Selected Enforcement Actions
SEC charges charter school operator with bond fraud. The SEC charged a charter school operator in Chicago with defrauding investors in a US$37.5 million bond offering for school construction by making materially misleading statements about transactions that presented a conflict of interest. The SEC alleged that UNO Charter School Network Inc. and United Neighborhood Organization of Chicago not only failed to disclose a multi-million-dollar contract with a windows company owned by the brother of one of its senior officers, but investors also were not informed about the potential financial impact the conflicted transaction had on its ability to repay the bonds. Without admitting or denying the allegations, UNO settled the charges by agreeing to undertakings to improve its internal procedures and training, including the appointment of an independent monitor. (6/2/2014) SEC press release.
SEC emergency action against transfer agent. The SEC announced fraud charges and an emergency asset freeze against an Illinois-based transfer agent and its owner whose misappropriation scheme was exposed during an SEC examination of the firm. The SEC alleges that IST Shareholder Services and Robert G. Pearson were misusing money belonging to their corporate clients and the clients’ shareholders in order to fund their own payroll and business obligations. Pearson admitted to the scheme during questioning by SEC examiners, and the agency subsequently filed an emergency action to obtain an asset freeze and place control of the firm under a third-party receiver appointed by the court. (5/28/2014) SEC press release.
Attorney settles insider trading charges. The SEC instituted settled administrative proceedings against Christopher D. Wiest for engaging in insider trading. Without admitting or denying the allegations, Wiest consented to the entry of an order finding that as an attorney working for a law firm retained by Stanley Black & Decker, Inc., he was asked to prepare documents related to Stanley’s planned acquisition of InfoLogix, Inc. Wiest then used information he learned about the acquisition to purchase InfoLogix shares. Wiest will pay a total of US$117,706.97 in disgorgement, interest, and penalties to settle this matter. (5/13/2014) In the Matter of Christopher D. Wiest, SEC Release No. 34-72155.
Proxy advisory firm disclosures. The Law Blog reported that the SEC will soon issue new disclosure guidance for proxy advisory firms. (6/3/2014) Disclosure.
Conflict mineral filings. The Guardian reviewed the conflict mineral disclosure forms submitted by issuers to the SEC as the June 2, 2014 filing deadline approached. (6/2/2014) Filings.
Staff propose investor tool. A member of the SEC’s Division of Economic and Risk Analysis wrote a paper introducing a computing tool aimed at helping individuals better assess the risk and return characteristics of their investments. (5/30/2014) White paper.
Commissioner remarks on public pensions. The issues faced by the municipal securities markets were the subject of a recent speech given by SEC Commissioner Daniel M. Gallagher. The threats posed by underfunded state and local pension plans and the need for major disclosure reforms were emphasized. (5/29/2014) Gallagher speech.
Regulation FD. Ohio State law professor Steven M. Davidoff’s comments concerning Regulation FD were published by DealBook. (5/28/2014) Shortcomings.
SEC admissions policy and compliance. Andrew Ceresney, the Co-Director of the SEC’s Enforcement Division, summarized the enforcement cases in which the agency sought admissions and addressed the role of legal and compliance offices. The Division will bring actions against legal and compliance officers when it believes they have affirmatively participated in misconduct, helped mislead regulators, or when they have clear responsibility to implement compliance programs or policies and failed to fulfill that responsibility. (5/20/2014) Ceresney speech.
Individual liability under Exchange Act Section 20(b). SEC Chair Mary Jo White recently discussed a new approach to charging individuals, the employment of Section 20(b) of the Securities Exchange Act. Section 20(b) imposes primary liability on a person who, directly or indirectly, does anything “by means of any other person” that would be unlawful for that person to do on his or her own. The agency will focus on Section 20(b) charges where individuals have engaged in unlawful activity but attempted to insulate themselves from liability by avoiding direct communication with the defrauded investors. White said: “It is potentially a very powerful tool that can reach those who have participated in disseminating false or misleading information to investors through offering materials, stock promotional materials, or earnings call transcripts, but who might not be liable under Rule 10b-5(b).” (5/19/2014) White speech.