The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

May 28, 2020


Mortgage demand from homebuyers shows unexpectedly strong and quick recovery, as applications spike 9% from a year ago (CNBC by Diana Olick)

Tilman Fertitta: Coronavirus crushing commercial real estate / The Houston Rockets owner is feeling the financial pinch from the coronavirus (Fox Business by Lucas Manfredi)

CFP Board's Board Of Directors Approves Provisions For Conducting Disciplinary Hearings Via Video Conferencing (CFP Release)

Fed finds new challenge for the economy: Workers who don't want to come back to their jobs (CNBC by Jeff Cox)
https://www.cnbc.com/2020/05/27/fed-beige-book-many-workers-dont-want-to-come-back-to-their-jobs.html
If you re-open the economy, will they come? It's an interesting question. There the jerks, the con-artists, and the lazy who would just as soon cash their unemployment check and stay put on their couch. Regardless, I believe that most unemployed folks desperately want to get back to work and get paid a fair day's wage for a fair day's work. So the spirit's willing but what happens if you rush back to work, get sick, and your family is burdened with the cost of your care or worse? 
If your employer opens, will the premises be safe? Will there be an effort to sanitize your work environment with a zeal and frequency that works? What if 90% of your colleagues report back with masks and abide by social distancing but 10% refuse to respect those conventions? If your employer won't stand with the 90%, will you quit and look for work elsewhere? If the employer demands compliance with it in-house protocols, will the 10% sue? And what if the schools don't open or don't do so fully? Will one spouse have to stay home or can the family afford daycare? As CNBC's Cox notes in part,:

Business leaders "cited challenges in bringing employees back to work, including workers' health concerns, limited access to childcare, and generous unemployment insurance benefits," the report said.

Goldman is bringing traders back to offices in New York and London in the 'next several weeks' (CNBC by Hugh Son)
https://www.cnbc.com/2020/05/27/goldman-is-bringing-traders-back-to-offices-in-new-york-and-london-in-the-next-several-weeks.html
As CNBC's Son reports in part:

While Wall Street has in general worked far better remotely than it was thought possible before the pandemic, many workers have wondered when they would be able to return to an office environment. The news comes as New York City officials are planning out how to reopen parts of the city as soon as next month. 

Later on during the discussion, Waldron explained one reason they are eager to return: Concern that Goldman's vaunted culture, which leans on in-person collaboration and mentorship of junior personnel, will weaken over months of remote interaction.

http://www.brokeandbroker.com/5245/aegis frumento insecurities nyse/
In today's Guest Blog, Aegis Frumento notes that this past Tuesday, Governor Cuomo rang the opening bell at the New York Stock Exchange and later declared it a symbol of New York turning the corner from the coronavirus lockdown to the renaissance of the City's economy. That would be nice, but from all appearances, Frumento laments that economy still needs a ventilator. Worse, choosing the NYSE Floor as the symbol of the City's new day was a misstep. The Floor is not the future, but the past quickly receding into history. Clearly, Frumento is not all warm, fuzzy, and cheery within the embrace of social distancing and working from home.

https://www.cnbc.com/2020/05/27/sofi-ceo-anthony-noto-40percent-of-trading-on-platform-is-through-fractional-shares.html
As CNBC's Stankiewicz reports in part:

Younger investors, in particular, have sensed opportunity during the coronavirus-driven market downturn as a number of other online brokers say they saw a spike in new accounts so far this year.  

Noto, a former executive at Twitter and the National Football League, said that 40% of trades on SoFi Invest are through fractional shares. 

Allowing fractional stock purchases is viewed as a way to make investing more accessible, particularly for younger people. Firms such as Robinhood and Fidelity also offer fractional trading, and Charles Schwab's "Schwab Stock Slices" service is launching soon. 

