Morgan Stanley Paying $13 Million Penalty for Overbilling Clients and Violating Custody Rule

The Securities and Exchange Commission today announced that Morgan Stanley Smith Barney has agreed to pay a $13 million penalty to settle charges that it overbilled investment advisory clients due to coding and other billing system errors.  The firm also violated the custody rule pertaining to annual surprise examinations.

The SEC’s order finds that Morgan Stanley overcharged more than 149,000 advisory clients because it failed to adopt and implement compliance policies and procedures reasonably designed to ensure that clients were billed accurately according to the terms of their advisory agreements.  Morgan Stanley also failed to validate billing rates contained in the firm’s billing system against client contracts, fee billing histories, and other documentation.

According to the SEC’s order, Morgan Stanley received more than $16 million in excess fees due to the billing errors that occurred from 2002 to 2016.  Morgan Stanley has reimbursed this full amount plus interest to affected clients. read more »

Deutsche Bank Bans Text Messages, WhatsApp on Company Phones

Banned text messages and communication apps such as WhatsApp on company-issued phones in an effort to improve compliance standards.

The Bank is working to improve compliance and clean up a reputation dented by a series of probes into its role in the sale of toxic debt, manipulation of interest-rate benchmarks and failure to prevent possible money laundering in Russia. Chief Executive Officer John Cryan, who has made changing the culture at the bank a key pillar of his revamp, last month reached a $7.2 billion agreement in principle with the Department of Justice to settle an investigation into the bank’s sales of mortgage securities before the financial crisis.

Deutsche Bank has been slapped with more than $13.9 billion in fines and legal settlements since the start of 2008, according to data compiled by Bloomberg. That includes a $3.1 billion penalty it agreed to pay in the preliminary settlement with the DOJ. It doesn’t include $4.1 billion in relief to borrowers that the bank agreed to provide over at least five years. read more »

U.S. indicts three Takata executives in faulty air bag scandal

Three former executives at Japan-based Takata have been indicted for deceiving automakers about known defects in its air bags, which were installed in tens of millions of vehicles and prompted the largest automotive recall in U.S. history.

Shinichi Tanaka, Hideo Nakajima and Tsuneo Chikaraishi face charges of concealing safety data from automakers to continue selling products they knew failed safety tests. At the time the scandal broke, Takata was the world’s second-largest provider of air bags. read more »

Navy Officer Sentenced to 30 Months in Expanding Bribery and Fraud Investigation

A U.S. Navy Lieutenant Commander was sentenced today to 30 months in prison for accepting cash, hotel expenses and the services of a prostitute from foreign defense contractor Glenn Defense Marine Asia (GDMA) in exchange for classified Navy information.

In October 2016, Gentry Debord, 41, pleaded guilty to one count of conspiracy to commit bribery and admitted that in 2007 he began a corrupt relationship with Leonard Glenn Francis, the former president and CEO of GDMA, a company that provided port services to U.S. Navy ships and submarines throughout the Pacific read more »

Ex-Visium trader tells New York jury how he turned whistleblower

A former trader at Visium Asset Management LP testified on Thursday about how he turned whistleblower and helped U.S. authorities investigate whether the value of the holdings of one of the firm's hedge funds had been fraudulently inflated.

Jason Thorell, 38, took the witness stand in federal court in Manhattan as the star witness in the securities fraud trial of Stefan Lumiere, an ex-portfolio manager at Visium, which was founded by Lumiere's former brother-in-law, Jacob Gottlieb.

Thorell said Visium employees routinely sought sham quotes from brokers to justify inflated values for debt securities, and deviated from prices set by third-parties on a magnitude beyond what was usual.

"It appeared to me striking," Thorell said.

Thorell said he reported this to Gottlieb, but "overall, they neglected to address them and were generally dismissive of my concerns." read more »

Military contractor agrees to $6.3M settlement over defective radar parts

A Central New York military contractor has agreed to pay $6.3 million to the federal government to settle claims that it sold potentially defective parts to the Army for radar equipment.

SRCTec, the for-profit subsidiary of SRC Inc. of Cicero, agreed to pay $2.1 million in cash and provide $4.1 million in in-kind equipment to the federal government to resolve False Claim Act violations, federal prosecutors announced this morning. read more »

Citadel Securities Paying $22 Million for Misleading Clients About Pricing Trades

The Securities and Exchange Commission today announced that Citadel Securities LLC has agreed to pay $22.6 million to settle charges that its business unit handling retail customer orders from other brokerage firms made misleading statements to them about the way it priced trades.

The SEC’s order finds that Citadel Execution Services suggested to its broker-dealer clients that upon receiving retail orders they forwarded from their own customers, it either took the other side of the trade and provided the best price that it observed on various market data feeds or sought to obtain that price in the marketplace.  The process of taking the other side of the trade of the retail orders is known as “internalization.” read more »

‘Google Tax’ Voided, But French Have New Tax Audit Powers

France’s Constitutional Council voided a “Google tax” measure, but new budget laws have armed the French tax authority with tough new audit powers to go after U.S. Internet giants and other big companies.

New measures took effect Jan. 1 to substantially widen and strengthen the tax authority’s audit powers by simplifying tax raid procedures, allowing authorities to interview third parties for information about companies and increasing maximum penalties, among other things, practitioners told Bloomberg BNA.

The 2017 budget law that Parliament adopted Dec. 20 included provisions to widen the tax administration’s latitude to apply anti-abuse penalties of up to 60 percent on profits deemed to have been “artificially” diverted to avoid French taxation.

WNC whistleblower sparked $18M suit over contaminated IVs

Because of unclean manufacturing conditions at its Marion facility, an international pharmaceutical company will pay more than $18 million to settle multiple lawsuits filed Thursday.

Baxter Healthcare Corp. will pay about $430,000 to a Marion whistleblower.

Algorithms and untried staff helped spark pound flash crash

BIS investigation says markets must ‘fine tune systems’ to prevent future plunges

Fragile market conditions, poorly controlled algorithms and inexperienced staff all contributed to last October’s flash crash in sterling, an investigation by global policymakers has concluded. read more »

U.S. seizes $25 million worth of aluminum linked to Chinese billionaire

The move is the most potent action yet by federal authorities investigating aluminum shipments to the U.S.

U.S. customs officials have seized $25 million worth of aluminum linked to a Chinese billionaire accused of stockpiling the metal across the world, according to people familiar with the matter.

The move is the most potent action yet by federal authorities probing whether U.S. companies connected to Chinese aluminum magnate Liu Zhongtian illegally avoided punitive tariffs by routing their metal through other countries.

The Wall Street Journal in October reported that Homeland Security and the Justice Department are investigating whether the companies committed criminal or civil violations that could include smuggling, conspiracy and wire fraud. Homeland Security agents have questioned former employees of companies associated with Liu, according to people familiar with the investigation. read more »

HSBC Inks $45M Deal To Settle Euribor Investor Claims

Investors suing big banks over alleged manipulation of Euribor, the euro interbank offered rate, asked a New York federal court Wednesday to sign off on a $45 million settlement with HSBC Bank PLC.

The proposed deal would provide relief to a class of investors who traded on Euribor products during a nearly seven-year period, and release HSBC from allegations that it unlawfully tampered with the right in violation of antitrust laws and commodities laws. read more »