Securities Industry Commentator by Bill Singer Esq

June 23, 2022

 Blog publisher Bill Singer is a fairly dyspeptic fellow. Most days, he's in a bad mood. Other days, he's in a worse mood. As to trying to get to Bill on a "good" day, don't waste your time. Ain't gonna happen. As to why Bill is such a dour countenance, consider the recent seven-year saga involving the burning question of when is a suspension not a suspension. The quick answer is when FINRA orders a suspension but decides not to impose the suspension because the self-regulatory-organization also imposed a Bar. The old suspension of disbelief!

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In today's featured FINRA intra-industry arbitration, we got a little bit of sumthin' for everyone. We got JP Morgan. We got about $13 million in damages or more than $10 million or not less than $8 million. We got allegations of lying and spoliating evidence. We got motions about an expert witness' expertise. We got motions about sanctions for alleged false testimony. We got that rare finding of perjury with the result of sanctions. We got an award of damages but as to how the arbitrators calculated it and for what, we don't got jack., Lauren S. Wood pled guilty to securities fraud.  As alleged in part in the DOJ Release:

From 2018 through October 2020, Malik was the chief financial officer (CFO) of a New Jersey-based biopharmaceutical company listed on the NASDAQ Stock Exchange. On April 6, 2020, the company publicly announced for the first time that its breast cancer drug - an antibody-based drug designed to treat certain breast cancer patients who had very limited treatment options beyond chemotherapy - had proven effective in pre-market clinical trials. In October 2020, another biopharmaceutical company acquired the company for which Malik worked for approximately $21 billion.

Malik was among the first, and one of the few, employees who received the material non-public information about the breast cancer drug before the public announcement. Within minutes of obtaining that information, Malik passed it along to Wood, who lived with Malik at the time and was formerly employed by the same company. Before April 6, 2020, and within hours of receiving the insider information from Malik, Wood placed an order for approximately 7,000 shares of the company's stock, despite the fact that during the same time period the company's stock was downgraded by financial experts. After the company announced that its cancer drug had proven effective in pre-market clinical trials, its stock price increased. After selling her shares, Wood more than doubled her investment, realizing gross profits of $213,618.
An Indictment was filed in the united States District Court for the Western District of North Carolina charging Mac Wayne Billings with securities fraud. As alleged in part in the DOJ Release:

[B]etween 2012 and 2019, Billings engaged in securities fraud through his company, Alpha Finance Company (ALPHA), located in Sparta, North Carolina. The indictment alleges that Billings fraudulently obtained more than $3.6 million from at least 19 victims throughout Alleghany, Wilkes and Surry Counties, by soliciting them to invest in ALPHA via "debenture notes." A debenture note is a type of debt instrument typically not backed by a collateral. As alleged in the indictment, Billings, who is a licensed North Carolina CPA, falsely promised ALPHA's victim-investors that their money would be used to make high interest consumer loans from which the investors would receive interest payments. Contrary to his promises, Billings used little, if any, of the investors' funds to make new consumer loans. Rather, Billings used some of the investors' money to make payments to other investors and to pay himself over $1 million in salary and distributions from ALPHA.

The indictment further alleges that Billings used investment statements, emails and meetings to mislead and deceive victim-investors into believing that ALPHA was a profitable company and that the victims' investments were safe. In this regard, Billings allegedly failed to disclose material information concerning ALPHA's financial and business troubles to victim-investors, including that he had sold or mortgaged most of ALPHA's assets to hard money lenders. Based on the fraudulent information provided by Billings, many of the victim-investors renewed and/or made additional investments with ALPHA, causing them to incur further financial losses.

Finally, lawsuits brought by the North Carolina Commissioner of Banks (NCCOB) and the North Carolina Attorney General's Office alleged that Billings failed to comply with North Carolina laws governing consumer finance and retail installment loans.  Billings defaulted on these lawsuits. Consequently, the NCCOB revoked ALPHA's license due to non-compliance with North Carolina's Consumer Finance Act. Courts in Alleghany and Wake Counties declared ALPHA's loan null and void, leaving the investor-victims with no assets to recoup their losses.
Bill Singer's Comment: My PROFOUND compliments to Commissioner Peirce on this long, overdue note of caution. Although Chair Gensler's agenda is commendable for its aspirations, in reality it may be overly ambitious. After all, a man's reach exceeds his grasp! Commissioner Peirce fairly raises the caution flag and industry professionals would do well to heed many of her concerns.

