Securities Industry Commentator by Bill Singer Esq

June 9, 2022

Among the dirty secrets on Wall Street is so-called CE (continuing education) -- or at least the short cuts that some folks take when it comes to satisfying their need to take various courses, training, and tests. Some of the short cuts involve getting someone else to sign in and sit through your training.  Some of the short cuts involve getting someone to take your tests for you.  Some of the short cuts involve cheating. Frankly, it's not a unique problem on Wall Street because wherever an industry or profession requires CE, there are those who never quite seem to have the time to do what's required. Among the more troubling aspects of getting around CE is when a male manager relies upon a female subordinate to, hey, well, you know, not that anyone actually needs to know, but, ummm, it would really help me out if, you know, well, you know, right? Read about a recent FINRA settlement involving a number of CE short cuts that, in the end, short circuited one associated person's career.

M.O., Respondent, v. Geico General Insurance Company and Government Employees Insurance Company, Appellants (Opinion, Missouri Court of Appeals, WD84722)
  So . . . you practice law long enough, say nearly four decades like me, and you get a bit complacent because, after a while, what was once new and intriguing becomes the Nth iteration of the same facts, and, well, you sort of feel like you've seen it all before. Except, every once in a while, your eyebrows rise, your jaw drops, and your eyes explode out of your head. Mind you, it's not that bad a feeling because it reminds you that, in fact, you haven't seen everything and life manages to find ways to surprise you. 

  In that spirit, we consider a recent lawsuit involving GEICO getting sued by a woman whose sexual partner gave her HPV during a purported romantic encounter in an automobile insured by GEICO. So, without further ado because whatever I summarize you'll likely think that I'm shittin' you (to use a fancy Latin legal expression), here's the Syllabus:

Government Employees Insurance Company and GEICO General Insurance Company (collectively "GEICO") appeal the judgment of the Circuit Court of Jackson County confirming an arbitration award finding against GEICO's insured-M.B. ("Insured")-and in favor of M.O. Insured and M.O. were in a romantic relationship. After M.O. contracted anogenital human papillomavirus ("HPV"), she submitted a settlement offer to GEICO, asserting Insured negligently infected her with the disease during sexual encounters in his automobile, and that Insured's GEICO-issued automobile insurance policy provided coverage for her injuries and losses. GEICO denied coverage and rejected her settlement offer.

Insured and M.O. entered into an agreement pursuant to section 537.065, RSMo,1 and agreed to arbitrate M.O.'s claims. The arbitrator found Insured negligently infected M.O. with HPV and awarded her $5.2 million in damages. Thereafter, M.O. filed this action in the trial court. GEICO moved to intervene and M.O. moved to confirm the arbitration award. The trial court granted both motions on the same date and entered judgment in favor of M.O. consistent with the arbitration award. GEICO appeals, asserting the trial court erred in confirming the arbitration award without giving GEICO a meaningful opportunity to defend its interests. For the reasons stated below, we affirm. 
The adoption of stablecoins worldwide has grown substantially in recent years, and more regulators and policymakers are showing an interest in stablecoin arrangements and the rules that apply to them. Recent public policy discussions have addressed prudential authority over stablecoins generally, as well as specific prudential concerns with stablecoins, such as the existence of appropriate reserves backing the stablecoins and the possibility of "runs" on the stablecoins similar to bank runs.[1] As the prudential regulator of companies engaged in virtual currency business activity in New York,[2] DFS has imposed requirements, standards, and controls on the stablecoins issued by its regulated entities since 2018, when DFS approved the first issuance of stablecoins by its regulated virtual currency companies.[3]

When a company applies for a license to engage in virtual currency business activity (a "BitLicense")[4] or a charter as a limited purpose trust company under the New York Banking Law, DFS reviews the company's business plan and product offerings in detail, and any stablecoin-related aspects of the company's business model are thoroughly evaluated as part of DFS's determination of whether to grant the license or charter. After licensure, BitLicensees must obtain DFS's written approval before introducing a materially new product, service, or activity,[5] and this prior-approval requirement applies to the issuance of a stablecoin. DFS imposes analogous requirements on New York State limited purpose trust companies that engage in virtual currency business activity and, accordingly, these companies also require DFS's written approval before they may issue a new stablecoin in New York.

The purpose of this Guidance on the Issuance of U.S. Dollar-Backed Stablecoins (this "Guidance") is to emphasize certain requirements that will generally apply to stablecoins backed by the U.S. dollar that are issued under DFS oversight. Specifically, this Guidance focuses on DFS requirements relating to:

i. the redeemability of such stablecoins;
ii. the asset reserves that back such stablecoins (the "Reserves"); and
iii. attestations concerning the backing by these Reserves.

Entities that issue stablecoins under DFS supervision, or that may be interested in doing so, can use this Guidance to better understand the baseline requirements in these three categories that they are expected to meet concerning U.S. dollar-backed stablecoins.

It is noted that, although stablecoins are a type of virtual currency that can be designed to maintain a stable value relative to any national currency or other reference asset, this Guidance applies only to stablecoins backed by the U.S. dollar, and only to stablecoins that are issued under DFS supervision by DFS-regulated virtual currency entities.

Baseline requirements for the issuance of U.S. dollar-backed stablecoins

DFS will generally impose the following conditions on all U.S. dollar-backed stablecoins whose issuance is subject to DFS approval.

1. Backing and redeemability

a. The stablecoin must be fully backed by a Reserve of assets, meaning that the market value of the Reserve is at least equal to the nominal value of all outstanding units of the stablecoin as of the end of each business day.[6]

b. The issuer of the stablecoin (the "Issuer") must adopt clear, conspicuous redemption policies, approved in advance by DFS in writing, that confer on any lawful holder of the stablecoin a right to redeem units of the stablecoin from the Issuer in a timely fashion at par - i.e., at a 1:1 exchange rate for the U.S. dollar, net of ordinary, well-disclosed fees - subject to reasonable, non-burdensome conditions including otherwise applicable legal or regulatory requirements, such as the ability of the stablecoin holder to onboard successfully with the Issuer before redeeming. These redemption policies shall clearly disclose the meaning of "redemption" and the required timing of "timely" redemption, or shall expressly adopt the following default terms:

i. Redemption in U.S. dollars is deemed to have occurred when the Issuer has fully processed and initiated the outgoing transfer of funds to the holder's financial or other institution, if and as requested by the holder, or has credited the funds to the holder's cash account with the Issuer, if requested by the holder. And,

ii. "Timely" redemption means redemption not more than two full business days ("T+2") after the business day on which the Issuer receives a "compliant redemption order," meaning the business day on which (A) the Issuer has received a redemption order and (B) the holder or the holder's designee has onboarded successfully with the Issuer and all other conditions necessary to permit compliant redemption have been met.[7]

iii. In extraordinary circumstances, where DFS concludes that timely redemption would likely jeopardize the Reserve's asset-backing requirement or the orderly liquidation of Reserve assets, DFS has the authority to require or allow redemption that would not qualify as timely under item 1(b), as it deems necessary.

