Barclays to Pay $97 Million for Overcharging Clients

The Securities and Exchange Commission today announced an enforcement action requiring Barclays Capital to refund advisory fees or mutual fund sales charges to clients who were overcharged.

In a settlement of more than $97 million, Barclays agreed to settle three sets of violations that resulted in clients being overbilled by nearly $50 million.  The SEC’s order finds that two Barclays advisory programs charged fees to more than 2,000 clients for due diligence and monitoring of certain third-party investment managers and investment strategies when in fact these services weren’t being performed as represented.  Barclays also collected excess mutual fund sales charges or fees from 63 brokerage clients by recommending more expensive share classes when less expensive share classes were available.  Another 22,138 accounts paid excess fees to Barclays due to miscalculations and billing errors by the firm.

“Barclays failed to ensure that clients were receiving the services they were paying for,” said C. Dabney O’Riordan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “Each set of clients who were harmed are being refunded through the settlement.”

The SEC’s order finds that Barclays violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-7 as well as Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.

Without admitting or denying the SEC’s findings, Barclays agreed to create a Fair Fund to refund advisory fees to harmed clients.  The Fair Fund will consist of $49,785,417 in disgorgement plus $13,752,242 in interest and a $30 million penalty.  Barclays will directly refund an additional $3.5 million to advisory clients who invested in third-party investment managers and investment strategies that underperformed while going unmonitored.  Those funds also will go to brokerage clients who were steered into more expensive mutual fund share classes.

The SEC’s investigation was conducted by Gwen Licardo of the Asset Management Unit, and the case was supervised by Valerie A. Szczepanik of the New York Regional Office.  An SEC examination that led to the investigation was conducted by investment adviser examiners in the New York Regional Office.

William Hinman Named Director of Division of Corporation Finance

The Securities and Exchange Commission today announced that William H. Hinman will be named the new director of the agency’s Division of Corporation Finance.

Mr. Hinman recently retired as a partner in the Silicon Valley office of Simpson Thacher & Bartlett LLP, where he was a recognized leader in advising public and private companies in corporate finance matters.  He has advised a wide range of issuers and underwriters in capital-raising transactions and corporate acquisitions, including in the technology, e-commerce, health care, and biopharmaceutical areas. 

Mr. Hinman also is respected for his advice to public companies and their boards on public reporting, governance, and other corporate matters, and he has significant experience regarding derivatives, novel securities, and private placements.  He has spoken on these subjects at the Annual Institutes on Securities Laws sponsored by the Practising Law Institute and has taught International Securities Regulation at Stanford Law School and the U.C. Berkeley School of Law.

“Bill is widely recognized for his judgment and expertise in the area of corporate finance. He also is a proven leader, mentor, and counselor. I know the SEC and the people it serves will benefit greatly from his valuable experience,” said SEC Chairman Jay Clayton. “He has spent the last 37 years working in our public and private markets, and he understands the SEC’s mission to promote capital formation while ensuring that investors have the information necessary to make informed decisions.”

Mr. Hinman added, “I am greatly honored to have the opportunity to serve this agency and the American people who rely on its work.  I have worked closely with the dedicated and talented staff of the Division of Corporation Finance throughout my career in private practice, and it will be a privilege to work with them to advance the SEC’s mission.”

Prior to joining Simpson Thacher as a partner in 2000, Mr. Hinman was the managing partner of Shearman & Sterling’s San Francisco and Menlo Park offices.  He received his B.A. from Michigan State University with honors in 1977 and his J.D. in 1980 from Cornell University Law School, where he was a member of the Editorial Board of the Cornell Law Review.  He is a member of the Bar Association of the State of California and the Association of the Bar of the City of New York.  Mr. Hinman also is a fellow of the American Bar Foundation.

William Hinman Named Director of Division of Corporation Finance

The Securities and Exchange Commission today announced that William H. Hinman will be named the new director of the agency’s Division of Corporation Finance.

Mr. Hinman recently retired as a partner in the Silicon Valley office of Simpson Thacher & Bartlett LLP, where he was a recognized leader in advising public and private companies in corporate finance matters.  He has advised a wide range of issuers and underwriters in capital-raising transactions and corporate acquisitions, including in the technology, e-commerce, health care, and biopharmaceutical areas. 

Mr. Hinman also is respected for his advice to public companies and their boards on public reporting, governance, and other corporate matters, and he has significant experience regarding derivatives, novel securities, and private placements.  He has spoken on these subjects at the Annual Institutes on Securities Laws sponsored by the Practising Law Institute and has taught International Securities Regulation at Stanford Law School and the U.C. Berkeley School of Law.

