Securities Industry Commentator by Bill Singer Esq

SEC Commissioner Peirce Sounds the Due Process Alarm In Response To FINRA Rule Amendment (BrokeAndBroker.com Blog)

SEC Awards More Than $300,000 to Whistleblower with Audit Responsibilities (SEC Release)

Ex-Skyworks Solutions Semiconductor Engineer Sentenced to 18 Months in Federal Prison for Committing Insider Trading (DOJ Release)

Federal Court Orders Interdealer Broker to Pay $7 Million for Deceptive Trading Practices in the FX Options Markets / Former CEO and Desk Head Ordered to Pay $500,000 Each for Supervision Failures (CFTC Release)

FINRA Fines and Suspends Rep for Exercising Discretion Without Written Authorization

In the Matter of Jay Clint Tomlinson, Respondent (FINRA AWC)

FINRA Fines and Suspends Associated Person Over Private Placement Proceeds

In the Matter of Michael T. Norvet, Respondent (FINRA AWC)

FINRA Suspends Rep Over Willful Nondisclosures of 13 Tax Liens and One Judgment

In the Matter of James A. Conant, Respondent (FINRA AWC)

In reaching this determination, we have considered the application of Exchange Act Rule 21F-4(b)(4)(iii)(B), which excludes information from being credited as the whistleblower's "independent knowledge" or "independent analysis" -- and hence original information -- if the whistleblower "obtained the information because" the whistleblower was "[a]n employee whose principal duties involve compliance or internal audit responsibilities. . . ." Here, the record reflects that Claimant became aware of the potential securities law violations in connection with Claimant's audit-related responsibilities REDACTED However, such claimants may learn original information and be eligible for whistleblower awards if they had "a reasonable basis to believe that the relevant entity is engaging in conduct that will impede an investigation of the misconduct." . . .

          Chen was an electrical engineer at Skyworks Solutions Inc., a publicly traded Woburn, Massachusetts-based semiconductor company with a branch office and design center in Irvine. During the spring and summer of 2014, Chen bought Skyworks stock and options based on confidential information not yet available to the public.

          Specifically, Chen used his employee security badge to gain unauthorized access to the company's restricted office area for the accounting and financial staff. Once inside, Chen went through the desks and work areas to find the company's non-public earnings reports. Using this confidential information, Chen bought large amounts of Skyworks securities. Once Skyworks released its earnings reports to the public, Chen sold his Skyworks securities for a profit.

          In September 2014, Chen left the United States for Taiwan five days after two Skyworks employees caught him rifling through company documents in the restricted accounting and finance office, according to court papers. Soon afterward, Skyworks fired him.

          Through this insider trading scheme, Chen received more than $700,000 in illegal profit.

          In a lawsuit brought by the Securities and Exchange Commission, Chen was ordered to pay a $739,959 judgment to the SEC stemming from his insider trading scheme while he was employed at Skyworks Solutions.

[B]etween January 2014 and August 2015, TFS-ICAP brokers represented to U.S.-based bank clients that there were bids or offers for an FX option at a particular level when, in fact, no trading institution had bid or offered the option at that level. The order also finds that TFS-ICAP brokers on the Emerging Markets desks in both London and New York communicated to one or more U.S.-based bank clients that trades had occurred when a trade had not, in fact, occurred. In the FX options industry these practices are referred to as "flying" prices and "printing" trades. TFS-ICAP admits this conduct violated provisions of the CEA and CFTC regulations, which prohibit fraudulent and deceptive practices, and posting non-bona fide prices.

With respect to the conduct of Dibb, a CFTC registrant, the order finds that he was ultimately responsible for ensuring that TFS-ICAP broker conduct was in compliance with the law. Mr. Woolfenden, who is also a CFTC registrant, had supervisory responsibility over all TFS-ICAP brokers on the Emerging Markets desks in New York and London. Both Dibb and Woolfenden were responsible for maintaining and enforcing a reasonable system of internal supervision.

