Securities Industry Commentator by Bill Singer Esq

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Time to Call False Start Penalty Against SEC Reg ATS Rulemaking (BrokeAndBroker.com Blog)

https://www.brokeandbroker.com/6989/sec-gensler-ats-crypto/

On April 14, 2023, the Securities and Exchange Commission published "SEC Reopens Comment Period for Proposed Amendments to Exchange Act Rule 3b-16 and Provides Supplemental Information." Upon reading the SEC's press release, one is immediately struck by the ponderous nature of the headline about the reopening of a comment period in order to supplement previously proposed amendments. Oh my, what an exaltation of doublespeak and bureaucratese!

SCOTUS Holds that Foreign Sovereign Immunities Act Does Not Immunize From Criminal Prosecution
Turkiye Halk Bankasi A. S. a/k/a Halkbank, Petitioner v. United States (Opinion, No. 21-1450, 598 U.S. __ (2023))
https://www.supremecourt.gov/opinions/22pdf/21-1450_5468.pdf

As set forth in the Syllabus of the SCOTUS Opinion:

The United States indicted Halkbank, a bank owned by the Republic of Turkey, for conspiring to evade U. S. economic sanctions against Iran. Halkbank moved to dismiss the indictment on the ground that as an instrumentality of a foreign state, Halkbank is immune from criminal prosecution under the Foreign Sovereign Immunities Act of 1976. The District Court denied the motion. The Second Circuit affirmed after first determining that the District Court had subject matter jurisdiction over Halkbank’s criminal prosecution under 18 U. S. C. §3231. The Second Circuit further held that even assuming the FSIA confers immunity in criminal proceedings, Halkbank’s charged conduct fell within the FSIA’s exception for commercial activities.

Held:

1. The District Court has jurisdiction under §3231 over this criminal prosecution of Halkbank. Section 3231 grants district courts original jurisdiction of “all offenses against the laws of the United States,” and Halkbank does not dispute that §3231’s text as written encompasses the charged offenses. Halkbank instead argues that because §3231 does not mention foreign states or their instrumentalities, §3231 implicitly excludes them. The Court declines to graft such an atextual limitation onto §3231’s broad jurisdictional grant. The scattered express references to foreign states and instrumentalities in unrelated U. S. Code provisions to which Halkbank points do not shrink the textual scope of §3231. And the Court’s precedents interpreting the Judiciary Act of 1789 do not support Halkbank, as the Court has not interpreted the jurisdictional provisions in the 1789 Act to contain an implicit exclusion for foreign state entities. Pp. 3–5.

2. The FSIA’s comprehensive scheme governing claims of immunity in civil actions against foreign states and their instrumentalities does not cover criminal cases. Pp. 5–14.

(a) The doctrine of foreign sovereign immunity originally developed in U. S. courts “as a matter of common law” rather than statute. Samantar v. Yousuf, 560 U. S. 305, 311. In 1976, Congress enacted the FSIA, which prescribed a “comprehensive set of legal standards governing claims of immunity in every civil action against a foreign state.” Verlinden B. V. v. Central Bank of Nigeria, 461 U. S. 480, 488. The text of the FSIA indicates that the statute exclusively addresses civil suits. The first provision grants district courts original jurisdiction over “any nonjury civil action against a foreign state” as to “any claim for relief in personam with respect to which the foreign state is not entitled to immunity.” 28 U. S. C. §1330(a). The FSIA then sets forth a carefully calibrated set of procedures and remedies applicable exclusively in civil, not criminal, cases. Further, Congress described the FSIA as defining “the circumstances in which foreign states are immune from suit,” not from criminal investigation or prosecution. 90 Stat. 2891. In stark contrast, the FSIA is silent as to criminal matters, even though at the time of the FSIA’s enactment in 1976, the Executive Branch occasionally attempted to subject foreign government-owned entities to federal criminal investigation. If Halkbank were correct, immunity from criminal prosecution undoubtedly would have surfaced somewhere in the Act’s text. Moreover, the FSIA’s location in the U. S. Code—Title 28, which mostly concerns civil procedure, rather than Title 18, which addresses crimes and criminal procedure—likewise reinforces the interpretation that the FSIA does not apply to criminal proceedings. Finally, this Court’s decision in Samantar, in which the Court analyzed the FSIA’s “text, purpose, and history” and determined that the FSIA’s “comprehensive solution” for suits against foreign states did not extend to suits against individual officials, 560 U. S., at 323, 325, similarly supports the conclusion here that the FSIA’s provisions do not extend to the discrete context of criminal proceedings. Pp. 5–9.

(b) In response to all the evidence of the FSIA’s exclusively civil scope, Halkbank claims immunity from criminal prosecution based on one sentence in the FSIA, which provides that a “foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter.” 28 U. S. C. §1604. Section 1604, however, must be considered in context. Section 1604 works in tandem with §1330(a): Section 1330(a) spells out a universe of civil cases against foreign states over which district courts have jurisdiction, and §1604 then clarifies how principles of immunity operate within that limited civil universe. Halkbank’s interpretation of §1604 is also difficult to square with its view of the exceptions to immunity contained in §1605, which Halkbank insists apply exclusively in civil matters. Halkbank’s §1604 argument reduces to the implausible contention that Congress enacted a statute focused entirely on civil actions and then in one provision that does not mention criminal proceedings somehow stripped the Executive Branch of all power to bring domestic criminal prosecutions against instrumentalities of foreign states. Nothing in the FSIA supports that result. Pp. 10–12. (c) Halkbank’s remaining arguments lack merit. While the Court did state in Argentine Republic v. Amerada Hess Shipping Corp. that the FSIA is the “sole basis for obtaining jurisdiction over a foreign state in federal court,” 488 U. S. 428, 439, the Court made clear that the FSIA displaces general “grants of subject-matter jurisdiction in Title 28”—that is, in civil cases against foreign states, id., at 437. Halkbank also warns that if the Court concludes that the FSIA does not apply in the criminal context, courts and the Executive will lack “congressional guidance” as to procedure in criminal cases. But that concern carried no weight in Samantar, which likewise deemed the FSIA’s various procedures inapplicable to a specific category of cases— there, suits against foreign officials. And in any event, the Federal Rules of Criminal Procedure would govern any federal criminal proceedings. Finally, Halkbank argues that U. S. criminal proceedings against instrumentalities of foreign states would negatively affect national security and foreign policy. But the Court must interpret the FSIA as written. And if existing principles do not suffice to protect national security and foreign policy interests, Congress and the President may always respond. Pp. 12–14. 3. The Second Circuit did not fully consider various common-law immunity arguments that the parties raise in this Court. The Court vacates the judgment and remands for the Second Circuit to consider those arguments. Pp. 14–16.

