Robinhood Facing Multiple SEC Investigations Into Its Business Practices

According to Forbes, Robinhood is reportedly facing multiple investigations by the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) regarding its March service outage, and, separately, 2018 disclosures relating to its revenue practices.

Details on the investigations are scarce. Bloomberg reports that it has received information from a source involved in a joint SEC/FINRA investigation of how the company handled and responded to a major service disruption in March. Separately, the SEC is reportedly looking into public disclosures of the company’s practice of selling client order flow to third-party firms.


Interactive Brokers Charged With Failing to File Suspicious Activity Reports

The Securities and Exchange Commission today announced that Interactive Brokers LLC will pay an $11.5 million penalty to settle charges it repeatedly failed to file Suspicious Activity Reports (SARs) for U.S. microcap securities trades it executed on…

Read the Full Press Release

Have a securities law question? Call Sallah Astarita & Cox at 212-509-6544.

from The Securities Law Home Page –


SEC Charges Energy Storage Company, Former Executive in Fraudulent Scheme to Inflate Financial Results

The Securities and Exchange Commission today charged a California-based energy storage and power delivery product manufacturer and one of its former sales executives in a fraudulent revenue recognition scheme designed to inflate the company’s reported financial results.
According to the SEC’s order, Maxwell Technologies, Inc. prematurely recognized revenue from the sale of ultracapacitors – small energy storage and power delivery products – in order to better meet analyst expectations.  Van Andrews, a former Maxwell sales executive and corporate officer, allegedly inflated the company’s revenues by entering into secret side deals with customers and by falsifying records in order to conceal the scheme from Maxwell’s finance and accounting personnel and external auditors.  Maxwell’s former CEO David Schramm and former controller James DeWitt also were charged for failing adequately to respond to red flags that should have alerted them to the misconduct. 

“Maxwell recorded revenue before it was actually earned in order to make investors believe that the company’s most important business segment, ultracapacitors, was growing faster than it really was” said Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit.  “This action demonstrates our commitment to holding issuers and their executives accountable when they deny investors the ability to make investment decisions based on accurate financial information.”

The SEC’s order found that Maxwell and Andrews violated antifraud, books and records, and internal accounting controls provisions of the federal securities laws and that Andrews caused certain violations by Maxwell.  Both Maxwell and Andrews consented to the SEC’s order without admitting or denying the allegations and agreed to pay penalties of $2.8 million and $50,000, respectively.  Andrews also agreed to be barred from serving as an officer or director of a public company for five years.  Without admitting or denying the findings that they caused certain violations by Maxwell, Schramm agreed to pay a total of nearly $80,000 in disgorgement, prejudgment interest, and penalty and DeWitt agreed to pay a $20,000 penalty.  

The money collected in this proceeding will be used to establish a Fair Fund for the benefit of investors harmed by the accounting fraud.  Maxwell’s former CFO Kevin Royal, who was not charged with wrongdoing, has reimbursed the company $135,800 for incentive-based compensation he received during the period when the company was found to have committed accounting violations.  

The SEC’s investigation was conducted by James Valentino and Natalie Lentz with assistance from Kevin Lombardi.  The case was supervised by Tracy L. Price.

SEC Press Release

— If you believe need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.


Citigroup Paying $18 Million for Overbilling Clients

The Securities and Exchange Commission today announced that Citigroup Global Markets has agreed to pay $18.3 million to settle charges that it overbilled investment advisory clients and misplaced client contracts. The SEC’s order finds that at least 60,000 advisory clients were overcharged approximately $18 million in unauthorized fees because Citigroup failed to confirm the accuracy of billing rates entered into its computer systems in comparison to fee rates outlined in client contracts, billing histories.

If you are a Citigroup customer who was overcharged, or a Citigroup broker with clients who were overcharged by the firm, give us a call – 973-559-5566. We represent customers and brokers in securities related matters nationwide.

Source: | Citigroup Paying $18 Million for Overbilling Clients

SEC Appeals Process on the Slow Track – WSJ

More problems surfacing for the SEC’s in-house legal system, where the SEC gets to be prosecutor, judge, jury and appellate court and industry participants get screwed.According to the Wall Street Journal, “[s]ince Mary Jo White became SEC chairman in April 2013, the median time for the agency to decide appeals of its in-house judges’ decisions has increased to 19 months.”

Source: The Securities Law Blog: SEC Appeals Process on the Slow Track – WSJ

Traders in China and Hong Kong Paying $920,000 to Settle Insider Trading Case

The SEC has settled insider trading cases with two traders in China and Hong Kong, who agreed to pay more than $920,000 to settle the charges against them.Cousins and business associates Zhichen Zhou and Yannan Liu, whose assets were frozen by an emergency court order when the SEC’s complaint was filed against them last month, must disgorge their entire ill-gotten profits of $306,929.59 plus pay penalties of $306,929.59 each.

Source: The Securities Law Blog: Traders in China and Hong Kong Paying $920,000 to Settle Insider Trading Case

False Tweets Cause Market Drop, and SEC Charges

The SEC announced the filing of 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 ADNC and SRPTon Twitter accounts that he deceptively created to look like the real Twitter accounts of well-known securities research firms. Complaint and screenshots of the tweets at the link.

Investor Alert: Pimco Gets SEC Wells Notice for its Total Return Active ETF

Pimco disclosed that it received a Wells notice from the SEC concerning its Total Return Active ETF. A Wells notice is sent to a protential defendant by the SEC to advise the potential defendant of the Staff’s intention to file civil charges, and to give the potential defendant the opportunity to argue why the action should not be commenced.

The notice is not a lawsuit, and is not a formal allegation of wrongdoing. While the mere existence of a Wells notice does not indicate that there has been wrongdoing, the Wells notice does indicate that the Staff believes it has grounds to institute an enforcement proceeding.

The SEC is looking at a four-month time period between the fund’s launch on Feb. 29, 2012 and June 30, 2012, examining how Pimco valued smaller-size positions in nonagency mortgage-backed securities purchased by the ETF during that time, according to the release. They are also looking at the fund’s performance disclosures for that period, and at Pimco’s compliance policies and procedures.

Source: Pimco Gets Warning From SEC That Lawsuit Could Be Coming – WSJ

SEC In-House Judges “Likely Unconstitutional”

A federal judge ruled that the Securities and Exchange Commission’s use of an in-house judge to preside over an insider-trading case was “likely unconstitutional,” a potential blow to the agency’s controversial use of its internal tribunal.The decision provides an excellent overview of the SEC’s administrative hearing process, with all of its warts and deficiencies.

Source: The Securities Law Blog

Former SEC ALJ Claims Bias Against Defendants

More information coming out from the Wall Street Journal’s article on the failure of defendants to get a fair trial before the SEC’s own administrative law judges.According to the article, one former SEC judge said she thought the system was slanted against defendants at times.Lillian McEwen, who was an SEC judge from 1995 to 2007, said she came under fire from Ms. Murray for finding too often in favor of defendants. “She questioned my loyalty to the SEC,” Ms. McEwen said in an interview, adding that she retired as a result of the criticism.

Source: The Securities Law Blog: Former SEC ALJ Claims Bias