Securities Industry Commentator by Bill Singer Esq

FINRA, FinCen, Networks, Authorities, Priorities, Statements, Guidance, AML, CFT, BSA, and NBFI (BrokeAndBroker.com Blog)

CFTC Sanctions UBS AG $500,000 For Failing to Retain Certain Required Audio Recordings (CFTC Release)

Stock Promoters Plead Guilty to "Pump and Dump" Securities Fraud Scheme (DOJ Release)

Suburban Chicago Businessman Sentenced to Eleven Years in Federal Prison for Participating in Multi-Million Dollar Ponzi Scheme (DOJ Release)

SEC Reopens Comment Period for Listing Standards for Recovery of Erroneously Awarded Compensation (SEC Release)

Statement on Rules Regarding Clawbacks of Erroneously Awarded Compensation by SEC Chair Gary Gensler

Public Customers Win (Sort Of) Undelineated Cause of Action In Oddball FINRA Arbitration (BrokeAndBroker.com Blog)

The FINRA Expungement of A Customer Complaint That Was Not a Complaint Or From A Customer (BrokeAndBroker.com Blog)

The order finds that prior to June 2019, UBS, to comply with its recordkeeping obligations as a swap dealer, implemented multiple software systems to: (1) operate its trader turret communication devices; (2) record calls occurring on these trader turrets; and (3) store the voice recording files that were generated from the recorded calls. The recording system had a known failure in which, at times, the multiple systems failed to synchronize certain call data, including the UBS trader's identity, which would not transfer to UBS's voice recording system along with the corresponding voice recording. This synchronization failure created a population of voice recording files that were not assigned to a particular trader. These unassigned voice recording files, categorized as "Trader 0" recordings, were transferred to UBS AG's long-term storage systems where they were to be retained for five years. 

As of July 8, 2019, UBS began prematurely deleting, after only one day of retention, voice recording files which included voice recordings containing pre-execution swaps trade information that were required to be retained for one year. This was a result of a technology analyst believing that the voice recordings were test files that did not need to be retained and re-designating those files which reset the retention period for these files from five years to one day.

In December 2019, UBS inadvertently learned about the premature deletion of these audio files from its systems while it was searching for, but not finding, specific voice recording files that it knew should have been in its retention systems. Upon discovery of the erroneous deletions of recordings, UBS did an internal review to determine the universe of impacted voice recording files. The analyst's error resulted in the deletion of over 1,000 hours, or roughly 2.76 percent of total U.S. recorded volume, during July 8, 2019 through December 23, 2019. The deleted files included voice recordings containing pre-execution swaps information such as quotes, solicitations, bids, offers, instructions, trading, and prices that lead to the execution of swaps, all of which are required by Commission regulations to be retained. 

Upon discovering its potential violation of CFTC regulations, UBS promptly self-reported this violation to CFTC staff via telephone, followed by formally submitting a comprehensive written self-report.  UBS cooperated with CFTC staff in its investigation and proactively engaged in remedial procedures to ensure no "Trader 0" recordings are prematurely deleted in the future. 

participated in a scheme to hijack and assume control over dormant public shell companies. The defendants used their control over the companies to fraudulently manipulate and pump up the price of the companies' stock so that they could profit from the sale of stock to unwitting investors.

The defendants carried out their scheme by obtaining hundreds of thousands or even millions of shares of stock in dormant public shell companies that traded over-the-counter at low prices, often for less than a fraction of a penny per share. The defendants then assumed control over the shell companies by creating fake and filing fake resignation letters and board resolutions purporting to announce the resignation of the existing management team and the appointment of one or more conspirators as new officers and directors of the companies. The conspirators used their control over the hijacked shell companies to issue fraudulent press releases and filings designed to fraudulently inflate and "pump up" the price of the hijacked companies' stock. The defendants then sold or "dumped" their stock at the fraudulently inflated prices.

Evidence at trial revealed that Rossini plotted with father-and-son co-defendants BABAJAN KHOSHABE, of Chicago, and ANTHONY KHOSHABE, of Skokie, to fraudulently induce more than a dozen victims into purchasing purported mortgage notes on apartment buildings in or near foreclosure.  The defendants fraudulently promised that investors would receive title to the properties at the conclusion of the foreclosure process.  In reality, the defendants did not own the mortgage notes, and instead the victims' funds were misappropriated and used to make Ponzi-type payments to some of the investors. 

The victims provided a total of more than $7 million in investment money to the defendants, and Rossini fraudulently pocketed more than $2.5 million of it.

A separate federal jury in 2019 convicted the Khoshabes for their roles in the scheme.  They are awaiting sentencing.

A fourth defendant, Chicago attorney THOMAS MURPHY, claimed to validate the sale of the mortgage notes through a phony "Guaranty Agreement" that he prepared and gave to Rossini to present to the victims.  Murphy pleaded guilty and admitted his role in the scheme.  He is awaiting sentencing.

interested parties may comment on developments since 2015 when the proposing release was issued, including trends in accounting practices and the potential economic and other effects of the proposal in light of any such developments.

I support today's action to re-open comment on the Dodd-Frank Act rule regarding clawbacks of erroneously awarded incentive-based compensation. I believe we have an opportunity to strengthen the transparency and quality of corporate financial statements as well as the accountability of corporate executives to their investors.

In today's economy, corporate executives often are paid based on how the companies that they lead perform: things like revenue and profits of the overall business. Occasionally, however, the numbers the companies reported as the basis of that compensation aren't accurate. In these cases, companies may have to go back and revise or restate prior financial reporting. As a result, an executive may have been paid for meeting certain milestones that the company didn't, in fact, hit.

Over the last couple of decades, Congress has decided that executives should pay back that incentive-based compensation. Congress first mandated these clawbacks under the Sarbanes-Oxley Act of 2002, requiring chief executives and chief financial officers to return incentive-based pay in cases of misconduct from the previous 12 months.

Following the 2008 financial crisis, Congress broadened those requirements. Among many reforms in the Dodd-Frank Act, Congress determined that, if a company has to revise its financial statements, executives should have to give back compensation paid in the three years leading up to the restatement that was based on the misstated financials - regardless of whether the misstatement was due to fraud, errors, or any other factor.

• Securities Industry Commentator
• Bill Singer