The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

June 22, 2020


Robinhood increases guardrails on options trading in the wake of a customer suicide (CNBC by Kate Rooney)



Federal Courts Says FINRA Arbitrators Wrongly Found Wrongful Discharge for Terminable-At-Will Employee.


Statement Of U.S. Attorney Geoffrey S. Berman On Announcement By Attorney General Barr (June 19, 2020) https://www.justice.gov/usao-sdny/pr/statement-us-attorney-geoffrey-s-berman-announcement-attorney-general-barr

"I learned in a press release from the Attorney General tonight that I was 'stepping down' as United States Attorney.  I have not resigned, and have no intention of resigning, my position, to which I was appointed by the Judges of the United States District Court for the Southern District of New York.  I will step down when a presidentially appointed nominee is confirmed by the Senate.  Until then, our investigations will move forward without delay or interruption.  I cherish every day that I work with the men and women of this Office to pursue justice without fear or favor - and intend to ensure that this Office's important cases continue unimpeded."


https://www.cnbc.com/2020/06/19/justice-department-replaces-federal-prosecutor-berman-with-sec-clayton.html
As reported in part by CNBC's Mangan:

In stunning Friday night statements, President Donald Trump said he will nominate Securities and Exchange Commission Chairman Jay Clayton to replace Geoffrey Berman as the top federal prosecutor in Manhattan - but Berman promptly said he will not leave until a successor is confirmed by the Senate.

The extremely unusual standoff involves high stakes, as Berman has shown a willing to investigate associates of Trump, including two of the president's own lawyers.

Bill Singer's Comment: 

Pursuant to 28 U.S.C. § 546 (d), Judiciary and Judicial Procedure: United States Attorneys:

Section 546. Vacancies

(a)Except as provided in subsection (b), the Attorney General may appoint a United States attorney for the district in which the office of United States attorney is vacant.
(b)The Attorney General shall not appoint as United States attorney a person to whose appointment by the President to that office the Senate refused to give advice and consent.
(c)A person appointed as United States attorney under this section may serve until the earlier of-
(1)the qualification of a United States attorney for such district appointed by the President under section 541 of this title; or
(2)the expiration of 120 days after appointment by the Attorney General under this section.
(d)If an appointment expires under subsection (c)(2), the district court for such district may appoint a United States attorney to serve until the vacancy is filled. The order of appointment by the court shall be filed with the clerk of the court.

After Berman was appointed as "Acting" US Attorney by AG Session, the Trump Administration failed to present Berman's "formal" nomination to the Court. Thereafter, on April 25, 2018, the Chief Judge of the United States District Court for the Southern District of New York extended Berman's tenure as United States Attorney for the Southern District of New York.. 

All of which raises a number of potential constitutional issues as to whether AG Barr is empowered to terminate a US Attorney who was appointed by the Court; or, in the alternative, whether Berman's successor can take on that role absent the consent of the Senate. Separately, SEC Chair Clayton faces a potential existential threat to his career and reputation should he take on a Bork-like appointment. Following the Nixon Administration's October 1973 Saturday Night Massacre, Robert Bork accepted the role of Acting U.S. Attorney General after several United States Department of Justice officials resigned rather than comply with the order to fire Special Prosecutor Archibald Cox. During those dark days of the Watergate scandal, Bork fired Cox. Following Bork's January 4, 1974 resignation, he was appointed by President Reagan in 1982 to the United States Court of Appeals for the District of Columbia Circuit; however his 1987 nomination to the United States Supreme Court was defeated by a vote of 58 Senators in opposition. I have often commended SEC Chair Clayton on his tenure at the helm of the SEC. Notwithstanding that I have voiced many disagreement's about the Clayton SEC's agenda and its failure to reform its belabored Whistleblower program, I believe that Clayton has done a superb job in maintaining a professional, even tone and ensuring that what I deem "retail" oriented frauds are timely addressed. Certainly, the Clayton SEC has not been marked by the wholesale inaction that many had predicted, and, to its credit, it has implemented a number of worthwhile reforms and has successfully prosecuted numerous anti-fraud matters. In the spirit that "perfection" is the enemy of "good," I cannot and will not deem Clayton's tenure as a failure -- to the contrary, he has been incredibly effective given the tenor of the times. That being said, if he has tired of his role at the SEC, he would be better advised to return to the lucrative confines of a partner at a prestigious law firm rather than embroil himself in the unsavory role of a dubious replacement for USA Berman. 

