FROM: U.S. ENVIRONMENTAL PROTECTION AGENCY
Settlement with Ash Grove Cement Corporation to Reduce Thousands of Tons of Air Emissions
WASHINGTON – Ash Grove Cement Company has agreed to pay a $2.5 million penalty and invest approximately $30 million in pollution control technology at its nine Portland cement manufacturing plants to resolve alleged violations of the Clean Air Act, announced the U.S. Environmental Protection Agency (EPA) and the Department of Justice.
Today’s agreement will reduce more than 17,000 tons of harmful nitrogen oxides (NOx) and sulfur dioxide (SO2) pollution each year across plants located in Foreman, Ark.; Inkom, Idaho; Chanute, Kan.; Clancy, Mont.; Louisville, Neb.; Durkee, Ore.; Leamington, Utah; Seattle, Wash.; and Midlothian, Texas.
"Today’s settlement will reduce air pollution that can harm human health and contribute to acid rain, haze, and smog," said Cynthia Giles, assistant administrator for EPA’s Office of Enforcement and Compliance Assurance. "The new stringent limits on emissions will lead to less pollution and better air quality for communities across the country."
"This significant settlement will achieve substantial reductions in air pollution from Ash Grove’s Portland cement manufacturing facilities and benefit the health of communities across the nation," said Acting Assistant Attorney General Robert G. Dreher. "The agreement reflects the Justice Department’s ongoing commitment to protecting public health and the environment and will bring Ash Grove’s entire system into full compliance with the nation’s Clean Air Act."
In addition, Ash Grove has agreed to spend $750,000 to mitigate the effects of past excess emissions from several of its facilities.
The settlement requires Ash Grove to meet stringent emission limits and install and continuously operate modern technology to reduce NOx, SO2, and particulate matter (PM). Ash Grove is required to reduce NOx emissions at nine kilns, some of which will have the lowest emission limits of any retrofit control system in the country. In addition, modern pollution controls must be installed on every kiln to reduce PM emissions, and on several kilns to reduce SO2 emissions.
In addition, at its Texas facility, Ash Grove will shut down two older, inefficient kilns, while a third will be replaced with a cleaner, newly reconstructed kiln.
Ash Grove will also spend $750,000 on a project to replace old diesel truck engines at its facilities in Kansas, Arkansas, and Texas, which are estimated to reduce smog-forming nitrogen oxides by approximately 27 tons per year.
The settlement is part of EPA’s national enforcement initiative to control harmful air pollution from the largest sources of emissions, including portland cement manufacturing facilities. This is also the first settlement with a cement manufacturer that requires injunctive relief and emission limits for PM. SO2 and NOx, two key pollutants emitted from cement plants, can harm human health and are significant contributors to acid rain, smog, and haze. These pollutants are converted in the air into fine particles of particulate matter that can cause severe respiratory and cardiovascular impacts, and premature death.
Eight states and one local agency have joined the United States in the settlement, including: Arkansas, Idaho, Kansas, Montana, Nebraska, Oregon, Utah, Washington, and the Puget Sound Clean Air Agency.
Saturday, June 22, 2013
Friday, June 21, 2013
DOL GETS COURT ORDER TO FORCE EMPLOYER TO RETURN MONEY TO WORKER RETIREMENT FUND
FROM: U.S. DEPARTMENT OF LABOR
US Labor Department lawsuit results in court order to return more than
$225,000 in retirement assets to Milwaukee company’s workers
Trustee ordered to restore funds to Losik Engineering Design Group employee benefit plan
MILWAUKEE – A federal court in Milwaukee has ordered Michael J. Losik to restore $225, 274 to the Losik Engineering Design Group Ltd. defined benefit retirement plan. Losik, the company’s president and owner, violated the Employee Retirement Income Security Act by imprudently investing plan assets in a hedge fund, by making an improper distribution to his own account, and by failing to properly administer the plan. The judgment resolves a lawsuit filed by the U.S. Department of Labor based on findings of an investigation by the department’s Employee Benefits Security Administration.
