Federal Regulatory Agencies
Federal Regulatory Agencies
News releases, reports, statements and associated documents from federal regulatory agencies ranging from the Securities Exchange Commission to the Commodities Futures Trading Commission
Featured Stories
FCC Issues Public Notice on World Radiocommunication Conference Advisory
WASHINGTON, June 20 -- The Federal Communications Commission issued the following public notice (No. 16-185):Informal Working Group 3 (IWG-3) and Informal Working Group 4 (IWG-4) of the 2019 World Radiocommunication Conference Advisory Committee (WRC-19 Advisory Committee) have scheduled meetings as set forth below. The meetings are open to the public.
The Commission's WRC-19 website (http://www.fcc.gov/wrc-19) contains the latest information on all scheduled meetings and WRC-19 Advisory Committee matters. Documents of the WRC-19 Advisory Committee and IWGs generally are also available for public inspection ... Show Full Article WASHINGTON, June 20 -- The Federal Communications Commission issued the following public notice (No. 16-185): Informal Working Group 3 (IWG-3) and Informal Working Group 4 (IWG-4) of the 2019 World Radiocommunication Conference Advisory Committee (WRC-19 Advisory Committee) have scheduled meetings as set forth below. The meetings are open to the public. The Commission's WRC-19 website (http://www.fcc.gov/wrc-19) contains the latest information on all scheduled meetings and WRC-19 Advisory Committee matters. Documents of the WRC-19 Advisory Committee and IWGs generally are also available for public inspectionand photocopying at the FCC's Reference Information Center on the Courtyard Level (Room CY-A257), 445 12th Street, S.W., Washington, D.C. (telephone: 202-418-0270, TTY: 202-418-2555).
For further information on the attached meeting schedule, contact Michael Mullinix of the International Bureau, Michael.Mullinix@fcc.gov (telephone: 202-418-0491).
Informal Working Group 4: Regulatory Issues
Contacts:
Chair - Jennifer Manner, Jennifer.Manner@echostar.com, telephone: 202-903-0329
FCC Representatives
Allen Yang, telephone: 202-418-0738
Clay DeCell, telephone: 202-418-0803
Larry Olson, telephone: 202-418-2142
Date: Thursday, August 2, 2018
Time: 11:00 a.m. - 12 p.m. ET
Teleconference Only: 1-888-858-2144 or 646-746-3008
Participant Code: 9639001
Informal Working Group 3: Space Services
Contacts:
Chair - Jack Wengryniuk, Jack.Wengryniuk@inmarsat.com, telephone: 202-615-4428
Vice-chair - Zachary Rosenbaum, Zachary.Rosenbaum@o3bnetworks.com, telephone: 202-813-4021
FCC Representatives
Clay DeCell, telephone: 202-418-0803
Sankar Persaud, telephone: 202-418-2441
Date: Thursday, August 2, 2018
Time: 1:00 p.m. - 3:00 p.m. ET
Teleconference Only: 1-888-858-2144 or 646-746-3008
Participant Code: 9639001
SEC Shuts Down $102 Million Ponzi Scheme
WASHINGTON, June 19 -- The Securities and Exchange Commission issued the following news release:The Securities and Exchange Commission today filed charges and obtained an asset freeze against the individuals and companies behind a $102 million Ponzi scheme that bilked investors throughout the U.S.
According to the SEC's complaint, the defendants defrauded more than 600 investors through sales of securities in issuers they controlled, including First Nationle Solution LLC, United RL Capital Services, and Percipience Global Corp. The complaint alleges that investors were told that their funds ... Show Full Article WASHINGTON, June 19 -- The Securities and Exchange Commission issued the following news release: The Securities and Exchange Commission today filed charges and obtained an asset freeze against the individuals and companies behind a $102 million Ponzi scheme that bilked investors throughout the U.S. According to the SEC's complaint, the defendants defrauded more than 600 investors through sales of securities in issuers they controlled, including First Nationle Solution LLC, United RL Capital Services, and Percipience Global Corp. The complaint alleges that investors were told that their fundswould be used for the companies and some were guaranteed dividends or double-digit returns. But, according to the complaint, the defendants spent at least $20 million to enrich themselves, paid $38.5 million in Ponzi-like payments, and transferred much of the remainder in transactions that appear unrelated to the issuers' purported businesses.
The complaint charges Perry Santillo, of Rochester, New York, Christopher Parris, also of Rochester, Paul LaRocco, of Ocala, Florida, John Piccarreto, of San Antonio, and Thomas Brenner, of Orville, Ohio, along with the three companies.
"We allege that the defendants engaged in a massive fraud and swindled investors to line their pockets with ill-gotten gains," said Marc P. Berger, Director of the SEC's New York Office. "Investors should be on high alert whenever they are promised guaranteed returns."
The SEC's complaint, filed in federal district court in Manhattan, charges Santillo, Parris, LaRocco, Piccarreto, Brenner, and the three issuers with violating the antifraud provisions of the federal securities laws. The court granted the SEC's request for an asset freeze and a temporary restraining order. The court will hold a hearing in 10 days concerning the asset freeze and will consider ordering a preliminary injunction.
