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The Securities and Exchange Commission has sued Robert Shapiro, accusing the former chief executive of Woodbridge Group of operating a Ponzi scheme that raised more than $1 billion from individual investors for the now-bankrupt real estate operation, WSJ Pro Bankruptcy reported. Shapiro is accused of lying to investors, signing falsified documents and making “Ponzi payments to investors,” as well as using investor funds for his own personal enjoyment, among other wrongs, according to papers unsealed yesterday in a Florida federal court. A lawyer for Shapiro says the former chief executive denies the SEC’s allegations. “Mr. Shapiro is cooperating with the bankruptcy to protect the assets held for the benefit of Woodbridge’s stakeholders,” said Ryan O’Quinn, a lawyer for Shapiro. “He denies any allegation of wrongdoing and looks forward to his opportunity to defend himself in a court of law.” Woodbridge and some of its affiliates filed for chapter 11 bankruptcy protection Dec. 4, a year into an SEC probe of its fundraising activities.

Federal prosecutors said in a court filing Friday that notorious pharmaceutical executive Martin Shkreli owes the government $7.4 million as a result of his conviction on securities fraud and conspiracy charges over the summer, the Wall Street Journal reported. The prosecutors have some suggestions for how Uncle Sam can be repaid. Assets that could be seized to satisfy the judgment include a brokerage account worth $5 million, as well as a single-copy album recorded by the Wu-Tang Clan, for which Shkreli paid $2 million back in 2015. Prosecutors also flagged Shkreli’s stake in privately-held Turing Pharmaceuticals.

A Democratic senator says she won’t agree to quickly confirm two nominees to the Securities and Exchange Commission until they outline their views on whether regulators should rein in activist investors, stock buybacks and executive pay, the Wall Street Journal reported. In letters sent yesterday to a pair of nominees who advanced through the Senate Banking Committee this month, Sen. Tammy Baldwin (D-Wis.) says that she is standing up for workers and long-term shareholders by questioning current rules that she argues are too friendly to Wall Street. Her ultimatum could slow the confirmation of Democrat Robert Jackson and Republican Hester Peirce, because she won’t agree to an expedited vote this year without detailed answers.

The watchdog for the Securities and Exchange Commission, who encourages staff at the top securities regulator to blow the whistle on misconduct and fraud, is himself the subject of complaints by several whistleblowers, the Wall Street Journal reported today. Carl Hoecker, the SEC inspector general, is tasked with rooting out malpractice at the agency. His team investigates alleged misconduct by SEC officials, ranging from insider trading to expenses fraud. The office’s website highlights protections for SEC employees who disclose evidence of waste, fraud or abuse. At least two employees working for Hoecker have filed complaints to a different federal whistleblower-protection agency, alleging that he and his senior staff retaliated against them for calling out misconduct within the inspector general’s office.

The Securities and Exchange Commission yesterday signaled a pivot away from the prosecutorial approach to enforcement that the agency pursued after the financial crisis, the Wall Street Journal reported today. Steven Peikin, co-director of the SEC’s enforcement division, indicated the regulator would drop the “broken windows” strategy of pursuing many cases over even the smallest legal violations, and may also pull back from trying to make some companies admit to wrongdoing as a condition of settling with the SEC. The SEC in recent years piled up record numbers of enforcement cases and corporate penalties as it pursued both major Wall Street frauds and scores of picayune filing violations. Now, under the direction of Clayton, and with its budget essentially frozen, the SEC is cueing that “broken windows” won’t continue. “It may be the case that we have to be selective and bring a few cases to send a broader message rather than sweep the entire field,” Peikin told a securities conference yesterday. He cast doubt about the future of a signature element of the SEC’s enforcement program over the past four years: admissions of wrongdoing. Under former Chairman Mary Jo White, an Obama appointee, the SEC sought admissions of fault by firms and individuals in select cases, rather than allowing defendants to resolve probes by paying penalties but neither admitting nor denying the allegations. Read more.(Subscription required.) 

In related news, the U.S. Securities and Exchange Commission (SEC) said on Thursday it would grant Wall Street a 30 month-grace period that will allow them to comply with sweeping new European Union investment research rules without overhauling their operations, Reuters reported. The reprieve comes ahead of Europe’s MiFID II trading rules, which will overhaul how investment managers pay for research provided by banks beginning in January. Under MiFID II, brokers will have to charge separately for research, instead of bundling the fees together with other services, such as trading. The new rules aim to eliminate conflicts of interest by giving investors greater transparency over how much they pay banks for discrete services. Read more. 

The Securities and Exchange Commission gave final approval yesterday to a long-planned regulation that will require auditors to tell investors more about what they learn when they audit a company’s books, the Wall Street Journal reported today. The SEC ratified a rule that the Public Company Accounting Oversight Board passed in June that will require auditors to inform investors about “critical audit matters” — any areas of a company’s finances that the auditors found especially challenging or complex or which forced them to make tough judgment calls. The new information will be part of an expanded audit report, the letter in every company’s annual report in which the auditor passes judgment about whether the company has accurately presented the numbers on its financial statements. The audit report will retain its current pass-fail model, but will add the information about critical audit matters as well as other new material such as how long an auditor has worked for a company.

U.S. regulators yesterday sued Rio Tinto PLC and two former top executives over claims they misled investors about the value of Mozambique coal assets obtained in a disastrous acquisition that caused huge losses for the global mining giant, the Wall Street Journal reported today. Rio Tinto continued to value the mining assets in Mozambique at more than $3 billion despite an internal assessment that they were worth negative $680 million, according to a lawsuit filed in Manhattan federal court. The Securities and Exchange Commission’s lawsuit alleges that former Chief Executive Thomas Albanese and former Chief Financial Officer Guy Elliott knew about the project’s rapidly declining value but didn’t disclose it to investors and misled their board of directors about the scope of the problems, the SEC said. The SEC is pursuing civil monetary penalties and disgorgement of ill-gotten gains through its lawsuit, and seeking a bar on Albanese and Elliott from serving as officers or directors of a public company. The regulator’s investigation began in 2013, Rio Tinto disclosed in December, when the firm said that it was cooperating with the probe.