16 F. 4th 336, affirmed in part, vacated and remanded in part.

KAVANAUGH, J., delivered the opinion of the Court, in which ROBERTS, C. J., and THOMAS, SOTOMAYOR, KAGAN, BARRETT, and JACKSON, JJ.,joined. GORSUCH, J., filed an opinion concurring in part and dissenting in part, in which ALITO, J., joined.

FINRA Suspends Rep For Private Securities Transactions
In the Matter of Johnathan Jasper Norton, Respondent (FINRA AWC 2022074961801)
https://www.finra.org/sites/default/files/fda_documents/2022074961801
%20Jonathan%20Jasper%20Norton%20CRD%204662779%20AWC%20vr.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, Johnathan Jasper Norton submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Johnathan Jasper Norton entered the industry in 2003, and by April 2005, he was registered with PFS Investments Inc. In accordance with the terms of the AWC, FINRA imposed upon Norton a 30-calendar-day suspension from associating with any FINRA member in all capacities. No fine was imposed in consideration of his financial condition. As alleged in part in the AWC:

Between January and April 2021, while associated with PFS, Norton personally invested a total of approximately $110,000 in investment contracts offered and sold by Company A, which purported to be an invoice factoring company that provided cash to companies in exchange for their accounts receivable. Norton made his investments in this security by entering into six separate "Funding Partner" agreements pursuant to which Norton provided capital funding to Company A in exchange for a promise that Company A would acquire accounts receivable solely for his account and generate 15-20% returns on his investments. Norton did not make these investments through PFS, nor were they securities offered by PFS, and thus, they were outside the regular course or scope of Norton's employment with PFS. Norton did not provide written notice to PFS prior to investing in the private securities transactions involving Company A.

Therefore, Norton violated FINRA Rules 3280 and 2010.

= = =
4/18/2023

Washington, April 18, 2023 -

In advance of today’s hearing, all Republicans on the House Financial Services Committee—led by Chairman Patrick McHenry (NC-10)—sent a letter to Securities and Exchange Commission (SEC) Chair Gary Gensler. Republicans are slamming the Commission’s approach to digital asset regulation and attempts to force digital asset trading platforms to “come in and register” under the ill-fitting national securities exchange (NSE) framework. Republicans are urging Chair Gensler to work with Congress to develop clear rules of the road for digital assets that foster innovation and protect investors.

Read the full letter here.

Read key excerpts from the letter below:

“We write regarding the Securities and Exchange Commission’s (SEC) approach to the digital asset ecosystem under your tenure. To date, the SEC has forced digital asset market participants into regulatory frameworks that are neither compatible with the underlying technology nor applicable because the firms’ activities do not involve an offering of securities. Both approaches hamper the digital asset ecosystem’s ability to realize the unique benefits the new technology offers, which harms consumers, investors, and the economy as a whole.

“As Chair, you have acknowledged that digital asset trading platforms do not perfectly fit under existing laws and regulations. You have been outspoken in your push for digital asset trading platforms to ‘come in and register’ under the national securities exchange (NSE) framework. Yet, at the same time, you have failed to provide a path that allows digital asset trading platforms to register. As you know, many digital assets are developed for the purpose of being used within a developing system, are capable of being used in non-securities transactions, and are meant to be consumed and used in the protocol for which it was designed. Existing regulations under the NSE framework do not contemplate these features.

“Given an NSE can only list securities that have been offered in compliance with the securities laws, the inability to register makes the current NSE framework ill-suited for digital asset trading platforms. Moreover, the lack of clarity provided by the SEC as to what digital assets are considered securities also limits what an NSE can list. It is not clear whether a NSE could list non-securities assets even if such assets were otherwise in compliance with the law.

“Without clear rules of the road, your push for firms to ‘come in and register’ is a willful misrepresentation of the SEC’s non-existent registration process. The only entity to blame for the lack of registrants is the SEC itself. The SEC should take this opportunity to work with Congress to ensure innovators and investors have the regulatory clarity and protections that they deserve.

“We look forward to continuing our discussion on these critical issues.”

April 18, 2023, Testimony of Chair Gary Gensler before the United States House of Representatives Committee on Financial Services by SEC Chair Gary Gensler
https://www.sec.gov/news/testimony/gensler-testimony-house-financial-services-041823

Good morning, Chairman McHenry, Ranking Member Waters, and members of the Committee. Thank you for inviting me to testify today. As is customary, I will note that my views are my own, and I am not speaking on behalf of my fellow Commissioners or the staff.

Sam Rayburn and the U.S. Securities Laws
Walking into the Rayburn building, I couldn’t help but stop by the statue of Sam Rayburn, the longest serving Speaker of the House. He had a historic career of public service, including as Chair of the House Committee on Interstate and Foreign Commerce. In that role, he worked closely with President Franklin Roosevelt to establish the nation’s first federal securities laws.

