Additional Charges Announced in Case Involving Pre-Released ADRs

The Securities and Exchange Commission today announced additional charges in an enforcement investigation involving the improper handling of American Depositary Receipts (ADRs) by a Wall Street firm’s securities lending desk.

The SEC’s order finds supervisory failures by Anthony Portelli, a former managing director and head of operations at broker-dealer ITG Inc.  Portelli supervised ITG’s securities lending operations and was responsible for the firm’s compliance with “pre-release agreements” for ADR transactions.  ADRs are U.S. securities that represent foreign shares of a foreign company.  Before obtaining a “pre-released ADR” to lend to a customer, brokers like ITG must own, or determine that a customer owns, the number of foreign shares that corresponds to the number of shares the ADR represents.  Under Portelli’s watch, personnel on ITG’s securities lending desk failed to take reasonable steps to determine whether the proper amounts of foreign shares were owned and held by ITG’s customers.  This failure opened up the possibility that the ADRs could be used improperly for short selling or dividend arbitrage.

Portelli has agreed to settle the charges and pay a $100,000 penalty.  He also is prohibited from acting in a supervisory capacity for at least 18 months.

Earlier this year, ITG agreed to pay more than $24 million to settle the SEC’s case against the firm.

“Supervisors at broker-dealers have a responsibility to act reasonably to prevent and detect violations of the securities laws.  Portelli routinely signed off on transactions involving ADRs that were not backed by actual shares and should never have been issued,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.

Portelli agreed to the settlement without admitting or denying the SEC’s findings that under Section 15(b)(6) of the Securities Exchange Act of 1934, Portelli failed reasonably to supervise members of ITG’s securities lending desk with a view to preventing violations of Section 17(a)(3) of the Securities Act of 1933.

The SEC’s continuing investigation is being conducted by Andrew Dean, William Martin, Elzbieta Wraga, and Adam Grace of the New York office.  The case is being supervised by Mr. Wadhwa.

The SEC previously issued an investor bulletin about ADRs and what investors should understand about them.

Robert Evans III Named Deputy Director in SEC’s Division of Corporation Finance

The Securities and Exchange Commission today announced that Robert Evans III has been named Deputy Director in the agency’s Division of Corporation Finance. He will join Deputy Director Shelley Parratt as a senior advisor to the division’s director, William H. Hinman. 

Most recently, Mr. Evans worked at Shearman & Sterling LLP as a partner in the firm’s capital markets practice. Mr. Evans has experience advising on public and private offerings, securities law compliance, and corporate governance. 

“For over 20 years, Rob has been a leading voice on a wide range of issues relating to how investors and companies interact in the public and private markets, and we are excited to have him join the team here at the SEC,” said SEC Chairman Jay Clayton. “The Division of Corporation Finance will benefit greatly from Rob’s extensive experience and his commitment to advancing the SEC’s mission.”

Mr. Evans added, “I am honored to serve at the SEC, having long admired the work of my former colleague and friend, Linda Quinn, a former Director of the Division of Corporation Finance who served at the SEC from 1980 to 1996.  Linda was a great example of what it means to give back – serving our country by regulating financial markets and modernizing the securities laws. Having spent my entire professional career as a corporate and securities lawyer, I can confidently say that the staff at the SEC is among the most dedicated and respected, and it is a pleasure to join their ranks.” 

Mr. Evans has been a frequent speaker and writer on securities law, compliance, and legal ethics.  In addition to his extensive transactional practice, he was a member of the TriBar Opinion Committee, the Working Group on Legal Opinions, the American Law Institute, and Co-Chair of Shearman & Sterling’s Opinion Committee. 

“Rob has many years of experience helping U.S. and international companies and financial institutions comply with the U.S. securities laws,” said Mr. Hinman. “He is a thoughtful disclosure lawyer with skills critical to the SEC’s mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

Mr. Evans received his bachelor’s degree from Harvard College and law degree from Boston University School of Law, both cum laude.

