FINRA July 2022 Disciplinary Actions - Financial Risk Management, OBAs, Fail to Appear

UBS AWC - findings that that it provided market access to two affiliates without accounting for those affiliates in its financial risk management controls. The findings stated that the firm maintained a proprietary order management system that it and its affiliates used for trading in listed futures and options. In addition, the firm maintained a third-party order management system that it and its affiliates used primarily to enter good-till-cancelled spread orders. The firm established credit thresholds and erroneous order controls based upon its mistaken belief that the options orders entered through both order management systems were entered by a single firm affiliate. In fact, a firm employee was able to enter orders on behalf of two additional firm affiliates into both order management systems.

Highlights from the release, which is available at https://www.finra.org/sites/default/files/2022-07/Disciplinary_Actions_July_2022_0.pdf

Other firms -

• fined $20,000 for late filings for private offerings, over 88 days late
• $70,000 for supervisory system failings for Regulation SHO
• $200,000 for overstating trading volume in varied securities

Brokers

• $5,000 fine and 3 month suspension for failing to provide written notice to firm of an OBA
• $5,000 fine and 18 month suspension for having unauthorized materials while taking the NASAA Series 66 exam.
• $5,000 and 3 month suspension and ordered to pay $48,000 in restitution for recommending and excessively trading customer accounts.
• Dozens of broker permanently barred for failing to produce documents and/or appear at an on-the-record interview.

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The attorneys at Sallah Astarita & Cox, LLC have been representing firms and brokers in FINRA disciplinary proceedings for decades. Have a question? Give them a call at 212-509-6544

How Many FINRA Enforcement Lawyers Does It Take To Prosecute A Default Case?

Bill Singer posts about the overkill by FINRA Enforcement in obtaining a default order against an 89 year old registered representative who had been out of the business for 17 months.

No one disputes FINRA's need to sanction those who do not make timely disclosures on their CRD filings, but "Four Enforcement attorneys, one OHO Hearing Officer, pre-hearings, an Order to Show Cause, a show-cause hearing, a default hearing, a DEFAULT DECISION, and a raging Covid pandemic -- and all of that to go after an 89-year-old Respondent who had been in our biz since 1970 and was last terminated in July 2020."

Bill has a point.

http://www.brokeandbroker.com/6240/finra-default-weinrich/

FINRA Office of Hearing Officers Postpones All Hearings, Except Expedited

The Office of Hearing Officers (OHO) has postponed hearings of Disciplinary Proceedings scheduled through April with the exception of pending Expedited Proceedings, as they are not conducted in person.

While working remotely, OHO will serve and accept service of notices, pleadings, and other documents by email. Parties with questions about these or any other aspects of pending cases should contact the appropriate Case Administrator.

If you need help with an arbitration, or simply have a question, call Mark Astarita at 212-509-6544. With 30 years of  dealing with FINRA, he probably knows the answer.

Regulators Calling Your Clients? Maybe Yes, Maybe No.

Anyone who has been involved in an SEC or FINRA investigation into a sales practice issue has experienced the infuriating problem of the Staff calling the firm's customers as part of their investigation.

While they claim to have every right to do so, the mere existence of the call is a problem for the broker and the firm. Customers quite naturally begin to wonder what is wrong, why is the SEC or FINRA reviewing my account, and a host of other questions, none of which should be occurring. Making matters worse, the Staff will not tell you that they are calling customers, or who they called.

While it is undoubtedly true that the Staff has good intentions, and does not attempt to mislead the customer, many Staff members are inexperienced in the industry, and others are simply uninformed. I was recently involved in an investigation into the sales of syndicate offerings of closed end funds. Like all public offerings there is no commission added to the purchase price. If the shares are offered at $25, the customer pays $25.00, not $25.00 plus a commission. The broker is compensated by the issuer, by way of a sales credit. There is no direct cost to the customer.

Unfortunately, in this investigation, the examiner who was calling the customers, added up the sales credits, and called the customers, asking them "Are you aware that you paid your broker $10,000 in commissions?" Putting aside the obvious issue of an examiner prompting the customer in this manner, the statement is patently false. Given the fact that the customer has been told that there is no commission, and that the broker is paid by the issuer, the customer now believes that he has been lied to, and the broker-customer relationship starts to go down hill.

This is a serious issue and one what we have been dealing with for years, and we continue to fight this fight.

But now there is a new problem. The SEC has issued a press release disclosing that fraudsters are calling investors claiming to be SEC employees in an attempt to trick investors into sending money or revealing sensitive account information.

Actually, this should not be news to the SEC, as there were reports earlier this year of scammers using official looking letters and emails claiming to be from FINRA in order to steal money from investors. In February of this year, FINRA issued a press release on this exact issue - "FINRA Warns Investors of 'Regulator' Imposter Scams." In January of this year, two scammers were accused of calling investors posing as the SEC - U.S. Charges Two Over Fraud Featuring Bogus SEC Employees.

Investors, be careful out there. Scammers are using the SEC, FINRA, the IRS, the FCC and who knows what else to scam money. Be careful when speaking to someone who claims to be from a government agency. If you receive such a call, do not respond. If you are concerned, end the call and call the agency directly. They can confirm whether the call is legitimate.