Statement Of Geoffrey S. Berman (DOJ Release / June 20, 2020)
https://www.justice.gov/usao-sdny/pr/statement-geoffrey-s-berman

In light of Attorney General Barr's decision to respect the normal operation of law and have Deputy U.S. Attorney Audrey Strauss become Acting U.S. Attorney, I will be leaving the U.S. Attorney's Office for the Southern District of New York, effective immediately.  It has been the honor of a lifetime to serve as this District's U.S. Attorney and a custodian of its proud legacy, but I could leave the District in no better hands than Audrey's.  She is the smartest, most principled, and effective lawyer with whom I have ever had the privilege of working.  And I know that under her leadership, this Office's unparalleled AUSAs, investigators, paralegals, and staff will continue to safeguard the Southern District's enduring tradition of integrity and independence

Robinhood increases guardrails on options trading in the wake of a customer suicide (CNBC by Kate Rooney)
https://www.cnbc.com/2020/06/19/robinhood-increases-guardrails-on-options-trading-in-the-wake-of-a-customer-suicide.html
As reported in part by CNBC's Rooney:

In a blog post Friday, Robinhood's co-CEOs outlined multiple changes to the free-trading app. Robinhood will increase eligibility requirements, and "consider additional criteria" for customers for level three options authorization "to help ensure customers understand more sophisticated options trading." 

The company will also change its user interface. Robinhood said it would roll out improvements to in-app messages and emails associated with options spreads, and add more educational content related to that type of trading.

U.S. banks are 'swimming in money' as deposits increase by $2 trillion amid the coronavirus (CNBC by Hugh Son)
https://www.cnbc.com/2020/06/21/banks-have-grown-by-2-trillion-in-deposits-since-coronavirus-first-hit.html
As reported in part by CNBC's Son of the $2 tillion in inflow of deposits to US banks. April's $865 billion exceeded any prior year; and notably: 

More than two-thirds of the gains went to the 25 biggest institutions, according to the FDIC. And that was concentrated at the very top of the industry: JPMorgan Chase, Bank of America and Citigroup, the biggest U.S. banks by assets, grew much faster than the rest of the industry in the first quarter, according to company data.

U.S. Home-Mortgage Delinquencies Reach Highest Level Since 2011 (Bloomberg by John Gittelsohn)
https://www.bloomberg.com/news/articles/2020-06-22/u-s-home-mortgage-delinquencies-reach-highest-level-since-2011
Gee, I thought that it was only last week that we were reading about record-high demand for mortgages and how every single home that was listed for sale had been bought up. Not that the real estate industry would be talking its book. Course not. Y'know -- other than the inconvenience of the COVID pandemic and its economic impact, why, hell, these are wonderful times to invest in real estate. As Bloomberg's Gittelsohn reports in part:

The number of borrowers more than 30 days late swelled to 4.3 million, up 723,000 from the previous month, according to property information service Black Knight Inc. More than 8% of all U.S. mortgages were past due or in foreclosure.

The increase in delinquencies was smaller than the 1.6 million jump in April, when the economy ground to a halt nationwide. Still, the path ahead is clouded by the spread of new Covid-19 cases, uncertainty over business reopenings and the looming expiration of benefits that have helped jobless homeowners avert delinquency.

Wirecard says missing $2.1B likely did not exist; withdraws forecasts / Chief Executive Officer Markus Braun quit on Friday (Fox Business)
https://www.foxbusiness.com/markets/wirecard-says-missing-2-1b-likely-did-not-exist-withdraws-forecasts#
First reports seemed to imply that the funds had been lost -- as in, they were somewhere but, you know, we just can't sort of figure out where but, hey, we're working on it and, give us some time but, ummm, we think we'll possibly find the funds. Now, it seems that:

Scandal-hit German payments firm Wirecard AG on Monday said a quarter of its assets totaling 1.9 billion euros ($2.13 billion) that auditor EY has been unable to account for likely did not exist in the first place.

The company, whose stock has plummeted 75% since EY refused to sign off its 2019 accounts last week, also said it has withdrawn its preliminary 2019 and first-quarter 2020 financial results as well as forecasts.

https://www.justice.gov/usao-id/pr/former-yellowstone-partners-ceo-sentenced-5-years-prison
David Hansen, 49, was sentenced in the United States District Court for the District of Idaho to 60 months in prison plus three years of supervised release' and, further, he agreed to cooperate with an Internal Revenue Service civil tax examination and assessment, and pay any unpaid tax due and owing, and accrued interest for his 2012 and 2013 Form 1040 joint income tax returns.As alleged in part in the DOJ Release:

[H]ansen was the Chief Executive Officer and a 90-percent partner in Yellowstone Partners, LLC, an investment management firm headquartered in Idaho Falls. Clients of Yellowstone Partners entrusted their monies to Yellowstone Partners to invest and manage on their behalf. In exchange, Yellowstone Partners earned fees for its services. Yellowstone Partners' fees were set forth in investment agreements between Yellowstone Partners and its clients. Yellowstone Partners' clients' monies were kept in accounts at third party custodians. Yellowstone Partners directed how the monies in client accounts were invested and how they were disbursed. This included submitting email billing requests to the third party custodians to take fees from client accounts and to deposit them into Yellowstone Partners' own accounts.

