SEC Announces $2.5 Million Whistleblower Award

The Securities and Exchange Commission today announced an award of nearly $2.5 million to an employee of a domestic government agency whose whistleblower tip helped launch an SEC investigation and whose continued assistance enabled the SEC to address a company’s misconduct.

”Whistleblowers can provide a wealth of information and ongoing assistance that helps our agency bring enforcement actions quicker and more efficiently,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  ”This whistleblower not only helped us open the case, but also provided timely ongoing assistance along with critical documents and testimony that accelerated the pace of our enforcement action.”

Approximately $156 million has now been awarded to 45 whistleblowers who voluntarily provided the SEC with original and useful information that led to a successful enforcement action.  No money has been taken or withheld from harmed investors to pay whistleblower awards.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.  Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.

For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.

SEC Announces $2.5 Million Whistleblower Award

The Securities and Exchange Commission today announced an award of nearly $2.5 million to an employee of a domestic government agency whose whistleblower tip helped launch an SEC investigation and whose continued assistance enabled the SEC to address a company’s misconduct.

”Whistleblowers can provide a wealth of information and ongoing assistance that helps our agency bring enforcement actions quicker and more efficiently,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  ”This whistleblower not only helped us open the case, but also provided timely ongoing assistance along with critical documents and testimony that accelerated the pace of our enforcement action.”

Approximately $156 million has now been awarded to 45 whistleblowers who voluntarily provided the SEC with original and useful information that led to a successful enforcement action.  No money has been taken or withheld from harmed investors to pay whistleblower awards.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.  Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.

For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.

SEC Names Bryan Wood as Director of the Office of Legislative and Intergovernmental Affairs

The Securities and Exchange Commission today announced that Bryan Wood has been named Director of the agency’s Office of Legislative and Intergovernmental Affairs. Mr. Wood will advise the Chairman, Commissioners, and SEC staff on legislative matters, provide technical assistance on securities-related legislation to congressional committees and staff, assist in preparing SEC testimony for congressional hearings, and coordinate with other government entities.

“It is important that the SEC work in cooperation with Congress and other government entities in a way that is responsive, efficient, and effective to best serve the American people,” said SEC Chairman Jay Clayton. “The SEC will benefit from Bryan’s experience in Congress, his knowledge of our federal securities laws, and his commitment to public service.”

Mr. Wood added, “I am honored to have the opportunity to work with the Chairman, Commissioners, and dedicated staff here at the SEC. I look forward to helping the agency continue to fulfill its critical mission.”

Mr. Wood spent 10 years on Capitol Hill, most recently as Senior Advisor and Counsel at the House Financial Services Committee. Previously, he served as Counsel for the Subcommittee on Capital Markets, Securities, and Investment, and as Legislative Director to Rep. Robert Hurt, former vice chairman of the Capital Markets and Government-Sponsored Enterprises Subcommittee.

Mr. Wood received his J.D. from Georgetown University, magna cum laude. He received his B.A. from the University of Virginia.

SEC Names Bryan Wood as Director of the Office of Legislative and Intergovernmental Affairs

The Securities and Exchange Commission today announced that Bryan Wood has been named Director of the agency’s Office of Legislative and Intergovernmental Affairs. Mr. Wood will advise the Chairman, Commissioners, and SEC staff on legislative matters, provide technical assistance on securities-related legislation to congressional committees and staff, assist in preparing SEC testimony for congressional hearings, and coordinate with other government entities.

“It is important that the SEC work in cooperation with Congress and other government entities in a way that is responsive, efficient, and effective to best serve the American people,” said SEC Chairman Jay Clayton. “The SEC will benefit from Bryan’s experience in Congress, his knowledge of our federal securities laws, and his commitment to public service.”

Mr. Wood added, “I am honored to have the opportunity to work with the Chairman, Commissioners, and dedicated staff here at the SEC. I look forward to helping the agency continue to fulfill its critical mission.”

Mr. Wood spent 10 years on Capitol Hill, most recently as Senior Advisor and Counsel at the House Financial Services Committee. Previously, he served as Counsel for the Subcommittee on Capital Markets, Securities, and Investment, and as Legislative Director to Rep. Robert Hurt, former vice chairman of the Capital Markets and Government-Sponsored Enterprises Subcommittee.

Mr. Wood received his J.D. from Georgetown University, magna cum laude. He received his B.A. from the University of Virginia.

