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Regulation and Compliance > Federal Regulation > SEC

SEC, FINRA Enforcement: BHP Billiton to Pay $25M Over Olympics Invites

By Marlene Y. Satter

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The Securities and Exchange Commission fined BHP Billiton $25 million for violating the Foreign Corrupt Practices Act in connection with the Summer Olympics, charged co-owners of a Manhattan brokerage with fraud and an investment firm and two execs with pension fund fraud.

Also, the Financial Industry Regulatory Authority censured and fined EDI Financial for private placement compliance failures.

BHP Billiton to Pay $25 Million on Improper Olympics Invites

The SEC has charged global resources company BHP Billiton with violating the Foreign Corrupt Practices Act (FCPA) when it sponsored the attendance of foreign government officials at the Summer Olympics.

According to the agency, the company’s internal controls over its global hospitality program connected to the 2008 Summer Olympic Games in Beijing were inadequate.

BHP Billiton invited 176 government officials and employees of state-owned enterprises to attend the games at the company’s expense, and ultimately paid for 60 such guests as well as some spouses and others who attended along with them. Sponsored guests were primarily from countries in Africa and Asia, and they enjoyed three- and four-day hospitality packages that included event tickets, luxury hotel accommodations, and sightseeing excursions valued at $12,000 to $16,000 per package.

While the company required business managers to complete a hospitality application form for any individuals they sought to invite to the Olympics, including government officials, it failed to make sure employees knew that no one outside the business unit submitting the application would review and approve each invitation.

In addition, the company did not provide employees with any specific training on how to complete forms or evaluate bribery risks of the invitations. Because of these and other failures, a number of the hospitality applications were inaccurate or incomplete, and BHP Billiton extended Olympic invitations to government officials connected to pending contract negotiations or regulatory dealings such as the company’s efforts to obtain access rights.

BHP Billiton has agreed to settle without admitting or denying the charges. In devising the settlement, the SEC has taken into account BHP Billiton’s remedial efforts and cooperation with the SEC’s investigation. In addition to paying the $25 million penalty, the company is required to report to the SEC on the operation of its FCPA and anti-corruption compliance program for a one-year period.

SEC Charges Brokerage Co-Owners With Fraud

The SEC has charged Robert DePalo and Joshua Gladtke, co-owners of Manhattan-based brokerage firm Arjent LLC and its U.K.-based affiliate Arjent Limited, with defrauding investors.

According to the agency, as Arjent LLC and Arjent Limited were approaching insolvency, DePalo, chairman and CEO, wanted to keep the firms running and at the same time maintain his extravagant lifestyle. To do this, he sold shares in a holding company called Pangaea Trading Partners. DePalo and Gladtke, the managing director and co-owner, misrepresented to investors the value of Pangaea’s assets and how their money would be used. The first $2.3 million raised in the offering was transferred directly to DePalo’s own bank accounts, where he used it for his personal benefit. DePalo also transferred investor funds to Gladtke, and sought to cover up their fraud by making misrepresentations to SEC examiners.

The SEC also charged Pangaea, the Arjent entities, and another entity owned and controlled by DePalo called Excalibur Asset Management, as well as Gregg Lerman, another principal at Arjent LLC. In a parallel action, the New York County District Attorney’s Office has announced criminal charges against DePalo and Gladtke.

Lerman has agreed to settle; subject to court approval, he will face disgorgement and financial penalty amounts to be determined by the court at a later date.

FINRA Censures, Fines Firm on Private Placement Failures

EDI Financial Inc. was censured by FINRA and fined $100,000 for failure to have supervisory procedures in place to make sure that solicitations and sales of private placements were suitable.

According to the agency, the firm did not have written policies or procedures specifying how much of a client’s assets could be allocated to private placements, and there was not enough written guidance for registered representatives to determine whether and how much to recommend to individual clients for private placement investments.

Not only that, but if a customer invested in multiple private placements, there was no system in place to determine whether those investments might add up to an unacceptable concentration.

In addition, customers were not consistently asked to sign switch letters when moving investments among mutual funds. When the lack of a switch letter was noticed, a registered representative got them signed by the clients, but they were dated as of the date of the original transaction and not as of the date of signing. That resulted in inaccurate records.

The firm was also cited for failures in nonbranch inspections and for failing to provide FINRA with documents and information in a timely and complete manner.

The firm neither admitted nor denied the findings, but consented to the sanctions.

— Check out Former BofA Exec to Serve 26 Months in Prison Over Muni Bond Fraud on ThinkAdvisor.

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