The SEC encourages investors to check out the background of their investment professional by using the free and simple search tool on http://Investor.gov. Investors should be cautious of investment professionals with a history of misconduct, including disciplinary actions by the Financial Industry Regulatory Authority, or FINRA.
The SEC's continuing investigation is being conducted by Dina Levy, Jordan Baker, and Thomas P. Smith, Jr., and supervised by Lara S. Mehraban. The SEC's litigation will be led by Dugan Bliss and Ms. Levy. The SEC appreciates the assistance of FINRA.
SEC Issues Administrative Proceeding Involving Rubbo
WASHINGTON, June 19 -- The Securities and Exchange Commission issued the following administrative proceeding (No. 3-18547) in the matter of Nicholas Rubbo:In the Matter of Nicholas Rubbo, Respondent.
ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS
I.
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 ... Show Full Article WASHINGTON, June 19 -- The Securities and Exchange Commission issued the following administrative proceeding (No. 3-18547) in the matter of Nicholas Rubbo: In the Matter of Nicholas Rubbo, Respondent. ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934("Exchange Act") against Nicholas Rubbo ("Respondent").
II.
In anticipation of the institution of these proceedings, Respondent has 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, Respondent admits the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in paragraph III.2 below and consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.
III.
On the basis of this Order and Respondent's Offer, the Commission finds that:
1. Beginning no later than January 2012 through present, Respondent offered and sold investments and stock of VIP Television, LLC, VIP TV, Inc., The Spongebuddy, LLC, and related entities ("collectively "VIP"), which were penny stocks, to individual investors while acting as an unregistered broker-dealer. Respondent, 48 years old, is a resident of Broward County, Florida.
2. On December 5, 2017, Respondent pled guilty to a one-count information charging conspiracy to commit offenses against the United States, namely mail fraud, securities fraud, and money laundering, in violation of 18 U.S.C. * 371, before the United States District Court for the District of Colorado, in United States v. Nicholas Rubbo, Crim. No. 17-CR -00417-RBJ.
3. As part of his guilty plea, Respondent stipulated that from 2012 through present, he acted as an unregistered sales agent for VIP, run by his siblings and co-conspirators, that did business in Broward County, and elsewhere, by participating in the offer and sale of VIP stock and related investment offerings. Specifically, Respondent admitted that he and his co-conspirators contacted investors and spoke with them via telephone or through in-person presentations to offer investments and shares of stock in VIP. Respondent signed stock certificates issuing VIP shares to investors, and sold 800,000 shares of VIP stock to an investor at a price of approximately $0.75 per share. Respondent also signed checks issuing purported investment returns to investors. Respondent hid his and his co-conspirators' criminal and disciplinary background from investors, and failed to tell investors that in 2013 and 2014, Respondent and his co-conspirators were the subjects of a civil investigation, and resulting consent order, by the State of Illinois in connection with the offering of securities related to VIP; in 2002, Respondent and his co-conspirators were found to have violated the antifraud and registration provisions of the federal securities law; and that his co-conspirators had criminal histories, including Respondent's prior convictions for conspiracy to commit racketeering. Respondent financially benefitted from the investment scheme by receiving $615,570 in undisclosed commissions and fees directly from VIP based on his fundraising activities. Respondent acted as a broker but has never been registered with the Commission in any capacity.
IV.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondent's Offer.
Accordingly, it is hereby ORDERED pursuant to Section 15(b)(6) of the Exchange Act, that Respondent 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, Pursuant to Section 15(b)(6) of the Exchange Act Respondent be, and hereby is barred from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.
Any reapplication for association by the Respondent 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.
By the Commission.
Brent J. Fields
Secretary
SEC Issues Administrative Proceeding Involving Merrill Lynch, Pierce, Fenner & Smith
WASHINGTON, June 19 -- The Securities and Exchange Commission issued the following administrative proceeding (No. 3-18549) in the matter of Merrill Lynch, Pierce, Fenner & Smith:In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Respondent.
ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933, SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, AND SECTION 203(e) OF THE INVESTMENT ADVISERS ACT OF 1940, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER
I.
The Securities and Exchange ... Show Full Article WASHINGTON, June 19 -- The Securities and Exchange Commission issued the following administrative proceeding (No. 3-18549) in the matter of Merrill Lynch, Pierce, Fenner & Smith: In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Respondent. ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933, SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, AND SECTION 203(e) OF THE INVESTMENT ADVISERS ACT OF 1940, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER I. The Securities and ExchangeCommission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Section 203(e) of the Investment Advisers Act of 1940 ("Advisers Act") against Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch" or "Respondent").
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") that the Commission has determined to accept. Respondent admits the facts set forth in Section IV below, acknowledges that its conduct violated the federal securities laws, admits the Commission's jurisdiction over it and the subject matter of these proceedings, and consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Section 8A of the Securities Act of 1933, Section 15(b) of the Securities Exchange Act of 1934, and Section 203(e) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), as set forth below.
III.
