Outline of Selected SEC Enforcement Actions, Division of Enforcement (October 2016)

The SEC Speaks in 2017

Co-Chairs David W. Grim Marc Wyatt

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Enforcement Panel and Workshop

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Outline of Selected SEC Enforcement Actions, Division of Enforcement (October 2016)

Prepared by: Sherry A. Peyton Research Specialist

Seth Groveunder Intern The SEC (SEC), as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the SEC or of the authors’ colleagues upon the staff of the SEC. Parts of this outline have been used in other publications.

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Table of Contents

ACTIONS INVOLVING BROKER-DEALERS, INVESTMENT ADVISERS AND INVESTMENT COMPANIES AND OTHER REGULATED ENTITIES ...... 9 In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated ...... 11 In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated Professional Clearing Corp...... 13 In the Matter of William Tirrell ...... 15 SEC v. Ash Narayan, et al...... 19 In the Matter of Apex Fund Services (US), Inc. - ClearPath ...... 21 In the Matter of Apex Fund Services (US), Inc. – EquityStar and Steven Zoernack ...... 23 In the Matter of Morgan Stanley Smith Barney LLC ...... 25 In the Matter of Galen J. Marsh ...... 27 SEC v. Richard W. Davis, Jr., et al...... 29 In the Matter of Albert Fried & Company, LLC ...... 31 In the Matter of Blackstreet Capital Management, LLC and Murry N. Gunty ...... 33 SEC v. Hope Advisors, LLC, et al...... 35 In the Matter of Central States Capital Markets, LLC, et al...... 37 In the Matter of Royal Alliance Associates, Inc., et al...... 39 In the Matter of Charles P. Grom ...... 41 In the Matter of E.S. Financial Services, Inc. n/k/a/ Brickell Global Markets, Inc...... 43 In the Matter of Goldman, Sachs & Co...... 45 In the Matter of Steven A. Cohen ...... 47 In the Matter of J.P. Morgan Securities LLC ...... 49 In the Matter of Morgan Stanley Investment Management Inc. and Sheila Huang ...... 51 In the Matter of SG Americas Securities, LLC and Yimin Ge ...... 53 SEC v. Martin Shkreli, et al...... 55 In the Matter of Owen Li and Canarsie Capital, LLC ...... 57 In the Matter of Marwood Group Research, LLC ...... 59 In the Matter of JH Partners, LLC ...... 61 In the Matter of Virtus Investment Advisers, Inc...... 69 In the Matter of Cherokee Investment Partners, LLC and Cherokee Advisers, LLC ...... 71 In the Matter of Fenway Partners, LLC, et al...... 77 In the Matter of DBRS, Inc...... 79 In the Matter of UBS AG ...... 81 In the Matter of Blackstone Management Partners L.L.C., et al...... 83

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ACTIONS INVOLVING THE FOREIGN CORRUPT PRACTICES ACT ...... 85 In the Matter of Analogic Corporation and Lars Frost ...... 87 SEC and Akamai Technologies, Inc...... 89 SEC and Nortek, Inc...... 91 In the Matter of Las Vegas Sands Corp...... 93 In the Matter of Novartis AG ...... 95 In the Matter of Qualcomm Incorporated ...... 97 SEC v. VimpelCom, Ltd...... 99 In the Matter of PTC, Inc...... 101 In the Matter of Yu Kai Yuan ...... 103 In the Matter of SciClone Pharmaceuticals, Inc...... 105 ACTIONS INVOLVING PUBLIC FINANCE ABUSE ...... 106 SEC v. Juan Rafael Rangel ...... 107 In the Matter of Keygent LLC, Anthony Hsieh, and Chet Wang ...... 109 In the Matter of School Business Consulting, Inc. and Terrance Bradley ...... 111 SEC v. Eric J. Kellogg ...... 113 SEC v. Town of Ramapo, et al...... 115 In the Matter of Central States Capital Markets, LLC, et al...... 119 In the Matter of Westlands Water District, et al...... 121 SEC v. Rhode Island Commerce Corporation, et al...... 123 In the Matter of First Southwest Company, LLC ...... 125 Municipalities Continuing Disclosure Cooperation Initiative (22 Underwriting Firms) ...... 127 In the Matter of State Street Bank and Trust Company ...... 129 In the Matter of Vincent J. DeBaggis ...... 131 SEC v. Robert B. Crowe ...... 133 ACTIONS INVOLVING VIOLATIONS OF INSIDER TRADING ...... 134 SEC v. Sanjay Valvani and Gordon Johnston ...... 135 SEC v. Christopher Plaford ...... 137 SEC v. Stefan Lumiere ...... 139 SEC v. Peter D. Nunan ...... 141 SEC v. Steven V. McClatchey and Gary J. Pusey ...... 143 SEC v. William T. Walters and Thomas C. Davis ...... 145 SEC v. Jay Y. Fung ...... 149 SEC v. Daryl M. Payton, et al...... 151 SEC v. Bonan Huang, et al...... 153 SEC v. Dennis Wayne Hamilton ...... 155 SEC v. Yue Han and Wei Han ...... 157 ACTIONS INVOLVING ISSUER FRAUD, DISCLOSURE AND REPORTING ...... 159 In the Matter of IEC Electronics Corp., et al...... 161 SEC v. First Mortgage Corporation, Inc., et al...... 163 In the Matter of Logitech International, S.A., et al...... 165 SEC v. Erik K. Bardman and Jennifer F. Wolf ...... 167

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In the Matter of Ener1, Inc., et al...... 169 In the Matter of Robert D. Hesselgesser, CPA ...... 171 In the Matter of Navistar International Corporation ...... 173 SEC v. Daniel C. Ustian ...... 175 SEC v. Reed J. Killion, et al...... 177 SEC v. Marrone Bio Innovations, Inc...... 179 In the Matter of Donald J. Glidewell, CPA ...... 181 In the Matter of Julieta Favela Barcenas ...... 183 SEC v. Hector M. Absi, Jr...... 185 In the Matter of Barclays Capital, Inc...... 187 In the Matter of Credit Suisse Securities (USA) LLC ...... 189 In the Matter of Ocwen Financial Corp...... 193 In the Matter of Equinox Fund Management, LLC ...... 195 SEC v. Charles S. Bailey, et al...... 197 In the Matter of JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC ...... 201 In the Matter of The St. Joe Company, et al...... 203 ACTIONS INVOLVING ACCOUNTANTS AND AUDITORS ...... 205 In the Matter of ICON Capital LLC f/k/a ICON Capital Corporation ...... 207 In the Matter of Silberstein Ungar PLLC, et al...... 209 In the Matter of Burrill Capital Management, LLC, et al...... 211 In the Matter of Magnum Hunter Resources Corporation ...... 213 In the Matter of Ronald D. Ormand ...... 215 In the Matter of David S. Krueger, CPA ...... 217 In the Matter of Joseph R. Allred, CPA ...... 219 In the Matter of Wayne Gray, CPA ...... 221 In the Matter of Frazer Frost, LLP, et al...... 225 In the Matter of Monsanto Company, et al...... 229 In the Matter of Grant Thornton, LLP ...... 233 In the Matter of Melissa K. Koeppel, CPA, and Jeffrey J. Robinson, CPA ...... 235 In the Matter of Grant Thornton India LLP ...... 239 In the Matter of Grant Thornton Audit PTY Limited ...... 241 ACTIONS INVOLVING SECURITIES OFFERINGS ...... 243 SEC v. Christopher A. Faulkner, et. al...... 245 SEC v. Idris D. Mustapha ...... 247 In the Matter of Behruz Afshar, et al...... 249 The SEC’s In the Matter of Ethiopian Electric Power ...... 251 SEC v. Stephen D. Ferrone, et al...... 253 In the Matter of Nauman A. Aly ...... 255 SEC v. Richard Weed, et al...... 257 SEC v. PLCMGMT LLC dba Prometheus Law, et al...... 259 SEC v. Daniel Rivera, et al...... 261 SEC v. AVEO Pharmaceuticals, Inc., et al...... 263

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SEC v. Cary Lee Peterson, et al...... 265 SEC v. Aequitas Management, LLC, et al...... 267 SEC v. Banc De Binary Ltd...... 269 SEC v. Vu H. Le aka Vinh H. Le and TeamVinh.com LLC ...... 271 In the Matter of Mehron P. Azarmehr and Azarmehr Law Group ...... 273 In the Matter of Michael A. Bander and Bander Law Firm, PLLC ..... 275 In the Matter of Roger A. Bernstein ...... 277 In the Matter of Allen E. Kaye ...... 279 In the Matter of Taraneh Khorrami ...... 281 In the Matter of Mike S. Manesh and Manesh & Mizrahi, APLC ...... 283 In the Matter of Kefei Wang ...... 285 SEC v. Hui Feng and Law Offices of Feng & Associates P.C...... 287 In the Matter of Standard Bank PLC ...... 289 SEC v. Jammin’ Java Corp., et al...... 291 SEC v. Brett A. Cooper, et al...... 295 SEC v. James Alan Craig...... 297 In the Matter of Auriga Global Investors Sociedad de Valors, S.A...... 299 In the Matter of Harvest Capital Strategies LLC ...... 301 In the Matter of J.P. Morgan Investment Management Inc...... 303 In the Matter of Omega Advisors, Inc...... 305 In the Matter of Sabby Management, LLC ...... 307 In the Matter of War Chest Capital Partners LLC ...... 309 In the Matter of Briargate Trading, LLC and Eric Oscher ...... 313 SEC v. Steve Chen, et al...... 315

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ACTIONS INVOLVING BROKER-DEALERS, INVESTMENT ADVISERS AND INVESTMENT COMPANIES AND OTHER REGULATED ENTITIES

The SEC has continued to vigorously pursue a broad range of enforcement actions involving broker-dealers, investment advisers, and other regulated entities and persons. Recent actions brought by the SEC include the first two cases involving misleading statements by a seller of structured notes. The SEC also brought its first case enforcing the fiduciary duty for municipal advisers created by the Dodd-Frank Act. Other recent cases against regulated entities have been based on, among other things: (i) failing to comply with the Customer Protection Rule; (ii) improper securities lending practices; (ii) failing to disclose a material conflict of interest; or (iv) failing to comply with anti-money laundering rules. The SEC also charged a private fund administrator with gatekeeping failures. Examples of cases against regulated individuals include the following: (i) a hedge fund manager charged with failing to supervise a portfolio manager who engaged in insider trading; (ii) a research analyst charged with violating the certification requirement of Regulation AC of the Exchange Act; and (iii) a portfolio manager charged with prearranged trading.

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In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated Securities Act Release No. 10103 (June 23, 2016) https://www.sec.gov/litigation/admin/2016/33-10103.pdf Press Release No. 2016-129 (June 23, 2016) https://www.sec.gov/news/pressrelease/2016-129.html [Press Release] Merrill Lynch Paying $10 Million Penalty for Misleading Investors in Structured Notes FOR IMMEDIATE RELEASE 2016-129 Washington D.C., June 23, 2016 — The Securities and Exchange Commission announced that Merrill Lynch has agreed to pay a $10 million penalty to settle charges that it was responsible for misleading statements in offering materials provided to retail investors for structured notes linked to a proprietary volatility index. According to the SEC’s order instituting a settled administrative proceeding, the offering materials emphasized that the notes were subject to a 2 percent sales commission and 0.75 percent annual fee. Due to the impact of these costs over the five-year term of the notes, the volatility index would need to increase by 5.93 percent from its starting value in order for investors to earn back their original investment on the maturity date. But the offering materials failed to adequately disclose a third cost included in the volatility index known as the “execution factor” that imposed a cost of 1.5 percent of the index value each quarter. The notes were issued by Merrill Lynch’s parent company Bank of America Corporation, and Merrill Lynch had principal responsibility for drafting and reviewing the retail pricing supplements. The SEC’s order finds that Merrill Lynch did not have in place effective policies or procedures to ensure its personnel drafted and approved disclosures that adequately disclosed the impact of the execution factor. This is the agency’s second case involving misleading statements by a seller of structured notes. In October 2015, UBS AG agreed to pay $19.5 million to settle charges that it made false or misleading statements and omissions in offering materials provided to U.S.

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investors in structured notes linked to a proprietary foreign exchange trading strategy. The SEC’s order finds that Merrill Lynch violated Section 17(a)(2) of the Securities Act of 1933, which prohibits obtaining money or property by means of material misstatements and omissions in the offer or sale of securities. Without admitting or denying the findings, Merrill Lynch agreed to cease and desist from committing or causing any similar future violations and pay a penalty of $10 million.

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In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated Professional Clearing Corp. Exchange Act Release No. 78141 (June 23, 2016) https://www.sec.gov/litigation/admin/2016/34-78141.pdf

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In the Matter of William Tirrell Securities Act Release No. 78142 (June 23, 2016) https://www.sec.gov/litigation/admin/2016/34-78142.pdf https://www.sec.gov/divisions/enforce/customer-protection-rule- initiative.shtml Press Release No. 2015-128 (June 23, 2016) https://www.sec.gov/news/pressrelease/2016-128.html [Press Release] Merrill Lynch to Pay $415 Million for Misusing Customer Cash and Putting Customer Securities at Risk FOR IMMEDIATE RELEASE 2015-128 Washington D.C., June 23, 2016— The Securities and Exchange Commission announced that Merrill Lynch has agreed to pay $415 million and admit wrongdoing to settle charges that it misused customer cash to generate profits for the firm and failed to safeguard customer securities from the claims of its creditors. An SEC investigation found that Merrill Lynch violated the SEC’s Customer Protection Rule by misusing customer cash that right- fully should have been deposited in a reserve account. Merrill Lynch engaged in complex options trades that lacked economic substance and artificially reduced the required deposit of customer cash in the reserve account. The maneuver freed up billions of dollars per week from 2009 to 2012 that Merrill Lynch used to finance its own trading activities. Had Merrill Lynch failed in the midst of these trades, the firm’s customers would have been exposed to a massive shortfall in the reserve account. According to the SEC’s order instituting a settled administrative proceeding, Merrill Lynch further violated the Customer Protection Rule by failing to adhere to requirements that fully-paid for customer securities be held in lien-free accounts and shielded from claims by third parties should a firm collapse. From 2009 to 2015, Merrill Lynch held up to $58 billion per day of customer securities in a clearing account that was subject to a general lien by its clearing bank and held additional customer securities in accounts worldwide that similarly were subject to liens. Had Merrill Lynch collapsed at any point, customers would have been exposed to significant risk and uncer- tainty of getting back their own securities.

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In conjunction with this case, the SEC announced a two-part initiative designed to uncover additional abuses of the Customer Pro- tection Rule. The first encourages broker-dealers to proactively report potential violations of the rule to the SEC and provides for cooperation credit and favorable settlement terms in any enforcement recommendations arising from self-reporting. Second, the Enforce- ment Division, in coordination with the Division of Trading and Markets and the Office of Compliance Inspections and Examinations, will conduct risk-based examinations of certain broker-dealers to assess their compliance with the Customer Protection Rule. In addition to the Customer Protection Rule violations, Merrill Lynch violated Exchange Act Rule 21F-17 by using language in severance agreements that operated to impede employees from voluntarily providing information to the SEC. Merrill Lynch also engaged in significant remediation in response to the Rule 21F-17 violation, including the revision of its agreements, policies and procedures, and the implementation of a mandatory annual whistleblower- training program for all employees of Merrill Lynch and its parent corporation, Bank of America. Merrill Lynch and Bank of America also agreed to provide employees, on an annual basis, with a summary of their rights and protections under the SEC’s Whistleblower Program. The SEC separately announced a litigated administrative proceeding against William Tirrell, who served as Merrill Lynch’s Head of Regulatory Reporting when the firm was misusing customer cash in violation of the Customer Protection Rule. The SEC’s Enforce- ment Division alleges that Tirrell was ultimately responsible for determining how much money Merrill Lynch would reserve in its special account, and failed to adequately monitor the trades and provide specific information to the firm’s regulators about the substance and mechanics of the trades. The litigated administrative proceeding against Tirrell will be scheduled for a public hearing before an administrative law judge who will issue an initial decision stating what, if any, remedial actions are appropriate. The SEC’s order finds that Merrill Lynch violated Securities Exchange Act Sections 15(c)(3) and 17(a)(1) and Rules 15c3-3, 17a- 3(a)(10), 17a-5(a), 17a-5(d)(2)(ii), 17a-5(d)(3), 17a-11(e), and 21F- 17. Its subsidiary Merrill Lynch Professional Clearing Corporation is charged with violating Sections 15(c)(3) and 17(a)(1) and Rules 15c3-3, 17a-3(a)(10) and 17a-5(a). Merrill Lynch cooperated fully with the SEC’s investigation and has engaged in extensive remediation, including

56 © Practising Law Institute by retaining an independent compliance consultant to review its compliance with the Customer Protection Rule. Merrill Lynch agreed to pay $57 million in disgorgement and interest plus a $358 million penalty, and publicly acknowledged violations of the federal securities laws.

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SEC v. Ash Narayan, et al. Litigation Release No. 23579 (June 21, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23579.htm Civil Action No. 3:16-cv-01417 (June 21, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-124.pdf Press Release No. 2016-124 (June 21, 2016) https://www.sec.gov/news/pressrelease/2016-124.html SEC Halts Scheme Defrauding Pro Athletes The Securities and Exchange Commission announced fraud charges and emergency relief against an investment adviser accused of secretly siphoning millions of dollars from accounts he managed for professional athletes and investing their earnings in a cash-starved online sports and entertainment ticket business for which he has served on the Board of Directors. The Commission filed its action on May 24, 2016, and on the same day obtained a court order to freeze the assets of the adviser, Ash Narayan of Newport Coast, California, as well as The Ticket Reserve Inc., its CEO Richard M. Harmon, and its Chief Operating Officer John A. Kaptrosky, all of whom are charged in the SEC’s complaint unsealed in federal court in Dallas. The SEC also obtained appointment of a receiver over The Ticket Reserve. The SEC alleges that Narayan has transferred over $33 million from clients’ accounts to The Ticket Reserve, typically without their knowledge or consent and often using forged or unauthorized signa- tures. The Ticket Reserve became dependent upon the fraudulent cash infusions from Narayan’s unsuspecting clients to stay in business. In exchange, Narayan received nearly $2 million in hidden compensation from the struggling company. Most of this money is directly traceable to his clients’ stolen funds. According to the SEC’s complaint, The Ticket Reserve also made Ponzi-like payments to existing investors using money from new investors. Since being fired from the investment firm where he worked and losing access to the clients’ accounts, Narayan has been redi- recting to The Ticket Reserve’s coffers the sham fees he received out of the money misappropriated from client accounts. The SEC successfully secured the court-ordered asset freeze before Narayan could make a planned financial transaction on May 31. According to the SEC’s complaint:

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 Narayan was a managing director in the California office of Dallas-based investment advisory firm RGT Capital Management. His involvement in the scheme began at least as early 2010.  Narayan’s clients, including several professional athletes, trusted and relied upon Narayan to pursue safe, conservative investments that would not put their principal at risk. They realized as professional athletes with injury risks, that their earnings might occur within a short window.  Besides failing to disclose the bulk of The Ticket Reserve investments to his clients and the fees he was receiving in exchange for investing their money, Narayan also failed to disclose other key conflicts of interest-including that he was a member of The Ticket Reserve’s Board of Directors and owned more than three million shares of company stock. Narayan also falsely claimed to be a CPA.  Harmon and Kaptrosky participated in the scheme by making undisclosed finder’s fee payments to Narayan out of his clients’ funds and covertly describing them as “director’s fees” and “loans” in various TTR documents.  Harmon and Kaptrosky also approved and executed Ponzi-like payments, falsified and backdated documents, and created sham promissory notes between The Ticket Reserve and Narayan in attempts to further conceal the scheme. The Honorable Barbara M. Lynn for the U.S. District Court for the Northern District of Texas granted the SEC’s request for a temporary restraining order and asset freeze against Narayan, The Ticket Reserve, Harman, and Kaptrosky, and appointed Michael Napoli, of Dykema Cox Smith, as a temporary receiver over the company. The SEC’s complaint alleges that Narayan, The Ticket Reserve, Harmon, and Kaptrosky violated Section 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The complaint also alleges that Narayan violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC seeks disgorgement of ill-gotten gains plus interest and penalties as well as preliminary and permanent injunctions.

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In the Matter of Apex Fund Services (US), Inc. - ClearPath Advisers Act Release No. 4428 (June 16, 2016) https://www.sec.gov/litigation/admin/2016/ia-4428.pdf

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In the Matter of Apex Fund Services (US), Inc. – EquityStar and Steven Zoernack Advisers Act Release No. 4429 (June 16, 2016) https://www.sec.gov/litigation/admin/2016/ia-4429.pdf Press Release No. 2016-120 (June 16, 2016) https://www.sec.gov/news/pressrelease/2016-120.html [Press Release] Private Fund Administrator Charged With Gatekeeper Failures FOR IMMEDIATE RELEASE 2016-120 Washington D.C., June 16, 2016 — The Securities and Exchange Commission announced that a firm providing administrative services to private funds has agreed to pay more than $350,000 to settle charges that it failed to heed red flags and correct faulty accounting by two clients. SEC investigations found that Apex Fund Services (US) Inc. missed or ignored clear indications of fraud while contracted to keep records and prepare financial statements and investor account statements for funds managed by ClearPath Wealth Management and EquityStar Capital Management. Both clients have since been charged with fraud in SEC enforcement actions. The SEC’s order finds that in regard to ClearPath and its owner Patrick Churchville, who were charged with fraud last year:  Apex failed to act appropriately after detecting undisclosed brokerage and bank accounts, undisclosed margin and loan agreements, and inter-series and inter-fund transfers made in violation of fund offering documents.  Apex failed to correct previously issued accounting reports and capital statements and continued to provide materially false reports and statements to ClearPath and the funds’ independent auditor.  ClearPath then used Apex’s false reports and statements to com- municate financial positions and performance to the ClearPath funds’ investors. The SEC’s order finds that in regard to EquityStar and its owner Steven Zoernack, who were charged in March:  Apex accounted for more than $1 million in undisclosed withdrawals by Zoernack from the EquityStar funds as receivables

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owed to the funds, despite no evidence that Zoernack was able or willing to repay the withdrawals.  Apex confronted Zoernack about the withdrawals and concluded he was unlikely to repay the funds. Nevertheless, Apex did not properly account for Zoernack’s withdrawals – which grew to more than half of the net asset value of one fund, and more than one quarter of the other.  Apex sent monthly account statements to investors that it knew or should have known materially overstated the investors’ true holdings in the funds. Without admitting or denying the SEC’s findings, Apex agreed to retain an independent consultant and pay a total of $352,449, including disgorgement of $96,800 plus interest of $8,813 and a penalty of $75,000 for its role in the ClearPath fraud and disgorgement of $89,050 plus interest of $7,786 and a penalty of $75,000 for its role in the EquityStar fraud.

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In the Matter of Morgan Stanley Smith Barney LLC Exchange Act Release No. 78021 (June 8, 2016) https://www.sec.gov/litigation/admin/2016/34-78021.pdf

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In the Matter of Galen J. Marsh Exchange Act Release No. 78020 (June 8, 2016) https://www.sec.gov/litigation/admin/2016/34-78020.pdf Press Release No. 2016-112 (June 8, 2016) https://www.sec.gov/news/pressrelease/2016-112.html [Press Release] SEC: Morgan Stanley Failed to Safeguard Customer Data FOR IMMEDIATE RELEASE 2016-112 Washington D.C., June 8, 2016 — The Securities and Exchange Commission announced that Morgan Stanley Smith Barney LLC has agreed to pay a $1 million penalty to settle charges related to its failures to protect customer information, some of which was hacked and offered for sale online. The SEC issued an order finding that Morgan Stanley failed to adopt written policies and procedures reasonably designed to protect customer data. As a result of these failures, from 2011 to 2014, a then-employee impermissibly accessed and transferred the data regarding approximately 730,000 accounts to his personal server, which was ultimately hacked by third parties. According to the SEC’s order instituting a settled administrative proceeding:  The federal securities laws require registered broker-dealers and investment advisers to adopt written policies and procedures reasonably designed to protect customer records and information.  Morgan Stanley’s policies and procedures were not reasonable, however, for two internal web applications or “portals” that allowed its employees to access customers’ confidential account information.  For these portals, Morgan Stanley did not have effective authorization modules for more than 10 years to restrict employees’ access to customer data based on each employee’s legitimate business need.  Morgan Stanley also did not audit or test the relevant authorization modules, nor did it monitor or analyze employees’ access to and use of the portals.

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 Consequently, then-employee Galen J. Marsh downloaded and transferred confidential data to his personal server at home between 2011 and 2014.  A likely third-party hack of Marsh’s personal server resulted in portions of the confidential data being posted on the Internet with offers to sell larger quantities. The SEC’s order finds that Morgan Stanley violated Rule 30(a) of Regulation S-P, also known as the “Safeguards Rule.” Morgan Stanley agreed to settle the charges without admitting or denying the findings. In a separate order, Marsh agreed to an industry and penny stock bar with the right to apply for reentry after five years. He was criminally convicted for his actions last year and received 36 months of probation and a $600,000 restitution order.

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SEC v. Richard W. Davis, Jr., et al. Litigation Release No. 23554 (June 2, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23554.htm Civil Action No. 3:16-cv-00285 (June 2, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-104.pdf Press Release No. 2016-104 (June 2, 2016) http://www.sec.gov/news/pressrelease/2016-104.html SEC: Adviser Steered Investor Money to His Own Companies The Securities and Exchange Commission charged a North Carolina- based investment adviser with defrauding investors by secretly steering portions of real estate-related investments into deals with companies that he owned or operated himself. The SEC alleges that Richard W. Davis Jr. breached his fiduciary duty and took no steps to disclose or ameliorate the conflicts of interest involved with using investor money to enter into transactions with entities he beneficially owned or controlled. The SEC further alleges that Davis made false or misleading statements to investors before and after they made their investments, failed to inform investors of their losses as his companies failed to pay the loans, and improperly received at least $1.5 million from bank accounts com- mingling investor funds when he was only entitled to less than $150,000 in management fees. Davis has agreed to a settlement subject to court approval with disgorgement plus interest and penalties to be determined by the court at a later date. According to the SEC’s complaint filed in federal court in Charlotte, N.C.:  Davis sold interests in two unregistered pooled investment vehicles named DCG Commercial Fund I LLC and DCG Real Assets LLC. He defrauded at least 85 people who invested a total of approximately $11.5 million.  Davis told Commercial Fund investors that their money would be used to fund short-term fully secured loans to real estate developers. He hid the fact that two of the four projects invested in by the fund were his own companies.  Investors suffered losses because the loans made by the funds were never paid in full, yet Davis failed to inform the investors of this. Even after he declared one loan to be in default, he failed to

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reappraise the value of the loan and reflect that change in the shareholder’s account statements.  Davis similarly failed to inform Real Assets investors that he transferred to his own entities at least $7.7 million of the $9.8 million he raised from them. From there the money was spent or transferred to additional entities he owned or controlled until the entire $7.7 million was depleted.  Davis falsely reported to investors that their investments were growing in value year-after-year, and falsely claimed that the Real Assets fund held more than $10 million in assets. But his claims were based on his own speculative valuations of the fund’s assets and not a product of any tabulation of the fund’s true net asset value. The SEC’s complaint charges Davis with violations of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 as well as Sections 5 and 17(a) of the Securities Act of 1933, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. Without admitting or denying the allegations, Davis agreed to the partial settlement that bars him from any further sale of securities in a pooled investment vehicle as well as from future violations of antifraud and securities registration provisions of the federal securities laws. He also is required to cooperate with a court-appointed receiver.

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In the Matter of Albert Fried & Company, LLC Securities Act Release No. 77971 (June 1, 2016) http://www.sec.gov/litigation/admin/2016/34-77971.pdf Press Release No. 2016-102 (June 1, 2016) http://www.sec.gov/news/pressrelease/2016-102.html [Press Release] Brokerage Firm Charged With Anti-Money Laundering Failures FOR IMMEDIATE RELEASE 2016-102 Washington D.C., June 1, 2016 — The Securities and Exchange Commission charged a Wall Street- based brokerage firm with failing to sufficiently evaluate or monitor customers’ trading for suspicious activity as required under the federal securities laws. An SEC investigation found that Albert Fried & Company failed to file Suspicious Activity Reports (SARs) with regulators for more than five years despite red flags tied to its customers’ high-volume liquidations of low-priced securities. On more than one occasion, an AF&Co customer’s trading in a security on a given day exceeded 80 percent of the overall market volume. In other instances, customers were trading in stocks issued by companies that were delinquent in their regulatory filings or involved in questionable penny stock promotional campaigns. Certain customers also were the subject of grand jury subpoenas received by AF&Co. AF&Co agreed to pay a $300,000 penalty to settle the charges. The SEC’s order finds that AF&Co violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8. AF&Co agreed to be censured and pay the $300,000 penalty without admitting or denying the findings in the order, which credits the firm for its cooperation and the remedial measures already undertaken. While the SEC has charged other firms with anti-money laundering failures under the federal securities laws, this is the first case against a firm solely for failing to file SARs when appropriate.

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In the Matter of Blackstreet Capital Management, LLC and Murry N. Gunty Exchange Act Release No. 77959 (June 1, 2016) http://www.sec.gov/litigation/admin/2016/34-77959.pdf Press Release No. 2016-100 (June 1, 2016) http://www.sec.gov/news/pressrelease/2016-100.html [Press Release] SEC: Private Equity Fund Adviser Acted As Unregistered Broker FOR IMMEDIATE RELEASE 2016-100 Washington D.C., June 1, 2016 — The Securities and Exchange Commission announced that a Maryland-based private equity fund advisory firm and its owner have agreed to pay more than $3.1 million to settle charges that they engaged in brokerage activity and charged fees without registering as a broker- dealer and committed other securities law violations. An SEC investigation found that Blackstreet Capital Manage- ment and Murry N. Gunty performed in-house brokerage services rather than using investment banks or broker-dealers to handle the acquisition and disposition of portfolio companies for a pair of private equity funds they advise. Blackstreet fully disclosed to its funds and their investors that it would provide brokerage services in exchange for a fee, yet the firm failed to comply with the registration requirements to operate as a broker-dealer. The SEC’s investigation, which stemmed from an agency examination of Blackstreet, further found that the firm and Gunty engaged in conflicted transactions and inadequately disclosed fees and expenses. According to the SEC’s order:  Blackstreet charged fees to portfolio companies in one fund for providing operating partner oversight, but the fund’s limited partnership agreement (LPA) did not disclose that Blackstreet received such fees. This resulted in a conflict of interest because Blackstreet used fund assets to compensate itself.  Blackstreet used fund assets to pay for political and charitable contributions as well as entertainment expenses. These expendi- tures were not expressly authorized by the funds’ governing

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documents, and Blackstreet neither sought nor obtained appropriate consent.  Blackstreet engaged in a conflicted transaction when it acquired a departing employee’s shares in one fund’s portfolio companies without disclosing its financial interests or obtaining appropriate consent to engage in the transaction.  Gunty, through an entity he controlled, acquired fund interests from certain limited partners and then directed the fund’s general partner (which he also controlled) to waive his obligation to satisfy future capital calls associated with new investments. These acquisitions and subsequent waivers were contrary to the terms of the fund’s LPA, and Blackstreet’s failure to disclose these waivers rendered the LPA materially misleading.  Blackstreet failed to adopt and implement reasonably designed policies and procedures. The SEC’s order finds that Blackstreet violated Section 15(a) of the Securities Exchange Act of 1934, and Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)- 8. The order finds that Gunty caused Blackstreet’s violations. Without admitting or denying the findings, Blackstreet agreed to be censured and Blackstreet and Gunty must cease and desist from further violations while paying combined disgorgement of $2.339 million, including $504,588 that will be distributed back to affected clients. They also agreed to pay $283,737 in interest and a $500,000 penalty.

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SEC v. Hope Advisors, LLC, et al. Litigation Release No. 23551 (June 1, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23551.htm Civil Action No. 1:16-cv-01752 (May 31, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-98.pdf Press Release 2016-98 (May 31, 2016) http://www.sec.gov/news/pressrelease/2016-98.html SEC Alleges Nashville Firm Schemed to Collect Extra Fees from Hedge Funds The Securities and Exchange Commission charged a Nashville, Tenn.-based investment advisory firm and its owner with scheming to collect extra monthly fees from a pair of hedge funds they managed. Examiners in the SEC’s Atlanta office detected the misconduct during an examination of Hope Advisers Inc., which is owned by Karen Bruton. The SEC alleges that in order to circumvent the funds’ fee structure under which the firm is entitled to fees only if the funds’ profits that month exceed past losses, Hope Advisers and Bruton have been orchestrating certain trades that enable the funds to realize a large gain near the end of the current month while basically guaranteeing a large loss to be realized early the following month. Without the fraudulent trades, Hope Advisers would have received almost no incentive fees since October 2014. Hope Advisers and Bruton have consented to an interim order that restricts them from accessing $7 million of their own investments in the funds, prohibits them from collecting any further fees unless they satisfy the high water mark in the funds’ fee structure, and restricts them from taking additional investments in the fund. Without admitting or denying the allegations, the Defendants also are preliminarily enjoined from violating the antifraud statutes of the federal securities laws. According to the SEC’s complaint filed in federal court in Atlanta:  The two private hedge funds managed by Hope Advisers and Bruton - named Hope Investments LLC and HDB Investments LLC - have more than $175 million in net asset value.  Hope Advisers receives its only compensation for managing the funds in the form of an incentive fee, calculated as a share of the profits (10 or 20 percent) earned in the funds’ accounts each month.  Hope Advisers and Bruton engaged in a continuous pattern of trading to inflate their compensation from the funds. They not

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only delayed realization of trading losses but also intentionally sized certain trades so the funds realized a profit every month.  The scheme has enabled Hope Advisers to avoid realization of more than $50 million in losses in the hedge funds while earning millions of dollars in fees to which they were not entitled.  Without the fraudulent trades, Hope Advisers would have received almost no incentive fees from at least October 2014 through the present. The SEC’s complaint charges Hope Advisers and Bruton with violating or aiding and abetting violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 as well as Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940, and Rule 206(4)-8. The SEC’s complaint seeks disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions. The complaint also names Bruton’s charity called Just Hope Foun- dation as a relief defendant for the purposes of returning money it received out of the fees to which the firm was not entitled. The complaint does not allege that the Just Hope Foundation participated in the wrongdoing.