After Roosevelt’s call to action in March of 1933, Rayburn sponsored the House version of what became the Securities Act of 1933. They both knew how important it was to protect investors and promote our capital markets.

Rayburn was not new to the issues of stocks and bonds. In his first term in Congress, he sponsored a bill on railroad stocks and bonds that passed the House but failed in the Senate.[1] In his 11th term 20 years later, in the wake of the market crash of 1929, he was successful in getting a bill through to bring full, fair, and truthful issuer disclosures to the investing public. As Rayburn noted, though, “the biggest and boldest, the richest and most ruthless lobby Congress had ever known” came after that bill.[2]

Roosevelt and Rayburn knew the job wasn’t done. A year later, the Fletcher-Rayburn bill, better known today as the Securities Exchange Act of 1934, became law. That statute covers intermediaries, such as exchanges and broker-dealers, as well as requires ongoing disclosures by companies trading on the stock exchanges. It also established this important agency I’m honored to chair, the Securities and Exchange Commission.

Rayburn later had an important hand as Majority Leader in the passage of the Investment Company Act and Investment Advisers Act of 1940. Shortly thereafter, his colleagues, who often referred to him as Mr. Sam, selected him to be Speaker.

American Leadership in the Capital Markets
The foundational work of Rayburn, the rest of Congress, and Roosevelt has been part of our nation’s economic success and global standing ever since.

First, we have the deepest, most liquid, most trusted capital markets in the world.

We can’t, though, take this leadership for granted.

As Rayburn and Roosevelt understood, beyond these foundational laws, we’ve needed the oversight of an independent agency to protect investors and issuers alike.

Second, technology, markets, and business models constantly change. Rayburn and Roosevelt helped birth this agency in the age of radio. We now live in the age of electronic trading and generative AI. Further, we’ve had dramatic growth in the scale, size, and interconnectedness of our capital markets, with individual investors participating more than ever before.

Third, there are other fast-growing economies that, if they can, may seek to supplant us.

Given these challenges, we’ve got to update regularly the rules of the road.

I now will talk briefly about the critical role of this agency and then turn to some of our efforts in modernizing our rules to meet these challenges.

The SEC’s Role
At this remarkable agency, we serve investors building for a better future and issuers raising money to fund innovation, while overseeing the $100 trillion capital markets in the middle where they meet. The essence of this is captured in our three-part mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

The SEC is the cop on the beat watching out for your constituents. In the last two years, we’ve filed nearly 1,500 enforcement actions and conducted more than 6,000 examinations of registrants. We engage with more than 40,000 registrants—asset managers, brokers, dealers, exchanges, fund complexes, public companies, and many more.

The dedicated staff of this agency has done remarkable work with limited resources. In the face of significant growth in registrants, more individual investor involvement in our markets, and increased complexity, the SEC’s headcount actually shrunk from 2016 through last year. With Congress’s help, our headcount this year now is approximately three percent larger than in 2016. I support the President’s FY 2024 request of $2.436 billion, to put us on a better track for the future.[3]

I am proud of this agency. Despite increasing demands on SEC staff, we just were named the third-best place to work among midsized federal agencies, moving two spots up the list and building on being in the top five for the previous five years.[4]

Updating Our Rules to Meet the Challenges of Our Time
In every generation since Rayburn and Roosevelt’s, Congress and this agency have looked to update the laws and rules to meet the challenges of the time.

In ensuring that markets best serve investors and issuers alike, the middle part of our mission speaks to promoting fair, orderly, and efficient markets. In that context, I’ll speak to our work to enhance the efficiency, integrity, and resiliency of the markets.

We do so through rulemaking that is grounded in legal authorities granted by Congress, robust economic analysis, and a public comment process. The length of comment periods has averaged more than 70 days from when we put a proposal on the SEC website. With the closing of a formal comment period, staff begins its work to account for this important public input but continues to receive additional comments, which the Commission may consider. We greatly benefit from public input and consider adjustments that the staff, and ultimately the Commission, think are appropriate.

Efficiency and Competition
Congress updated Rayburn’s work in the 1970s and again in the 1990s to mandate that, in addition to investor protection and public interest, our agency consider efficiency and competition, as well as capital formation, in formulating our rules.[5] They understood that lowering the cost in the middle of our capital markets would help lower costs for issuers and raise returns for investors.

In this context, I would note we have proposals with regard to securities lending,[6] short sale disclosures,[7] and large position reporting for securities-based swaps.[8] Further, the Financial Industry Regulatory Authority is working to enhance post-trade transparency in the fixed-income markets to facilitate greater competition.[9]

I will take a moment to elaborate on our work regarding equity markets and private funds.[10]

Equity Markets
Given the 68 million American households investing,[11] the importance to issuers, the more than $40 trillion size, and rapidly changing technology, it’s appropriate that the SEC freshen up its rules to promote efficiency and competition in the equity markets.

Key aspects of our rules for the national market system haven’t been updated since 2005. Yet so much has changed. Not only have we seen the electrification of markets, but also a significant share of the markets has moved to wholesalers and other means of trading, otherwise known as the dark markets.

