Securities Industry Commentator by Bill Singer Esq

Stone Cold Day of Reckoning for FINRA and Self Regulation (BrokeAndBroker.com Blog)

SEC Charges Hudson Advisors and Lone Star Global for Failing to Disclose that Fund Fees Included More Than $50 Million of Owner's Income Tax Liability (SEC Release)

Remarks at the "SEC Speaks" Conference 2022 by SEC Commissioner Mark T. Uyeda

SEC Denies Whistleblower Award to Claimant 

Order Determining Whistleblower Award Claims

SEC Denies Whistleblower Award to Claimant 

Order Determining Whistleblower Award Claims

SEC Denies Whistleblower Award to Claimant 

Order Determining Whistleblower Award Claims

SEC Denies Whistleblower Award to Claimant Citing Untimely Filing

Order Determining Whistleblower Award Claims

SEC Denies Whistleblower Award to Claimant Citing "Potential or Theoretical Use"

Order Determining Whistleblower Award Claims

FINRA Censures and Fines SagePoint for Financial Margin Suitability

In the Matter of SagePoint Financial, Inc., Respondent (FINRA AWC)

FINRA Censures, Fines, and Imposes Outside Consultant Undertaking on Glendale Securities

In the Matter of Glendale Securities, Inc., Respondent (FINRA AWC)

FINRA Censures, Fines, and Prohibits Market Access in MM Global Securities, Inc. Settlement

In the Matter of MM Global Securities, Inc., Respondent (FINRA AWC)

FINRA Fines and Suspends Former NYLife Securities LLC Rep for Private Securities Transaction and OBA

In the Matter of Ronald Coy Bailey, Respondent (FINRA AWC)

[B]between at least 2005 and 2017, Hudson included $54.6 million of its owner's anticipated U.S. tax liability in fees charged to the funds. By law, these tax liabilities were payable by the owner rather than by Hudson. The SEC's order finds that Hudson and Lone Star Global never disclosed the inclusion of these tax liabilities to their clients. The order also finds that Hudson and Lone Star Global were not authorized to charge this fee component without full and fair disclosure to the funds. Lastly, the order finds that Hudson and Lone Star Global failed to implement appropriate policies and procedures in connection with conflicts of interest and disclosure of fees charged to advisory clients.

Good morning and thank you, Gurbir [Grewal, Director, SEC Division of Enforcement], for that kind introduction.[1] I am pleased to join you for the first SEC Speaks Conference to be conducted in-person since the start of the pandemic.

During the past two-and-a-half years, we have used new methods to communicate and work with each other. Our ability to improvise, adapt, and overcome has allowed our economy to sustain itself during this period. Importantly, robust and efficient capital markets have played a key role in fostering innovation and creativity, which has resulted in new services and products to address the challenges of the pandemic.

While I have attended SEC Speaks in the past, today is the first where I have the privilege of addressing you. With this appearance coming slightly over two months since I was sworn into office as a Commissioner, it is an opportune time to describe the factors and principles that will guide how I will approach upcoming policy decisions.

My views have been shaped by my professional experience. For nearly nine years, I was in private practice drafting securities offering disclosures as well as preparing periodic reports and proxy statements. As a state securities regulator, I witnessed some of the most egregious retail-level frauds and their impact on investors, but I also observed firsthand inspiring stories of entrepreneurs seeking capital. For nearly 16 years at the Commission, I have been involved in rulemaking, ensuring that such efforts complied with the Administrative Procedure Act, including a robust consideration of all public comments and a comprehensive economic analysis.

The SEC's Tripartite Mission is My Foundation

Maintaining a focus on investor protection, capital formation, and fair and orderly markets will promote high quality regulatory standards. Although capital markets have grown increasingly complex, our mission remains the same as it did when the SEC was first created.[2] Ferdinand Pecora, an early architect of the SEC, put the following question to the Convention of the Farmers Union of Iowa while speaking in 1934: "[w]hat are the objectives of the Securities Act of 1933?" His response was: "[t]o see it that those who issue securities and offer them for sale to the public, shall first tell the truth and the whole truth to the public with respect to these securities." This observation remains true today and should guide our regulatory responses through both calm and turbulent markets.