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In the Matter of Central States Capital Markets, LLC, et al. Exchange Act Release No. 77369 (March 15, 2016) http://www.sec.gov/litigation/admin/2016/34-77369.pdf Press Release No. 2016-54 (March 15, 2016) http://www.sec.gov/news/pressrelease/2016-54.html [Press Release] Municipal Advisor Charged for Failing to Disclose Conflict Case is First Under Dodd-Frank Provision Creating Fiduciary Duty FOR IMMEDIATE RELEASE 2016-54 Washington D.C., March 15, 2016 — The Securities and Exchange Commission charged Kansas-based Central States Capital Markets, its CEO, and two employees for breaching their fiduciary duty by failing to disclose a conflict of interest to a municipal client. The case is the SEC’s first to enforce the fiduciary duty for municipal advisors created by the 2010 Dodd- Frank Act, which requires these advisors to put their municipal clients’ interests ahead of their own. According to the SEC’s order, while Central States served as a municipal advisor to a client on municipal bond offerings in 2011, two of its employees, in consultation with the CEO, arranged for the offerings to be underwritten by a broker-dealer where all three worked as registered representatives. The order found that Central States CEO John Stepp and employees Mark Detter and David Malone did not inform the client, identified in the order as “the City,” of their relationship to the underwriter or the financial benefit they obtained from serving in dual roles. Municipal advisors advise municipal and conduit borrowers about the terms of offerings, including interest rates, the selection of underwriters, and underwriting fees. In the three offerings, Central States collected fees from the City for the municipal advisory work and received 90 percent of the underwriting fees the City paid to the broker-dealer. The SEC’s order found that Central States, Stepp, Detter, and Malone, breached their duty to the City by failing to disclose the conflict of interest. The order found that Detter and Malone were aware of the conflict and that Detter emailed Malone that “we should resign” as municipal advisor to serve solely as underwriter on the offerings.

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Without admitting or denying the findings, Central States, Detter, Malone, and Stepp consented to the SEC’s order that they cease and desist from similar future securities-law violations and violations of Rule G-17 of the Municipal Securities Rulemaking Board (MSRB) that requires advisors to deal fairly with their clients. Detter, Malone, and Stepp also agreed to cease and desist from future violations of MSRB Rule G-23 that bars those acting as municipal advisors on a bond offering from underwriting that offering. Central States agreed to settle the SEC’s charges by paying $289,827.80 in disgorgement and interest and an $85,000 civil penalty. Detter agreed to settle the charges by paying a $25,000 civil penalty and agreeing to a bar from the financial services industry for a minimum of two years. Malone agreed to settle the charges by paying a $20,000 civil penalty and agreeing to a bar from the financial services industry for a one-year minimum. Stepp agreed to settle the charges by paying a $17,500 civil penalty and agreeing to a six-month suspension from acting in a supervisory capacity with any broker-dealer, investment adviser, or municipal advisor.

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In the Matter of Royal Alliance Associates, Inc., et al. Exchange Act Release No. 77362 (March 14, 2016) https://www.sec.gov/litigation/admin/2016/34-77362.pdf Press Release No. 2016-52 (March 14, 2016) https://www.sec.gov/news/pressrelease/2016-52.html [Press Release] AIG Affiliates Charged With Mutual Fund Shares Conflicts FOR IMMEDIATE RELEASE 2016-52 Washington D.C., March 14, 2016 — The Securities and Exchange Commission announced charges against three AIG affiliates for steering mutual fund clients toward more expensive share classes so the firms could collect more fees. The firms agreed to pay more than $9.5 million to settle the SEC’s charges. An SEC investigation found that the firms placed clients in share classes that charged fees for marketing and distribution despite the clients being eligible to buy shares in fund classes without those additional charges. As a result, the firms collected approximately $2 million in extra fees. The firms failed to disclose their conflict of interest in selecting share classes that would generate more revenue for them. According to the SEC’s order instituting a settled administrative proceeding, the AIG affiliates also failed to monitor advisory accounts on a quarterly basis to prevent reverse churning. The firms had compliance policies and procedures to ensure that fee-based or “wrap” advisory accounts that charged an inclusive fee for both advisory services and trading costs remained in the best interest of clients that traded infrequently, but failed to implement those policies and procedures. The three firms – Royal Alliance Associates, SagePoint Financial, and FSC Securities Corporation – consented to the SEC’s order without admitting or denying the findings that they violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)- 7. The firms agreed to disgorgement of more than $2 million in improper fees plus prejudgment interest and a $7.5 million penalty.

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In the Matter of Charles P. Grom Exchange Act Release No. 77150 (February 17, 2016) http://www.sec.gov/litigation/admin/2016/34-77150.pdf Press Release No. 2016-30 (February 17, 2016) http://www.sec.gov/news/pressrelease/2016-30.html [Press Release] SEC: Deutsche Bank Analyst Issued Stock Rating Inconsistent With Personal View FOR IMMEDIATE RELEASE 2016-30 Washington D.C., Feb. 17, 2016 — The Securities and Exchange Commission charged a former Deutsche Bank research analyst with certifying a rating on a stock that was inconsistent with his personal view. An SEC investigation found that Charles P. Grom certified that his March 29, 2012 research report about discount retailer Big Lots accurately reflected his own beliefs about the company and its securities. But in private communications with Deutsche Bank research and sales personnel, Grom indicated that he didn’t downgrade Big Lots from a “BUY” recommendation in his report because he wanted to maintain his relationship with Big Lots management. Grom agreed to settle the charges by paying a $100,000 penalty, and he will be suspended from the securities industry for a year. According to the SEC’s order instituting a settled administrative proceeding:  Grom violated the analyst certification requirement of Regulation AC, which requires research analysts to include a certification that the views expressed in a research report accurately reflect their own beliefs about the company and its securities.  Grom and Deutsche Bank hosted Big Lots executives at a non- deal roadshow on March 28, 2012. Grom became concerned by what he believed to be cautious comments by the Big Lots executives.  After the roadshow concluded, Grom communicated with a number of hedge fund clients about Big Lots. Four of the hedge funds subsequently sold their entire positions in Big Lots stock.

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 The next day, Grom issued a research report on Big Lots in which he reiterated his BUY rating. As required by Regulation AC, Grom signed an analyst certification included at the end of the report stating, “The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer.”  During an internal conference call with Deutsche Bank’s research and sales personnel within hours after the publication of his report, Grom said, among other things, that he had maintained a BUY rating on Big Lots because “we just had them in town so it’s not kosher to downgrade on the heels of something like that.”  On April 24, 2012, during another conference call with Deutsche Bank research and sales personnel, Grom discussed disappointing first quarter sales figures at Big Lots and stated, “I think the writing was on the wall [that] we were getting concerned about it, but I was trying to maintain, you know, my relationship with them. So, that’s why we didn’t downgrade it a couple of weeks back.” Grom consented to the entry of the SEC’s order finding that he willfully violated the analyst certification requirement of Regulation AC of the Securities Exchange Act of 1934. Grom neither admitted nor denied the SEC’s findings.

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In the Matter of E.S. Financial Services, Inc. n/k/a/ Brickell Global Markets, Inc. Exchange Act Release No. 77056 (February 4, 2016) http://www.sec.gov/litigation/admin/2016/34-77056.pdf Press Release No. 2016-23 (February 4, 2016) http://www.sec.gov/news/pressrelease/2016-23.html [Press Release] SEC: Miami Firm Broke Anti-Money Laundering Protocols FOR IMMEDIATE RELEASE 2016-23 Washington D.C., Feb. 4, 2016 — The Securities and Exchange Commission announced that a Miami-based brokerage firm agreed to pay a $1 million penalty to settle charges that it violated anti-money laundering rules by allowing foreign entities to buy and sell securities without verifying the identities of the non-U.S. citizens who beneficially owned them. During SEC examinations of E.S. Financial Services, which is now named Brickell Global Markets, the firm twice failed to provide required books and records identifying certain foreign customers whom they were soliciting directly and providing investment advice. Federal law requires all financial institutions to maintain an adequate customer identification program (CIP) to ensure financial institutions know their customers and do not become a conduit for money laundering or terrorist financing. An ensuing SEC investigation found that E.S. Financial’s CIP failed to obtain and maintain documentation to verify the identities of certain non-U.S. customers who traded through a brokerage account opened by a Central American bank affiliated with the firm. As part of the settlement, E.S. Financial agreed to retain an independent monitor to directly review its anti-money laundering/CIP policies, procedures, and practices for the next two years. According to the SEC’s order instituting a settled administrative proceeding:  During approximately a decade, E.S. Financial maintained a brokerage account for a Central American bank that was purportedly trading for its sole benefit.  E.S. Financial allowed 13 non-U.S. corporate entities and, in turn, 23 non-U.S. citizens who were their beneficial owners, to execute

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more than $23 million in securities transactions through the Cen- tral American bank’s brokerage account.  E.S. Financial worked directly with these non-U.S. citizens as if they were E.S. Financial customers, but did not collect, verify, or document any information regarding their identities as required under anti-money laundering/CIP regulations. The SEC’s order finds that E.S. Financial willfully violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8, which require a broker-dealer to comply with the reporting, recordkeeping, and record retention requirements in regulations implemented under the Bank Secrecy Act, including the requirements in the CIP rule applicable to broker-dealers. The order also finds that E.S. Financial willfully violated Exchange Act Rules 17a-3 and 17a-4 which require broker-dealers to create and maintain customer account records and furnish them to SEC representatives upon request. Without admitting or denying the findings, E.S. Financial consented to the order and agreed to cease and desist from committing or causing any future violations.

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In the Matter of Goldman, Sachs & Co. Exchange Act Release No. 76899 (January 14, 2016) http://www.sec.gov/litigation/admin/2016/34-76899.pdf Press Release No. 2016-9 (January 14, 2016) http://www.sec.gov/news/pressrelease/2016-9.html [Press Release] SEC Charges Goldman Sachs With Improper Securities Lending Practices FOR IMMEDIATE RELEASE 2016-9 Washington D.C., Jan. 14, 2016 — The Securities and Exchange Commission announced that Goldman, Sachs & Co. has agreed to pay $15 million to settle charges that its securities lending practices violated federal regulations. According to the SEC’s order instituting a settled administrative proceeding, broker-dealers such as Goldman Sachs are regularly asked by customers to locate stock for short selling. Granting a “locate” represents that a firm has borrowed, arranged to borrow, or reasonably believes it could borrow the security to settle the short sale. The SEC finds that Goldman Sachs violated Regulation SHO by improperly providing locates to customers where it had not performed an adequate review of the securities to be located. Such locates were inaccurately recorded in the firm’s locate log that must reflect the basis upon which Goldman Sachs has given out locates. The SEC’s order finds that when SEC examiners questioned the firm’s securities lending practices during an examination in 2013, Goldman Sachs provided incomplete and unclear responses that adversely affected and unnecessarily prolonged the examination. According to the SEC’s order, Goldman Sachs employees who were members of the firm’s Securities Lending Demand Team routinely processed customer locate requests by relying on a function of the Goldman Sachs order management system known as “fill from autolocate,” which was accessed via the “F3” key. This function enabled employees to cause the system to grant locate requests based on the amount of reliable start-of-day inventory reported to Goldman Sachs by large financial institutions, even though its automated system had already deemed this inventory to be depleted based on locate requests processed earlier in the day.

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The SEC’s order finds that when Goldman Sachs employees used this function to grant locate requests, they relied on their general belief that the automated model was conservative and the granting of additional locates would not result in failures to deliver when the securities became due for settlement. In doing so, the Goldman Sachs employees did not check alternative sources of inventory or perform an adequate review of the securities to be located. The SEC’s order also finds that Goldman Sachs’s documentation of its compliance with Regulation SHO was inaccurate as it failed to sufficiently differentiate between the locates filled by its automated model and those filled by the Demand Team using the “fill from autolocate” function. In both cases, the locate log simply mentioned the term “autolocate” to refer to the start-of-day inventory utilized by the firm’s automated model as the source of securities underlying the grant of a locate. The SEC’s order finds that Goldman Sachs violated Rule 203(b)(1) of Regulation SHO and Section 17(a) of the Securities Exchange Act. Without admitting or denying the findings, Goldman Sachs consented to the order and agreed to pay the $15 million penalty. The order censures Goldman Sachs and requires the firm to cease and desist from committing or causing any violations and any future violations of Rule 203(b)(1) of Regulation SHO and Section 17(a) of the Exchange Act relating to short sale locate records.

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In the Matter of Steven A. Cohen Advisers Act Release No. 4307 (January 8, 2016) http://www.sec.gov/litigation/admin/2016/ia-4307.pdf Press Release No. 2016-3 (January 8, 2016) http://www.sec.gov/news/pressrelease/2016-3.html [Press Release] Steven A. Cohen Barred From Supervisory Hedge Fund Role SEC Examinations and Independent Consultant Reviews Also Part of Settlement FOR IMMEDIATE RELEASE 2016-3 Washington D.C., Jan. 8, 2016 — The Securities and Exchange Commission announced that hedge fund manager Steven A. Cohen will be prohibited from supervising funds that manage outside money until 2018 in order to settle charges for failing to supervise a former portfolio manager who engaged in insider trading while employed at his firm. In addition, Cohen’s family office firms will be subject to SEC examinations and the firms must retain an independent consultant to conduct periodic reviews of their activities to ensure compliance with securities laws. The SEC’s order finds that Cohen failed to supervise former portfolio manager Mathew Martoma, who engaged in insider trading in 2008 while employed at CR Intrinsic Investors, an investment advisory firm that was a wholly-owned subsidiary of S.A.C. Capital Advisors LLC, an entity founded and controlled by Cohen. The order also finds that Cohen ignored red flags that should have caused him to take prompt action to determine whether Martoma was engaged in insider trading. Instead, Cohen permitted Martoma to make trades based on that information, and Cohen placed similar trades in accounts that Cohen controlled. Cohen also encouraged Martoma to talk to a doctor about nonpublic drug trial results to inform trading decisions. Based on these trades, Cohen’s hedge funds earned profits and avoided losses of approximately $275 million. Under the terms of the settlement, Cohen is prohibited from serving in a supervisory role at any broker, dealer, or investment adviser until 2018, must retain an independent consultant and adopt consultant recommendations, and must submit to on-site SEC examinations of his registered or unregistered firms.

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The SEC order also includes provisions to extend the length of the settlement terms in the event the Commission brings a new action against Cohen, a related entity, or an employee supervised by him. The settlement terms also provide that if Cohen becomes associated in a supervisory capacity with an entity that is a registered broker, dealer, or investment adviser in 2018 or 2019, that entity will retain an independent consultant through Dec. 31, 2019. Previously in November 2012, the SEC charged CR Intrinsic and Martoma with insider trading. In March 2013, CR Intrinsic agreed to pay more than $600 million in order to settle the SEC charges. In July 2013, Cohen’s entities, including S.A.C. Capital Advisors and CR Intrinsic, paid an additional $1.2 billion to resolve criminal charges brought by the U.S. Attorney’s Office for the Southern District of New York. Cohen neither admits nor denies the SEC’s finding that he failed reasonably to supervise Martoma and prevent his violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

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In the Matter of J.P. Morgan Securities LLC Securities Act Release No. 10001 (January 6, 2016) http://www.sec.gov/litigation/admin/2016/33-10001.pdf Press Release No. 2016-1 (January 6, 2016) http://www.sec.gov/news/pressrelease/2016-1.html [Press Release] SEC: J.P. Morgan Misled Customers on Broker Compensation FOR IMMEDIATE RELEASE 2016-1 Washington D.C., Jan. 6, 2016 — The Securities and Exchange Commission announced that J.P. Morgan’s brokerage business agreed to pay $4 million to settle charges that it falsely stated on its private banking website and in marketing materials that advisors are compensated “based on our clients’ performance; no one is paid on commission.” An SEC investigation found that although J.P. Morgan Securities LLC (JPMS) did not pay commissions to registered representatives in its U.S. Private Bank, compensation was not based on client performance. Advisors were instead paid a salary and a discretionary bonus based on a number of other factors. According to the SEC’s order instituting a settled administrative proceeding:  JPMS made the false and misleading statement about broker compensation from 2009 to 2012.  The misstatement was made to current and prospective customers on JPMS’ private banking website as well as a private banking website for its Tampa regional office.  Among the marketing materials that included the misstatement were a prospecting card, a pitch book, and a marketing letter.  JPMS employees identified the broker compensation statement as inaccurate on four occasions from March 2009 to February 2011. But JPMS failed to correct the misstatement on each of those occasions.  It wasn’t until May 2012 – more than three years after it was first made – that the misstatement was corrected by JPMS in some marketing materials.

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Without admitting or denying the findings, JPMS consented to the entry of the SEC’s order finding violations of Section 17(a)(2) of the Securities Act of 1933. In addition to the $4 million penalty, JPMS agreed to be censured and must cease and desist from committing or causing any violations and any such future violations.

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In the Matter of Morgan Stanley Investment Management Inc. and Sheila Huang Securities Act Release No. 9998 (December 22, 2015) http://www.sec.gov/litigation/admin/2015/33-9998.pdf

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In the Matter of SG Americas Securities, LLC and Yimin Ge Securities Act Release No. 9999 (December 22, 2015) http://www.sec.gov/litigation/admin/2015/33-9999.pdf Press Release No. 2015-287 (December 22, 2015) http://www.sec.gov/news/pressrelease/2015-287.html [Press Release] Morgan Stanley Settles Charges in “Parking” Scheme FOR IMMEDIATE RELEASE 2015-287 Washington D.C., Dec. 22, 2015 — The Securities and Exchange Commission announced that Morgan Stanley Investment Management has agreed to pay $8.8 million to settle charges that one of its portfolio managers unlawfully conducted prearranged trading known as “parking” that favored certain advisory client accounts over others. The portfolio manager and a brokerage firm trader who assisted the schemes agreed to be barred from the securities industry and pay penalties in the settlement. The brokerage firm, SG Americas, agreed to pay more than $1 million to settle the SEC’s charges. An SEC investigation found that while managing accounts that needed to liquidate certain positions, Sheila Huang arranged sales of mortgage-backed securities to SG Americas trader Yimin Ge at predetermined prices that would enable her to buy back the positions at a small markup into other accounts advised by Morgan Stanley. Huang also sold additional bonds at above-market prices to avoid incurring losses in certain accounts, but she repurchased them at unfa- vorable prices in a fund that she managed without disclosing it to the disadvantaged fund client. According to the SEC’s orders instituting settled administrative proceedings:  Huang, who no longer works at Morgan Stanley, conducted the schemes in 2011 and 2012.  Huang effected prearranged transactions for five sets of bond trades. She sold them to Ge at the highest current independent bid price available for the securities, and executed the repurchase side of the cross trade at a small markup over the sales price.

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 By not crossing these positions at the midpoint between best bid and offer, Huang generally allocated the full benefit of the market savings to its purchasing clients, even though the buying and selling clients were owed the same fiduciary duty.  By interposing a broker to effectuate these cross trades, Huang evaded internal cross trade requirements and caused violations of regulatory prohibitions on cross trades applicable to registered investment companies.  In the additional set of prearranged trades to avoid incurring losses in certain accounts, Huang sold certain bonds at above- market prices to SG Americas and simultaneously sold two bonds from an unregistered MSIM fund to SG Americas at below market prices for no legitimate business purpose. The trades offset the above-market prices of the other bonds Huang sold.  At the time of the sale to SG Americas, Huang prearranged their repurchase by an unregistered fund she managed and advised at Morgan Stanley. Through these trades, Huang moved approximately $600,000 in previously unrealized losses from the selling accounts to the unregistered Morgan Stanley fund. The SEC’s order finds that Huang willfully violated Sections 17(a) (1) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c). She also willfully aided and abetted and caused violations of Sections 206(1) and (2) of the Investment Advisers Act of 1940. Morgan Stanley willfully violated Section 17(a)(3) of the Securities Act and Sections 206(2) and 206(4) of the Advisers Act as well as Rule 206(4)-7. Without admitting or denying the findings, Huang agreed to pay a $125,000 penalty and is barred from the securities industry for at least five years, and Morgan Stanley agreed to pay an $8 million penalty and reimburse a total of $857,534 to certain client accounts that were harmed by Huang’s misconduct. A separate SEC order finds that SG Americas willfully violated Section 17(a) of the Exchange Act and Rule 17a-3(a)(2) for failing to make and keep accurate books and records and failing to supervise Ge, who willfully aided and abetted Huang’s violations. Without admitting or denying the findings, SG Americas agreed to pay an $800,000 penalty and $211,093 in disgorgement and prejudgment interest, and Ge – who no longer works at the firm – agreed to pay a $25,000 penalty and is barred from the securities industry for at least three years.

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SEC v. Martin Shkreli, et al. Litigation Release No. 23433 (December 17, 2015) https://www.sec.gov/litigation/litreleases/2015/lr23433.htm Civil Action No. 15-cv-07175 (December 17, 2015) https://www.sec.gov/litigation/complaints/2015/comp-pr2015-282.pdf Press Release No. 2015-282 (December 17, 2015) https://www.sec.gov/news/pressrelease/2015-282.html SEC Charges Martin Shkreli with Fraud On December 17, 2015, the Securities and Exchange Commission charged Martin Shkreli, former CEO of pharmaceutical company Retrophin, with committing fraud during a 5-year period when he also was working as a hedge fund manager. The SEC alleges that Martin Shkreli misappropriated money from two hedge funds he founded and made material misrepresentations to investors among other widespread misconduct. The SEC also charged Retrophin’s former outside counsel and corporate secretary Evan Greebel with aiding and abetting certain aspects of Shkreli’s alleged fraud. According to the SEC’s complaint filed in federal district court in Brooklyn:  Shkreli was portfolio manager for the hedge fund MSMB Capital Management LP from October 2009 to March 2014, and also served as portfolio manager of another hedge fund he founded and controlled named MSMB Healthcare LP.  Shkreli misappropriated about $120,000 from MSMB Capital Management from October 2009 to July 2011 to unlawfully pay for food, clothing, medical expenses, clothing, office rent, and cash withdrawals.  Shkreli misled investors and prospective investors in MSMB Capital Management about the fund’s size and performance, claiming for example in July 2010 to have “returned +35.77% since inception on 11/1/2009.” In fact, the fund generated losses of about 18 percent.  In another example, Shkreli falsely stated in December 2010 that the fund had $35 million in assets under management. In fact, the fund had less than $1,000 in assets in its bank and brokerage accounts.

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 Shkreli lied to one of MSMB Capital Management’s executing brokers in February 2011 about the fund’s ability to settle a sizeable short sale in a pharmaceutical stock in MSMB Capital Management’s account. This transaction resulted in losses of more than $7 million to the executing broker who had to cover the short position in the open market.  Shkreli misappropriated $900,000 from MSMB Healthcare in 2013 to settle claims asserted by MSMB Capital Management’s executing broker arising out of the losses suffered in the short selling transaction.  From September 2013 to March 2014, Shkreli, with assistance from Greebel, fraudulently induced Retrophin to issue stock and make cash payments to certain disgruntled investors in Shkreli’s hedge funds who were threatening legal action. Shkreli and Greebel had investors enter into agreements with Retrophin misleadingly stating the payments were for consulting services when in fact the purpose was the release of potential claims against Shkreli. The SEC’s complaint charges Shkreli with violating Sections 17 (a)(1) and 17(a)(2) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5 and 10b-21. He also is charged with violating Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. Greebel is charged with aiding and abetting Shkreli’s violations of Exchange Act Section 10(b) and Rule 10b-5. Two Shkreli-owned entities that served as investment advisers to the hedge funds, MSMB Capital Management LLC and MSMB Healthcare Management LLC, are charged with violations of the antifraud provisions of the Investment Advisers Act, and Shkreli is charged with aiding and abetting those violations.

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In the Matter of Owen Li and Canarsie Capital, LLC Securities Act Release No. 9991 (December 16, 2015) http://www.sec.gov/litigation/admin/2015/33-9991.pdf Press Release No. 2015-281 (December 16, 2015) http://www.sec.gov/news/pressrelease/2015-281.html [Press Release] SEC: Hedge Fund Adviser Lied to Investors FOR IMMEDIATE RELEASE 2015-281 Washington D.C., Dec. 16, 2015 — The Securities and Exchange Commission barred a hedge fund adviser from the securities industry for making a series of false statements to investors and ultimately causing a fund’s collapse. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Owen Li, whose firm is Canarsie Capital LLC. According to the SEC’s order instituting a settled administrative proceeding against Li and Canarsie Capital:  Li was portfolio manager of a hedge fund called Canarsie Capital Fund Master LP.  During a three-year period, Li made false statements to investors and prospective investors about his personal investment in the fund, and did not inform them that he had depleted his personal assets through risky trading in his personal brokerage accounts.  Li made false and misleading statements and omissions about the fund’s performance, and provided false explanations for delays in the fund’s monthly performance reporting.  Li reported fictitious trades and made other false statements and omissions to the fund’s prime brokers to avoid margin calls and obtain more margin for the fund than the prime brokers would otherwise have extended.  In January 2015, Li liquidated all of the long positions in the long/short equity portfolio and invested virtually the entire portfolio in long, short-dated market index options.  The fund lost approximately $56.5 million (nearly all of its assets) from Dec. 31, 2014, to Jan. 16, 2015.

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Li and Canarsie Capital consented to the entry of the order finding that they violated the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advis- ers Act of 1940. Monetary sanctions are expected to be ordered in the parallel criminal proceeding against Li. Canarsie Capital is censured, and Li is barred from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or NRSRO.

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In the Matter of Marwood Group Research, LLC Exchange Act Release No. 76512 (November 24, 2015) http://www.sec.gov/litigation/admin/2015/34-76512.pdf Press Release No. 2015-266 (November 24, 2015) http://www.sec.gov/news/pressrelease/2015-266.html [Press Release] SEC Charges Political Intelligence Firm FOR IMMEDIATE RELEASE 2015-266 Washington D.C., Nov. 24, 2015 — The Securities and Exchange Commission announced that a political intelligence firm agreed to admit wrongdoing and pay a $375,000 penalty for compliance failures. Marwood Group Research LLC also agreed to retain an independent compliance consultant after an SEC investigation found that the firm failed to properly inform compliance officers about instances when analysts obtained potential material nonpublic information from government employees. Under Marwood Group’s written policies and procedures, compliance officers are central to the firm’s efforts to prevent confidential or nonpublic information from being released to clients, who in turn could use it to influence their securities trading decisions. According to the SEC’s order instituting a settled administrative proceeding:  Marwood Group’s misconduct occurred in 2010, when analysts sought and received information about policy issues or pending regulatory approvals at the Centers for Medicare & Medicaid Services and the Food and Drug Administration.  As part of its business, Marwood Group provided hedge funds and other clients with regulatory updates and analysis about potential timing and developments for future government actions or rulemaking decisions.  In gathering content for these “research notes,” Marwood Group encouraged its analysts to maintain relationships with government employees. Since government employees often are familiar with confidential matters at their agencies, such interactions

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increased the likelihood that Marwood Group employees could acquire material nonpublic information in the course of their work.  Marwood Group’s written policies and procedures expressly prohibited the acquisition and dissemination of material nonpublic information and required employees to bring it to the attention of the compliance department if they encountered anything confidential.  Despite the red flags regarding information received by analysts, Marwood Group drafted research notes and distributed them directly to clients who could have used any material nonpublic information to inform securities trading decisions.  Marwood Group’s analysts failed to bring the information to the compliance department’s attention so it could be properly vetted for any material nonpublic information ripe for insider trading. The SEC’s order finds that Marwood Group violated Section 15(g) of the Securities and Exchange Act of 1934 and Section 204A of the Investment Advisers Act of 1940.

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In the Matter of JH Partners, LLC Advisers Act Release No. 4276 (November 23, 2015) https://www.sec.gov/litigation/admin/2015/ia-4276.pdf

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In the Matter of Virtus Investment Advisers, Inc. Advisers Act Release No. 4266 (November 16, 2015) http://www.sec.gov/litigation/admin/2015/ia-4266.pdf Press Release No. 2015-258 (November 16, 2015) http://www.sec.gov/news/pressrelease/2015-258.html [Press Release] Mutual Fund Adviser Advertised False Performance Claims FOR IMMEDIATE RELEASE 2015-258 Washington D.C., Nov. 16, 2015 — The Securities and Exchange Commission announced that a Hartford, Conn.-based investment management firm agreed to pay $16.5 million to settle charges that it misled mutual fund investors and others with advertisements containing false historical performance data about AlphaSector, a major exchange-traded fund (ETF) portfolio strategy. An SEC investigation found that Virtus Investment Advisers publicized a substantially overstated performance track record as received from F-Squared, which it hired as a subadviser for mutual funds and other clients that followed F-Squared’s AlphaSector strategy. Virtus falsely stated in client presentations, marketing materials, SEC filings, and other communications that the AlphaSector strategy had a performance history dating back to April 2001 and outper- formed the S&P 500 Index for several years. In a separate SEC enforcement action last year, F-Squared admitted to touting a track record it presented as real when it was actually hypothetical and backtested, and these calculations also were inflated. According to the SEC’s order instituting a settled administrative proceeding:  F-Squared admitted in a separate SEC settled administrative proceeding that no F-Squared or other client assets had tracked the strategy from April 2001 to September 2008. F-Squared also admitted that it miscalculated the historical performance of AlphaS- ector during that time by incorrectly implementing signals earlier than they actually could have occurred.  In 2009, Virtus recommended that the boards of trustees and shareholders of certain Virtus mutual funds approve a change in

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management and strategy to F-Squared and AlphaSector. They did so based in part on AlphaSector’s false historical performance.  Virtus failed to take steps to determine whether F-Squared’s buy or sell signals were generated or used in any trading decisions from April 2001 to September 2008.  Even though Virtus expressed skepticism at the outset of the potential relationship with F-Squared about AlphaSector’s so- called “live” track record, it did not adequately investigate concerns about the representations being made.  Virtus had no records to support the calculation of the historical AlphaSector strategy track records that it then advertised.  During the period in which Virtus used the false and misleading advertisements, its AlphaSector funds’ assets under management grew from $191 million at the end of 2009 to approximately $11.5 billion by 2013. Virtus consented to the entry of the order finding that it violated Sections 204, 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rules 204-2(a)(16), 206(4)-1(a)(5), 206(4)-7, and 206(4)-8. The order also finds that Virtus caused certain mutual funds that it advised to violate Section 34(b) of the Investment Company Act of 1940. Without admitting or denying the findings, Virtus agreed to pay $13.4 million in disgorgement, $1.1 million in prejudgment interest, and a $2 million penalty.

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In the Matter of Cherokee Investment Partners, LLC and Cherokee Advisers, LLC Advisers Act Release No. 4258 (November 5, 2015) https://www.sec.gov/litigation/admin/2015/ia-4258.pdf

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In the Matter of Fenway Partners, LLC, et al. Advisers Act Release No. 4253 (November 3, 2015) http://www.sec.gov/litigation/admin/2015/ia-4253.pdf Press Release No. 2015-250 (November 3, 2015) http://www.sec.gov/news/pressrelease/2015-250.html [Press Release] SEC Charges Private Equity Firm and Four Executives With Failing to Disclose Conflicts of Interest FOR IMMEDIATE RELEASE 2015-250 Washington D.C., Nov. 3, 2015 — The Securities and Exchange Commission announced that a New York-based private equity firm and four executives have agreed to settle charges that they failed to disclose conflicts of interest to a fund client and investors when fund and portfolio company assets were used for payments to former firm employees and an affiliated entity. An SEC investigation found that Fenway Partners LLC, principals Peter Lamm and William Gregory Smart, former principal Timothy Mayhew Jr., and chief financial officer Walter Wiacek weren’t fully forthcoming to the client and investors about several transactions involving more than $20 million in payments out of fund assets or portfolio companies to an affiliated entity for consulting services and to Mayhew and other former firm employees for services they primarily provided while still working at Fenway Partners. According to the SEC’s order instituting a settled administrative proceeding:  Fenway Partners entered into contracts with certain portfolio companies held by Fenway Capital Partners Fund III L.P. under which the companies paid fees to Fenway Partners that were offset against the management fees the firm earned from the fund.  Beginning in December 2011, Fenway Partners and the four executives caused certain portfolio companies to terminate their payment obligations to Fenway Partners and enter into consulting agreements with an affiliated entity named Fenway Consulting Partners LLC.  Fenway Consulting Partners provided similar services to the portfolio companies often through the same employees, but the

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fees paid to Fenway Consulting Partners (totaling $5.74 million) were not offset against the management fees that the fund paid to Fenway Partners.  Fenway Partners, Lamm, Smart, and Wiacek asked fund investors to provide $4 million in connection with an investment in a portfolio company without disclosing that $1 million would be used to pay Fenway Consulting.  Fenway Partners, Lamm, and Mayhew caused Mayhew and two former Fenway Partners employees to receive $15 million in incentive compensation from the sale of a portfolio company for services that they had almost entirely provided when they were Fenway Partners employees.  Fenway Partners also failed to disclose these payments as related party transactions in the financial statements they provided to investors. To settle the SEC’s charges without admitting or denying the order’s findings, Fenway Partners, Lamm, Smart, and Mayhew agreed to jointly and severally pay disgorgement of $7.892 million and prejudgment interest of $824,471.10. They and Wiacek also agreed to pay penalties totaling $1.525 million. The total amount of $10,241,471.10 will be placed into a fund for harmed investors.

