SEC, FINRA REPORT ON NATIONAL SENIOR INVESTOR INITIATIVE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Staff and FINRA Issue Report on National Senior Investor Initiative
04/15/2015 01:00 PM EDT

With the Social Security Administration estimating that each day for the next 15 years, an average of 10,000 Americans will turn 65, the staff of the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) issued a report to help broker-dealers assess, craft, or refine their policies and procedures for investors as they prepare for and enter into retirement.  

The National Senior Investor Initiative report includes observations and practices identified in examinations that focused on how firms conduct business with senior investors.  The examinations by the SEC’s Office of Compliance Inspections and Examinations (OCIE) and FINRA focused on the types of securities purchased by senior investors, the suitability of recommended investments, training of brokerage firm representatives, marketing, communications, use of designations such as “senior specialist,” account documentation, disclosures, customer complaints, and supervision.

According to the most recent U.S. Census Bureau data, in 2011, more than 13 percent of those living in the United States, or more than 41 million people, were 65 or older.  By 2040, that number is expected to exceed 79 million, more than twice as many as in the year 2000.  Given that, OCIE and FINRA staff are keenly focused on issues related to senior investors and regard compliance with laws, rules, and regulations applicable to senior investors to be a high regulatory priority.  At a time of historically low yields on traditional savings accounts and more conservative investments, OCIE and FINRA staff are concerned that some broker-dealers may be recommending riskier and possibly unsuitable securities to senior investors looking for higher returns and may be failing to adequately disclose the terms and risks of the securities they recommend.

Andrew J. Bowden, OCIE’s Director, said, “Seniors are more dependent than ever on their own investments for retirement.  Broker-dealers are developing and offering a variety of new products and services that are intended to generate higher yields in a low interest rate environment.  It is imperative that firms are recommending suitable investments and providing proper disclosures regarding the related terms and risks.”

“With the dramatic increase in the population of our nation’s seniors, it is critical that securities regulators work collaboratively to make sure that senior investors are treated fairly. The culture of compliance at firms is key to ensuring that seniors receive suitable recommendations and proper disclosures of the risks, benefits, and costs of any investments they are purchasing,” said Susan Axelrod, FINRA Executive Vice President, Regulatory Operations.

SEC, FINRA ISSUE ALERT TO INVESTORS REGARDING SHELL COMPANIES BEING SOLD AS PENNY STOCKS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission’s Office of Investor Education and Advocacy and the Financial Industry Regulatory Authority (FINRA) today issued an alert warning investors that some penny stocks being aggressively promoted as great investment opportunities may in fact be stocks of dormant shell companies with little to no business operations.

The investor alert provides tips to avoid pump-and-dump schemes in which fraudsters deliberately buy shares of very low-priced, thinly traded stocks and then spread false or misleading information to pump up the price.  The fraudsters then dump their shares, causing the prices to drop and leaving investors with worthless or nearly worthless shares of stock.

“Fraudsters continue to try to use dormant shell company scams to manipulate stock prices to the detriment of everyday investors,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “Before investing in any company, investors should always remember to check out the company thoroughly.”

Gerri Walsh, FINRA’s Senior Vice President for Investor Education, said, “Investors should be on the lookout for press releases, tweets or posts aggressively promoting companies poised for explosive growth because of their ‘hot’ new product.  In reality, the company may be a shell, and the people behind the touts may be pump-and-dump scammers looking to lighten your wallet.”

The investor alert highlights five tips to help investors avoid scams involving dormant shell companies:

Research whether the company has been dormant – and brought back to life.  You can search the company name or trading symbol in the SEC’s EDGAR database to see when the company may have last filed periodic reports.

Know where the stock trades.  Most stock pump-and-dump schemes involve stocks that do not trade on The NASDAQ Stock Market, the New York Stock Exchange or other registered national securities exchanges.

Be wary of frequent changes to a company's name or business focus.  Name changes and the potential for manipulation often go hand in hand.

Check for mammoth reverse splits. A dormant shell company might carry out a 1-for-20,000 or even 1-for-50,000 reverse split.

Know that "Q" is for caution.  A stock symbol with a fifth letter "Q" at the end denotes that the company has filed for bankruptcy.

SEC WARNS OF SCAMS INVOLVING VIRTUAL CURRENCY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to make investors aware about the potential risks of investments involving Bitcoin and other forms of virtual currency.