2. Reserve

a. The assets in the Reserve must be segregated from the proprietary assets of the issuing entity, and must be held in custody with (i) U.S. state or federally chartered depository institutions with deposits insured by the Federal Deposit Insurance Corporation ("FDIC") and/or (ii) asset custodians, approved in advance in writing by DFS. The Reserve assets shall be held at these depository institutions and custodians for the benefit of the holders of the stablecoin, with appropriate titling of accounts.

b. The Reserve shall consist only of the following assets:

i. U.S. Treasury bills acquired by the Issuer three months or less from their respective maturities.

ii. Reverse repurchase agreements fully collateralized by U.S. Treasury bills, U.S. Treasury notes, and/or U.S. Treasury bonds on an overnight basis, subject to DFS-approved requirements concerning overcollateralization. Such reverse repurchase agreements shall be either (A) tri-party or (B) bilateral with a counterparty that the Issuer has found to be adequately creditworthy and whose identity has been submitted to DFS in writing, without objection, together with the Issuer's credit assessment, at least 14 days prior to the Issuer's commencing to enter into contracts with such counterparty.

iii.Government money-market funds, subject to DFS-approved caps on the fraction of Reserve assets to be held in such funds and DFS-approved restrictions on the funds, such as a minimum percentage allocation to direct obligations of the Government of the United States and reverse repurchase agreements on such obligations. And,

iv. Deposit accounts at U.S. state or federally chartered depository institutions, subject to DFS-approved restrictions such as (A) percentage-of-Reserve or absolute-dollar-value caps on the assets to be deposited at any given depository institution and/or (B) limitations based on DFS's conclusions concerning the risk characteristics of particular depository institutions, taking into consideration the amounts reasonably needed to be held at depository institutions to meet anticipated redemption demands.

c. Issuers are expected to manage the liquidity risk of the Reserve in accordance with the redemption requirements discussed in paragraph 1 above.

3. Attestation

a. The Reserve must be subject to an examination of management's assertions, as set forth herein, at least once per month by an independent Certified Public Accountant ("CPA") licensed in the United States and applying the attestation standards of the American Institute of Certified Public Accountants ("AICPA"), where such CPA and such CPA's engagement letter shall have been approved in advance in writing by DFS. In each of these attestations, the CPA shall attest to management's assertions of the following as of the last business day of the period covered by the attestation and as of at least one randomly selected business day during the period: (i) the end-of-day market value of the Reserve, both in aggregate and broken down by asset class; (ii) the end-of-day quantity of outstanding stablecoin units; (iii) whether the Reserve was, at these times, adequate to fully back all outstanding stablecoin units as set forth in item 1(a) above, including reconciling items[8]; and (iv) whether all DFS-imposed conditions on the Reserve assets (whether set forth in paragraph 2 hereof or otherwise specified by DFS) have been met.

For purposes of item 3(a)(iv), the CPA shall be entitled to rely on the DFS-imposed conditions on the Reserve assets that applied as of each day in the period covered by the attestation as reported to the CPA by the Issuer, together with the Issuer's certification that such conditions are being accurately reported. In all events, the specific conditions on the Reserve assets against which the attestation was performed shall be included in the CPA's attestation report.

b. In addition to attestations referred to in item 3(a), the Issuer shall obtain an annual attestation report by an independent CPA licensed in the United States and applying the attestation standards of the AICPA, attesting to management's assertions concerning the effectiveness of the internal controls, structure, and procedures for compliance with the requirements described in items 3(a)(i) through 3(a)(iv) hereof. Such CPA and such CPA's engagement letter shall have been approved in advance in writing by DFS.

c. For each attestation described in item 3(a), the Issuer must make the CPA's reports available to the public, and produce a copy to DFS in writing, not more than 30 days after the end of the period covered by the attestation.

d. For each annual attestation report described in item 3(b), the Issuer must produce a copy to DFS in writing, not more than 120 days after the end of the period covered by the report.

Please note that the above requirements as to redeemability, the Reserve, and attestations are not the only requirements DFS places or may place on the issuance of stablecoins, and the risks connected to these factors are not the only risks DFS considers. DFS looks at a range of potential risks before authorizing a regulated virtual currency entity to issue a stablecoin, including risks relating to cybersecurity and information technology; network design and maintenance and related technology and operational considerations; Bank Secrecy Act/anti-money-laundering ("BSA/AML") and sanctions compliance; consumer protection; safety and soundness of the issuing entity; and the stability/integrity of the payment system, as applicable. DFS may impose requirements on a stablecoin arrangement to address any of these risks, or any other risks, consistent with DFS's statutory mandate and the laws and regulations relevant to the circumstances.[9]

This Guidance is not intended to limit, and does not limit, any power of DFS or the scope or applicability of any law or regulation. DFS may, at any time and in its sole discretion, prohibit or otherwise limit a stablecoin's issuance or use before or after a DFS-regulated Issuer begins issuing the stablecoin, and may require that any such Issuer delist, halt, or otherwise limit or curtail activity with respect to any stablecoin.

This Guidance is not intended to, and does not, affect obligations of Issuers to submit audited financial statements to DFS pursuant to the New York Banking Law, the virtual currency business activity regulation, 23 NYCRR Part 200, the Issuer's Supervisory Agreement with DFS, or any other relevant law or regulation. DFS may update this Guidance from time to time, or withdraw it.

Each DFS-regulated issuer of a stablecoin is responsible for understanding and complying with all applicable laws and regulations, including any applicable legal and regulatory requirements imposed by other state or federal regulatory agencies. This Guidance is not intended to address and does not address such other state, federal, or other requirements.

Issuers that currently issue U.S. dollar-backed stablecoins under DFS supervision are expected to come into compliance with this Guidance within three months of the date hereof, except as to the requirements set forth in items 3(b) and 3(d), with which these Issuers shall come into compliance in a reasonable period as determined by DFS in its sole discretion.

[1] See, e.g., President's Working Group on Financial Markets, et al. Report on Stablecoins (Nov. 2021) at 1-2.

[2] See 23 NYCRR Part 200.

[3] See DFS Continues to Foster Responsible Growth in New York's Fintech Industry With New Virtual Currency Product Approvals (Sept. 10, 2018).

[4] See 23 NYCRR Part 200.

[5] 23 NYCRR § 200.10.

[6] In this Guidance, a "business day" is defined as a business day (9 a.m.-5 p.m.) in the United States, New York time.

[7] A compliant redemption order received between the end of a business day and the start of the following business day shall be treated as having arrived during the following business day. Note that "receipt" of a redemption order shall be deemed to have occurred at the earlier of actual receipt and the time when actual receipt would have occurred but for Issuer negligence or willful ignorance.

[8] Reconciling items may exist, for example, in cases where the assets backing a newly minted stablecoin are in transit to the depository institutions and/or custodians.

