A Form Of Lunacy Has Overtaken The SEC (BrokeAndBroker.com Blog)

FINRA's Travesty of a Transamerica Settlement (BrokeAndBroker.com Blog)

Morgan Stanley Granted TRO Against Advisor Who Joined LPL / After a whirlwind two days of motion-slinging, the parties agreed to arbitration.(Financial Advisor IQ by Glenn Koch)

Joint Statement by Department of the Treasury, Board of Governors of the Federal Reserve System, and Federal Deposit Insurance Corporation (March 12, 2023)

JOIN the Financial Professionals Coalition, Ltd

4Cir Affirms Denial of Motion to Vacate FINRA Arbitration Award
Kayvan Karoon; KS Capital Management, Inc., Appellants, v. National Securities Corporation (4 Cir Opinion)

Litigation funder Burford sues Sysco over $140 mln antitrust investment (Reuters by Mike Scarcella)

RIDING OFF INTO THE SUNSET / Alex Rosenberg says goodbye to Citywire RIA / Here’s what he’s learned about the RIA business over the past three years.

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3/15/2023

Morgan Stanley Granted TRO Against Advisor Who Joined LPL / After a whirlwind two days of motion-slinging, the parties agreed to arbitration.(Financial Advisor IQ by Glenn Koch)
https://www.financialadvisoriq.com/c/3977904/511684/morgan_
stanley_granted_against_advisor_joined
As Financial Advisor IQ's Glenn Koch reports, MSSB won a somewhat rare TRO against a departed rep. Notwithstanding the high thresholds required to persuade a federal court, the former employer seems to have come before the judge prepared for battle.

Sterling Bancorp, Inc. to Plead Guilty to $69M Securities Fraud (DOJ Release)
https://www.justice.gov/opa/pr/sterling-bancorp-inc-plead-guilty-69m-securities-fraud
In the United States District Court for the Eastern District of Michigan, Sterling Bancorp, Inc. (the holding company for Sterling Bank and Trust F.S.B.) entered into a Plea Agreement whereby it pled guilty to securities fraud for filing false securities statements relating to its 2017 initial public offering (IPO) and its 2018 and 2019 annual filings.
https://www.justice.gov/opa/press-release/file/1574891/download
As alleged in part in the DOJ Release:

The largest portion of the Bank’s loan portfolio was composed of residential mortgage loans. In or around 2011, the Bank established a residential mortgage loan program known as the Advantage Loan Program (ALP). Between 2011 and 2019, the Bank’s employees and agents originated at least $5 billion in ALP loans. The Bank touted the ALP’s flexible documentation requirements and fast underwriting and closing capabilities. The program required a minimum 35% down payment and charged higher rates and fees than generally were available elsewhere in the market, but it did not require submission of typical loan documentation, such as an applicant’s tax returns or payroll records.

. . .

In the lead-up to its IPO, Sterling, through its founder and certain members of senior management, encouraged loan officers to increase the volume of ALP loan originations to increase the Bank’s revenue through origination fees and interest payments. The Bank’s Underwriting Department maintained internal underwriting guidelines that governed the loan approval process for the ALP. The underwriting guidelines required loan officers to obtain various documents from the borrower and the borrower’s employer. In addition to collecting these documents, loan officers were supposed to calculate the borrower’s debt-to-income ratio, which was a personal-finance measure that compared the amount of debt a borrower had to the borrower’s overall income and was used to measure the borrower’s ability to manage monthly mortgage payments. Taken together, the various documents obtained from the borrower and the borrower’s employer, and related information, were critical to completing certain mortgage application forms and assessing the creditworthiness of a borrower’s application. 

In connection with loans originated through the ALP, and with the knowledge and encouragement of Sterling’s founder and certain members of senior management, the Bank’s loan officers falsified, caused to be falsified, and concealed various information from the Bank’s Underwriting Department and Quality Control Department that the loan officers believed would delay or prevent the Bank from originating loans under the ALP.

The false information that the loan officers included and caused to be included in ALP applications was ultimately transmitted to, and relied upon by, the Bank’s Underwriting Department and caused the Bank to originate ALP loans and extend credit to borrowers who otherwise would not have qualified for credit from the Bank based upon the underwriting guidelines. These fraudulent loans directly increased the Bank’s revenue through fees and interest associated with the origination of the fraudulent loans.

In or around October 2017 – while Sterling was artificially inflating its revenue through the ALP – Sterling went public. In connection with its IPO, Sterling’s 2017 SEC Form S-1 contained materially false and misleading statements that touted the soundness of the ALP loans. In truth, the ALP was rife with fraud.

After Sterling’s IPO, the ALP fraud continued. In its 2018 and 2019 SEC Form 10-K filings, Sterling reiterated a series of materially false and misleading statements about the ALP. As a result of Sterling’s fraud, the total loss to Sterling’s non-insider victim-shareholders was nearly $70 million.

. . .

Under the terms of the plea agreement, which must be accepted by the court, the Company will plead guilty to one count of securities fraud. The Company will also be required to serve a term of probation through 2026, submit to enhanced reporting obligations to the department, and pay more than $27.2 million in restitution to its non-insider victim-shareholders. The department considered a range of factors outlined in the department’s Inability to Pay Guidance and determined that any payment exceeding approximately $27.2 million is reasonably likely to threaten the continued viability of the Company, which may expose the Company’s shareholders to a further risk of loss. Accordingly, to ensure that the maximum amount of the Company’s funds is paid to restitution, the department has agreed not to seek a criminal fine in this case.

A number of relevant considerations contributed to the department’s criminal resolution with Sterling, including the nature and seriousness of the offense and the pervasiveness of the misconduct at the most senior levels of the Company. Sterling received credit for its cooperation with the department’s investigation and engaged in extensive remedial measures, including terminating employees involved in the ALP fraud, such that through terminations and resignations, more than 100 officers and employees left the bank; completely overhauling the Bank’s senior management, including terminations of former senior management; overhauling the Bank’s residential lending department, internal audit function, compliance function, and Bank Secrecy Act/Anti-Money Laundering function, and creating an enterprise risk management function; permanently ending the ALP; hiring a new chairman, chief executive officer, and president; increasing the number of independent directors on the Company’s board of directors; and implementing a new business model to reduce its risk profile.

As part of Sterling’s plea agreement, Sterling agreed to cooperate fully with the United States in all matters relating to the conduct covered by the plea agreement and other conduct under investigation by the United States, to self-report violations of U.S. federal criminal law, and to continue to implement a compliance and ethics program designed to effectively detect and deter violations of U.S. securities laws throughout its operations.

