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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.

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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.

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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.

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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).

navigating-raiding
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?

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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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FINRA’s enforcement program is big business.

In 2008, FINRA levied fines totaling $28 million. By 2016, that number jumped to $176 million. In 2008, FINRA ordered restitution payments to investors totaling $6 million. By 2015, that number jumped to $96 million.

Each year, FINRA initiates approximately 1,500 disciplinary actions against member firms and employees. FINRA’s Office of Hearing Officers resolves approximately 400 proceedings per year.

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Regulatory compliance is often less costly than FINRA’s steep fines. Yet companies continue to face millions of dollars in penalties for not complying with FINRA’s regulations. In this particular time, there is a clear intent from FINRA to hold such companies accountable. Unfortunately, many of them have learned this the hard way.

FINRA has just fined State Street Global Markets and Acorns Securities $2 million for an easily avoidable violation: improper retention of customer records. FINRA has very specific requirements for record-keeping, which should be done in a manner that prevents them from being altered or destroyed.

For State Street, this is the second blow in a row, after Richard Boomgaardt, a former executive with the company pleaded guilty to securities fraud and wire fraud involving secret commissions on billions of dollars of trades. Edward Pennings, another former State Street exec also pleaded guilty in the same case.

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At a recent event hosted by the American Bar Association’s Securities Litigation Committee, three Chief Counsel from the Financial Industry Regulatory Authority’s Enforcement division discussed the agency’s current priorities.

Chief Counsel Sue Light, Gina Petrocelli, and Lara Thyagarajan shed light on the areas that FINRA will be scrutinizing more closely through the second half of 2017.

As per FINRA’s 2017 Priorities Letter, the Regulatory Authority is shifting its focus from a “culture of compliance” to a “blocking and tackling” model, emphasizing on watching brokers with a track record of disciplinary actions.

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In its quest for investor protection and market integrity, FINRA diligently seeks out firm representatives who are in violation of its strict rules. Recently, the regulatory authority decided to bar California-based Jim Jinkook Seol from the industry.

A former employee of Ameriprise Financial Inc.; Seol was found to have sold $100 million worth of EB-5, permanent residency-eligible, investments without disclosing the transactions to his employer.

The EB-5 visa program offers permanent residency to foreign nationals who invest between $500,000 and $1 million and create 10 jobs in a new business venture in the US. The program is especially attractive to wealthy individuals from emerging economies like China and India, and, as such, it holds an enormous profit potential for securities industry professionals.

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