SEC Charges Oil Company and CEO in Scheme Targeting Chinese-Americans and EB-5 Investors

The Securities and Exchange Commission today charged a Bay Area oil and gas company and its CEO with running a $68 million Ponzi-like scheme and affinity fraud that targeted the Chinese-American community in California and investors in Asia, including some solicited as part of the EB-5 Immigrant Investor Program.

The SEC alleges that Bingqing Yang knew that Luca International Group was earning no profits and sinking under a mountain of debt, yet she made presentations to investors portraying a successful oil and gas operation with millions of barrels of oil reserves and billions of cubic feet in gas reserves.  Yang falsely projected outsized investment returns ranging from 20 to 30 percent annually.  She allegedly commingled investor funds to prevent the scheme from collap... Read More

SEC Reappoints Lewis H. Ferguson to Second Term on PCAOB

The Securities and Exchange Commission today announced that Public Company Accounting Oversight Board (PCAOB) member Lewis H. Ferguson has been reappointed for a second term on the Board.

“I am pleased with the Commission’s reappointment of Lew Ferguson as a PCAOB board member,” said SEC Chair Mary Jo White.  “Lew brings a wealth of institutional knowledge to his position and I look forward to the contributions he will make in his continued service as a Board Member.” 

The PCAOB provides oversight of the audits of financial statements of public companies and broker-dealers through registration, standard setting, inspection, and disciplinary programs.  As required by the Sarbanes-Oxley Act, the Commission is responsible for overseeing the PCAOB and appointing its m... Read More

SEC Halts Pyramid/Ponzi Scheme Targeting Spanish and Portuguese Communities

The Securities and Exchange Commission today announced fraud charges and an asset freeze against the operators of a pyramid and Ponzi scheme falsely promising a gold mine of investment opportunity to investors in Spanish and Portuguese-speaking communities in Massachusetts, Florida, and elsewhere in the U.S. 

The SEC alleges that DFRF Enterprises, named for its founder Daniel Fernandes Rojo Filho, claimed to operate more than 50 gold mines in Brazil and Africa, but the company’s revenues came solely from selling membership interests to investors and not from mining gold.  With the help of several promoters, they lured investors with such false promises as their money would be fully insured, DFRF has a line of credit with a Swiss private bank, and one-quarter of DF... Read More

SEC Solicits Public Comment on Audit Committee Disclosures

The Securities and Exchange Commission today voted to publish a concept release seeking public comment on current audit committee disclosure requirements, focusing on the committee’s oversight of independent auditors.  The Commission is interested in receiving information about the audit committee and auditor relationship and whether improvements can be made to enhance the information provided to investors about the audit committee’s responsibilities and activities.  

“Effective audit committee oversight is essential to investor protection and the functioning of our capital markets,” said SEC Chair Mary Jo White.  “The way audit committees exercise their oversight of independent auditors has evolved and it is important to evaluate whether investors have the information the... Read More

SEC Charges Deloitte & Touche With Violating Auditor Independence Rules

The Securities and Exchange Commission today charged Deloitte & Touche LLP with violating auditor independence rules when its consulting affiliate maintained a business relationship with a trustee serving on the boards and audit committees of three funds it audited.  Deloitte agreed to pay more than $1 million to settle the charges.

The SEC charged the trustee Andrew C. Boynton with causing related reporting violations by the funds, and charged the funds’ administrator ALPS Fund Services with causing related compliance violations.  They also agreed to settle the charges.

Auditor independence rules require outside auditors to remain independent from their clients to ensure there is not even the appearance of a firm compromising its objectivity... Read More

SEC Proposes Rules Requiring Companies to Adopt Clawback Policies on Executive Compensation

The Securities and Exchange Commission today proposed rules directing national securities exchanges and associations to establish listing standards requiring companies to adopt policies that require executive officers to pay back incentive-based compensation that they were awarded erroneously.  With this proposal, the Commission has completed proposals on all executive compensation rules required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the proposed new Rule 10D-1, listed companies would be required to develop and enforce recovery policies that  in the event of an accounting restatement, “claw back” from current and former executive officers incentive-based compensation they would not have received based on the restatement.  Recovery... Read More

SEC Charges Former Stockbroker With Conducting Ponzi Scheme

The Securities and Exchange Commission today charged a former stockbroker in Pennsylvania with conducting a Ponzi scheme and stealing investor money to purchase a condominium in Florida and afford his own vacations and other luxuries.