Justice Department Investigation Leads to Takedown of Darknet Cryptocurrency Mixer that Processed Over $3 Billion of Unlawful Transactions / Vietnamese Operator of ChipMixer Charged with Laundering Money for Ransomware Perpetrators, Darknet Markets, Fraudsters, and State-Sponsored (DOJ Release)
https://www.justice.gov/opa/pr/justice-department-investigation-leads-takedown-darknet-cryptocurrency-mixer-processed-over-3
In the United States District Court for the Eastern District of Pennsylvania, Minh Quoc Nguyen was charged in a Complaint with money laundering, operating an unlicensed money transmitting business, and identity theft
https://www.justice.gov/opa/press-release/file/1574581/download. As alleged in part in the DOJ Release:

[ChipMixer] – one of the most widely used mixers to launder criminally-derived funds – allowed customers to deposit bitcoin, which ChipMixer then mixed with other ChipMixer users’ bitcoin, commingling the funds in a way that made it difficult for law enforcement or regulators to trace the transactions. As detailed in the complaint, ChipMixer offered numerous features to enhance its criminal customers’ anonymity. ChipMixer had a clearnet web domain but operated primarily as a Tor hidden service, concealing the operating location of its servers to prevent seizure by law enforcement. ChipMixer serviced many customers in the United States, but did not register with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and did not collect identifying information about its customers. 

As alleged in the complaint, ChipMixer attracted a significant criminal clientele and became indispensable in obfuscating and laundering funds from multiple criminal schemes. Between August 2017 and March 2023, ChipMixer processed:

• $17 million in bitcoin for criminals connected to approximately 37 ransomware strains, including Sodinokibi, Mamba and Suncrypt;
• Over $700 million in bitcoin associated with wallets designated as stolen funds, including those related to heists by North Korean cyber actors from Axie Infinity’s Ronin Bridge and Harmony’s Horizon Bridge in 2022 and 2020, respectively;
• More than $200 million in bitcoin associated either directly or through intermediaries with darknet markets, including more than $60 million in bitcoin processed on behalf of customers of Hydra Market, the largest and longest running darknet market in the world until its April 2022 shutdown by U.S. and German law enforcement;
• More than $35 million in bitcoin associated either directly or through intermediaries with “fraud shops,” which are used by criminals to buy and sell stolen credit cards, hacked account credentials and data stolen through network intrusions; and
• Bitcoin used by the Russian General Staff Main Intelligence Directorate (GRU), 85th Main Special Service Center, military unit 26165 (aka APT 28) to purchase infrastructure for the Drovorub malware, which was first disclosed in a joint cybersecurity advisory released by the FBI and National Security Agency in August 2020.

Beginning in and around August 2017, as alleged in the complaint, Nguyễn created and operated the online infrastructure used by ChipMixer and promoted ChipMixer’s services online. Nguyễn registered domain names, procured hosting services and paid for the services used to run ChipMixer through the use of identity theft, pseudonyms, and anonymous email providers. In online posts, Nguyễn publicly derided efforts to curtail money laundering, posting in reference to anti-money laundering (AML) and know-your-customer (KYC) legal requirements that “AML/KYC is a sellout to the banks and governments,” advising customers “please do not use AML/KYC exchanges” and instructing them how to use ChipMixer to evade reporting requirements. 

Ho Wan Kwok, a/k/a "Miles Guo," Arrested For Orchestrating Over $1 Billion Dollar Fraud Conspiracy / Over $630 Million of Alleged Fraud Proceeds Seized by U.S. Government (DOJ Release)
https://www.justice.gov/usao-sdny/pr/ho-wan-kwok-aka-miles-guo-arrested-orchestrating-over-1-billion-dollar-fraud-conspiracy
-and-
SEC Charges Exiled Chinese Businessman Miles Guo and His Financial Advisor William Je in $850 Million Fraud Scheme (SEC Release)
https://www.sec.gov/news/press-release/2023-50

In the United States District Court for the Southern District of New York, a 12-count Indictment was filed 
https://www.justice.gov/usao-sdny/press-release/file/1574491/download charging Ho Wan Kwok a/k/a "Miles Guo" a/k/a "Miles Kwok" a/k/a "Guo Wengui,” a/k/a “Brother Seven,” a/k/a “The Principal;" and Kin Ming Je a/k/a “William Je,” with various wire fraud, securities fraud, bank fraud, and money laundering charges; and, additionally charging Je with obstruction of justice. Between September 2022 and March 2023, the U.S. Government seized approximately $634 million from 21 different bank accounts that purportedly represents proceeds of Kwok’s alleged fraud, which the Government will seek to forfeit, and additional seized assets include a Lamborghini Aventador SVJ Roads. As alleged in part in the DOJ Release [Ed: photos omitted]:

From at least in or about 2018 through at least in or about March 2023, KWOK, JE, and others, conspired to defraud thousands of victims of more than approximately $1 billion.  KWOK was the leader of this complex conspiracy. 

KWOK is an exiled Chinese businessman who has resided in the United States since in or about 2015 and garnered a substantial online following.  In or about 2018, KWOK founded two purported nonprofit organizations, namely, the Rule of Law Foundation and the Rule of Law Society.  KWOK used the nonprofit organizations to amass followers who were aligned with his purported policy objectives in China and who were also inclined to believe KWOK’s statements regarding investment and money-making opportunities. 

JE is a dual citizen of Hong Kong and the United Kingdom who principally resided in the United Kingdom.  JE owned and operated numerous companies and investment vehicles central to the scheme and served as its financial architect and key money launderer.

KWOK and JE’s fraud relied on at least four interrelated parts:  the GTV Media Group, Inc. (“GTV”) Private Placement, the Farm Loan Program, G Club Operations, LLC (“G|CLUBS”), and the Himalaya Exchange. 

GTV Private Placement

On or about April 21, 2020, KWOK posted a video on social media announcing the unregistered offering of GTV Media Group, Inc. (“GTV”) common stock via a private placement.  GTV was touted as a wide-ranging media company.  In that video, KWOK described, in substance and in part, the investment terms for the GTV Private Placement, and directed people to contact him, via a mobile messaging application, with any questions about the GTV Private Placement.  The video and GTV Private Placement materials included a written “Confidential Information Memorandum” (the “PPM”).  The PPM stated on the cover “Everything Is Just the Beginning!,” provided information about GTV, and contained false representations regarding how the money raised from the GTV Private Placement would be used.

Between on or about April 20, 2020 and on or about June 2, 2020, approximately $452 million worth of GTV common stock was purportedly sold to more than 5,500 investors.  Investors participated in the GTV Private Placement based, in part, on the belief that their money would be invested into GTV to develop and grow that business, as the PPM promised.  In early June 2020, just days after the GTV Private Placement closed, KWOK and JE directed that $100 million of funds raised from the GTV Private Placement be invested in a high-risk hedge fund for the benefit of GTV’s parent company and its ultimate beneficial owner who was a close family relative of KWOK.

