SEC Charges Former SeaWorld Associate General Counsel With Insider Trading

The Securities and Exchange Commission today charged a former senior lawyer at SeaWorld Entertainment Inc. with insider trading based on nonpublic information that the company’s revenue would be better than anticipated for the second quarter of 2018.

The SEC alleges that Paul B. Powers had early access to key revenue information as the company’s associate general counsel and assistant secretary, and he purchased 18,000 shares of SeaWorld stock the day after he received a confidential draft of the 2018 second quarter earnings release that detailed a strong financial performance by the company after a lengthy period of decline.  According to the SEC’s complaint, Powers immediately sold his SeaWorld shares for approximately $65,000 in illicit profits after the company announced its positive earnings and the company’s stock price increased by 17 percent.

“As alleged in our complaint, Powers blatantly exploited his access to nonpublic information by misusing SeaWorld’s confidential revenue data to enrich himself,” said Kurt Gottschall, Director of the SEC’s Denver Regional Office.  “Investors should feel confident in the integrity of corporate officers, particularly attorneys.  The SEC is committed to swiftly pursuing insiders who breach their duties to investors.” 

The SEC’s complaint, filed in federal district court in Orlando, Florida, charges Powers with fraud.  Powers has consented to a permanent injunction with the amounts of disgorgement and penalties, if any, to be decided by the court.  The settlement is subject to court approval.

In a parallel action, the U.S. Department of Justice today announced criminal charges against Powers arising out of the same conduct.

The SEC’s investigation was conducted by L. James Lyman and supervised by Ian Karpel and Mr. Gottschall of the Denver office.  The litigation will be handled by Stephen McKenna.  The SEC appreciates the assistance of the U.S. Department of Justice and the U.S. Department of Homeland Security.

SEC Press Release

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SEC Charges Medical Device Company With FCPA Violations

The Securities and Exchange Commission today announced that Fresenius Medical Care AG & Co KGaA (FMC) has agreed to pay more than $231 million to resolve parallel SEC and U.S. Department of Justice investigations related to its violations of the Foreign Corrupt Practices Act (FCPA) across multiple countries for nearly a decade.

The SEC’s order finds that FMC, a German-based worldwide provider of products and services for individuals with chronic kidney failure engaged in misconduct in Saudi Arabia, Morocco, Angola, Turkey, Spain, China, Serbia, Bosnia, Mexico, and eight countries in the West African region against a backdrop where the company failed to have sufficient internal accounting controls.  FMC made improper payments through a variety of schemes, including using sham consulting contracts, falsifying documents, and funneling bribes through a system of third party intermediaries.  Despite known red flags of corruption since the early 2000s, FMC devoted insufficient resources to compliance.  In some jurisdictions, Fresenius failed to take basic steps such as providing anti-corruption training or performing due diligence on its agents.  In many instances, senior management actively engaged in corruption schemes and directed employees to destroy records of the misconduct.  All told FMC paid nearly $30 million in bribes to government officials and others to procure business.

“Failure to address the corruption risks in its growing business allowed complicit managers to engage in bribery schemes that went undetected for more than a decade,” said Charles Cain, Chief of the FCPA Unit.  “As companies expand their business, their internal accounting controls and compliance programs must keep up.”

“By engaging in widespread bribery schemes across multiple countries, the company prioritized profits over compliance in its dealings with foreign government officials,” said Tracy Price, Deputy Chief of the SEC Enforcement Division’s FCPA Unit.

FMC agreed to pay $147 million in disgorgement and interest to the SEC as well as a criminal fine of $84.7 million as part of a non-prosecution agreement announced today by the Justice Department.  FMC must retain an independent compliance monitor for two years and self-report its FCPA compliance efforts for the year after the monitor expires.

The SEC’s investigation was conducted by Irene Gutierrez, M. Shahriar Masud, and Michelle L. Ramos.  The case was supervised by Tracy L. Price.  The SEC appreciates the assistance of the U.S. Department of Justice Criminal Division’s Fraud Section, the U.S. Attorney’s Office for the District of Massachusetts, and the Federal Bureau of Investigation.

