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July 2015 Archives

SEC Pays $3 Million Whistleblower Award

The Securities and Exchange Commission (“SEC”) announced last week that it paid out over $3 million to a whistleblower. The payment marks the third highest award since the inception of the Office of the Whistleblower, which was established to administer the SEC’s whistleblower program in 2011. According to the SEC press release the “whistleblower’s specific and detailed information comprehensively laid out the fraudulent scheme which otherwise would have been very difficult for investigators to detect.”Andrew Ceresney, Director of the SEC’s Division of Enforcement stated that “By providing significant financial incentives for people to come forward, the SEC’s whistleblower program continues to be profoundly effective in helping us protect investors and hold wrongdoers accountable.” By law the SEC protects information that may reveal a whistleblower’s identity.According to Sean X. McKessy, Chief of the Office of the Whistleblower, his “office continues to receive thousands of whistleblower tips each year.  When those tips bear fruit, those individuals, like today’s whistleblower, may receive significant financial awards.” The whistleblower program has paid out nearly $50 million to 18 whistleblowers since its launch. The SEC made its largest payment of $30 million in 2014. The payments are funded by an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.For more information on this and other related subjects, please contact us at [email protected] or (619) 298-2880.

OCIE Launches Retirement-Targeted Industry Reviews and Examinations Initiative

As part of its 2015 Examination Priorities the Office of Compliance Inspections and Examinations (“OCIE”) included “examining matters of importance to retail investors and investors saving for retirement” to its initiatives. Based on this priority, the Retirement-Targeted Industry Reviews and Examinations (“ReTIRE”) Initiative has been created under which examinations of SEC-registered investment advisers and broker-dealers (collectively, “registrants”) will take place. OCIE will administer the examinations through the National Examination Program (“NEP”).According to NEP’s June 22, 2015 Risk Alert (the “Risk Alert”) the examinations will focus on the following four (4) service areas offered by SEC-registered investment advisers and broker-dealers:
  • Reasonable Basis for Recommendations
Staff will assess whether registrants and their representatives have acted consistently with their obligations under federal securities laws and self-regulatory organizations (“SROs”) when making recommendations or providing investment advice.
  • Conflicts of Interest
Staff will review fees charged and services and associated fees provided to investors in relation to sales and account selection practices to identify material conflicts of interest.
  • Supervision of Compliance Controls
Controls, oversight and supervisory policies and procedures will also be evaluated by staff for compliance with applicable specific requirements under federal securities laws and SRO’s.
  • Marketing and Disclosure
Marketing materials such as brochures, sales and marketing materials, and retail investor disclosures will be reviewed by staff to assess that the materials are not deceptive or misleading.While examiners will primarily focus on the four (4) services above they may assess additional areas based on other risks found during the examinations. Please refer to the Risk Alert for additional information about what NEP staff will be assessing during the examinations.Jacko Law Group, PC (“JLG”) can assist in reviewing and assessing your firm’s practices and policies and procedures in relation to the ReTire Initiative.For more information on this and other related subjects, please contact us at [email protected] (619) 298-2880.

First "Cherry-Picking" Charges Arise From SEC's Data-Driven Initiative

The Securities and Exchange Commission ("SEC") has charged a Wisconsin-based investment advisory firm and its owner with "cherry-picking." Mark P. Welhouse of Welhouse and Associates, Inc. ("Welhouse") has been accused of placing more favorable trades in his personal and business accounts while allocating less favorable ones to his clients. This is the first case resulting from the SEC's data-driven initiative. The SEC's Enforcement Division analyzed large volumes of Welhouse's trade data and worked with economists in the Division of Economics and Risk Analysis to identify the alleged cherry-picking. Mr. Welhouse is accused of buying options in an S&P 500 exchange-traded fund called SPY in a master account and delaying trade allocation until later in the day so that he could evaluate which trades were profitable .  Welhouse is alleged to have disproportionately allocated the more favorable trades to his business and personal accounts while allocating trades that had depreciated in value to client accounts. According to the SEC Mr. Welhouse acquired $442,319 in ill-gotten gains through his scheme. "Cherry-picking schemes can be extremely difficult to detect without an investor astutely noticing that something may be amiss and coming to us with a complaint about the adviser," said Julie M. Riewe, Co-Chief of the SEC Enforcement Division's Asset Management Unit.  "We devised this initiative to identify specific custodians providing services to investment advisers and their clients and leverage their trading records and other data to efficiently target preferential trade allocations occurring outside the detection of even the most observant client." Please click here to read the entire SEC order instituting administrative proceedings against Welhouse and his firm. For more information on this and other related subjects, please contact us at [email protected] or (619) 298-2880.

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