[9] See, e.g., New York Financial Services Law §§ 102 and 201; New York Banking Law § 10; 23 NYCRR Part 200; and 23 NYCRR Part 500.
After a three-week jury trial in the United States District Court for the Northern District of Georgia:

  • Todd and Julie Chrisley were found guilty of conspiring to defraud community banks out of more than $30 million of fraudulent loans;
  • The Chrisleys and their accountant, Peter Tarantino, were found guilty of tax crimes including conspiring to defraud the IRS;
  • The Chrisleys were found guilty of tax evasion, and Peter Tarantino was found guilty of filing two false corporate tax returns on behalf of the Chrisleys' company; and 
  • Julie Chrisley was found guilty of wire fraud and obstruction of justice. 
As alleged in part in the DOJ Release:

[B]efore Todd and Julie Chrisley became reality television stars, they conspired to defraud community banks in the Atlanta area to obtain more than $30 million in personal loans. The Chrisleys, with the help of their former business partner, submitted false bank statements, audit reports, and personal financial statements to banks to obtain the millions of dollars in fraudulent loans. The Chrisleys then spent the money on luxury cars, designer clothes, real estate, and travel-and used new fraudulent loans to pay back old ones.  After spending all the money, Todd Chrisley filed for bankruptcy and walked away from more than $20 million of the fraudulently obtained loans.  

The evidence further showed that in 2014, while Todd Chrisley was in bankruptcy proceedings, Julie Chrisley again manufactured financial documents and lied to real estate agents to obtain a luxury rental house in Los Angeles, California.  As soon as the Chrisleys began renting the house, they failed to pay rent, and the homeowner filed an eviction lawsuit.

Around the time that Todd Chrisley filed for bankruptcy, the Chrisleys became the stars of their own reality show, which was recorded in Atlanta and later in Nashville..  The evidence at trial showed that while they were earning millions from their TV show, Todd and Julie Chrisley, along with their accountant, Peter Tarantino, conspired to defraud the Internal Revenue Service.

Throughout the conspiracy, the Chrisleys operated a loan-out company that received their income earned from their show and other entertainment ventures. To evade collection of half a million dollars in delinquent taxes owed by Todd Chrisley, the Chrisleys opened and kept the corporate bank accounts only in Julie Chrisley's name. One day after the IRS requested information about bank accounts in Julie Chrisley's name, the Chrisleys transferred ownership of the corporate bank account to Todd Chrisley's mother in an effort to further hide his income from the IRS.  All the while, Todd Chrisley operated the loan-out company behind the scenes and controlled the company's purse strings.

While the Chrisleys were earning millions and evading paying Todd Chrisley's delinquent back taxes, they also failed to file tax returns or pay any taxes for the 2013, 2014, 2015, and 2016 tax years. At one point, Todd Chrisley falsely claimed on a radio program that he paid $750,000 to $1 million in federal income taxes every year, even though he had not filed or paid his personal income tax returns for years. Tarantino was also convicted of filing two false corporate tax returns for the loan-out company, which falsely claimed that the company earned no money and made no distributions in 2015 and 2016. 

Finally, Julie Chrisley was convicted of obstruction of justice. After learning of the grand jury investigation, she submitted a fraudulent document in response to a grand jury subpoena to make it appear that the Chrisleys had not lied to the bank when they transferred ownership of the loan-out company's bank account to Todd Chrisley's mother. Julie Chrisley transmitted this document with the intent of impeding the grand jury's investigation into her and her husband and avoiding prosecution.
Martin Hogan, 53, was convicted in the United States District Court for the Western District of New York of conspiracy to commit wire and mail fraud; and he was sentenced to 111 months in prison. As alleged in part in the DOJ Release:

[B]etween September 2015 and March 2020, Hogan conspired with multiple co-defendants to defraud elderly victims using a fraudulent telemarketing scheme. Hogan placed telephone calls from Canada to victims in the United States, telling them that they had won the Canadian lottery. However, victims were told that they had to first pay the taxes, brokerage fee, and/or custom fees due in connection with the winnings. Some victims were instructed to mail cash to addresses in New York owned by co-conspirators. The cash was then smuggled over the border into Canada and given to Hogan. In total, elderly victims were defrauded out of more than $2,600,000.

Martin Hogan was on vacation in Jamaica where he was apprehended at the request of the United States and later extradited in January 2021. The money he used to pay for his vacation was money obtained from the scheme.

Remarks Before the Investor Advisory Committee by SEC Chair Gary Gensler

Thank you for that introduction, Christopher. Good morning. It is great to join the Investor Advisory Committee (IAC) today. As is customary, I'd like to note that my views are my own, and I'm not speaking on behalf of the Commission or Securities and Exchange Commission staff.

I would like to welcome the new members of this Committee. The eight of you bring a wide-ranging set of experiences to this group, coming from government, academia, funds, non-profits, and the U.S. Navy. Thank you for volunteering your time and energy on behalf of investors.

Today's meeting marks a year since I first had the opportunity to meet with this group. The work the IAC does matters, and my team and I follow your recommendations closely. Since January of last year, you have issued five recommendations: on Self-Directed Individual Retirement Accounts (IRAs), Special Purpose Acquisition Companies (SPACs), Rule 10b5-1 plans, Credit Rating Agencies, and Minority and Underserved Inclusion in Investment and Financial Services. I have asked the staff to review your recommendations and explore all of these areas. Indeed, the SEC has proposed rules on SPACs and 10b5-1 plans. I look forward to further recommendations from this committee.

Today's meeting features panel discussions on the accounting of non-traditional financial information as well as climate-related disclosures. Disclosures have been at the heart of our securities laws since we were founded 88 years ago this week.

Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures. Over the generations, the SEC has stepped in whenever there has been a significant need for the disclosure of information relevant to investors' decisions. As technology and markets evolve, and with them the types of information relevant for investors' decisions, this agency often has updated our disclosure regimes in kind.

We did that in 1960s when we added disclosure about risk factors. We did that in the 1970s when we first added environmental-related disclosures, which the Commission has elaborated upon over the decades. Recently, in the latest stage of this long tradition of disclosures, we put out a proposal concerning climate-related disclosures.

This is a conversation that investors and issuers are having right now. Today, hundreds of issuers are disclosing climate-related information, and investors representing tens of trillions of dollars are making decisions based on that information.[1] Companies, however, are disclosing different information, in different places, and at different times. This proposal would help investors receive consistent, comparable, and decision-useful information, and would provide issuers with clear and consistent reporting obligations.[2]

You've also got a panel with regard to non-traditional financial information. This is an important conversation as we continue to evaluate types of information relevant to investors' decisions. Whether the information in question is traditional financial statement information, like components in an income statement, balance sheet, or cash flow statement, or non-traditional information, like expenditures related to human capital or cybersecurity, it's important that issuers disclose material information and that disclosures are accurate, not misleading, consistently applied, and tied to traditional financial information. Thus, I'm looking forward to hearing your discussion.

I also look forward to today's discussions on two potential recommendations to protect older investors and take steps to fund law school clinics.

