Entries in SEC (17)


SAC Capital Agrees to Settle Insider Trading Cases for $614 Million

Andrew Harrer/Bloomberg via Getty Images(NEW YORK) -- The Securities and Exchange Commission (SEC) has settled insider trading charges against two affiliates of the giant hedge fund SAC Capital for $614 million.

According to the New York Times, the SEC said this was the biggest ever settlement for such cases.

One affiliate, CR Intrinsic, agreed to pay over $600 million over charges of one of their employees trading confidential information about the drug makers Elan and Wyeth. The other affiliate, Sigma Cipital Management, agreed to pay $14 million to settle charges of insider trading in stocks of Dell and Nvidia.

SAC’s management company will pay the settlements, which means the investors of the hedge fund will not be held accountable, the paper reports.

“The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the SEC will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm,” George S. Canellos, the acting director of the SEC’s enforcement division, said in a statement.

Copyright 2013 ABC News Radio


SEC Receives Nearly 3,000 Whistleblower Tips in Year

Goodshoot/Thinkstock(NEW YORK) -- It’s only been a little over a year since the Securities and Exchange Commission (SEC) launched its Office of the Whistleblower, but it has already received almost 3,000 securities law violation tips.

In a speech this week, Sean X. McKessy, chief of the Office of the Whistleblower, said the SEC receives an average of eight tips a day, “rather than the avalanche of poor quality, frivolous tips that were predicted.”

The Office of the Whistleblower was formed as part of the Dodd-Frank Act in 2010.

“As we considered the contours of the rules to implement the Whistleblower program, we heard repeatedly that the implementation of this program would overwhelm the commission and literally shut our program down,” McKessy said, addressing the inaugural Securities Enforcement Forum in Washington, D.C. on Thursday. “We also heard that corporate compliance departments that had been built out as a result of Sarbanes-Oxley, would no longer be able to function.”

As of Aug. 8, 2012, McKessy said the office had received received 2,820 tips from people in the U.S. and from at least 45 countries.

Last year, McKessy said the SEC has “already seen an increase in the quality of the tips we have received since the passage of Dodd-Frank in July 2010.”

The SEC has said only one award has been paid. In August, a whistleblower who did not want to be identified received a payment of almost $50,000 for helping a court demand more than $1 million in sanctions in a securities fraud case.

Copyright 2012 ABC News Radio


Hall of Fame Coach Charged with Ponzi Scheme

Brand X Pictures/Thinkstock(ATLANTA) -- College football Hall of Fame coach Jim Donnan has been hit with fraud charges by federal regulators who allege that he and business partner Gregory Crabtree ran an $80 million Ponzi scheme.

According to a complaint filed by the the Securities and Exchange Commission in Atlanta, the two convinced 100 investors that their GLC limited was a wholesale liquidation business that would earn 50 percent to 380 percent returns by buying “leftover” merchandise from retailers and selling them to discount retailers.

The alleged scheme, which began in August 2007, spent just $12 million of the funds raised to purchase discontinued or leftover merchandise. The remainder of the $80 million was used to dupe early investors by providing “fake returns” or “stolen for other uses,” according to a report released Thursday by the SEC.

An attorney for Crabtree did not immediately return ABC News' request for comment. An attorney for Donnan, a former University of Georgia coach and ESPN commentator, did not immediately return our request for comment.

“Donnan and Crabtree convinced investors to pour millions of dollars into a purportedly unique and profitable business with huge potential and little risk,” William P. Hicks, associate director of the SEC, said in a statement. “But they were merely pulling an old page out of the Ponzi scheme playbook, and the clock eventually ran out.”

The alleged scheme, which collapsed in October 2010, allowed Donnan to funnel $7 million from the business. Individual investor losses ranged from a few thousand dollars to about $4 million, Hicks said.

The suit filed at the Northern District of Atlanta court accuses the former coach at Marshall University and the University of Georgia used his celebrity to lure some of his victims.  In one example, Donnan allegedly told a pro football player, “Your Daddy is going to take care of you” … “if you weren’t my son, I wouldn’t be doing this for you.” The player later invested $800,000.

The SEC’s complaint charged Donnan and Crabtree with violations of the anti-fraud and registration provisions of the federal securities laws.  It also names two of Donnan’s children and his son-in-law as relief defendants for the purpose of recovering illicit funds that Donnan allegedly steered to them.

The SEC did not say whether criminal charges would be filed in the case.