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In the Matter of DBRS, Inc. Exchange Act Release No. 76261 (October 26, 2015) http://www.sec.gov/litigation/admin/2015/34-76261.pdf Press Release No. 2015-246 (October 26, 2015) http://www.sec.gov/news/pressrelease/2015-246.html [Press Release] SEC Charges Credit Rating Agency With Misrepresenting Surveil- lance Methodology FOR IMMEDIATE RELEASE 2015-246 Washington D.C., Oct. 26, 2015 — The Securities and Exchange Commission charged credit rating agency DBRS Inc. with misrepresenting its surveillance methodology for ratings of certain complex financial instruments during a three-year period. The firm agreed to pay nearly $6 million to settle the charges. An SEC investigation that followed an annual examination of DBRS by the agency’s Office of Credit Ratings found that the firm misrepresented it would monitor on a monthly basis each of its outstanding ratings of U.S. residential mortgage-backed securities (RMBS) and re-securitized real estate mortgage investment conduits (Re-REMICs) by conducting a three-step quantitative analysis and subjecting each rating to review by a surveillance committee. The firm did not conduct the analysis on a monthly basis nor did it present each rating to the surveillance committee each month, and when the committee convened it reviewed only a limited subset of the outstanding RMBS and Re-REMIC ratings. DBRS did not have adequate staffing and technological resources to conduct surveillance for each of its outstanding RMBS and Re-REMIC ratings monthly as stated in its surveillance methodology. The SEC’s order instituting a settled administrative proceeding further finds that DBRS did not disclose changes to certain surveillance assumptions as the methodology stated that the firm would do. The SEC’s order finds that DBRS violated the following provisions of the federal securities laws and requires the firm to cease and desist from violating such provisions in the future: Sections 15E(b)(1) (failing promptly to amend its NRSRO application), 15E(b)(2) (failing to list material changes in annual NRSRO certification), 15E(c)(3)(A) (internal controls violations), 15E(d)(1)(E) (failure to maintain adequate resources to consistently produce credit ratings with integrity), and

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17(a) (books and records violations) of the Securities Exchange Act and Securities Exchange Act Rules 17g-1(e) (failing promptly to amend its NRSRO application), 17g-1(f) (failing to list material changes in annual NRSRO certification), and 17g-2(a)(2)(iii) (failure to maintain records of the rationales for material differences between quantitative model output and final ratings). Without admitting or denying the findings in the SEC’s order, DBRS agreed to disgorgement of $2.742 million in rating surveillance fees it collected from 2009 to 2011 plus prejudgment interest of $147,482 and a penalty of $2.925 million. DBRS also agreed to be censured and retain an independent consultant to assess and improve its internal controls among other things.

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In the Matter of UBS AG Securities Act Release No. 9961 (October 13, 2015) http://www.sec.gov/litigation/admin/2015/33-9961.pdf Press Release No. 2015-238 (October 13, 2015) http://www.sec.gov/news/pressrelease/2015-238.html [Press Release] UBS to Pay $19.5 Million Settlement Involving Notes Linked to Currency Index Case Is Agency’s First Against an Issuer of Retail Structured Notes FOR IMMEDIATE RELEASE 2015-238 Washington D.C., Oct. 13, 2015 — The Securities and Exchange Commission announced that UBS AG has agreed to pay $19.5 million to settle charges that it made false or misleading statements and omissions in offering materials provided to U.S. investors in structured notes linked to a proprietary foreign exchange trading strategy. The case is the agency’s first involving misstatements and omissions by an issuer of structured notes, a complex financial product that typically consists of a debt security with a derivative tied to the performance of other securities, commodities, currencies, or proprietary indices. The return on the structured note is linked to the performance of the derivative over the life of the note. Between $40 billion to $50 billion of structure notes are registered with the SEC per year, with many of those notes sold to relatively unsophisticated retail investors. UBS, one of the largest issuers of structured notes in the world, agreed to settle the SEC’s charges that it misled U.S. investors in structured notes tied to the V10 Currency Index with Volatility Cap by falsely stating that the investment relied on a “transparent” and “systematic” currency trading strategy using “market prices” to calculate the financial instruments underlying the index, when undisclosed hedging trades by UBS reduced the index price by about five percent. According to the SEC’s order instituting a settled administrative proceeding:  UBS perceived that investors looking to diversify their portfolios in the wake of the financial crisis were attracted to structured products so long as the underlying trading strategy was transparent. In

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registered offerings of the notes in the U.S., UBS depicted the V10 Currency Index as “transparent” and “systematic.”  Between December 2009 and November 2010 approximately 1,900 U.S. investors bought approximately $190 million of structured notes linked to the V10 index.  UBS lacked an effective policy, procedure, or process to make the individuals with primary responsibility for drafting, reviewing and revising the offering documents for the structured notes in the U.S. aware that UBS employees in Switzerland were engaging in hedging practices that had or could have a negative impact on the price inputs used to calculate the V10 index.  UBS did not disclose that it took unjustified markups on hedging trades, engaged in hedging trades with non-systemic spreads, and traded in advance of certain hedging transactions.  The unjustified markups on hedging trades resulted in market prices not being used consistently to calculate the V10 index. In addition, UBS did not disclose that certain of its traders added spreads to the prices of hedging trades largely at their discretion.  As a result of the undisclosed markups and spreads on these hedging transactions, the V10 index was depressed by approximately five percent, causing investor losses of approximately $5.5 million. The SEC’s order found that UBS acted negligently by misleading investors through material misstatements or omissions in the offering documents. Without admitting or denying the SEC’s findings, UBS agreed to cease and desist from committing or causing any similar future violations, to pay disgorgement and prejudgment interest of $11.5 million, to distribute $5.5 million of the disgorgement funds to V10 investors to cover the total amount of investor losses, and to pay a civil monetary penalty of $8 million. In determining to accept the offer, the SEC considered UBS’s substantial cooperation afforded its staff and certain remedial measures UBS implemented voluntarily.

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In the Matter of Blackstone Management Partners L.L.C., et al. Advisers Act Release No. 4219 (October 7, 2015) https://www.sec.gov/litigation/admin/2015/ia-4219.pdf Press Release No. 2015-235 (October 7, 2015) https://www.sec.gov/news/pressrelease/2015-235.html [Press Release] Blackstone Charged With Disclosure Failures Private Equity Advisers to Pay Nearly $39 Million Settlement FOR IMMEDIATE RELEASE 2015-235 Washington D.C., Oct. 7, 2015 — The Securities and Exchange Commission announced that three private equity fund advisers within The Blackstone Group have agreed to pay nearly $39 million to settle charges that they failed to fully inform investors about benefits that the advisers obtained from accelerated monitoring fees and discounts on legal fees. Nearly $29 million of the settlement will be distributed to affected fund investors. An SEC investigation found that Blackstone Management Partners, Blackstone Management Partners III, and Blackstone Man- agement Partners IV failed to adequately disclose the acceleration of monitoring fees paid by fund-owned portfolio companies prior to the companies’ sale or initial public offering. The payments to Black- stone essentially reduced the value of the portfolio companies prior to sale, to the detriment of the funds and their investors. The SEC investigation also found that fund investors were not informed about a separate fee arrangement that provided Blackstone with a much greater discount on services by an outside law firm than the discount that the law firm provided to the funds. According to the SEC’s order instituting a settled administrative proceeding:  Blackstone typically charges a monitoring fee to each portfolio company owned by its funds. The fee covers advisory and consulting services to the portfolio company and typically is for a ten-year period.  Before the private sale or initial public offering of certain portfolio companies, Blackstone terminated monitoring agreements and accelerated the payment of future monitoring fees, including in some instances when monitoring services would no longer be

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provided. Some of the accelerated fee payments were used to offset management fees.  Blackstone disclosed its ability to collect monitoring fees prior to investors’ commitment of capital but did not disclose its practice of accelerating monitoring fees until after it took the fees.  Blackstone also failed to disclose a legal fee arrangement providing it with a much greater discount on its legal fees than the discount the funds received.  Blackstone negotiated the arrangement with a law firm that performed a substantial amount of legal work for Blackstone and its funds. The funds generated significantly more legal fees than Blackstone did.  Blackstone also failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act of 1940. Blackstone consented to the entry of the SEC’s order finding that it breached its fiduciary duty to the funds, failed to properly disclose information to the funds’ investors, and failed to adopt and implement reasonably designed policies and procedures. Without admitting or denying the findings, Blackstone agreed to cease and desist from further violations, to disgorge $26.2 million of ill-gotten gains plus prejudgment interest of $2.6 million, and to pay a $10 million civil penalty. Blackstone agreed to distribute $28.8 million to affected fund investors. The settlement reflects Blackstone’s remedial acts and its voluntary and prompt cooperation with the Division of Enforce- ment’s investigation. The Division of Enforcement’s Asset Management Unit is continuing its review of private equity fee and expense issues and encourages private equity fund advisers that have identified such issues to self-report them to the staff. As noted in the Division of Enforcement’s Enforcement Manual, self-reporting is one factor that the Commission considers when evaluating cooperation and determining whether and to what extent to extend credit in settlements.

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ACTIONS INVOLVING THE FOREIGN CORRUPT PRACTICES ACT

Recent enforcement actions alleging violations of the Foreign Corrupt Practices Act (the “FCPA”) have involved claims against individuals and entities, including foreign issuers and U.S. issuers’ foreign subsidiaries, in countries including China, Russia, Argentina, Ghana, Israel, Kazakhstan, Ukraine, Vietnam, Macao, and Uzbekistan. The SEC brought settled actions in administrative cease-and-desist proceedings and in federal district courts. One case against a foreign airline involved the compensation of a third party for negotiating labor disputes and for paying individuals with influence over labor unions, all disguised under a sham consulting agreement. The SEC also charged a pharmaceuticals company for engaging in a pay-to-prescribe scheme that involved the giving of millions of dollars in things of value to state health care professionals. Other cases involved giving money, gifts, travel and entertainment to government officials, and hiring officials’ relatives, and failing to properly report these expenses in the issuers’ books and records and/or failing to have appropriate controls in place to prevent such misconduct. The SEC also issued its first deferred prosecution agreement with an individual in an FCPA case in light of significant cooperation with the SEC’s investigation, and entered into non-prosecution agreements with issuers that self-reported conduct promptly and cooperated extensively.

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In the Matter of Analogic Corporation and Lars Frost Exchange Act Release No. 78113 (June 21, 2016) AAE Release No. 3784 (June 21, 2016) https://www.sec.gov/litigation/admin/2016/34-78113.pdf Press Release No. 2016-126 (June 21, 2016) https://www.sec.gov/news/pressrelease/2016-126.html [Press Release] SEC Charges Medical Device Manufacturer With FCPA Violations FOR IMMEDIATE RELEASE 2016-126 Washington D.C., June 21, 2016— The Securities and Exchange Commission announced that Massachusetts-based medical device manufacturer Analogic Corp. and its wholly-owned Danish subsidiary have agreed to pay nearly $15 million to settle parallel civil and criminal actions involving Foreign Corrupt Practices Act (FCPA) violations. An SEC investigation found that Analogic’s Danish subsidiary, BK Medical ApS, engaged in hundreds of sham transactions with distributors that funneled about $20 million to third parties, including individuals in Russia and apparent shell companies in Belize, the British Virgin Islands, Cyprus, and Seychelles. Analogic agreed to pay $7.67 million in disgorgement and $3.8 million in prejudgment interest to settle the SEC’s charges that it failed to keep accurate books and records and maintain adequate internal accounting controls. In determining the settlement, the SEC considered Analogic’s self-reporting, remedial acts, and general cooperation with the SEC’s investigation. BK Medical agreed to pay a $3.4 million criminal fine in a non-prosecution agreement announced by the U.S. Department of Justice. Lars Frost, BK Medical’s former Chief Financial Officer, agreed to pay a $20,000 penalty to the SEC to settle charges that he knowingly circumvented the internal controls in place at BK Medical and falsified its books and records. According to the SEC’s order instituting a settled administrative proceeding against Analogic and Frost:  From at least 2001 through early 2011, at the direction of its distributors, BK Medical participated in hundreds of highly

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suspicious transactions that posed a significant risk of bribery or other improper conduct, such as embezzlement or tax evasion.  At its distributors’ request, BK Medical would issue fictitious inflated invoices to the distributors and direct the overpayments it received to third parties identified by the distributors. BK Medi- cal did not have a relationship with the third parties and did not know if the payments had any business purpose.  BK Medical’s Russian distributor accounted for at least 180 payments totaling more than $16 million. BK Medical participated in similar arrangements, but to a lesser degree, with distributors in Ghana, Israel, Kazakhstan, Ukraine, and Vietnam, for which BK Medical acted as a conduit for at least 80 payments totaling approximately $3.8 million.  Frost, who was BK Medical’s CFO from 2008 to 2011, personally authorized approximately 150 conduit payments and submitted false quarterly sub-certifications to Analogic. Frost, a Danish citizen, consented to the SEC’s order without admitting or denying the findings that he caused Analogic’s violations and that he violated provisions of the federal securities laws and a related SEC rule that prohibit the knowing circumvention of internal controls and knowing falsification of books and records.

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SEC and Akamai Technologies, Inc. http://www.sec.gov/news/press/2016/2016-109-npa-akamai.pdf

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SEC and Nortek, Inc. http://www.sec.gov/news/press/2016/2016-109-npa-nortek.pdf Press Release No. 2016-109 (June 7, 2016) http://www.sec.gov/news/pressrelease/2016-109.html [Press Release] SEC Announces Two Non-Prosecution Agreements in FCPA Cases FOR IMMEDIATE RELEASE 2016-109 Washington D.C., June 7, 2016 — The Securities and Exchange Commission announced non-prosecution agreements (NPAs) with two unrelated companies that will forfeit ill-gotten gains connected to bribes paid to Chinese officials by foreign subsidiaries. Massachusetts-based internet services provider Akamai Tech- nologies has agreed to pay $652,452 in disgorgement plus $19,433 in interest. According to the NPA, Akamai’s foreign subsidiary arranged $40,000 in payments to induce government-owned entities to purchase more services than they actually needed. Employees at the foreign subsidiary violated the company’s written policies by providing improper gift cards, meals, and entertainment to officials at these state- owned entities to build business relationships. Rhode Island-based residential and commercial building products manufacturer Nortek Inc. has agreed to pay $291,403 in disgorgement plus $30,655 in interest. According to the NPA, approximately $290,000 in improper payments and gifts were made to Chinese officials by Nortek’s subsidiary in order to receive preferential treatment, relaxed regulatory oversight, or reduced customs duties, taxes, and fees. These included cash payments, gift cards, meals, travel, accom- modations, and entertainment. Both companies self-reported the misconduct promptly, and they cooperated extensively with the ensuing SEC investigations. The non- prosecution agreements stipulate that the companies are not charged with violations of the Foreign Corrupt Practices Act (FCPA) and do not pay additional monetary penalties. Among the companies’ actions outlined in the NPAs:  Reported the situation to the SEC on their own initiative in the early stages of internal investigations.

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 Shared detailed findings of the internal investigations and provided timely updates to enforcement staff when new information was uncovered.  Provided summaries of witness interviews and voluntarily made witnesses available for interviews, including those in China.  Voluntarily translated documents from Chinese into English.  Terminated employees responsible for the misconduct.  Strengthened their anti-corruption policies and conducted extensive mandatory training with employees around the world with a focus on bolstering internal audit procedures and testing protocols.

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In the Matter of Las Vegas Sands Corp. Exchange Act Release No. 77555 (April 7, 2016) http://www.sec.gov/litigation/admin/2016/34-77555.pdf Press Release No. 2016-64 (April 7, 2016) http://www.sec.gov/news/pressrelease/2016-64.html [Press Release] Las Vegas Sands Paying Penalty for FCPA Violations FOR IMMEDIATE RELEASE 2016-64 Washington D.C., April 7, 2016 — The Securities and Exchange Commission announced that Las Vegas Sands Corp. has agreed to pay a $9 million penalty to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) by failing to properly authorize or document millions of dollars in payments to a consultant facilitating business activities in China and Macao. An SEC investigation found that LVS kept inaccurate books and records and frequently lacked supporting documentation or proper approvals for more than $62 million in payments to a consultant in Asia. The consultant acted as an intermediary to obscure the company’s role in certain business transactions such as the purchases of a basketball team and a building in China, where casino gambling isn’t permitted. At one point, LVS could not account for more than $700,000 transferred to the consultant for team expenses, yet continued to transfer millions of dollars to him. A portion of the payments were improperly recorded in company books and records, such as money supposedly spent on artwork for the building when none was actually purchased. According to the SEC’s order instituting a settled administrative proceeding:  LVS transferred $6 million to a consultant internally referred to as a “beard” to buy a team to play in the Chinese Basketball Association, which did not permit gaming companies to own a team. The company transferred an additional $8 million to the consultant to cover the costs of operating the team without any documentation of those costs.  LVS used the same consultant as a beard to purchase a building in Beijing from a Chinese state-owned-entity, ostensibly to develop a business center for U.S. companies seeking to do business in

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China. Despite concerns by some employees that the real estate purchase was solely for political purposes, approximately $43 million in payments were made to the consultant without research, analysis, or proper approval by any LVS employee authorized to approve the amounts paid. Approximately $900,000 paid to an entity controlled by the consultant was recorded in company books and records as “property management fees” when no property management services were actually performed. Approx- imately $1.4 million was recorded as “arts and crafts” when the entity never actually obtained any artwork for the building.  LVS failed to prevent employees from circumventing policies and procedures for purchases, reimbursements to outside counsel, and comps to customers. For example, one employee obtained a cash advance of $28,000 and a cash reimbursement of $86,000 without proper authorization. An outside counsel requested reimbursement of $25,000 for expenses incurred on a business trip but provided no documentation, and later admitted that he actually requested the funds for a friend. In its casinos in Macao, LVS employees did not track which customers received comps to ensure they weren’t providing improper gifts to government officials. In additional to the $9 million penalty, LVS agreed to retain an independent consultant for two years to review its FCPA-related internal controls, recordkeeping, and financial reporting policies and procedures and its ethics and compliance functions. LVS consented to the SEC’s order without admitting or denying the findings that it violated the books-and-records and internal controls provisions of the Securities Exchange Act of 1934.

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In the Matter of Novartis AG Exchange Act Release No. 77431 (March 23, 2016) AAE Release No. 3759 (March 23, 2016) https://www.sec.gov/litigation/admin/2016/34-77431.pdf [Administrative Summary] Novartis Charged With FCPA violations The Securities and Exchange Commission announced that Novartis AG has agreed to pay $25 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) when its China-based subsidiaries engaged in pay-to-prescribe schemes to increase sales. An SEC investigation found that employees of two China-based Novartis subsidiaries gave money, gifts, and other things of value to health care professionals, which led to several million dollars in sales of pharmaceutical products to China’s state health institutions. The schemes, which lasted a period of years, involved certain complicit managers within Novartis’ China-based subsidiaries. Novartis failed to devise and maintain a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program to detect and prevent these schemes. As a result, the improper payments were not accurately reflected in Novartis’ books and records. The SEC’s order finds that Novartis violated the FCPA’s internal controls and books-and-records provisions. Novartis consented to the order without admitting or denying the findings, and agreed to pay $21.5 million in disgorgement of profits plus $1.5 million in prejudgment interest and a $2 million penalty. Novartis also agreed to provide status reports to the SEC for the next two years on its remediation and implementation of anti-corruption compliance measures.

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In the Matter of Qualcomm Incorporated Exchange Act Release No. 77261 (March 1, 2016) AAE Release No. 3751 (March 1, 2016) https://www.sec.gov/litigation/admin/2016/34-77261.pdf Press Release No. 2016-36 (March 1, 2016) https://www.sec.gov/news/pressrelease/2016-36.html [Press Release] SEC: Qualcomm Hired Relatives of Chinese Officials to Obtain Business FOR IMMEDIATE RELEASE 2016-36 Washington D.C., March 1, 2016 — The Securities and Exchange Commission announced that Qualcomm Incorporated has agreed to pay $7.5 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) by hiring relatives of Chinese government officials deciding whether to select the company’s mobile technology products amid increasing competition in the international telecommunications market. An SEC investigation found that Qualcomm also provided gifts, travel, and entertainment to try to influence officials at government- owned telecom companies in China. With insufficient internal controls to detect improper payments, Qualcomm misrepresented in its books and records that the things of value provided to foreign officials were legitimate business expenses. According to the SEC’s order instituting a settled administrative proceeding:  Qualcomm offered and provided full-time employment and paid internships to foreign officials’ family members internally referred to as “must place” or “special” hires in order to try to obtain or retain business in China.  One official asked Qualcomm employees to find an internship for her daughter studying in the U.S. and the company obliged, acknowl- edging in internal communications that her parents “gave us great help for Q.C. new business development.”  Another intern was hired by Qualcomm at the request of director general of a Chinese agency. Human resources department e-mails

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described the intern as “a MUST PLACE” and described the hiring as “quite important from a customer relationship perspective.”  Qualcomm provided a $75,000 research grant to a U.S. university on behalf of the son of a foreign official so he could retain his position in its Ph.D. program and renew his student visa. Qualcomm also provided him an internship and later permanent employment, and sent him on a business trip to China (during which he visited his parents over the Chinese New Year) despite concerns expressed about his qualifications for the assignment.  The son’s initial interview for permanent employment resulted in a “no hire” decision because he was not “a skills match” and did not “meet the minimum requirements for moving forward with an offer.” Those who interviewed him agreed “he would be a drain on teams he would join.” A human resources director still advocated for the hire, writing, “I know this is a pain, but I think we’re operating under a different paradigm here than a normal ‘hire’/ ‘no hire’ decision tree. We’re telling this kid … we don’t want to waste time or extend any extra effort in this favor [the telecom company] has asked of Qualcomm, and then turn around and ask the same person we just rejected to do us a special favor.”  Besides the preferential job treatment, a Qualcomm executive personally provided the official’s son with a $70,000 loan to buy a home.  Qualcomm also provided frequent meals, gifts, and entertainment with no valid business purpose to foreign officials to try to influence their decisions, such as airplane tickets for their children, event tickets and sightseeing for their spouses, and luxury goods. The SEC’s order finds that Qualcomm violated the anti-bribery, internal controls, and books-and-records provisions of the Securities Exchange Act of 1934. Without admitting or denying the findings, Qualcomm agreed to pay the $7.5 million penalty and self-report to the SEC for the next two years with annual reports and certifications of its FCPA compliance.

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SEC v. VimpelCom, Ltd. Civil Action No. 1:16-cv-01266 (February 18, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-34.pdf Press Release No. 2016-34 (February 18, 2016) http://www.sec.gov/news/pressrelease/2016-34.html [Press Release] VimpelCom to Pay $795 Million in Global Settlement for FCPA Violations FOR IMMEDIATE RELEASE 2016-34 Washington D.C., Feb. 18, 2016 — The Securities and Exchange Commission announced a global settlement along with the U.S. Department of Justice and Dutch regulators that requires telecommunications provider VimpelCom Ltd. to pay more than $795 million to resolve its violations of the Foreign Corrupt Practices Act (FCPA) to win business in Uzbekistan. The SEC alleges that VimpelCom offered and paid bribes to an Uzbek government official related to the President of Uzbekistan as the company entered the Uzbek telecommunications market and sought government-issued licenses, frequencies, channels, and number blocks. At least $114 million in bribe payments were funneled through an entity affiliated with the Uzbek official, and approximately a half- million dollars in bribes were disguised as charitable donations made to charities directly affiliated with the Uzbek official. The settlement requires VimpelCom to pay $167.5 million to the SEC, $230.1 million to the U.S. Department of Justice, and $397.5 million to Dutch regulators. The company must retain an independent corporate monitor for at least three years. The SEC’s complaint was filed in U.S. District Court for the Southern District of New York. VimpelCom consented to the entry of a court order ordering the company to pay disgorgement and retain an independent monitor, and permanently enjoining the company from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934.

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In the Matter of PTC, Inc. Exchange Act Release No. 77145 (February 16, 2016) AAE Release No. 3743 (February 16, 2016) https://www.sec.gov/litigation/admin/2016/34-77145.pdf

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In the Matter of Yu Kai Yuan http://www.sec.gov/litigation/admin/2016/34-77145-dpa.pdf Press Release No. 2016-29 (February 16, 2016) http://www.sec.gov/news/pressrelease/2016-29.html [Press Release] SEC: Tech Company Bribed Chinese Officials FOR IMMEDIATE RELEASE 2016-29 Washington D.C., Feb. 16, 2016 — The Securities and Exchange Commission announced that a Massachusetts-based technology company and its Chinese subsidiaries agreed to pay more than $28 million to settle parallel civil and criminal actions involving violations of the Foreign Corrupt Practices Act (FCPA). An SEC investigation found that two Chinese subsidiaries of PTC Inc. provided non-business related travel and other improper payments to various Chinese government officials in an effort to win business. PTC agreed to pay $11.858 million in disgorgement and $1.764 million in prejudgment interest to settle the SEC’s charges and its two China subsidiaries agreed to pay a $14.54 million fine in a non-prosecution agreement announced by the U.S. Department of Justice. The SEC also announced its first deferred prosecution agreement (DPA) with an individual in an FCPA case. DPAs facilitate and reward cooperation in SEC investigations by foregoing an enforcement action against an individual who agrees to cooperate fully and truthfully throughout the period of deferred prosecution. FCPA charges will be deferred for three years against Yu Kai Yuan, a former employee at one of PTC’s Chinese subsidiaries, as a result of significant cooperation he has provided during the SEC’s investigation. According to the SEC’s order instituting a settled administrative proceeding against PTC:  From at least 2006 to 2011, two PTC China-based subsidiaries provided improper travel, gifts, and entertainment totaling nearly $1.5 million to Chinese government officials who were employed by state-owned entities that were PTC customers.

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 PTC gained approximately $11.8 million in profits from sales contracts with state-owned entities whose officials received the improper payments.  Chinese officials were compensated directly and through third- party agents for sightseeing and tourist activities.  Third-party agents typically arranged overseas sightseeing trips in conjunction with a visit to a PTC facility, typically the corporate headquarters in Massachusetts. After one day of business activities, the additional days of sightseeing visits lacked any business purpose.  Typical PTC-paid travel destinations for Chinese officials included New York, Las Vegas, San Diego, Los Angeles, and Honolulu. Officials enjoyed guided tours, golfing, and other leisure activities.  Employees of PTC’s Chinese subsidiaries also provided improper gifts and entertainment to Chinese government officials, including small electronics such as cell phones, iPods, and GPS systems as well as gift cards, wine, and clothing.  The improper payments were disguised as legitimate commissions or business expenses in company books and records. The SEC’s order finds that PTC violated the anti-bribery, internal controls, and books and records provisions of the Securities Exchange Act of 1934. In the settlement, the SEC considered PTC’s self-reporting of its misconduct as well as the significant remedial acts the company has since undertaken.

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In the Matter of SciClone Pharmaceuticals, Inc. Exchange Act Release No. 77058 (February 4, 2016) AAE Release No. 3739 (February 4, 2016) https://www.sec.gov/litigation/admin/2016/34-77058.pdf [Administrative Summary] SciClone Charged With FCPA Violations Feb 4, 2016 - The Securities and Exchange Commission announced that California-based SciClone Pharmaceuticals has agreed to pay more than $12 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) when international subsidiaries increased sales by making improper payments to health care professionals employed at state health institutions in China. An SEC investigation found that employees of SciClone’s subsidiaries acted as agents of the company when they gave money, gifts, and other things of value to the health care professionals, which led to several million dollars in sales of pharmaceutical products to China’s state health institutions. The schemes, which lasted at least five years, were condoned by various managers within SciClone’s China-based subsidiaries. The improper inducements were not accurately reflected in the company’s books and records as SciClone failed to devise and maintain a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program. The SEC’s order finds that SciClone violated the FCPA’s anti- bribery, internal controls, and books-and-records provisions. SciClone consented to the order without admitting or denying the findings, and agreed to pay $9.426 million in disgorgement of sales profits plus $900,000 in prejudgment interest and a $2.5 million penalty. SciClone agreed to give status reports to the SEC for the next three years on its remediation and implementation of anti-corruption compliance measures.

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ACTIONS INVOLVING PUBLIC FINANCE ABUSE

The SEC continued to focus on public finance abuse, initiating enforcement actions that addressed violative conduct ranging from disclosure failures and breaches of fiduciary duty to pay-to-play schemes. The SEC’s efforts addressed not only different categories of misconduct but also the various participants in the public finance arena, including issuers, underwriters, municipal advisors, and culpable individuals. Among the cases were the SEC’s first actions to enforce the fiduciary duty and antifraud provisions relating to municipal advisors created by the Dodd-Frank Act. Additionally, the SEC continued its work under the Municipalities Con- tinuing Disclosure Cooperation (MCDC) Initiative, including settlements with 14 underwriting firms.

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SEC v. Juan Rafael Rangel Litigation Release No. 23578 (June 21, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23578.htm Civil Action No. 1:16-cv-06391 (June 21, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-125.pdf Press Release No. 2016-125 (June 21, 2016) https://www.sec.gov/news/pressrelease/2016-125.html Former CEO of Chicago Charter School Operator Settles Muni Bond Fraud Charges The Securities and Exchange Commission announced a settlement with Juan Rangel, the former President of UNO Charter School Network Inc. and former CEO of United Neighborhood Organization of Chicago for his role in a misleading $37.5 million bond offering to build three charter schools. Rangel agreed to pay a $10,000 penalty and be barred from participating in any future municipal bond offerings to settle the SEC’s fraud charges. The SEC announced a settlement with UNO in 2014 for defrauding investors in the same 2011 bond offering. The SEC’s complaint alleges that Rangel negligently approved and signed a bond offering statement that omitted the charter schools’ multi-million-dollar contracts with two brothers of UNO’s chief operating officer - conflicted transactions that could have threatened UNO’s ability to repay bond investors. According to the SEC’s complaint filed in U.S. District Court for the Northern District of Illinois, in 2010 and 2011, UNO entered into grant agreements with the Illinois Department of Commerce and Economic Opportunity (IDCEO) to build three charter schools. Rangel signed the agreements, which required UNO to certify that no conflict of interest existed and to immediately notify IDCEO in writing if any conflicts subsequently arose. If UNO breached the requirements, IDCEO could suspend the grant payments and recover grant funds already paid to UNO. The complaint alleges that UNO breached the agreement when, at Rangel’s direction, it contracted with its COO’s brothers, agreeing to pay approximately $11 million to one brother’s window company and approximately $1.9 million to another brother for services during construction. According to the complaint, UNO did not notify IDCEO in writing about either transaction and its offering statement disclosed only the $1.9 million contract, not the larger $11 million contract. In addition, the offering document did not disclose that by breaching its

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agreement, IDCEO could seek to recover the grants, requiring UNO to liquidate its charter schools to repay them, losing the assets it depended on to repay bond investors. The SEC’s complaint charges Rangel with violations of Section 17(a)(2) of the Securities Act. Rangel settled without admitting or denying the SEC’s charges. He agreed to pay a $10,000 civil penalty, to be permanently enjoined from future violations of Section 17(a) (2) and to be barred from participating in municipal bond offerings, other than for his personal account. The settlement is subject to court approval.

