Sep 28, 2018 | Shareholder & Investor Protection
CFTC Orders an Iowa Introducing Broker and Its Principals to Pay $11.9 Million in Restitution to Farmers and a $1.25 Million Civil Monetary Penalty for Fraud, Unauthorized Trading, and False Statements to the CME, Among Other Violations
On September 26, 2018, the Commodity Futures Trading Commission (“CFTC”) announced that it issued an Order filing and simultaneously settling charges against Kooima & Kaemingk Commodities, Inc. (“K&K”), Lauren Kaemingk (“Kaemingk”), and Bradley Kooima (“Kooima”), all of Iowa, for Kaemingk’s fraud, unauthorized trading, and making false or misleading statements to CME Group Inc. (“CME”), for a former employee’s fraud, unauthorized trading, and violation of CME position limits in live cattle futures contracts, and for K&K’s, Kaemingk’s, and Kooima’s supervision failures.
The CFTC Order requires K&K, Kaemingk, and Kooima to pay $11,920,857.05 in restitution to their customers, which are almost entirely comprised of individual farmers and large-scale farming operations. The Order also requires K&K, Kaemingk, and Kooima to pay a civil monetary penalty of $1,250,000 and orders that they cease and desist from further violations of the Commodity Exchange Act and CFTC regulations, as charged.
CFTC Director of Enforcement Comments
James McDonald, CFTC Director of Enforcement, stated: “Many farmers depend on the futures markets to help protect their operations from financial uncertainty. Those farmers should be able to trust that their Introducing Broker will deal with them honestly. Brokers are also expected to respond truthfully and completely to CME and other exchanges when misconduct is being investigated. When brokers defraud their customers and then seek to cover it up — as in this case — the Commission will vigorously pursue them.”
As noted in the Order, K&K fraudulently solicited customers and opened investment accounts for certain customers beginning around January 2012. Further, the Order finds that, between January 2012 and February 2016, K&K, through two of its associated persons, a former employee and Kaemingk, defrauded customers by its unauthorized trading, which caused net customer losses of approximately $11.9 million.
Further, the Order finds that when the CME opened an investigation into the former employee’s position-limit violation, K&K, through Kaemingk, engaged in a cover-up to conceal the scope of the unauthorized trading at K&K. Kaemingk encouraged a customer to withhold information from CME during its investigation. Kaemingk also made misleading statements to CME during an interview.
CME issued a Notice of Disciplinary Action in which K&K, Kaemingk, and Kooima agreed to pay a fine of $1.25 million arising out of the conduct that is the subject of the CFTC’s Order. In imposing its civil monetary penalty, the CFTC took into account the fine imposed by CME in its related action.
Source: CFTC.gov
Sep 26, 2018 | Shareholder & Investor Protection
On September 26, 2018, the Securities and Exchange Commission announced that a Des Moines-based broker-dealer and investment adviser has agreed to pay $1 million to settle charges related to its failures in cybersecurity policies and procedures surrounding a cyber intrusion that compromised personal information of thousands of customers.
The SEC announced that it charged Voya Financial Advisors Inc. (“VFA”) with violating the Safeguards Rule and the Identity Theft Red Flags Rule, which are designed to protect confidential customer information and protect customers from the risk of identity theft. This is the first SEC enforcement action charging violations of the Identity Theft Red Flags Rule.
According to the SEC’s order, cyber intruders impersonated VFA contractors over a six-day period in 2016 by calling VFA’s support line and requesting that the contractors’ passwords be reset. The intruders used the new passwords to gain access to the personal information of 5,600 VFA customers.
The SEC’s order finds that the intruders then used the customer information to create new online customer profiles and obtain unauthorized access to account documents for three customers. The order also finds that VFA’s failure to terminate the intruders’ access stemmed from weaknesses in its cybersecurity procedures, some of which had been exposed during prior similar fraudulent activity. According to the order, VFA also failed to apply its procedures to the systems used by its independent contractors, who make up the largest part of VFA’s workforce.
