Securities Industry Commentator by Bill Singer Esq

June 14, 2019

BB&T and SunTrust Come Up With Half-Assed Name for Merged Companies: "Truist"

Bringing together two organizations with rich histories and deep values takes commitment, care, and creativity. Turning them into one bank will prove to be an unparalleled opportunity for transformation. To build our new brand for success, we started by talking to the people closest to it. Associates, teammates, prospects, and clients all shared inputs and insights to shape who we are and where we're going, ensuring that we're creating the bank people want.

Now, we're thrilled to announce our new name: Truist. Truist is the first signal of our bold future together. It reflects a shared belief in building a better future for our clients and communities. Throughout our process, one thing has always been clear: we are creating a bank that will be built around you and what you want in a financial institution. We want to do more than just understand your financial goals; we believe in helping you on the road to achieving them. Making that belief real involves innovating and building new technology, helping you grow your own financial confidence, and taking action to help you pursue the goals that drive you forward. And that's why we're taking a stand to always look forward, pursue what's next, and do more for you.

The transaction between BB&T and SunTrust to form Truist is subject to regulatory approvals. BB&T and SunTrust remain separate and independent companies until the transaction closes.

Bill Singer's Comment: Truist? Truist?? Truist??? How much moolah did BB&T and SunTrust blow on that bull-shit name. You can't merge BB&T with SunTrust and come up with Truist. There are rules about these things, right? If you're merging BB&T and SunTrust, you are limited to using the letters in the names of each of the to-be-merged firms, which would be BTSUNR. Using those six letters but only those six letters (and adopting the Corporate Naming Convention: Sec. 401(D)(a)(ii), which permits the repetition of any pre-existing letter from a predecessor-in-interest's name), I came up with the perfect name for the successor entity of BB&T and SunTrust:

BS Butt Burn 

Let's stop the argument that financial education doesn't work ( by Billy J. Hensley, President and CEO of the National Endowment for Financial Education)
Author Hensley asserts in part that:

Through 20 years in education, I've never seen teachers stop teaching because every learner wasn't proficient upon assessment. If students don't meet standards in math or reading, should we just give up? No. We pivot, adjust and step up our efforts.

I've been a part of the financial education community for a decade. As in any industry, there are turf wars but, mostly, there's energetic collaboration among organizations, educators and individuals with best intentions of guiding individuals toward financial capability.

Bill Singer's Comment: Respectfully, financial education as presently taught is an abject failure, a waste of time and resources, and unable to demonstrate any positive results. It's not simply an issue of "pivot, adjust and step up." The larger issue is the persistence of failure in our educational system, and how "best intentions" is always dredged up as an excuse.  The road to Hell is paved with best intentions. Frankly, I find it somewhat offensive that Hensley thinks that it's best to "stop the argument that financial education doesn't work." Nothing like squelching criticism to ensure an energetic collaboration aimed at finding solutions! Hensley argues that:

Critics of financial education frequently characterize all efforts as a collective failure. This negates positive momentum, invalidates states that now require students take a course as a graduation requirement and discourages teachers who are passionate about personal finance.

Hensley is absolutely correct: the history of financial education is largely a "collective failure." It is a failure of unions who negate meaningful efforts to implement accountability among teachers. It is a failure of politicians who inject partisanship and cronyism into the school system. It is the failure of parents who tolerate sub-standard education for their tax dollars. Unfortunately, Hensley blames the loss of "positive momentum" for financial education on those who criticize financial education. That's bassackwards. Hensley has cause-and-effect reversed. The failure of financial education is not caused by criticism of the curriculum. The failure causes the criticism. Instead of telling critics to shut up, it would be more constructive to listen to their criticisms and adapt and adopt as needed.

We need to get away from the mind-set that young adults are geese and the educational system has the right to force feed them in order to make foie gras. Having navigated the educational system from kindergarten to law school with stops at an MBA program and continuing legal education as a lawyer, I know that there is rarely any success derived from mandatory courses. Sure, you can force students to attend a course but you can't force students to learn.  Far too many students who are forced to attend a course often day-dream through the sessions. Far too many folks who teach mandatory courses are hacks with little enthusiasm for the content they deliver and virtually no connection with their audience. PowerPoint is a tool -- not a substitute for innovative teaching. If the curriculum is worthwhile and the teacher effective and entertaining, there is no need to drag students into a classroom and chain them to a desk. Don't misunderstand me -- of course we need to have a core curriculum that ensures each student graduates with math skills and has the tools to compete in the workplace. On the other hand, I never knew of any classmate who was forced to take the optional Driver's Ed course in High School. The first lesson for financial education is that there is a marketplace and there is competition for ideas in the marketplace and there is supply-and-demand at work that favors lower price and innovation. Education is not immune to consumer behavior. You want to attract students? Great -- offer a compelling product taught in an entertaining fashion. Compete for the hearts and minds.

