SEC Proposes Liquidity Management Rules For Mutual Funds And ETFs

The Securities and Exchange Commission today voted to propose a comprehensive package of rule reforms designed to enhance effective liquidity risk management by open-end funds, including mutual funds and exchange-traded funds (ETFs). 

“Promoting stronger liquidity risk management is essential to protecting the interests of the millions of Americans who invest in mutual funds and exchange-traded funds,” said SEC Chair Mary Jo White. “These significant reforms would require funds to better manage their liquidity risks, give them new tools to meet that requirement, and enhance the Commission’s oversight.”

Under the proposed reforms, mutual funds and ETFs would be required to implement liquidity risk management programs and enhance disclosure regarding fund liquidity ... Read More

SEC Charges Retailer for Improper Valuation and Inadequate Internal Accounting Controls

The Securities and Exchange Commission today charged Stein Mart Inc. for materially misstating its pre-tax income due to improper valuation of inventory subject to price discounts and for having inadequate internal accounting controls.

An SEC investigation found that the Jacksonville, Florida-based retailer often offered its merchandise to customers at retail price reductions referred to as Perm POS markdowns and that merchandise subject to such a markdown never reverted back to its original retail price. Stein Mart reduced the value of inventory subject to these markdowns at the time the item was sold rather than immediately at the time the markdown was applied.  As a result, Stein Mart materially misstated its pre-tax income in certain quarterly public filings with the S... Read More

SEC Charges Two Men in Stock Manipulation Scheme

The Securities and Exchange Commission today charged two men behind a scheme that defrauded investors in YaFarm Technologies Inc., a company that purported to provide stem cell therapy.
 
The SEC’s complaint filed in federal court in Boston charged Frank Morelli III, of Florence, Colorado, and Louis Buonocore, of Woburn, Massachusetts, for their roles in the alleged scheme.  In a parallel case, the U.S. Attorney’s Office for the District of Massachusetts today filed a criminal information against Buonocore.  

According to the SEC’s complaint, Morelli and Buonocore concealed their ownership of virtually all of YaFarm’s stock, secretly controlled its operations, and paid stock promoters in 2013 to tout it as a legitimate company with growing operations.  The SE... Read More

SEC Charges Investment Adviser With Improperly Using Mutual Fund Assets to Pay Distribution Fees

The Securities and Exchange Commission today charged a New York-based investment adviser and its affiliated distributor with improperly using mutual fund assets to pay for the marketing and distribution of fund shares.  First Eagle Investment Management and FEF Distributors agreed to pay nearly $40 million to settle the SEC’s charges, the first brought under a recent SEC initiative to protect mutual fund shareholders.  The money will be returned to the accounts of affected shareholders.

An SEC investigation found that First Eagle and FEF unlawfully caused the First Eagle Funds to pay nearly $25 million for distribution-related services, rather than making the payments out of the firms’ own assets (known as “revenue sharing”).  Such payments can only come from fund assets p... Read More

SEC Announces Agenda for September 23 Meeting of the Advisory Committee on Small and Emerging Companies

The Securities and Exchange Commission today announced that the next meeting of its Advisory Committee on Small and Emerging Companies will focus on adopting recommendations related to intrastate crowdfunding, the treatment of so-called “finders” that assist companies in capital raising activities, and improving public company disclosure.

“I am pleased that the advisory committee is moving forward with recommendations on these important topics,” said SEC Chair Mary Jo White.  “Having pointed input from the small business community and the public is essential as we continue our efforts to facilitate capital formation.”

The meeting will be held at the SEC’s headquarters at 100 F Street, N.E., Washington... Read More

Attorney and Auditors Settle Charges in Microcap Scheme Involving Purported Mining Companies

The Securities and Exchange Commission today announced that an attorney, two audit firms, and seven audit professionals have agreed to settle SEC charges filed in January alleging that they engaged in a microcap scheme that the agency stopped in its tracks when it suspended the registration statements used for sham offerings of stock in 20 purported mining companies.

