News releases, reports, statements and associated documents from federal regulatory agencies ranging from the Securities Exchange Commission to the Commodities Futures Trading Commission
The Western Union Company (Western Union), a global money services business headquartered in Englewood, Colorado, has agreed to forfeit $586 million and enter into agreements (https://www.ftc.gov/system/files/documents/cases/western_union_consent_order_final_jan2017.pdf) with the Federal Trade Commission, the Justice Department, and the U.S. Attorneys' Offices of the Middle District of Pennsylvania, the Central District of California, the Eastern District of Pennsylvania and the Southern District of Florida. WASHINGTON, Jan. 19 -- The Federal Trade Commission issued the following news release: The Western Union Company (Western Union), a global money services business headquartered in Englewood, Colorado, has agreed to forfeit $586 million and enter into agreements (https://www.ftc.gov/system/files/documents/cases/western_union_consent_order_final_jan2017.pdf) with the Federal Trade Commission, the Justice Department, and the U.S. Attorneys' Offices of the Middle District of Pennsylvania, the Central District of California, the Eastern District of Pennsylvania and the Southern District of Florida.In its agreement with the Justice Department, Western Union admits to criminal violations including willfully failing to maintain an effective anti-money laundering program and aiding and abetting wire fraud.
FTC Chairwoman Edith Ramirez; Acting Assistant Attorney General David Bitkower of the Justice Department's Criminal Division; U.S. Attorney Bruce D. Brandler of the Middle District of Pennsylvania; U.S. Attorney Eileen M. Decker of the Central District of California; Acting U.S. Attorney Louis D. Lappen of the Eastern District of Pennsylvania; U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida; Inspector in Charge David W. Bosch of the U.S. Postal Inspection Service (USPIS) Philadelphia Division; Special Agent in Charge Deirdre Fike of the FBI's Los Angeles Field Office; Chief Richard Weber of Internal Revenue Service-Criminal Investigation (IRS-CI); Special Agent in Charge Marlon V. Miller of U.S. Immigration and Customs Enforcement's Homeland Security Investigations (HSI) Philadelphia; and Special Agent in Charge Stephen Carroll of the Office of Inspector General for the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau (FRB-CFPB OIG) Eastern Region made the announcement.
"Western Union owes a responsibility to American consumers to guard against fraud, but instead the company looked the other way, and its system facilitated scammers and rip-offs," said FTC Chairwoman Edith Ramirez. "The agreements we are announcing today will ensure Western Union changes the way it conducts its business and provides more than a half billion dollars for refunds to consumers who were harmed by the company's unlawful behavior."
"As this case shows, wiring money can be the fastest way to send it - directly into the pockets of criminals and scam artists," said Acting Assistant Attorney General Bitkower. "Western Union is now paying the price for placing profits ahead of its own customers. Together with our colleagues, the Criminal Division will both hold to account those who facilitate fraud and abuse of vulnerable populations, and also work to recoup losses and compensate victims."
"The U.S. Attorney's Office for the Middle District of Pennsylvania has a long history of prosecuting corrupt Western Union Agents," said U.S. Attorney Brandler. "Since 2001 our office, in conjunction with the U.S. Postal Inspection Service, has charged and convicted 26 Western Union Agents in the United States and Canada who conspired with international fraudsters to defraud tens of thousands of U.S. residents via various forms of mass marketing schemes. I am gratified that the deferred prosecution agreement reached today with Western Union ensures that $586 million will be available to compensate the many victims of these frauds."
"Our investigation uncovered hundreds of millions of dollars being sent to China in structured transactions designed to avoid the reporting requirements of the Bank Secrecy Act, and much of the money was sent to China by illegal immigrants to pay their human smugglers," said U.S. Attorney Decker. "In a case being prosecuted by my office, a Western Union agent has pleaded guilty to federal charges of structuring transactions - illegal conduct the company knew about for at least five years. Western Union documents indicate that its employees fought to keep this agent - as well as several other high-volume independent agents in New York City - working for Western Union because of the high volume of their activity. This action today will ensure that Western Union effectively controls its agents and prevents the use of its money transfer system for illegal purposes."
"Western Union's failure to comply with anti-money laundering laws provided fraudsters and other criminals with a means to transfer criminal proceeds and victimize innocent people," said Acting U.S. Attorney Lappen. "Western Union has agreed to forfeit $586 million, the largest forfeiture ever imposed on a money services business, and has agreed to take specific steps to ensure that it complies with the law in the future. This office will continue to vigorously enforce the anti-money laundering laws and regulations, which are necessary to prevent those engaged in fraud, terrorism, human trafficking, drug dealing and other crimes from using companies like Western Union to further their illegal activity."