"The department is committed to holding accountable those who are entrusted with the assets of workers’ retirement plans," said Steve Haugen, director of EBSA’s Chicago Regional Office, which conducted the investigation. "We will continue to help workers obtain their rightful benefits when plan fiduciaries violate the law."
Under the terms of the consent order and judgment, Losik is liable to the plan for $225, 274—the amount he distributed to himself in 2008. He is barred from serving as a fiduciary or service provider to any employee benefit plan subject to ERISA in the future.
Additionally, the court appointed an independent fiduciary to liquidate the plan’s approximate $250,000 investment in a high-risk hedge fund that Losik authorized in 2007 and which now represents 100 percent of the plan’s assets. The independent fiduciary will also terminate the plan and distribute the assets to the 20 qualified participants. The plan allegedly has not been administered since October 2009. The company ceased operations on or before April 2011.
The case was litigated by the department’s Regional Office of the Solicitor in Chicago.
US Labor Department lawsuit results in court order to return more than
$225,000 in retirement assets to Milwaukee company’s workers
Trustee ordered to restore funds to Losik Engineering Design Group employee benefit plan
MILWAUKEE – A federal court in Milwaukee has ordered Michael J. Losik to restore $225, 274 to the Losik Engineering Design Group Ltd. defined benefit retirement plan. Losik, the company’s president and owner, violated the Employee Retirement Income Security Act by imprudently investing plan assets in a hedge fund, by making an improper distribution to his own account, and by failing to properly administer the plan. The judgment resolves a lawsuit filed by the U.S. Department of Labor based on findings of an investigation by the department’s Employee Benefits Security Administration.
"The department is committed to holding accountable those who are entrusted with the assets of workers’ retirement plans," said Steve Haugen, director of EBSA’s Chicago Regional Office, which conducted the investigation. "We will continue to help workers obtain their rightful benefits when plan fiduciaries violate the law."
Under the terms of the consent order and judgment, Losik is liable to the plan for $225, 274—the amount he distributed to himself in 2008. He is barred from serving as a fiduciary or service provider to any employee benefit plan subject to ERISA in the future.
Additionally, the court appointed an independent fiduciary to liquidate the plan’s approximate $250,000 investment in a high-risk hedge fund that Losik authorized in 2007 and which now represents 100 percent of the plan’s assets. The independent fiduciary will also terminate the plan and distribute the assets to the 20 qualified participants. The plan allegedly has not been administered since October 2009. The company ceased operations on or before April 2011.
The case was litigated by the department’s Regional Office of the Solicitor in Chicago.
Wednesday, June 19, 2013
DOJ AND ARKANSAS FILE COMPLAINT OVER PEGASUS PIPELINE OIL SPILL
FROM: U.S. DEPARTMENT OF JUSTICE
Thursday, June 13, 2013
United States and Arkansas File Joint Complaint Against ExxonMobil for Pegasus Pipeline Oil Spill in Mayflower, Arkansas
Today the United States and the state of Arkansas filed a joint enforcement action against ExxonMobil Pipeline Company and Mobil Pipe Line Company (ExxonMobil) in federal district court in Little Rock, Ark. The complaint addresses ExxonMobil’s unlawful discharge of heavy crude oil from a 20-inch-diameter interstate pipeline – the Pegasus Pipeline – that ruptured in Mayflower, Ark., on March 29, 2013.
As alleged in the complaint, a segment of the Pegasus Pipeline ruptured in a residential neighborhood in the town of Mayflower. The pipe was buried approximately two feet below the ground at that location. The oil spilled directly into the neighborhood and then into nearby waterways, including a creek, wetlands, and Lake Conway. Residents were forced to evacuate their homes due to the hazardous conditions in the neighborhood resulting from the spill. The oil has contaminated land and waterways and impacted human health and welfare, wildlife, and habitat. Cleanup efforts are still ongoing, and many residents still have not been able to return home.
The Pegasus Pipeline runs approximately 850 miles from Patoka, Ill., to Nederland, Texas. The pipeline is used to transport Canadian heavy crude oil. The pipeline originally was constructed in the 1940s.