SEC Press Release

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The Securities and Exchange Commission and the UK Financial Conduct Authority Sign Updated Supervisory Cooperation Arrangements

The Securities and Exchange Commission and the United Kingdom (UK) Financial Conduct Authority (FCA) have today reaffirmed their commitment to continue close cooperation and information sharing in the event of the UK’s withdrawal from the European Union (EU).

As evidence of their long-standing partnership, SEC Chairman Jay Clayton met with FCA CEO Andrew Bailey and signed two updated Memoranda of Understanding (MOUs) to ensure the continued ability to cooperate and consult with each other regarding the effective and efficient oversight of regulated entities across national borders.  At the meeting in London, Chairman Clayton and Andrew Bailey also discussed risks posed by jurisdictional share trading obligations, which could increase market fragmentation and impose unnecessary costs on investors. 

SEC Chairman Jay Clayton said, “The SEC and the FCA have a long history of effective cooperation on supervisory and other matters.  The amended MOUs we entered into today reaffirm this commitment and collaboration with respect to the oversight of our respective registrants for the benefit of each of our markets and investors.”

FCA CEO Andrew Bailey said, “As part of our preparations for Brexit we have been working with our partners in the EU and globally to ensure there is minimal disruption. These MOUs will ensure the UK can continue to be a key market for funds and fund managers.  Today’s amendments will ensure continuity and stability for consumers and investors in the UK and US.”

The first MOU, originally signed in 2006, is a comprehensive supervisory arrangement covering regulated entities that operate across the national borders.  The MOU was updated to, among other things, expand the scope of covered firms under the MOU to include firms that conduct derivatives, credit rating and derivatives trade repository businesses to reflect (i) post-financial crisis reforms related to derivatives and (ii) the FCA’s assumption of responsibility from the European Securities and Markets Authority for overseeing credit rating agencies and trade repositories in the event of the UK’s withdrawal from the EU.

The second MOU, which is required under the UK Alternative Investment Fund Managers Regulations, was originally signed in 2013.  The MOU provides a framework for supervisory cooperation and exchange of information relating to the supervision of covered entities in the alternative investment fund industry. The updated MOU ensures that investment advisers, fund managers, private funds and other covered entities in the alternative investment fund industry that are regulated by the SEC and the FCA will be able to continue to operate on a cross-border basis without interruption, regardless of the outcome of the UK’s withdrawal from the EU.

These MOUs will come into force on the date EU legislation ceases to have direct effect in the United Kingdom.

SEC Press Release

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SEC Charges New Jersey Man With Fradulently Causing Advisory Firm to Overbill Clients

The Securities and Exchange Commission today filed charges against the former chief operating officer (COO) of a Commission-registered investment adviser for aiding and abetting the advisory firm’s actions to overbill its clients as part of a fraudulent scheme to improperly inflate his own pay.

According to the SEC’s complaint, between 2011 and December 2018, former COO Richard T. Diver, a resident of Spring Lake, New Jersey, engaged in an illicit scheme to steal approximately $6 million from his employer. Diver, whose duties included managing the advisory firm’s payroll and client billing functions, allegedly inflated his salary by hundreds of thousands of dollars per year. As part of this scheme, Diver defrauded investors by causing the investment adviser to overbill more than 300 investment advisory client accounts by approximately $750,000, for the purpose of generating additional revenue. As alleged in the complaint, Diver used this revenue to finance his inflated salary and when confronted by the investment adviser’s CEO in December 2018, Diver confessed to having carried out the scheme.

“As alleged, Diver lined his own pockets by stealing from hundreds of advisory clients, until his scheme was exposed by an investor who asked the right questions about charged fees,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “When the scheme came to light, we took swift action to ensure that there was no further investor harm.”

