Online Currency Exchange Accused of Laundering $6 Billion

By James Kollar | Posted on

Saying it was the world’s largest international money laundering prosecution in history, federal authorities announced charges against the operators of Liberty Reserve, an online currency exchange that prosecutors say enabled more than a million people worldwide to launder about $6 billion.

The investigation of the Costa Rican based company involved law enforcement officials from 17 countries, highlighting the complexity and globalization of illicit financing systems that have gone digital. With Liberty Reserve, any user could open an online account from anywhere in the world, without providing identification, and then trade virtual currency anonymously through an easily accessible online banking infrastructure.

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Self-Regulatory Organization Rule Changes Part 1

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

This week, four proposed rule changes became effective for self-regulatory organizations.  The Miami International Securities Exchange LLC (MIAX) filed two of the adopted rule changes: 1) permitting the listing of additional strikes until the closing of trading on the second business day prior to expiration in unusual market conditions; and 2) expanding the number of expirations available under the Short Term Option Series Program.  The NASDAQ OMX PHLX LLC (Phlx) filed the other two adopted rule changes: 1) adopting a strategy fee cap applicable to jelly rolls; and 2) amending the Permit Fee and certain Options Trading Floor Fees, including a technical amendment to the Pricing Schedule. (more…)

SEC Charges Former Goldman Sachs Banker in Pay-to-Play Case

By James Kollar | Posted on

Last year the SEC charged Goldman Sachs & Co. and Neil Morrison, one of its former investment bankers, with “pay-to-play” violations involving undisclosed campaign contributions to then-Massachusetts state treasurer Timothy P. Cahill while he was a candidate for governor.

Pay-to-play schemes involve campaign contributions or other payments made in an attempt to influence the awarding of lucrative public contracts for securities underwriting business.

While Goldman Sachs had already agreed to settle its charges last year, only recently did Morrison agree to a settlement. Without admitting or denying wrongdoing, Morrison agreed to pay $100,000 and receive a ban from the securities industry for five years.

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Weekly News Update: SEC Enforces FCPA and Regulates Shell Companies

By James Kollar | Posted on

Recently, the Securities and Exchange Commission charged France-based oil and gas company Total S.A. with violating the Foreign Corrupt Practices Act (FCPA) by paying $60 million in bribes to an Iranian government official. The official then exercised his influence to help the company obtain valuable contracts to develop significant oil and gas fields in Iran. The SEC alleges that the company profited more than $150 million through the bribery scheme. Total S.A. attempted to cover their illegal payments by entering into phony consulting agreements with the intermediaries of the Iranian official and concealing the bribes in its records as legitimate business expenses relating to these consulting agreements. Total S.A., whose securities are publicly traded on the New York Stock Exchange, agreed to pay more than $398 million to settle the SEC’s charges and a parallel criminal matter from the U.S. Department of Justice. The SEC’s order requires the oil company to pay $153 million in illegal profits and retain an independent consultant to review and report the company’s compliance with the FCPA. In the parallel criminal proceedings, Total S.A. agreed to pay a $245.2 million penalty as part of a deferred prosecution agreement.

The Securities and Exchange Commission has halted trading in the securities of 61 empty shell companies in the second-largest trading suspension in history. The suspension is part of the SEC’s ongoing “Operation Shell Expel” crackdown against the manipulation of microcap shell companies that the agency sees as ripe for fraud as the companies lay dormant in the over-the-counter market. The SEC is looking to thwart so-called pump and dump schemes which are among the most common types of fraud involving empty shell companies. By suspending the trading in these companies it obligates them to provide updated financial information to prove they are still operational, essentially rendering them useless to scam artists. This latest round of suspensions follows one under the same operation last year, in which 379 companies were suspended by the SEC before they could be manipulated for fraudulent activity to harm investors.

Sallie Mae to Split into Two Companies

By Luke Burton, J.D. Candidate 2015 | Posted on

Sallie Mae recently announced that it will split into two companies: one to handle the servicing of federal student loans and the other to handle the origination of private student loans. Each company will be publicly traded and the split is expected to be complete within 12 months.