On the basis of this Order and Respondent's Offer, the Commission finds that:
Summary
1. This proceeding concerns Merrill Lynch's sustained efforts to hide its practice of routing certain customer orders to other broker-dealers ("External Liquidity Providers," "Electronic Liquidity Partners," or "ELPs"), including proprietary trading firms and wholesale market makers, for execution. Merrill Lynch configured a number of internal and external trade reporting systems so that customer orders that were executed at ELPs instead appeared to customers to have been executed at Merrill Lynch. For example, Merrill Lynch programmed a system that provided automated messages to customers regarding each trade to report, falsely, that the execution venue was Merrill Lynch and not an ELP. Merrill Lynch similarly misreported ELP executions in reports provided to customers and in billing invoices. Further, when responding to customer questionnaires and in other communications, Merrill Lynch specifically omitted ELPs from lists of venues to which customer orders were routed.
2. Merrill Lynch referred to this practice internally as "masking." Merrill Lynch masked the ELP executions of the firm's "direct strategy access" or "DSA" customers. These customers typically were financial institutions such as asset managers, mutual fund investment advisers, and public pension funds. Merrill Lynch received DSA customer orders and typically sliced them into smaller "child" orders that it routed to various trading centers, including exchanges, Alternative Trading Systems ("ATSs"), and ELPs.
3. During the five years that masking was in place (2008-2013), Merrill Lynch's DSA customers received more than 15.8 million child order executions at ELPs. These transactions involved more than 5.4 billion shares and had a notional value of over $141 billion. Merrill Lynch falsely reported to customers that all of these transactions occurred at Merrill Lynch.
4. As a result of Merrill Lynch's masking practice, Merrill Lynch's customers did not know that (1) some of their orders were executed at ELPs; and (2) other orders were exposed to ELPs before being executed at other venues. This information was material. These customers wanted to know, and expected Merrill Lynch to inform them, if Merrill Lynch sent their orders to ELPs. Certain customers used the execution venue information provided by Merrill Lynch to assess its performance and make strategic choices about their broker-dealer relationships and tactical routing decisions. Certain customers were concerned that orders routed to ELPs could be subject to information leakage. Moreover, certain customers specifically requested that their orders not be sent to ELPs, but Merrill Lynch nevertheless sent some of their orders to ELPs and masked any resulting ELP executions. As a result, these customers' orders received unwanted executions against entities with which they believed their orders would not interact. Because of masking, these customers did not know that Merrill Lynch violated their instructions.
5. Merrill Lynch stopped masking in May 2013 on a prospective basis, but did not inform customers that it previously had masked their ELP executions. To the contrary, Merrill Lynch configured systems so that future reports to customers, typically provided on a monthly or quarterly basis, continued to mask ELP executions that occurred prior to May 2013. More than 30% of the total number of subsequently identified masked executions occurred from May 2012 through May 2013.
6. Merrill Lynch's statements and omissions in communications to customers through responses to questionnaires, messages regarding trade executions, reports, and billing statements were materially misleading concerning orders that Merrill Lynch sent to ELPs and orders that the ELPs executed. Moreover, Merrill Lynch's efforts to mask the correct trading venues, including by altering trade reporting programs, operated as a fraud or deceit upon its customers. As a result, Merrill Lynch willfully violated Sections 17(a)(2) and 17(a)(3) of the Securities Act.1
IV.
Respondent
7. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), a Delaware corporation with its principal offices in New York, New York, is registered with the Commission as a broker-dealer pursuant to Section 15 of the Exchange Act and as an investment adviser pursuant to Section 203 of the Advisers Act. Merrill Lynch is a member of various self-regulatory organizations, including the Financial Industry Regulatory Authority ("FINRA") and various exchanges. Merrill Lynch engages in securities brokerage for retail and institutional customers. Merrill Lynch operates a dark pool pursuant to Regulation ATS. In 2012, Merrill Lynch renamed its dark pool Instinct X. Merrill Lynch is a wholly-owned subsidiary of Bank of America Corporation. Bank of America Corporation is a Delaware corporation, whose common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and trades on the New York Stock Exchange.
Facts
A. Background
8. One of the primary functions of broker-dealers is the routing of customer orders to trading centers for execution. The U.S. equities markets comprise multiple types of trading centers, including registered exchanges and ATSs, many of which operate as dark pools. In addition, certain broker-dealers themselves act as trading centers, including by functioning as wholesale market makers or internalizers.
9. Once orders have been executed, broker-dealers provide their customers with information regarding the executions. This information may identify where the executions took place--at exchanges, dark pools, or other broker-dealers. The information may be provided in varying formats and through different channels, including messages transmitted through the Financial Information eXchange ("FIX") protocol system. FIX protocol is an electronic messaging protocol commonly used in the financial industry that allows parties to an electronic trade--the customer, broker-dealer, and trading venue--to transmit information about orders. This is done through a system of digital fields called "tags" that are populated during the trading process. Entities and individuals that receive FIX messages select which tags their broker-dealers should populate.
