The SEC announced today that Credit Suisse AG agreed to pay a $90 million penalty and admit wrongdoing to settle charges of misrepresenting how it determined a key performance metric in its wealth management business. In addition, a former executive of Credit Suisse agreed to settle charges that he was a cause of the violations.

Failure to Disclose Methodology

The SEC alleged that its investigation found Credit Suisse strayed from its publicly disclosed methodology as to how it determined net new assets (NNA), the typical metric utilized by investors in financial institutions to measure success in attracting new business. Disclosures stated that Credit Suisse would individually assess assets based on each client’s intentions and objectives. But Credit Suisse instead at certain times utilized an undisclosed results-driven approach to determining NNA so that it could hit certain goals established by senior management.

Who’s Responsible?

The SEC charged that Rolf Bögli, who served as chief operating officer of the firm’s private banking division, pressured employees to classify certain high net worth client assets as NNA despite concerns raised by employees with knowledge about a particular client’s intent. 

The SEC’s orders state that Credit Suisse violated Section 17(a)(2) and (3) of the Securities Act of 1933 and Section 13(a) and (b)(2)(A) of the Securities Exchange Act of 1934 and Rules 13a-1, 13a-16, and 12b-20. Bögli agreed to pay a monetary penalty, but neither admitted nor denied the SEC’s findings that he caused certain of the violations.

The SEC’s press release can be found here:

https://www.sec.gov/news/pressrelease/2016-210.html

The guess here is that former New York Governor David A. Paterson regrets ever becoming involved with Moon River Studios, a microcap company whose executives have just been charged with defrauding investors in a supposed project to construct a movie studio in Georgia.

“Dummy Studio” Dramas

Paterson, a director in the company, was separately charged with failing to report his stock transactions in the company, and will pay $25,000 to settle the matter. Two other directors were charged with the same offense.

As for the movie studio exec’s, based on the SEC press release, it sounds as though there wasn’t much of a studio at all. The SEC charged that both the former and successor CEO of the company made false statements that the studio — purported to be the largest movie studio in North America – was under construction with projected completion dates when the exec’s knew there weren’t nearly enough funds to even begin construction, that they backdated promissory notes as part of a scheme to issue common stock in exchange for financing and that they used company funds to support lavish lifestyles in the process. 

What’s Happening with Moon River?

It appears that, for now, Moon River will not be making any movie magic in the near future. The SEC press release announcing the charges is at the link below:

https://www.sec.gov/news/pressrelease/2016-191.html

Jeff Petersen is an attorney licensed in California and Illinois representing clients in a wide variety of SEC enforcement proceedings. He can be reached in California at 858.792.3666 and in Illinois at 312.583.7488.

During eighteen months of legal wrangling over the constitutionality of the SEC’s in-house courts, individual respondents challenging such proceedings had found success in the district court in Georgia, where Judge Leigh May had found that the tribunals were constitutionally defective. This ruling went against the majority trend of rulings around the country on the issue.

What Exactly Happened

The 11th Circuit appellate court, however, recently put the issue to rest in Georgia – short of a U.S. Supreme Court opinion to the contrary in the future. The 11th Circuit declined to rehear its decision to overturn the ruling, and last week Judge May dismissed those constitutional challenges, pursuant to the order of the Eleventh Circuit panel hearing the SEC’s appeal. 

What Does This Mean?

The takeaway from the 11th Circuit’s confirmation of its ruling is that, for now, the Circuit Courts have sided with the SEC that the agency’s in-house courts are constitutionally sound. We will keep readers apprised of future developments in this area. 

Jeff Petersen is an attorney licensed in California and Illinois representing clients in a wide variety of SEC enforcement proceedings. He can be reached in California at 858.792.3666 and in Illinois at 312.583.7488.

Two men associated with Colorado marijuana company FusionPharm, Inc. were charged by the SEC with conspiracy to defraud on Friday. 

Case Details

The SEC alleged that company CEO and founder Scott Dittman and William Sears engaged in a complicated scheme to place preferred shares of the company stocks in the name of another company (Microcap) to disguise its true ownership by an “Affiliate” of the company, in order to induce brokers into believing the stock was unrestricted, and could be sold after it was converted to common stock and placed in brokerage accounts under the false name. The SEC further alleged that the remainder of preferred shares in the Microcap name would then be transferred to other people or entities related to Sears, who would have the stock converted to common stock and sold to raise additional monies. 

The SEC charged that the illegal sales of restricted stock were then used to fund company operations. Dittman and Sears both face one count of Conspiracy to Defraud the US in the action. The link to the SEC press release is below:

http://ow.ly/tuAT304iSuF 

Jeff Petersen is an attorney with offices in San Diego and Chicago representing clients in all manner of SEC enforcement proceedings. He can be reached in San Diego at 858.792.3666, and in Chicago at 312.583.7488.