Federal Regulatory Agencies Announce Coordination of Reviews for Certain Foreign Funds Under Volcker Rule

Five federal financial regulatory agencies today announced that they are coordinating their respective reviews of the treatment of certain foreign funds under section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule, and the agencies’ implementing regulations.

These foreign funds are investment funds organized and offered outside of the United States that are excluded from the definition of “covered fund” under the agencies’ implementing regulations (foreign excluded funds).  Section 619, and the implementing regulations, generally do not apply to investments in, or sponsorship of, these foreign excluded funds by a foreign banking entity.

However, complexities in the statute and the implementing regulations may result in certain foreign excluded funds becoming subject to regulation under section 619 because of governance arrangements with or investments by a foreign bank. As a result, a number of foreign banking entities, foreign government officials, and other market participants have expressed concern about possible unintended consequences and extraterritorial impact.

The staff of the agencies are considering ways in which the implementing regulations may be amended, or other appropriate action may be taken. It may also be the case that congressional action is necessary to fully address the issue. To aid full consideration, the federal banking regulators, which generally oversee foreign banks, announced that they would not take action under section 619 for qualifying foreign excluded funds, subject to certain conditions, for a period of one year.

Section 619 generally prohibits insured depository institutions and any company affiliated with an insured depository institution from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a covered fund. These prohibitions are subject to a number of statutory exemptions, restrictions, and definitions.

Final regulations implementing section 619 were previously issued by five agencies – the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. 

Today’s announcement does not otherwise modify the rules implementing section 619 and is limited to certain foreign excluded funds that may be subject to the Volcker Rule and implementing regulations due to their relationships with or investments by foreign banking entities. 

Media Contacts:

Federal Reserve                     Eric Kollig                                202-452-2955

CFTC                                      Erica Elliott Richardson           202-418-5382

FDIC                                       David Barr                               202-898-6992

OCC                                        Stephanie Collins                    202-649-6870

SEC                                        Office of Public Affairs             202-551-4120

Federal Regulatory Agencies Announce Coordination of Reviews for Certain Foreign Funds Under Volcker Rule

Five federal financial regulatory agencies today announced that they are coordinating their respective reviews of the treatment of certain foreign funds under section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule, and the agencies’ implementing regulations.

These foreign funds are investment funds organized and offered outside of the United States that are excluded from the definition of “covered fund” under the agencies’ implementing regulations (foreign excluded funds).  Section 619, and the implementing regulations, generally do not apply to investments in, or sponsorship of, these foreign excluded funds by a foreign banking entity.

However, complexities in the statute and the implementing regulations may result in certain foreign excluded funds becoming subject to regulation under section 619 because of governance arrangements with or investments by a foreign bank. As a result, a number of foreign banking entities, foreign government officials, and other market participants have expressed concern about possible unintended consequences and extraterritorial impact.

The staff of the agencies are considering ways in which the implementing regulations may be amended, or other appropriate action may be taken. It may also be the case that congressional action is necessary to fully address the issue. To aid full consideration, the federal banking regulators, which generally oversee foreign banks, announced that they would not take action under section 619 for qualifying foreign excluded funds, subject to certain conditions, for a period of one year.

Section 619 generally prohibits insured depository institutions and any company affiliated with an insured depository institution from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a covered fund. These prohibitions are subject to a number of statutory exemptions, restrictions, and definitions.

Final regulations implementing section 619 were previously issued by five agencies – the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. 

Today’s announcement does not otherwise modify the rules implementing section 619 and is limited to certain foreign excluded funds that may be subject to the Volcker Rule and implementing regulations due to their relationships with or investments by foreign banking entities. 

Media Contacts:

Federal Reserve                     Eric Kollig                                202-452-2955

CFTC                                      Erica Elliott Richardson           202-418-5382

FDIC                                       David Barr                               202-898-6992

OCC                                        Stephanie Collins                    202-649-6870

SEC                                        Office of Public Affairs             202-551-4120

SEC Bars Lawyer Who Committed Fraud

The Securities and Exchange Commission today barred a New York-based attorney from appearing or practicing before it and acting as an officer or director of a public company after finding that he made false and misleading statements in corporate filings.