Copyright 2012 ABC News Radio


Insider Trading Case Involves Secrets Shared Among AA Members

Andrew Harrer/Bloomberg via Getty Images(PHILADELPHIA) -- In what a government attorney calls the first case of its kind, the Philadelphia office of the Securities and Exchange Commission (SEC) has charged five people with making more than $1.8 million illegally through insider trading of stocks.

The SEC is claiming that the violation of trust and confidentiality required to prove insider trading occurred between members of Alcoholics Anonymous (A.A.).

The SEC says Timothy McGee and Michael Zirinsky, both registered representatives of Ameriprise Financial Services, bought and sold stock in Philadelphia Consolidated Holding Corp. (PHLY), based on non-public information about an impending merger between PHLY and Tokio Marine Holdings.

McGee, the SEC claims, got that insider information from a PHLY executive who confided in him, based on the fact they both were members of A.A.

"What we're saying, here, is that the two shared a relationship of confidence and trust, beginning at the time they both started to attend A.A. in 2009," says Elaine Greenberg, associate director of the SEC's Philadelphia Regional office.

The two men's relationship extended beyond A.A.  For example, they occasionally trained together for triathlons, according to the SEC, and routinely shared confidences about their personal and professional lives.  But, says Greenberg, their relationship of trust was heightened by A.A.

That contention matters, because the government, to establish insider trading, must show that a relationship of trust and confidentiality existed above and beyond that of ordinary friendship.  The government has to prove, says Greenberg, that the person communicating the information and the one receiving it "have a history of sharing confidences, such that the recipient knows the giver expects him to maintain confidentiality."

Never before has the SEC tried to use as proof a shared membership in A.A.

Copyright 2012 ABC News Radio


SEC Pressured to Implement CEO to Worker Pay Disclosure

Andrew Harrer/Bloomberg via Getty Images(NEW YORK) -- Danny Stauffer of Milwaukee has been working as a baker at Walmart for almost five years.  His salary is $9.40 an hour, up from a starting wage of $7.11.

Stauffer, 26, said has tried to work full-time at the company, but hasn't had success.

"I actually like the work I do," he said.  "The people I work with, the work itself -- they're all great.  It just doesn't pay the bills."

A provision of the Dodd-Frank financial regulatory reform act proposes that public companies disclose the ratio of the CEO's pay to that of the median salary of company workers.  But two years after Dodd-Frank was passed, the Securities and Exchange Commission (SEC) has not yet implemented the rule or initiated the rule-making process.  Business groups have opposed the rule, while advocates for corporate reform have pressured the regulatory agency to work quickly.

Stauffer, who is a member of the Walmart employees group, OURWalmart, said he would support the Dodd-Frank provision to provide more disclosure to not only shareholders, but to the chief executive officers of companies across the U.S.

"Obviously there's only one of them and a lot of us, but it shows how hard we have to work, how much profit there is to go around, and how little we see," Stauffer said.  "It does not make me happy that the CEO gets to enjoy such a great life off of our labor."

Stauffer said he dropped out of college because he struggled to keep up with his tuition on his income.  He said he has tried to find a second job to support himself while living in a basement and receiving public assistance.

If Stauffer was working full-time for 40 hours a week, he would make about $18,800 a year.

The total compensation for Walmart's CEO Michael Duke was $18.7 million, a drop of 2.7 percent, for the last fiscal year which ended in January 2011, the company reported last April.  His salary increased 2.4 percent to $1.2 million.

Based on just Duke's salary and not his total compensation, the ratio would be 63.8 to one.  But based on Duke's total compensation, the ratio would be 994.7 to one.

In a statement to ABC News, Walmart said: "When you look at pay, benefits and opportunities for advancement, Walmart offers some of the best jobs in the retail industry. Last year, we promoted more than 161,000 associates and roughly three-fourths of our store management teams started out in hourly positions with the company."

"It's important to note that 'OURWalmart' is a union-backed, union-funded organization attempting to further its own political and financial agenda," the statement continued. "They do not represent our associates at any of our locations. We've seen other places where they have pitched associates to media for stories and, largely, the experiences they offer up typically don't reflect the norm within our base of 1.2 million associates in the U.S."

"You are correct in saying $12.14 is the average hourly wage for a full-time associate hourly associate in a Wisconsin Walmart store. The current average wage, nationally, for a full-time associate is $12.40," Walmart said.

The company said it hasn't taken a position on the pay disclosure rule.