Currently, the company that will service federal student loans will control the majority of Sallie Mae’s pre-split assets. However, Sallie Mae’s split sends strong signals that the lending giant is most interested in the future market for private student loans. (more…)

The Role of Managers in Corporate Tax Avoidance

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

A recent article by Dan Amiram, Andrew M. Bauer, and Mary Margaret Frank examines the issue of corporate tax avoidance as a product of incentives.  The authors suggest that “corporate tax avoidance by managers is driven by the alignment of their interest with shareholders.”*  The tax role of the manager is made clear by studying the “effects of corporate tax avoidance on shareholders’ after-tax cash flows” in both classical tax systems and imputation tax systems.  The authors conclude that there is higher corporate tax avoidance in classical tax systems if managerial and shareholder interests are closely aligned. (more…)

SEC Fines NASDAQ Over Botched Facebook IPO

By James Kollar | Posted on

As a result of Facebook’s initial public offering (IPO) mishap last year, the SEC has charged NASDAQ with securities laws violations resulting from its poor systems and decision-making in handling the IPO and secondary market trading of Facebook shares. In order to settle the SEC’s charges, NASDAQ has agreed to pay a $10 million penalty – the largest ever against an exchange.

Exchanges such as NASDAQ have an obligation to ensure that their systems, processes, and contingency planning are adequate to manage an IPO without disruption to the market.  However, despite the anticipation that the Facebook IPO would be among the largest in history, NASDAQ failed to address a design limitation in their system that matched buy and sell orders, causing disruptions to the Facebook IPO. These disruptions then led NASDAQ to make a series of ill-fated decisions that led to the rules violations.

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SEC Proposes Cross-Border Security-Based Swap Rules

By Davis Polk & Wardwell LLP | Posted on

[Editor’s Note: The following Post is authored by Davis Polk & Wardwell LLP]

On May 1, 2013, the Securities and Exchange Commission took long awaited action to propose rules governing cross-border activities in security-based swaps. The SEC’s proposal, developed over the course of more than two years, reflects a holistic approach that differs in key respects from that taken by the Commodity Futures Trading Commission with respect to transnational swap activities (the “CFTC Proposal”). In light of the far-ranging significance of its cross-border proposal, the SEC has reopened comment periods for many of its previously proposed security based swap regulations and its policy statement on the sequencing of compliance with these rules.

The comment period for the proposed cross-border rules ends 90 days after publication in the Federal Register. The comment period for the previously proposed rules and policy statement ends 60 days after publication in the Federal Register.

This memorandum provides an overview of key provisions of the SEC’s proposal, highlighting the most important differences from the CFTC Proposal. We focus on those provisions of the SEC’s proposal that address the regulation of security-based swap dealers and security-based swap end users, but we note that the SEC’s proposal also addresses the cross-border regulation of clearing agencies, security-based swap data repositories, and security-based swap execution facilities.

To read the complete story, click here.

Weekly News Update: Bank Violations and Protecting Confidential Information

By James Kollar | Posted on

Last year the $25 billion National Mortgage Settlement meant to end mortgage servicing abuses was announced by federal and state officials; however, there is mounting evidence that not all the involved banks are living up to their commitment. The five banks involved with the settlement are Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, and Ally Financial Inc. In a recent letter, New York Attorney General Eric Schneiderman claims that Bank of America and Wells Fargo are violating the terms of the settlement. Schneiderman states that the two banks have committed a combined 339 violations of servicing standards, including deliberate delays by Wells Fargo and Bank of America to reviewing loan modification applications, a practice reminiscent of the “same misconduct that precipitated the National Mortgage Settlement.” Schneiderman has plans to sue both banks for failing to uphold their obligations under the settlement. However, in a letter to Schneiderman, Bank of America responded that they cannot be sued since they have not been given ample time to remedy their alleged violations. Both Bank of America and Wells Fargo say they remain committed to the terms of the settlement and deny that they have committed violations.

According to a recent story published by Corporate Crime Reporter, the proxy advisory services firm Institutional Shareholder Services (ISS) was fined by the SEC for failing to prevent one of its employees from distributing confidential material. In exchange for information revealing how more than 100 ISS institutional shareholder advisory clients were voting their proxy ballots,  the employee, who no longer works at ISS, received expensive tickets to concerts and sporting events, meals, and an airline ticket. The SEC investigation revealed that ISS lacked sufficient controls over access to confidential client vote information, allowing for the employee to gather the data. As a result of the failure of ISS to protect its confidential information, the SEC has required ISS to pay a $300,000 penalty and allow for an independent compliance consultant to review its procedures and ensure they comply with the Investment Advisers Act’s requirements for treatment of confidential information.