"Western Union, the largest money service business in the world, has admitted to a flawed corporate culture that failed to provide a checks and balances approach to combat criminal practices," said U.S. Attorney Ferrer. "Western Union's failure to implement proper controls and discipline agents that violated compliances policies enabled the proliferation of illegal gambling, money laundering and fraud-related schemes. Western Union's conduct resulted in the processing of hundreds of millions of dollars in prohibited transactions. Today's historic agreement, involving the largest financial forfeiture by a money service business, makes it clear that all corporations and their agents will be held accountable for conduct that circumvents compliance programs designed to prevent criminal conduct."
"The U.S. Postal Inspection Service has been at the forefront of protecting consumers from fraud schemes for many years," said Inspector in Charge Bosch. "When private businesses participate in the actions that Western Union was involved in, it makes it easier for criminals to victimize innocent citizens. Our commitment to bringing these criminals to justice will not waiver, and we look forward to facilitating compensation to victims."
"Los Angeles-defendant Wang's company was considered to be among the largest Western Union agents in the United States as over $310 million was sent to China in a span of five years, half of which was illegally structured and transmitted using false identification," said Assistant Director in Charge Fike. "Rather than ensuring their high volume agents were operating above-board, Western Union rewarded them without regard to the blatant lack of compliance and illegal practices taking place. This settlement should go a long way in thwarting the proceeds of illicit transactions being sent to China to fund human smuggling or drug trafficking, as well as to interrupt the ease with which scam artists flout U.S. banking regulations in schemes devised to defraud vulnerable Americans."
"As a major player in the money transmittal business, Western Union had an obligation to its customers to ensure they offered honest services, which include upholding the Bank Secrecy Act, as well as other U.S. laws," said Chief Weber. "Western Union's blatant disregard of their anti-money laundering compliance responsibilities was criminal and significant. IRS-CI special agents - working with their investigative agency partners - uncovered the massive financial fraud and is proud to be part of this historic criminal resolution."
"Today's announcement of this significant settlement highlights the positive result of HSI's collaboration with our partner agencies to hold Western Union accountable for their failure to comply with Bank Secrecy laws that preserve the integrity of the financial system of the United States," said Special Agent in Charge Miller. "As a result of this settlement, Western Union now answers for these violations. I thank the Federal Reserve Board's Office of the Inspector General for their partnership in this investigation."
Western Union agreed to settle charges by the FTC in a complaint filed today (https://www.ftc.gov/system/files/documents/cases/western_union_complaint-jan2017.pdf) in the U.S. District Court for the Middle District of Pennsylvania, alleging that the company's conduct violated the FTC Act. The complaint charges that for many years, fraudsters around the world have used Western Union's money transfer system even though the company has long been aware of the problem, and that some Western Union agents have been complicit in fraud. The FTC's complaint alleges that Western Union declined to put in place effective anti-fraud policies and procedures and has failed to act promptly against problem agents. Western Union has identified many of the problem agents but has profited from their actions by not promptly suspending and terminating them.
In resolving the FTC charges, Western Union agreed to a monetary judgment of $586 million and to implement and maintain a comprehensive anti-fraud program with training for its agents and their front line associates, monitoring to detect and prevent fraud-induced money transfers, due diligence on all new and renewing company agents, and suspension or termination of noncompliant agents.
The FTC order prohibits Western Union from transmitting a money transfer that it knows or reasonably should know is fraud-induced, and requires it to:
* block money transfers sent to any person who is the subject of a fraud report;
* provide clear and conspicuous consumer fraud warnings on its paper and electronic money transfer forms;
* increase the availability of websites and telephone numbers that enable consumers to file fraud complaints; and
* refund a fraudulently induced money transfer if the company failed to comply with its anti-fraud procedures in connection with that transaction.
In addition, consistent with the telemarketing sales rule, Western Union must not process a money transfer that it knows or should know is payment for a telemarketing transaction. The company's compliance with the order will be monitored for three years by an independent compliance auditor.
According to admissions contained in the deferred prosecution agreement (DPA) with the Justice Department and the accompanying statement of facts, Western Union violated U.S. laws--the Bank Secrecy Act (BSA) and anti-fraud statutes--by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme.
As part of the scheme, fraudsters contacted victims in the U.S. and falsely posed as family members in need or promised prizes or job opportunities. The fraudsters directed the victims to send money through Western Union to help their relative or claim their prize. Various Western Union agents were complicit in these fraud schemes, often processing the fraud payments for the fraudsters in return for a cut of the fraud proceeds.
Western Union knew of but failed to take corrective action against Western Union agents involved in or facilitating fraud-related transactions. Beginning in at least 2004, Western Union recorded customer complaints about fraudulently induced payments in what are known as consumer fraud reports (CFRs). In 2004, Western Union's Corporate Security Department proposed global guidelines for discipline and suspension of Western Union agents that processed a materially elevated number of fraud transactions. In these guidelines, the Corporate Security Department effectively recommended automatically suspending any agent that paid 15 CFRs within 120 days. Had Western Union implemented these proposed guidelines, it would have prevented significant fraud losses to victims and would have resulted in corrective action against more than 2,000 agents worldwide between 2004 and 2012.
