SEC Enforcement Chief Andrew Ceresney says that fiscal 2014 which ended September 30 was a “very strong year” for the division “which spanned the entire spectrum of the securities industry” and included many actions that were the “firsts of their kind actions.”
Speaking at the New York City Bar’s 4th Annual Securities Litigation and Enforcement Institute, Ceresney noted that about two-thirds of the division’s enforcement actions targeted individuals, a focus supported by former SEC Chairman Harvey Pitt, who just minutes before spoke about the importance of pursuing individual liability.
Ceresney, who noted that his comments reflected his own personal views and not the commission or its staff, said the enforcement division had pursued several priorities during the last fiscal year including oversight of investment advisors, financial reporting and accounting fraud, and market structure.
On the investment advisor front, the SEC brought actions against private equity firms KKR and Blackstone for excessive fees and expenses, using the authority over private equity funds it was granted under Dodd-Frank, Ceresney explained, noting that the KKR case was the first of its kind. The firm was charged with misallocating broken-deal expenses whereby fund investors paid the full freight of expenses involved in potential deals that were never completed and co-investors including KKR paid nothing. KKR agreed to pay nearly $30 million to settle the charges, including a $10 million penalty.
The commission also charged Blackrock for failing to disclose a conflict of interest involving an energy fund manager and several other firms and individuals for cherry picking trades — allocating the best ones for themselves ahead of their investors.
Ceresney said the SEC is also focusing on financial reporting cases, bringing 134 cases in the last fiscal year – 113 were substantive — compared to 96 the previous year when only 79 were.
He highlighted a two-day stretch in September which “encapsulated” its pursuit of false financial reporting cases each including senior executives — at Bankrate, Kit Digital, Muscle Farm and BDO, a major accounting firm. “This is an area where we’re making great cases,” said Ceresney. “Four cases in a two-day period.”
On market structure, Ceresney said the SEC has brought seven cases against exchanges, including one against ITG, which yielded its highest penalty yet against an alternative trading system (ATS) – a $20.3 million fine against ITG for operating a secret trading desk. Other cases involved Athena, a high-frequency trading firm, and Direct Edge. The SEC expects to bring more cases in this area, said Ceresney.
Ceresney said the SEC has access now to “much improved analytical tools,” which helped the commission bring a recent international “abusive trading” case against 32 defendants accused of hacking into newswire services to get earnings reports before they were published, earning more than $100 million in illicit profits. The ring was based in Ukraine. “The way we were able to analyze the trading in those cases really made that case,” said Ceresney.
The SEC also has been using its authority under Dodd-Frank to pursue enforcement cases in-house through administrative proceedings rather than in federal courts, and has come under criticism from Wall Street and defense lawyers as a result. ”From our perspective administrative proceedings are fair,” said Ceresney. “We look at every case to determine the appopriate forum.”
The SEC has made some changes to its rules of practice for the proceedings, which has made them more like litigation in federal court. Pitt applauded the effort as “exemplary.”
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