The Wall Street Legal & Regulatory Feed

Securities Industry Commentator by Bill Singer Esq

October 10, 2022




DOJ RELEASES


SEC RELEASES



CFTC RELEASES


FINRA RELEASES



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10/11/2022

https://www.financial-planning.com/news/wells-fargo-suing-ex-lawyer-may-have-chilling-effect
Financial Planning's Victoria Zhuang reports about a brewing, puzzling, troubling federal lawsuit that pits a veteran in-house Wells Fargo lawyer against his former employer. Wells Fargo alleges that its former lawyer Steven Satter wrongly facilitated the departure of a $1.2 billion advisory group; and that he did so on its dime when still employed and the producers were still affiliated with the firm. Oh boy, talk about potentially opening a can of worms when a company sues a former staff lawyer! 

DOL asserts that its Proposed Rule https://public-inspection.federalregister.gov/2022-21454.pdf will provide guidance on properly classifying workers as independent contractors or employees in accordance with the Fair Labor Standards Act ("FSLA"). In part the DOJ Release states:

Specifically, the proposed rule would do the following:

  • Align the department's approach with courts' FLSA interpretation and the economic reality test.
  • Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA. 
  • Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
  • Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer's business, is also included.
  • Assist with the proper classification of employees and independent contractors under the FLSA.
  • Rescind the 2021 Independent Contractor Rule. 

Order Determining Whistleblower Award Claims ('34 Act Release No. 34-96012; Whistleblower Award Proc. File No. 2023-01)
ttps://www.sec.gov/rules/other/2022/34-96012.pdf
The SEC's Claims Review Staff ("CRS") issued a Preliminary Determination recommending that Claimant receive a Whistleblower Award for about $825,000. The Commission ordered that CRS's recommendations be approved. The Order asserts in part that [Ed: footnote omitted]:

[C]laimant, Redacted expeditiously provided detailed information that prompted the opening of the investigation and thereafter met with Commission staff in person and provided additional information after submitting the initial TCR. Redacted

Federal Court Orders Texas Fraudulent Forex Trader and His Company to Pay Over $940,000 (CFTC Release)
https://www.cftc.gov/PressRoom/PressReleases/8607-22
The United States District Court for the Southern District of Texas entered a Consent Order against Troy Mason and Ztegrity, Inc.
https://www.cftc.gov/media/7856/enfmasonconsentorder100722/download requiring Mason and Ztegrity to pay $643,570 in restitution and a $300,000 civil monetary penalty; and, further, permanently prohibits the Defendants from further violations of the CEA and CFTC regulations, as charged, and imposes permanent registration and trading bans. As alleged in part in the CFTC Release:

The order finds that from approximately October 2019 to June 2021, the defendants used various websites and social media platforms to fraudulently market their forex trading pool as a version of a savings account that offered a greater yield with similarly low or no risk. The defendants called this forex trading pool "The Black Club" and "The Forex Savings Club," which their website claimed had received over $460,000 from 411 participants.

The order further finds the defendants induced participation in their forex trading pool by falsely claiming to "guarantee" to repay participants the funds they contributed to their individual "Forex Savings Accounts" and falsely offered participants "with a 100% certainty" portions of the "substantial profit[s]" to be generated using participants' pooled funds to trade forex. In truth, the defendants knew or recklessly failed to appreciate that no forex trader can guarantee profitable trading, or the avoidance of losses required to guarantee all participants' contributions, and knew, but failed to inform participants, they had no U.S.-based forex trading accounts. 

Finally, the order finds the defendants illegally operated their commodity pool by failing to register as commodity pool operators, in violation of the CEA and CFTC regulations. 

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10/10/2022

(BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/6700/saliba-finra-sec/
In today's featured case, we start things off in 2011, when NMS Capital Group, LLC  (wholly owned by Trevor Saliba) purchased MCA Securities LLC (whose name was changed to NMS Capital Securities). By 2016, Saliba came within FINRA's crosshairs, but six years later, his case is still not fully resolved. As with far too much of what is passed off these days as Wall Street regulation, we got periods of activity, periods of inactivity, and, ultimately, things that never quite move forward or backward but spin their wheels. 

