More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
There was an international flavor to some of the recent enforcement actions taken by the SEC and FINRA, which included freezing more than $38 million in assets in an international insider trading case; charging an investment manager and two firms with violations involving a Chinese reverse merger company; charging a Bristol-Myers Squibb executive with insider trading; and the expulsion of a securities firm and its chief executive by FINRA over a number of violations from money laundering to layering and short sales.
SEC Charges Bristol-Myers Squibb Exec With Insider Trading
In a continuing investigation, Robert D. Ramnarine, an executive with Bristol-Myers Squibb in its treasury department, was charged by the SEC with insider trading on confidential information about companies being targeted for potential acquisitions, the most recent of which took place only weeks ago.
The agency is seeking a court order to freeze Ramnarine’s brokerage account assets, and the U.S. Attorney’s Office for the District of New Jersey announced in a parallel criminal action that Ramnarine had been arrested on Thursday.
The SEC charged that Ramnarine made more than $300,000 in illegal profits by misusing nonpublic information he obtained while helping Bristol-Myers Squibb evaluate whether to acquire three other pharmaceutical companies.He conducted his insider trading schemes from August 2010 to July 2012, illegally trading in stock options of Pharmasset Inc., Amylin Pharmaceuticals and ZymoGenetics in advance of announcements that those companies would be acquired, and used multiple personal brokerage accounts for the trades.
Prior to some trading, he even researched via his work computer the likelihood of being caught by regulators, searching for such phrases as “can stock option be traced to purchaser” and “illegal insider trading options trace” and viewing such articles as “Ways to Avoid Insider Trading.” Ironically, he also viewed a press release on the SEC’s website announcing an enforcement action arising from illegal trading in call options in advance of an acquisition announcement.
SEC Freezes $38 Million in Assets in Insider Trading Case
The SEC used an emergency court order to freeze assets valued at more than $38 million in an ongoing investigation into the case of traders using accounts in Hong Kong and Singapore to bring in more than $13 million in illegal profits. The traders were trading in advance of this week’s public announcement that China-based CNOOC agreed to acquire Canada-based Nexen.
The court order also prohibits the traders from destroying any evidence in allegations that the Hong Kong-based firm Well Advantage Limited and other unknown traders stockpiled shares of Nexen stock based on confidential information about the deal in the days leading up to the announcement.
Well Advantage is controlled by the prominent Hong Kong businessman Zhang Zhi Rong, who also controls another company that has a “strategic cooperation agreement” with CNOOC.
In the complaint, filed in federal court in Manhattan, the SEC alleged that Well Advantage and certain unknown traders were in possession of material nonpublic information about the impending acquisition when they purchased Nexen’s stock in the days leading up to the public announcement on July 23.
Well Advantage purchased more than 830,000 shares of Nexen on July 19 and had an unrealized trading profit of more than $7 million based on Nexen’s closing price on the day of the announcement. The other unknown traders used accounts located in Singapore to purchase more than 676,000 Nexen shares in the days preceding the announcement, and immediately sold nearly all the stock once the announcement was made for illicit profits of approximately $6 million.
The SEC took the emergency action to freeze the traders’ assets within days of the public announcement of the deal and less than 24 hours after Well Advantage placed an order to liquidate its entire position in Nexen.
Investment Manager Settles Securities Violations, Will Pay $1.1M
New York-based investment manager Peter Siris and two of his firms were charged by the SEC with numerous securities law violations mostly related to his activities with a Chinese reverse merger company, China Yingxia International.
Siris and his firms agreed to pay more than $1.1 million to settle the SEC’s charges, which included insider trading, illegal short selling, making fraudulent representations in a securities purchase agreement, making materially misleading disclosures to fund investors, acting as an unregistered securities broker and making improper unregistered sales of securities.
The SEC also separately charged five individuals and one firm for securities law violations related to China Yingxia. They are Ren Hu, the former CFO of China Yingxia; Peter Dong Zhou; Alan Sheinwald and his investor relations firm, Alliance Advisors; Steve Mazur; and James Fuld Jr.
According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, Siris and his firms Guerrilla Capital Management and Hua Mei 21st Century became involved with China Yingxia in 2007, and their misconduct continued until 2010. Along with being one of three “consultants” that improperly raised money for China Yingxia, Siris and Hua Mei acted as advisers to the purported nutritional foods company.
The SEC alleges that Siris, an active investor in Chinese companies and a former newspaper money columnist, misled investors in his two hedge funds through which he invested $1.5 million in China Yingxia. Siris understated his involvement with the company, particularly after it went out of business, and used his insider status to make illegal trades based on nonpublic information as he received it.
In an attempt to circumvent the registration provisions of the securities laws, Siris also received shares from the China Yingxia CEO’s father and improperly sold them without any registration statement in effect. Siris further engaged in insider trading ahead of 10 confidentially solicited offerings for other Chinese issuers.
FINRA announced that it has expelled Biremis Corp., formerly known as Swift Trade Securities USA, and barred its president and CEO Peter Beck for supervisory violations related to detecting and preventing manipulative trading activities such as "layering," short sale violations, failure to implement an adequate anti-money-laundering program, and financial, operational and numerous other securities law violations.
According to FINRA findings, during various periods from June 2007 to June 2010, Biremis and Beck failed to establish a supervisory system reasonably designed to achieve compliance with applicable laws and regulations prohibiting manipulative trading activity.
Among other things, Biremis' supervisory system failed to include policies and procedures designed to detect and prevent layering on U.S. markets. Layering involves the placement of non-bona fide orders on one side of the market in order to cause market movement that will result in the execution of an order entered on the opposite side of the market, after which the non-bona fide orders are then canceled.
Biremis also failed to establish policies and procedures reasonably designed to detect and prevent manipulative activity designed to affect the closing price of a security. As a result, Biremis failed to detect and prevent potential layering activity and potential manipulation of the closing price of equity securities on U.S. markets.
FINRA found that despite the fact Biremis' only business was to execute transactions on behalf of day traders around the world, Biremis and Beck failed to implement an adequate anti-money-laundering (AML) program to comply with the Bank Secrecy Act.
Among the violations related to its AML program, Biremis failed to properly detect suspicious activities and file suspicious activity reports (SARs) when appropriate. Also, Beck appointed an unqualified and untrained individual to supervise Biremis' AML compliance program and Biremis failed to provide adequate AML training to employees.
In settling these and additional violations, Biremis and Beck neither admitted nor denied the charges, but consented to the entry of FINRA's findings.