“Bill is widely recognized for his judgment and expertise in the area of corporate finance. He also is a proven leader, mentor, and counselor. I know the SEC and the people it serves will benefit greatly from his valuable experience,” said SEC Chairman Jay Clayton. “He has spent the last 37 years working in our public and private markets, and he understands the SEC’s mission to promote capital formation while ensuring that investors have the information necessary to make informed decisions.”

Mr. Hinman added, “I am greatly honored to have the opportunity to serve this agency and the American people who rely on its work.  I have worked closely with the dedicated and talented staff of the Division of Corporation Finance throughout my career in private practice, and it will be a privilege to work with them to advance the SEC’s mission.”

Prior to joining Simpson Thacher as a partner in 2000, Mr. Hinman was the managing partner of Shearman & Sterling’s San Francisco and Menlo Park offices.  He received his B.A. from Michigan State University with honors in 1977 and his J.D. in 1980 from Cornell University Law School, where he was a member of the Editorial Board of the Cornell Law Review.  He is a member of the Bar Association of the State of California and the Association of the Bar of the City of New York.  Mr. Hinman also is a fellow of the American Bar Foundation.

SEC Charges Former Staffer With Securities Fraud Violations

The Securities and Exchange Commission today charged a former employee with securities fraud in connection with his trading of options and other securities.

The SEC’s complaint alleges that David R. Humphrey, who worked at the SEC from 1998 to 2014, concealed his personal trading from the SEC’s ethics office and later misrepresented his trading activities to the SEC’s Office of Inspector General when questioned during an investigation. 

“As alleged in our complaint, Humphrey never sought pre-clearance for his prohibited options trades and he filed forms that falsely represented his securities holdings,” said Gerald W. Hodgkins, Associate Director in the SEC’s Division of Enforcement. 

SEC employees are subject to rigorous rules regarding securities transactions to guard against even the appearance of using public office for private gain.  The ethics rules specifically prohibit trading in options or derivatives.  The rules also require staff to disclose their securities holdings and transactions to the agency’s ethics office in annual filings. 

According to the SEC’s complaint, Humphrey violated the rules by engaging in transactions involving derivatives, failing to obtain pre-clearance before trading non-prohibited securities, and failing to hold securities for the required period.

The SEC’s complaint charges Humphrey with violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act.  Humphrey has agreed to settle the charges and pay $51,917 in disgorgement of profits made in the improper trades plus $4,774 in interest and a $51,917 penalty.  Humphrey also agreed to be permanently suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.  The settlement is subject to court approval.

In a parallel action, the Department of Justice today announced that Humphrey has pleaded guilty to criminal charges stemming from his false federal filings.

The SEC’s investigation was conducted by Gary M. Zinkgraf and Tom Bednar, and the case was supervised by Jeffrey Weiss.  The SEC appreciates the assistance of the U.S. Department of Justice’s Fraud Section.

SEC Charges Former Staffer With Securities Fraud Violations

The Securities and Exchange Commission today charged a former employee with securities fraud in connection with his trading of options and other securities.

The SEC’s complaint alleges that David R. Humphrey, who worked at the SEC from 1998 to 2014, concealed his personal trading from the SEC’s ethics office and later misrepresented his trading activities to the SEC’s Office of Inspector General when questioned during an investigation. 

“As alleged in our complaint, Humphrey never sought pre-clearance for his prohibited options trades and he filed forms that falsely represented his securities holdings,” said Gerald W. Hodgkins, Associate Director in the SEC’s Division of Enforcement. 

SEC employees are subject to rigorous rules regarding securities transactions to guard against even the appearance of using public office for private gain.  The ethics rules specifically prohibit trading in options or derivatives.  The rules also require staff to disclose their securities holdings and transactions to the agency’s ethics office in annual filings. 

According to the SEC’s complaint, Humphrey violated the rules by engaging in transactions involving derivatives, failing to obtain pre-clearance before trading non-prohibited securities, and failing to hold securities for the required period.

The SEC’s complaint charges Humphrey with violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act.  Humphrey has agreed to settle the charges and pay $51,917 in disgorgement of profits made in the improper trades plus $4,774 in interest and a $51,917 penalty.  Humphrey also agreed to be permanently suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.  The settlement is subject to court approval.