First, we put out a proposal that brokers meet a Commission best execution standard—in essence that brokers seek the best execution for investors when they place orders. This rule proposal would cover all sectors of the securities markets, including equity, fixed-income, and crypto asset securities.[12]

Second, we proposed updating a 23-year-old rule, known as Rule 605, on order execution quality.[13]

Third, we have a proposal to better level the playing field between dark and lit markets. We are seeking to harmonize the minimum price increment where stocks can be quoted and transacted as well as lower these minimum increments across the markets.[14]

Lastly, we put out a proposal to bring greater competition for a segment of the market related to individual investors’ marketable orders.[15]

Private Funds
Private fund advisers and the funds they manage play an increasingly important role in our capital markets. With more than $25 trillion of gross assets under management, private funds now have surpassed the size of our entire $23 trillion commercial banking system.[16]

Private fund investors often are retirement funds and endowments. Standing behind those entities are a diverse array of teachers, firefighters, municipal workers, students, and professors. On the other side, the funds are investing in a wide array of companies. Issuers raising money from private funds range from startup entrepreneurs and small businesses to late-stage companies and nearly all sectors of our capital markets.

That’s why we proposed a rule to require private fund advisers to provide detailed reporting to investors of fees, expenses, performance, and preferential treatment, such as side letters.[17] Efficiency and competition amongst these advisers is important for issuers and investors alike.

Integrity and Disclosure
Two core motivations for Rayburn and Roosevelt in enacting the securities laws were the lack of market integrity and disclosure. The markets were rife with fraud and manipulation. Investors lacked full, fair, and truthful disclosures from issuers.

Market integrity and disclosure help protect investors and build trust in capital markets. Disclosure and trust lower the cost of capital for issuers and raise returns for investors. They also help increase participation in the capital markets. This is good for those investing for their future and for issuers. Integrity and disclosure facilitate what can be the best of capital markets and guard against the worst.

In this context, we have been successful in completing rules related to how insiders trade and sell their stock,[18] clawing back senior executives’ compensation when based on faulty financials,[19] and disclosure of executive pay versus performance.[20] We have released issuer-disclosure proposals for cyber risk and stock buybacks, as well as proposals regarding fraud and manipulation in the securities-based swaps market.[21]

We also have proposals with regard to special purpose acquisition companies, investment fund names, and funds and advisers that incorporate environmental, social, and governance factors.[22]

In this section, I’m going to focus on proposals regarding two areas of emerging technology—predictive data analytics and crypto—and then turn to the Commission’s issuer disclosure proposal related to climate risk.

Artificial Intelligence and Predictive Data Analytics
Artificial intelligence and predictive data analytics are transforming so much of our economy. Finance is no exception.

AI already is being used for call centers, account openings, compliance programs, trading algorithms, and sentiment analysis, among others. It’s also fueled a rapid change in the field of robo-advisers and brokerage apps. When the predictive data analytics and algorithms behind these apps are optimizing for investor interests, this can bring benefits in market access, efficiency, and returns.

As commenters to our request for comment on digital engagement practices noted, however, the use of predictive data analytics also can lead to potential conflicts.[23] In particular, conflicts may arise to the extent that advisers or brokers are optimizing for their own interests as well as others.

Thus, I’ve asked staff to make recommendations for the Commission’s consideration for rule proposals regarding how best to address any of these potential conflicts.[24]

Crypto
Congress gave the Commission a mandate to protect investors, regardless of the labels or technology used.[25] Nothing about the crypto markets is incompatible with the securities laws.

As I’ve said numerous times, the vast majority of crypto tokens are securities.

The investing public generally is buying crypto tokens because those investors are anticipating a profit and hoping for a better future. These thousands of tokens often are supported by websites and social media accounts, and generally there are entrepreneurs backing them. The public generally is counting on the efforts of other humans behind these tokens to generate profits on their investment.

Given that most crypto tokens are securities, it follows that many crypto intermediaries are transacting in securities and have to register with the SEC.

Crypto intermediaries—whether they call themselves centralized or decentralized—often provide an amalgam of services that typically are separated from each other in the rest of the securities markets: exchange functions, broker-dealer functions, custodial and clearing functions, and lending functions. The commingling of the various functions within crypto intermediaries creates inherent conflicts of interest and risks for investors—risks and conflicts the Commission does not allow in any other marketplace.[26]

Crypto investors should benefit from compliance with the same laws that Rayburn and Roosevelt laid out to protect against fraud, manipulation, front-running, wash sales, and other misconduct. As Justice Thurgood Marshall put it so well, “Congress’s purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.”[27]

It’s the law; it’s not a choice. Calling yourself a DeFi platform, for instance, is not an excuse to defy the securities laws.

Right now, unfortunately, this market is rife with noncompliance. This noncompliance not only puts investors at risk, but also puts at risk the public’s trust in our capital markets.

The Commission has spoken directly to crypto market participants in enforcement actions[28] and a number of rule proposals. The best execution rule I noted earlier would cover all securities, including crypto asset securities.[29] While our current investment adviser custody rule already applies to crypto funds and securities, our recent proposal updating that rule would cover all crypto assets and enhance the protections that qualified custodians provide.[30] I also note that staff has stated their view on public company accounting related to crypto assets and disclosure regarding significant crypto asset market developments.[31] Lastly, we just issued a release reopening a comment period on a proposal related to trading platforms, which focused specifically on comments from crypto market participants, among others.[32]

Forsaking investor protection puts real people’s life savings at risk. The goal is to protect our “clients”: U.S. investors.

Climate Risk Disclosure
In calling the 1933 securities law the “Truth in Securities Act,” Roosevelt knew that the essence was for companies offering securities to the public to provide full, fair, and truthful disclosure. Investors get to decide what investments they make and risks they take based upon that disclosure. Over the decades, the SEC has updated the disclosure rules with that basic bargain in mind.[33]

In this vein, the Commission has proposed a rule for consistent and comparable climate-risk disclosure by public companies.[34] Hundreds of companies today already are making climate-risk disclosures. Investors managing tens of trillions of dollars in assets are making investment decisions relying on those disclosures.

The SEC, as designed by Rayburn and Roosevelt, is merit neutral. We don’t take a view on particular companies or investments. Thus, the SEC has no role as to climate risk itself. But we do have an important role with regard to ensuring for public companies’ full, fair, and truthful disclosure about material risks.

