The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

July 21, 2022








Notice of Annual Meeting of FINRA Firms and Election Proxy (FINRA Election Notice)
https://www.finra.org/rules-guidance/notices/election-notice-072022

FINRA will conduct its Annual Meeting of firms on Friday, August 19, 2022, and the purpose of the meeting is to elect an individual to fill one small firm seat on the FINRA Board of Governors. All eligible small firms should submit a proxy, which must be signed by the executive representative of the firm eligible to vote in the election.

Time to clean house at the FINRA Board of Governors

The "BrokeAndBroker.com Blog" and the "Securities Industry Commentator"
 urge all FINRA Small Firms to vote for:

Stephen A. Kohn, President
DMK Advisors Group, Inc.

Stephen Kohn has been employed in the financial services industry since 1984, to
which he has devoted most of his working life.

Mr. Kohn founded, owned and operated a FINRA small member firm, Stephen A.
Kohn & Associates, Ltd. (SAKL) located in Lakewood, Colorado since 1996. On January 1, 2020 ownership of SAKL was turned over to DMK Advisor Group, Inc. (DMK). He has assumed the role of president of DMK and, will continue as such well into the future.

In 2017, Mr. Kohn was elected by the Small Firm Membership to the FINRA Board
of Governors to represent Small Firm interests and issues at the highest levels. He
served on the Regulatory Policy and Audit Committees.

He has been twice elected to the National Adjudicatory Council (NAC) by FINRA's
small firms, first in 2009 and again in 2014. The NAC is FINRA's appellate division,
hearing appeals to enforcement decisions and other issues.

While on the NAC, Mr. Kohn served on the Sanction Guideline Review and Revision
Sub-Committee. This sub-committee was convened to review the Sanction
Guidelines to ensure that sanctions in appeals that are upheld by the NAC are fair
and appropriate and to recommend revisions as needed. He is also an industry
arbitrator and has served on the District 3 Committee.

Mr. Kohn holds the following securities licenses: Series, 7, 14, 24, 53, 63, 72, 73, 79
and 99. He graduated from C.W. Post College of Long Island University in 1964 with a
BA degree. He has served in the U.S. Coast Guard.

https://www.brokeandbroker.com/6567/stephen-kohn-finra-board/
FINRA Small Firm advocate Stephen Kohn is running for the FINRA 2022 Small Firm Governor. Stephen is supported by many reform voices in the FINRA Small Firm community and is supported by Bill Singer, Esq., an outspoken critic of regulatory incompetency and the publisher of the "Securities Industry Commentator" and the "BrokeAndBroker.com Blog." Stephen offers his supporters the opportunity to join and meet like-minded small firm executives and show FINRA that we are not a rag-tag group of greedy opportunists but a group of members that really care about the well-being of our clients, the investing public. VOTE FOR STEPHEN KOHN!!!!

https://www.brokeandbroker.com/6565/albertsson-golf-bankruptcy/
Today's featured lawsuit is about a guy who almost made it onto the PGA tour, but then wound up playing through at Merrill Lynch, Lehman Brothers, UBS; and, among the divots in his life was an $850,000 debt owed to UBS and a $1 million debt owed to a family office. Upon filing for Chapter 7 in April 2019, our golfer apparently failed to schedule on his petition two sets of golf clubs and his Winged Foot Golf Club membership. Ah yes, the stuff of federal lawsuits!

Once, there were many. Now, only a few. The numbers of knowledgeable journalists covering the Wall Street beat has dwindled. It's sad and it does a disservice to the investing public but it is what it is. Among the few savvy voices is that of Susan Antilla. In her most recent foray, Susan blows the lid off the Street's horrific track record when it comes to sexual harassment. Here's a sample of what's in her "Capital & Main" article;

Last spring, Goldman was pushed by shareholders to investigate its arbitration policy and determine how its use of a private justice system impacted employees. In December, Goldman reported that while there had been concerns that arbitration may "allow harassment and discrimination to go unseen and unaddressed," its review found that those concerns simply didn't apply to Goldman. The law firm that represented Jeffrey Epstein and Roman Polanski in their sexual assault cases conducted the investigation, assisted by a scholar who is on the panels of two arbitration providers.

https://www.reuters.com/world/mexican-beauty-queen-romanian-dutch-man-arrested-after-chase-across-europe-over-2022-07-20/
You may be unaware of the fact that the Securities Industry Commentator's publisher Bill Singer was the third generation of his family in the wine business before he embarked upon a 40 year career as a dashing and debonair Wall Street lawyer. All of which may explain why this story got posted here. After all, how could Bill not have been enthralled by this lede:

A former Mexican beauty queen and a Romanian-Dutch accomplice have been arrested in Croatia over the theft of $1.7 million worth of prestige bottles of wine in Spain after a nine-month chase across Europe, police said on Wednesday.

In a statement, Spanish national police said that on Oct. 27, 2021 in the western city of Caceres, 45 wine bottles worth a total of 1.65 million euros, including one "unique" 19th-century vintage worth 310,000 euros, were spirited out in a meticulously planned theft from the cellars of the famous hotel-restaurant El Atrio.

