%1

The Securities and Exchange Commission (SEC) yesterday charged Jeffrey K. Galvani, Stuart A. Jeffery, and two New York-based entities they controlled with operating as unregistered broker-dealers that facilitated more than $1.2 billion of securities trading, primarily in penny stocks, according to an SEC press release. The SEC’s complaint alleges that Galvani and Jeffery – both registered brokers at a registered broker-dealer unconnected with this case – created GEL Direct Trust, which they managed through its trustee, GEL Direct, LLC. The GEL entities were not registered with the SEC as broker-dealers. Nonetheless, from 2019 through at least May 2022, Galvani and Jeffery, acting through the GEL entities, provided brokerage services to approximately 60 customers involving at least 19,000 securities trades, primarily in penny stocks. The brokerage services they allegedly provided included taking possession of customer securities, directing trades to executing brokers, facilitating trade settlements, and disbursing trading proceeds to customers. In return for these services, the defendants allegedly received at least $12 million in transaction-based and other compensation.

Wall Street’s top watchdog is warning that the market selloff and fears of a recession could encourage more companies to cook their books, and it is pressuring auditors to catch them, the Wall Street Journal reported. “The current economic environment is subject to significant uncertainties and, historically, that oftentimes leads to heightened fraud risk,” Paul Munter, acting chief accountant at the Securities and Exchange Commission, said in an interview. “So we are trying to be proactive and speak to the marketplace.” The warning comes as regulators increase their scrutiny of auditors. The audit regulator is getting tougher on rule-breaking accountants. Big fines for auditors are part of record monetary sanctions imposed by the SEC in the latest fiscal year. The SEC is concerned that auditors too often fail to respond adequately to red flags that point to possible financial chicanery, Mr. Munter said in a statement last month. Regulators’ inspections of audits “consistently identify areas of concern involving auditors’ application of due professional care and professional skepticism when considering fraud,” the statement said.

The U.S. Securities and Exchange Commission on Wednesday proposed new rules aimed at better preparing the mutual fund industry for distressed market conditions, including a new pricing mechanism that has drawn opposition from fund managers, Reuters reported. The market disruptions of March 2020 reinforced the fact that liquidity can deteriorate rapidly, said the SEC, which adopted the proposal in a 3-2 vote. "In times of stress, when many investors may redeem their shares in a fund at once, a fund might need to sell less-liquid securities quickly to generate cash," SEC Chair Gary Gensler said. "When done in volume, this can raise issues for investor protection, our capital markets, and the broader economy." The proposed rule would require mutual funds, and some exchange-traded funds, to ensure that at least 10% of their net assets are highly liquid. The new requirements would also demand a hard daily closing time for mutual funds, and the use of "swing pricing," which involves adjusting a fund's value in line with trading activity so redeeming investors bear the costs of exiting without diluting remaining investors. The rules could have a big impact on how retirement savings are handled. Mutual funds managed $4.1 trillion, or 63%, of assets held in 401(k) plans at the end of June, as well as $5.1 trillion, or 43%, of IRA assets, according to the Investment Company Institute.

The U.S. Securities and Exchange Commission (SEC) obtained $6.4 billion from enforcement actions, including $4 billion in penalties, in fiscal 2022, the agency's chair Gary Gensler said on Wednesday, Reuters reported. The large number of levies — collected in fines, judgments and other fees from about 700 enforcement actions — would mark a record, underscoring the Wall Street regulator's more aggressive stance against corporate wrongdoing under Democratic leadership. The total levied is higher than the previous year's $3.9 billion the SEC obtained from 697 actions and also exceeds 2020's record of $4.7 billion across 715 cases, according to a review of SEC's previous enforcement results. Gensler highlighted the SEC's enforcement activity in the year ended September 30 in prepared remarks at a Practicing Law Institute event. The agency is expected to publish its full enforcement report sometime this month. The year's enforcement activity included several large resolutions, including a $675-million penalty against Germany's Allianz SE to resolve probes over the collapse of a group of investment funds and penalties against major Wall Street banks including Barclays, Bank of America, Goldman Sachs, and JPMorgan after staff discussed deals and trades on their personal devices and apps.