[P]rior to his arrest on December 7, 2018, Colavecchio boasted to others that he was already working on a defense should he be arrested again for counterfeiting. If caught, Colavecchio told others he would claim that he was working as a counterfeit deterrence specialist.
[F]rank Dinucci Jr., a broker at AOC, provided inflated price quotes to a New York-based investment adviser, Premium Point Investments LP. The orders find that PPI traders dictated to Dinucci the prices at which he should value certain mortgage-backed securities in PPI funds' portfolios. In return, the PPI traders promised to send securities trades to AOC. Though both AOC and Gonzalez knew Dinucci was providing price quotes to PPI on behalf of AOC, they failed to establish or implement policies or procedures reasonably designed to prevent and detect Dinucci's misconduct. The SEC previously charged Dinucci, PPI, and certain of PPI's founders, partners, and employees in connection with the fraudulent valuation scheme. AOC withdrew its registration as a broker-dealer at the end of 2018, during the course of the SEC's investigation.
On March 19, 2019, FINRA sent Notices of Suspension ("Notices") to Respondents Alpine Securities Corporation ("Alpine") and Scottsdale Capital Advisors Corporation ("Scottsdale") (collectively, "Respondents") for their alleged failure to file Continuing Membership Applications ("CMAs") under NASD Rule 1017. That Rule requires a member of FINRA to file a CMA for, among other things, approval of a change in the member's equity ownership that results in one person or entity directly or indirectly owning or controlling 25 percent or more of the equity. The Notices informed Respondents that: (1) under FINRA Rule 9552, Respondents' memberships with FINRA would be suspended effective April 10, 2019, unless Respondents submitted CMAs by that date; and (2) under FINRA Rule 9559(c)(1), a timely written request for a hearing filed with the Office of Hearing Officers would stay the effectiveness of the suspensions. On April 9, 2019, Respondents timely filed Requests for Hearing under FINRA Rules 9552 and 9559.Alpine has been a member of FINRA since 1984. In 2011, SCA Clearing LLC ("SCA Clearing") became sole owner of Alpine. John Hurry was the sole owner of SCA Clearing. SCA Clearing is still the sole owner of Alpine. However, SCA Clearing is now owned in equal parts by six common-law trusts ("Six Trusts"). Alpine has represented to FINRA that the trustees of the Six Trusts are John Hurry and his wife, Justine Hurry, that the current beneficiaries of the Six Trusts are John and Justine Hurry, and that their children are the residual beneficiaries.Scottsdale has been a member of FINRA since 2002. At that time, Justine Hurry was the sole owner of Scottsdale in her capacity as sole owner of Scottsdale Capital Advisors Holdings LLC ("SCA Holdings"). At the present time, SCA Holdings is the sole owner of Scottsdale. Scottsdale has represented to FINRA that SCA Holdings is owned in equal parts by the same Six Trusts identified above, with John and Justine Hurry as trustees and beneficiaries and their children as residual beneficiaries.On April 19, 2019, the Chief Hearing Officer consolidated these two expedited proceedings because Alpine and Scottsdale have the same indirect owners (two of whom are married to each other), and because the principal issue in each proceeding is the same: whether Respondents underwent changes in their equity ownership that resulted in one person or entity directly or indirectly owning or controlling 25 percent or more of the equity. On June 18, the parties participated by telephone in a hearing before a FINRA Hearing Panel.
For the above reasons, the Hearing Panel concludes that the substitution of the Two Trusts for the Hurry Family Trust, and the substitution of the Six Trusts for the Two Trusts, were material changes in the equity ownership of Alpine and Scottsdale. These changes resulted in one person or entity indirectly owning 25 percent or more of Respondents. Their failure to file CMAs violated NASD Rule 1017. Alpine and Scottsdale are therefore subject to suspension for failure to file substantially complete CMAs.IV. OrderRespondents Alpine Securities Corporation and Scottsdale Capital Advisors Corporation are suspended from FINRA membership for failure to file CMAs, in violation of NASD Rule 1017. The suspensions will be effective upon the issuance of this Decision and will remain in effect until Respondents file CMAs complying with the requirements of FINRA Rules 1014 and 1017. If Respondents file substantially complete CMAs, they may apply to Enforcement for termination of the suspensions. Alpine and Scottsdale are jointly and severally liable to pay hearing costs of $3,625.66, consisting of a $750 administrative fee and $2,875.66 for the cost of the transcript. The costs shall be due on a date established by FINRA.
[T]hey were not required to file CMAs because the transfer of ownership from two trusts to six trusts did not constitute a change in control and that preliminary relief was necessary to prevent the destruction of their businesses. Applicants also sought an interim stay to preserve the status quo ante pending determination of the stay motion.
The Securities and Exchange Commission today provided guidance to assist investment advisers in fulfilling their proxy voting responsibilities. The guidance discusses, among other matters, the ability of investment advisers to establish a variety of different voting arrangements with their clients and matters they should consider when they use the services of a proxy advisory firm. In addition, the Commission issued an interpretation that proxy voting advice provided by proxy advisory firms generally constitutes a "solicitation" under the federal proxy rules and provided related guidance about the application of the proxy antifraud rule to proxy voting advice. Both of these actions explain the Commission's view of various non-exclusive methods entities can use to comply with existing laws or regulations or how such laws and regulations apply.
