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[M]ao was co-head of a trading team that traded commodities on behalf of Trading Firm A, working in Chicago and New York. The indictment alleges that from in or around March 2012 through in or around March 2014, Mao and others conspired to mislead the markets for E-Mini S&P 500 and E Mini NASDAQ 100 futures contracts traded on the Chicago Mercantile Exchange (CME) and E-Mini Dow futures contracts traded on the Chicago Board of Trade (CBOT). The indictment further alleges Mao and his co-conspirators deceived market participants and manipulated markets by placing thousands of orders that they did not intend to execute, or "spoof orders," in order to create the false and misleading appearance of increased supply or demand. Market participants that traded futures contracts in these three markets while the spoof orders distorted market prices incurred market losses of over $60 million. Mao and his co-conspirators are alleged to have placed these spoof orders in order to benefit themselves Trading Firm A.Count one of the criminal information alleges Gandhi conspired, with Mao and others, to commit the underlying offenses while employed at Trading Firm A. Count two of the criminal information alleges that, from in or around May 2014 through in or around October 2014, Gandhi, while employed at a second Chicago-based trading firm (Trading Firm B), conspired with others to mislead the markets for E-Mini S&P 500 futures contracts traded on the CME by agreeing to place, and himself placing, spoof orders for E-Mini S&P 500 futures contracts in order to create the false and misleading appearance of increased supply or demand. . .
William H. Murphy & Co., Inc. ("WHM") and William H. Murphy ("Murphy") appeal an Extended Hearing Panel decision issued on June 3, 2016. The Extended Hearing Panel found that WHM violated FINRA Rule 2010 by engaging in unregistered sales of securities without the benefit of an available exemption from registration, in violation of FINRA Rule 2010. For this violation, it fined WHM $50,000 and ordered that WHM disgorge $78,210.91, plus prejudgment interest. The Extended Hearing Panel also found that WHM and Murphy failed to establish and maintain a supervisory system, including written supervisory procedures, in violation of NASD Rule 3010 and FINRA Rule 2010. For these violations, the Extended Hearing Panel fined WHM $50,000, fined Murphy $50,000, suspended Murphy from association with any FINRA member in all capacities for six months, and ordered that he requalify by examination before reentering the securities industry in any registered capacity requiring qualification. After our independent review of the record, we affirm the Extended Hearing Panel's findings of violation. We, however, modify the sanctions imposed.
Compliance and legal staff should read the entire NAC Decision, which is replete with sufficient content and context and presents a compelling rationale. The sense of the NAC's dissatisfaction with the facts at issue is clearly conveyed, for example, in this extract at Page 31 of the Decision:We affirm the Extended Hearing Panel's findings that WHM violated FINRA Rule 2010 by selling unregistered securities in violation of Section 5 of the Securities Act. For this violation, WHM is fined $50,000 and ordered to disgorge $23,230.05, plus prejudgment interest, to FINRA.WHM and Murphy violated NASD Rule 3010 and FINRA Rule 2010 by failing to establishand maintain a supervisory system, including written supervisory procedures, reasonably designed to ensure compliance with Section 5 of the Securities Act. For this violation, WHM and Murphy are fined $50,000, jointly and severally, Murphy is suspended from associating with any FINRA member firm in all capacities for six months, and he is required to requalify by examination before he reenters the securities industry in any capacity requiring qualification. Lastly, we affirm theExtended Hearing Panel's order that WHM and Murphy pay, jointly and severally, hearing costs totaling $15,888.48.44.
As previously stated, the fact that WHM and Murphy ignored obvious red flags signaling violative conduct weighs towards higher sanctions. Murphy, as the firm's president, was involved in the entire onboarding process of servicing and supervising the LREA OSJ. He was fully aware that Price and Hutton were conducting radio shows and workshops on behalf of LREA and WHM. He pre-approved the LREA scripts and advertising. He also knew, or should have known, that the radio shows and workshops would generate unregistered, non-exempt sales to investors. Murphy, however, failed to effectively supervise the LREA OSJ and registered personnel. The record isdevoid of any documented evidence that Murphy periodically inspected the LREA OSJ to detect and deter WHM representatives from extending unregistered offers and sales to the general public in contravention of the securities laws and applicable FINRA rules. Murphy testified that he would visit LREA on occasion but conducted only one formal annual review. Murphy also knew that Price had no securities background before she associated with WHM and Hutton had less than one year of experience with private placements. Yet, WHM and Murphy failed to provide Hutton with any formal supervisory training to ensure Hutton carried out his supervisory responsibilities adequately, and Price was only verbally instructed to never mention any specific securities. Moreover, WI IM and Murphy also failed to document reviews of the data tracking reports and client spreadsheets, LREA's websites, podcasts and other associated communications to ensure that no unregistered securities were being offered by general solicitation.