The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
October 26, 2020
Statement Regarding Tradenet Capital Markets Ltd by SEC Commissioner Hester M. Peirce
SEC Charges Day-Trading Education Firm for Unregistered Security-Based Swap Transactions (SEC Release)
https://www.sec.gov/news/press-release/2020-267
Without admitting or denying the findings in an SEC Order
https://www.sec.gov/litigation/admin/2020/33-10878.pdf, Tradenet Capital Markets Ltd. consented to a cease-and-desist order and agreed to pay a penalty of $130,000. As alleged in part in the SEC Release:
https://www.sec.gov/litigation/admin/2020/33-10878.pdf, Tradenet Capital Markets Ltd. consented to a cease-and-desist order and agreed to pay a penalty of $130,000. As alleged in part in the SEC Release:
[F]rom November 2017 to June 2020, Tradenet sold investors packages of materials that claimed to be for the purpose of educating investors about day trading but also paid investors a portion of net profits from simulated trades conducted in a funded trading account provided as part of the packages. As set forth in the order, Tradenet charged from $500 to $9,000 for the educational packages that included the simulated trading accounts. According to the order, investors whose portfolios increased in value received payouts equal to a percentage of the simulated net profits, but if the value of the portfolio decreased by a certain amount, the funded trading account was closed. The SEC's order finds that the contracts to provide funded trading accounts were security-based swaps under the U.S. federal securities laws. The SEC's order further finds that no registration statement had been filed for the swaps, and that the swaps were not sold through a national securities exchange.
https://www.sec.gov/news/public-statement/peirce-tradenet-statement-10232020
In response to the SEC's above action against Tradenet, Commissioner Peirce published this unusual statement:
I supported today's Commission action against Tradenet Capital Markets Ltd., though not without reservations. Tradenet provided its customers "Day Trader Education Packages" that included a simulated "funded account" in which they could "trade" securities. The participants received a portion of the upside, and their downside was capped as their accounts were closed if they fell below predetermined thresholds. Some purchasers of these packages appear to have voluntarily purchased successive packages, and participants appear to have transacted with Tradenet voluntarily and with clear information about the terms of the deal. While Tradenet's product offering had an educational component, it was primarily about the simulated "funded account," which could not have been offered to U.S. retail investors under our existing rules.I do believe that there is room in our regulatory framework for creative investor education programs that give investors the opportunity to simulate trading in various financial products and assembling an investment portfolio. Gamification of educational experiences can promote learning, and the use of awards or prizes-even cash prizes-can provide incentives to take the game seriously and thus increase the educational value of the experience. I do not view this order as closing the door to these types of educational experiences. Moreover, firms, schools, and entrepreneurs who are interested in offering genuine learning opportunities to investors through simulated trading experiences with financial incentives but are concerned that their design may raise issues under the securities laws should engage with the Commission to explore how they could offer it in a manner consistent with our rules
https://www.sec.gov/litigation/litreleases/2020/lr24951.htm
https://www.sec.gov/litigation/complaints/2016/comp-pr2016-261.pdf, the SEC alleged that between January 2014 and December 2016, Elazar Shmalo and Co-Defendant Joseph Taub engaged in manipulative coordinated trading to influence the market prices of more than 2,500 exchange-traded securities, in part, attempted to conceal such trading through accounts held in the names of Taub's associates, regardless of whether Shmalo was designated as an authorized trader in those accounts. Without admitting or denying the allegations, Shmalo consented to the final judgment, which permanently enjoins him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act and the market manipulation provision of Section 9(a)(2) of the Exchange Act; and, further, Shmalo, is subject to a conduct-based injunction prohibiting him for a period of ten years from participating in the issuance, purchase, offer, or sale of any security listed on a national securities exchange except for his own account, and he is ordered to pay disgorgement of $395,207 and prejudgment interest of $20,007, offset in part by a forfeiture order entered in a related civil forfeiture action.
