Wenchi Hu, Associate Director in the Division of Trading and Markets, to Leave SEC

The Securities and Exchange Commission today announced that Wenchi Hu, an Associate Director in the Division of Trading and Markets, will leave the agency in early February.

Ms. Hu has headed the division’s Office of Clearance and Settlement Supervision since August 2015, after serving three months as its Acting Associate Director. The office oversees registered clearing agencies including those that are designated systemically important in the equity, options, government and mortgage-backed securities, and security-based swaps markets. It routinely coordinates with the Federal Reserve Board, the Commodity Futures Trading Commission, and regulators outside the U.S. to enhance supervision of clearing agencies.

“Wenchi has been a tremendous source of expertise on clearance and settlement matters and played a critical role with respect to the Commission’s clearing agency supervision program. During her time at the Commission, she made invaluable contributions to the review of numerous clearing agency initiatives that have had a significant impact on the national clearance and settlement system and the financial markets.” said Heather Seidel, Acting Director of the Division of Trading and Markets.

During her tenure, Ms. Hu has overseen more than 150 clearing agency initiatives, including National Securities Clearing Corp.’s Accelerated Trade Guaranty, Fixed Income Clearing Corp.’s permanent adoption of its GCF repo pilot program and suspension of the GCF repo interbank program, and ICE Clear Credit’s default management, recovery, and wind-down rule change. She also oversaw LCH SA’s application for registration as a security-based swap clearing agency, the first by a non-U.S. clearing house.

Ms. Hu said, “It has been a great honor to serve at the Commission. I have been privileged to work with extremely talented and dedicated staff members and contribute to the Commission’s important work on clearing agency oversight.”

Ms. Hu joined the SEC in November 2011 as a senior special counsel in the Office of Compliance, Inspections and Examinations and later moved to the Office of Derivatives Policy in the Division of Trading and Markets. She was named Assistant Director in the division’s Office of Clearance and Settlement Supervision in June 2013. Ms. Hu is a graduate of the University of California-Berkeley School of Law (Order of the Coif) and holds master’s degrees from the University of Wisconsin-Madison and Harvard Law School. Before joining the SEC she worked as managing director and senior counsel at Rabobank Nederland in New York and was an associate at Cleary, Gottlieb, Steen & Hamilton LLP. 

OCIE Director Marc Wyatt to Leave SEC

The Securities and Exchange Commission today announced that Marc Wyatt, Director of the Office of Compliance Inspections and Examinations, will leave the agency next month to return to the private sector.

Mr. Wyatt joined the SEC in December 2012 as a senior specialized examiner and co-founded the Private Fund Unit within OCIE. He was named Deputy Director in October 2014 and served as Acting Director in April 2015 before being named Director in November 2015. 

“OCIE has benefited greatly from Marc’s leadership and vision,” said SEC Acting Chairman Michael Piwowar. “His efforts on enhancing our risk based exam program and the organizational changes he has put in place will leave a lasting mark on the Commission.”

“It has been an honor to serve alongside the outstanding OCIE team who work tirelessly to improve compliance, prevent fraud, monitor risk, and inform policy,” said Mr. Wyatt.  “I am grateful to have had the opportunity to work with the Commissioners and staff across the SEC to execute on our mission.”

Mr. Wyatt worked with OCIE leadership and staff on a number of initiatives and accomplishments during his tenure, including:

• In each year, Commission staff significantly increased its examinations, including over 2,400 examinations in fiscal year 2016, a 20 percent increase over fiscal year 2015 and a seven year high in examinations conducted. 
• By the end of fiscal year 2016, OCIE completed a reallocation of resources within the examination program that, along with focused hiring, resulted in increasing the size of the investment adviser and investment company examination staff by more than 20 percent as compared to the prior year in response to rapid industry growth. 
• OCIE created the Office of Risk and Strategy which combined the various quantitative teams and risk professionals across OCIE into one unit to significantly increase technology-based approaches to identify risks among SEC registrant populations.
• OCIE formed the FINRA and Securities Industry Oversight Team, or FSIO, to enhance oversight of a key industry self-regulatory organization.
• OCIE established the Technology Controls Program, or TCP, and its Cyberwatch unit to monitor for significant events and outages related to Regulation Systems Compliance and Integrity.