Chair Gensler's Regulatory Flexibility Agenda[1] for the Securities and Exchange Commission sets forth flawed goals and a flawed method for achieving them. The agenda, if enacted, risks setting off the regulatory version of a rip current-fast-moving currents flowing away from shore that can be fatal to swimmers. Just as certain wave and wind conditions can create dangerous rip currents,[2] the pace and character of the rulemakings on this agenda make for dangerous conditions in our capital markets.

I. The Agenda Devotes the Agency's Limited Resources to Rulemaking Proposals Disconnected from our Core Mission

The Agenda continues to shun issues at the core of our mission in favor of shiny objects outside our jurisdiction. We used to focus on companies' disclosure of economically material information; we now focus on disclosure of hot-button matters outside our remit.[3] We once sought to protect retail investors; we now rush to the aid of professional investors.[4] We once worked to help small and emerging companies raise the funds that are their lifeblood; we now work to increase their costs and shrink their investor base.[5] We once hoped to increase the ranks of public companies by making it less costly and more beneficial to be public; we now look for ways to force companies to go public[6] since we are making it costlier to go public and be public.[7]

The Agenda does contemplate pursuit of some important mission-focused rules, such as updates to the investment adviser custody rules,[8] data security rules for the Consolidated Audit Trail,[9] updates to the electronic recordkeeping rules for broker-dealers,[10] and rules to shift from paper to electronic filings.[11] Yet, it drops or postpones indefinitely too many others, including transfer agent rules,[12] a joint project with the Commodity Futures Trading Commission to develop uncleared swap portfolio margining rules,[13] rules on investment company securities lending arrangements,[14] and rules to reform proxy plumbing infrastructure[15] and the fund proxy system.[16] Precious regulatory bandwidth is instead devoted to reopening rules that we only recently finished, such as the resource extraction,[17] proxy voting,[18] shareholder proposals,[19] and whistleblower rules[20]-even though we have no new information that could justify revisions so soon (less than two years) after we last considered these rules. Although the Agenda includes rules that might regulate crypto protocols or platforms through an unmarked backdoor,[21] it does not appear to include any rules primarily intended to grapple with the main regulatory questions that have arisen around these assets.[22]

II. The Agenda Breaks with the Commission's Longstanding Tradition of Deliberative Rulemaking that Facilitates Broad Participation by Affected Market Participants

Compounding the substance concerns are process concerns. We have abandoned our careful and considered approach to altering regulation in favor of effecting hasty and sweeping change.

The Agenda's timetables reveal that the rush of radical rulemakings remains relentless, despite pleas from almost every type of market participant and other interested party that the Commission slow down so that the public can catch up and provide meaningful input on our outstanding proposals.[23] These rules contemplate far-reaching changes to our regulatory regime, the breadth of which is hard to glean from merely reading their titles.[24] The Agenda plans to rush to completion proposals in which commenters have identified deep flaws.[25] Implementation of these rules presumably will also be on the fast track, which suggests that market participants will have to implement multiple complex rulemakings simultaneously.

Intensifying the problem, as the Agenda reveals, more proposals are on the way. The Commission plans to propose many new rules, contemplating further extensive changes within the next five months.[26] Even rules on the Agenda that are important to our mission stand no chance of receiving comprehensive public feedback. Issuing 3-5 rule proposals per month is not consistent with affording the public time to thoughtfully consider (let alone cogently comment on) how such changes will affect investors, markets, or day-to-day business operations of market participants. I also have concerns that the volume of comment requests will give even greater weight to the views of bigger players and mute the voices of retail investors, smaller advisers, broker-dealers, mutual funds, and companies, which lack the resources necessary to give each of these proposals the attention they deserve. Even if commenters are able to provide us careful feedback on individual rules, the rulemaking volume impedes the provision of data, the preparation of in-depth analyses, and the consideration of how these rules will interact with one another.

The Commission recently extended or reopened the comment periods for some proposed rules[27]and afforded longer comment periods for two recent rulemaking proposals.[28] I commend Chair Gensler for appreciating the need for more time on these matters. I urge the Commission for all rules to build in more reasonable comment periods at the time we propose new rules. Commenters need time to read our lengthy releases, decide which of the many questions to answer, gather the information necessary to answer them, and synthesize the information into a comment letter. If commenters think that a proposal's comment period will be only thirty or sixty days, they may not invest in gathering data or performing economic analysis for submission to the comment file. Why undertake a costly study or data collection exercise that may not be ready before the comment period is up? Providing more reasonable comment periods up front would better help the public understand how to spend their time and resources providing us with feedback. I hope that the Commission will embrace both longer comment periods and reasonable implementation periods.