Prioritize Effective and Cost-Efficient Regulations

I analyze regulations using a two-by-two matrix. One axis is labeled whether a regulation is effective or ineffective. The other axis is labeled whether a regulation is costly or not costly. Thus, one can categorize a regulation into one of four boxes.

The Commission - and any regulator - should strive for regulations that are effective and not costly. This box contains regulations that address the identified problem and do so at the lowest possible cost.

The second box contains regulations that are effective, but costly. These regulations may resolve the identified problem, but at a significant cost. The goal of a responsible regulator should be to modify these types of regulations and shift them to the first box. A solid economic analysis can enable a regulator to distinguish between approaches that are effective and efficient, on the one hand, and effective but costly, on the other.

The third box contains regulations that are ineffective but not costly. Given the thousands of pages of SEC rules contained in the Code of Federal Regulations, many of which have not been scrutinized for effectiveness for decades, I fear that a large number may fall within this box.[3] However, as the rules are not particularly costly from a compliance perspective, further reform or removal may not be at the top of the regulatory agenda.

That brings us to the final box - regulations that are ineffective and costly. These rules must be avoided. The ultimate cost of such rules falls not on Wall Street or corporations, but on investors and the public. More importantly, investors and the public will still remain vulnerable to the very concern that such rules were intended to address.

As I evaluate the proposals on the Commission's regulatory agenda, and the various choices presented thereunder, this two-by-two matrix will frame my analysis.

Limited Scope and Regulator Independence

Financial regulators - including the SEC, the Commodity Futures Trading Commission, and the Federal Trade Commission - have a unique place in our constitutional structure. Although part of the Executive Branch, they are not subject to direct control by the President in the same manner as the Department of Justice, the Department of Labor, or the Department of Commerce.

The Commission is structurally designed to promote regulation that is the product of consideration by five individuals with different perspectives. The underlying statute that created the Commission requires that the commissioners come from different political parties, with no more than three being from the same party.[4]

I view this arrangement as creating a basic bargain that the SEC will enjoy a degree of independence and insulation from political accountability to the voters, but in return, will have a narrow scope of responsibilities.

The lack of political accountability, however, can make it tempting to use the federal securities laws to alter or influence general business conduct or to resolve pressing societal concerns, in the absence of financial materiality. Taken to an extreme, "everything everywhere is securities fraud."[5]

I disagree with that view. The Commission best serves the American public when it works within the statutory framework enacted by Congress and the limitations imposed by the courts. The Commission is not well-suited, nor should it attempt to resolve, complex societal questions that do not relate to financial market practices. Those questions are best addressed by the legislature.

Economic Analysis is Important and Should Consider the Effects of Multiple Overlapping Rule Proposals

Final rules should result from careful and thoughtful analysis, including sufficient time for the public to comment on a proposal. The Commission should ensure that rulemakings consider all known economic impacts, including the cumulative impact of concurrent rulemakings. While individual regulations may not be costly, when aggregated they may impose significant compliance costs for firms and individuals.

The Commission staff's guidance on economic analysis sheds light on how to carry out this exercise. That guidance states that an economic analysis compares "the current state of the world, including the problem that the rule is designed to address, to the expected state of the world with the proposed regulation (or regulatory alternatives) in effect."[6] The guidance further states that proposing releases should include "a discussion of any existing studies or data that bear on the proposal so that the public knows what studies or data we are relying on, can comment on it, and can provide additional data relevant to the topic."[7] This is an important component of the rulemaking process, and one that should underpin our decision-making.

Don't Take Steps that Deter Robust Public Comment

Several rulemaking proposals issued by the Commission in 2021 and in early 2022 had a comment deadline of only 30 days after publication in the Federal Register, which I view as insufficient under the circumstances. The 30-day comment period stands in contrast to executive orders issued by the administrations of President Clinton, President Obama, and President Biden, all of which recognized the importance of a 60-day comment period.[8] A comment period of at least 60 days is also endorsed by the Administrative Conference of the United States for significant regulatory actions.[9]

The Commission recently finalized a proposal that had a short 30-day comment period.[10] In that case, the Commission proposed amendments on November 18, 2021 and comments were due by December 27 of that year.[11] This period overlapped with major holidays. It also fell during the first holiday season since the rollout of COVID vaccines, which allowed families to gather for the first time since the start of the pandemic.

