In the Matter of the Consolidated Arbitration Applications for Review of Action Taken by FINRA (SEC Order)SEC Charges Former Investment Adviser with Insider Trading (SEC Release)SEC Charges Consumer Loan Company With FCPA Violations (SEC Release)Goldman names new head of digital assets in bet that blockchain is the future of financial markets (CNBC by Hugh Son)Biofuel Fraudster Sentenced to Seven Years in Prison for Scamming Multiple Federal Agencies and Customers (SEC Release)
The applicants in this consolidated review proceeding challenge FINRA's action denying them access to FINRA's arbitration forum to seek expungement of prior adverse arbitration awards arising from customer disputes. We previously consolidated these applications for review (the "Consolidated Arbitration Applications") for the purpose of deciding whether we have jurisdiction to consider them under Section 19(d) of the Securities Exchange Act of 1934.1 Turning to that question here, we find that we have jurisdiction to review these applications because FINRA's action prohibited access to a fundamentally important service that it offers.= = = = =Footnote 1: See 15 U.S.C. § 78s(d)(2); Bart Steven Kaplow, Exchange Act Release No. 85509, 2019 WL 1489709, at *2 (Apr. 4, 2019); Timothy Charles Sullivan, Exchange Act Release No. 85885, 2019 WL 2160143 (May 17, 2019); William Burk Rosenthal, Exchange Act Release No. 85886, 2019 WL 2160144 (May 17, 2019); Consolidated Arbitration Applications, Exchange Act Release No. 87615, 2019 WL 6287506 (Nov. 25, 2019). Exhibit A identifies all proceedings making up the Consolidated Arbitration Applications as of the date of this order.
Exchange Act Section 19(d)(2) authorizes us to review a self-regulatory organization ("SRO") action if that action "prohibits or limits any person in respect to access to services offered by [the SRO]." In determining whether we have jurisdiction under that standard, we ask whether the SRO prohibited or limited access to a service that the SRO offers and whether that service is fundamentally important Here, applicants' appeals fit within that standard.To begin with, we find that FINRA prohibited applicants' access to its arbitration forum with respect to their claims for expungement of prior adverse arbitration awards. FINRA Rules 12203 and 13203 permit the Director to "decline to permit use of the FINRA arbitration forum" upon making certain findings. Because the Director's decision that a claim is not eligible for arbitration deprives the applicants of the ability to participate in that service with respect to that claim, it effects a prohibition of access to the arbitration forum.FINRA argues that it processed applicants' claims for arbitration and did not prohibit their access to an "evaluation" of those claims' eligibility. But FINRA's "evaluation" that applicants could not access its arbitration service does not mean that applicants accessed that service. Instead, FINRA's "evaluation" is the means by which it prohibited applicants' access to arbitration.FINRA argues that it processed applicants' claims for arbitration and did not prohibit their access to an "evaluation" of those claims' eligibility. But FINRA's "evaluation" that applicants could not access its arbitration service does not mean that applicants accessed that service. Instead, FINRA's "evaluation" is the means by which it prohibited applicants' access to arbitration.
3. The Supreme Court recently held that ordering disgorgement in an amount that "does not exceed a wrongdoer's net profits and [that] is awarded for victims" is permissible under the equitable authority granted in 15 U.S.C. § 78u(d)(5). Liu v. SEC, 140 S. Ct. 1936, 1940 (2020). Because this power arises under equity, disgorgement orders must be crafted so that their effect is restitutionary only, not punitive, reaching beyond the consequences of the specific wrongdoer's actions. Id. at 1943, 1947-50.Here, despite making numerous arguments against imposition of monetary remedies, Defendants did not challenge the SEC's calculation or supporting evidence establishing the amount of gains Defendants received from their unlawful conduct, which was their burden to do if they believed the government's calculation was wrong. SEC v. Platforms Wireless Int'l Corp., 617 F.3d 1072, 1096 (9th Cir. 2010). However, it is unclear whether the district court limited its disgorgement orders imposed against the two individual defendants to their specific conduct where, for example, it made them both jointly and severally liable for the disgorgement amounts ordered against the entity defendants. See Liu, 140 S. Ct. at 1945, 1949. Likewise, it is unclear that the disgorgement amounts ordered are "appropriate and necessary for the benefit of investors." 15 U.S.C. § 78u(d)(5); see Liu, 140 S. Ct. at 1948-49. Therefore, on remand we further direct the district court to determine, consistent with the terms of the consent agreements, whether its disgorgement orders comply with the Supreme Court's decision in Liu.