Victims of fraud, too often, are older adults: Some have retired, others have neared it, but all have spent decades preparing their nest eggs. Today, the FBI estimates that older adults lose nearly $3 billion per year to financial scams.[3] That's why the work you are doing on recommendations to better protect older Americans is so important.[4] So too is your work on a tool that investors of all stripes may use, including older Americans: investor advocacy clinics.

These clinics provide an essential service. In the spring, I had the opportunity to speak to the SEC Investor Advocacy Summit, featuring presentations from students assisting at law school clinics around the country.[5] Thank you to the four law school professors on this Committee for the work you do to educate and guide students. These clinics fill a vital role to provide a free, quality resource to investors and important training for budding lawyers. I look forward to the Committee's discussion about a potential new pathway for the SEC to fund these clinics.

Before I leave you, I want to give my thanks to a special member of today's audience, our Investor Advocate and a member of the IAC, Rick Fleming. Rick will move on to his next chapter at the end of this month, after eight years of service to the SEC as the first director of the Office of the Investor Advocate. The office has helped the agency meet investors where they are, advocate for their needs, and strive to build a marketplace worthy of their trust. Thank you, Rick, for all that you have done.

My thanks to all of you on the Committee, and I look forward to hearing more about today's meeting.

[1] See Gary Gensler, " 'Building Upon a Long Tradition' - Remarks before the Ceres Investor Briefing" (April 12, 2022),available at

[2] See Gary Gensler, "Statement on Proposed Mandatory Climate Risk Disclosures" (March 21, 2022),available at

[3] See FBI, "Elder Fraud,"available at

[4] See Gary Gensler, "Closing Remarks to the Older Investor Roundtable" (April 28, 2022), available at

[5] See Gary Gensler, "Prepared Remarks Before the 2022 SEC Investor Advocacy Clinic Summit" (March 31, 2022), available at

Thank you, Christopher [Mirabile] and the other members of the Committee, for once more taking time out of your busy lives to serve American investors through your participation on the Investor Advisory Committee. I want to begin by saying a special "Good morning" to the eight newest members of the IAC, well described by Christopher as "an influx of new talent." We received hundreds of applications in response to our call for candidates and, having reviewed many of the resumes and statements of interest myself, I can attest to the depth of talent from which we had to choose, and you see that reflected in today's new members. Welcome. I look forward to working with each of you in the coming years.

Even as we welcome new members to the IAC, we must also say our goodbyes to Rick Fleming, who will be leaving the Commission after eight years as Investor Advocate. Being the first to serve in the role was no easy task, but, as those of you who worked with Rick know, he threw himself into the work. Rick and I have often disagreed on our preferred approaches to dealing with investor protection issues, but I knew that I could count on a frank, purposeful exchange whenever we spoke, and I knew that his commitment to investors was deep. I will miss working with him and hearing stories about his kids.

Today's agenda, as usual for these meetings, is sure to be interesting. The first deals with accounting for what is described as "non-traditional financial information," which will include a discussion about the accounting and auditing framework that undergirds our capital markets. I hope that, as you think about changing these structures to accommodate the modern stakeholder, you pause to marvel at the role independent, objective, apolitical accounting standards have played in drawing investors from all over the globe to our markets.

As part of today's second panel, please consider whether our proposed climate disclosure mandate would change fundamentally this agency's role in the economy, and whether such a change would benefit investors. Are these disclosure rules designed to elicit disclosure or to change behavior in a departure from the neutrality of our core disclosure rules? I have detailed my concerns about the climate proposal,[1] so I will not rehash them here, but I do offer this bit of advice: for the IAC to maintain its role as a unique and valuable source of insight and wisdom, it must ensure when it meets that there is room at the table for a diversity of opinion. Inquisitive voices are perhaps especially important when we think consensus on any given issue has been achieved.

I also look forward to the discussion of the Committee's two proposed recommendations. Investor advocacy clinics at law schools have played a valuable role in serving investors with small claims. That said, given the advocacy role many of these clinics play in Commission rulemakings, Commission involvement in securing taxpayer funding for them could be problematic. Some of the recommendations for protecting older adult investors make sense, but please think about whether the role being suggested for the proposed coordination center could be served by the SEC's existing Office of Investor Education and Advocacy. I wholly support the Commission maintaining its central role in the fight against elder financial abuse, including by improving the linkages among relevant databases and working closely with state regulators. We must, however, ensure that while we do whatever we can to strengthen older investors' ability to identify and take active measures to avoid fraud, we also commit to respecting their autonomy and right to direct their financial lives as they determine.

Thank you again to all who have made today's meeting possible, including our panel moderators, our visiting panelists, our new members, and Adam Anicich.

[1] See Hester M. Peirce, Commissioner, SEC, Statement, "We are Not the Securities and Environment Commission - At Least Not Yet" (March 21, 2022),

"Market Structure and the Retail Investor:" Remarks Before the Piper Sandler Global Exchange Conference by SEC Chair Gary Gensler

Thank you, Rich (Repetto), for that kind introduction. It is good to be with you again. As is customary, I'd like to note my views are my own, and I'm not speaking on behalf of my fellow Commissioners or the SEC staff.

Rich, at last year's conference, you and I spoke about how technology has transformed and continues to transform our equity markets.[1]

This has led to some good things. For example, retail investors have greater access to markets than any time in the past.

This technological transformation, though, also has led to challenges, including market segmentation, concentration, and potential inefficiencies.

Right now, there isn't a level playing field among different parts of the market: wholesalers, dark pools, and lit exchanges. Further, the markets have become increasingly hidden from view. In 2009, off-exchange trading accounted for a quarter of U.S. equity volume. Last year, during the meme stock events, that share swelled to a peak of 47 percent.[2] What's more, 90-plus percent of retail marketable orders are routed to a small, concentrated group of wholesalers that pay for this retail market order flow.[3]

It's not clear, with such market segmentation and concentration, and with an uneven playing field, that our current national market system is as fair and competitive as possible for investors.

In a recent report about last year's meme stock events, the SEC staff described four areas to consider in the interest of promoting our three-part mission in the equity markets overall. To date, the Commission has released proposals regarding two of those items: shortening the settlement cycle and enhancing short sale disclosures.[4] We also issued a request for comment on digital engagement practices.[5]

Today, I'd like to focus on the other item staff raised: "Trading in dark pools and through wholesalers."[6]

We haven't updated key aspects of our national market system rules, particularly related to order handling and execution, since 2005. Thus, last year I asked staff to take a holistic, cross-market view of how we could update our rules and drive greater efficiencies in our equity markets, particularly for retail investors. Today, I'd like to discuss that work across six areas:

  • Minimum Pricing Increment
  • National Best Bid and Offer
  • Disclosure of Order Execution Quality
  • Best Execution
  • Order-by-Order Competition
  • Payment for Order Flow, Exchange Rebates, and Related Access Fees

Minimum Pricing Increment

First, I'd like to discuss the minimum increments at which securities are priced - what's called the tick size.

