The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
August 23, 2021
http://www.brokeandbroker.com/6014/finra-expungement-rationale/
BrokeAndBroker.com's publisher, Bill Singer, is no fan of FINRA's expungement process. When wearing his white hat as an investor's advocate, Bill sees FINRA's expungement process as little more than a profitable drive-in car wash that cleans dirty records and polishes undeserving reputations. When wearing his black hat as an industry advocate, Bill sees FINRA's expungement process as a cudgel with which broker-dealer employers pound their former employees via mandatory intra-industry arbitration replete with high fees and enervating delays. Notwithstanding Bill's reservations and concerns, a recent FINRA Arbitration Award presented a compelling case for expungement that was deftly handled by a very competent arbitrator.
SEC Charges San Antonio Investment Adviser with Operating a Fraudulent Scheme and Misappropriating Investor Assets (SEC Release)
https://www.sec.gov/litigation/litreleases/2021/lr25179.htm
In a Complaint filed in the United States District Court for the Western District of Texas https://www.sec.gov/litigation/complaints/2021/comp25179.pdf, the SEC charged Robert J. Mueller and deeproot Funds, LLC with violating the antifraud provisions of Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and further charged Policy Services, Inc. with violating the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act, and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder. Several Mueller's affiliated businesses and a Mueller family trust were named as Relief Defendants. In part the SEC Release alleges that:
[M]ueller and his company deeproot Funds, LLC were investment advisers to two pooled investment funds that Mueller created. According to the complaint, Mueller and deeproot persuaded investors, many of whom were retirees, to cash out annuities they held with other investment companies and invest in the funds. The complaint alleges that the funds ultimately received more than $58 million from investors. As alleged, Mueller funneled more than $30 million of the funds' assets to other businesses he controlled, and used at least $820,000 of new investor money to pay earlier investors. The complaint also alleges that Mueller and deeproot, acting with and through defendant Policy Services, Inc. - another entity Mueller owned - paid Mueller approximately $1.6 million in salary that was not adequately disclosed to the funds or their investors while also misappropriating another approximately $1.5 million to pay Mueller's personal expenses.
FINRA Censures and Fines J.P. Morgan for Reg SHO Failures-to-Deliver and Naked Shorting
In the Matter of J.P. Morgan Clearing Corporation n/k/a/ J.P. Morgan Securities LLC, Respondent (FINRA AWC 2014041721501)
https://www.finra.org/sites/default/files/fda_documents/2014041721501
%20J.P.%20Morgan%20Clearing%20Corporation
%20nka%20J.P.%20Morgan%20Securities%20LLC%20CRD%2079%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, J.P. Morgan Clearing Corporation submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that J.P. Morgan Clearing Corporation became a FINRA member in 1991, merged in December 2016 with J.P. Morgan Securities, LLC, and the latter became the surviving entity with over 26,000 registered representatives at 5,340 branches. In accordance with the terms of the AWC, FINRA imposed upon J.P. Morgan a Censure and $300,000 fine. As alleged in part in the AWC [Ed footnote omitted]:
https://www.finra.org/sites/default/files/fda_documents/2014041721501
%20J.P.%20Morgan%20Clearing%20Corporation
%20nka%20J.P.%20Morgan%20Securities%20LLC%20CRD%2079%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, J.P. Morgan Clearing Corporation submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that J.P. Morgan Clearing Corporation became a FINRA member in 1991, merged in December 2016 with J.P. Morgan Securities, LLC, and the latter became the surviving entity with over 26,000 registered representatives at 5,340 branches. In accordance with the terms of the AWC, FINRA imposed upon J.P. Morgan a Censure and $300,000 fine. As alleged in part in the AWC [Ed footnote omitted]:
From July 2009 through September 2015, J.P. Morgan sent emails to allocate the responsibility of closing out fail to deliver positions to two introducing broker-deals in accordance with Rule 204(d). J.P. Morgan's allocation notices, however, did not make reasonably clear that the firm was allocating responsibility for closing out the fails to the introducing broker-dealers. As a result, certain fail to deliver positions the firm sought to allocate were not closed out in a manner required by Rule 204 and securities that were subject to the close out requirement were not put in the penalty box. In addition, rather than looking to its own books and records as required by Rule 201, the firm determined whether to purchase securities to close out a fail by reviewing whether fails were closed out on an account level basis.J.P. Morgan's supervisory system, including written supervisory procedures (WSPs), was not reasonably designed to achieve compliance with the requirements of Rule 204(d)'s notice provisions, despite the firm's reliance on allocations to close out fails on a daily basis The firm's WSTs also did not describe how supervisory reviews with respect to Rule 204(a) were documented.As a result of the forgoing, the firm violated Rule 204, NASD Rules 2010(a) and (b), and FINRA Rules 3110(a) and (b) and 2010.
Bill Singer's Comment: Lemme see if I got this. JPM had been screwing up its close-out procedures for FTDs since 2009 -- some 12 years ago -- and FINRA is only now discovering that JPM's WSPs were not "reasonably designed to achieve compliance." Ummm, what exactly, has the self-regulator's examination staff been reviewing each and every year from 2009? All of which exposes the cynical nature of FINRA's censure-and-fine approach to the misconduct of its large member firms and the lack of accountability imposed upon the regulator's own staff.
In the Matter of Debasish Hajra, Respondent (FINRA AWC 2019064919301)
https://www.finra.org/sites/default/files/fda_documents/2019064919301
%20Debasish%20Hajra%20CRD%202212337%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, Debasish Hajra submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Debasish Hajra was first registered in 1992 and by 2009, he was registered with Wells Fargo Clearing Services, LLC until December 2019, at which time he associated with another firm. In accordance with the terms of the AWC, FINRA imposed upon Debasish Hajra a $5,000 fine and a 30-calendar-day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:
https://www.finra.org/sites/default/files/fda_documents/2019064919301
%20Debasish%20Hajra%20CRD%202212337%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, Debasish Hajra submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Debasish Hajra was first registered in 1992 and by 2009, he was registered with Wells Fargo Clearing Services, LLC until December 2019, at which time he associated with another firm. In accordance with the terms of the AWC, FINRA imposed upon Debasish Hajra a $5,000 fine and a 30-calendar-day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:
Customer A, a senior customer, maintained an account at the firm, with Respondent as her assigned GSR. The account had been non-discretionary since its inception in 2014. At least eight days prior to her death, Customer A met with Respondent and authorized him to make several trades in her account, primarily in unit investment trusts and bonds. On June 8, 2018, Customer A died and Respondent had not effectuated any of the trades. On June 26, 2018, 18 days after Customer A's death, Respondent executed the first of the transactions. Between June 28, 2018 and July 18, 2018, Respondent executed the eight remaining trades with the last trade on July 18, 2018. The total value of the transactions was $526,966.Therefore, Respondent violated FINRA Rule 2010.