Wall Street Fines Rose in 2018, Boosted By Foreign Bribery Cases (#GotBitcoin?)
The Securities and Exchange Commission levied nearly $4 billion in fines related to almost 500 enforcement actions. Wall Street Fines Rose in 2018, Boosted By Foreign Bribery Cases
Wall Street’s main regulator levied nearly $4 billion in fines related to almost 500 enforcement actions, rebounding from a year earlier when its penalty haul fell to a four-year low.
The Securities and Exchange Commission’s statistics for the fiscal year ended Sept. 30, the second year of the Trump administration, rival fines levied during the Obama administration, when the SEC cracked down on Wall Street after the financial crisis.
The SEC’s annual enforcement statistics are a closely watched indicator of its oversight of public companies, financial institutions, and stockbrokers. The figures tend to be used, particularly by Congress, as a barometer of how aggressively the SEC is policing misconduct.
The 2018 total was significantly boosted by a single $1.7 billion fine in September against Brazilian state oil company Petrobras , in a case that involved foreign-bribery allegations.
The SEC didn’t collect most of the Petrobras fine, choosing to credit the company for payments in a related class-action shareholder lawsuit and penalties paid to Brazilian authorities. The SEC also obtained a $143 million fine against Japan-based Panasonic Corp. in a case involving claims of bribery and accounting fraud.
The SEC ended the year with a burst of activity including a $40 million settlement with Tesla Inc. and Chief Executive Elon Musk.
The regulator accused Mr. Musk of misleading shareholders by tweeting in August that he had “funding secured” to take Tesla private. Tesla later said it wouldn’t pursue such a deal.
Although the SEC resolved the probe in under two months, the fines didn’t count for the 2018 totals because the settlement wasn’t approved by a court until October.
The SEC over the past year also brought over a dozen enforcement actions involving cryptocurrencies or digital tokens, a new method of fundraising that is almost entirely independent of Wall Street, which regulators have tried to bring under their authority.
Speaking Thursday in Washington, SEC Commissioner Robert Jackson Jr. said those cases have required the agency to divert resources that would otherwise go to more traditional actions. “This administration has had to regulate and form the law in an entirely new asset class,” Mr. Jackson said at the Securities Enforcement Forum conference.
SEC officials have said their effectiveness shouldn’t be solely judged by how many cases they file or the value of fines they obtain in a single year. Investigations often take years, and the timing of settlements or court orders finalizing litigation is unpredictable.
“At some level, I think it’s fair to look at your activity levels and say, ‘are you doing your job?’” SEC enforcement co-director Steven Peikin said at a legal conference in Atlanta last week. “At the same time, focusing on those issues can drive the wrong behavior among the staff. If you want to have a high number of cases, just write parking tickets.”
The SEC has said its enforcement program was affected by a 2017 Supreme Court decision that curbed its power to require wrongdoers to give back ill-gotten gains. Regulators have said the decision walled off over $800 million in potential disgorgement that they could have obtained prior to the high court’s decision.
The SEC in 2018 brought 490 enforcement actions, compared with 446 in 2017. The agency brought over 540 cases in most years from 2013 through 2016.
Regulators argue their activity in 2018, as measured by case load, was as high as previous years. In those prior years, the SEC’s activity was inflated by an initiative that targeted inaccurate or misleading bond documents issued by cities and other municipal subdivisions. The initiative produced over 150 actions but assessed very limited penalties against brokers and local governments that voluntarily reported misconduct to the SEC.
BlackRock Offices Raided in German Tax Probe (#GotBitcoin?)
Investigation into historical trades has already embroiled several other firms and banks.
German prosecutors searched the Munich offices of BlackRock Inc. drawing the world’s largest asset manager into a long running criminal tax-fraud investigation that has already embroiled several other financial firms.
The probe centers on historical so-called cum/ex transactions which are trades executed during the handful of days before and after scheduled dividend-payment dates.
A spokesman for BlackRock said the company was “fully cooperating with a continuing investigation relating to cum/ex transactions in the period 2007-2011.” A person familiar with the investigation said BlackRock, whose offices were raided Tuesday, hasn’t been accused of tax fraud.
Cum/ex transactions typically involve banks, brokerage firms, hedge funds and wealthy individuals entering into agreements to buy, borrow and sell shares during a brief window of time around a dividend payout. The carefully coordinated timing of the transactions has allowed many parties to claim a refund for taxes paid on the dividends.
German officials argue that tax credits have been artificially claimed through these types of trades in ways that could constitute fraud. The German government has moved to prevent such transactions in the country and closed the tax loophole in 2012. German Finance Minister Olaf Scholz said last month that the country is seeking to get money back. The ministry said it is aware of 418 cases worth €5.7 billion ($6.5 billion).
Another prominent financial company embroiled in the scandal, Spanish lender Banco Santander SA, recently said it is being probed and is “fully cooperating with German authorities.” A spokesman said the probe focuses primarily on three former employees based in London. The bank is conducting its own internal investigation.
Some banks have already settled with authorities. Hypovereinsbank, Unicredit ’s unit in Germany, has paid a total €19.8 million in fines under settlements between 2015 and 2017. Separately, five former employees of the bank and a lawyer were charged in Frankfurt this year with pocketing €106 million under the alleged fraud.
Prosecutors in Cologne, Munich and Frankfurt are working on the case in Germany. Probes have also been launched by other countries, including Denmark and Austria.
Lawmakers have called for a Europe-wide probe into the issue, which so far has been dealt with only by local authorities.
“We need a European investigation into the scandal by the financial supervisory authorities,” said Sven Giegold, who represents Germany’s Green Party in the European Parliament. “Politicians must close every known tax loophole and punish illegal activities harshly,” he added.
The raid at BlackRock’s offices in Munich comes at a sensitive time for the unit’s head of the supervisory board, Friedrich Merz, who is a candidate to succeed German Chancellor Angela Merkel as leader of the Christian Democratic Union party. Mr. Merz arrived at BlackRock in 2016, after the period under investigation.
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