The SEC’s 2012 Agency Financial Report details its performance over the last government fiscal year which ended September 30, 2012. Two sections are devoted to the enforcement program, one which is an overview of the Division’s work and an Appendix which provides additional detail.
In discussing the work of the Enforcement Division the Report emphasizes what it calls the “full spectrum” of the program, referring to the different areas in which actions were brought in compiling a near record setting number of cases filed. Last year the Division brought 734 actions, second only to the record 735 initiated the prior year. Collectively, the actions resulted in about $3.1 billion in orders for disgorgement, penalties and other relief. The Division also made its “first whistleblower payout to an individual who provided high-quality significant information that helped stop a multi-million dollar fraud.” The Division clearly expects more from this program in the future.
Key areas and cases brought by the Enforcement Division last year include the following according to the Report:
Financial crisis: To date the Division has brought 80 financial crisis actions including 29 in the last fiscal year, up from 23 in the prior year. The Report emphasizes actions brought against individuals, noting that to date 117 individuals, including 57 CEOs, CFOs and other senior corporate officers, have been named in actions. Last year those included:
· Actions against senior executives at Fannie May and Freddie Mac, SEC v. Mudd, and SEC v. Syron, Lit. Rel No. 22201 (Dec. 20, 2011), both of which centered on claims that the firms made misleading disclosures regarding their exposure to the subprime market;
· The action against four Credit Suisse Group investment bankers, SEC v. Serageldin, Lit. Rel. No. 22247 (Feb. 1, 2012), which is based on a scheme to fraudulently overstate the prices for $3 billion in subprime bonds;
· Charges against four United Commercial Bank executives, SEC v. Wu, Lit. Rel. No. 22121 (Oct. 11, 2012), focused on delays in writing down loans which concealed the true financial condition of the bank; and
· In the Matter of OppenheimerFunds, Inc., Exchange Act Rel. No. 67142 (June 6, 2012), which claimed the management company made misleading statements about the losses at two funds.
Exchanges and market structure: The Division brought ground breaking actions against significant market players last year which included:
· Against two electronic stock exchanges and a broker-dealer for violations arising out of weak controls that resulted in millions of dollars in trading losses, In the Matter of EDGX Exchange, Exchange Act Rel. No. 65556 (Oct. 13, 2011).
· The first action involving a “dark pool” against Pipeline Trading Systems, LLC, alleging disclosure violations regarding the manner in which orders were filled, In the Matter of Pipeline Trading Systems LLC, Exchange Act Rel. No. 65609 (Oct. 24, 2011);
· A first of its kind action against the New York Stock Exchange for compliance failures that resulted in proprietary customers obtaining certain trading information prior to others, In the Matter of New York Stock Exchange LLC, Exchange Act Rel. No. 67857 (Sept. 14, 2012); and
· An action centered on naked short selling against optionsXpress, Inc., In the Matter of optionsXpress, Inc., Exchange Act Rel. No. 66815 (April 16, 2012).
Mutual funds and investment advisers: A number of actions involved funds and their advisers including:
· One against Morgan Stanley Investment Management alleging that investors were repeatedly charged fees for services they did not receive from a third party, In the Matter of Morgan Stanley Investment Management Inc., Advisers Act Rel. No. 3315 (Nov. 16, 2011);
· A case centered on failing to inform investors about the risks of their investment by not telling them about the broker’s control over the secondary market where the securities traded, In the Matter of UBS Financial Services Inc. of Puerto Rico, Exchange Act Rel. No. 66893 (May 1, 2012); and
· An action against a high profile hedge fund adviser and his advisory firm alleging claims which included misappropriation of client assets and market manipulation, SEC v. Harbinger Capital Partners LLC, Lit. Rel. No. 22403 (June 28, 2012).
Insider trading: This long time enforcement priority continued to be a key focus. Many of the Division’s highest profile cases were brought in conjunction with the U.S. Attorney’s Office for the Southern District of New York including:
· Its action against former Goldman Sachs diretor Rajat Gupta, SEC v. Gupta, Lit. Rel. No. 22140 (Oct. 26, 2011);
· The action centered on trading ahead of earnings releases for Dell and NVIDIA, SEC v. Adondakis, Lit. Rel. No. 22230 (Jan. 19, 2012);
· The case against hedge fund manager Douglas Whitman, SEC v. Whitman, Lit. Rel. No. 22257 (Feb. 10, 2012); and
· The action against former expert consulting firm official John Kinnucan, SEC v. Kinnucan, Lit. Rel. No. 22261 (Feb. 17, 2012).
FCPA: This is another key enforcement priority which continued to be a focus for the Division. Actions brought included:
· Once against Hungary telecommunications provider Magyard Telekom Plc centered on claims that executives bribed officials in Macedonia and Montenegro to obtain business, SEC v. Magyar Telekom Plc and SEC v. Straub, Lit. Rel. no. 22213 (Dec. 29, 2011); and
· Actions against medical devise company Bionet, Inc. for bribes paid in Argentina, Brazil and China and pharmaceutical giant Pfizer, Inc. based on bribes paid to doctors and others in areas including Bulgaria, China, Croatia, Russia and Serbia. SEC v. Biomet, Inc., Lit. Rel. No. 22306 (March 26, 2012); SEC v. Pfizer Inc. and SEC v. Wyeth LLC, Lit. Rel. No. 22438 (Aug. 8, 2012).
Municipal securities: This in an area in which the Division has been bringing an increasing number of cases. Last year those included:
· Bid rigging actions against Wachovia and General Electric Funding, SEC v. Wachovia Bank, N.C., Lit. Rel. No. 22183 (Dec. 8, 2011); SEC v. GE Funding Capital Market Services, Inc., Lit. Rel. No. 22210 (Dec. 23, 2011); and
· An action against Goldman Sachs for non-cash campaign contributions made to the then-Massachusetts state treasurer, In the Matter of Goldman, Sachs & Co., Exchange Act Rel. No. 67934 (Sept. 27, 2912).
Other areas: The Division also brought actions in other areas including:
· Once against a rating agency alleging misrepresentations in its application to the Commission, In the Matter of Egan-Jones Ratings Company, Exchange Act Rel. No. 66854 (April 24, 2012); and
· An action against Goldman Sachs claiming that the firm had inadequate procedures to protect confidential information regarding changes in its analyst ratings, In the Matter of Goldman, Sachs & Co., Exchange Act Rel. No. 66791 (April 12, 2012).
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