Before coming to the SEC, Mr. Wyatt was a principal and senior portfolio manager of a global multi-strategy hedge fund. Prior to that, he was a senior investment banker in the U.S. and U.K.  Mr. Wyatt is a Chartered Financial Analyst. He graduated from the University of Delaware with a B.S. in economics and holds an M.B.A. from Duke University’s Fuqua School of Business. 

Upon Mr. Wyatt’s departure, Pete Driscoll, OCIE’s Chief Risk and Strategy Officer, will become the acting director. Mr. Driscoll was previously OCIE’s managing executive from 2013 through early 2016. He joined the Agency in 2001 as a staff attorney in the Division of Enforcement in the Chicago Regional Office and was later a Branch Chief and Assistant Regional Director in OCIE. Prior to the Agency, Mr. Driscoll began his career with Ernst & Young LLP and held several accounting positions in private industry. He received his B.S. in Accounting and law degree from St. Louis University.  He is licensed as a certified public accountant and is a member of the Missouri Bar Association.

SEC Announces Charges in Hamilton Ticket Resale Ponzi Scheme

The Securities and Exchange Commission today announced fraud charges against two New York City men accused of running a Ponzi scheme with money raised from investors to fund businesses purportedly created to purchase and resell tickets to such high-demand shows as Adele concerts and the Broadway musical Hamilton.

The SEC alleges that Joseph Meli and Matthew Harriton misrepresented to investors that all of their money would be pooled to buy large blocks of tickets that would be resold at a profit to produce high returns for investors.  The bulk of investor funds were allegedly used for other undisclosed purposes, namely making Ponzi payments to prior investors using money from new investors.  Meli and Harriton allegedly diverted almost $2 million for such personal expenses as jewelry purchases, private school and camp tuition, and casino payments.

According to the SEC’s complaint, the scheme went so far as to misrepresent that an agreement was in place with the producer of Hamilton to purchase 35,000 tickets to the musical.  Investor money was supposedly paying part of that cost with the return on investment promised within eight months.  The SEC alleges no such agreement or purchase ever happened.

Meli and Harriton allegedly raised more than $81 million from at least 125 investors in 13 states.

“As alleged in our complaint, Meli and Harriton raised millions from investors by promising big profits from reselling tickets to A-list events when in reality they were moving investor money in a circle and creating a mirage of profitability,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.

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

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges Meli and Harriton along with their four purported ticket reselling businesses named Advance Entertainment, Advance Entertainment II, 875 Holdings, and 127 Holdings.  The complaint seeks disgorgement of ill-gotten monetary gains plus interest and penalties.  Meli’s wife and another company are named as relief defendants in the complaint for the purposes of recovering investor funds allegedly in their possession. 

The SEC’s investigation was conducted by Dahlia Rin, Rebecca Israel, John McCann, and Celia Moore of the Boston office, and the litigation will be led by Martin Healey.  The SEC appreciates the assistance of the FBI and the U.S. Attorney’s Office for the Southern District of New York. 

Chief Operating Officer Jeffery Heslop to Leave SEC

The Securities and Exchange Commission today announced SEC Chief Operating Officer Jeffery Heslop will leave the agency in February.

Mr. Heslop joined the SEC in 2010 when he was named the SEC’s first-ever COO. In the nearly seven years since joining the SEC, Mr. Heslop has led significant innovation in the agency’s approach to human capital management, business process, internal controls, and technology infrastructure.  Through his efforts, the agency has realized substantial operational cost reductions, increased efficiencies in staffing and operations, and strengthened the cooperation between various SEC offices and divisions.

In his role as COO, Mr. Heslop oversees the operations of the SEC’s Office of Human Resources; Office of Acquisitions; Office of Information Technology; Office of Strategic Initiatives; Office of Financial Management; and Office of Support Operations, which includes the SEC’s Office of Freedom of Information Act, Privacy, Records Management and Facility Operations.

