Securities Industry Commentator by Bill Singer Esq

Pandemic Travel Patterns Hint at Our Urban Future / A snapshot of global transportation data during six months of coronavirus reveals diverging paths for cities. (Bloomberg by Laura Bliss, Jeremy C.F. Lin and Marie Patino)

Deutsche Bank to Pay Over $10 Million to Settle Two CFTC Cases (CFTC Release)

New York Stock Exchange LLC, et al., Petitioners, v. Securities and Exchange Commission, Respondent (Opinion,United States Court of Appeals for the District of Columbia Circuit)

Young trader dies by suicide after thinking he racked up big losses on Robinhood (CNBC by Yasmin Khorram and Kate Rooney)

[In]Securities Guest Blog: Gambling Man by Aegis Frumento Esq (BrokeAndBroker.com Blog)

Exclusive: Massive spying on users of Google's Chrome shows new security weakness (Reuters by Joseph Menn)

Apple's App Store is under fire as app makers complain about unfair practices and the EU opens a probe (CNBC by Kif Leswing)

New York City housing market grinds to standstill during coronavirus lockdown / Brokers may not be able to show properties in person until July (Fox Business by Jonathan Garber)

Richest 25% of Americans Cut Spending the Most During Pandemic (Bloomberg by Olivia Rockeman)

SEC Charges Boston Resident with Defrauding Investors in International Real Estate Investment Scheme (SEC Release)

SEC Charges Microcap Fraud Scheme Participants Attempting to Capitalize On the Covid-19 Pandemic (SEC Release)

The consent order imposes a $9 million civil monetary penalty on Deutsche Bank. According to the consent order, the parties acknowledge that the penalty represents a substantial reduction based on Deutsche Bank's cooperation with CFTC staff, which included consenting to a court-appointed monitor upon the filing of the action.

The consent order also requires Deutsche Bank to comply with the prior CFTC order and prohibits Deutsche Bank from committing future violations of the sections of the Commodity Exchange Act and Commission regulations that Deutsche Bank was found to have violated.

The consent order stems from a complaint filed in August 2016, after an unprecedented swap reporting platform outage at Deutsche Bank that began on April 16, 2016. For the next five days, Deutsche Bank was unable to report any swap data for multiple asset classes. [See CFTC Press Release No. 7430-16]  According to the consent order, Deutsche Bank's efforts to end the system outage exacerbated existing reporting problems and led to the creation of new reporting problems, many of which violated the 2015 order.

. . .

The CFTC also issued an administrative order filing and settling charges against DBSI for engaging in numerous instances of spoofing in the Treasury futures and Eurodollar futures contracts on the CME. The order finds that the defendant engaged in this activity through two traders and requires DBSI, among other things, to pay a civil monetary penalty of $1,250,000.

. . .

The order finds that from at least January 2013 through at least December 2013, DBSI, by and through the acts of two Tokyo-based traders, engaged in spoofing. The order further states that on multiple occasions during this period, one of the DBSI traders spoofed in the Treasury futures market while the other spoofed in both the Treasury and Eurodollar futures markets. The order also recognizes Deutsche Bank's cooperation in the investigation in the form of a reduced civil monetary penalty.

On December 19, 2018, purportedly acting pursuant to its authority under the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78a et seq., the Securities and Exchange Commission ("Commission" or "SEC") adopted a Pilot Program, denominated Rule 610T, reprinted in Joint Appendix ("J.A.") J.A. 20-124. The Pilot Program was not a trial run of a new regulation. Rather, it was designed "to gather data" so that the Commission might be able to determine in the future whether regulatory action was necessary. Id. at 21. In February 2019, the New York Stock Exchange LLC and other registered national securities exchanges ("Petitioners") filed timely petitions for review challenging Rule 610T. 

An outline of Rule 610T is as follows: 

The Commission's plan is to assign 1,460 randomly selected stocks to one of two "Test Groups." Half of those stocks will be subject to a $0.0010 cap on the transaction fees that national securities exchanges can charge for executing trades-a substantial reduction of the current $0.0030 cap established by the Commission in 2005. Stocks assigned to the other Test Group will be subject to a prohibition on exchanges' payment of rebates to broker-dealers who send orders to the exchange for execution. All other publicly traded stocks will be assigned to a "Control Group" and will not be subject to either of these restrictions. And even with respect to the 1,460 stocks in the two Test Groups, the Rule's restrictions on fees and rebates will not apply evenhandedly: The Rule will apply to transactions in those stocks executed on national securities exchanges, but not to transactions on alternative trading systems ("ATSs") or other off-exchange trading venues, which together account for nearly 40% of securities transactions. 