Court documents also show Western Union's BSA failures spanned eight years and involved, among other things, the acquisition of a significant agent that Western Union knew prior to the acquisition had an ineffective AML program and had contracted with other agents that were facilitating significant levels of consumer fraud. Despite this knowledge, Western Union moved forward with the acquisition and did not remedy the AML failures or terminate the high-fraud agents.
Similarly, Western Union failed to terminate or discipline agents who repeatedly violated the BSA and Western Union policy through their structuring activity in the Central District of California and the Eastern District of Pennsylvania. The BSA requires financial institutions, including money services businesses such as Western Union, to file currency transaction reports (CTRs) for transactions in currency greater than $10,000 in a single day. To evade the filing of a CTR and identification requirements, criminals will often structure their currency transactions so that no single transaction exceeds the $10,000 threshold. Financial institutions are required to report suspected structuring where the aggregate number of transactions by or on behalf of any person exceeds more than $10,000 during one business day. Western Union knew that certain of its U.S. Agents were allowing or aiding and abetting structuring by their customers. Rather than taking corrective action to eliminate structuring at and by its agents, Western Union, among other things, allowed agents to continue sending transactions through Western Union's system and paid agents bonuses. Despite repeated compliance review identifying suspicious or illegal behavior by its agents, Western Union almost never identified the suspicious activity those agents engaged in in its required reports to law enforcement
Finally, Western Union has been on notice since at least December 1997, that individuals use its money transfer system to send illegal gambling transactions from Florida to offshore sportsbooks. Western Union knew that gambling transactions presented a heightened risk of money laundering and that through at least 2012, certain procedures it implemented were not effective at limiting transactions with characteristics indicative of illegal gaming from the United States to other countries.
Western Union entered into a DPA in connection with a two-count felony criminal information filed today in the Middle District of Pennsylvania charging Western Union with willfully failing to maintain an effective AML program and aiding and abetting wire fraud. Pursuant to the DPA, Western Union has agreed to forfeit $586 million and also agreed to enhanced compliance obligations to prevent a repeat of the charged conduct, including creating policies and procedures:
* for corrective action against agents that pose an unacceptable risk of money laundering or have demonstrated systemic, willful or repeated lapses in compliance;
* that ensure that its agents around the world will adhere to U.S. regulatory and AML standards; and
* that ensure that the company will report suspicious or illegal activity by its agents or related to consumer fraud reports.
Since 2001, the department has charged and convicted 29 owners or employees of Western Union agents for their roles in fraudulent and structured transactions. The U.S. Attorney's Office of the Middle District of Pennsylvania has charged and convicted 26 Western Union agent owners and employees for fraud-related violations; the U.S. Attorney's Office of the Central District of California has secured a guilty plea from one Western Union agent for BSA violations, and the U.S. Attorney's Office for the Eastern District of Pennsylvania has secured guilty pleas for BSA violations of two other individuals associated with Western Union agents for BSA violations.
USPIS's Philadelphia Division's Harrisburg, Pennsylvania, Office; the FBI's Los Angeles Field Office; IRS-CI; HSI; FRB-CFPB OIG; Department of Treasury OIG; the Orange County Regional Narcotics Suppression Program Task Force; the Broward County, Florida Sherriff's Offices; and Department of Labor investigated the case. Trial Attorney Margaret A. Moeser of the Criminal Division's Money Laundering and Asset Recovery Section's Bank Integrity Unit, Assistant U.S. Attorney Kim Douglas Daniel of the Middle District of Pennsylvania, Assistant U.S. Attorney Gregory W. Staples of the Central District of California, Assistant U.S. Attorneys Judy Smith and Floyd Miller of the Eastern District of Pennsylvania and Assistant U.S. Attorney Randall D. Katz of the Southern District of Florida are prosecuting the case. Asset forfeiture attorneys in each U.S. Attorney's Office and the Money Laundering and Asset Recovery Section provided significant assistance in this matter. The department appreciates the significant cooperation and assistance provided by the FTC in this matter.
Persons who believe they were victims of the fraud scheme should visit the Department of Justice's victim website at https://www.justice.gov/criminal-afmls/remission for instructions on how to request compensation through the Victim Asset Recovery Program.
The Victim Compensation Program, operated by the Money Laundering and Asset Recovery Section, is composed of a team of experienced professionals, including attorneys, accountants, auditors and claims analysts. In hundreds of cases, the Victim Compensation Program has successfully used its specialized expertise to efficiently convert forfeited assets to victim recoveries.
The Commission votes authorizing the staff to file the complaint and stipulated final order were 3-0. The complaint and the stipulated final order were filed in the U.S. District Court for the Middle District of Pennsylvania.