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, Norman Stanley Batansky submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Norman Stanley Batansky entered the industry in 1968 and by August 2016 to March 2019, he was registered with LPL Financial LLC. The AWC alleges that Batansky "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Batansky had violated FINRA Rules 4511, 3280, and 2010; and the self regulator imposed upon her a $7.,500 fine and a 30-day suspension from association with any FINRA member in any capacity. As alleged in part in the AWC:
On October 26, 2016, Batansky forwarded his son JB, an LPL customer, an email concerning an investment opportunity in XYZ, a then privately held medical device company. Attached to the email was an investor overview, convertible note term sheet and a subscription agreement. That same day, using his personal email account, Batansky sent XYZ's placement agent his son's residential address and date of birth. Approximately an hour later, Batansky used his personal email account to inform the placement agent that JB "will do $50,000 of [XYZ]."The next day, Batansky asked his sales assistant to email the placement agent a scanned copy of JB's signed subscription agreement for his $50,000 investment, a completed investor profile and questionnaire, and a W-9 tax form. Batansky thereafter arranged through his branch office's operations department to wire $50,000 from JB's brokerage account to JB's personal bank account. Batansky prepared and emailed JB a draft letter of instruction to JB's bank to wire $50,000 from JB's his account to XYZ's bank account. In early November 2016, JB completed his $50,000 investment in XYZ. Batansky did not receive any compensation in connection with JB's investment. In April 2017, Batansky falsely attested in a compliance questionnaire that he had not participated in any private securities transactions during the prior year.. . .Between October 2016 and September 2018, Batansky used his personal email account to send a total of 32 securities-related emails that were not monitored or retained by LPL. Specifically, Batansky sent 26 emails to two long-time friends, who were also LPL customers, about research reports and marketing materials related to biotech companies that could present an investment opportunity for these firm customers; four emails to one of those customers about activity in his LPL account; and two emails to the XYZ placement agent in connection with JB's $50,000 investment. Between October 2016 and April 2018, Batansky attested in three compliance questionnaires that he understood that he must use LPL or approved DBA email addresses for all business-related communications with all clients and prospects. . . .
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, Cynthia Diane Cowden submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Cynthia Diane Cowden entered the industry in 1990 and by January 2013 through August 2020, she was registered with NPB Financial Group, LLC. The AWC alleges that Cowden "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Cowden had violated FINRA Rules 8210, 2111, and 2010; and the self regulator imposed upon her a Bar from association with any FINRA member in any capacity. As alleged in part in the AWC:
This matter was initiated based on a customer complaint against Cowden submitted by a married couple to FINRA's Senior Helpline regarding Cowden's unsuitablerecommendations, as described below. While FINRA was investigating that complaint,another customer called the Senior Helpline and made a similar suitability complaintagainst Cowden regarding another unsuitable recommendation . . .. . .The three senior customers who were the subject of Cowden's unsuitable recommendations during the Relevant Period included one married couple and one other customer, all of whom were California residents with little investment experience.The couple were retirees, had a combined net worth of approximately $1.0 million, a combined liquid net worth of $300,000, a combined annual income of $23,000 and a moderate risk tolerance. Their investment objective included a stable, balanced portfolio, as well as income and liquidity, because they were relying on the investment to supplement their income. During the Relevant Period, Cowden recommended two purchases for the couple, totaling $231,200, of NorthStar Real Estate Income Trust (NorthStar), an illiquid, high risk, non-traded REIT. The NorthStar investments were not suitable given the couple's investment objective, circumstances, and financial needs. In addition, the investments comprised over 20% of the couple's net worth, more than double NorthStar's 10% of net worth concentration limit for California investors. NorthStar's illiquidity and high risk level also far exceeded the couple's moderate risk tolerance.The third customer, who was still working, had a net worth of approximately $400,000, a liquid net worth of $300,000, an annual income of $60,000, and a low to moderate risk tolerance. The customer's investment objective included slow growth and a reasonable rate of return. The customer also wanted liquidity. During the Relevant Period, Cowden recommended that the customer purchase $250,000 of Priority Income Fund, Inc. (Priority), a speculative, high risk, illiquid, closed-ended mutual fund. The Priority investment was not suitable given the customer's investment objective, circumstances, and financial needs. In addition, the $250,000 investment in Priority comprised an unsuitable concentration of over 50% of the customer's net worth. Priority's illiquidity and high risk level also far exceeded the customer's low to moderate risk tolerance.. . .In February 2019, during her on-the-record testimony to FINRA, Cowden provided false testimony to FINRA. Specifically, Cowden falsely testified that the three customers' assets and income were far in excess of the actual amounts-financial information which made the customers appear qualified to invest in NorthStar and Priority.
Bill Singer's Comment: FINRA's "Helpline for Seniors" can be reached Monday through Friday at 9 a.m. to 5 p.m. Eastern Time at 844-57-HELPS (844-574-3577). COMPLIMENTS to FINRA for implementing and maintaining this superb program.
JP Morgan Securities Whiffs In FINRA Arbitration Against Raymond James and Three Former Employees (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/5508/jp-morgan-finra-arbitration
You may have read about the "record" $920 million DOJ, SEC, CFTC settlement on September 29, 2020, for spoofing and manipulation involving JPMorgan Chase & Co., J.P. Morgan Chase & Co., JPMorgan Chase Bank, N.A. and JPMorgan Securities. Maybe that conglomerate will figure out whether to put or not to put spaces between its various Js, Ps., and Morgans? Be that as it may, "Bad Boy" or not, J.P. Morgan Securities LLC still opted to go, hammer and tong, after three former employees. Much like the firm's recent regulatory travails, this particular piece of FINRA arbitration didn't go all that well either.