Net Capital Violations Become Federal Criminal Case
November 12, 2015
- obstructing a Securities and Exchange Commission ("SEC") examination,
- making false statements to SEC examination Staff, and
- falsifying and failing to keep required books and records of a broker-dealer.
12. At all times relevant to this Complaint, Crucible was required to make a record reflecting each expense incurred relating to its business and any corresponding liability, regardless of whether the liability was joint or several with any person and regardless of whether a third party had agreed to assume the expense or liability. . . . SEC regulations permitted Crucible to have an expense-sharing agreement with a third party pursuant to which the third party would assume the responsibility to pay expenses related to Crucible's broker-dealer business and Crucible would pay the third party a regular fee. However, the fee payable by Crucible under any such agreement had to correspond to the proportion of expenses reasonably allocable to Crucible's business. Moreover, according to SEC guidance issued in or about 2003, Crucible was required to treat the third party's expense liabilities as Crucible's own for net capital computation purposes unless, among other things, Crucible could demonstrate that the third party had adequate resources independent of Crucible to pay the liability or expense.
Following the filing of an Indictment on September 20, 2014, Moore pled guilty on November 9, 2015, to one count of obstruction of a regulatory examination, which carries a maximum sentence of 20 years in prison.
Bill Singer's Comment
Compliments to the SDNY United States Attorney's Office for presenting a credible and cohesive case.
For a parallel proceeding brought by the SEC, see: In the Matter of Crucible Capital Group,Inc. Charles Moore, Respondents (Order Instituting Proceedings, SEC, '34 Act Rel. 72797; Invest. Co. Act Rel. 31201; Admin. Proc. File 3-16008 / August 8, 2014) .
By way of what comes off as more of a sideshow than anything more weighty, it turns out that the existence of both the SDNY US Attorney's criminal case and the separate SEC administrative matter produced a number of folks apparently stepping on each others shoes. It's all far more sideshow than anything weighty, but it does have the result of sort of prompting you to roll your eyes and shrug your shoulders.
For starters, an SEC Staff Attorney from the New York Regional Office fell afoul of the notice requirements under the SEC's Rules of Practice; see: December 8, 2014 Letter from SEC New York Regional Office Attorney Enright to ALJ Grimes In pertinent part, we learn of this:
I joined the Division of Enforcement in November 2013 and this is my first Administrative Proceeding. At the time I issued these subpoenas, I was not aware of Rule 230(g)' s requirement that I promptly inform Your Honor and Respondents when such subpoenas are issued. I acknowledge that my ignorance of Rule 230(g) is no excuse and that I should have but did not properly apprise myself of the relevant rules. However, my delay in providing this notice was not intentional and I issued the subpoenas in a good faith effort to investigate the culpability of parties other than the Respondents. I have since carefully reviewed the Commission's Rules of Practice as they pertain to Administrative Proceedings and I assure the Court that I will closely consult with my supervisors in connection with any further actions taken in this proceeding.
Page 2 of the December 8th Letter
Alas, that was not the end of the procedural miscues in this matter. Not to be outdone by their SEC colleagues, the SDNY U.S. Attorney's Office tripped over a different issue, apparently invoking the ire of an SEC Administrative Law Judge. As set forth In the Matter of Crucible Capital Group,Inc. Charles Moore, Respondents (Order Extending Stay, SEC, Admin Proc. Rulings Rel. 2097; Admin. Proc. File 3-16008 / December 14, 2014):
[I] previously granted the Application to Intervene and Motion to Stay by the U.S. Attorney for the Southern District of New York. Crucible Capital Group, Inc., Admin. Proc. Rulings Release No. 1714, 2014 SEC LEXIS 2989 (Aug. 20, 2014). I also ordered a telephonic prehearing conference for December 5, 2014, but clarified that the prehearing conference would be canceled if the U.S. Attorney files a written notice before that date providing reasons why the stay should remain in effect. Id. Today, by email, I received a letter from the U.S. Attorney's Office submitting that the public interest continues to support a stay of this proceeding.
While this letter does substantively support that the stay should remain in effect pursuant to 17 C.F.R. § 201.201(c)(3), the letter is procedurally deficient. All substantive filings must be submitted in hardcopy to the Commission's Office of the Secretary and include a certificate of service, in compliance with 17 C.F.R. §§ 201.151, 152. Also, it is important that no party or non-party in this proceeding email me directly, as doing so risks contravention of rules against ex parte communications, see 5 U.S.C. § 557(d), 17 C.F.R. § 201.120. It is however acceptable, and often helpful, to send courtesy copies of filings properly filed with the Office of the Secretary to alj@sec.gov and the attorney-adviser assigned to this matter.
Accordingly, in anticipation of a procedurally compliant filing, it is ORDERED that the stay in this proceeding will stay in effect for another four months, or until April 6, 2014. A 2 telephonic prehearing conference is ordered for April 6, 2014, at 11:30 a.m. EDT; if the U.S. Attorney properly files a written notice by April 1, 2014, asking that the stay remain in effect and providing reasons why the stay should remain in effect, the telephonic prehearing conference will be canceled and the stay continued.
James E. Grimes
Administrative Law Judge
