Friday 21 December 2018

SEC Charges Former Staffer with Securities Fraud

SEC Charges Former Staffer with Securities Fraud

The Securities and Exchange Commission charged a former employee with securities fraud in connection with his trading of options and other securities.

The SEC’s complaint alleges that David R. Humphrey, who worked at the SEC from 1998 to 2014, concealed his personal trading from the SEC’s ethics office and later misrepresented his trading activities to the SEC’s Office of Inspector General when questioned during an investigation.

“As alleged in our complaint, Humphrey never sought pre-clearance for his prohibited options trades and he filed forms that falsely represented his securities holdings,” said Gerald W. Hodgkins, Associate Director in the SEC’s Division of Enforcement.

SEC employees are subject to rigorous rules regarding securities transactions to guard against even the appearance of using public office for private gain.  The ethics rules specifically prohibit trading in options or derivatives.  The rules also require staff to disclose their securities holdings and transactions to the agency’s ethics office in annual filings.

According to the SEC’s complaint, Humphrey violated the rules by engaging in transactions involving derivatives, failing to obtain pre-clearance before trading non-prohibited securities, and failing to hold securities for the required period.

The SEC’s complaint charges Humphrey with violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act.  Humphrey has agreed to settle the charges and pay $51,917 in disgorgement of profits made in the improper trades plus $4,774 in interest and a $51,917 penalty.  Humphrey also agreed to be permanently suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.  The settlement is subject to court approval.

In a parallel action, the Department of Justice today announced that Humphrey has pleaded guilty to criminal charges stemming from his false federal filings.

The SEC’s investigation was conducted by Gary M. Zinkgraf and Tom Bednar, and the case was supervised by Jeffrey Weiss.  The SEC appreciates the assistance of the U.S. Department of Justice’s Fraud Section.

SEC CHARGES BROKERAGE FIRM WITH FAILING TO COMPLY WITH ANTI-MONEY LAUNDERING LAWS

The Securities and Exchange Commission today charged a Salt Lake City-based brokerage firm with securities law violations related to its alleged practice of clearing transactions for microcap stocks that were used in manipulative schemes to harm investors.

To help detect potential securities law and money laundering violations, broker-dealers are required to file Suspicious Activity Reports (SARs) that describe suspicious transactions that take place through their firms.  The SEC’s complaint alleges that Alpine Securities Corporation routinely and systematically failed to file SARs for stock transactions that it flagged as suspicious.  When it did file SARs, Alpine Securities allegedly frequently omitted the very information that formed the bases for Alpine knowing, suspecting, or having reason to suspect that a transaction was suspicious.  As noted in the complaint, guidance for preparing SARs from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) clearly states that “explaining why the transaction is suspicious is critical.”

“As alleged in our complaint, by failing to file SARs, Alpine Securities deprived regulators and law enforcement of critically important information often related to trades in microcap securities used to investigate potentially serious misconduct,” said Julie Lutz, Director of the SEC’s Denver Regional Office.

The SEC’s complaint charges Alpine Securities with thousands of violations of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8.

The SEC’s investigation was conducted by L. James Lyman and Ian S. Karpel of the Denver Regional Office with assistance from Daniel J. Goldberg, Damon Reed, and Andrae S. Eccles of the Enforcement Division’s Bank Secrecy Act Review Group.  The litigation will be led by Zachary T. Carlyle and Terry Miller and supervised by Gregory A. Kasper.  The SEC’s examination that led to the investigation was conducted by Denise S. Saxon, Phil Perrone, and Joni S. Marks with assistance from Lisa Byington.  The case involves the Enforcement Division’s Broker-Dealer Task Force, which is led by Antonia Chion and Andrew M. Calamari and focuses on current issues and practices within the broker-dealer community, developing national initiatives for potential investigations.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Utah, the U.S. Department of Homeland Security, FinCEN, and the Financial Industry Regulatory Authority.

WHISTLEBLOWER AWARD OF MORE THAN HALF-MILLION DOLLARS FOR COMPANY INSIDER

The Securities and Exchange Commission today announced that a company insider has earned a whistleblower award of more than $500,000 for reporting information that prompted an SEC investigation into well-hidden misconduct that resulted in an SEC enforcement action.

“This company employee saw something wrong and did the right thing by reporting what turned out to be hard-to-detect violations of the securities laws,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “Company insiders are in a unique position to provide specific information that allows us to better protect investors and the marketplace.  We encourage insiders with information to bring it to our attention.”

The whistleblower award is the second announced by the SEC in the past week.  Approximately $154 million has now been awarded to 44 whistleblowers who voluntarily provided the SEC with original and useful information that led to a successful enforcement action.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.  Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.

Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.

SEC Lawyer Free Consultation

If you need help with an SEC matter or securities law issue, call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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