Bill Singer's Comment: Hey sonny, waddya got in your pocket, a few hundred bucks in play money? Listen, kiddo, buy some stocks. You don't think ya got enough moolah? Hey, sonny, if you buy now, I'm gonna sell you a fraction of a share. Alls ya gotta do is deposit into a brokerage account that cash that's burnin' a hole in your COVID pocket and you can trade like the pros! Watch the Level II screen with its dancin' colors and changin' prices! Watch Stock Market go up and watch it go down. No amount too small. No risk too big. Step right up and get into the stock game!
Now, don't get me wrong -- I detest intrusive big government and the Nanny State. If you're old enough to open a brokerage account, then you're old enough to get wiped out. If you can trade like a pro, maybe you'll make a fortune but Lady Luck doesn't always shine on the newbie daytrader. Wall Street is, after all, a street with a graveyard at one end and a river at the other. 
As one of those ravenous lawyer sharks, I'm circling here in the waters waiting to smell blood. I know my phone will ring. Mr. Singer, I lost all my money during the COVID pandemic. It was rent money. It was supposed to go to pay tuition. I didn't have to pay rent for a while. I didn't have to pay tuition for a while. Mr. Singer, now I gotta pay rent and they want my tuition. Can you help me recover my losses. 

Robinhood Fixed Issue That Displayed Incorrect Portfolio Values (Bloomberg by Nathan Crooks)
https://www.bloomberg.com/news/articles/2020-05-27/robinhood-fixed-issue-that-displayed-incorrect-portfolio-values?srnd=premium
Speaking about the crush of biz from all those COVID day-traders, Bloomberg's Crooks reports in part that Robinhood was displaying incorrect portfolio values. Wow, that could be a mess. Thankfully they fixed it. Unfortunately, that may be only the start of addressing the problem. Also see:

FINRA Fines Robinhood Financial, LLC $1.25 Million for Best Execution Violations (Securities Industry Commentator / December 20, 2019)
http://www.rrbdlaw.com/4964/securities-industry-commentator/#robinhood

https://www.justice.gov/usao-wdny/pr/previously-convicted-fraudster-charged-new-fraud-scheme
In a Complaint filed in the United States District Court for the Western District of New York, Henry Williams (who is currently on supervised release following a 2016 conviction for bank fraud) was charged with wire fraud, bank fraud, and aggravated identity theft. As alleged in the DOJ Release:

[W]illiams engaged in a new scheme to defraud his employer and others. The defendant worked at the front desk of a Holiday Inn Hotel, and while so employed used the hotel's Point of Sale machine fraudulently  to load and attempt to load hundreds of thousands of dollars onto credit/debit cards that he controlled. Williams impersonated various hotel managers while making phone calls to the hotel's card payment processor in furtherance of his scheme. The defendant also attempted to cover his tracks and conceal his involvement in the fraud by impersonating a hotel employee and making false complaints of criminal activity by another hotel employee.  In total, Williams attempted to defraud the hotel and hotel's banks out of approximately $850,000. The defendant also made fraudulent and unauthorized charges in the approximate amount of $780 by using information regarding a customer's credit/debit card that he had stolen from the hotel.

Billion-Dollar Secrets Stolen / Scientist Sentenced for Theft of Trade Secrets (FBI Release)
https://www.fbi.gov/news/stories/scientist-sentenced-for-theft-of-trade-secrets-052720
This FBI Release tells the story of scientist Hongjin Tan, whose employer phoned in a tip to the FBI, which ended with Tan's guilty plea and 24-month prison sentence for stealing confidential battery-technology trade information.

https://www.cnbc.com/2020/05/27/mortgage-demand-from-homebuyers-shows-strong-and-quick-recovery.html
As CNBC's Olick reports in part:

Mortgage applications to purchase a home rose 9% last week from the previous week and from a year earlier, according to the Mortgage Bankers Association's seasonally adjusted index. It was the sixth straight week of gains and a 54% recovery since early April.

"The home purchase market continued its path to recovery as various states reopen, leading to more buyers resuming their home search," said Joel Kan, an MBA economist. "Additionally, the purchase loan amount has increased steadily in recent weeks and is now at its highest level since mid-March." 

The gain mirrors an unexpectedly strong sales pace just reported for newly built homes in April. They were forecast to fall 22% but instead rose nearly 1% for the month, according to the U.S. Census. Buyers are rushing into the new home market, as the supply of existing homes keeps falling to new record lows. Some analysts also believe there is now a flight from urban downtowns, where people have been sheltered in small apartments, to suburban markets, where they can find more space, especially backyards and home offices. 