Kelly L. Gibson Named as Associate Regional Director for Enforcement in the SEC’s Philadelphia Office

The Securities and Exchange Commission today announced that Kelly L. Gibson has been named the Associate Regional Director for Enforcement in the SEC’s Philadelphia Office.  Ms. Gibson succeeds G. Jeffrey Boujoukos, who became Regional Director of the SEC’s Philadelphia office in January.

Ms. Gibson joined the SEC as a staff attorney in the Enforcement Division in 2008.  When the Division was reorganized in 2010, she joined the Market Abuse Unit.  In 2013, she was promoted to Assistant Regional Director.

Ms. Gibson has investigated or supervised a number of significant matters within the Enforcement Division, including those that resulted in the SEC’s charges against:

• Dozens of defendants for taking part in an international scheme to profit from stolen nonpublic information about corporate earnings announcements;
• A Pakistani trader, a Bulgarian trader, and a Virginia-based mechanical engineer who each sought to manipulate stocks through false regulatory filings;
• An investment advisory firm that failed to property prepare clients for additional transaction costs beyond “wrap fees” paid to cover the cost of several bundled services;
• BP p.l.c. for fraudulent misrepresentations and omissions in its SEC filings relating to the amount of oil flowing into the Gulf of Mexico following the Deepwater Horizon explosion and subsequent leak; and
• An investment banker and his father who engaged in a $1.1 million serial insider trading scheme.

“Kelly is known for her tenacious and unwavering commitment to the SEC’s mission,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “She is highly respected by her peers for her insight and intelligence and will be a fantastic addition to our senior leadership team in Philadelphia.”

Mr. Boujoukos added, “Kelly has an outstanding track record of investigating and supervising cutting-edge, high impact matters.  She brings strong judgment and analytical skill to the job and we are excited to have her leading Philadelphia’s talented and dedicated enforcement staff.”

Ms. Gibson said, “I am grateful for this opportunity, and I am looking forward to leading the enforcement team in Philadelphia as we continue to pursue wrongdoers, including those committing cybercrimes that impact our markets, and further our commitment to protect retail investors from fee abuses and other harms.”

Before joining the SEC staff in 2008, Ms. Gibson worked as a litigation associate for the law firm of Ballard Spahr, LLP in Philadelphia, Pennsylvania.  She earned her law degree with honors from Villanova University School of Law and her bachelor of arts degree with high honors from Rowan University.  Ms. Gibson received the SEC’s Analytical Methods award in 2016.

Kathryn A. Pyszka Named as Associate Regional Director for Enforcement in the SEC’s Chicago Office

The Securities and Exchange Commission today announced that Kathryn A. Pyszka has been named an Associate Regional Director for Enforcement in the SEC’s Chicago Office.  Ms. Pyszka succeeds Timothy L. Warren, who retired from the SEC in January.  In her new role, Ms. Pyszka will co-lead the Chicago Office’s Enforcement program with Robert Burson, who serves as the office’s other Associate Regional Director for Enforcement.

Ms. Pyszka has over 19 years of experience at the SEC.  She joined the SEC as a staff attorney in the Enforcement Division in 1997, was promoted to branch chief in 1998, and became senior trial counsel in 2000.  After a brief time in private practice, she rejoined the SEC as senior trial counsel and was promoted to Assistant Regional Director in 2007.  She joined the Division’s Market Abuse Unit in 2010.

Ms. Pyszka has supervised a number of significant investigations within the Enforcement Division, including those that resulted in the SEC’s charges against:

• Credit Suisse Securities (USA) LLC for violations of the federal securities laws arising from its operation of Light Pool, an alternative trading system;
• Two exchanges formerly owned by Direct Edge Holdings and since acquired by BATS Global Markets for failing to accurately describe the order types being used on the exchanges;
• Several alleged perpetrators behind a $78 million pump-and-dump scheme involving the stock of Jammin’ Java; and
• A Chicago-area alternative energy company, its former CEO, and its CFO for accounting and disclosure violations.