The SEC’s complaint, filed in federal district court in Manhattan, charges Diver with aiding and abetting the investment adviser’s violations of the antifraud provisions in Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC is seeking a judgment ordering permanent injunctive relief, disgorgement plus prejudgment interest, and civil monetary penalties against Diver.

After conducting a swift investigation, the Commission staff referred Diver’s misconduct to the U.S. Attorney’s Office for the Southern District of New York, which separately announced criminal charges against Diver today.  

The SEC’s investigation has been conducted by Gerald Gross, James Hanson, and Paul Gizzi of the New York Regional Office, and the litigation will be handled by Messrs. Gizzi and Hanson. The case is being supervised by Sanjay Wadhwa. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the U.S. Postal Inspection Service.

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.

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Securities Lawyer Blog: BB&T to Return More Than $5 Million to Retail Inve…

The Securities and Exchange Commission announced that BB&T Securities has agreed to return more than $5 million to retail investors and pay a $500,000 penalty to settle charges that a firm it acquired misled its advisory clients into believing they were receiving full service brokerage services in-house at a discount while significantly less expensive options were available externally.

According to the SEC’s order, Valley Forge Asset Management used misleading statements and inadequate disclosures about its brokerage services and prices to convince customers to choose the in-house broker. Despite promises of a high level of service at a low cost, the SEC’s order finds that Valley Forge did not provide any additional services to advisory clients using its in-house brokerage than it did to advisory clients who chose other brokerages with significantly lower commission rates. According to the order, Valley Forge charged commissions averaging roughly 4.5 times more than what clients would have paid using other brokerage options, and the firm obscured the price difference by claiming that it was giving clients a 70 percent discount off of its supposed retail commission rate..

BB&T to Return More Than $5 Million to Retail Investors

Mark Astarita has 30 years of experience representing investors, brokers and issuers in their securities regulatory and litigation matters, including SEC and FINRA proceedings, arbitrations, and due diligence in connection with public and private offerings and investments. For more information call Mark at 212-509-6544 or send an email to mja@sallahlaw.com

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Mobile TeleSystems Settles FCPA Violations

The Securities and Exchange Commission today announced that Russian telecommunications provider Mobile TeleSystems PJSC (MTS) will pay $100 million to resolve SEC charges that it violated the Foreign Corrupt Practices Act (FCPA) to win business in Uzbekistan.

According to the SEC’s order, MTS bribed an Uzbek official who was related to the former President of Uzbekistan and had influence over the Uzbek telecommunications regulatory authority.  During the course of the scheme, MTS made at least $420 million in illicit payments for the purpose of obtaining and retaining business.  The payments enabled MTS to enter the telecommunications market in Uzbekistan and operate there for eight years, during which it generated more than $2.4 billion in revenues.  In 2012, the Uzbek government expropriated MTS’s Uzbek operations.  As further described in the SEC’s order, the bribes were funneled to front companies controlled by the Uzbek official and were disguised in MTS’s books as acquisition costs, option payments, purchases of regulatory assets, and charitable donations. 

“The company engaged in egregious misconduct for nearly a decade, secretly funneling hundreds of millions of dollars to a corrupt official.  Building business on a foundation of bribery leaves the business and American investor interests at the mercy of corrupt officials,” said Charles E. Cain, Chief of the SEC Enforcement Division’s FCPA Unit.

MTS consented to the SEC’s order finding that it violated the anti-bribery, books and records and internal accounting control provisions of the Securities Exchange Act of 1934, and requiring it to pay a $100 million penalty.  In a related matter, MTS has entered into a deferred prosecution agreement with the U.S. Department of Justice and its subsidiary has pleaded guilty in federal court, and has agreed to pay a criminal fine and forfeiture in the amount of $850 million.  The Department is crediting the $100 million penalty that MTS is paying to the SEC.  The company must also retain an independent compliance monitor for at least three years. 

