar, an instrumentality of the Aruban government. From 2005 through 2016 Mr. Koolman conspired with Lawrence Parker, who previously pleaded guilty to FCPA violations, and others to engage in money laundering. Essentially in return for over $1.3 million in bribes over the period he used his position to award lucrative mobile phone and accessory contracts. The cash was paid through wire transfers using U.S. banks or at meetings in Miami and Aruba.

New York AG

Cryptocurrency: The New York AG’s office launched a fact finding inquiry regarding trading platforms for virtual currencies. Specifically, the NYAG sent letters to thirteen virtual currency trading platforms requesting disclosures regarding their operations. The letters are part of a fact finding inquiry designed to aid in protecting consumers.


Manipulation: The Australian Securities and Investment Commission banned Mark Menzies, sole director of Menzies Securities Pty, from providing financial services for a period of four years and canceled the registration of the firm. The action was taken in view of his manipulation of the MINIs – a derivative product traded in Australia. Effectively, Mr. Menzies used the MINIs to transfer the profit or loss from prior transactions which had the impact, or likely impact, of creating an artificial prices. The firm also failed to keep the required records.

Hong Kong

Electronic trading: The Securities and Future Commission reprimanded and fined Instinet Pacific Limited $17.3 million in connection with its breaches of conduct tied to the firm’s electronic and algorithmic trading systems and alternative liquidity pool. Specifically, the firm failed to ensure that reasonable controls were in place to prevent its algorithmic trading system from generating and passing erroneous and disorderly orders to the market on three occasions in December 2014 and January 2016. In addition, the firm’s non-proprietary orders received execution priority over proprietary orders in May 2016 and it failed to comply with the documentary requirements of the Code of Conduct.

Remarks: Julia Leung, Deputy Chief Executive Officer, SFC delivered remarks titled New Technologies and Asset Management: A Time of Great Promise and Great Peril at the Hong Kong Investment Funds Association Luncheon (April 13, 2018). Her remarks addressed Reg Tech and Sup Tech initiatives, Fintech and the approach of the regulator to crypto assets which has been to apply the securities regulations where applicable while joining other regulators in urging the IOSCO to continue monitoring the developments (here).


Corruption: The Serious Frauds Office announced that it has opened a criminal investigation into suspected corruption in the conduct of business in Algeria by Ultra Electronic Holdings plc, its subsidiaries, employees and associated persons following a self-report by the firm.

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