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In the Matter of Keygent LLC, Anthony Hsieh, and Chet Wang Exchange Act Release No. 78053 (June 13, 2016) http://www.sec.gov/litigation/admin/2016/34-78053.pdf

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In the Matter of School Business Consulting, Inc. and Terrance Bradley Exchange Act Release No. 78054 (June 13, 2016) http://www.sec.gov/litigation/admin/2016/34-78054.pdf Press Release No. 2016-118 (June 13, 2016) https://www.sec.gov/news/pressrelease/2016-118.html [Press Release] SEC: Muni Advisors Acted Deceptively With California School Districts FOR IMMEDIATE RELEASE 2016-118 Washington D.C., June 13, 2016 — The Securities and Exchange Commission announced that two California-based municipal advisory firms and their executives have agreed to settle charges that they used deceptive practices when soliciting the business of five California school districts. An SEC investigation found that while School Business Consult- ing Inc. was advising the school districts about their hiring process for financial professionals, it was simultaneously retained by Keygent LLC, which was seeking the municipal advisory business of the same school districts. Without permission, School Business Consulting shared confidential information with Keygent, including questions to be asked in Keygent’s interviews with the school districts and details of competitors’ proposals including their fees. The school districts were unaware that Keygent had the benefit of these confidential details throughout the hiring process. Keygent ultimately won the municipal advisory contracts. This is the SEC’s first enforcement action under the municipal advisor antifraud provisions of the Dodd-Frank Act. School Business Consulting also is charged with failing to register as a municipal advisor. Without admitting or denying the findings in the SEC’s orders instituting settled administrative proceedings:  School Business Consulting agreed to a censure and a $30,000 penalty.  The firm’s president Terrance Bradley agreed to be barred from acting as a municipal advisor and must pay a $20,000 penalty.

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 Keygent agreed to a censure and a $100,000 penalty.  Keygent’s principals Anthony Hsieh and Chet Wang agreed to pay penalties of $30,000 and $20,000 respectively.

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SEC v. Eric J. Kellogg Litigation Release No. 23543 (May 19, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23543.htm Civil Action No. 1:16-cv-5384 (May 19, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-93.pdf Press Release No. 2016-93 (May 19, 2016) http://www.sec.gov/news/pressrelease/2016-93.html Mayor in Illinois Settles Muni Bond Fraud Charges The Securities and Exchange Commission announced that the mayor of Harvey, Ill., has agreed to pay $10,000 and never participate in a municipal bond offering again in order to settle fraud charges. The SEC alleges that Eric J. Kellogg was connected to a series of fraudulent bond offerings by the city. Investors were told that their money would be used to develop and construct a Holiday Inn hotel in Harvey, but instead city officials diverted at least $1.7 million in bond proceeds to fund the city’s payroll and other operational costs unrelated to the hotel project. According to the SEC’s complaint filed in the U.S. District Court for the Northern District of Illinois, Mayor Kellogg exercised control over Harvey’s operations and signed important offering documents the city used to offer and sell the bonds. The SEC’s complaint charges Kellogg with control person liability under Section 20(a) of the Exchange Act for Harvey’s violations of Section 10(b) and Rule 10b- 5 of the Exchange Act. Kellogg agreed to settle the charges without admitting or denying the SEC’s allegations. Kellogg consented to the entry of an order: (a)Â permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (b) prohibiting him from participating in an offering of municipal securities, including engaging in activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of any municipal security, other than for his personal account; and (c) impos- ing a civil penalty of $10,000. The settlement is subject to court approval.

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SEC v. Town of Ramapo, et al. Litigation Release No. 23521 (April 14, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23521.htm Civil Action No. 16-cv-2779 (April 14, 2016) http://www.sec.gov/litigation/complaints/2016/comp-pr2016-68.pdf Press Release No. 2016-68 (April 14, 2016) http://www.sec.gov/news/pressrelease/2016-68.html SEC: Town Officials in New York Hid Financial Troubles From Bond Investors The Securities and Exchange Commission announced fraud charges against Ramapo, N.Y., its local development corporation, and four town officials who allegedly hid a deteriorating financial situation from their municipal bond investors. The SEC alleges that Ramapo officials resorted to fraud to hide the strain in the town’s finances caused by the approximately $60 million cost to build a baseball stadium as well as the town’s declining sales and property tax revenues. They cooked the books of the town’s primary operating fund to falsely depict positive balances between $1.4 million and $4.2 million during a six-year period when the town had actually accumulated fund balance deficits as high as nearly $14 million. And because the stadium bonds issued by the Ramapo Local Development Corp. (RLDC) were guaranteed by the town, certain officials also masked an operating revenue shortfall at the RLDC and investors were unaware the town would likely need to subsidize those bond payments and further deplete its general fund. According to the SEC’s complaint, inflated general fund balances were used in offering materials for 16 municipal bond offerings by Ramapo or the RLDC to investors, who consider the condition of a municipality’s general fund when making investment decisions. After town supervisor Christopher P. St. Lawrence purposely misled a credit rating agency about the town’s general fund balance before certain bonds were rated, he told other town officials to refinance the short- term debt as fast as possible because “we’re going to have to all be magicians” to realize the purported financial results. According to the SEC’s complaint:  Christopher P. St. Lawrence, who served as RLDC’s president in addition to being town supervisor, masterminded the scheme to artificially inflate the balance of the general fund in financial statements for fiscal years 2009 to 2014.

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 St. Lawrence and Aaron Troodler, a former RLDC executive director and assistant town attorney, concealed from investors that RLDC’s operating revenues were insufficient to cover debt service on bonds to finance the stadium.  Town attorney Michael Klein helped conceal outstanding liabilities related to the baseball stadium and repeatedly misled the town’s auditors about the collection of a $3.08 million receivable recorded in the town’s general fund for the sale of a 13.7-acre parcel of land to the RLDC. But because the title of the property was never transferred from the town to the RLDC, Klein also made misleading statements about the receivable’s source. Troodler helped conceal the fictitious sale and boost the account balance of the town’s general fund by approving RLDC financial statements reflecting a purchase of property that never actually occurred. Troodler also signed offering documents that contained an additional fabricated receivable totaling $3.66 million for another transfer of land from the town to the RLDC. The only land transferred from the town to the RLDC during the time of the purported transaction was property donated for the baseball stadium, which St. Lawrence and Troodler knew did not impose any payment obligation on the RLDC. The town’s deputy finance director Nathan Oberman participated in activities to inflate the town’s general fund by arranging $12.4 million in improper transfers from an ambulance fund to bolster the troubled general fund during a six-year period. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against St. Law- rence and Troodler. The SEC’s complaint charges Ramapo, RLDC, St. Lawrence, Troodler, Klein, and Oberman with violations 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. St. Lawrence and Troodler also are charged with liability under Section 20(a) of the Exchange Act as controlling persons for the violations by the town and RLDC, and all four town officials are charged with aiding and abetting violations by the town and RLDC. In addition to financial penalties, the SEC seeks a court order appointing an independent consultant for Ramapo and RLDC to recommend improvements for financial reporting and municipal securities disclosure policies and monitor the mandated implementation of those recommendations for a period of five years. The SEC

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In the Matter of Central States Capital Markets, LLC, et al. Exchange Act Release No. 77369 (March 15, 2016) http://www.sec.gov/litigation/admin/2016/34-77369.pdf Press Release No. 2016-54 (March 15, 2016) http://www.sec.gov/news/pressrelease/2016-54.html [Press Release] Municipal Advisor Charged for Failing to Disclose Conflict Case is First Under Dodd-Frank Provision Creating Fiduciary Duty FOR IMMEDIATE RELEASE 2016-54 Washington D.C., March 15, 2016 — The Securities and Exchange Commission charged Kansas-based Central States Capital Markets, its CEO, and two employees for breaching their fiduciary duty by failing to disclose a conflict of interest to a municipal client. The case is the SEC’s first to enforce the fiduciary duty for municipal advisors created by the 2010 Dodd-Frank Act, which requires these advisors to put their municipal clients’ interests ahead of their own. According to the SEC’s order, while Central States served as a municipal advisor to a client on municipal bond offerings in 2011, two of its employees, in consultation with the CEO, arranged for the offerings to be underwritten by a broker-dealer where all three worked as registered representatives. The order found that Central States CEO John Stepp and employees Mark Detter and David Malone did not inform the client, identified in the order as “the City,” of their relationship to the underwriter or the financial benefit they obtained from serving in dual roles. Municipal advisors advise municipal and conduit borrowers about the terms of offerings, including interest rates, the selection of underwriters, and underwriting fees. In the three offerings, Central States collected fees from the City for the municipal advisory work and received 90 percent of the underwriting fees the City paid to the broker-dealer. The SEC’s order found that Central States, Stepp, Detter, and Malone, breached their duty to the City by failing to disclose the conflict of interest. The order found that Detter and Malone were aware of the conflict and that Detter emailed Malone that “we should resign” as municipal advisor to serve solely as underwriter on the offerings.

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Without admitting or denying the findings, Central States, Detter, Malone, and Stepp consented to the SEC’s order that they cease and desist from similar future securities-law violations and violations of Rule G-17 of the Municipal Securities Rulemaking Board (MSRB) that requires advisors to deal fairly with their clients. Detter, Malone, and Stepp also agreed to cease and desist from future violations of MSRB Rule G-23 that bars those acting as municipal advisors on a bond offering from underwriting that offering. Central States agreed to settle the SEC’s charges by paying $289,827.80 in disgorgement and interest and an $85,000 civil penalty. Detter agreed to settle the charges by paying a $25,000 civil penalty and agreeing to a bar from the financial services industry for a minimum of two years. Malone agreed to settle the charges by paying a $20,000 civil penalty and agreeing to a bar from the financial services industry for a one-year minimum. Stepp agreed to settle the charges by paying a $17,500 civil penalty and agreeing to a six-month suspension from acting in a supervisory capacity with any broker-dealer, investment adviser, or municipal advisor.

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In the Matter of Westlands Water District, et al. Securities Act Release No. 10053 (March 9, 2016) AAE Release No. 3752 (March 9, 2016) http://www.sec.gov/litigation/admin/2016/33-10053.pdf Press Release No. 2016-43 (March 9, 2016) http://www.sec.gov/news/pressrelease/2016-43.html [Press Release] California Water District to Pay Penalty for Misleading Investors FOR IMMEDIATE RELEASE 2016-43 Washington D.C., March 9, 2016 — The Securities and Exchange Commission charged California’s largest agricultural water district with misleading investors about its financial condition as it issued a $77 million bond offering. In addition to charging Westlands Water District, the SEC charged its general manager Thomas Birmingham and former assistant general manager Louie David Ciapponi. According to the SEC’s order instituting a settled administrative proceeding:  Westlands agreed in prior bond offerings to maintain a 1.25 debt service coverage ratio, which is a measure of an issuer’s ability to make future bond payments.  Westlands learned in 2010 that drought conditions and reduced water supply would prevent the water district from generating enough revenue to maintain a 1.25 ratio.  In order to meet the 1.25 ratio without raising rates on water customers, Westlands used extraordinary accounting transactions that reclassified funds from reserve accounts to record additional revenue.  Birmingham jokingly referred to these transactions as “a little Enron accounting” when describing them to the board of directors, which is comprised of Westlands customers.  When Westlands issued the $77 million bond offering in 2012, it represented to investors that it met or exceeded the 1.25 ratio for each of the prior five years.

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 Not only did Westlands fail to disclose that wouldn’t have been possible without the extraordinary 2010 accounting transactions, but also omitted separate accounting adjustments made in 2012 that would have negatively affected the ratio had they been done in 2010.  Had the 2010 reclassifications and the effect of the 2012 adjustments been disclosed, Westlands’ coverage ratio for 2010 would have been only 0.11 instead of the 1.25 reported to investors.  Birmingham and Ciapponi improperly certified the accuracy of the bond offering documents. Westlands agreed to pay $125,000 to settle the charges, making it only the second municipal issuer to pay a financial penalty in an SEC enforcement action. Birmingham and Ciapponi agreed to pay penalties of $50,000 and $20,000 respectively to settle the charges against them. The SEC’s order finds that Westlands, Birmingham and Ciapponi violated Section 17(a)(2) of the Securities Act of 1933 and must cease and desist from future violations. They neither admitted nor denied the findings.

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SEC v. Rhode Island Commerce Corporation, et al. Litigation Release No. 23480 (March 7, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23480.htm Civil Action No. 1:16-cv-00107 (March 7, 2016) http://www.sec.gov/ litigation/complaints/2016/comp-pr2016-37.pdf

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In the Matter of First Southwest Company, LLC Exchange Act Release No. 77300 (March 7, 2016) http://www.sec.gov/litigation/admin/2016/34-77300.pdf Press Release No. 2016-37 (March 7, 2016) https://www.sec.gov/news/pressrelease/2016-37.html SEC Charges Rhode Island Agency and Wells Fargo with Fraud in 38 Studios Bond Offering The Securities and Exchange Commission charged a Rhode Island agency and its bond underwriter Wells Fargo Securities with defrauding investors in a municipal bond offering to finance startup video game company 38 Studios. The Rhode Island Economic Development Corporation (RIEDC, now called the Rhode Island Commerce Corporation) issued $75 million in bonds for the 38 Studios project as part of a state government program intended to spur economic development and increase employment opportunities by loaning bond proceeds to private companies. According to the SEC’s complaint filed in federal district court in Providence:  The RIEDC loaned $50 million in bond proceeds to 38 Studios. Remaining proceeds were used to pay related bond offering expenses and establish a reserve fund and a capitalized interest fund.  The loan and, in turn, bond investors would be repaid from revenues generated by video games that 38 Studios planned to develop.  The bond offering document produced by the RIEDC and Wells Fargo failed to disclose to investors that 38 Studios had conveyed it needed at least $75 million in funding to produce a particular video game.  Therefore, investors weren’t fully informed when deciding to purchase the bonds that 38 Studios faced a funding shortfall even with the loan proceeds and could not develop the video game without additional sources of financing.  When 38 Studios was later unable to obtain additional financing, the video game didn’t materialize and the company defaulted on the loan. The SEC also charged Wells Fargo’s lead banker on the deal, Peter M. Cannava, and two then-RIEDC executives Keith W. Stokes and James Michael Saul with aiding and abetting the fraud. Stokes and Saul

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agreed to settle the charges without admitting or denying the allegations and must each pay a $25,000 penalty. They are prohibited from participating in any future municipal securities offerings. The SEC’s litigation continues against Cannava, Wells Fargo, and RIEDC. The SEC’s complaint further alleges that Wells Fargo and Cannava misled investors in an additional way in bond offering materials:  Wells Fargo disclosed its bond offering compensation as a share of the placement agent fee plus a $50,000 payment from 38 Studios. No other fees or compensation to Wells Fargo were disclosed, and the bond placement agreement stated that no other money was anticipated.  Investors weren’t informed that Wells Fargo had a side deal with 38 Studios that enabled the firm to receive nearly double the amount of compensation disclosed in offering documents.  This additional compensation, totaling $400,000 and paid from bond proceeds, created a conflict of interest that Wells Fargo should have disclosed to bond investors.  Cannava was responsible for Wells Fargo’s failure to disclose its additional fees. The SEC’s complaint charges the RIEDC and Wells Fargo with violations of Sections 17(a)(2) and (a)(3) of the Securities Act of 1933, and charges Stokes, Saul, and Cannava with aiding and abetting those violations. Wells Fargo also is charged with violations of Section 15B (c)(1) of the Securities Exchange Act of 1934 and Rules G-17 and G-32 of the Municipal Securities Rulemaking Board (MSRB). Cannava is charged with aiding and abetting those violations. In a separate administrative proceeding, the RIEDC’s financial advisor for the bond offering - First Southwest Company LLC - agreed to settle charges that it violated MSRB Rules G-17 and G-23(c) and Section 15B(c)(1) of the Exchange Act by failing to document in writing the scope of the services the firm was providing in the bond offering until seven months after the financial advisory relationship began. Without admitting or denying the findings, First Southwest agreed to pay disgorgement of $120,000, prejudgment interest of $22,400, and a penalty of $50,000.

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Municipalities Continuing Disclosure Cooperation Initiative (22 Underwriting Firms) Press Release No. 2016-18 (February 2, 2016) http://www.sec.gov/news/pressrelease/2016-18.html https://www.sec.gov/divisions/enforce/municipalities-continuing- disclosure-cooperation-initiative.shtml [Press Release] SEC Completes Muni-Underwriter Enforcement Sweep 72 Firms Charged Since June 2015 FOR IMMEDIATE RELEASE 2016-18 Washington D.C., Feb. 2, 2016 — The Securities and Exchange Commission announced enforcement actions against 14 municipal underwriting firms for violations in municipal bond offerings. The actions conclude charges against underwriters under the Municipalities Continuing Disclosure Coop- eration (MCDC) Initiative. In all, 72 underwriters have been charged under the voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents. The MCDC Initiative, announced in March 2014, offered favorable settlement terms to municipal bond underwriters and issuers that self-reported violations. The first enforcement actions against underwriters under the initiative were brought in June 2015 against 36 municipal underwriting firms. An additional 22 underwriting firms were charged in September 2015. All of the firms settled the actions and paid civil penalties up to a maximum of $500,000. The initiative is continuing with respect to issuers who may have provided investors with inaccurate information about their compliance with continuing disclosure obligations. The SEC’s 2012 Munici- pal Market Report identified issuers’ failure to comply with their continuing disclosure obligations as a major challenge for investors seeking important information about their municipal bond holdings. The SEC found that between 2011 and 2014, the 14 underwriting firms sold municipal bonds using offering documents that contained materially false statements or omissions about the bond issuers’ compliance with continuing disclosure obligations. The SEC also found that the underwriting firms failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers.

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The 14 firms, which did not admit or deny the findings, agreed to cease and desist from such violations in the future. Under the terms of the MCDC Initiative, they will pay civil penalties based on the number and size of the fraudulent offerings identified, up to a cap based on the size of the firm. In addition, each firm agreed to retain an independent consultant to review its policies and procedures on due diligence for municipal securities underwriting.

* * * The SEC’s orders and penalty amounts are: Barclays Capital Inc. – $500,000 Boenning & Scattergood Inc. – $250,000 D.A. Davidson & Co. – $500,000 First Midstate Inc. – $100,000 Hilltop Securities Inc. – $360,000 Janney Montgomery Scott LLC – $500,000 Jefferies LLC – $500,000 KeyBanc Capital Markets Inc. – $440,000 Mitsubishi UFJ Securities (USA) Inc. – $20,000 Municipal Capital Markets Group Inc. – $60,000 Roosevelt & Cross Inc. – $250,000 TD Securities (USA) LLC – $500,000 United Bankers’ Bank – $160,000 Wells Fargo Bank N.A. Municipal Products Group – $440,000

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In the Matter of State Street Bank and Trust Company Exchange Act Release No. 76905 (January 14, 2016) https://www.sec.gov/litigation/admin/2016/34-76905.pdf

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In the Matter of Vincent J. DeBaggis Exchange Act Release No. 76904 (January 14, 2016) https://www.sec.gov/litigation/admin/2016/34-76904.pdf

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SEC v. Robert B. Crowe Litigation Release No. 23446 (January 14, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23446.htm Press Release No. 2016-8 (January 14, 2016) https://www.sec.gov/news/pressrelease/2016-8.html SEC Charges Lobbyist with Participating in Pay-To-Play Scheme The Securities and Exchange Commission filed a complaint in the U.S. District Court for the Southern District of Ohio against Robert B. Crowe, a law firm partner who worked as a fundraiser and lobbyist for State Street Bank and Trust Company. The complaint alleges that Crowe participated in a pay-to-play scheme to win contracts to service Ohio pension funds. The SEC’s complaint alleges that Crowe repeatedly caused concealed campaign contributions to be made on behalf of State Street to the Ohio State Treasurer to influence the Treasurer to select and retain State Street to provide securities custody work. The SEC’s complaint against Crowe alleges specifically that in March 2010, Crowe met demands for campaign contributions by illegally filtering $16,000 through his personal bank account and reimbursing individuals for contributions made in their own names. The complaint further alleges that Crowe continued to funnel campaign contributions to the Treas- urer until at least September 2010 in response to threats that State Street would lose its securities custody business with the Ohio pension funds. The SEC’s complaint, filed on January 14, 2016, alleges that Crowe violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder, and Sections 17(a)(1) and (3) of the Securities Act of 1933. Crowe is also alleged to have aided and abetted violations of Section 10(b) of the Exchange Act and Rule 10b- 5(b) thereunder as well as Section 17(a)(2) of the Securities Act.

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ACTIONS INVOLVING VIOLATIONS OF INSIDER TRADING

The SEC has continued to bring a broad range of insider trading cases – from violations committed by a single individual, to serial violations committed by organized trading rings. Some of those charged by the SEC include senior officers and directors of public companies, investment bankers, government officials, hedge fund managers, professional gamblers, and a plumber. For example, the SEC charged two hedge fund managers for insider trading on tips received from a former FDA employee who provided details concerning FDA approvals for pharmaceutical companies. In one case, the SEC charged an investment banker for providing nonpublic information about his clients to his plumber in exchange for free bathroom remodeling. The SEC also continues to bring cases against officers and directors of public companies who trade on inside information. In another case, the SEC charged a professional gambler who made over $40 million in stock tips from a corporate insider in exchange for forgiving the insider’s gambling debts.

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SEC v. Sanjay Valvani and Gordon Johnston Civil Action No. 1:16-cv-04512 (June 15, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-119- valvani-johnston.pdf

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SEC v. Christopher Plaford Civil Action No. 1:16-cv-04511 (June 15, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-119- plaford.pdf

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SEC v. Stefan Lumiere Civil Action No. 1:16-cv-04513 (June 15, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-119- lumiere.pdf Press Release No. 2016-119 (June 15, 2016) https://www.sec.gov/news/pressrelease/2016-119.html [Press Release] Hedge Fund Managers and Former Government Official Charged in $32 Million Insider Trading Scheme Separate Asset Mismarking Scheme Yielded $6 Million in Extra Fees FOR IMMEDIATE RELEASE 2016-119 Washington D.C., June 15, 2016 — The Securities and Exchange Commission announced insider trading charges against two hedge fund managers and their source, a former government official accused of deceptively obtaining confidential information from the U.S. Food and Drug Administration (FDA). A third hedge fund manager working at the same investment advisory firm as the alleged insider traders was charged with falsely inflating assets in portfolios he managed. The SEC alleges that Sanjay Valvani reaped unlawful profits of nearly $32 million for hedge funds investing in health care securities by insider trading on tips he received from Gordon Johnston, who worked at the FDA for a dozen years and remained in close contact with former colleagues while working for a trade association repre- senting generic drug manufacturers and distributors. Johnston concealed his separate role as a hedge fund consultant and obtained confidential information about anticipated FDA approvals for companies to produce enoxaparin, a generic drug that helps prevent the formation of blood clots. Johnston allegedly funneled to Valvani the details of his conversations with FDA personnel, including a close friend he mentored during his time at the agency. Valvani then traded in advance of public announcements concerning FDA approvals for such companies as Momenta Pharmaceuticals, Watson Pharmaceuticals, and Amphastar Pharmaceuticals. The SEC further alleges that Valvani in turn tipped fellow hedge fund manager Christopher Plaford, who is charged in a separate complaint with insider trading on this nonpublic information as well as

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other material he received confidentially from a former Centers for Medicare and Medicaid Services official about an impending cut to Medicare reimbursement rates for certain home health services. Pla- ford allegedly made approximately $300,000 by trading based on inside information in hedge funds he managed. He has cooperated with the SEC’s investigation. In a separate complaint against Stefan Lumiere, the SEC alleges that he and Plaford engaged in a fraudulent scheme to falsely inflate the value of securities held by a hedge fund advised by their firm. For an 18-month period, Lumiere used sham broker quotes to mismark as many as 28 securities per month, surreptitiously passing his desired prices along to brokers via his personal cell phone or a flash drive delivered by a courier. The fund consequently reported artificially inflated returns and monthly net asset values, and paid out more than $5.9 million in inflated management and performance fees to its investment adviser. In parallel actions, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Valvani, Johnston, Lumiere, and Plaford. The SEC’s complaint against Valvani and Johnston charges them with violations 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. Valvani also allegedly aided and abetted his firm’s violation of Section 204A of the Investment Advisers Act of 1940. The SEC’s complaint against Plaford charges him with violations of Section 10(b) of the Exchange Act and Rule 10b-5, and Section 206 of the Advisers Act and Rule 206(4)-8. He is also charged with aiding and abetting his firm’s violation of Section 204A of the Advisers Act. The SEC’s complaint against Lumiere charges him with committing or aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5 as well as Section 206 of the Advisers Act and Rule 206(4)-8. The SEC’s complaints, filed in federal court in Manhattan, seek disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions against future violations.

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SEC v. Peter D. Nunan Litigation Release No. 23558 (June 3, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23558.htm Civil Action No. 5:16-cv-02373 (May 2, 2016) http://www.sec.gov/litigation/complaints/2016/comp-pr2016-79.pdf Silicon Valley Executive Settles Insider Trading Charges On May 2, 2016, the Securities and Exchange Commission announced that a Silicon Valley executive agreed to pay more than a half-million dollars to settle charges that he traded on inside information received from a board member at a Minnesota-based company that was trying to solicit a competing bid in advance of a merger. The SEC alleged that Peter D. Nunan was contacted by the board member at FSI International and confidentially informed that a Japan- based semiconductor equipment company called Tokyo Electron Ltd. was negotiating to acquire FSI. The board member knew that Nunan, a senior engineering executive at a subsidiary of a semiconductor equipment manufacturer named Screen Holdings Company, knew the executive responsible for evaluating potential corporate acquisitions at Screen Holdings. Nunan thereafter acted as a conduit for communications between the two companies as FSI sought a competing bid. According to the SEC’s complaint filed in federal district court in San Jose, Calif., Nunan misused the confidential information entrusted to him about FSI’s potential merger plans and bought 105,000 FSI shares during the next six months. He also recommended the trade to his brother, who purchased 1,000 shares of FSI stock. Once Tokyo Electron and FSI publicly announced a merger agreement on Aug. 13, 2012, Nunan sold most of his FSI stock the next day and the illicit profits from his unlawful trading and tipping totaled $254,858. The SEC’s complaint charged Nunan with violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. Without admitting or denying the allegations, Nunan agreed to be permanently enjoined from future violations and ordered to pay $254,858 in disgorgement of ill-gotten gains plus interest of $24,587 and a penalty of $254,858 for a total of $534,303.

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SEC v. Steven V. McClatchey and Gary J. Pusey Litigation Release No. 23552 (June 1, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23552.htm Civil Action No. 1:16-cv-04029 (May 31, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-96.pdf Press Release No. 2016-96 (May 31, 2016) http://www.sec.gov/news/pressrelease/2016-96.html Investment Banker and Plumber Charged With Insider Trading On May 31, 2016, the Securities and Exchange Commission announced insider trading charges against an investment banker and his close friend, a plumber who allegedly helped remodel his bathroom and put cash in his gym bag in return for illicit tips about upcom- ing mergers and acquisitions. The SEC alleges that Steven McClatchey had regular access to highly confidential nonpublic information about impending transactions being pursued for investment bank clients. The Analysis and Detection Center within the SEC Enforcement Division’s Market Abuse Unit detected an illicit pattern of trading by Gary Pusey, who McClatchey allegedly tipped with nonpublic information on 10 different occasions ahead of public merger announcements. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges. According to the SEC’s complaint filed in federal court in Manhattan:  The scheme began in early 2014 after McClatchey and Pusey became close friends upon meeting at a marina where they kept their fishing boats.  One of McClatchey’s job responsibilities was to collect timely information about potential mergers and acquisitions involving clients of the investment bank where he worked in New York City. McClatchey misused his ready access to confidential information and regularly tipped Pusey.  Pusey used the misappropriated nonpublic information as he purchased securities in 10 companies before their acquisitions were announced publicly, enabling him to generate $76,000 in illicit trading profits.  In return for the tips, Pusey provided McClatchey with free services during his bathroom remodel and paid him thousands of

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dollars in cash that he typically placed in McClatchey’s gym bag while at the marina or handed to him directly in his garage. The SEC’s complaint charges McClatchey and Pusey with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 14(e) of the Exchange Act and Rule 14e-3. The complaint seeks a final judgment ordering McClatchey and Pusey to pay disgorgement of their ill-gotten gains plus interest and penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws.

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SEC v. William T. Walters and Thomas C. Davis Civil Action No 1:16-cv-3722 (May 19, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-92.pdf Press Release No. 2016-92 (May 19, 2016) http://www.sec.gov/news/pressrelease/2016-92.html [Press Release] SEC Announces Insider Trading Charges in Case Involving Sports Gambler and Board Member Pro Golfer Agrees to Repay Trading Profits FOR IMMEDIATE RELEASE 2016-92 Washington D.C., May 19, 2016 — The Securities and Exchange Commission announced insider trading charges against a professional sports gambler who allegedly made $40 million based on illegal stock tips from a corporate insider who owed him money. The SEC alleges that the sports gambler, William “Billy” Walters of Las Vegas, was owed money by then-Dean Foods Company board member Thomas C. Davis. According to the SEC complaint, Davis regularly shared inside information about Dean Foods with Walters in advance of market-moving events, using prepaid cell phones and other methods in an effort to avoid detection. The SEC further alleges that while Walters made millions of dollars insider trading using the confidential information, he provided Davis with almost $1 million and other benefits to help Davis address his financial debts. The SEC complaint also alleges that professional golfer Phil Mickelson traded Dean Foods’s securities at Walters’s urging and then used his almost $1 million of trading profits to help repay his own gambling debt to Walters. Walters and Davis are charged with insider trading, and Mickelson is named as a relief defendant. Relief defendants are not accused of wrongdoing but are named in SEC complaints for the purposes of recovering alleged ill-gotten gains in their possession from schemes perpetrated by others. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Walters and Davis. After certain suspicious trades had been identified, the SEC’s investigation analyzed years of trading data and other information

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and followed the leads back to Walters and Davis, including their use of a variety of prepaid cell phone numbers. According to the SEC’s complaint, Walters provided Davis with a prepaid cellular phone to use when he shared inside information about Dean Foods. Walters further instructed Davis to refer to Dean Foods as the “Dallas Cowboys” during conversations. According to the SEC’s complaint filed in federal court in Manhattan:  The unlawful trading occurred during a five-year period. Among the inside information passed from Davis to Walters in advance of Dean Foods public announcements was earnings information for the second and fourth quarters in 2008, the first and third quarters in 2010, and the first and second quarters of 2012.  Davis also tipped Walters as Dean Foods prepared to convert its profitable subsidiary WhiteWave Foods Company into a separate business with its own stock. Walters traded in Dean Foods stock in advance of public announcements about the spin-off and initial public offering (IPO) of WhiteWave shares.  The SEC also identified suspicious trades in the stock of Darden Restaurants and linked them to Davis, who was recruited in 2013 by a group of shareholders buying up Darden stock with the goal of influencing management to make corporate changes.  Davis was lacking market-moving information about Dean Foods to share with Walters at that time, so he began sharing nonpublic information about strategic plans for Darden despite signing a non-disclosure agreement to keep the group’s details secret.  Walters in turn bought almost $30 million worth of Darden stock based on illegal tips from Davis and profited when the stock price increased 7 percent in October 2013 upon reported news about the investor group’s plans.  In July 2012, Walters called Mickelson, who had placed bets with Walters and owed him money at the time. While Walters was in possession of material nonpublic information about Dean Foods, he urged Mickelson to trade in Dean Foods stock.  Mickelson bought Dean Foods stock the next trading day in three brokerage accounts he controlled. About one week later, Dean Foods’s stock price jumped 40 percent following public

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announcements about the WhiteWave spin-off and strong second- quarter earnings.  Mickelson then sold his shares for more than $931,000 in profits. He repaid his debt to Walters in September 2012 in part with the trading proceeds. The SEC’s complaint charges Walters and Davis with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b- 5. The SEC seeks a final judgment ordering the return of ill-gotten gains plus interest and penalties as well as permanent injunctions from future violations of Section 10(b) and Rule 10b-5 and an officer-and- director bar against Davis. Mickelson neither admitted nor denied the allegations in the SEC’s complaint and agreed to pay full disgorgement of his trading profits totaling $931,738.12 plus interest of $105,291.69.

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SEC v. Jay Y. Fung Litigation Release No. 23483 (March 9, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23483.htm Civil Action No. 16-cv-1332 (March 9, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-44.pdf Press Release No. 2016-44 (March 9, 2016) https://www.sec.gov/news/pressrelease/2016-44.html The Securities and Exchange Commission announced that a Florida man trading on inside information ahead of a pharmaceutical company merger and a friend who tipped him have agreed to settle enforcement actions against them. Jay Y. Fung, of Delray Beach, Florida, has agreed to pay back more than $700,000 in illegal profits plus more than $60,000 in interest earned after allegedly purchasing stock and call options in Phar- masset Inc. based on his friend’s tip that it was about to be acquired. The SEC alleges that Fung cashed in when Pharmasset’s stock rose 84 percent after its acquisition by Gilead Sciences was publicly announced, and he paid kickbacks to his friend who provided the nonpublic information. The SEC filed a complaint against Fung alleging violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934, as well as Rules 10b-5 and 14e-3 thereunder, in U.S. District Court for the District of New Jersey. The U.S. Attorney’s Office for the District of New Jersey announced parallel criminal charges against Fung. The SEC previously charged Fung’s friend and tipper Kevin Dowd, of Boca Raton, Florida, who learned the nonpublic information during his employment at an investment advisory firm where a Pharmasset board member maintained an account and confidentially sought financial advice in advance of the acquisition. Dowd has since cooperated with the SEC’s investigation and agreed to pay back the cash kickbacks he received from Fung and be barred from the securities industry and penny stock offerings. Dowd also pleaded guilty in a parallel criminal case in the U.S. District Court for the District of New Jersey. The SEC’s settlements with Fung and Dowd are subject to court approval.

