This Week In Securities Litigation (Week ending March 13, 2015)
The SEC filed one new action this week – an administrative proceeding involving the principal of an investment adviser and undisclosed conflicts of interest. The Commission also amended a complaint in an insider trading action, adding an additional defendant in a manner which raises issues under Newman (here) and negotiated a preliminary injunction in another insider trading case which effectively extended a previously entered freeze order (here).
Remarks: Chair Mary Jo White delivered remarks titled Understanding Disqualifications, Exemptions and Waivers Under the Federal Securities Laws at the Corporate Counsel Institute, Georgetown University, Washington, D.C. (March 12, 2015). As the title indicates Chair White discussed disqualifications, waivers, exemptions and argues that disqualifications are not an enforcement remedy (here).
Remarks: Commissioner Daniel M. Gallagher delivered remarks titled A Watched Pot Never Boils: The Need for SEC Supervision of Fixed Income Liquidity, Market Structure, and Pension Accounting, New York, New York (March 10, 2015). His remarks focused on oversight of the bond markets (here).
Remarks: Commissioner Kara Stein delivered at the Stanford Rock Center for Corporate Governance, Stanford Law School (March 5, 2015). Her remarks focused on capital formation (here).
Remarks: Dave Grim, Acting Director, Division of Investment Management delivered remarks at the 2015 IAA Compliance Conference, Arlington, Va. (March 6, 2015). His remarks focused on enhanced data reporting and stress testing (here).
SEC Enforcement – Filed and Settled Actions
Statistics: During this period the SEC filed 0 civil injunctive action and 1 administrative proceeding, excluding 12j and tag-along-actions.
Conflicts: In the Matter of Edgar R. Page, Adm. Proc. File No. 3-1607 (March 10, 2015). There the Order names as Respondents Page One, a registered investment adviser, and its principal, Edgar Page, 95% owner, CEO and COO. The Order centers on a late 2008 arrangement entered into by Mr. Page and a Fund Manager who managed a series of private investment funds. The two men entered into an agreement under which Fund Manager would acquire Page One for about $3 million. The payments would be made in installments over time. The agreement also stipulated that Mr. Page would refer Page One clients to the funds managed by Fund Manager. The acquisition would not close unless, and until, those clients had invested $20 million in the funds managed by Fund Manager. Subsequently, the arrangement was modified. Under the new terms Fund Manager would only acquire 49% of Page One. While the purchase price was reduced, Mr. Page’s obligation to refer $20 million of business to the funds was not. In preparing the Form ADVs for Page One – Mr. Page was the chief compliance officer – the deal to sell Page One was not disclosed. To the contrary, in the 2009 filing the firm told clients that it was not charging management fees because it was compensated by Fund Manager. That filing significantly understated the amount of that compensation. More importantly, it failed to disclose the arrangement under which Fund Manager would acquire the firm. Subsequently, amendments were made to the filings. The deal for Fund Manager to acquire Page One was not disclosed. Eventually the deal collapsed. The Order alleges violations of Advisers Act Sections 206(1), 206(2) and 207. The Respondents partially resolved the proceeding. Each consented to the entry of a cease and desist order based on the Sections cited in the Order. Page One also consented to the entry of a censure. Further proceedings will he held to determine what monetary sanctions, if any, should be imposed.
Misappropriation: The Australian Securities Investment Commission banned registered representative Lewis Fellows for life based on his conduct relating to six client accounts over a two year period beginning in July 2008. Specifically, he is alleged to have diverted about $480,000 from the client accounts to his personal use. He also diverted $1million from one client’s bank account to his.
Misleading advertising: The ASIC fined Australian Financial Planning Solutions Pty Ltd $10,200 for making false or misleading representations. The statements were made on the firm’s website in an article titled “Benefits of a Self-managed Super Fund” that appeared from July to early November 2014. The article contained misleading and unsubstantiated claims that major retail and industry superannuation funds will experience payout difficulties and made incorrect statements regarding the tax implications.
Short selling: The Securities and Futures Commission banned Ms. Luo Jiangian, previously a registered representative with J.P. Morgan Broking (Hong Kong), from the securities business for six months. On August 22, 2013 she created a short sell order of 300,000 shares in China Resources land Limited and released part of the order to the market without ensuring a relevant stock borrowing arrangement. Subsequently she tried to conceal the transaction from the compliance department.
Unauthorized transactions: Wong Chun Yin, formerly of Standard Chartered Bank (Hong Kong) Limited, was banned from the securities business for life. The SFC found that Mr. Wong effected fund transactions in clients’ accounts without their authorization to meet his sales targets. He then tried to conceal the transactions.
Breach of duty: The SFC commenced proceedings seeking the disqualification of, and compensation orders against, the chairman of Inno-Tech, Ms. Wong Yuen Yee, and three former directors, Robert Wong Yao Wing, Wong Kwok Sing and Lam Shiu San based on breach of duty claims. Specifically, the suit claims that the directors failed to adequately investigate or conduct due diligence with respect to the acquisition and disposition of certain assets which resulted in the loss by the firm of HK$125 million.
Investment fund fraud: Phillip Boakes was sentenced to serve 10 years in prison and directed to pay at least £3.5 million. The sentence is based on the fact that Mr. Boakes ran a Ponzi scheme through his company CurrencyTrader Ltd. which caused substantial losses for 30 investors. This is the longest sentence imposed as a result of any Financial Conduct Authority action.