Among recent enforcement actions by the Securities and Exchange Commission were a penalty against a company that sought to penalize whistleblowers and a bar against a former Goldman Sachs broker for misleading customers.
In addition, the Financial Industry Regulatory Authority censured and fined a firm for supervisory failures related to short-term trading of closed-end funds (CEFs).
Former Goldman Sachs Trader Barred by SEC on Fraud Charges
The former head trader in residential mortgage-backed securities (RMBS) at Goldman Sachs has agreed to be barred from the securities industry and pay $400,000 to settle charges that he repeatedly misled customers and caused them to pay higher prices.
According to the agency, Edwin Chin generated extra revenue for Goldman by concealing the prices at which the firm had bought various RMBS, then reselling them at higher prices to the buying customer with Goldman keeping the difference. On other occasions, Chin misled purchasers by suggesting he was actively negotiating a transaction between customers when he was merely selling RMBS out of Goldman’s inventory.
Chin’s misconduct began in 2010, the SEC said, and continued until he left Goldman in 2012. Without admitting or denying the findings, Chin agreed to the SEC’s determination, and to pay $200,000 in disgorgement, $50,000 in prejudgment interest and a $150,000 penalty.
The investigation is continuing.
SEC Punishes Company on Whistleblower Penalties
A California-based health insurance provider has agreed to pay a $340,000 penalty for illegally using severance agreements requiring outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistleblower program.
In this latest action against a company seeking to hinder whistleblowers, the SEC said that Health Net Inc. violated federal securities laws by taking away from departing employees who wanted to receive severance payments and other post-employment benefits the ability to file applications for SEC whistleblower awards.
Health Net added the provision in August 2011 after the SEC adopted a rule to prohibit any action to impede someone from communicating with the regulator about possible securities law violations. Health Net removed the SEC-specific language from its severance agreements in June 2013, but kept restrictive language that removed the financial incentive for reporting information until it finally changed the agreements to eliminate all such restrictive language last year.
Health Net has neither admitted nor denied the findings, but consented to the penalty and also agreed to make reasonable efforts to inform former employees who signed the severance agreements from Aug. 12, 2011, to Oct. 22, 2015, that Health Net does not prohibit former employees from seeking and obtaining a whistleblower award from the SEC. In addition, Health Net agreed to certify to the SEC’s enforcement division staff that it has complied.
Just recently the SEC also penalized an Atlanta-based building products distributor for using severance agreements that required outgoing employees to waive their rights to monetary recovery should they file a charge or complaint with the SEC or other federal agencies.
FINRA Censures, Fines Ameriprise on Short-Term Trading of Closed-End Funds
Ameriprise Financial Services Inc. was censured by FINRA and fined $100,000 for failure to supervise its registered representatives’ sales of closed-end funds (CEFs) to their customers.
According to the agency, despite the firm knowing that CEFs purchased at an initial public offering were most suitable for long-term investments, and that the sales charges on IPO purchases made short-term trading of these CEFs generally unsuitable, it had no system or procedures in place to detect and prevent potentially harmful short-term trading of CEFs. As a result, at least one registered representative engaged in a pattern of unsuitable short-term trading of CEFs purchased at the IPO.
In addition, a former registered representative engaged in a pattern of recommending short-term trading of CEFs at the IPO in connection with customer accounts. On two occasions, the registered representative’s activity was flagged by the firm’s centralized supervision unit, a group of registered principals responsible for reviewing trading and determining discipline. But no demonstrable action was taken either time, indicating that the firm was not adequately supervising this type of transaction.
FINRA also said that when a CSU registered principal again flagged the registered representative’s activity, an investigation of the registered representative’s CEF recommendations was undertaken, and that ultimately led to the registered representative’s termination.
The firm did not use surveillance reports designed to find patterns of short-term trading or switching of CEFs. While CSU registered principals generally reviewed CEF IPO transactions, and could establish filters in their supervisory review tool to detect potentially unsuitable patterns, they weren’t required to use those filters. That meant that the firm failed to have a supervisory system and written supervisory procedures that could ensure compliance relating to the suitability of short-term trading of CEFs at the IPO.
The firm neither admitted nor denied the findings, but consented to the sanctions.
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