Securities Industry Commentator by Bill Singer Esq

August 5, 2022

In settling three Reg S-ID cases on the same day last July, the SEC fined JP Morgan $1.2 million; UBS $925,000; and TradeStation $425,000. As veteran industry lawyer Aegis Frumento considers those fines, he sees that the SEC favored the richest of the regulated. Inevitably, the big boys get the regulations that they can tame; they press for the "best practices" that everyone else must follow; and they can afford to write-off fines as so-much CODB.
Here we are in the midst of a scorchin' August. We got runaway inflation. We got Covid. We got monkeypox. We got a brokerage industry struggling to get back on its feet. We got supply chain shortages. We got a hot war in the Ukraine. We got China playing war games around Taiwan. We got Congressional hearings about an insurrection. We got . . . well, you know what we got right? And in the middle of all that's going on, the Staff of the SEC dumps on the industry a meaningless bit of indecipherable guidance that is not an official "rule, regulation, or statement" of the SEC. It's not something even approved by the SEC. In case you were wondering, it has "no legal force or effect." It doesn't "alter or amend applicable law." It doesn't even create "new or additional obligations." It's just the SEC shootin' the breeze in August. Apparently with nothing else to do than churn out a useless bulletin, which, unfortunately, requires Wall Street's compliance departments to set aside the time to plow through the silliness.
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,  J.P. Morgan Securities LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that J.P. Morgan Securities LLC has been a FINRA member firm since1936 with about 27,500 registered persons at 5,300 branches.  In accordance with the terms of the AWC, FINRA imposed upon  J.P. Morgan Securities LLC a Censure and $200,000 fine. As alleged in part in the AWC's "Overview" [Ed: footnote omitted]:

From March 2014 through March 2019 (the relevant period), JPM failed to reasonably supervise a former registered representative (RR 1) who engaged in unsuitable and unauthorized trading in the account of a senior customer, who also was RR 1's grandmother (Customer A). JPM failed to take reasonable action to investigate and address RR 1's misconduct, despite the presence of red flags.

By reason of the foregoing, the firm violated NASD Rule 3010 and FINRA Rules 3110 and 2010.

"Customer A" -- gimme a break: Anyone who has followed Wall Street in recent years will easily be able to figure out that Customer A is Beverley Schottenstein. Which makes it all the more puzzling as to why FINRA is still playing a shell game with the public given the high-profile nature of the customer's lawsuits against JPM and the reps. This is a regulatory settlement not some confidential bit of civil litigation. Frankly, the AWC is both idiotic and insulting. Read: "Federal Court Puts A Fork In Schottenstein FINRA Arbitration And Says It's Done" ( Blog /  February 25, 2022)

The saga of Beverley Schottenstein's lawsuit against JP Morgan Securities and her grandsons Evan and Avi has been widely reported in the press. This litigation is the stuff of soap operas, rom-coms, and television mini-series. As with the old serial movies of years long since past, just when you think the end is near, there's a cliff-hanger. As we return to the action, a federal court seems to have blown the final whistle. But for the fact that this may be less American football and more like soccer where the time runs out but they keep playing into something called "extra time" which, for the life of me, I don't quite get because, you know, the clock shows "0:00" but, regardless, they keep on running around kickin' the ball. Best I can tell, the federal court's whistle is ending the game but let's see how that all pans out over the next few months.

A Censure and $200,000 fine. For all the cited transgressions in the AWC? Wow, JPM must really be poppin' the old Champagne corks back at the office. The firm dodged one hell of a bullet here with FINRA, which, come to think of it, seems to be shootin' blanks with this AWC.

The sanctions in the FINRA  JPM AWC are shameful because they would NEVER, ever be offered to a small firm or individual rep. Pointedly, the extensive misconduct set out over nine pages of the AWC was protracted over a five year period from 2014 to 2019. Five years -- as in half a decade. Moreover, Customer A was a senior citizen, a widow, AND the rep's grandmother --  HUGE FLASHING RED FLAGS that should have alerted even the sleepiest compliance officer. Keep in mind that the rep was terminated by JPM and eventually barred by FINRA in April 2021. And, no, I'm not being overly harsh on JPM, even the AWC asserts that the firm "failed to take reasonable action . . . despite the presence of red flags." Flags that wave in all their color for five years.

