by T. GormanPosted on Posted in SECActions

The Commission announced the adoption of amendments to its Rules of Practice which govern administrative proceedings. Previously, the SEC had issued proposed amendments which had been the subject of a number of comments.

The amended rules, according to the release, will impact four key areas:

OIP: Under amended Rule 360 the Order will designate the time for preparing an Initial Decision as 30, 75 or 120 days from the completion of post hearing briefing or dispositive motions. The maximum length of the prehearing period will be lengthened from its current four months to: 1) Ten months for those designated as 120 days; 2) Six months for 75 day actions; and 3) 4 months for 30 day actions.

Depositions: Under amended Rule 233 in 120 day proceedings each party may notice three depositions if there is a singe Respondent. In actions with multiple Respondents up to five depositions can be noticed per side. Each side can request an additional two depositions under expedited procedures.

Answer: Amended Rule 856 provides for three types of dispositive motions at various stages of the proceeding. The standards and procedures are specified in the rule.

Evidence: Amended Rule 320 provides for the exclusion of irrelevant, immaterial, unduly repetitions and unreliable evidence. Hearsay may be admitted if it is relevant, material and reliable.

Finally, the amendments provide for service in foreign jurisdictions, the disclosure of experts and their reports and procedures for an appeal to the Commission. The amendments will become effective 60 days after publication in the federal register. They will apply to all proceedings commenced on or after the effective date and to the stage of pending proceedings. The SEC has not yet released the text of the amendments.

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by T. GormanPosted on Posted in SECActions

Blue sheets are an important tool for the SEC. Named for the fact that the form at one time was printed on blue paper, the information request requires the immediate production of key information regarding a securities transaction by the broker. Failure to furnish full and complete information can have significant consequences for an investigation. The SEC has emphasized this point by requiring that firms settling actions for failing to comply with such a request admit to the facts in the administrative Order. This same approach was used to resolve the SEC’s latest blue sheet case. In the Matter of Citigroup Global Markets, Inc., Adm. Proc. File No. 3- 17338 (July 12, 2016).

Citigroup, a registered broker dealer and FINRA member, wrote an electronic program in the mid-1990s to respond to blue sheet requests. In 1998 the firm introduced the use of certain codes in view of its expanding business. That code contained an error which caused the exclusion of certain transactions.

The error was not discovered until April 2014. The firm was responding to a Commission request seeking a large number of options series. The size and complexity of the request caused the internal group working on the response to seek assistance from the technical support team. During the work the technical support team discovered the coding error. It was promptly corrected.

The error was not reported to the compliance department until July 2014. After evaluating the error that department forwarded the matter to another committee charged with determining if it needed to be reported. On January 27, 2015 the error was reported to the SEC staff. By that time the firm had determined that the coding error impacted 3,528 submissions between May 1999 and April 2014 – 2,382 submissions to the Commission and 753 to FINRA. A total of 34,412 trades had been omitted. During the period the firm did not have in place a reasonable process to check the accuracy and completeness of the blue sheet submissions. The Order alleged violations of Exchange Act Section 17(a).

To resolve the proceeding Citigroup admitted to the facts detailed in the Order and consented to the entry of a cease and desist order based on the Section cited in that Order. The firm also agreed to pay a penalty of $7 million.

This is the fourth case brought since 2014 by the Commission for a failure to provide full and complete information in response to a blue sheet request. Previously, Scottrade, OZ Management and Credit Suisse Securities resolved similar proceedings. In each instance the firm admitted to the facts in the Order. Deutsche Bank Securities settled a similar case but with FINRA.

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