Category: Neither Admit Nor Deny


Broker Pays $2.5 Million Fine for Using Market Volatility to Hide Markups Yielding Unearned Commissions

Posted on April 3rd, by and in Civil Penalties, Disgorgement, Neither Admit Nor Deny, Settlements. Comments Off on Broker Pays $2.5 Million Fine for Using Market Volatility to Hide Markups Yielding Unearned Commissions

Last week, Louis Capital Markets, L.P. (“LCM”) agreed to disgorge $2.5 million in settlement of charges that it charged false execution prices to its customers in order to generate secret commissions.

LCM executed orders to purchase and sell securities for its clients, without holding any securities in its own account and thus bore no market risk, i.e., riskless principal trades. It purported to generate profits by charging customers small commissions, typically between $0.01 and $0.03 per share. LCM, however, unbeknownst to customers, inflated those commissions, by embedding undisclosed markups and markdowns into reported execution prices. LCM provided those false execution prices—either lower sales prices or higher purchase prices than LCM actually obtained in the market—to its customers. Critically, LCM did not engage in this deceptive behavior for every trade, rather “LCM opportunistically added markups/markdowns to trades at times when customers were … Read More »


Private Equity Fund Advisers Agree to Settle Charges of Improperly Disclosing Acceleration of Monitoring Fees and Improperly Supervising Expense Reimbursement Practices

Posted on August 25th, by and in Civil Penalties, Conflict of Interest, Fees, Investment Advisers, Neither Admit Nor Deny, Private Equity, Settlements. Comments Off on Private Equity Fund Advisers Agree to Settle Charges of Improperly Disclosing Acceleration of Monitoring Fees and Improperly Supervising Expense Reimbursement Practices

In a recent action, the SEC demonstrated its continuing focus on private equity fund advisers’ fees. On August 23, 2016, Apollo Management V, LP, Apollo Management VI, LP, Apollo Management VII, LP, and Apollo Commodities Management, LP (collectively, “Apollo”), agreed to settle charges brought by the SEC for “misleading fund investors about fees and a loan agreement and failing to supervise a senior partner who charged personal expenses to the funds” in violation of Sections 206 and 203 of the Advisers Act. Press Release No. 2016-165.

According to the SEC Order, Apollo advises a number of private equity funds that own multiple portfolio companies. Like most private equity fund advisers, Apollo charges annual management fees and certain other fees to the limited partners in its private equity funds and charges monitoring fees to certain portfolio companies under separate monitoring agreements. Release … Read More »


Registered Investment Advisor Agrees to Settle Charges of Failing to Clearly Disclose Transaction Costs Beyond “Wrap Fees” to Investors

Posted on July 19th, by and in Civil Penalties, Investment Advisers, Neither Admit Nor Deny, Settlements, Strict Liability. Comments Off on Registered Investment Advisor Agrees to Settle Charges of Failing to Clearly Disclose Transaction Costs Beyond “Wrap Fees” to Investors

On July 14, 2016, RiverFront Investment Group, LLC (“RiverFront”) agreed to settle charges brought by the SEC for failing to “properly prepare clients for additional transaction costs beyond the ‘wrap fees’ they pay to cover the cost of several services bundles together.” Press Release No. 2016-143. According to the SEC, participants in wrap fee programs usually pay an annual fee “which is intended to cover the cost of several services ‘wrapped’ together, such as custody, trade execution, portfolio management, and back office services.” Release No. 4453. The SEC found that under these wrap programs, a sponsoring firm will offer clients a selection of third-party managers, referred to as subadvisors, to have discretion over the clients’ investment decisions. When subadvisors execute trades on behalf of clients through a sponsor-designated broker-dealer, the transaction costs associated with the trades are included in the … Read More »


Third-Party Service Provider to Private Equity Funds Pays More Than $350,000 for Gatekeeping Failures

Posted on June 21st, by and in Civil Penalties, Neither Admit Nor Deny, Settlements, Third-Party Administrators. Comments Off on Third-Party Service Provider to Private Equity Funds Pays More Than $350,000 for Gatekeeping Failures

On June 16, 2016, Apex Fund Services (US), Inc., settled charges that it ignored clear indications of fraud while keeping records and preparing financial statements and investment account statements for private funds managed by EquityStar Capital Management, LLC, and ClearPath Wealth Management, LLC, each of which has previously been charged with fraud in SEC enforcement actions. Press Release 2016-120. The settlement highlights the SEC’s focus on gatekeepers and the importance of gatekeepers monitoring red flags, especially when their role includes providing financial information to investors.