Further, the AWC cites JPM's failure to reasonably supervise the rep's management of Customer A's account to the point where it had accumulated a "large position in structured products," which FINRA has repeatedly cited over the years as an investment requiring enhanced supervision. I mean, c'mon, FINRA issue: "Complex Products/ Heightened Supervision of Complex Products" (FINRA Regulatory Notice 12-03 / January 2012) As FINRA summarized about its 2012 Regulatory Notice:

This Notice provides guidance to firms about the supervision of complex products, which may include a security or investment strategy with novel, complicated or intricate derivative-like features, such as structured notes, inverse or leveraged exchange-traded funds, hedge funds and securitized products, such as asset-backed securities. These features may make it difficult for a retail investor to understand the essential characteristics of the product and its risks. 

The Notice identifies characteristics that may render a product "complex" for purposes of determining whether the product should be subject to heightened supervisory and compliance procedures and provides examples of heightened procedures that may be appropriate. 

Apparently, the main point of FINRA publishing all its Notices and Press Releases is to generate publicity because in 2014, only two years after Regulatory Notice 12-03 was published, JPM seemingly didn't quite get the part about the whole "heightened supervisory and compliance procedures." Again, don't make a face at me. I didn't threaten to file charges against JPM -- that was FINRA. I didn't Censure and fine JPM -- that was FINRA. 

SIDE BAR: The JPM AWC wrongly asserts on Page 2 that it was in "2013, FINRA issued Regulatory Notice 12-03 . . ." First off, the "12-" indicates 2012 and the "03" means that it was only the third such notice issued in 2012; and if you look at the upper right corner of the PDF file for the Notice linked above, you will see that it is dated "January 2012." Notwithstanding FINRA's fudging of an entire year, JPM was on notice as of January 2012 -- some two years before the 2014 events -- that it needed to be extra vigilant when it came to Customer A's structure product investments.

In 2014, a JPM supervisor felt compelled to phone Customer A about concerns. After that, the firm fell asleep for five years. Keep in mind that the customer was awarded nearly $19 million after suing JPM and two reps. Did FINRA ever do an on-site exam of the JPM branch during the years from 2014 through 2019? How the hell did this fall through the cracks? Just as we should ask where the hell was JPM's compliance department, we should also ask where the hell was FINRA's regulatory staff. 

The allegations in the JPM AWC' are so shocking that it is incomprehensible that FINRA agreed to a paltry Censure and $200,000 fine. For some sense of context, read "FINRA Censures and Fines Morgan Stanley for Inaccurate Stock Ratings But Lauds Firm's Extraordinary Cooperation"
In the Matter of Morgan Stanley & Co. LLC, Respondent (FINRA AWC 2020067484501) In the Morgan Stanley AWC, FINRA imposed a $350,000 fine (more than JPM's $200,000 fine) for about six months' worth of inaccurate research reports. You'd sort of think that JPM's misconduct involving an elderly client would have generated a more forceful response from FINRA given the context of its Morgan Stanley AWC. The facts are atrocious to the point of horrifying. Not Wall Street at its finest. Like I said, a disgraceful episode that puts JPM and FINRA in a terrible light.

Zadeh Kicks Owner and Chief Financial Officer Charged in $85 Million Wire Fraud and Bank Fraud Conspiracy / Fraud victims asked to submit loss information to the FBI (DOJ Release)
In an Information filed in the United States District Court for the District of Oregon, the former owner/Chief Financial Officer of Zadeh Kicks LLC, respectively, Michael Malekzadeh and Bethany Mockerman, were charged with conspiracy to commit bank fraud. As alleged in part in the DOJ Release:

[M]alekzadeh started his business in 2013 by purchasing limited edition and collectible sneakers to resell online. Beginning as early as January 2020, Zadeh Kicks began offering preorders of sneakers before their public release dates, allowing Malekzadeh to collect money upfront before fulfilling orders. Malekzadeh advertised, sold, and collected payments from customers for preorders knowing he could not satisfy all orders placed.