During his time at the SEC, Mr. Heslop:

• Led a team that significantly improved internal controls and compliance in financial management and information security, and eliminated persistent conditions of material weakness.
• Developed and implemented a strategy to rehabilitate outdated technology infrastructure and organizational business process approaches to deliver dramatic improvements in customer satisfaction.
• Championed the investment in, and oversaw the execution of, numerous business process redesign initiatives to move several SEC processes from manually-intensive, paper-based approaches to efficient, automated processes resulting in the realization of compelling cost reductions and enhanced employee productivity.

“As the SEC’s first COO, Jeff helped the agency streamline operations and leverage resources to more effectively serve the investors and markets,” said SEC Acting Chairman Michael Piwowar. “He has overseen significant improvements in technology and has helped ensure that our financial reporting controls and FOIA operations are top-notch.”

“It has been a true honor to serve with the extraordinarily dedicated and self-sacrificing professionals who comprise the agency’s staff,” said SEC COO Jeffery Heslop. “In particular, I would like to extend my deepest appreciation to the staff members from the offices under the Office of the Chief Operating Officer, who, through their collaborative effort, have played an instrumental role in an effort to modernize the agency’s human capital, business process, and technological capabilities. Their contribution to the SEC’s unwavering and deep commitment to protect America’s investors has been simply remarkable, and I am deeply grateful to have had the privilege of leading them.”

Before joining the SEC, Mr. Heslop worked at Capital One for 12 years, including in the role of Managing Vice President of Information Risk Management. He also served in the U.S. Army from 1976 to 1998, rising to the rank of Lieutenant Colonel. Mr. Heslop received his Bachelor of Arts from Davidson College and his MBA from the College of William and Mary.

Upon Mr. Heslop’s departure, Kenneth Johnson, SEC Chief Financial Officer, will become the Acting Chief Operating Officer.

Citigroup Paying $18 Million for Overbilling Clients

The Securities and Exchange Commission today announced that Citigroup Global Markets has agreed to pay $18.3 million to settle charges that it overbilled investment advisory clients and misplaced client contracts.

The SEC’s order finds that at least 60,000 advisory clients were overcharged approximately $18 million in unauthorized fees because Citigroup failed to confirm the accuracy of billing rates entered into its computer systems in comparison to fee rates outlined in client contracts, billing histories, and other documents.  Citigroup also improperly collected fees during time periods when clients suspended their accounts.  The billing errors occurred during a 15-year period, and the affected clients have since been reimbursed.

“Advisory clients have every expectation that the fees charged by their financial adviser reflect the negotiated rate.  Citigroup failed to take the necessary precautions to ensure clients were billed in a manner consistent with their advisory agreements,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The SEC’s order further finds that Citigroup cannot locate approximately 83,000 advisory contracts for accounts opened from 1990 to 2012.  Without those missing advisory contracts, Citigroup could not properly validate whether the fee rates negotiated by clients when accounts were opened were the same advisory fee rates being billed to clients over the years.  It is estimated that Citigroup received approximately $3.2 million in excess fees from advisory clients whose contracts were lost.

“It’s a fundamental responsibility of a financial adviser to preserve key account documents such as advisory contracts.  Citigroup failed to safeguard its client contracts, which seriously impeded its ability to determine the proper amount of fees the firm was authorized to charge,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York office.

Citigroup consented to the SEC’s cease-and-desist order and agreed to undertakings related to its fee-billing and books-and-records practices.  The firm is censured and must pay $3.2 million in disgorgement of the excess fees collected due to the missing contracts plus $800,000 in interest and a $14.3 million penalty.

The SEC’s investigation has been conducted by Olivia Zach and Celeste Chase in the New York office and supervised by Mr. Wadhwa.

Citigroup Paying $18 Million for Overbilling Clients

The Securities and Exchange Commission today announced that Citigroup Global Markets has agreed to pay $18.3 million to settle charges that it overbilled investment advisory clients and misplaced client contracts.

The SEC’s order finds that at least 60,000 advisory clients were overcharged approximately $18 million in unauthorized fees because Citigroup failed to confirm the accuracy of billing rates entered into its computer systems in comparison to fee rates outlined in client contracts, billing histories, and other documents.  Citigroup also improperly collected fees during time periods when clients suspended their accounts.  The billing errors occurred during a 15-year period, and the affected clients have since been reimbursed.

