Securities Industry Commentator by Bill Singer Esq

January 9, 2020

featured in today's Securities Industry Commentator:

Check out these these super-realistic Samsung 'artificial humans' at CES 2020 (
I dunno 'bout you but this both fascinates me and scares the crap out of me. A fully simulated digital avatar. A virtual being that is like your friend. You thought that the Great Recession was bad? Wait till you awaken to the Great Replacement! First, they will create digital avatar stockbrokers and investment advisers. Then they will create digital avatar investors. After that, they will create digital avatar regulators and prosecutors. From there, it's digital avatar judges and jurors -- and then they're going to put all the lawyers out of business and make us digital avatars. You think I'm kidding? How do I know that you're not already a virtual being? How do you know that I'm not a virtual being? Can I be your friend?
It's a new year and guest blogger Aegis Frumento starts us off with his musings about how natural and inevitable "inequality" is. As Frumento observes, in nature, inequality doesn't result in undue hardship, because it is leavened by the countervailing instinct of those who have more to share with those who have less. But that is not capitalism, Frumento admonishes. Capitalism encourages our instincts to trade and to dominate, and discourages our instinct to share. That is not merely a bug. It is capitalism's very essence and what makes it so wildly successful.
Former Wells Fargo Bank branch manager Fetehi Mohammed, 34, pled guilty in the United States District Court for the District of Columbia to a two-count Criminal Information charging one count each of Interstate Transportation of Money Taken by Fraud and Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity; and he was sentenced to 33 months in prison plus three years of supervised release, and further ordered to pay $509,864.95 in restitution to the bank (which had reimbursed customers' losses) and $38,779.01 in forfeiture. As alleged in part in the DOJ Release:     

[F]rom February 1, 2017, through on or about March 27, 2019, Mohammed exploited his position as a bank branch manager to execute a scheme to defraud elderly bank customers.  Mohammed used the trust that he had built with a half-dozen senior clients to steal over $500,000 from their accounts and to transfer some of those funds from Virginia into the District of Columbia for his use and benefit.
On Wall Street's Andrew Welsch reports about the odd FINRA arbitration in which a Respondent broker was barred by the Panel from presenting defenses and facts. 
Also See: "Raymond James Rep Can't Get No Non-Attorney Representative To Not Make No FINRA Arbitration Proffer (" Blog)

SEC Charges Individual with Orchestrating Offering Fraud (SEC Release)
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC charged Donald G. Blakstad, Energy Sources and Xact Holdings with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. In a parallel action, criminal charges were filed against Blakstad. As alleged in part in the SEC Release:

[B]etween July 2015 and May 2019, Blakstad induced investors to purchase the securities of companies he controlled, including both Energy Sources International Corporation and Xact Holdings Corporation, by making materially false and misleading statements and omissions about the use of investor proceeds and business operations. According to the SEC's complaint, instead of using investor funds as promised, Blakstad misappropriated at least $2.2 million of investor funds. Blakstad allegedly spent the investor funds on personal entertainment, the purchase of a stake in a night club, and a luxury automobile. In July 2019, the Commission charged Blakstad for his role in a separate insider trading scheme.
In a Complaint filed in the United States District Court for the District of Massachusetts, the SEC alleged that private investment firm ARO Equity, LLC, and its principals, Thomas D. Renison and Timothy J. Allcott violated the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933 and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940; and, additionally, that Renison violated Section 15(a) of the Exchange Act. As alleged in part in the SEC Release:

[I]n July 2014, Renison, a CT resident, was barred by the SEC from, among other things, associating with any investment adviser or broker dealer. Nevertheless, the complaint alleges that from at least July 2015 through June 2018, Renison violated this bar when he, along with Allcott, a MA-resident, formed ARO Equity and raised approximately $6 million from at least 15 investors. The SEC's complaint alleges that Renison and Allcott falsely touted ARO Equity's success to encourage potential investors to cash out of their retirement products and invest with them in ARO Equity. The complaint alleges that soon after the defendants launched the firm, ARO Equity's investments began to fail. Rather than inform their investors of the losses, Renison and Allcott continued to falsely promote ARO Equity's success and the security of investing with them. Among other false statements, Renison and Allcott allegedly told investors that ARO Equity had double-digit returns, that there was no downside to investing with the firm, and that the investors' money was as safe as being in a bank. In reality, ARO Equity had experienced significant losses and had to use new investor funds to pay interest to older investors.