Farm Loan Program

KWOK, JE, and their co-conspirators fraudulently obtained more than approximately $150 million in victim funds through the “Himalaya Farm Alliance.”  The Himalaya Farm Alliance, which KWOK organized and promoted, was a collective of informal groups (each known as a “Farm”) located in various cities around the world.  KWOK, JE, and others working on their behalf and at their direction, obtained these funds by making further misrepresentations to the investors in the GTV Private Placement and fraudulently soliciting further investments, this time in the form of “loans” to a Farm, and promising that such loans would be convertible into GTV common stock at a conversion rate of one share per dollar loaned.  On or about July 22, 2020, in a video distributed via social media, KWOK promoted the Farm Loan Program.  After launching the Farm Loan Program, KWOK continued to promote GTV and to falsely represent the value of GTV.  For example, on or about August 2, 2020, in a video distributed via social media, KWOK falsely stated, in substance and part, “How much is GTV? . . . a market value of 2 billion US dollars.”   In truth and in fact, and as KWOK well knew, GTV’s market value was far less. 

KWOK and JE misappropriated funds that were raised through the Farm Loan Program.  For example:  (i) approximately $2.3 million was used to cover maintenance expenses associated with an approximately 145-foot luxury yacht worth approximately $37 million, nominally owned by close family relative of KWOK and used by KWOK, which is pictured below; and (ii) approximately $10 million was transferred to personal bank accounts in the name of JE and/or JE’s spouse.

G|CLUBS

KWOK, JE and others known and unknown, fraudulently induced KWOK’s followers to transfer additional funds to a purported online membership club called G|CLUBS.  From at least in or about October 2020 through at least in or about March 2023, KWOK, JE, and others fraudulently obtained more than approximately $250 million in victim funds through G|CLUBS.  G|CLUBS claimed, on its website, to be “an exclusive, high-end membership program offering a full spectrum of services” and “a gateway to carefully curated world-class products, services and experiences.” 

In truth and in fact, and as KWOK and JE well knew, G|CLUBS provided nothing close to “a full spectrum of services” and “experiences” to its members.  Indeed, most of the money G|CLUBS members paid did not fund the business of G|CLUBS.  Rather, the defendants misappropriated a substantial portion of the victim funds using, among other things, a complex web of entities and bank accounts to do so.  For example,  G|CLUBS funds were used by KWOK and JE:  (i) toward the purchase of KWOK’s 50,000 square foot New Jersey mansion (pictured below); (ii) to purchase various furniture and decorative items including, among other items, Chinese and Persian rugs worth approximately $978,000, a $62,000 television, and a $53,000 fireplace log cradle holder; and (iii) to purchase a custom-built Bugatti sports car for approximately $4.4 million (pictured below):

Himalaya Exchange

KWOK, JE, and others known and unknown, fraudulently obtained more than approximately $262 million in victim funds through the Himalaya Exchange, a purported cryptocurrency “ecosystem” accessible on the Internet.  The Himalaya Exchange included a purported stablecoin called the Himalaya Dollar (“HDO” or “H Dollar”) and a trading coin called Himalaya Coin (“HCN” or “H Coin”).  In videos distributed via social media, KWOK trumpeted the prospects and valuation of the Himalaya Exchange and both HCN and HDO, which he publicly described as cryptocurrencies.  For example, in a video posted on the Internet on or about October 20, 2021, KWOK falsely stated:  “If the H Coin is worthless, [the issuer of H coin] can sell all 20% of the gold, exchange it to you, and become your money.  Or take all the value of 20% gold and ask everyone to unify it and make it yours;” and “If anyone loses money, I can say that I will compensate 100%.  I give you 100%.  Whoever loses money, I will bear it.”  The initial coin offering of HCN and HDO occurred on or about November 1, 2021.  HCN began trading at 10 cents and, within approximately two weeks, the Himalaya Exchange website claimed that each HCN purportedly was worth approximately 27 HDO (i.e., $27), which represented a 26,900% increase in value and a total value of approximately $27 billion.  JE also falsely claimed to media outlets that a €3.5 million Ferrari was purchased via the Himalaya Exchange.  In truth, a Himalaya Exchange employee sent the Ferrari broker an international bank wire to cover the cost of the Ferrari, while also processing a corresponding “transaction” on the Himalaya Exchange to create the false appearance that the purchase had taken place using HDO in order to show HDO was easily tradeable and to promote the Himalaya Exchange.  The buyer of the Ferrari was a close relative of KWOK.

U.S. Government Seizures

On or about September 20, 2022 and September 21, 2022, U.S. authorities served judicially-authorized seizure warrants on several domestic banks, and subsequently seized approximately $335 million of proceeds from bank accounts held in the names of Himalaya Exchange entities and other entities associated with KWOK and JE.  Within approximately two days of the first judicially authorized seizures of Himalaya Exchange-related funds, on or about September 22, 2022, JE contacted the management of a domestic bank that held Himalaya Exchange bank accounts.  JE sought to implement a wire transfer, which he and a Himalaya Exchange executive claimed to the domestic bank was needed to effectuate a “redemption” from HDO to U.S. dollars for an unnamed “VIP” (i.e., very important client of the Himalaya Exchange).  In subsequent communications with the domestic bank, JE revealed that the VIP was, in fact, JE himself.  JE provided the domestic bank with documents reflecting two purported HCN sales by JE on or about September 22, 2022—totaling 46 million HDO, which JE was attempting to “convert” into $46 million.  JE twice emphasized to the domestic bank’s management, in substance and in part, that the $46 million transfer needed to happen “today or it is meaningless.”

U.S. Authorities subsequently seized additional funds from KWOK and JE-associated entities in October 2022 and March 2023.  In total, U.S. Authorities seized more than approximately $634 million of fraud proceeds, including approximately $278 million from bank accounts held in the names of the Himalaya Exchange entities.

Today, pursuant to judicially-authorized warrants, U.S. Authorities are seizing additional items from KWOK-associated properties, which KWOK and JE allegedly purchased with fraud proceeds.