For example, in 2021, Malekzadeh began selling preorders of Nike Air Jordan 11 Cool Grey sneakers. Zadeh Kicks received and accepted preorder sales of over 600,000 pairs of sneakers, resulting in payments to Malekzadeh of more than $70 million. Malekzadeh had no way of acquiring the quantity of sneakers needed to fill the preorders received. In fact, he was only able to acquire just over 6,000 pairs. Customers were either left with unfulfilled orders or they received a combination refund of cash and Zadeh Kicks gift cards.

By April 2022, Malekzadeh owed customers more than $70 million in undelivered sneakers and unknown additional millions held by customers in worthless company gift cards.

In her role as Zadeh Kicks chief financial officer, Mockerman conspired with Malekzadeh to provide false and altered financial information to numerous financial institutions-including providing altered bank statements-on more than 15 bank loan applications. Together, Mockerman and Malekzadeh received more than $15 million in loans from these applications.

As part of the government's ongoing criminal investigation, federal agents have seized millions of dollars in cash and luxury goods that Malekzadeh acquired with the proceeds of his fraud. The seized items include nearly 100 watches, some valued at over $400,000, jewelry, and hundreds of luxury handbags. The government also seized nearly $6.4 million in cash which was the result Malekzadeh's sale of watches and luxury cars manufactured by Bentley, Ferrari, Lamborghini, Porsche, and others.
After pleading guilty to wire fraud, Arthur Merson, 68, was sentenced in the United States District Court for the District of Maine to 15 months in prison plus three years of supervised release and ordered to pay over $3.4 million in restitution. Previously, Co-Defendants Russell Hearld and Christopher Ochoa, were both sentenced to 29 months in prison. As alleged in part in the DOJ Release:

[I]n 2017 and 2018, Merson participated in a scheme to defraud involving investments in Standby Letters of Credit (SBLCs). Investors were promised that they could receive a portion of the value of an SBLC, worth millions of dollars, for a much smaller initial investment. Investors were promised returns equal to many times the amounts of their initial investments in a matter of weeks. They were also promised that their money would remain in the attorney trust account of a co-conspirator-who at the time was a licensed attorney in Florida-until confirmation was received that the SBLC had been issued.

In his role as an intermediary between investors and the principal members of the conspiracy, Merson falsely represented to investors that the investment was not risky and that he had been involved in similar successful deals in the past. He also falsely represented that he was an independent consultant who was only going to receive a small finder's fee, and claimed not to know the details of the transaction or the payouts the clients could expect. In fact, he had a significant independent financial interest in the investment transaction that he affirmatively misled investors about as he responded to investor inquiries.
In a Complaint filed in the United States District Court for the District of Hawaii, the SEC charged Semisub, Inc., Curtiss Edward Jackson, and Jamey Denise Jackson with violating the anti-fraud provisions of Sections 17(a)(1) and (3) of the Securities Act, and Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder. Further, Semisub and Curtiss Jackson are charged with violating the anti-fraud provisions of Section 17(a)(2) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder. As alleged in part in the SEC Release:

[S]ince 2017, defendants have raised approximately $4.7 million from over one hundred individuals across the United States through the fraudulent offer and sale of securities in Semisub, a company formed by the Jacksons purportedly for the construction and operation of a partially submersible vessel that would be used for commercial sightseeing tours in Hawaii. The complaint alleges that despite telling investors through offering documents and other communications that their funds would be used to construct the initial vessel and then construct and market additional vessels to potential buyers, defendants misappropriated a significant portion of the funds raised to pay for their personal expenses, including, among other things, private homes, vacations, groceries, psychics, and recreational drugs. According to the complaint, to perpetuate the fraud and solicit additional funds to support their personal spending, defendants repeatedly lied to investors about the status of construction of the vessel and potential business relationships with reputable entities and organizations.

Bill Singer's Comment: Can you imagine the show of hands when the heads of SEC asked for volunteers to staff a submarine case in Hawaii? Not to mention (okay, so I'm mentioning) that "recreational drugs" were involved. I mean, geez, Hawaii, submarines, drugs -- what SEC lawyer wouldn't want to be on the trial staff?, the SEC charged Brian Hutchison with violating antifraud and other provisions of the federal securities laws and seeks civil penalties and the return, pursuant to Section 304 of the Sarbanes-Oxley Act ("SOX"), of his bonuses and profits from sales of RTI  Surgical Holdings, Inc. stock, among other relief. 