In November 2012, Tomlinson entered into an AWC pursuant to which he was suspended for 30 days in all capacities and fined $7,500 for failing to timely provide documents and information to FINRA that were requested pursuant to FINRA Rule 8210, in violation of FINRA Rules 8210 and 2010.¹ 

= = = = =

See Brimberg & Co. and Jay Clint Tomlinson, AWC No. 2011025773503 (Nov. 2012). 

Exercising Discretion Without Written Authorization

In late September 2015, Tomlinson took over the management of three customer accounts that had previously been managed by a third-party investment advisor who utilized a high-frequency, intra-day trading strategy focused on pharmaceutical stocks. Tomlinson continued this trading strategy, but, unlike the investment advisor, Tomlinson did not have written authorization from the customers, or written acceptance from R.F. Lafferty, to exercise discretion in the accounts. To the contrary, at all relevant times, Tomlinson was subject to a plan of heightened supervision by his firm that forbade him from placing discretionary trades in customer accounts. Also unlike the investment advisor, who acted pursuant to a fixed-fee arrangement, Tomlinson charged a commission for each trade placed in these three accounts. 

From October 2015 through April 2016, even though he had neither written authorization from his customers nor his firm's written acceptance to place discretionary trades, Tomlinson placed 379 discretionary trades in the accounts of these three customers. Tomlinson typically purchased and/or sold the same securities on the same day, often multiple times per day. While his customers understood that Tomlinson would pursue this high-frequency, intra-day trading strategy in their accounts, Tomlinson did not seek approval from his customers prior to placing each trade. Rather, Tomlinson placed trades and later updated the customers about the results of his trading. 

. . .

Causing the Firm to Maintain Inaccurate Books and Records 

. . .

From October 2015 through April 2016, Tomlinson caused R.F. Lafferty to maintain inaccurate order memoranda for each of the 379 trades he placed on a discretionary basis. Tomlinson failed to mark any of those transactions as having been entered pursuant to the exercise of discretion. In addition, Tomlinson affirmatively mismarked order tickets for 14 of those trades. Specifically, Tomlinson mismarked the order tickets for the 14 trades as "unsolicited" when, in fact, they were not unsolicited orders. As a result, Tomlinson caused R.F. Lafferty to make and maintain inaccurate order memoranda in violation of Section 17(a) of the Exchange Act, Rule 17a-3 thereunder, and FINRA Rule 4511. 

On June 19, 2017, Titan Securities (CRD No. 131392) filed an initial non-registered fingerprint form for Norvet identifying his employment start date with the firm as November 12, 2007. Norvet was associated with the firm in an unregistered capacity. 

On January 25, 2019, Titan Securities filed a non-registered fingerprint amendment form disclosing that it terminated Norvet's employment with the firm that day. Norvet is not currently registered or associated with a FINRA member firm. However, he remains subject to FINRA's jurisdiction pursuant to Article I, Section (rr) and Article V, Section 4 of FINRA's By-Laws. 

Norvet does not have any relevant disciplinary history. 

The Hall Arts and Bishop's Lodge Offerings 

During the relevant period, Norvet and his partner (Representative 1) were the general and managing partners of Evolution Real Estate LLC, which created Hall Arts, Bishop's Lodge, and other limited partnerships. These limited partnerships raised money for different real estate projects. 

Norvet and Representative 1 were responsible, as managing partners, for managing the business and affairs of Hall Arts and Bishop's Lodge on behalf of the investors, who were limited partners. Norvet and Representative 1 also had exclusive control of Hall Arts' and Bishop's Lodge's bank accounts. Norvet and Representative 1 were responsible for, and approved the content of, the PPMs for Hall Arts and Bishop's Lodge. 

The use of proceeds sections in the Hall Arts and Bishop's Lodge PPMs stated that, after selling commissions, the amount raised would be used to fund the respective real estate projects. Both PPMs also stated that the "General Partner must not use the Partnership's assets or permit another to use the Partnership's assets in any manner except for the Partnership's exclusive benefit." Notwithstanding these limitations, Norvet mistakenly believed that he had the authority to transfer money between the partnerships. Neither PPM disclosed that partnership assets could be used for the benefit of another partnership. 