The rise of Bitcoin and other virtual and digital currencies creates new concerns for investors. A new product, technology, or innovation – such as Bitcoin – has the potential to give rise both to frauds and high-risk investment opportunities. Potential investors can be easily enticed with the promise of high returns in a new investment space and also may be less skeptical when assessing something novel, new and cutting-edge.

We previously issued an Investor Alert about the use of Bitcoin in the context of a Ponzi scheme. The Financial Industry Regulatory Authority (FINRA) also recently issued an Investor Alert cautioning investors about the risks of buying and using digital currency such as Bitcoin. In addition, the North American Securities Administrators Association (NASAA) included digital currency on its list of the top 10 threats to investors for 2013.

What is Bitcoin?

Bitcoin has been described as a decentralized, peer-to-peer virtual currency that is used like money – it can be exchanged for traditional currencies such as the U.S. dollar, or used to purchase goods or services, usually online. Unlike traditional currencies, Bitcoin operates without central authority or banks and is not backed by any government.

IRS treats Bitcoin as property. The IRS recently issued guidance stating that it will treat virtual currencies, such as Bitcoin, as property for federal tax purposes. As a result, general tax principles that apply to property transactions apply to transactions using virtual currency

If you are thinking about investing in a Bitcoin-related opportunity, here are some things you should consider.

Investments involving Bitcoin may have a heightened risk of fraud.

Innovations and new technologies are often used by fraudsters to perpetrate fraudulent investment schemes. Fraudsters may entice investors by touting a Bitcoin investment “opportunity” as a way to get into this cutting-edge space, promising or guaranteeing high investment returns. Investors may find these investment pitches hard to resist.

Bitcoin Ponzi scheme. In July 2013, the SEC charged an individual for an alleged Bitcoin-related Ponzi scheme in SEC v. Shavers. The defendant advertised a Bitcoin “investment opportunity” in an online Bitcoin forum, promising investors up to 7% interest per week and that the invested funds would be used for Bitcoin activities. Instead, the defendant allegedly used bitcoins from new investors to pay existing investors and to pay his personal expenses.

As with any investment, be careful if you spot any of these potential warning signs of investment fraud:

“Guaranteed” high investment returns. There is no such thing as guaranteed high investment returns. Be wary of anyone who promises that you will receive a high rate of return on your investment, with little or no risk.

Unsolicited offers. An unsolicited sales pitch may be part of a fraudulent investment scheme. Exercise extreme caution if you receive an unsolicited communication – meaning you didn’t ask for it and don’t know the sender – about an investment opportunity.

Unlicensed sellers. Federal and state securities laws require investment professionals and their firms who offer and sell investments to be licensed or registered. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms. Check license and registration status by searching the SEC’s Investment Adviser Public Disclosure (IAPD) website or FINRA’s BrokerCheck website.

No net worth or income requirements. The federal securities laws require securities offerings to be registered with the SEC unless an exemption from registration applies. Most registration exemptions require that investors are accredited investors. Be highly suspicious of private (i.e., unregistered) investment opportunities that do not ask about your net worth or income.
Sounds too good to be true. If the investment sounds too good to be true, it probably is. Remember that investments providing higher returns typically involve more risk.

Pressure to buy RIGHT NOW. Fraudsters may try to create a false sense of urgency to get in on the investment. Take your time researching an investment opportunity before handing over your money.

Bitcoin users may be targets for fraudulent or high-risk investment schemes.

Both fraudsters and promoters of high-risk investment schemes may target Bitcoin users. The exchange rate of U.S. dollars to bitcoins has fluctuated dramatically since the first bitcoins were created. As the exchange rate of Bitcoin is significantly higher today, many early adopters of Bitcoin may have experienced an unexpected increase in wealth, making them attractive targets for fraudsters as well as promoters of high-risk investment opportunities.

Fraudsters target any group they think they can convince to trust them. Scam artists may take advantage of Bitcoin users’ vested interest in the success of Bitcoin to lure these users into Bitcoin-related investment schemes. The fraudsters may be (or pretend to be) Bitcoin users themselves. Similarly, promoters may find Bitcoin users to be a receptive audience for legitimate but high-risk investment opportunities. Fraudsters and promoters may solicit investors through forums and online sites frequented by members of the Bitcoin community.    

