Some of you may be scratching your heads wondering who invited someone from the government to an entrepreneurship conference? Or maybe you hoped I was from a different SEC and we could talk about when the Cornhuskers are going to go up against the Bulldogs or the Crimson Tide. Or you may be wondering why you didn't sneak out for an early coffee break? All valid questions. This presentation is going to look very different from what you might expect from a government official, yet surprisingly familiar. We've put together a pitch deck to introduce you to our office, why Congress created us, and why we want to hear from you as entrepreneurs.. . .Our go to market plan requires us to use our lean resources to reach as many people as possible, the same objective that many of you may have with your own businesses. I think of our communications along three key channels:*Inbound inquiries - Our proverbial door is always open. Anyone can email, call or come visit us to talk about the small business capital issues that matter most to you.*Connections to thought leaders - We don't come to the table proclaiming to have all the answers. We're constantly looking to connect with businesses, investors and thought leaders who can add valuable perspectives to the mix and challenge the way we think about issues.*Outreach to target "customers" - Rather than attempting to create independent brand traction and grow our own network, we utilize existing networks of small businesses and their investors to not only get the message out about our office, but to also deliver solutions to our "customers" that fulfill our mission. A key example is being here today at Maha. Connections through larger networks feed new inbound inquiries that expand our "customer" base. . . .
part of the Commission's larger Main Street investor engagement and education campaign, following recently adopted rulemakings and interpretations designed to enhance the quality and transparency of retail investors' relationships with investment advisers and broker-dealers and bring the legal requirements and mandated disclosure in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products. Specifically, these actions include new Regulation Best Interest, the new Form CRS Relationship Summary, and two separate interpretations under the Investment Advisers Act of 1940. Chairman Clayton previously announced that these videos, along with investor events, would be part of a new campaign designed to help retail investors understand key differences between broker-dealers and investment advisers, and to help them decide whether working with one of those types of financial professionals is right for them.
In the spirit of advancing the Securities and Exchange Commission's (SEC) mission to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation that we submit this petition to amend Form ADV, Part IA, Item 5 ("Information About Your Advisory Services"), Section E ("Compensation Arrangements") by requiring investment advisers to disclose the schedules of fees levied for their services and other compensation in a standardized format.As the SEC is well aware, investors' understanding of the distribution of fees and costs charged by advisers is a key component of an efficient market for retirement advice. Yet, the current availability of information makes it difficult for investors to know how a particular adviser's fees compare relative to the market and to compare prices for various levels of service. Indeed, a 2017 article in the Wall Street Journal noted that "Describing the fee disclosures ofmy adviser as opaque would be generous." As we discuss below, the proposed change to the form will protect investors from exploitation, instill more efficiency in the selection of an investment adviser, allow lowercost advisers to better compete on price, and facilitate greater capital formation by steering investors to lower cost- but equivalent quality-investment advisers.Changes to Form ADV could, in effect, put the information regarding adviser fees on par with that provided for expense ratios associated with various funds. Under the current disclosure landscape, investors in mutual funds and exchange-traded funds (ETFs) can know with limited effort how a particular funds' expenses compares to other similar funds. For example, discount online brokerages often allow investors to search for funds by sorting on various criteria- including the relative prices of investment expenses. In stark contrast, investors cannot know with reasonable effort how a particular adviser's fees compare to others. (We acknowledge the helpful role of the detailed fee schedule provided in ADV Part 2 [the "Brochure"], although the provision of this foe schedule does not facilitate comparison across advisers.) . . .
