SEC Announces 2014 Examination Priorities

The Securities and Exchange Commission today announced its examination priorities for 2014, which cover a wide range of issues at financial institutions, including investment advisers and investment companies, broker-dealers, clearing agencies, exchanges and other self-regulatory organizations, hedge funds, private equity funds, and transfer agents.

“We are publishing these priorities to highlight areas that we perceive to have heightened risk,” said Andrew J. Bowden, Director of the SEC’s Office of Compliance Inspections and Examinations.  “This document, along with our Risk Alerts and other public statements, help us to increase transparency, strengthen compliance, and inform the public and the financial services industry about key risks that we are monitoring and examin... Read More

SEC Charges Diamond Foods and Two Former Executives Following Accounting Scheme to Boost Earnings Growth

The Securities and Exchange Commission today charged San Francisco-based snack foods company Diamond Foods and its former CFO in an accounting scheme to falsify walnut costs in order to boost earnings and meet estimates by stock analysts.  The SEC also charged Diamond’s former CEO for his role in the company’s false financial statements filed with the SEC.

The SEC alleges that Diamond’s then-chief financial officer Steven Neil directed the effort to fraudulently underreport money paid to walnut growers by delaying the recording of payments into later fiscal periods.  In internal e-mails, Neil referred to these commodity costs as a “lever” to manage earnings in Diamond’s financial statements.  By manipulating walnut costs, Diamond correspondingly reported higher net income ... Read More

SEC Charges Alcoa With FCPA Violations

The Securities and Exchange Commission today charged global aluminum producer Alcoa Inc. with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries repeatedly paid bribes to government officials in Bahrain to maintain a key source of business. 

An SEC investigation found that more than $110 million in corrupt payments were made to Bahraini officials with influence over contract negotiations between Alcoa and a major government-operated aluminum plant.  Alcoa’s subsidiaries used a London-based consultant with connections to Bahrain’s royal family as an intermediary to negotiate with government officials and funnel the illicit payments to retain Alcoa’s business as a supplier to the plant.  Alcoa lacked sufficient internal controls to prevent and ... Read More

SEC Names Michael Osnato as Chief of Enforcement Division’s Complex Financial Instruments Unit

The Securities and Exchange Commission today announced that Michael J. Osnato, Jr. has been named chief of the Enforcement Division unit that conducts investigations into complex financial instruments.

Mr. Osnato, who joined the SEC staff in 2008 and has served as an assistant director in the New York Regional Office since 2010, has played a key role in a number of significant SEC enforcement actions.  For instance, Mr. Osnato helped spearhead the SEC’s case against JPMorgan Chase & Co. and two former traders for fraudulently overvaluing a complex trading portfolio in order to hide massive losses, and the Read More

Enforcement Co-Director George Canellos to Leave SEC

The Securities and Exchange Commission today announced that George S. Canellos, co-director of its Enforcement Division, will leave the agency later this month after four-and-a-half years of service in senior leadership positions. 

Mr. Canellos has played a key role in numerous structural and enforcement policy changes and oversaw significant investigations and enforcement actions related to the credit crisis and insider trading.  He helped lead the agency’s nationwide enforcement efforts during two of its most productive years in 2012 and 2013 while serving as deputy director and co-director of the Enforcement Division.  Mr. Canellos came to the SEC in July 2009 as director of the New York Regional Office.

“George filled an incredibly important ... Read More

Agencies Reviewing Treatment of Collateralized Debt Obligations Backed by Trust Preferred Securities under Final Rules Implementing the “Volcker rule”

The Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission on Friday said they are reviewing whether it would be appropriate and consistent with the Dodd-Frank Wall Street Reform and Consumer Protection Act not to subject collateralized debt obligations backed by trust preferred securities to the investment prohibitions of section 619 of Dodd-Frank, otherwise known as the “Volcker rule.” 