Today, we lack a level playing field amongst the different trading venues. There are many disparities, but one in particular I'd like to focus on is the tick size.

In lit markets, investors see prices in one-penny increments. Wholesalers, though, can fill orders at sub-penny prices and without open competition.

More than half of the share volume in the first five months of this year was in stocks constrained by tick size.[7] In contrast, sub-penny trading, including at a tenth of a penny, accounts for 37 percent of share volume executed off-exchange.[8]

Given this activity, I wonder why lit markets should have that one-penny constraint. It raises real questions about whether this structure is fair and best promotes competition. Why not allow all venues to have an equal opportunity to execute at sub-penny increments?

Therefore, I've asked staff to make recommendations for the Commission's consideration around leveling the playing field with respect to two facets of tick size. These include, first, possibly harmonizing the tick size across different market centers - such that all trading occurs in the minimum increment; second, given the sheer volume of off-exchange sub-penny trading, as well as what is currently allowed in exchanges' retail liquidity programs, possibly shrinking the minimum tick size to better align with off-exchange activity.

National Best Bid and Offer

Next, I'd like to discuss the National Best Bid and Offer (NBBO).

The NBBO is a quote designed to aggregate information across different exchanges. It provides investors important pre-trade transparency. Those shares are subject to the Order Protection Rule.

I've asked staff to consider three issues related to the NBBO. The question is, what is included or excluded from the NBBO?

First, the NBBO currently includes only what's called round lots, which are quotes for 100 shares or more.

That seems to leave some critical gaps. Staff calculations using trade and quote data found that odd lots increased from around 15 percent of trades in January 2014 to more than 55 percent of trades in March 2022.[9]

Retail investors - the very investors who are more likely to buy or sell at odd lot prices - are unable to see these prices.

In 2020, the Commission adopted a Market Infrastructure Rule, which was recently upheld in court. This rule created a new round lot definition, which, depending upon share price, can be anywhere between 100 shared and 1 share. It also added odd-lot information to core market data.[10]

Under the transition schedule, the implementation of the new round lots could be several years away. Therefore, I've asked staff to consider whether we could accelerate implementation of the new round lot definition.

The Infrastructure Rule also enhanced transparency for quotation information with the remaining odd lots. I also asked staff to consider whether to accelerate implementation of this piece of the Infrastructure Rule as well. Together, I believe accelerating these timelines would allow retail investors to see better prices sooner.

Third, I also have asked staff to consider whether there should be an odd-lot best bid and offer so that investors would know the best price available in the market regardless of share quantity.

Disclosure of Order Execution Quality

Next, I'd like to turn to how we might enhance retail investors' ability to compare execution quality by their brokers.

Today, retail investors cannot compare execution across brokers, such as how much price improvement they provide to their clients. That's because only "market centers," such as dark pools, wholesalers, and exchanges, are required to provide these disclosures on monthly Rule 605 reports. Moreover, this rule hasn't been substantively updated since 2000.[11]

Thus, I've asked staff to make recommendations for the Commission's consideration around how we might update Rule 605 so that investors receive more useful disclosure about order execution quality. This could include mandating that broker-dealers, along with market centers, file monthly Rule 605 reports.

Further, I've asked staff to make recommendations considering whether to require that all reporters provide summary statistics of execution quality, such as the price improvement as a percentage of the spread.

Best Execution

Fourth, I'd like to turn to best execution.

Right now, while the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB) have rules on best execution, the SEC does not.[12] These FINRA and MSRB rules require broker-dealers to exercise reasonable diligence to execute customer orders in the best market so that their customers receive the most favorable prices under prevailing market conditions.

I think investors might benefit if the SEC considered proposing its own best execution rule. In addition, broker-dealers and investors might benefit from more detail around the procedural standards brokers must meet when handling and executing customer orders.

Therefore, I've asked staff to consider recommending that the SEC propose its own best execution rule - for equities and other securities.

Order-by-Order Competition

Next, I'd like to talk about how to best promote as much competition as possible for retail investors on an order-by-order basis.

Competition promotes efficiencies where economic rents, or excess profits above market competition, might otherwise accrue.

As I mentioned, the vast majority of retail marketable orders are flowing to wholesalers that pay for this order flow.[13] What's more, this segmentation means that institutional investors, such as pension funds, don't get to interact directly with that order flow. This segmentation-which isolates retail orders-may not benefit the retail public as much as orders being exposed to order-by-order competition.

Some suggest that this segmentation, with such isolation, allows retail investors to receive slightly better prices compared to the NBBO. Price improvement without competition, though, isn't necessarily the best price improvement. Wholesalers may be saving more than they're passing along to investors in terms of price improvement.[14]

Further, as I previously discussed, the current NBBO has gaps and may not represent a level playing field. As a result, it may not be a precise measuring rod for assessing whether retail investors are receiving fully competitive prices.

Thus, I've asked staff to make recommendations for the Commission's consideration around how to enhance order-by-order competition. This may be through open and transparent auctions or other means, unless investors get midpoint or better prices.

The listed options exchanges have operated auctions for retail orders for many years. I've asked staff, in considering any recommendations for stock auctions, to draw upon lessons from the options market, focusing on assuring full competition among all market participants to provide the best prices for retail investors.

Payment for Order Flow, Exchange Rebates, and Related Access Fees

Last, let me turn to the topics of payment for order flow, exchange rebates, and related access fees.

Payment for order flow can raise real issues around conflicts of interest. As described in the Commission's settled enforcement action against Robinhood in 2020, payment for order flow can distort routing decisions. Certain principal trading firms seeking to attract Robinhood's order flow told them that there was a tradeoff between payment for order flow and price improvement for customers.[15]

As the staff wrote in the GameStop report, payment for order flow may incentivize broker-dealers to use digital engagement practices, such as gamification, to increase customer trading.[16]

The European Union is actively considering banning payment for order flow,[17] potentially joining regulators in the United Kingdom, Canada, and Australia.

Exchange rebates also may present conflicts.

Exchanges give rebates to traders. High-volume traders benefit more from these arrangements, and retail investors don't directly benefit from those rebates. Just as payment for order flow presents a conflict of interest in the routing of marketable retail orders, exchange rebates may present a similar conflict in the routing of customer limit orders.

Therefore, I've asked staff to make recommendations around how we can mitigate conflicts with respect to payment for order flow and rebates.

One thing I've asked them to consider is whether exchange fees - what somebody pays to access a quotation on an exchange - and rebates should be more transparent, so that investors can understand these amounts at the time of trade execution.

Finally, I've asked staff to consider how the access fees might change in light of a potentially lower minimum tick size. Currently, access fees for protected quotes that are priced at $1 or more are capped at three-tenths of a penny per share.[18] If we reduce the minimum pricing increment, it may also be appropriate to reduce these access fee caps proportionately.


In conclusion, I think we, at the SEC, need to look for opportunities to freshen up our rules to ensure America remains the gold standard of the world's capital markets.