This is the third case brought by the SEC and the Department of Justice involving public companies operating in the Uzbek telecommunications market.  Taken as a whole, these actions have led to the recovery by U.S. and foreign authorities of $2.6 billion.

The Commission greatly appreciates the cooperation and assistance of the Department of Justice, Criminal Division, Fraud and Asset Forfeiture Money Laundering Sections, the Internal Revenue Service, the Department of Homeland Security, the Prosecution Authority of the Netherlands, the National Authority for Investigation and Prosecution of Economic and Environmental Crime in Norway (ØKOKRIM), the Swedish Prosecution Authority, the Office of the Attorney General in Switzerland, and the Corruption Prevention and Combating Bureau in Latvia.  Valuable assistance was also provided by regulatory and law enforcement colleagues in the United Kingdom, France, and Ireland, including the British Virgin Islands Financial Services Commission, the Cayman Islands Monetary Authority, the Bermuda Monetary Authority, the Central Bank of Ireland, the Paris Court of Appeals, the Serious Fraud Office, and the Financial Control Authority.

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.

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SEC Celebrates African American History Month with Presentation by Award-Winning Filmmaker

The Securities and Exchange Commission celebrated African American History Month with events in its Regional Offices and a presentation by scholar and award-winning filmmaker Dr. Henry Louis Gates, Jr. to discuss his latest documentary series, “Reconstruction: America After the Civil War,” at the agency’s headquarters in Washington, D.C. This year’s African American History Month theme, “Black Migrations,” focuses on the movement of African Americans throughout the United States from the early 20th century to today. 

Hosted by the SEC’s African American Council and the Office of Minority and Women Inclusion, Dr. Gates’ presentation culminated a month of events throughout the agency. Dr. Gates has written a number of books and created documentary films and educational programming, including “The African Americans: Many Rivers to Cross” and the television program, “Finding Your Roots with Henry Louis Gates, Jr.” 

In introducing Dr. Gates, Chairman Jay Clayton remarked, “I believe in our quest for a pluralistic and inclusive society where opportunity and support are broadly and fairly distributed and our past failures—particularly in the area of race—are faced head on and provide us with the tools to do better. It is people like Dr. Gates who give us that context and enable us to communicate better, who help us on this journey.”

During a discussion about the importance of expanding economic opportunity for everyone, Dr. Gates noted the larger implications of these efforts, “If people think that they have no hope, then they do hopeless things.” He added, “We have to reshape the economy such that people believe in the future again.”

Dr. Henry Louis Gates answered questions during a fireside chat with Chairman Jay Clayton and Glenn Hutchins, Chair of the Hutchins Center for African & African American Research at Harvard University.

Dr. Henry Louis Gates (center) answered questions during a fireside chat with Chairman Jay Clayton (left) and Glenn Hutchins (right), Chair of the Hutchins Center for African & African American Research at Harvard University.

Staff at the SEC’s headquarters in Washington, D.C. watch a presentation by Dr. Henry Louis Gates in honor of African American History Month.

Staff at the SEC’s headquarters in Washington, D.C. watch a presentation by Dr. Henry Louis Gates in honor of African American History Month.

The SEC also celebrated the important contributions of African Americans in law, culture, and history with events at its Regional Offices. 

The Atlanta Regional Office hosted Christy Garrison, teacher at Atlanta Metropolitan State College, Samuel T. Livingston, associate professor and director of the African American Studies Program at Morehouse College and Deryl Bailey, professor and admissions coordinator, Department of Counseling and Human Development Services in the University of Georgia’s College of Education for a program about the movements of Americans of African descent to new locations throughout the United States and the new economic and social realities they experienced. 

