Securities industry Commentator by Bill Singer Esq

July 3, 2018
Ploetz filed a FINRA Arbitration claim against Morgan Stanley Smith Barney LLC, alleging that Morgan Stanley had transferred funds from the account without authorization. Six days before the arbitration hearing was set to begin, Chair Olander discovered he had a scheduling conflict.The parties picked Barry Goldman as the new Chair. Goldman's disclosure report stated he was currently serving as an arbitrator in two other cases that had "Morgan Stanley" as a party; and, further, that he had served as an arbitrator in eight closed cases in which a member of the Morgan Stanley family (e.g., Morgan Stanley& Co. or Morgan StanleyDW, Inc.) or the Smith Barney family (e.g., Salomon Smith Barney, Inc., or Smith Barney Inc.) had been a party. In the case most recently closed, sole arbitrator Goldman  dismissed as untimely the claims against a Morgan Stanley affiliate.  Notwithstanding all of the aforementioned disclosures, Goldman's report did not disclose he had once served as a mediator in another case involving Morgan Stanley Smith Barney LLC. In that matter, the mediation was unsuccessful, and, thereafter, an arbitration panel (on which Goldman did not sit) found that Morgan Stanley owed the claimant $75,000 in damages. After the FINRA arbitration panel chaired by Goldman unanimously denied Ploetz's claim, she learned about a month later of Goldman's undisclosed service years earlier.  Ploetz moved in district court to vacate the arbitration award under the Federal Arbitration Act citing Goldman's "evident partiality," and "misbehavior," which had allegedly prejudiced her. The District Court denied the motion, holding that Ploetz did not show Goldman had "evident partiality" since there was "no evidence" that the "mediation with [Morgan Stanley] had any effect on the resolution of [her] claim;" further, the District Court held that Ploetz did not establish that Goldman was guilty of "misbehavior" either, since she did not assert that she was "deprived of a fair hearing." 
READ the FINRA Arbitration Decision
READ the District Court Memorandum and Order

On appeal the 8Cir affirmed but on somewhat different grounds. In part, 8Cir notes that;

We see nothing in Goldman's undisclosed mediation of a years-old, unrelated case that could create an appearance of bias. The fact that Morgan Stanley was a party to the mediation and that it paid $1,375 in fees does not indicate Goldman might have been biased toward it here: If such meager circumstances could create an impression of possible bias, Goldman would now be evidently partial toward Ploetz since she paid $2,700 in session fees and her share of the $1,425 filing fee for the arbitration.Since Goldman timely disclosed the ten other cases he arbitrated where a member of the Morgan Stanley or Smith Barney family was a party, his undisclosed mediation of the Strunk case represented at most a trivial and inconsequential addition to that relationship. . .

SEC Charges Attorney and Law Firm Business Manager With Illegal Sales of UBI Blockchain Internet Stock (DOJ Pres Release 2018-126)
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC alleged that attorney T.J. Jesky and his law firm's business affairs manager, Mark F. DeStefano, made approximately $1.4 million by selling shares in UBI Blockchain Internet Ltd. over a 10-day period from Dec. 26, 2017 to Jan. 5, 2018.  Jesky and DeStano allegedly  received 72,000 restricted shares of UBI Blockchain stock, which they were permitted to sell at a fixed price of $3.70 per share under the registration statement' however, they allegedly sold the shares from $21.12 to $48.40 READ FULL TEXT Complaint

SEC Seeks To Reform Its Whistleblower Process ( Blog)
Those of us who represent whistleblowers frequently practice regulatory law and are often former regulators. We fully appreciate that there are certain response that would be improper (and at times illegal) for OWB to provide. That being said, it is frustrating and insulting to be treated as if we are representing criminal defendants or regulatory respondents when asking OWB for an update -- and we are incensed when the response is that "we are not permitted to share that with you." Both OWB staff and whistleblowers are victimized by the lack of deadlines on many steps  from the filing of a WB-APP, to being considered for an award, to being notified of the granting or denial of an award, and the calculation of the percentage of the award. 

CFTC Charges Operator of Commodity Trading Fund with Defrauding Fund Participants (CFTC Rel. No. 7749-18)
The CFTC filed a Complaint in the United States District Court for the Eastern District of New York, charging Defendant Harris Bruce Landgarten with defrauding participants in a commodity pool that he operated, the Tradeanedge Members Fund (TMF), and with providing his pool participants false account statements and with commingling pool funds with non-pool funds. Separately, the U.S. Attorney's Office for the Eastern District of New York filed a related criminal action charging Landgarten with commodity fraud and wire fraud related to the same underlying fraudulent conduct alleged in the Complaint/ and with one count of obstructing the CFTC's investigation.

SEC Charges KBR for Inflating Key Performance Metric (SEC Press Release 2018-127)
Without admitting or denying the allegations and in order to settle the SEC's charges, global engineering and construction company KBR Inc. consented to an SEC's order finding of books and records, internal accounting controls, financial reporting, and other securities law violations, and KBR agreed to pay a $2.5 million penalty. In part, the SEC found that in the second quarter of 2012, KBR included $459 million in its publicly disclosed backlog for one of seven contracts it had entered into to complete pipe fabrication and modular assembly contracts in Canada; however, the SEC alleged that KBR had not received any orders under the contract.  Further, the SEC found that KBR failed to make accurate and reliable estimates of the completion costs for the Canadian contracts.

(SEC Litigation Release No. 24182)
The United States District Court for the Southern District of Mississippi entered judgments against municipal advisor and MSRB member Malachi Financial Products, Inc., and its principal, Porter B. Bingham for defrauding the City of Rolling Fork, Mississippi and failing to disclose certain related-party payments in connection with a municipal bond offering. Bingham allegedly failed to disclose to the city that he had accepted payments totaling $2,500 from Anthony Stovall, an employee of a municipal underwriter, shortly before he and Malachi recommended that the city hire Stovall's firm to underwrite the bond offering. Without admitting or denying the allegations in the complaint, Malachi and Bingham consented to the entry of judgments permanently enjoining them from violating portions of the Securities Exchange Act of 1934 and MSRB Rule G-17. Malachi and Bingham are ordered to pay joint and several disgorgement of $33,000 plus prejudgment interest of $2,858; and Malachi to pay a civil penalty of $50,000 and Bingham to pay a civil penalty of $25,000. READ the FULL TEXT Complaint