FINRA Lawyer Blog

FINRA Censures and Fines New York Firm $750,000 Over Its Role In Death Put Scheme

October 7, 2017 | Herskovits, PLLC

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FINRA announced it has just fined C.L. King & Associates $750,000. According to the Regulatory Authority´s decision, the broker-dealer has negligently made “material misrepresentations and omissions to issuers in connection with the firm’s redemptions of debt securities on behalf of a hedge fund customer.”

This was allegedly done in connection with the hedge fund customer´s scheme to profit from the death of terminally ill individuals.

A FINRA hearing panel also found that the Albany-based broker dealer and its Anti-Money Laundering Compliance Officer failed to “implement a reasonable AML program and failed to adequately respond to red flags related to the liquidation of billions of shares of penny stocks indicative of potentially suspicious activity by two customers.”

Dishonest Trader Must Disclose Commodity Law Violations in Public Communications

September 20, 2017 | Herskovits, PLLC

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Once in a while, regulators and courts take actions that have no precedent, but which may influence justice over time. That is the case of a recent ruling from a Florida federal judge, who ordered a defendant to disclose that he had “violated commodity laws” whenever he writes or speaks about commodity trading in the future.

The U.S. Commodity Futures Trading Commission announced the ruling in a statement, perhaps in the hope that it might serve to deter potential fraudsters.

The defendant, Anthony J. Klatch II, had been arrested several times since 2011, charged with running a kind of Ponzi scheme, and ordered to pay back $13 million in various civil proceedings. In 2012, for example he was convicted in connection with a $2.3 million investment scam.

FINRA CEO Cook Grilled by Congress on FINRA’s Financial Conduct

September 18, 2017 | Herskovits, PLLC

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During a recent Financial Services Subcommittee oversight hearing, both Democrat and Republican lawmakers raised concerns before FINRA CEO Robert Cook. Some of the issues discussed were the Regulatory Authority’s standing as a private entity and its handling of fine proceeds, which hit a record $173 million in 2016.

One of the main criticisms voiced by House Representatives referred to FINRA’s practice of keeping fine proceeds instead of giving them back to harmed investors. In this regard, California’s Democratic Representative Brad Sherman pleaded for increased transparency in the regulator’s activities.

Cook heard many hard questions during the hearing, from both sides of the aisle, and he attempted to reply in a satisfactory way. Whenever FINRA’s present reality seemed inadequate, he assured current problems would be addressed by upcoming changes in many aspects of the entity’s activities.

Evolution of Publicly Traded Stock Ownership in the US 1990s-2016

September 15, 2017 | Herskovits, PLLC

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The last few years have seen an improvement in economic activity in the US. After median family net worth remained stagnant between 2010 and 2013, house prices are now rising, corporate equity prices are also on the rise. But how does that translate in terms of traded stock ownership? In order to better understand the present, it helps to take a look at the past.

In his book, Struggle and Survival in Wall Street – The Economics of Competition among Securities Firms, John O. Matthews cites some interesting official statistics: In 1985, 47 million Americans owned stocks and 150 million owned them indirectly. By 1990, 51.4 million owned them directly and nearly 200 million owned them indirectly,

According to a National Bureau of Economic Research paper, by 1995, individuals controlled about two-thirds of outstanding corporate stock.The Federal Reserve’s statistics at the time indicated that households owned less than 50% of outstanding shares, the discrepancy stems from the NBER’s inclusion of a wider variety of financial intermediation options.

Ironbridge Global Partners and a Subsidiary to Pay $4.4 Million Settlement over Microcap Finance Practices

September 6, 2017 | Herskovits, PLLC

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Ironridge Global Partners LLC has agreed to pay $4.4 million in disgorgement to settle claims that it incurred violations of the Exchange Act when its subsidiary Ironridge Global IV distributed billions of microcap shares without being a registered broker.

According to the SEC order, Ironridge violated Section 15(a) of the Exchange Act, which “prohibits a broker or dealer to effect transactions in any security without registering with the Commission,” and Section 20(b) of the Exchange Act, which “makes it unlawful for any person, directly or indirectly, to do any act or thing which it would be unlawful for such person to do under the Exchange Act or any rule or regulation thereunder through or by means of any other person.”

The San Francisco-based firm’s subsidiary, Ironridge Global IV, sold shares of 28 microcap issuers, typically driving down share prices while increasing the number of shares received, through a price protection formula which locked in discounts regardless of stock price shifts.

FINRA Fine Stats 2016 vs. 2017 and Enforcement Trends

August 30, 2017 | Herskovits, PLLC

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Over the course of 2016, FINRA expelled 24 firms from membership and fined offenders for a total of $176 million. The largest fine amounted to $25 million, paid by MetLife Securities over negligent misrepresentations and omissions in connection with variable annuity replacements.

A total of $27,9 million from monetary sanctions corresponded to customer restitutions. In the MetLife case, this amounted to $5 million.

On average, FINRA fined 31 offenders per month. There were many serial offenders, with 46 firms fined more than once throughout the year and 11 firms fined more than four times.

FINRA Vows to Protect Investors from High-Risk Brokers

August 29, 2017 | Herskovits, PLLC

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In a speech delivered at Georgetown University, FINRA CEO Robert Cook expressed the Regulatory Authority’s intent on helping brokerages identify and supervise brokers with a history of disciplinary action.

From now on, FINRA is going to look very closely at how firms hire and supervise high-risk brokers, Cook explained.

Firms should have heightened supervision in place to prevent potential violations by brokers with a history of misconduct. According to Cook, it is firms themselves who have asked FINRA for more guidance on the issue.

SEC Seeks Injunction in Case Against Avalon FA Ltd. Over Illegal Market Manipulation Known as Layering

August 24, 2017 | Herskovits, PLLC

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The SEC recently asked a federal judge to freeze $5.4 million of Avalon FA Ltd.’s funds, on account of its practice of “layering.” A Seychelles investment firm run out of Ukraine, Avalon allegedly engaged in illegal market manipulation.

Layering, in the SEC’s words is, “a scheme in which orders are placed but later canceled after tricking others into buying or selling stocks at artificial prices, resulting in illicit profits.” Layering is also used in a different way in money laundering.

According to the SEC, Avalon FA knowingly spammed markets with trade orders they had no intention of fulfilling. When the SEC’s lawsuit was first announced, Avalon funds were frozen through a temporary restraining order (TRO).

Raiding Cases in the Securities Industry – Navigating Claims, Damages & the Rest

August 22, 2017 | Herskovits, PLLC

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Raiding, hiring groups of brokers from a competitor, happens frequently in the securities industry giving rise to complex disputes and damage claims. Whether your firm is the victim or the accused raiding entity, you will need to understand these basics:

What is raiding in the securities industry?
Which legal claims are asserted?

$4.8M in FINRA Fines for 4 Firms on Supervisory Gap & Deutsche Bank $12.5M on Failed Supervision of Internal Comms

August 16, 2017 | Herskovits, PLLC

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Last month, Deutsche Bank Securities Inc., Citigroup Global Markets Inc., JP Morgan Securities LLC and Interactive Brokers LLC agreed to pay a collective $4.8 million to end FINRA´s probe over inadequate risk controls.

According to FINRA´s allegations, the financial institutions violated the Market Access Rule, which establishes requirements for maintaining risk management controls that supervise clients’ access to the market.

FINRA sources explained that, “The purpose of this requirement is to prevent firms from jeopardizing their own financial condition and that of other market participants, while also ensuring the stability and integrity of the financial system and the securities markets.”

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