We can't take our leadership in capital markets for granted. New financial technologies and business models continue to change the face of finance for investors and issuers. More retail investors than ever are accessing our markets. Other countries are developing deep, competitive capital markets as well, seeking to surpass our own.

It's not clear, given the current market segmentation, concentration, and lack of a level playing field, that our current national market system is as fair and competitive as possible for investors.

I think we can do better here for retail investors. Thank you.

[1] See Gary Gensler, "Prepared Remarks at the Global Exchange and FinTech Conference" (June 9, 2021), available at

[2] See Nicholas Megaw, "SEC chair Gary Gensler to set out overhaul of US equity market" (June 6, 2022), available at

[3] Publicly available data from Rule 606 reports for large retail brokers in first quarter 2022.

[4] See U.S. Securities and Exchange Commission, "Shortening the Securities Transaction Cycle" (Feb. 9, 2022), available at See U.S. Securities and Exchange Commission, "Short Position and Short Activity Reporting by Institutional Investment Managers" (Feb. 25, 2022), available at

[5] See U.S. Securities and Exchange Commission, "SEC Requests Information and Comment on Broker-Dealer and Investment Adviser Digital Engagement Practices, Related Tools and Methods, and Regulatory Considerations and Potential Approaches; Information and Comments on Investment Adviser Use of Technology" (Aug. 27, 2021), available at

[6] See "Staff Report on Equity and Options Market Structure Conditions in Early 2021" (Oct. 14, 2021), p. 44, available at

[7] Staff in the Division of Economic and Risk Analysis calculated the total trading volume of stocks that had a time-weighed quoted spread of 1.1 cents or less from January-May 2022 and divided their share volume by the total share volume to get 56% of total trading volume. Statistics were calculated by Commission staff based upon public NYSE Trade and Quote (TAQ) data.

[8] Excluding sub-penny midpoint trades. Statistics were calculated by Commission staff from public NYSE TAQ data. Off-exchange midpoint trades are off-exchange trades that occur at the midpoint of the NBBO, i.e. a trade price of 10.01 when the NBB is 10.00 and the NBO is 10.02. These percentages are based on off-exchange trades with trade prices greater than or equal to $1 occurring during the regular trading session between the hours of 9:30AM and 4:00PM between December 2021 and the end of February 2022 (i.e. opening and closing trades are not included). Filters are also applied to exclude trades if they have an irregular sale condition.

[9] See NYSE TAQ data.

[10] See "SEC Adopts Rules to Modernize Key Market Infrastructure Responsible for Collecting, Consolidating, and Disseminating Equity Market Data" (Dec. 9, 2020), available at $250.00 or less per share: round lot = 100 shares; $250.01 to $1,000.00 per share: round lot = 40 shares; $1,000.01 to $10,000.00 per share: round lot = 10 shares; and $10,000.01 or more per share: round lot = 1 share.

[11] See Financial Industry Regulatory Authority, "SEC Rule 605," available at

[12] See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 270 (3d Cir.), cert. denied, 525 U.S. 811 (1998). A broker-dealer's duty of best execution to its customers predates the federal securities laws and is derived from an implied representation that a broker-dealer makes to its customers. The duty is established from "common law agency obligations of undivided loyalty and reasonable care that an agent owes to [its] principal." This obligation requires that a "broker-dealer seek to obtain for its customer orders the most favorable terms reasonably available under the circumstances."

[13] Publicly available data from Rule 606 reports for large retail brokers in first quarter 2022.

[14] Publicly available data from Rule 605 reports for years 2020-2021.

[15] SeeSecurities Act Release No. 10906, "In the Matter of Robinhood Financial, LLC" (Dec. 17, 2020),available at

[16] See "Staff Report," p. 44.

[17] See Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 600/2014 as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payments for forwarding client orders (Nov. 25, 2021), available at

[18] Rule 610(c) also imposes an access fee cap for protected quotes that are priced less than $1. For these, the access fee cannot be more than 0.3% of the quotation price.
The United States Court of Appeals for the Second Circuit affirmed a district court order requiring compliance with SEC investigative subpoenas served on Terraform Labs Pte Ltd and Do Kwon. As alleged in part in the SEC Releae:

[T]erraform and Kwon argued on appeal that the SEC violated its Rules of Practice when it served the subpoenas by handing copies to Kwon, Terraform's chief executive officer, while he was present in New York, and that the district court lacked personal jurisdiction because Kwon and Terraform had insufficient contacts with the United States. In rejecting those arguments, the appellate court reasoned in relevant part that Terraform's and Kwon's "reading of the Rules is contrary to the text and would produce absurd results by allowing a party to insist on service through counsel, but allow the party to block said service by not authorizing their counsel to receive any filings." The appellate court further rejected Terraform's and Kwon's jurisdictional arguments, noting the district court's jurisdiction over Terraform and Kwon arose from their "purposeful and extensive U.S. contacts," such as promoting to U.S. investors, employing U.S.-based personnel, and contracting with U.S.-based entities.
In a Complaint filed in the United States District Court for the District of Massachusetts the SEC charged Trends Investments Inc., Clinton Greyling, Leslie Greyling, Brandon Rossetti, Roger Bendeelac, and Thomas Capellini with engaging in a penny-stock fraud. In part, the SEC Release alleges:

According to the SEC's complaint, Trends Investments Inc., an unregistered entity, and Trends personnel Clinton Greyling of Florida, Leslie Greyling (Clinton's father, a resident of the United Kingdom), and former Massachusetts resident Brandon Rossetti engaged in a scheme to defraud investors in private offers and sales of shares of two publicly traded penny stock companies, Alterola Biotech Inc. and Token Communities Ltd. The Greylings and Rossetti allegedly lied to investors about whether Trends owned and could deliver to investors the shares it claimed to be selling. They are further charged with making a variety of misrepresentations to investors in order to keep investor funds, obtain further investments, placate investor concerns, and avoid detection. According to the complaint, Rossetti also acted as an unregistered broker by soliciting investors, receiving transaction-based compensation from Trends, and claiming to be a "broker" or "wealth manager."

The SEC's complaint also charges New York resident Roger Bendelac with participating in the scheme by placing manipulative trades in one of the securities Trends was offering and selling to investors, including through the use of two relatives' brokerage accounts to purchase securities which Bendelac sold from a different brokerage account. The SEC's complaint also alleges that Bendelac's relative, New York resident Thomas Capellini, gave Bendelac access to Capellini's brokerage account and funded the account so that Bendelac could place manipulative trades.

The SEC's complaint, filed in federal court in Boston, Massachusetts, charges Trends, Clinton Greyling, Leslie Greyling, and Rossetti with violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The complaint also charges Rossetti with violating Section 15(a) of the Exchange Act, charges Bendelac with violating Sections 17(a)(1) and (3) of the Securities Act and Sections 9(a)(2) and 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder, as well as aiding and abetting Trends', Rossetti's, and the Greylings' violations, and charges Capellini with aiding and abetting Bendelac's violations. The SEC's complaint seeks remedies that include injunctions, disgorgement, prejudgment interest, civil penalties, and penny stock bars. Without admitting or denying the allegations, Clinton Greyling has consented to the entry of a judgment permanently enjoining him from future violations of the charged provisions. In addition, Clinton Greyling has consented to a penny stock bar. The settlement, which is subject to court approval, would leave disgorgement, prejudgment interest, and civil penalties to be determined by the court at a later date.