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Mark J. Astarita, Esq. is a securities attorney representing investors and financial professional nationwide in regulatory, litigation and compliance matters. If you have a question or concern regarding these issues, email Mark at mja@sallahlaw.com.

FINRA Seeks More Power For Bogus Reasons

 While FINRA's desire to be able to react to market manipulation in an expedited fashion is a laudable goal, we must be careful about giving FINRA too much power. FINRA is not a government regulator - it is a private organization whose executives make millions of dollars a year, is funded by the industry, and has the ability to crush the smaller broker-dealers.

As with most private corporations, FINRA seeks to expand its power and reach whenever it can. Remember its attempt to regulate Investment Advisers? Its attempt to obtain and store every investor's private investment data? We need to be careful.

FINRA claims that it needs the ability to crack down more quickly on manipulative trading practices in the securities markets and is allegedly concerned that it has no quick means to stop disruptive trading activity after it has been identified without resorting to proceedings that can take years to complete,

This is simply nonsense. Putting aside the fact that the entire controversy is apparently based on a limited number of claims of "spoofing" and "layering" FINRA routinely refers cases to the SEC, and the SEC has the ability to immediately issue a temporary cease and desist order. So does every State regulator. It also claims that since it does not have jurisdiction over foreign entities it needs to have the ability to issue expedited cease and desist orders. What? FINRA only has jurisidction of those who are registered with it, and a cease and desist order by FINRA, directed at someone who it does not have jurisdiction over, is not enforceable.

There is simply no need to give FINRA the ability to file expedited proceedings where it can impact the operations of innocent firms and brokers, without any evidence of wrongful conduct, and without constitutional protections that apply when the SEC or the States take the same action


FINRA moves to speed up market manipulation crackdowns | Reuters:

A Look at FINRA's Years under Ketchum and What's Ahead

Interesting article at RIABiz regarding the retirement of Rick Ketchum, the fact that there are two outsiders replacing him, and the problems FINRA faces going forward.



What FINRA's CEO shuffle reveals about its waning viability as the self-funded fox guarding the investor henhouse | RIABiz:

FINRA and SEC Actions Against Compliance Officers

There was a time when FINRA and the SEC, gave compliance officers a pass in regulatory actions, except of course in the most egregious cases. Their job is tough enough without worrying about a regulatory complaint because of perceived mis-step by someone at their firm.

Those days are gone, and the first line of regulatory oversight at the 4,000+ brokerage firms in this country is finding itself the subject of regulatory proceedings. Fortunately, we have not seen many actions against compliance officers, and the reality is that a good faith effort to create a supervisory system, and to insure that it is being followed, should keep the compliance department out of a regulatory action.

But it does happen, and Brian L. Rubin from Sutherland Asbill and Brennan, LLP, has put together an analysis and recap of recent enforcement proceedings against compliance officers.

The article is available at Sutherland's site - Harry Potter and the Compliance Stone:SEC and FINRA Enforcement Actions AgainstCompliance Officers (July-December 2015)

Related articles

• Brokers Beware - FINRA Disciplinary Fines Up in 2014 
• Spike in FINRA, SEC Regulation Leaves Star Brokers Exposed 
• Regulatory Investigations Require Experienced Counsel 
• Inside the Death of the Regional Broker-dealer 

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Cetera Fined For Failing to Apply REIT Discounts

Cetera Investment Services was censured; fined $30,000; ordered to pay $17,883.66, plus interest, in restitution to customers; and ordered to review all non-traded real estate investment trust (REIT) and business development company (BDC) sales it made during the relevant period and certify that it has identified all transactions for which a customer did not receive the applicable volume discount and provide restitution if necessary.

Typically, investors are entitled to discounted prices on purchases of certain nontraded REITs, typically when the sale is greater than $500,000.  according to various prospectuses of nontraded REITs.

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Mark Astarita is a New York securities lawyer who represents investors, brokers and firms in securities regulatory, enforcement and arbitration matters across the country. For a free consultation call Mark at 212-509-6544 or email him at mja@sallahlaw.com

Apex Clearing Fined For Violations of Regulation SHO

Apex Clearing was censured and fined $12,500. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that among other things, it had fail-to-deliver positions at a registered clearing agency in equity securities that resulted from long sales, and did not close the fail to deliver positions by purchasing or borrowing securities of like kind and quantity within the time frame prescribed by Rule 204(a)(1) of Regulation SHO. The findings stated that the firm had failed to deliver positions at a registered clearing agency in equity securities that resulted from sales of securities that the seller was deemed to own pursuant to §242.200 of Regulation SHO and intended to deliver once all restrictions on delivery had been removed, and did not close the fail-to-deliver positions by purchasing or borrowing securities of like kind and quantity within the time frame prescribed by Rule 204(a)(2) of Regulation SHO.

www.finra.org/sites/default/files/publication_file/November_2015_Disciplinary_Actions.pdf

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Mark Astarita is a New York securities lawyer who represents investors, brokers and firms in securities regulatory, enforcement and arbitration matters across the country. For a free consultation on markup questions, or any securities related question, call Mark at 212-509-6544 or email him at mja@sallahlaw.com