The staff of the Chicago Regional Office heard the fascinating history of gospel music from its beginnings to the present, along with recordings and sung examples, as explained by E. Patrick Johnson, PhD, Chair of the Department of African American Studies and Carlos Montezuma Professor of African American Studies and Performance Studies at Northwestern University.  The presentation included technical descriptions and demonstrations of musical characteristics of gospel music from its origins in nineteenth century hymns of the south through present day.  It explored melodic lines and harmonic structures that are indicative of past and modern day gospel music as well as its influences on modern day blues and jazz.  Dr. Johnson explained the use of syncopated instrumentation to the “worrying” of notes, made famous by gospel greats such as Aretha Franklin, Mahalia Jackson, Shirley Caesar, and the father of gospel music, Mr. Thomas Dorsey.

The New York Regional Office hosted Rob Fields, president and executive director of the Weeksville Heritage Center. He discussed the history of Weeksville, the second-largest slavery-free African American community in pre-Civil War America.

The Philadelphia Regional Office hosted Mark C. Alexander, Esq., dean and professor of law at Villanova University’s Charles Widger School of Law. Mr. Alexander shared experiences from his legal career and highlighted a few current legal issues in the election law arena.

“Thank you to all who contributed to the SEC’s celebration of African American History Month, particularly those at the African American Council and the Office of Minority and Women Inclusion,” said SEC Chairman Jay Clayton. “On a personal note, it was a great honor to host Dr. Henry Louis Gates Jr. and, in particular, to hear his insight about how our world has been shaped by matters of race and by economic circumstances, and that widely-distributed economic opportunity is important to the betterment of our society. This reminded all of us at the SEC of the significance of our responsibility to America’s investors.”

Dr. Henry Louis Gates (center) with Naseem Nixon and Olawale Oriola, Co-Chairs of the SEC’s African American Council.

Dr. Henry Louis Gates (center) with Naseem Nixon and Olawale Oriola, Co-Chairs of the SEC’s African American Council.

Pam Gibbs, Director of the Office of Minority and Women Inclusion, thanks Dr. Henry Louis Gates for his presentation with a certificate of appreciation from the SEC.

Pam Gibbs, Director of the Office of Minority and Women Inclusion, thanks Dr. Henry Louis Gates for his presentation with a certificate of appreciation from the SEC.

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.

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SEC Names Gabriel Benincasa As Its First Chief Risk Officer

The Securities and Exchange Commission today announced that Gabriel Benincasa has been named the Commission’s first Chief Risk Officer.  This position was created by SEC Chairman Jay Clayton to strengthen the agency’s risk management and cybersecurity efforts.

As Chief Risk Officer, Mr. Benincasa will coordinate the SEC’s continued efforts to identify, monitor, and mitigate key risks facing the Commission.  Working within the SEC’s Office of the Chief Operating Officer, he will also serve as a key adviser on other matters related to enterprise risks and controls.  Julie Erhardt, who had been serving as Acting Chief Risk Officer while the SEC completed its recruitment efforts, will return to her role as Deputy Chief Accountant for Technology and Innovation in the Commission’s Office of the Chief Accountant.

“Establishing the Chief Risk Officer position at the SEC is an important step forward in our continuing efforts to strengthen the agency’s risk management program,” said Chairman Jay Clayton.  “Gabe is an experienced senior leader with deep risk, legal, compliance, and financial markets expertise.  I am certain we will benefit from his advice and insights.  I also want to thank Julie for giving us a running start on this initiative.”

“I look forward to working with Gabe to maintain a robust risk management program at the agency,” said Ken Johnson, the SEC’s Chief Operating Officer.  “Gabe’s strong background in risk management positions him well to help the SEC continue to evaluate a wide range of current and emerging challenges, whether related to our markets, cybersecurity, or our own operations.”

Mr. Benincasa added, “It is an honor to serve America’s investors and markets as the SEC’s first Chief Risk Officer.  I look forward to joining the team and building upon existing programs to help the agency tackle current and future challenges.”

Mr. Benincasa brings to the SEC significant experience in senior leadership roles in risk and compliance in the financial sector. He began his legal career as an attorney at Davis Polk & Wardwell before working for Morgan Stanley and other financial firms. He has served in roles including as Director of Enterprise Risk Management and Vice Chair of the Risk Control Committee for a financial services holding company; Deputy Global Head of Operational Risk Management for an investment bank; General Counsel and Chief Compliance Officer for an institutional asset management company; and Global Head of Compliance for a financial technology company.

