Securities Industry Commentator by Bill Singer Esq

[B]lumberg admitted that clients placed orders to buy or sell securities with G-Trade Services LLC and ConvergEx Limited, subsidiaries of ConvergEx Group that offered global trading services to clients, which in turn routed orders to CGM Limited.  Blumberg also admitted that traders at CGM Limited executed the orders and sometimes added a "spread," (a mark-down on the sale of a security or a mark-up on the purchase of a security) to the prices they had obtained for non-fiduciary clients.  To hide the fact that spread had been taken, on several occasions from 2007 to 2011, Blumberg and traders acting under his direction, acting in response to requests by clients for information that could reveal the existence of spread, sent false reports (known as time and sales reports) to these clients.  The false time and sales reports contained fabricated details regarding the individual transactions, or "fills," executed during the course of a day to complete a client's orders, including false information concerning the number of shares involved in a fill, the time at which the fill was executed, and the price at which shares were either purchased or sold.

Blumberg also admitted that he and his co-conspirators agreed to violate a client's instructions to provide real-time transactional data through an immediate data feed with details of trades that CGM Limited executed for the client by providing "batch fills" that hid the actual information the client sought. 

Blumberg is the fourth individual to plead guilty as a result of the investigation into ConvergEx Group and CGM Limited's practices.  On Dec. 18, 2013, CGM Limited pleaded guilty to conspiracy to commit securities and wire fraud before Judge Linares.  On the same day, ConvergEx Group entered into a deferred prosecution agreement.  Collectively, the two ConvergEx entities paid $43.8 million in criminal penalties and restitution.

In today's Washington, many financial regulators are steering full-tilt toward deregulation, tearing down rules put in place after the 2008 financial crisis, and leaving the public at greater risk of abuse. The SEC proposal, too, would leave investors at continuing risk. SEC Chairman Jay Clayton himself said the goal of the rule is "to bring the standard of conduct in line with what an investor would expect." Investors would expect that their broker is obliged to act in their best interests, full stop. But that's not what the SEC has proposed. It needs to do a lot better. 

Comment from Bill Singer: Now that's what effective, pre-emptive securities-industry regulation should look like! Note that TSSB has moved on concerns involving alleged misconduct transpiring in 2018, and has done so in an aggressive and effective manner. Far too often, what we see coming out of such Wall Street regulators as the SEC and FINRA is belated, after-the-fact, after-the-harm regulation. In fairness to both the SEC and FINRA, under SEC Chair Clayton and FINRA CEO Cook, the battleships seem to be slowly turning to more pre-emptive efforts with some altered protocols favoring enhanced regulation on behalf of those most vulnerable and most devastated by financial fraud. Unfortunately, given the long histories of often desultory regulation, both the SEC and FINRA have a long way to go before they reach the level of TSSB. I  have long complimented the unique and effective regulatory efforts of TSSB and will continue to do so. Absolutely fabulous work!

Until last summer, FINRA had two distinct enforcement teams. One enforcement group that was historically part of the Department of Market Regulation handled disciplinary actions related to trading-based matters found through Market Regulation's surveillance and examination programs; and a separate enforcement group handled cases referred from other regulatory oversight divisions including Member Regulation, Corporate Financing, the Office of Fraud Detection and Market Intelligence, and Advertising Regulation. As part of FINRA360, stakeholders raised concerns that these dual programs sometimes resulted in duplication of effort and inconsistency of results. As a result, in July 2017, FINRA announced its plan to consolidate its existing enforcement functions into a unified Department of Enforcement. On July 26, 2018, FINRA announced that it had completed the final phase of this consolidation.The unified structure is intended to improve FINRA's ability to streamline investigations, share information, enhance consistency and maximize resources to protect investors and the markets.  

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• Securities Industry Commentator
• Bill Singer Esq