September 27, 2011

SEC Charges Unregistered Investment Adviser with Fraud

The SEC brought administrative charges against Shreyans Desai and ShreySiddh Capital, LLC (SSC) alleging fraudulent conduct by Desai in connection with the purchase and sale of securities for individuals who provided Desai with more than $245,000 to invest on their behalf.  According to the SEC, from April 2009 to February 2011, Desai, acting through SSC, an unregistered investment adviser founded by Desai, made numerous materially false and misleading statements to potential investors, including that SSC was a securities broker registered with the SEC and that potential investors would receive returns of at least 50% if they invested their money with SSC. Desai also guaranteed to investors that he would not lose their money. On the basis of Desai’s misrepresentations, five individuals gave Desai money to invest on their behalf through SSC. Desai then misappropriated investor money, using it to, among other things, make donations to a local religious institution and pay the personal debts and expenses of Desai’s family members. Desai also lost investor money through bad trades. To hide the fact that Desai had misappropriated or lost investor money, the SEC stated that Desai provided SSC investors with account statements that overstated the value of the investors’ accounts by as much as 300%.

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September 27, 2011

Kara Novaco Brockmeyer Named Chief of FCPA Unit

The SEC named Kara Novaco Brockmeyer as Chief of its Foreign Corrupt Practices Act Unit, which focuses on violations of the anti-bribery provisions of the federal securities laws.  Ms. Brockmeyer has been serving as an Assistant Director in the SEC’s Enforcement Division and supervising a number of complex investigations involving violations of the Foreign Corrupt Practices Act (FCPA).  That law prohibits U.S. companies from bribing foreign officials to obtain government contracts and other business.

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September 27, 2011

FINRA and Various Exchanges Propose Revised Circuit Breakers Addressing Market Volatility

The SEC announced that the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) are filing proposals to revise existing market-wide circuit breakers that are designed to address extraordinary volatility across the securities markets.  When triggered, these circuit breakers halt trading in all exchange-listed securities throughout the U.S. markets.

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September 27, 2011

Adviser Charged with Improper Actions During an Examination

The SEC charged Kurt Hovan, a San Francisco-area investment adviser, with fraud for lying to clients about how brokerage commission rebates were being used and producing fictitious documents to cover up the fraud during an SEC examination.  The SEC also charged his wife Lisa Hovan and his brother Edward Hovan for their roles in the fraudulent scheme at Hovan Capital Management (HCM).

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September 23, 2011

Consolidation of Office of the Executive Director with Office of the Chief Operating Officer

The SEC is amending its rules to reflect the consolidation of the SEC’s Office of the Executive Director with the SEC’s Office of the Chief Operating Officer, including amendments to replace references to the Executive Director with references to the Chief Operating Officer. Please click here to access…

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September 22, 2011

Money Manager’s Fraud Charge Compounded by Failure to Timely Disclose Fraudulent Acts

The SEC charged Barr M. Rosenberg, the co-founder of institutional money manager AXA Rosenberg, with fraud. The SEC alleges that the Rosenberg created the quantitative investment model used by AXA Rosenberg’s affiliated investment advisers for use in managing client assets, oversaw research projects to improve and enhance that model, and exercised significant authority throughout the AXA Rosenberg organization. In June 2009, Rosenberg learned of a significant error in the computer code of the quantitative investment model that disabled one of the model’s key components for managing risk and affected the model’s ability to perform as expected. Clients raised concerns about this underperformance, and Rosenberg knew about and discussed these concerns with others at AXA Rosenberg. But instead of disclosing and correcting the error immediately, Rosenberg directed others to conceal the error and declined to fix the error.  According to the SEC, Rosenberg’s efforts to contain knowledge of the error continued through early October 2009, when he denied the existence of any significant errors in the model during a board meeting discussion about the model’s performance. Knowledge of the error was kept from AXA Rosenberg’s Global CEO until November 2009 and was disclosed to clients in April 2010.

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September 21, 2011

SEC Charges Father and Son With Insider Trading

The SEC charged Spencer D. Mindlin and his father, Alfred C. Mindlin, with insider trading. The SEC’s Division of Enforcement alleges that Spencer Mindlin conveyed material nonpublic information that he obtained in the course of his duties as an employee of Goldman, Sachs & Co. to his father, Alfred Mindlin. Spencer and Alfred Mindlin then traded based on this information in a brokerage account in the name of a family member and in Alfred Mindlin’s brokerage account.

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September 19, 2011

SEC Proposes Rule to Prohibit Conflicts of Interest in ABS Transactions

SEC voted to propose a rule intended to prohibit certain material conflicts of interest between those who package and sell asset-backed securities (ABS) and those who invest in them.

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September 19, 2011

Deputy Director of SEC Division of Trading and Markets to Leave SEC

SEC announced that James Brigagliano, a Deputy Director of the Division of Trading and Markets, will leave the SEC at the end of September after 25 years of public service.

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September 19, 2011

Labor Department to Repropose 401(k) Rule

The U.S. Department of Labor (Labor Department) withdrew its proposal to subject financial professionals to a higher standard of care when advising companies on their retirement plans.  The Labor Department, which has jurisdiction over retirement plans, said it will repropose the rule early next year. As currently written, the rule would have imposed a fiduciary standard that requires brokers and other advisers to put their clients' interests first as opposed to merely providing suitable advice. The pension plan proposal also would have forced big brokerage firms to decide whether to limit their brokers from working with corporate retirement plans. The Labor Department rule would not only limit brokers' ability to recommend their companies' own products to employers but prohibit them from collecting commissions from investment companies when employees purchase their funds or other retirement plan products without providing extensive disclosure.

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