[B]rewer, a former registered representative, was the owner and control person of both a registered investment adviser, Brewer Capital Management (BCM), and a related consulting firm, Brewer Group Inc. Brewer consulted for COPsync, where he obtained material, nonpublic information about COPsync's plans to do a stock offering. According to the complaint, Brewer participated in the offering, and the purchase agreement contained a clause obligating him not to sell any shares of the company prior to the announcement of the offering. Despite his obligations to the company to maintain confidentiality and not to use the confidential information for his own benefit, on January 4 and 5, 2017, he allegedly sold his shares before the company announced the stock offering. This allowed him to profit by approximately $35,000 more than he would have had he waited to sell his shares after COPsync issued its press release.The complaint also alleges that, despite Brewer's regular access to materially nonpublic information by the terms of his consulting agreements, BCM failed to modify and enforce written policies and procedures to prevent the misuse of such information, and Brewer aided and abetted this violation. Further, the complaint alleges that during a two-year period, Brewer unlawfully acted as a securities broker without being associated with a broker-dealer or being registered as a broker with the SEC.
[F]rom at least December 2010 through June 2017, World Acceptance Corporation's former Mexican subsidiary, WAC de Mexico S.A. de C.V., paid more than $4 million in bribes to Mexican government officials and union officials to secure the ability to make loans to government employees and ensure that those loans were repaid in a timely manner. According to the SEC's order, WAC Mexico paid the bribes in a variety of ways, including by depositing money into bank accounts linked to the officials and by hiring an intermediary to distribute large bags of cash among the officials. The SEC's order finds that these bribes were inaccurately recorded in World Acceptance Corporation's books and records as legitimate business expenses. The SEC's order further finds that World Acceptance Corporation lacked internal accounting controls sufficient to detect or prevent the payments of such bribes and that management lacked the appropriate tone at the top regarding internal audit and compliance, thereby undermining the effectiveness of those functions.
To carry out his green energy scam, from 2010 to 2015 Dunham fraudulently applied for, received, and sold EPA "credits" for producing biofuels that he, in fact, did not produce and, in many instances, had never possessed in the first place. Dunham also sought and received millions of dollars from the IRS and the USDA based on the same falsehoods. All told, based on the repeated falsehoods he told the federal agencies, Dunham obtained nearly $50 million in fraudulent revenue. In carrying out this massive fraud, Dunham used his businesses, Smarter Fuel, which he owned, and Greenworks Holdings, which he operated with his co-defendant, Ralph Tomasso, who previously pleaded guilty to conspiracy to defraud federal programs.The evidence at trial also showed that Dunham engaged in multiple cover-ups designed to hide his crimes from authorities. These included altering his accounting records the day before an IRS audit in 2010, and providing a USDA auditor with dozens of falsified records, which Dunham had ordered an employee to produce, during a 2012 audit.
"In the next five to 10 years, you could see a financial system where all assets and liabilities are native to a blockchain, with all transactions natively happening on chain," McDermott said in an interview. "So what you're doing today in the physical world, you just do digitally, creating huge efficiencies. And that can be debt issuances, securitization, loan origination; essentially you'll have a digital financial markets ecosystem, the options are pretty vast."