10. Two FIX message tags identify the venue where the execution occurred. "Tag 76," or the "executing broker" field, identifies the broker with whom an order was held at the point of execution. Prior to masking, Merrill Lynch used Tag 76 to identify the specific exchange, ATS, or other broker-dealer where the order received execution. "Tag 30," or the "last market" field, similarly identifies the trading venue at which the order was executed, again listing the specific exchange, ATS, or other broker-dealer. Many traders use these FIX tags to adjust intra-day trading and to assess historical performance. As discussed below, to implement masking, Merrill Lynch rewrote its code so that Tags 76 and 30 listed Merrill Lynch when customer executions occurred at ELPs.
B. Merrill Lynch's "ELP" Program
11. In approximately late 2007, Merrill Lynch began developing a program to route certain customer orders, on an "Immediate or Cancel" basis,2 to one or more ELPs, after first attempting to obtain executions in Merrill Lynch's dark pool or at other ATSs. Merrill Lynch then routed any remaining unexecuted shares to other ELPs, exchanges, and ATSs, or executed the shares itself as counter-party.
12. ELPs were broker-dealers that had proprietary trading and wholesale market-making components. Merrill Lynch also referred to the ELPs internally as "Trading Partners." The ELPs gained access to customer orders, which they could choose to execute against. The ELPs provided liquidity by filling some customer orders, and the rest were then sent by Merrill Lynch to the broader market.
13. When implementing masking, a Merrill Lynch employee stated that the "[g]oal is to increase the volume sent to these trading partners." Masking offered a way for Merrill Lynch to increase its order flow to ELPs without informing customers, including those who had specifically expressed concerns about ELPs. When orders were executed by ELPs, Merrill Lynch avoided the access fees typically charged by exchanges while receiving commissions from customers. In addition, listing ELP executions as having occurred at Merrill Lynch gave the misleading impression that Merrill Lynch was a more active trading center than it actually was.
C. Merrill Lynch "Masked" ELP Executions
14. Merrill Lynch began systematically routing customer orders to ELPs on May 20, 2008. Throughout the next five years, Merrill Lynch made changes to the program, adding and disabling broker-dealers as ELP destinations. Throughout the five-year period, Merrill Lynch took steps to ensure that customers did not learn that their orders had been sent to or executed at ELPs and instead believed that Merrill Lynch had executed the orders internally.
15. Merrill Lynch reconfigured its FIX messaging system to "mask" the execution venue of orders that received executions at ELPs. Merrill Lynch altered software code so that its systems removed the ELP's identifier from the two FIX fields that identify the execution venue and replaced it with the Merrill Lynch identifier prior to sending the FIX messages to customers.
16. Similarly, Merrill Lynch reprogrammed the systems responsible for generating Transaction Cost Analysis ("TCA") reports provided to customers. Customers could elect to receive these reports with various frequencies, such as monthly or quarterly. The TCA reports contained pie charts that aggregated the customer's executions by venue, listing each exchange and ATS by the percentage of the customer's executed trades that occurred at that venue over the relevant period. Merrill Lynch modified the TCA reports to remove ELPs as venues and to instead falsely show that the ELP executions had occurred at Merrill Lynch.
17. Merrill Lynch similarly removed ELP venues from billing invoices sent to its customers and instead identified ELP executions as having occurred at Merrill Lynch. At first, Merrill Lynch employees manually deleted ELPs from customers' monthly bills. Merrill Lynch eventually automated the process.
18. Merrill Lynch extended "masking" to communications with customers regarding trading centers. When responding to questions from customers regarding routing destinations, Merrill Lynch specifically omitted ELPs. For example, in response to customer questionnaires that asked for a precise list of all trading destinations to which Merrill Lynch sent the relevant customer's orders, Merrill Lynch repeatedly listed specific exchanges and dark pools but not the multiple ELPs where Merrill Lynch also sent the customer's orders. Merrill Lynch also removed references to ELPs from ad hoc communications with customers regarding order routing and potential venues.
19. Merrill Lynch also engaged in "masking" when describing the execution venue data that Merrill Lynch provided in FIX messages and TCA reports. For example, in a June 2012 questionnaire response to one customer, Merrill Lynch wrote, "Since we feel it is important for clients to examine where brokers are routing their orders, we regularly provide clients with liquidity maps [TCA reports] upon demand. . . . Clients can also elect to receive real-time venue and liquidity flag information for each fill on their FIX execution messages." This response did not, however, advise the customer that in its TCA reports and FIX messages, executions that had occurred at ELPs would falsely be reflected as executions that occurred at Merrill Lynch. During the time period that masking was in effect at Merrill Lynch, more than 67,000 of this customer's orders for more than 28 million shares with a notional value of more than $839 million received executions at ELPs. Merrill Lynch masked all of these executions.
20. In February 2013, a different customer asked Merrill Lynch whether it supported various FIX tags, including Tag 30, the "last market" field. Merrill Lynch responded that the firm did support Tag 30. However, the response failed to tell the customer that Tag 30 falsely listed Merrill Lynch whenever the customer's orders were executed at ELPs. During the time period that masking was in effect, more than 9,800 of this customer's orders for more than 3 million shares with a notional value of more than $68 million received executions at ELPs. Merrill Lynch masked all of these executions.