In the United States District Court for the Southern District of New York, a Complaint was filed 
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-50.pdf charging Ho Wan Kwok a/k/a "Miles Guo" a/k/a "Miles Kwok" a/k/a "Wengui Guo,” a/k/a “Brother Seven,” and Kin Ming Je a/k/a “William Je,” and Mountains of Spices LLC d/b/a "New York Farm" and G Club Operations LLC with various violations of the Securities Act and of the Exchange Act.  The Complaint names as Relief Defendants Mei Guo, Qiang Guo a/k/a "Mileson Guo," and Hing Chi Ngok and Sin Ting Rong. As alleged in part in the SEC Release:

[S]ince April 2020, Guo, also known as Ho Wan Kwok, Miles Kwok, Wengui Guo, and Brother Seven, and his longtime financial advisor, Je, also known as Kin Ming Je, misappropriated a large portion of the funds raised from investors to enrich themselves and their family members, who are named as relief defendants. For example, in connection with a private placement offering of common stock in GTV Media Group, Inc. (GTV), Guo and Je allegedly diverted $100 million of investor funds to a hedge fund for the sole benefit of a company that is owned by Guo’s son. Additionally, Guo allegedly misappropriated investor proceeds in two other offerings to fund his and his family’s lifestyle, including misappropriating approximately $40 million to purchase and renovate a mansion in New Jersey and $3.5 million to purchase a Ferrari for his son.  

The SEC also charged Guo and Puerto Rico and New York-based G Club Operations LLC and New York-based Mountains of Spices LLC with violations of the registration provisions of the securities laws in connection with these offerings. A fourth offering, for which Guo alone is charged, raised hundreds of millions of dollars from investors through a crypto asset security referred to as “H-Coin,” “Himalaya Coin,” or “HCN” and a related purported stablecoin. In addition, since at least October 2021, Guo allegedly has made material misrepresentations to prospective investors in H-Coin, falsely stating that 20 percent of H-Coin’s value was backed by gold and that he would personally compensate investors for any potential losses.   

SEC Charges Darius Karpavicius in $4 Million Offering Fraud for Operating Tbo Capital Group and Gray Capital Group (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25667.htm
In the United States District Court for the Southern District of New York, a Complaint was filed charging Darius Karpavicius, HMC Trading LLC, and HMC Management LLC with violating the registration and antifraud provisions of the federal securities laws; and also names as a Relief Defendant: DK Auto LLC. As alleged in part in the SEC Release:.

[I]n late 2021, Karpavicius, operating two purported investment firms, TBO Capital Group and Gray Capital Group, began offering investors sham mutual funds through websites, a press release, and numerous internet advertisements, all of which made countless materially false and misleading statements. These websites and other materials falsely stated, among other things, that the TBO Capital and Gray Capital mutual funds were managed by industry professionals with decades of experience and achieved years of high-yield investment returns. Investors were instructed to send money to accounts owned by HMC Trading, LLC or HMC Management, LLC, entities incorporated and controlled by Karpavicius. In reality, the managers did not exist, their biographies were fictitious, and TBO Capital Group and Gray Capital Group never made any investments. Rather, as alleged in the complaint, the entire operation was a fraud run by Karpavicius, designed to enrich him and his entities.

SEC Proposes New Requirements to Address Cybersecurity Risks to the U.S. Securities Markets (SEC Release)
https://www.sec.gov/news/press-release/2023-52
The SEC  proposed a new cybersecurity-risks rule, form, and amendments for broker-dealers, clearing agencies, major security-based swap participants, the Municipal Securities Rulemaking Board, national securities associations, national securities exchanges, security-based swap data repositories, security-based swap dealers, and transfer agents (collectively, “Market Entities”)
https://www.sec.gov/rules/proposed/2023/34-97142.pdf . In part, the SEC Release asserts that: 

Market Entities increasingly rely on information systems to perform their functions and provide their services and thus are targets for threat actors who may seek to disrupt their functions or gain access to the data stored on the information systems for financial gain. Cybersecurity risk also can be caused by the errors of employees, service providers, or business partners. The interconnectedness of Market Entities increases the risk that a significant cybersecurity incident can simultaneously impact multiple Market Entities causing systemic harm to the U.S. securities markets.

The proposal would require all Market Entities to implement policies and procedures that are reasonably designed to address their cybersecurity risks and, at least annually, review and assess the design and effectiveness of their cybersecurity policies and procedures, including whether they reflect changes in cybersecurity risk over the time period covered by the review. The proposal — through new notification requirements applicable to all Market Entities and additional reporting requirements applicable to Market Entities other than certain types of small broker-dealers (collectively, “Covered Entities”) — would improve the Commission’s ability to obtain information about significant cybersecurity incidents affecting these entities. Further, new public disclosure requirements for Covered Entities would improve transparency about the cybersecurity risks that can cause adverse impacts to the U.S. securities markets.

Bill Singer's Comment (first jeremiad): More lunacy from a tone deaf regulator unaware of the day's headlines and unaware of the depleted state of morale within its ranks. Unable to clean its Augean stable of stale cases, proposed new rules, and proposed rule amendments, inexplicably, sadly, foolishly, and incompetently, the SEC seeks to add more manure to its pile. No -- I am not arguing against promulgating cybersecurity protections; however, at some point, an adult must enter the kindergarten and insist that the children take a nap. There is no sense of priority at the SEC. There is no sense of time or place. There is just an unstopped effluent of press releases, podcasts, videos, social media posts, and whatever else is in the arsenal of misguided self promotion. Indeed, at times, enough is, in fact, enough. See: "The Gensler SEC's Rulemaking Reach Exceeds Its Grasp" (BrokeAndBroker.com /  November 7, 2022)
https://www.brokeandbroker.com/6747/sec-gensler-rulemaking/

SEC Reopens Comment Period for Proposed Cybersecurity Risk Management Rules and Amendments for Registered Investment Advisers and Funds (SEC Release)
https://www.sec.gov/news/press-release/2023-54
Ummm, lemme see here . . . what? So, first the SEC posts a Press Release (see above) announcing new cybersecurity proposal; however, seems like the SEC may have rushed into its first batch of cybersecurity rules/amendments because the federal regulator is now reopening the comment period for that first round. As asserted in part in the SEC Release:

The Securities and Exchange Commission today reopened the comment period on proposed rules and amendments related to cybersecurity risk management and cybersecurity-related disclosure for registered investment advisers, registered investment companies, and business development companies that were proposed by the Commission on February 9, 2022. The initial comment period ended on April 11, 2022.

The reopened comment period will allow interested persons additional time to analyze the issues and prepare comments in light of other regulatory developments, including whether there would be any effects of other Commission proposals related to cybersecurity risk management and disclosure that the Commission should consider. 