“Kay’s significant experience and keen intellect and judgment position her perfectly to join the leadership of the SEC’s Chicago enforcement team,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “We look forward to continued success from the Chicago enforcement team under Kay’s leadership.”

David Glockner, Regional Director of the SEC’s Chicago Office, added, “Kay has an outstanding track record as a vigorous but fair enforcer of the federal securities laws and will bring extraordinary judgment and knowledge to her new role as a leader of the Chicago office’s talented enforcement staff.”

Ms. Pyszka said, “I am honored by this appointment and look forward to leading the Chicago office’s talented group of enforcement professionals as we seek to protect investors and hold wrongdoers accountable for their misdeeds.”

Before joining the SEC staff in 1997, Ms. Pyszka worked in the private sector in Chicago and served as a law clerk for the Honorable Joe Billy McDade in the U.S. District Court for the Central District of Illinois.  Ms. Pyszka earned her law degree from the University of Illinois College of Law and her bachelor’s degree from the University of Wisconsin-Madison.  Ms. Pyszka received the SEC’s Paul R. Carey award in 2011 and the Stanley Sporkin award in 2014.

Keith Cassidy Named Associate Director of Technology Controls Program in OCIE

The Securities and Exchange Commission today announced that Keith E. Cassidy has been named Associate Director, Technology Controls Program, in the Office of Compliance Inspections and Examinations (OCIE).  Mr. Cassidy began his career at the SEC as an Attorney Advisor in the Office of Legislative and Intergovernmental Affairs in 2010 before being promoted to Deputy Director in 2011 and Director of the office in 2016. 

“Keith’s experience and knowledge of a wide range of issues have made him a tremendous asset to the SEC, and I am pleased that he will continue to work on behalf of our agency’s mission in the Office of Compliance Inspections and Examinations,” said SEC Chairman Jay Clayton. “As proven by his work here at the SEC and his service to our country as a Marine, Keith is a natural leader who has earned the respect of his colleagues, and I know he will do great things in his new position.”

Mr. Cassidy added, “I thank Chairman Clayton for this opportunity, and I look forward to working with OCIE’s experienced team of professionals to advance the SEC’s mission.”

In addition to his position at the SEC, Mr. Cassidy is an Infantry Officer in the United States Marine Corps Reserve. He currently serves as Operations Liaison Officer for B Company, 4th Reconnaissance Battalion and has earned numerous awards. Mr. Cassidy previously worked as Chief of Staff and Counsel at the Department of Justice’s Office of Legislative Affairs, and as a legislative assistant in the United States Senate.

Mr. Cassidy received his J.D. from the George Washington University Law School in 2005 and his LL.M. from Georgetown Law Center in 2016, with distinction. He received his B.A. from the University of Virginia in 2002.

SEC Announces Agenda for June 22 Investor Advisory Committee Meeting

The Securities and Exchange Commission today announced the agenda for the June 22 meeting of its Investor Advisory Committee. The meeting will begin at 10:00 a.m. in the Multipurpose Room at SEC headquarters at 100 F Street, N.E., Washington, D.C. and is open to the public.  The meeting will be webcast live and archived on the committee’s website for later viewing.

The committee will hold a discussion in the morning on capital formation for smaller companies and the declining number of initial public offerings.  An afternoon session will feature an overview of certain provisions of the Financial CHOICE Act of 2017 relating to the SEC.  In addition, the committee will nominate and elect members to open officer positions.

The Investor Advisory Committee was established under Section 911 of the Dodd-Frank Act to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace.  The Dodd-Frank Act authorizes the committee to submit findings and recommendations to the Commission.

