SEC Charges Moody's With Internal Controls Failures and Ratings Symbols Deficiencies (SEC Release 2018-169) Without admitting or denying SEC charges, credit rating agency Moody's Investors Service Inc. agreed to pay $15 million to settle charges of internal controls failures involving models it used in rating U.S. residential mortgage-backed securities (RMBS) and will retain an independent consultant to assess and improve its internal controls. Also, Moody's agreed to pay $1.25 million and to review its policies, procedures, and internal controls regarding rating symbols. This marks the first SEC enforcement action involving rating symbol deficiencies. One SEC order alleged that, in part, Moody's failed to establish and document an effective internal control structure as to models that Moody's hadoutsourced from a corporate affiliate and used in rating RMBS from 2010 through 2013. Moreover, Moody's failed to maintain and enforce existing internal controls that should have been applied to the models. Ultimately, Moody's corrected more than 650 RMBS ratings with a notional value exceeding $49 billion, due, in part, to errors in the models. Also, in 54 instances, Moody's failed to document its rationale for issuing final RMBS ratings that deviated materially from model-implied ratings. The second SEC Order addressed 

rating symbols, for 26 ratings of securities known as "combo notes" with a total notional value of about $2 billion. Allegedly, Moody's assigned ratings to combo notes in a manner that was inconsistent with other types of securities that used the same rating symbols. READ the FULL TEXT SEC Orders 

U.S. States, Canada, Continue Crackdown on Crypto Investments (TSSB Release). In the last six months of 2017 the price of one bitcoin increased from $2,364 to an all-time high of $19,205, driving an increase in promoters illegally and fraudulently using online advertising, social media, and other public solicitations to attract investors. By the end of 2017 the market capitalization of all cryptocurrencies had skyrocketed to more than $500 billion. In response to concerns about Initial Coin Offerings ("ICOs") fraud, U.S. state and Canadian securities regulators  have taken 47 enforcement actions against fraudulent cryptocurrency-investment promoters and opened more than 200 investigations since May 1. READ the FULL TEXT Release.

Two Friends, Their Option Deal, A Stockbroker, His Restaurant, UBS, And FINRA (BrokeAndBroker.com Blog) All that BrokeAndBroker.com Blog publisher Bill Singer wanted to do was go on a Labor Day vacation and publish a few puff pieces to hide his absence. But no, FINRA had to go out and work over a registered rep for his alleged violation of the regulator's Private Securities Transactions and Outside Business Activities rules. Bill doesn't like either of those rules -- at least as they are written. He thinks that they are too often speed traps on FINRA's regulatory highway. Bill ain't pulling no punches in today's slice-and-dice analysis.

Legg Mason Charged With Violating the FCPA (SEC Release 2018-1680) The SEC alleged that between 2004 and 2010, a former Legg Mason Inc's asset management subsidiary, Permal Group Inc., partnered with a French financial services company to solicit investment business from Libyan state-owned financial institutions. As a result of the corrupt scheme involving bribery, Legg Mason, through its Permal subsidiary, was awarded business tied to $1 billion of investments that produced about $31.6 million net revenues Pursuant to an SEC Order, Legg Mason agreed to disgorge approximately $27.6 million of ill-gotten gains plus $6.9 million in prejudgment interest to settle the SEC's case. Previously, the firm agreed to pay $33 million to the U.S. Department of Justice in sanctions resulting from the firm's involvement in the Libyan bribery scheme.  READ the FULL TEXT ORDER 

Statement on Status of the Consolidated Audit Trail (Brett Redfearn, Director, SEC Division of Trading and Markets) Director Redfearn warns, in part, that: To date, the SROs have not begun reporting required data to the CAT as required by the first phase of the SRO CAT Plan.  There continue to be delays in the SROs' development and build of the CAT, and, recently, the SROs and Thesys have missed new, self-imposed deadlines.  The SROs' currently expected timetable for compliance with their obligations under the CAT Plan is discussed below.  READ the FULL TEXT STATEMENT

