The Securities and Exchange Commission today announced that it has agreed to resolve its insider trading claims against James V. Mazzo, the former Chairman and Chief Executive Officer of Advanced Medical Optics, Inc. (AMO) for allegedly tipping information about his company’s acquisition to his close personal friend, former professional baseball player Douglas V. DeCinces.
The SEC’s complaint alleged that in October 2008 Mazzo executed a nondisclosure agreement with Abbott Laboratories, Inc., as Abbott explored a potential acquisition of AMO. As talks between AMO and Abbott progressed over the ensuing months, Mazzo provided DeCinces with material, nonpublic information about the acquisition on multiple occasions. The complaint further alleges that DeCinces bought AMO securities numerous times after communicating with Mazzo about the progress of the merger talks. DeCinces also allegedly tipped five of his friends, including a former Baltimore Orioles teammate and a businessman, David L. Parker. DeCinces’s trading resulted in over $1.3 million in alleged ill-gotten gains, and the tippees obtained another $1 million in ill-gotten gains.
“The Commission alleges that Mr. Mazzo, a company insider, repeatedly gifted material, nonpublic information to his friend Mr. DeCinces, who in turn tipped his own friends,” said Kelly L. Gibson, Associate Regional Director for Enforcement in the SEC’s Philadelphia Regional Office. “When it comes to insider trading, the fact that the insider does not directly share in the tippee’s ill-gotten gains does not excuse his decision to benefit a friend at the expense of other shareholders.”
Without admitting or denying the allegations, Mazzo agreed to a final judgment that includes a permanent injunction from violations of the antifraud and tender offer provisions of the Exchange Act, orders Mazzo to pay a civil penalty in the amount of $1.5 million, and imposes a five-year officer-and-director bar. The settlement is subject to final approval by the court.
DeCinces and four of his tippees already settled the Commission’s insider trading claims against them. The SEC’s litigation against Parker is continuing.
The litigation is being led by Christopher R. Kelly and supervised by Jennifer C. Barry in the SEC’s Philadelphia Regional Office.
The Securities and Exchange Commission today announced the agenda and panelists for the staff roundtable on the proxy process on November 15, 2018.
The roundtable, announced in September, will begin at 9:30 a.m. in the auditorium at the SEC headquarters at 100 F Street, N.E., Washington, D.C. and will be open to the public. The event also will be webcast live on the SEC website and archived for later viewing.
Members of the public who wish to provide their views on the proxy process and related SEC rules, either in advance of or after the roundtable, may submit comments electronically or on paper. [sec:ruling_comment]
Agenda and Panelists
9:30 Opening Statements by Chairman Clayton and Commissioners
10:10 Panel One: Proxy Voting Mechanics and Technology
Panel One will focus on the current proxy voting and solicitation process for shareholder meetings and recent concerns raised about this process. How can the accuracy, transparency, and efficiency of the proxy voting and solicitation system be improved and what steps should regulators consider to facilitate such improvements? In addition, the panel will discuss how recent technological advances can be used to enhance the voting process and the ability of shareholders to exercise their voting rights.
Ken Bertsch, Executive Director, Council of Institutional Investors
John Coates, John F. Cogan, Jr. Professor of Law and Economics, Harvard Law School
Paul Conn, President, Global Capital Markets, Computershare
Lawrence Conover, Vice President, Operations and Services Group, Fidelity Investments
Bruce H. Goldfarb, Founder, President and Chief Executive Officer, Okapi Partners
David A. Katz, Partner, Wachtell, Lipton, Rosen & Katz
Alexander Lebow, Co-Founder and Chief Legal Officer, A Say Inc.
Sherry Moreland, President and Chief Operating Officer, Mediant Communications
Robert Schifellite, President, Investor Communication Solutions, Broadridge Financial Solutions
Brian L. Schorr, Chief Legal Officer and Partner, Trian Fund Management, L.P.
Katie Sevcik, Executive Vice President and Chief Operating Officer, EQ
Darla Stuckey, President and Chief Executive Officer, Society of Corporate Governance
John Tuttle, Chief Operating Officer and Global Head of Listings, NYSE Group
John A. Zecca, Senior Vice President, General Counsel North America and Chief Regulatory Officer, Nasdaq
Panel Two will focus on shareholder engagement through the shareholder proposal process. The panelists will discuss, among other things, their experiences with shareholder proposals and the related benefits and costs involved for the company and shareholders. The panel also will consider the application of the shareholder proposal rule and related guidance.
Ray A. Cameron, Head of Investment Stewardship Team for the Americas Region, Blackrock, Inc.
