1. SIFMA Guidance on Accredited Investor Verification
Last week, the Securities Industry and Financial Markets Association (SIFMA) issued guidance to registered broker-dealers and investment advisers on some accredited investor verification methods. The guidance includes a form of a Rule 506(c) accredited investor questionnaire as well as a form of written confirmation.
2. SEC Announces Fraud Charges Against Three Former Regions Bank Executives in Accounting Scheme
The Securities & Exchange Commission announced fraud charges against three former senior managers of Regions Bank for intentionally misclassifying loans that should have been recorded as impaired for accounting purposes. The SEC also entered into a deferred prosecution agreement with Regions Financial Corp., which substantially cooperated with the agency’s investigation and undertook extensive remedial actions. Regions will pay a total of $51 million to resolve parallel actions by the SEC, Federal Reserve Board, and Alabama Department of Banking.
3. SEC Charges Former Brokers with Trading Ahead of IBM-SPSS Acquisition
The SEC charged two additional brokers with trading on inside information ahead of the $1.2 billion acquisition of SPSS Inc. in 2009 by IBM Corporation. The SEC alleged that former brokers Benjamin Durant III and Daryl M. Payton 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 broker-dealer. The SEC complaint, filed in federal court in Manhattan, seeks return of alleged ill-gotten trading gains of approximately $300,000, with interest, financial penalties, and permanent injunctions. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Durant and Payton. The SEC previously charged that Conradt and David J. Weishaus, another fellow broker and tippee, traded on confidential information that Conradt received from his roommate, Trent Martin, a research analyst who misappropriated it from an attorney working on the transaction. Martin, Conradt, and Weishaus settled with the SEC and pled guilty last year to related criminal charges in the matter.
4. SEC Adopts Cross-Border Security-Based Swap Rules
The SEC adopted the first of a series of rules and guidance on cross-border security-based swap activities for market participants. The new rules will be key to finalizing the remaining proposals. The rules will be effective 60 days after their publication in the Federal Register.
5. SEC Charges Hedge Fund Advisory Firm and Others in South Florida-Based Scheme to Misuse Investor Proceeds
The SEC charged a West Palm Beach, Fla.-based hedge fund advisory firm and its founder with fraudulently shifting money from one investment to another without informing investors. The firm’s founder and another individual later pocketed some of the transferred investor proceeds to enrich themselves.
6. SEC to Bring More Insider Trading Cases in Administrative Proceedings?
As noted in a recent Reuters article, the SEC is looking to bring more insider trading cases “as administrative proceedings in appropriate cases,” Andrew Ceresney, head of the SEC enforcement division, told the District of Columbia Bar. “We have in the past. It has been pretty rare. I think there will be more going forward.”
7. The SEC’s First Whistleblower Retaliation Case
The SEC has brought its first whistleblower retaliation case against Paradigm Capital Management, Inc. for engaging in prohibited principal transactions and then retaliating against the employee who reported the trading activity to the SEC. This is the first time the SEC has filed a case under its new authority to bring anti-retaliation enforcement actions. The SEC also charged the firm’s owner with causing the improper principal transactions.
8. PCAOB Adopts “Related Parties & Unusual Transactions” Auditing Standard
The PCAOB recently adopted Auditing Standard #18 that expands audit procedures required to be performed with respect to three important areas: (1) related party transactions; (2) significant unusual transactions; and (3) a company’s financial relationships and transactions with its executive officers. The standards also expand the required communications that an auditor must make to the audit committee related to these three areas. They also amend the standard governing representations that the auditor is required to periodically obtain from management. The standard and amendments require SEC approval. If approved, they will become effective for audits of financial statements for fiscal years beginning on or after December 15, 2014, including reviews of interim financial information and may be revised for small reporting companies.
9. SEC Charges Bitcoin Entrepreneur With Offering Unregistered Securities
The SEC announced that is has charged the co-owner of two Bitcoin-related websites for publicly offering shares in the two ventures without registering them. A SEC investigation found that Erik T. Voorhees published prospectuses on the Internet and actively solicited investors to buy shares in SatoshiDICE and FeedZeBirds. But he failed to register the offerings with the SEC as required under the federal securities laws. Investors paid for their shares using Bitcoin, a virtual currency that can be used to purchase real-world goods and services and exchanged for fiat currencies on certain online exchanges. The profits ultimately earned by Voorhees through the unregistered offerings totaled more than $15,000.