Date Of Birth On Driver License Crashes Stockbroker Career (BrokeAndBroker.com Blog) There's poetic license and there's your driver's license. Of course, we all know folks who sort of take liberties at the MVA with facts such as whether they really, really, really need glasses to drive. We also know folks who may add just a teeny, tiny inch or so to their height when filling out the renewal form. Then there are those who simply aren't willing to go under the knife for plastic surgery and prefer to estimate the year of their birth. Not that it's a good thing to lie on your driver's license but, hell, it's not a good thing when they send you to the window under the green light to pay the fee and after about 20 minutes waiting on that line, the MVA employee closes the window for a break and sends you to the line behind the other green light where they won't take you next even though you were waiting for, what is now, like 30 minutes, and then they start in with the thing about lowering your voice, and then it's I'm done talking to you, and if you don't move away from my closed window, I'm calling security, to which, the guy waiting on line who is now red in the face and with trembling hands says to the security guard, yeah, go ahead, put your hands on me again and I'll show you what I'll do with that green light! But, okay, sure, let's not get into that whole MVA line-thing now because today's BrokeAndBroker.com Blog is about the consequences faced by a stockbroker who lied about her date of birth on her driver's license. 

Transamerica Entities to Pay $97 Million to Investors Relating to Errors in Quantitative Investment Models (SEC Release 2018-167) The SEC alleged that investors put billions of dollars into mutual funds and strategies using faulty models developed by investment adviser AEGON USA Investment Management LLC (AUIM). AUIM, its affiliated investment advisers Transamerica Asset Management Inc. (TAM) and Transamerica Financial Advisors Inc., and its affiliated broker-dealer Transamerica Capital Inc., claimed that investment decisions would be based on AUIM's quantitative models. In fact, the models were purportedly developed solely by an inexperienced, junior AUIM analyst. Further, the SEC alleged that the models contained numerous errors, and did not work as promised. When AUIM and TAM learned about the errors, they allegedly stopped using the models without telling investors or disclosing the errors. Without admitting or denying the SEC's findings, four Transamerica entities agreed to settle the SEC's charges and pay nearly $53.3 million in disgorgement, $8 million in interest, and a $36.3 million penalty, and will create and administer a fair fund to distribute the entire $97.6 million to affected investors. In separate orders, the SEC also found that AUIM's former Global Chief Investment Officer, Bradley Beman, and AUIM's former Director of New Initiatives, Kevin Giles, each were a cause of certain of AUIM's violations. In particular, the Commission found that Mr. Beman did not take reasonable steps to make sure the mutual funds' models worked as intended and that Mr. Beman and Mr. Giles both contributed to AUIM's compliance failings related to the development and use of models. Beman and Giles agreed to settle the SEC's charges without admitting or denying the findings and pay, respectively, $65,000 and $25,000 in penalties that also will be distributed to affected investors. 

READ the FULL TEXT Orders.

FINRA Dept of Enforcement, Complainant, v. David JC Bolton, Respondent (Default Decision, Office of Hearing Officer, Disciplinary Proceeding No. 2016049775701) FINRA Complaint alleged that Respondent Bolton engaged in unsuitable short-term trading of Class A mutual fund shares in the accounts of his two largest customers, and unsuitably split one of the customer's mutual fund investments into 42 different funds across 11 fund families. Bolton's customers allegedly paid $24,747 in unnecessary sales charges. In connection with the same two customers, the Complaint alleged that Bolton caused his member firm employer to maintain inaccurate books and records by mismarking or causing others to mismark as "unsolicited" 120 electronic order tickets. Finally, the Complaint alleged that Bolton caused his firm employer to fail to preserve accurate books and records by taking the files of his customers with him when he transferred to another firm and later destroyed those files. Respondent is barred from associating with any FINRA member firm in any capacity for having caused a member firm to maintain inaccurate books and records and caused a member firm to fail to preserve books and records.

Thousand Oaks Man Sentenced to Nearly Five Years in Federal Prison in $11 Million Bank Fraud Case (DOJ Release) Mohsen Hass a/k/  "Mike Hass" and "Mohsen Hassanshahi," pled guilty in the United States District  for the Central District of California to one count of making false statements to a financial institution in connection with his fraudulent scheme by which he obtained over $11 million in loan to buy a gas station and two car washes. Lenders suffered losses when Hass defaulted on the loans. At least one bank insider, Ataollah Aminpour, participated in the scheme and allowed loans to go through despite knowing about the false information. Aminpour pled guilty and is pending sentencing. Although initially charged in 2014, Hass fled to Iran for nearly four years before surrendering in February 2018.  Hass was sentenced to 57 months in prison and ordered to pay $5,737,585 in restitution.