SEC Proposes Improvements to Governance of Market Data Plans (SEC Release)
The SEC proposes to modernize the governance of National Market System ("NMS") market data by requiring, in part, that Exchanges and FINRA file with the SEC a new NMS plan designed to increase transparency and address conflicts of interest.
Chair Clayton offers this brief overview of the proposal:

Today, we are considering a staff recommendation regarding the governance structure of the NMS plans for equity market data.  The Division of Trading and Markets recommends that, to begin the process of addressing (1) the inefficiency of having three NMS plans for equity market data that is used collectively and (2) the concerns raised about the Equity Data Plans' governance structure, the Commission publish for comment a Proposed Order that would direct the SROs to propose a single new NMS plan, with an enhanced governance structure, to administer the collection and dissemination of equity market data.  The Proposed Order calls this the "New Consolidated Data Plan."

Statement at the Open Meeting Considering a Proposed Commission Order Addressing Equity Market Data Plans by SEC Commissioner Elad L. Roisman (SEC Release)
Commissioner Roisman notes that advances in technology have entrenched certain proprietary feeds as the preferred means of receiving market data, in comparison to the Securities Information Processors ("SIPs"). Amid his concerns about co-location, and fiber and wireless connectivity, Roisman adds that:
Many market participants have said that the current governance of the NMS data plans has contributed to this outcome.  As one example, most of the voting power in these plans is now consolidated and held by "exchange groups" (multiple exchanges operating under one corporate umbrella).  The result is that it takes only one of these groups to block a change to a plan.  Conversely, certain votes require unanimity, which can be prevented by the vote of only one exchange, even where that exchange represents a modest slice of overall market volume.  Another example relates to conflicts of interest amongst those who govern the plans.  The exchanges are the plan participants and hold voting power over the plans, but at the same time many also sell their proprietary data feeds that compete with SIP data feeds in certain aspects.  I have also heard that the current governance structures of the plans may impede the ability for the advisory committees to meaningfully fulfill their role.  For example, it is said that key decisions are made in "executive" sessions, during which the advisory committee is excluded. 

Statement on Reforming Stock Exchange Governance by SEC Commissioner Robert J. Jackson  (SEC Release)
Leaving no doubt as to his sensibilities, SEC Commissioner Jackson notes in part that [Ed:footnotes omitted]:

As today's release explains, America's stock markets are riven by a fundamental conflict of interest: exchanges both operate public data feeds and profit from selling superior private ones. Because exchanges have no economic reason to produce robust public data on stock prices, investors have long demanded a vote on how the public feeds are run. Rather than give investors a real say over the data that drives our markets, today's release merely invites for-profit exchanges to draft their own rules on these questions. Because that approach has failed investors before, and there's no reason to expect it to succeed now, I respectfully dissent.

Statement on Proposed Order for Creation of a New Consolidated Market Data Plan for Equity Market Data by SEC Commissioner Allison Lee (SEC Release)
SEC Commissioner Lee declines to support the SEC proposed Order citing, in part, her concerns about the role of Securities Information Processors ("SIPs"):

[W]hile the proposed order takes steps toward addressing the conflicts of interests inherent in having for-profit exchanges both overseeing the SIPs and selling their own competing proprietary data streams, it unfortunately falls short in safeguarding the public interest.

The key piece of today's proposal would potentially add non-SRO voting members to the governance structure, essentially giving these new members one-third of the vote. But simply adding non-SRO voting members will not protect the public interest in ensuring robust and useful SIPs. Indeed, these members would have neither the voting power, nor necessarily the market incentives, to affirmatively usher in the larger reforms required for the SIPs to provide adequate market data to investors on a fair and reasonable basis. What's more, we risk preserving for years to come, an insufficient governance structure on the grounds that it has been somewhat improved.