This Week In Securities Litigation (2018 Year End Edition)

The holidays have ended and the Government shut down is in full progress. It is time to catch-up on end of the year and get ahead of the curve for 2019. The Commission ended the 2018 by filing fifteen new cases in the last week of the year. Those cases cover a variety of issues ranging from FCPA enforcement to internal controls, false audit opinions, undisclosed fees and conflicts involving investment advisers and improper advertising. The number and breath of issues covered suggest a robust enforcement environment when the shut-down ends.

The Commission also began resolving the backlog of what might be called post-Lucia cases – those that were essentially re-set by appointing a new ALJ and re-starting the proceedings. In the last week of 2018 the Commission filed nine settled post-Lucia cases. Dozens more can be expected in the coming weeks. (Note that the cases discussed below are divided into two groups: 1) new enforcement cases; and 2) Post-Lucia actions.

Finally, as 2019 unfolds SEC enforcement faces a daunting series of critical issues. Those range from the application of the Supreme Court’s teachings in Kasich and Lucia to the Court’s pending decision in Lorenzo, each of which was discussed at the Dorsey Federal Enforcement Forum held on December 5, 2018 (the audio and video tapes from the discussion are available here). Each issue will be explored in an upcoming occasional series.

SEC Enforcement – Filed and Settled Actions

Statistics: In the last week of 2018 the SEC filed 1 civil injunctive case and 14 administrative proceedings, excluding 12j and tag-along proceedings.

New enforcement actions

Internal controls: In the Matter of Hertz Global Holdings, Inc., Adm. Proc. File No. 3-18965 (Dec. 31, 2018) is an action which names as Respondents Hertz Global Holdings (“Hertz Holdings”)(the accounting successor to Hertz Global Holdings, Inc. (“Hertz Global”)) and The Hertz Corporation (“Hertz Corp.”), a wholly owned subsidiary whose shares are registered with the Commission under section 15(d) of the Exchange Act. On July 16, 2015 Hertz restated its financial results for 2012, 2013 and prior periods including selected data for 2011 (unaudited). Overall the firm reduced its reported GAAP pretax income by about $235 million. The restatement identified 17 areas with material accounting errors across the firm. Eleven separate material weaknesses were revealed with regard to financial reporting. Those impacted a variety of areas. For example while the firm routinely recovered funds from third parties for damages that occurred during rental, the related expenses were consistently understated while income was overstated stemming at least in part from an inappropriate control environment. In other areas the firm routinely made inadequate disclosures. For example, when the firm altered the holding periods for a significant portion of its U.S. car fleet which impacted depreciation. Yet the change was not adequately disclosed. The Commission considered the remedial acts of the firm which included replacing senior and lower level employees. The Order alleges violations of Securities Act sections 17(a)(2) and (3) and Exchange Act sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). To resolve the proceedings Hertz Holdings consented to the entry of a cease and desist order based on each of the sections cited in the Order; Hertz Corp. consented to the entry of an order based on the Exchange Act sections cited in the Order; and Hertz Holdings will pay a penalty of $16 million.

Pre-release ADRs: In the Matter of JPMorgan Chase Bank, N.A., Adm. Proc. File No. 3-18963 ((Dec. 26, 2018) is a proceeding which names the financial services firm as a Respondent. JPMorgan acts as a depository for ADRs. From November 2011 through early 2015 JP Morgan served as a depository institution for thousands of ADR transactions, including pre-release transactions. During the period, the firm’s DR Execution Desk failed to act reasonably in pre-release ADR transactions in view of the information available to its personnel. Essentially, the bank knew, or should have known, that pre-release brokers were not properly complying with their obligations under the pertinent agreement. By ignoring what were essentially red flags to those in the business indicating the brokers were ignoring their obligation to have the actual shares available, the firm permitted an effective increase in the number of potential shares represented by the ADRs. That can be detrimental to the markets. The Order alleges violations of Securities Act section 17(a)(3). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the section cited in the Order. The firm also agreed to pay disgorgement of $71,041,225.47, prejudgment interest of $14,407,595.64 and a penalty of $49,728,857.83. The Commission considered the cooperation of the firm. This is the fourth action against a depository bank and the eighth against a bank or broker related to pre-release ADRs.