Bill Singer's Comment (repeat of above first jeremiad, which makes this, what? A second jeremiad??): More lunacy from a tone deaf regulator unaware of the day's headlines and unaware of the depleted state of morale within its ranks. Unable to clean its Augean stable of stale cases, proposed new rules, and proposed rule amendments, inexplicably, sadly, foolishly, and incompetently, the SEC seeks to add more manure to its pile. No -- I am not arguing against promulgating cybersecurity protections or reopening what now seems to have been an earlier, premature round of cybersecurity protections; however, at some point, an adult must enter the kindergarten and insist that the children take a nap. There is no sense of priority at the SEC. There is no sense of time or place. There is just an unstopped effluent of press releases, podcasts, videos, social media posts, and whatever else is in the arsenal of misguided self promotion. Indeed, at times, enough is, in fact, enough. See: "The Gensler SEC's Rulemaking Reach Exceeds Its Grasp" (BrokeAndBroker.com /  November 7, 2022)
https://www.brokeandbroker.com/6747/sec-gensler-rulemaking/

SEC Proposes Changes to Reg S-P to Enhance Protection of Customer Information (SEC Release)
https://www.sec.gov/news/press-release/2023-51
The SEC  proposed amendments to Regulation S-P,
https://www.sec.gov/rules/proposed/2023/34-97141.pdf which is further explained, in part, in the SEC Release:

Regulation S-P currently requires broker-dealers, investment companies, and registered investment advisers to adopt written policies and procedures for the protection of customer records and information (“safeguards rule”). Regulation S-P also requires the proper disposal of consumer report information (“disposal rule”). Today’s proposal, if adopted, would update the rule’s requirements to address the expanded use of technology and corresponding risks since the Commission originally adopted Regulation S-P in 2000.

The Commission’s proposal would require broker-dealers, investment companies, registered investment advisers, and transfer agents (collectively, “covered institutions”) to adopt written policies and procedures for an incident response program to address unauthorized access to or use of customer information. The proposed amendments would also require, with certain limited exceptions, covered institutions to provide notice to individuals whose sensitive customer information was or is reasonably likely to have been accessed or used without authorization. The proposal would require a covered institution to provide this notice as soon as practicable, but not later than 30 days after the covered institution becomes aware that an incident involving unauthorized access to or use of customer information has occurred or is reasonably likely to have occurred.

The proposed amendments would also make a number of additional changes to Regulation S-P, including:

Broadening and aligning the scope of the safeguards rule and disposal rule to cover “customer information,” a new defined term. This change would extend the protections of the safeguards and disposal rules to both nonpublic personal information that a covered institution collects about its own customers and to nonpublic personal information that a covered institution receives about customers of other financial institutions;

Extending the safeguards rule, including the proposed enhancements, to transfer agents registered with the Commission or another appropriate regulatory agency, and expanding the existing scope of the disposal rule to include transfer agents registered with another appropriate regulatory agency rather than only those registered with the Commission; and

Conforming Regulation S-P’s existing provisions relating to the delivery of an annual privacy notice for consistency with a statutory exception created by Congress in 2015.

Bill Singer's Comment (repeat of above first and second jeremiad, which makes this, what? A third jeremiad??): More lunacy from a tone deaf regulator unaware of the day's headlines and unaware of the depleted state of morale within its ranks. Unable to clean its Augean stable of stale cases, proposed new rules, and proposed rule amendments, inexplicably, sadly, foolishly, and incompetently, the SEC seeks to add more manure to its pile. No -- I am not arguing against promulgating cybersecurity protections or reopening what now seems to have been an earlier, premature round of cybersecurity protections, or enhancing Reg S-P; however, at some point, an adult must enter the kindergarten and insist that the children take a nap. There is no sense of priority at the SEC. There is no sense of time or place. There is just an unstopped effluent of press releases, podcasts, videos, social media posts, and whatever else is in the arsenal of misguided self promotion. Indeed, at times, enough is, in fact, enough. See: "The Gensler SEC's Rulemaking Reach Exceeds Its Grasp" (BrokeAndBroker.com /  November 7, 2022)
https://www.brokeandbroker.com/6747/sec-gensler-rulemaking/

SEC Proposes to Expand and Update Regulation SCI (SEC Release)
https://www.sec.gov/news/press-release/2023-53 
The SEC  proposed amendments to Regulation Systems Compliance and Integrity ("SCI")
https://www.sec.gov/rules/proposed/2023/34-97143.pdf In part the SEC Release asserts that:

[T]he proposed amendments would expand the scope of SCI entities to include registered security-based swap data repositories; all clearing agencies that are exempt from registration; and certain large broker-dealers, in particular, those that exceed a total assets threshold or a transaction activity threshold in national market system stocks, exchange-listed options contracts, US Treasury securities, or Agency securities.

The proposed amendments would also strengthen the requirements Regulation SCI imposes on SCI entities, including by requiring that an SCI entity’s policies and procedures include the maintenance of a written inventory and classification of all SCI systems and a program for life cycle management; a program to prevent the unauthorized access to such systems and information therein; and a program to manage and oversee certain third-party providers, including cloud service providers, of covered systems.

The proposed amendments would also expand the types of SCI events experienced by an SCI entity that would trigger immediate notification to the Commission, update the rule’s annual SCI review and business continuity and disaster recovery testing requirements, and update certain of the regulation’s recordkeeping provisions.

Bill Singer's Comment (repeat of above first, second, and third jeremiads, which makes this, what? A fourth jeremiad??): More lunacy from a tone deaf regulator unaware of the day's headlines and unaware of the depleted state of morale within its ranks. Unable to clean its Augean stable of stale cases, proposed new rules, and proposed rule amendments, inexplicably, sadly, foolishly, and incompetently, the SEC seeks to add more manure to its pile. No -- I am not arguing against promulgating cybersecurity protections or reopening what now seems to have been an earlier, premature round of cybersecurity protections, or enhancing Reg S-P, or updating Reg SCI; however, at some point, an adult must enter the kindergarten and insist that the children take a nap. There is no sense of priority at the SEC. There is no sense of time or place. There is just an unstopped effluent of press releases, podcasts, videos, social media posts, and whatever else is in the arsenal of misguided self promotion. Indeed, at times, enough is, in fact, enough. See: "The Gensler SEC's Rulemaking Reach Exceeds Its Grasp" (BrokeAndBroker.com /  November 7, 2022)
https://www.brokeandbroker.com/6747/sec-gensler-rulemaking/

March 15, 2023, STATEMENTS by SEC Chair and Commissioners:

SEC Charges Recidivist with Stealing $5.2 Million from Investors (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25666.htm
In the United States District Court for the Southern District of Florida, the SEC filed a Complaint charging former Oban Energies, LLC manager Peter D. Krieger
https://www.sec.gov/litigation/complaints/2023/comp25666.pdf with misappropriating approximately $5.2 million of investor funds for his personal use. As alleged in part in the SEC Release:

[F]rom at least January 2017 through August 2020, Krieger used his exclusive access to Oban's bank account to direct investor funds to two unrelated entities he controlled, either directly or through a third party intermediary. The complaint alleges that Krieger diverted approximately $3.7 million of investor funds to one of his entity's bank accounts through direct deposits and hundreds of electronic fund transfers. As alleged, Krieger concealed his misappropriation and created an air of legitimacy by, among other things, transferring about $1.5 million of investor funds from Oban's bank account to another account he controlled, and then to the trust accounts of a New York-based attorney who, in turn, transferred the money back to a bank account controlled by Krieger. The complaint further alleges that Krieger transferred an additional $1.5 million in investor funds from Oban's bank account to pay credit card charges for another entity he controlled.