“Advisory clients have every expectation that the fees charged by their financial adviser reflect the negotiated rate.  Citigroup failed to take the necessary precautions to ensure clients were billed in a manner consistent with their advisory agreements,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The SEC’s order further finds that Citigroup cannot locate approximately 83,000 advisory contracts for accounts opened from 1990 to 2012.  Without those missing advisory contracts, Citigroup could not properly validate whether the fee rates negotiated by clients when accounts were opened were the same advisory fee rates being billed to clients over the years.  It is estimated that Citigroup received approximately $3.2 million in excess fees from advisory clients whose contracts were lost.

“It’s a fundamental responsibility of a financial adviser to preserve key account documents such as advisory contracts.  Citigroup failed to safeguard its client contracts, which seriously impeded its ability to determine the proper amount of fees the firm was authorized to charge,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York office.

Citigroup consented to the SEC’s cease-and-desist order and agreed to undertakings related to its fee-billing and books-and-records practices.  The firm is censured and must pay $3.2 million in disgorgement of the excess fees collected due to the missing contracts plus $800,000 in interest and a $14.3 million penalty.

The SEC’s investigation has been conducted by Olivia Zach and Celeste Chase in the New York office and supervised by Mr. Wadhwa.

SEC Charges Two Former Och-Ziff Executives With FCPA Violations

The Securities and Exchange Commission today charged two former executives at Och-Ziff Capital Management Group with being the driving forces behind a far-reaching bribery scheme that violated the Foreign Corrupt Practices Act (FCPA).

Och-Ziff and two other executives previously settled charges against them in the case.

The SEC’s complaint filed today alleges that Michael L. Cohen, who headed Och-Ziff’s European office, and an investment executive on Africa-related deals, Vanja Baros, caused tens of millions of dollars in bribes to be paid to high-level government officials in Africa.  Their alleged misconduct induced the Libyan Investment Authority sovereign wealth fund to invest in Och-Ziff managed funds.  Cohen and Baros also allegedly directed illicit efforts to secure mining deals to benefit Och-Ziff by directing bribes to corruptly influence government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo. 

“As alleged in our complaint, Cohen and Baros were the masterminds of Och-Ziff’s bribery scheme that improperly used investor funds to pay bribes through agents and partners to officials at the highest levels of foreign governments,” said Kara Brockmeyer, Chief of the SEC’s FCPA Unit. 

The SEC’s complaint charges Cohen and Baros with violating the FCPA and Section 30A of the Securities Exchange Act, and aiding and abetting Och-Ziff’s violations.  Cohen also is charged with violating Sections 206(1) and 206(2) of the Investment Advisers Act.  The SEC is seeking monetary penalties against Cohen and Baros among other remedies.

The SEC’s investigation was conducted by Neil Smith and Paul Block of the FCPA Unit and Rory Alex of the Boston Regional Office.  The litigation is being led by Marc Jones and Martin Healey of the Boston office.  The SEC appreciates the assistance of the Fraud Section of the U.S. Department of Justice, the U.S. Attorney’s Office for the Eastern District of New York, the Federal Bureau of Investigation, and the Internal Revenue Service’s Criminal Investigations Division.  The SEC also appreciates the assistance of the United Kingdom’s Financial Conduct Authority as well as the Guernsey Financial Services Commission, Jersey Financial Services Commission, Malta Financial Services Authority, Cyprus Securities and Exchange Commission, Gibraltar Financial Services Commission, and Swiss Ministry of Justice.

SEC Charges Two Former Och-Ziff Executives With FCPA Violations

The Securities and Exchange Commission today charged two former executives at Och-Ziff Capital Management Group with being the driving forces behind a far-reaching bribery scheme that violated the Foreign Corrupt Practices Act (FCPA).

Och-Ziff and two other executives previously settled charges against them in the case.

The SEC’s complaint filed today alleges that Michael L. Cohen, who headed Och-Ziff’s European office, and an investment executive on Africa-related deals, Vanja Baros, caused tens of millions of dollars in bribes to be paid to high-level government officials in Africa.  Their alleged misconduct induced the Libyan Investment Authority sovereign wealth fund to invest in Och-Ziff managed funds.  Cohen and Baros also allegedly directed illicit efforts to secure mining deals to benefit Och-Ziff by directing bribes to corruptly influence government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo. 