It is clear, based on comments received from market participants as part of our staff's engagement and the staff's experience over the years, that Commission guidance in this area will be helpful to investment advisers as they consider what voting obligations to take on and how to discharge them. Particularly, I believe investment advisers, and ultimately their clients, will benefit from the examples of steps that an investment adviser can take to reasonably ensure that it is making voting determinations in its client's best interest. Similarly, the guidance should assist investment advisers that retain a proxy advisory firm by clarifying a variety of issues that they should consider, such as conflicts of interest and accuracy of information, in each case depending on the relevant circumstances. These potential actions discussed in the guidance are not new. They should be familiar to investment advisers and other market participants. They include reasonable due diligence, reasonably identifying and addressing conflicts, and full and fair disclosure. Therefore, as the powerful combination of these types of actions often does, the guidance recommended by the Division of Investment Management should help promote a transparent and robust proxy process and transparent, thoughtful and meaningful voting determinations and investment decisions.
[T]he Commission will vote on two separate releases, drafted by two different divisions within the agency, that relate to the role of proxy advisory firms in the proxy voting process. I am aware that, for some, this is a controversial topic. I have heard the warnings that any action, regulation, or oversight that directly or indirectly constrains proxy advisory firms will be viewed by some as a gift to the management and directors of public companies, resulting in harm to investors. For example, I have heard that the Commission should not take any action related to proxy voting advice provided by proxy advisory firms because ". . . the investors themselves . . . the ones paying for proxy advice . . . are not asking for protection." To be clear, in this context, I do not consider asset managers to be the "investors" that the SEC is charged to protect. Rather, the investors that I believe today's recommendations aim to protect are the ultimate retail investors, who may have their life savings invested in our stock markets. These Main Street investors who invest their money in funds are the ones who will benefit from (or bear the cost of) these advisers' voting decisions. In essence, I believe it is our job as regulators to help ensure that such advisers vote proxies in a manner consistent with their fiduciary obligations and that the proxy voting advice upon which they rely is complete and based on accurate information.. . .The SEC is not in the business of picking winners and losers. We have a three-part mission that informs every action we take: Protect investors. Maintain fair, orderly, and efficient markets. Facilitate capital formation. I appreciate the efforts of our dedicated SEC staff who worked hard to further this mission by addressing the various perspectives and concerns noted in the comment file. They have prepared recommendations that would not change the law or create a new regulatory regime for proxy advisory firms, but reiterate longstanding Commission rules and positions that remain applicable and very relevant in today's marketplace. I believe this approach embodies the long-standing commitment of the SEC staff and the Commission to avoid tipping the scales in favor of any one party in the shareholder-company dynamic.
When an investment adviser undertakes to vote equity securities on behalf of a client, it does so as a fiduciary guided by the client's best interest. Exercising voting authority as a fiduciary does not mean that an adviser is required to pore over each matter for each client in order to decide how to vote. An adviser might determine that the best approach for a particular client is to follow a pre-set policy of, for example, not voting at all; voting with management on all except non-routine matters; or, where relevant, voting with shareholder proponents and against management or vice versa.An adviser also may turn to a proxy advisory firm to assist in voting proxies. Doing so in no way diminishes the adviser's duty to serve its client's best interest. As today's guidance demonstrates, there are concrete steps that an adviser relying on a proxy advisory firm to handle administrative or substantive aspects of voting can take to ensure that it is fulfilling its fiduciary duty. These are common sense steps such as ensuring that the proxy advisor is following the adviser's instructions; disclosing and mitigating any conflicts of interest; using sound methodologies; employing qualified people; using good technology; and relying on current, accurate information to make its decisions.
So what are the benefits to be achieved here? We don't have investment advisers clamoring for advice or certainty on how to meet their fiduciary duties, and we don't have those who use them-institutional investors-complaining that investment advisers are breaching those duties. So, what exactly are we fixing by calling for increased issuer input and injecting costs into the process? These are the questions we should be asking and answering before we act.Finally, I cannot support today's release relating to the solicitation rules because (as reflected in the Regulatory Flexibility Agenda), the Commission may soon propose changes to the exemptions from those rules. Without knowing the extent or substance of those changes, neither the Commission nor the public can meaningfully evaluate the impact of today's action. In fact, it could cause market participants to adapt to a regulatory framework that the Commission may soon change.The policy choices reflected in today's releases create serious risks to our system of corporate democracy by adding cost, adding time pressure and, potentially compromising the independence of voting recommendations. Because those risks have not even been identified, much less weighed and analyzed, I must respectfully dissent.
[T]he proxy-advisory industry itself is dominated by a small number of players, further concentrating voting influence into just a few hands. Important recent research shows that the entrance of new competitors has helped proxy advisors produce better and less conflicted advice. But I worry that today's guidance may make it more costly to run a proxy-advisory firm, encouraging even more concentration-rather than new entrants who can give investors more choices about how to vote.The role of proxy advisors has been hotly debated for decades, with strong views on all sides. But one thing we know is that a competitive market for voting advice benefits both investors and issuers by generating crucial accountability for companies and proxy advisors alike. I would have considered the effects of today's guidance on the competitive landscape more fully before taking these steps. . .