The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

November 3, 2021



http://www.brokeandbroker.com/6146/finra covid-arbitration/
In these pandemic times, FINRA arbitrations have resorted to virtual hearings, or required proof of vaccination or a negative Covid test within 72 hours of the start of live hearings. Further, FINRA implemented various safety protocols for in-person hearings. Notwithstanding those efforts to best respond to the health crisis, you're still going to have moments when parties or counsel are feeling ill. What happens if that occurs on the eve of a scheduled hearing?

https://www.sec.gov/news/statement/gensler-statement-shareholder-proposals-14l

Today, staff in the Division of Corporation Finance issued a new legal bulletin setting forth its views with respect to Rule 14a-8 of the Securities Exchange Act.[1] The right to put proposals in front of other shareholders for a vote is an important part of the securities laws.

In 1998, the Commission finalized a 14a-8 rulemaking "to improve the operation of the rules governing shareholder proposals."[2] Today's legal bulletin aligns with the intent of that Commission action. Since then, from time to time the Division staff has offered its views on application of the rule. In recent years, hundreds of companies have come to the staff seeking no-action letters with respect to shareholder proposals. Today's bulletin will provide greater clarity to companies and shareholders on these matters, so they can better understand when exclusions may or may not apply. The updated staff legal bulletin, which replaces three previously issued bulletins, is consistent with the Commission's original intention.

I'd like to thank the Division staff for putting together this thoughtful bulletin. Specifically, I would like to thank Renee Jones, Michael Seaman, Connor Raso, Erik Gerding, Matt McNair, and Deanna Virginio in the Division of Corporation Finance, among the many others on our staff who contributed.
= = = = = 
[1] Staff Legal Bulletins represent the views of the SEC staff and are not a rule, regulation or statement of the Securities and Exchange Commission (the "Commission"). Further, the Commission has neither approved nor disapproved their content. Staff legal bulletins, like all staff statements, have no legal force or effect: they do not alter or amend applicable law, and they create no new or additional obligations for any person.

[2] Release No. 34-40018 (May 21, 1998) (the "1998 release"). See https://www.sec.gov/rules/final/34-40018.htm.

https://www.ssb.texas.gov/news-publications/risky-whiskey-securities-commissioner-stops-international-investment-scheme
The Texas State Securities Board entered an emergency cease and desist order 
https://www.ssb.texas.gov/sites/default/files/2021-11/ENF_21_CDO_1853.pdft o stop an allegedly illegal international whiskey investment scheme purportedly advertised by Whiskey & Wealth Club Limited. Also named in the Order are Scott Sciberras, a Co-Founder, Director and CEO; William Fielding, a Co-Founder, Director and COO; Alex Mook, a Wealth Manager; Richard Falconer, a Wealth Advisor; and Benjamin Dunlop, a Senior Wealth Manager. As alleged in part in the TSSB Release:

[W]hiskey & Wealth Club is advertising the scheme through the internet - using a website, and promoting advertisements published in Reddit, and social media platforms such as Facebook, YouTube, Instagram, and LinkedIn. It is also allegedly using other media to bolster its legitimacy, including various press releases and articles published in Forbes, Bloomberg, Yahoo Finance and Fox Business News. 

The pitch is simple: whiskey improves with age and investing in whiskey improves returns over time. Investors purchase casks of whiskey from foreign distilleries, store the whiskey in overseas facilities and then sell the whiskey for a profit. Whiskey & Wealth Club is touting the returns - claiming investors can earn between 12 and 20 percent annualized returns if investors hold their whiskey for at least three years and preferably five to 10 years. Whiskey & Wealth Club purportedly provides discounted brokerage services, permitting investors to liquidate their whiskey for a below-market fee. 

Although Whiskey & Wealth Club is reportedly touting the profits it earns after three years or longer, there's a problem: according to the order, Whiskey & Wealth Club has been incorporated for less than three years. Moreover, according to Companies House, the UK registrar for corporations, Whiskey & Wealth Club's corporate accounts are also overdue.

https://www.finra.org/sites/default/files/fda_documents/2020065314401
%20Brian%20S.%20Pearce%20CRD%201334784%20AWC%20sl.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, Brian S. Pearce submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Brian S. Pearce was first registered in 1985 and from November 2012 to August 2017, he was registered with FSC Securities Corporation. In accordance with the terms of the AWC, FINRA found that Rice violated FINRA Rules 3280 and 2010, and imposed upon him a $5,000 fine and a seven-month suspension from associating with any FINRA member in all capacities, and ordered that he pay $9,723 in disgorgement plus interest. As alleged in part in the AWC:

From August 2016 to May 2017, Respondent solicited two investors to purchase $607,730 in securities of Future Income Payments, LLC (FIP). FIP represented itself as a structured cash flow investment that purchased pensions at a discount from pensioners and then sold a portion of those pensions as a "pension stream" to investors. FIP generally promised investors a seven to eight-percent rate of return on their investment. Respondent received a total of $24,309 in commissions in connection with his sales of FIP securities. 

At all times during the stated period, Respondent's employer member firm prohibited its registered representatives from participating in private securities transactions without prior written approval from the firm. Respondent did not provide notice to his employer member firm prior to participating in the FIP sales. 

. . .

Footnote 2: In April 2018, FIP ceased business, owing nearly $300 million in unpaid investor payments. In a March 12, 2019 indictment, the United States charged FIP and its owner, Scott A. Kohn, with conspiracy to engage in mail and wire fraud related to FIP's operations. In June 2021, Respondent entered into a settlement agreement with a court-appointed receiver for FIP, agreeing to repay approximately $14,586 of the $24,309 in commissions that Respondent received from his sales of FIP securities. 

https://www.finra.org/sites/default/files/fda_documents/2019064312902
%20Brian%20Jerome%20Rice%20CRD%202103354%20AWC%20sl.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, Brian Jerome Rice submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Brian Jerome Rice was first registered in 1991 and by 1999, he was registered with Raymond James Financial Services, Inc.. In accordance with the terms of the AWC, FINRA found that Rice violated FINRA Rules 3240 and 2010, and imposed upon him a $5,000 fine and a six-week suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In January 2019, Rice borrowed $52,500 from one of Rice's customers through a limited liability company that Rice partially owned and controlled. The customer was Rice's longtime friend and was financially sophisticated. He was not, however, an institutional lender or involved in a lending-related business. Rice failed to provide notice to or obtain approval from the firm. The loan, which was documented by a promissory note, was secured by a commercial property and has been fully repaid. 

In 2019 and 2020, while the loan was pending, Rice incorrectly stated in response to two firm compliance questionnaires that he had not borrowed money from a firm customer. 

http://www.brokeandbroker.com/6145/finra-capital-financial-arbitration/
Yet again, another FINRA member firm is a no-show at a public customer arbitration hearing. Yet again, the customer wins. Yet again, the firm seems to have dissolved. Yet again, FINRA, Wall Street's much-promoted self-regulatory-organization, seems to respond to the customer's predicament with a shrug. Not only do Wall Street's customers often wonder where the hell FINRA was when all of the alleged fraud was underway in their accounts, but, after they prevail against a member firm in court or arbitration, those same customers wonder where the hell FINRA is when it comes to getting their Awards paid.

http://www.brokeandbroker.com/6144/finra-arbitration-margin/
Today's blog involves a margin call generated when an underlying stock fell dramatically in price and the customer was on the wrong-side of the trade with options. A sell-out ensued, which prompted a negative balance in the customer's margin account. The customer blames TD Ameritrade. The firm blames the customer. The customer sued. The brokerage firm counter-claimed. 

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