by T. GormanPosted on Posted in SECActions

The SEC faces a variety of issues in protecting U.S. investors in the capital markets of this country. Other regulators in this country and abroad face similar issues in protecting investors. A sample of recent actions from other regulators includes:

FINRA: Citigroup Global Markets was fined $3.5 million for posting inaccurate mortgage performance information on its website from January 2006 through October 2007 and for supervisory failures in connection with subprime securitizations. Firms are required to post historical performance data for RMBS. For three subprime or Alt-A securitizations the firm posted incorrect information that may have mislead investors. Despite repeated warning Citigroup did not remove the inaccurate data until May 20120.

FINRA also concluded that Citigroup failed to supervise mortgage-backed securities pricing because it lacked procedures to verify it. In addition, the firm also failed to document the steps taken to determine the reasonableness of the pricing.

FSA: In the U.K. two former UBS brokers, Sachin Karpe and Laila Karan, were ordered by the Upper Tribunal to be banned from the industry. A fine was imposed on Sachin Karpe of ₤1.25 million and on Laila Karan of £75,000.

The charges focused on substantial unauthorized trading primarily in FX instruments with a total value of billion of pounds in 39 customer accounts. Mr. Karpe sought to conceal the actions with the help of others, including Ms. Karan. Losses of about $42 million were suffered by 21 investors.

Mr. Karpe also established an investment structure to enable a major Indian resident to breach Indian law. Ultimately the customer invested over $250 million in the fund. This actions directly contravened UBS policy. Mr. Karpe deliberately misled UBS compliance to implement this transaction.

Ms. Karan failed to investigate unauthorized activity in customer accounts under her supervision. This occurred from February 2007 through January 2008. Rather than take the proper steps, Ms. Karan assisted Mr. Karpe by preparing false telephone notes purporting to record customer instructions. She also failed to take the proper steps with regard to the fact that Mr. Karpe misled UBS and senior management about paying compensation to a customer using monies from another customer account.

Previously, UBS had been fined ₤8 for system and control failures. Two other Asia II Desk employees where Mr. Karpe worked were also fined and banned.

ASIC: The Australian Securities and Investment Commission secured an injunction against Melinda Scott and two companies of which she is a director, Roach Graham Scott Pty ltd. and Roach Scott Pty Ltd. The order precludes Ms. Scott and her companies from working in the financial services industry. The order, entered May 18, 20120, also freezes all of their property. The action is based on a suspected fraud.

SFC: The Securities and Futures Commission of Hong Kong entered an order censuring Capital VC Limited and Mr. Yau Chung Hong for breaching the Takeovers and Mergers Code. The order also bans them from participating in the capital markets for eighteen months.

The action is based on Rule 26.1 of the Code which requires any person or group which increases their shareholding to 30% or more of an issuer’s shares to make a general offer. Capital VC is an investment company which invests in the shares of listed and unlisted Hong Kong and People’s Republic of China or PRC companies. Mr. Hong managed an account for the firm and himself. Those accounts acquired 30.19% of the shares of Longlife Group Holdings, Ltd. whose shares are listed on the Growth Enterprise Market.

Mr. Hong claimed that the rule breach was inadvertent. However, there were no procedures in place to effectively monitor the share concentration. Accordingly, the regulator concluded that the breach was serious and imposed the sanctions.

ABA Program: The New Era of FCPA Enforcement and the Collapse of the Africa Sting Cases: Time to Reevaluate? Tuesday June 5, 2012, 12:00 PM to 1:30 PM EST, Live in Washington, DC and webcast.

Moderators: Thomas O. Gorman, Partner, Dorsey & Whitney LLP, Washington, D.C. and Frank C. Razzano, Partner, Pepper Hamilton, LLP, Washington, D.C.

Panel: John D. Buretta, Deputy Asst. AG, Criminal Division, DOJ, Washington, D.C.; Charles E. Cain, Deputy Chief FCPA Unit, SEC, Washington, D.C.; France Chain, Senior Legal Analyst, Anti-Corruption Division, OECD, Paris, France; Prof. Mike Koehler, Butler University, Indianapolis, Ind.; Hon. Stanley Sporkin, Washington, D.C.; Greg D. Andres, Partner, Davis Polk, New York, New York; Eric Bruce, Partner, Kobre & Kim, New York, New York. Live Presentation from Washington, DC.