Bitcoins for oil and gas. The Texas Securities Commissioner recently entered an emergency cease and desist order against a Texas oil and gas exploration company, which claims it is the first company in the industry to accept bitcoins from investors, for intentionally failing to disclose material facts to investors including “the nature of the risks associated with the use of Bitcoin to purchase working interests” in wells. The company advertised working interests in wells in West Texas, both at a recent Bitcoin conference and through social media and a web page, according to the emergency order.


Bitcoin trading suspension. In February 2014, the SEC suspended trading in the securities of Imogo Mobile Technologies because of questions about the accuracy and adequacy of publicly disseminated information about the company’s business, revenue and assets. Shortly before the suspension, the company announced that it was developing a mobile Bitcoin platform, which resulted in significant movement in the trading price of the company’s securities.

Using Bitcoin may limit your recovery in the event of fraud or theft.

If fraud or theft results in you or your investment losing bitcoins, you may have limited recovery options. Third-party wallet services, payment processors and Bitcoin exchanges that play important roles in the use of bitcoins may be unregulated or operating unlawfully.

Law enforcement officials may face particular challenges when investigating the illicit use of virtual currency. Such challenges may impact SEC investigations involving Bitcoin:

Tracing money. Traditional financial institutions (such as banks) often are not involved with Bitcoin transactions, making it more difficult to follow the flow of money.

International scope. Bitcoin transactions and users span the globe. Although the SEC regularly obtains information from abroad (such as through cross-border agreements), there may be restrictions on how the SEC can use the information and it may take more time to get the information. In some cases, the SEC may be unable to obtain information located overseas.

No central authority. As there is no central authority that collects Bitcoin user information, the SEC generally must rely on other sources, such as Bitcoin exchanges or users, for this type of information.

Seizing or freezing bitcoins. Law enforcement officials may have difficulty seizing or freezing illicit proceeds held in bitcoins. Bitcoin wallets are encrypted and unlike money held in a bank or brokerage account, bitcoins may not be held by a third-party custodian.

Investments involving Bitcoin present unique risks.

Consider these risks when evaluating investments involving Bitcoin:

Not insured. While securities accounts at U.S. brokerage firms are often insured by the Securities Investor Protection Corporation (SIPC) and bank accounts at U.S. banks are often insured by the Federal Deposit Insurance Corporation (FDIC), bitcoins held in a digital wallet or Bitcoin exchange currently do not have similar protections.

History of volatility. The exchange rate of Bitcoin historically has been very volatile and the exchange rate of Bitcoin could drastically decline. For example, the exchange rate of Bitcoin has dropped more than 50% in a single day. Bitcoin-related investments may be affected by such volatility.
Government regulation. Bitcoins are not legal tender. Federal, state or foreign governments may restrict the use and exchange of Bitcoin.

Security concerns. Bitcoin exchanges may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware. Bitcoins also may be stolen by hackers.

New and developing. As a recent invention, Bitcoin does not have an established track record of credibility and trust. Bitcoin and other virtual currencies are evolving.

Recent Bitcoin exchange failure. A Bitcoin exchange in Japan called Mt. Gox recently failed after hackers apparently stole bitcoins worth hundreds of millions of dollars from the exchange. Mt. Gox subsequently filed for bankruptcy. Many Bitcoin users participating on the exchange are left with little recourse.
***

Before making any investment, carefully read any materials you are given and verify the truth of every statement you are told about the investment. For more information about how to research an investment, read our publication Ask Questions. Investigate the individuals and firms offering the investment, and check out their backgrounds by searching the SEC’s IAPD website or FINRA’s BrokerCheck website and by contacting your state securities regulator.

Additional Resources

SEC Investor Alert: Ponzi Schemes Using Virtual Currencies
SEC Investor Alert: Social Media and Investing – Avoiding Fraud
SEC Investor Alert: Private Oil and Gas Offerings
SEC Investor Bulletin: Affinity Fraud
FINRA Investor Alert: Bitcoin: More Than a Bit Risky
NASAA Top Investor Threats
IRS Virtual Currency Guidance
European Banking Authority Warning to Consumers on Virtual Currencies

FORMER ENVIT CAPITAL BOILER-ROOM SALESMAN SETTLES FRAUD CHARGES

FROM:   U.S. SECURITIES AND EXCHANGE COMMISSION 
Former Envit Capital Boiler-Room Salesman Settles SEC Fraud Charges

The Securities and Exchange Commission announced today that on October 8, 2013, the federal court in Massachusetts entered a judgment against Jonathan Fraiman in a previously-filed case, arising from his alleged participation in a boiler room operated by Edward M. Laborio. Fraiman consented to the entry of the judgment.