III. Conclusion

When the Commission attempts rapidly to write and implement myriad rules, many of which are outside our longstanding mandate, it sets up conditions that could roil the markets. We can avoid creating regulatory rip currents by recalibrating our agenda to focus on issues core to the protection of investors and operation of our markets and by slowing down the pace to ensure that we and the public can think about what we are doing.

[1] Securities and Exchange Commission (SEC), Agency Rule List (Spring 2022),Agency Rule List - Spring 2022 ( [hereinafter Agenda].

[2] See Rip Current Hazards (General Information), National Weather Service,

[3] See, e.g., Agenda, supra note 1, stating that: "The Division is considering recommending that the Commission propose rule amendments to enhance registrant disclosures about the diversity of board members and nominees"; "The Division is considering recommending that the Commission adopt rule amendments to enhance registrant disclosures regarding issuers' climate-related risks and opportunities."; "The Division is considering recommending that the Commission propose rule amendments to enhance registrant disclosures regarding human capital management."

[4] See, e.g., id. ("The Division is considering recommending that the Commission adopt rules under the Advisers Act to address lack of transparency, conflicts of interest, and certain other matters involving private fund advisers."). These retail-like rules for private fund advisers will necessitate the expenditure of Commission resources to examine and bring enforcement actions against advisers that serve highly paid institutional investors, rather than retail investors.

[5] See, e.g., id. ("The Division is considering recommending that the Commission propose amendments to Regulation D, including updates to the accredited investor definition, and Form D to improve protections for investors.").

[6] See, e.g., id. ("The Division is considering recommending that the Commission propose amendments to the 'held of record' definition for purposes of section 12(g) of the Exchange Act.").

[7] See, e.g., Proposed Rule No. 34-94546, Special Purpose Acquisition Companies, Shell Companies, and Projections (Mar. 30, 2022), [hereinafter SPAC and Shell Company Proposal]; see also Agenda, supra note 1 ("The Division is considering recommending that the Commission adopt rule amendments to better inform investors about a registrant's cybersecurity risk management, strategy and governance, and to provide timely notification of material cybersecurity incidents. The Commission proposed rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and cybersecurity incident reporting by public companies that are subject to the reporting requirements of the Exchange Act."); see also id. ("The Division is considering recommending that the Commission adopt rule amendments to enhance registrant disclosures regarding issuers' climate-related risks and opportunities.").

[8] See Agenda, supra note 1 ("The Division is considering recommending that the Commission propose amendments to existing rules and/or propose new rules under the Investment Advisers Act of 1940 to improve and modernize the regulations around the custody of funds or investments of clients by Investment Advisers.").

[9] See id. ("The Division is considering recommending that the Commission adopt amendments to the National Market System Plan Governing the Consolidated Audit Trail regarding data security.").

[10] See id. ("The Division is considering recommending that the Commission propose rule amendments that would require the electronic submission to the Commission of certain filings by broker-dealers, security-based swap entities, self-regulatory organizations and clearing agencies. Most of these reports are currently filed with the Commission in paper form.").

[11] See id. ("The Division is considering recommending that the Commission adopt amendments to rules and forms to require that the following types of filings be submitted electronically: (1) applications for orders under any section of the Investment Advisers Act of 1940, (2) confidential treatment requests for filings made under section 13(f) of the Securities Exchange Act of 1934, and (3) ADV-NR.").

[12] See id. (stating that the next action date for the Division to recommend transfer agent rule proposals is "undetermined").

[13] See id. (stating that the next action date for the Division to recommend proposed amendments in this area is "undetermined").

[14] See id. (withdrawing this item from the Agenda).

[15] See id. (stating that the next action date for the Division to make a recommendation in this area is "undetermined").

[16] See id. (withdrawing this item from the Agenda).

[17] See id. ("The Division is considering recommending that the Commission review the rules under Section 1504 of the Dodd-Frank Act to determine if additional amendments might be appropriate."). These rules were last amended in December 2020. See Final Rule No. 34-90679, Disclosure of Payments by Resource Extraction Issuers (Dec. 16, 2020), (previously amending the rules under Section 1504 of the Dodd-Frank Act).