We carefully will take into consideration the nearly 15,000 comments we’ve received on the proposal so far. Just as with any proposal, we greatly benefit from public input and will consider adjustments that the staff, and ultimately the Commission, think are appropriate.

Resiliency
History is replete with times when tremors starting in one corner of the financial system or at one financial institution spill out to the broader economy. When this happens, the American public—bystanders to the highways of finance—inevitably gets hurt. Investors and issuers inevitably get hurt.

Lest we forget, eight million Americans lost their jobs, millions of families lost their homes, and small businesses across the country folded as a result of the financial crisis of 2008. Recent market events are yet another reminder of such risks.

That’s why the Commission has taken up a number of important projects with regard to resiliency and financial stability.

We already have adopted a rule to shorten the settlement cycle in securities markets in half, which lowers risk and promotes efficiency as well as greater liquidity in the markets.[35]

There are ongoing projects with regard to clearinghouse governance, risk management, use of service providers, and recovery and wind-down plans.[36] We have a proposal regarding the most active, liquidity-providing participants in our markets.[37]

We also have projects related to cybersecurity and technological resiliency in the financial sector.[38]

In this section, I am going to focus on the Treasury markets as well as funds, including registered investment funds and private funds.

Treasury Markets
The $24 trillion Treasury markets are the base upon which so much of our capital markets are built. Myriad markets and financial products are priced off of treasuries. Treasuries are embedded in money market funds. They are integral to monetary policy. They are how we, as a government and as taxpayers, raise money: We are the issuer.

Though Rayburn and Roosevelt initially didn’t give the SEC a significant role in the Treasury markets, market events and failures at government securities firms in the early 1980s led Congress to give us an important role with regard to these markets.[39] In normal times these markets function well, but they have had repeated moments of instability, whether the flash crash in 2014, repo problems in 2019, or the dash for cash in 2020. The events of the recent months yet again are a reminder that even the vast Treasury markets can experience significant volatility and lessened liquidity.

All of this is why the SEC has worked with the Department of the Treasury, the Federal Reserve System, and other agencies to enhance the efficiency and resiliency of the $24 trillion Treasury markets.[40] These projects include registering and regulating Treasury dealers and platforms, as well as facilitating greater clearing of treasuries in both cash and funding markets.[41]

Money Market Funds and Open-End Funds
Money market funds and open-end funds are important investment vehicles for tens of millions of Americans. They also play a critical part in facilitating capital formation.

In times of stress, when many investors may redeem their shares in a fund at once, a fund might need to sell less-liquid securities quickly to generate cash. When done in volume, this can raise issues for investor protection, our capital markets, and the broader economy. We saw such systemic issues during the onset of the Covid-19 pandemic, when many investors sought to redeem their investments from open-end funds and money market funds. The resulting challenges contributed to stress across our financial system.

We also have seen significant growth in these funds. Money market funds, which can operate as deposit alternatives, have grown more than $660 billion just since last June, from about $5 trillion to about $5.7 trillion.[42] That highlights one reason why it’s so important to ensure that these key parts of our capital markets are resilient.

That’s why I’m pleased we put out proposals for public comment on both money market funds and open-end fund liquidity.[43] The proposals intend to address these structural issues and enhance liquidity risk-management.

Form PF
After the financial crisis of 2008, Congress gave the SEC important new authorities to collect information from private funds “as necessary and appropriate in the public interest and for the protection of investors, or for the assessment of systemic risk by the FSOC.”[44] Based on those new authorities, working with other agencies, the SEC put Form PF in place 12 years ago.[45] Since that time, the private fund industry has grown and evolved even further.

As last year’s FSOC annual report notes, hedge funds can create risks for financial stability through the use of leverage and through counterparty exposures.[46] We also understand that hedge fund exposures to repurchase agreements, reverse repurchase agreements, and Treasury securities have increased in recent years. Moreover, in the last few years, many hedge funds are receiving repo financing in the non-centrally cleared bilateral market, where haircuts or initial margin requirements are not necessarily applied.[47]

In light of changes in the market, I’m pleased that we put out proposals to improve systemic risk reporting through updates to Form PF.[48]

Conclusion
As I leave the Rayburn building, I again look forward to passing by Mr. Sam.

Coincidentally, my dad sometimes also was called Mr. Sam. He had a vending machine business, and he regularly would stop by the bars to check on his machines. The Baltimore bar owners would often call him Mr. Sam. While my dad was not a public figure like Rayburn—he never even went to college—he was a big believer in our American system, and that the system could help make a better life for Americans.

I think of both Mr. Sams as the SEC works to ensure that our markets work for investors and issuers alike—and not the other way around.

[1] See Alexander Shanks, “Sam Rayburn in the Wilson Administrations, 1913-1921” (1968), available at https://scholarworks.sfasu.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1147&context=ethj.

[2] See Securities and Exchange Commission Historical Society, “431 Days: Joseph P. Kennedy and the Creation of the SEC (1934-35)” (Dec. 1, 2005), available at https://www.sechistorical.org/museum/galleries/kennedy/politicians_c.php.

[3] See Securities and Exchange Commission, “Fiscal Year 2024 Congressional Budget Justification” (March 13, 2023), available at https://www.sec.gov/files/fy-2024-congressional-budget-justification_final-3-10.pdf.

[4] See Partnership for Public Service, “Best Places to Work in the Federal Government: Securities and Exchange Commission” (March 29, 2023), available at https://bestplacestowork.org/rankings/detail/?c=SE00.

[5] See Gary Gensler, “‘Competition and the Two SECs’: Remarks Before the SIFMA Annual Meeting” (Oct. 24, 2022), available at https://www.sec.gov/news/speech/gensler-sifma-speech-102422.

