Securities Industry Commentator by Bill Singer Esq

July 22, 2019
Why is it that it always seems like the individual rep and small firm never get a fair break with FINRA? As publisher Bill Singer, Esq. often argues, the so-called self regulation of Wall Street is rigged against the industry's small fry. Time and time again, when FINRA can and should show some leniency towards smaller firms or associated persons, the self-regulator never quite issues the credit. In contrast, FINRA can barely get out of its way when it comes to justifying why it hasn't shut down a too-big-to-fail firm that nearly destroyed our economy. And don't be dazzled by the large fines imposed upon Wall Street's big fish. Those bucks come out of the pockets of shareholders and not the whales in the C-Suites who caused the mess. In the end, it all reeks of insincerity. FINRA loves its daily small-fish-fry. The regulator just can't figure out what to do with blubber.

Former CEO of Publicly Traded Manufacturer Charged with Fraud for Allegedly Misrepresenting Company's Financial Condition (DOJ Release)
- and -, Gary S. Winemaster was charged with one count of securities fraud, ten counts of wire fraud, two counts of making false statements to an auditor, and one count of failing to certify financial reports; Craig M. Davis and James F. Needham were each charged with one count of securities fraud and ten counts of wire fraud. As set forth in part in the DOJ Release, the Defendants:

schemed to defraud shareholders and other investors in connection with the company's common stock, which was listed on the Nasdaq Stock Market.  The defendants concealed material information about special terms of sales to customers, causing the company's accounting department to recognize inflated revenue figures for those transactions, the indictment states.  Winemaster and Davis also authorized shipments of products to customers who had not agreed to accept delivery, the indictment states.  The shipments falsely supported the accounting department's treatment of the transactions as final sales, thus fraudulently causing the company to book revenue from the deals, the charges allege. 

The defendants also arranged additional transactions by the company's customers that were meant to fraudulently support the company's accounting for earlier sales, the indictment states.

In a Complaint filed in the United States District Court for the Northern District of Illinois, the SEC charged former Power Solutions International Chief Executive Officer Gary Winemaster and former senior sales executives Craig Davis and James Needham with violating various antifraud, books and records, reporting, and internal controls provisions of the federal securities laws as well as with aiding and abetting violations. As set forth in part in the SEC Release:

[G]ary Winemaster, Power Solutions International Inc.'s former CEO, and two former senior sales executives, Craig Davis and James Needham, caused Power Solutions to fraudulently record revenue for purported sales of products that were not complete, that the customer had not agreed to accept, for which the price was falsely inflated, and from improper "bill and hold" arrangements. The SEC further alleges that the defendants misled and concealed key information from Power Solutions' internal accounting personnel and external auditor. 

SEC Obtains Final Judgments against Issuers and Promoters for Oil Well Offering Fraud (SEC Release)
In a Complaint filed in the United States District Court for the Central District of California, the SEC alleged alleges that from at least May 2014 until March 2016, defendant Kentucky-Tennessee 50 Wells/400 BBLPD Block, Limited Partnership (KT 50) fraudulently offered and sold unregistered securities to investors using a boiler room operation, raising approximately $2.4 million from 41 investors nationwide. Also, the Complaint alleges that Carol J. Wayland had founded and operated KT 50 and conducted the offering through HP Operations, LLC (HP) and C.A.R. Leasing, LLC (C.A.R.). In order to solicit investors, Wayland allegedly set up a boiler room and employed Mitchell B. Dow, Barry Liss, and Steve G. Blasko as promoters. The Defendants purportedly acted as unregistered brokers and sold securities to the public in unregistered transactions. Finally, Wayland, KT 50, HP, and C.A.R allegedly misappropriated investor money and made false promises to investors of high returns and concerning Wayland's purported extensive oil and gas investment management experience. In a parallel action, the U.S. Attorney's Office for the Central District of California brought criminal charges against Dow and Wayland; and, thereafter, Dow pled guilty to one count of wire fraud, and Wayland to one count of conspiracy. As set forth in part in the SEC Release, the Court entered 

