Prudential Regime For UK Investment Firms | Compliance Consulting

The Compliance and Regulatory Consulting practice highlights various news and enforcement matters from the third quarter of 2020.

Final Regulations for the California Consumer Privacy Act

On August 14, 2020, the California Attorney General announced final regulations for the California Consumer Privacy Act (CCPA). California consumer are reminded of the following new privacy rights they have:

  • The right to know about the personal information a business collects about them and how it is used and shared;
  • The right to delete personal information collected from them (with some exceptions);
  • The right to opt-out of the sale of their personal information; and
  • The right to non-discrimination for exercising their CCPA rights.

These regulations are effective immediately. Frequently asked questions can be found here.

Read more here.

SEC Charges New Jersey Man and His Private Company with Fraud

On July 1, 2020, the SEC announced charges against a New Jersey resident and his private firm for defrauding investors. Over a two-year period, defendants raised over $900,000 from investors who purchased shares in what they believed was a cosmetics firm. The SEC alleges that the New Jersey resident defrauded investors by falsely claiming to have the ability to acquire cosmetics at a discount. The claims were false, and the New Jersey resident allegedly used investor funds for his own benefit.

The SEC's complaint, filed in federal district court in Newark, New Jersey, charges the New Jersey man and his private company with violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking a final judgment ordering permanent injunctive relief, disgorgement plus prejudgment interest thereon and civil monetary penalties.

Read the SEC complaint here.

SEC Charges Pharmaceutical Company with FCPA Violations

On July 2, 2020, the SEC announced that a Boston-based pharmaceutical company has agreed to pay more than $21 million to resolve charges that it violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA).

From 2010 to 2015, the SEC order claims that a subsidiary of the pharmaceutical company paid Turkish government officials to improperly influence them to approve patient prescriptions and provide other favourable regulatory treatment. The subsidiary maintained false books and records of these payments, which the subsidiaries internal accounting controls were not sufficient to detect or prevent. “Companies in frequent contact with foreign officials need to ensure that their internal controls appropriately address such risks,” said Melissa Hodgman, an Associate Director in the SEC’s Division of Enforcement.

Read the SEC order here.

CFTC Charges Florida Man for Attempting to Fraudulently Profit From COVID-19

The CFTC announced on July 8, 2020 that it has filed a complaint against a Florida resident, charging him with fraudulent solicitation and failure to register with the CFTC. The Florida resident is also charged with falsely claiming to generate increased profits as a result of the COVID-19 pandemic. This is the first enforcement action brought by the CFTC alleging misconduct tied directly to the pandemic.

The complaint alleges that the Florida man used social media platforms to market himself as a highly successful foreign currency trader who earned “average monthly returns of 8% - 11.” As alleged, the Florida man has no U.S.-based foreign currency trading accounts. The complaint also alleges that the man claimed to earn even greater trading profits now that the COVID-19 pandemic has impacted financial markets, claiming that “the returns in forex continue to grow as the rest of the financial world continues to suffer.”

Read the CFTC complaint here.

SEC Charges Lobbyist with Defrauding Investors

On July 17, 2020 the SEC charged a political lobbyist and a CEO with conducting a fraudulent offering of AML Bitcoin. The SEC alleges that the CEO raised more than $5.6 million from 2,400 investors by falsely claiming AML Bitcoin to be a superior digital asset to the original Bitcoin. The SEC complaint alleges that none of the touted capabilities of AML Bitcoin existed and its blockchain is still in early developmental stages. “We allege that these defendants repeatedly misled investors into funding non-existent technology, falsely claiming that the technology would make digital asset transactions more secure,” said Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit. “Investors are entitled to truthful information so they can make fully informed investment decisions.”

The SEC complaint charges the lobbyist and CEO with violating the antifraud and securities registration provisions of the federal securities laws.

Read the SEC complaint here.

SEC Charges Former IT Manager of a Biotech Company with Insider Trading

On July 21, 2020, the SEC reached a settlement with a former IT manager of a biotech company and his cousin for allegations of insider trading. According to the SEC order, the IT manager became aware of material, non-public information regarding the delay of a clinical trial. The IT manager sold 1,439 shares of the biotech company’s stock less than an hour before the company announced the delays. The order finds that by selling his shares before the announcement, the IT manager avoided losses of $2,863.

