The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

May 20, 2020



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, SunTrust Investment Services, Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that SunTrust is a bank-affiliated introducing broker-dealer that has been a FINRA member firm since 1986, and employs over 1,400 registered representatives at 1,800 branches. 
That's an interesting assertion if you think about it: You got more reps than branches? So what's the status with those 400  branches lacking reps?   
In accordance with the terms of the AWC, FINRA imposed upon Suntrust a Censure, $50,000 fine, $584,466.13 in  restitution. The AWC asserts that SunTrust's voluntary cessation in September 2016 of NT-ETF sales and the firm's voluntary payment of $445,836.27 in restitution to 30 customers was considered when determining sanctions. As set forth in part in the "Overview" section of the AWC:

From January 2015 until January 2018 (the "Relevant Period"), SunTrust failed to establish, maintain and enforce a supervisory system, including written supervisory procedures ("WSPs") that were reasonably designed to ensure compliance with FINRA Rule 2111 in relation to solicited sales of non-traditional exchange traded funds ("NTETFs") by its registered representatives. These supervisory failures resulted in losses during the Relevant Period of $584,466.13 in 95 SunTrust customer accounts, which SunTrust has already voluntarily fully paid in restitution to these customers. As a result, SunTrust violated FINRA Rules 3110(a), 3110(b) and 2010. 

Bill Singer's Comment: Yet again, FINRA makes this dubious assertion in the SunTrust AWC:

RELEVANT DISCIPLINARY HISTORY

Respondent does not have any relevant disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization.

Here we go again, a Large FINRA Member Firm with NO "relevant disciplinary history," 

See: FINRA Says Impeccable Merrill Lynch Has No Relevant Disciplinary History (BrokeAndBroker.com Blog / May 19, 2020)
http://www.brokeandbroker.com/5220/finra-relevant-disciplinary-history/

According to FINRA's online BrokerCheck files as of May 20, 2020, SunTrust Investment Services, Inc. has 11 "Final" regulatory events dating back to 2005 and running up to 2017, excluding the 2020 AWC at issue today. Amazing how FINRA can't wait to issue a press release but, gee, once the publicity has made its way into print, none of the bad acts ever seem to amount to a prior "relevant disciplinary history." What a dubious bit of exalting form over substance. Makes you wonder if, at its heart, FINRA is more about publicity than regulation. 


Consider just a brief selection of FINRA headlines about its regulatory actions against SunTrust -- oh and, hey, just for fun, let's toss in an SEC headline while we're at it. Keep in mind that not a single one of the four matters below was deemed a prior "relevant disciplinary history" in the Suntrust FINRA AWC:

https://www.finra.org/media-center/news-releases/2008/finra-fines-suntrust-investment-services-700000-fee-based-account-and

https://www.finra.org/media-center/news-releases/2010/finra-orders-suntrust-investment-services-pay-144-million-unsuitable

https://www.finra.org/media-center/news-releases/2011/finra-fines-suntrust-robinson-humphrey-suntrust-investment-services

SunTrust Charged With Improperly Recommending Higher-Fee Mutual Funds (SEC Release / September 14, 2017)
https://www.sec.gov/news/press-release/2017-165
https://www.sec.gov/news/press-release/2017-165

http://www.brokeandbroker.com/5223/finra-arbitration-suspicious/
The customer never asked the stockbroker to sell anything. The stockbroker never had the right to exercise discretion. The customer was market savvy. As best we can tell, everything was okay until it wasn't. Five years go by and, whammo, the customer complains not about what was bought but about what wasn't sold. Sure as hell took a long time for that grievance to bubble up.

https://www.usatoday.com/story/news/nation/2020/05/19/florida-covid-19-coronavirus-data-researcher-out-state-reopens/5218897002/
Nothing worse than a government that feels it's okay to lie to you for your own good.
Shame on Governor De Santis for lacking faith in the intelligence of his constituents. The "Sunshine State"? Not anyore, Florida is now the "Mushroom State" where they keep you in the dark and feed you shit. Always remember that the truth exists but lies are invented.

https://www.justice.gov/usao-mdfl/pr/leesburg-woman-sentenced-48-months-prison-aggravated-identity-theft-and-wire-fraud
I'm sorry but 48 months isn't nearly enough time for this piece of crap. 49-year-old Stacey Lavette pled guilty in the United States District Court for the Middle District of Florida to aggravated identity theft and wire fraud, and she was sentenced to 48 months in prison. As set forth in the DOJ Release:

[H]endricks worked administrative jobs at several Florida medical clinics. She used these jobs to gain access to medical records and patients' birthdates and Social Security numbers. She then sold the stolen identities to others for cash, or used them herself to defraud businesses. In May 2019, Hendricks unwittingly sold stolen patient identities to an undercover law enforcement officer. When agents searched her home and car, they located 113 distinct sets of stolen identities from clinic patients.

https://www.bloomberg.com/news/articles/2020-05-19/volatility-traders-abandon-vix-bets-as-stock-conviction-vanishes?srnd=premium
Yet another example of why Bloomberg seems to leave its competition behind. A solid bit of reporting about a trade that would seem to be all the rage -- but it isn't. As Peterseil reports in part:

Amid a busy March betting on the direction of volatility, trading in exchange-traded products has turned downright sleepy. Last week, around $3.4 billion worth of shares changed hands, down from a peak of $54.7 billion in a single week in March, according to data compiled by Bloomberg Intelligence. To put that in a wider perspective, trading in January never fell below $4.9 billion shares a week.

https://www.bloomberg.com/news/articles/2020-05-19/extreme-behavior-is-on-display-everywhere-in-the-stock-market?srnd=premium
Notwithstanding that Bloomberg has reported about the vanishing of the perception of volatility, Ponczek notes in part that:

Tiny investors are historically bullish. Last week, the smallest of options traders (those who trade 10 contracts or fewer at a time) positioned themselves to bet on a rally, buying bullish calls and selling bearish puts at a record pace, according to Sundial Capital Research.

"When we look at a group of traders who tend to be wrong at emotional extremes, the warning sign is clear," said Jason Goepfert, the president of Sundial. "There is no data we follow that is more worrying than this."

https://techcrunch.com/2020/05/19/walmart-says-it-will-discontinue-jet-com-which-it-acquired-for-3b-in-2016/
Oh my -- and as I recall this was all the rage when first announced. Pundits saw this as a brilliant bolt-on acquisition that would help accelerate Walmart's online presence and would serve to mount a serious challenge to Amazon. Hey -- that's how the $3 billion cookie crumbles, right? Sometimes it's product. Sometimes it's execution. Sometimes both. As Techcrunch's Lunden notes in part:

So much for Walmart's big and expensive effort to take on Amazon with a digitally-native brand. Amid the coronavirus crisis and its impact on the retail industry, today the retail giant quietly announced in its quarterly report that it would be discontinuing Jet.com, the online-only marketplace that it acquired when it was just over one year old for $3 billion (plus $300 million in earn-outs over time), as it struggles to bring its e-commerce operations into that black after reportedly seeing a loss of $2 billion in the division in 2019 and shifting how to deliver its e-commerce strategy: by betting on giant stores, rather than online warehouses, as the hubs of its online delivery model.

Coronavirus hammers U.S. homebuilding; permits tumble (Reuters by Lucia Mutikani)
https://www.reuters.com/article/us-usa-economy/coronavirus-hammers-u-s-homebuilding-permits-tumble-idUSKBN22V21J
As reported in part by Reuters' Mutikani:

Housing starts tumbled 30.2% to a seasonally adjusted annual rate of 891,000 units last month, the lowest level since early 2015. The percentage decline was the biggest since the government started tracking the series in 1959. Starts dropped 18.6% in March. Economists polled by Reuters had forecast housing starts would fall to a pace of 927,000 units in April.

To Reopen, Restaurants Are Doubling Down on Becoming Grocery Stores / In New York, Chicago, and California, the restaurant-as-market model looks to keep going, even after the coronavirus pandemic subsides. (Bloomberg by Kate Krader)
https://www.bloomberg.com/news/articles/2020-05-20/how-will-restaurants-reopen-after-coronavirus-as-grocery-stores?srnd=premium
Human beings have an amazing ability to adapt and adopt -- and to do whatever it takes to merely survive. In an example of how the restaurant history is trying to find a way back, Bloomberg's Krader reports in part that:

"More than the idea that we're going to revolutionize the menu, we're trying to rebuild our business and see what it can look like," says Lennard.  She and Smillie are enhancing the meat section, for instance, adding what they call "a concierge butcher" for specific cuts, as well as options such as porchetta, shoulder roll roast, and fresh sausages.

The deli display and shelves take up about one-fifth of the restaurant space; prior to the pandemic, these accounted for only 10% to 15% of sales, says Lennard. Market sales now make up 50% to 60% of business at the restaurant, which reopened a week ago. "And then, if it settles at 25 to 30% of our business, that will be amazing," she says.

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