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SEC v. Daryl M. Payton, et al. Litigation Release No. 23478 (March 2, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23478.htm Civil Action No. 14-cv-4644 (June 25, 2014) https://www.sec.gov/litigation/complaints/2014/comp-pr2014-124.pdf SEC Obtains Jury Verdict in Its Favor Against Former Brokers On Insider Trading Charges The Securities and Exchange Commission has obtained a jury verdict in its favor in a federal district court trial in Manhattan against Daryl M. Payton and Benjamin Durant, III, who the agency charged with trading on inside information ahead of a $1.2 billion acquisition of SPSS Inc. in 2009 by IBM Corporation. In its complaint, filed in federal court in the Southern District of New York, the SEC alleged that Payton and Durant illegally traded on a tip about the acquisition from Thomas C. Conradt, a friend and fellow broker in the New York office of a Connecticut-based brokerage firm, who had received the information from his roommate and friend, Trent Martin. According to the SEC’s complaint, Martin’s attorney friend revealed nonpublic information about the acquisition, including the names of the companies and the anticipated transaction price. The lawyer expected Martin to keep the information in confidence but instead, Martin tipped Conradt, who traded and tipped Durant and Payton, among others. The SEC further alleged that on the day that IBM’s acquisition of SPSS was publicly announced, Durant, Payton, and others met at a Manhattan hotel room to discuss what to do if law enforcement officials contacted them about potential insider trading on the news. At the conclusion of trial, the jury returned a verdict for the Commission and against Payton and Durant finding that, through their conduct, they violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Court will decide the issue of remedies at a later date.

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SEC v. Bonan Huang, et al. Litigation Release No. 23476 (February 26, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23476.htm Civil Action No. 2:15-cv-00269 (January 21, 2015) https://www.sec.gov/litigation/complaints/2015/comp23216.pdf SEC Obtains Final Judgment Against Former Capital One Employee for Insider Trading The U.S. District Court for the Eastern District of Pennsylvania issued a memorandum opinion and final judgment against Nan Huang, who a jury found liable last month for insider trading on information he improperly obtained from his employer Capital One Financial Corporation. The court imposed on Huang permanent injunctive relief and ordered payment of $4,403,545 in disgorgement, $288,965 in prejudgment interest, and an $8,807,090 penalty for a total of $13.5 million. According to court documents, Huang worked as a data analyst in Capital One’s fraud department when he searched a nonpublic company database that recorded the credit card activity for millions of customers at numerous, predominantly consumer retail corpora- tions. In violation of Capital One’s code of conduct, Huang conducted thousands of searches in this database, which allowed him to view and analyze aggregated sales data for the companies he searched. Huang then used this material, nonpublic information to make profitable securities transactions in advance of the public release of quarterly sales announcements by these companies. The other defendant charged in this matter, Mr. Bonan Huang, settled with the Commission on December 3, 2015.

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SEC v. Dennis Wayne Hamilton Civil Action No. 3:16-cv-00192 (February 5, 2016) http://www.sec.gov/litigation/complaints/2016/comp-pr2016-24.pdf Press Release No. 2016-24 (February 5, 2016) https://www.sec.gov/news/pressrelease/2016-24.html [Press Release] SEC Charges Company Executive With Insider Trading FOR IMMEDIATE RELEASE 2016-24 Washington D.C., Feb. 5, 2016 — The Securities and Exchange Commission charged an executive at Stamford, Conn.-based electronics company Harman International Industries with insider trading in the company’s stock. The SEC alleges that Dennis Wayne Hamilton made more than $130,000 in illegal profits by trading on nonpublic information he learned on the job in advance of Harman’s release of its fiscal year 2014 first quarter earnings. In a parallel action, the U.S. Attorney’s Office for the District of Connecticut announced criminal charges against Hamilton. According to the SEC’s complaint filed in U.S. District Court for the District of Connecticut:  In his role as Harman’s vice president of tax, Hamilton reviewed Harman’s earnings and learned the company would report stronger- than-expected results for its FY14 first quarter, which spanned from July 1 to Sept. 30, 2013.  The day before Harman publicly released the financial results, Hamilton purchased 17,000 shares of Harman stock at a cost of more than $1.2 million. He liquidated his position when the quarterly results were publicly announced.  Harman’s stock price rose more than 12 percent on the news and Hamilton’s illicit trading produced one-day profits in excess of $130,000.

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SEC v. Yue Han and Wei Han Civil Action No. 15-cv-9260 (November 25, 2015) https://www.sec.gov/litigation/complaints/2015/comp-pr2015-267.pdf Press Release No. 2015-267 (November 25, 2015) https://www.sec.gov/news/pressrelease/2015-267.html [Press Release] Former Goldman Employee Charged With Insider Trading Before Mergers FOR IMMEDIATE RELEASE 2015-267 Washington D.C., Nov. 25, 2015 — The Securities and Exchange Commission announced insider trading charges against a former Goldman Sachs employee accused of stealing nonpublic information in the firm’s e-mail system so he could trade illegally in advance of client mergers and make more than $450,000 in illicit profits. The SEC has obtained an emergency court order to freeze the assets of the trader and accounts he used to place the illicit trades. The SEC alleges that Yue Han, who worked as an associate in Goldman’s compliance department and also goes by the name John Han, traded on confidential information contained in e-mails sent and received by Goldman investment bankers responsible for advising clients on impending merger and acquisition transactions. Han gained access to investment banker e-mails as part of his work developing surveillance software designed to monitor other employees for potential misconduct such as insider trading. The SEC’s case stems from its Market Abuse Unit’s Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns such as improbably successful trading across different securities over time. Enhanced detection capabilities enabled SEC enforcement staff to spot Han’s unusual trading activity in two different accounts. According to the SEC’s complaint filed in federal court in Manhattan:  Han began working at Goldman in late 2014 and was assigned to a group tasked with enhancing the firm’s ability to conduct electronic surveillance of its employees in order to identify insider trading and other misconduct.

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 As part of his job, Han was given access to the e-mails of investment banking employees.  Han exploited the information contained in these confidential e-mails to purchase securities, including “out of the money” call options, of at least four companies that were on the brink of being acquired: Yodlee Inc., Zulily Inc., Rentrak Corporation, and KLA- Tencor Corp.  Han traded not only in his own account, but also in an account belonging to his father Wei Han, who lives in China. The SEC’s complaint charges Yue Han with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 14(e) of the Exchange Act and Rule 14e-3. Wei Han is named as a relief defendant in the SEC’s complaint for the purposes of recovering ill-gotten gains that Yue Han generated by trading in the account held in Wei Han’s name.

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ACTIONS INVOLVING ISSUER FRAUD, DISCLOSURE AND REPORTING

The SEC initiated a broad array of cases in the financial fraud and issuer disclosure area alleging misconduct such as: misstating financial results by using a flawed, undisclosed methodology to value complex mortgage assets, schemes to conceal loan losses, overcharging management fees, misleading investors about the development of key products; and obtaining admissions for failing to disclose conflicts of interest to clients. In one case, a mortgage company and its six most senior executives agreed to settle charges that they orchestrated a scheme to defraud investors in the sale of residential mortgage-backed securities guaranteed by Ginnie Mae by falsely claiming that current, performing loans were delinquent in order to pull such loans and re-sell them at a profit in newly issued RMBS. The SEC also instituted settled administrative proceedings against Barclays and Credit Suisse for committing securities violations while operating dark pools. In some cases involving companies charged with financial fraud, CEOs and CFOs who were not accused of wrongdoing, reimbursed incentive-based compensation and/or stock sale profits, either voluntarily, or pursuant to Section 304 of the Sarbanes-Oxley Act.

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In the Matter of IEC Electronics Corp., et al. Exchange Act Release No. 78017 (June 8, 2016) AAE Release No. 3782 (June 8, 2016) https://www.sec.gov/litigation/admin/2016/34-78017.pdf Press Release No. 2016-110 (June 8, 2016) http://www.sec.gov/news/pressrelease/2016-110.html [Press Release] SEC Bars Corporate VP and Controller for False Accounting FOR IMMEDIATE RELEASE 2016-110 Washington D.C., June 8, 2016 — The Securities and Exchange Commission announced that it has barred a former corporate vice president and suspended a former controller behind false accounting at a New York-based electronics company. An SEC investigation found that IEC Electronics Corp. improperly overstated the company’s profits in financial statements by using false inventory accounting as orchestrated by IEC’s then-executive vice president of operations Donald Doody and the controller of one of IEC’s subsidiaries at the time, Ronald Years. When the subsidiary wasn’t performing well financially, Doody and Years inappropriately inflated the work-in-process inventory in order to meet budgeted gross profit margins. Doody is barred from serving as an officer or director of a public company for five years, and Years is permanently suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. Without admitting or denying the findings, IEC, Doody, and Years consented to the SEC’s order instituting a settled administrative proceeding. IEC agreed to pay a $200,000 penalty, Doody agreed to pay $29,204.48 in disgorgement and interest plus a $25,000 penalty, and Years agreed to pay a $40,000 penalty. IEC’s former CEO William “Barry” Gilbert was not accused of any wrongdoing but has voluntarily returned $42,072 in incentive- based compensation and stock sale profits as well as 19,616 shares of company stock. Therefore it wasn’t necessary for the SEC to pursue a clawback action under Section 304 of the Sarbanes-Oxley Act.

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SEC v. First Mortgage Corporation, Inc., et al. Litigation Release No. 23553 (May 31, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23553.htm Civil Action No. 2:16-cv-03772 (May 31, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-97.pdf Press Release No. 2016-97 (May 31, 2016) http://www.sec.gov/news/pressrelease/2016-97.html The Securities and Exchange Commission announced that a California-based mortgage company, and its six most senior executives, have agreed to pay $12.7 million to settle charges that they orchestrated a scheme to defraud investors in the sale of residential mortgage-backed securities guaranteed by the Government National Mortgage Association (Ginnie Mae RMBS). As alleged by the SEC, the defendants pulled current, performing loans out of Ginnie Mae RMBS by falsely claiming they were delinquent in order to sell them at a profit into newly-issued RMBS. First Mortgage Corporation (“FMC”) is a mortgage lender that issued Ginnie Mae RMBS backed by loans it originated. The SEC alleges that from March 2011 through March 2015, FMC caused its Ginnie Mae RMBS prospectuses to be false and misleading by improperly and deceptively using a Ginnie Mae rule that gave issuers the option to repurchase loans that were delinquent by three or more months. FMC, with the knowledge and approval of the company’s senior- most management, purposely delayed depositing checks from borrowers who had been behind on their loans, falsely claiming to both investors and Ginnie Mae that such loans remained delinquent when in reality they were current. After repurchasing at prices applicable to delinquent loans, FMC was able to resell the loans into new Ginnie Mae RMBS pools at higher prices applicable to current loans for an immediate, nearly risk-free profit. Investors, meanwhile, were wrongly deprived of the interest payments on the repurchased loans. The executives charged with fraud in the SEC’s complaint filed in U.S. District Court for the Central District of California include:  Chairman and CEO Clement Ziroli Sr., who agreed to a $100,000 penalty.  Company president Clement Ziroli Jr., who agreed to pay 411,421.98 plus $27,203.92 in interest and a $200,000 penalty.

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 Chief financial officer Pac W. Dong, who agreed to pay a $100,000 penalty.  Senior vice president Ronald T. Vargas, who headed FMC’s capital markets department, and agreed to pay a $60,000 penalty.  Senior vice president Scott Lehrer, who agreed to pay a $50,000 penalty. Managing director of the servicing department Edward Joseph Sanders, who agreed to pay disgorgement of $51,576.51 plus $6,811.19 in interest. Sanders cooperated in the SEC’s investigation, and no penalty is assessed against him. In settling the charges without admitting or denying the allegations, each of the six executives agreed to be barred from serving as an officer or director of a public company for five years. The SEC’s complaint alleges that FMC, Ziroli Sr., Ziroli Jr., Dong, Vargas, Lehrer, and Sanders violated Sections 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act, and Rule 10b-5(a) and (c). The complaint also alleges that FMC violated Rule 10b-5(b). The settlements are subject to court approval.

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In the Matter of Logitech International, S.A., et al. Exchange Act Release No. 77644 (April 19, 2016) AAE Release No. 3765 (April 19, 2016) http://www.sec.gov/litigation/admin/2016/34-77644.pdf

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SEC v. Erik K. Bardman and Jennifer F. Wolf Litigation Release No. 23523 (April 20, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23523.htm Civil Action No. 3:16-cv-02023 (April 18, 2016) http://www.sec.gov/litigation/complaints/2016/comp-pr2016-74.pdf

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In the Matter of Ener1, Inc., et al. Securities Act Release No. 10068 (April 19, 2016) AAE Release No. 3766 (April 19, 2016) http://www.sec.gov/litigation/admin/2016/33-10068.pdf

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In the Matter of Robert D. Hesselgesser, CPA Exchange Act Release No. 77646 (April 19, 2016) AAE Release No. 3767 (April 19, 2016) http://www.sec.gov/litigation/admin/2016/34-77646.pdf Press Release No. 2016-74 (April 19, 2016) http://www.sec.gov/news/pressrelease/2016-74.html [Press Release] SEC Announces Financial Fraud Cases FOR IMMEDIATE RELEASE 2016-74 Washington D.C., April 19, 2016 — The Securities and Exchange Commission announced a pair of financial fraud cases against companies and then-executives accused of various accounting failures that left investors without accurate depictions of company finances. In one case, technology manufacturer Logitech International agreed to pay a $7.5 million penalty for fraudulently inflating its fiscal year 2011 financial results to meet earnings guidance and committing other accounting-related violations during a five-year period. Logitech’s then-controller Michael Doktorczyk and then-director of accounting Sherralyn Bolles agreed to pay penalties of $50,000 and $25,000, respectively, for violations related to Logitech’s warranty accrual accounting and failure to amortize intangibles from an earlier acquisition. The SEC filed a complaint in federal court against Logitech’s then-chief financial officer Erik Bardman and then-acting controller Jennifer Wolf alleging that they deliberately minimized the write- down of millions of dollars of excess component parts for a product for which Logitech had excess inventory in FY11. For Logitech’s financial statements, the two executives falsely assumed the company would build all of the components into finished products despite their knowledge of contrary facts and events. In the other case, three then-executives at battery manufacturer Ener1 agreed to pay penalties for the company’s materially overstated revenues and assets for year-end 2010 and overstated assets in the first quarter of 2011. The financial misstatements stemmed from management’s failure to impair investments and receivables related to an electric car manufacturer that was one of its largest customers. Former CEO and chairman of the board Charles L. Gassenheimer, former chief financial officer Jeffrey A. Seidel, and former chief accounting

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officer Robert R. Kamischke agreed to pay penalties of $100,000, $50,000, and $30,000, respectively. In the Ener1 case, the SEC also found that Robert D. Hesselgesser, the engagement partner for PricewaterhouseCoopers LLP’s audit of Ener1’s 2010 financial statements, violated PCAOB and professional auditing standards when he failed to perform sufficient procedures to support his audit conclusions that Ener1 management had appropriately accounted for its assets and revenues. Hesselgesser agreed 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 Hesselgesser to apply for reinstatement after two years. In the Logitech case, former CEO Gerald Quindlen was not accused of any misconduct, but has returned $194,487 in incentive- based compensation and stock sale profits received during the period of accounting violations, pursuant to Section 304(a) of the Sarbanes- Oxley Act. The companies and executives who agreed to settlements neither admitted nor denied the charges.

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In the Matter of Navistar International Corporation Securities Act Release No. 10061 (March 31, 2016) http://www.sec.gov/litigation/admin/2016/33-10061.pdf

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SEC v. Daniel C. Ustian Litigation Release No. 23507 (March 31, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23507.htm Civil Action No. 1-16-cv-03885 (March 31, 2016) http://www.sec.gov/litigation/complaints/2016/comp23507.pdf Press Release No. 2016-62 (March 31, 2016) http://www.sec.gov/news/pressrelease/2016-62.html The Securities and Exchange Commission charged Navistar Inter- national Corp. with misleading investors about its development of an advanced technology truck engine that could be certified to meet U.S. emission standards. Navistar, without admitting or denying the charges, has reached a settlement with the SEC and agreed to pay a $7.5 million penalty. Separately, in a complaint filed in federal court in the Northern District of Illinois, the SEC charged former Navistar CEO Daniel C. Ustian with misleading investors and with aiding and abetting violations by Lisle, Illinois-based Navistar. The SEC alleges that Navistar and Ustian failed to fully disclose the company’s difficulties obtaining Environmental Protection Agency (EPA) certification of a truck engine able to meet stricter EPA Clean Air Act standards that took effect in 2010. Navistar and Ustian also are alleged to have repeatedly misled investors about Navistar’s development of the engine, which used exhaust-gas-recir- culation (EGR) technology. Navistar later abandoned the effort and adopted the selective catalytic reduction (SCR) technology used by its competitors. According to the SEC’s order instituting a settled administrative proceeding against Navistar:  In early 2011, in an effort to reassure investors about its emissions control strategy, Navistar applied for certification of an engine it knew was not ready for production and sale even if the EPA certified it. The EPA did not approve the application and by summer 2011, Navistar decided not to pursue it any longer.  In late 2011, Navistar began preparing another application for EPA certification. Four days after a meeting in which the EPA staff told Navistar that the proposed engine did not appear to meet the certification requirements, Navistar filed its 2011 annual report on Form 10-K, which stated that it planned to apply to have the

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EPA certify the engine and that it believed the engine met EPA’s certification requirements.  After Navistar submitted a new application in early 2012, EPA staff raised “several serious concerns” that it said would need to be resolved before it could approve the application. Nevertheless, in a press release and filings in March 2012, Navistar character- ized the application as a “milestone,” and in a conference call with analysts and investors, Ustian indicated that certification was proceeding in a typical timeframe and that Navistar could begin production on the engine in June 2012.  In May 2012, Navistar withdrew its January 2012 application and submitted a third one incorporating changes to lower emissions at the expense of fuel economy and other engine performance fea- tures. In a June 4, 2012 meeting, EPA staff told Navistar that it had serious concerns about this application as well and the next day informed Navistar in writing that the engine as currently designed was “unlikely” to be certified. Despite this, Navistar’s June 2012 quarterly filing and conference call suggested that Navistar was unaware of any concerns by the EPA regarding the May 2012 application - one of several misstatements in the filing and call regarding the application.  In July 2012, Navistar announced that it was withdrawing its application and would begin work on an engine using SCR technology. The complaint alleges that Ustian violated Section 10(b) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder and Section 17(a) of the Securities Act and that he is liable as a control person under Section 20(a) of the Exchange Act and for aiding and abetting Navistar’s uncharged violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a)(1) of the Securities Act, and its separately charged violations set forth in a settled order with Navistar. Navistar consented to the SEC’s order instituting a settled administrative proceeding without admitting or denying the findings that it violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and the reporting provisions of Section 13(a) of the Securities Exchange Act of 1934 and underlying rules 12b-20, 13a-1, 13a-11, and 13a-13.

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SEC v. Reed J. Killion, et al. Litigation Release No. 23484 (March 10, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23484.htm Civil Action No. 4:16-cv-00621 (March 9, 2016) http://www.sec.gov/litigation/complaints/2016/comp-pr2016-45.pdf http://www.sec.gov/litigation/complaints/2016/comp-pr2016-45- dpa.pdf Press Release No. 2016-45 (March 9, 2016) http://www.sec.gov/news/pressrelease/2016-45.html SEC: Tech Company Misled Investors About Key Product The Securities and Exchange Commission announced that a developer of technologies for touchscreen devices has agreed to pay $750,000 to settle charges that it misled investors about the production status and sales agreements for a key product. Two former company executives face related charges in an SEC complaint filed in U.S. District Court for the Southern District of Texas. The SEC entered into a deferred prosecution agreement with the company’s former chairman of the board, who has agreed to cooperate and be barred from serving as an officer and director for five years. The SEC alleges that Uni-Pixel Inc. began publicly touting sales of a touchscreen sensor product supposedly in speedy high-volume commercial production when in fact only a few samples had been manually completed. The misrepresentations caused Uni-Pixel’s stock price to more than double, enabling then-CEO Reed Killion and then-CFO Jeffrey Tomz to make more than $2 million in personal profits from selling their own shares of company stock. Killion and Tomz allegedly knew the company’s statements were untrue and Uni- Pixel’s manufacturing process was still incapable of mass producing commercial quantities of sensors. According to the SEC’s complaint, filed on March 9, 2016:  Uni-Pixel announced “multi-million dollar” sales agreements in 2012 and 2013 that highlighted potential revenues but omitted material conditions the company had to meet to actually receive those revenues.  Uni-Pixel announced in April 2013 that its high-volume production line was “qualified and production ready” and its capacity “started at fifty moving to hundreds and then thousands over the

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next several months.” At the time, Uni-Pixel had yet to produce any functional sensors through its high-speed process.  Uni-Pixel issued a press release in November 2013 touting a “purchase order” for its sensors that expected to ship an initial “commercial run” of sensors by year-end. The company concealed that the order was for a mere $10 worth of sensors for the customer to review as samples. Without admitting or denying the SEC’s charges, Uni-Pixel consented to entry of a final judgment permanently enjoining it from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), and 13(b) of the Securities and Exchange Act of 1934 as well as Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13. The settlement is subject to court approval. The SEC’s litigation continues against Killion and Tomz. The deferred prosecution agreement with former board chairman Bernard T. Marren alleges that he became aware that information in Uni-Pixel’s press releases was inaccurate but failed to ensure that the company corrected the releases. The agreement requires him to cooperate with the SEC’s continuing case while complying with certain undertakings in order to avoid civil charges against him.

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SEC v. Marrone Bio Innovations, Inc. Civil Action No. 2:16-cv-00321 (February 17, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-32- mbi.pdf

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In the Matter of Donald J. Glidewell, CPA Exchange Act Release No. 77161 (February 17, 2016) AAE Release No. 3744 (February 17, 2016) https://www.sec.gov/litigation/admin/2016/34-77161.pdf

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In the Matter of Julieta Favela Barcenas Exchange Act Release No. 77162 (February 17, 2016) AAE Release No. 3745 (February 17, 2016) https://www.sec.gov/litigation/admin/2016/34-77162.pdf

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SEC v. Hector M. Absi, Jr. Civil Action No. 2:16-cv-00320 (February 17, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-32- absi.pdf Press Release No. 2016-32 (February 17, 2016) https://www.sec.gov/news/pressrelease/2016-32.html [Press Release] SEC Charges Biopesticide Company and Former Executive With Accounting Fraud FOR IMMEDIATE RELEASE 2016-32 Washington D.C., Feb. 17, 2016 — The Securities and Exchange Commission charged biopesticide company Marrone Bio Innovations and a former executive with inflating financial results to meet projections it would double revenues in its first year as a public company. Marrone Bio agreed to pay a $1.75 million penalty to settle the SEC’s charges. The SEC alleges that former chief operating officer Hector M. Absi Jr. concealed from Marrone Bio’s finance personnel and independent auditor various sales concessions offered to customers, leading the Davis, Calif.-based company to improperly recognize revenue on sales. Absi allegedly profited from the fraud. He resigned in August 2014 shortly before the alleged fraud came to light and the company’s stock price plunged more than 44 percent. In a parallel action, the U.S Attorney’s Office for the Eastern District of California announced criminal charges against Absi. According to the SEC’s complaint filed in U.S District Court for the Eastern District of California:  In November 2015, Marrone Bio restated its results for fiscal 2013 and the first half of fiscal 2014, reversing approximately $2 million of previously reported revenue.  Absi previously inflated Marrone Bio’s revenues by offering distributors “inventory protection,” a concession that allowed distributors to return unsold product.  Absi also inflated Marrone Bio’s revenue by directing his sub- ordinates to obtain false sales and shipping documents and intentionally ship the wrong product to book sales.

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 Absi abused Marrone Bio’s expense reporting system to pay for personal items, including vacations, home furnishings, and pro- fessionally installed Christmas lights for his home. Absi falsified his bank and credit card statements to make it appear as though he had incurred the expenses for legitimate business purposes.  Absi personally profited from his scheme, receiving more than $350,000 in bonuses, stock sale proceeds, and illegitimate expense reimbursements. The SEC also instituted a settled administrative proceeding against Marrone Bio’s former customer relations manager Julieta Favela Barcenas for violations of the books and records provisions of the federal securities laws. Favela entered into a cooperation agreement to assist in the SEC’s investigation and ongoing litigation against Absi. As required by Section 304(a) of the Sarbanes-Oxley Act, Marrone Bio CEO Pamela G. Marrone has reimbursed the company $15,234 and former CFO Donald J. Glidewell will reimburse the company $11,789 for incentive-based compensation they received following the filing of Marrone Bio’s misstated financial statements. They weren’t charged with any misconduct.

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In the Matter of Barclays Capital, Inc. Securities Act Release No. 10010 (January 31, 2016) https://www.sec.gov/litigation/admin/2016/33-10010.pdf

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In the Matter of Credit Suisse Securities (USA) LLC Securities Act Release Nos. 10013 and 10014 (January 31, 2016) https://www.sec.gov/litigation/admin/2016/33-10013.pdf https://www.sec.gov/litigation/admin/2016/33-10014.pdf Press Release No. 2016-16 (January 31, 2016) http://www.sec.gov/news/pressrelease/2016-16.html [Press Release] Barclays, Credit Suisse Charged With Dark Pool Violations Firms Collectively Paying More Than $150 Million to Settle Cases FOR IMMEDIATE RELEASE 2016-16 Washington D.C., Jan. 31, 2016 — The Securities and Exchange Commission announced that Barclays Capital Inc. and Credit Suisse Securities (USA) LLC have agreed to settle separate cases finding that they violated federal securities laws while operating alternative trading systems known as dark pools and Credit Suisse’s Light Pool. The New York Attorney General’s office is announcing parallel actions against the two firms. Barclays agreed to settle the charges by admitting wrongdoing and paying $35 million penalties to the SEC and the NYAG for a total of $70 million. Credit Suisse agreed to settle the charges by paying a $30 million penalty to the SEC, a $30 million penalty to the NYAG, and $24.3 million in disgorgement and prejudgment interest to the SEC for a total of $84.3 million. According to the SEC’s order instituting a settled administrative proceeding against Barclays:  Barclays said that a feature called Liquidity Profiling would “continuously police” order flow in its LX dark pool and that the firm would run “surveillance reports every week” for toxic order flow.  In fact, Barclays did not continuously police LX for predatory trading using the tools it said it would, and it also did not run weekly surveillance reports.  Barclays did not adequately disclose that it sometimes overrode Liquidity Profiling by moving some subscribers from the most

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aggressive categories to the least aggressive. The result was that subscribers that elected to block trading against aggressive subscribers nonetheless continued to interact with them.  Barclays at times misrepresented the type and number of market data feeds that it used to calculate the National Best Bid and Offer in LX. For example, Barclays represented that it “utilize[d] direct feeds from exchanges to deter latency arbitrage” when in fact Barclays used a combination of direct data feeds and other, slower feeds in the dark pool. According to the SEC’s orders instituting settled administrative proceedings against Credit Suisse:  Credit Suisse misrepresented that its Crossfinder dark pool used a feature called Alpha Scoring to characterize subscriber order flow monthly in an objective and transparent manner. In fact, Alpha Scoring included significant subjective elements, was not transparent, and did not categorize all subscribers on a monthly basis.  Credit Suisse misrepresented that it would use Alpha Scoring to identify “opportunistic” traders and kick them out of its electronic communications network, Light Pool. In fact, Alpha scoring was not used for the first year that Light Pool was operational. Also, a subscriber who scored “opportunistic” could continue to trade using other system IDs, and direct subscribers were given the opportunity to resume trading.  Credit Suisse accepted, ranked, and executed over 117 million illegal sub-penny orders in Crossfinder.  Credit Suisse failed to treat subscriber order information confidentially and failed to disclose to all Crossfinder subscribers that their confidential order information was being transmitted out of the dark pool to other Credit Suisse systems.  Credit Suisse failed to inform subscribers that the Credit Suisse order router systematically prioritized Crossfinder over other venues in certain stages of its dark-only routing process.  Finally, CSSU also failed to disclose that it operated a technology called Crosslink that alerted two high frequency trading firms to the existence of orders that CSSU customers had submitted for execution.

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The SEC’s order finds that Barclays violated Section 17(a)(2) of the Securities Act, Securities Exchange Act Section 15(c)(3), Rules 15c3- 5(c)(1)(i) and 15c3-5(b) of the SEC’s Market Access Rule, and Rules 301(b)(2) and (10). The order requires Barclays to pay a $35 million penalty, to cease and desist from these violations, censures Barclays, and requires Barclays to engage a third-party consultant to review its marketing of LX, its Market Access Rule compliance, and its compliance with certain requirements of Regulation ATS. The SEC’s orders find that Credit Suisse violated Section 17(a)(2) of the Securities Act, Rules 301(b)(2), (5) and (10) of Regulation ATS, and Rules 602(b) and 612 of Regulation NMS. The orders require Credit Suisse to cease and desist from these violations, censure Credit Suisse, and require Credit Suisse to pay $30 million in total penalties, disgorgement of $20,675,510.52, and prejudgment interest of $3,639,643.39. Credit Suisse consented to the SEC’s orders without admitting or denying the findings.

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In the Matter of Ocwen Financial Corp. Exchange Act Release No. 76938 (January 20, 2016) AAE Release No. 3733 (January 20, 2016) http://www.sec.gov/litigation/admin/2016/34-76938.pdf Press Release No. 2016-13 (January 20, 2016) http://www.sec.gov/news/pressrelease/2016-13.html [Press Release] Ocwen Paying Penalty for Misstated Financial Results FOR IMMEDIATE RELEASE 2016-13 Washington D.C., Jan. 20, 2016 — The Securities and Exchange Commission announced that Ocwen Financial Corp. has agreed to settle charges that it misstated financial results by using a flawed, undisclosed methodology to value complex mortgage assets. Ocwen agreed to pay a $2 million penalty after an SEC investigation found that the company inaccurately disclosed to investors that it independently valued these assets at fair value under U.S. Gener- ally Accepted Accounting Principles (GAAP). In fact, Ocwen merely used the valuation performed by a related party to which it sold the rights to service certain mortgages that remained a financing liability in Ocwen’s accounting. Ocwen’s audit committee failed to review the methodology with company management or its outside auditor, and the related party’s valuation deviated from fair value measures. Ocwen consequently misstated its net income for the last three quarters of 2013 and the first quarter of 2014. According to the SEC’s order instituting a settled administrative proceeding, Ocwen’s internal controls also failed to prevent conflicts of interest involving Ocwen’s executive chairman, who played a dual role in many related party transactions. Ocwen disclosed to investors that its executive chairman was required to recuse himself from transactions with related companies where he also served in a leadership position. But Ocwen had no written policies or procedures on recusals for related party transactions, and the recusal practice that existed was flawed, inconsistent, and ad hoc. Therefore, Ocwen’s executive chairman was able to approve transactions from both sides, including a $75 million bridge loan to Ocwen from a company where he also served as chairman of the board.

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The SEC’s order finds that Ocwen violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13. Ocwen consented to the SEC’s order without admitting or denying the findings.

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In the Matter of Equinox Fund Management, LLC Securities Act Release No. 10004 (January 19, 2016) http://www.sec.gov/litigation/admin/2016/33-10004.pdf Press Release No. 2016-11 (January 19, 2016) http://www.sec.gov/news/pressrelease/2016-11.html [Press Release] SEC: Alternative Fund Manager Overcharged Fees, Misled Investors FOR IMMEDIATE RELEASE 2016-11 Washington D.C., Jan. 19, 2016 — The Securities and Exchange Commission announced that a Denver-based alternative fund manager has agreed to settle charges that the firm overcharged management fees and misled investors about how it valued certain assets. An SEC investigation found that Equinox Fund Management LLC calculated management fees contrary to the method described in registration statements for a managed futures fund called The Fron- tier Fund (TFF), and the firm also deviated from its disclosed valuation methodology for some TFF holdings. Equinox has agreed to refund investors approximately $5.4 million in excessive management fees collected during a seven-year period plus $600,000 in prejudgment interest. Equinox also agreed to pay a $400,000 penalty. According to the SEC’s order instituting a settled administrative proceeding:  TFF’s registration statements disclosed that Equinox charged management fees based upon the net asset value (NAV) of each series. But Equinox actually used the notional trading value of the assets, which is the total amount invested including leverage. Equinox consequently overcharged the fund $5.4 million in fees from 2004 to 2011.  TFF’s Form 10-K for 2010 and Forms 10-Q for the first and second quarters of 2011 disclosed that its methodology of valuing certain derivatives was “corroborated by weekly counterparty settlement values.” In fact, Equinox received information during that timeframe showing that its valuation of certain options was substantially higher than the counterparty’s valuations.

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 TFF’s Form 10-Q for the third quarter of 2011 disclosed that an option had been transferred between two series consistent with TFF’s valuation policies. But it was actually transferred using a different valuation methodology than substantially identical options held by other TFF series.  TFF’s Form 10-Q for the second quarter of 2011 failed to disclose as a material subsequent event the series’ early termination of an option that constituted its largest investment at a materially lower valuation than had been recorded for that option. Equinox consented to the entry of the SEC’s order finding that the firm violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and caused TFF’s violations of Section 13(a) of the Secu- rities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13. Without admitting or denying the findings, Equinox agreed to be censured and must cease and desist from further violations.

