Wednesday, 22 April 2015

SEC Charges Issuer for Failing to Make Public Filings

Otmane El Rhazi,

The Securities and Exchange Commission today charged W2007 Grace Acquisition I Inc., a real estate investment firm, with failing to make required public filings.  W2007 Grace, which is indirectly owned by one or more private equity funds affiliated with The Goldman Sachs Group Inc., has agreed to pay $640,000 to settle the SEC’s charges relating to eight missed filings.

According to the SEC’s order instituting administrative proceedings, W2007 Grace went “dark” in November 2007, after its reporting obligations for its class B and class C preferred shares were suspended upon its filing with the Commission a notice of suspension of its duty to file public reports pursuant to Section 15(d) of the Securities Exchange Act of 1934.  At the time, W2007 Grace had fewer than 300 holders of record of the preferred shares.  Once the suspension took effect, the rules required W2007 Grace to resume reporting if the number of holders of record on the first day of any subsequent fiscal year was 300 or more. 

The SEC’s order finds that W2007 Grace incorrectly concluded that it had fewer than 300 holders of record on Jan. 1, 2014 by failing to properly apply Rule 12g5-1 of the Exchange Act.  Specifically, W2007 Grace improperly treated certain distinct corporations and custodial accounts as single holders of record.  As a result, W2007 Grace was required to resume making public filings in 2014, but failed to do so.

“When companies cease disclosures to the public and go dark, they must ensure that they accurately count their holders of record, so that investors are not deprived of information they are entitled to under the law.” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “W2007 Grace failed to correctly count their holders of record and this action should send the message that there will be consequences for such lapses.”

In addition to paying the civil monetary penalty, W2007 Grace must cease and desist from committing or causing any violations of Section 15(d) of the Exchange Act and Rules 15d-1, 15d-11, and 15d-13, and resume periodic reporting by filing an annual report on Form 10-K for fiscal year 2014 on or before May 15 and filing a Form 10-K on or before July 1 for fiscal year 2013 and any other periodic reports required to be filed. 

The SEC’s investigation has been conducted by Megan R. Genet and Steven G. Rawlings of the SEC’s New York Regional Office, and has been supervised by Sanjay Wadhwa.

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Otmane El Rhazi
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SEC Announces Million-Dollar Whistleblower Award to Compliance Officer

Otmane El Rhazi,

The Securities and Exchange Commission today announced an award of more than a million dollars to a compliance professional who provided information that assisted the SEC in an enforcement action against the whistleblower’s company. 

The award involves a compliance officer who had a reasonable basis to believe that disclosure to the SEC was necessary to prevent imminent misconduct from causing substantial financial harm to the company or investors. 

“When investors or the market could suffer substantial financial harm, our rules permit compliance officers to receive an award for reporting misconduct to the SEC,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.  “This compliance officer reported misconduct after responsible management at the entity became aware of potentially impending harm to investors and failed to take steps to prevent it.”

The whistleblower in this matter will receive between $1.4 million and $1.6 million.  Whistleblower awards can range from 10 percent to 30 percent of the money collected in a successful enforcement action with sanctions exceeding $1 million.  By law, the SEC must protect the confidentiality of whistleblowers and cannot disclose information that might directly or indirectly reveal their identities.

Since its inception in 2011, the SEC’s whistleblower program has paid more than $50 million to 16 whistleblowers who provided the SEC with unique and useful information that contributed to a successful enforcement action.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.  No money is taken or withheld from harmed investors to pay whistleblower awards.

This is the second award the SEC has made to an employee with internal audit or compliance responsibilities.

For more information about the whistleblower program and how to report a tip, visit http://1.usa.gov/1DxBVkM.

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Otmane El Rhazi
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Monday, 20 April 2015

Fort Worth Regional Director David Woodcock to Leave SEC

Otmane El Rhazi,

The Securities and Exchange Commission today announced that David Woodcock, Regional Director of the Fort Worth office and leader of the Enforcement Division’s nationwide Financial Reporting and Audit Task Force, is leaving the SEC later this spring. 

As the regional director of the Fort Worth office since 2011, Mr. Woodcock has overseen a staff of attorneys, accountants, examiners, and other professionals responsible for conducting investigations, litigation, and examinations in a region that includes Texas, Oklahoma, Arkansas, and Kansas.  He helped form and lead the Financial Reporting and Audit Task Force that comprises a group of accountants and attorneys using innovative methods and technology to prevent, detect, and investigate potential fraud in financial statements and other accounting documents.  Mr. Woodcock received an Excellence in Leadership Award from the SEC in 2013.

Associate Regional Directors Marshall Gandy, who oversees the office’s examination program and David Peavler, who oversees its enforcement program, will serve as co-acting Regional Directors upon Mr. Woodcock’s departure.

“David has consistently demonstrated exemplary dedication to our mission and great enthusiasm for the work of the Commission,” said Chair Mary Jo White.  “We and the investing public have been exceptionally well served by his many contributions to the agency.”