SEC Names Stephanie Avakian and Steven Peikin as Co-Directors of Enforcement

The Securities and Exchange Commission today announced that Acting Director of the Division of Enforcement Stephanie Avakian and former federal prosecutor Steven Peikin have been named Co-Directors of the Division of Enforcement. The Division of Enforcement is the agency’s largest unit with more than 1,200 investigators, accountants, trial attorneys, and other professionals.

“There is no place for bad actors in our capital markets, particularly those that prey on investors and undermine confidence in our economy,” said Chairman Jay Clayton. “Stephanie and Steve will aggressively police our capital markets and enforce our nation’s securities laws as Co-Directors of the Division of Enforcement. They have each demonstrated market knowledge, impeccable character, and commitment to public service, and I am confident their combined talents and experience will enable them to effectively lead the Division going forward.”

Ms. Avakian was named Acting Director of the SEC’s Division of Enforcement in December 2016 after serving as Deputy Director of the Division since June 2014.  Before being named Deputy Director, Ms. Avakian was a partner at Wilmer Cutler Pickering Hale and Dorr LLP, where she served as a vice chair of the firm’s securities practice and represented financial institutions, public companies, boards, and individuals in a broad range of investigations and other matters before the SEC and other agencies.

Ms. Avakian previously worked in the SEC’s Division of Enforcement as a branch chief in the New York Regional Office, and later served as counsel to former SEC Commissioner Paul Carey.

Ms. Avakian received her bachelor’s degree from the College of New Jersey and a law degree from Temple University School of Law, both with high honors.

“I have been extremely impressed by the work of the Division of Enforcement under Stephanie’s leadership, and I am delighted that she will continue to use her judgment and knowledge to lead the Division,” said Chairman Clayton. “She has a first-class legal mind, has the respect of her colleagues in the Washington and regional offices, and, most importantly, is dedicated to the SEC’s mission.”

“I am proud of the work done by staff in the Enforcement Division, and I am honored and excited to continue leading this dedicated group of professionals with Steve,” said Ms. Avakian. “His experience and judgment will be an asset to both the Enforcement Division and the agency.”

From 1996 to 2004, Mr. Peikin served as an Assistant U.S. Attorney in the Southern District of New York.  He was Chief of the Office’s Securities and Commodities Fraud Task Force, where he supervised some of the nation’s highest profile prosecutions of accounting fraud, insider trading, market manipulation, and abuses in the foreign exchange market.  As a prosecutor, Mr. Peikin also personally investigated and prosecuted a wide variety of securities, commodities, and other investment fraud schemes, as well as other crimes.

Most recently, Mr. Peikin was Managing Partner of Sullivan & Cromwell’s Criminal Defense and Investigations Group. His practice focused on white-collar criminal defense, regulatory enforcement, and internal investigations. Mr. Peikin also is Adjunct Professor of Law at New York University Law School, where he teaches a class on the criminal enforcement of securities and commodities laws.

Mr. Peikin received his bachelor’s degree from Yale University and a law degree from Harvard Law School, both magna cum laude.

“Steve brings to the SEC deep market knowledge and extensive prosecutorial experience, including in multinational matters,” said Chairman Clayton. “I have no doubt that investors and our markets will benefit from his service.”

“The Division of Enforcement is critical to the SEC’s ability to fulfill its mission of protecting investors and maintaining market integrity.  I am honored to join its ranks of dedicated and talented professionals,” said Mr. Peikin. “I look forward to working closely with Stephanie, who is a respected and proven leader.”

Ms. Avakian will continue to work out of the SEC’s Washington, D.C. headquarters.  Mr. Peikin will split his time between the SEC’s headquarters and the agency’s New York Regional Office.

Fee Rate Advisory #3 for Fiscal Year 2017

The Securities and Exchange Commission today announced that starting on July 4, 2017, the fee rates applicable to most securities transactions will be set at $23.10 per million dollars. 