On August 10, 2012, the Commission charged Fraiman, Laborio, Matthew K. Lazar, and seven entities owned and controlled by Laborio, including a non-existent hedge fund, (collectively, the "Envit Companies") with raising up to $5.7 million from more than 150 investors through the fraudulent sale of five unregistered offerings. The Complaint alleged that Laborio hired Fraiman in January 2008 to market Envit Capital Multi Strategy Mixed Investment Fund I LP, a purported hedge fund that in reality never conducted any business, and Laborio also named Fraiman as the Director and Chief Compliance Officer of Envit Capital Private Wealth Management, LLC, the purported investment adviser arm of the Envit Companies. Among other conduct, the Complaint alleged that Fraiman raised hundreds of thousands of dollars for Laborio by misrepresenting the historical returns and financial health of the Envit Companies, including that: (i) the non-existent hedge fund returned 42.9% in 2006 and 43.7% in 2007; (ii) shares in one of the unregistered offerings pay a 5% to 10% dividend; and (iii) the company had no debt and was cash flow positive.

On October 8, 2013, the Court entered a final judgment against Fraiman: (i) permanently enjoining him from violating Section 17(a)(2) of the Securities Act of 1933 (Securities Act); Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5(b) thereunder; and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-8 thereunder; (ii) barring him from participating in any offering of penny stock; (iii) finding him liable for disgorgement of $180,961.42 and prejudgment interest of $24,537.22, for a total of $205,498.66; and (iv) waiving payment of the disgorgement and prejudgment interest, and not imposing a civil penalty, based upon the representations in Fraiman's sworn statement of financial condition. Fraiman agreed to settle the Commission's charges without admitting or denying the allegations in the Complaint.

To settle the Commission's charges in related administrative proceedings that the Commission will separately institute, Fraiman has consented to be barred from any future association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, with the right to reapply after ten years.

The Commission's civil injunctive action against Laborio, Lazar, and the Envit Companies, SEC v Laborio et al., 1:12-cv-11489-MBB (D. Mass., Aug. 10, 2012), is still pending.

In conducting its investigation, the Commission acknowledges assistance from the U.S. Attorney's Office for the District of Massachusetts, the Federal Bureau of Investigation, the State of Florida Office of Financial Regulation, and the Financial Industry Regulatory Authority (FINRA).

SEC, FINRA ISSUE JOINT WARNING OVER E-MAIL "PUMP-AND-DUMP STOCK SCHEMES"

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., June 12, 2013 — The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) today issued a warning to investors about a sharp increase in e-mail linked to "pump-and-dump" stock schemes.

The investor alert entitled Inbox Alert-Don't Trade on Pump-And-Dump Stock E-mails notes that the latest McAfee Threats Report confirms a steep rise in spam e-mail linked to bogus "pump-and-dump" stock schemes designed to trick unsuspecting investors. These false claims could also be made on social media such as Facebook and Twitter as well as on bulletin boards and chat room pages.

"Investors should always be wary of unsolicited investment offers in the form of an e-mail from a stranger," said Lori Schock, Director of the SEC's Office of Investor Education and Advocacy. "The best response to investment spam is to hit delete."

"Spam e-mail is the bait used to lure people into making bad investment decisions. No one should ever make an investment based on the advice of an unsolicited email," said Cameron Funkhouser, Executive Vice President of FINRA's Office of Fraud Detection and Market Intelligence.

Pump-and-dump promoters frequently claim to have "inside" information about an impending development. Others may say they use an "infallible" system that uses a combination of economic and stock market data to pick stocks. These scams are the inbox equivalent of a boiler room sales operation, hounding investors with potentially false information about a company.

The fraudsters behind these scams stand to gain by selling their shares after the stock price is "pumped" up by the buying frenzy they create through the mass e-mail push. Once these fraudsters "dump" their shares by selling them and stop hyping the stock, investors lose their money or are left with worthless or near worthless stock.

SEC CHARGES EMPLOYEE OF DEFUNCT BROKERAGE FOR PLACING UNAUTHORIZED ORDERS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., April 15, 2013 — The Securities and Exchange Commission charged a former employee at a Connecticut-based brokerage firm with scheming to personally profit from placing unauthorized orders to buy Apple stock. When the scheme backfired, it ultimately caused the firm to cease operations.