According to court records, from 2008 through April 2016, Hansen knowingly and intentionally devised a scheme to defraud clients of Yellowstone Partners by overbilling their investment accounts. Specifically, Hansen fraudulently billed clients for fees to which Yellowstone Partners was not entitled under the terms of the investment agreements or otherwise. Through this overbilling scheme, Hansen fraudulently obtained client funds from a third party custodian and used them to enrich himself and to fund Yellowstone Partners' operations. For certain identified victims, Hansen personally submitted 51 fraudulent overbilling requests, which resulted in a loss of $2,675,856.

James Warfield, Plaintiff, v. Icon Advisors, Inc. and Icon Distributors, Inc., Defendants ( Order, United States District Court for the Western District of North Carolina, 20-CV-195)
http://brokeandbroker.com/PDF/WarfieldWDNCOrder200616.pdf

In a FINRA Arbitration Statement of Claim filed in March 2019 and as amended, associated person Claimant Warfield asserted  wrongful termination without just cause; defamation - libel per se; and violations of North Carolina's  Unfair and Deceptive Trade Practices Act. Claimant Warfield ultimately sought $1,186,975 in wrongful termination compensatory damages,$82,613 in interest, $261,585.98 i hearing and attorneys' fees, and that his Form U5 be expunged and the following language inserted" Awaiting Financing to Clear Tax Liens." Respondents generally denied the allegations, asserted affirmative defenses, and filed a Counterclaim seeking $85,520 plus costs and fees. 

The FINRA Arbitration Panel found Respondents jointly and severally liable and ordered them to pay to Claimant $1,186,975 in compensatory damages for wrongful termination without just cause plus $750 in reimbursed FINRA filing fees.. The Panel recommended the expungement of the Form U5 with the language of substitution sought by Claimant. 

Claimant Warfield filed a Motion to Confirm the arbitration award in the United States District Court for the Western District of North Carolina, and Respondents filed a Motion to Vacate. 

The WDNC granted in part and denied in part Warfield's Motion to Confirm and the Icon Defendants' Motion to Vacate -- pointedly. the Court confirmed the FINRA Arbitration Panel's recommendation of expungement but vacates its granting Warfield's claim for wrongfujl discharge without just cause. In pertinent part WDNC found that [Ed: footnotes omitted]:

[W]arfield's claim for "wrongful termination without just cause" (Doc. No. 3-3, p. 3) has no basis in North Carolina law because no such cause of action exists for "at-will" employees. See Kurtzman v. Applied Analytical Indus., 493 S.E.2d 420, 422 (N.C. 1997), rehearing denied, S.E.2d 594 (N.C. 1998) ("North Carolina is an employment-at-will state. This Court has repeatedly held that in the absence of a contractual agreement between an employer and an employee establishing a definite term of employment, the relationship is presumed to be terminable at the will of either party without regard to the quality of performance of either party. There are limited exceptions. First, as stated above, parties can remove the at-will presumption by specifying a definite period of employment contractually. Second, federal and state statutes have created exceptions prohibiting employers from discharging employees based on impermissible considerations such as the employee's age, race, sex, religion, national origin, or disability, or in retaliation for filing certain claims against the employer. Finally, this Court has recognized a public-policy exception to the employment-at-will rule."). Warfield has never alleged or argued that his termination was based upon an impermissible consideration or that Defendants violated a "public policy."

at Pages 4 -5 of the WDNC Order

(BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5279/milliner-finra-arbitration/
For the roughly four-year period from March 21, 2016, until January 13, 2020, a FINRA Arbitration Decision sets out everything that happened in five sentences. When the matter winds up on appeal before a United States District Court, that same period prompted six paragraphs of explanation from the judge. Less may often be better. More may often be too much. In today's featured case, however, less is, indeed, less, and, more is indeed better. That being said, the lengthier explanation merely confirmed that the arbitrators were right. So, you know, it's all very Zen-like in terms of walking the circle and ending up where you started, and nothing made much difference except it did.

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