SEC Charges Bank Leumi With Conducting Unregistered U.S. Cross-Border Business
FOR IMMEDIATE RELEASE
Washington D.C., Oct. 18, 2016 ó
The Securities and Exchange Commission today announced that Israeli-based Bank Leumi has agreed to pay $1.6 million and admit wrongdoing to settle charges that it provided investment advice and induced securities transactions for U.S. customers for more than a decade without registering as an investment adviser or broker-dealer as required under U.S. securities laws.
The SECís order finds that Bank Leumi maintained several hundred securities accounts that were beneficially owned by U.S. customers and managed more than $500 million in securities assets for U.S. customers. To manage and mitigate the risk of violating U.S. laws, Bank Leumi began exiting the U.S. cross border business in 2008. But despite these efforts, approximately 100 U.S. customer securities accounts remained open with the bank three years later, and bank employees continued to have contact with U.S. customers.
ďThe broker-dealer and investment adviser registration provisions provide core protections to investors,Ē said Scott Friestad, Associate Director of the SECís Division of Enforcement. ďBank Leumiís efforts to come into compliance with these laws took years, during which time the bank continued to profit from its unlawful cross-border business.Ē
The SECís order finds that Bank Leumi made $3.3727 million in profits from its U.S. cross-border business. Bank Leumi disgorged $3.307 million of those profits in a deferred prosecution agreement with the U.S. Justice Department in December 2014. Bank Leumi must disgorge the remaining $65,700 in its settlement with the SEC plus $8,713.20 in interest and a $1,517,715 penalty.
The SECís order finds that Bank Leumi le-Israel B.M, Leumi Private Bank, and Bank Leumi (Luxembourg) S.A. violated Section 15(a) of the Securities Exchange Act of 1934. Leumi Private Bank also violated Section 203(a) of the Investment Advisers Act of 1940. Bank Leumi agreed to admit the facts in the SECís order, acknowledge that its conduct violated the federal securities laws, and accept a censure and a cease-and-desist order.
The SECís investigation was conducted by Lory Stone and David S. Karp, and the case was supervised by Laura B. Josephs.
ēSEC order https://www.sec.gov/litigation/admin/2016/34-79113.pdf
1The findings herein are made pursuant to Respondentsí Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
From at least 2002 through 2013, Respondents violated certain provisions of the federal securities laws by providing cross-border brokerage services to customers in the U.S. ("U.S. customers") without registering with the Commission as broker-dealers. During that time, Bank Leumi le-Israel B.M., Leumi Private Bank, and Bank Leumi (Luxembourg) S.A. held securities assets for U.S. customers with an aggregate peak value of approximately $537 million. From 2009 to 2013, Respondents had at least 711 unique customer accounts that held securities and were beneficially owned by U.S. customers. From at least 2008, Respondents were aware that, in certain instances, if their employees were to provide such services in the U.S. or otherwise by use of the mails or other modes of interstate commerce, Respondents would be required to register in the U.S. as broker-dealers, absent an available exemption from registration. None of the Respondents were registered as broker-dealers with the Commission.
2. With limited exceptions not applicable here, Section 15(a)(1) of the Exchange Act requires anyone who makes use of the mails or any other means or instrumentality of interstate commerce, to engage in the business of effecting transactions in securities for the account of others, or to engage in a regular business of buying and selling securities for the personís own account, to register with the Commission as a broker-dealer.
3. Among other actions, prior to April 2009 certain of Respondentsí Relationship Managers ("RMs") traveled to the U.S. to solicit new and/or service existing U.S. customers, in part by soliciting or attempting to solicit securities transactions. These activities required Respondents to register with the Commission as broker-dealers, which they did not.
4. From at least 2008, Respondents understood that there was a risk of violating the federal securities laws by providing broker-dealer services to U.S. customers without being registered with the Commission, and they took certain measures to manage and mitigate the risk that such services might be provided to U.S. customers, including issuing internal policies aimed at complying with U.S. securities laws. In 2009, Respondents prohibited RM travel to the U.S., prohibited the provision of securities services to U.S. customers, and began working to exit securities accounts of existing U.S. customers. However, while Respondents were coming into compliance with these new policies, violations of their policies and the federal securities laws continued.