21. In March 2013, another customer asked Merrill Lynch to provide information regarding the total shares routed to and total shares executed at each trading venue to which Merrill Lynch had sent the customer's orders. Merrill Lynch personnel initially created a table that provided this information for all of the venues to which the customer's orders had been routed and at which they had received executions, including ELPs. Prior to sending the response, however, Merrill Lynch modified the table and deleted ELPs from the list of execution venues, and the shares Merrill Lynch had routed to ELPs or that were executed at ELPs were included in the total for orders routed to and executed at Merrill Lynch. During the time period that masking was in effect at Merrill Lynch, more than 9,000 of this customer's orders, consisting of more than 2.9 million shares with a notional value of more than $91 million, were executed at ELPs. Merrill Lynch masked all of these executions.
22. Merrill Lynch's masking efforts were focused on customers and customer communications. Merrill Lynch's internal data systems responsible for records provided to regulators accurately reflected execution venues when trades occurred at ELPs.
D. Merrill Lynch Routed to ELPs Despite Customer Instructions
23. Some Merrill Lynch customers instructed Merrill Lynch not to route orders to firms that were ELPs when Merrill Lynch routed the customers' orders to external venues. However, Merrill Lynch routed orders to ELPs on behalf of multiple customers in contravention of these instructions. As a result, these customers' orders were exposed to entities with which they believed their orders would not interact.
24. For example, one customer had in place a directive since August 2008 to exclude interactions with all ELPs on all of its orders. Despite this instruction, Merrill Lynch subsequently sent this customer's orders to ELPs, resulting in more than 108,000 executions for more than 33 million shares with a notional value of more than $1 billion. Merrill Lynch masked all of these executions.
25. Another customer provided Merrill Lynch with a list in December 2012 of the counterparties and venues with which it wanted to interact, and none of the venues listed were ELPs. In bolded lettering, the customer instructed Merrill Lynch, "If your platform connects to any venue other than those listed here, please arrange to disconnect that venue as of January 1, 2013." Nevertheless, Merrill Lynch decided to continue sending the customer's orders to ELPs because (as discussed in an internal e-mail) they were "currently masked as MLCO [Merrill Lynch]," meaning that the customer would not be able to see that Merrill Lynch had disregarded the instructions. This customer received more than 104,000 ELP executions for more than 33 million shares with a notional value of more than $1.2 billion. Merrill Lynch masked all of these executions.
26. A number of other customers instructed Merrill Lynch that they did not want their orders to interact with certain categories of counterparties (such as high frequency traders or market makers), which would include ELPs, in Merrill Lynch's dark pool. However, Merrill Lynch did not discuss with these customers the possibility that their orders could interact with ELPs should Merrill Lynch send their orders for execution outside of the dark pool.
E. Merrill Lynch Stops Masking ELP Executions But Does Not Inform Customers
27. The impact of masking was significant. From July 2009 through May 2013, Merrill Lynch's routing of DSA customer orders to ELPs resulted in approximately 15.8 million customer executions at ELPs, representing approximately 5.4 billion shares with a notional value of approximately $142 billion. Merrill Lynch falsely reported all of these transactions to customers as having occurred at Merrill Lynch.
28. In October 2012, Merrill Lynch personnel discussed ending masking in order to "provide transparency to our clients." Despite this recognition, Merrill Lynch continued to mask ELP executions over the next seven months and did not inform customers about the practice.
29. On May 6, 2013, Merrill Lynch began providing customers with accurate information regarding execution venues on a prospective basis. In subsequent FIX messages, TCA reports, billing invoices, and customer communications, Merrill Lynch included ELPs when listing execution venues, but only for trades occurring on or after May 6, 2013.
30. Merrill Lynch did not provide written notice to its customers nor did it systematically communicate to affected customers that their orders had been sent to ELPs, with their executions masked, for the preceding five years. To the contrary, Merrill Lynch specifically programmed its reporting systems so that customers whose TCA reports straddled May 6, 2013 would see only those trades that occurred on or after May 6, 2013 marked as ELP executions.
31. Information about masking was material. After Merrill Lynch ended masking and executions at ELPs became transparent, a number of customers modified their routing options to exclude the ELPs as potential destinations.
V.
VIOLATIONS
32. As a result of the conduct described above, Merrill Lynch willfully violated:
a. Section 17(a)(2) of the Securities Act, which makes it unlawful for "any person in the offer or sale of any securities . . . directly or indirectly. . . to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading."
b. Section 17(a)(3) of the Securities Act, which makes it unlawful for "any person in the offer or sale of any securities . . . to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser."
In determining to accept the Offer, including the amount of the civil penalty, the Commission considered cooperation Respondent afforded the Commission staff beginning in May 2017.
VI.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondent's Offer.
Accordingly, pursuant to Section 8A of the Securities Act, Section 15(b) of the Exchange Act, and Section 203(e) of the Advisers Act, it is hereby ORDERED that:
A. Merrill Lynch cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act;
B. Merrill Lynch is censured;
C. Merrill Lynch shall, within 14 days of the entry of this Order, pay a civil money penalty in the amount of $42 million ($42,000,000) 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). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. *3717.