Approximately $30 million in Hall Arts limited partnership units, representing ownership interests in the entity, were sold between July 2016 and August 2019 to more than 350 investors. Approximately $19.5 million in Bishop's Lodge units were sold between January 2017 and December 2018 to more than 350 investors. 

Norvet's Negligent Misrepresentations and Omissions

 . . .

Norvet negligently failed to inform the investors in Hall Arts that money had been transferred out of the project to fund Bishop's Lodge. The transfers to Bishop's Lodge were not identified as a use of proceeds in the Hall Arts PPM and were not otherwise disclosed, thus making Norvet's representations to the Hall Arts investors about the use of Hall Arts's funds inaccurate and misleading. Additionally, Norvet negligently included the value of the transfers from Hall Arts in two supplemental PPMs issued by Bishop's Lodge, which as a result overstated the amounts raised by Bishop's Lodge during the periods covered by the supplemental PPMs. 

Between January and May 2017, Norvet also used approximately $224,000 of proceeds from the Hall Arts and Bishop's Lodge offerings to pay certain expenses of another unrelated partnership. These funds were later returned to Hall Arts and Bishop's Lodge by the offering's sponsor. This use of proceeds was not identified in the Hall Arts or Bishop's Lodge PPMs, and Norvet's negligent failure to disclose them made his other representations to the investors in Hall Arts and Bishop's Lodge inaccurate and misleading.  

Between 2010 and 2018, Conant engaged in a pattern of willfully failing to report disclosable events. Specifically, Conant willfully failed to timely disclose 13 liens and one judgment after MML had previously placed him on special supervision for previously failing to timely disclose tax liens. The thirteen liens and one judgment described below all constituted material information. 

On December 1, 2015, Conant amended his Form U4 to disclose four IRS liens and one State of Georgia tax lien. The IRS tax liens disclosed were a March 29, 2010, lien for $14,739, a January 23, 2012, lien for $86,676, a March 1, 2013, lien for $22,381, and a September 15, 2014, lien for $46,410. The April 6, 2011, Georgia tax lien was for $11,309. Conant became aware of the tax liens shortly after they were filed; however, he willfully failed to update his Form U4 to disclose the liens within 30 days of becoming aware of them. 

In January 2017, Conant amended his Form U4 to disclose two IRS liens, a December 18, 2015, lien for $27,435 and a January 21, 2016, lien for $29,064. Conant became aware of the tax liens shortly after they were filed; however, he willfully failed to update his Form U4 to disclose the liens within 30 days of becoming aware of them. 

On September 18, 2018, Conant made six Form U4 amendments. The amendments disclosed four Georgia tax liens, a civil judgment, and an IRS lien. The Georgia tax liens were a January 1, 2018, lien for $272, a January 1, 2018, lien for $11,814, a January 1, 2018, lien for $38,416, and a May 17, 2018, lien for $24,480. The October 3, 2017, civil judgment was for $8,501. The IRS tax lien was dated January 18, 2018, in the amount of $76,153. Conant became aware of the tax liens shortly after they were filed and the civil judgment shortly after it was entered; however, he willfully failed to update his Form U4 to disclose the liens and judgment within 30 days of becoming aware of them. 

On November 15, 2018, Conant made a Form U4 amendment, disclosing an August 30, 2018, Georgia tax lien for $15,470. Conant became aware of the lien shortly after it was filed; however, he willfully failed to update his Form U4 to disclose the lien within 30 days of becoming aware of it.

[O]n August 14, 2019, MML submitted a Uniform Termination Notice for Securities Industry Registration (Form U5) Conant's behalf, which stated that Conant had been discharged because the firm was "no longer willing to support special supervision" related to a lack of compliance with timely reporting liens and judgements.

Respondent understands that this settlement includes a finding that he willfully omitted to state a material fact on a Form U4 on 14 occasions, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this omission makes him subject to a statutory disqualification with respect to association with a member.

• Securities Industry Commentator
• Bill Singer