The complaint alleges six causes of action against the defendants. The United States, on behalf of the U.S. Environmental Protection Agency (EPA), seeks civil penalties and injunctive relief under the federal Clean Water Act for the oil spill. The state of Arkansas, on behalf of the Arkansas Department of Environmental Quality (ADEQ) by the authority of the Arkansas Attorney General, seeks civil penalties for violations of the Arkansas Hazardous Waste Management Act and the Arkansas Water and Air Pollution Control Act. The state also seeks a declaratory judgment on ExxonMobil’s liability for payment of removal costs and damages related to the spill pursuant to the federal Oil Pollution Act.
Thursday, June 13, 2013
United States and Arkansas File Joint Complaint Against ExxonMobil for Pegasus Pipeline Oil Spill in Mayflower, Arkansas
Today the United States and the state of Arkansas filed a joint enforcement action against ExxonMobil Pipeline Company and Mobil Pipe Line Company (ExxonMobil) in federal district court in Little Rock, Ark. The complaint addresses ExxonMobil’s unlawful discharge of heavy crude oil from a 20-inch-diameter interstate pipeline – the Pegasus Pipeline – that ruptured in Mayflower, Ark., on March 29, 2013.
As alleged in the complaint, a segment of the Pegasus Pipeline ruptured in a residential neighborhood in the town of Mayflower. The pipe was buried approximately two feet below the ground at that location. The oil spilled directly into the neighborhood and then into nearby waterways, including a creek, wetlands, and Lake Conway. Residents were forced to evacuate their homes due to the hazardous conditions in the neighborhood resulting from the spill. The oil has contaminated land and waterways and impacted human health and welfare, wildlife, and habitat. Cleanup efforts are still ongoing, and many residents still have not been able to return home.
The Pegasus Pipeline runs approximately 850 miles from Patoka, Ill., to Nederland, Texas. The pipeline is used to transport Canadian heavy crude oil. The pipeline originally was constructed in the 1940s.
The complaint alleges six causes of action against the defendants. The United States, on behalf of the U.S. Environmental Protection Agency (EPA), seeks civil penalties and injunctive relief under the federal Clean Water Act for the oil spill. The state of Arkansas, on behalf of the Arkansas Department of Environmental Quality (ADEQ) by the authority of the Arkansas Attorney General, seeks civil penalties for violations of the Arkansas Hazardous Waste Management Act and the Arkansas Water and Air Pollution Control Act. The state also seeks a declaratory judgment on ExxonMobil’s liability for payment of removal costs and damages related to the spill pursuant to the federal Oil Pollution Act.
Monday, June 17, 2013
BUS COMPANY SETTLES DISABILITIES CASE
FROM: U.S. DEPARTMENT OF JUSTICE
Wednesday, June 12, 2013
Justice Department Settles with New Jersey Bus Company Over Unequal Treatment of Passengers with Disabilities
The Justice Department announced today that it has reached a settlement with DeCamp Bus Lines Inc., a New Jersey transportation company, to ensure that bus transportation is provided on equal terms to people with disabilities.
The Civil Rights Division of the U.S. Department of Justice and the U.S. Attorney’s Office for the District of New Jersey determined that DeCamp Bus Lines violated the Americans with Disabilities Act (ADA) by requiring that passengers with disabilities provide 48 hours of advance notice to secure a wheelchair-accessible bus, even though passengers without disabilities did not have to provide any advance notice. The settlement agreement requires DeCamp to comply with all ADA requirements for accessible service, and not exclude persons with disabilities from its transportation services.
As part of compliance with the ADA, DeCamp will stop requiring that passengers with disabilities provide advance notice to secure an accessible bus and to ensure that no passenger with a disability is denied an accessible bus when the passenger does not provide advance notice. DeCamp will also no longer post, distribute or publish any written material that states that a passenger with a disability is required to provide advance notice to secure accessible transportation and train all employees and contractors on the requirements of the ADA.
"Individuals who use wheelchairs should be able to expect the same level of bus service from large operators that is provided to others," said Eve L. Hill, Senior Counselor to the Assistant Attorney General of the Civil Rights Division. "The department is committed to ensuring that bus companies are complying with this requirement."
