The Wall Street Legal & Regulatory Feed
Securities Industry Commentator by Bill Singer Esq
January 12, 2022
FINRA Mulls A Defaulted Bond's Worth (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/6241/finra-defaulted-bond/
In a recent regulatory settlement, FINRA charged an industry respondent with violating FINRA Rule 3220's limit of a $100 gift. You'd think that with such a hard dollar amount that the published regulatory settlement would have alleged the value of the cited gift. Making matters worse, the gift in question involved a defaulted bond. How much is a defaulted bond worth? According to the settlement: "still well beyond the gift limit allowed by FINRA Rule 3220." That's a ridiculous allegation to be found in a final, FINRA, regulatory, settlement document -- "well beyond?" Are you serious? What's next? Charging folks with "a lot" or "often?"
https://www.justice.gov/usao-ndil/pr/federal-indictment-charges-chicago-attorney-insider-trading
-and-
https://www.sec.gov/litigation/litreleases/2022/lr25305.htm
https://www.justice.gov/usao-ndil/press-release/file/1461971/download, attorney David Sargent and Christopher Klundt were charged with conspiracy, insider trading, and securities fraud. As alleged in part in the DOJ Release:
The indictment accuses attorney DAVID SARGENT of obtaining material, non-public information from CHRISTOPHER KLUNDT, a management-level employee of the company and a friend since college. The information pertained to the company's 2020 first-quarter earnings, which Klundt knew would be strong based on internal meetings he had attended, the indictment alleges. After receiving the information from Klundt, Sargent purchased numerous shares and call options of the company's stock ahead of the earnings announcement and then sold them shortly thereafter, the indictment states. In the interim, the company's stock price increased. Sargent made approximately $110,000 from the trades, the charges allege.
In a Complaint filed in the United States District Court for the Northern District of Illinois
https://www.sec.gov/litigation/complaints/2022/comp25305.pdf, the SEC charged David S. Sargent and Christopher M. Klundt with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. As alleged in part in the SEC Release:
https://www.sec.gov/litigation/complaints/2022/comp25305.pdf, the SEC charged David S. Sargent and Christopher M. Klundt with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. As alleged in part in the SEC Release:
days before the May 4 earnings release, David Sargent, a Chicago-area lawyer, purchased Chegg stock and options on the basis of material, non-public information obtained from his close friend and former business associate, Christopher Klundt, then an employee of Chegg. According to the complaint, Klundt attended a non-public, internal Chegg meeting on May 1 during which Chegg senior management discussed what would be disclosed in Chegg's upcoming May 4 earnings release. The complaint alleges that almost immediately after the meeting, Klundt called Sargent, and, within an hour of that call, Sargent began purchasing $40,000 worth of Chegg stock and call options. As alleged, Sargent sold these securities after the earnings release, generating more than $110,000 in profits.
https://www.finra.org/sites/default/files/fda_documents/2014039952901
%20ETRADE%20Securities%20LLC%20CRD%2029106%20AWC%20jlg.pdf
%20ETRADE%20Securities%20LLC%20CRD%2029106%20AWC%20jlg.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, E*TRADE Securities LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that E*TRADE has been a FINRA member firm since 1992 with over 2,100 registered persons and 40 branches. In accordance with the terms of the AWC, FINRA found that Rice violated FINRA Rules 3280 and 2010, and imposed upon the firm a Censure and $350,000 fine (of which $144,500 is payable to FINRA). As alleged in part in the "Overview" portion of the AWC:
From February 2016 through November 2021, E*TRADE failed to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules, related to detecting potentially manipulative trading by its customers. As a result, E*TRADE violated FINRA Rules 3110 and 2010.