With respect to EquityStar, Apex settled charges that it made materially false and misleading statements to investors when it improperly accounted for undisclosed withdrawals from funds (made by EquityStar and manager Steven Zoernack) as receivables even when Apex possessed evidence that neither EquityStar nor Zoernack were willing or able to repay the withdrawals, which totaled over … Read More »


SEC Files First Antiretaliation Enforcement Case Against Hedge Fund Advisory Firm

Posted on June 24th, by and in Dodd-Frank, Neither Admit Nor Deny, SEC Guidance, Settlements, Whistleblower. Comments Off on SEC Files First Antiretaliation Enforcement Case Against Hedge Fund Advisory Firm

In a first of its kind case, the SEC last week charged an investment adviser to a hedge fund with, among other things, retaliating against an employee who reported allegedly illegal trading activity to the agency. The SEC exercised its authority under a Commission rule adopted in 2011 under the Dodd-Frank Act, which permits enforcement actions based on retaliation against whistleblowers.

Under the Exchange Act, employers may not “discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower.” 15 U.S.C. § 78u-6(h)(1)(A). The Act also provides that the Commission “shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the covered judicial … Read More »


District Court Confirms “Neither Admit Nor Deny” Settlements Applying Citigroup Factors

Posted on June 23rd, by in Neither Admit Nor Deny, Settlements. Comments Off on District Court Confirms “Neither Admit Nor Deny” Settlements Applying Citigroup Factors

In March 2013, the SEC requested that Judge Victor Marrero of the United States District Court for the Southern District of New York approve consent judgments as to CR Intrinsic and CR Intrinsic Investments, LLC; S.A.C. Capital Advisors, LLC; S.A.C. Capital Associates, LLC; S.A.C. International Equities, LLC; and S.A.C. Select Fund, LLC (the “Relief Defendants”). Each of the proposed judgments was without admitting or denying the allegations of the SEC’s complaint. In April 2013, Judge Marrero issued an Opinion and Order in which he said, “The Court is troubled by these provisions as they permit CR Intrinsic and the Relief Defendants to resolve the serious allegations against hem involving a massive insider trading scheme ‘without admitting or denying the allegations of the Complaint.’” SEC v. CR Intrinsic Investors, LLC, 939 F. Supp. 2d 431, 436 (S.D.N.Y. 2013). Noting that the … Read More »


Second Circuit Vacates Judge Rakoff’s Order Refusing to Approve Citigroup “Neither Admit Nor Deny” Settlement

Posted on June 6th, by and in Neither Admit Nor Deny, Settlements. Comments Off on Second Circuit Vacates Judge Rakoff’s Order Refusing to Approve Citigroup “Neither Admit Nor Deny” Settlement

Today, the Second Circuit Court of Appeals vacated Judge Rakoff’s order refusing to approve a settlement between the SEC and Citigroup in which Citigroup neither admitted nor denied the agency’s allegations. See SEC v. Citigroup Global Mkts., Inc., Docket Nos. 11-5227-cv; 11‑5375-cv; 11-5242-cv (2d Cir. June 4, 2014). Judge Rakoff took issue with the consent decree, finding that it was not fair, reasonable, adequate, or in the public interest because the public was denied the opportunity to know the truth underlying the allegations of securities fraud. The Circuit Court disagreed, reasoning that the district court abused its discretion by requiring the SEC to “establish the ‘truth’ of the allegations against a settling party as a condition for approving the consent decrees.” Id., slip op. at 21. The court said, “Trials are primarily about the truth. Consent decrees are primarily about … 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 »


“Neither Admit nor Deny” Settlements at the SEC

Posted on March 27th, by in Admissions, Neither Admit Nor Deny, SEC Guidance, Settlements. Comments Off on “Neither Admit nor Deny” Settlements at the SEC

In January 2012, the SEC announced that it would vary from its well-established practice of settling with defendants and respondents on a neither admit nor deny basis.  The change has affected only matters in which defendants were resolving parallel criminal proceedings—i.e., guilty pleas, non-prosecution agreements, and deferred-prosecution agreements—in which they are required to “admit” their misconduct. The announcement came after a number of courts criticized the staff for allowing defendants to settle without admitting or denying soon after making plea allocutions in which they expressly admitted to the same conduct. Although some observers thought it did not go far enough, the policy has generally been met with little controversy and has received even less attention.

On June 18, 2013, SEC Chair Mary Jo White announced an expansion of the “admit” policy, and explained that while “neither admit nor deny” settlements would remain the … Read More »




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