Without admitting or denying the findings in an SEC Order, Surgalign and Robert Jordheim agreed to cease and desist from violating Sections 17(a)(2) and (3) of the Securities Act and other provisions of the securities laws and to pay civil penalties of $2 million and $75,000, respectively. Jordheim agreed to return $206,831 to Surgalign pursuant to SOX Section 304 and to be suspended from appearing and practicing before the SEC as an accountant; however, he will be permitted to apply for reinstatement after five years. Separately, three other former RTI executives returned over $361,000 of incentive-based compensation to Surgalign. As alleged in part in the SEC Release:

The Securities and Exchange Commission today charged Surgalign Holdings, Inc., formerly RTI Surgical Holdings, Inc., and former executives Brian Hutchison and Robert Jordheim for masking disappointing sales numbers by shipping future orders ahead of schedule to accelerate, or "pull forward," revenue and then failing to disclose this practice to investors. In June 2020, RTI restated its public financial statements from 2014 through 2019 to correct errors caused by this practice.

As alleged by the SEC, RTI's reliance on pull-forwards cannibalized future revenue streams and damaged important customer relationships while the company reassured investors it was meeting revenue guidance. The SEC further alleged that RTI sometimes shipped orders early without customer approval and recognized revenue for those shipments prematurely, in violation of generally accepted accounting principles (GAAP), and that RTI's former CEO, Hutchison, and former CFO, Jordheim, permitted RTI to recognize revenue for such shipments.
Without admitting or denying the findings in an SEC Order, Deccan Value Investors LP and its founder/Chief Investment Officer Vinit Bodas consented to findings that Deccan willfully violated the antifraud, recordkeeping, and compliance provisions of Sections 206(2), 204(a) and Rule 204-2(a)(7) thereunder, and 206(4) and Rules 206(4)-7 and 206(4)-8 thereunder of the Investment Advisers Act of 1940, and that Bodas caused Deccan's violations. Deccan and Bodas consented to a cease-and-desist order and to a censure for Deccan and agreed to pay civil money penalties of $1,139,501 and $500,000, respectively. Deccan also agreed to certain undertakings including the retention of an independent compliance consultant. The SEC Release asserts in part that:

[I]n 2019, two of Deccan's largest investors and clients sought to fully redeem their investments, which together totaled nearly 18% of Deccan's more than $3 billion in assets under management. The order finds that without full and fair disclosure to either university, Deccan did not seek to liquidate in a reasonable manner certain illiquid securities held by both clients. The Commission's order finds that Deccan also made materially misleading statements and omissions, including at Bodas' suggestion, to one of the redeeming university clients ("University Two") in an effort to advantage Deccan's non-redeeming clients and investors, which included Bodas and other Deccan partners. As the order finds, Deccan breached its fiduciary duty: (i) when advising University Two to sell certain of its interests to Deccan's non-redeeming clients at a price advantageous to the non-redeemers; and (ii) by failing to disclose its intent to tie up nearly 13% of the cash in University Two's account in an illiquid side-pocket in the weeks leading up to University Two's final redemption and at a time when Deccan and University Two were negotiating a short-term extension of their investment advisory agreement.

According to the Commission's order, Deccan also failed to retain text messages, as required by the Investment Advisers Act of 1940, including by virtue of Bodas texting Deccan's head of trading operations to delete and to not to back-up their extensive text messages. Finally, the Commission's order finds that Deccan lacked adequate policies and procedures for record retention and client and investor redemptions.

Bill Singer's Comment: Compliments to the SEC on this case! All industry legal/compliance professionals should read the enthralling recitation of facts in the SEC Order The federal regulator presents a very compelling case and, frankly, the misconduct is unsettling. For example, consider this:

7. On April 26, 2019, one of Deccan's largest investors in its Commingled Fund, University One, timely notified Deccan that it wanted to redeem its entire $146 million investment by June 30. 

8. The day Bodas learned of University One's redemption, he reacted with the following text message to the head of trading and operations with directions on how to handle the redemption (the "April Text"): 

"Use everything to hold [University One] back in the [L]SPV. Anything mildly illiquid. We don't want their withdrawal to impact our other investors . . . And then take our sweet time. Hopefully 2 or 3 years . . . And if [University One] hassle[s] us we can tell them we can liquidate immediately at a 20% discount and have the rest of our funds buy it. . . .So basically whatever cannot be sold the that (sic) one day 6/30 goes into the SPV. Why should we sell in advance and have other investors bear the cost of these fools. And then sell 5% of [average daily volume]. . . .So figure this out. . . ." 