The SEC's complaint, filed in U.S. District Court for the Southern District of Florida, charges Krieger with violating the antifraud provisions of Sections 17(a)(1) and (a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder.

To resolve the SEC's charges, Krieger agreed to the entry of a judgment that permanently enjoins him from future violations of these provisions of the federal securities laws and includes a permanent conduct-based injunction, bars Krieger from serving as an officer or director of a public company, and orders him to pay disgorgement, prejudgment interest, and civil penalties in amounts that will be determined by the court upon future motion of the SEC. The partial settlement with Krieger is subject to court approval.

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3/14/2023

Arizona Licensed Insurance Agent Charged with Scheme to Defraud Elderly Clients (DOJ Release)
https://www.justice.gov/usao-az/pr/arizona-licensed-insurance-agent-charged-scheme-defraud-elderly-clients
In the United States District Court for the District of Arizona, Victoria Totten, 71, was charged with six counts of mail fraud. As alleged in part in the DOJ Release:

[T]otten, while working as a licensed insurance agent, defrauded various elderly clients out of approximately $114,000. It asserts that Totten fraudulently represented and advised prospective clients to pay insurance premiums in advance and directly to her company instead of making payments to the insurance companies. Totten falsely represented the actual terms of the premium payment structure offered by the insurance companies, and claimed that payment should be made in advance to lock in a lower rate. After receiving the fraudulently obtained funds, instead of transmitting the victims’ premium payments directly to the insurance companies, Totten misused large portions of the victims’ funds for her own personal use and to pay insurance premiums for her other clients. 

Two Men Plead Guilty to $1.3 Million Penny-Stock Scheme (DOJ Release)
https://www.justice.gov/usao-edva/pr/two-men-plead-guilty-13-million-penny-stock-scheme
In the United States District Court for the Eastern District of Virginia, Phillip W. Offill and Justin Wallace Herman pled guilty to conspiracy to commit securities and wire fraud. As alleged in part in the DOJ Release, the Defendants and toher:

conspired to misappropriate millions of shares of a publicly traded company that held mining claims in Arizona and Idaho. The defendants then fraudulently marketed the shares for sale through third parties, including call centers, who made materially false statements to potential investors, while manipulating the market so that the stock falsely appeared to be trading more actively than it actually was. As a result of the scheme, victim investors lost approximately $1.3 million.

Over a decade ago, in January 2010, Offill, a former attorney with the U.S. Securities and Exchange Commission, was convicted during a jury trial in the Eastern District of Virginia for participating in multimillion-dollar pump-and-dump stock manipulation schemes. Offill was sentenced on April 23, 2010 to eight years in prison in connection with that case. Offill was serving a three-year term of supervised release when he committed the new offense to which he pleaded guilty yesterday.

Miami Man Charged for Running Fraudulent Cryptocurrency and Stock Investment Scheme (DOJ Release)
https://www.justice.gov/usao-sdfl/pr/miami-man-charged-running-fraudulent-cryptocurrency-and-stock-investment-scheme
In the United States District Court for the Southern District of Florida, Ryan James Crawford, a/k/a “Brody" was indicted on eight counts of wire fraud. As alleged in part in the DOJ Release:

[F]rom around June 2020 through March 2022, Crawford tricked victims into investing about $800,000 in his scheme by: falsely claiming to be a highly successful licensed stockbroker who had made tens of millions of dollars through similar cryptocurrency and stock investments; falsely claiming to have access to enough money to timely repay potential investors; falsely claiming that he had developed an artificial intelligence trading software that “never lost,” and misrepresenting the investment as low-risk and high reward, among other things.

It is alleged that Crawford did not return any victim funds, or generate the exponential returns he promised. Rather, on some occasions, he simply diverted investors’ funds and cryptocurrency for his own personal use, including to pay for luxury rental cars and gambling at the casino.

Court Issues Amended Final Judgment Against Penny Stock "Mailman" and His Two Companies (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25665.htm
In the United States District Court for the Northern District of Alabama, an Amended Final Judgment was issued against Brian Robert Sodi and the now-defunct Capital Financial Media LLC (CFM) and List Data Solutions LLC (LDS) for securities fraud and other violations in connection with promoting penny stocks in scalping and pump-and-dump schemes in 2013. The Amended Final Judgment orders  disgorgement and prejudgment interest of $929,995. Separately, Sodi has also been suspended from appearing or practicing before the Commission under Rule 102(e)(3) of the Commission's Rules of Practice.Further, in a separate parallel criminal action, Sodi pled guilty to one count of securities fraud and was ordered to pay $338,056 in forfeiture. As alleged in part in the SEC Release:

The Commission's complaint, filed February 26, 2018, alleged that Sodi, a CPA, secretly acquired shares of two companies and then sold those shares while using CFM and LDS to disseminate statements urging investors to buy those stocks, and without disclosing his holdings, sales, or plans to sell. Sodi, CFM, and LDS agreed to settle the charges in September 2019, agreeing to injunctive relief and to pay, jointly and severally, a total of $1,268,000 in disgorgement and prejudgment interest, with this obligation to be offset by the total amount of restitution and/or forfeiture ultimately ordered in the parallel criminal proceeding against Sodi. The court entered final judgment on April 16, 2020, requiring any funds paid by the defendants to be remitted to the United States Treasury. 