[B[etween 2016 and 2018, GRACEY posed as a British billionaire with degrees from the London School of Economics and Oxford University. He drove expensive cars such as Bentleys and Ferraris and claimed to own expensive homes in Clyde Hill, Mercer Island, and Newcastle, Washington, as well as in Beverly Hills and San Diego, California. GRACEY also used falsified bank statements to make it appear he had hundreds of millions of dollars of cash on hand. The investigation revealed that GRACEY is Canadian, not British, and rented expensive homes and cars to make it appear he was wealthy.GRACEY told potential investors he had special access to millions of shares of "pre IPO" stock that would produce returns of as much as 60 times the initial investment. Some investors gave GRACEY as much as $745,000, believing that they were purchasing stock. In fact, GRACEY did not own any of the stock he was pretending to sell and simply stole the victims' money. In all, GRACEY collected $5,894,676 from dozens of investors.The Securities and Exchange Commission filed a civil suit against GRACEY in May 2018 and obtained a temporary restraining order barring him from selling securities. In September 2018, the order was made permanent, and GRACEY was ordered to disgorge $4.4 million in cash and wire transfers that he had fraudulently obtained from investors. However, even after the SEC order, GRACEY continued to try to defraud investors by claiming he owned shares in a gene editing company. Between June 2018 and December 2018, GRACEY collected $2.2 million for shares of stock he did not own.
From September 2011 through October 2017, Masselli solicited millions of dollars in investments from retail investors by fraudulently touting the prospect of his online gaming company, Carlyle Entertainment Ltd., formerly Carlyle Gaming & Entertainment Ltd. (Carlyle), to conduct a lucrative initial public offering (IPO) of its stock on either the NASDAQ or the New York Stock Exchange (NYSE). Masselli induced investors to purchase shares of Carlyle stock by promising them steeply discounted prices in advance of the purported IPO and assuring them that the stock price would increase significantly after the IPO. Masselli further represented that the IPO would occur within weeks of the investors' stock purchases.However, as Masselli knew, Carlyle was not prepared to conduct an IPO, given that neither Masselli nor anyone else on behalf of Carlyle ever filed an application with the NASDAQ or the NYSE to list Carlyle stock on either exchange, or filed with the Securities and Exchange Commission (SEC) a registration statement to list Carlyle shares on a national exchange. Masselli further misrepresented to the investors how he would use their investments, for example telling them that he would allocate investment funds toward improving Carlyle's online platform and paying legal fees in connection with preparing Carlyle for a looming IPO. Contrary to these claims, however, Masselli misappropriated these funds to pay for his and his family's own personal expenses.Within days or weeks of receiving investor funds, Masselli deposited the monies into bank accounts he controlled, many of which were opened under names of fictitious corporate entities in an effort to conceal the source of the funds. Masselli typically used the funds to pay for personal expenses, including paying credit card balances and financing or leasing luxury automobiles.Masselli also opened a credit card account under the assumed identity of another person, without that person's authorization, made purchases with the account until he had almost reached or exceeded the credit limit, and then purported to send payments from a bank account that he knew did not have sufficient funds to cover the purchases. Before the fraudulent payments were rejected for insufficient funds, the credit card company temporarily credited the fraudulently opened account based on those payments, providing Masselli access to additional credit and allowing him to continue to make purchases. Masselli ultimately failed to pay the balance and the credit card company sustained a loss.
commercial lending business based in Hallandale Beach, Florida, that made the equivalent of "pay day" loans to small businesses at high interest rates. To fund these merchant cash advance loans ("MCAs"), 1 Global obtained funds from investors nationwide, offering short-term investment contracts. The investors would supposedly receive a proportionate share of the principal and interest payments as the loans were repaid. 1 Global raised money using investment advisors and other intermediaries, with promises of significant commissions. In many cases, the commissions were not fully disclosed to investors.Heide was the Chief Financial Officer of 1 Global from 2014 through 2016, when he became the Executive Vice President and Director of Syndicate Partner Relations. In order to attract investments, Heide and his co-conspirators allegedly made false and misleading representations to investors and potential investors as to the profitability of 1 Global's business in marketing materials and periodic account statements. 1 Global promised investors that all or nearly all of that money would be applied to various MCA loan agreements with the investor supposedly receiving a portion of the proceeds paid back by the merchants. The information alleges that the 1 Global business lost money, and used new investor funds to pay back earlier investors who sought to cash out in a manner consistent with a Ponzi scheme. Furthermore, the conspirators are alleged to have misappropriated large amounts of cash for their personal benefit. In addition, the information alleges that 1 Global paid substantial commissions and other expenses with investor funds without disclosing the extent of these payments.According to the allegations in the information, Heide and others at 1 Global also made false statements to investors that gave the impression that 1 Global had an independent auditor. These misrepresentations were allegedly made in monthly-mailed statements that falsely showed profitable investments. As 1 Global continued to lose money over time, the cash shortfall continued to increase and 1 Global was only able to continue operations by raising ever-increasing amounts of new investor funds, before its eventual collapse in July 2018.According to court records, 1 Global operated from early 2014 through approximately July 27, 2018, when it filed for bankruptcy. As of that time, 1 Global had more than 3,600 investors and had raised more than $330 million, and its own internal documents showed a $50 million cash deficit. The bankruptcy case, In re: 1 Global Capital LLC, et al., No. 18-19121-RBR (S.D. Fla.), remains pending.