"People with disabilities should not be forced to take needless action simply to use a bus service designed for everyone," said U.S. Attorney for the District of New Jersey Paul J. Fishman. "With this settlement, the Justice Department ensures individuals riding DeCamp will receive correct information about their access to transportation, and that access will not be denied."
Title III of the ADA prohibits discrimination against people with disabilities by public accommodations, including motorcoach companies. Since Oct. 29, 2012, the Department of Transportation’s regulations implementing the ADA require that all large, fixed-route motorcoach bus fleets be 100 percent accessible to individuals with disabilities, including individuals who use wheelchairs. Once a fleet is 100 percent accessible, the motorcoach bus company may no longer require advance notice to provide accessible service. The Department of Transportation’s regulations also require that such companies perform regular maintenance checks to ensure that wheelchair lifts work, train their employees on accessibility requirements and file annual accessibility reports with the Federal Motor Carrier Safety Administration of the U.S. Department of Transportation.
The United States was represented by Trial Attorneys David W. Knight and Michael Riess of Civil Rights Division, and Assistant U.S. Attorney Michael Campion of the U.S. Attorney’s Office for the District of New Jersey.
Wednesday, June 12, 2013
Justice Department Settles with New Jersey Bus Company Over Unequal Treatment of Passengers with Disabilities
The Justice Department announced today that it has reached a settlement with DeCamp Bus Lines Inc., a New Jersey transportation company, to ensure that bus transportation is provided on equal terms to people with disabilities.
The Civil Rights Division of the U.S. Department of Justice and the U.S. Attorney’s Office for the District of New Jersey determined that DeCamp Bus Lines violated the Americans with Disabilities Act (ADA) by requiring that passengers with disabilities provide 48 hours of advance notice to secure a wheelchair-accessible bus, even though passengers without disabilities did not have to provide any advance notice. The settlement agreement requires DeCamp to comply with all ADA requirements for accessible service, and not exclude persons with disabilities from its transportation services.
As part of compliance with the ADA, DeCamp will stop requiring that passengers with disabilities provide advance notice to secure an accessible bus and to ensure that no passenger with a disability is denied an accessible bus when the passenger does not provide advance notice. DeCamp will also no longer post, distribute or publish any written material that states that a passenger with a disability is required to provide advance notice to secure accessible transportation and train all employees and contractors on the requirements of the ADA.
"Individuals who use wheelchairs should be able to expect the same level of bus service from large operators that is provided to others," said Eve L. Hill, Senior Counselor to the Assistant Attorney General of the Civil Rights Division. "The department is committed to ensuring that bus companies are complying with this requirement."
"People with disabilities should not be forced to take needless action simply to use a bus service designed for everyone," said U.S. Attorney for the District of New Jersey Paul J. Fishman. "With this settlement, the Justice Department ensures individuals riding DeCamp will receive correct information about their access to transportation, and that access will not be denied."
Title III of the ADA prohibits discrimination against people with disabilities by public accommodations, including motorcoach companies. Since Oct. 29, 2012, the Department of Transportation’s regulations implementing the ADA require that all large, fixed-route motorcoach bus fleets be 100 percent accessible to individuals with disabilities, including individuals who use wheelchairs. Once a fleet is 100 percent accessible, the motorcoach bus company may no longer require advance notice to provide accessible service. The Department of Transportation’s regulations also require that such companies perform regular maintenance checks to ensure that wheelchair lifts work, train their employees on accessibility requirements and file annual accessibility reports with the Federal Motor Carrier Safety Administration of the U.S. Department of Transportation.
The United States was represented by Trial Attorneys David W. Knight and Michael Riess of Civil Rights Division, and Assistant U.S. Attorney Michael Campion of the U.S. Attorney’s Office for the District of New Jersey.
Sunday, June 16, 2013
CBOE AGREES TO PAY $6 MILLION PENALTY FOR OVERSIGHT BREAKDOWNS
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., June 11, 2013 — The Securities and Exchange Commission today charged the Chicago Board Options Exchange (CBOE) and an affiliate for various systemic breakdowns in their regulatory and compliance functions as a self-regulatory organization, including a failure to enforce or even fully comprehend rules to prevent abusive short selling.