Co-hosted by Dorsey & Whitney LLP and Pepper Hamilton, LP at Penthouse at Hamilton Square, 600 Fourteenth St., N.W. Washington, D.C. Click here for more information (here)

Tagged with: , , , ,

by T. GormanPosted on Posted in SECActions

Lawyers are often viewed as the gatekeepers because of their position in corporate transactions. In two cases brought this week unfortunately the lawyers were more than gatekeepers, they were at the center of the wrongful conduct. One is SEC v. Levin, Case No. 1:12-cv-21917 (S.D. Fla. Filed May 22, 2012). It named as defendants George Levin and Farnk Preve who sold promissory notes in an entity which acquired lawsuit settlements. The interests in the lawsuits were acquired from attorney Scott Rothstein, a principal in the firm of Rothstein, Rosenfeld and Adler, PA.

Mr. Rothstein was operating a massive Ponzi scheme. Beginning in 2005 Mr. Rothstein offered interest in purported legal settlements at a discount. The suits were supposedly settled sexual harassment, whistle-blower and qui tam actions against corporate defendants. The settlement amounts were, according to Mr. Rothstein, deposited in his trust account for the benefit of the plaintiffs and were to be paid out over a period of time. Investors were given the opportunity to purchase an assignment of the proceeds at a discount. The settlements were fictitious. Prior to its collapse in 2009, about 173 investors paid in over $157 million. Mr. Rothstein is currently serving fifty years in a federal prison. He was disbarred in November 2009.

Messrs. Levin and Preve solicited investors to purchase promissory notes issued by a company controlled by defendant Levin, Banyon 1030-32, LLC which was the general partner of investment fund Banyon Income Fund, L.P. Investors were told that the fund was acquiring settlements from Mr. Rothstein. They were assured that the two men carefully reviewed the pertinent papers prior to purchasing any settlement. They were also told in the private placement memorandum that the fund was the successor of an entity which had profitably purchased more than $1 billion in settlements from Mr. Rothstein over the prior two and one half years.

What investors were not told is that many times interests in the settlements were purchased without obtaining any documentation. They also were not told that by May 2009 Mr. Rothstein had ceased making payments on a majority of the settlements Mr. Levin and his entities had purchased and that additional payments were contingent on raising at least $100 million to purchase more settlements. The complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The case is in litigation.

U.S. v. Weisberg (E.D.N.Y. Filed May 21, 2012) named as defendant Attorney Martin Weisberg, formerly a partner in the New York office of an international law firm. One involved two of Mr. Weisberg’s clients, Xybernaut Corporation and Ramp Corporation. While serving as outside counsel and a member of the board of directors, co-conspirators of Mr. Weisberg secretly caused the companies to issue shares to themselves at a discount which were later resold overseas. Mr. Weisberg was paid kickbacks from the proceeds of the sales to include false statements regarding the conspirators’ ownership and control of the securities in filings made with the SEC. In another scheme Mr. Weisberg took about $1.3 million of interest earned on a $30 million deposit he held that belonged to another corporate client.

This week Mr. Weisberg pleaded guilty to one count of money laundering and one count of conspiracy to commit securities fraud. He is awaiting sentencing.

ABA Program: The New Era of FCPA Enforcement and the Collapse of the Africa Sting Cases: Time to Reevaluate? Tuesday June 5, 2012, 12:00 PM to 1:30 PM EST, Live in Washington, DC and webcast.

Moderators: Thomas O. Gorman, Partner, Dorsey & Whitney LLP, Washington, D.C. and Frank C. Razzano, Partner, Pepper Hamilton, LLP, Washington, D.C.

Panel: John D. Buretta, Deputy Asst. AG, Criminal Division, DOJ, Washington, D.C.; Charles E. Cain, Deputy Chief FCPA Unit, SEC, Washington, D.C.; France Chain, Senior Legal Analyst, Anti-Corruption Division, OECD, Paris, France; Prof. Mike Koehler, Butler University, Indianapolis, Ind.; Hon. Stanley Sporkin, Washington, D.C.; Greg D. Andres, Partner, Davis Polk, New York, New York; Eric Bruce, Partner, Kobre & Kim, New York, New York. Live Presentation from Washington, DC.

Co-hosted by Dorsey & Whitney LLP and Pepper Hamilton, LP at Penthouse at Hamilton Square, 600 Fourteenth St., N.W. Washington, D.C. Click here for more information (here)

Tagged with: , , ,