The agencies intend to address the matter no later than January 15, 2014.  The accounting staffs of the agencies believe that, consistent with generally accepted accounting principles, any actions in January 2014 that occur before the issuance of December 31, 2013, financial reports should... Read More

SEC Removes References to NRSRO Ratings in Certain Rules and Forms

The Securities and Exchange Commission today announced that it has adopted amendments to eliminate references in certain of its rules and forms to credit ratings by nationally recognized statistical rating organizations (NRSROs).

The changes were required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and remove credit rating references from:

• Rule 5b-3 under the Investment Company Act — a rule that permits funds to look through repurchase agreements to the underlying collateral securities for certain counterparty limitation and diversification purposes provided the collateral meets certain credit quality standards

• Forms N-1A, N-2, and N-3 — forms t... Read More

SEC Charges New York-Based Brokerage Firm for Ignoring Red Flags in Soft Dollar Scheme

The Securities and Exchange Commission today announced sanctions against a New York-based brokerage firm for ignoring red flags and paying more than $400,000 in soft dollars for expenses that an investment adviser had not properly disclosed to clients. 

Soft dollars are credits or rebates from a brokerage firm on commissions that clients pay for trades executed in an investment adviser’s client accounts.  If appropriately disclosed, an investment adviser may use the soft dollar credits to pay for such expenses as brokerage and research services that benefit clients. 

An SEC investigation found that Instinet LLC approved soft dollar payments to San Diego-based investment advisory firm J.S. Oliver Capital Management despite clear signs that the pay... Read More

SEC Issues Annual Staff Reports on Credit Rating Agencies

The Securities and Exchange Commission today issued its annual staff report on the findings of examinations of credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs).  The agency also submitted an annual staff report on NRSROs to Congress.

“The two reports reflect an evolving industry,” said Thomas J. Butler, director of the SEC’s Office of Credit Ratings.  “The examination report shows that the SEC’s vigilant oversight is improving compliance at NRSROs, while the annual report to Congress depicts an industry that is growing more competitive and transparent.”

The 2010 Dodd-Frank Act requires the SEC to examine each NRSRO at least annually and issue a report summarizing key findings of the examinations... Read More

SEC Charges Archer-Daniels-Midland Company With FCPA Violations

The Securities and Exchange Commission today charged global food processor Archer-Daniels-Midland Company (ADM) for failing to prevent illicit payments made by foreign subsidiaries to Ukrainian government officials in violation of the Foreign Corrupt Practices Act (FCPA).

An SEC investigation found that ADM’s subsidiaries in Germany and Ukraine paid $21 million in bribes through intermediaries to secure the release of value-added tax (VAT) refunds.  The payments were then concealed by improperly recording the transactions in accounting records as insurance premiums and other purported business expenses.  ADM had insufficient anti-bribery compliance controls and made approximately $33 million in illegal profits as a result of the bribery by its subsidiaries.

SEC Charges Woman and Stepson for Involvement in ZeekRewards Ponzi and Pyramid Scheme

The Securities and Exchange Commission today announced charges against a woman and her stepson for their involvement in a North Carolina-based Ponzi and pyramid scheme that the agency shut down last year. The SEC alleges that Dawn Wright-Olivares and Daniel Olivares, who each now live in Arkansas, provided operational support, marketing, and computer expertise to sustain ZeekRewards.com, which offered and sold securities in the form of “premium subscriptions” and “VIP bids” for penny auctions.  While the website conveyed the impression that the significant payouts to investors meant the company was extremely profitable, the payouts actually bore no relation to the company’s net profits.  Approximatel... Read More

SEC Issues Staff Report on Public Company Disclosure

The Securities and Exchange Commission today issued a staff report to Congress on its disclosure rules for U.S. public companies, as part of agency’s ongoing efforts to modernize and simplify disclosure requirements and reduce compliance costs for emerging growth companies.

The report, mandated by Congress in the 2012 Jumpstart Our Business Startups (JOBS) Act, offers an overview of the SEC’s Regulation S-K that governs public company disclosure, as well as the staff’s preliminary conclusions and recommendations.

“This report provides a framework for disclosure reform,” said SEC Chair Mary Jo White.  “As a next step, I have directed the staff to develop specific recommendations for updating the rules that dictate what a company must disclose in its fil... Read More