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SEC Fines LendingClub $4M for Fraud: Enforcement

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The Securities and Exchange Commission charged San Francisco-based LendingClub Asset Management and its former president Renaud Laplanche with fraud for improperly using fund money to benefit LendingClub Corp., LendingClub Asset Management’s parent company that Laplanche founded and for which he was CEO.

LendingClub Asset Management and Laplanche, along with Carrie Dolan, LendingClub Asset Management’s former chief financial officer, also were charged with improperly adjusting fund returns. All three have agreed to settle the agency’s charges against them and will pay more than $4.2 million in combined penalties. The SEC also barred Laplanche from the securities industry.

“Investment advisers have an obligation to put their clients’ interests ahead of their own,” said Daniel Michael, chief of the SEC’s Complex Financial Instruments Unit. “By using funds managed by [LendingClub Asset Management] to benefit its parent company, [LendingClub Asset Management] and Laplanche failed to do so.”

According to the SEC’s order, LendingClub Asset Management (formerly known as LendingClub Advisors LLC) provides investment advisory services to several private funds that purchase loan interests offered by LendingClub Corp., a publicly traded online marketplace lending company.

LendingClub Asset Management and Laplanche caused one of the private funds it managed to purchase interests in certain loans that were at risk of going unfunded, to benefit LendingClub, not the fund, in breach of LendingClub Asset Management’s fiduciary duty. The order also finds that LendingClub Asset Management, Laplanche and Dolan improperly adjusted monthly returns for this fund and other LendingClub Asset Management-managed funds to improve the returns they reported to fund investors.

According to Jina Choi, director of the SEC’s San Francisco Regional Office, “investors depend on fund advisors to give them the straight scoop on performance so they can make informed investment decisions. Advisers who adjust their valuation processes to boost results are in breach of their duties to investors.”

The SEC’s order finds that LendingClub Asset Management, Laplanche and Dolan each violated the antifraud provisions of the Investment Advisers Act of 1940. To settle the SEC’s charges, LendingClub Asset Management, Laplanche and Dolan agreed to pay penalties of $4 million, $200,000, and $65,000, respectively. Laplanche also agreed to a securities industry bar and investment company prohibition.

The SEC’s order permits Laplanche to apply for re-entry after three years.  LendingClub Asset Management, Laplanche, and Dolan agreed to the entry of the SEC’s order without admitting or denying the findings.

The SEC’s Enforcement Division did not recommend charges against LendingClub Corp., which promptly self-reported its executives’ misconduct following a review initiated by its board of directors, thoroughly remediated, and provided extraordinary cooperation with the agency’s investigation. LendingClub Asset Management also reimbursed approximately $1 million to investors who were adversely impacted by the improperly adjusted monthly returns.

Credit Suisse to Pay $10M Over Handling of Retail Customer Orders

The Securities and Exchange Commission announced that Credit Suisse Securities has agreed to settle charges brought by the SEC and the Office of the New York Attorney General regarding material misrepresentations and omissions made in connection with its now-closed Retail Execution Services business’ handling of certain customer orders.

The settlements require Credit Suisse to pay $5 million to the SEC and $5 million to the New York Attorney General for a total of $10 million.

“Market makers that handle retail orders must be transparent with their customers about how orders will be executed and how the market maker will profit from their customers’ trades,” said Marc Berger, director of the SEC’s New York Regional Office, in a statement. “The settlement holds Credit Suisse accountable for failing to accurately disclose important information about the nature and quality of its execution of trades for retail investors.”

According to the SEC’s order, Credit Suisse created the Retail Execution Services desk to execute orders for other broker-dealers that handle order flow on behalf of retail investors.

The SEC finds that although Retail Execution Services promoted its access to dark pool liquidity to customers, the firm executed an exceedingly minimal number of held orders — orders that must be executed immediately at the current market price — in dark pools from September 2011 to December 2012.

The SEC’s order also finds that although Credit Suisse touted “robust” and “enhanced” price improvement on orders, the Retail Execution Services’ computer code treated orders for which execution quality is required to be publicly reported differently from orders for which execution quality is not publicly reported.

From mid-2011 to March 2015, retail customers did not receive any price improvement from Retail Execution Services on their nonreportable orders, which Credit Suisse failed to disclose, according to the SEC. The SEC also finds that for these nonreportable orders, Retail Execution Services  disproportionately used a routing tactic that generally caused market impact and resulted in less favorable execution prices for customers, despite claiming to benefit these customers.  The use of this routing tactic provided Retail Execution Services an opportunity to profit from its execution of the final portions of those customer orders internally.

