More On Legal & Compliancefrom The Advisor's Professional Library
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Among recent enforcement actions by the SEC were charges against a French oil and gas company for bribery; against a Dallas-based trader for front-running; and against proxy advisor ISS for confidentiality violations. Also, a former Goldman Sachs vice president agreed to settle earlier pay-to-play charges.
Oil Company Total to Pay $398 Million for Bribery of Iranian Official
The France-based oil and gas company Total has been charged by the SEC with violating the Foreign Corrupt Practices Act (FCPA) by paying $60 million in bribes to intermediaries of an Iranian government official for his help in securing valuable contracts to develop significant oil and gas fields in Iran.
The company has agreed to pay disgorgement of $153 million in illicit profits, and to retain an independent compliance consultant to review and report on Total’s compliance with the FCPA. It also agreed to pay a $245.2 million penalty as part of a deferred prosecution agreement.
The SEC said that Total negotiated a development contract in 1995 with the National Iranian Oil Company (NIOC) for the country’s Sirri A and E oil and gas fields. Before it did so, however, the company met with the Iranian official. It agreed to enter into a purported consulting agreement with an intermediary designated by the official.
The company also agreed that Total would make payments to the intermediary, disguising them as payments in the “consulting agreement,” when the money was really intended to convince the Iranian official to help obtain NIOC’s approval of the development agreement. Once the contract was executed, Total made the bribery payments; as a result, NIOC allowed Total to develop the Sirri A and E oil and gas fields and make more than $150 million in profits.
Total tried to disguise the bribes via that sham consulting agreement, and others, with intermediaries of the Iranian official and recorded the bribes in its books and records as legitimate “business development expenses” related to the consulting agreements. Total had inadequate systems to properly review the consulting agreements and lacked sufficient internal controls to comply with federal laws prohibiting bribery, the SEC said.
Total was charged not just by the SEC, but also in criminal proceedings by the Justice Department. It has also been charged by the prosecutor of Paris, François Molins.
Former Goldman Sachs VP Agrees to Settlement in Pay-to-Play Scheme
The SEC announced that former Goldman Sachs investment banker Neil Morrison agreed to pay $100,000 and be barred from the securities industry for five years. The measures are to settle charges for Morrison’s role in a pay-to-play scheme that involved undisclosed campaign contributions to then-Massachusetts State Treasurer Timothy Cahill while he was a candidate for governor.
As previously reported by AdvisorOne, Morrison was the vice president in Goldman’s Boston office who solicited underwriting business from the Massachusetts treasurer’s office beginning in July 2008. He was also “substantially engaged,” according to the SEC, in working on Cahill’s political campaigns from November 2008 to October 2010, and at times conducted campaign activities from the Goldman Sachs office during work hours, using the firm’s phones and email.
Goldman had already agreed to settle the charges in September, by paying $12 million—$7,558,942 in disgorgement, $670,033 in prejudgment interest and a $3.75 million penalty.
Elaine Greenberg, chief of the SEC Enforcement Division’s municipal securities and public pensions unit, said of the settlement, “This is the largest penalty ever imposed by the SEC against an individual for violations of the MSRB pay-to-play rules, and the first time an individual is barred from the securities industry for these violations. These tough sanctions against Morrison show that we take abuses of the pay-to-play rules in the municipal securities industry very seriously and will hold individuals accountable for their violations.”
Daniel Bergin, a senior equity trader at Dallas-based investment advisory firm Cushing MLP Asset Management, was charged by the SEC with fraud for front-running, and an emergency freeze was placed on his assets. When firm clients placed block trade orders that had a strong potential to increase a stock’s price, instead of immediately executing those trades, he placed hundreds of personal trades through his wife’s accounts. That way, he was assured of any potential profit before he would execute the clients’ block trades.
Because he is the trader at his firm primarily responsible for managing price exposures related to client orders for equity trades, he was able to manage this; in addition, he had never revealed the existence of his wife’s accounts to his firm, so that any of his trades in those accounts could evade preclearance. He also tried to keep those accounts secret from SEC examiners.
From 2011 to 2012, Bergin brought in at least $1.7 million in profits in his wife’s accounts thanks to his strategy of illegally front-running trades, according to the SEC. More than $520,000 of that total represents profits from approximately 132 occasions on which he made his initial trades in his wife’s account before he executed clients’ trades.
More than $1.8 million was withdrawn since July 2012 from a trading account belonging to Bergin’s wife that he had failed to disclose to his firm. Most of the withdrawals were large transfers to her bank account. Jacqueline Zaun, Bergin’s wife, has been named by the SEC in its complaint as a relief defendant so that recovery of his illegal trading profits in her accounts can be made.
The SEC is seeking disgorgement and additional penalties.
ISS Charged with Violating Client Confidentiality
Rockville, Md.-based proxy adviser Institutional Shareholder Services (ISS) was charged by the SEC with failing to safeguard clients’ confidential proxy voting information in a number of significant proxy contests.
From about 2007 to 2012, the SEC found in an investigation, an ISS employee was found to have provided a proxy solicitor with material, nonpublic information on the voting of proxy ballots by more than 100 of the firm’s institutional shareholder advisory clients. In return, the employee was rewarded by the proxy solicitor with meals, expensive tickets to concerts and sporting events, and an airline ticket.
The employee, no longer at the firm, was able to get away with it partly because, in the absence of controls to prevent his access, he was able to log in to the ISS voting website both at home and at work to get the information. Then he used his personal email to send the data to the proxy solicitor.
The firm neither admitted nor denied the findings, but agreed to settle with the SEC; conditions included a penalty of $300,000 and the engagement of an independent compliance consultant.