[18] See Agenda, supra note 1 ("The Division is considering recommending that the Commission adopt rule amendments governing proxy voting advice."). These rules were adopted in July 2020. See Final Rule No. 34-89372, Exemptions from the Proxy Rules for Proxy Voting Advice (Jul. 22, 2020), (adopting the rules governing proxy voting advice).

[19] See Agenda, supra note 1 ("The Division is considering recommending that the Commission propose rule amendments regarding shareholder proposals under Rule 14a-8."). These rules were adopted in September 2020.See Final Rule No. 34-89964, Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8 (Sep. 23, 2020), (adopting the rules regarding shareholder proposals under Rule 14a-8).

[20] See Agenda, supra note 1 ("The Office of the Whistleblower is considering recommending that the Commission adopt additional amendments to the rules governing the Whistleblower Program established by Section 922 of the Dodd-Frank Act."). These rules were adopted in September 2020. See Final Rule No. 34-89963, Whistleblower Program Rules (Sep. 23, 2020), (adopting the rules governing the Whistleblower Program).

[21] See, e.g., Proposed Rule No. 34-94062, Amendments to Exchange Act Rule 3b-16 Regarding the Definition of "Exchange"; Regulation ATS for ATSs That Trade U.S. Government Securities, NMS Stocks, and Other Securities; Regulation SCI for ATSs That Trade U.S. Treasury Securities and Agency Securities (Jan. 26, 2022), [hereinafter Amendments to Exchange Act Rule 3b-16]. Numerous commenters have responded to this rulemaking with questions about its application to crypto.

[22] Areas where regulatory clarity would be appreciated include: when is a crypto asset a security; how should crypto asset trading platforms and broker-dealers engage in crypto securities transactions alongside transactions in non-crypto securities and non-security crypto assets; how can regulated entities experiment with distributed ledger technology to enhance the efficiency and reliability of the execution, clearance, and settlement of securities transactions; and issues around the custody of crypto assets including the implications of Staff Accounting Bulletin No. 121. See SEC, Staff Accounting Bulletin No. 121 (Apr. 11, 2022),

[23] For example, twenty-five trade associations, representing financial services firms whose businesses span the entirety of the securities markets wrote a letter to this effect. See Letter from Alternative Credit Council et al., to Gary Gensler, Chairman, SEC (April 5, 2022), (concerning the "Importance of Appropriate Length of Comment Periods"). Also, in early April, a bipartisan group of 47 members of Congress signed a letter urging the agency to increase the comment period to 90 days, noting the importance of allowing stakeholders enough time to examine and respond to such complex proposed rules as the agency's Private Fund Adviser and Form PF proposals. See Letter from Bill Foster et al. to Gary Gensler, Chairman, SEC (April 13, 2022), (concerning "Private Fund Advisers; Documentation of Registered Investment Companies Compliance Reviews").

[24] To name a few examples: the Special Purpose Acquisition Companies rule applies to a broader set of business combinations than just de-SPAC transactions and would expand underwriter liability. See SPAC and Shell Company Proposal, supra note 7. Similarly the rule to expand the definition of "exchange," could draw in numerous communication protocol systems from both the traditional and decentralized finance worlds. See Amendments to Exchange Act Rule 3b-16, supra note 21. Also, the proposed rule outlining parameters of when large traders in government securities would have to register as broker-dealers could reach certain private funds and investment advisers. See Proposed Rule No. 34-94524, Further Definition of "As a Part of a Regular Business" in the Definition of Dealer and Government Securities Dealer (Mar. 28, 2022),

[25] One example is the recently proposed rules governing public companies' share repurchases (or "buybacks"). See Tom Zanki, SEC's Stock Buyback Proposal Ignites Pushback, Law360 (Apr. 22, 2022), Despite widespread criticism, the Agenda notes the Commission is considering a recommendation to adopt the rule within the next few months. See the Agenda, supra note 1 (noting a timetable for action of October 2022). Other examples include our reforms to the Money Market Fund rules, changes under Section 10B of the Exchange Act to require certain disclosures in connection with security-based swap positions, and Securities Lending Disclosure rules. See Agenda, supra note 1 (targeting April 2023 for adoption).