Payment must be made in one of the following ways:
(1) Respondent may transmit payment electronically to the Commission, which will provide detailed ACH transfer/Fedwire instructions upon request;
(2) Respondent may make direct payment from a bank account via Pay.gov through the SEC website at http://www.sec.gov/about/offices/ofm.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 Merrill Lynch 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 Joseph G. Sansone, Chief, Market Abuse Unit, Division of Enforcement, Securities and Exchange Commission, Brookfield Place, 200 Vesey Street, Suite 400, New York, NY 10281.
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 agrees that in any Related Investor Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of compensatory damages by the amount of any part of Respondent'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 agrees that it 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 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.
By the Commission.
Brent J. Fields
Secretary
NRC Receives Event Notification Involving Salem Nuclear Plant
WASHINGTON, June 19 -- The Nuclear Regulatory Commission issued the following event notification (No. 53438) involving Salem nuclear plant, New Jersey:EN Revision Imported Date : 6/19/2018
EN Revision Text: TORNADO MISSILE VULNERABILITIES
"During the period of evaluation of tornado missile vulnerabilities and the potential impacts to technical specification (TS) plant equipment, it was determined that the power cables to a safety related motor control center (MCC) in the service water (SW) intake structure are not adequately protected from tornado generated missiles. During walk downs, it was ... Show Full Article WASHINGTON, June 19 -- The Nuclear Regulatory Commission issued the following event notification (No. 53438) involving Salem nuclear plant, New Jersey: EN Revision Imported Date : 6/19/2018 EN Revision Text: TORNADO MISSILE VULNERABILITIES "During the period of evaluation of tornado missile vulnerabilities and the potential impacts to technical specification (TS) plant equipment, it was determined that the power cables to a safety related motor control center (MCC) in the service water (SW) intake structure are not adequately protected from tornado generated missiles. During walk downs, it wasidentified that the installed SW pipe tunnel barrier is not adequate. A tornado could generate missiles capable of striking the power cables and rendering a SW MCC inoperable.
"These conditions are reportable per 10 CFR 50.72(b)(3)(ii)(B) and per 10 CFR 50.72(b)(3)(v)(D).
"This condition is being addressed in accordance with NRC enforcement guidance provided in Enforcement Guidance Memorandum (EGM) 15-002, 'Enforcement Discretion for Tornado-Generated Missile Protection Noncompliance,' Revision 1, and DSS-ISG-2016-01, 'Clarification of Licensee Actions in Receipt of Enforcement Discretion per Enforcement Guidance Memorandum EGM 15-002, Enforcement Discretion for Tornado- Generated Missile Protection Noncompliance,' Revision 1. Compensatory measures have been implemented in accordance with these documents.
"The NRC Resident Inspector has been notified."
The licensee will be notifying the Lower Alloways Creek Township.
UPDATE ON 6/18/2018 AT 1604 EDT FROM JUSTIN HARGRAVE TO RICHARD SMITH
"During subsequent walk downs, PSEG [Public Service Enterprise Group] identified that both the Unit 1 and Unit 2 turbine driven auxiliary feedwater pumps are also not adequately protected from tornado generated missiles. The steam exhaust pipe could be potentially impacted and cause crimping that could reduce steam exhaust flow and pump capacity. EN 53438 is updated to include both Salem units and these additional components.
"This condition is being addressed in accordance with NRC enforcement guidance provided in enforcement Guidance Memorandum (EGM) 15-002, 'Enforcement Discretion for Tornado-Generated Missile Protection Noncompliance,' Revision 1, and DSS-ISG-2016-01, 'Clarification of Licensee Actions in Receipt of Enforcement Discretion per Enforcement Guidance Memorandum EGM 15-002, Enforcement Discretion for Tornado-Generated Missile Protection Noncompliance,' Revision 1. Compensatory measures have been implemented in accordance with these documents."
The NRC Resident Inspector has been notified.
The licensee will be notifying the Lower Alloways Creek Township.
Notified R1DO (Burritt).
Power Reactor
Facility: SALEM
Region: 1
State: NJ
Unit: [] [2] []
RX Type: [1] W-4-LP,[2] W-4-LP
NRC Notified By: MATTHEW D. MOG
HQ OPS Officer: JEFF HERRERA
Emergency Class: NON EMERGENCY
10 CFR Section:
50.72(b)(3)(ii)(B) - UNANALYZED CONDITION
50.72(b)(3)(v)(D) - ACCIDENT MITIGATION
Event Number: 53438
Notification Date: 06/01/2018
Notification Time: 14:42 [ET]
Event Date: 06/01/2018
Event Time: 00:00 [EDT]
Last Update Date: 06/19/2018
Person (Organization):
GLENN DENTEL (R1DO)
NRC Receives Event Notification Involving Applied Geotechnical Engineering Consultants
WASHINGTON, June 19 -- The Nuclear Regulatory Commission issued the following event notification (No. 53451) involving Applied Geotechnical Engineering Consultants, Salt Lake City, Utah:AGREEMENT STATE REPORT - STOLEN MOISTURE-DENSITY GAUGE
The following was received from the State of Utah via email.