David Miller, an institutional sales trader who lives in Rockville Centre, N.Y., has agreed to a partial settlement of the SEC's charges. He also pleaded guilty today in a parallel criminal case.

The SEC alleges that Miller misrepresented to Rochdale Securities LLC that a customer had authorized the Apple orders and assumed the risk of loss on any resulting trades. The customer order was to purchase just 1,625 shares of Apple stock, but Miller instead entered a series of orders totaling 1.625 million shares at a cost of almost $1 billion. Miller planned to share in the customer's profit if Apple's stock profited, and if the stock decreased he would claim that he erred on the size of the order. The stock wound up decreasing after an earnings announcement later that day, and Rochdale was forced to cease operations in the wake of covering the losses suffered from the rogue trades.

"Miller's scheme was deliberate, brazen, and ultimately ill-conceived," said Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit. "This is a wake-up call to the brokerage industry that the unchecked conduct of even a single individual in a position of trust can pose grave risks to a firm and potentially to the markets and investors."

According to the SEC's complaint filed in federal court in Connecticut, Miller entered purchase orders for 1.625 million shares of Apple stock on Oct. 25, 2012, with the company's earnings announcement expected later that day. His plan was to share in the customer's profit from selling the shares if Apple's stock price increased. Alternatively, if Apple's stock price decreased, Miller planned to claim that he inadvertently misinterpreted the size of the customer's order, and Rochdale would then take responsibility for the unauthorized purchase and suffer the losses.

According to the SEC's complaint, Apple's stock price decreased after Apple's earnings release was issued on October 25. The customer denied buying all but 1,625 Apple shares, and Rochdale was forced to take responsibility for the unauthorized purchase. Rochdale then sold the Apple stock at an approximately $5.3 million loss, causing the value of the firm's available liquid assets to fall below regulatory limits required of broker-dealers. Rochdale had to cease operations shortly thereafter.

The SEC's complaint charges Miller with violations of Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. To settle the SEC's charges, Miller will be barred in separate SEC administrative proceedings from working in the securities industry or participating in any offering of penny stock. In the partial settlement in court, Miller agreed to be enjoined from future violations of the antifraud provisions of the federal securities laws. A financial penalty will be determined at a later date by the court upon the SEC's motion.

In the criminal proceeding, Miller pleaded guilty to charges of wire fraud and conspiracy to commit securities and wire fraud. He will be sentenced on July 8.

The SEC's investigation, which is continuing, has been conducted by Eric A. Forni, David H. London, and Michele T. Perillo of the Market Abuse Unit in the Boston Regional Office. The SEC acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut, Federal Bureau of Investigation, and Financial Industry Regulatory Authority (FINRA).

DEL MONTE FOODS COMPANY EMPLOYEE CHARGED WITH INSIDER TRADING

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges Del Monte Foods Company Employee with Insider Trading

The Securities and Exchange Commission today charged Juan Carlos Bertini, a vice president of finance at Del Monte Foods Company ("Del Monte"), with insider trading for purchasing stock in advance of Del Monte's announcement that it would be acquired by an investor group.

According to the SEC's complaint filed in the U.S. District Court for the Northern District of California, Bertini worked on the buyout transaction for Del Monte and obtained material nonpublic information regarding the investor group's pending offer. Bertini then used that information to acquire 8,000 shares of Del Monte stock in his mother's brokerage account and reap illicit profits of approximately $16,035.

The SEC alleges that Bertini caused false information to be supplied to the Financial Industry Regulatory Authority ("FINRA"), which requested information about the trades from Del Monte. In the course of FINRA's investigation, Bertini provided inaccurate information regarding his involvement in the trades to Del Monte's counsel. He told counsel that he learned of his mother's purchases of Del Monte shares after she purchased them and after the acquisition was announced in late November 2010. Bertini also told counsel that his mother purchased the Del Monte shares after she read articles suggesting that Del Monte was going to be acquired. In truth, Bertini was responsible for the trading that had occurred in his mother's brokerage account.