[26] Within the next five months, the Agenda contemplates the Commission proposing new rules in the following areas:

  1. digital engagement practices of investment advisers;
  2. digital engagement practices of broker-dealers;
  3. broker-dealer cybersecurity obligations;
  4. fund fee disclosure;
  5. public issuers' disclosure of human capital management information;
  6. shareholder proposals under Rule 14a-8;
  7. the Rule 144 safe-harbor;
  8. Form D and the accredited investor definition;
  9. the definition of "held of record," which affects the number of shareholders a private issuer can have before it must publicly register its securities;
  10. open-end fund liquidity and dilution management;
  11. investment adviser custody;
  12. third-party services providers hired by investment advisers;
  13. electronic submission of forms by broker-dealers;
  14. conflicts of interest in certain securitization transactions, under Section 621 of the Dodd-Frank Act;
  15. equity market structure;
  16. clearing agency conflicts of interest; and
  17. clearing requirements for trades in government securities.
[27] See Proposed Rule No. 34-94868, Reopening of Comment Periods for "Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews" and "Amendments Regarding the Definition of 'Exchange' and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities" (May 9, 2022),; see also Proposed Rule No. 34-94867, The Enhancement and Standardization of Climate-Related Disclosures for Investors (May 9, 2022),

[28] Commenters will have 60 days from publication in the Federal Register to comment on the recently proposed fund names rule and investment adviser/investment company environmental, social, governance rule. See Proposed Rule No. 34-94981, Investment Company Names (May 25, 2022),; Proposed Rule No. 34-94985, Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices (May 25, 2022),
Without admitting or denying the findings in an SEC Order, The Brinks Company consented to the issuance of a cease-and-desist order finding that it violated Rule 21F-17(a) of the Securities Exchange Act. Brinks agreed to pay a $400,000 civil penalty, and comply with undertakings among which is to amend its employment agreements to make clear that employees may report possible securities law violations to the SEC without prior company approval or forfeiting any resulting whistleblower award. As alleged in part in the SEC Release;

[F]rom at least April 2015 through April 2019, Brinks used an employee confidentiality agreement that prohibited employees from disclosing confidential company information to any third party without the prior written approval of Brinks. According to the SEC's order, the confidentiality agreement threatened current and former employees with liquidated damages and legal fees if they failed to notify the company prior to disclosing any financial or business information to third parties. According to the order, the confidentiality agreement did not provide an exemption for potential SEC whistleblowers. The SEC's order finds that, in 2015, shortly after the SEC had instituted its initial whistleblower protection action, Brinks modified its employee confidentiality agreement by adding a $75,000 liquidated damages provision for violations of the agreement. According to the SEC's order, the confidentiality agreement was signed by thousands of new Brinks employees annually. The SEC's order finds that, while Brinks continued to use restrictive confidentiality language for its rank-and-file employees until April 2019, it revised its corporate-level severance agreement to add whistleblower protection information for its executives beginning in January 2017.

I support the Commission's finding that, for the reasons explained in the Order Instituting Cease and Desist Proceedings, The Brink's Company ("Brinks") violated Exchange Act Rule 21F-17(a)'s prohibition against taking "any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications." I nonetheless again write to explain my view regarding the scope of the Commission's authority under that rule.[1] When it adopted Rule 21F-17 in 2011, the Commission explained that "Section 21F of the Exchange Act evinces a Congressional purpose to facilitate the disclosure of information to the Commission relating to possible securities law violations and to preserve the confidentiality of those who do so."[2] Adopting Rule 21F-17(a), as the Commission further explained, was "necessary and appropriate because . . . efforts to impede an individual's direct communications with the Commission staff about a possible securities law violation would conflict with the statutory purpose of encouraging individuals to report to the Commission."[3] The Commission's authority to adopt and enforce Rule 21F-17 necessarily is limited to the scope and purpose of Exchange Act Section 21F, which is to ensure the free flow of information to the Commission.

