High speed trading and the use of algorithms is a key topic of debate. An investment strategy centered on an algorithm for use in the currency markets is at the center of a settled administrative proceeding filed by the Commission. The difficulty in the case was not high speed trading or the algorithm. It was that the algorithm did not exist. In the Matter of Chariot Advisors, LLC, Adm. Proc. File No. 3-2014 (July 3, 2014).

Chariot Advisors is a registered investment adviser. Respondent Elliot Shifman was its sole owner from September 2008 through the end of June 2009. In late 2008 Mr. Shifman approached Northern Lights Variable Trust, a registered open-ended management investment company, with a request that it create the Chariot Fund as a series with Chariot Advisors as the new fund’s advisor.

In response to a request for additional information Mr. Shifman prepared a presentation for the Board, detailing the proposal. The presentation represented in part that the new fund would be “a currency overlay product” and would use a trading algorithm similar to one in use by another party. The new fund would thus be a “byproduct of extensive research of recent changes in FX market structure due to the adaption of algorithmic and high frequency trading” the presentation claimed. The representations were reiterated by Mr. Shifman at a Board meeting.

The board approved the Chariot Fund as a series of Northern Lights. Chariot Advisors was approved as the adviser.

Subsequently, Mr. Shifman took steps to sell Chariot Advisors. He entered into a contract in mid-May 2009 for the sale, effective June 30, 2009. In view of the contract the Board requested a second presentation. The second presentation largely reiterated the statements from the first. At the time of the presentation the Fund had prepared a draft prospectus for the proposed mutual fund. It essentially restated the statements made to the board by Mr. Shifman regarding algorithmic trading with some modifications.

On July 15, 2009 Chariot Fund launched. Chariot Advisors funded it by reallocating about $17 million in assets in clients’ annuities. The new fund operated for two months, conducting currency trading using technical analysis. It did not use an algorithm.

Throughout the negotiations leading to the launch of the Chariot Fund, and its initial operations, neither Chariot Advisors nor Mr. Shifman had an algorithm or model in place capable of conducting the currency trading he described. While Mr. Shifman had discussions with outside sources to obtain such an algorithm or model, he had not selected any particular model. There was no contract to obtain one.

The Order alleges violations of Section 15(c) of the Investment Company Act. That Section requires that the terms of any agreement to serve as an investment adviser of a registered investment company be approved by a majority of the disinterested directors. It also imposes a duty on the directors to request and evaluate such information as may be reasonably necessary for them to evaluate the terms of the agreement. Generally this means that the directors must obtain sufficient information to evaluate the nature, extent and quality of the services to be provided. The Order also alleges violations of Investment Company Act Section 34(b) and Advisers Act Sections 206(2) and 206(4).

Respondents resolved the proceeding. Chariot Advisors consented to the entry of a cease and desist order based on Section 34(b) of the Investment Company Act. Mr. Shifman consented to the entry of a cease and desist order based on Section 206(2) of the Advisers Act and Sections 15(c) and 34(b) of the Investment Company Act. Mr. Shifman also agreed to the entry of an order suspending him from the securities business or participating in any penny stock offering for a period of twelve months. He will pay a penalty of $50,000.

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The SEC was about to try its first FCPA case. Then the Commission settled, agreeing to drop the bribery charges as well as its demand for monetary sanctions. That ended the case against two Nobel Corporation executives SEC v. Jackson, Civil Action No. 4:12-cv-00563 (S.D. Tx. Filed Feb. 24, 2012) .

The action named as defendants Mark Jackson, former CEO of Noble Corporation and James Ruehlen, current Director and Division Manager of the firm’s subsidiary in Nigeria. The charges arise from a sweep of the oil services industry in late 2010. At that time Noble Corporation was charged with FCPA violations. The firm entered into a non-prosecution agreement with the Department of Justice and settled with the SEC (here).

Messrs. Jackson and Ruehlen were involved with arrangements to keep certain drilling equipment in Nigeria, according to the complaint. Specifically, the arrangement involved temporary import permits which allowed the rigs to be in the country for one year. Officials could grant up to three extensions of six months each. After that the rigs had to be exported and then re-imported under a new temporary permit. This required the payment of sizable duties.

Messrs. Jackson and Ruehlen are alleged to have arranged and facilitated the payment of bribes to induce Nigerian customs officials to grant new permits and extend others. The two men arranged to have paid hundreds of thousands of dollars in bribes to obtain eleven illicit permits and twenty-nine extensions, the SEC claimed. Mr. Jackson is also alleged to have approved the bribe payments and concealed them from the audit committee and auditors. Mr. Ruehlen prepared false documents for the bribes, according to the charging papers.

The complaint naming Messrs. Jackson and Ruehlen alleges violations of Exchange Act Sections 30A, 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and Rule 13a – 14, false certifications. The relief sought included injunctions and financial penalties.

To resolve the case the Mr. Jackson agreed to the entry of an injunction based on Exchange Action Sections 13(b)(2)(A) and 20(a). All other charges were dropped. No monetary penalty was ordered.

Mr. Ruehlen agreed also agreed to settle, consenting to the entry of an injunction based on Exchange Act Section 13(b)(2)(A). All other charges were dropped. No monetary penalty was ordered.

At the time the SEC filed its action against Messrs. Jackson and Ruehlen it also charged Nobel employee Thomas O’Rourke, former controller and head of internal audit. SEC v. O’Rourke, Civil Action No. 4:12-cv-00564 (S.D.Tx. Filed Feb. 24, 2012). The complaint against Mr. O’Rourke claimed he aided and abetted the violations by the company of the bribery, books and records and internal control provisions of the FCPA and that he directly violated the internal control and false records provisions of the Exchange Act. Mr. O’Rourke settled with the SEC, consenting to the entry of a permanent injunction, without admitting or denying the allegations in the complaint, which prohibits future violations of Exchange Act Sections 13(b)(2)(A), 12(b)(2)(B), 12(b)(5) and 30A. He also agreed to pay a civil penalty of $35,000.

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