In the Matter of ICAP Securities USA LLC, Ronald A. Purpora, Gregory F. Murphy, Peter M. Agola, Ronald Boccio, Kevin Cunningham, Donald E. Hoffman, Jr., and Anthony Parisi
On Dec. 18, 2009, the Commission issued an Order Instituting Administrative and Cease-And-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a Cease-And-Desist Order (Order) against ICAP Securities USA LLC, Ronald A. Purpora, Gregory F. Murphy, Peter Agola, Ronald Boccio, Kevin Cunningham, Donald E. Hoffman, Jr., and Anthony Parisi. The Commission simultaneously accepted offers of settlement from all respondents.
The Order finds that ICAP, through Agola, Boccio, Cunningham, Hoffman, and Parisi (Brokers), displayed fictitious flash trades on ICAP's US Treasuries (UST) screens seen by its UST customers, thereby disseminating false trade information into the marketplace. The Brokers admitted that these fictitious flash trades were not real trades, but ICAP's customers believed them to be real, and took the fictitious trades into account in making their trading decisions. Between December 2004 and December 2005, ICAP's Brokers displayed thousands of fictitious flash trades to ICAP's customers. The Order further finds that ICAP represented to its off-the-run UST customers that its electronic trading system would follow certain workup protocols in handling customer orders. However, ICAP's Brokers used manual tickets to bypass such protocols and close out of thousands of positions in their ICAP house accounts thereby rendering ICAP's representations concerning the workup protocols false and misleading. In certain of such instances, ICAP's customers' orders received different treatment than the customers expected pursuant to the workup protocols. The Order also finds that, at various times during the relevant period, ICAP held itself out as a firm that did not engage in proprietary trading. During the relevant period, however, two former ICAP brokers on the voice-brokered collateral pass-through mortgage-backed securities (MBS) desk routinely engaged in profit-seeking proprietary trading that rendered ICAP's representations regarding proprietary trading false and misleading. The Order also finds that during the relevant period ICAP failed to make and keep certain required books and records on the UST desks and the MBS desk. Finally, the Order finds that, during the relevant period, Purpora and Murphy supervised the Brokers on the UST desks, and, despite red flags, each of them failed to prevent and detect the brokers' fictitious flash trades until after the conduct had been uncovered by the SEC. Both Purpora and Murphy were also aware that the Brokers used manual tickets to close out of positions in their house accounts, but failed to inquire into the Brokers' practices regarding the use of manual tickets to circumvent the workup protocols concerning customer orders.
Based on the above, the Order finds that ICAP willfully violated Section 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and Section 15C of the Securities Exchange Act of 1934 and 17 CFR Parts 404 and 405. The Order also finds that each of the Brokers willfully aided and abetted and caused ICAP's violations of Section 17(a)(2) and 17(a)(3), and that Purpora and Murphy failed reasonably to supervise the Brokers. The Order censures ICAP; orders it to cease and desist from committing or causing any violations of Section 17(a)(2) and 17(a)(3) of the Securities Act, Section 15C of the Exchange Act and 17 CFR Parts 404 and 405; orders ICAP to pay $1 million in disgorgement and $24 million in penalties; and orders ICAP to retain an independent consultant to, among other things, review ICAP's current controls and compliance mechanisms, its trading activities on all desks to ensure that the violations described in the Order are not occurring elsewhere at ICAP, and ICAP's books and records pertaining to trading records. Each of the Brokers is ordered to cease and desist from committing or causing any violations of Section 17(a)(2) and 17(a)(3) of the Securities Act; is suspended from association with any broker or dealer for a period of three months; and, with the exception of Hoffman, is ordered to pay a $100,000 penalty. Hoffman, who retired from ICAP nearly four years ago, is ordered to pay a $50,000 penalty. Purpora and Murphy are both suspended from association in a supervisory capacity with any broker or dealer for a period of three months, and each ordered to pay a penalty of $100,000. ICAP, each of the Brokers, Purpora, and Murphy, consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rels. 33-9097; 34-61200; File No. 3-13726)
SEC Charges Ernst & Young and Six Partners for Roles in Accounting Violations at Bally Total Fitness
On Dec. 17, 2009, the Securities and Exchange Commission today charged Ernst & Young LLP (E&Y) and six of its current and former partners for their roles relating to an accounting fraud at Bally Total Fitness Holding Corporation. The SEC finds that E&Y knew or should have known about Bally's fraudulent financial accounting and disclosures.
The SEC further finds that E&Y issued unqualified audit opinions stating that Bally's 2001 - 2003 financial statements were presented in conformity with Generally Accepted Accounting Principles (GAAP) and that E&Y's audits were conducted in accordance with Generally Accepted Auditing Standards (GAAS). These opinions were false and misleading. As a result, the Commission finds that E&Y willfully violated Section 10A(b) of the Securities Exchange Act of 1934 (Exchange Act) and was a cause of and willfully aided and abetted Bally's violations of Section 17(a)(2) and (3) of the Securities Act of 1933 (Securities Act) and Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13.
E&Y, which was the independent auditor of the Chicago-based operator of fitness centers, has agreed to pay $8.5 million to settle the SEC's charges. Each of the E&Y partners also has settled the SEC's charges against them.
Bally's former chief financial officer John W. Dwyer and former controller Theodore P. Noncek also were charged today by the SEC, which previously charged Bally with accounting fraud in 2008. Dwyer and Noncek agreed to settle the SEC's charges.
The SEC's order against E&Y finds that the firm identified Bally as a risky audit because its managers were former E&Y audit partners who had "historically been aggressive in selecting accounting principles and determining estimates," and whose compensation plans placed "undue emphasis on reported earnings." Out of more than 10,000 audit clients in North America, E&Y identified Bally as one of E&Y's riskiest 18 accounts and as the riskiest account in the Lake Michigan Area.