I note that Hensley is President and CEO of something called the "National Endowment for Financial Education," and he is also a member of "CNBC's Financial Wellness Advisory Council." Oh my! Another endowment. Another advisory council. Just what we need to advance the goal of financial education -- or is it financial wellness -- or what's the new, fashionable, buzz-word of the day? I am so fed up with endowments, councils, advisory groups, panels, committees, and subcommittees -- all of which coalesce into a ponderous amalgamation that enervates our nation.  Truly, I am bored to death  by the talking-heads on television who don't seem to have a day job beyond their role as an ever-so earnest advocate for their non-profit, which, go figure, seems to pay them a nice living. And gets them on so many Boards that pay lovely honorariums. And gets them flown to Davos or Aspen. And gets them paid roles as members of advisory panels for cable TV. And well, you know, lets add a module in our financial wellness curriculum about forming a non-profit and how it can spin off salaries and expense accounts.
In a recent FINRA arbitration expungement case involving UBS, we come across an example of nonsensical regulation. To give you a sense of how stupid stupid can get -- look around and pick someone, anyone, in your field of view. Okay, fine, so let's go with that woman you picked. I will tell you that she has NEVER owned a single share of stock -- you got that? Now, see if you can answer this question: If the woman you picked were to file a lawsuit against a brokerage firm for losses in her account, what stocks do you think she would have bought and how large would her losses have been? 

Arbitrators Grant Expungement In PIPEs Dispute. In the Matter of the Arbitration Between Robert Ray Craig, Claimant, v. J.P. Morgan Securities, LLC, Respondent (FINRA Arbitration Decision 18-04299)
In a FINRA Arbitraiton Statement of Claim filed in December 2018, associated person Claimant Craig sought the expungement of a customer complaint from his Central Registration Depository record ("CRD"). Respondent J.P. Morgan Securities admitted that allegations, did not contest the claims, and agreed that Claimant should be granted an expungement. Although notified of the hearing, the customer, he did not participate or contest the requested relief. The FINRA Arbitration Panel made a FINRA Rule 2080 finding that the customers' claim, allegation, or information is factually impossible or clearly erroneous, and false. In recommending expungement, the arbitrators penned a thoughtful and compelling rationale, which, frankly, I cannot improve upon and offer in full (plus it sets forth one hell of a story!):

Craig has been an investment banker employed in the Equity Capital Markets area at J.P. Morgan since 2001. At the time of the events at issue, the customer, a "sophisticated investor" as that term is used and defined under federal securities law, was the majority shareholder, CEO, chair and president of a NYSE listed company providing technology-based insurance and employer solutions. In the fall of 2015, the customer engaged J.P. Morgan to act as his agent in connection with a private equity placement of Patriot commonly known as a PIPES, or Private Investment in Public Equity, transaction. 

The transaction was successfully closed in December 2015 with two hedge fund purchasers, and the customer personally received a sizeable portion of Patriot stock sold in the PIPE transaction. Upon the public announcement of the purchase and sale, the customer complimented Craig for "a job well done." Almost a year and a half following the closing, after the customer failed to pay to J.P. Morgan the placement fee due under the placement agreement, the latter filed suit against J.P. Morgan and commenced litigation against Craig and J.P. Morgan in a Florida state court (subsequently removed to the U.S. Southern District of Florida) in which he alleged, inter alia, certain misrepresentations made by Craig and J.P. Morgan, i.e., that the placement would be shown to then current Patriot institutional investors (the so-called "bait and switch" claim); that the placement was to be a longterm investment; and that there would be no downside market risk to the price of Patriot stock if the transaction were consummated. 

Each of these allegations is clearly erroneous, false or both. 

First, the placement agreement had no such limitation on who could invest, and neither Craig nor the representative of J.P. Morgan made any such representation. The ultimate purchases were identified very early in the transaction, and the customer or his counsel could have objected at that time. 

Second, Craig made no representation that the PIPE investors were to be "long term." The only stipulation in the heavily negotiated PIPE purchase agreement was that the hedge funds were to maintain a net long position in the stock. 

Finally, neither Craig nor J.P. Morgan ever represented to the customer (who was being independently advised and represented by very experienced and sophisticated counsel) that the PIPE transaction posed no significant downside risk to the stock price. In any event, Craig further testified that, in his experience, such was not normally the case, nor did he have any reason to believe that the Patriot transaction would be any different. 