The short comment period likely deterred some interested persons from submitting comment letters. It may have also resulted in the Commission seeing a narrower picture of the public concerns and failing to capture relevant data and perspectives. Short comment periods are also inappropriate when the Commission is asking for public comment on multiple proposals affecting the same stakeholders at the same time or in short order.

Don't Take Rulemaking Shortcuts

As a rulemaking convention, staff practice has been generally to recommend re-proposal if more than five years have elapsed since the original proposal. Yet, the Commission has instead recently decided to simply reopen the comment period for several proposals that were past the five-year expiration date.[12]

These reopening notices went even further and introduced new regulatory alternatives. The reopening notices, however, did not provide any accompanying economic analysis or examine the effects that such alternatives may have on smaller entities. In other words, the Commission used procedural shortcuts that undercut the robust notice-and-comment process required by the Administrative Procedure Act.[13]

One example was the proposal to implement the Dodd-Frank Act's pay versus performance requirement, initially issued on April 29, 2015.[14] On January 27, 2022, the Commission reopened the comment period on the proposed rule.[15] The reopening notice did not update any economic analysis, benefits and costs discussion, or analysis required by the Paperwork Reduction Act[16] and the Regulatory Flexibility Act.[17]

The failure to update the economic analysis from the 2015 proposal was problematic because significant parts of the data justifying the original proposal were from 2010 and 2012, while other data was from the period between 1997-2008.[18] Yet, the adopting release contained an economic analysis using data from 2020 - one that the public had never seen, or been given the chance to comment on.[19]

Avoid Issuing New Interpretations through Enforcement Actions

Rulemaking can be challenging and time-consuming. It may be tempting to develop "new" interpretations of existing statutes and rules and apply them through enforcement action. This temptation should be avoided.

One significant shortcoming of regulation by enforcement is that it fails to provide a mechanism for the Commission to consider the views by market participants, which can result in a myopic approach. In contrast, through the rulemaking process, the public can provide their perspectives on market practices and developments, leading to an informed regulatory response. Regulation through litigation fails to provide these important inputs that result in better crafted rules.

Additionally, regulation by enforcement fails to provide the nuanced and comprehensive guidance that allows market participants to tailor their practices, and instead requires regulated entities to divine how the facts and circumstances of another case apply to their own business model. Market participants should be able to look to the Commission's rules rather than compare how their particular facts and circumstances may differ from those in a specific enforcement case. This principle, while often requiring a longer timeline, and more deliberation, often results in a more transparent and understandable regulatory framework.

Be Willing to Tackle the Big, Difficult, and Complex Issues

Today, one big, difficult, and complex issue that is conspicuously absent from the Commission's published regulatory agenda is how to regulate crypto assets and related services. Market participants have expressed significant concerns regarding the lack of regulatory guidance in this space. There is a widespread concern that the lack of predictability with regard to our regulation may encourage crypto firms to relocate to other jurisdictions.

There are two major issues and areas of uncertainty: does the crypto asset constitute a security and, if so, how do market participants comply with the federal securities laws and the Commission's rules. To date, the Commission's views in this space have been more often expressed through enforcement action. This is an example of a situation where regulation through enforcement does not yield the outcomes achievable through a process that involves public comment.

Without the benefit of comments from crypto investors and other market participants, the Commission is unable to consider their perspectives in developing an appropriate regulatory framework. To the extent that crypto assets raise unique issues not otherwise addressed in the current rule book, the Commission should consider proposing rules or issuing interpretive releases.