Without admitting or denying the SEC's allegations, Bertini agreed to settle the case against him. The settlement is pending final approval by the court. Specifically, Bertini consented to the entry of a final judgment permanently enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; requiring him to pay disgorgement of $16,035, the amount of his ill-gotten gains, plus prejudgment interest of $961, and a civil penalty of $32,070; and prohibiting him from serving as an officer and director of a public company for a period of five years

SEC CHARGES GOLDMAN, SACHS & CO. IN "RESEARCH HUDDLES" CASEE

FROM:  SEC
SEC Charges Goldman, Sachs & Co. Lacked Adequate Policies and Procedures for Research “Huddles”
FOR IMMEDIATE RELEASE
2012-61
Washington, D.C., April 12, 2012 — The Securities and Exchange Commission today charged that Goldman, Sachs & Co. lacked adequate policies and procedures to address the risk that during weekly “huddles,” the firm’s analysts could share material, nonpublic information about upcoming research changes. Huddles were a practice where Goldman’s stock research analysts met to provide their best trading ideas to firm traders and later passed them on to a select group of top clients.

Goldman agreed to settle the charges and will pay a $22 million penalty. Goldman also agreed to be censured, to be subject to a cease-and-desist order, and to review and revise its written policies and procedures to correct the deficiencies identified by the SEC. The Financial Industry Regulatory Authority (FINRA) also announced today a settlement with Goldman for supervisory and other failures related to the huddles.

“Higher-risk trading and business strategies require higher-order controls,” said Robert S. Khuzami, Director of the Commission’s Division of Enforcement. “Despite being on notice from the SEC about the importance of such controls, Goldman failed to implement policies and procedures that adequately controlled the risk that research analysts could preview upcoming ratings changes with select traders and clients.”

The SEC in an administrative proceeding found that from 2006 to 2011, Goldman held weekly huddles sometimes attended by sales personnel in which analysts discussed their top short-term trading ideas and traders discussed their views on the markets. In 2007, Goldman began a program known as the Asymmetric Service Initiative (ASI) in which analysts shared information and trading ideas from the huddles with select clients.
According to the SEC’s order, the programs created a serious risk that Goldman’s analysts could share material, nonpublic information about upcoming changes to their published research with ASI clients and the firm’s traders. The SEC found these risks were increased by the fact that many of the clients and traders engaged in frequent, high-volume trading. Despite those risks, Goldman failed to establish adequate policies or adequately enforce and maintain its existing policies to prevent the misuse of material, nonpublic information about upcoming changes to its research. Goldman’s surveillance of trading ahead of research changes — both in connection with huddles and otherwise — was deficient.

“Firms must understand that they cannot develop new programs and services without evaluating their policies and procedures,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement.

In 2003, Goldman paid a $5 million penalty and more than $4.3 million in disgorgement and interest to settle SEC charges that, among other violations, it violated Section 15(f) of the Securities Exchange Act of 1934 by failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information obtained from outside consultants about U.S. Treasury 30-year bonds.  The 2003 order found that although Goldman had policies and procedures regarding the use of confidential information, its policies and procedures should have identified specifically the potential for receiving material, nonpublic information from outside consultants. Goldman settled the SEC’s 2003 proceeding without admitting or denying the findings.

The order issued today finds that Goldman willfully violated Section 15(g) of the Exchange Act (formerly Section 15(f)). The SEC censured the firm and ordered it to cease and desist from committing or causing any violations and any future violations of Section 15(g) of the Exchange Act. Under the terms of the settlement, Goldman will pay a $22 million penalty, $11 million of which shall be deemed satisfied upon payment by Goldman of an $11 million penalty to FINRA in a related proceeding. The SEC considers a variety of factors, including prior enforcement actions, when determining sanctions.

In addition, Goldman agreed to complete a comprehensive review of the policies, procedures, and practices relating to the SEC’s findings in the order, and to adopt, implement, and maintain practices and written policies and procedures consistent with the findings of the order and the recommendations in the comprehensive review. In June 2011, Goldman entered into a consent order relating to the huddles and ASI with the Massachusetts Securities Division (Docket No. 2009-079). In the SEC’s action, Goldman admits to the factual findings to the extent those findings are also contained in Section V of the Massachusetts Consent Order, but otherwise neither admits nor denies the SEC’s findings.

Stacy Bogert, Drew Dorman, Dmitry Lukovsky, Alexander Koch, and Yuri Zelinsky in the SEC’s Division of Enforcement conducted the investigation.
The SEC thanks FINRA for its assistance in this matter.