In a parallel action, the Department of Justice today announced that Humphrey has pleaded guilty to criminal charges stemming from his false federal filings.

The SEC’s investigation was conducted by Gary M. Zinkgraf and Tom Bednar, and the case was supervised by Jeffrey Weiss.  The SEC appreciates the assistance of the U.S. Department of Justice’s Fraud Section.

SEC Announces Agenda for May 10 Meeting of the Advisory Committee on Small and Emerging Companies

The Securities and Exchange Commission today announced the agenda for the May 10 meeting of its Advisory Committee on Small and Emerging Companies.  The committee will discuss the underwriting of small offerings and will receive updates from SEC staff about the tick size pilot program and from state securities regulators about their latest enforcement report.  The committee also will consider recommendations on secondary market liquidity for Regulation A, Tier 2 securities and the treatment of so-called “finders” that assist companies in capital raising activities.

The May 10 meeting will begin at 9:00 a.m. in the multipurpose room at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., and is open to the public.  It will be webcast live on the SEC’s website and archived on the website for later viewing. 

The committee provides a formal mechanism for the SEC to receive advice and recommendations on privately held small businesses and publicly traded companies with a market capitalization less than $250 million.

Members of the public who wish to provide their views on the matters to be considered by the committee may submit comments electronically or on paper.  Please submit comments using one method only.  Information that is submitted will become part of the public record of the meeting.

Electronic submissions:

Use the SEC’s Internet submission form or send an e-mail to rule-comments@sec.gov.

Paper submissions:

Send paper submissions to Brent Fields, Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090.

All submissions should refer to File Number 265-27, and the file number should be included on the subject line if e-mail is used.

Agenda

SEC Announces Agenda for May 10 Meeting of the Advisory Committee on Small and Emerging Companies

The Securities and Exchange Commission today announced the agenda for the May 10 meeting of its Advisory Committee on Small and Emerging Companies.  The committee will discuss the underwriting of small offerings and will receive updates from SEC staff about the tick size pilot program and from state securities regulators about their latest enforcement report.  The committee also will consider recommendations on secondary market liquidity for Regulation A, Tier 2 securities and the treatment of so-called “finders” that assist companies in capital raising activities.

The May 10 meeting will begin at 9:00 a.m. in the multipurpose room at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., and is open to the public.  It will be webcast live on the SEC’s website and archived on the website for later viewing. 

The committee provides a formal mechanism for the SEC to receive advice and recommendations on privately held small businesses and publicly traded companies with a market capitalization less than $250 million.

Members of the public who wish to provide their views on the matters to be considered by the committee may submit comments electronically or on paper.  Please submit comments using one method only.  Information that is submitted will become part of the public record of the meeting.

Electronic submissions:

Use the SEC’s Internet submission form or send an e-mail to rule-comments@sec.gov.

Paper submissions:

Send paper submissions to Brent Fields, Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090.

All submissions should refer to File Number 265-27, and the file number should be included on the subject line if e-mail is used.

Agenda

Jay Clayton Sworn in as Chairman of SEC

Jay Clayton was sworn into office this afternoon by U.S. Supreme Court Justice Anthony M. Kennedy as the 32nd Chairman of the Securities and Exchange Commission.

“It is a tremendous honor to lead the SEC and to be sworn in by Justice Kennedy, whom I greatly admire,” said Chairman Clayton. “The work of the SEC is fundamental to growing the economy, creating jobs, and providing investors and entrepreneurs with a share of the American Dream. I would like to thank Acting Chairman Piwowar for his leadership, and I look forward to working with my fellow Commissioners and the talented SEC staff to ensure that our markets remain the safest and most vibrant markets in the world.”

Mr. Clayton was nominated to chair the U.S. Securities and Exchange Commission on January 20, 2017, by President Donald Trump and confirmed by the U.S. Senate on May 2, 2017.

Prior to joining the Commission, Mr. Clayton was a partner at Sullivan & Cromwell LLP, where for over 20 years he advised public and private companies on a wide range of matters, including securities offerings, mergers and acquisitions, corporate governance, and regulatory and enforcement proceedings. His experience includes counseling companies in various industries and advising market participants on capital raising and trading matters in the United States and abroad, including while resident in Europe for five years.

Mr. Clayton has authored publications on securities law, cybersecurity, and other regulatory issues. From 2009 to 2017, he was an Adjunct Professor at the University of Pennsylvania Law School, teaching “M&A Through the Business Cycle” each spring semester as well as guest lecturing in other classes and at other institutions.