* * * * *

Thank you for listening to my thoughts this morning, even if you will not be receiving CLE credit for it! I want to acknowledge the many hard-working members of the SEC staff who have contributed to the presentations and materials for this conference. It has been a privilege and an honor to call them colleagues and friends. I have seen firsthand their dedication to serve the public by creating robust, dynamic, and resilient markets that work for all Americans.

[1] The views I express today are my own and do not necessarily reflect those of the Commission or my fellow Commissioners.

[2] See, e.g., Act of June 6, 1934, Public Law No. 73-291, 48 STAT 881 ("to provide for the regulation of securities exchanges and of over-the-counter markets operating in interstate and foreign commerce and through the mails, to prevent inequitable and unfair practices on such exchanges and markets, and for other purposes.")

[3] The 2021 version of Title 17 of the Code of Federal Regulations for Commission rules covers 922 pages in volume3, 798 pages in volume 4, and 574 pages in volume 5. See https://www.govinfo.gov/app/collection/cfr/2021/.

[4] 15 U.S. Code § 78d.

[5] Matt Levine, Bloomberg News, Everything Everywhere Is Securities Fraud (June, 26, 2019) (discussing views of U.S. federal securities laws that treat any negative event affecting a U.S. public company as securities fraud) available at https://www.bloomberg.com/opinion/articles/2019-06-26/everything-everywhere-is-securities-fraud.

[6] Memorandum from the Division of Risk, Strategy, and Financial Innovation and the Office of the General Counsel, Current Guidance on Economic Analysis in SEC Rulemakings (Mar. 16, 2012), at 21, available at https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf.

[7] Id. at 16.

[8] Executive Order 13563, Improving Regulation and Regulatory Review (Jan. 18, 2011) [76 Fed. Reg. 3821 (Jan. 21, 2011)]; see also Executive Order 12866, Regulatory Planning and Review (Sept. 30, 1993) [58 Fed. Reg. 51735 (Oct. 4, 1993)] ("each agency should afford the public a meaningful opportunity to comment on any proposed regulation, which in most cases should include a comment period of not less than 60 days"); Memorandum for the Heads of Executive Departments and Agencies, Modernizing Regulatory Review (Jan. 20, 2021) [86 Fed. Reg. 7223 (Jan. 26, 2021)] ("This memorandum reaffirms the basic principles set forth in [Executive Order 12866] and in Executive Order 13563 of January 18, 2011 (Improving Regulation and Regulatory Review), which took important steps towards modernizing the regulatory review process. When carried out properly, that process can help to advance regulatory policies that improve the lives of the American people.").

[9] See Administrative Conference of the United States, Rulemaking Comments, Recommendation No. 2011-2 (June 16, 2011), available at https://www.acus.gov/recommendation/rulemaking-comments.

[10] Mark T. Uyeda, Statement on Final Rule Amendments on Proxy Voting Advice (July 13, 2022), available at https://www.sec.gov/news/statement/uyeda-statement-amendments-proxy-voting-advice-071322.

[11] See Proxy Voting Advice, Release No. 34-93595 (Nov. 17, 2021) [86 FR 67383 (Nov. 26, 2021)].

[12] See Reopening of Comment Period for Pay Versus Performance, Release No. 34-94074 (Jan. 27, 2022) [87 FR 5751 (Feb. 2, 2022)], available at https://www.sec.gov/rules/proposed/2022/34-94074.pdf; Reopening of Comment Period for Listing Standards for Recovery of Erroneously Awarded Compensation, Release No. 33-10998 (Oct. 14, 2021) [86 FR 58232 (Oct. 21, 2021)], available at https://www.sec.gov/rules/proposed/2021/33-10998.pdf; Reopening of Comment Period for Universal Proxy, Release No. 34-91603 (Apr. 16, 2021) [86 FR 24364 (May 6, 2021)] available at https://www.sec.gov/rules/proposed/2021/34-91603.pdf (collectively, "reopening notices").

[13] Id.

[14] Pay Versus Performance, Release No. 34-74835 (Apr. 29, 2015) [80 FR 26329 (May 7, 2015)] ("2015 Proposal"), available at https://www.sec.gov/rules/proposed/2015/34-74835.pdf.