CBOE agreed to pay a $6 million penalty and implement major remedial measures to settle the SEC's charges. The financial penalty is the first assessed against an exchange for violations related to its regulatory oversight. Previous financial penalties against exchanges involved misconduct on the business side of their operations.
Self-regulatory organizations (SROs) must enforce the federal securities laws as well as their own rules to regulate trading on their exchanges by their member firms. In doing so, they must sufficiently manage an inherent conflict that exists between self-regulatory obligations and the business interests of an SRO and its members. An SEC investigation found that CBOE failed to adequately police and control this conflict for a member firm that later became the subject of an SEC enforcement action. CBOE put the interests of the firm ahead of its regulatory obligations by failing to properly investigate the firm's compliance with Regulation SHO and then interfering with the SEC investigation of the firm.
According to the SEC's order instituting settled administrative proceedings, CBOE demonstrated an overall inability to enforce Reg. SHO with an ineffective surveillance program that failed to detect wrongdoing despite numerous red flags that its members were engaged in abusive short selling. CBOE also fell short in its regulatory and compliance responsibilities in several other areas during a four-year period.
"The proper regulation of the markets relies on SROs to aggressively police their member firms and enforce their rules as well as the securities laws," said Andrew J. Ceresney, Co-Director of the SEC's Division of Enforcement. "When SROs fail to regulate responsibly the conduct of their member firms as CBOE did here, we will not hesitate to bring an enforcement action."
Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit, added, "CBOE's failures in this case were disappointing. The public depends on SROs to provide a watchful eye on their exchanges and market activities occurring through them. They must have strong compliance cultures and adequate and dedicated compliance resources to ensure that they do not stray from their bedrock obligation to provide rigorous self-regulation."
According to the SEC's order, CBOE moved its surveillance and monitoring of Reg. SHO compliance from one department to another in 2008, and the transfer of responsibilities adversely affected its Reg. SHO enforcement program. After that transfer, CBOE did not take action against any firm for violations of Reg. SHO as a result of its surveillance or complaints from third parties. Reg. SHO requires the delivery of equity securities to a registered clearing agency when delivery is due, generally three days after the trade date (T+3). If no delivery is made by that time, the firm must purchase or borrow the securities to close out that failure-to-deliver position by no later than the beginning of regular trading hours on the next day (T+4). CBOE failed to adequately enforce Reg. SHO because its staff lacked a fundamental understanding of the rule. CBOE investigators responsible for Reg. SHO surveillance never received any formal training. CBOE never ensured that its investigators even read the rules. Therefore, they did not have a basic understanding of a failure to deliver.
According to the SEC's order, CBOE received a complaint in February 2009 about possible short sale violations involving a customer account at a member firm. CBOE began investigating whether the trading activity violated Rule 204T of Reg. SHO. However, CBOE staff assigned to the case did not know how to determine if a fail existed and were confused about whether Reg. SHO applied to a retail customer. CBOE closed its Reg. SHO investigation later that year.
The SEC's order found that not only did CBOE fail to adequately detect violations and investigate and discipline one of its members, but it also took misguided and unprecedented steps to assist that same member firm when it became the subject of an SEC investigation in December 2009. CBOE failed to provide information to SEC staff when requested, and went so far as to assist the member firm by providing information for its Wells submission to the SEC. The CBOE actually edited the firm's draft submission, and some of the information and edits provided by CBOE were inaccurate and misleading. The SEC brought its enforcement action against the firm in April 2012, and an administrative law judge recently rendered an initial decision in that case.
According to the SEC's order, CBOE had a number of other regulatory and compliance failures at various times between 2008 and 2012. CBOE failed to adequately enforce its firm quote and priority rules for certain orders and trades on its exchange as well as rules requiring the registration of persons associated with its proprietary trading members. CBOE also provided unauthorized "customer accommodation" payments to some members and not others without applicable rules in place, resulting in unfair discrimination. And CBOE and affiliate C2 Options Exchange failed to file proposed rule changes with the SEC when certain trading functions on their exchanges were implemented.