Presentation of GAAP -Non-GAAP metrics: In the Matter of ADT Inc., Adm. Proc. File No. 3-18955 (Dec. 26, 2018) is an action which names the firm as a Respondent. The Order centers on the failure of the firm, a specialist in home security, to afford equal or greater prominence to comparable GAAP financial measures as non-GAAP measures in its Q4 2017 and Fiscal Year 2017 Earnings Release in accord with Exchange Act section 13(a) and Rule 13a-11. In resolving the proceeding the Commission considered the cooperation of the firm. ADT consented to the entry of a cease and desist order based on the section and rule cited in the Order. The firm will also pay a penalty of $100,000.

Fee allocations: In the Matter of Lightyear Capital LLC, Adm. Proc. File No. 3-18958 (Dec. 26, 2018) is a proceeding which names the registered investment adviser as a Respondent. The adviser manages a number of private funds. The firm permits certain investors in select funds to add capital to investments. It failed, however, to properly allocate expenses under certain undisclosed agreements that govern those transactions. The firm also failed to adopt procedures to implement arrangements in the Limited Partnership Agreements of certain funds which stated that the adviser would seek to have prospective portfolio companies bear the cost of broken deal expenses. The Order alleges violations of Advisers Act sections 206(2) and 206(4) and rules 206(4)-7 and 206(4)-8. To resolve the proceedings the adviser consented to the entry of a cease and desist order based on the sections and rules cited in the Order and agreed to pay a penalty of $400,000.

False audit opinions: In the Matter of Mitchell J. Rubin, C.P.A., Adm. Proc. File No. 3-18954 (Dec. 21, 2018) names as Respondents Mr. Rubin and Michael Bernstein, both partners in the audit firm of Rosen, Seymour, Shapps, Martin & Company LLP. The proceedings center on two claimed audits of the financial statements of Corporate Resources Services, Inc. filed with the Commission. The first was filed with the 2012 Form 10K while the second was for the 2013 Form 10K. The audit for the former amounted to no audit at all, according to the Order, while the second failed to conform to PCAOB standards, contrary to the representation in the report. For each engagement partner Rubin, approved audits that failed to properly consider if: The firm had undisclosed contingent obligations; to properly review related party transactions; failed to obtain sufficient competent, evidential matter regarding the risk of fraud; and failed to conduct an engagement quality review. Indeed, for the 2012 audit Mr. Bernstein was not independent since he had served as the engagement partner for the firm’s audits for five consecutive prior years. The Order alleges violations of Exchange Act sections 10(b), 10A(a)(1), 10A(a)(2) and 13(a) as well as the related rules. Each Respondent resolved the proceedings by consenting to the entry of a cease and desist order based on the sections and rules cited. In addition, each is denied the privilege of appearing and practicing before the Commission as an accountant. Each Respondent will also pay a penalty of $25,000.

False audit opinion: In the Matter of Crowe Horwath LLP, Adm. Proc. File No. 3-18953 (Dec. 21, 2018) names as Respondents the audit firm, Joseph Macina, CPA who served as the engagement partner and Kevin Wydra, CPA, the engagement quality review partner on the audit at issue in this matter. The proceedings center on the audit of Corporate Resources Services, Inc. filed with the Commission in 2014. In that engagement the work was deficient because since: The procedures were not designed to detect the firm’s material undisclosed payroll tax liabilities; to detect related party transactions, to obtain sufficient competent audit evidence to respond to identified fraud risks; to evaluate substantial doubt as to whether the firm was a going concern; and to properly conduct an engagement quality review. The Order alleges violations of Exchange Act section 10A(a) and 13(a) and the related rules. To resolve the proceedings each Respondent consented to the entry of a cease and desist order based on the sections and rules cited in the order. The firm also consented to the entry of a censure. Each individual Respondent is denied the privilege of appearing and practicing before the Commission as an accountant. Mr. Macina may request reinstatement after three years, while Mr. Wydra may make such a request after one year. The firm was ordered to pay a penalty of $1.5 million; Mr. Macina $25,000; and Mr. Wydra $15,000.

False advertising – Robo advisers: In the Matter of Hedgeable, Inc., Adm. Proc. File No. 3-18950 (Dec. 21, 2018) is a proceeding charging the registered investment adviser with utilizing false advertising. In 2016 and 2017 the firm posted on its website and social media a “Robo-Index” comparing the performance of its robo adviser for two years to those at two other firms. The comparisons were flawed because: 1) only a small subset of data was used; 2) the actual trading models from the other firms were not used; 3) the firm incorrectly calculated the performance of its own robo adviser. Finally, the adviser failed to maintain the appropriate records. The Order alleges violations of Advisers Act section 204, 206(2) and 206(4). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the sections cited in the Order and to a censure. The firm will pay a penalty of $80,000.