“Customers entrust both their money and their personal information to their brokers and investment advisers,” said Stephanie Avakian, Co-Director of the SEC Enforcement Division. “VFA failed in its obligations when its deficiencies made it vulnerable to cyber intruders accessing the confidential information of thousands of its customers.”
Without admitting or denying the SEC’s findings, VFA agreed to be censured and pay a $1 million penalty, and the company will retain an independent consultant to evaluate its policies and procedures for compliance with the Safeguards Rule and Identity Theft Red Flags Rule and related regulations.
Source: SEC.gov
Sep 20, 2018 | Shareholder & Investor Protection
On September 20, 2018, the Securities and Exchange Commission announced that it charged the former chief financial officer of Barrett Business Services Inc. for his role in an accounting fraud involving BBSI’s workers’ compensation expenses. The SEC also charged BBSI in the accounting fraud and charged the company’s former controller for his role in improperly approving certain of the CFO’s accounting entries. Both BBSI and the former controller agreed to settle the Commission’s charges against them.
The SEC’s complaint against BBSI’s former CFO James D. Miller filed in federal district court in the Western District of Washington, alleges that Miller manipulated BBSI’s accounting records to hide the fact that its workers’ compensation expense was increasing relative to its revenue. According to the complaint, Miller took steps to conceal from BBSI’s independent auditor a third-party actuarial report concluding that BBSI needed to add tens of millions of dollars to its workers’ compensation liability. BBSI’s stock dropped 32 percent when the Vancouver, Washington-based firm announced it needed to restate its financial results to reflect increased workers’ compensation expenses.
In a parallel action, the U.S. Attorney’s Office for the Western District of Washington announced criminal charges against Miller.
The SEC instituted a settled administrative proceeding against BBSI for violations of the antifraud, books and records, internal accounting controls, and reporting provisions of the federal securities laws, and former Controller Mark Cannon for books and records violations. Without admitting or denying the SEC’s findings, BBSI agreed to pay a $1.5 million civil penalty and Cannon agreed to pay a $20,000 civil penalty and to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Cannon to apply for reinstatement after one year.
BBSI CEO Michael Elich, who was not charged by the SEC, has reimbursed the company for $20,800 in cash bonuses he received during the period of the alleged accounting violations.
Source: SEC.gov
Sep 19, 2018 | Shareholder & Investor Protection
On September 18, 2018, the Securities and Exchange Commission announced that a Boulder, Colorado-based biopharmaceutical company, its CEO, and its former CFO will pay more than $20 million in penalties to settle charges of misleading investors about the company’s developmental lung cancer drug.
The SEC’s complaint filed in federal court in Denver alleges that over a four-month period starting in July 2015, Clovis Oncology Inc. and CEO Patrick Mahaffy misled investors about how well Clovis’ flagship lung cancer drug worked compared to another drug. According to the SEC’s complaint, the company’s investor presentations, press releases, and SEC filings stated that the drug was effective 60 percent of the time, far higher than suggested by actual results available internally. Clovis raised approximately $298 million in a public stock offering in July 2015 and saw its stock price collapse in November 2015, after disclosing that the effectiveness rate was actually 28 percent. The company stopped development on the drug in May 2016.
According to the SEC’s complaint, in evaluating Clovis’ stock, investors closely followed prospects for its lung cancer drug rociletinib, or Roci, and an important driver was its “efficacy,” or how well the drug worked. In May 2015, Clovis disclosed in an investor presentation that Roci’s efficacy was 60 percent, meaning that in 60 percent of patients Roci caused targeted tumors to shrink. The complaint alleges that soon after, certain data provided to Mahaffy and Erle Mast, the company’s CFO at that time, showed that Roci’s efficacy rate was substantially lower and by early July 2015, Mahaffy and Mast learned that the efficacy for Roci at that time was 42 percent. Clovis continued referring to the 60 percent efficacy figure, including in the solicitation materials for the July 2015 offering and afterward. In November 2015, after Clovis disclosed the true efficacy using the methodology required by the U.S. Food and Drug Administration, its stock price dropped approximately 70 percent.
