SEC, FINRA Enforcement Roundup: Doctors Fined for Insider Trading

According to the SEC’s complaint, filed in U.S. District Court for the Eastern District of Texas, Orthofix’s Mexican subsidiary, Promeca S.A. de C.V., bribed officials at Mexico’s government-owned health care and social services institution, Instituto Mexicano del Seguro Social (IMSS). The bribery scheme, which began in 2003 and continued until 2010, yielded nearly $5 million in illegal profits for the Orthofix subsidiary.

The bribes, called “chocolates,” came in the form of cash, laptop computers, televisions and appliances provided directly to Mexican government officials or indirectly through front companies that the officials owned.

Initially, Promeca falsely recorded the bribes as cash advances and falsified its invoices to support the expenditures. Later, when the bribes got much larger, Promeca falsely recorded them as promotional and training costs. This made Promeca’s training and promotional expenses significantly over budget. While Orthofix did launch an inquiry, it did very little to investigate or diminish the excessive spending. However, when the company discovered the bribes, it Orthofix immediately self-reported them to the SEC, took significant remedial measures and fired the executives responsible.

Orthofix also disclosed in an 8-K filing that it has reached an agreement with the U.S. Department of Justice to pay a $2.22 million penalty in a related action.

Breakaway Brokers Charged with Misappropriating Trade Secrets, More

In a case destined to go before FINRA, CCO Investment Services, an affiliate of Citizen’s Bank, was granted a temporary restraining order against several former Connecticut brokers and against Wells Fargo Advisors for misappropriating trade secret information, breach of contract and unfair competition.

According to the TRO motion, filed June 5 in U.S. District Court in Connecticut, financial consultants James Oliver, James Venditti and Della Hicks left CCO on June 1 and immediately joined Wells Fargo, where they used what CCO deemed to be confidential information about former clients. While CCO is not a member of the Broker Protocol, which limits the client information a broker can take to another firm, it has its own rules written into broker contracts. Those rules prohibit any client information from being utilized for any purpose other than CCO’s.

The company claims that Oliver and Venditti generated commissions for CCO “[exceeding] $1.2 million, making them among the largest producers in the company.” Of that, “CCO estimates that approximately 70% to 90% of its customer relationships are not generated by the financial consultants themselves,” thereby claiming that CCO, not the brokers, accumulated most of the clients.

The motion, was granted by U.S. District Judge Stefan R. Underhill, but since both parties are members of FINRA, further proceedings will be handled there.