Credit Suisse consented to the SEC’s order without admitting or denying the findings.

SEC Charges Former Texas State Senator, CEO With Securities Fraud

The SEC announced charges against former Texas state senator Carlos Uresti and Stanley Bates for securities fraud and other violations of the federal securities laws.

According to the SEC’s complaint, Bates founded and served as CEO of FWLL LLC (aka Fourwinds Logistics Laredo) to buy and sell sand used in hydraulic fracking to produce oil.

The complaint alleges that Uresti, then an attorney and Texas state senator, provided a veneer of credibility to FWLL and served as the company’s counsel, unlicensed securities broker and escrow agent.

Together, Uresti and Bates allegedly raised more than $11 million by misrepresenting the profitability and safety of investments in the FWLL venture, including presenting a doctored bank statement to investors showing that FWLL had over $18 million in cash, when in reality the company had less than $100,000.

According to the complaint, Uresti persuaded one of his legal clients, a financially unsophisticated single mother, to invest $900,000, which came from a wrongful death settlement that Uresti had secured on her behalf after the death of two of her children. Uresti allegedly received large, undisclosed commissions for his solicitations, and Bates spent most of the investors’ money on lavish and improper payments and expenses.

In related criminal proceedings earlier this year, a federal jury found Uresti guilty on 11 felony counts, including two counts of securities fraud, while Bates pleaded guilty to eight felony counts, including securities fraud. Uresti and Bates were both sentenced to serve terms of imprisonment of 12 and 15 years, respectively, and both were ordered to pay a total of $6.3 million in restitution.

Bates agreed to settle the SEC’s action against him and consented to a final judgment that permanently enjoins him from violating the aforementioned provisions of the federal securities laws, imposes a conduct-based injunction and officer and director bar, and deems his disgorgement satisfied by the restitution ordered against him in the criminal matter. Bates also agreed to settle the proposed administrative proceeding by consenting to associational and penny stock bars.

Court Enters $64 Million Judgment Against Connecticut-Based VC Advisor

A federal district court in Connecticut ordered a Greenwich, Connecticut, investment professional charged by the SEC with fraudulently diverting tens of millions of dollars from the venture capital funds he advised, to pay more than $64 million.

The final judgment ordered Iftikar Ahmed to pay $41.9 million in disgorgement, $1.5 million in interest, and a $21 million civil penalty, and turn over interest and returns on frozen assets.

The SEC had previously obtained a court-ordered asset freeze and preliminary injunction restraining Ahmed’s assets as well as those of his wife, who was named by the SEC as a relief defendant. In doing so, the court found that the “assets belong to Mr. Ahmed and were placed in the names of Relief Defendants as nominees only, in an effort to protect and hide the fraudulently obtained assets.”

SEC Charges Walgreens and 2 Former Execs With Misleading Investors About Earnings Forecast

The SEC charged Walgreens Boots Alliance Inc., former CEO Gregory Wasson, and former CFO Wade Miquelon with misleading investors about increased risk that the company would miss a key financial goal announced when Walgreen Co. entered into a merger with Alliance Boots GmbH in 2012.

Walgreens agreed to pay a $34.5 million penalty to settle the SEC’s enforcement action.

According to the SEC’s order, Walgreens announced a two-step merger with Alliance Boots in June 2012, and at the same time projected that the combined entity would generate $9 billion to $9.5 billion in combined adjusted operating income in the 2016 fiscal year.

After completing the first step of the merger, Walgreens’ internal forecasts indicated that the risk of missing its 2016 projection had increased significantly. But Walgreens, Wasson and Miquelon repeatedly publicly reaffirmed the projections without adequately disclosing the increased risk.

When Walgreens subsequently announced that it was moving forward with the second step of the merger in August 2014, it announced a new earnings per share goal that translated to an adjusted operating income projection of $7.2 billion for fiscal 2016, a 20% decline over its initial projection.  Walgreens’ stock price dropped 14.3% on the day of the announcement.

Without admitting or denying the findings, Walgreens, Wasson, and Miquelon consented to the entry of the SEC order.  The SEC’s order requires each of the respondents to cease and desist from further violations of that provision, and also requires Walgreens Boots Alliance to pay a $34.5 million penalty, and Wasson and Miquelon to each pay a $160,000 penalty.

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