[T]he now bankrupt Florida-based cash advance company allegedly fraudulently raised more than $322 million from 3,600 investors between 2014 and last year. The SEC previously charged 1 Global and former CEO Carl Ruderman with fraud and charged Henry J. "Trae" Wieniewitz, III for his allegedly unlawful sales of 1 Global securities. Ruderman and Wieniewitz have consented to final judgments.According to the SEC's complaint, although 1 Global promised investors profits from its short-term cash advances to businesses, the company used substantial investor funds for other purposes, including paying operating expenses and funding Ruderman's lavish lifestyle. The SEC alleges that Heide, a certified public accountant, for nine months regularly signed investors' monthly account statements that he knew overstated the value of their accounts and falsely represented that 1 Global had an independent auditor that had endorsed the company's method of calculating investor returns.
[R]umbaugh advised clients to invest in promissory notes offered by Susan Werth and her companies, Corporate Mystic LLC and Commercial Exchange Solutions, Inc., against whom the SEC filed an emergency, civil injunctive action in October 2018 for operating a fraudulent securities scheme. According to the SEC's complaint, from August 2015 to June 2016, Rumbaugh persuaded eight clients to invest a total of over $3 million with Werth's companies. Three of those clients lost over $600,000 in principal when Werth failed to repay them. When recommending those investments, Rumbaugh and his companies failed to disclose that Rumbaugh was receiving 5% commissions on all of the funds raised from his clients for Werth. In addition, in some instances, Rumbaugh and his companies misled clients about the interest rates Werth's companies would pay on the proposed investments. Although Rumbaugh knew that Werth's companies offered 30% interest or more, Rumbaugh and his companies - intending to keep for themselves additional, undisclosed interest paid by Werth's companies - represented to clients that Werth's companies offered rates in the 5% to 10% range. In those cases when Werth's companies repaid investor funds to Rumbaugh and his companies at the true, higher interest rates, Rumbaugh and his companies repaid clients at the lower rates and secretly kept the difference.
Claimant alleges failure to follow instructions from August 14, 2017 to October 24, 2018. Specifically, Claimant alleges that Stern failed to follow his instructions to (1) sell certain stocks, (2) not to buy stocks Claimant told him not to purchase, and (3) not to buy covered calls or hedge positions because Claimant did not understand them. Claimant opposes Respondent Stern's request for expungement of occurrence number 2005451.Stern's sworn hearing testimony and the documentary evidence admitted at the hearing do not support Claimant's allegations. Stern testified that several of Claimant's accounts with Stern were discretionary. Stern testified that he and Claimant would discuss whether to buy or sell a certain stock and reach a mutual decision. The record is replete with such instances, such as Claimant's Boeing shares as well as his Amazon and Alphabet shares. Stern testified that Claimant's involvement was "high", and his communication was "close to daily". He testified that Claimant regularly monitored the transactions in his accounts via a Merrill Lynch online system, which shows approximately 1,100 pages of customer usage over three years. The text messages printouts show that many of Claimant's hedge positions were purchased at Claimant's own request. Claimant alleges, for example, that he did not understand the hedging strategy in his account, yet the text messages printout shows that he himself suggested hedging stocks, including Netflix, Walmart and Box. Stern testified that Claimant is a "very sophisticated" investor who is "an expert in cyber security and the stock market". Stern testified that during their three-year business relationship, several of Claimant's relatives also had accounts with Stern and that at present, Claimant's aunt and uncle are Stern's clients.
