The Securities and Exchange Commission recently barred and fined a broker-dealer’s former registered representative for sharing confidential client information with a former c-oworker and fined Qualcomm $7.5 million to settle bribery charges. It also won a successful jury verdict in an insider trading case.
In addition, the Financial Industry Regulatory Authority barred a California-based broker for churning, excessive and unsuitable trading of customer accounts and unauthorized trades.
SEC Suspends, Fines Registered Rep for Sharing Confidential Client Info
Maximilian Santos was suspended by the SEC and fined $75,000 after the regulator found that he had shared confidential client information with a former co-worker who had left the firm after a National Association of Securities Dealers arbitrator found that he had engaged in unauthorized trading in a customer’s account.
According to the SEC, from at least 2005 — the year during which Santos’s former coworker left the firm — through January 2012, Santos shared confidential information pertaining to at least 14 of his customers’ accounts with that former co-worker, and used a personal email address to do so instead of the email provided by the broker-dealer.
Some of the information he sent included certain customers’ account holdings, cash balances and reports of trade activity. He did this without the customers’ knowledge or consent, and without those customers having been given notice of and an opportunity to opt out of the disclosures.
On his co-worker’s departure, Santos had taken over the bulk of his accounts, but despite leaving the firm, the former coworker periodically requested information about his former customers’ accounts from Santos.
Not only did Santos use a personal email address to communicate with his former coworker, to avoid using that coworker’s name in the BD’s email system, he used a personal cellphone to use that personal e-mail account because the broker-dealer blocked access via firm computers to personal email accounts.
Santos also periodically emailed information about his customers’ accounts from his work e-mail account to his personal e-mail account, including stock positions and, on at least one occasion, copies of a customer’s passport, without taking any precautions to keep the data secure.
In addition, he used his personal email account to conduct official business and to service a customer’s account. Among other things, Santos used a personal email address to send wire instructions to the customer; send the customer a stock research report; confirm the customer’s position in a certain security; and field a question from the customer regarding specific trades and the scope of Santos’ authorization to place those trades.
Santos has neither admitted nor denied the SEC’s findings but has consented to the sanctions.
Qualcomm Fined $7.5M for Bribing Chinese Officials With Internships for Relatives
Qualcomm Inc. has agreed to pay $7.5 million to settle charges that it violated the Foreign Corrupt Practices Act by hiring relatives of Chinese government officials deciding whether to select the company’s mobile technology products amid increasing competition in the international telecommunications market.
According to the agency, its investigation found that Qualcomm also provided gifts, travel and entertainment to sway officials at government-owned telecom companies in China. In addition, a lack of sufficient internal controls to detect improper payments meant that Qualcomm misrepresented in its books and records that those were legitimate business expenses.
Qualcomm offered and provided full-time employment and paid internships to foreign officials’ family members internally referred to as “must place” or “special” hires in order to try to obtain or retain business in China. In one such case, an official asked for an internship for her daughter studying in the U.S. and the company obliged, acknowledging in internal communications that her parents “gave us great help for Q.C. new business development.”
Another intern was hired at the request of a Chinese agency’s director general; human resources department emails described the intern as “a MUST PLACE,” and the hiring as “quite important from a customer relationship perspective.”
Qualcomm also provided a $75,000 research grant to a U.S. university on behalf of a foreign official’s son to keep him in its Ph.D. program and renew his student visa — as well as an internship and, later, permanent employment. It sent him on a business trip to China (during which he visited his parents over the Chinese New Year), despite concerns expressed about his qualifications for the assignment. And all that was after the son’s initial interview for permanent employment resulted in a “no hire” decision because he was not “a skills match” and did not “meet the minimum requirements for moving forward with an offer.” Those who interviewed him agreed “he would be a drain on teams he would join.” A human resources director still advocated for the hire, writing, “I know this is a pain, but I think we’re operating under a different paradigm here than a normal ‘hire’/‘no hire’ decision tree. We’re telling this kid … we don’t want to waste time or extend any extra effort in this favor [the telecom company] has asked of Qualcomm, and then turn around and ask the same person we just rejected to do us a special favor.”
Besides the preferential job treatment, a Qualcomm executive personally provided the official’s son with a $70,000 loan to buy a home.
Qualcomm also provided frequent meals, gifts, and entertainment with no valid business purpose to foreign officials to try to influence their decisions, such as airplane tickets for their children, event tickets and sightseeing for their spouses, and luxury goods.
Without admitting or denying the SEC’s charges, Qualcomm agreed to pay the $7.5 million penalty and self-report to the SEC for the next two years with annual reports and certifications of its FCPA compliance.
Jury Finds Two Brokers Guilty of Insider Trading
After a two-week trial, a jury in the Southern District of New York found both Daryl Payton and Benjamin Durant liable for insider trading in SEC v. Payton et al.
In 2014 the pair were charged by the SEC with illegally trading on a tip about the $1.2 billion acquisition of SPSS Inc. in 2009 by IBM Corp. Others previously charged in the case, including Thomas Conradt, who provided the tip, settled with the SEC and pleaded guilty to related criminal charges the year before.
In a statement about the jury’s verdict, Andrew Ceresney, director of the SEC’s Division of Enforcement, said, “Payton and Durant were sophisticated stockbrokers who used highly confidential information about an upcoming transaction to illegally make hundreds of thousands of dollars at the expense of ordinary investors who played by the rules. Today’s jury verdict holding them liable for insider trading reaffirms our commitment to aggressively root out and prosecute insider trading schemes, including by taking defendants to trial, in order to protect the integrity of our markets.”
FINRA Bars California Broker on Churning, Unsuitable Trades
Bahram Mirhashemi, formerly with Accelerated Capital Group in Irvine, California, has been barred from the industry after FINRA found that he “churned customer accounts, engaged in excessive and unauthorized trading of customer accounts and made unsuitable recommendations to customers.”
According to the agency, those trades and the way they were conducted ended up collectively costing his customers — several of whom were elderly, with “at most, moderate” risk tolerance with investment time horizons of at least 4 to 6 years and an investment holding period of at least 1 to 3 years, and who always followed his recommendations — well over a million dollars, between trading losses and commissions.
Mirhashemi also filed late and misleading Forms U4 and failed to file Forms U4 to disclose his liens, compromises with creditors and an outside business activity. In addition, he sent customers materially misleading communications, hiding the facts that in 2015, Accelerated suspended him from trading and prohibited him from serving as a registered representative. Instead, his communications urged clients to move their accounts to an investment advisor affiliate of the firm (where he could continue to earn money through securities-related services).
Mirhashemi neither admitted nor denied FINRA’s findings but consented to the sanction.
— Check out SEC: BNY Mellon Bribed Officials With Internships for Family Members on ThinkAdvisor.