Bill Singer's Comment (and tasting notes): Being the oenophile that I am, I actually located El Atrio's online winelist: https://restauranteatrio.com/wp-content/uploads/2018/01/carta-vinos-2018.pdf

Without admitting or denying the findings and allegations in an SEC Order
https://www.sec.gov/litigation/admin/2022/33-11084.pdf, Health Insurance Innovations ("HII") and its former Chief Executive Officer Gavin Southwell agreed to a cease and desist order, HII agreed to pay an $11 million penalty, and Southwell agreed to pay more than $1 million in penalties, disgorgement, and interest. As alleged in part in the SEC Release:

[F]rom March 2017 through March 2020, HII and Southwell falsely told investors that HII held its insurance distributors to high compliance standards, which prohibited distributors from making misrepresentations to consumers about health insurance products offered by HII. HII and Southwell also told investors in earnings calls and investor presentations that HII's consumer satisfaction was 99.99 percent and state insurance regulators received very few consumer complaints regarding HII. In reality, HII tracked tens of thousands of dissatisfied consumers who complained that HII's distributors made misrepresentations to sell the health insurance products, charged consumers for products they did not authorize, and failed to cancel plans upon consumers' requests. The order finds that the products provided minimal health benefits, did not cover pre-existing conditions, prescriptions, and hospital care, and were not considered qualifying health coverage under the Affordable Care Act, leaving many consumers with unpaid medical bills when they sought treatment.

https://www.finra.org/sites/default/files/fda_documents/2017053210201
%20Sagetrader%2C%20LLC%20CRD%20137862%20AWC%20gg.pdf
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, Sagetrader, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Sagetrader, LLC has been a FINRA member firm since 2006 with eight registered representatives at two offices. In accordance with the terms of the AWC, FINRA imposed upon the firm a Censure, $775,000 fine ($83,333.33 payable to FINRA), and an undertaking to review/revise the firm's supervisory system inclusive of written supervisory procedures. As alleged in part in the "Overview' portion of the AWC [Ed: footnotes omitted]:

From 2013 through 2019 (the "Relevant Period"), Sagetrader failed to reasonably supervise for potentially manipulative trading on its platforms. Throughout the Relevant Period, Sagetrader provided routing and execution services to domestic and foreign entities, which were comprised of hundreds to thousands of individual day traders. Prior to 2015, the Firm lacked a supervisory system to detect potentially manipulative trading such as layering, spoofing, wash trades, or marking the close. In 2015, Sagetrader implemented an automated surveillance system that generated alerts to monitor for various forms of potential manipulation. However, the system failed to capture 70 traders of a client for five months. In addition, the Firm's review of the surveillance alerts was unreasonable. Sagetrader had limited staff and other resources to sufficiently review and resolve alerts for potentially manipulative trading, which, by 2018, totaled more than 500,000 alerts per year. Further, the Firm's guidance to and supervision of the assigned reviewers was unreasonable.

As a result, Sagetrader violated NASD Rule 3010 and FINRA Rules 3110 and 2010. 

https://www.finra.org/sites/default/files/fda_documents/2021071506202
%20James%20Daniel%20Kent%20CRD%202255753%20AWC%20va.pdf
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, James Daniel Kent submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that James Daniel Kent was first registered in 1992 and from September 2016 to may 2021, he was registered with Emerson Equity LLC. By way of background, the AWC asserts in part that [Ed: footnote omitted]:

On February 1, 2021, FINRA issued an AWC against Kent in which FINRA found that between February 2017 and December 2018, Kent failed to timely amend his Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose that he was the subject of a federal tax lien in the amount of $131,952.45. Without admitting or denying the findings, Kent consented to a suspension of 30 days and a $3,500 fine. 

In 1999, a New York Stock Exchange Panel (NYSE) accepted Kent's consent to a censure and 10-week bar for unsuitable and excessive trades in a customer's account, mismarking order tickets as "unsolicited" in that account, and unsuitable trades and an unauthorized trade in another customer's account.2 In 2000, the Illinois Securities Department revoked his registration in Illinois based on the NYSE decision.

As alleged in part in the AWC [Ed: footnotes omitted]:

On August 9, 2020, Kent was charged with the felony of Driving Under the Influence (DUI). He was aware of the felony charge and was required to amend his Form U4 within 30 days to disclose the charge (i.e., by September 8, 2020).4

On August 11, 2020, two days after being charged with the felony DUI, Kent updated his Form U4, which included disclosure of a past felony battery charge from 2008. He did not, however, disclose the 2020 felony DUI charge at that time or at any time thereafter. 

Therefore, Respondent willfully violated Article V, Section 2(c) of the FINRA By-Laws, and FINRA Rules 1122 and 2010.

. . .

On June 29, 2021, FINRA staff sent a request, pursuant to FINRA Rule 8210, to Kent for the production of information and documents on or before July 14, 2021 relating to his 2020 felony DUI charge. Kent did not respond to the request. On July 21, 2021, FINRA sent a second request letter to Kent, pursuant to FINRA Rule 8210, again seeking the production of the previously requested information and documents by August 4, 2021. Kent did not respond to the second request either. As a result, and pursuant to FINRA Rule 9552, FINRA suspended Kent effective September 27, 2021. Kent, thereafter, produced the information and documents requested on January 18, 2022, and he was reinstated on January 24, 2022. 

By failing to timely produce the information and documents as requested, Respondent violated FINRA Rules 8210 and 2010. . . .

= = = = =
Footnote 4: 4 On February 8, 2021, Kent pleaded guilty in the case to three misdemeanors (misdemeanor DUI, obstruction or resisting arrest without violence, and refusal to submit to testing).

In accordance with the terms of the AWC, FINRA imposed upon Kent a $5,000 fine and an eight-month suspension from associating with any FINRA member in all capacities. Notably, the AWC admonishes that:

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

https://www.brokeandbroker.com/6564/easterly-bassinger-sightline/
What happens when you have a FINRA Arbitration Award that combines circular logic with a nested loop and a Mobius strip? Well, you sort of wind up with a Respondent, who, if he were acting as an independent contractor, he would be covered under the Independent Contractor Agreement at issue; however, if he's not acting as an IC, then he's not covered under the IC Agreement because there wasn't any non-IC transaction in which Respondent participated, and, as such, he's not entitled to non-IC commissions for not having participated in any non-IC transactions, which didn't arise anyway.

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