Securities Industry Commentator by Bill Singer Esq

COVID-19 throws a curve ball at RIA M&A market, gut-punching valuations and causing fence-sitters to resolve to get the hell out, but Q1 prices hold their own / M&A rainmakers hedge their bets on how deep COVID-19 will drive cuts to RIA sale prices, although first quarter market has been stable (RIABiz by Oisin Breen)

It Ain't Over Till It's Over As Martinovich Appeals Continue (BrokeAndBroker.com Blog)

FINRA RMBS Arbitration Claims Against Merrill Lynch Dismissed In the Matter of the Arbitration Between Linda Marcelli, Claimant, v. Merrill Lynch, Pierce, Fenner & Smith, Respondent (FINRA Arbitration Decision)

FINRA Fines and Suspends Wedbush Principal Over Margin Maintenance Supervision. In the Matter of James Richards, Respondent (FINRA AWC)

Small businesses sue China citing coronavirus response / California small businesses seeking $8T in damages (Fox Business News by Stephanie Pagones)

Foreign National and American Trader Settle Fraud Charges in EDGAR Hacking Case (SEC Release)

Chris Cuomo shares picture that embarrasses brother (CNN)

The COVID-19 pandemic sweeping the world took RIA valuations back to 2017 in about seven days. In the process, it may also have clarified for aging RIA owners why the time to think about retirement has finally come. 

But there is still too much uncertainty in the market to determine how it will affect valuations, or which direction the M&A market may turn. 

violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act; multiple breaches of duty; attempt to avoid FINRA jurisdiction in violation of industry rules; failure to disclose wrongful actions in violation of industry rules; violations of FINRA Rules in breach of contract; and conspiracy. The causes of action relate to Claimant's allegations that, while employed by Respondent, she received company stock and company stock options as part of her compensation and, as a result of Respondent's alleged unlawful activity (which resulted in United States Department of Justice and Securities and Exchange Commission charges), her company stock holdings were significantly damaged and her stock options were worthless when they expired. 

The problems with residential mortgage-backed securities and collateralized debt obligations were well-known by the public, as a result of widely available news reports, articles, and books during the time frame that this case would have been eligible for arbitration. Accordingly, any reasonable investor, especially an experienced financial professional such as Claimant, would have known or should have known of the problems. The decline in the value of Respondent's stock (and, after the merger, Bank of America Corporation stock) occurred during the 2008 and 2009 time frame. This case originated as a FINRA filing with no court directing Claimant to arbitration. No relevant activity or occurrence giving rise to a claim occurred during the six years prior to the filing of the Statement of Claim on May 22, 2018. 

The Firm's margin WSPs stated that the credit department was responsible for daily customer account reviews and the issuance of margin calls and liquidation notices to any customer whose account was deficient in the amount of required margin equity. The Firm designated Richards as the supervisor responsible for enforcing the Firm's compliance with the margin rules. 

Customer A, a senior officer of the Firm and one of its largest securities customers, held a group of securities accounts at the Firm that were combined for margin purposes. Richards reported directly to Customer A. Throughout the Relevant Period, Customer A's accounts were periodically in margin deficit based on the equity limits set out in FINRA Rule 4210 and other relevant margin laws and regulations. 

In April 2017, Customer A's accounts had a margin deficit of more than $1 million. In October 2017, the margin deficit in Customer A's accounts increased to approximately $5 million. The deficit increased to approximately $12 million in December 2017 and to approximately $31 million by the end of January 2018. The accounts remained in significant margin deficit continuously through March 2, 2018, when the Firm, at the behest of FINRA's Member Supervision staff, began liquidating securities in Customer A's account to alleviate the then approximately $23 million deficit. 

During the Relevant Period, Richards had knowledge of the margin deficits in Customer A's accounts, yet failed to take reasonable action to bring the accounts into margin compliance with FINRA Rule 4210. Specifically, an employee of the Firm's credit department, who reported to Richards, informed Richards that Customer A's accounts were in margin deficit and in violation of applicable margin regulations. Based on this, Richards knew that Customer A's accounts were in violation of FINRA Rule 4210 and other applicable margin regulations since the start of the Relevant Period and continuously after approximately September 28, 2017. Customer A falsely told Richards that he could not enter liquidating trades to bring Customer A's accounts into margin compliance, but Richards retained authority and responsibility under the Firm's WSPs to take reasonable actions to bring the accounts into margin compliance. 

Richards was obligated to reasonably discharge his supervisory responsibility to achieve Firm compliance with FINRA rules related to margin. Despite knowing the magnitude of the margin deficits in Customer A's accounts, Richards failed to cause the credit department to issue margin calls and liquidate collateral from Customer A's accounts, or to take reasonable steps to investigate or to bring Customer A's accounts and the Firm into margin compliance. As a result, Richards failed to act reasonably in the exercise of his supervisory obligations, in violation of FINRA Rules 3110 and 2010.¹ 

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^{Footnote 1:  In 2019, NYSE Arca brought a proceeding on consent against the Firm and Customer A for, among other things, f}ailing to apply and enforce Exchange margin requirements with respect to Customer A's securities accounts held at the Firm and failing to supervise Customer A and accounts managed by him. The Firm agreed to a censure and a $1 million fine ($900,000 of which was payable jointly and severally with Customer A). (NYSE Proc. No. 2016-07-01264). 

Edward W. Wedbush is the founder of Wedbush Securities, a firm he co-founded in 1955. At all times relevant to this Decision, Mr. Wedbush was the president of Wedbush Securities, and also served as a director of the Firm and the Chairman of the Firm's parent company, Wedbush, Inc.

. . .

In addition to serving as the president of Wedbush Securities, Mr. Wedbush spent several hours each trading day actively managing and trading in more than 70 accounts (collectively, the "EW Controlled Accounts"). These accounts consisted of multiple discretionary accounts over which he had power of attorney (including accounts for relatives, friends, and Firm employees), as well as personal and proprietary accounts for affiliates of Wedbush Securities and Wedbush, Inc., the Firm's parent company (of which Mr. Wedbush was also the largest shareholder).

A number of California-based small businesses have sued China, its Health Commission and the city of Wuhan for $8 trillion accusing its government of withholding information pertaining to the existence and spread of the novel coronavirus despite knowing about the virus as early as the end of last year, TMZ reported.

The coalition of small businesses argues China and the other parties named as defendants were aware of the threats surrounding the new virus as early as November 2019, but neglected their responsibility to notify the World Health Organization and other countries and waited to do so until months later, according to the TMZ report.

According to the SEC's complaint, Kwon, of California, Sabodakha, of Ukraine, and seven other defendants participated in a scheme to hack into EDGAR and extract material, nonpublic information to use for illegal trading. The complaint alleged that a Ukrainian hacker extracted EDGAR files containing nonpublic earnings results. Kwon and Sabodakha allegedly traded on the basis of this hacked information in the narrow window of time between when the files were extracted from EDGAR and when the information was released to the public. Sabodakha also allegedly previously traded based on material nonpublic information obtained through the hack of at least two newswire services.

• Securities Industry Commentator
• Bill Singer