SEC charges asset management firm
The Securities and Exchange Commission (SEC) has charged Chatham Asset Management LLC and its founder, Anthony Melchiorre, for improper trading of certain fixed income securities. Chatham and Melchiorre have agreed to pay over $19.3 million in combined disgorgement, prejudgment interest, and civil penalties to settle the charges. The SEC’s order finds that Chatham engaged in trades to address portfolio constraints and meet investor redemptions, which had the effect of increasing the price of the American Media, Inc. bonds at a significantly higher rate than similar securities. Chatham’s trading accounted for the vast majority of trading in those securities, which had a material effect on their pricing. The order also finds that Chatham and Melchiorre calculated the net asset values of their client funds’ holdings using pricing data based, in part, on the trading prices of the securities, resulting in higher fees being charged to the clients. Chatham and Melchiorre consented to the SEC’s order without admitting or denying its findings and agreed to pay disgorgement, prejudgment interest, and civil penalties, as well as prohibitions from serving in certain positions in the investment industry.
SEC charges for forex breach
The Securities and Exchange Commission (SEC) has charged Merrill Lynch, Pierce, Fenner & Smith Incorporated for failing to disclose more than $4 million in foreign exchange fees charged to advisory clients for transfers to or from their accounts. The SEC found that Merrill Lynch did not disclose an additional fee called a “production credit” that was equal to or greater than the disclosed markup or markdown. Merrill Lynch paid a percentage of these production credits to its financial advisors, which it referred to as a commission in internal documents. The SEC also found that Merrill Lynch failed to adopt and implement policies and procedures reasonably designed to prevent its disclosures from being misleading about the fees it charged on foreign currency exchanges. Merrill Lynch has agreed to pay disgorgement, prejudgment interest, and a civil penalty totaling more than $9.5 million and will distribute funds to harmed clients.
CFPB issues policy statement on abusive acts
The Consumer Financial Protection Bureau has issued a new Policy Statement on Abusive Acts or Practices aimed at addressing “abusive conduct” in consumer financial markets. The statement will “assist consumer financial protection enforcers in identifying wrongdoing, and will help firms avoid committing abusive acts or practices,” according to the CFPB.
CPFB Director Rohit Chopra, in a separate speech, said: “I hope that this policy statement will not only serve as a practical educational tool by summarizing the existing case law, but also more importantly, will provide a straight-forward and analytical framework that helps promote a visceral understanding of the prohibition.”
Australian federal court finds directors guilty
The Federal Court in Australia has found four current and former directors of Endeavour Securities (Australia) Ltd (in liquidation) (Endeavour) and Linchpin Capital Group Ltd (in liquidation) (Linchpin) breached their duties as officers of a responsible entity of a registered managed investment scheme and did not act in the best interests of members.
The Australian Securities and Investments Commission (ASIC) Deputy Chair Sarah Court said: “These individuals were officers of an investment scheme that raised $17 million. They were responsible for large sums of money but did not take the proper steps to ensure they complied with the law. Disclosure statements did not reflect the true position and two of the directors were found by the Court to have made improper use of their positions to gain advantage for themselves.
“Investors expected a level of compliance that was not delivered. For ASIC, it was critical that these officers were held accountable.”
A selected summary of key developments for regulated financial institutions
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