SEC Charges Private Equity Firm and Four Executives With Failing to Disclose Conflicts of Interest

The Securities and Exchange Commission today announced that a New York-based private equity firm and four executives have agreed to settle charges that they failed to disclose conflicts of interest to a fund client and investors when fund and portfolio company assets were used for payments to former firm employees and an affiliated entity.

An SEC investigation found that Fenway Partners LLC, principals Peter Lamm and William Gregory Smart, former principal Timothy Mayhew Jr., and chief financial officer Walter Wiacek weren’t fully forthcoming to the client and investors about several transactions involving more than $20 million in payments out of fund assets or portfolio companies to an affiliated entity for consulting services and to Mayhew and other former firm ... Read More

SEC Adopts Rules to Permit Crowdfunding

The Securities and Exchange Commission today adopted final rules to permit companies to offer and sell securities through crowdfunding.  The Commission also voted to propose amendments to existing Securities Act rules to facilitate intrastate and regional securities offerings.  The new rules and proposed amendments are designed to assist smaller companies with capital formation and provide investors with additional protections.

Crowdfunding is an evolving method of raising capital that has been used to raise funds through the Internet for a variety of projects.  Title III of the JOBS Act created a federal exemption under the securities laws so that this type of funding method can be used to offer and sell securities.  

“There is a great deal of enthusiasm in the m... Read More

SEC Bars Brokers Who Played Favorites to Double Their Commissions

The Securities and Exchange Commission today barred two brokers at a now-defunct Connecticut brokerage for giving customer order information to certain favored customers, helping those customers get better prices while generating extra commissions for their firm. The SEC also ordered the brokers to pay financial penalties.    

The SEC’s Enforcement Division alleges that the former co-head of equities trading at Rochdale Securities, Hal Tunick, and his subordinate, Patrick Burke, defrauded customers by using their order information to advise two longtime customers to trade ahead of these orders. Once those favored customers purchased or sold short the shares, Tunick and Burke arranged for them to unload their positions to the customers who had placed the original orders. Th... Read More

Developer, Former Top Execs Charged for Improper Accounting of Real Estate Assets During Financial Crisis

The Securities and Exchange Commission today charged The St. Joe Company, a Watersound, Florida-based real estate developer and landowner, its former top executives, and two former accounting department directors, with improperly accounting for the declining value of its residential real estate developments during the financial crisis. As a result of this misconduct, St. Joe reported materially overstated earnings and assets in 2009 and 2010.

“Where specialized accounting rules govern, it is essential that those responsible for the company’s accounting and financial reporting be familiar with and properly apply them,” said Andrew J. Ceresney, director of the SEC’s Enforcement Division. “St. Joe and its senior executives failed to do so here, and thereby deprived investors ... Read More

SEC Charges Credit Rating Agency With Misrepresenting Surveillance Methodology

The Securities and Exchange Commission today charged credit rating agency DBRS Inc. with misrepresenting its surveillance methodology for ratings of certain complex financial instruments during a three-year period.  The firm agreed to pay nearly $6 million to settle the charges.

An SEC investigation that followed an annual examination of DBRS by the agency’s Office of Credit Ratings found that the firm misrepresented it would monitor on a monthly basis each of its outstanding ratings of U.S. residential mortgage-backed securities (RMBS) and re-securitized real estate mortgage investment conduits (Re-REMICs) by conducting a three-step quantitative analysis and subjecting each rating to review by a surveillance committee.  The firm did not conduct the analysis on a ... Read More

SEC Announces Enforcement Results For FY 2015

The Securities and Exchange Commission today announced that in fiscal year 2015, it continued to build a strong record of first-of-their-kind cases that spanned the spectrum of the securities industry.

In the fiscal year that ended in September, the SEC filed 807 enforcement actions covering a wide range of misconduct, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties.  Of the 807 enforcement actions filed in fiscal year 2015, a record 507 were independent actions for violations of the federal securities laws and 300 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or oth... Read More

SEC to Hold Annual Government-Business Forum on Small Business Capital Formation on November 19

The Securities and Exchange Commission today announced that it will hold its annual Government-Business Forum on Small Business Capital Formation at its Washington D.C. headquarters on Nov. 19, 2015.