"The morning of June 10, 2018, the licensee discovered that a portable nuclear density gauge had been stolen from one of their work trucks. The truck had been parked in the driveway of the AGEC's [Applied Geotechnical Engineering Consultants, Inc.] employee's house. The license claims that the ... Show Full Article WASHINGTON, June 19 -- The Nuclear Regulatory Commission issued the following event notification (No. 53451) involving Applied Geotechnical Engineering Consultants, Salt Lake City, Utah: AGREEMENT STATE REPORT - STOLEN MOISTURE-DENSITY GAUGE The following was received from the State of Utah via email. "The morning of June 10, 2018, the licensee discovered that a portable nuclear density gauge had been stolen from one of their work trucks. The truck had been parked in the driveway of the AGEC's [Applied Geotechnical Engineering Consultants, Inc.] employee's house. The license claims that thegauge was properly stored in storage container that was bolted to the bed of the truck and the tailgate was locked. The licensee explained that the perpetrator broke through the locked tailgate, cut the barriers around the Troxler box, cut the locks on the Troxler box and removed the portable gauge. The Salt Lake City Police Department was also contacted. The licensee will continue to investigate the incident and will submit a written report to the DWMRC [Division of Waste Management and Radiation Control]."
Event Report ID No.: UT180002
THIS MATERIAL EVENT CONTAINS A "LESS THAN CAT 3" LEVEL OF RADIOACTIVE MATERIAL
Sources that are "Less than IAEA Category 3 sources," are either sources that are very unlikely to cause permanent injury to individuals or contain a very small amount of radioactive material that would not cause any permanent injury. Some of these sources, such as moisture density gauges or thickness gauges that are Category 4, the amount of unshielded radioactive material, if not safely managed or securely protected, could possibly - although it is unlikely - temporarily injure someone who handled it or were otherwise in contact with it, or who were close to it for a period of many weeks. For additional information go to http://www-pub.iaea.org/MTCD/publications/PDF/Pub1227_web.pdf
Agreement State
Rep Org: UTAH DIVISION OF RADIATION CONTROL
Licensee: APPLIED GEOTECHNICAL ENGINEERING CONSULTANTS, INC.
Region: 4
City: SALT LAKE CITY
State: UT
County:
License #: UT1800298
Agreement: Y
Docket:
NRC Notified By: PHIL GOBLE
HQ OPS Officer: DONG HWA PARK
Emergency Class: NON EMERGENCY
10 CFR Section:
AGREEMENT STATE
Event Number: 53451
Notification Date: 06/11/2018
Notification Time: 10:21 [ET]
Event Date: 06/10/2018
Event Time: 00:00 [MDT]
Last Update Date: 06/11/2018
Person (Organization):
NICK TAYLOR (R4DO)
NMSS_EVENTS_NOTIFICATION (EMAIL)
ILTAB (EMAIL)
CFTC Orders JPMorgan Chase Bank, N.A. to Pay $65 Million Penalty for Attempted Manipulation of U.S. Dollar ISDAFIX Benchmark Swap Rates
WASHINGTON, June 19 -- The Commodity Futures Trading Commission issued the following enforcement news release:The Commodity Futures Trading Commission (CFTC or Commission) today issued an Order filing and settling charges against JPMorgan Chase Bank, N.A. (JPMC) for attempted manipulation of the ISDAFIX benchmark and requiring JPMC to pay a $65 million civil monetary penalty.
The CFTC Order finds that over a five-year period, beginning in at least January 2007 and continuing through January 2012 (the Relevant Period), JPMC made false reports and attempted to manipulate the U.S. Dollar International ... Show Full Article WASHINGTON, June 19 -- The Commodity Futures Trading Commission issued the following enforcement news release: The Commodity Futures Trading Commission (CFTC or Commission) today issued an Order filing and settling charges against JPMorgan Chase Bank, N.A. (JPMC) for attempted manipulation of the ISDAFIX benchmark and requiring JPMC to pay a $65 million civil monetary penalty. The CFTC Order finds that over a five-year period, beginning in at least January 2007 and continuing through January 2012 (the Relevant Period), JPMC made false reports and attempted to manipulate the U.S. Dollar InternationalSwaps and Derivatives Association Fix (USD ISDAFIX), a leading global benchmark referenced in a range of interest rate products, to benefit its derivatives positions, including positions involving cash-settled options on interest rate swaps.
James McDonald, CFTC Director of Enforcement, commented: "This matter is one in a series of CFTC actions that clearly demonstrates the Commission's unrelenting commitment to root out manipulation from our markets and to protect those who rely on the integrity of critical financial benchmarks."
During the Relevant Period, USD ISDAFIX was set each day in a process that began at 11:00 a.m. Eastern Time with the capture and recording of swap rates and spreads from a U.S. based unit of a leading interest rate swaps brokering firm (Swaps Broker). ISDAFIX rates and spreads are published daily and are meant to indicate the prevailing mid-market rate, at a specific time of day, for the fixed leg of a standard fixed-for-floating interest rate swap. They are issued in several currencies and are published for various maturities of U.S. Dollar-denominated swaps. The most widely used USD ISDAFIX rates and spreads, and the ones at issue in this Order, are those that are intended to indicate the prevailing market rate as of 11:00 a.m. Eastern Time. The 11:00 a.m. USD ISDAFIX rate is used for the cash settlement of options on interest rate swaps, or swaptions, and as a valuation tool for certain other interest rate products.