False advertising: In the Matter of Wealthfront Advisers, LLC, Adm. Proc. File No. 3-18949 (Dec. 21, 2018) is a proceeding which names as a Respondent the registered investment advisor. The adviser uses a “robo adviser” platform in connection with a proprietary tax loss harvesting program. Key to that program was a claim that the adviser monitored transactions to avoid wash sales. In fact it did not – the representation was false. The firm also retweeted certain client representations that constituted testimonials with out making the required disclosers and paid bloggers for new clients without complying with the applicable disclosure and documentation requirements. The Order alleges violations of Adviser Act sections 204(a), 206(2), 206(4) and 207. In resolving the proceedings, the Adviser will implement its undertaking to notify clients of this Order and furnish a certificate of compliance. Respondent also consented to the entry of a cease and desist order based on the sections cited in the Order and to a censure. The firm will pay a $250,000 penalty.

Concealed control: In the Matter of Natural Blue Resources, Inc., Adm. Proc. File No. 3-18951(Dec. 21, 2018) is a proceeding which names as Respondents: The firm whose shares are traded on OTC Link; James E. Cohen, a former registered representative who has been barred by the NASD and convicted of enterprise corruption and attempted grand larceny; and Joseph Corazzi, a former officer of a public firm against whom the SEC obtained a fraud judgment. From 2009 to 2011 the firm and Messrs. Cohen and Corazzi secretly exercised control over the company as if they were the officers, a fact not disclosed in accord with Exchange Act section 15(b). The Order alleges violations of Securities Act section 17(a)(1). The Commission imposed sanctions, barring the two individual Respondents from acting as an officer or director of any issuer whose shares are registered with the Commission and from participating in any penny stock offering.

Share-class-selection: In the Matter of Thoroughbred Financial Services, LLC, Adm. Proc. File No. 3-18953 (Dec. 21, 2018) is a proceeding which names as Respondents the registered investment adviser and broker-dealer and two of its representatives, Thomas Parker and Lawrence Hartley. Over about four years, beginning in October 2012, Respondents invested client funds in mutual fund shares that were priced higher than others because of the fees received which were not disclosed. Accordingly, clients did not receive best execution. Those clients also were not informed of the undisclosed conflict. The firm failed to implement the appropriate procedures. The Order alleges violations of Advisers Act sections 206(2), 206(4) and 207. To resolve the proceedings each Respondent consented to the entry of a cease and desist order based on the sections cited in the Order and to a censure. The firm will pay disgorgement of $740,250.20 prejudgment interest of $108,368.10 and a penalty of $260,000. Respondent Parker will pay disgorgement of $217,883, prejudgment interest of $31,750 and a penalty of $75,000. Mr. Hartley will pay disgorgement of $158,883.16, prejudgment interest of $22,957.20 and a penalty of $65,000. The order also creates a fair fund.

False registration: In the Matter of Black Diamond Asset Management LLC, Adm. Proc. File No. 3-18099 (Dec. 21, 2018) is a proceeding which names as Respondents the registered investment adviser and its sole managing member, Robert Wilson. Although the firm registered with the agency as an investment adviser, in fact it never had any marketable assets under management and did not meet the requirements for registration. The Order alleges violations of Advisers Act sections 206(1), 206(2), 207 and 203A. Respondent Wilson consented to the entry of a cease and desist order based on the sections cited in the Order. He is also barred from the securities business with the right to reapply after three years. Respondent Black Diamond’s registration with the Commission was revoked.

Offering fraud – violation of bar: In the Matter of Michael W. Crow, Adm. Proc. File No. 3-16318 (Dec. 21, 2018) is an action against a recidivist securities law violator. Previously, the Commission settled a fraud action with Mr. Crow and barred him from practicing before the Commission as an accountant. He has also been found to have violated Exchange Act section 15(a) and barred him from association with a broker-dealer. This action centers on Aurum Mining, LLC. Essentially, Respondent and another sold private placement securities in the entity; the offerings were based on misrepresentations. A related action involved the sale of unregistered securities for another firm by Corsair. The Order alleges violations of Securities Act section 17(a) and Exchange Act sections 10(b), 15(a)(1) and 15(b)(6)(B). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. Mr. Crow was also barred from the securities business and from participating in any penny stock offering. He was ordered to pay disgorgement of $100,000 and prejudgment interest of $27,409.08