Ning Chiu, Counsel, Capital Markets Group, Davis Polk & Wardwell LLP
Michael Garland, Assistant Comptroller, Corporate Governance and Responsible Investment, Office of the Comptroller, New York City
Maria Ghazal, Senior Vice President and Counsel, Business Roundtable
Jonas Kron, Senior Vice President and Director of Shareholder Advocacy, Trillium Asset Management
Aeisha Mastagni, Portfolio Manager, Corporate Governance Unit, California State Teachers’ Retirement System
James McRitchie, Publisher, CorpGov.net
Tom Quaadman, Executive Vice President, U.S. Chamber of Commerce Center for Capital Markets Competitiveness
Brandon Rees, Deputy Director of Corporations and Capital Markets, American Federation of Labor and Congress of Industrial Organizations
Dannette Smith, Secretary to the Board of Directors and Senior Deputy General Counsel, UnitedHealth Group
3:00 Panel Three: Proxy Advisory Firms – The Current and Future Landscape
Panel Three will focus on the role of proxy advisory firms and their involvement in the proxy process. The panel will draw from a diverse array of perspectives from proxy advisory firms, institutional investors, the academic community, and corporate issuers. How has the role of proxy advisory firms evolved over time and are there ways in which their role and relationships with institutional investors and issuers can be improved?
Jonathan Bailey, Managing Director and Head of ESG Investing, Neuberger Berman, LLC
Patti Brammer, Corporate Governance Officer, Ohio Public Employees Retirement System
Scot Draeger, Vice President, Director of Wealth Management, General Counsel and Chief Compliance Officer, R.M. Davis Private Wealth Management
Sean Egan, President and Founding Partner, Egan-Jones Proxy Services
Phil Gramm, Visiting Scholar, American Enterprise Institute
John Kim, Securities Counsel, General Motors
Adam Kokas, Executive Vice President, General Counsel, and Secretary, Atlas Air Worldwide
Rakhi Kumar, Senior Managing Director, Head of ESG Investments and Asset Stewardship, State Street Global Advisors
Katherine “KT” Rabin, Chief Executive Officer, Glass, Lewis & Co.
Gary Retelny, President and Chief Executive Officer, Institutional Shareholder Services Inc.
Edward Rock, Martin Lipton Professor of Law and Director, Institute for Corporate Governance & Finance, New York University School of Law
The Securities and Exchange Commission today charged a stock research firm and its co-founders with defrauding investors by issuing reports purportedly based on “unbiased” and “not paid for” research when in reality they received thousands of dollars from issuers as a condition to providing each report.
According to the SEC’s complaint, SeeThruEquity LLC and brothers Ajay and Amit Tandon camouflaged the payments by inviting companies to make a “presentation” at an investor conference in order to receive a research report for free. SeeThru and the Tandons allegedly collected up to several thousand dollars in conference presentation fees per company, and the issuers regularly had input into the substance of the supposedly unbiased research reports, even including the price targets at times. The SEC alleges that the Tandons often instructed SeeThru analysts to use different, higher price targets for covered issuers than those yielded through purported quantitative analysis, and the price targets contained in SeeThru’s reports were typically more than 300 percent above the current trading price of the stock.
The SEC further alleges that Ajay Tandon, who serves as CEO, frequently traded in the same stocks that SeeThru was evaluating despite stating in published interviews and elsewhere that neither the firm nor its principals traded in securities for which they published research. According to the SEC’s complaint, Tandon also engaged in scalping, which is a form of securities fraud that occurs when a perpetrator makes a stock recommendation to investors and contemporaneously trades against that very recommendation in the open market without adequate disclosure.
“There is a clear line between paid advertising and unbiased research coverage, and we allege that SeeThru and its co-founders crossed it to deceive investors and make money,” said Richard R. Best, Director of the SEC’s Atlanta Regional Office. “According to our complaint, Ajay Tandon even scalped multiple issuers, further revealing the biased nature of SeeThru’s research reports.”
The SEC’s complaint, which was filed in federal court in Manhattan, charges Ajay Tandon and SeeThru with violating the antifraud provisions of the federal securities laws, and charges Ajay and Amit Tandon with aiding and abetting certain violations by SeeThru. The SEC seeks permanent injunctions, a conduct-based injunction that would bar the Tandons and SeeThru from promoting the issuer of any security, and disgorgement of ill-gotten gains plus interest, penalties, officer-and-director bars, and penny stock bars.
The SEC’s litigation will be led by Pat Huddleston II and Paul Kim of the Atlanta office, and the ongoing investigation is being conducted by Joshua M. Dickman and supervised by Natalie M. Brunson of the Atlanta office.
The Securities and Exchange Commission today announced settled charges against Zachary Coburn, the founder of EtherDelta, a digital “token” trading platform. This is the SEC’s first enforcement action based on findings that such a platform operated as an unregistered national securities exchange.
According to the SEC’s order, EtherDelta is an online platform for secondary market trading of ERC20 tokens, a type of blockchain-based token commonly issued in Initial Coin Offerings (ICOs). The order found that Coburn caused EtherDelta to operate as an unregistered national securities exchange.
EtherDelta provided a marketplace for bringing together buyers and sellers for digital asset securities through the combined use of an order book, a website that displayed orders, and a “smart contract” run on the Ethereum blockchain. EtherDelta’s smart contract was coded to validate the order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger to be updated to reflect a trade.
