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Enforcement Actions: Week in Review - March 27th, 2015


SEC Proposes Rule to Require Broker-Dealers Active in Off-Exchange Market to Become Members of National Securities Association
March 25, 2015 (Litigation Release No. 48)
The SEC has proposed a rule amendment to increase oversight of proprietary trading firms, some of which engage in high-frequency trading. The rule would require that broker-dealers not trading on exchanges must become members of a national securities association. Currently, membership is not required for members of a national exchange that do not have customer accounts and have a maximum gross annual income of $1,000 from securities transactions. However, off-exchange trades are not counted towards the $1,000 maximum. The rule in question, 15B9-1, was originally meant for limited off-exchange transactions by exchange specialists.

SEC Adopts Rules to Facilitate Smaller Companies' Access to Capital
March 25, 2015 (Litigation Release No. 49)
The SEC has adopted new rules that will assist smaller companies in raising capital. These rules, mandated by the JOBS act, are an update to the current Regulation A that provides exemption from registration for smaller security issuers. The update will now allow for up to a $50 million security offering in a twelve month period (Tier 2) or a $20 million security offering in a twelve month period (Tier 1). The updated rules, now known as Regulation A+, also provide preemption of state securities laws for Tier 2 offerings.

SEC Charges Nearly Two Dozen Unregistered Broker-Dealers
March 26, 2015 (Litigation Release No. 50)
The SEC has charged a group of companies and their executives for engaging in security trading without registering as broker-dealers. Global Fixed Income LLC was found to have made arraignments with ten non-registered companies to purchase large amounts of investment-grade corporate bonds. Global Fixed Income would then flip these bonds and split the small per-dollar profits with the third parties. In addition to disgorgement, Global Fixed Income will pay a $500,000 penalty, corporate participants of the scheme will pay $50,000 penalties, and individual participants will pay $5,000 penalties. Charles Perlitz Kempf, owner of Global Fixed Income, has been barred from associating with a registered entity and being involved in a penny stock offering for one year. All parties have agreed to the SEC's orders without admitting or denying the allegations.

SEC Charges New York-Based Brokerage Firm With Faulty Underwriting of Public Offering by China-Based Company
March 27, 2015 (Litigation Release No. 51)
Macquarie Capital (USA) Inc. has agreed to settle charges with the SEC for underwriting a public offering that contained false information. The public offering was for Puda Coal, a now defunct China-based company that had claimed in its offering to own 90% of a coal company. A later revelation that Puda Coal owned 50% of the company caused their stock price to crumble. Executives from Puda Coal have previously been charged by the SEC. Macquarie Capital's former managing director Aaron Black and former investment banker William Fang have also been charged and have agreed to pay $212,711 and $35,000 respectively. Macquarie Capital will pay $15 million as well as set up a compensation fund for affected investors of Puda Coal.