SEC Charges IT Services Provider DXC Technology Co. for Misleading Non-GAAP Disclosures (SEC Release)
https://www.sec.gov/news/press-release/2023-49
Without admitting or denying the findings in an SEC Order that it had negligently violated the anti-fraud provisions of the Securities Act of 1933 and reporting provisions of the federal securities laws
https://www.sec.gov/litigation/admin/2023/33-11166.pdf, DXC Technology Company consented to a cease-and-desist order, to pay an $8 million penalty, and to undertake to develop and implement appropriate non-GAAP policies and disclosure controls and procedures. In determining to accept DXC’s offer of settlement, the SEC considered DXC’s cooperation and remedial actions.As alleged in part in the SEC Release:

[DXC] materially increased its reported non-GAAP net income by negligently misclassifying tens of millions of dollars of expenses as non-GAAP adjustments for so-called transaction, separation, and integration-related (TSI) costs and improperly excluding them from its non-GAAP earnings. While DXC publicly claimed that its non-GAAP metrics allowed investors “to better understand the financial performance of DXC,” the SEC’s order finds that the company’s non-GAAP disclosure controls and procedures were inadequate to ensure that the company’s expense classifications were consistent with its own public description of TSI costs. According to the order, by misclassifying TSI costs, DXC materially overstated its non-GAAP net income in three fiscal quarters. DXC also failed to evaluate the company’s non-GAAP disclosures concerning TSI costs. 

SEC Charges California Fuel Business Operator with Defrauding Retail Investors and Misappropriating Funds (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25664.htm
In the United States District Court for the Central District of California, the SEC filed a Complaint charging John David Gessin, Equifunds, Inc., and Ice Fleet LLC, with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.
https://www.sec.gov/litigation/complaints/2023/comp25664.pdf As alleged in part in the SEC Release:

[G]essin presented himself as a successful entrepreneur and used the alias "John David" to disguise his past, including a criminal record and bankruptcies, raising over $1.6 million from five retail investors, including a veteran and an elderly retired nurse. Gessin told investors their money would be used to purchase, sell, and distribute fuel. However, Gessin misappropriated a significant portion of investor funds to pay his personal expenses, including the mortgage and taxes on a home in a gated community, cars, hotel stays, and gifts to friends and family members.

According to the complaint, in March 2020, Gessin suddenly stopped paying investors the amounts they were owed. Gessin falsely told investors that the COVID-19 pandemic had severely impacted his business and that he was unable to repay them, despite receiving nearly $1.3 million in relief funds from the Small Business Administration.

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3/13/2023

FINRA's Travesty of a Transamerica Settlement (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/6928/finra-transamerica-awc/
There is none so blind as those who will not see; and on Wall Street, the industry's regulators are blinded by their refusal to see the disparity between their sanctioning of associated persons versus larger firms. Suspending or barring a stockbroker/advisor is as powerful an arrow as there is in the regulatory quiver. In contrast, conglomerates tend to get fined, and those dollars are more likely paid by public shareholders. No, I am not arguing for lesser sanctions for the industry's human beings, but I sure as hell am asking why large corporations get off so much lighter. Why aren't we closing down Wall Street's entities for the same durations and with the same frequency as we place its employees in the penalty box?   

4Cir Affirms Denial of Motion to Vacate FINRA Arbitration Award
Kayvan Karoon; KS Capital Management, Inc., Appellants, v. National Securities Corporation (Opinion, United States Court of Appeals for the Fourth Circuit, No. 22-1295)
https://www2.ca3.uscourts.gov/opinarch/221295np.pdf
Reduced to somewhat over-simplified basics, in 2017 the Appellants filed a FINRA Arbitration Statement of Claim against National alleging "conversion, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, and negligence;" and the Panel rendered a 2021 FINRA Arbitration Award
https://www.finra.org/sites/default/files/aao_documents/17-01718.pdf denying the claims and finding Appellants jointly and severally liable to National for $22,500 in attorneys fees plus various hearing-related fees. Following Appellants filing of a Motion to Vacate the FINRA Arbitration Award, the United States District Court for the District of New Jersey denied the Motion and confirmed Respondent's Motion to Confirm the FINRA Arbitration Award. https://www.finra.org/sites/default/files/aao_documents/17-01718%282%29.pdf. Thereafter, the Appellants appealed to 4Cir. In affirming the lower court's denial of the Motion to Vacate, in part the 4Cir offers this fairly succinct analysis and rationale:

Karoon and KS cannot clear this high bar. Though they now challenge the selection of one arbitrator, they waived that objection. The rules of FINRA (the Financial Industry Regulatory Authority) require a three-arbitrator panel to comprise two public arbitrators (those who have not worked in the securities industry) and one non-public arbitrator. FINRA Rules 13100(r), (x), 13402(b). In 2017, FINRA sent the parties a list of arbitrators, and they chose three. Over the next three years, Karoon and KS asked for and got three postponements. In 2020, one of the public arbitrators withdrew, and FINRA replaced her with Leslie Nydick. The 2017 list of arbitrators had classified her as a public arbitrator, but an attachment to the 2020 letter correctly listed her past work in the securities industry. Although Karoon and KS got this information before the hearing, they did not object until after they lost. That was too late. Goldman, Sachs & Co. v. Athena Venture Partners, 803 F.3d 144,
150 (3d Cir. 2015).

Karoon and KS also object that the arbitrators must have been biased. “Evident partiality is strong language and requires proof of circumstances powerfully suggestive of bias.” Kaplan v. First Options of Chi., Inc., 19 F.3d 1503, 1523 n.30 (3d Cir. 1994) (internal quotation marks omitted), aff’d, 514 U.S. 938 (1995); see 9 U.S.C. §10(a)(2). Yet they have none. They allege only that the panel charged them fees for the three adjournments that they themselves asked for, split the $200 fee for one of their successful motions to compel, and declined to impose sanctions on National. But FINRA’s rules do not mandate certain fee allocations or sanctions. Instead, the rules leave these matters to arbitrators’ discretion. See FINRA Rules 13214(c)(1), (3), 13902(c), 13511. And Karoon and KS have not explained why the arbitrators’ conclusions were unreasonable, let alone powerfully suggestive of bias. So we will affirm the District Court’s refusal to vacate the arbitral award.

Litigation funder Burford sues Sysco over $140 mln antitrust investment (Reuters by Mike Scarcella)
https://www.reuters.com/legal/litigation-funder-burford-sues-sysco-over-140-mln-antitrust-investment-2023-03-13/
Reuters' Mike Scarcella brings us to the intersection of Capitalism and litigation -- and it's a busy crossroads with no working stop lights and a lot of cars whizzin' by. A really fun read about what happens when an investor has poured a ton of cash into the prospect of a high-ball settlement but the funded-litigant purportedly opts for low-ball numbers. It's a discomforting ethical story well-told by Scarcella.  

RIDING OFF INTO THE SUNSET / Alex Rosenberg says goodbye to Citywire RIA / Here’s what he’s learned about the RIA business over the past three years.
https://citywire.com/ria/news/alex-rosenberg-says-goodbye-to-citywire-ria/a2411476
A fine industry pundit and editor offers some parting views about the biz. Refreshing commentary. We wish Citywire/RIA's Alex Rosenberg the best.