The Order finds that certain JPMC traders understood and employed two primary means in their attempts to manipulate USD ISDAFIX rates: trading attempted manipulation and submission attempted manipulation.
Trading Attempted Manipulation
According to the Order, JPMC attempted to manipulate the USD ISDAFIX by bidding, offering, and executing transactions in targeted interest rate products, including swap spreads and U.S. Treasuries at or near the critical 11:00 a.m. fixing time to affect rates on the electronic interest rate swap screen known as the "19901 screen" and thereby increase or decrease the Swaps Broker's reference rates and influence the final published USD ISDAFIX. As one JPMC employee acknowledged in an electronic communication with one of the Swaps Broker's employees, it was possible to "muscle the fix at 11" through trading at 11:00 a.m. Another member of the JPMC Swaps Desk (JPMC Swaps Trading Assistant) provided the following description to a colleague at JPMC regarding the efforts by a JPMC Swaps Desk trader to "muscle" the USD ISDAFIX:
[Y]ou know how there is an 11am screen print for ISDA of where rates are . . . well-- sometimes clients put orders in to do trades at the 11 o'clock screen shot--so they get positioned for that and then there's often a big push to move the screen a 1/4 [basis point] in their favor but sometimes there are other dealers trying to go the opposite way so it ends up being a screaming match to try and figure out which way it's going to go so today, [an identified JPMC swaps trader] didn't win the battle and he was pissed.
The description of a "battle" at 11:00 a.m. to control the 11:00 a.m. reference point snapshot is consistent with both trading records during the Relevant Period, as well as recorded audio instructions at least one JPMC Swaps Trader gave to the Swaps Broker regarding executing his trades just prior to 11:00 a.m. For example, the trader gave the following instructions to the Swaps Broker just before 11:00 a.m. regarding his intentions for trading the 10-year and 30-year tenors at 11:00 a.m.:
"At 11:00, I want to hit, lift 10s. Okay . . . I'll lift them up. I'll play the game for up to 400 . . . I'd like to keep it up at 1/4 if I can. I don't want bonds to go over fifty so if they go up to fifty bid, I'm a 1/4 offer. If they lift me, they go down immediately. I'll, I'll sell whatever he wants to sell, okay."
JPMC's efforts to manipulate or "muscle" the USD ISDAFIX and prices on the 19901 screen were common knowledge and openly joked about by certain JPMC traders. When transferring a position between desks, a JPMC trader jokingly commented, "ha, don't let the rates go up." In another electronic communication, a senior trader on the JPMC Swaps Desk openly mocked another senior trader on the desk for bragging about his ability to manipulate the 11:00 a.m. ISDAFIX setting in a group chat, writing "remember when i moved the screen in 2y[year] spreads at the 11am setting? [F]vcking [sic] awesome...noone [sic] was paying attention and i [sic] lifted it up and then it went down."
Submission Attempted Manipulation
The Order also finds that on certain days in which JPMC had a trading position settling or resetting against the USD ISDAFIX, JPMC attempted to manipulate the final published USD ISDAFIX rates by submitting rates that were false, misleading, or knowingly inaccurate because they purported to reflect JPMC's honest view of the true costs of entering into an interest rate swap in particular tenors, but in fact reflected traders' desire to move USD ISDAFIX higher or lower in order to benefit JPMC's positions.
Electronic communications captured examples of discussions between the JPMC submitters and other JPMC trading desk employees. As evidenced in one electronic communication, a JPMC trader requested that the JPMC submitter "give the lowest 3[year] possible (and the highest 2 [year] and 5 [year]" because his desk had "an exercise with the options desk on the 2s/3s/5s." The request to raise and lower the particular tenors in question was made the day before the reference point snapshot was even taken, indicative of the manipulative intent of the author.
JPMC has taken specified steps to implement and strengthen its internal controls and procedures relating to the fixing of interest-rate swaps benchmarks, including measures to detect and deter trading or other conduct potentially intended to manipulate directly or indirectly swap rates, including benchmarks based on interest-rate swaps and to ensure the integrity of the fixing of any interest-rate swap benchmark.
In accepting the Bank's offer, the Commission recognizes that JPMC provided substantial cooperation in the investigation in this matter, and commenced significant remedial action to strengthen the internal controls and policies relating to all benchmarks, including ISDAFIX.
The following staff members assisted in this case: Candice Aloisi, Jason Fairbanks, Jordon Grimm, David MacGregor, David C. Newman, K. Brent Tomer, and James Wheaton.
CFTC Division of Enforcement staff members responsible for this case are Patrick Daly, Mark A. Picard, Trevor Kokal, David Acevedo, Lenel Hickson, Jr., and Manal M. Sultan.