final judgments entered against Wayland, KT 50, HP, and C.A.R. in the SEC's case permanently enjoin them from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and from violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. The final judgment entered against Wayland also permanently enjoins her from violating the broker-dealer registration provisions of Section 15(a) of the Exchange Act, and orders her to pay disgorgement and prejudgment interest of $528,722 and a civil penalty of $464,665. The final judgments entered against Dow, Liss, and Blasko permanently enjoin them from violating Sections 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act, and order them to pay disgorgement and prejudgment interest of $225,839, $182,911, and $67,658, respectively, and a civil penalty of $160,000 each. The final judgments resolve the SEC's action against the defendants.

FINRA Fines Former LPL Rep Involved in Private Securities Transaction and Outside Business Activity. In the Matter of Eric Savell, Respondent (FINRA AWC 2018060898601)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Eric Savell submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon Eric Savell a $10,000 fine and a five-month suspension in all capacities for violations for FINRA Rules 3270, 3280, and 2010. The AWC asserts that Savell was first associated with a FINRA member firm in 2000 and from January 2016 until August 2017, with LPL Financial LLC. As set forth in part in the "Overview" section of the AWC:

In July 2016, Savell told a customer about a startup called Company X, informed the customer that he had provided advice to the company and knew its Chief Executive Officer ("CEO"), and arranged a meeting between the customer and Company X's CEO for the purpose of facilitating a potential investment. Shortly thereafter, the customer invested over $160,000 in Company X pursuant to a stock purchase agreement. Subsequently, from August 2016 until at least March 2017, Savell performed work for Company X in increasingly important roles and was paid $10,000 per month. Savell did not provide notice to LPL of his participation in the customer's investment or of his work for, and compensation from, Company X Savell therefore participated in a private securities transaction in violation of FINRA Rule 3280 and engaged in an outside business activity in violation of FINRA Rule 3270. By virtue of those violations, he also violated FINRA Rule 2010.  

2019 FINRA Contested Elections for Both Small and Large Firm Board of Governor Seats

On August 19, 2019, the Financial Industry Regulatory Authority ("FINRA") will conduct its annual meeting, at which time the self-regulatory organization will elect one small firm Governor (up to 150 registered representatives) and one large firm Governor (500 or more registered representatives) for a three-year term.  Pursuant to FINRA's rules, member firms may only vote for a nominee from their respective sized firm. A proxy was mailed to each eligible firm's Executive Representative. Proxies may be submitted by "any lawful means," which include telephone, mail, or Internet.  In order to ensure that the voice of FINRA's small firm community is heard, it is critical that you ensure that your firm's proxy is timely submitted by your Executive Representative. "Notice of Annual Meeting of FINRA Firms and Proxy" (Election Notice, July 19, 2019).

The list of candidates who were either nominated by the Nominating Committee or via Petition, and were certified by FINRA's Corporate Secretary for the 2019 Election are as follows:

FINRA Nominating Committee Nominee

Andrew S. Duff, Board of Directors, Piper Jaffray & Co.

Nominee by Petition

Chris W. Flint, President & Chief Executive Officer, ProEquities, Inc.

Small Firm Governor Candidates

FINRA Nominating Committee Nominee

Robert A. Muh, Chief Executive Officer, Sutter Securities

Nominee by Petition

Linde Murphy, Chief Compliance Officer, M.E. Allison & Co., Inc.

The 2019 FINRA Board of Governors election is upon us. As one of the founders of the NASD Dissident/Reform Movement (now the FINRA Dissident/Reform Movement), and as a member of the 1998 slate of the first four petition candidates to successfully challenge the self-regulatory-organization's process of anointing its industry Board members, I am a fervent proponent of robust, contested elections as a means of democratizing FINRA's Board, which I view as a gerrymandered body designed to entrench the power of the regulator's Large Member Firms and industry special interests. That rigged construct rebuffs meaningful Wall Street reform, artificially constrains the Small Firm Members' influence, and denies proportionate representation for the industry's associated persons and public customers. 

