The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
June 2, 2021
GUEST BLOG: FINRA Withdraws Proposed Expungement Rule by Nancy L. Hendrickson Esq (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5884/nancy-hendrickson-guest-blog/
Veteran litigator Nancy Hendrickson has fought it out in the trenches when it comes to employment disputes. As Nancy sees it, FINRA's expungement process isn't exactly a square deal for the men and women trapped within that system -- pointedly, it is costly and time-consuming. So, when FINRA proposed some dubious revisions to its expungement rules and PIABA hectored for more of the same, Nancy felt the need to champion the industry's hundreds of thousands of employees.
2021 Annual Conference: Robert Cook and Eileen Murray Fireside Chat (FINRA Unscripted)
https://finra-unscripted.simplecast.com/episodes/2021-annual-conference-robert-cook-and-eileen-murray-fireside-chat?share=true
As the "Episode Notes" state:
The 2021 FINRA Annual Conference was like no other with the event held entirely online. Nonetheless, like in any other year, the event provided the opportunity for practitioners, peers and regulators to connect and exchange ideas.On this episode, we're taking you behind the scenes of this year's event to listen in on the fireside chat between FINRA CEO Robert Cook and FINRA Board Chair Eileen Murray as they talk about everything from return to work and the future of the workforce to the work of FINRA Board of Governor and diversity, equity and inclusion.
Bill Singer's Comment: The number of FINRA member firms dropped from 3,835 in 2016 to 3,435 in 2020 -- and that's not even taking into consideration the likely carnage in 2021 of the ongoing Covid pandemic. Among the more eye-opening bits of data for the period of 2016 through 2020:
- "Small Firms" (1 to 150 registered representatives) fell from 3,462 in 2016 to 3,079 -- a loss of 383 firms or about an 11% loss;
- "Mid-Size Firms" (151 to 499 registered representatives) fell from 194 to 191 firms -- a loss of 3 firms or about a 1 1/2% loss; and
- "Large Firms" (500 or more registered representatives) fell from 179 to 165 firms -- a loss of 14 firms or about an 8% loss.
Sadly, this year's gabfest between CEO Cook and Chair Murray skirted most of the pressing issues for FINRA's besieged firms and their employees, and, as a result, the Unscripted episode comes off as a tad tone deaf given its failure to address the historic challenges facing FINRA's Small Firms and the industry's hundreds of thousands of employees. If the workplace does not survive, it doesn't quite matter how ardent folks were about making that workplace more diverse, equal, and inclusive. I wish that Cook and Murray had spent more time on the substance of addressing the existential threats to the FINRA membership.
https://www.justice.gov/usao-wy/pr/colorado-defendant-pleads-guilty-defrauding-investors
But before we get to all the legal stuff, no -- I am not shouting at y'all. The folks at DOJ posted the release's headline in all caps.
Now, gettin' back to the legal stuff, Robert William Mitchell a/k/a Bob Mitchell pled guilty in the United States District Court for the District of Wyoming to mail fraud and securities fraud during two separate matters. As asserted in part in the DOJ Release:
First, Mitchell pleaded guilty to mail fraud in connection with a scheme to defraud investors in a Wyoming natural gas production venture. According to court records, Mitchell solicited investments he claimed would be used to create a publicly traded, natural gas production company in Wyoming. Instead of developing any company or safeguarding the investors' money as promised, Mitchell used the money to pay his personal expenses and to finance the scheme. Mitchell stole over $1.3 million dollars from about three dozen investors, most of whom lived in and around Gillette, Wyoming.Second, Mitchell pleaded guilty to conspiracy to commit securities fraud in relation to the common stock of NuTech Energy Resources Inc. According to court records, Mitchell conspired to artificially inflate the market price of NuTech common stock by manipulative trading and by releasing to the public false and misleading information about NuTech's business prospects. Mitchell then sold his worthless NuTech shares to unwitting investors in the public market. The indictment also charges three other men with crimes arising from the alleged conspiracy. These defendants are presumed innocent until proven guilty. Their jury trial will begin on September 20, 2021, in Cheyenne, Wyoming.
https://www.sec.gov/litigation/litreleases/2021/lr25104.htm
In a Complaint filed in the United States District Court for the District of Massachusetts
https://www.sec.gov/litigation/complaints/2021/comp25104.pdf, the SEC's charged James K. Couture with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. In a parallel action, federal criminal charges were filed against Couture. As alleged in part in the SEC Release:
https://www.sec.gov/litigation/complaints/2021/comp25104.pdf, the SEC's charged James K. Couture with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. In a parallel action, federal criminal charges were filed against Couture. As alleged in part in the SEC Release:
[F]rom approximately 2009 to December 2019, James K. Couture, while operating an investment advisory and brokerage business, fraudulently prompted his advisory clients to sell portions of their securities holdings in order to fund large money transfers to an entity that, unbeknownst to his clients, Couture owned and controlled. According to the complaint, for each transaction, Couture obtained client authorization by falsely claiming that the proceeds would be reinvested for the clients' financial benefit. In reality, Couture's alleged purpose in arranging these transactions was to divert the sale proceeds for his own benefit.The complaint alleges that, in furtherance of his scheme, Couture lulled clients into believing that their sale proceeds had been reinvested by providing them with fabricated account statements. When clients requested withdrawals, Couture allegedly took assets from his other advisory clients to cover those withdrawals. According to the complaint, in order to hide this misappropriation, Couture transferred client money through a web of third-party accounts to disguise that he was misappropriating money from one client to replace funds he had previously stolen from another.
Statement on the application of the proxy rules to proxy voting advice (Statement by SEC Chair Gary Gensler / June 1, 2021)
Three FINRA AWCs and One Mess of an Arbitration Raise Unanswered Questions About Supervision (BrokeAndBroker.com Blog)
https://www.sec.gov/news/public-statement/gensler-proxy-2021-06-01
In September 2019, the Commission issued an interpretation and guidance addressing the application of the proxy rules to proxy voting advice businesses.[1] Last July, the Commission adopted amendments to Rules 14a-1(l), 14a-2(b), and 14a-9 concerning proxy voting advice.[2]I am now directing the staff to consider whether to recommend further regulatory action regarding proxy voting advice. In particular, the staff should consider whether to recommend that the Commission revisit its 2020 codification of the definition of solicitation as encompassing proxy voting advice, the 2019 Interpretation and Guidance regarding that definition, and the conditions on exemptions from the information and filing requirements in the 2020 Rule Amendments, among other matters.= = = = =[1] Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice, 84 Fed. Reg. 47,416 (Sept. 10, 2019) ("2019 Interpretation and Guidance").[2] See Exemptions from the Proxy Rules for Proxy Voting Advice, 85 Fed. Reg. 55,082 (Sept. 3, 2020) ("2020 Rule Amendments")
Three FINRA AWCs and One Mess of an Arbitration Raise Unanswered Questions About Supervision (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5880/finra-reynolds-spartan/
A recent FINRA regulatory settlement sanctioned a supervisor's alleged failure to "restrict" a trader's "market access." But as the facts emerged, that trader didn't exactly follow compliance policies and engaged in subterfuge to hide his tracks and cover up his trades. All of which raises questions as to whether the supervisor was victimized by the trader and an over zealous regulator. Unfortunately, there just doesn't seem to be a satisfactory answer to that seminal question, which leaves the supervisor in an uncomfortable posture.