Sen. Robert Menendez, D-N.J., the author of the provision Section 953(b), and other members of Congress, signed letters to the SEC chairwoman Mary Schapiro last week urging the agency to move forward with the rule-making process.

"It might embarrass some companies to reveal that they pay their CEO in the range of 400 times what they pay their typical worker, but that's important information for both investors and workers to know," he told ABC News.

Copyright 2012 ABC News Radio


Facebook IPO: $5 Billion Filing to Sell Stock in May

Justin Sullivan/Getty Images(WASHINGTON) -- Facebook, in one of the world's most widely anticipated IPOs, or initial public offerings of stock, filed papers Wednesday afternoon to raise at least $5 billion and begin to sell stock this spring.

The filing was made online with the Securities and Exchange Commission in Washington. If all goes as planned, it will likely take until May for Facebook stock to begin trading on a stock exchange.


"It is a major sign of maturation" for Facebook to go public, said Lawrence Summers, the former Secretary of the Treasury who was president of Harvard University when Mark Zuckerberg, now 27, started Facebook from his dorm there in 2004. "It means more cash flow, it means even more visibility, it means even more responsibility to shareholders, but also to the broader society.

"It is both a recognition of what has been accomplished, and it points to the fact that Mark Zuckerberg has done a remarkable thing in building a global institution in a very short time," said Summers.


Several major investment banks are involved in the IPO, with Morgan Stanley in the lead role. Goldman Sachs, Bank of America, Merrill Lynch, Barclays Capital and JP Morgan are also involved.

Facebook's filing has been widely dubbed the IPO event of the year. Analysts said that this offering will change the Internet sector, creating what will be one of the world's most valuable Internet companies.

Others warn that Facebook may not be a surefire winner for small investors looking to make some quick money. Certainly, Facebook has been profitable, but it has already made a great deal of money as a private company. It has more than 800 million active users -- up 45 percent in 2011 -- but growth in the United States and other Western countries has already begun to slow.

Why go public now anyway? Since Facebook already has more than 500 investors, it is required to make certain financial information public anyway under SEC regulations. The deadline to file this information expires in April.

Facebook CEO Mark Zuckerberg reportedly decided to go public once it became clear that the company had become too big to keep its finances private. By going public, Facebook loses some of its mystery and cool, having to declare profits and losses and answer to shareholders every quarter. But the company will have access to new cash and can use the value of its stock to acquire other companies and to reward its employees.

Many of Facebook's 3,000 employees could now become Silicon Valley millionaires. Zuckerberg himself is already said to be the world's youngest billionaire.

Copyright 2012 ABC News Radio


‘Rudy’ Charged in Stock Scam by SEC

Joey Foley/WireImage for Philanthropy Project(HENDERSON, Nev.) -- Daniel “Rudy” Ruettiger, the subject of an inspirational movie of an undersized football player who finally makes the Notre Dame team through sheer determination, was charged Friday with being part of a ”classic pump-and-dump scheme” to deceive investors into buying stock in Ruettiger’s sports drink company.

Ruettiger, 63, and a dozen others are named in the complaint filed Friday by the Securities and Exchange Commission.

Ruettiger, identified in the SEC suit as “the walk-on football player at Notre Dame who was the subject of the 1993 movie Rudy,” was the CEO of the Rudy Nutrition, or RUNU.

The company allegedly produced and sold “modest amounts” of a sports drink called Rudy, which was supposed to compete with Gatorade. The drink’s tagline was “Dream Big! Never Quit!”

The SEC alleged that Rudy Nutrition provided investors with false and misleading information about the company, such as a promotional email bragging that in “a major southwest test, Rudy outsold Gatorade 2 to 1,” according to the SEC complaint. The company would then allegedly manipulate trading by artificially inflating the price of the stock while selling unregistered shares to investors.

The scheme allegedly occurred between February and September 2008, grossing over $11 million for the participants. The SEC alleges that the group “sold almost one billion shares to unsuspecting investors in the public market during the scheme.”

“Investors were lured into the scheme by Mr. Ruettiger’s well-known, feel-good story but found themselves in a situation that did not have a happy ending,” Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement, said in a statement.  “The tall tales in this elaborate scheme included phony taste tests and other false information that was used to convince investors they were investing in something special.”