Robert A. Muh is a candidate for the 2019 FINRA Small Firm Governor seat. I have tremendous respect and admiration for Bob's intelligence and independence, which prompted my support for his successful 2016 election. Bob is committed to advancing the legitimate needs of smaller firms and has always stood up to speak out for industry reform.  

Linde Murphy is a Petition candidate for the 2019 FINRA Small Firm Governor seat. Linde is a sincere advocate for industry reform and a refreshing voice on behalf of the beleaguered small firms. I look forward to working with Linde on matters of common interest and will eagerly support her future efforts to win election to the FINRA Board.

Below find the candidates' profiles as posted in the 2019 FINRA Election Notice:


Board of Directors, Piper Jaffray & Co. 

Andrew S. Duff is the former chairman and chief executive officer of Piper Jaffray Companies, having served as chief executive officer from 2000 through 2017. He currently serves on the Board of Directors of Piper Jaffray & Co., the primary broker-dealer subsidiary for Piper Jaffray Companies. Mr. Duff joined Piper Jaffray in 1980 in the institutional fixed income sales group. He was later promoted to manager of institutional sales and trading in 1994, and then served as president of the individual investor services and capital markets areas until 1996. During the time period that Piper Jaffray was owned by U.S. Bancorp (1996 through 2003), Mr. Duff served as president of Piper Jaffray and vice chair of U.S. Bancorp for the wealth management group. 

Mr. Duff holds a bachelor's degree in economics from Tufts University in Medford, Mass., and attended the Advanced Executive Program at the Kellogg School of Management at Northwestern University. 

In 2017, Mr. Duff was named among the Most Admired CEOs by the Minneapolis-St. Paul Business Journal. He was inducted into the Minnesota Business Hall of Fame in 2018. 

Mr. Duff currently serves on the Board of Governors of the Financial Industry Regulatory Authority (FINRA), the University of St. Thomas board of trustees and the University of St. Thomas Opus College of Business strategic board of governors. He is a longstanding member of the Walker Art Center board of trustees, and an advisor to the board of directors of Great Clips, Inc.

President & Chief Executive Officer, ProEquities, Inc. 

Chris Flint has over 23 years in the financial services industry, where he has served as a sales, technology, compliance, operations, and distribution leader. Currently, Mr. Flint is President and CEO of ProEquities, Inc. and Senior Vice President, Distribution Companies for Protective Life Insurance Company. Prior to joining Protective Life and ProEquities in 2015, he served as the President of Lincoln Financial Securities and Senior Vice President at Lincoln Financial Group. Before his tenure there, Mr. Flint was a Senior Vice President at Securities America. He is also a member of the Financial Services Institute (FSI) Board of Directors and previously served on FSI's Marketing, Growth & Development Council. 

Mr. Flint obtained his M.B.A. and M.S. from Creighton University and his B.S. from The University of Alabama at Birmingham, where he was a scholarship athlete. He is a former member of the adjunct faculty at the University of Nebraska at Omaha and attended the University of Pennsylvania Wharton School of Business Executive Leadership Program. He holds his Series 4, 7, 24, 53, 63, and 66, as well as his CRPC designation. 

 Mr. Flint supports multiple charitable organizations, including Ronald McDonald House, Heart Gallery of Alabama, and several international charities through a community coalition that partners with ProEquities. 


