Securities Industry Commentator by Bill Singer Esq

Discovery Misconduct by FINRA Enforcement Prompts Tepid Response from Regulator (BrokeAndBroker.com Blog)

SEC Brings Charges Against Clean Water Project Founder for Defrauding Investors (SEC Release)

Diversity Matters, Disclosure Works, and the SEC Can Do More: Remarks at the Council of Institutional Investors Fall 2020 Conference (Speech by SEC Commissioner Allison Herren Lee)

FINRA Arbitrator Recommends Expungement of Customer Complaint Prompted by Family Dispute

In the Matter of the Arbitration Between David Joseph Van Acker and Paul Joseph Van Acker, Claimants, v. UBS Financial Services Inc., Respondent (FINRA Arbitration Award)

FINRA Fines and Suspends Rep for Non-Disclosure of Litigation

In the Matter of Harry Rosenberg, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep Over 118 Unauthorized Transactions

In the Matter of Deborah Leah Beal, Respondent (FINRA AWC)

told investors that he was building an advanced, eco-friendly desalination plant that would provide clean, low-cost drinking water to Kenyans. According to the complaint, Sembritzky misled investors as to the viability of his desalination process, falsely assuring them that the technology had years of proven operational history. The complaint further alleges that Sembritzky also claimed they would reap outsized returns from sales of the lucrative minerals removed during the desalination process. Sembritsky, according to the complaint, raised approximately $7.2 million from at least 20 investors in the United States between August 2015 and March 2017, directing investors to send their funds to two entities he controlled - Bounty of the Ocean Inc. and Ocean Harvest LLC. The complaint alleges that only $650,000 of the $7.2 million raised made it to the project's bank account. According to the complaint, Sembritzky spent the rest of the money on such personal items as a $2 million condominium for his then-wife, luxury cars, jewelry, and credit card debt.

Today I want to talk you about a topic that has dominated my thoughts recently, and I'm sure many of yours as well: diversity and inclusion. I know that many of you have long advocated for greater diversity on corporate boards and elsewhere. Recent events have triggered an unprecedented national conversation on racial injustice that also highlights the urgency of ensuring diverse perspectives and representation at all levels of decision-making in our country. At the SEC, a number of recent rulemakings have also pushed this issue to forefront. Our recent adoption of amendments to Regulation S-K, for example, took a step forward by adding human capital as a broad topic for possible disclosure, but declined to require, among other things, disclosure of diversity data-even data that most companies are already required to keep under Equal Employment Opportunity Commission (EEOC) rules. Our pending proposal under Rule 14a-8 also has implications for promoting diversity and inclusion because it affects shareholder proposals which often cover this topic. The topic has also been prominent on the agenda of recent SEC advisory committee meetings, including last week's Asset Management Advisory Committee meeting during which participants urged the SEC to require diversity disclosure for public companies and registered entities. And I'm pleased to see that the topics of diversity and inequality are on your agenda for this conference as well.

In recent months, we've heard the topic of diversity and inclusion referred to as "timely." Although there is truth in that, I balk a bit at the description because it suggests that somehow its importance is new or trendy. Unfortunately, it is almost an evergreen topic. One my grandmother talked to my mother about, my mother to me, me to my daughters, and now them to theirs. And I know that Black, Indigenous, and other people of color understand this dynamic likely better than I. So, yes, the topic is timely in that it is currently capturing the nation's attention, but the issue has long been a problem, and so today I want to share my thoughts on the extent of that problem with respect to our capital markets. I would also very much like to hear from your membership on this issue, during today's Q&A or at any future point. Please consider my door-virtual though it is these days-always open to you.

The Underlying Litigation involved a family dispute between the Customer and his parents over control of a family foundation, created and controlled by the parents. The Customer filed a civil litigation case alleging, "Plaintiff alleges that [Claimants'] took direction from individuals allegedly lacking authority to give instructions on a family foundation account." 

The Customer was only a member of the foundation's officers for two years. During Claimants' entire time as brokers for the foundation account, they, at all times, only took instructions from authorized foundation officers. The UBS Corporate Resolutions form completed for the foundation named the Customer as president of the family foundation from June 13, 2014 to May 10, 2016, his parents were also named board members. All were authorized signers. The Customer was removed from the foundation by a new corporate resolution dated June 3, 2016, at all other times other family members were legally in control of the foundation. 

The family settled their differences in the Underlying Litigation, and as part of that settlement, the Customer withdrew his claims against Claimants and Respondent.

The Customer, in the settlement agreement, acknowledged that Claimants did nothing wrong. Respondent and Claimants did not contribute to the settlement in the Underlying Litigation. 

The claim, allegation, or information is factually impossible or clearly erroneous. Claimants were not involved in any questionable activity.

On April 23, 2015, an investor in a gold mining company, Investor A, who was not a customer of the firm, filed a complaint in New York State court against Respondent, the company, and other defendants, alleging, inter alia, that Respondent and the other defendants made fraudulent misstatements regarding Investor A's investments in the company. Respondent obtained notice of the complaint by June 2, 2015, the date on which the Respondent's legal counsel filed an Answer on the Respondent's behalf, jointly with the other defendants. Respondent did not amend his Form U4 to disclose the litigation in response to Question 14I(1), nor did he inform the firm that he had been sued.

During July 2016, Respondent falsely responded "no" to a question contained in the Firm's annual business questionnaire that asked, among other things, whether, Respondent had been the subject of any litigation during 2015 or 2016. 

During April 2018, Investor A entered into a settlement agreement that required the gold mining company to compensate Investor A. Respondent was not required to compensate Investor A and the litigation was dismissed. 

Respondent did not amend his Form U4 to disclose the litigation until FINRA inquired with the firm about it in April 2019. By virtue of the foregoing, Respondent violated FINRA Rules 1122 and 2010 and Article V, Section 2(c) of FINRA's By-Laws.

On May 13, 2019, Respondent transferred all funds held by 112 customers in bankdeposit sweep accounts to money-market mutual fund sweep accounts, because the money-market mutual fund sweep account provided a higher rate of return. To transfer these funds, Respondent effected 118 transactions totaling $704,379.80. Respondent executed these transactions without obtaining authorization from the customers. In addition, Respondent did not possess discretionary authority over the customers' accounts. On the same day she effected the transactions, Respondent informed the registered representative to whom she reported that she had done so, and he subsequently notified the firm. 

Respondent did not receive any compensation in connection with executing the transactions. The customers' accounts did not suffer any losses, and the customers did not incur any fees in connection with the transactions.

• Securities Industry Commentator
• Bill Singer