Justia Badge
Super Lawyers badge
Avvo Rating badge
AV Preeminent badge

At a recent Securities Enforcement Forum in Washington DC, Stephanie Avakian, co-director of the SEC’s Division of Enforcement, discussed the agency’s future priorities.

Avakian emphasized that the mission of the Enforcement Division, to protect investors, will remain unchanged, but she announced a slight shift in focus areas and resource allocation.

The Division of Enforcement official referred to retail investors as the “most vulnerable market participants,” and confirmed that the SEC will continue to focus on:

In a recent report, the Wall Street Journal said FINRA’s investments are underperforming. The self-regulatory organization boasts a $1 billion yearly budget, and it easily collects over $100 million per year through the imposition of fines.

According to WSJ journalists, throughout its existence, FINRA’s $1.6 billion investment portfolio has yielded $440 million less than what could have been obtained from a mix of balanced stocks and bonds.

After the industry’s recent questioning of how FINRA uses fine money, the new criticism appears as a new blow to its image at a time when it has been trying to show a willingness to reform in response to member feedback.

Aspiring brokers will no longer need a firm to sponsor them in order to take FINRA’s competency exams. The Securities and Exchange Commission has just approved FINRA Regulatory Notice  17-30, which will make this and other changes effective within a year.

According to FINRA, the rule change aims to:

  1. adopt consolidated FINRA registration rules;

The North American Securities Administrators Association (NASAA) has just released its yearly Enforcement Report. Although NASAA is an international association of all state, provincial and territorial securities regulators in the United States, Canada, and Mexico, the annual report is focused on US jurisdictions.

According to data included in the document, there were more enforcement actions against registered members than against non-registered individuals in 2016.

2,017 (or 46%) of the 4,341 investigations conducted by state regulators in the securities industry resulted in enforcement actions. Resulting fines amounted to $682 million, while $231 million were returned to investors. The combined total between fines and restitutions, surpassing $900 million, constitutes a 5-year high.

The SEC has accused two former Alexander Capital LP brokers, William Gennity and Rocco Roveccio of engaging in unlawful trading and deception that caused their customers to lose hundreds of thousands of dollars, while they earned a comparable amount in fees.

Gennity and Roveccio both worked at Alexander Capital from mid 2012 till October 2014.

They apparently have a long history of disciplinary action in the securities industry. In 2016, Gennity reached a settlement to resolve allegations of unauthorized trading and in 2014, he reached another settlement over churning and unsuitability. Roveccio has reached settlements over allegations of unauthorized trading and suitability in 2002, unauthorized trading in 2006, and a FINRA customer arbitration in 2013.


“Arbitrators have a unique, distinct role in ensuring that customer dispute information is expunged from the CRD system only when it has no meaningful investor protection or regulatory value.” FINRA (September, 2017)

In a new push for closer scrutiny over expungements, FINRA has just updated its Notice to Arbitrators and Parties on Expanded Expungement Guidance. In the revised document, FINRA zeroes in on expungement-only cases, specifically addressing the issue of customers who may be unaware of the existence of expungement claims.

The regulator’s document states that,

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.”

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.

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.

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.

Contact Information