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SEC v. Charles S. Bailey, et al. Civil Action No. 4:16-cv-00023 (January 13, 2016) http://www.sec.gov/litigation/complaints/2016/comp-pr2016-7.pdf Press Release No. 2016-7 (January 13, 2016) http://www.sec.gov/news/pressrelease/2016-7.html [Press Release] SEC Charges 11 Bank Officers and Directors With Fraud FOR IMMEDIATE RELEASE 2016-7 Washington D.C., Jan. 13, 2016 — The Securities and Exchange Commission announced fraud charges against 11 former executives and board members at Superior Bank and its holding company involved in various schemes to conceal the extent of loan losses as the bank was faltering in the wake of the financial crisis. The SEC alleges the high-ranking officers and directors schemed to mislead investors and bank regulators by propping up Superior Bank’s financial condition through straw borrowers, bogus appraisals, and insider deals. Specifically they improperly extended, renewed, and rolled over bad loans to avoid impairment and the need to report ever-increasing allowances for loan and lease losses (ALLL) in its financial accounting. As a result, Superior Bank overstated its net income in public filings by approximately 99 percent for 2009 and 50 percent for 2010. The Birmingham, Ala.-based bank failed in 2011. Nine of the 11 bank officers and directors have agreed to settle the SEC’s charges. Contesting the SEC’s complaint filed in federal district court in Tallahassee are Kenneth D. Pomeroy, who was president of Superior Bank’s central Florida region, and William C. McKinnon, who was a senior vice president and commercial loan officer. Under the settlements in which they neither admit nor deny the SEC’s charges and are each permanently barred from serving as officers or directors of a public company:  Charles S. Bailey, former CEO and chairman of the bank’s holding company Superior Bancorp, must pay a $250,000 penalty.  James A. White, former CFO of Superior Bancorp, must pay a $200,000 penalty.

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 Dewayne S. Maddox, former market executive at Superior Bank, must pay a $200,000 penalty.  William H. Caughran, former general counsel of Superior Bank and Superior Bancorp, must pay a $150,000 penalty.  Charles W. Roberts III and Robert R. Parrish Jr., who served as outside directors at Superior Bancorp, must each pay $100,000 penalties.  Superior Bank’s former president and CEO Charles M. Scott Jr., former chief credit officer John E. Figlewski, and former president George J. Hall have each agreed to bifurcated settlements in which the court will determine financial penalties at a later date. According to the SEC’s complaint:  The fraud involved many of the largest loans in Superior Bank’s portfolio.  Among the lending schemes they used to materially understate the bank’s ALLL in public filings and conceal the loan problems:  They engaged in non-recourse loans in which they replaced the borrowers of record for a severely delinquent loan with alternative borrowers who typically were in default on multiple other loans from Superior Bank. They agreed to the additional loan relationship as an explicit accommodation to avoid foreclosure or collection efforts on prior loans and understood they were not obligated to repay Superior Bank under the new loans.  They frequently utilized appraisals that were several years out-of-date with no justification supporting the continued use of the stale appraisals, which routinely overstated the value of the loan properties and identified wholly inaccurate or unviable projected future uses of the properties. Other times they used conflicted appraisers beholden to Superior Bank or the borrower.  They approved renewals or modifications of severely delinquent loans either by rolling forward relevant payment dates or funding new loans to the borrower and using those proceeds to pay down the prior loan. This technique made the loan appear current on paper and within Superior Bank’s internal systems.

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 They proposed, structured, and documented non-recourse joint venture agreements with defaulted borrowers and a now- deceased outside director of Superior Bancorp in which Superior Bank benefited from the appearance that the loan was current despite its near-certainty of falling back into delinquency and default.  Bailey, Hall, Scott, and White orchestrated a separate accounting fraud by failing to appropriately impair more than $250 million in substandard loans being actively marketed for sale to third parties at less than 50 cents on the dollar.  Bailey, Scott, and White knowingly failed to write-down to zero a deferred tax asset that Superior Bancorp was using to offset future income they knew would never materialize as a result of the fraudulent lending schemes and operating losses.

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In the Matter of JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC Securities Act Release No. 9992 (December 18, 2015) http://www.sec.gov/litigation/admin/2015/33-9992.pdf Press Release No. 2015-283 (December 18, 2015) http://www.sec.gov/news/pressrelease/2015-283.html [Press Release] J.P. Morgan to Pay $267 Million for Disclosure Failures FOR IMMEDIATE RELEASE 2015-283 Washington D.C., Dec. 18, 2015 — The Securities and Exchange Commission announced that two J.P. Morgan wealth management subsidiaries have agreed to pay $267 million and admit wrongdoing to settle charges that they failed to disclose conflicts of interest to clients. An SEC investigation found that the firm’s investment advisory business J.P. Morgan Securities LLC (JPMS) and nationally char- tered bank JPMorgan Chase Bank N.A. (JPMCB) preferred to invest clients in the firm’s own proprietary investment products without properly disclosing this preference. This preference impacted two fundamental aspects of money management – asset allocation and the selection of fund managers – and deprived JPMorgan’s clients of information they needed to make fully informed investment decisions. In a parallel action, JPMorgan Chase Bank agreed to pay an additional $40 million penalty to the U.S. Commodity Futures Trad- ing Commission (CFTC). According to the SEC’s order instituting a settled administrative proceeding, JPMS failed to disclose numerous conflicts of interest to certain wealth management clients from 2008 to 2013:  JPMS failed to disclose its preference for J.P. Morgan-managed mutual funds for retail investors in a unified managed account program known as the Chase Strategic Portfolio (CSP) that was sold through Chase Bank branches.  JPMS failed to disclose that the availability and pricing of services provided to JPMS by another J.P. Morgan affiliate was tied to the amount of CSP assets invested in J.P. Morgan proprietary products.

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 JPMS failed to disclose that certain J.P. Morgan-managed mutual funds purchased for CSP clients offered a less expensive share class and would generate less revenue for a JPMS affiliate than the share class JPMS chose for CSP clients.  JPMS’s Forms ADV for CSP failed to adequately disclose these conflicts of interest.  JPMS failed to implement written policies and procedures reasonably designed to prevent the violations that occurred. The SEC’s order also found that JPMCB failed to disclose several conflicts of interest to certain high net worth and ultra-high net worth clients of JPMorgan’s U.S. Private Bank and certain clients of Chase Private Client, who invested in J.P. Morgan Investment Portfolio, a discretionary managed account program available to affluent Chase Bank clients:  From early 2011 to early 2014, JPMCB failed to disclose that it preferred JPMorgan-managed mutual funds for clients with JPMorgan U.S. Private Bank discretionary managed accounts, including purchasers of Global Access Portfolio (GAP) funds, and to clients of Chase Private Client who invested in J.P. Morgan Investment Portfolio.  From 2008 to early 2014, JPMCB failed to disclose that it preferred JPMorgan-managed hedge funds for clients with U.S. Pri- vate Bank discretionary management accounts, including purchasers of GAP funds.  From 2008 to 2015, JPMCB failed to disclose its preference to invest certain clients in third-party-managed hedge funds that shared management or performance fees called retrocessions with a JPMCB affiliate. The SEC’s order finds that JPMS willfully violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)- 7 and JPMCB willfully violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. JPMS and JPMCB admitted the facts set forth in the SEC’s order and acknowledged the conduct violated the federal securities laws. The subsidiaries agreed to jointly pay $127.5 million in disgorgement, $11.815 million in prejudgment interest, and a $127.5 million penalty. JPMS agreed to be censured, and both subsidiaries agreed to cease and desist from further violations.

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In the Matter of The St. Joe Company, et al. Securities Act Release No. 9967 (October 27, 2015) AAE Release No. 3716 (October 27, 2015) https://www.sec.gov/litigation/admin/2015/33-9967.pdf Press Release No. 2015-247 (October 27, 2015) https://www.sec.gov/news/pressrelease/2015-247.html [Press Release] Developer, Former Top Execs Charged for Improper Accounting of Real Estate Assets During Financial Crisis FOR IMMEDIATE RELEASE 2015-247 Washington D.C., Oct. 27, 2015 — The Securities and Exchange Commission charged The St. Joe Company, a Watersound, Florida-based real estate developer and land- owner, its former top executives, and two former accounting department directors, with improperly accounting for the declining value of its residential real estate developments during the financial crisis. As a result of this misconduct, St. Joe reported materially overstated earnings and assets in 2009 and 2010. According to the SEC’s order instituting settled administrative and cease-and-desist proceedings, St. Joe, through its former CEO William Britton Greene, former CFO William S. McCalmont, former Chief Accounting Officer Janna L. Connolly, and former Directors of Accounting J. Brian Salter and Phillip B. Jones, repeatedly failed to properly apply generally accepted accounting practices in testing St. Joe’s real estate developments for impairment, resulting in the failure to take required write-downs on properties hit hard by the financial crisis. The order also finds that:  Greene, McCalmont, and Connolly used an unreasonably high property valuation in the company’s impairment testing of its largest real estate development.  Greene and McCalmont failed to disclose material changes in business strategy for two of St. Joe’s largest residential real estate developments.  During the course of this misconduct, Greene, McCalmont, Con- nolly, and Salter failed to fully apprise the company’s auditors of certain material facts relevant to the company’s impairment testing.

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 St. Joe’s books-and-records failures during 2009 and 2010 caused substantial delays to, and otherwise unnecessary steps in, the SEC’s investigation leading to this order. Without admitting or denying its findings, St. Joe, Greene, McCalmont, Connolly, Salter, and Jones each consented to the entry of the order, which found that they violated or caused the violation of, among other provisions, the negligence-based antifraud provisions, as well as reporting, books-and-records, and internal controls provisions, of the federal securities laws. St. Joe agreed to pay a $2.75 million civil penalty to settle the SEC’s charges and Greene agreed to pay a $120,000 penalty and disgorge ill-gotten gains of $400,000 plus prejudgment interest. McCalmont agreed to pay a $120,000 penalty and disgorge $180,000 plus prejudgment interest. Connolly agreed to pay a $70,000 penalty and disgorge $60,000 plus prejudgment interest, and Salter agreed to pay a $25,000 penalty. McCalmont, Connolly, Salter, and Jones each further agreed to be suspended from appearing or practicing before the SEC as an accountant, with the right to apply for reinstatement after two years (in the case of McCalmont and Jones), and after three years (in the case of Connolly and Salter). The respondents further agreed to cease and desist from committing or causing any future violations of the provisions for which each was charged.

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ACTIONS INVOLVING ACCOUNTANTS AND AUDITORS

Enforcement actions involving accountants and auditors addressed a broad array of misconduct perpetrated by a variety of individuals and entities, including sanctioning a biotech venture capitalist who siphoned firm funds to finance a lavish lifestyle, settling charges against companies and individuals for deficient internal accounting controls. The SEC also settled with a national audit firm and two of its partners charged with ignoring red flags and fraud risks while conducting deficient audits of two publicly traded companies. In addition, the SEC settled with an audit firm and two of its accountants, an audit partner and manager, based on charges of improper professional conduct for failing to conduct their work in accordance with PCAOB auditing standards.

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In the Matter of ICON Capital LLC f/k/a ICON Capital Corporation Exchange Act Release No. 78030 (June 10, 2016) AAE Release No. 3783 (June 10, 2016) https://www.sec.gov/litigation/admin/2016/34-78030.pdf [Administrative Summary] SEC Charges Manager of Equipment Leasing Funds with Caus- ing Financial Reporting Violations June 10, 2016 – The Securities and Exchange Commission announced that ICON Capital LLC, a Manhattan-based entity that manages equipment leasing funds, has agreed to settle charges that it caused four of its funds to report materially inaccurate financial results in their SEC filings. ICON has agreed to settle the SEC charges by, among other things, paying a $750,000 penalty. According to the SEC’s order instituting a settled administrative proceeding, the four funds’ financial results were misstated primarily due to accounting errors relating to the impairment of significant fund assets that declined in value following the global financial crisis, and that ICON failed to comply with Generally Accepted Accounting Principles (GAAP) on multiple occasions when assessing whether and to what extent the recorded value of certain assets needed to be impaired and when addressing related financial reporting issues. The SEC’s order finds that ICON manages a variety of equipment leasing funds, which file periodic reports and financial statements with the SEC. During the relevant period, one of ICON’s primary investment strategies was for these funds to purchase and then lease large commercial shipping vessels. Beginning in 2009, the severe downturn in the world economy following the financial crisis resulted in a sharp drop in shipping lease rates and vessel sale prices that lasted for several years. In response to the depressed market, ICON began using for impairment and valuation purposes a methodology developed by members of the shipping industry known as the Hamburg Ship Evaluation Standard (Hamburg Method), which uses ten-year historical average prices to estimate future lease rates. The SEC’s order finds that ICON’s exclusive reliance on the Hamburg Method’s historical data to make fair value and related accounting determinations in situations where ICON possessed relevant contem- poraneous market sales data and other relevant evidence contravened GAAP. According to the SEC’s order, ICON’s accounting errors resulted in material overstatements of net income (or understatements of net

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loss) by the four relevant funds that ranged as high as nearly 600 percent. In some instances, a multi-million dollar profit was reported when, in fact, the fund had incurred a multi-million dollar loss. ICON’s errors also caused the funds to record and report overstated asset values which, in turn, led to overstatement of members’ equity by as much as 78 percent. The order finds that, as a result of the errors, the funds at issue failed to take required asset value impairments, overstated post-impairment asset values when impairments were taken or understated depreciation expenses in multiple reporting periods from 2009 through 2012. The SEC order finds that ICON was a cause of violations by the relevant funds of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1 and 13a- 13. Without admitting or denying the findings, ICON consented to the order and agreed to pay the $750,000 penalty. The order also requires ICON to cease and desist from committing or causing any violations and any future violations of the above provisions of the federal securities laws.

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In the Matter of Silberstein Ungar PLLC, et al. Exchange Act Release No. 77997 (June 6, 2016) AAE Release No. 3777 (June 6, 2016) https://www.sec.gov/litigation/admin/2016/34-77997.pdf [Administrative Summary] SEC Charges Michigan-based Audit Firm and its Owners with Violating Auditing Standards and Engaging in Improper Professional Conduct in Audits of Microcap Companies June 6, 2016 – The Securities and Exchange Commission announced that Michigan-based audit firm Silberstein Unger PLLC, and its owners Ronald N. Silberstein, CPA, Joel M. Ungar, CPA, Seth A. Gorback, and David A. Kobylarek, CPA, have agreed to settle charges of engaging in improper professional conduct and failing to comply with PCAOB auditing standards in connection with the audits of nine microcap issuers. An SEC investigation found that for one of the audits, the audit documentation for most of the assets, including those classified as “significant or fraud risks,” was comprised mainly of audit testing prepared and performed by a different accounting firm for a different audit. Other audit work papers for this same audit were either duplicates or near duplicates of work papers from audits of different Silberstein Ungar clients and included the documentation of procedures performed for the other audits. The audit work papers for other microcap issuers did not contain evidence that Silberstein Ungar reviewed, evaluated, or tested the process used by management to conclude that an impairment of their largest asset was not necessary and the related audit work papers mainly consisted of memos based on generally accepted accounting principles applicable to companies in a different industry. Silberstein Ungar also failed in its gatekeeping duties by issuing certain of its audit reports without obtaining engagement quality reviews. The SEC’s order instituting settled administrative proceedings found that the respondents each willfully aided and abetted and caused violations of the reporting provisions of the federal securities laws. Each of the respondents consented, without admitting or denying the findings in the SEC’s order, to a cease-and-desist order against future violations of Securities Exchange Act of 1934 Sections 13(a) and 15(d) and Rules 13a-1 and 15d-1 thereunder, and Rule 2-02(b)(1) of Regulation S-X, and to the entry of an order suspending each of them from appearing and practicing before the SEC as an accountant,

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which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Silberstein and Ungar to apply for reinstatement after five years, and allows Gorback and Kobylarek to apply for reinstatement after three years. The firm’s suspension is permanent. Silberstein also agreed to pay a $35,000 penalty and Ungar agreed to pay a $7,500 penalty.

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In the Matter of Burrill Capital Management, LLC, et al. Exchange Act Release No. 77473 (March 30, 2016) AAE Release No. 3761 (March 30, 2016) http://www.sec.gov/litigation/admin/2016/34-77473.pdf Press Release No. 2016-61 (March 30, 2016) http://www.sec.gov/news/pressrelease/2016-61.html [Press Release] SEC: Biotech Venture Capitalist Stole Investor Funds for Personal Use FOR IMMEDIATE RELEASE 2016-61 Washington D.C., March 30, 2016 — The Securities and Exchange Commission announced that a San Francisco-based biotech venture capitalist has agreed to settle charges that he siphoned money from a fund managed by his firm in order to prop up other struggling businesses he owned and finance his lavish lifestyle. An SEC investigation found that G. Steven Burrill concealed from investors that he took money from the Burrill Life Sciences Capital Fund III under the guise of “advanced” management fees and spent it on family vacations to St. Barts and Paris as well as jewelry, gifts, car service, and private jets. Burrill and his firm Burrill Capital Management agreed to the disgorgement of $4.785 million in investor money he stole for personal use plus a $1 million penalty. Burrill also agreed to be permanently barred from the securities industry. The fund’s investors included state pension funds, public companies, and other institutional investors. The SEC’s order instituting a settled administrative proceeding also finds that Burrill Capital Management’s chief legal officer Victor A. Hebert and controller Helena C. Sen played integral roles in Burrill’s scheme. Hebert led investment committee meetings and agreed to call in additional capital from fund investors while knowing the money would be spent on expenses unrelated to the fund. Burrill and Sen on at least two instances delayed distribution of payments owed to fund investors so money could instead be used to continue paying Burrill’s personal expenses as well as the salaries of Hebert and Sen.

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Hebert and Sen agreed to settle the charges by paying penalties of $185,000 and $90,000, respectively. They also are barred from the securities industry. Burrill and his firm, Hebert, and Sen agreed to the settlements without admitting or denying the findings in the SEC’s order. In addition to their industry bars, Burrill, a former audit partner, and Sen are permanently suspended from appearing and practicing before the SEC as accountants, which includes not participating in the financial reporting or audits of public companies. Hebert is permanently suspended from appearing and practicing before the SEC as an attorney.

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In the Matter of Magnum Hunter Resources Corporation Exchange Act Release No. 77345 (March 10, 2016) AAE Release No. 3756 (March 10, 2016) http://www.sec.gov/litigation/admin/2016/34-77345.pdf

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In the Matter of Ronald D. Ormand Exchange Act Release No. 77346 (March 10, 2016) AAE Release No. 3757 (March 10, 2016) http://www.sec.gov/litigation/admin/2016/34-77346.pdf

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In the Matter of David S. Krueger, CPA Exchange Act Release No. 77344 (March 10, 2016) AAE Release No. 3755 (March 10, 2016) http://www.sec.gov/litigation/admin/2016/34-77344.pdf

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In the Matter of Joseph R. Allred, CPA Exchange Act Release No. 77342 (March 10, 2016) AAE Release No. 3753 (March 10, 2016) http://www.sec.gov/litigation/admin/2016/34-77342.pdf

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In the Matter of Wayne Gray, CPA Exchange Act Release No. 77343 (March 10, 2016) AAE Release No. 3754 (March 10, 2016) http://www.sec.gov/litigation/admin/2016/34-77343.pdf Press Release No. 2016-48 (March 10, 2016) http://www.sec.gov/news/pressrelease/2016-48.html [Press Release] SEC Charges Company and Executives for Faulty Evaluations of Internal Controls FOR IMMEDIATE RELEASE 2016-48 Washington D.C., March 10, 2016 — The Securities and Exchange Commission has settled charges against Texas-based oil company Magnum Hunter Resources Corpo- ration and several individuals, including a company consultant, for deficient evaluation of the company’s internal controls over financial reporting, and failures to maintain internal control over financial reporting between Dec. 31, 2011 and Sept. 30, 2013. Internal control over financial reporting (ICFR) refers to a company’s process for providing reasonable assurance to the public regarding the reliability of its financial reporting. SEC rules require company management to evaluate and annually report on the effectiveness of ICFR, including disclosing any identified material weaknesses that creates a reasonable possibility that the company will not timely prevent or detect a material misstatement of its financial statements. Management may not conclude ICFR is effective if a material weakness exists. The SEC alleges that MHR and two senior officers – former CFO Ronald Ormand and former chief accounting officer David Krueger – failed to properly evaluate and apply applicable ICFR standards and improperly concluded that MHR had no material weaknesses. The SEC also charged former MHR consultant Joseph Allred, and former MHR audit engagement partner Wayne Gray, with improperly evaluating the severity of MHR’s internal control deficiencies and mis- applying relevant standards for assessing deficiencies and material weaknesses. Accordingly, the public was not told that MHR had a material weakness in its ICFR.

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According to the SEC’s orders:  MHR’s rapid growth, which included multiples of revenue growth in 2010 and significant acquisitions in 2010 and 2011, strained its accounting resources. The acquisition and revenue growth caused Magnum Hunter to be unable to complete its standard monthly close process on time.  Ronald Ormand and David Krueger knew of the stresses placed on Magnum Hunter’s accounting department as a result of its rapid growth. Nonetheless, they failed to apply appropriate standards when determining the severity of MHR’s internal control deficiency.  Joseph Allred, a partner at a PCAOB-registered public accounting firm that provided consulting and internal auditing services to Magnum Hunter, led consulting engagements to document and test Magnum Hunter’s controls and identified problems in the company’s accounting department that exhibited “inadequate and inappropriately aligned staffing.” These problems caused delays in Allred’s testing.  Despite identified problems, and his belief that “[t]he potential for error in such a compressed work environment presents substantial risk,” Allred concluded that the staffing deficiency in the company’s accounting department did not rise to the level of a material weakness.  Wayne Gray, an engagement partner at a PCAOB-registered public accounting firm that served as Magnum Hunter’s independent auditor, recognized during his audit that MHR lacked “adequate internal control over financial reporting due to inadequate and inappropriately aligned staffing” which “increases the possibility of a material error occurring and being undetected.” Despite this assessment, Gray concluded that the weakness did not rise to the level of material weakness and failed to adequately document the basis for his conclusion. Without admitting or denying the findings in the cease-and-desist orders covering various reporting and internal control provisions of the federal securities laws, MHR agreed to pay a penalty of $250,000 subject to bankruptcy court approval, Ormand and Allred agreed to pay penalties of $25,000 and $15,000 respectively, and Krueger and Gray agreed to be suspended from appearing and practicing before

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In the Matter of Frazer Frost, LLP, et al. Securities Act Release No. 10039 (February 11, 2016) AAE Release No. 3742 (February 11, 2016) https://www.sec.gov/litigation/admin/2016/33-10039.pdf [Administrative Summary] Proceedings Instituted Against California-based Audit Firm and Two of Its Accountants For Alleged Improper Professional Conduct and Audit Failures Feb. 11, 2016 – The Securities and Exchange Commission announced the issuance of an Order Instituting Administrative and Cease-and-Desist Proceedings against California-based audit firm Frazer Frost LLP and two of its accountants, engagement partner Susan Woo and manager Miranda Suen (together, the “Auditors”), alleging multiple instances of improper professional conduct and audit failures during their third quarter 2010 review of interim financial information and their 2011 year-end audit of China Valves Technology, Inc. The SEC’s Enforcement Division and Office of the Chief Account- ant allege that, during Frazer Frost’s third quarter 2010 interim review:  The Auditors learned from China Valves’ CEO that certain material information concerning China Valves’ January 2010 acquisition of Watts Valve (Changsha) Co., Ltd. was misstated or not included in the notes to the financial statements for the first and second quarter 2010 Forms 10-Q.  The Auditors performed procedures which confirmed that the information in the prior Forms 10-Q was materially misstated and proposed corrections to the third quarter Form 10-Q in Frazer Frost’s workpapers.  Despite proposing corrections, Frazer Frost’s workpapers did not document that the Auditors communicated the inaccuracies and proposed changes to China Valves’ management or its audit committee.  Despite their awareness of the inaccuracies, Woo and Suen signed off on Frazer Frost’s third quarter 2010 review of China Valves’ interim financial information, and the company filed its Form 10-Q with the SEC that repeated the material misstatements from the two previous quarters concerning the acquisition. The SEC’s Enforcement Division and Office of the Chief Accountant further allege that, during Frazer Frost’s 2011 year-end audit of China Valves:

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 While recognizing the need to exercise heightened professional skepticism during the audit, the Auditors failed to follow their audit plan to perform extended procedures to test $1.7 million in value-added-tax (“VAT”) payments purportedly made to a local tax bureau by China Valves’ Pudong Hanwei Valve Co., Ltd. subsidiary. They also failed to replace those procedures with adequate alternatives or to document why those procedures were no longer necessary.  Instead, in contravention of the risks they had identified, Respond- ents relied solely on information provided by China Valves and, in doing so, failed to obtain sufficient audit evidence.  As a result of this failure, the Auditors did not learn that Hanwei Valve had not made the $1.7 million in VAT payments as recorded in China Valves’ books and records and reported in the 2011 financial statements included in Form 10-K.  Frazer Frost subsequently issued an audit report containing an unqualified opinion as to China Valves’ 2011 financial statements, which materially misstated the company’s tax liabilities. The Enforcement Division and the Office of the Chief Account- ant allege that Frazer Frost engaged in improper professional conduct under Rule 102(e) of the Commission’s Rules of Practice and willfully violated Rules 2-02 and 2-06 of Regulation S-X, that Woo and Suen engaged in improper professional conduct under Rule 102(e), that Woo caused Frazer Frost’s violations of Rules 2-02 and 2-06 of Regulation S-X, and that Suen caused Frazer Frost’s violations of Rules 2-06. The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforce- ment Division’s and the Office of the Chief Accountant’s allegations and determine what, if any, remedial actions are appropriate. This action is the latest from the Cross-Border Working Group that focuses on companies with substantial foreign operations that are publicly traded in the U.S. The Working Group has enabled the SEC to file fraud cases against more than 120 foreign issuers or executives, at least another 25 non-fraud cases involving at least 40 other defendants and respondents, most of whom were auditors and other gatekeepers, and deregister the securities of more than 145 companies.

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(See “Settlement Order” Securities Act Release No. 10092; AAE Release No. 3781 (June 7, 2016) https://www.sec.gov/litigation/admin/ 2016/33-10092.pdf.)

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In the Matter of Monsanto Company, et al. Securities Act Release No. 10037 (February 9, 2016) AAE Release No. 3741 (February 9, 2016) http://www.sec.gov/litigation/admin/2016/33-10037.pdf Press Release No. 2016-25 (February 9, 2016) http://www.sec.gov/news/pressrelease/2016-25.html [Press Release] Monsanto Paying $80 Million Penalty for Accounting Violations FOR IMMEDIATE RELEASE 2016-25 Washington D.C., Feb. 9, 2016 — The Securities and Exchange Commission announced that St. Louis- based agribusiness Monsanto Company agreed to pay an $80 million penalty and retain an independent compliance consultant to settle charges that it violated accounting rules and misstated company earnings as it pertained to its flagship product Roundup. Three accounting and sales executives also agreed to pay penalties to settle charges against them. An SEC investigation found that Monsanto had insufficient internal accounting controls to properly account for millions of dollars in rebates offered to retailers and distributers of Roundup after generic competition had undercut Monsanto’s prices and resulted in a significant loss of market share for the company. Monsanto booked substantial amounts of revenue resulting from sales incentivized by the rebate programs, but failed to recognize all of the related program costs at the same time. Therefore, Monsanto materially misstated its consolidated earnings in corporate filings during a three-year period. According to the SEC’s order instituting a settled administrative proceeding against Monsanto, accounting executives Sara M. Brunnquell and Anthony P. Hartke, and then-sales executive Jonathan W. Nienas:  Monsanto’s sales force began telling U.S. retailers in 2009 that if they “maximized” their Roundup purchases in the fourth quarter they could participate in a new rebate program in 2010.  Hartke developed and Brunnquell approved talking points for Monsanto’s sales force to use when encouraging retailers to take advantage of the new rebate program and purchase significant amounts of Roundup in the fourth quarter of the company’s 2009

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fiscal year. Approximately one-third of its U.S. sales of Roundup for the year occurred during that quarter.  Brunnquell and Hartke, both certified public accountants, knew or should have known that the sales force used this new rebate program to incentivize sales in 2009 and Generally Accepted Accounting Principles (GAAP) required the company to record in 2009 a portion of Monsanto’s costs related to the rebate program. But Monsanto improperly delayed recording these costs until 2010.  Monsanto also offered rebates to distributors who met agreed- upon volume targets. However, late in the fiscal year, Monsanto reversed approximately $57.3 million of rebate costs that had been accrued under these agreements because certain distributors did not achieve their volume targets (at the urging of Monsanto).  Monsanto then created a new rebate program to allow distributors to “earn back” the rebates they failed to attain in 2009 by meeting new targets in 2010.  Under this new program, Monsanto paid $44.5 million in rebates to its two largest distributors as part of side agreements arranged by Nienas, in which they were promised late in fiscal year 2009 that they would be paid the maximum rebate amounts regardless of target performance.  Because the side agreements were reached in 2009, Monsanto was required under GAAP to record these rebates in 2009. But the company improperly deferred recording the rebate costs until 2010.  Monsanto repeated the program the following year and improperly accounted for $48 million in rebate costs in 2011 that should have been recorded in 2010.  Monsanto also improperly accounted for more than $56 million in rebates in 2010 and 2011 in Canada, France, and Germany. They were booked as selling, general, and administrative (SG&A) expenses rather than rebates, which boosted gross profits from Roundup in those countries. Monsanto consented to the SEC’s order without admitting or denying the findings that it violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, the reporting provisions of Section 13(a) of the Securities Exchange Act of 1934 and underlying rules 12b-20, 13a-1, 13a-11, and 13a-13; the books-and-records provisions of

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Exchange Act Section 13(b)(2)(A); and the internal accounting control provisions of Exchange Act Section 13(b)(2)(B). Brunnquell, Hartke, and Nienas also consented to the order without admitting or denying the findings that they violated Rule 13b2-1 and caused Monsanto’s violations of various provisions. Nienas also was found to have violated Exchange Act Section 13(b)(5). Brunnquell, Nienas, and Hartke must pay penalties of $55,000, $50,000, and $30,000 respectively, and Brunnquell and Hartke agreed 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 Brunnquell to apply for reinstatement after two years, and Hartke is permitted to apply for reinstatement after one year. The SEC’s investigation found no personal misconduct by Monsanto CEO Hugh Grant and former CFO Carl Casale, who reimbursed the company $3,165,852 and $728,843, respectively, for cash bonuses and certain stock awards they received during the period when the company committed accounting violations. Therefore, it wasn’t necessary for the SEC to pursue a clawback action under Section 304 of the Sarbanes-Oxley Act.

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In the Matter of Melissa K. Koeppel, CPA, and Jeffrey J. Robinson, CPA Exchange Act Release No. 76537 (December 2, 2015) AAE Release No. 3719 (December 2, 2015) http://www.sec.gov/litigation/admin/2015/34-76537.pdf Press Release No. 2015-272 (December 2, 2015) http://www.sec.gov/news/pressrelease/2015-272.html [Press Release] SEC: Grant Thornton Ignored Red Flags in Audits FOR IMMEDIATE RELEASE 2015-272 Washington D.C., Dec. 2, 2015 — The Securities and Exchange Commission announced that national audit firm Grant Thornton LLP and two of its partners agreed to settle charges that they ignored red flags and fraud risks while conducting deficient audits of two publicly traded companies that wound up facing SEC enforcement actions for improper accounting and other violations. Grant Thornton admitted wrongdoing and agreed to forfeit approximately $1.5 million in audit fees and interest plus pay a $3 million penalty. Melissa Koeppel was an engagement partner on the deficient audits of both companies, and Jeffrey Robinson was an engagement partner on one of the deficient audits, which spanned from 2009 to 2011 and involved senior housing provider Assisted Living Concepts (ALC) and alternative energy company Broadwind Energy. An SEC investigation found that Grant Thornton and the engagement partners repeatedly violated professional standards, and their inaction allowed the companies to make numerous false and misleading public filings. Last December, the SEC announced fraud charges against two former ALC executives accused of making false disclosures and manipulating internal books and records by listing fake occupants at some senior residences in order to meet lease covenant requirements. Earlier this year, the SEC charged Broadwind and senior officers with accounting and disclosure violations that prevented investors from knowing that reduced business was damaging the company’s long- term financial prospects. According to the SEC’s orders instituting settled administrative proceedings:

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 In the ALC audit, Grant Thornton, Koeppel, and Robinson knew or should have known that heightened scrutiny was warranted with respect to the effects of ALC’s calculations of occupancy and coverage ratio covenants in a lease pursuant to which ALC operated eight assisted living facilities.  The firm and both partners were aware of repeated red flags surrounding ALC’s claim that it had an agreement with the lessor to meet lease covenants by treating ALC employees and other non-residents as occupants of the facilities.  They violated professional auditing standards by failing to take reasonable steps to determine that an agreement with the lessor existed or that ALC employees whom ALC claimed to be occupants of the facilities were actually staying there.  During the Broadwind engagement, Grant Thornton and Koeppel relied almost exclusively on unsupported management representations that a $58 million impairment charge had not occurred ahead of a significant public offering by Broadwind, even after learning of management’s own expectation of impairment and other facts establishing impairment.  Grant Thornton and Koeppel failed to obtain adequate audit evidence to support management’s conclusion that the impairment had occurred after the offering.  They also failed to exercise due professional care and skepticism or obtain adequate audit evidence related to a significant bill-and- hold transaction. The revenue from this transaction allowed Broadwind to meet its debt covenants.  As a result of these and other deficiencies, Grant Thornton issued audit reports containing unqualified opinions on ALC’s 2009, 2010, and 2011 financial statements and Broadwind’s 2009 financial statements that inaccurately stated the audits had been conducted in accordance with PCAOB standards. The SEC’s orders find that Grant Thornton, Koeppel and Robinson engaged in improper professional conduct pursuant to Section 4C(b) of the Securities Exchange Act of 1934 and Rule 102(e)(1)(iv) of the SEC’s Rules of Practice. They also were found to have caused violations of Section 13(a) of the Exchange Act and Rules 13a-1, and Grant Thornton and Koeppel were found to have caused violations of Rule 13a-13.

