The SEC's order found that Merrill Lynch improperly borrowed pre-released ADRs from other brokers when Merrill Lynch should have known that those brokers - middlemen who obtained pre-released ADRs from depositaries - did not own the foreign shares needed to support those ADRs. Such practices resulted in inflating the total number of a foreign issuer's tradeable securities, which resulted in abusive practices like inappropriate short selling and dividend arbitrage that should not have been occurring. The order against Merrill Lynch found that its policies, procedures, and supervision failed to prevent and detect securities laws violations concerning borrowing pre-released ADRs from these middlemen.This is the SEC's ninth enforcement action against a bank or broker resulting from its ongoing investigation into abusive ADR pre-release practices, which has thus far resulted in monetary settlements exceeding $370 million. Information about ADRs is available in an SEC Investor Bulletin."We are continuing to hold accountable financial institutions that engaged in abusive ADR practices," said Sanjay Wadhwa, Senior Associate Director of the SEC's New York Regional Office. "Our action conveys the message that an entity like Merrill may not avoid liability by using another broker to obtain fraudulently issued ADRs on its behalf."
Merrill's Practices with Respect to Securities Lending Transactions Involving Pre-Released ADRs. . .25. Merrill did not have any supervisory policies and procedures in place governingthe firm's potential indirect borrowing of pre-released ADRs from Pre-Release Brokers.26. Merrill failed to establish and implement policies and procedures that would bereasonably expected to detect whether its associated persons on the securities lending desk were engaging in transactions in which pre-released ADRs were inappropriately obtained by Pre-Release Brokers and lent to Merrill, and used by Merrill for settling customer trades or lending to Merrill counterparties.. . .
Failure Reasonably to Supervise29. Under Section 15(b)(4)(E) of the Exchange Act, broker-dealers are responsiblefor supervising, with a view to preventing and detecting violations of the federal securities laws, persons subject to their supervision. Merrill was responsible for supervising its securities lending desk personnel to address whether they were borrowing and lending pre-released ADRs that were not backed by underlying ordinary shares. Merrill failed reasonably to fulfill such supervisory responsibilities within the meaning of Section 15(b)(4)(E) of the Exchange Act because Merrill failed to establish reasonable policies and procedures, and a system for implementing such policies and procedures, that would reasonably be expected to prevent and detect the violations of Section 17(a)(3) of the Securities Act by the associated persons on the securities lending desk described above. If Merrill had developed reasonable policies andprocedures and systems to implement those procedures, it is likely that the firm would have prevented and detected the violations of its associated persons on the securities lending desk.Merrill's Cooperation30. In determining to accept the Offer, the Commission considered the cooperationafforded the Commission staff. . . .
[T]he arbitration code does not apply to a dispute based on events that occurred years after the parties had severed their connections with the NASD. Furthermore, we find nothing in the Code that clearly and unmistakably evidences a contractual intent to confer resolution of arbitrability on the arbitrators for a claim such as Bucsek's, which is based on facts long subsequent to the parties' involvement in the NASD. Finding no error, we affirm. 4= = = = =FOOTNOTE 4: As the district court's ruling was made on a motion for a preliminary injunction, we recognize that Bucsek retains the right to present additional evidence supporting his arguments at a trial of Metlife's demand for a permanent injunction.
Broker-Dealer's Former Owner, CEO, CFO, and CCO Barred. FINRA Department of Enforcement, Complainant, v. Devin Lamarr Wicker, Respondent ( FINRA Office of Hearing Officers Extended Hearing Panel Decision, 2016052104101 / March 21, 2019) http://www.finra.org/sites/default/files/fda_documents/2016052104101
A very well written and compelling Decision. The OHO Hearing Panel imposed a Bar upon pro se Respondent Wicker; and ordered him to pay $50,000 in restitution plus interest, and $5,063.69 in hearing costs..As set forth in the "Introduction":
The Department of Enforcement filed a single-cause Complaint charging Respondent Devin Lamarr Wicker, the majority owner, chief executive officer, chief financial officer and chief compliance officer of former FINRA member firm Bonwick Capital Partners, LLC ("Bonwick"), with misusing and converting $50,000 of an investment banking customer's funds.
There is no dispute that someone converted and misused the customer's funds. Wicker admits that the customer hired Bonwick as the underwriter for its initial public offering ("IPO"); admits that the customer sent Bonwick $50,000 for the sole purpose of paying a retainer to Bonwick's underwriting counsel for the customer's IPO; and admits that Bonwick neither paid the retainer to underwriter's counsel nor returned those funds to the customer. But Wicker denies that he converted or misused the funds. He contends that a former Bonwick investment banker stole the customer's $50,000.
The Extended Hearing Panel, therefore, is left to resolve two material issues of fact: Who took the customer's $50,000? And what did that person do with the $50,000?
After a three-day hearing, the Panel finds that Wicker converted and misused the customer's $50,000 to pay for Bonwick's expenses, in violation of FINRA Rules 2150(a) and 2010. For this misconduct, the Panel bars him from association with any FINRA member in any capacity and orders him to pay the customer restitution of $50,000 plus interest and hearing costs.
FINRA Arbitrator Recommends Expungement For UBS Error in Annuity Letter In the Matter of the Arbitraton Between Mark Robert Fasano, Claimant, v. UBS Financial Services, Inc., Respondent (FINRA Arbitration Decision 18-02686)
In a FINRA Arbitration Statement of Claim filed in July 2018, associated person Claimant Fasano sought the expungement of a settled customer complaint (Claimant did not contribute to the settlement) from his Central Registration Depository record ("CRD"). Respondent UBS did not oppose the requested relief. The customer filed a "Declaration Opposing Claimant's Application for Expungement," but did not participate in the hearing. The sole FINRA Arbitrator recommended expungement based upon a FINR Rule 2080 finding that the customer's claim, allegation, or information was factually impossible or clearly erroneous, and false; and that Claimant Fasano was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. The Arbitrator offered the following rationale:
In October 2004, the Customer purchased a Lincoln National American Legacy III View Annuity ("Annuity") following a meeting with Claimant. Claimant informed the Customer of the penalty period of four years by showing him the contract for the Annuity.
However, Respondent sent a letter dated October 26, 2004 ("Letter") to the Customer, without Claimant's knowledge, which included a typographical error incorrectly stating that the Customer may be subject to surrender charges if he liquidates the Annuity within three years (or fewer) from the date of issue. Three years later, the Customer sought to redeem his Annuity, but was unable to do so without penalty because it had a four-year term.
The Arbitrator finds that Respondent made an error/misstatement in the Letter, which caused damages to the Customer, for which he settled with Respondent for $9,000.00. The Arbitrator finds that the Letter should have said the Customer would be subject to surrender charges if he liquidated the annuity within "four" years, rather than "three".