Tilman Fertitta: Coronavirus crushing commercial real estate / The Houston Rockets owner is feeling the financial pinch from the coronavirus (Fox Business by Lucas Manfredi)
https://www.foxbusiness.com/business-leaders/landrys-ceo-warns-of-potential-commercial-real-estate-bust-due-to-coronavirus-closures
As reported in part by Fox Business's Manfredi:

Fertitta's comments come a week after he urged the Trump administration to take action on lease terminations during a roundtable discussion with restaurant executives. He also asked if a portion of funding from the Paycheck Protection Program could be earmarked for large restaurant chains as covered by FOX Business.

https://www.cfp.net/news/2020/05/cfp-boards-board-of-directors-approves-conducting-disciplinary-hearings-via-video-conferencing
The Certified Financial Planner Board of Standards, Inc.'s Board of Directors approved amendments to Article 10.1 of the CFP Board's Disciplinary Rules and Procedures and Appeal Rules and Procedures to provide for in-person hearings to be conducted via video conference effective May 22, 2020. As set forth in pertinent part:

ARTICLE 10: HEARINGS

10.1 NOTICE

Not less than 30 calendar days before the date set for the hearing of a Complaint, notice of such hearing shall be given as provided in Article 18.2 to the Respondent, or to the Respondent's counsel. The notice shall designate the date and place of the hearing. In view of the COVID-19 pandemic, any hearing that is conducted via video conference after May 22, 2020 shall satisfy any requirement of these Disciplinary Rules that the hearing be conducted in person.

https://www.cfp.net/ethics/enforcement/comment-on-the-proposed-procedural-rules

Bill Singer's Comment: Unlike FINRA, CFP is NOT a membership organization but a professional organization comprising some 86,000 CFPs who qualified via examination and constitute about one in every five  U.S. financial advisors. CFP is a professional organization representative of its individual planners. In contrast, FINRA operates via a gerrymandered Board of Governors engineered to minimize the input of the 90+% majority of the organization's Small Member Firms (no more than 499 registered persons) by limiting their representation to 3 out of 24 Board seats or under 13%. The old NASD/FINRA Board used to be one-firm-one-vote but is now rigged in favor of larger firms and powerful interests. Shamefully, this purported self-regulator offers no vote to the hundreds of thousands of associated persons who are its member firms's most valuable asset, and no vote to the millions of public investors and/or their advocates. 

FINRA barks like the lap-dog of its large member firms and generally discharges its duties with the questionable legitimacy of a glorified trade group. The byproduct of all its compromised authority is that FINRA frequently appears to be acting as the defender of the employer versus employee, and of the desires of its powerful, larger member firms to the detriment of its smaller member firms and their employees, and to the detriment of public investors. For more details about my long-standing complaints about FINRA's lack of due process and representative policies, see: 
https://www.finra.org/sites/default/files/notice_comment_file_ref/SN-32117_Singer_comment.pdf 
(May 20, 2017)

Given my unfavorable perception of FINRA's lack of legitimacy, I have criticized the regulator's efforts to force a video regimen for investigations and hearings upon its disenfranchised and under-represented constituencies; whereas, I support CFP's similar video reforms as legitimate. I acknowledge the apparent inconsistency of my advocacy. As I see it, CFP has implemented the use of video testimony from the pristine waters of a legitimate Board enrolled in the service of tens of thousands of financial planners and in furtherance of a pro-consumer agenda; in contrast, FINRA's proposals arise from a fetid pool in which those who are subject to or affected by the organization's rules have no seat on the regulator's Board and are excluded from membership.

A slogan of the American Revolution was no taxation without representation. The issue was not the colonists' refusal to pay any tax. The issue was whether citizens were entitled to have a voice, a say, a vote in the mechanism by which taxes were imposed upon them. Fair representation is the bedrock of America. The experiment of Wall Street's so-called "self" regulation has failed. FINRA's smaller firms and their associated persons should secede from the self-regulatory-organization and form a new private-sector-regulatory-organization that is representative of the industry, public investors, and issuers. 

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