[15] Reopening of Comment Period for Pay Versus Performance, Release No. 34-94074 (Jan. 27, 2022) [87 FR 5751 (Feb. 2, 2022)] available at https://www.sec.gov/rules/proposed/2022/34-94074.pdf.

[16] 44 U.S.C. 3501 et seq.

[17] 5 U.S.C. 603(a).

[18] 2015 Proposal at n. 132 (the 2015 Proposal acknowledges the data may not reflect practices at the time the 2015 Proposal was published).

[19] Pay Versus Performance, Release No. 34-95607 (Aug. 25, 2022) [87 FR 55134 (Sept. 8, 2022)], available at https://www.sec.gov/rules/final/2022/34-95607.pdf.

[F]irst, the record demonstrates that the Investigation was opened in Redacted more than two years before Claimant began providing his/her information to the Commission. Accordingly, Claimant's information did not cause the staff to open the Investigation. 

Second, even assuming that Claimant's information caused the Commission to inquire into conduct in Other Country, the Commission did not bring a successful action in whole or in part based on conduct that was the subject of Claimant's information, nor did Claimant's information significantly contribute to the Investigation. It is undisputed that the information Claimant provided to the Commission did not address conduct in Country, but instead related to conduct in Other Country. And while the record shows that Enforcement staff investigated conduct in Other Country, the violations charged in the Covered Action only pertain to conduct in Country. Enforcement staff confirmed that Claimant's information was not used in nor had any impact on the charges brought in the Covered Action. 

Further, Claimant's information did not assist with settlement discussions or otherwise help resolve the Covered Action. Enforcement staff assigned to the Investigation have confirmed, in a supplemental declaration, which we credit, that Enforcement staff had already determined, prior to the beginning of settlement discussions, that there was not sufficient evidence for the Commission to bring charges based upon conduct in Other Country. 

[F]irst, the record demonstrates that the Commission's investigation which led to the Covered Redacted Action (the "Investigation") was opened Redacted in more than eighteen months before Claimant submitted his/her tip to the Commission, and more than one year before Claimant contends Claimant spoke with the investigator associated with the Law Firm. Accordingly, Claimant's information did not cause the staff to open the Investigation. 

Second, the record shows that Claimant's tip to the Commission did not cause the staff to inquire into different conduct or significantly contribute to the Investigation. To the extent that Claimant argues he/she is the original source of any information provided to the Commission by the Law Firm, Enforcement staff provided a supplemental declaration, which we credit, stating that the staff did not recall receiving any communications or tips from the Law Firm or the investigator with regard to the Company or the Investigation. The staff also reviewed email records associated with the Investigation and did not identify any email or tip from the Law Firm or the investigator. For these reasons, the record does not support the contention that Claimant was the original source of any information used by the Commission prior to the filing of the Covered Action. Lastly, as stated by the CRS, Claimant's own submission to the Commission occurred approximately six weeks after the Covered Action was filed and therefore did not contribute to the Investigation or to the charges in or resolution of the Covered Action.

Second, the record shows that Claimant's information did not cause the staff to inquire into different conduct or significantly contribute to the Investigation. Enforcement staff assigned to the Investigation confirmed that Claimant's information, which concerned the issue of Redacted did not relate to the matters at issue in the Investigation or the charges in the Covered Action. Further, staff confirmed that the Redacted Claimant raised in the Response were already known to the staff before Redacted Claimant submitted his/her information. Staff assigned to the Investigation also confirmed that the Commission's NYRO staff did not share any additional information received from Claimant. The emails Claimant attached to the Response also do not bolster his/her argument: the staff had Redacted already confirmed that Claimant's information from Redacted did not relate to the Investigation or the charges in the Covered Action. Based upon these facts, Claimant's information did not cause the staff to inquire into different conduct or significantly contribute to the Investigation.

Claimant does not qualify for an award under either of the above-described provisions. First, the record demonstrates that the Commission's investigation which led to the Covered Action (the "Investigation") was opened based upon information developed during a separate investigation into the Company. Claimant's information did not cause the staff to open the Investigation. 