For this reason, I do not support the undertaking in the order that goes beyond that limited scope. Specifically, Brinks has undertaken to include a "provision in all employment-related agreements involving U.S.-based Brinks employees" that states:

Protected Rights. Employee understands that nothing contained in this Agreement limits Employee's ability to file a charge or complaint with the Securities and Exchange Commission, or any other federal, state, or local governmental regulatory or law enforcement agency ("Government Agencies"). Employee further understands that nothing in this Agreement limits Employee's ability to communicate with any Government Agencies or otherwise participate in or fully cooperate with any investigation or proceeding that may be conducted by any Government Agency [sic], including providing documents or other information, without notice to or approval from the Company. Employee can provide confidential information to Government Agencies without risk of being held liable by Brinks for liquidated damages or other financial penalties. This Agreement does not limit Employee's right to receive an award for information provided to any Government Agencies.[4]

The Commission plainly lacks statutory authority to impose such a broad requirement, and Rule 21F-17 does not purport to assert such authority. I recognize that the Order states that Brinks' agreement to this undertaking was merely a consideration when determining whether to accept the company's offer of settlement. The Commission, however, must be cautious about using the settlement process to obtain voluntary compliance with requirements that it lacks statutory authority to impose.

That a respondent has agreed to particularly broad language as part of a settlement should not be misconstrued as an indication that other companies are under any obligation to use the same or similar language to avoid running afoul of Rule 21F-17.

[1] See also Commissioner Hester M. Peirce, Statement on In the Matter of David Hansen, April 21, 2022 (available at

[2] Securities Whistleblower Incentives and Protections, Rel. No. 34-63434, 76 Fed. Reg. 34300, 34351 (June 13, 2011).

[3] Id. at 34352.

[4] Order, ¶ 17 (emphasis added).
Without admitting or denying the charges in a FINRA Acceptance, Waiver & Consent settlement, National Securities Corporation ("NSC") consented to a $4.77 million disgorgement in net profits the firm received for underwriting 10 public offerings in which NSC attempted to artificially influence the market for the offered securities; and, further, agreed to pay over $625,000 in restitution for failing to disclose material information to customers who purchased GPB Capital Holdings, LLC private placements, and a $3.6 million fine for this misconduct and various other supervisory and operational violations. The AWC asserts that NSC has been a FINRA member since 1947 with about 574 reps at 119 branches. As alleged in part in the FINRA Press Release:

FINRA found that between June 2016 and December 2018, NSC, while acting as an underwriter for three initial public offerings and seven follow-on offerings, violated Rule 101 of Regulation M under the Securities Exchange Act of 1934 by unlawfully inducing or attempting to induce certain customers to purchase stock in the aftermarket of the offerings prior to their completion.

Rule 101 prohibits underwriters, during a restricted period, from attempting to induce any person to bid for or purchase any offered security in the aftermarket.

FINRA found that NSC violated Regulation M in connection with 10 offerings by engaging in some combination of the following misconduct during each offering's restricted period:

  • Expressly conditioning allocations on a branch manager's or representative's agreement to buy a specific number of shares in the aftermarket for the branch's or representative's customers (known as "tie-in agreements");
  • Agreeing to solicit customers who received allocations to purchase additional shares in the immediate aftermarket; and
  • Threatening to reduce allocations to representatives who would not agree to solicit their customers to participate in the aftermarket.

NSC's conduct was aimed at artificially stimulating demand and supporting the price of the offered securities, which tended to be thinly traded, in the immediate aftermarket. The aftermarket performance of NSC's underwritten offerings was important to the firm's reputation and ability to generate future investment banking revenue.

The settlement resolves multiple other charges against NSC, including that the firm:

  • Between April 2018 and July 2018, negligently omitted to tell investors in two offerings related to GPB Capital about delays in the issuer's required public filings, including audited financial statements-for which FINRA has ordered the firm to pay restitution of more than $625,000 to those customers;
  • Between January 2005 and April 2020, failed to obtain locates for over 33,000 short sale transactions as required by Rule 203(b)(1) of Regulation SHO under the Exchange Act;
  • Between September 2013 and May 2017, failed to reasonably supervise one of its representatives by failing to respond to multiple red flags that he was falsifying information about customers' assets and suitability information in order to avoid NSC's limits on concentration levels that applied to his non-traded real estate investment trust recommendations; and
  • Made inaccurate representations to FINRA concerning the sales of stock warrants it received in connection with an October 2019 public offering.
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, Jeffrey Martin submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Jeffrey Martin was first registered in 1999, and by 2009, he was registered with Morgan Stanley. In accordance with the terms of the AWC, FINRA imposed upon Martin a $2,500 fine and a 15-business-day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In approximately May 2019, Martin entered into an agreement through which he agreed to service certain customer accounts, including executing trades for those accounts, under multiple joint representative codes (also known as joint production numbers) that he shared with a retired representative. The agreement set forth what percentages of the commissions Martin and the retired representative would earn on trades placed using each joint representative code. 