When it became apparent that the customer was judgment proof, J.P. Morgan discontinued its New York litigation, and subsequently the customer withdrew the Florida litigation with prejudice. Both actions were terminated without payment of any kind by Craig or J.P. Morgan, and there were no conditions imposed on the customer to consent to expungement. Craig testified that he has made no prior application to expunge this occurrence, which is the only mark on his CRD. He further testified as to the adverse impact this disclosure has on his business. 

The interests of the investing public being in no way negatively implicated, and by reason of the foregoing, the Panel finds that the claims or allegations made by the customers are clearly erroneous, false or both, and warrant expungement pursuant to Rule 2080.

Gone Phishing: Creator of Website That Stole ATM Card Numbers Sentenced (
As noted in part in the FBI News Release:

Nearly half a million Alabama cell phone numbers received identical text messages in 2015 telling them to click a link to "verify" their bank account information. The link took recipients to a realistic-looking bank website where they typed in their personal financial information.

But the link was not the actual bank's website-it was part of a phishing scam. Just like phishing messages sent over email, the text message-based scam was easy to fall for. The web address was only one character off from the bank's actual web address.

SEC Charges Swiss Resident in Insider Trading Case Involving Bioverativ Acquisition (SEC Release)
In an Amended Complaint filed in the United States District court for the Southern District of New York,, the SEC charged Roland M. Mathys with violating Section 14(e) of the Securities Exchange Act and Rule 14e-3 thereunder; and the federal regulator is seeking a permanent injunction, disgorgement of illegal trading profits plus prejudgment interest, and civil a defendant in an insider trading case the SEC brought last year alleging that certain unknown traders made approximately $5 million in profits by making timely purchases of Bioverativ, Inc. call options in advance of the January 22, 2018 announcement that Sanofi S.A. would acquire Bioverativ. A parallel criminal case against Mathys is ongoing. As set forth in part in the SEC Release:

[M]athys received material non-public information about Sanofi's impending acquisition of Bioverativ from a Sanofi insider's son. According to the amended complaint, Mathys used the information to purchase approximately $169,000 of out-of-the-money Bioverativ call options in the 10 days immediately leading up to the public announcement. The SEC alleges that Mathys' purchases made up a significant portion of all reported options trades in the series of Bioverativ options he traded, including almost 100 percent of the market in several instances. By allegedly purchasing these options based on material non-public information, Mathys was able to turn his approximately $169,000 investment into profits of approximately $5 million. All or substantially all of these funds have been frozen in the United States or Switzerland.

Former Chief Executive of Suburban Nutrition Company Pleads Guilty in Market Manipulation (DOJ Release)
In a Plea Agreement entered into in the United States District Court for the Northern District of Illinois,, Former Chief Executive Officer, President, and Chairman of the Board for the Wellness Center USA Inc., Andrew J. Kandalepas, pled guilty to one count of securities fraud. As set forth in part in the DOJ Release, the Wellness Center raised over $19 million from investors:

through the sale of common stock, and Kandalepas himself held more than three million shares.  Kandalepas admitted in a plea agreement that from December 2012 to June 2015, he bought and sold Wellness Center shares for the purpose of artificially inflating the stock price. 

Many of his trades occurred at or near the close of normal trading hours in a form of market manipulation known as "marking the close."  According to an example cited in the plea agreement, Kandalepas, using a brokerage account in the name of an acquaintance, executed a trade to buy 300 Wellness Center shares within the last five seconds of the trading day on May 4, 2015.  The trade artificially raised Wellness Center's share price by 4%, from $0.27 to $0.28, causing a profit for Kandalepas of approximately $30,000.

In all, Kandalepas netted at least $136,176 in trading profits for his personal use.

Exchanging Views on Exchange-Traded Funds by SEC Commissioner Hester Peirce (Remarks at FSB/IOSCO Joint Workshop on ETFs and Market Liquidity)
Among her remarks, Commissioner Peirce muses that:

Even informed by the positive history of ETFs, nobody would argue that ETFs will always function without incident. As we try to assess the probability that something will go wrong, we ought also to ask what the likelihood is that if something does go wrong, it will have a meaningful negative effect on the broader financial system. It is important for us to consider the channels through which any ETF problems would roil the financial markets or affect the rest of the economy. For a risk to implicate financial stability concerns, the bar is quite high. During today's data-filled discussion, I hope that you will encourage one another to be as precise as possible about the exact mechanism by which problems in ETFs could spill over and disrupt the larger financial system or the real economy and how plausible such a scenario is. It is easy to get caught up in the fact that market mechanisms do not work perfectly all of the time, but we need to bear in mind that government interventions to address these imperfections also do not work perfectly all of the time