Articles Posted in Investor Fraud

The SEC recently asked a federal judge to freeze $5.4 million of Avalon FA Ltd.’s funds, on account of its practice of “layering.” A Seychelles investment firm run out of Ukraine, Avalon allegedly engaged in illegal market manipulation.

Layering, in the SEC’s words is, “a scheme in which orders are placed but later canceled after tricking others into buying or selling stocks at artificial prices, resulting in illicit profits.” Layering is also used in a different way in money laundering.

According to the SEC, Avalon FA knowingly spammed markets with trade orders they had no intention of fulfilling. When the SEC’s lawsuit was first announced, Avalon funds were frozen through a temporary restraining order (TRO).

Barclays Capital has reached a $97 million settlement with the Securities and Exchange Commission to resolve allegations that its Wealth and Investment Management Americas (WIMA) unit overcharged clients by $50 million between 2010 and 2015.

The SEC’s investigation determined that Barclays Capital, which sold its WIMA unit in 2015, incurred violations of multiple sections of the Advisers Act, the Exchange Act, and the Securities Act.

The $97 million penalty to be paid by Barclays includes fines in the amount of $30 million fine and $63.8 million in disgorgement and interest. Another $3.5 million will serve to refund specific clients with underperforming accounts.

During the “SEC Speaks” Conference 2017, Acting U.S. Securities and Exchange Commission Chair Michael Piwowar amply discussed the plight of the “forgotten investor.” Citing the work of sociologist William Graham Sumner, who spoke of The Forgotten Man, “the victim of the reformer, social speculator, and philanthropist,” Piwowar questioned disclosure requirements, high corporate penalties and accreditation rules, which, he believes, have had a negative impact on lower-income  investors.

“Imagine,” Piwowar said in his speech, “that we lived in a utopian world in which perfect disclosure of all material information about every company simply existed as a natural feature of the market landscape. Securities markets would be perfectly efficient… Investors would have just what they need… to make perfectly informed investment decisions.”

The Acting SEC Chair focused on the problems of disclosure, stating that the “forgotten investor” seldom has all the relevant information in hand in order to make those decisions. He compared lower-income investors to Graham Sumner’s “Forgotten Man,” who “works, he votes… he always pays… All the burdens fall on him, or on her.”

It may come as no surprise that doing business in China holds a high risk of Foreign Corrupt Practices Act (FCPA) violations. However, the record-setting numbers of FCPA enforcement actions seen in 2016 placed Mexico in a close second.

With increases in multi-jurisdictional anti-corruption enforcement, the FCPA Pilot Program and a number of new Mexican statutes signed into law, those doing business in Latin America may want to take note.

After six years of relatively consistent (and somewhat low) FCPA enforcement numbers, the Department of Justice (DOJ) and Securities Exchange Commission (SEC) have made 2016 a precedent setting year. A combined total of 53 actions – more than double those of the last four years – brought over $2 billion in U.S. corporate fines and billions more in fines by foreign regulators. While 22 of the of 53 FCPA enforcement actions prosecuted in 2016 involved FCPA violations in China, Mexico followed close behind with nearly 17% of the enforcement actions last year.