Manipulation: SEC v. China United Insurance Service, Inc., Civil Action No. 1:18-cv-12055 (S.D.N.Y. Filed Dec. 20, 2018) is an action which names as defendants the firm, a Taiwan based insurance firm, and Cheng-Hsiung Huang, a citizen of Taiwan who had broad authority at the firm. The action centers on a four year period beginning in December 2013 during which Defendants created the false impression in the OTC markets where the firm’s stock was traded of trading activity. Specifically, Defendants used multiple accounts and techniques such as wash sales to feign authentic market activity for the firm’s shares to create the illusion of deeper liquidity and market interest in the shares. The scheme apparently began to unwind when one of the brokerage houses investigated Huang controlled accounts based on suspicious activity. The complaint alleges violations of Securities Act sections 17(a)(1) and (3) and Exchange Act section 10(b). Each Defendant settled with the Commission, consenting to the entry of a permanent injunctions based on the sections cited in the complaint. In addition, Defendant Huang agreed to pay a penalty of $30,000 while the firm will implement its undertaking to retain an independent consultant. No penalty was imposed on the firm based on cooperation. See Lit. Rel. No. 24378 (Dec. 21, 2018).

Post-Lucia cases

Disclosure – rating agency: In the Matter of Barbara Duka, Adm. Proc. File No. 3-16349 (Dec. 21, 2018) named as Respondent the former managing director at Standard & Poor’s Ratings Services responsible for new issue ratings on CMBS from 2009 through 2011. During the period S&P altered the method by which it calculated the Debt Service Coverage Ratio, a key metric used to rate CMBS. Subsequently, S&P published eight CMBS presale reports in which the firm did not disclose the changed methodology. In 7 of the 8 reports the ratings would have been lower under the prior methodology. The firm’s procedures also did not require that the analytical methodology be disclosed as required by Dodd-Frank. The Order alleges violations of Exchange Act sections 17(a) and Securities Act section 15E(c)(3). To resolve the proceedings Ms. Duka consented to the entry of a cease and desist order based on the sections cited in the Order. She will also pay a penalty of $7,500. Note: This case was assigned to a new ALJ for hearing in accord with Lucia. Ms. Duka waived any subsequent hearing in making the offer of settlement.

False opinion letters: In the Matter of Tod A. DiTommaso, Adm. Proc. File No. 3-17550 (Dec. 21, 2018) is an action which names as a Respondent the who is attorney to admitted in California. Prior to Lucia this matter had proceeded to hearing before an ALJ who found violations and ordered Mr. DiTommaso to pay disgorgement of $1,475 and a penalty in the same amount. Essentially, Respondent is alleged to have issued a series of improper Rule 144 letters authorizing the sale of the securities of Fusion Pharma, Inc. by others. Here Mr. DiTommaso admitted that with hindsight he should have seen the multiple red flags and not issued the letters. After waiving the right under Lucia to a new hearing, the Commission imposed the same sanctions initially ordered by the ALJ.

Audit failure: In the Matter of John J. Aesoph, CPA, Adm. Proc. No. 3-15158 (Dec. 21, 2018) names the former KPMG engagement partner as Respondent. The Order centers on the year-end 2008 audit of TierOne Corporation, a holding company for TierOne Bank. During the audit Respondent failed to properly test the TierOne loan loss estimate, one of the highest risk areas in the bank. As the engagement partner Respondent also failed to properly plan the engagement and implement the audit programs as well as to review the audit workpapers. Throughout the process Respondent failed to follow the appropriate audit standards. The Order concludes that Mr. Aesoph violated the third general audit standard of due professional care and the third standard of field work which requires sufficient competent evidential matter. The Order concludes, based on the facts, that he violated Rule 102(e)(1)(ii). Prior to Lucia the case went to hearing and was appealed to the Eighth Circuit which vacated the Commission’s Opinion and Order based on the Supreme Court’s decision. While the Commission on remand has concluded that Mr. Aesoph engaged in improper professional conduct, the agency chose to exercise its discretion not to impose a suspension or other sanction. See also In the Matter of Darren M. Bennett, CPA, Adm. Proc. File No. 3-15168 (Dec. 21, 2018)(Respondent worked for years on TierOne audits and was the senior manager on the 2008 engagement; while violations were found no sanction was imposed for the same reason noted above).