Claimant argues that the Commission should use its authority under Exchange Act Rule 21F-8(a) to waive the ninety-day filing requirement in the two Covered Actions discussed herein. Rule 21F-8(a) provides that "the Commission may, in its sole discretion, waive any of these procedures upon a showing of extraordinary circumstances." We have explained that the "extraordinary circumstances" exception is "narrowly construed" and requires an untimely claimant to show that "the reason for the failure to timely file was beyond the claimant's control." Further, we have identified "attorney misconduct or serious illness" that prevented a timely filing as two examples of the "demanding showing" that an applicant must make before we will consider exercising our discretionary authority to excuse an untimely filing. 

[F]irst, Claimant misinterprets the eligibility criteria under Rule 21F-4(c)(1): contrary to Claimant's arguments in the Response, our rules do not provide for awards based upon the potential or theoretical use of a claimant's information. Instead, awards are based upon the actual use of a claimant's information by Commission staff. As we have stated, "the standard for award eligibility is not what the staff would have, or could have done in hypothetical circumstances but, rather, what impact the whistleblower's information actually had on the investigation." The Commission will not speculate on the supposed value of Claimant's information in the absence of its actual use during the Investigation. 

Accordingly, while Claimant may have submitted information to the Commission prior to the opening of the Investigation, the record here demonstrates that Claimant's information did not cause Enforcement staff responsible for the Investigation to open the Investigation or cause the staff to inquire into different conduct. A staff declaration, which we credit, confirms that the staff responsible for the Investigation opened the Investigation based upon a referral from REDACTED ("Other Agency 1"). A supplemental declaration from OWB staff, which we also credit, confirms that, after review of Claimant's information, other Enforcement staff referred Claimant's information to the REDACTED ("Other Agency 2") and the REDACTED ("Other Agency 3") and then closed Claimant's submission with a disposition of "no further action." Contrary to Claimant's contentions, there is no evidence in the record that Other Agency 2 or Other Agency 3 had any role in the referral to the Commission from Other Agency 1, and the record demonstrates that Other Agency 1 has no record of receiving any information from Claimant or that Claimant was the source of Other Agency 1's referral to the Commission. And while other Enforcement staff reviewed Claimant's tip and forwarded it to Other Agency 2 and Other Agency 3, there is no evidence in the record that Claimant's information was forwarded to staff assigned to the Investigation.

The record demonstrates that Claimant did not cause the Commission to inquire into different conduct and did not significantly contribute to the success of the action: Claimant's information was not used by staff assigned to the investigation, nor did Claimant ever communicate with staff assigned to the investigation.

During the period April 2014 through July 2017, SagePoint failed to establish, maintain, and enforce a supervisory system, including WSPs, reasonably designed to achieve compliance with the suitability requirements of FINRA Rule 2111 as they pertain to margin use. As a result, SagePoint failed to identify or reasonably respond to red flags of unsuitable use of margin in two customer accounts that caused the customers to pay more than $51,800 in commissions, fees, and margin interest. By this conduct, SagePoint violated NASD Rule 3010, FINRA Rules 3110 and FINRA Rule 2010.  

In 2010, Glendale consented to FINRA's findings that, between 2005 and 2008, the firm failed to adequately implement its anti-money laundering (AML) compliance program insofar as the firm failed to detect, analyze, and/or report suspicious transactions. AWC Nos. 2009019747601 and 20060075263 (Nov. 2010). The firm also failed, between 2007 and 2009, to establish and maintain an adequate supervisory system and written procedures that were reasonably designed to prevent participation in an unregistered distribution of securities. As a result, the firm allowed a customer to deposit millions of shares of low-priced securities into more than 50 foreign corporate accounts, promptly liquidate them, and wire the proceeds to multiple foreign bank accounts. Additionally, the firm consented to the imposition of a censure and a $45,000 fine for violating NASD Rules 3011, 3010, and 2110, as well as FINRA Rule 2010.