. . .

20. University Two, like Deccan's other clients, had exposure to the unlisted
Indian company, which by December 2019 was approximately $17.4 million, or 6% of the value of its SMA. On December 17, as University Two's final year-end redemption date approached, Bodas learned from Deccan's head of trading and operations that Deccan had received bids at 875 Rupee and 880 Rupee for shares sufficient to liquidate most if not all of University Two's interest in the Indian company. If accepted, Deccan would have needed to obtain approval for the transaction from the company's board of directors to complete the trade. By that time, however, Bodas and Deccan had learned from the third party valuation agent that it expected the shares would be marked at 840 Rupee at December 31. As with the indications of interest Deccan received earlier in 2019 discussed
above, Deccan did not seek to pursue these potential opportunities to sell the Indian security for the benefit of University Two.

21. Instead, Bodas and Deccan offered to sell University Two's interest in the
Indian security as part of the same transaction it would utilize to liquidate the interest of University One and its LSPV. To encourage University Two to accept that offer, on December 17 Bodas texted Deccan's head of trading and operations handling the discussions, "[s]hould you tell [University 2] that if we don't sell we may have to side pocket [the investment in the Indian Company] as that's what we'll be doing for others?" Deccan's head of trading and operations, understanding that a side pocket likely would have significantly delayed University Two's final redemption, replied, "Interesting idea would make selling more compelling right?" Bodas responded, "Yes. And you could say there is a likelihood. So make it vague enough." After the head of trading and operations did so, he reported to Bodas, who had not participated in the discussions, that University
Two "pretty much immediately" agreed to the proposed transaction. On December 20, Bodas directed Deccan's head of trading and operations, "[a]ll I want is max price for portfolio and min price to [University Two for shares of the Indian company]. Figure it out . . . Get [University Two] done at 840." 

Justice Department investigation of PSERS 'has closed' with no charges. SEC probe goes on. (Philadelphia Inquirer by Joseph N. DiStefano, Craig R. McCoy, and Erin Arvelund)
Less a case and more a saga -- repleted with internecine warfare on the Board of the Public School Employees' Retirement System. Ya got recriminations. Ya got acrimony. Ya got lawsuits. But, as the Philadelphia Inquirer tells us, DOJ has pulled up stakes and ended its investigation of the $70 billion, state-funded retirement plan. Ahhh . . . but, pray tell, what's the SEC up to these days?

In the Matter of the Arbitration Between:
Jeffrey S. Maier, Claimant, v. Wells Fargo Clearing Services, LLC, Respondent (21-02849)
Charlotte M. Maier IRA, Claimant, v. Wells Fargo Clearing Services, LLC, Respondent (21-02866)
In separate FINRA Arbitration Statements of Claim filed in November 2021 by pro se public customer Claimant Jeffrey S. Maier and by pro se public customer Claimant Charlotte M. Maier IRA, it was asserted that Respondent Wells Fargo Clearing Services, LLC had engaged in misrepresentation/non-disclosures and omissions of facts in connection with the Claimants' investments in municipal bonds. The two cases were consolidated and presented to a single FINRA Arbitrator: Herbert Liberman, who denied Claimants' claims. Arbitrator Liberman penned this thoughtful rationale that provides us with sufficient content and context to understand his ruling:


There is no award to Claimants in this arbitration. During a four-to-five-year period that Claimants held the three municipal bonds purchased via Respondent, they realized a total return of $26,429.05. This included both income and gains on the investments. The testimony by Claimants indicated there was a 14-month period in which they sold the three bonds and purchased other bonds at another brokerage firm. If Claimants had not sold the three bonds, this would have resulted in an estimated interest income of approximately $6,082.00 for the 14- month period. Claimants wrote emails to Respondent and provided recordings expressing concern that municipal bond information documents did not properly advertise the call feature of the bonds. The Arbitrator believes that the written explanation provided by Respondent is sufficient and accurate. Claimants had one call on the Kansas City, Missouri bond. This was of concern to Claimants and led to Claimants eventually selling all three municipal bonds. The Arbitrator is of the opinion that Claimants should have retained the bonds.
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, Morgan Stanley & Co. LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Morgan Stanley & Co. LLC has been a FINRA member firm since 1970 with 4,000 registered persons.  In accordance with the terms of the AWC, FINRA imposed upon Morgan Stanley a Censure and $325,000 fine. As alleged in part in the AWC's "Overview":