The SEC's order finds that CBOE violated Section 19(b)(1) and Section 19(g)(1) of the Securities Exchange Act as well as Section 17(a) and Rule 17a-1 when it failed to promptly provide information requested by the SEC that the exchange kept in the course of its business, including information related to the member firm that was under SEC investigation for Reg. SHO violations. CBOE and C2 agreed to settle the charges without admitting or denying the SEC's findings. CBOE agreed to pay $6 million, accept a censure and cease-and-desist order, and implement significant undertakings. C2 also agreed to a censure and cease-and-desist order and significant undertakings.
After the SEC began its investigation, CBOE and C2 responded by engaging in voluntary remedial efforts and initiatives. In reaching the settlement, the SEC took into account these remediation efforts and initiatives. CBOE reorganized its Regulatory Services Division, and hired a chief compliance officer and two deputy chief regulatory officers. CBOE updated written policies and procedures, increased the regulatory budget and the hiring of regulatory staff, implemented mandatory training for all staff and management, and hired a third-party consultant to review its Reg. SHO enforcement program. CBOE also conducted a "bottom-up" review of its Regulatory Services Division's independence, began a "gap" analysis to determine whether CBOE or C2 needed to file any additional rules, and reviewed all of CBOE's regulatory surveillances and the exchange's enterprise risk management framework. After the SEC expressed concern about an accommodation payment to a member, CBOE hired outside counsel to investigate and self-reported additional instances of financial accommodations to other members. After considering CBOE's remedial efforts, the SEC determined not to impose limitations upon the activities, functions or operations of CBOE pursuant to Section 19(h)(1) of the Exchange Act.
The SEC's investigation was conducted by Market Abuse Unit members Paul E. Kim and Deborah A. Tarasevich and Structured and New Products Unit member Jill S. Henderson with assistance from market surveillance specialist Brian Shute and trading strategies specialist Ainsley Kerr. The case was supervised by Market Abuse Unit Chief Daniel M. Hawke
Washington, D.C., June 11, 2013 — The Securities and Exchange Commission today charged the Chicago Board Options Exchange (CBOE) and an affiliate for various systemic breakdowns in their regulatory and compliance functions as a self-regulatory organization, including a failure to enforce or even fully comprehend rules to prevent abusive short selling.
CBOE agreed to pay a $6 million penalty and implement major remedial measures to settle the SEC's charges. The financial penalty is the first assessed against an exchange for violations related to its regulatory oversight. Previous financial penalties against exchanges involved misconduct on the business side of their operations.
Self-regulatory organizations (SROs) must enforce the federal securities laws as well as their own rules to regulate trading on their exchanges by their member firms. In doing so, they must sufficiently manage an inherent conflict that exists between self-regulatory obligations and the business interests of an SRO and its members. An SEC investigation found that CBOE failed to adequately police and control this conflict for a member firm that later became the subject of an SEC enforcement action. CBOE put the interests of the firm ahead of its regulatory obligations by failing to properly investigate the firm's compliance with Regulation SHO and then interfering with the SEC investigation of the firm.
According to the SEC's order instituting settled administrative proceedings, CBOE demonstrated an overall inability to enforce Reg. SHO with an ineffective surveillance program that failed to detect wrongdoing despite numerous red flags that its members were engaged in abusive short selling. CBOE also fell short in its regulatory and compliance responsibilities in several other areas during a four-year period.
"The proper regulation of the markets relies on SROs to aggressively police their member firms and enforce their rules as well as the securities laws," said Andrew J. Ceresney, Co-Director of the SEC's Division of Enforcement. "When SROs fail to regulate responsibly the conduct of their member firms as CBOE did here, we will not hesitate to bring an enforcement action."
Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit, added, "CBOE's failures in this case were disappointing. The public depends on SROs to provide a watchful eye on their exchanges and market activities occurring through them. They must have strong compliance cultures and adequate and dedicated compliance resources to ensure that they do not stray from their bedrock obligation to provide rigorous self-regulation."