Mr. Benincasa is an attorney and a Certified Public Accountant. He earned his J.D. from Fordham Law School and a Bachelor’s in Business Administration from Baruch College.

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.

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SEC Modifies Timing for Filing Non-Public Form N-PORT Data to Align With Its Approach to Data Management and Cybersecurity

The Commission today modified the submission deadlines for registered investment companies filing non-public monthly reports on Form N-PORT. Form N-PORT is a new form for reporting both public and non-public fund portfolio holdings to the Commission in a structured data format.  As a result of today’s changes, rather than filing non-public monthly reports with the Commission within 30 days after each month-end, funds will be required to maintain the relevant information in their records and file all three monthly reports with the Commission no later than 60 days after the end of each fiscal quarter.  The non-public monthly reports on Form N-PORT for the first and second months of the fiscal quarter will remain non-public and the monthly report for the third month will become publicly available upon filing (with the exception of certain specific data items), rather than being filed non-publicly no later than 30 days after the end of the fiscal quarter and being made public 60 days after the end of the fiscal quarter.  

Importantly, the amount and timing of the information on Form N-PORT that will be made available to the public will not change. 

As part of its approach to data management and cybersecurity, the Commission periodically assesses whether alternatives exist that would allow the Commission to fulfill its mission while reducing the sensitivity of the data that it collects.  The Commission has determined that allowing funds to report this monthly data at quarter end – while not changing the amount or substance of the data – will allow the Commission to fulfill its mission while reducing its cyber risk profile.  

“I applaud the staff’s efforts to evaluate our data needs and cybersecurity risk profile and believe this revised approach to the receipt of new, non-public monthly Form N-PORT data enables the Commission to receive and analyze this new data while meaningfully reducing the sensitivity of that data at the time it is transmitted to the Commission,” said Chairman Jay Clayton. 

Filing Form N-PORT through the EDGAR system will begin in April 2019 for larger fund groups and in April 2020 for smaller fund groups.

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.

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SEC Names Vanessa Countryman Acting Secretary

The Securities and Exchange Commission today announced that Vanessa Countryman has been named Acting Secretary.  Ms. Countryman will replace Brent Fields, who is stepping down as Secretary effective March 11, 2019, to accept a position in the Commission’s Division of Investment Management.

For the past five years, Ms. Countryman has served as Chief Counsel in the Division of Economic and Risk Analysis (DERA), where she has actively participated in numerous significant rulemakings, ensuring the effective use of economic analysis across the agency. Between 2010 and 2012, Ms. Countryman served as Counsel to two SEC Commissioners, where she provided legal advice on regulatory and enforcement matters.

Within the SEC, the Office of the Secretary plays a central role in ensuring the effective processing of Commission business.  Office staff, among other things, review all documents submitted to the Commission, track documents submitted to the Commission, schedule Commission meetings in accordance with the Government in the Sunshine Act, maintain records of official Commission actions, and provide public notice of those actions on the SEC.gov website and in the Federal Register.

“I appreciate Vanessa’s willingness to step into the role of Acting Secretary during this time,” said SEC Chairman Jay Clayton. “Her deep knowledge of agency procedures and strong relationships with Commissioners and senior staff across the divisions and offices will help ensure the Commission continues to run smoothly.”

Ms. Countryman added, “It is a great honor to be asked to serve in this role. I look forward to working with and supporting the Office of the Secretary’s exceptional team to carry out the Commission’s work on behalf of investors.”

Prior to joining the SEC, Ms. Countryman practiced law at Gibson, Dunn & Crutcher LLP, representing clients in regulatory matters.

Ms. Countryman earned her J.D. from the University of Chicago.  She earned a Master’s degree from Oxford University and a B.A. from Columbia University.

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.

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