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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Monday, October 24, 2011

Portuguese Bank Settles New York and SEC Charges over Violating Registration Provisions

The New York Attorney General and the SEC both announced that they had settled investigations into Banco Espírito Santo S.A. (BES), a Portuguese bank, for the same alleged conduct.  According to the New York AG, BES and its affiliates solicited the sale of securities to BES’s U.S. customers between 2004-2009 without registering itself or any of its affiliates as a securities broker-dealers or investment advisers, or any of their employees as salesmen, as required under New York’s Martin Act.  Similarly, the SEC's proceeding found that BES offered brokerage services and investment advice to U.S.-resident customers and clients who were primarily Portuguese immigrants. However, during this time, BES was not registered with the SEC as a broker-dealer or investment adviser, and it offered and sold securities to its U.S. customers and clients without the intermediation of a registered broker-dealer. None of these securities transactions was registered and many of the securities offerings did not qualify for an exemption from registration.

Under the agreement with the AG, BES will cease and desist from any further violations of the Martin Act and Executive Law § 63(12), offer to make its customers whole for all securities it unlawfully sold them, disgorge all profits derived from its unlawful conduct, and pay $975,000 to the State of New York in penalties, fees and costs.

Under the SEC order, BES agreed to cease and desist from committing or causing any violations of Sections 5(a) and 5(c) of the Securities Act, Section 15(a) of the Exchange Act, and Section 203(a) of the Advisers Act, and to pay nearly $7 million in disgorgement, prejudgment interest and penalties. BES also has agreed to an undertaking that requires it to pay a certain minimum rate of interest to its U.S. customers and clients on securities purchased through BES, and to make whole each of its U.S. customers and clients for any realized or unrealized losses with respect to any securities purchased through BES.

Both regulators credited BES for self-reporting the findings of an internal investigation performed by its outside counsel and cooperating with the investigations. 


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