As set forth in part in the SEC Release:

[D]ue to a technological error that resulted in a number of public comments submitted through the Commission's internet comment form not being received by the Commission. The majority of the affected comments were submitted in August 2022; however, the technological error is known to have occurred as early as June 2021.

To ensure that interested persons, including any affected commenters, have the opportunity to comment on the affected releases or to resubmit comments, the Commission is reopening the comment periods for the affected releases until 14 days following publication of the reopening release in the Federal Register.

As further described in the reopening release, all commenters who submitted a public comment to one of the affected comment files through the internet comment form between June 2021 and August 2022 are advised to check the relevant comment file on SEC.gov to determine whether their comment was received and posted. If a comment has not been posted, commenters should resubmit that comment.

. . .

Affected Releases:
  • Reporting of Securities Loans, Release No. 34-93613 (Dec. 8, 2021)

  • Prohibition Against Fraud, Manipulation, or Deception in Connection with Security-Based Swaps; Prohibition against Undue Influence over Chief Compliance Officers; Position Reporting of Large Security-Based Swap Positions, Release No. 34-93784 (Feb. 4, 2022)

  • Money Market Fund Reforms, Release No. IC-34441 (Feb. 8, 2022)

  • Share Repurchase Disclosure Modernization, Release Nos. 34-93783, IC-34440 (Feb. 15, 2022)

  • Short Position and Short Activity Reporting by Institutional Investment Managers, Release No. 34-94313 (Mar. 16, 2022); see also Notice of the Text of the Proposed Amendments to the National Market System Plan Governing the Consolidated Audit Trail for Purposes of Short Sale-Related Data Collection, Release No. 34-94314 (Mar. 16, 2022)

  • Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, Release Nos. 33-11038, 34-94382, IC-34529 (Mar. 23, 2022)

  • Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews, Release No. IA-5955 (Mar. 24, 2022)

  • The Enhancement and Standardization of Climate-Related Disclosures for Investors Release Nos. 33-11042, 34-94478 (Apr. 11, 2022)

  • Special Purpose Acquisition Companies, Shell Companies, and Projections, Release Nos. 33-11048, 34-94546, IC-34549 (May 13, 2022)

  • Investment Company Names, Release Nos. 33-11067, 34-94981, IC-34593 (June 17, 2022)

  • Enhanced Disclosures by Certain Investment Advisers and Investment Companies About Environmental, Social, and Governance Investment Practices, Release Nos. 33-11068, 34-94985, IA-6034, IC-34594 (June 17, 2022)

  • Request for Comment on Certain Information Providers Acting as Investment Advisers, Release Nos. IA-6050, IC-34618 (June 22, 2022)
Heightened Threat of Fraud: FINRA Alerts Firms to Recent Trend in Fraudulent Transfers of Accounts Through ACATS (FINRA Regulatory Notice 22-61)
As set forth in part in the "Summary" portion of the FINRA Regulatory Notice:

FINRA alerts member firms to a rising trend in the fraudulent transfer of customer accounts through the Automated Customer Account Transfer Service (ACATS), an automated system administered by the National Securities Clearing Corporation (NSCC), that facilitates the transfer of customer account assets from one firm to another. 

As more fully explained in part on Page 3 of the Notice [Ed: footnotes omitted]:

ACATS fraud is related to the growing threat of new accounts being opened online or through mobile applications using stolen or synthetic identities. In connection with the COVID-19 pandemic, FINRA previously advised member firms that bad actors may be "targeting firms offering online account opening services and perhaps especially, firms that recently started offering such services" by using stolen or synthetic identities to establish new accounts at member firms as a way to "divert congressional stimulus funds, unemployment payments or to engage in automated clearing house (ACH) fraud." Similarly, with ACATS fraud, bad actors may be taking advantage of the efficiencies of the account transfer process offered through ACATS to fraudulently transfer assets out of an existing account of a legitimate customer whose identity is stolen to a new account the bad actor established at another broker-dealer using the stolen identity. 

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