The SEC’s order finds that David Lubin committed fraud while serving as a director and corporate counsel of Entertainment Art, a public company in which Lubin also was a large shareholder.  Lubin negotiated the sale of all of the outstanding stock of Entertainment Art, including both restricted and previously registered shares that were purportedly “free trading,” to an acquaintance interested in purchasing shell companies.  Absent a valid exemption, common ownership of all of the shares of a public company would require the owner to register the shares for resale to the public.  According to the SEC’s order, Lubin fraudulently misrepresented in Entertainment Art’s corporate filings that the purportedly free-trading shares had not been purchased by the acquaintance.  This left the false impression that those shares remained immediately available for public resale.  During the next two years and until he left the company, Lubin drafted and signed SEC filings that continued to lie about the true ownership of the company’s stock.

According to the SEC’s order, soon after the company was renamed Biozoom, more than 14 million shares were resold to the public in an illegal unregistered distribution for illicit proceeds of $34 million.  The SEC froze assets from the unregistered sales in 2013.

“As the SEC’s order notes, Lubin drafted and signed misleading public filings and masked the true ownership and restricted nature of a significant portion of the company’s stock,” said Antonia Chion, Associate Director in the SEC’s Enforcement Division.  “Lubin’s deception led to many of these same shares being illegally resold to the general public by others a few years later.”

The U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against Lubin.

The SEC’s order finds that Lubin willfully violated Section 10(b) of the Securities Exchange Act and Rule 10b-5, imposes a cease-and-desist order and an officer-and-director bar.  The SEC’s order also prohibits Lubin from representing clients in SEC matters, including investigations, litigation, or examinations, and from advising clients about SEC filing obligations or content.  The SEC ordered a public hearing before an administrative law judge to prepare an initial decision determining what, if any, disgorgement or monetary penalties are in the public interest.

The SEC’s investigation, which is continuing, is being conducted by Marc E. Johnson, Jennie B.  Krasner, and Deborah A. Tarasevich, and the case is being supervised by Ms. Chion.  The SEC appreciates the assistance of the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of Florida.

SEC Bars Lawyer Who Committed Fraud

The Securities and Exchange Commission today barred a New York-based attorney from appearing or practicing before it and acting as an officer or director of a public company after finding that he made false and misleading statements in corporate filings.

The SEC’s order finds that David Lubin committed fraud while serving as a director and corporate counsel of Entertainment Art, a public company in which Lubin also was a large shareholder.  Lubin negotiated the sale of all of the outstanding stock of Entertainment Art, including both restricted and previously registered shares that were purportedly “free trading,” to an acquaintance interested in purchasing shell companies.  Absent a valid exemption, common ownership of all of the shares of a public company would require the owner to register the shares for resale to the public.  According to the SEC’s order, Lubin fraudulently misrepresented in Entertainment Art’s corporate filings that the purportedly free-trading shares had not been purchased by the acquaintance.  This left the false impression that those shares remained immediately available for public resale.  During the next two years and until he left the company, Lubin drafted and signed SEC filings that continued to lie about the true ownership of the company’s stock.

According to the SEC’s order, soon after the company was renamed Biozoom, more than 14 million shares were resold to the public in an illegal unregistered distribution for illicit proceeds of $34 million.  The SEC froze assets from the unregistered sales in 2013.

“As the SEC’s order notes, Lubin drafted and signed misleading public filings and masked the true ownership and restricted nature of a significant portion of the company’s stock,” said Antonia Chion, Associate Director in the SEC’s Enforcement Division.  “Lubin’s deception led to many of these same shares being illegally resold to the general public by others a few years later.”

The U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against Lubin.

The SEC’s order finds that Lubin willfully violated Section 10(b) of the Securities Exchange Act and Rule 10b-5, imposes a cease-and-desist order and an officer-and-director bar.  The SEC’s order also prohibits Lubin from representing clients in SEC matters, including investigations, litigation, or examinations, and from advising clients about SEC filing obligations or content.  The SEC ordered a public hearing before an administrative law judge to prepare an initial decision determining what, if any, disgorgement or monetary penalties are in the public interest.

The SEC’s investigation, which is continuing, is being conducted by Marc E. Johnson, Jennie B.  Krasner, and Deborah A. Tarasevich, and the case is being supervised by Ms. Chion.  The SEC appreciates the assistance of the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of Florida.