Joint Statement by Department of the Treasury, Board of Governors of the Federal Reserve System, and Federal Deposit Insurance Corporation (March 12, 2023)
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm

Washington, DC -- The following statement was released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg:

Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.

After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe. 

SEC Obtains Judgment Against Individual in Multi-Million Dollar Securities Offering Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25663.htm
In the United States District Court for the District of Massachusetts, Final Judgment was entered against Joshua Dax Cabrera ordering him to pay about $1,126,000 in disgorgement, prejudgment interest, and penalties. As alleged in part in the SEC Release:

The SEC's complaint alleged that Cabrera partnered with co-defendant Paul Hess to fraudulently raise more than $12.9 million from more than 150 U.S. and foreign investors by offering unregistered securities in Medsis International, Inc. from 2015 through 2020. The complaint alleged that while offering Medsis securities, Cabrera and Hess made multiple material misrepresentations and misleading statements about Medsis to investors concerning the existence and value of contracts with customers, existing and expected revenue, and business operations. The complaint also alleged that Cabrera and Hess misrepresented to investors their personal use of investor funds.

Without admitting or denying the SEC's allegations, Cabrera consented to a final judgment in the SEC action that permanently enjoins him from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the securities offering registration requirements of Sections 5(a) and 5(c) of the Securities Act. The judgment also prohibits Cabrera from participating in the issuance, purchase, offer, or sale of any security with the exception of Cabrera purchasing or selling securities for his own personal accounts, and finds him liable for disgorgement of $536,895, prejudgment interest of $52,816, and a civil penalty of $536,895.

The District Court previously entered final judgment against Cabrera's co-defendant, Paul Hess, on December 19, 2022, as part of a settlement in which Hess agreed to pay approximately $840,000 in disgorgement, prejudgment interest, and penalties and be enjoined from future violations of the securities laws and from offering and selling securities to others.

SEC Charges Investment Adviser for Failing to Adopt New Compliance Policies for Clients and Seek Best Execution Despite Prior Notice of Deficiencies (SEC Release)
https://www.sec.gov/enforce/34-97114-s
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2023/34-97114.pdf
that it had violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder, E. Magnus Oppenheim & Co. Inc. ("EMO") consented to a Censure, a cease-and-desist order from committing or causing further violations of these provisions, the payment of a $50,000 penalty, and the imposition of an independent compliance consultant. As alleged in part in the SEC Release:

[F]rom at least 2019 to 2021, EMO's written compliance policies and procedures were adopted from another investment adviser's compliance manual without removing references to the other adviser and without adequately tailoring the manual to its own business. The order finds that the policies and procedures did not address certain areas relevant to EMO's business and operations, including policies and procedures involving access to client funds and custody, billing fees, and conducting due diligence of third-party service providers.

The SEC's order further finds that, also from at least 2019 to 2021, EMO failed to satisfy its duty to seek best execution because it did not make an adequate assessment of the commission rates, fees, or ticket charges charged by its clearing broker, try to negotiate better terms with its clearing broker, or make an adequate assessment of the commissions, fees, ticket charges, and execution quality available from other clearing brokers. EMO was on notice of both of these deficiencies following an examination by the Division of Examinations in 2019. EMO's founder, President, Chief Investment Officer, and Chief Compliance Officer passed away in June 2019, but EMO did not adequately address the identified compliance deficiencies thereafter.

SEC Charges Water Treatment Company and Former Executive with Accounting Violations (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25662.htm
In the United States District Court for the District of Rhode Island, the SEC filed a Complaint charing Evoqua Water Technologies Corp. and its former division-level finance director Imran Parekh for improper accounting practices. https://www.sec.gov/litigation/complaints/2023/comp25662.pdf
As alleged in part in the SEC Release:

[F]rom at least the fourth quarter of 2016 through August 2018, Parekh, as the Finance Director of one of Evoqua's divisions based in Rhode Island, engaged in fraudulent accounting practices that resulted in Evoqua improperly reporting materially false revenue amounts in its financial statements filed with the Commission. The SEC's complaint alleged that Parekh inflated the revenue Evoqua reported quarterly and at year-end by counting revenue from sales much earlier than accounting principles permitted. The complaint alleged that Parekh improperly accounted for so-called "bill-and-hold" transactions (where a company bills a purchaser for a product but the seller does not deliver the product to the purchaser until some future date), for which Evoqua recognized revenue from the sale of filtration products earlier than permitted and without meeting the criteria found in accounting principles to be able to immediately recognize the revenue.

The complaint further alleges that negligent conduct at Evoqua's corporate level in managing the financial reporting and accounting controls processes facilitated Parekh's improper accounting practices. As a result of the fraudulent scheme, the complaint alleges, Evoqua improperly reported nearly $12 million of additional expected revenue for its fiscal year 2017 in its registration statement and its initial public offering (IPO) Prospectus filed with the Commission in October and November 2017; that the misconduct continued through Evoqua's first year as a public company, resulting in inaccurate books and records and material misstatements of Evoqua's financial condition in subsequent filings with the Commission; and that by failing to disclose to investors (or in filings with the Commission) that Evoqua reported uncompleted sales as revenue by misapplying bill-and-hold accounting criteria, Evoqua misled investors and potential investors about the true financial picture of the company.

Evoqua has consented to the entry of a final judgment that permanently enjoins it from violating the antifraud provisions of Section 17(a)(2) and (3) of the Securities Act of 1933 ("Securities Act"); the periodic reporting provisions of Section 13(a) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rules 12b-20, 13a-l, 13a-11, and 13a-13 thereunder; and the books and records and internal accounting controls provisions of Sections 13(b)(2)(A) and (B) of the Exchange Act. The final judgment would also order Evoqua to comply with certain undertakings, including an agreement to implement recommended improvements to its system of internal accounting controls, and to pay a civil penalty of $8.5 million.

Parekh has consented to the entry of a judgment that permanently enjoins him from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10(b)(5) thereunder; from aiding and abetting the periodic reporting provisions of Section 13(a) of the Securities Act and Rules 12b-20, 13a-l, 13a-11, and 13a-13 thereunder; from aiding and abetting the books and records and internal accounting controls provisions of Sections 13(b)(2)(A) and (B) of the Exchange Act; and from knowingly circumventing an issuer's system of accounting controls or knowingly falsifying an issuer's books and records in violation of Section 13(b)(5) of the Exchange Act. The judgment also orders that Parekh will be ordered to pay disgorgement, prejudgment interest, and a civil penalty, the amounts of which will be determined by the court, and that the court will determine whether Parekh should be barred from serving as an officer or director of a public company and if so the duration of such a bar. The settlements with Evoqua and Parekh are subject to court approval.