The FINRA Small Firm community is once again up in arms over the ongoing election for the open 2019 Small Firm Member Board of Governors' seat. "UPDATE: 2019 FINRA Contested Small Firm Election: Vote for Linde Murphy" (BrokeAndBroker.com Blog / July 26, 2019). In this latest dust-up, FINRA's National Nominating & Governance Committee nominated sitting Small Firm Governor Robert A. Muh for re-election and, thereafter, transmitted an email on July 25, 2019, urging eligible voters to support their nominee's candidacy despite the existence of Small Firm Member Petition Candidate Linde Murphy. Murphy needed to obtain the requisite 3%-plus petitions in support of her candidacy, whereas Muh, who previously ran for his first term as a petition candidate, avoided that inconvenient qualifying step by accepting the Nominating Committee's nod.
Why does any of this matter?
A Board of 24
The FINRA Board of Governors consists of 24 members:
A Powerful Committee
According to FINRA's website:
The Nominating and Governance Committee is responsible for nominating persons for appointment or election to the FINRA Board, as well as nominating persons to fill vacancies in appointed or elected governor seats on the Board. The Committee also nominates Industry and Public members for positions on FINRA's National Adjudicatory Council.
The Committee is responsible for periodically reviewing and recommending changes to standing committee charters and, in consultation with the CEO, nominates the members and chairs of each standing committee of the Board. Also in consultation with the CEO, the Committee develops and recommends to the Board guidelines for effective corporate governance. In addition, the Committee reviews and approves appointments to each of FINRA's advisory committees and changes to the advisory committee enabling resolutions.
As of the close of business on Thursday, May 23, 2019, the number of FINRA large firms was 174, and small firms was 3,261.
Of the 24 Board members, the following seats are appointed by the FINRA Board from candidates recommended by the Nominating Committee: the Public Governors, Floor Member Governor, Independent Dealer/Insurance Affiliate Governor and Investment Company Affiliate Governor (Appointed Governors).The Nominating Committee also may nominate individuals to run for election for the seven elected governor seats that comprise the three Small Firm Governors, one Mid-Size Firm Governor and three Large Firm Governors (Elected Governors). . . .
[O]ur committee is comprised of three industry governors and four public governors. . .
The role of the small firm representatives on the Board, representing over 3,200 such institutions, is a crucial one that demands significant industry experience. . .
The majority of the FINRA board are not from the industry and they have all looked to Bob to get an understanding of the impact of rule proposals on the small firm. . . .
FINRA Nominating Committee NomineeFINRA's Nominating Committee has nominated the following individuals:Large Firm Governor Candidate: Timothy C. Scheve, Janney Montgomery Scott LLCMid-Size Firm Governor Candidate: Brian J. Kovack, Kovack Securities, Inc.Small Firm Governor Candidate: The Nominating Committee determined it would not nominate a candidate for election in 2018. Instead, any eligible candidates who obtain the requisite number of petitions will be included on the ballot.
At the July 2017 meetings, the Nominating Committee nominated and the Board made a number of appointments to the Board that became effective at the Annual Meeting. Governor Kathleen A. Murphy, President of Fidelity Personal Investing, was appointed to succeed Governor John J. Brennan as the Investment Company Affiliate on the Board. . .
NominationsAs you know, my name is on the ballot this year because I went through the petition process to get it there. Let's not forget the efforts of a small group of dissidents that first contested the FINRA nominee years ago. They fought for the rights of small firms and against what they felt was a nominee handpicked by FINRA.At no point in the future would I accept the FINRA nomination for the Small Firm Seat for the Board of Governors. The person who represents small firms at the board level should go to the members and ask for their support by signing a petition.