“As alleged in our complaint, Cohen and Baros were the masterminds of Och-Ziff’s bribery scheme that improperly used investor funds to pay bribes through agents and partners to officials at the highest levels of foreign governments,” said Kara Brockmeyer, Chief of the SEC’s FCPA Unit. 

The SEC’s complaint charges Cohen and Baros with violating the FCPA and Section 30A of the Securities Exchange Act, and aiding and abetting Och-Ziff’s violations.  Cohen also is charged with violating Sections 206(1) and 206(2) of the Investment Advisers Act.  The SEC is seeking monetary penalties against Cohen and Baros among other remedies.

The SEC’s investigation was conducted by Neil Smith and Paul Block of the FCPA Unit and Rory Alex of the Boston Regional Office.  The litigation is being led by Marc Jones and Martin Healey of the Boston office.  The SEC appreciates the assistance of the Fraud Section of the U.S. Department of Justice, the U.S. Attorney’s Office for the Eastern District of New York, the Federal Bureau of Investigation, and the Internal Revenue Service’s Criminal Investigations Division.  The SEC also appreciates the assistance of the United Kingdom’s Financial Conduct Authority as well as the Guernsey Financial Services Commission, Jersey Financial Services Commission, Malta Financial Services Authority, Cyprus Securities and Exchange Commission, Gibraltar Financial Services Commission, and Swiss Ministry of Justice.

Brokerage Firm Charged With Gatekeeper Failures Related to Pump-and-Dump Scheme

The Securities and Exchange Commission today announced administrative proceedings against New York-based brokerage firm Windsor Street Capital and its former anti-money laundering officer John D. Telfer.  The SEC’s Enforcement Division alleges that the firm, formerly named Meyers Associates L.P., failed to file Suspicious Activity Reports (SARs) for $24.8 million in suspicious transactions, including those occurring in accounts controlled by microcap stock financiers Raymond H. Barton and William G. Goode who are separately charged today by the SEC with conducting a pump-and-dump scheme. 

The SEC’s Enforcement Division alleges that Meyers Associates and Telfer should have known about the suspicious circumstances behind many transactions occurring in customer accounts.  Customers like Barton and Goode allegedly deposited large blocks of penny stocks, liquidated them typically amid substantial promotional activity, and then transferred the proceeds away from the firm.  The SEC’s Enforcement Division further alleges that the shares deposited by Barton and Goode could not be sold legally because no registration statement was in effect and no registration exemption was available.  Rather than conduct a reasonable inquiry into the deposits, Meyers Associates allegedly accepted registration exemption claims by Barton and Goode at face value.

“The SEC’s Broker-Dealer Task Force AML initiative is focused precisely on the conduct charged against Meyers Associates, which we allege systematically flouted its obligations under the securities laws to report suspicious activity,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office and Co-Chair of the Enforcement Division’s Broker-Dealer Task Force.  “We allege that when other brokerage firms were rejecting similar deposits by Barton and Goode, Meyers Associates not only effectuated their illegal stock sales but then failed to report them as required by law.”

The matter pertaining to Meyers Associates and Telfer will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.

The SEC separately filed a complaint in federal court against Barton and Goode along with Matthew C. Briggs, Kenneth Manzo, and Justin Sindelman.  The complaint alleges they participated in a pump-and-dump scheme that acquired shares of dormant shell companies supposedly in the dietary supplement business, falsely touted news and products stemming from those companies, and dumped the shares on the market for investors to purchase at inflated prices.

Without admitting or denying the allegations, Barton, Goode, and Briggs agreed to settle the charges and consented to court orders requiring them to pay disgorgement plus interest and penalties totaling more than $8.7 million.  Manzo agreed to admit wrongdoing and pay more than $95,000 to settle the charges.  The litigation continues against Sindelman.