According to the SEC's order, CBOE moved its surveillance and monitoring of Reg. SHO compliance from one department to another in 2008, and the transfer of responsibilities adversely affected its Reg. SHO enforcement program. After that transfer, CBOE did not take action against any firm for violations of Reg. SHO as a result of its surveillance or complaints from third parties. Reg. SHO requires the delivery of equity securities to a registered clearing agency when delivery is due, generally three days after the trade date (T+3). If no delivery is made by that time, the firm must purchase or borrow the securities to close out that failure-to-deliver position by no later than the beginning of regular trading hours on the next day (T+4). CBOE failed to adequately enforce Reg. SHO because its staff lacked a fundamental understanding of the rule. CBOE investigators responsible for Reg. SHO surveillance never received any formal training. CBOE never ensured that its investigators even read the rules. Therefore, they did not have a basic understanding of a failure to deliver.
According to the SEC's order, CBOE received a complaint in February 2009 about possible short sale violations involving a customer account at a member firm. CBOE began investigating whether the trading activity violated Rule 204T of Reg. SHO. However, CBOE staff assigned to the case did not know how to determine if a fail existed and were confused about whether Reg. SHO applied to a retail customer. CBOE closed its Reg. SHO investigation later that year.
The SEC's order found that not only did CBOE fail to adequately detect violations and investigate and discipline one of its members, but it also took misguided and unprecedented steps to assist that same member firm when it became the subject of an SEC investigation in December 2009. CBOE failed to provide information to SEC staff when requested, and went so far as to assist the member firm by providing information for its Wells submission to the SEC. The CBOE actually edited the firm's draft submission, and some of the information and edits provided by CBOE were inaccurate and misleading. The SEC brought its enforcement action against the firm in April 2012, and an administrative law judge recently rendered an initial decision in that case.
According to the SEC's order, CBOE had a number of other regulatory and compliance failures at various times between 2008 and 2012. CBOE failed to adequately enforce its firm quote and priority rules for certain orders and trades on its exchange as well as rules requiring the registration of persons associated with its proprietary trading members. CBOE also provided unauthorized "customer accommodation" payments to some members and not others without applicable rules in place, resulting in unfair discrimination. And CBOE and affiliate C2 Options Exchange failed to file proposed rule changes with the SEC when certain trading functions on their exchanges were implemented.
The SEC's order finds that CBOE violated Section 19(b)(1) and Section 19(g)(1) of the Securities Exchange Act as well as Section 17(a) and Rule 17a-1 when it failed to promptly provide information requested by the SEC that the exchange kept in the course of its business, including information related to the member firm that was under SEC investigation for Reg. SHO violations. CBOE and C2 agreed to settle the charges without admitting or denying the SEC's findings. CBOE agreed to pay $6 million, accept a censure and cease-and-desist order, and implement significant undertakings. C2 also agreed to a censure and cease-and-desist order and significant undertakings.
After the SEC began its investigation, CBOE and C2 responded by engaging in voluntary remedial efforts and initiatives. In reaching the settlement, the SEC took into account these remediation efforts and initiatives. CBOE reorganized its Regulatory Services Division, and hired a chief compliance officer and two deputy chief regulatory officers. CBOE updated written policies and procedures, increased the regulatory budget and the hiring of regulatory staff, implemented mandatory training for all staff and management, and hired a third-party consultant to review its Reg. SHO enforcement program. CBOE also conducted a "bottom-up" review of its Regulatory Services Division's independence, began a "gap" analysis to determine whether CBOE or C2 needed to file any additional rules, and reviewed all of CBOE's regulatory surveillances and the exchange's enterprise risk management framework. After the SEC expressed concern about an accommodation payment to a member, CBOE hired outside counsel to investigate and self-reported additional instances of financial accommodations to other members. After considering CBOE's remedial efforts, the SEC determined not to impose limitations upon the activities, functions or operations of CBOE pursuant to Section 19(h)(1) of the Exchange Act.
The SEC's investigation was conducted by Market Abuse Unit members Paul E. Kim and Deborah A. Tarasevich and Structured and New Products Unit member Jill S. Henderson with assistance from market surveillance specialist Brian Shute and trading strategies specialist Ainsley Kerr. The case was supervised by Market Abuse Unit Chief Daniel M. Hawke
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