The morning session of the forum will feature panel discussions on exempt and registered offerings occurring after the passage of the JOBS Act.  During the afternoon session, participants will work in groups to formulate specific policy recommendations.

Information on the panel participants and the full agenda for the forum will be announced in November and available on the forum webpage.

The forum, which begins at 9 a.m., is open to the public, and the morning session will be webcast live on the SEC’s website.  The afternoon breako... Read More

Wenchi Hu, Christian Sabella Named Associate Directors in the Division of Trading and Markets

The Securities and Exchange Commission today announced that it has named Wenchi Hu and Christian Sabella as Associate Directors in the Division of Trading and Markets’ Office of Clearance and Settlement.

“Wenchi and Christian bring an excellent blend of experience and expertise into their new positions,” said Stephen Luparello, Director of the Division of Trading and Markets. “Their skills and abilities complement each other in a way that will well serve investors and the agency.”

As Associate Director, Risk and Supervision, Ms. Hu will oversee supervision of registered clearing agencies, which has expanded to include firms that clear securities-based swaps.  Ms. Hu, formerly an Assistant Director in the Office of Clearance and Settlement, joined... Read More

Former Head of Coastal Investment Advisors Settles Charges, Admits He Stole Money From Investors

The Securities and Exchange Commission today announced that Michael Donnelly, the former president of Wilmington, Del.-based Coastal Investment Advisors Inc. and its affiliated broker-dealer, has agreed to settle charges that he stole nearly $2 million from his advisory clients and brokerage customers.

According to the SEC’s complaint filed in federal district court in Philadelphia, Donnelly took funds from elderly and unsophisticated investors and instead of investing it as promised, used it to pay for his own expenses, including rent, car payments, golf club membership dues, and his children’s private school tuition.  Donnelly concealed his scheme by providing investors with false account statements, trade confirmations, and other bogus information that purporte... Read More

Two UBS Advisory Firms Settle Charges Arising From Failure to Disclose Change in Investment Strategy

The Securities and Exchange Commission today announced that two UBS advisory firms have agreed to settle charges arising from their roles in failing to disclose a change in investment strategy by UBS Willow Fund LLC, a closed-end fund they advised.

UBS Willow Management LLC and UBS Fund Advisor LLC agreed to pay a total of approximately $17.5 million, more than $13 million of which will be returned to harmed investors. 

According to an SEC order instituting a settled administrative proceeding:

• UBS Willow Management, a joint venture between UBS Fund Advisor and an external portfolio manager, marketed the UBS Willow Fund as one that primarily invested in distressed debt, a strategy predicated on the debt increasing in valu... Read More

SEC Staff Publishes Private Funds Statistics Report

The Securities and Exchange Commission staff today published a report that provides private fund industry statistics and trends, reflecting aggregated data reported by private fund advisers on Form ADV and Form PF.  Most of the data in the more than 50 separate tables and figures is being made public for the first time. 

“We believe that investors evaluating investments in private funds will benefit from access to this additional information about the private funds and their advisers,” said SEC Chair Mary Jo White.  “These statistics also should facilitate constructive feedback and additional analysis that could be used by the Commission and others.”

Form ADV is used by investment advisers to register with the Commission and/or certain state secu... Read More

SEC Charges 6 Firms for Short Selling Violations in Advance Stock Offerings

The Securities and Exchange Commission today announced enforcement actions against six firms, including more than $2.5 million in monetary sanctions and, in the case of one previously sanctioned firm, an order barring the firm from participating in stock offerings for a period of one year as part of its ongoing enforcement initiative focused on violations of Rule 105 of Regulation M. 

Intended to preserve the independent pricing mechanisms of the securities markets and prevent stock price manipulation, Rule 105 prohibits firms from participating in public stock offerings after selling short those same stocks.

Through its Rule 105 Initiative, which was first announced in 2013 as an effort to address violations of the rule in an expedited and streamlined way, the Di... Read More