Undisclosed investment strategy: In the Matter of Mohammed Riad, Adm. Proc. File No 3-15141 (Dec. 21, 2018) is a proceeding which named as Respondents Riad and Timothy Swanson, both employees of Fiduciary Asset Management, LLC. In 2007 and 2008 the investment approach of Fiduciary/Claymore Dynamic Equity Fund was altered. The closed-end fund claimed to employ a covered call investment strategy. The altered approach left the fund subject to market volatility, contrary to disclosures which asserted its positions were hedged. Ultimately the firm suffered investor losses of about $45 million. Previously, the case went to hearing, was appealed to the Commission and a Circuit Court and, based on Lucia, was remanded. The Commission ultimately found violations by each Respondent of Exchange Act section 10(b), Advisers Act section 206(4) and Investment Company Act section 34(b). A cease and desist order was entered based on the cited sections as to each Respondent. In addition, Mr. Riad is barred from the securities business with a right to reapply after two year. He will also pay disgorgement of $75,000 and a penalty of $25,000. Mr. Swanson is barred from serving in any management capacity with an investment adviser for a period of 12 months. He will pay a penalty of $15,000.

Books and records: In the Matter of Timbervest, LLC, Adm. Proc. File No. 3-15519 (Dec. 21, 2018). Respondent was a registered investment adviser; it ceased operations in 2017. The proceedings center on the sale of a timber property. Specifically, in September 2006 the firm sold the property to another entity. The next year another Tinbervest-managed fund purchased the property at a price which was 8% higher than the sale price from the year before. The firm failed to keep adequate books and records regarding the sale or the fees paid. This case is before the Commission on remand from a Circuit Court under Lucia. The Order alleges violations of Advisers Act section 204. To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the section cited in the Order. Note: The initial proceedings also named as Respondents Joel Shapiro, Walter Boden and Donald Zell. In 2015 the proceedings were dismissed as to these individuals on a joint motion of the staff and Respondents. Ultimately the Commission directed that all proceedings as to these individuals be dismissed.

Misrepresentation: In the Matter of Paul Edward “Ed” Lloyd, Jr., CPA, Adm. Proc. File No. 3-16182 (Dec. 21, 2018) is an action on remand from the Commission prior to decision following Lucia but after an Initial Decision. Mr. Lloyd is a CPA and during the time period was associated with LPL Financial LLC, a registered broker deal and investment adviser. During 2011 and 2012 Respondent created a series of LLCs. Mr. Lloyd solicited accredited investors to acquire interests in the entities through broker-dealer Strategic Financial Alliance or SFC. Through the entities a tax deduction could be created as a result of certain land dealings in conjunction with a conservation easement. SFC directed that Mr. Lloyd disclose the names of the investors. While the discloses were made, certain investors were omitted. Later OCIE made a similar request. Mr. Lloyd disclosed the identity of the investors, but the materials had certain other omissions. After a Wells notice was issued Mr. Lloyd had the investors execute an amended operating agreement which contained all of the investor names, explaining that a “scrivener’s error had occurred. The Order alleges violations of Advisers Act section 206(4). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the section cited in the Order. The Commission barred Respondent from association with an investment adviser.

Unregistered securities – financial fraud: In the Matter of BioElectronics Corp., Adm. Proc. File No. 3-17104 (Dec. 21, 2018) names as Respondents the firm, IBEX, LLC, St. John’s, LLC, Andrew Whelan, Kelly Whelan, CPA and Robert Bedwell, CPA. This action was on remand from an appeal to the agency which was not decided in view of the ruling by the Supreme Court in Lucia. Respondent Robert Bedwell settled in 2016. The proceedings center on two transactions: 1) The sale of thousands of unregistered shares of BioElectronics to IBEX in return for certain loans; 2) A bill and hold transaction reflected in the firm’s Form 10-K financial statements for fiscal 2009 that improperly recorded about $366,000 in revenue. The Order alleges violations of Securities Act sections 5(a) and 5(c) and Exchange Act sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). To resolve the proceedings BioElectronics, IBEX, St. John’s, A. Whelan and K. Whelan consented to the entry of a cease and desist order based on the Securities Act sections cited in the Order. The order as to the company is also based on the Exchange Act books, records and internal control provisions cited in the Order. The order as to A. Whelan also includes Exchange Act rules 13a-1, 13a-14 and 13b2-1. The firm, IBEX, A. Whelan and K. Whelan will also pay, jointly and severally, disgorgement of $166,640; the firm, St. John’s and A. Whelan will pay on a joint and several basis $25,000 as disgorgement. Respondent A. Whelan is barred from participating in any penny stock offering for five years while K. Whelan is barred for 1 year.

