A large foreign bank agreed to pay $196 Million in disgorgement, interest, and penalties and admit wrongdoing to settle SEC charges that the firm engaged in unlawful advisory and brokerage activities with U.S. clients.  The SEC charges that the respondent’s relationship managers traveled to the U.S. to service as many as 8500 U.S. clients.  According to the SEC, the RMs “solicited, established, and maintained brokerage and investment advisory accounts for certain U.S. clients; accepted and executed orders for securities transactions; actively solicited securities transactions; handled certain U.S. clients’ funds and securities; provided account statements and other account information; and provided investment advice.”  The SEC indicates that the firm made $82 Million in revenue from its U.S. operations.  The firm did not register as an investment adviser or broker-dealer even though the firm knew that such activities might require registration.  In fact, the firm began to unwind its U.S. operations after a competitor firm suffered regulatory actions based on similar facts, but the SEC criticizes the firm because it took nearly 5 years to cease its unlawful business.  

OUR TAKE: When you service thousands of U.S. clients and collect $82 Million in revenue while ignoring the securities laws, the SEC, and your competitors, have an interest in shutting you down.  The unfortunate truth is that the amount of revenue would have easily supported the required regulatory infrastructure.