The SEC’s investigation was conducted by Phil Fortino, Bennet Ellenbogen, Diego Brucculeri, Jordan Baker, Sandeep Satwalekar, and Charles D. Riely, and the case was supervised by Lara Shalov Mehraban, Associate Director for Enforcement in the New York office, and Joseph Sansone, Co-Chief of the Market Abuse Unit.  The litigation will be led by Jack Kaufman, Mr. Fortino, and Mr. Ellenbogen.  The SEC’s examination that led to the investigation was conducted by Steven C. Vitulano, Terrence P. Bohan, Stephen Bilezikjian, and Hermann A. Vargas of the New York office.

SEC Uncovers Cherry-Picking Scheme, Charges Investment Adviser Behind It

The Securities and Exchange Commission today announced that a Massachusetts-based investment adviser agreed to be banned from the securities industry after the agency uncovered an illegal cherry-picking scheme through its data analysis used to detect suspicious trading patterns.

The SEC filed fraud charges in federal district court against Michael J. Breton and his firm Strategic Capital Management, alleging they defrauded clients out of approximately $1.3 million.  Breton allegedly placed trades through a master brokerage account and then allocated profitable trades to himself while placing unprofitable trades into the client accounts. 

Breton and his firm agreed to a partial settlement subject to court approval.  Monetary sanctions would be determined at a later date.  In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against Breton.

“As alleged in our complaint, Breton assured clients that he would put their interests first but did just the opposite, taking the firm’s most profitable trades for himself and dumping the losing trades on his clients,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Our probing analytical work will continue to root out investment advisers who subject their clients to cherry-picking.”

The Market Abuse Unit’s analysis of Breton’s trading showed that he defrauded at least 30 clients during a six-year period as outlined in the SEC’s complaint.  Breton allegedly purchased securities for his own accounts and the client accounts through a block trading or master account on days when public companies scheduled earnings announcements.  He typically delayed allocation of those trades until later in the day after learning the substance of the announcement. 

According to the SEC’s complaint, when companies announced positive earnings that would presumably increase the stock value, Breton disproportionately allocated those trades to his accounts.  And when a company announced negative earnings that would presumably decrease the stock value, Breton disproportionately allocated those trades to client accounts.

The SEC’s complaint charges Breton and Strategic Capital Management with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 as well as Sections 206(1) and 206(2) of the Investment Advisers Act.  Breton and his firm agreed to be permanently enjoined from future misconduct, and Breton consented to the issuance of an SEC order barring him from the securities industry.

The SEC’s investigation was conducted by Caitlyn M. Campbell, Eric Forni, David Makol, and Michele T. Perillo of the Market Abuse Unit in the Boston Regional Office with assistance from John Rymas of the Market Abuse Unit and Stuart Jackson and Raymond Wolff in the Division of Economic and Risk Analysis.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts and the Boston field office of the Federal Bureau of Investigation.  

Timothy L. Warren, Associate Director of Enforcement in Chicago Office, to Retire After 30 Years of Service

The Securities and Exchange Commission today announced that Timothy L. Warren, Associate Director of Enforcement in the Chicago Regional Office, is retiring at the end of this month after more than 30 years of service.

Since his appointment to Associate Director, Mr. Warren has supervised a staff of more than 40 attorneys and other professionals responsible for investigating potential violations of the federal securities laws by a wide range of market participants.  Mr. Warren also has been significantly involved in international enforcement training with the Office of International Affairs to build capacity and strengthen partnerships with the SEC’s international counterparts, including conducting programs in held in India, Malaysia, Vietnam, South Korea, Kenya, Swaziland, Romania, Saudi Arabia, Bahrain, Jordan, Indonesia, United Arab Emirates, and Turkey.  Before his appointment to Associate Director in 1998, Mr. Warren previously served as Assistant Regional Director, Branch Chief, and Staff Attorney.  Mr. Warren joined the SEC’s staff in 1985 following his graduation from law school.

“Tim has been a dedicated public servant who has contributed greatly to the SEC’s mission,” said Stephanie Avakian, Acting Director of the SEC’s Enforcement Division.  “Tim is an institution in the Chicago Regional Office with an extremely long list of creative and high-impact actions that have protected investors and our markets.”

David Glockner, Director of the SEC’s Chicago Regional Office, added, “Tim handled and oversaw scores of significant cases during his career, but his most enduring legacy is the generation of lawyers that he mentored during his 18 years as a leader of our office’s enforcement program.”