Br. for Petitioners at 1-2. 

Petitioners contend that "[t]he Rule exceeds the Commission's statutory authority under the Exchange Act, which does not authorize the Commission to change the regulatory standards applicable to transactions in publicly traded securities simply to determine the impact of those new standards on the securities market." Id. at 20. Petitioners also point out that "the Commission conceded that the Rule might 'harm execution quality and/or market quality,' increase transaction costs for investors, and impair competition." Id. at 21 (quoting J.A. 84). Petitioners additionally argue that Rule 610T cannot survive review because: (1) the Commission failed to determine the Rule's effects on efficiency, competition, and capital formation; (2) the Rule discriminates against some securities exchanges; and (3) the Commission failed to meaningfully consider alternatives to the Rule. 

The Commission, in turn, contends that, although the Pilot Program is not expressly authorized by the Exchange Act, it is within the Commission's general rulemaking authority under 15 U.S.C. §§ 78w(a), 78k-1(a)(2). The Commission also claims that it was not required to adopt a "permanent" rule, nor prohibited from collecting data through experimentation. Finally, the Commission argues that its adoption of Rule 610T was reasonable because it considered and explained the economic consequences of the Pilot Program, as well as its possible effects on efficiency, competition, and capital formation, and considered alternatives proposed by Petitioners. 

Because the SEC acted without delegated authority from Congress when it adopted Rule 610T, we will grant the petitions for review. The Pilot Program emanates from an aimless "one-off" regulation, i.e., a rule that imposes significant, costly, and disparate regulatory requirements on affected parties merely to allow the Commission to collect data to determine whether there might be a problem worthy of regulation. Before acting, the Commission "identified a fundamental disagreement among exchanges, market  participants, academics, and industry experts regarding the impact of [maker-taker] fees and rebates on the markets." J.A. 56. However, the Commission took no position in these debates; and it did not identify any problems with existing regulatory requirements or propose rules that might rectify any perceived issues. Rather, according to the Commission, the purpose of Rule 610T was to induce "an exogenous shock" to the market that might offer insights into "the effects of fees and rebates on the markets and market participant behavior." J.A. 44. In other words, the Commission acted solely to "shock the market" to collect data so that it might ponder the "fundamental disagreements" between parties affected by Commission rules and then consider whether to regulate in the future. This was an unprecedented action that clearly exceeded the SEC's authority under the Exchange Act. See 15 U.S.C. § 78w(a)(2); id. § 78k-1(a)(2). 

The Commission points to no authority that expressly authorizes it to adopt a "one-off" rule of this sort. Rather, the Commission argues that because it has rulemaking authority under the Exchange Act, the Pilot Program is permissible because "it is reasonably related to the purposes of the [SEC's] enabling legislation." Br. for Respondent at 24 (quoting Mourning v. Family Publ'ns Serv., Inc., 411 U.S. 356, 369 (1973)). This is a shortsighted view of the applicable law. Mourning (the case cited by the Commission) was decided decades ago, before the Supreme Court issued Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), changing the framework for judicial review of agency action. And Mourning has been effectively diluted by later cases. See, e.g., Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81, 92 (2002). 

The controlling principle here is that "[a]n agency's general rulemaking authority does not mean that the specific rule the agency promulgates is a valid exercise of that authority." Colo. River Indian Tribes v. Nat'l Indian Gaming Comm'n, 466 F.3d 134, 139 (D.C. Cir. 2006). When an agency acts pursuant to its rulemaking authority, a reviewing court determines whether the resulting regulation exceeds the agency's statutory authority or is arbitrary and capricious. Sullivan v. Zebley, 493 U.S. 521, 528 (1990). A court does not simply assume that a rule is permissible because it was purportedly adopted pursuant to an agency's rulemaking authority. See Michigan v. EPA, 135 S. Ct. 2699, 2706-07 (2015). Nor does a court presume that an agency's promulgation of a rule "is permissible because Congress did not expressly foreclose the possibility." Motion Picture Ass'n of Am. v. FCC, 309 F.3d 796, 805 (D.C. Cir. 2002). 