On December 30, 2016, and January 17, 2017, the Honorable Sterling Johnson, Jr., U.S. District Judge for the Eastern District of New York, entered final judgments against Cort Poyner and Mohammad Dolah, both defendants in an SEC action alleging that they engaged in a fraudulent broker bribery scheme designed to manipulate the market for the common stocks of Resource Group International, Inc. and Gold Rock Resources Inc.
The judgments permanently enjoin Poyner and Dolan from violating Section WASHINGTON, Jan. 19 -- The Securities and Exchange Commission issued the following litigation release: On December 30, 2016, and January 17, 2017, the Honorable Sterling Johnson, Jr., U.S. District Judge for the Eastern District of New York, entered final judgments against Cort Poyner and Mohammad Dolah, both defendants in an SEC action alleging that they engaged in a fraudulent broker bribery scheme designed to manipulate the market for the common stocks of Resource Group International, Inc. and Gold Rock Resources Inc. The judgments permanently enjoin Poyner and Dolan from violating Section17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and impose penny stock bars on each defendant.
For further information, see Litigation Release No. 22771 (August 6, 2013).
On February 19, 2015, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b)(4), 15(b)(6) and 21C of the Securities Exchange Act of 1934, Section 203(f) of the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order WASHINGTON, Jan. 19 -- The Securities and Exchange Commission issued the following administrative proceeding (File No. 3-16389) involving VCAP Securities and Brett Thomas Graham on disbursement of fair fund: On February 19, 2015, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b)(4), 15(b)(6) and 21C of the Securities Exchange Act of 1934, Section 203(f) of the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order("Order")1 against VCAP Securities, LLC ("VCAP") and Brett Thomas Graham ("Graham") (collectively, the "Respondents"). The Order created a Fair Fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, for the monies paid by the Respondents (the "Fair Fund"). In accordance with the Order, VCAP paid disgorgement of $1,064,555.00 and prejudgment interest of $85,044.00 and Graham paid disgorgement of $118,284.00, prejudgment interest of $9,449.00 and a civil money penalty of $200,000.00 to the Commission, for a grand total of $1,477,332.00, comprising the Fair Fund.
On November 24, 2015, the Notice of Proposed Plan of Distribution and Opportunity for Comment was published.2 No comments were received on the Proposed Plan of Distribution ("Plan") and on January 12, 2016, the Plan was approved by the Commission.3
The Plan provides for the distribution of the total disgorgement ordered and interest on the fees paid to three harmed CDO trusts and to the senior noteholder of each of the two other trusts according to the methodology set forth in the Plan (the "Harmed Parties"). In accordance with the Plan, the Fund Administrator, a Commission employee, has compiled the necessary information into the specified payment file format to make the five disbursements. Upon issuance of the requested order, the payment file will be submitted to the appropriate Commission staff to issue payments. In accordance with Rule 1101(b)(6) of the Commission's Rules on Fair Fund and Disgorgement Plans, 17 C.F.R. 201.1101(b)(6), the Commission staff requests that the Commission authorize the disbursement of $1,201,706.88 to be distributed to the Harmed Parties in accordance with the Plan.
Accordingly, it is ORDERED that the Commission staff shall direct the payment of $1,201,706.88 from the Fair Fund to be distributed to the Harmed Parties as provided for in the Plan.
By the Commission.
Brent J. Fields
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") and Section 9(b) of the Investment Company Act of 1940 ("Investment Company Act") against Bob Brakeman Enterprises, LLC ("BBE") and WASHINGTON, Jan. 19 -- The Securities and Exchange Commission issued the following administrative proceeding (File No. 3-17803) involving Bob Brakeman Enterprises: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") and Section 9(b) of the Investment Company Act of 1940 ("Investment Company Act") against Bob Brakeman Enterprises, LLC ("BBE") andRobert D. Brakeman ("Brakeman," and together with BBE, "Respondents").
In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 and Section 9(b) of the Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), as set forth below.
On the basis of this Order and Respondents' Offers, the Commission finds that:
This proceeding arises out of BBE's improper registration as an investment adviser, as well as its violation of the Custody Rule and recordkeeping provisions. From at least June 2008 through 2015, BBE was registered with the Commission as an investment adviser solely on the basis that it claimed its principal office and place of business was in Wyoming,1 when in fact Brakeman, the sole officer of BBE, directed, coordinated, and controlled BBE's activities from outside Wyoming-primarily from his home in Michigan. Because BBE's principal office and place of business was not in Wyoming, BBE did not advise a registered investment company, and did not have the requisite assets under management to otherwise register with the Commission, BBE was ineligible to register with the Commission. As a result, BBE's Form ADV filings contained false statements of material fact regarding BBE's eligibility to register with the Commission. In addition, BBE violated the Custody Rule by exercising custody over client assets without arranging for an annual surprise verification of those assets, and BBE's Forms ADV failed to reflect BBE's custody. BBE also failed to maintain and make available to the Commission's staff certain books and records required under the Advisers Act. BBE's owner, Brakeman, was responsible for all of BBE's filings, compliance procedures, and recordkeeping, and aided and abetted and caused its violations.