   Without admitting or denying the findings in an SEC Order, CohnReznick LLP agreed to pay a $1.9 million penalty, to be censured, and to implement undertakings to retain an independent consultant to review and evaluate certain of its audit, review, and quality control policies and procedures, as well as to abide by certain restrictions on retaining new audit clients during the consultant's review. The SEC Order found that CohnReznick engaged in improper professional conduct within the meaning of Rule 102(e) of the SEC's Rules of Practice, violated Rule 2-02(b)(1) of Regulation S-X, and was a cause of Sequential Brands Group Inc.'s violations and Longfin Corp. 's violations of Section 13(a) of the Securities Exchange Act of 1934 and related rules thereunder. 

   Without admitting or denying the findings in an SEC Order, 
CohnReznick Partners: 
  • Stephen M. Wyss and Stephen H. Jackson agreed to pay civil penalties of $30,000 and $20,000, respectively, and not appear or practice before the SEC as an accountant with the right to apply for reinstatement after three years and one year, respectively; and
  • Robert G. Hilbert agreed to pay a civil penalty of $30,000 and a censure. All respondents also agreed to a cease-and-desist order.
The SEC Order against Wyss, Jackson, and Hilbert found that each partner engaged in improper professional conduct within the meaning of Rule 102(e) that was a cause of Sequential's violations of Section 13(a) of the Securities Exchange Act of 1934 and related rules thereunder, as well as CohnReznick's violation of Rule 2-02(b)(1) of Regulation S-X.

   As alleged in part in the SEC Release:

[C]ohnReznick improperly accepted Sequential's conclusion that its goodwill, an accounting term for the excess amount paid to acquire a company over its book value, was not impaired or reduced in value, in the third quarter of 2017. Despite CohnReznick's national office partners and the firm's own valuation specialists expressing concerns with Sequential's conclusion, the firm failed to obtain sufficient evidence or conduct additional procedures. The order finds that CohnReznick's deficient system of quality control led to failures to adhere to professional auditing standards. As to the Longfin audit, the order finds that CohnReznick and its national office failed to address known issues involving related party transactions, which were used by Longfin to fraudulently inflate its revenues.

A second related order finds that on multiple occasions from year-end 2016 through the second quarter of 2017, Wyss accepted Sequential management's assertions that goodwill was not impaired despite strong indicators of impairment. The order also finds that in the third quarter of 2017, Wyss, Jackson, and Hilbert were confronted with indications that Sequential's goodwill impairment test was not supported by sufficient evidence, but they still accepted Sequential's conclusion that goodwill was not impaired even though appropriate additional audit procedures had not been performed.
In a Complaint filed in the United States District Court for the Southern District of New York, the SEC charged George Stubos with violating Sections 17(a)(1) and 17(a)(3) of the Securities Act and Sections 9(a)(2) and 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder. Dori-Ann Stubos, George Stubos' wife, was named as a Relief Defendant. The Court granted emergency relief in the form of a freeze of Stubos' assets including a multi-million dollar property in Palm Springs, California. In part, the SEC Release alleges that:

[S]tubos secretly gained control of several thinly traded microcap companies whose stock was publicly traded in the U.S. securities markets, hired stock promoters to create demand for his stock, and generated substantial illicit profits by selling the stock to unsuspecting investors. Stubos allegedly hid the fact that he controlled the majority of the stock of publicly traded companies. He allegedly misled investors, brokers, and transfer agents (companies that maintain records of stock ownership) in order to convince these parties that his stock shares were eligible for trading in the public markets, when in fact he did not register his sales of those stock with the Commission and did not disclose accurate information about his control over the companies. Stubos also engaged in manipulative trading to create the appearance of active market trading and thus increased investor demand for the stock. According to the complaint, in 2007, Stubos was barred by the British Columbia Securities Commission from participating in the securities industry for two years for similar conduct.
The United States District Court for the District of Massachusetts granted the SEC's Motion for Summary Judgment as to Silverton SA Inc., Wintercap SA Inc., WB21 US Inc., WB21 NA Inc., C Capital Corp., and B2 Cap Inc. (the "Entities"), and entered final judgments permanently enjoining the Entities from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder and the registration provisions of Section 5 of the Securities Act. The Entities were ordered to pay civil penalties of $1,035,909 each and joint and several disgorgement up to the amount of $11,264,415 with prejudgment interest of $1,736,559. Relief Defendant B21 Ltd. was ordered to pay disgorgement in the amount of $824,689 with prejudgment interest of $119,266, for a total of $943,955 and relief defendant WB21 DMCC was ordered to pay disgorgement in the amount of $554,460 with prejudgment interest of $80,185, for a total of $634,645.
As alleged in part in the SEC Release:

On October 2, 2018, the SEC charged Gastauer and six U.S.-based entities that he controlled, Silverton SA Inc., Wintercap SA Inc., WB21 US Inc., WB21 NA Inc., C Capital Corp., and B2 Cap Inc., (together, the "Entities") with aiding and abetting a microcap fraud orchestrated by U.K. citizen Roger Knox and his Swiss entity, Wintercap SA. The SEC's complaint alleges that Knox and Wintercap SA helped sellers of large volumes of microcap securities evade U.S. securities laws that restrict sales by controlling shareholders. According to the complaint, Knox used Wintercap SA to conceal sellers' stock ownership by providing them anonymous access to offshore brokerage accounts, and Gastauer used his six entities' U.S. bank accounts to disburse the proceeds of those illegal stock sales.

In a parallel criminal action brought by the U.S. Attorney for the District of Massachusetts, on October 23, 2018, a federal grand jury in Massachusetts indicted Knox on one count of securities fraud and one count of conspiracy to commit securities fraud. Knox pled guilty on January 13, 2020. His sentencing remains pending.
In a Complaint filed in the United States District Court for the District of New Jersey, the SEC charged charged United Health Products, Inc., its former Chief Executive Officer/Chairman, Douglas Beplate, and its former Chief Operating Officer Louis Schiliro with allegedly defrauding investors by materially inflating the company's financial results in its 2017 and 2018 SEC filings. As alleged in part in the SEC Release:

The SEC's complaint alleges that Beplate and Schiliro engineered two fraudulent sales transactions that they had UHP record and report in UHP's publicly-filed financial statements. As alleged in the complaint, in the first fraudulent sales transaction, in May 2017, Beplate and Schiliro procured a sham purchase order back-dated to March 2017 from a customer for product that was quickly cancelled and UHP never shipped. In the second allegedly fraudulent sale, Beplate and Schiliro orchestrated a purported December 2017 sale of a large amount of product to a customer who had never ordered it. The complaint alleges that Beplate and Schiliro took measures for UHP to report these fraudulent sales as revenue and receivables in UHP's 2017 and 2018 Forms 10-Q and 10-K, including repeatedly lying to and concealing the true facts from UHP's auditors.