The SEC's orders find that the manager violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

Read the SEC order here.

SEC Charges Affiliated Investment Advisers for Material Misstatements Concerning Payments Received

On August 5, 2020, the SEC charged two affiliated investment advisers for material misstatements concerning payments the advisers received for sending client orders to other brokerage firms for execution. The advisers assured certain institutional clients that these “payments for order flow” arrangements did not affect the prices at which the clients’ orders were executed. These statements were misleading because the brokerage firms that executed the clients’ trades did in fact adjust execution prices to account for the payment for order flow arrangements.

The SEC’s orders that the advisers wilfully violated Section 206(2) of the Advisers Act. The advisers were collectively fined for $1,000,000.

Read the SEC order here.

SEC Charges Private Equity Firm with Misallocation of Costs and Expenses

On August 7, 2020, the SEC charged a private equity firm with misallocating costs and expenses of third-party tasks to funds it managed that should have been allocated to related co-investment vehicles the firm managed. The firm disclosed and allocated certain costs and expenses relating to its performance of “third-party tasks” for two real estate private equity funds, including asset-level due diligence, accounting, valuation and other similar services that are typically performed for funds by outside professionals but may be performed in-house by the adviser to the fund.

This resulted in the firm charging more than their pro rata share of costs and expenses to the funds. In addition, the firm failed to properly disclose cost of expenses to the fund advisory committees.

The firm was censured and ordered to pay a $350,000 fine.

Read the SEC order here.

SEC Charges Broker-Dealer for Failure to Implement Written Supervisory Procedures

On August 10, 2020, the SEC charged a broker-dealer for ignoring or failing to recognize numerous red flags, failing to properly investigate certain conduct as required by its written supervisory procedures, and ultimately failing to file SARs.

The CFTC simultaneously settled charges against the broker-dealer, also a registered futures commission merchant, for failing to diligently supervise its officers’, employees’, and agents’ handling of several commodity trading accounts and failing to adequately implement procedures to detect an report suspicious transactions as required under federal AML laws and regulations (see Release 8218-20).

The firm was ordered to pay a $11,500,000 fine to the SEC, and fines to FINRA and the CTF, for a total of $38,000,000 in fines.

Read the SEC order here.

SEC Charges Former Principal of Investment Adviser with Data Manipulation and Valuation Fraud

On August 11, 2020, the SEC charged a former principal of an investment adviser for manipulating payments for his funds’ investment in loams made by an online small business lender. The formal principal directed the lender to make payments to the funds, which gave the false impression that underlying borrowers were making principal payments on what were actually delinquent loans that should have been fully marked down but were not because of the payments engineered. As a result, the firm allegedly collected more that $5-6 million in extra management and performance fees from the fund.

Read the SEC order here.

SEC Obtains Final Judgment Against Former Investment Banker for Insider Trading

On August 12, 2020, the SEC obtained a final judgement against a former investment banker in a $1.1 million insider trading scheme. The former banker illegally tipped his father about future mergers and acquisitions involving clients of two investment banks for which he worked. His father cashed in on the tips by placing trades himself and by recruiting a partner to place trades ahead of the public announcement of these corporate transactions. All parties were criminally charged. The former investment banker was sentenced to two years’ imprisonment; his father and his father’s partner pled guilty to criminal charges and agreed to settle the SEC’s civil charges against them.

Read More here.

SEC Charges Pharmaceutical Company Founder with Insider Trading

On August 25, 2020, the SEC charged the founder and former board member of a pharmaceutical company for communicating MNPI ahead of an acquisition to be made by another pharmaceutical company. As a result of these actions, his friends and family realized ill-gotten gains of $300,000.

Read More here.

CFTC Fines Commodities Futures Exchange and Two Former Employees for Disclosing MNPI

On August 4, 2020, the CFTC entered in a consent order resolving charges against a commodities futures exchange and two former employees for disclosing MNPI. The order found numerous occasions between 2008 and 2010 where the two employees willingly disclosed MNPI obtained through special access. The two employees improperly disclosed crude oil options and natural gas futures trades to a commodities broker including trade details such as price and volume, and other confidential information.

The commodities futures exchange and two former employees were ordered to pay a $4,000,000 fine.

Read more here.

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