1. BBE is a Nevada limited liability company formed by Brakeman in 2004. On August 7, 2007, BBE registered with the Commission as an investment adviser by filing a Form ADV. BBE remained registered with the Commission through September 23, 2015, when it withdrew its registration by filing a Form ADV-W. In all of its Form ADV filings from 2007 to 2015, BBE represented that its principal office and place of business was in Wyoming. In its Form
ADV-W filing, BBE represented that its principal office and place of business was in Nevada.
2. Brakeman, 69 years old, is a resident of Delta Township, Michigan (a suburb of Lansing). Brakeman is the owner, sole member, and chief compliance officer for BBE.
BBE Registered with the Commission as an Investment Adviser on the Basis that Its Principal Office and Place of Business Was in Wyoming
3. Brakeman formed BBE in 2004 as a Nevada limited liability company. Brakeman is and always has been the sole owner and member of BBE. Brakeman also acts as the chief compliance officer for BBE, and is the only person who has ever offered investment advisory services on behalf of BBE. BBE has never had any employees other than Brakeman.
4. Brakeman was responsible for all of BBE's filings with the Commission. Brakeman caused BBE to file all of its Forms ADV, and he signed them as chief compliance officer and sole owner of BBE.
5. In August 2007, Brakeman caused BBE to register as an investment adviser with the Commission by filing an initial Form ADV, which he signed. In that filing, BBE represented that: (1) its principal office and place of business was located in Wyoming; (2) BBE's Wyoming location was its sole basis for eligibility to register with the Commission; and (3) BBE did not have custody of its clients' funds or securities. BBE repeated these representations in Forms ADV filed on August 29, 2007, September 12, 2007, October 10, 2007, February 26, 2008, June 19, 2008, March
5, 2009, October 30, 2009, March 22, 2010, March 24, 2011, March 23, 2012, March 20, 2013, October 31, 2013, November 22, 2013, March 24, 2014, and March 26, 2015.
6. In June 2008, BBE amended its Form ADV to indicate that BBE's principal office and place of business was located in Saratoga, Wyoming. At all relevant times, that address housed a printing and mailing company ("Printing Company"). BBE used Printing Company to send and receive correspondence with its clients, as well as for check processing, general recordkeeping, typing, and secretarial services. Printing Company, however, never provided any investment advice on behalf of BBE, and Brakeman himself never conducted any of BBE's activities from that location.
7. In September, 2015, after an examination by Commission staff, Brakeman caused BBE to file a Form ADV-W, withdrawing its registration with the Commission.
BBE and Brakeman Knowingly Misrepresented the Location of BBE's Principal Office and Place of Business
8. From at least June 2008 through 2015, BBE's principal office and place of business was not located in Wyoming.
9. Brakeman has not physically visited BBE's purported address in Saratoga, Wyoming, since at least 2006, and has not been to Wyoming since at least 2010.
10. From at least June 2008 through 2015, Brakeman knew that as BBE's sole owner and employee, he had directed, controlled, and coordinated BBE's activities primarily from his home in Michigan. Therefore, Brakeman knew that he had caused BBE to falsely report in its Forms ADV that BBE's principal office and place of business was in Wyoming.
BBE Had No Basis for Registering with the Commission as an Investment Adviser
11. BBE was prohibited from registering with the Commission because it had a principal place of business in a state that regulated investment advisers, did not have the requisite assets under management, and did not advise a registered investment company.
12. From at least June 2008 through 2015, BBE was ineligible to register with the Commission as an investment adviser.
13. Brakeman was responsible for BBE's registration with the Commission and knew that BBE was ineligible to register with the Commission as an investment adviser.
BBE Had Custody of Client Assets, But Failed to Arrange a Surprise Verification of Client Assets by an Independent Public Accountant
14. In order to permit BBE to enter trade requests on behalf of clients, several BBE clients provided BBE with their login credentials (usernames and passwords) for online brokerage accounts. Once such a client had accepted a trade recommendation from BBE, Brakeman logged in to the client's respective brokerage accounts using the client's own login credentials to enter a trade request.
15. Because BBE possessed and used its clients' personal login credentials for their online brokerage accounts, BBE had the ability to obtain possession of client funds or securities. As a result, BBE had custody of client funds or securities within the meaning of Rule 206(4)-2 of the Advisers Act (the "Custody Rule").
16. Because BBE was registered with the Commission as an investment adviser, even though it was ineligible to be so registered, it was subject to the Custody Rule.
17. BBE never caused an examination by an independent public accountant to verify client funds and securities as required under the Custody Rule.