Between August 30, 2019, and February 28, 2020, Morgan Stanley published approximately 11,000 equity research reports that included price charts with inaccurate historical stock ratings. As a result, the firm violated FINRA Rules 2241(c)(3) and 2010. These errors resulted, in part, from the failure to establish and maintain a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with FINRA Rule 2241(c)(3). As a result, the firm violated FINRA Rules 3110(a) and (b)(1) and 2010. 

In addition, between April 7 and May 17, 2021, the firm failed to accurately disclose required beneficial ownership information in 1,616 equity research reports. As a result, the firm violated FINRA Rules 2241(c)(4)(F) and 2010. 

Under the AWC's heading "CREDIT FOR EXTRAORDINARY COOPERATION," the following is asserted:

In resolving this matter, FINRA has recognized extraordinary cooperation. The firm retained outside counsel to investigate, and correct, the historical stock ratings and beneficial ownership disclosure issues before the issues were detected by any regulator, and the firm self-reported both issues to FINRA. After discovering the issues, the firm promptly took steps to correct them and voluntarily enhanced its supervisory systems and procedures regarding disclosure reviews and disclosure-related software updates. In addition, the firm provided substantial assistance to FINRA in its investigation, including by identifying the causes, scope, and impact of the disclosure errors and omissions, proactively explaining the findings to FINRA staff in multiple meetings, and providing detailed factual summaries prior to receiving Rule 8210 requests.

Bill Singer's Comment: Extraordinary cooperation? Really?? Just using FINRA's, this is what seems to separate "ordinary" from "extraordinary" when it comes to a FINRA Large Firm such as Morgan Stanley:
  • The firm retained outside counsel to investigate, and correct, the historical stock ratings and beneficial ownership disclosure issues before the issues were detected by any regulator,
  •  [T]he firm self-reported both issues to FINRA.
  •  After discovering the issues, the firm promptly took steps to correct them . . .
  • [T]he firm provided substantial assistance to FINRA in its investigation . . . prior to receiving Rule 8210 requests.
Wow!!! When it comes to setting the bar for "extraordinary cooperation," FINRA seems to be thinking of the last few minutes of a limbo contest. After all, what Morgan Stanley did comes down to essentially four things: 1) hired outside counsel; 2) reported the issues to FINRA; 3) tried to correct the issues; and 4) assisted FINRA in its investigation. After some 40 years on the Street, I gotta tell ya, those four steps don't strike me as anything close to "extraordinary." If FINRA were not trying to put lipstick on this pig, the self-regulatory-organization might have simply concluded that Morgan Stanley discovered that it had a mess in the form of 11,000 inaccurate research reports and then went into a full-fledged bit of damage control by hiring a law firm and trying to put out the fires -- and, geez, this is such a mess that it's gonna leak out to the regulators, so, you know what, let's give 'em a heads up and try to earn some brownie points. Okay -- sure --- Morgan Stanley took its lumps and did everything it could to demonstrate good faith with FINRA but that's not extraordinary cooperation. If anything, it's simply self preservation.

In the Matter of Robert C. Mehlin, Jr.,  Respondent (FINRA AWC 2019061691601)
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, Robert C. Mehlin, Jr. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Robert C. Mehlin, Jr. was first registered in 1981, and from July 2015 to February 2019, he was registered with Wells Fargo Advisors Network.  In accordance with the terms of the AWC, FINRA imposed upon Mehlin a $7,500 fine and a three-month-suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

From August 2015 to February 2019, Mehlin exercised discretion in eight customer accounts held by members of the same family by effecting over 250 trades across the accounts without receiving same-day authorization. Although the customers approved his exercise of discretion, none of them provided prior written authorization for Mehlin to exercise discretion in their accounts. Nor did the firm accept any of the accounts as discretionary and, in fact, it prohibited the exercise of discretion, except in certain circumstances not applicable here. In addition, from 2015 to 2018, Mehlin inaccurately stated on four annual compliance questionnaires that he did not exercise discretion in customer accounts; and, in 2018, improperly asked one of the customers to deny his use of discretion in any conversation with the firm. 