Consequently, each SRO will continue to pay the Commission a rate of $21.80 per million for covered sales occurring on charge dates through July 3, 2017, and a rate of $23.10 per million for covered sales occurring on charge dates on or after July 4, 2017. 

For more information on the term “charge date,” please refer to Rule 31(a)(3) and Exchange Act Release No. 49928 at http://www.sec.gov/rules/final/34-49928.htm.

The assessment on security futures transactions will remain unchanged at $0.0042 for each round turn transaction.

The Commission determined these new rates in accordance with Section 31 of the Securities Exchange Act of 1934.  These adjustments do not directly affect the amount of funding available to the SEC.

The Office of Interpretation and Guidance in the Commission’s Division of Trading and Markets is available for questions on Section 31 at (202) 551-5777 or by e-mail at tradingandmarkets@sec.gov.

The Commission will issue further notices as appropriate to keep the public informed of developments relating to fees under Section 31.  These notices will be posted on the SEC website.

SEC Names Peter Uhlmann Managing Executive in Chairman’s Office

The Securities and Exchange Commission today announced that Peter Uhlmann has been named the managing executive in the Office of Chairman Jay Clayton. Mr. Uhlmann will advise Chairman Clayton in matters relating to agency administration, operations, and management, and will serve as the Chairman’s primary liaison to divisions and offices on these matters.

“I am pleased that Pete has taken on the managing executive role and that I will be able to draw on his experience, judgment, and knowledge of the agency. It is clear that Pete is a dedicated professional committed to ensuring the SEC’s continued operational effectiveness and responsiveness,” said Chairman Clayton. 

Mr. Uhlmann has served in a variety of senior leadership positions during his tenure at the SEC. Most recently, Mr. Uhlmann served as managing executive for then-Acting Chairman Michael S. Piwowar. Prior to that, he was managing executive of the SEC’s Division of Corporation Finance, where he oversaw the internal business operations that support the division’s personnel. He has also worked as a senior advisor to the executive director, where he led initiatives to assess and improve the effectiveness of SEC operations.

Mr. Uhlmann also served at the SEC as chief of staff and senior advisor to former Chairman Christopher Cox.

Mr. Uhlmann is a graduate of Yale University.

SEC Names Peter Uhlmann Managing Executive in Chairman’s Office

The Securities and Exchange Commission today announced that Peter Uhlmann has been named the managing executive in the Office of Chairman Jay Clayton. Mr. Uhlmann will advise Chairman Clayton in matters relating to agency administration, operations, and management, and will serve as the Chairman’s primary liaison to divisions and offices on these matters.

“I am pleased that Pete has taken on the managing executive role and that I will be able to draw on his experience, judgment, and knowledge of the agency. It is clear that Pete is a dedicated professional committed to ensuring the SEC’s continued operational effectiveness and responsiveness,” said Chairman Clayton. 

Mr. Uhlmann has served in a variety of senior leadership positions during his tenure at the SEC. Most recently, Mr. Uhlmann served as managing executive for then-Acting Chairman Michael S. Piwowar. Prior to that, he was managing executive of the SEC’s Division of Corporation Finance, where he oversaw the internal business operations that support the division’s personnel. He has also worked as a senior advisor to the executive director, where he led initiatives to assess and improve the effectiveness of SEC operations.

Mr. Uhlmann also served at the SEC as chief of staff and senior advisor to former Chairman Christopher Cox.

Mr. Uhlmann is a graduate of Yale University.

SEC Files Charges in Trading Scheme Involving Confidential Government Information

The Securities and Exchange Commission today announced charges in an alleged insider trading scheme involving tips of nonpublic information about government plans to cut Medicare reimbursement rates, which affected the stock prices of certain publicly traded medical providers or suppliers.

