Among recent enforcement actions by the SEC were charges of defrauding investors against a school district and the municipal bond writer that underwrote the district's bond offering; charges against two investment advisory firms for best execution failures; insider trading against the former CEO of an investor relations firm and, in another case, against two officials in Spain.
The Federal Energy Regulatory Commission won a $410 million settlement from JP Morgan after issuing a notice of alleged violations concerning the bank's activities in the energy market; and the Labor Department stepped in against Kentucky-based plan fiduciaries, alleging improper use of funds.
Indiana School District and Muni Bond Writer Charged With Investor Fraud
The SEC has charged West Clark Community Schools and Indianapolis-based City Securities Corp. with falsely stating to bond investors that the school district had been properly providing annual financial information and notices required as part of its prior bond offerings.
In a 2007 official statement prepared for a bond offering by West Clark that was to be underwritten by City Securities, the school district said it was in compliance with disclosure obligations related to prior bond offerings. However, West Clark had never submitted required annual reports or notices for a 2005 bond offering, and City Securities did not conduct adequate due diligence to discover this in the course of the 2007 offering.
The SEC also charged Randy Ruhl, head of City Securities' public finance and municipal bond department, for the misconduct involving West Clark's disclosures. The agency also found that City Securities and Ruhl gave improper gifts and gratuities, such as multi-day golf trips and sports tickets, to representatives of municipal bond issuers, and then charged these and other expenses back to the issuers disguised as costs for "printing, preparation and distribution of official statements."
City Securities has agreed to pay nearly $580,000 to settle the SEC's charges. Ruhl and West Clark also agreed to settlements; Ruhl's includes not only a one-year collateral bar and a permanent supervisory bar but also disgorgement and prejudgment interest of $20,320 as well as a penalty of $18,155.
Two Investment Advisory Firms Charged With Best Execution Failures
In two separate investigations, New York-based A.R. Schmeidler & Co. (ARS), which is dually registered as an investment adviser and a broker-dealer, and Gregory Goelzer and his Indianapolis-based dually registered firm Goezler Investment Management (GIM), have been charged with failing to seek best execution on client trades placed with their in-house brokerage divisions.
In the first case, the SEC found that ARS failed to re-evaluate whether it was providing best execution for its advisory clients when it negotiated more favorable terms with its clearing firm. As a result, ARS retained a greater share of client commissions. The firm failed to implement policies and procedures reasonably designed to prevent its best execution violations. ARS has agreed to pay more than $1 million to settle the charges.
In the second case, Goelzer and GIM made misrepresentations in the firm's Form ADV about the process of selecting itself as broker for advisory clients. GIM failed to seek best execution for its clients by neglecting to conduct the comparative analysis of brokerage options described in its Form ADV, and recommended itself as broker for its advisory clients without evaluating other introducing-broker options as the firm represented it would. Goezler and GIM agreed to pay nearly $500,000 to settle the charges.
Investor Relations Exec Charged With Insider Trading by SEC
Stephen Gray, the former CEO of a Houston-based investor relations firm, was charged by the SEC with insider trading of at least six of his firm's clients' securities.
Gray was privy to inside information, since his firm worked with companies to draft and publish press releases announcing quarterly and annual earnings, mergers and acquisitions, and other major events. Asked by employees for advice on the preparation of these documents, he came by inside information–and when it didn't come unsolicited, Gray asked for it. He also sometimes met directly with clients to discuss confidential information.
He opened a trading account in September of 2009 and used inside information about clients that included The Men's Wearhouse and Powell Industries to take in profits and avoid losses of more than $313,000 during a 13-month period. When his firm found out he was being investigated by the SEC last October, he was fired.
The SEC seeks a final judgment ordering him to disgorge all ill-gotten gains with prejudgment interest and pay financial penalties, as well as permanent injunctive relief.
Santander Official, Judge in Spain Charged With Insider Trading