The SEC’s complaint charges Clovis with violating Section 17(a)(2) of the Securities Act of 1933 and Section 13(a) of the Securities Exchange Act of 1934. The complaint charges Mahaffy with violating Section 17(a)(2) and aiding and abetting Clovis’ violations of Section 13(a). The complaint also charges Mast with aiding and abetting Clovis’ federal securities laws violations.
The defendants agreed to the settlements without admitting or denying the allegations and the settlements are subject to court approval. Clovis agreed to a $20 million penalty. Mahaffy agreed to a $250,000 penalty. Mast agreed to pay a $100,000 penalty and to provide disgorgement and prejudgment interest of $454,145, attributable to selling Clovis stock during the relevant period at inflated prices. The SEC plans to seek the creation of a Fair Fund for distribution of the penalties to harmed investors.
Source: SEC.gov
Sep 19, 2018 | Shareholder & Investor Protection
On September 19, 2018, the Securities and Exchange Commission announced that it has obtained a court order halting an ongoing Ponzi-like scheme that raised more than $345 million from over 230 investors across the U.S. The SEC also obtained an emergency asset freeze and the appointment of a receiver.
An SEC complaint unsealed yesterday alleges that Kevin B. Merrill (“Merrill”), Jay B. Ledford (“Ledford”) and Cameron Jezierski (“Jezierski”) attracted investors to their scheme by promising significant profits from the purchase and resale of consumer debt portfolios. Allegedly, the defendants, however, were using a web of lies, fabricated documents, and forged signatures in an elaborate scheme to entice investors and perpetuate the fraud. Rather than direct investor funds to the acquisition and servicing of debt portfolios as promised, the defendants, allegedly, used the funds to make Ponzi-like payments to earlier investors.
The SEC also alleges that Merrill and Ledford stole at least $85 million of the investor funds to maintain lavish lifestyles, spending millions of dollars on luxury items, including $10.2 million on at least 25 high-end cars, $330,000 for a 7-carat diamond ring, $168,000 for a 23-carat diamond bracelet, millions of dollars on luxury homes, and $100,000 to a private fitness club.
In a parallel action, the U.S. Attorney’s Office for the District of Maryland announced criminal charges against Merrill, Ledford, and Jezierski.
The SEC’s complaint, filed in United States District Court in Maryland, charges Merrill, Ledford, and Jezierski, along with their entities, Global Credit Recovery, LLC, Delmarva Capital, LLC, Rhino Capital Holdings, LLC, Rhino Capital Group, LLC, DeVille Asset Management LTD, and Riverwalk Financial Corporation, with violations of the antifraud provisions of the federal securities laws. The Court granted the SEC’s request for an asset freeze, temporary restraining order, and the appointment of a receiver. The SEC seeks disgorgement of allegedly ill-gotten gains and prejudgment interest, and financial penalties against the defendants.
Source: SEC.gov
Sep 12, 2018 | Shareholder & Investor Protection
On September 12, 2018, the SEC announced that Connecticut-based United Technologies Corporation will pay $13.9 million to resolve charges that it violated the Foreign Corrupt Practices Act (“FCPA”) by making illicit payments in its elevator and aircraft engine businesses.
According to the SEC’s order, United Technologies subsidiary Otis Elevator Co. made unlawful payments to Azerbaijani officials to facilitate the sales of elevator equipment for public housing in Baku and as part of a kickback scheme to sell elevators in China. The order also found that United Technologies, through its joint venture, made payments to a Chinese sales agent in a bid to obtain confidential information from a Chinese official that would help the company win engine sales to a Chinese state-owned airline.
The SEC’s order also found that United Technologies improperly provided trips and gifts to various foreign officials in China, Kuwait, South Korea, Pakistan, Thailand, and Indonesia through its Pratt & Whitney division and Otis subsidiary in order to obtain business.
United Technologies consented to the SEC’s order without admitting or denying the findings that it violated the anti-bribery, books and records, and internal accounting controls provisions of the Securities Exchange Act of 1934, and the company agreed to pay disgorgement of $9,067,142 plus interest of $919,392 and a penalty of $4 million.
Source: SEC.gov