Prior to joining Sullivan & Cromwell, Mr. Clayton served as a law clerk for the Honorable Marvin Katz of the U.S. District Court for the Eastern District of Pennsylvania. A member of the New York and Washington, D.C. bars, Mr. Clayton studied and received degrees in engineering, economics, and law. He earned a B.S. in Engineering from the University of Pennsylvania, where he was the recipient of the Thouron Award for post-graduate study in the United Kingdom, enabling him to earn a B.A. and M.A. in Economics from the University of Cambridge. Mr. Clayton received a J.D. from the University of Pennsylvania Law School.

Jay Clayton Sworn in as Chairman of SEC

Jay Clayton was sworn into office this afternoon by U.S. Supreme Court Justice Anthony M. Kennedy as the 32nd Chairman of the Securities and Exchange Commission.

“It is a tremendous honor to lead the SEC and to be sworn in by Justice Kennedy, whom I greatly admire,” said Chairman Clayton. “The work of the SEC is fundamental to growing the economy, creating jobs, and providing investors and entrepreneurs with a share of the American Dream. I would like to thank Acting Chairman Piwowar for his leadership, and I look forward to working with my fellow Commissioners and the talented SEC staff to ensure that our markets remain the safest and most vibrant markets in the world.”

Mr. Clayton was nominated to chair the U.S. Securities and Exchange Commission on January 20, 2017, by President Donald Trump and confirmed by the U.S. Senate on May 2, 2017.

Prior to joining the Commission, Mr. Clayton was a partner at Sullivan & Cromwell LLP, where for over 20 years he advised public and private companies on a wide range of matters, including securities offerings, mergers and acquisitions, corporate governance, and regulatory and enforcement proceedings. His experience includes counseling companies in various industries and advising market participants on capital raising and trading matters in the United States and abroad, including while resident in Europe for five years.

Mr. Clayton has authored publications on securities law, cybersecurity, and other regulatory issues. From 2009 to 2017, he was an Adjunct Professor at the University of Pennsylvania Law School, teaching “M&A Through the Business Cycle” each spring semester as well as guest lecturing in other classes and at other institutions.

Prior to joining Sullivan & Cromwell, Mr. Clayton served as a law clerk for the Honorable Marvin Katz of the U.S. District Court for the Eastern District of Pennsylvania. A member of the New York and Washington, D.C. bars, Mr. Clayton studied and received degrees in engineering, economics, and law. He earned a B.S. in Engineering from the University of Pennsylvania, where he was the recipient of the Thouron Award for post-graduate study in the United Kingdom, enabling him to earn a B.A. and M.A. in Economics from the University of Cambridge. Mr. Clayton received a J.D. from the University of Pennsylvania Law School.

Firm, CEO Settle Charges in Ponzi-Like Scheme Involving Life Settlements

The Securities and Exchange Commission today announced that a New Jersey-based firm and its CEO have agreed to pay more than $4 million to settle charges that they used new investor money to repay earlier investors in Ponzi-like fashion and tapped investor funds for the CEO’s personal use.

According to the SEC’s complaint, Verto Capital Management and William Schantz III raised approximately $12.5 million selling promissory notes to purportedly fund Verto Capital’s purchase and sale of life settlements, which are life insurance policies sold in the secondary market.  The SEC alleges that they misrepresented to investors that Verto Capital was a profitable company and investor funds would be used for general working capital purposes.  Verto Capital and other Schantz businesses had been unprofitable for several years, according to the SEC’s complaint, and Schantz resorted to taking disproportionately large distributions of investor funds for himself and using new investor money to repay earlier investors. 

Verto Capital and Schantz also allegedly made misrepresentations to investors about the safety of the notes and collateral underlying them.  The SEC alleges that the promissory notes were primarily sold through a group of insurance brokers in Texas, and religious investors were targeted.

“As alleged in our complaint, investors were told that the life settlement-backed notes were short-term investments with an unlikely event of default.  Schantz and Verto misled investors about the company’s past performance and the value of the collateral, and they diverted significant investor funds for Schantz’s personal use,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

A Fair Fund will be created to return money collected in the settlement to harmed investors.  Schantz and Verto Capital agreed to pay disgorgement of $3,433,666 plus interest of $124,851 and a penalty of $600,000.  Without admitting or denying the allegations, they consented to permanent injunctions against further violations of Section 17(a)(2) and (3) and Section 5 of the Securities Act of 1933.  Schantz further agreed to be enjoined from selling any promissory notes.  The settlement is subject to court approval.

