Former SFX Entertainment founder Robert Sillerman has agreed to pay a $179,000 fine after the U.S. Securities and Exchange Commission charged the businessman with fraud for illegally diverting company funds to personal accounts while misrepresenting celebrity endorsements and the financial health of his online publishing and entertainment business Function(x) to attract new investors, Billboard reported. Announced June 28, the settlement also permanently bars Sillerman from holding an officer or director role at any public company. According to the SEC's complaint, Function(x) incurred significant losses during the first quarter of 2017 and completed a public securities offering that brought in $4.8 million from investors in order to raise capital and fund operations. The complaint alleges that Sillerman then fraudulently diverted $500,000 of the offering proceeds to repay loans he made to the company where he held the title of CEO. Sillerman was also accused of misleading individuals to invest in Function(x) by falsely claiming two unnamed celebrities had agreed to invest in the company. In order to con investors into believing the celebrities were involved with Function(x), Sillerman allegedly created phony subscription documents with forged signatures from the two celebrities.
U.S. Securities and Exchange Commission Chairman Jay Clayton is striking back at critics who’ve said one of his signature regulatory achievements is a gift to Wall Street, Bloomberg News reported. The rules in question, passed by the SEC last month, were supposed to clamp down on broker conflicts of interest. But Senator Elizabeth Warren (D-Mass.) said that the reforms will make it even easier for financial firms to cheat consumers, while House Financial Services Committee Chairwoman Maxine Waters (D-Calif.) urged the SEC to rescind them. Clayton, a former Wall Street deals lawyer appointed by President Donald Trump, yesterday rejected the attacks. He called the objections “false, misleading” and in some cases, “policy preferences disguised as legal critiques.”
Banks, asset managers and public companies could find it easier to settle regulatory enforcement actions without damaging other parts of their business, the Wall Street Journal reported. The Securities and Exchange Commission said on Wednesday that a company can now negotiate a penalty while at the same time seeking the waivers needed to limit the consequences of its alleged misconduct. Wall Street banks such as Wells Fargo & Co. and Citigroup Inc. have often needed such disciplinary waivers to exclude business activities from automatic bars that are triggered when they settle enforcement actions. The most important of such waivers affect Wall Street’s ability to use fundraising methods that avoid regulatory red tape. For example, a bank or hedge-fund manager that settles an enforcement action without a waiver can lose the right to easily raise money in the private markets. Another waiver is needed to continue managing mutual funds if a bank or asset manager settles certain civil or criminal enforcement actions.
Two former Merrill Lynch financial advisers who alleged the company made misleading statements related to a struggling investment product were the whistleblowers who received a $3 million payout by the Securities and Exchange Commission, the Wall Street Journal reported. The SEC announced the award June 3 but didn’t identify the tipsters or which case the award is connected to, in keeping with its policy. Rebecca Katz, a senior counsel at law firm Motley Rice LLC in New York who represents both whistleblowers, identified the company involved in the case as Merrill Lynch. The Wall Street Journal previously reported that former Merrill Lynch financial advisers Glen Ringwall and Mark Manion were concerned about a lack of adequate disclosure on certain fixed costs related to a structured-note product called Strategic Return Notes, which quickly lost value after being issued in 2010. The financial advisers secretly taped calls with executives at Merrill, during which they were told not to suggest to complaining clients that the product was flawed. Ringwall and Manion left the firm for rival UBS Group AG in 2012, then filed a whistleblower complaint over the notes with the SEC.
Stockbrokers will have to divulge their potential conflicts of interest to clients when they give them investment advice under action taken yesterday by federal regulators, the Washington Post reported. The regulation adopted by the Securities and Exchange Commission will also require brokerages to eliminate sales contests and quotas that reward brokers who generate the highest sales of certain investment products. Still, critics say that the SEC’s new measure, which the financial industry supports, doesn’t go far enough to protect investors from abuses. They say that a stricter standard that advanced under the Obama administration should apply to brokers. This standard, called a “fiduciary duty rule,” required all financial professionals, including brokers, to act as trustees who must put their clients’ interests above their own. A fiduciary standard for brokers was opposed by President Donald Trump in early 2017, and the financial industry helped defeat it in federal court. Now, under the new SEC rule, brokers will be required to disclose and in some cases reduce their financial conflicts of interest, not eliminate them entirely.
Wall Street’s main overseer is set to adopt new conflict-of-interest rules for brokers, a sweeping regulatory overhaul that has drawn criticism from investor advocates for being too lax, Bloomberg News reported. The measure, expected to be approved today by a divided U.S. Securities and Exchange Commission, will require brokers to act in the “best interest” of clients. What that actually means, however, remains in dispute, and the changes are unlikely to end a decade-long fight over the protections. SEC Chairman Jay Clayton has said the agency’s action will raise the bar for dealing with conflicts while leaving investors free to choose the type of financial professional that suits their needs. The rule -- which will affect tens of millions of investors who buy stocks and bonds to save for college, retirement and new homes -- has won widespread backing from financial firms.
Canadian social-media company Kik Interactive Inc. has become the most prominent business sued by U.S. regulators over claims it illegally raised capital by selling its own cryptocurrency, the Wall Street Journal reported. The Securities and Exchange Commission sued Kik on Tuesday in federal court, alleging that the company’s 2017 “initial coin offering” evaded U.S. investor-protection laws. With the civil lawsuit, the SEC is confronting one of the biggest ICOs two years after Kik raised $100 million selling a cryptocurrency it called kin. The SEC said Kik was running out of money in 2017 and decided on a “Hail Mary” effort to raise capital through an ICO, even though U.S. regulators had warned that ICOs probably needed to comply with the U.S. regulatory process. That typically requires preparing a detailed legal prospectus that discloses the company’s performance and prospects and making audited financial statements public. Before selling its token, Kik sought feedback from a Canadian regulator, the Ontario Securities Commission, which said it probably needed to comply with securities laws, the SEC’s lawsuit alleged. Kik excluded Canadian residents from its token sale and marketed the deal in the U.S., the SEC lawsuit said.