The SEC's complaint, filed in the U.S. District Court for the District of New Jersey, charges UHP, Beplate, and Schiliro with directly violating or aiding and abetting violations of the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder, the reporting, books and records, and internal controls provisions of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-1, and 13a-13 thereunder, and as to Beplate and Schiliro, the falsification or circumvention provisions of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. The SEC's complaint also charges Beplate and Schiliro with lying to accountants in violation of Exchange Act Rule 13b2-2, and Beplate with violations of the certification provision of Rule 13a-14 and the insider security ownership filing requirements of Section 16(a) of the Exchange Act and Rule 16a-3 thereunder.

Without admitting or denying the complaint's allegations, UHP, Beplate and Schiliro consented to the entry of final judgments, subject to court approval, which would: (i) permanently enjoin each of them from violating the charged provisions; (ii) order civil penalties of $450,000 against UHP, $240,000 against Beplate, and $225,000 against Schiliro; (iii) impose permanent officer-and-director bars against Beplate and Schiliro; and (iv) order Beplate to reimburse UHP $1,010,976.15, representing profits from his sales of UHP stock, pursuant to the clawback provisions of Section 304(a) of the Sarbanes-Oxley Act of 2002.

In separate settled administrative proceedings, the SEC charged Steven Avis, the audit engagement partner, and Steven Hurd, the audit manager, of Haynie & Co., which audited UHP's 2017 financial statements. According to the SEC's order, Avis and Hurd failed to address numerous red flags in connection with UHP's fraudulent sales transactions when they signed off on the 2017 audit, and failed to, among other things, obtain sufficient appropriate audit evidence, exercise due professional care and skepticism, and investigate relevant information after Haynie issued its 2017 audit report.

The SEC's order finds that Avis and Hurd engaged in improper professional conduct within the meaning of Sections 4C(a)(2) and 4C(b)(2)(A) of the Exchange Act and Rules 102(e)(1)(ii) and 102(e)(1)(iv)(B)(1) and (2) of the Commission's Rules of Practice and were a cause of certain violations by UHP of the reporting provisions of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. Without admitting or denying the findings, Avis and Hurd agreed to the entry of the order, which suspends them from appearing or practicing before the Commission as an accountant, with permission to apply for reinstatement after three years for Avis and one year for Hurd, imposes a cease-and-desist order against them, and orders Avis to pay a $20,000 civil penalty.
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, Walter Waitak Light submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Walter Waitak Light was first registered in 1986, and by 2003, he was registered with Treasure Financial Corp.. The AWC asserts that [Ed: footnote omitted]:

In 2000, Light entered into an AWC with FINRA through which he consented to the entry of findings that he violated NASD Rules 2110, 2310, and 2860(b) by, among other things, making an unsuitable recommendation to a customer. The AWC imposed a 30 business-day suspension and a fine of $15,000 and required that Light requalify as a general securities principal and registered options principal. 

In accordance with the terms of the AWC, FINRA imposed upon Light a $5,000 fine and a one-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

From July 1, 2020, through July 1, 2021, Light effected at least 140 discretionary trades in 22 separate customer accounts. Although the customers knew that Light was exercising discretion in their accounts, Light did not have prior written authorization to do so from any of the customers. Additionally, Treasure Financial did not accept any of the accounts as discretionary. Therefore, Light violated FINRA Rules FINRA Rules 3260(b) and 2010.
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, Tameem Habib submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Tameem Habib was first registered in 2008, and by December 2019, he was registered with J.P. Morgan Securities LLC until his November 2020 discharge. In accordance with the terms of the AWC, FINRA imposed upon Habib a $2,500 fine and a two-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In 2020, the federal government initiated several programs to assist small businesses adversely impacted by the COVID-19 pandemic, including the Economic Injury Disaster Loan program, which was administered by the SBA. In or about March 2020, while a registered representative of J.P. Morgan, Habib applied to the SBA for an Economic Injury Disaster Loan on behalf of a car service business he intended to operate as a sole proprietorship. Habib failed to carefully review the loan application before submitting it to the SBA. In his application to the SBA, Habib negligently misrepresented that his business had earned revenue between January 31, 2019, and January 31, 2020, when, in fact, it had not. 

Based on Habib's negligent misrepresentation, the SBA approved his loan application and separately approved Habib for a $1,000 advance payment, which he received on April 24, 2020. On May 23, 2020, before he received the balance of the loan, Habib sought approval from J.P. Morgan to conduct his outside business activity, but the firm denied his request. Thereafter, Habib withdrew his Economic Injury Disaster Loan application without signing a loan agreement with the SBA. To date, Habib has not repaid the $1,000 to the SBA. 

Therefore, Habib violated FINRA Rule 2010.
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, Nicholas Lee Ash submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Nicholas Lee Ash was first registered in 2014 with OFG Financial Services, Inc. In accordance with the terms of the AWC, FINRA imposed upon Lee a $5,000 fine and a two-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

During November 2017, Ash became a 12.5% owner of a limited liability company ("Company A") that purchased and operated rental properties. Ash performed repair and maintenance work on the properties. He co-owned Company A with three family members. Two of these co-owners were OFG registered representatives who collectively owned 75% of Company A and who caused Company A to buy certain properties from, and to lease certain properties to, OFG customers. Ash did not disclose his outside business activity with Company A to OFG until August 2018. Prior to his August 2018 disclosure, Ash received approximately $1,500 in profit and compensation in connection with Company A. 

Additionally, during the period between October 2019 and July 2021, Ash worked as an independent contractor for another real estate business that was owned and controlled by one of Company A's owners ("Company B"). Company B owned a rental property and leased it to another OFG customer. On three occasions, Ash completed repair and maintenance projects for Company B in exchange for compensation totaling approximately $500. However, he did not disclose this activity to the firm, and OFG only learned about the activity after FINRA commenced an investigation during April 2021. 

Therefore, Respondent violated FINRA Rules 3270 and 2010.
Heslin Gallagher hoped to embark upon a Wall Street career. About the only obstacle in her way was the Series 7 exam, which she studied for and took . . . and took . . . and took.  What Heslin Gallagher was not going to take was what she thought was FINRA's manner of administering the exam that she failed three times. Heslin Gallagher was angry and she went about putting her anger into action.
I am not a fan of Wall Street Non-Compete/Non-Solicit agreements, which tend to be forced upon employees and are rarely, if ever, the byproduct of free and fair negotiation. All of which underscores that Wall Street's employment contracts are cynical take-it-or-leave-it propositions whereby the employer takes it all when the financial advisor leaves. Infuriatingly, the contribution of the men and women who cold call, open the new accounts, and service the customers is valued at next to nothing upon the cessation of the employment relationship.