Therefore, Mehlin violated NASD Rule 2510(b) and FINRA Rule 2010. 
. . .

From June 2017 through February 2019, Mehlin used text messages to and from his private phone number to communicate with one of the customers in whose account he exercised discretion. The messages concerned securities business including, inter aha, discussions about investment choices, account performance, and completing firm forms. Because the text messages were not done through an approved firm platform, they were not captured, supervised, or retained by the firm. In addition, in a 2018 annual compliance questionnaire, Mehlin inaccurately stated that he did not use personal text messages to discuss securities business with customers. 

Therefore, Mehlin 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, David John Wilkie submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that David John Wilkie was first registered in 1972, and from 1994 to March 2021, he was registered with Voya Financial Advisors, Inc.  In accordance with the terms of the AWC, FINRA imposed upon Wilkie a $10,000 fine and a six-month-suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

From 2011 through the date of his termination Wilkie circumvented his firm's written procedures by taking steps to conceal that he had been named as a beneficiary on a customer's life insurance policy, including by failing to notify his firm he was named as a beneficiary, eventually causing his son to be named as a beneficiary and submitting eight false compliance questionnaires denying his beneficiary status in violation of 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, Timothy Jay Fazzone submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Timothy Jay Fazzone entered the industry in 1986 and in June 2015, he was registered with NYLife Securities LLC until July 2018. In accordance with the terms of the AWC, FINRA imposed upon Fazzone a Bar from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In December 2017, Fazzone's firm customer purchased a fixed annuity issued by the firm's affiliate, New York Life, in the amount of $177,715. Fazzone earned a $5,775 commission on the sale. 

In April 2018, the customer died. In June 2018, Fazzone submitted a claim against the customer's estate seeking reimbursement for the $5,775 commission which he represented had been reversed by New York Life. To support his claim, Fazzone presented a document purportedly prepared and signed by the customer instructing the estate to reimburse Fazzone for any commissions reversed due to her death. 

Based on Fazzone's claim, the customer's estate paid Fazzone the $5,775. However, New York Life did not reverse or charge back Fazzone the $5,775 commission at any time. 

By submitting a wrongful claim and receiving reimbursement to which he was not entitled, Fazzone converted $5,775 from his firm customer's estate. 

Therefore, Fazzone violated FINRA Rule 2010.
As I presciently opined in June 2022, Judge Edwards' dramatic Leggett v. Wells Fargo Opinion was reversed on August 2nd by the Court of Appeals of Georgia. As I had predicted, the appellate court found that the lower court had somewhat improperly substituted her opinions for those of FINRA's arbitrators and FINRA's Director of Arbitration. What the Court of Appeals presents to us is a shrug. It is an unfortunate excuse for public investors being deprived of the justice that would be rendered in a court but often goes missing in an industry-mandated arbitration forum.
In a recent FINRA Arbitration Award, an arbitrator mounts Rocinante and grabs a lance. Even though we are merely Sancho Pancho (who went along for the ride), still, we get to smile at the spectacle of Don Quixote tilting at windmills. Equity, due process, and justice vanquish the heartless, amoral application of the law. In these plague days, that's a nice change of pace. Also, it's one hell of a wonderful FINRA Arbitration Award penned with eloquence.
If you are a FINRA Small Firm you don't need me to tell you how dire things have become in 2022. Year after year, the numbers of small firms have dwindled to the point where there are now more FINRA employees than FINRA member firms. In response to that changing landscape, the FINRA Large Firms have consolidated their grip on FINRA and continue to socially engineer their small competitors out of business. Each year, candidates for one of the three FINRA Small Firm seats seek your vote and promise to speak out and speak up on your behalf.  Once elected, however, your purported champions become complacent -- some might even say compliant. I have known Stephen Kohn for many years. Stephen has owned his own small firm. He has been in our biz for decades. Stephen sees the crisis that is upon us, and he knows that it's now or never.  He will take his seat at the FINRA Board, but he will not be told to sit down and shut up. VOTE FOR STEPHEN KOHN!