The Attorney

In the January 2015 SEC order instituting proceedings, the Enforcement Division alleged that Canadian attorney and stock promoter John Briner orchestrated the microcap scheme that entailed creating shell companies s... Read More

SEC CHARGES FLORIDA-BASED CPA WITH FRAUD FOR ISSUING BOGUS AUDIT OPINIONS

The Securities and Exchange Commission today imposed sanctions against a Florida-based certified public accountant for performing deficient and fraudulent audits and quarterly reviews for eight publicly traded companies, and issuing false and misleading audit opinions on the companies’ annual financial statements.

Terry L. Johnson, of Casselberry, Florida, agreed to settle the SEC’s fraud charges and will be suspended from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC. 

While conducting its investigation, the SEC discovered that following his release from prison, convicted felon and former certified public accountant Stephen P. Corso served as the chief financial officer of several publicly-traded compani... Read More

SEC Charges Clearing Firm Officials for Improper Margin Loans, Accounting and Disclosure Failures

The Securities and Exchange Commission today announced charges against four former clearing firm officials for their roles in a series of accounting and disclosure failures stemming from decisions to extend credit to certain customers beyond what is allowed under the federal securities laws.

An SEC investigation found that clearing broker-dealer Penson Financial Services, whose publicly-traded holding company was Penson Worldwide, provided customers nearly $100 million in margin loans secured mostly by risky, unrated municipal bonds such as those funding a horse racetrack in Texas that one of the customers operated.  The loans to these customers—some of which were used to fund the racetrack’s operations—became impaired in the wake of the financial crisis.  Instead of liqui... Read More

SEC Removes References to Credit Ratings in Money Market Fund Rule and Form

The Securities and Exchange Commission adopted amendments to remove credit rating references in the principal rule that governs money market funds and the form that money market funds use to report information to the Commission each month about their portfolio holdings.  The Commission also adopted amendments that would subject additional securities to issuer diversification provisions in the money market fund rule.

“Reducing reliance on credit ratings to determine which securities money market funds can hold is an important part of our efforts related to these funds,” said SEC Chair Mary Jo White.  “These amendments also remove credit ratings from one of the last areas of the Commission’s rules where they are referenced.”

The money market fund rule 2a-7 currently... Read More

SEC Charges Medical Diagnostics Company Chairman and Two Others Behind Scheme to Manipulate Company Stock

The Securities and Exchange Commission today charged the executive chairman of a Massachusetts-based medical diagnostics company and two others with conducting a pump-and-dump scheme that was ultimately thwarted when the SEC suspended trading in the company’s securities before the secretly controlled shares could be dumped on unsuspecting investors.

The SEC alleges that Edward Withrow III became chairman of the new board of directors at Endeavor Power Corp. in late 2012 after a penny stock company he controlled merged with another controlled by Marco Babini, a Canadian citizen.  Withrow and Babini schemed with Samuel Brown, a stock promoter in Idaho, to use Endeavor Power as a vehicle for shaping and carrying out their pump-and-dump scheme.

“We allege that Withrow... Read More

SEC Obtains $30 Million From Traders Who Profited on Hacked News Releases

The Securities and Exchange Commission today announced that Ukrainian-based Jaspen Capital Partners Limited and CEO Andriy Supranonok have agreed to pay $30 million to settle allegations they profited from trading on non-public corporate information hacked from newswire services.

The SEC announced charges in August against 34 defendants who allegedly took part in a scheme in which two of the defendants surreptitiously hacked into newswire services and transmitted the stolen data to a web of international traders, including Jaspen and Supranonok.  By getting an early look at the information before its public release, the traders allegedly generated more than $100 million of illegal profits over a five-year period.  The case was filed in U.S. District Court for the District ... Read More

SEC Charges Five Arizona Residents With Stealing Millions From Investors to Fund Travel and Entertainment Sprees

The Securities and Exchange Commission today charged five Arizona residents with stealing millions of dollars from investors to make car payments, buy clothes, and fund travel and entertainment at luxury resorts, casinos, and strip clubs.

The SEC alleges that Jason Mogler, James Hinkeldey, Casimer Polanchek, Brian Buckley, and James Stevens misappropriated roughly 97 percent of the $18 million they raised from 225 investors who were told the funds would be used to acquire and develop beachfront property in Mexico as well as to operate recycling facilities and purchase foreclosed residential properties for resale.  They repeatedly lied about the purported progress of the investments to calm worried investors as time extended past when their promissory notes should ... Read More