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Without admitting or denying the SEC’s findings, Koeppel agreed to pay a $10,000 penalty and be suspended from practicing before the SEC as an accountant for at least five years, and Robinson agreed to pay a $2,500 penalty and be suspended from practicing before the SEC as an accountant for at least two years.

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In the Matter of Grant Thornton India LLP Exchange Act Release No. 76065 (October 1, 2015) AAE Release No. 3710 (October 1, 2015) https://www.sec.gov/litigation/admin/2015/34-76065.pdf

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In the Matter of Grant Thornton Audit PTY Limited Exchange Act Release No. 76066 (October 1, 2015) AAE Release No. 3711 (October 1, 2015) https://www.sec.gov/litigation/admin/2015/34-76066.pdf Press Release No. 2015-225 (October 1, 2015) https://www.sec.gov/news/pressrelease/2015-225.html [Press Release] SEC Charges Two Grant Thornton Firms With Violating Auditor Inde- pendence Rules FOR IMMEDIATE RELEASE 2015-225 Washington D.C., Oct. 1, 2015 — The Securities and Exchange Commission charged Grant Thornton India LLP and Australia-based Grant Thornton Audit Pty Limited with auditor independence violations that occurred when two Grant Thornton Mauritius partners served on the boards of Mauritius-based subsidiaries of companies that were Grant Thornton audit clients and performed non-audit services prohibited under the SEC’s auditor independence rules. According to the SEC’s orders instituting settled administrative proceedings, the two Grant Thornton International LLP member firms represented in audit reports that they were independent of their respective audit clients when the audit clients paid fees to a consulting firm owned by two Grant Thornton Mauritius partners who served as board members for these audit clients. The objective of auditor independence rules is to ensure that outside auditors remain independent from their clients both in fact and in appearance throughout the audit and professional engagement period. According to the SEC’s orders, GT India and GT Audit violated the independence rules because the Grant Thornton Mauritius partners provided prohibited services for the audit clients, including controlling bank accounts and having authority to act on the audit client companies’ behalf. The SEC’s orders also finds that GT India and GT Audit failed to follow Grant Thornton International’s compliance control procedures. According to the SEC’s orders, GT Audit failed to obtain independence relationship checks and confirmation letters from member firms in countries where its audit clients have business operations, as required by Grant Thornton International, while GT India failed to obtain the confirmation letter. According to the orders, the Grant

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Thornton firms failed to discover the independence violations until several months or years following the violations. The orders found GT Audit’s violations occurred with audits of four consecutive fiscal years, from 2008 through 2011, while GT’s India’s violations occurred for the 2013 fiscal year. The orders censure the audit firms for violating the auditor independence standards and sanctioned the audit firms for causing the issuers to violate the requirement to file annual reports with the Commission that include financial statements audited by independent public accountants. The orders also found that the audit firms engaged in improper professional conduct in violation of federal securities laws and the Commission’s Rules of Practice. Without admitting or denying the findings, each respondent agreed to cease and desist from future violations. GT India agreed to pay disgorgement of audit fees in the amount of $128,905, plus prejudgment interest of $8,977, and a penalty of $50,000. GT Audit agreed to pay disgorgement of $88,683, plus prejudgment interest of $13,520, and a penalty of $75,000.

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ACTIONS INVOLVING SECURITIES OFFERINGS

Recent Enforcement actions involving securities offerings have alleged a wide-range of misconduct, including failure to register offerings, making false and misleading statements or omissions of material information, schemes to defraud investors, and misappropriation of the proceeds of offerings. The SEC brought both settled and litigated actions for these violations. Among these cases, the SEC brought charges and obtained relief from various international individuals and entities, including those from Canada, Cyprus, Ethiopia, India, Oman, Switzerland, and the United Kingdom. In one case, the SEC charged a Scottish trader whose false tweets caused sharp price drops in the stock of two companies, triggering a trading halt of the shares of one of them. In another case, the SEC settled with an Ethiopian utility company for registration violations associated with bond issuance to fund dam construction. In another case, the SEC obtained relief from a London-based bank for offering disclosure violations related to bribery by an affiliate. Finally, the SEC filed a complaint against various individuals involved in a pump-and-dump scheme in the stock of Jammin’ Java, which sells Marley coffee products. The SEC also obtained relief from a variety of domestic individuals and entities, including a case involving fracking misrepresentations; a case involving stock manipulation a sports ticker broker; a case against a pharmaceutical company for misstatements about FDA approval status; a case against a microcap company for false “clean energy” misstatements; and a case involving a prime bank scheme for the sale of fictitious bank instruments. The SEC also brought enforcement actions against six firms as part of the third round of its ongoing enforcement initiative on violations of Rule 105 of Regulation M.

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SEC v. Christopher A. Faulkner, et. al. Litigation Release No. 23582 (June 24, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23582.htm Civil Action No. 3:16-cv-01735 (June 24, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-130.pdf Press Release No. 2016-130 (June 24, 2016) https://www.sec.gov/news/pressrelease/2016-130.html The Securities and Exchange Commission charged four companies and eight individuals in an $80 million oil and gas fraud orchestrated by a Dallas man who calls himself the “Frack Master” for his purported expertise in hydraulic fracturing. The SEC charged Chris Faulkner - the CEO of Breitling Energy Corporation (BECC) and frequent guest on CNBC, CNN International, Fox Business News, and the BBC to discuss oil-and-gas topics - with disseminating false and misleading offering materials, misappropri- ating millions of dollars of investor funds and attempting to manipulate BECC’s stock. The SEC also charged BECC and suspended trading in BECC’s securities for 10 business days. According to the SEC’s complaint, Faulkner started the scheme dating back to at least 2011 through privately-held Breitling Oil and Gas Corporation (BOG), which offered and sold “turnkey” oil and gas working interests. Faulkner ran most of BOG’s operations, while co-owners Parker Hallam and Michael Miller oversaw the sales process. The SEC alleged that BOG’s offering materials contained false statements and omissions about Faulkner’s experience, estimates for drilling costs, and how investor funds would be used. The SEC further alleged that the offering materials included reports by licensed geologist Joseph Simo that included baseless production projections and failed to disclose his affiliation with BOG. The scheme evolved to include BOG’s successor, BECC, a reporting company with shares traded on OTC Link and two affiliated entities, Crude Energy LLC and later Patriot Energy Inc. Faulkner allegedly established Crude and Patriot to deceive investors through offerings similar to those conducted by BOG. The complaint alleges that even though investors thought Hallam and Miller ran these two entities, Faulkner directed much of Crude’s and Patriot’s operations. The SEC alleged that BOG, Crude and Patriot raised more than $80 million from investors as part of these deceptive offerings. The SEC alleged that Faulkner misappropriated at least $30 million of investor funds for personal expenses, including lavish meals and

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entertainment, international travel, cars, jewelry, gentlemen’s clubs, and personal escorts. The SEC alleged that Beth Handkins, a former employee of Crude and Patriot, Rick Hoover, the former CFO of BECC, and Jeremy Wagers, BECC’s general counsel and COO, all played essential roles in assisting Faulkner in the alleged fraud. The SEC also alleged that Faulkner, Wagers and Hoover misrepresented various aspects of BECC’s operations in BECC’s public reports, including statements about the company’s financial performance, and its relationship to Crude and Patriot. In addition, while in the middle of perpetrating this fraud on investors, Faulkner engaged in a scheme to manipulate the price of BECC’s stock, with the assistance of former BECC employee Gilbert Steedley, by placing trades at the end of the day to “mark the close” of the stock. The SEC charged Faulkner, Hallam, Miller, Simo, Handkins, BOG, Crude, and Patriot with violations of the antifraud provisions for their respective roles in the offering frauds, and charged BECC, Faulkner, Wagers, and Hoover with violations of the antifraud, reporting, recordkeeping and internal controls provisions of the federal securities laws. The SEC also charged Faulkner, Wagers, and Hoover with lying to auditors, and charged Faulkner and Hoover with violating certification provisions of the Sarbanes-Oxley Act. Faulkner faces additional fraud charges based on his alleged manipulation of Breitling Energy’s stock, and the SEC charged Steedley was charged with aiding and abetting Faulkner’s manipulative conduct. Miller, Handkins and Steedley have offered to settle the Commis- sion’s action against them on a bifurcated basis. Each will agree to full injunctive relief, including a conduct-based injunction for Miller, and will have the Court determine the appropriate disgorgement and civil penalties at a later date upon motion by the Commission.

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SEC v. Idris D. Mustapha Litigation Release No. 23580 (June 23, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23580.htm Civil Action No. 16-cv-4805 (June 22, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-127.pdf Press Release No. 2016-127 (June 22, 2016) https://www.sec.gov/news/pressrelease/2016-127.html SEC Sues Uk-Based Trader for Account Intrusion Scheme The Securities and Exchange Commission announced that it has obtained an emergency court order to freeze the assets of a United Kingdom resident charged with intruding into the online brokerage accounts of U.S. investors to make unauthorized stock trades that allowed him to profit on trades in his own account. In a complaint filed in U.S. District Court in the Southern District of New York, the SEC alleges that in April and May, Idris Dayo Mustapha hacked into numerous accounts of U.S. customers of broker- dealers in and outside the U.S. The complaint alleges that Mustapha placed stock trades without the customers’ knowledge and then traded in the same stocks through his own brokerage account. In one case, Mustapha allegedly hacked into a brokerage account and rapidly purchased shares at increasing prices and then profited by selling his own shares of the stock in his brokerage account. According to the complaint, Mustapha’s scheme made at least $68,000 profits for himself and caused losses in the victims’ accounts of at least $289,000. The SEC obtained an emergency court order that freezes more than $100,000 in Mustapha’s assets and prohibits Mustapha from destroying evidence. The SEC alleges that Mustapha violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder, as well as Section 17(a)(1) and (3) of the Securities Act of 1933. In addition to the emergency relief, the Commission is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

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In the Matter of Behruz Afshar, et al. Securities Act Release No. 10094 (June 13, 2016) https://www.sec.gov/litigation/admin/2016/33-10094-s.pdf [Administrative Summary] Options Traders Fined and Barred for Spoofing and Order Mismarking June 13, 2016 – The Securities and Exchange Commission sanctioned Behruz Afshar and his twin brother, Shahryar Afshar, and their close friend and former broker, Richard F. Kenny, IV, all residents of Chicago, for two fraudulent options trading schemes involving the mismarking of option orders to obtain execution priority and avoid transaction fees charged by options exchanges and “spoofing” to generate liquidity rebates from an options exchange. The Afshar brothers and Kenny conducted the schemes through brokerage accounts in the name of Fineline Trading Group LLC and Makino Capital LLC, companies which the Afshar brothers owned. The SEC’s order stems from proceedings instituted against the Afshar brothers, Kenny, Fineline, and Makino on December 3, 2015. The Afshar brothers, Kenny, Fineline, and Makino, without admitting or denying the SEC’s findings, consented to the entry of an order finding that each of them violated Section 17(a) of the Securities Act, Sections 9(a)(2) and 10(b) of the Exchange Act, and Rule 10b-5 thereunder, ordering each of them to cease-and-desist from violating these provisions, ordering the Afshar brothers and Kenny to pay disgorgement and civil penalties totaling over $1.89 million, and barring Behruz Afshar and Kenny from the securities industry.

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The SEC’s In the Matter of Ethiopian Electric Power Securities Act Release No. 10093 (June 8, 2016) http://www.sec.gov/litigation/admin/2016/33-10093.pdf Press Release No. 2016-113 (June 8, 2016) http://www.sec.gov/news/pressrelease/2016-113.html [Press Release] SEC: Ethiopia’s Electric Utility Sold Unregistered Bonds in U.S. FOR IMMEDIATE RELEASE 2016-113 Washington D.C., June 8, 2016 — The Securities and Exchange Commission announced that Ethiopia’s electric utility has agreed to pay nearly $6.5 million to settle charges that it violated U.S. securities laws by failing to register bonds it offered and sold to U.S residents of Ethiopian descent. According to the SEC’s order instituting a settled administrative proceeding:  Ethiopian Electric Power (EEP) conducted the unregistered bond offering to help finance the construction of a hydroelectric dam on the Abay River in Ethiopia.  EEP held a series of public road shows in major cities across the U.S. and marketed the bonds on the website of the U.S. Embassy of Ethiopia as well as through radio and television advertising aimed at Ethiopians living in the U.S.  EEP raised approximately $5.8 million from more than 3,100 U.S. residents from 2011 to 2014 without ever registering the bond offering with the SEC. The SEC’s order finds that EEP violated Sections 5(a) and 5(c) of the Securities Act of 1933. EEP admitted the registration violations and agreed to pay $5,847,804 in disgorgement and $601,050.87 in prejudgment interest. The distribution of money back to investors is subject to the SEC’s review and approval. Investors seeking more information should contact the administrator of the distribution, Gilardi & Co. LLC, at 844-851-4591.

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SEC v. Stephen D. Ferrone, et al. Litigation Release No. 23528 (May 3, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23528.htm Civil Action No. 1:11-cv-05223 (August 1, 2011) https://www.sec.gov/litigation/complaints/2011/comp22057.pdf SEC Obtains Jury Verdict in Its Favor in Case Against Biophar- maceutical Company CEO The Securities and Exchange Commission announced that on April 29, 2016, a jury in federal district court in Chicago, Illinois returned a verdict against Stephen Ferrone, the former CEO of biophar- maceutical company Immunosyn Corporation, finding him liable for violating the antifraud provisions of the federal securities laws. The SEC charged Ferrone and other defendants in August 2011, alleging, among other things, that Ferrone made materially false and misleading statements during 2007-2010 regarding the status of regulatory approvals for Immunosyn’s sole product, a drug referred to as “SF-1019.” The SEC’s complaint alleged that Ferrone falsely stated in public filings with the SEC and in other presentations that Argyll Biotech- nologies, LLC, Immunosyn’s controlling shareholder, planned to com- mence the regulatory approval process for human clinical trials for SF-1019 in the U.S. or that the regulatory approval process was underway. The complaint alleged that these statements deceived investors because the statements failed to disclose that the U.S. Food and Drug Administration had issued clinical holds on drug applications for SF-1019, which prohibited clinical trials involving SF-1019 from occurring. After a two-week trial, the jury found Ferrone liable for violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5 thereunder, and Exchange Act Rule 13a-14. The jury found Ferrone not liable for aiding and abetting Immunosyn’s failure to file annual, quarterly, and current reports that were accurate and not materially misleading under Exchange Act Section 20.

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In the Matter of Nauman A. Aly Civil Action No. 16-cv-03853 (May 24, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-95.pdf Press Release No. 2016-95 (May 24, 2016) https://www.sec.gov/news/pressrelease/2016-95.html [Press Release] SEC Prevents Trader’s Profits From False Filing FOR IMMEDIATE RELEASE 2016-95 Washington D.C., May 24, 2016 — The Securities and Exchange Commission has obtained a court order to freeze the profits of a trader who allegedly manipulated a technology stock through a false regulatory filing traced to a com- puter in Pakistan. The asset freeze issued in federal court in Manhattan ensures that Nauman A. Aly of Pakistan cannot withdraw from his U.S.-based account the $425,000 in options trading profits made in less than 30 minutes last month after the false filing. The filing stated that Aly and six Chinese investors had collectively acquired 5.1 percent of Silicon Valley-based Integrated Device Technology (IDT). According to the SEC’s complaint, his false statements caused the company’s stock to spike more than 25 percent within minutes. According to the SEC’s complaint:  On April 12 at 11:50 a.m. Eastern Time, Aly purchased 1,850 call options in IDT in his U.S. brokerage account for $18,500.  At 12:08 p.m., Aly filed a form known as a Schedule 13D on the SEC’s EDGAR system and falsely stated that his group of investors had a 5.1 percent beneficial ownership of IDT and had sent a letter to the board of directors offering to acquire all of the company’s shares for a price that represented a 65 percent premium.  The market reacted quickly to the filing, and IDT’s stock price increased by more than 25 percent in less than 10 minutes.  At 12:18 p.m., Aly sold all of the options for the illicit $425,000 profit. He then filed another Schedule 13D stating that his group of investors no longer owned more than 5 percent of IDT after his options sales.

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 Aly used the same IP address for the options trades that he used to make the false filings.  Aly’s group of investors never actually owned 5.1 percent of IDT and never contacted IDT to buy all of its shares. The SEC’s complaint charges Aly with violating antifraud provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. The complaint seeks disgorgement, penalties, and other related relief.

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SEC v. Richard Weed, et al. Litigation Release No. 23541 (May 16, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23541.htm Civil Action No. 1:14-cv-14099 (November 6, 2014) https://www.sec.gov/litigation/complaints/2014/comp-pr2014-250.pdf California Attorney Convicted by Massachusetts Jury of Securi- ties Fraud in Scheme to Manipulate Stock of Sports Ticket Broker The Securities and Exchange Commission announced that on May 16, 2016, a jury in federal court in Boston, Massachusetts returned a guilty verdict against Richard Weed, a partner in a Newport Beach, California law practice. The jury in the criminal trial convicted Weed of securities fraud, wire fraud, and conspiracy to commit those offenses in connection with a pump-and-dump scheme that defrauded investors in CitySide Tickets Inc., a Massachusetts-based ticket bro- kering business. He will be sentenced by the court at a later date. The allegations in the criminal indictment against Weed stem from the same conduct alleged in the SEC’s complaint against Weed and two other defendants. According to the SEC’s complaint, filed in federal court in Boston on November 6, 2014, Weed facilitated a scheme to pump and dump CitySide’s stock. The SEC alleges that Weed helped structure CitySide into a publicly traded company through reverse mergers, created backdated promissory notes and authored false legal opinion letters that enabled two other defendants in the SEC’s action - Thomas Brazil and Coleman Flaherty - to obtain millions of purportedly unrestricted shares of stock in the company. Investors were then blitzed with a false and misleading promotional campaign touting CitySide as a budding national leader on the verge of acquiring smaller ticket firms across the country and posi- tioning itself as an attractive takeover target for California-based Ticketmaster Entertainment LLC, a large company in the business of selling and reselling tickets to entertainment events. As the company’s stock price increased on the false hype, Brazil and Flaherty sold their shares to unsuspecting investors, realizing illicit proceeds of approximately $3 million, and Weed earned substantial legal fees for his role in the scheme. Shortly thereafter, the market for CitySide’s stock collapsed and the company eventually went out of business.

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The SEC’s action, which is pending, seeks disgorgement of ill- gotten gains plus pre-judgment interest and penalties as well as penny stock bars and permanent injunctions against further violations of the securities laws. The SEC also seeks to bar Weed from serving as an officer or director of any public company.

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SEC v. PLCMGMT LLC dba Prometheus Law, et al. Civil Action No. 2:16-cv-02594 (April 15, 2016) https://www.sec.gov/litigation/complaints/2016/comp-pr2016-72.pdf Press Release No. 2016-72 (April 15, 2016) https://www.sec.gov/news/pressrelease/2016-72.html [Press Release] SEC Charges Litigation Marketing Company With Bilking Retirees FOR IMMEDIATE RELEASE 2016-72 Washington D.C., April 15, 2016 — The Securities and Exchange Commission charged a Los Angeles- based litigation marketing company and its co-founders with defrauding retirees and other investors who were told their money would be used to help gather plaintiffs for class-action and other lawsuits and they would earn hefty investment returns from settlement proceeds. The SEC alleges that James Catipay and David Aldrich raised $11.7 million from approximately 250 investors during the past three years for their company PLCMGMT LLC, also referred to as PLC or Prometheus Law. But only $4.3 million was actually used to locate prospective plaintiffs for lawsuits, and the company has generated scant revenue from any settlements. Catipay and Aldrich have instead diverted millions of dollars for their personal use while failing to deliver the promised 100 to 300 percent returns to investors. In fact, PLC is obligated to pay investors at least $31.5 million. According to the SEC’s complaint filed in U.S. District Court for the Central District of California:  Investors were told their funds would be used for marketing and advertising to locate plaintiffs for cases involving failed prescrip- tion drugs or medical devices. Each investor’s money would be associated with a specific potential plaintiff. PLC would refer the potential plaintiffs to a contingency-fee attorney and use proceeds of lawsuit settlements to pay investor returns.  The arrangements purportedly enabled investors, who were mostly non-attorneys, to split legal fees with the lawyer who actually litigated a particular lawsuit, which is generally prohibited.  PLC, Catipay, and Aldrich enticed investors by claiming the investments were safe and “guaranteed” when in fact they were

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highly speculative and risky because only certain potential plaintiffs would typically qualify as actual plaintiffs, and even if a case was filed there was no guarantee they would win the lawsuit.  In addition to the false and misleading statements, PLC, Catipay, and Aldrich misused $5.6 million in investor funds for personal purposes, including more than $1 million for Aldrich’s personal income taxes and another million dollars to purchase a residential condominium in the name of Aldrich’s privately-held company.  Aldrich and Catipay also took large salaries and admitted to SEC investigators that they have made Ponzi payments to several PLC investors. The SEC’s complaint charges PLC, Catipay, and Aldrich with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5. Catipay also allegedly violated Section 15(a) of the Exchange Act. The SEC seeks preliminary and permanent injunctions, the appointment of a receiver over the company, an asset freeze, financial penalties and disgorgement plus interest, and other relief.

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SEC v. Daniel Rivera, et al. Litigation Release No. 23506 (March 30, 2016) https://www.sec.gov/litigation/litreleases/2016/lr23506.htm Civil Action No. 3:16-cv-01636 (March 24, 2016) https://www.sec.gov/litigation/complaints/2016/comp23506.pdf SEC Charges Two Brothers with Running Ponzi Scheme Targeting Seniors On March 24, 2016, the Securities and Exchange Commission charged two brothers, and a company that they founded purportedly to develop and sell real estate, with engaging in a $2.7 million Ponzi scheme that targeted approximately 30, largely elderly and unsophisticated investors over a six-year period. According to the SEC’s complaint, filed in federal court in New Jersey:  From 2008 through at least 2014, Daniel Rivera, a New York resident who maintains an office in New Jersey, told investors that they would share in the profits of Robbins Lane, a Pennsylvania real estate venture that purportedly bought, redeveloped and sold properties.  Daniel Rivera provided a brochure to investors that advertised Robbins Lane as “provid[ing] an opportunity for the senior investor to share in the profits from prudent investments in real estate” and “giv[ing] the senior investor a guaranteed monthly income.”  In fact Robbins Lane had no real estate portfolio, no operations, no employees, and no ability to provide income to investors (much less “guaranteed” income).  Daniel Rivera also created the content of a publicly available Robbins Lane website that aimed to attract investors and which his brother, Matthew Rivera, a Pennsylvania resident, reviewed. Robbins Lane’s website contained the same misstatements as did the brochure that was provided to investors.  At times, Daniel Rivera recommended that investors liquidate other holdings, including retirement assets, to invest in Robbins Lane.  Instead of investing in real estate, hundreds of thousands of dollars of investor funds were used to pay other investors.

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 Other funds were used for personal expenses, such as, for example, to purchase tickets for sporting events, to pay for college tuition and sorority dues for Daniel Rivera’s daughter, to pay personal credit card bills, for transfers to relief defendants Rivera & Associates and Daniel Rivera Inc., for transfers to a janitorial business in which Matthew Rivera was a partner, and to purchase a condominium that, at one point, was occupied by a relative of Matthew Rivera.  After the SEC’s investigation began, Matthew Rivera repaid to Robbins Lane a substantial portion of the funds that he withdrew, which were, in turn, repaid to investors. The SEC’s complaint charges Daniel Rivera with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint further charges Matthew Rivera and Robbins Lane with violating Sections 17(a)(1) and (3) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder. The complaint also names two companies controlled by Daniel Rivera, Daniel Rivera Inc. and Rivera & Associates (a/k/a Strategic Wealth Partners of New Jersey), as relief defendants. Without admitting or denying the SEC’s charges, the defendants and relief defendants consented to entry of a final judgment permanently enjoining them from violating the provisions of the federal securities laws alleged to have been violated in the SEC’s complaint; ordering Daniel Rivera to pay disgorgement and prejudgment interest of more than $1.9 million and a $160,000 civil penalty; ordering Matthew Rivera to pay disgorgement and prejudgment interest of $20,013 and a $100,000 civil penalty; and holding Daniel Rivera Inc. and Rivera & Associates jointly and severally liable with Daniel Rivera for disgorgement and prejudgment interest of $482,029 and $109,459, respectively. The Court entered the final judgment on March 28, 2016. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

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SEC v. AVEO Pharmaceuticals, Inc., et al. Litigation Release No. 23503 (March 29, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23503.htm Civil Action No. 1:16-cv-10607 (March 29, 2016) http://www.sec.gov/litigation/complaints/2016/comp-pr2016-59.pdf The Securities and Exchange Commission announced fraud charges against a Massachusetts-based biotech company and three former executives for misleading investors about the company’s efforts to obtain Food and Drug Administration (FDA) approval for its flagship devel- opmental drug to treat kidney cancer. The SEC alleges that AVEO Pharmaceuticals Inc. concealed the FDA’s level of concern about Tivozanib in public statements to investors by omitting the critical fact that FDA staff had recommended a second clinical trial to address their concerns about patient death rates during the first clinical trial. When the FDA made public months later that it had recommended an additional clinical trial, the company’s stock price declined 31 percent. AVEO never conducted an additional trial, and the FDA later refused to approve Tivozanib. AVEO agreed to pay a $4 million penalty to settle the SEC’s charges without admitting or denying the allegations in the complaint filed in federal court in Boston. The SEC’s case continues against three of the company’s former officers: CEO Tuan Ha-Ngoc, chief financial officer David Johnston, and chief medical officer William Slichenmyer. According to the SEC’s complaint:  AVEO raised $53 million in a public offering of its stock in January 2013 while failing to disclose that the FDA staff had explicitly recommended during a May 2012 meeting that AVEO conduct an additional clinical trial for Tivozanib.  AVEO and its officers understood that the FDA’s concerns were serious and an additional clinical trial is an expensive and time- consuming proposition. While AVEO went so far as to design a second trial and present trial designs to the FDA, it was never conducted.  In corporate communications, AVEO and its officers suggested that they intended to satisfy the FDA by presenting new analyses of the data that had been gathered in the previous clinical trial. In doing so, AVEO concealed the FDA staff’s level of concern

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about Tivozanib’s impact on patient survival and the recommendation that AVEO conduct a second clinical trial.  Ha-Ngoc and Johnston knowingly approved and certified a press release and public filings that failed to disclose the FDA staff’s recommendation for an additional clinical trial.  Johnston also made public statements during investor confer- ences suggesting the FDA staff had asked only for an explanation of the survival results. In reality, the FDA staff had recommended a second trial.  Slichenmyer misled investors in an investor conference call when he falsely stated he could not “speculate” on what the FDA “might be thinking” and “might want [AVEO] to do in the future.” He actually knew that the FDA staff had recommended an additional trial. The SEC’s complaint charges AVEO, Ha-Ngoc, Johnston, and Slichenmyer with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, AVEO with violating Exchange Act Section 13(a) and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, and Ha-Ngoc and Johnston with violating Exchange Act Rule 13a-14. The settlement with AVEO is subject to court approval. The SEC is seeking disgorgement plus interest and penalties, permanent injunctions, and officer-and-director bars against Ha-Ngoc, Johnston, and Slichenmyer.

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SEC v. Cary Lee Peterson, et al. Litigation Release No. 23489 (March 16, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23489.htm Civil Action No. 2:16-cv-01428 (March 14, 2016) http://www.sec.gov/litigation/complaints/2016/comp-pr2016-53.pdf Press Release No. 2016-53 (March 14, 2016) http://www.sec.gov/news/pressrelease/2016-53.html SEC Charges CEO of Microcap Company for Touting Bogus “Clean Energy” Contracts with Foreign Governments The Securities and Exchange Commission charged a microcap company CEO for falsely claiming to have a lucrative relationship with the United Nations and billions of dollars in clean energy contracts with foreign governments. The SEC alleges that RVPlus Inc. CEO Cary Lee Peterson made bogus claims in the company’s public filings and in statements to private investors, and that he and RVPlus participated in an unlawful distribution of RVPlus’s stock. The SEC temporarily suspended trading in RVPlus securities in July 2013, citing “material deficiencies” in the company’s financial statements. According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey:  Starting in May 2012, Peterson filed periodic reports with the SEC claiming that RVPlus had a lucrative relationship with the United Nations and clean energy agreements with governmental bodies in Nigeria, Haiti, and Liberia worth $2.8 billion. RVPlus had no relationship with the U.N. and the contracts were fictitious.  Peterson repeatedly claimed in RVPlus’s SEC filings that RVPlus had issued invoices and was owed millions of dollars in accounts receivable on the bogus contracts.  RVPlus and Peterson gained control of more than 90 percent of RVPlus’s free trading shares and gave them to individuals who unlawfully sold them into the market. The SEC’s complaint charges Peterson and RVPlus with violating the antifraud provisions of the securities laws, including Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5 and the registration provisions of the securities laws, Section 5(a) and 5(c)

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of the Securities Act. The SEC’s complaint further charges Peterson with aiding and abetting RVPlus’s violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Peterson.

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SEC v. Aequitas Management, LLC, et al. Litigation Release No. 23485 (March 11, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23485.htm Civil Action No. 3:16-cv-00438 (March 10, 2016) http://www.sec.gov/litigation/complaints/2016/comp-pr2016-49.pdf Press Release No. 2016-49 (March 10, 2016) http://www.sec.gov/news/pressrelease/2016-49.html SEC Charges Oregon Investment Group and Three Executives with Defrauding Investors The Securities and Exchange Commission charged an Oregon- based investment group and three top executives with hiding the rapidly deteriorating financial condition of its enterprise while raising more than $350 million from investors. Aequitas Management LLC and four affiliates allegedly defrauded more than 1,500 investors nationwide into believing they were making health care, education, and transportation-related investments when their money was really being used in a last-ditch effort to save the firm. Some money from new investors was allegedly used to pay earlier investors in Ponzi- like fashion. The SEC’s complaint, filed in federal district court in Oregon, alleges that CEO Robert J. Jesenik and executive vice president Brian A. Oliver were well aware of Aequitas’s calamitous financial condition yet continued to solicit millions of dollars from investors to pay the firm’s ever-increasing expenses and attempt to stave off the impending collapse. Former CFO and chief operating officer N. Scott Gillis allegedly concealed the firm’s insolvency from investors and was aware that Jesenik and Oliver continued soliciting investors so that Aequitas could pay operating expenses and repay earlier investors with money from new investors. According to the SEC’s complaint:  From January 2014 to January 2016, Aequitas raised money from investors by issuing promissory notes with high rates of return typically ranging from 8.5 to 10 percent.  While Aequitas did use some investor money to acquire trade receivables in health care, education, transportation, and other consumer credit sectors, the vast majority was concentrated in student loan receivables of for-profit education provider Corinthian Colleges. Corinthian defaulted on its recourse obligations to

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Aequitas in mid-2014, which significantly exacerbated the firm’s already severe cash flow problems.  The executives continued to draw their lucrative salaries, use a private jet, and attend posh dinner and golf outings, all at the expense of investors. They used the outings to raise more money from investors. Jesenik, Oliver, and Gillis took home at least $2.5 million in combined salaries during this period.  By November 2015, Aequitas could no longer meet scheduled redemptions. Last month, the firm dismissed two-thirds of its employees and hired a chief restructuring officer. The SEC’s complaint charges violations of the antifraud provisions of the securities laws in Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933 by Aequitas Management, Aequitas Holdings LLC, Aequitas Commercial Finance LLC, Aequitas Capital Management Inc., and Aequitas Investment Management LLC as well as Jesenik, Oliver, and Gillis. The complaint also alleges that Aequitas Capital Management Inc. and Aequitas Investment Manage- ment LLC violated Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, and that Jesenik, Oliver, and Gillis aided and abetted the violations of Aequitas and the affiliated entities. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and monetary penalties from all defendants as well as bars prohibiting Jesenik, Oliver, and Gillis from serving as officers or directors of any public company. Aequitas and the affiliated entities have agreed to be preliminarily enjoined from raising any additional funds by offering and selling securities, and agreed to the appointment of a receiver to marshal and preserve remaining Aequitas assets for distribution to defrauded investors. The stipulated orders are subject to court approval.

