The SEC and the New York Attorney General settled actions against a major Portuguese Bank based on violations of, respectively, the federal securities laws and the New York Martin Act. The Commission case centers on alleged violations of Securities Act Section 5, Exchange Act Section 15(a) and Advisers Act Section 203(a). The New York case is based on alleged violations of the broker dealer and investment adviser registration provisions of the Martin Act. In the Matter of Banco Expirito Santo S.A., Adm. Proc. File No. 3-14599 (Oct. 24, 2011).
Respondent BES is the principal subsidiary of Espirito Santo Financial Group, a Luxembourg based financial services business. BES is a commercial bank based in Lisbon, Portugal with more than 700 branches throughout the world. The bank does not have branches in the United States. It does however operate a money transmission service inn this country, Espirito Santo e Comercial Lisboa, Inc. or ESCLINC. BES also has a U.S. based wholly-owned subsidiary that is a member of FINRA and has been registered with the Commission as a broker-dealer since at least 2004. Its shares are listed on the Euronext stock exchange.
Beginning in 2004, and continuing through 2009, BES offered and provided brokerage services and investment advise to about 3,800 U.S. residents who were customers of the bank. Generally, those customers were Portuguese immigrants. These services were offered and provided from Portugal. The Departmento de Marketing de Comunicacao & Estudio do Consumdo mailed marketing materials to the bank’s U.S. based customers. A Portugal based call center serviced those customers. ESCLINC, which does have offices in this country, facilitated money transfers. That center also, from time to time, offered brokerage services to U.S. bank customers. None of the persons involved in these activities were registered as broker dealers or investment advisers with either the SEC or the State of New York.
Throughout the period BES offered and sold a variety of securities to its U.S. customers. Those included debt securities issued by entities such as Royal Bank of Scotland, HBOS plc, Lloyds Bank, Prudential, Limited Brands and others. The bank also marketed and sold debt and other group-guaranteed securities issued by BES and its affiliates, interests in Portuguese analogs to mutual funds (typically sponsored by BES or an affiliate), tax advantaged retirement products, and other securities. There was no registration statement filed or in effect for the securities issued or sponsored by BES or its affiliates. Likewise, registration statements were not filed or in effect for most of the other securities BES offered and sold to its U.S. customers.
In 2007 BES identified the need to comply with the laws of the jurisdictions in which it operated. The bank did not however undertake that analysis for the United States. Likewise, it did not use its wholly owned FINRA and Commission registered subsidiary to effectuate the transactions.
In May 2010 the bank self-reported following an internal investigation. Inquiries by the Commission and the State of New York followed. BES settled with the SEC, consenting to the entry of a cease and desist order based on the sections cited in the Order. The bank also agreed to pay disgorgement of $1,650,000 along with prejudgment interest and a civil penalty of $4,950,000. In addition, BES entered into a series of undertakings regarding its U.S. clients. To settle with the State of New York the bank agreed to the entry of a cease and desist order from further violations of the Martin Act along with certain sections of the Executive Law and will offer to make its customers whole for all securities unlawfully sold in addition to disgorging all profits. The bank will also pay a fine of $975,000. The disgorgement will be made to the SEC.
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