[6] See Securities and Exchange Commission, “SEC Proposes Rule to Provide Transparency in the Securities Lending Market” (Nov. 18, 2021), available at https://www.sec.gov/news/press-release/2021-239.

[7] See Securities and Exchange Commission, “SEC Proposes Short Sale Disclosure Rule, Order Marking Requirement, and CAT Amendments” (Feb. 25, 2022), available at https://www.sec.gov/news/press-release/2022-32.

[8] See Securities and Exchange Commission, “SEC Proposes Rules to Prevent Fraud in Connection With Security-Based Swaps Transactions, to Prevent Undue Influence over CCOs and to Require Reporting of Large Security-Based Swap Positions” (Dec. 15, 2021), available at https://www.sec.gov/news/press-release/2021-259.

[9] See Financial Industry Regulatory Authority (FINRA), “Notice: Enhancements to Aggregated Reports and Statistics for U.S. Treasury Securities – Updated Date” (Dec. 28, 2022), available at https://www.finra.org/filing-reporting/trace/enhancements-weekly-aggregated-reports-statistics-122822. See also “FINRA Requests Comment on Proposed Changes to TRACE Reporting Relating to Delayed Treasury Spot Trades” (Nov. 29, 2022), available at https://www.finra.org/rules-guidance/notices/22-26. See also “Proposed Rule Change to Amend FINRA Rule 6730 (Transaction Reporting) to Enhance TRACE Reporting Obligations for U.S. Treasury Securities” (2022), available at https://www.finra.org/rules-guidance/rule-filings/sr-finra-2022-013. See also “FINRA Requests Comment on a Proposal to Shorten the Trade Reporting Timeframe for Transactions in Certain TRACE-Eligible Securities From 15 Minutes to One Minute” (Aug. 2, 2022), available at https://www.finra.org/rules-guidance/notices/22-17.

[10] See Gary Gensler, “‘Competition and the Two SECs’: Remarks Before the SIFMA Annual Meeting” (Oct. 24, 2022), available at https://www.sec.gov/news/speech/gensler-sifma-speech-102422.

[11] The Federal Reserve Board’s 2019 Survey of Consumer Finance finds that 53 percent of families own stock. “Family” as used in the Survey is similar to “household” as defined in Census data. 2019 Census data estimate that there are 128.6 million households in the U.S; 53 percent of this figure is approximately 68 million households. See Federal Reserve Board, “Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances,” available at https://www.federalreserve.gov/publications/files/scf20.pdf. See also United States Census Bureau, “Historical Household Tables” (Nov. 2022), available at https://www.census.gov/data/tables/time-series/demo/families/households.html.

[12] See Securities and Exchange Commission, “SEC Proposes Regulation Best Execution” (Dec. 14, 2022), available at https://www.sec.gov/news/press-release/2022-226.

[13] See Securities and Exchange Commission, “SEC Proposes Amendments to Enhance Disclosure of Order Execution Information” (Dec. 14, 2022), available at https://www.sec.gov/news/press-release/2022-223.

[14] See Securities and Exchange Commission, “SEC Proposes Rules to Amend Minimum Pricing Increments and Access Fee Caps and to Enhance the Transparency of Better Priced Orders” (Dec. 14, 2022), available at https://www.sec.gov/news/press-release/2022-224.

[15] See Securities and Exchange Commission, “SEC Proposes Rule to Enhance Competition for Individual Investor Order Execution” (Dec. 14, 2022), available at https://www.sec.gov/news/press-release/2022-225.

[16] Based on Form ADV filings through March 31, 2023. Represents sum of Registered Investment Adviser GAV and Exempt Reporting Adviser GAV, less estimated overlap. See also Board of Governors of the Federal Reserve System, “Assets and Liabilities of Commercial Banks in the United States” (April 14, 2023), available at https://www.federalreserve.gov/releases/h8/current/default.htm. Total assets of approximately $22.9 trillion as of April 14, 2023 (Table 2, Line 33).

[17] See Securities and Exchange Commission, “SEC Proposes to Enhance Private Fund Investor Protection” (Feb. 9, 2022), available at https://www.sec.gov/news/press-release/2022-19.

[18] See Securities and Exchange Commission, “SEC Adopts Amendments to Modernize Rule 10b5-1 Insider Trading Plans and Related Disclosures” (Dec. 14, 2022), available at https://www.sec.gov/news/press-release/2022-222.

[19] See Securities and Exchange Commission, “SEC Adopts Compensation Recovery Listing Standards and Disclosure Rules” (Oct. 26, 2022), available at https://www.sec.gov/news/press-release/2022-192.

[20] See “SEC Adopts Pay Versus Performance Disclosure Rules” (Aug. 22, 2022), available at https://www.sec.gov/news/press-release/2022-149.

[21] See Securities and Exchange Commission, “SEC Proposes Rules to Prevent Fraud in Connection With Security-Based Swaps Transactions, to Prevent Undue Influence over CCOs and to Require Reporting of Large Security-Based Swap Positions” (Dec. 15, 2021), available at https://www.sec.gov/news/press-release/2021-259.

[22] See Securities and Exchange Commission, “SEC Proposes Rules to Enhance Disclosure and Investor Protection Relating to Special Purpose Acquisition Companies, Shell Companies, and Projections” (March 30, 2022), available at https://www.sec.gov/news/press-release/2022-56.

[23] See Securities and Exchange Commission, “SEC Requests Information and Comment on Broker-Dealer and Investment Adviser Digital Engagement Practices, Related Tools and Methods, and Regulatory Considerations and Potential Approaches; Information and Comments on Investment Adviser Use of Technology” (Aug. 27, 2021), available at https://www.sec.gov/news/press-release/2021-167.