The SEC’s complaint alleges that David Blaszczak, a former government employee turned political intelligence consultant, obtained key confidential details about upcoming decisions by the Centers for Medicare and Medicaid Services (CMS) from his close friend and former colleague at the agency, Christopher Worrall.  According to the SEC’s complaint, Worrall serves as a health insurance specialist in the Center for Medicare and tipped Blaszczak about at least three pending CMS decisions that affected the amount of money that companies receive from Medicare to provide services or products related to cancer treatments or kidney dialysis. 

Blaszczak allegedly tipped two analysts at a hedge fund advisory firm that paid him as a consultant.  The analysts, Theodore Huber and Jordan Fogel, allegedly used the nonpublic information to recommend that the firm trade in the stocks of four health care companies whose stock prices would likely be affected by the decisions once CMS announced them publicly.  The alleged scheme resulted in more than $3.9 million in illicit profits. 

“As alleged in our complaint, a federal employee breached his duty to protect confidential information by tipping a political consultant who then passed along those illegal tips,” said Stephanie Avakian, Acting Director of the SEC Enforcement Division.  “There’s no place on Wall Street or in our government for such blatant misuse of highly confidential information.”

According to the SEC’s complaint, Blaszczak’s firms were paid at least $193,000 in a 19-month period by the hedge fund where the analysts worked.  

“We remain committed to using all resources available to detect sophisticated schemes and stop those who try to create a revenue stream by tipping or trading on material, nonpublic information,” said Robert A. Cohen, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges Blaszczak, Worrall, Huber, and Fogel with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 17(a) of the Securities Act of 1933.  The complaint seeks disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions.  

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

The SEC’s investigation, which is continuing, has been conducted by Ann Rosenfield, Patrick McCluskey, and Carolyn Welshhans in the Market Abuse Unit.  The case has been supervised by Mr. Cohen.  The litigation will be led by Gregory Bockin and A. Kristina Littman and supervised by Cheryl Crumpton.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Department of Health and Human Services Office of Inspector General.  

SEC and MSRB to Hold Webinar on Series 50 Exam for Municipal Advisors

The Securities and Exchange Commission (SEC) and the Municipal Securities Rulemaking Board (MSRB) today announced a joint educational webinar to assist municipal advisors with understanding their professional qualification requirements. The live webinar, scheduled for Thursday, June 15, 2017, from 3-4 p.m. ET, will provide information on signing up for the MSRB’s Municipal Advisor Representative Qualification Examination (Series 50 exam), preparing to take the Series 50 exam, and fulfilling municipal advisor firms’ SEC registration obligations.

“Providing and maintaining accurate and up-to-date information on municipal advisor firms’ initial registration forms and subsequent amendments is essential to ensuring the effectiveness of the municipal advisor registration system,” said Jessica Kane, Director of the SEC’s Office of Municipal Securities. “In particular, information about associated persons on Form MA-I promotes confidence in the municipal advisor registration regime and helps protect municipal entities, obligated persons, the public, and, ultimately, investors. The Office of Municipal Securities is pleased to partner with the MSRB on this webinar.”

The MSRB’s recent regulatory notice reminded municipal advisor firms that after Sept. 12, 2017, only associated persons who have passed the Series 50 exam can engage in municipal advisory activity on behalf of the firm.

“We hope that this webinar will address questions municipal advisor firms have about the process for enrolling their associated persons to take the exam by the deadline,” said MSRB Executive Director Lynnette Kelly. “The webinar should be particularly valuable for those firms that do not yet have a single Series 50-qualified municipal advisor representative associated with the firm nor any individual scheduled to sit for the exam.”

The MSRB makes available on its website a list of Series 50-qualified municipal advisor representatives and their associated municipal advisor firms. Qualification information is updated weekly and is dependent on the quality of the data municipal advisor firms submit to the SEC through Form MA-I.

During the free webinar, staff of the SEC and MSRB will review the standards of professional qualification for municipal advisors, discuss the enrollment process for taking the Series 50 exam, and highlight relevant municipal advisor SEC registration obligations. Members of the public interested in viewing the webinar should register here.