The three current E&Y partners charged by the Commission are:
The three former E&Y partners charged by the Commission are:
The SEC issued settled cease-and-desist and Rule 102(e) orders finding, among other things, that E&Y partners Sever, Kiss, Peterson, and Carpenter each knew or should have known that E&Y's unqualified audit opinions regarding certain Bally financial statements were materially false. The orders find that Sever, Kiss, Peterson, and Carpenter were each a cause of Bally's violations of Section 17(a)(2) and (3) of the Securities Act and Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. Sever, Kiss, and Peterson also each was a cause of E&Y's violation of Section 10A(b) of the Exchange Act. The orders further find that Sever and Kiss willfully aided and abetted Bally's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act. Additionally, Peterson and Carpenter engaged in improper professional conduct through repeated instances of unreasonable conduct. Under their respective orders, Sever and Kiss may not appear or practice before the Commission as an accountant for three years, and Peterson and Carpenter may not appear or practice before the Commission as an accountant for two years.
In addition, the SEC issued settled Rule 102(e) orders against Vogelsinger for engaging in repeated instances of unreasonable conduct and Fletchall for engaging in a single instance of highly unreasonable conduct. Under their respective orders, Vogelsinger may not appear or practice before the Commission as an accountant for nine months and Fletchall was censured.
The Commission filed settled civil injunctive actions against former Bally CFO Dwyer and former Bally Controller Noncek. Dwyer settled the Commission case against him by consenting to permanent injunctions based on his violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 and his aiding and abetting Bally's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13, payment of $250,000, a permanent officer-and-director bar, and a permanent bar from practice before the SEC in a related Rule 102(e) proceeding. Noncek settled the Commission case against him by consenting to permanent injunctions based on his violations of Section 17(a)(2) and (3) of the Securities Act, and his aiding and abetting Bally's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13, and a two-year bar from practice before the SEC in a related Rule 102(e) proceeding. The settlements with Dwyer and Noncek are subject to court approval.
In addition to agreeing to pay $8.5 million and accept cease-and-desist relief to settle the SEC's charges, E&Y agreed to undertake measures to correct policies and practices relating to its violations.
Each of the defendants and respondents agreed to settle with the SEC without admitting or denying the charges against them. [SEC v. John W. Dwyer, 09-CV-2386 (CKK)(D.D.C.); SEC v. Theodore P. Noncek, 09-CV-2387 (CKK)(D.D.C.)] (LR-21342; AAE Rel. 3088); Administrative Proceedings - (Rels. William Capenter - 33-9092, 34-61190, AAE Rel. 3081, File No. 3-13719; Kenneth Peterson - 33-9093, 34-61192, AAE Rel. 3083, File No. 3-13721; Mark Sever - 33-9094, 34-61193, AAE Rel. 3084, File No. 3-13722; John Kiss - 33-9095, 34-61194, AAE Rel. 3085, File No. 3-13723; Randy Fletchall - 34-61191, AAE Rel. 3082, File No. 3-13720; Thomas Vogelsinger - 34-61195, AAE Rel. 3086, File No. 3-13724; Ernst & Young LLP - 33-9096, 34-61196, AAE Rel. 3087, File No. 3-13725)
Investment Adviser Criminally Charged for Defrauding Investors
The Commission announced today that, on Dec.16, 2009, the United States Attorney's Office for the District of Massachusetts filed an Information against Stephen F. Clifford, an former investment adviser based in Plymouth, Massachusetts.
The Commission filed an emergency action against Clifford on June 17, 2008. On that date, the Commission sought and obtained a temporary restraining order against Clifford and an order freezing Clifford's assets. The Commission's Complaint alleges that Clifford, between at least July 2004 and June 2008, while acting as an investment adviser, defrauded investors of at least $2.9 million and fraudulently converted investor funds for his personal use.
The Information against Clifford makes substantially similar factual allegations as the Commission's Complaint. The Information also charges Clifford with filing false tax returns.
The Commission acknowledges the assistance and cooperation of the Massachusetts Securities Division, the Barnstable County District Attorney's Office, the United States Postal Inspection Service, and the United States Attorney's Office for the District of Massachusetts.
For additional information, see Litigation Release No. 20622 (June 18, 2008). [U.S. v. Stephen Clifford, No. 09-CR-10387-NG (D. Mass.); SEC v. Stephen F. Clifford d/b/a Clifford Financial Associates, No. 08-CV-11023-RGS (D. Mass.)] (LR-21343)
SEC v. Trevor G. Cook, Patrick J. Kiley, et al.
On Dec. 11, 2009, the Honorable Chief Judge Michael J. Davis of the U.S. District Court for the District of Minnesota issued an Order for a Rule to Show Cause (Show Cause Order) against Trevor G. Cook (Cook) requiring Cook to show cause why an order of contempt should not be entered against him for violating the Court's order entered on Nov. 23, 2009. A hearing was commenced on Dec. 11, 2009 and continued to Jan. 8, 2010.
The Court's Show Cause Order stemmed from the SEC's Motion, filed on Dec. 10, 2009, which alleged, among other things, that Cook violated the Court's asset freeze and receivership orders entered on Nov. 23, 2009, by using an undisclosed credit card to make thousands of dollars of retail purchases and by failing to turn over assets to the Court appointed receiver, to repatriate assets held in foreign countries, and to produce an accounting of investor funds.
The SEC previously filed a complaint against Cook and other defendants on Nov. 23, 2009. The SEC's complaint charges Cook with violating Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder in connection with a foreign currency trading scheme that raised at least $190 million from more than 1000 investors. [SEC v. Trevor G. Cook, Patrick J. Kiley, et al., Case No. 09-CV-3333 (D. Minn.)] (LR-21344)
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