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SEC v. Banc De Binary Ltd. Litigation Release No. 23481 (March 9, 2016) http://www.sec.gov/litigation/litreleases/2016/lr23481.htm Civil Action No. 2:13-cv-00993 (June 5, 2013) https://www.sec.gov/litigation/complaints/2013/comp-pr2013-103.pdf Press Release 2016-42 (March 9, 2016) http://www.sec.gov/news/pressrelease/2016-42.html The Securities and Exchange Commission announced that a Cyprus- based company has agreed to pay $11 million to settle charges that it illegally sold binary options to U.S. investors. A judge signed a court order late authorizing the distribution of this money to harmed investors through a Fair Fund. The SEC filed a complaint in 2013 against Banc de Binary Ltd, its founder Oren Shabat Laurent, and three affiliates, ET Binary Options Ltd., BO Systems Ltd. (now named Banc De Binary Limited), and BDB Services Ltd. Seychelles, alleging that they failed to register the offering before soliciting U.S. customers through YouTube videos, spam e-mails, and other Internet advertising. They failed to register as a broker-dealer before communicating directly with U.S. clients by phone, e-mail, and instant messenger chats. Binary options differ from more conventional options contracts because the payout typically depends entirely on whether the price of a particular asset underlying the option will rise above or fall below a specified amount. Banc de Binary, Laurent, and the affiliates agreed to jointly pay $7.1 million in disgorgement and $1.95 million in penalties to the SEC as well as $2 million in penalties to the Commodity Futures Trading Commission (CFTC), which filed a parallel action. The court has established a settlement fund, called a “Fair Fund,” that will be administered by the National Futures Association (NFA) to compensate harmed investors. Banc de Binary, Laurent, and the affiliates also agreed to be suspended from the securities industry for a year and permanently barred from issuing any penny stock offerings. The settlement has been approved by the U.S. District Court for the District of Nevada.

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SEC v. Vu H. Le aka Vinh H. Le and TeamVinh.com LLC Litigation Release No. 23432 (December 17, 2015) https://www.sec.gov/litigation/litreleases/2015/lr23432.htm Civil Action No. 15-cv-04366 (December 15, 2015) https://www.sec.gov/litigation/complaints/2015/comp23432.pdf SEC Charges Minnesota Man and His Company with Defrauding Investors The Securities and Exchange Commission announced that on December 15, 2015, it filed charges against Vu H. Le a/k/a Vinh H. Le and his company, TeamVinh.com LLC (“TeamVinh”), in connection with their fraudulent raising of more than $3 million from over 5,600 investors throughout the United States and in various foreign countries. According to the SEC’s complaint filed in federal court in Minnesota:  Le, who previously had been convicted of forgery and barred from offering or selling securities by state authorities in Minnesota and Wisconsin, and TeamVinh lured people into buying member- ships in a program that Le and TeamVinh claimed to be a referral network that investors could use to earn an income from multi- level marketing companies without the investors having to do any work.  Le and TeamVinh also sold investment contracts in TeamVinh itself, promising investors a percentage of TeamVinh’s profits.  Le and TeamVinh also sought investments in a purported commodities trading platform run by Le, with Le guaranteeing investors 5% weekly returns.  None of these investments had any legitimacy. Investors never received the promised payments, and Le misappropriated the over- whelming majority of investor money to fund his own lavish lifestyle, including spending more than $2 million of investor funds at a Las Vegas casino. The SEC’s complaint charges Le and TeamVinh with violations of Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), and Exchange Act Rule 10b-5. The SEC’s complaint seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties.

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In the Matter of Mehron P. Azarmehr and Azarmehr Law Group Exchange Act Release No. 76568 (December 7, 2015) https://www.sec.gov/litigation/admin/2015/34-76568.pdf

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In the Matter of Michael A. Bander and Bander Law Firm, PLLC Exchange Act Release No. 76569 (December 7, 2015) https://www.sec.gov/litigation/admin/2015/34-76569.pdf

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In the Matter of Roger A. Bernstein Exchange Act Release No. 76570 (December 7, 2015) https://www.sec.gov/litigation/admin/2015/34-76570.pdf

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In the Matter of Allen E. Kaye Exchange Act Release No. 76571 (December 7, 2015) https://www.sec.gov/litigation/admin/2015/34-76571.pdf

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In the Matter of Taraneh Khorrami Exchange Act Release No. 76572 (December 7, 2015) https://www.sec.gov/litigation/admin/2015/34-76572.pdf

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In the Matter of Mike S. Manesh and Manesh & Mizrahi, APLC Exchange Act Release No. 76573 (December 7, 2015) https://www.sec.gov/litigation/admin/2015/34-76573.pdf

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In the Matter of Kefei Wang Exchange Act Release No. 76574 (December 7, 2015) https://www.sec.gov/litigation/admin/2015/34-76574.pdf Press Release No. 2015-274 (December 7, 2015) https://www.sec.gov/news/pressrelease/2015-274.html [Press Release] SEC: Lawyers Offered EB-5 Investments as Unregistered Brokers FOR IMMEDIATE RELEASE 2015-274 Washington D.C., Dec. 7, 2015 — The Securities and Exchange Commission announced a series of enforcement actions against lawyers across the country charged with offering EB-5 investments while not registered to act as brokers. In one case, the lawyer and his firm are charged with defrauding foreign investors in the government’s EB-5 Immigrant Investor Pro- gram, through which they seek a path to U.S. residency by investing in a specific project that creates or preserves at least 10 jobs for U.S. workers. In a complaint filed in federal district court in Los Angeles, the SEC alleges that New York-based immigration attorney Hui Feng and the Law Offices of Feng & Associates not only acted as unregistered brokers by selling EB-5 investments to more than 100 investors, but they also defrauded clients by failing to disclose they received commissions on the investments in breach of their fiduciary and legal duties. They also allegedly defrauded some entities offering the EB-5 investments. According to the SEC’s orders instituting settled administrative proceedings against several other lawyers and firms for broker registration violations:  Various EB-5 regional centers or their managers paid commissions to the attorney or law firm for each new investor they successfully sold limited partnership interests.  These payments were separate from legal fees received to provide legal services to the same clients.  The lawyers and firms engaged in activities necessary to effectuate the transactions, such as recommending one or more EB-5 investments, acting as a liaison between the regional center and

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the investor, or facilitating the transfer or documentation of investment funds to the regional center.  The lawyers thereby acted as unregistered brokers in violation of Section 15(a)(1) of the Securities Exchange Act of 1934. Without admitting or denying the SEC’s findings, the following individuals and firms agreed to cease and desist from acting as unregistered brokers:  Austin, Texas-based Mehron P. Azarmehr and Azarmehr Law Group, who agreed to pay disgorgement of $30,000, prejudgment interest of $2,965, and a penalty of $25,000.  Miami-based Michael A. Bander and Bander Law Firm, who agreed to pay disgorgement of $228,750, prejudgment interest of $19,434, and a penalty of $25,000.  Miami-based attorney Roger A. Bernstein, who agreed to pay disgorgement of $132,500, and prejudgment interest of $8,243.  Hoboken, N.J.-based attorney Allen E. Kaye.  Los Angeles-based attorney Taraneh Khorrami, who agreed to pay disgorgement of $60,000, prejudgment interest of $7,843, and a penalty of $25,000.  Los Angeles-based Mike S. Manesh and Manesh & Mizrahi, who agreed to pay disgorgement of $85,000 and prejudgment interest of $11,159.  China-based resident Kefei Wang, who agreed to pay disgorgement of $40,000, prejudgment interest of $1,590, and a penalty of $25,000. The SEC’s complaint against Feng and Feng & Associates alleges violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5. They also are charged with violating Section 15(a) of the Exchange Act. The complaint seeks disgorgement, prejudgment interest, and penalties along with permanent injunctions. The SEC appreciates the assistance of U.S. Citizenship and Immi- gration Services.

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SEC v. Hui Feng and Law Offices of Feng & Associates P.C. Litigation Release No. 23420 (December 7, 2015) https://www.sec.gov/litigation/litreleases/2015/lr23420.htm Civil Action No. 2:15-cv-09420 (December 7, 2015) https://www.sec.gov/litigation/complaints/2015/comp-pr2015-274.pdf SEC Charges New York-Based Immigration Lawyer and His Law Firm with Defrauding Immigrant Investors and Acting as Unregistered Brokers The SEC alleges that Hui Feng and his firm, Law Offices of Feng & Associates P.C., acted as unregistered brokers by selling EB-5 investments to over 100 foreign investors, who were also their legal clients, and that they, directly or indirectly, received over $1.1 million in commissions in connection with these sales and are contractually entitled to at least an additional $3.1 million in commissions. The complaint also alleges that Feng and his firm defrauded their investor clients by failing to disclose their receipt of commissions on the investments in breach of their fiduciary and legal duties to their clients, and that they also defrauded some of the entities offering the EB-5 investments. According to the SEC’s complaint filed in the U.S. District Court for the Central District of California, since 2010, Feng and his firm have promoted EB-5 investments to potential investors and immigration law clients, many of whom were located in China. In 2013, Feng opened four offices in China that were each staffed with an employee who was instructed to promote the Feng & Associates website, which was primarily focused on the EB-5 investment program. The investors entered into retainer agreements with Feng & Associates, agreeing to pay a legal fee of between $10,000 and $15,000 for legal work associated with a petition for residency under the EB-5 program. The clients made investments in EB-5 securities, which were offered pursuant to exemptions from the registration requirements of the U.S. securities laws, of either $1 million or $500,000 and expected to receive a return on their investments. The complaint alleges that in addition to receiving legal fees, Feng and his firm also received undisclosed commissions from the entities whose EB-5 offerings they sold. According to the complaint, when some of the entities selling EB-5 investments began to refuse to pay commissions to U.S.-based persons as part of an apparent effort to avoid running afoul of the broker registration requirements contained in the federal securities laws, Feng and his firm used Feng’s overseas relatives as nominees to fraudulently receive commissions on their behalf.

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The SEC’s complaint charges Feng and Feng & Associates with violations 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. They are also charged with violating Section 15(a) of the Exchange Act, the broker-dealer registration provision. The SEC’s complaint seeks disgorgement, prejudgment interest, and penalties, along with permanent injunctions.

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In the Matter of Standard Bank PLC Securities Act Release No. 9981 (November 30, 2015) http://www.sec.gov/litigation/admin/2015/33-9981.pdf Press Release No. 2015-268 (November 30, 2015) http://www.sec.gov/news/pressrelease/2015-268.html [Press Release] Standard Bank to Pay $4.2 Million to Settle SEC Charges Bank Agrees to $36.9 Million Global Settlement with the SEC and the U.K.’s Serious Fraud Office FOR IMMEDIATE RELEASE 2015-268 Washington D.C., Nov. 30, 2015 — The Securities and Exchange Commission charged Standard Bank Plc with failing to disclose certain payments in connection with debt issued by the Government of Tanzania in 2013. The London- based bank acted as a lead manager for the offering and failed to disclose payments made by an affiliate to a Tanzanian firm that received a portion of the proceeds of the $600 million offering but performed no substantive role in the transaction. Standard Bank, now ICBC Standard Bank Plc, agreed to settle the SEC’s charges by paying a $4.2 million penalty and admitting the facts underlying the SEC’s charges. As part of a coordinated global settlement, the United Kingdom’s Serious Fraud Office also announced a settlement in an action it brought against Standard in the U.K. for Standard’s violations of the U.K.’s Bribery Act of 2010. The Bribery Act of 2010 is similar to the United States’ Foreign Corrupt Practices Act (FCPA). The SEC did not have jurisdiction to bring charges under the FCPA because Standard was not an “issuer” as defined by that Act. Standard will pay a total of approximately $36.9 million in monetary relief in the SEC and U.K. actions. According to the SEC’s order, the offering documents and statements to potential investors in the sovereign debt offering were materially misleading because they failed to disclose that Standard’s affiliate, Stanbic Bank Tanzania Limited, would pay $6 million of the proceeds to Enterprise Growth Markets Advisors Limited (EGMA), a private Tanzanian firm. The order found Standard did not seek to understand EGMA’s role in the transaction despite red flags that the $6 million payment was intended to induce the Government of Tanzania

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to select Standard and Stanbic as managers for the offering. One of EGMA’s directors was a representative of the Government of Tanzania and the offering was not finalized until Standard and Stanbic committed to pay EGMA one percent of the proceeds of the offering. Stand- ard and Stanbic split 1.4 percent of the proceeds, with each receiving $4.2 million for their participation in the transaction. The SEC’s order requires Standard to cease and desist from committing or causing any violations and any future violations of Section 17(a)(2) of the Securities Act of 1933 that prohibits obtaining money by any materially untrue statement or omission, and to pay a $4.2 million civil penalty. The order also requires Standard to pay disgorgement of $8.4 million, which the Commission has deemed satisfied by a payment of equal amount in the U.K. matter.

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SEC v. Jammin’ Java Corp., et al. Civil Action No. 2:15-cv-08921 (November 17, 2015) http://www.sec.gov/litigation/complaints/2015/comp2015-259.pdf Press Release No. 2015-259 (November 17, 2015) http://www.sec.gov/news/pressrelease/2015-259.html [Press Release] SEC Charges Pump-and-Dump in Marley Coffee Stock FOR IMMEDIATE RELEASE 2015-259 Washington D.C., Nov. 17, 2015 — The Securities and Exchange Commission announced fraud charges against several alleged perpetrators behind a $78 million pump-and- dump scheme involving the stock of Jammin’ Java, a company that operates as Marley Coffee and uses trademarks of late reggae artist Bob Marley to sell coffee products. The SEC alleges that Jammin Java’s former CEO Shane Whittle orchestrated the scheme with three others who live abroad and operate entities offshore. Whittle utilized a reverse merger to secretly gain control of millions of Jammin Java shares, and he spread the stock to the offshore entities controlled by Wayne Weaver of the UK and Canada, Michael Sun of India, and René Berlinger of Switzerland. The shares were later dumped on the unsuspecting public after the stock price soared following fraudulent promotional campaigns. Charged with fraudulently promoting Jammin’ Java stock to investors are British twin brothers Alexander Hunter and Thomas Hunter, who were previously charged in a separate SEC case for touting multiple penny stocks using a fake stock picking robot. Others charged in the SEC’s complaint with facilitating the illegal offering through their offshore entities are UK citizens Stephen Wheatley and Kevin Miller and Oman resident Mohammed Al-Barwani. According to the SEC’s complaint filed in U.S. District Court for the Central District of California:  Whittle, a stock promoter, befriended the son of Bob Marley in Los Angeles. After learning of Marley’s purchase of a small Jamaican coffee farm, Whittle proposed the creation of a large- scale coffee distribution business built on the Marley name.  To raise capital for the Marley venture, Whittle identified publicly- traded shell company Global Electronic Recovery Corp. (GERC),

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which was a purported waste management business in Los Angeles. He executed a reverse merger between GERC and Marley Coffee, which later became Jammin’ Java and trades under the ticker symbol JAMN.  In connection with the reverse merger, Whittle secretly gained control of millions of shares that previously had been issued to foreign nominees.  Using his access and control of Jammin’ Java and its stock, Whittle and others coordinated an illegal offering and the fraudulent promotion of Jammin’ Java’s stock in a pump-and-dump scheme that culminated in the middle of 2011.  In anticipation of the promotion, Whittle distributed some of the nominee stock to offshore entities controlled by Weaver, Sun, and Berlinger.  To boost the stock price and provide cash to Jammin’ Java, Whittle, Weaver, Sun, and Berlinger orchestrated a sham financing arrangement designed to create the false appearance of legitimate third-party interest and investment in the company.  Jammin’ Java’s announcement of the financing agreement and other company announcements – together with coordinated trading by entities connected to the scheme – caused the stock price to rise.  To conceal his control of the stock and other aspects of the scheme, Whittle made material misstatements and misleading omissions in beneficial ownership reports filed with the SEC.  Whittle distributed another large block of stock to offshore entities, including those controlled or owned by Weaver, Sun, Berlinger, Wheatley, Miller, and Al-Barwani. To conceal their interest, Whittle, Weaver, Sun, and Berlinger failed to disclose their beneficial ownership of Jammin’ Java stock.  The Hunters published false stock newsletters and took other steps to hype the stock and send the share price sharply upward.  With Jammin’ Java’s stock value artificially inflated, the defendants and others coordinating with them dumped 45 million shares on the public market without registering the transactions, making at least $78 million in illicit profits in the process.

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 Weaver, Sun, and Berlinger funneled $2.5 million in profits to Jammin’ Java under the guise of the sham financing arrangement that launched the promotion.  Jammin’ Java’s share price and volume began to collapse a few days after the company disclosed on May 9, 2011, that it became aware of an unauthorized and unaffiliated online stock promotion. The stock fell further after the company released disappointing financial results in its annual report. The SEC’s complaint charges Jammin’ Java, Whittle, Weaver, Sun, Berlinger, Wheatley, Miller, and Al-Barwani with conducting an illegal offering in violation of Sections 5(a) and 5(c) of the Securities Act of 1933. The complaint further alleges that Whittle, Weaver, Sun, Berlinger, and the Hunters violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Whittle, Weaver, Sun, and Berlinger violated Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2. Whittle is additionally charged with violating Section 16(a) of the Exchange Act and Rule 16a-3, and the Hunters are charged with violations of Sections 17(b) of the Securities Act, which prohibits fraudulent touting of stock. The SEC is seeking injunctions, disgorgement, prejudgment interest, and penalties as well as penny stock bars against all of the individuals and an officer-and-director bar against Whittle.

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SEC v. Brett A. Cooper, et al Litigation Release No. 23406 (November 12, 2015) http://www.sec.gov/litigation/litreleases/2015/lr23406.htm Civil Action No. 1:13-cv-05781 (September 27, 2013) https://www.sec.gov/litigation/complaints/2013/comp22830- cooper.pdf SEC Obtains Summary Judgment Win in Prime Bank Scheme Case. Judge Orders Brett A. Cooper and His Companies to Pay More Than $7.3 Million The Securities and Exchange Commission announced that the United States District Court for the District of New Jersey awarded summary judgment and entered a final judgment in favor of the SEC against defendants Brett A. Cooper, Global Funding Systems LLC, Dream Holdings, LLC, Fortitude Investing, LLC, Peninsula Water- front Development, LP, and REOP Group Inc. The Court found that Cooper conned investors out of more than $2 million through various frauds, including advance fee schemes guaranteeing astronomical returns to investors in purported prime bank transactions and overseas debt instruments. The final judgment requires Cooper and his companies to pay more than $7.3 million as the outcome of a civil enforcement action originally filed in September, 2013. In its pleadings and other court papers, the SEC alleged that the defendants, from at least November 2008 through about April 2012, perpetrated three fraudulent schemes and engaged in various fraudulent and deceitful acts, practices and courses of business in furtherance of those schemes. The Court found that Cooper, through his companies, lured investors into fictitious “Prime Bank” or “High-Yield” investment contracts with the promise of extraordinary returns on their investments in a matter of weeks, with little to no risk. The purported investments involved the purchase of bank instruments, including “standby letters of credit” (“SBLCs”) and “bank guarantees”, from major international banks. The instruments were to be “monetized” or “traded” on a “platform” generating astronomical profits from complex and secretive transactions. None of the investors received any returns on the money they invested with Cooper or his companies, and none of it was used to acquire any bank instruments or SBLCs. The Court found that Cooper spent investors’ money on hotels, cars, and other personal items. The Court also found that Cooper participated in a “finders fee” scheme, where Cooper, through his company REOP Group Inc.,

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entered into an agreement whereby Cooper and REOP would receive a fee for finding a bank or brokerage firm to accept a purported Brazilian bond for listing and eventual sale. In furtherance of his fraud, Cooper or others acting at his direction forged emails and letters purportedly from a brokerage firm, making it appear that the bond had been accepted for sale, thus entitling defendants to a fee. On November 5, 2015, the District Court granted the SEC’s motion for summary judgment on liability against Cooper and entered default judgment against the other defendants. In its opinion, the Court found that Cooper perpetrated three schemes alleged against him and that he knew the fictional investments he touted to investors did not exist. Among other deceptive conduct, “Cooper faked his identity, posing as an escrow agent, a registered representative at a broker- dealer, and signing documents using others’ names…. Cooper also created a fake escrow company, complete with a website and email accounts, and two fictitious attorneys to run the nonexistent firm. He then used that fake firm to lure investors into wiring millions into the bank accounts that he controlled.” The Court found that “Cooper violated the law repeatedly over a period of at least four years, using investor funds for his personal use. He had no gainful employment during this period and there is no evidence that the other Defendants had any business operations or earned any legitimate income. Cooper does not admit the wrongful nature of his conduct” and “[w]hen confronted by an investor regarding past frauds, he outright lied.” The Court also noted that “Cooper has recently held himself out as a ‘millionaire’ investor, including on international news networks”. The final judgment holds the defendants jointly and severally liable for disgorgement of proceeds defrauded from investors in a total amount of $2,146,160 and for prejudgment interest in the amount of $301,479. The judgment imposes civil money penalties of $2,447,639 against Cooper, $308,667 against Global Funding Systems LLC, $1,264,272 against Dream Holdings, LLC, $320,468 against Fortitude Investing, LLC, $500,216 against Peninsula Waterfront Development, LP, and $54,016 against REOP Group Inc. The judgment also provides injunctive relief by permanently enjoining Cooper from acting as an unregistered broker or dealer in violation of Section 15(a) of the Secu- rities Exchange Act of 1934, enjoining all defendants from further violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5, and specifically enjoining all defendants from offering or selling similar prime bank instruments in the future.

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SEC v. James Alan Craig Litigation Release No. 23401 (November 6, 2015) http://www.sec.gov/litigation/litreleases/2015/lr23401.htm Civil Action No. 3:15-cv-05076 (November 5, 2015) https://www.sec.gov/litigation/complaints/2015/comp-pr2015-254.pdf SEC Charges: False Tweets Sent Two Stocks Reeling in Market Manipulation Criminal Charges also Filed On November 5, 2015, the Securities and Exchange Commission filed securities fraud charges against a Scottish trader whose false tweets caused sharp drops in the stock prices of two companies and triggered a trading halt in one of them. According to the SEC’s complaint filed in federal court in the Northern District of California, James Alan Craig of Dunragit, Scotland, tweeted multiple false statements about the two companies on Twitter accounts that he deceptively created to look like the real Twitter accounts of well-known securities research firms. Also, the U.S. Attorney’s Office for the Northern District of California filed criminal charges. The SEC’s complaint alleges that Craig’s first false tweets caused one company’s share price to fall 28 percent before Nasdaq temporarily halted trading. The next day, Craig’s false tweets about a different company caused a 16 percent decline in that company’s share price. On each occasion, Craig bought and sold shares of the target companies in a largely unsuccessful effort to profit from the sharp price swings. The SEC’s investigation also determined that Craig later used aliases to tweet that it would be difficult for the SEC to determine who sent the false tweets because real names weren’t used. According to the SEC’s complaint:  On Jan. 29, 2013, Craig used a Twitter account he created to send a series of tweets that falsely said Audience, Inc. was under investigation. Craig purposely made the account look like it belonged to the securities research firm Muddy Waters by using the actual firm’s logo and a similar Twitter handle. Audience’s share price plunged and trading was halted before the fraud was revealed and the company’s stock price recovered.  On Jan. 30, 2013, Craig used another Twitter account he created to send tweets that falsely said Sarepta Therapeutics, Inc. was under investigation. In this case Craig deliberately made the

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Twitter account seem like it belonged to the securities research firm Citron Research, again using the real firm’s logo and a similar Twitter handle. Sarepta’s share price dropped 16 percent before recovering when the fraud was exposed. The Commission’s complaint charges that Craig committed securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a permanent injunction against future violations, disgorgement and a monetary penalty from Craig. The SEC has issued an Investor Alert titled “Social Media and Investing - Stock Rumors” prepared by the Office of Investor Educa- tion and Advocacy. The alert aims to warn investors about fraudsters who may attempt to manipulate share prices by using social media to spread false or misleading information about stocks, and provides tips for checking for red flags of investment fraud.

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In the Matter of Auriga Global Investors Sociedad de Valors, S.A. Exchange Act Release No. 76145 (October 14, 2015) http://www.sec.gov/litigation/admin/2015/34-76145.pdf

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In the Matter of Harvest Capital Strategies LLC Exchange Act Release No. 76144 (October 14, 2015) http://www.sec.gov/litigation/admin/2015/34-76144.pdf

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In the Matter of J.P. Morgan Investment Management Inc. Exchange Act Release No. 76143 (October 14, 2015) http://www.sec.gov/litigation/admin/2015/34-76143.pdf

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In the Matter of Omega Advisors, Inc. Exchange Act Release No. 76142 (October 14, 2015) http://www.sec.gov/litigation/admin/2015/34-76142.pdf

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In the Matter of Sabby Management, LLC Exchange Act Release No. 76141 (October 14, 2015) http://www.sec.gov/litigation/admin/2015/34-76141.pdf

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In the Matter of War Chest Capital Partners LLC Exchange Act Release No. 76140 (October 14, 2015) http://www.sec.gov/litigation/admin/2015/34-76140.pdf Press Release No. 2015-239 (October 14, 2015) http://www.sec.gov/news/pressrelease/2015-239.html [Press Release] SEC Charges Six Firms for Short Selling Violations in Advance of Stock Offerings FOR IMMEDIATE RELEASE 2015-239 Washington D.C., Oct. 14, 2015 — The Securities and Exchange Commission announced enforcement actions against six firms, including more than $2.5 million in monetary sanctions and, in the case of one previously sanctioned firm, an order barring the firm from participating in stock offerings for a period of one year as part of its ongoing enforcement initiative focused on violations of Rule 105 of Regulation M. Intended to preserve the independent pricing mechanisms of the securities markets and prevent stock price manipulation, Rule 105 prohibits firms from participating in public stock offerings after selling short those same stocks. Through its Rule 105 Initiative, which was first announced in 2013 as an effort to address violations of the rule in an expedited and streamlined way, the Division of Enforcement has taken action on every Rule 105 violation over a de minimis amount that has come to its attention—promoting a message of zero tolerance for these offenses. As a result, based on available information, the SEC has seen a dramatic decrease in Rule 105 violations since the Initiative began. In the first fiscal year after the Initiative was announced, Rule 105 violations, detected through various means available to the SEC, decreased by approximately 90 percent over the previous six years. Rule 105 violations in fiscal year 2015 were similarly lower than before the Initiative. Rule 105 typically prohibits short selling a stock within five business days of participating in an offering for that same stock. Such dual activity typically results in illicit profits for the trader while reducing the offering proceeds for a company by artificially depress- ing the market price shortly before the company prices the stock. The SEC’s investigations in the current round found that 6 firms engaged

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in short selling of particular stocks shortly before they bought shares from an underwriter, broker, or dealer participating in a follow-on public offering. Each firm has agreed to settle the SEC’s charges and pay a combined total of more than $2.5 million in disgorgement, interest, and penalties. The six settlements announced involved the following entities:  Auriga Global Investors, Sociedad de Valores, S.A. – The Spain- based firm agreed to pay disgorgement of $436,940.52, prejudgment interest of $2,184.70, and a penalty of $179,277.28.  Harvest Capital Strategies LLC – The California-based firm agreed to pay disgorgement of $18,835, prejudgment interest of $619.28, and a penalty of $65,000.  J.P. Morgan Investment Management Inc. – The New York- based firm agreed to pay disgorgement of $662,763, prejudgment interest of $56,758.40, and a penalty of $364,689.  Omega Advisors, Inc. – The New York-based firm agreed to pay disgorgement of $68,340, prejudgment interest of $686.58, and a penalty of $65,000.  Sabby Management LLC – New Jersey-based firm agreed to pay disgorgement of $184,747.10, prejudgment interest of $2,331.51, and a penalty of $91,669.95.  War Chest Capital Partners LLC – The New York-based firm agreed to pay disgorgement of $179,516, prejudgment interest of $22,302.02, and a penalty of $150,000. In the initiative’s initial round in 2013, enforcement actions were brought against 23 firms and resulted in more than $14.4 million in monetary sanctions. In a second round of sanctions announced in 2014, enforcement actions were brought against 19 firms and one individual trader and resulted in more than $9 million in monetary sanctions. This third round of the initiative also demonstrates the benefits of cooperation. In contrast to nearly every other firm subject to the Initi- ative, War Chest Capital Partners LLC, a respondent in the SEC’s first sweep in 2013, refused at that time to review its past trading to determine whether additional violations not identified by the Division of Enforcement had occurred. The division subsequently found seven additional Rule 105 violations by War Chest, and, as a result, has brought a second action against War Chest with increased sanctions. Under the order against War Chest, the firm is now subject to a

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350 © Practising Law Institute censure, a significant penalty, and conduct-based order prohibiting it from participating in secondary offerings for a period of one year.

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In the Matter of Briargate Trading, LLC and Eric Oscher Securities Act Release No. 9959 (October 8, 2015) https://www.sec.gov/litigation/admin/2015/33-9959.pdf Press Release No. 2015-236 (October 8, 2015) https://www.sec.gov/news/pressrelease/2015-236.html [Press Release] SEC Charges Firm and Owner With Manipulative Trading FOR IMMEDIATE RELEASE 2015-236 Washington D.C., Oct. 8, 2015 — The Securities and Exchange Commission charged a New York- based proprietary trading firm and one of its co-founders with engaging in a manipulative trading strategy known as “spoofing.” An SEC investigation found that Briargate Trading LLP and co- founder Eric Oscher orchestrated a scheme in which they placed sham orders — spoofs — to create the false appearance of interest in stocks and manipulate their prices. After entering spoof orders, Oscher placed bona fide orders on the opposite side of the market for the same stocks and took advantage of the artificially inflated or depressed prices. Immediately after the bona fide orders were executed, Oscher canceled the spoof orders. Briargate and Oscher agreed to pay more than $1 million to settle the SEC’s charges. According to the SEC’s order instituting settled proceedings:  Oscher and Briargate’s spoofing scheme ran from October 2011 through September 2012 and focused on securities listed on the New York Stock Exchange.  Oscher, a former NYSE specialist, used his Briargate account to place multiple, large, non-bona fide orders on the NYSE before the exchange opened for trading at 9:30 a.m. Briargate’s non- bona fide orders impacted the market’s perception of demand for the stocks it spoofed and often the prices of the stocks.  Oscher took advantage of the price movement in the spoofed securities by sending orders for them on the opposite side of the market to exchanges that opened before the NYSE. Oscher can- celled the non-bona fide NYSE orders before the NYSE opened and unwound the positions he had established on other exchanges.

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Through this conduct, the Oscher and Briargate reaped approximately $525,000 in profits. The order found that Oscher and Briargate’s conduct violated the antifraud provisions of the federal securities laws and a related SEC antifraud rule. Without admitting or denying the findings, Oscher and Briargate agreed to disgorge $525,000 of ill-gotten gains plus prejudgment interest of $37,842.32. Briargate also agreed to pay a civil penalty of $350,000 and Oscher agreed to pay a civil penalty of $150,000. The order also requires Briargate and Oscher to cease and desist from committing or causing any future violations of the securities laws.

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SEC v. Steve Chen, et al. Litigation Release No. 23378 (October 5, 2015) https://www.sec.gov/litigation/litreleases/2015/lr23378.htm Civil Action No. 15-cv-07425 (September 22, 2015) https://www.sec.gov/litigation/complaints/2015/comp-pr2015-227.pdf Press Release No. 2015-227 (October 1, 2015) https://www.sec.gov/news/pressrelease/2015-227.html Washington D.C., Oct. 4, 2015 – On September 22, 2015, the Securities and Exchange Commission filed, under seal, fraud charges and, on September 28, obtained asset freezes against the operator of a worldwide pyramid scheme that falsely promised investors would profit from a venture purportedly backed by the company’s massive amber holdings. The SEC alleges that defendants Steve Chen, USFIA Inc. and Chen’s other entities have raised more than $32 million from investors in and outside the U.S. since at least April 2013. The SEC’s complaint alleges that Chen and his companies misled investors about a lucrative initial public offering for USFIA that never happened and about claims to own or control amber deposits worth billions of dollars. The Hon. R. Gary Klausner of the U.S. District Court for the Central District of California on September 28 granted the SEC’s request for an asset freeze and the appointment of Thomas Seaman as the temporary receiver over USFIA and the other entities. In addition to the temporary relief, the SEC is seeking preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties in its complaint, which alleges that the defendants violated the registration and antifraud provisions of the federal securities laws and SEC antifraud rules. According to the SEC’s complaint, Chen falsely promoted USFIA as a legitimate multi-level marketing company that owns several large and valuable amber mines in Argentina and the Dominican Republic. Investors were told that they could profit by investing in amounts ranging from $1,000 to $30,000, and earn larger returns based on the number of investors they brought into the program. The SEC further alleges that beginning in September 2014, the defendants claimed to have converted existing investors’ holdings into “Gemcoins,” which they said was a virtual currency secured by the company’s amber holdings. In reality, the SEC complaint alleges that Gemcoins are worthless.

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The SEC’s complaint charges the defendants with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b- 5 thereunder.

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