18. Brakeman was responsible for BBE's compliance efforts and knew that BBE failed to arrange for an annual verification of client funds and securities by an independent public accountant.
BBE and Brakeman Misrepresented Material Facts in BBE's Form ADV Filings
19. In all of its Forms ADV from June 2008 through March 2015, BBE misrepresented the location of its principal office and place of business. In all of its Forms ADV from August 2007 through March 2015, BBE also represented that it did not have custody of client funds or securities, which was false.
20. Brakeman was solely responsible for preparing, signing, and filing BBE's Forms ADV with the Commission. Brakeman knowingly caused BBE to file Forms ADV on August 29, 2007, September 12, 2007, October 10, 2007, February 26, 2008, each of which contained materially false representations regarding BBE's custody of client funds and securities, and Brakeman knowingly caused BBE to file Forms ADV on June 19, 2008, March 5, 2009, October 30, 2009, March 22, 2010, March 24, 2011, March 23, 2012, March 20, 2013, October 31, 2013, November 22, 2013, March 24, 2014, and March 26, 2015, each of which contained materially false representations regarding the location of BBE's principal office and place of business and BBE's custody of client funds and securities.
BBE Failed to Maintain Required Books and Records
21. During at least 2014 and 2015 BBE failed to maintain certain books and records, including copies of solicitation agreements as required by Rule 204-2(a)(10) under the Advisers Act.
22. Brakeman was responsible for BBE's books and records and knew that BBE failed to maintain these records.
23. As a result of the conduct described above, BBE willfully2 violated Section 203A(a) of the Advisers Act by improperly registering with the Commission. Brakeman willfully aided and abetted and caused BBE's violations.
24. As a result of the conduct described above, BBE and Brakeman willfully violated Section 207 of the Advisers Act, which makes it "unlawful for any person willfully to make any untrue statement of material fact in any registration application or report filed with the Commission . . . or willfully to omit to state in any such application or report any material fact which is required to be stated therein."
25. As a result of the conduct described above, BBE willfully violated Section 206(4) of the Advisers Act and Rule 206(4)-2(a)(4) promulgated thereunder, which require, among other things, that an investment adviser have client funds and securities of which the adviser has custody verified by an independent public accountant at least once a year without prior notice to the investment adviser. Brakeman willfully aided and abetted and caused BBE's violations.
26. As a result of the conduct described above, BBE willfully violated Section 204(a) of the Advisers Act and Rule 204-2(a)(10) promulgated thereunder, which require an investment adviser to make and keep certain records, including, among other things, "[a]ll written agreements (or copies thereof) entered into by the investment adviser with any client or otherwise relating to the business of such investment adviser as such," and to furnish copies of such records to the Commission during examinations by representatives of the Commission. Brakeman willfully aided and abetted and caused BBE's violations.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondents BBE and Brakeman's Offers.
Accordingly, pursuant to Sections 203(e), 203(f) and 203(k) of the Advisers Act and Section 9(b) of the Investment Company Act, it is hereby ORDERED that:
A. Respondents BBE and Brakeman cease and desist from committing or causing any violations and any future violations of Sections 203A(a), 204(a), 206(4) and 207 of the Advisers Act and Rules 204-2 and 206(4)-2 promulgated thereunder.
B. Respondent Brakeman be, and hereby is:
barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and
prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter;
with the right to apply for reentry after three (3) years to the appropriate self- regulatory organization, or if there is none, to the Commission.
C. Any reapplication for association by Respondent Brakeman will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following: (a) any disgorgement ordered against the Respondent, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct that served as the basis for the Commission order.
D. Respondent Brakeman shall pay civil penalties of $25,000 to the Securities and Exchange Commission for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). Payment shall be made in the following installments:
(1) $6,250 within 90 days of the entry of this Order;
(2) $6,250 within 180 days of the entry of this Order;
(3) $6,250 within 270 days of the entry of this Order; and
(4) $6,250 within 360 days of the entry of this Order.
If any payment is not made by the date the payment is required by this Order, the entire outstanding balance of civil penalties, plus any additional interest accrued pursuant to 31 U.S.C. 3717, shall be due and payable immediately, without further application. Payment must be made in one of the following ways:
(1) Respondent may transmit payment electronically to the Commission, which will provide detailed ACH transferIFedwire instructions upon request;
(2) Respondent may make direct payment from a bank account via Pay.gov through the SEC website at http:IIwww.sec.govIaboutIofficesIofm.htm; or
(3) Respondent may pay by certified check, bank cashier's check, or United States postal money order, made payable to the Securities and Exchange Commission and hand-delivered or mailed to:
Enterprise Services Center
Accounts Receivable Branch
HQ Bldg., Room 181, AMZ-341
6500 South MacArthur Boulevard
Oklahoma City, OK 73169
Payments by check or money order must be accompanied by a cover letter identifying Brakeman as a Respondent in these proceedings, and the file number of these proceedings; a copy of the cover letter and check or money order must be sent to Kurt L. Gottschall, Division of Enforcement, Securities and Exchange Commission, 1961 Stout Street, Suite 1700, Denver, CO 80294.
E. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid to the government for all purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, Respondent Brakeman agrees that in any Related Investor Action, he shall not argue that he is entitled to, nor shall he benefit by, offset or reduction of any award of compensatory damages by the amount of any part of Respondent Brakeman's payment of a civil penalty in this action ("Penalty Offset"). If the court in any Related Investor Action grants such a Penalty Offset, Respondent Brakeman agrees that he shall, within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the Securities and Exchange Commission. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph, a "Related Investor Action" means a private damages action brought against either Respondent by or on behalf of one or more investors based on substantially the same facts as alleged in the Order instituted by the Commission in this proceeding.
It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 523 of the Bankruptcy Code, 11 U.S.C. section523, the findings in this Order are true and admitted by Respondent Brakeman, and further, any debt for disgorgement, prejudgment interest, civil penalty or other amounts due by Respondent Brakeman under this Order or any other judgment, order, consent order, decree or settlement agreement entered in connection with this proceeding, is a debt for the violation by Respondent Brakeman of the federal securities laws or any regulation or order issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C.
By the Commission.
Brent J. Fields
1 Section 203A generally prohibits from registering with the Commission certain advisers that are regulated or required to be regulated as an investment adviser in the state in which the adviser maintains its principal office and place of business unless certain conditions are met (such as a threshold amount of assets under management and I or advising a registered investment company). Wyoming is currently the only state that does not regulate investment advisers. (Wyoming recently adopted a statue to regulate investment advisers that is not yet effective.) Therefore, investment advisers with a principal office and place of business located in Wyoming, therefore, are generally required to register with the Commission, even if their total assets under management is less than $25 million, while investment advisers with a principal office and place of business in another state are prohibited from registering with the Commission unless they have assets under management of not less than $25 million or they are advisers to a registered investment company. See Section 203A of the Investment Advisers Act of 1940.
2 A willful violation of the securities laws means merely ""that the person charged with the duty knows what he is doing.'" Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).
The Securities and Exchange Commission today announced that SEC Chief of Staff Andrew J. "Buddy" Donohue will be leaving the agency at the end of January.
SEC Chair Mary Jo White named Mr. Donohue as Chief of Staff in May 2015. As Chief of Staff, Mr. Donohue was a senior adviser to the Chair on all policy, management, and regulatory issues. Mr. Donohue had previously served as the Director of the SEC's Division of Investment Management from May 2006 to November 2010.
"Buddy is a seasoned professional WASHINGTON, Jan. 19 -- The Securities and Exchange Commission issued the following news release: The Securities and Exchange Commission today announced that SEC Chief of Staff Andrew J. "Buddy" Donohue will be leaving the agency at the end of January. SEC Chair Mary Jo White named Mr. Donohue as Chief of Staff in May 2015. As Chief of Staff, Mr. Donohue was a senior adviser to the Chair on all policy, management, and regulatory issues. Mr. Donohue had previously served as the Director of the SEC's Division of Investment Management from May 2006 to November 2010. "Buddy is a seasoned professionalwhose deep knowledge of the securities laws and broad market expertise have been invaluable to me and the Commission," said SEC Chair Mary Jo White. "I am very grateful to Buddy for agreeing to return to the Commission so that all of us could benefit from his leadership, wise counsel, and wealth of knowledge and experience."
Mr. Donohue added, "It has been a privilege to serve Chair White and the agency, to work with an incredibly talented and dedicated staff and to be a part of the agency's important mission. I consider myself very fortunate to have had the opportunity to work at the agency twice during my career. I will miss greatly the agency and its staff."
Prior to rejoining the agency, Mr. Donohue had been managing director, associate general counsel and investment company general counsel at Goldman, Sachs & Co. from November 2012 to May 2015. He had also been a partner in the Investment Management Practice Group at Morgan Lewis & Bockius LLP from March 2011 to October 2012.
From May 2003 to May 2006, Mr. Donohue served as global general counsel at Merrill Lynch Investment Managers. In that role, he oversaw the firm's legal, regulatory and compliance matters for the investment advisory business.
For over a decade from June 1991 to November 2001, Mr. Donohue served as executive vice president general counsel, director, and as a member of the executive committee of OppenheimerFunds Inc.
Prior to that, and since 1975, Mr. Donohue served in senior roles at other firms.
Mr. Donohue earned his J.D. From New York University School of Law in 1975 and his B.A. cum laude, with high honors in Economics from Hofstra University in 1972.