[24] See Gary Gensler, “Prepared Remarks Before the Investor Advisory Committee” (March 2, 2023), available at https://www.sec.gov/news/speech/gensler-remarks-iac-030223. See also “Testimony Before the United States Senate Committee on Banking, Housing, and Urban Affairs” (Sept. 15, 2022), available at https://www.sec.gov/news/testimony/gensler-testimony-housing-urban-affairs-091522.

[25] See Gary Gensler, “Kennedy and Crypto” (Sept. 8, 2022), available at https://www.sec.gov/news/speech/gensler-sec-speaks-090822.

[26] See Gary Gensler, “Getting Crypto Firms to Do Their Work within the Bounds of the Law” (March 9, 2023), available at https://thehill.com/opinion/congress-blog/3891970-getting-crypto-firms-to-do-their-work-within-the-bounds-of-the-law/.

[27] See Reves v. Ernst & Young, 494 U.S. 56, 60-61 (1990).

[28] See Securities and Exchange Commission, “Crypto Assets and Cyber Enforcement Actions,” available at https://www.sec.gov/spotlight/cybersecurity-enforcement-actions.

[29] See “SEC Proposes Regulation Best Execution” (Dec. 14, 2022), available at https://www.sec.gov/news/press-release/2022-226.

[30] See Securities and Exchange Commission, “SEC Proposes Enhanced Safeguarding Rule for Registered Investment Advisers” (Feb. 15, 2023), available at https://www.sec.gov/news/press-release/2023-30.

[31] See Securities and Exchange Commission, “Staff Accounting Bulletin No. 121” (March 31, 2022), available at https://www.sec.gov/oca/staff-accounting-bulletin-121. See also “Sample Letter to Companies Regarding Recent Developments in Crypto Asset Markets” (Dec. 8, 2022), available at https://www.sec.gov/corpfin/sample-letter-companies-regarding-crypto-asset-markets.

[32] See Securities and Exchange Commission, “SEC Reopens Comment Period for Proposed Amendments to Exchange Act Rule 3b-16 and Provides Supplemental Information” (April 14, 2023), available at https://www.sec.gov/news/press-release/2023-77.

[33] See Gary Gensler, “‘Building Upon a Long Tradition’—Remarks before the Ceres Investor Briefing” (April 12, 2022), available at https://www.sec.gov/news/speech/gensler-remarks-ceres-investor-briefing-041222.

[34] See Securities and Exchange Commission, “SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors” (March 21, 2022), available at https://www.sec.gov/news/press-release/2022-46.

[35] See Securities and Exchange Commission, “SEC Finalizes Rules to Reduce Risks in Clearance and Settlement” (Feb. 15, 2023), available at https://www.sec.gov/news/press-release/2023-29.

[36] See Securities and Exchange Commission, “SEC Proposes Rules to Improve Clearing Agency Governance and to Mitigate Conflicts of Interest” (Aug. 8, 2022), available at https://www.sec.gov/news/press-release/2022-138. See also “Agency Rule List—Fall 2022: Clearing Agency Recovery and Wind-Down,” available at https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202210&RIN=3235-AN19.

[37] See Securities and Exchange Commission, “SEC Re-Proposes Amendments to Exemption From National Securities Association Membership” (July 29, 2022), available at https://www.sec.gov/news/press-release/2022-133.

[38] See Securities and Exchange Commission, “SEC Reopens Comment Period for Proposed Cybersecurity Risk Management Rules and Amendments for Registered Investment Advisers and Funds” (March 15, 2023), available at https://www.sec.gov/news/press-release/2023-54. See also “SEC Proposes New Requirements to Address Cybersecurity Risks to the U.S. Securities Markets” (March 15, 2023), available at https://www.sec.gov/news/press-release/2023-52. See also “SEC Proposes to Expand and Update Regulation SCI” (March 15, 2023), available at https://www.sec.gov/news/press-release/2023-53.

[39] See Gary Gensler, “Prepared Remarks at U.S. Treasury Market Conference” (Nov. 17, 2021), available at https://www.sec.gov/news/speech/gensler-us-treasury-market-conference-20211117.

[40] See Gary Gensler, “‘The Beatles and the Treasury Market’: Remarks Before the U.S. Treasury Market Conference” (Nov. 16, 2022), available at https://www.sec.gov/news/speech/gensler-speech-treasury-market-conference-111622.

[41] See Securities and Exchange Commission, “SEC Proposes Rules to Improve Risk Management in Clearance and Settlement and to Facilitate Additional Central Clearing for the U.S. Treasury Market” (Sept. 14, 2022), available at https://www.sec.gov/news/press-release/2022-162. See also “SEC Proposes Amendments to Include Significant Treasury Markets Platforms Within Regulation ATS” (Jan. 26, 2022), available at https://www.sec.gov/news/press-release/2022-10. See also “SEC Reopens Comment Period for Proposed Amendments to Exchange Act Rule 3b-16 and Provides Supplemental Information” (April 14, 2023), available at https://www.sec.gov/news/press-release/2023-77.

[42] Per Form N-MFP filings.

[43] See Securities and Exchange Commission, “SEC Proposes Amendments to Money Market Fund Rules” (Dec. 15, 2021), available at https://www.sec.gov/news/press-release/2021-258. See also “SEC Proposes Enhancements to Open-End Fund Liquidity Framework” (Nov. 2, 2022), available at https://www.sec.gov/news/press-release/2022-199.

[44] 15 U.S.C. 80b-4(b); 15 U.S.C. 80b-11(e).

[45] See Securities and Exchange Commission, “SEC Approves Confidential Private Fund Risk Reporting” (Oct. 26, 2011), available at https://www.sec.gov/news/press/2011/2011-226.htm.

