SEC Charges Mutual Fund Board Members and Investment Adviser with Violations of Section 15(c) For Deficient Advisory Contract Approval Process

Posted on July 1st, by and in Board of Directors, Investment Advisers, Section 15(c). Comments Off on SEC Charges Mutual Fund Board Members and Investment Adviser with Violations of Section 15(c) For Deficient Advisory Contract Approval Process

On June 17, 2015, the SEC charged Commonwealth Capital Management (“CCM”), an investment adviser to various mutual funds within World Funds Trust (“WFT”) and World Funds, Inc. (“WFI”), for violating Section 15(c) of the Investment Company Act by providing incomplete and inaccurate information to two mutual fund boards, and CCM’s majority owner John Pasco with causing the violations. It further charged three former trustees of the WFT board, J. Gordon McKinley III, Robert R. Burke, and Franklin A. Trice III, with Section 15(c) violations because they did not follow up with CCM to obtain the requested information that was never provided. Instead, they approved CCM’s advisory contracts for the WFT Funds without the reasonably necessary information needed to evaluate the terms of the contracts.

Section 15(c) requires that a majority of the fund’s independent directors approve the terms of any advisory … Read More »


Whistleblower Award Update

Posted on March 31st, by , and in Whistleblower. Comments Off on Whistleblower Award Update

There was not much activity from the SEC Office of the Whistleblower (OWB) in the months since it announced the highest whistleblower award to date in September 2014, but that changed in February when it issued a number of denials. The following is a summary of what’s happened since our last whistleblower award update:

Awards:

In the Matter of the Claim for Award, Exchange Act Rel. No. 72947. On August 29, 2014, the SEC issued its first award under the Dodd-Frank Act to an employee who performed audit and compliance functions. The employee, who had compliance responsibilities, received an award of $300,000. Generally, information provided to an individual with compliance responsibilities is not considered “original.” Such an employee is entitled to an award, however, if they first report the misconduct to the company and it subsequently fails to take action within 120 … Read More »


SEC Announces Highest Whistleblower Award to Date

Posted on September 30th, by and in Dodd-Frank, Guidance, Whistleblower. Comments Off on SEC Announces Highest Whistleblower Award to Date

The SEC recently announced a record-breaking whistleblower award of $30-35 million, which shattered the previous high award of $14 million. See SEC Awards More Than $14 Million to Whistleblower. Not only is this award noteworthy for its size, but also because it was made to a foreign resident and it could have been even higher if the whistleblower did not unreasonably delay in reporting the violations.

This was not the first award made to foreign residents, but it was the first award made to a foreign resident since the Court of Appeals for the Second Circuit found that the anti-retaliation protections of Section 21F(h) of the Dodd-Frank Act do not apply to foreign whistleblowers who experience retaliation overseas from foreign employers. Liu v. Siemens, __ F.3d __, 2014 WL 3953672 (2d Cir. Aug. 14, 2014); see also Made for the U.S.A. … Read More »


Quarterly Whistleblower Award Update

Posted on August 21st, by and in Dodd-Frank, Whistleblower. Comments Off on Quarterly Whistleblower Award Update

Since our last quarterly update, the SEC’s Office of the Whistleblower (“OWB”) has issued four denial orders and three award orders. Here are some lessons learned from this activity:

• The SEC Will Not Award Whistleblowers Who Provide Frivolous Information. The SEC determined that a claimant (who submitted “tips” relating to almost every single Notice of Covered Action”) was ineligible for awards because he/she “has knowingly and willfully made false, fictitious, or fraudulent statements and representations to the Commission over a course of years and continues to do so.” Under Rule 21F-8, persons are not eligible for an award if they “knowingly and willfully make any false, fictitious, or fraudulent statement or representation, or use any false writing or document knowing that it contains any false, fictitious, or fraudulent statement or entry with intent to mislead or otherwise hinder … Read More »


SEC’s “Neither Admit nor Deny” Settlements Continue to Draw Controversy

Posted on May 12th, by and in Admissions, Insider Trading, Neither Admit Nor Deny, Settlements. Comments Off on SEC’s “Neither Admit nor Deny” Settlements Continue to Draw Controversy

Recently, Judge Harold Baer of the U.S. District Court for the Southern District of New York reluctantly approved the SEC’s “neither admit nor deny” insider trading settlement with Ronald Dennis, a former analyst with CR Intrinsic Investors, a hedge fund affiliated with S.A.C. Capital Advisors. See SEC v. Dennis, No. 14 Civ. 1746 (S.D.N.Y. Apr. 22, 2014). To settle the SEC’s charges, Dennis agreed, without admitting or denying the allegations regarding his misconduct, to a permanent bar from the securities industry and to pay $95,351 in disgorgement, $12,632 in prejudgment interest, and a civil penalty of $95,351. Notably, Dennis was not charged criminally.

In its recently filed complaint against Dennis, the SEC alleged that Dennis participated in the now-infamous insider trading scheme involving Dell securities. More specifically, the SEC alleged that from 2008 through 2009, an unnamed Dell insider provided material … Read More »


Quarterly Whistleblower Award Update

Posted on April 8th, by and in Dodd-Frank, Whistleblower. Comments Off on Quarterly Whistleblower Award Update

The SEC recently announced that it has denied whistleblower claims in connection with three different matters and awarded an additional $150,000 to the inaugural recipient of an award under the SEC’s whistleblower program.

The SEC denied a whistleblower award claim relating to its case against penny stock promoters for fraudulently hyping Anscott Industries.  See SEC v. Esposito, No. 08:00494 T26 (M.D. Fla. June 30, 2011).  In Esposito, the court entered final judgments against the defendants ordering them to pay more than $20 million in disgorgement and civil penalties in a fraudulent touting case.  The SEC denied the award because (1) the claimant failed to submit the claim within 90 days of the Notice of Covered Action and failed to demonstrate such tardiness should be waived based on extraordinary circumstances as “claimant failed to diligently pursue the claim for award upon termination … Read More »




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