Offering fraud: In the Matter of Frank H. Chiappone, Adm. Proc. File No. 3-15514 (Dec. 21, 2018) is an action which names as Respondents Frank Chiappone, Andrew Guzzetti, William Lex, Thomas Livingston, Brian Mayer and Philip Rabinovich. While this proceeding was on appeal from an Initial Decision and pending before the Commission Lucia was decided. The case was then remanded. Each Respondent was employed during the period of this action at MS & Co., a New York registered broker-dealer and investment adviser. The Commission filed the initial action in 2010 against Messrs. McGinn, Smith (principals of MS& Co.) and a number of entities centered on an offering fraud. SEC v. McGinn Smith & Co., Civil Action No. 1—CV-457 (N.D.N.Y.). A receiver was appointed. These proceedings center on two offerings. One is the Four Funds offering by MS& Co. which raised over $125 million from over 750 investors. Investor losses exceeded $87 million. Investor funds were represented to be secure in the offering. They were not. The second is the Trust Offerings. Messrs. Smith and McGinn misused investor funds raised in the Trust Offerings. Messrs. Chiappone, Lex, Livingston, Mayer and Rabinovich are alleged to have been negligent in participating in the Four Funds offerings by not conducting adequate due diligence. Respondents were negligent by missing a series of red flags regarding the Trust Offerings, a series of 13 offerings that raised about $20 million. Respondent Guzzetti, the head of Retail Sales, failed to reasonably supervise. The Order alleges violations of Securities Act sections 17(a)(2) and (3). To resolve the proceedings Respondents Chiappone, Lex, Livingston, Mayer and Rabinovich each consented to the entry of a cease and desist order based on the sections cited in the Order. Respondents Livingston and Guzzetti will pay, respectively, a penalty of $85,000 and $20,000. Respondents Chiappone, Lex, Livingston, Mayer and Rabinovich will pay disgorgement and prejudgment interest of, respectively, $23,329 plus $3,181.49, $72,726 plus (prejudgment interest) $9,918.02, $700 plus $95.48, and $17,791 plus $2,426.24, and $53,029 plus $7,231.84. A fair fund was established.

Anti-corruption/FCPA Cases

In the Matter of Polycom, Inc., Adm. Proc. File No. 3-18964 (Dec. 26, 2018) is action which names the firm, a privier of voice and video communications and products and services. From 2006 through 2014 the firm’s vice president of China devised and implemented a scheme under which improper payments were made by distributors and resellers who were given significant discounts with the intent that the amount could be utilized to facilitate the payments. Employees at the China subsidiary recorded the payments in what was essentially a dual set of books. From 2012 through 2014 the frim failed to maintain an effective anti-corruption compliance program for its Chinese sales operations. The improper payments totaled about $10.7 million. Efforts were made to conceal those payments. The Order alleges violations of Exchange Act sections 13(b)(2)(A) and 13(b)(2)(B). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. The firm also agreed to pay disgorgement of $10,672,926, prejudgment interest of $1,833,410 and a penalty of $3.8 million. The Commission considered the fact that the firm self-reported, cooperated and took redial actions.

In the Matter of Centrais Eletricas Brasileiras S.A., Adm. Proc. File No. 3-18962 (Dec. 26, 2018) is an action which names as a Respondent the Brazilian power firm whose shares are traded on the NYSE but is 51% owned by the Brazilian government. Over a six year period beginning in 2009 the firm engaged in a bid-rigging scheme in which former officers at Eletrobras Termonucluear S.A., a majority owned nuclear power generation subsidiary, used their influence at the firm in favor of a scheme that involved certain Brazilian construction firms. The officers of the firm abused their positions in authorizing unnecessary contractors and inflating costs. In return, construction firms involved in the scheme agreed to and did pay former firm officers about $9 million. Invoices and contracts were inflated in the ordinary course of business. The books and records were falsified in connection with the scheme. The Commission considered the firm’s remedial efforts. The Order alleges violations of Exchange Act sections 13(b)(2)(A) and 13(b)(2)(B). To resolve the proceedings the firm consented to the entry of a cease and desist order based on the Sections cited in the Order. The firm also agreed to pay a penalty of $2.5 million.

Hong Kong

Boiler room: The Securities and Futures Commission obtained an order from the court against Cardell Limited, Waldmann Asset Management and Doyle Hutton Associates essentially freezing their assets. The SFC alleged that the firms operated essentially as unregistered boiler rooms in soliciting 14 investors from whom about $600,000 was obtained. An administrator has been appointed.