Securities Industry Commentator by Bill Singer Esq

July 27, 2018
Face-planting with Facebook. A word to the wise. A compelling story about living during a time when the markets only went up and falling into the mind-set that you have the Midas Touch. In fairness to the young trader, he isn't making any excuses. In the end, a sobering reminder of the difference between investing and gambling . . . a lesson that no one ever learns and is repeated over and over again to the tune of huge jackpots and devastating wipe-outs.

SEC Denies Proposal to List and trade shares of the Winklevoss Bitcoin Trust on Bats BZX Exchange, Inc.
Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Order Setting Aside Action by Delegated Authority and Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 and 2, to List and Trade Shares of the Winklevoss Bitcoin Trust (SEC Release No. 34-83723; File No. SR-BatsBZX-2016-30)
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In a Complaint filed in the United States District Court for the District of Colorado, the SEC charged Daniel B. Rudden and the Financial Visions companies with issuing promissory notes to fund operations in short-term financing for funeral services and related expenses. The Complaint alleges that the defendants  defrauded up to 150 investors in a $55 million scheme that promised annual returns of 12% or more; and, used Ponzi-like payments  to existing investors in an effort to conceal the Financial Visions companies' true financial performance and condition. READ the FULL TEXT Complaint

Magic Moments Dazzle In Legend-Ary FINRA Customer Arbitration ( Blog)
There are many magic moments in our lives.  In FINRA arbitrations, not so many, but, that's not to say that even in the midst of a heated customer dispute we can't find magic. In a recent FINRA arbitration we start with four respondents, and then, almost magically, we end with one. We have a lawyer who says he has unrevoked authority to accept service on behalf of a respondent broker-dealer, but that firm lacks a physical address and the lawyer eventually withdraws as counsel for that apparently no-longer-existing client. Then we got named respondents who get dismissed. One named respondent files for bankruptcy. Then the whole mess ends with an award against the sole remaining respondent -- the brokerage firm that didn't appear at the hearing, whose maybe/maybe-not lawyer withdrew as its counsel, and which lacks a mailing address after it was apparently evicted. Who says their ain't no magic in this world? Why this arbitration is filled with many, many magical moments.

In the Matter of the Application of Patrick H. Dowd for Review of Action Taken by FINRA (Opinion, '34 Act Rel. No. 83710; Admin. Proc. File No. 3-18283 / July 25, 2018) As set forth in the Syllabus to the SEC Opinion:

Patrick H. Dowd, formerly associated with FINRA member firm Pruco Securities, LLC,seeks review of FINRA action barring him from association with any FINRA member for failing to respond to its requests for information. FINRA requests that we dismiss Dowd's application for review because he failed to exhaust his administrative remedies and because his appeal is untimely. Dowd opposes FINRA's motion. For the reasons explained below, we grant FINRA's 

An interesting aspect of Dowd's appeal is his assertion of the "futility exception.". As stated in part in the SEC Opinion [Ed: footnotes omitted]:

Dowd further claims that his failure to exhaust administrative remedies under Rule 9552 should be excused because requesting a hearing to explain his actions would have been "a vain or futile act." According to Dowd, it was inevitable that any FINRA hearing would have resulted in a bar and the futility of requesting a hearing justifies his decision to present his defenses for the first time on appeal. But Dowd fails to substantiate his claim that a bar was inevitable. Indeed, FINRA has stated expressly that in considering the proper sanction for a failure to respond to information requests it will consider "[w]hether the respondent thoroughly explains valid reason(s) for the deficiencies in the response." In bypassing FINRA's process for explaining his conduct, Dowd prevented FINRA from considering his defenses and from developing a record from which we could review the merits of those defenses. 

Although Dowd cites several cases that recognize a futility exception to the exhaustion requirement, none of those cases support applying the exception here. Dowd himself recognizes that in Marine Mammal Conservancy, Inc. v. Department of Agriculture,  the D.C. Circuit held that it "must appear that pursuing administrative remedies would have been ‘clearly useless,' that the ultimate denial of relief was a ‘certainty.'" Indeed, the court in that case rejected a futility defense because "it [was] not outside the realm of possibility" that the hearing officer would have considered a challenge to the proposed action if presented with "persuasive arguments." So too here. "Doubt about the success" of a challenge in an administrative forum "is no reason to excuse a litigant's failure to make the attempt."

In the Matter of the Application of Christine D. Memet for Review of Action Taken by FINRA (Opinion, '34 Act Rel. No. 83711; Admin. Proc. File No. 3-18282 / July 25, 2018) As set forth in the Syllabus to the SEC Opinion:

Christine D. Memet, formerly associated with FINRA member firm PNC Investments, LLC, seeks review of FINRA action barring her from association with any FINRA member for failing to respond to its requests for information. FINRA requests that we dismiss Memet's application for review because she failed to exhaust her administrative remedies. For the reasons explained below, we grant FINRA's motion and dismiss Memet's application for review.

In yet another in a long line of appeals that assert a variation on the "I didn't get the notice in the mail" defense, Memet's version receives the typical short-shrift that has become the SEC's well-worn response [Ed: footnotes omitted]:

We are not persuaded by Memet's claim that she did not respond because she did not receive any of FINRA's requests or notices until the Bar Notice. Memet received proper notice of each mailing under FINRA's rules when it was sent to her residential address as reflected in the CRD. Indeed, Memet is deemed to have received each mailing sent to that address. And although we have at times remanded to FINRA in certain circumstances where it was unclear from the record if the applicant had received any of FINRA's requests for information or notices of sanctions, this is not such a case. The evidence indicates that FINRA's mailings were received at Memet's CRD address because the certified mailing of the first request was signed for by "C. Memet" at that address. Memet's use of that address on her application for review also confirms that the address is still current. Given the ample evidence that each of the mailings was served properly, we are not persuaded by Memet's claims that she is "unsure of why" she did not receive the mailings, that she wants to comply with FINRA's requests, and that she would have responded immediately if she had received them. We note that, rather than demonstrating any willingness to comply with FINRA's requests, Memet has still not provided the requested information after receiving the bar notice and filing her appeal. Memet cannot "escape the consequences of her failure to comply or exhaust" in accordance with FINRA procedures by failing to receive or claim mail properly sent to her address.