From June 2019 through March 2021, Martin placed a total of 192 trades in accounts that were covered by the agreement using an inaccurate joint representative code. Specifically, although the firm's system correctly prepopulated the trades with the assigned joint representative code for the account, Martin changed the code for the 192 trades to a different joint representative code under which he received a higher commission percentage, and the retired representative received a lower percentage, than each would have received had Martin used the correct representative code. Martin spoke to the retired representative on a regular basis and mistakenly believed that the retired representative had agreed to the changes. The firm's trade confirmations for the 192 trades inaccurately reflected different joint representative codes than the joint representative code that was assigned to the account. 

Martin's actions resulted in his receiving higher commissions, and the retired representative receiving lower commissions, from the 192 trades than what each was entitled to receive pursuant to the agreement. In July 2021, Morgan Stanley paid restitution to the retired representative. 

By causing Morgan Stanley to maintain inaccurate trade confirmations, Martin violated FINRA Rules 4511 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, Thomas Michael Hallberg submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Thomas Michael Hallberg was first registered in 1998 with Edward Jones. In accordance with the terms of the AWC, FINRA imposed upon Hallberg a $5,000 fine and a ten-business-day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

From December 2019 through January 2020, Hallberg exercised discretion without written authorization to effect 42 trades in two accounts of one customer. Although the customer knowingly permitted Hallberg to exercise discretion, Hallberg did not have the customer's written authorization or his firm's acceptance to trade the accounts on a discretionary basis. To the contrary, Edward Jones did not permit the use of discretion in accounts at the firm. 

Therefore, Hallberg violated FINRA Rules 3260(6) 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, Brian F. Donnelly submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Brian F. Donnelly entered the industry in 2000, and by December 2015, he was registered with First Allied Securities, Inc. In accordance with the terms of the AWC, FINRA imposed upon Brian F. Donnelly a four-month suspension from associating with any FINRA member in all capacities but no fine was imposed upon him in light of his financial status. As alleged in part in the AWC:

From February 2020 through March 2021, Donnelly participated in a private securities transaction involving one of his First Allied customers (Customer A). In February 2020, Donnelly introduced Customer A to the president of a company seeking investments in limited partnership units. The limited partnership units were securities. After making the initial introduction, Donnelly provided to Customer A the private placement memorandum for the investment and a presentation about the company. Donnelly also discussed with the company how Customer A should make payment. Thereafter, in June 2020, Customer A invested $250,000 in the company. Even after Customer A made his investment in the company, Donnelly continued to act as an intermediary between Customer A and the company. For example, in March 2021, Donnelly requested and received Customer A's account statement from the company, which he provided to Customer A. He also transmitted an updated private placement memorandum for the investment to Customer A, along with the accompanying acknowledgment. Donnelly did not receive any commissions or other compensation for his activities. 

Donnelly failed to provide prior written notice to First Allied to participate in the company's sale of limited partnership units to Customer A. Donnelly's participation in the transaction was outside the regular course and scope of his employment with First Allied. 

Therefore, Donnelly violated FINRA Rules 3280 and 2010. 

. . .

From February 2020 through March 2021, Donnelly used his personal email account to communicate with Customer A about securities transactions. From October 2020 through April 2021, Donnelly also used text messaging on his personal cell phone to communicate with another First Allied customer (Customer B) about securities transactions, including the liquidation of several securities that Customer B held at First Allied. Donnelly did not forward his emails or text messages to First Allied for review or retention. As a result, Donnelly caused First Allied to fail to maintain those communications, as it was obligated to do under the Exchange Act and FINRA rules. 

Therefore, Donnelly violated FINRA Rules 4511 and 2010. 

122 Days And Counting For FINRA's Independent Review Of Its Arbitration Selection Process ( Blog)
On February 18, 2022, FINRA announced that it had hired a law firm to conduct an independent review of how FINRA Dispute Resolution Services complied with its rules, policies and procedures for arbitrator selection in an arbitration proceeding whose award was recently vacated by an Atlanta Superior Court judge. Four months have passed. Not a sound. Not a peep. On the other hand, brick by brick, a lovely stonewall seems to be getting built.