Securities Industry Commentator by Bill Singer Esq
March 21, 2019
http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-19-09.pdf
FINRA Regulatory Notice 19-09 informs us that it is a "Notice Type: Guidance," which should be routed to Compliance, Legal, Registered Representatives, Systems, Trading, and Training. That's a helluva a lot of guidance! And what of this guidance -- well, the Notice asserts that it is a reminder to FINRA member firms issued by FINRA after consultation with SEC staff. Wow -- sounds really important. This post-SEC-consultation-FINRA-reminder warns FINRA firms about their obligations regarding foreign-private-issuers' quotations.
As a Registered FINRA Notices Explainer, I use a FINRA Secret Decoder Ring.
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After you purchase your FINRA Secret Decoder Ring, try your hand at deciphering the hidden code in the "Summary" portion of FINRA Regulatory Notice 19-09:
In consultation with the staff of the Securities and Exchange Commission (SEC staff), FINRA is issuing this Notice to remind firms of their obligations under Securities Exchange Act (SEA) Rule 15c2-11 and FINRA Rule 6432 (Compliance with the Information Requirements of Rule 15c2-11) regarding quotations in the securities of foreign private issuers that rely on SEA Rule 12g3-2(b). Specifically, we are reminding firms that Rule 15c2-11(a)(4) requires that they make paragraph (a)(4) information reasonably available upon request to any person expressing an interest in a transaction involving the security, such as by providing the requesting person with appropriate instructions regarding how to obtain the information electronically. Firms cannot comply with this requirement by directing customers to an issuer's website if, by its terms, the website restricts access by U.S. persons to the paragraph (a)(4) information.
http://www.finra.org/sites/default/files/aao_documents/18-01937.pdf
The customer's claims against Claimant in the underlying arbitration case in connection with Occurrence No. 1717411 amounted to allegations that he stole funds from her account, churned or overtraded her account, and recommended unsuitable investments for her account. Both at the arbitration and the expungement hearing, Claimant testified that she understands nothing about finances and totally relied upon Claimant to assist her. Based almost exclusively on things she was told by others, she concluded that Claimant took advantage of her. The Arbitrator believed that the customer, unfortunately, believed those things and continues to believe them today. The evidence, however, shows quite the contrary. Claimant did not steal any money from the customer, nor did he overtrade her account, and all parties to the arbitration, other than Claimant, including her attorney, who quite competently and zealously represented her at the arbitration, recognized this. By the end of the arbitration hearing, it was apparent that the sole contested issue was whether the investments in customer's portfolio were suitable. The Panel found then, and the Arbitrator continued to find, that the investments were conservative, suitable and that all of them were discussed with the customer prior to purchase.As a further reason for expungement, the Arbitrator noted that the current CRD record is confusing and misleading. At one time, there were two customer complaint disclosures; one relating to the initial written complaint from the customer with the S.E.C., and the other relating to the arbitration filed by the customer. Both the written initial complaint and the arbitration arose from the same essential facts, although the legal characterization of the claims changed somewhat during the arbitration. Claimant added his statement contesting the customer's claims to the CRD after the arbitration Award was entered in his favor, but before the arbitration claim was removed from his public CRD record.Since all of the customer's claims have been determined to be false and/or clearly erroneous, and since both entries relate to those claims, they should both be removed from the Claimant's CRD record. Leaving either Claimant's statement or the reference to the initial customer complaint on the CRD would perpetuate disclosure of a claim that the Arbitrator has determined to be appropriately expunged pursuant to Rule 2080 as explained in the first paragraph of this explanation.
[M]ittal was part of a conspiracy that carried out an international internet "Tech Support Scam," by placing fake pop-up ads on victims' computers to convince them they had a serious computer problem, and to induce them to pay for purported "technical support" services to resolve the issue. Mittal admitted in court today that he and "Individual 1" resided together in Charlotte. Individual 1 was the owner/manager of Capstone Technologies LLC (Capstone), a company headquartered in Charlotte that claimed to provide computer-related services to its customers. Capstone conducted business using several different aliases, including Authenza Solutions LLC, MS-Squad Technologies, MS-Squad.com, MS Infotech, United Technologies, and Reventus Technologies, (collectively, Capstone Technologies). Individual 1, Mittal, and others carried out the tech support scam using a call center located in India, set up to handle "tech support" calls with potential victims.According to the information, pop-up ads were a central part of the conspiracy's tech support scam. Individual 1 and other co-conspirators purchased blocks of malicious pop-up adware from publishers around the world. The fake pop-ups would suddenly appear on victims' computers freezing their screens, prompting victims to contact Capstone Technologies at a number shown on the pop-up ad. When victims called the Indian-based tech support center for assistance, the co-conspirators used remote access tools to gain control of the victims' computers. Once in control of the computers, the scammers identified various fictitious causes for the victims' purported computer malfunction, including the presence of malware or computer viruses, and induced victims to pay for virus clean-up or other tech support services. The co-conspirators then charged victims between $200 and $2,400 to make computers operable again. According to the information, Mittal and his co-conspirators defrauded hundreds of victims throughout the United States, some of whom were elderly, of more than $3 million.
SEC Charges Investment Adviser with Stealing Millions from Investors to Perpetrate Ponzi Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2019/lr24430.htm
In a Complaint filed in the United States District Court for the Central District of California, https://www.sec.gov/litigation/complaints/2019/comp24430.pdf, the SEC charged former CPA and unregistered investment adviser Carol Ann Pedersen with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-8 thereunder. Pedersen consented to a final judgment that imposes injunctive relief and she will be liable for approximately $2.7 million in disgorgement and interest, which will be deemed satisfied by the anticipated entry of a restitution order against her in a seperate criminal action arising from the same conduct. As set forth in part in the SEC Release, Pedersen:
raised at least $29 million from 25 investors, falsely promising to invest their money in securities. Pedersen told prospective investors that she would place their money in "federally guaranteed" securities with returns typically greater than 8%. Pedersen also solicited investments in the C.A. Pedersen Client Investment Pool, a limited partnership managed by Pedersen that she claimed owned a large and diverse stock portfolio. According to the complaint, rather than make the promised investments, Pedersen used about $25.6 million to make Ponzi-style payments to investors, and the remaining funds to pay for personal expenses including car payments and home renovation costs. To conceal her fraudulent scheme, Pedersen provided investors with fabricated account statements that falsely represented that their money had been invested and was earning a return. Pedersen's scheme fell apart in 2017 when she began to experience chronic cash flow problems and investors sued her.
SEC Proposes Offering Reforms for Business Development Companies and Registered Closed-End Funds (SEC Release)
https://www.sec.gov/news/press-release/2019-39
The SEC proposed rule amendments to implement certain provisions of the Small Business Credit Availability Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act in an effort to improve access to capital and facilitate investor communications by business development companies and registered closed-end funds. Business development companies ("BDCs") are a type of closed-end fund established by Congress that primarily invest in small and developing companies.The SEC's proposal would allow eligible funds to engage in a more streamlined registration process to sell securities in response to market opportunities. BDCs and registered closed-end funds will be able to use communications and prospectus delivery rules currently available to operating companies. Proposed amendments include new periodic and current reporting requirements and new structured data requirements; and a modernized approach to registration fee payments for closed-end funds that operate as "interval funds." READ the SEC Rule Proposal
https://www.sec.gov/rules/proposed/2019/33-10619.pdf