The SEC’s investigation, which is continuing, is being conducted by Jennifer K. Vakiener, Vincent T. Hull, Christopher Mele, Thomas Feretic, and Steven G. Rawlings in the New York office.  The case is being supervised by Lara S. Mehraban.  The SEC examination that led to the investigation was conducted by Steven C. Vitulano, Terrence P. Bohan, and Edward J. Janowsky in the New York office.

Firm, CEO Settle Charges in Ponzi-Like Scheme Involving Life Settlements

The Securities and Exchange Commission today announced that a New Jersey-based firm and its CEO have agreed to pay more than $4 million to settle charges that they used new investor money to repay earlier investors in Ponzi-like fashion and tapped investor funds for the CEO’s personal use.

According to the SEC’s complaint, Verto Capital Management and William Schantz III raised approximately $12.5 million selling promissory notes to purportedly fund Verto Capital’s purchase and sale of life settlements, which are life insurance policies sold in the secondary market.  The SEC alleges that they misrepresented to investors that Verto Capital was a profitable company and investor funds would be used for general working capital purposes.  Verto Capital and other Schantz businesses had been unprofitable for several years, according to the SEC’s complaint, and Schantz resorted to taking disproportionately large distributions of investor funds for himself and using new investor money to repay earlier investors. 

Verto Capital and Schantz also allegedly made misrepresentations to investors about the safety of the notes and collateral underlying them.  The SEC alleges that the promissory notes were primarily sold through a group of insurance brokers in Texas, and religious investors were targeted.

“As alleged in our complaint, investors were told that the life settlement-backed notes were short-term investments with an unlikely event of default.  Schantz and Verto misled investors about the company’s past performance and the value of the collateral, and they diverted significant investor funds for Schantz’s personal use,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

A Fair Fund will be created to return money collected in the settlement to harmed investors.  Schantz and Verto Capital agreed to pay disgorgement of $3,433,666 plus interest of $124,851 and a penalty of $600,000.  Without admitting or denying the allegations, they consented to permanent injunctions against further violations of Section 17(a)(2) and (3) and Section 5 of the Securities Act of 1933.  Schantz further agreed to be enjoined from selling any promissory notes.  The settlement is subject to court approval.

The SEC’s investigation, which is continuing, is being conducted by Jennifer K. Vakiener, Vincent T. Hull, Christopher Mele, Thomas Feretic, and Steven G. Rawlings in the New York office.  The case is being supervised by Lara S. Mehraban.  The SEC examination that led to the investigation was conducted by Steven C. Vitulano, Terrence P. Bohan, and Edward J. Janowsky in the New York office.

SEC Staff Supplements Quarterly Private Funds Statistics

The U.S. Securities and Exchange Commission staff today published a suite of new data and analyses of private fund statistics and trends.

The Private Funds Statistics, released quarterly since October 2015 by the Division of Investment Management’s Risk and Examinations Office, offers investors and other market participants valuable insights by aggregating data reported by private fund advisers on Form ADV and Form PF.  New analyses include information about the use of financial and economic leverage by hedge funds, and characteristics of private liquidity funds.

“We believe publishing these statistics provides the public with more transparency into and understanding of the private funds industry,” said Acting Chairman Michael Piwowar. “The additional statistical analyses represent a continued focus on using data to inform policy and provide public information and will continue to facilitate feedback and analysis that could be used by the Commission and others.”

With 90 separate tables and figures, the report provides comprehensive analysis of hedge fund industry practices, such as the use of economic and financial leverage, investment strategies, collateralization of borrowings, and investment category exposures. These new statistics supplement information about numbers and types of funds, the gross and net assets of funds, the distribution of borrowings, analysis of gross notional exposure to net asset value, and a comparison of average hedge fund investor and hedge fund portfolio liquidity.

About the Data Sources

Form ADV is used by investment advisers to register with the Commission and or certain state securities authorities. Advisers must report on Form ADV general information about private funds that they manage, such as basic organizational and operational information, fund size and ownership.

Form PF is filed by SEC-registered investment advisers with at least $150 million in private funds assets under management to report information about the private funds that they manage. Most advisers file Form PF annually to report general information such as the types of private funds advised (e.g., hedge funds or private equity), each fund’s size, leverage, liquidity and types of investors. Certain larger advisers provide more information on a more frequent basis (including more detailed information on certain larger funds).