Mr. Woodcock said, “I am tremendously grateful for the opportunity to serve at the SEC for nearly four years, and proud of the work we’ve done in the Fort Worth office and on the task force.  I will always cherish my time with the outstanding people who have dedicated their lives to protecting investors and strengthening our financial markets.”

During Mr. Woodcock’s tenure, the Fort Worth office has litigated significant enforcement actions including trials that resulted in a jury verdict finding Life Partners, Brian Pardo, and Scott Peden liable for numerous false public filings and a jury verdict finding Charles Kokesh liable for defrauding his firm’s advisory clients and making false public filings.  The Fort Worth office helped institute the first enforcement action under a rule that protects the ability of whistleblowers to report potential securities laws violations to the SEC.  The office also brought an emergency action against a Dallas-based trader for “front running” his clients’ trades on hundreds of occasions, and filed a number of enforcement actions against individuals accused of affinity frauds targeting religious, military, and ethnic groups.  Under Mr. Woodcock’s leadership, the Fort Worth office brought more than a dozen enforcement actions alleging fraud in securities offerings involving purported oil-and-gas ventures.

“David is known for his intelligence, common sense, and dedication to our mission,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “From his leadership of our Fort Worth team and the Financial Reporting and Audit Task Force to his ability to strengthen our relationships with other local regulators, he has left an indelible mark on the Enforcement Division.”

Mr. Woodcock has played a leading role in the National Exam Program, which has been expanding its outreach to investors, senior officials of registered entities, fellow regulators, and industry groups for the purpose of improving compliance, reducing fraud, and informing policy.

“David has done an incredible job leading his team and establishing the SEC’s presence with credibility throughout the region,” said Andrew J. Bowden, Director of the SEC’s National Exam Program.  “He is a skilled and patient manager, an outstanding attorney and examiner, and a wonderful colleague.”

Mr. Woodcock earned a certificate in Securities and Financial Regulation from the Georgetown Law Center through a program co-sponsored by the SEC.  He was a partner at a national law firm before his arrival at the SEC, and prior to law school he worked as an auditor with two public accounting firms.  Mr. Woodcock earned his bachelor’s degree in accounting from Louisiana State University, and his JD from the University of Texas School of Law.

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Otmane El Rhazi
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SEC Charges BlackRock Advisors With Failing to Disclose Conflict of Interest to Clients and Fund Boards

Otmane El Rhazi,

The Securities and Exchange Commission today charged BlackRock Advisors LLC with breaching its fiduciary duty by failing to disclose a conflict of interest created by the outside business activity of a top-performing portfolio manager. 

BlackRock agreed to settle the charges and pay a $12 million penalty.  The firm also must engage an independent compliance consultant to conduct an internal review.

According to the SEC’s order instituting a settled administrative proceeding, Daniel J. Rice III was managing energy-focused funds and separately managed accounts at BlackRock when he founded Rice Energy, a family-owned and operated oil-and-natural gas company.  Rice was the general partner of Rice Energy and personally invested approximately $50 million in the company.  Rice Energy later formed a joint venture with a publicly-traded coal company that eventually became the largest holding (almost 10 percent) in the $1.7 billion BlackRock Energy & Resources Portfolio, the largest Rice-managed fund.  The SEC’s order finds that BlackRock knew and approved of Rice’s investment and involvement with Rice Energy as well as the joint venture, but failed to disclose this conflict of interest to either the boards of the BlackRock registered funds or its advisory clients.   

“BlackRock violated its fiduciary obligation to eliminate the conflict of interest created by Rice’s outside business activity or otherwise disclose it to BlackRock’s fund boards and advisory clients,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “By failing to make such a disclosure, BlackRock deprived its clients of their right to exercise their independent judgment to determine whether the conflict might impact portfolio management decisions.”

The SEC’s order also finds that BlackRock and its then-chief compliance officer Bartholomew A. Battista caused the funds’ failure to report a “material compliance matter” – namely Rice’s violations of BlackRock’s private investment policy – to their boards of directors.  BlackRock additionally failed to adopt and implement policies and procedures for outside activities of employees, and Battista caused this failure.  Battista agreed to pay a $60,000 penalty to settle the charges against him.

“This is the first SEC case to charge violations of Rule 38a-1 for failing to report a material compliance matter such as violations of the adviser’s policies and procedures to a fund board,” said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “BlackRock and Battista caused the funds’ failure to report Rice’s violations of BlackRock’s private investment policy and denied the funds’ boards critical compliance information alerting them to Rice’s outside business interests.”

BlackRock agreed to be censured and consented to the entry of the SEC’s order finding that the firm willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7.  The order finds that the firm caused violations of Rule 38a-1 of the Investment Company Act of 1940.  Battista also consented to the entry of the order finding that he caused violations of Section 206(4) of the Advisers Act, Rule 206(4)-7, and Rule 38a-1.  BlackRock and Battista are required to cease and desist from committing or causing any further violations.  BlackRock and Battista neither admitted nor denied the findings.

The SEC’s investigation was conducted by Janene M. Smith, David A. Becker, and Brian E. Fitzpatrick and supervised by Jeffrey B. Finnell of the SEC Enforcement Division’s Asset Management Unit.

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Otmane El Rhazi
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