Nothing in the Commission's rulemaking authority authorizes it to promulgate a "one-off" regulation like Rule 610T merely to secure information that might indicate to the SEC whether there is a problem worthy of regulation. "Regardless of how serious the problem an administrative agency seeks to address . . . it may not exercise its authority 'in a manner that is inconsistent with the administrative structure that Congress enacted into law.'" Ragsdale, 535 U.S. at 91 (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 125 (2000)). The Commission acted without delegated authority when it adopted the Pilot Program. Accordingly, we grant the petition for review, vacate the Rule, and remand the case.

Robinhood is required by its regulator, FINRA, to approve each individual client that wants to trade options. The same is required of any regulated brokerage firm. In the case of Robinhood, traders fill out a questionnaire on the app that certifies investing experience and level of sophistication of the trader, as well as an acknowledgement of the risk. Robinhood does not support uncovered option selling.

Brewster said Alex may have misinterpreted the state of his Robinhood account. CNBC has not seen details of Kearn's trading account and could not independently confirm the extent of the losses.

A newly discovered spyware effort attacked users through 32 million downloads of extensions to Google's market-leading Chrome web browser, researchers at Awake Security told Reuters, highlighting the tech industry's failure to protect browsers as they are used more for email, payroll and other sensitive functions.

At the same time, top app makers, including Match Group, which makes dating app Tinder, and Epic Games, maker of the popular game Fortnite, criticized Apple over longstanding App Store policies, including the company's 30% cut of digital purchases, and its proclivity to release software that competes with third-party apps. 

Scores of smaller developers also griped on social media about Apple's App Store rules, following loud complaints by David Hansson, CTO of Basecamp, a private enterprise software developer. Hansson said on Twitter that Apple rejected an update to Basecamp's new email app, Hey, because of an Apple requirement that certain apps must allow users to pay for subscription services through the app. If implemented, Apple would take 15% to 30% of the revenue from any user who signed up through the app.

The number of contracts signed for co-ops in Manhattan fell 80 percent from a year ago to 125 while condo deals dropped 83 percent to 99, according to a report from brokerage Douglas Elliman prepared by appraiser Miller Samuel. In Brooklyn, co-op signings plunged 76 percent to 24 and condo agreements sank 44 percent to 74.

More than half of the total reduction in credit card spending between January and early June came from households in the top quartile of the income distribution, while only 5% came from households in the bottom income quartile, the researchers found. The reason is twofold -- the rich account for a larger share of total spending to begin with, and high-income households reduced their spending by 17%, whereas low-income households reduced their spending by only 4%.

[S]ince at least 2015, Trikantzopoulos has posed as the scion of a wealthy Greek shipping family and claimed to be a highly successful money manager, responsible for overseeing $100 million or more of family assets through Navis, purportedly the investment arm of his family office. As alleged, Trikantzopoulos has used a charade of affluence, success, and financial sophistication to solicit investors for various international real estate ventures, pledging hefty profits and offering "secured" promises that, if the ventures did not go forward, investors' funds would be returned in full. In actuality, according to the complaint, Trikantzopoulos used investor money for ventures with no apparent success, his own businesses had no substantial assets or operations, and he has failed to refund investors as promised. In addition, the complaint alleges, Trikantzopoulos diverted tens of thousands of dollars for his own personal use and to pay rent and other expenses.

The Securities and Exchange Commission has filed an emergency action and obtained an asset freeze against five individuals and six offshore entities for an alleged fraudulent scheme that generated more than $25 million from illegal sales of multiple microcap companies' stock, including four that were the subject of recent SEC trading suspension orders: Sandy Steele Unlimited Inc., WOD Retail Solutions Inc., Bioscience Neutraceuticals, Inc., and Rivex Technology Corp.

The SEC's complaint alleges that, from at least January 2018 to the present, Canadian citizen Nelson Gomes, working with Canadian Michael Luckhoo-Bouche and others, enabled corporate control persons that were unknown to the public to conceal their identities while dumping their company's stock into the market for purchase by unsuspecting investors. The complaint alleges that these illegal stock sales were often boosted by promotional campaigns that, in some instances, included false and misleading information designed to fraudulently capitalize on the COVID-19 pandemic. For example, the alleged promotions included claims that Sandy Steele could produce medical quality facemasks and that WOD Retail had automated kiosks for retailers to use in response to the COVID-19 pandemic. The complaint also charges Canadians Shane Schmidt, Douglas Roe, and Kelly Warawa with fraudulently dumping shares of Sandy Steele.

• Securities Industry Commentator
• Bill Singer