In terms of more specifics, the AWC alleges in part that [Ed: footnotes omitted]:
During the period December 2016 through November 2021, E*TRADE used multiple surveillance reports to identify potential wash trades and prearranged trades by its customers. Certain of these reports, however, used parameters that significantly restricted their ability to detect such trading, particularly in lower priced and thinly traded securities (which may be more easily affected by manipulative trading). For example, the firm employed a surveillance report to identify potential wash sales, which it defined as "one or more transactions where there is no change in beneficial ownership." The surveillance system however, flagged trades that met this definition only if the total principal value of the trade was more than $1,000, regardless of the price of the underlying security. Also, the firm's surveillance reports would not detect either a potential wash sale or prearranged trade if the two sides of the transaction were executed more than one second apart, even though wash trades and manipulative prearranged trades could be executed more than one second apart.. . .For example, in February 2017, the firm revised its primary marking-the-close surveillance report to only identify orders and trades that were entered and executed in the last minute of the trading day. This restriction prevented the firm from identifying instances of potential marking-the-close activity, particularly in lower priced and thinly traded securities, which occurred prior to that time. The firm also added three additional parameters to this surveillance report: (1) an aggregate end-of-day position exceeding $10,000 for all accounts in a household; (2) a total execution volume greater than one percent of the security's 30-day average daily volume (ADV); and (3) an execution volume of 20 percent or more as a percentage of the customer's position. Importantly, as modified, the surveillance report would only flag a potential instance of marking-theclose if all three of these factors were present simultaneously. As restricted, the surveillance report was not a reasonable method for identifying potential marking-the-close activity. . . .
What to Expect: CE Transformation & Maintaining Qualifications Program (FINRA Unscripted)
https://finra-unscripted.simplecast.com/episodes/ce-transformation-maintaining-qualifications-program?share=true
As set forth in the FINRA podcast's "Episode Notes":
In 2020, FINRA and the CE Council embarked on the biggest transformation of the continuing education program in 25 years. And in the months ahead, those major changes are going into effect.On this episode, we hear from Patricia Monterosso of FINRA's Credentialing, Registration, Education and Disclosure team and Elizabeth Hansen, the 2021 CE Council Chair, about what firms and reps can expect and why these changes will have such a big impact.
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-93946; Whistleblower Award Proc. File No. 2022-25)
https://www.sec.gov/rules/other/2021/34-93946.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award of 30% of the monetary sanctions collected to Claimant.. The Commission ordered that CRS' recommendations be approved. The Order asserts that:
[C]laimant provided important, new information that prompted Commission staff to open an investigation into the alleged misconduct; participated in voluntary interviews and provided additional information; and that certain charges in the Covered Action were directly based on Claimant's information.
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-93945; Whistleblower Award Proc. File No. 2022-26)
https://www.sec.gov/rules/other/2021/34-93945.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award of 30% of the monetary sanctions collected to Claimant.. The Commission ordered that CRS' recommendations be approved. The Order asserts that:
[C]laimant alerted the Commission to the on-going fraud, in part, prompting the opening of a new investigation into the alleged conduct, gave testimony to the Commission staff, and provided numerous documents that assisted the staff in its investigation, saving Commission staff time and resources. There also have been minimal collections to date in the matter.
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-93947; Whistleblower Award Proc. File No. 2022-27)
https://www.sec.gov/rules/other/2021/34-93947.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award of over $450,000 to Claimant.. The Commission ordered that CRS' recommendations be approved. The Order asserts that:
[(i)] Claimant provided important new information that prompted Commission staff to open an investigation into the alleged misconduct; (ii) Claimant provided substantial, ongoing assistance, including participating in voluntary interviews with Commission staff and providing voluminous important documents, and (iii) the charges brought by the Commission were based in significant part on conduct that was the subject of the information provided by Claimant.
Order Determining Whistleblower Award Claim ('34 Act Release No. 34-93948; Whistleblower Award Proc. File No. 2022-28)
https://www.sec.gov/rules/other/2022/34-93948.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending a Whistleblower Award of over $20,000 to Claimant.. The Commission ordered that CRS' recommendations be approved. The Order asserts that:
[C]laimant provided significant information that alerted Commission staff to an ongoing fraud, prompting the opening of the investigation. Claimant also provided critical documents and participated in post-tip conversations with Commission staff that helped advance the investigation.
How Many FINRA Enforcement Lawyers Does It Take To Prosecute a Default Case? (BrokeAndBroker.com Blog)
http://www.brokeandbroker.com/6240/finra-default-weinrich/
Once, a long time ago, four bad guys chased one good-guy Deputy. At high noon, with only himself to serve as prosecutor, judge, and jury, Marshall Will Kane stood alone against Frank Miller, Ben Miller, Jack Colby, and Jim Pierce. By himself, Marshall Kane battled for truth, justice, and the FINRA way of life -- or something like that. In 2022 Covid America, everything is reversed. Four guys in white hats chasing one guy in a black hat, and the bad guy skedaddled outta town last year.