Event Number: 52496
Region: 3 State: IL
Unit:   [ ]
RX Type:  GE-5, GE-5
NRC Notified By: MICHAEL LEE
HQ OPS Officer: DONALD NORWOOD
Notification Date: 01/19/2017
Notification Time: 00:39 [ET]
Event Date: 01/18/2017
Event Time: 20:56 [CST]
Last Update Date: 01/19/2017
Emergency Class: NON EMERGENCY
10 CFR Section:
50.72(b)(3)(v)(C) - POT UNCNTRL RAD REL
50.72(b)(3)(v)(D) WASHINGTON, Jan. 19 -- The Nuclear Regulatory Commission issued the following event notification report involving LaSalle in Illinois: Power Reactor Event Number: 52496 Facility: LASALLE Region: 3 State: IL Unit:   [ ] RX Type:  GE-5, GE-5 NRC Notified By: MICHAEL LEE HQ OPS Officer: DONALD NORWOOD Notification Date: 01/19/2017 Notification Time: 00:39 [ET] Event Date: 01/18/2017 Event Time: 20:56 [CST] Last Update Date: 01/19/2017 Emergency Class: NON EMERGENCY 10 CFR Section: 50.72(b)(3)(v)(C) - POT UNCNTRL RAD REL 50.72(b)(3)(v)(D)- ACCIDENT MITIGATION
AARON McCRAW (R3DO)
Click here to view the table: (https://www.nrc.gov/reading-rm/doc-collections/event-status/event/2017/20170119en.html#en52496)
BOTH SECONDARY CONTAINMENT AIRLOCK DOORS OPEN SIMULTANEOUSLY
"This report is being made pursuant to 10 CFR 50.72(b)(3)(v)(C), event or condition that could have prevented fulfillment of a safety function needed to control the release of radioactive material and 10 CFR 50.72(b)(3)(v)(D), event or condition that could have prevented fulfillment of a safety function needed to mitigate the consequences of an accident. An employee entered a secondary containment interlock [airlock] and identified that both doors of the interlock opened simultaneously when the door on the reactor building side was opened. The employee immediately secured both doors in the interlock and notified the Main Control Room Supervisor. Both doors in the interlock were open for approximately five seconds. With both doors open, TS SR 184.108.40.206.2 was not met. This rendered secondary containment inoperable per TS 220.127.116.11. Reactor Building differential pressure, as observed in the Main Control Room has remained less than -0.25 in. H2O at all times. Initial investigation determined that the interlock for the doors was malfunctioning. Administrative controls have been put in place to ensure the doors remain closed pending repairs to the interlock."
The licensee notified the NRC Resident Inspector.
Notified R3DO (McCraw).
The Securities and Exchange Commission today announced that Jennifer A. Diamantis has been named Chief of the Enforcement Division's Office of Market Intelligence, which is responsible for the collection, analysis, and monitoring of the hundreds of thousands of tips, complaints, and referrals that the SEC receives each year.
Before arriving at the SEC in September 2016 to become Deputy Chief of the office, Ms. Diamantis held various positions in the private sector and at federal agencies, including WASHINGTON, Jan. 19 -- The Securities and Exchange Commission issued the following news release: The Securities and Exchange Commission today announced that Jennifer A. Diamantis has been named Chief of the Enforcement Division's Office of Market Intelligence, which is responsible for the collection, analysis, and monitoring of the hundreds of thousands of tips, complaints, and referrals that the SEC receives each year. Before arriving at the SEC in September 2016 to become Deputy Chief of the office, Ms. Diamantis held various positions in the private sector and at federal agencies, includingthe Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, and Commodity Futures Trading Commission. She supervised, investigated, litigated, and managed enforcement actions and oversaw the implementation of complex regulations in the financial space.
The previous Chief of the Office of Market Intelligence, Vincente L. Martinez, left the SEC last summer, and Ms. Diamantis has been serving as Acting Chief since she arrived.
"Within a short time, Jennifer has enhanced the Office of Market Intelligence's critical mission of overseeing the SEC's collection, evaluation, and dissemination of the vast array of market intelligence that we receive," said Stephanie Avakian, Acting Director of the SEC Enforcement Division. "Jennifer's rich work experience as a manager and supervisor and her dedication, expertise, and skill make her an ideal fit for leading the office."
Ms. Diamantis said, "I am honored to lead the team of dedicated professionals charged with the critically important task of leveraging the valuable intelligence we receive from the public to protect investors, and look forward to continuing to cultivate relationships with our regulatory partners to further this mission."
Before joining the SEC staff, Ms. Diamantis held various roles at the CFPB's Division of Research, Markets, and Regulations, most recently Managing Counsel. Before that, she served as Supervisory Counsel in the FDIC's Enforcement Section and Senior Trial Attorney in the CFTC's Division of Enforcement. She also was a partner at the law firm of Schnader Harrison Segal & Lewis LLP.
Ms. Diamantis received her law degree from the University of Michigan Law School in 1999, and earned her bachelor of arts degree with honors from the University of Florida in 1996.