Chief Executive Officer, Sutter Securities 

Mr. Muh has over four decades of experience in the financial services industry. He is presently Chief Executive Officer of Sutter Securities, a 12-person broker-dealer he cofounded in San Francisco in 1992. Sutter Securities is a full-service broker-dealer. Mr. Muh was also the firm's Chief Compliance Officer until 2015, when increased regulatory burdens required Sutter to hire a full-time compliance officer. After serving as an officer in the U.S. Army, Mr. Muh began his business career at the consulting firm of McKinsey & Company. He left McKinsey to become a major owner and President of Newburger, Loeb & Co., a NYSE member firm. Prior to founding Sutter Securities, he was a partner at Bear Stearns in both Los Angeles and San Francisco. 

Mr. Muh has also been actively involved in security industry affairs throughout his career. He has served as Chair of FINRA's Small Firm Advisory Committee and Chair of the District 1 Committee. He was a member of the National Arbitration and Mediation Committee and on FINRA's Membership Application Task Force. In 2016, he was elected to a three-year term on the FINRA Board of Governors. Mr. Muh has been a frequent speaker at FINRA's Small Firm Conferences and FINRA's Annual Conference. He has written numerous comment letters to both FINRA and the SEC regarding new rule proposals. 

In addition, he has served on more than 20 corporate and non-profit boards. He was a Trustee of the Massachusetts Institute of Technology for more than 20 years and he is currently a Life Trustee Emeritus. He is also a Trustee and Vice Chair of the Culinary Institute of America. Mr. Muh is a graduate of MIT and he holds both an MBA and a M. Phil. from Columbia University, where he was an Adjunct Assistant Professor at the Business School. Mr. Muh is currently an Adjunct Professor at the University of San Francisco Law School and an advisor to the Law School's Investor Justice Project.

Chief Compliance Officer, M.E. Allison & Co., Inc. 

Linde Murphy is the Chief Compliance Officer for M.E. Allison & Co., Inc., a full-service broker-dealer and Texas Registered Investment Adviser. Founded in 1946, the firm also provides municipalities with advisory and underwriting services. In Ms. Murphy's role, she implements and tests M.E. Allison's compliance control, supervisory functions and WSPs, audit, 1017/CMA acquisitions, disclosure and training solutions, and more for the BD/IA and associated persons. 

Since beginning her investment career in 1999, Ms. Murphy has worked for small firms for the majority of her career. She has sales, compliance, business development, strategy and operational executive-level expertise. In addition to the Series 4, 7, 24, 27, 50, 53, 63, 65 licensing, Ms. Murphy graduated from the FINRA Institute at Wharton, resulting in her earning the CRCP designation, thanks to having been awarded the FINRA Small Firm Scholarship. Ms. Murphy graduated with honors from American University in Washington, D.C. 

Ms. Murphy is currently serving a three-year term on the FINRA Small Firm Advisory Committee and is the 2019 elected Chair. In 2016, Ms. Murphy was elected to a three-year term on the FINRA District 6 Committee, has served with distinction on the FINRA Fixed Income Committee and the FINRA Regulatory Advisory Committee. Ms. Murphy has been an active participant in the industry-led effort to obtain small non-custodial firm relief from the PCAOB audit requirements, is a highly sought-after public speaker and regularly speaks at FINRA conferences, district events, and industry association events. 

Identifying a need for networking and sharing of knowledge, Ms. Murphy formed a Round Table Group for clearing firm correspondents to address common concerns and share best practices. She serves on the board of Texas Women in Public Finance, is a member of the San Antonio Chamber of Commerce where she was selected for Executive Leadership for the Leadership San Antonio program, is a founding member of the soon-to-be-launched National Association of Small Broker-Dealers, and is active in industry groups, including the Texas Wall Street Women. Ms. Murphy has been recognized by past employer as a Hard Charger for exceeding goals. Ms. Murphy has extensive board experience, including KLRN (the San Antonio affiliate of Public Broadcasting Service), San Antonio Botanical Garden, and Texas Women in Public Finance. Ms. Murphy works on committees for local nonprofits including Las Casas Foundation supporting youth in theater arts, ArtPace, events benefiting Make A Wish and education causes.