SEC Announces Christopher Hetner as Senior Advisor to the Chairman for Cybersecurity Policy

The Securities and Exchange Commission today announced that Christopher R. Hetner will continue to serve as Senior Advisor to Chairman Jay Clayton for Cybersecurity Policy, having previously served in this role under Chair Mary Jo White and Acting Chairman Michael Piwowar. Mr. Hetner will continue to coordinate efforts across the agency to address cybersecurity policy, engage with external stakeholders, and help enhance the SEC’s mechanisms for assessing cyber-related market risk.

“Technology has become commonplace in our lives, including in our financial transactions, and cybersecurity should be a major concern for all Americans,” said SEC Chairman Jay Clayton.  “It is critical that we regularly assess the cybersecurity landscape and adapt accordingly as we strive to fulfill our mission. Chris’ experience will help our agency evaluate risk, coordinate with others, and communicate with companies and investors.”

Mr. Hetner has more than 20 years of experience in information security and technology. He joined the SEC in January 2015 as the Cybersecurity Leader for the Technology Control Program in the SEC’s Office of Compliance Inspections and Examinations, where he coordinated cybersecurity efforts and advised on enforcement matters. 

Prior to joining the SEC, Mr. Hetner led Ernst and Young’s Wealth and Asset Management Sector Cybersecurity practice and was the Chief Information Security Officer at GE Capital. Mr. Hetner also implemented information security and regulatory compliance programs for Citigroup’s Institutional Client Group global business and technology units. 

Mr. Hetner holds industry-leading certifications including the CISSP (Certified Information Systems Security Professional), NSA INFOSEC (National Security Agency Information Security) Assessment Certification, and CISM (Certified Information Security Manager).  He earned an M.S. in Information Assurance from Norwich University and a B.S in Security Management from The City University of New York’s John Jay College of Criminal Justice.

SEC Announces Christopher Hetner as Senior Advisor to the Chairman for Cybersecurity Policy

The Securities and Exchange Commission today announced that Christopher R. Hetner will continue to serve as Senior Advisor to Chairman Jay Clayton for Cybersecurity Policy, having previously served in this role under Chair Mary Jo White and Acting Chairman Michael Piwowar. Mr. Hetner will continue to coordinate efforts across the agency to address cybersecurity policy, engage with external stakeholders, and help enhance the SEC’s mechanisms for assessing cyber-related market risk.

“Technology has become commonplace in our lives, including in our financial transactions, and cybersecurity should be a major concern for all Americans,” said SEC Chairman Jay Clayton.  “It is critical that we regularly assess the cybersecurity landscape and adapt accordingly as we strive to fulfill our mission. Chris’ experience will help our agency evaluate risk, coordinate with others, and communicate with companies and investors.”

Mr. Hetner has more than 20 years of experience in information security and technology. He joined the SEC in January 2015 as the Cybersecurity Leader for the Technology Control Program in the SEC’s Office of Compliance Inspections and Examinations, where he coordinated cybersecurity efforts and advised on enforcement matters. 

Prior to joining the SEC, Mr. Hetner led Ernst and Young’s Wealth and Asset Management Sector Cybersecurity practice and was the Chief Information Security Officer at GE Capital. Mr. Hetner also implemented information security and regulatory compliance programs for Citigroup’s Institutional Client Group global business and technology units. 

Mr. Hetner holds industry-leading certifications including the CISSP (Certified Information Systems Security Professional), NSA INFOSEC (National Security Agency Information Security) Assessment Certification, and CISM (Certified Information Security Manager).  He earned an M.S. in Information Assurance from Norwich University and a B.S in Security Management from The City University of New York’s John Jay College of Criminal Justice.

SEC Files Insider Trading Charges Against Research Scientist Aiming to Avoid SEC Detection

The Securities and Exchange Commission today announced insider trading charges against a research scientist who allegedly searched the internet for “how sec detect unusual trade” before making a trade that the agency flagged as suspicious through data analysis.

The SEC’s complaint alleges that Fei Yan loaded up on stocks and options in advance of two corporate acquisitions late last year based on confidential information obtained from his wife, an associate at a law firm that worked on the deals. 

According to the SEC’s complaint, Yan made approximately $120,000 in illicit profits by selling his holdings in Mattress Firm Holding Corp. and Stillwater Mining Company following public announcements that they would be acquired by other companies.

Yan allegedly attempted to conceal his illegal activity by placing the illicit trades in a brokerage account bearing the name of his mother, who lives in China.  Among the internet searches he conducted was “insider trading in an international account.” 

Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit, said, “As alleged in our complaint, Yan attempted to evade detection by researching prior SEC cases against insider traders and using a brokerage account in a different name, but we identified the profitable trades in deals advised by the same law firm and traced them back to him.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Yan.  

The SEC’s complaint charges Yan with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3.  The SEC is seeking disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions.  The SEC’s complaint names Yan’s mother Rongxia Wu as a relief defendant for the purposes of recovering illicit profits in the brokerage account in her name.

The SEC’s investigation, which is continuing, has been conducted by Joshua R. Geller, John Rymas, and Simona Suh of the Market Abuse Unit.  The case has been supervised by Mr. Sansone.  The SEC’s litigation will be led by Mr. Geller and Ms. Suh.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.

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SEC Announces Charges in Massive Telemarketing Boiler Room Scheme Targeting Seniors

The Securities and Exchange Commission today brought fraud charges against 13 individuals allegedly involved in two Long Island-based cold calling scams that bilked more than one hundred victims out of more than $10 million through high-pressure sales tactics and lies about penny stocks.

The SEC alleges that the orchestrators of the scheme used boiler room-style call centers to make hundreds of thousands of cold calls that included the use of threatening and deceitful sales techniques to pressure victims – many of whom were senior citizens – into purchasing penny stocks.  For example, as part of one such scam, a boiler room salesman allegedly claimed that the Walt Disney Company was buying into a purported media and internet company and that would cause the penny stock’s price to increase substantially.

During these calls, victims were allegedly harassed and threatened by sales personnel.  When one victim complained about his losses, a sales representative allegedly said, “I am tired of hearing from you.  Do you have any rope at home?  If so tie a knot and hang yourself or get a gun and blow your head off.”  According to the SEC’s complaint, in a typical phone call, telemarketers would direct victims to place trades and tell them how many shares to purchase and at what price.  With this information about the victims’ trades, the orchestrators and the boiler room sales personnel allegedly placed opposing sell orders to dump their own shares, realizing more than $14 million in illegal proceeds while the victims lost millions of dollars, including retirement savings.

SEC investigators learned of the alleged scheme from investor complaints and used technological tools and innovative investigative approaches to build evidence – within a matter of months from receiving the complaints – against the defendants who went to great lengths to evade detection.

“These kinds of scams cause devastating harm to investors,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “Investors must beware of the sort of conduct alleged in our complaint – things like unsolicited calls, high-pressure sales tactics, and promises that a no-name stock is going to skyrocket.”

Scott W. Friestad, Associate Director of the SEC’s Enforcement Division, added, “The defendants allegedly used boiler rooms and high-pressure sales tactics to swindle seniors into investing their life savings in microcap securities they were secretly manipulating for their own profit.  But, through a combination of technology and innovative investigative approaches, we were able to unravel the alleged scheme and prevent further investor harm.”

In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York announced criminal charges.

The SEC’s complaint, filed in federal district court in Brooklyn, N.Y., charges all defendants with fraud and nine with market manipulation.  The SEC is seeking permanent injunctions, disgorgement with interest, civil penalties, penny stock bars, and an officer-and-director bar from one of the orchestrators of the scheme.  The complaint also names 27 individuals and entities that received proceeds from the fraud, as relief defendants.

The SEC’s complaint also charges certain defendants with acting as unregistered brokers.  The SEC encourages investors to check the backgrounds of people selling them investments by using the SEC’s investor.gov website to quickly identify whether they are registered professionals.

The SEC’s investigation, which is continuing, has been conducted by Andrew Elliott and Cecilia Connor and assisted by Leigh Barrett.  The investigation was supervised by Scott Friestad and Amy Friedman.  The SEC’s litigation will be handled by Matthew Scarlato and James Smith and supervised by Jan Folena.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority, Federal Bureau of Investigation, U.S. Attorney’s Office for the Eastern District of New York, British Columbia Securities Commission, Ontario Securities Commission, and Oregon Division of Financial Regulation.

The SEC encourages victims of the alleged fraud to contact PowerTraderVictims@sec.gov.  The SEC’s Office of Investor Education and Advocacy previously issued an alert warning investors that aggressive stock promotion is a red flag of fraud. 

“Investors should be skeptical anytime they receive an unsolicited communication promoting a stock – it could be a part of a boiler room scheme,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “If you receive a phone call from a high-pressure salesperson who uses harassment and threats to get your business, hang up.”

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