In 2021, the National Adjudicatory Counsel (NAC) held that the firm violated FINRA Rules 3310 and 2010 by failing to: (a) establish and implement an AML compliance program reasonably tailored to its microcap stock liquidation business; (b) detect, investigate, and report red flags presented in 2015 and 2016 by suspicious liquidations of three penny stocks; ( c) conduct adequate due diligence on accounts introduced to the firm by a bank in Belize; and ( d) employ non-documentary means, in accordance with the firm's Customer Identification Program, to verify the identities of customers based in China, Malaysia, and Singapore. Dep 't of Enforcement v. Glendale Securities, Inc., et al., No. 2016049565901, 2021 FINRA Discip. LEXIS 25 (NAC Oct. 6, 2021 ). In addition, the NAC held that the firm violated FINRA Rules 3110 and 2010 by failing to supervise communications between Asia-based customers and one of its registered representatives. The NAC sanctioned the firm with a censure, a $155,000 fine, and a requirement to retain a consultant to review and revise its AML-related procedures to appropriately tailor them to its microcap stock liquidation business model. 

Between June 2018 and April 2019, Glendale failed to develop and implement an AML compliance program reasonably designed to detect and report suspicious transactions. As a result, the firm failed to investigate red flags of potentially suspicious trading activity in the account of one of its corporate customers. Through this conduct, the firm violated FINRA Rules 3310(a) and 2010.  

Today's BrokeAndBroker.com Blog presents a difficult scenario. Publisher Bill Singer offers rare and high praise for the efforts of a FINRA Office of Hearing Officers Hearing Panel and of the National Adjudicatory Council. The byproduct of those bodies' deliberations yielded two comprehensive Decisions of the highest caliber. Unfortunately, FINRA's Chief Hearing Officer stayed the proceedings after information had purportedly come to her attention and eventually compelled the hiring of outside counsel to conduct a review. Sadly, FINRA's lack of transparency about the underlying nature of the troubling information mars the proceedings. Quis custodiet ipsos custodes?

A registered principal or officer of Respondent certifies in writing to FINRA that the firm revised and enhanced its AML and supervisory procedures related to detecting and investigating suspicious trading activity and potential market manipulation. . . .

From at least January 2019 to June 2020, MM Global failed to establish and implement an anti-money laundering (AML) compliance program reasonably designed to detect and cause the reporting of suspicious activity in violation of FINRA Rules 3310(a) and 2010. During the same period, MM Global failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with federal securities laws and FINRA rules prohibiting market manipulation in violation of FINRA Rules 3110 and 2010. 

From at least October 2017 to April 2019, MM Global also failed to implement its Customer Identification Program (CIP) in violation of FINRA Rules 3310(b) and 2010. 

In addition, from November 2018 to August 2019, MM Global failed to preserve and maintain certain instant messages and email communications of its registered representatives in violation of Section 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-4(b)(4), and FINRA Rules 4511 and 2010.

In 2017, while associated with NYLife, Respondent participated in a private securities transaction by soliciting and facilitating a firm client's $588,000 investment in an LLC membership interest in Golden Empire Seafood, LLC (Golden Empire) in exchange for compensation from Golden Harvest Alaska Seafood, LLC (Golden Harvest), an affiliate of Golden Empire. Respondent neither notified nor received prior written approval for this securities transaction from NYLife. As a result of this conduct, Respondent violated FINRA Rules 3280 and 2010. 

In 2017 and 2018, Respondent engaged in two outside business activities without providing prior written notice or receiving prior approval from NYLife. Respondent assisted in founding and then served as a strategic partner of Focus Employer Solutions, a human resources and payroll consulting business. Respondent also assisted Golden Harvest establish local business contacts. Respondent did not have NYLife's approval to engage in any of these outside business activities. As a result, Respondent violated FINRA Rules 3270 and 2010. 

Additionally, in the course of soliciting investors to invest in Golden Empire, Respondent emailed financial projections to a potential investor that did not clearly disclose the applicable risks of the investment and were promissory and misleading. As a result, Respondent violated FINRA Rules 2210(d)(l)(A), 2210(d)(l)(B), and 2010. 

• Securities Industry Commentator
• Bill Singer