As a kid, Ruettiger had dreamed of playing football for Notre Dame, but lacked the grades, size and speed to get into the school or make the team. He worked his way up from a nearby junior college, got a job on campus and was eventually allowed to practice with the team. Rudy was allowed to suit for the final home game of his senior year when other starting players appealed to their coach to let Rudy play.

Ruettiger and 10 of the scam’s other participants have agreed to settle the SEC’s charges without admitting or denying the allegations. Ruettiger has agreed to pay $382,866 to settle the charges.

Rudy Nutrition is no longer in business.

Ruettiger’s attorney Michael Eldredge could not be reached for comment.

Copyright 2011 ABC News Radio


Former Execs of Fannie, Freddie Charged With Fraud

Mark Wilson/Getty Images)(WASHINGTON) -- Three years after taxpayers footed the bill to bail out mortgage giants Fannie Mae and Freddie Mac, the top six executives at the government-supported lenders were charged by the Securities and Exchange Commission with fraud for failing to disclose billions of dollars in risky subprime mortgages.

“Investors were robbed of the opportunity to make informed investment choices on whether or not to invest in the companies,” said Robert S. Khuzami, the SEC’s director of enforcement. “All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.”

Khuzami said that starting in 2006, as Wall Street banks began to gobble up a larger portion of Fannie and Freddie’s market share, the two companies began downplaying the amount of risky loans they held.

“They sought to maintain the illusion that their businesses involved minimal and manageable credit risk,” Khuzami said. “They led investors to believe that Freddie Mac was disclosing subprime exposures, however that was not the case.”

The SEC suit alleges that while Freddie Mac’s CEO and executive vice president publically stated that the company had basically no subprime exposure, the company was in fact exposed to $141 billion in subprime loans in 2006. By 2008 these risky investments grew to $244 billion, or 14 percent of Freddie Mac’s portfolio.

Fannie Mae, the SEC claims, shares a similar story.

In 2007 Fannie Mae reported that only .2 percent, approximately $4.8 billion, of its Single Family loan portfolio was comprised of loans “made to borrowers with weaker credit histories” when in fact, the exposure to subprime loans was nearly ten times that amount, the SEC alleges.

The federal government took control of the two mortgage giants in 2008 after poor lending practices put them at the brink of bankruptcy.  Fannie Mae and Freddie Mac have cost taxpayers $150 billion.

The commission has filed fraud charges against Freddie Mac’s Board Chairman and CEO Richard F. Syron, former Executive Vice President and Chief Business Officer Patricia L. Cook and Vice President Single Family Guarantees Donald J. Bisenius.

Fannie Mae’s former Chief Executive Officer Daniel H. Mudd, former Chief Risk Officer Enrico Dallavecchia, and former Executive Vice President of Single Family Mortgages, Thomas A. Lund have also been charged with fraud.

Because the SEC cannot press criminal charges, the executives do not face jail time. Under the civil charges they could be forced to pay fines and penalties that range from the hundreds of thousands into the low millions.

Copyright 2011 ABC News Radio


Citigroup's $285M Settlement with SEC Rejected

Nicholas Roberts/Bloomberg News(NEW YORK) -- A federal judge in New York has struck down a settlement agreement between one of the nation's biggest banks and government regulators.  

Under a deal reached with the Securities and Exchange Commission, Citigroup would pay $285 million to settle claims it misled customers about an investment tied to mortgages.

Judge Jed Rakoff was upset that the deal did not require Citigroup to admit that it did anything wrong. He said the settlement "is neither fair, nor reasonable, nor adequate, nor in the public interest." Rakoff said the deal may be good for Citigroup, but gives nothing to the government other than a quick headline and leaves defrauded investors "substantially short-changed."

Copyright 2011 ABC News Radio


SEC Subpoenas Firms on Possible Insider Trading before US Downgrade

Ryan McVay/Thinkstock(WASHINGTON) -- Federal financial regulators have reportedly stepped up their investigation into cases of possible insider trading before the U.S. government's credit rating was downgraded last month.

Citing people familiar with the matter, The Wall Street Journal says the Securities and Exchange Commission wants to know more about traders who bet the stock market would tumble just before Standard and Poor's downgraded the U.S. from its triple-A rating on Aug. 5.  Those trades could have been hugely profitable.

SEC regulators have issued subpoenas, demanding more information from hedge funds, specialized trading shops and other firms, according to the Journal.  But it may be difficult to prove wrongdoing -- the downgrade was rumored for weeks, especially in the hours before the announcement was made.

Copyright 2011 ABC News Radio

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