The SEC alleges that Malcolm Segal fraudulently sold so-called certificates of deposits (CDs) to his brokerage customers by falsely claiming that he could get them higher interest rates of return on FDIC-insured CDs than otherwise available to the general public.  In some instances, Segal purchased CDs on behalf of investors but secretly redeemed them early and took the proceeds.  Other times, Segal did not purchase CDs at all despite telling customers he had.  He raised approximately $15.5 million from at least 50 investors.  Beside... Read More

SEC Charges Hedge Fund Advisory Firm With Conducting Fraudulent Fund Valuation Scheme

The Securities and Exchange Commission today charged a Greenwich, Conn.-based investment advisory firm and its two owners with fraudulently inflating the prices of securities in hedge fund portfolios they managed.

An SEC investigation found that AlphaBridge Capital Management told investors and its auditor that it obtained independent price quotes from broker-dealers for certain unlisted, thinly-traded residential mortgage-backed securities.  AlphaBridge instead gave internally-derived valuations to broker-dealer representatives to pass off as their own.  The inflated valuation of these assets caused the funds to pay higher management and performance fees to AlphaBridge.

AlphaBridge and its owners Thomas T. Kutzen and Michael J. Carino agreed to ... Read More

SEC Charges Goldman Sachs With Violating Market Access Rule

The Securities and Exchange Commission today charged Goldman, Sachs & Co. with violating the market access rule in connection with a trading incident that resulted in erroneous executions of options contracts.

Goldman Sachs agreed to pay a $7 million penalty to settle the charges.

An SEC investigation found that Goldman Sachs did not have adequate safeguards to prevent the firm from erroneously sending approximately 16,000 mispriced options orders to various options exchanges in less than an hour on Aug. 20, 2013, after the firm implemented new electronic trading functionality designed to match internal options orders with client orders.  A software configuration error inadvertently converted the firm’s “contingent orders” for various options... Read More

SEC Announces Cherry-Picking Charges Against Investment Manager

The Securities and Exchange Commission today announced fraud charges against a Wisconsin-based investment advisory firm and its owner accused of improperly allocating to his personal and business accounts certain options trades that appreciated in value during the course of a trading day while allocating to his clients other trades that depreciated in value. 

The SEC Enforcement Division has engaged in a data-driven initiative to identify potentially fraudulent trade allocations known as “cherry-picking,” and this enforcement action is the first arising from that effort.  Working with economists in the agency’s Division of Economic and Risk Analysis, enforcement investigators analyze large volumes of investment advisers’ trade allocation data and identify instance... Read More

SEC Charges KKR With Misallocating Broken Deal Expenses

The Securities and Exchange Commission today charged Kohlberg Kravis Roberts & Co. (KKR) with misallocating more than $17 million in so-called “broken deal” expenses to its flagship private equity funds in breach of its fiduciary duty.

KKR agreed to pay nearly $30 million to settle the charges, including a $10 million penalty.

The SEC Enforcement Division’s Asset Management Unit has been scrutinizing the private equity industry to make sure that fund managers aren’t misallocating or unfairly charging fees and expenses to investors.  An SEC investigation found that during a six-year period ending in 2011, KKR incurred $338 million in broken deal or diligence expenses related to unsuccessful buyout opportunities and similar expenses.  Even thou... Read More

John Roeser Named Associate Director of the Office of Market Supervision

The Securities and Exchange Commission today announced that it has named John C. Roeser as Associate Director and deputy head of the Office of Market Supervision in its Division of Trading and Markets.  Mr. Roeser will assume his new role immediately.

Mr. Roeser replaces Heather Seidel who was named in February as Chief Counsel for the Division of Trading and Markets.  The division’s Office of Market Supervision oversees U.S. securities exchanges, alternative trading systems and self-regulatory organizations, and addresses issues involving market participants, products, and market structure.

“John brings outstanding initiative and experience that makes him perfectly suited for his new position,” said Stephen Luparello, Director of the Division of Trading and Marke... Read More