Over an 18-month period, EtherDelta’s users executed more than 3.6 million orders for ERC20 tokens, including tokens that are securities under the federal securities laws. Almost all of the orders placed through EtherDelta’s platform were traded after the Commission issued its 2017 DAO Report, which concluded that certain digital assets, such as DAO tokens, were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption. EtherDelta offered trading of various digital asset securities and failed to register as an exchange or operate pursuant to an exemption.
“EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.
“We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “But to protect investors, this innovation necessitates the SEC’s thoughtful oversight of digital markets and enforcement of existing laws.”
Without admitting or denying the findings, Coburn consented to the order and agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty. The Commission’s order recognizes Coburn’s cooperation, which the Commission considered in determining not to impose a greater penalty.
The SEC’s investigation, which is continuing, is being conducted by Daphna A. Waxman of the Division’s Cyber Unit and Alison R. Levine and Jorge G. Tenreiro of the New York Regional Office. The case is being supervised by Robert A. Cohen, Cyber Unit Chief.
In connection with our ongoing efforts to help address investor confusion about the nature of their relationships with investment advisers and broker-dealers, the SEC’s Office of the Investor Advocate today made available a report on investor testing conducted by the RAND Corporation. The investor testing gathered feedback on a sample Relationship Summary issued in April 2018 as part of a package of proposed rulemakings and interpretations designed to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers. The report is available for review and comment on the SEC’s website.
“Based on my discussions with many retail investors over the last several months, it is clear to me that too many retail investors are not aware of the material aspects of their relationships with their investment professionals,” said SEC Chairman Jay Clayton. “The results of RAND Corporation’s investor testing support our efforts to provide retail investors with a clear and concise Relationship Summary to help them make important decisions about choosing to work with an investment professional. The SEC staff is carefully reviewing RAND Corporation’s investor testing report as well as other information related to the proposed Relationship Summary that is available in the comment file.”
RAND Corporation’s investor testing of the Relationship Summary consisted of:
A nationwide online survey of over 1,800 individuals fielded through RAND’s nationally representative American Life Panel
Qualitative in-depth interviews conducted in Denver and Pittsburgh fielded using independent market research firms
This report may be informative to those evaluating the proposed Relationship Summary. This report may supplement other information considered in connection with the final rule, and the Office of Investor Advocate is making this report available to allow the public to consider and comment on this supplemental information. Comments on this supplemental information may be submitted to comment File Nos. S7-08-18, S7-09-18, and S7-07-18 and are encouraged by Dec. 7, 2018.
The Securities and Exchange Commission today announced that ITG Inc. and its affiliate AlterNet Securities Inc. have agreed to pay $12 million to settle charges arising from ITG’s misstatements and omissions about the operation of the firm’s dark pool, POSIT, and ITG’s failure to establish adequate safeguards and procedures to protect POSIT subscribers’ confidential trading information.
The SEC’s order finds that despite assuring subscribers that it would maintain the confidentiality of their trading information, ITG improperly disclosed the confidential dark pool trading information of firm clients. For example, from 2010 to 2015, ITG sent daily Top 100 Reports for the prior day’s trading activity. The reports identified the top 100 stocks for which certain orders were submitted to POSIT and the top 100 stocks for which certain orders were executed. ITG informed some high frequency trading firms that they could use these Top 100 Reports to identify “potential unsatisfied liquidity needs” in the dark pool, despite assuring subscribers that ITG would not signal their trading intentions.
According to the SEC’s order, ITG misleadingly omitted important structural features of the dark pool. From 2010 to mid-2014, ITG split the dark pool into two separate pools, which prevented certain orders in the two pools from interacting with one another. ITG failed to disclose the separate pools, which had different performance and fill rates, despite specific questions from subscribers about whether ITG “tiered” or segmented the dark pool in any way. The SEC’s order further finds that from mid-2014 to late 2016, ITG failed to disclose that the firm applied a “speedbump” to slow down interactions involving orders from certain high frequency trading firms.
“Contrary to assurances it made to dark pool subscribers, ITG failed to ensure that trading information was protected, and in some instances used this information to attempt to grow its business,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “Our agency continues to scrutinize dark pools to ensure they protect client trading information and operate in compliance with the securities laws.”
Without admitting or denying the findings, ITG and AlterNet consented to the entry of the SEC’s order finding that they violated the antifraud provisions of the securities laws as well as the rules governing the requirements for dark pools. The order directs ITG and AlterNet to cease and desist from committing or causing any future violations of those provisions, censures ITG and AlterNet, and orders them to pay the $12 million penalty.
These charges are in addition to charges filed in August 2015 against ITG and AlterNet for operating an undisclosed proprietary trading desk that used confidential customer trading information to trade in the POSIT dark pool.
The SEC’s investigation has been conducted by Rachael Clarke, Scott Thompson, Matthew Koop, and Mandy Sturmfelz of the Market Abuse Unit with the assistance of Julia Green of the Philadelphia Regional Office. The case has been supervised by Mr. Sansone.