In September 2019, while registered with TIAA, Simmons met with a prospective customer to discuss opening an IRA account and rolling over funds from another financial institution into the TIAA account. During that meeting, the customer contacted the other financial institution to initiate the rollover process. A few days after meeting with the customer, Simmons generated and completed the TIAA forms necessary to establish the IRA and authorize the rollover transaction. Instead of delivering the forms to the customer to be signed, Simmons forged the customer's signature on the forms and submitted the forms for processing.
Simmons subsequently realized that he had set up the customer's IRA incorrectly. Simmons set up the account as a traditional IRA, but he should have established it as a ROTH IRA. Simmons generated and completed new TIAA forms and corrected the account designation. Again, although the customer had authorized the transaction, Simmons forged the customer's signature on each of the forms. During the course of completing the forms, Simmons erroneously entered account information relating to another TIAA customer with a similar name to Simmons's customer and also forged that customer's name onto one of the documents.
Between April 3, 2018 and March 8, 2019, McConkie electronically signed the name of a senior registered representative on at least seven forms without his knowledge or consent. The forms included six new advisory account forms and one brokerage-to-advisory change form. McConkie signed the senior registered representative's name to the forms because, as an associate advisor without a Series 65 license at the time, he was not authorized to sign the forms himself. McConkie did not sign on behalf of any customers and all of the underlying activity was authorized.
According to PRX Financiars written supervisory procedures (WSPs) in effect during the relevant period, registered representatives were prohibited from exercising discretion in a customer's account unless the customer provided prior written authorization and the account was approved for discretionary trading in writing by the firm's designated supervisor. Parakhnevich exercised discretion without Firm approval on at least 96 occasions in the account of senior Customer A.2 Although Customer .A was generally aware of the fact that Parakhnevich was exercising discretion in his account, Parakhnevich failed to obtain prior written authorization from Customer A. Parakhnevich also never obtained PHX Financial's approval of Customer A's account as a discretionary account.
During the relevant period, PHX Financial required registered representatives to complete an annual compliance questionnaire attesting to their compliance with certain firm policies and procedures including, among other things, the exercise of discretionary trading in customer accounts. On November 11, 2018 and February 4, .201% Parakhnevich completed and submitted a compliance questionnaire to the firm, Each of the questionnaires contained the question, "kilo you handle any customer accounts on a discretionary basis?" In each questionnaire, Parakhnevich answered "no" in response to this question: Parakhnevich's answers were false because, at the time he responded to these questions, he was actively effecting transactions in Customer A's account on a discretionary basis.
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Footnote 2: Customer A was between 89 and 91 years-old during the relevant period.
Respondent understands that this settlement includes a finding that he willfully omitted to state a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this omission makes him subject to a statutory disqualification with respect to association with a member.
RELEVANT DISCIPLINARY HISTORYOn May 24, 2018, Knox entered into a Consent Order with the State of Michigan, Department of Licensing and Regulatory Affairs, Corporations, Securities & Commercial Licensing Bureau pursuant to which Knox agreed to withdraw his registration as a Securities Agent in Michigan and to pay a $1,500 fine for filing false or misleading information.On December 18, 2018, the State of Florida, Office of Financial Regulation entered a Final Order adopting a Stipulation and Consent Agreement finding that Knox made a material omission on his Uniform Application for Securities Industry Registration or Transfer (Form U4) when he failed to disclose a criminal indictment and denying Knox's application for registration.OVERVIEWFrom June 2015 through October 2016, Knox violated FINRA Rule 2010 when he effected 36 transactions with a total principal value of approximately $1.7 million in three of his Firm customers' accounts without the customers' authorization or consent for the trades.During the same period, Knox also violated NASD Rule 2510(b) and FINRA Rule 2010 when he exercised discretionary trading authority and effected 36 transactions with a total principal value of approximately $2 million in the accounts of four of his Firm customers without having obtained prior written authorization from the customers or approval from Merrill Lynch to treat the accounts as discretionary.Additionally, Knox violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010 when he willfully failed to timely disclose a March 2015 felony indictment via the filing of an amended Form U4.