The Commission filed two administrative proceedings this week. One centers on false entries made in the books and records of a broker dealer. It will be set for hearing. In the Matter of Jason Maiher, Adm. Proc. File No. 3-17126 (February 23, 2016). The other centers on the misuse of the Section 3(a)(10) exemption and the sale of unregistered securities. It settled. In the Matter of IBC Funds, LLC, Adm. Proc. File No. 3-17125 (February 19, 2016).
Jason Maiher
Jason Maiher was the CFO of KeyBanc Capital Markets, Inc. from April 2007 through November 2011. KeyBanc Capital Markets is a registered broker dealer that is a subsidiary of KeyCorp., a financial services company.
Mr. Maiher was primarily responsible for maintaining the financial records of the broker dealer. In that capacity he submitted the firm’s Annual Audited Report to the Commission and oversaw the filing of its monthly FOCUS Reports with FINRA and furnishing them to the SEC. He also certified the general ledger balance sheet information after the close each month under firm policy.
Beginning at some point prior to January 2011 Respondent directed that unsubstantiated “plug” entries be made to one or more accounts in the broker’s general ledger. This was undertaken to complete the monthly close.
The plug entries caused the firms financial records to be inaccurate. Specifically, the monthly FOCUS reports were inaccurate. In addition, the annual audited report for the year ended December 31, 2011stated that the prior period financial statements included unsubstantiated assets of over $13.6 million and omitted liabilities of over $4.3 million. The firm’s write-off of the unsubstantiated assets and accrual of the unrecorded liabilities resulted in a restatement of net income that caused a 78% reduction. The Order alleges violations of Exchange Act Section 17(a)(1). The proceeding will be set for hearing.
IBC Funds
IBC Funds is a financial services company engaged in microcap financing. Under its business model IBC purchased outstanding claims from creditors of microcap issuers and then settled them in Section 3(a)(10) exchanges. Over about two years, beginning in mid 2013, the firm entered into more than 50 separate financing transactions and received securities from microcap issuers. IBC received discounted shares which it liquidated without registering as a broker-dealer as required by Exchange Act Section 15(a).
In four transactions the firm also violated Section 5 of the Securities Act. This is because the 3(a)(10) exemption is not available where certain terms and conditions of the settlement are not presented to the court for consideration at a fairness hearing or where provisions are misrepresented to the court. This occurred on four occasions. For example, in one instance the company fabricated the debt involved. In another instance the creditor and issuer were affiliates and the proceeds received from IBC were used to provide consideration to the company and its CEO. Under these circumstances the exemption is not available.
To resolve the proceeding the firm consented to the entry of a cease and desist order based on the Sections cited in the Order and to a censure. It also agreed to pay disgorgement of $2,200,000, prejudgment interest and a penalty of $250,000.
Program: The Second Annual Dorsey Enforcement Forum will be held on Wednesday February 24, 2016 beginning at 1:00 p.m. Three panels of experts will discuss: 1) Trends in SEC enforcement; 2) FERC and CFTC market manipulation actions; and 3) Current developments in Financial Services Regulatory Enforcement. The program will be video cast, webcast and live in Washington, D.C. at the Willard Office building, 1455 Pennsylvania Ave. Lunch will be available beginning at noon; open bar at the conclusion of the program. No charge but registration is required (here) or if attending in person by emailing my assistant at Romodan.Hanan@dorsey.com
