Securities Industry Commentator by Bill Singer Esq WEEK IN REVIEW

Many card readers have a functionality, though, that allows someone to input a code that serves to take the card reader offline, overriding the denial message and verifying the transaction.  Malign actors can take advantage of this functionality by inputting a fictitious code not provided by the issuing bank under the guise of entering a pin code or other authorization code, which could cause the card reader to show that the transaction was authorized.  The merchant may then let the customer leave with any merchandise the customer attempted to purchase; the merchant would not learn that the code was fictitious and the transaction invalid until days or even months later.  The process by which a customer could take advantage of the functionality is called "forced posting" or "forcing the off."

Bank records, corroborated by interviews with more than 30 merchants, show that from 2013 up to May 2018, LATOYA ROBINSON, DASHAWN JOHNSON, and TANYA HATWOOD, together and separately, performed forced posting on dozens of occasions, and schemed to take or attempt to take more than $900,000 in merchandise in total. 

The Claimant's application suffers from a fatal defect, however. At no point prior to the issuance of any of the final orders in the Covered Action did the Claimant qualify as a "whistleblower" in connection with any submission for which Claimant is now seeking an award. The Commission's whistleblower rules provide that, to qualify as a whistleblower for purposes of the Commission's award program, an individual must submit his or her information through the Commission's website, or mail or fax a completed Form TCR to the Commission. See Exchange Act Rule 21F-2(a) & 21F-9(a).

1. This matter concerns Mizuho's failure to maintain and enforce policies and procedures reasonably designed to prevent the misuse of material nonpublic customer order information concerning the repurchase of shares by issuers ("customer buyback order information"), in violation of Section 15(g) of the Exchange Act. In particular, although Mizuho had established certain policies and procedures to prevent the misuse of material nonpublic information, from approximately December 2012 through December 2014 (the "Relevant Period"), Mizuho failed to maintain and enforce its policies and procedures aimed at preventing Mizuho execution and sales traders from disclosing material nonpublic customer buyback order information internally to other Mizuho traders and externally to customers. These policies and procedures required, among other things, effective information barriers between Mizuho equity trading desks and measures to protect confidential Mizuho customer order information, including the identities of buyback customers that had placed trade orders with Mizuho. Mizuho's failures created a risk that Mizuho execution and sales traders could misuse material nonpublic customer buyback order information, including by disclosing the order information to Mizuho customers. 

2. As a result of these failures, during the Relevant Period, Mizuho's execution and sales traders received confidential issuer buyback trade information on nearly every day that Mizuho executed buyback trades. Moreover, the head execution trader on Mizuho's U.S. Equity Trading Desk was given direct access to Mizuho's International Trading Desk's order management system, which included buyback purchase trade orders, and he also routinely disseminated such information to traders on his desk. 

3. In addition, on several occasions, Mizuho execution and sales traders disclosed to certain firm customers nonpublic customer buyback order information. The information often included the order size, the limit price, and key terms that indicated to the recipients that the orders were issuer buyback orders. This trade information was valuable to other market participants, particularly given that the party placing the trade was the issuer. Moreover, many of the issuer buyback orders that Mizuho handled during the Relevant Period comprised a significant portion of the daily trading volume in the stocks being bought back, which increased the potential impact of the buyback orders on the prices of those stocks. 

Staff Letter: Dalia Blass, Director, Division of Investment Management, January 18, 2018

Responses to Staff Letter:

Van Eck Associates Corporation, July 20, 2018

SIFMA Asset Management Group, May 14, 2018

CBOE Global Markets, March 23, 2018

• Securities Industry Commentator
• Bill Singer