Mr. Warren added, “I am extremely fortunate to have had the opportunity to spend my entire legal career at the Commission working for the benefit of the investing public, I relish the time I spent working with like-minded overseas regulators, and am very grateful to have worked with such talented and extraordinary individuals as those resident in the SEC’s Chicago Office.”

Under Mr. Warren’s leadership, the SEC has brought enforcement actions addressing a wide variety of misconduct, including:

• A proceeding against national audit firm Grant Thornton LLP and two of its partners for improper professional conduct arising from ignoring red flags and fraud risks while conducting deficient audits of two publicly traded companies – Broadwind Energy Inc. and Assisted Living Concepts Inc.
   
• Securities fraud charges against the State of Illinois for allegedly misleading municipal bond investors about the state’s approach to funding its pension obligations.
   
• Fraud charges against Hollinger International’s former chairman and CEO Conrad M. Black, former deputy chairman and COO F. David Radler, and Hollinger, Inc., a Canadian public holding company controlled by Black, alleging that they diverted cash and assets from Hollinger International and concealed their self-dealing from Hollinger International’s public shareholders.
   
• Charges against Bristol-Myers Squibb Co. for allegedly perpetrating a fraudulent earnings management scheme by, among other things, selling excessive amounts of pharmaceutical products to its wholesalers ahead of demand, improperly recognizing revenue from $1.5 billion of such sales to its two largest wholesalers and using “cookie jar” reserves to meet its internal sales and earnings targets and analysts’ earnings estimates.
   
• Charges against Yun Soo Oh Park a/k/a Tokyo Joe (Park), and Tokyo Joe’s Societe Anonyme Corp. for allegedly defrauding members of his Internet stock recommendation service and the investing public by undisclosed trading ahead of shares he recommended over the Internet for purchase, posting of false performance results, and recommending the stock of an issuer without disclosing that he had indirectly received compensation from that issuer.

Mr. Warren received the SEC’s Irving Pollack Award in 2009 in recognition of his significant contributions in leadership, integrity, intellect, and dedication to the SEC’s mission.  He received the SEC Chairman’s Award for Excellence multiple times during the course of his career.  Mr. Warren received his bachelor’s degree from Stanford University in 1981 and his law degree from Loyola University School of Law in 1985.

Morgan Stanley, Citigroup Charged With Misleading Investors About Forex Trading Program

The Securities and Exchange Commission today announced that Morgan Stanley Smith Barney and Citigroup Global Markets have agreed to pay more than $2.96 million apiece to settle charges that they made false and misleading statements about a foreign exchange trading program they sold to investors.

According to the SEC’s orders, Citigroup held a 49 percent ownership interest in Morgan Stanley Smith Barney at the time, and registered representatives at both firms were pitching a foreign exchange trading program known as “CitiFX Alpha” to Morgan Stanley customers from August 2010 to July 2011.  The SEC’s orders find that their written and verbal presentations were based on the program’s past performance and risk metrics, and they failed to adequately disclose that investors could be placed into the program using substantially more leverage than advertised and markups would be charged on each trade.  The undisclosed leverage and markups caused investors to suffer significant losses.

“Citigroup and Morgan Stanley sold securities in a complex trading program without giving certain investors important information about the risks and costs of the program,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Investors simply cannot be sold investments based on disclosures that are inaccurate or incomplete.”

The SEC’s orders find that Morgan Stanley and Citigroup violated Section 17(a)(2) of the Securities Act of 1933, which prohibits obtaining money or property by means of  any material misstatement or omission in the offer or sale of securities.  Without admitting or denying the SEC’s findings, Morgan Stanley and Citigroup each agreed to pay disgorgement of $624,458.27 plus interest of $89,277.34 and a penalty of $2.25 million for a total of more than $5.9 million combined.

The SEC’s investigation was conducted in the Miami office by Eric C. Kirsch and Gary M. Miller with assistance from Amie Riggle Berlin.  The case was supervised by Elisha L. Frank.  The examination that led to the investigation was conducted by Carlos Gutierrez and supervised by Nicholas A. Monaco and John C. Mattimore of the Miami office.