[46] See Gary Gensler, “Prepared Remarks Before the Financial Stability Oversight Council: Annual Report” (Dec. 16, 2022), available at https://www.sec.gov/news/speech/gensler-remarks-fsoc-annual-report-121622. See also Department of the Treasury, “Financial Stability Oversight Council Releases 2022 Annual Report” (Dec. 16, 2022), available at https://home.treasury.gov/news/press-releases/jy1171.

[47] As a recent G30 report put it, “In principle, if all repos were centrally cleared, the minimum margin requirements established by FICC would apply marketwide, which would stop competitive pressures from driving haircuts down (sometimes to zero), which reportedly has been the case in recent years.” See Group of 30 Working Group on Treasury Market Liquidity, “U.S. Treasury Markets: Steps Toward Increased Resilience” (2021), available at https://group30.org/publications/detail/4950. In addition, as a 2021 Federal Reserve Board report said, “Most of hedge fund repo is transacted bilaterally, with only 13.7% of the repo centrally cleared.” See Federal Reserve Board Division of Research & Statistics and Monetary Affairs, “Hedge Fund Treasury Trading and Funding Fragility: Evidence from the COVID-19 Crisis” (April 2021), available at https://www.federalreserve.gov/econres/feds/files/2021038pap.pdf.

[48] See Securities and Exchange Commission, “SEC Proposes Amendments to Enhance Private Fund Reporting” (Jan. 26, 2022), available at https://www.sec.gov/news/press-release/2022-9. See also “SEC Proposes to Enhance Private Fund Reporting” (Aug. 10, 2022), available at https://www.sec.gov/news/press-release/2022-141.

Audio and Transcript of April 17, 2023, SCOTUS Oral Argument: Slack Technologies, Inc. et al. v. Pirani.: Whether Sections 11 and 12(a)(2) of the Securities Act of 1933 require plaintiffs to plead and prove that they bought shares registered under the registration statement they claim is misleading.

Fiyyaz Pirani, Plaintiff-Appellee,v. Slack Technologies, Inc., et al. (United States Court of Appeals for the Ninth Circuit, No., 20-16419 19-CV-05857 / September 20, 2021) https://www.supremecourt.gov/DocketPDF/22/22-200/230027/20220713154217266_Pirani%20v.%20Slack%20--%20Application%20Exhibits.pd

As set forth in the "Summary" to the 9Cir's opinion:

Securities Law

The panel affirmed the district court’s order denying in part a motion to dismiss and ruling that Fiyyaz Pirani had standing to sue Slack Technologies, Inc., and individual defendants under §§ 11 and 12(a)(2) of the Securities Act of 1933 based on shares issued under a new rule from the New York Stock Exchange allowing companies to make shares available to the public through a direct listing.

Pirani alleged that Slack’s registration statement was inaccurate and misleading under §§ 11 and 12(a)(2). Sections 11 and 12 refer to “such security,” meaning a security issued under a specific registration statement. The panel held that, even though Pirani could not determine if he had purchased registered or unregistered shares in a direct listing, he had standing to bring a claim under §§ 11 and 12 because his shares could not be purchased without the issuance of Slack’s registration statement, thus demarking these shares, whether registered or unregistered, as “such security” under §§ 11 and 12.

The panel held that because standing existed for Pirani’s § 11 claim against Slack, standing also existed for a dependent § 15 claim against controlling persons. The panel concluded that statutory standing existed under §§ 11 and 15, and under § 12(a)(1) to the extent it paralleled § 11.

Dissenting, Judge Miller wrote that he would reverse the district court’s order and remand with instructions to grant the motion to dismiss in full because Pirani could not prove that his shares were issued under the registration statement that he said was inaccurate, and he therefore lacked statutory standing.

QUESTION PRESENTED to the United States Supreme Court

22-200 SLACK TECHNOLOGIES, LLC V. PIRANI
DECISION BELOW: 13 F.4th 940

LOWER COURT CASE NUMBER: 20-16419

QUESTION PRESENTED:

Section 11 of the Securities Act of 1933 permits suits alleging misrepresentations in a registration statement only if the plaintiffs "acquir[ed] such security." 15 U.S.C. § 77k(a). Section 12(a)(2) of the Act provides that someone who "offers or sells a security ... by means of a prospectus" may be liable for misstatements in that prospectus "to the person purchasing such security." 15 U.S.C. § 77l(a)(2). For more than 50 years, every court of appeals to consider the question has held that "such security" in Section 11 means a share registered under the registration statement the plaintiffs claim is misleading. And this Court has held that Section 12 (a)(2) applies only when there is an obligation to distribute a prospectus-an obligation that exists only for registered shares. Gustafson v. Alloyd Co., 513 U.S. 561, 584 (1995); 15 U.S.C. §§ 77d, 77e. Departing from that well-established law, a divided panel of the Ninth Circuit read "such security" to mean any share, registered or unregistered, and held that plaintiffs suing under Sections 11 and 12(a)(2) need not prove that they bought registered shares.

The question presented is:

Whether Sections 11 and 12(a)(2) of the Securities Act of 1933 require plaintiffs to plead and prove that they bought shares registered under the registration statement they claim is misleading.

CERT. GRANTED 12/13/2022

April 17, 2023, Oral Arguments

Listen to Oral Arguments
https://www.supremecourt.gov/oral_arguments/audio/2022/22-200

Read Transcript of Oral Arguments https://www.supremecourt.gov/oral_arguments/argument_transcripts/2022/22-200_6kg7.pdf

SEC Charges Investment Adviser Betterment for Misstatements Concerning Tax Loss Harvesting Service (SEC Release)
https://www.sec.gov/news/press-release/2023-80
Without admitting or denying the findings in an SEC Order that it violated Sections 204, 206(2), and 206(4) of the Investment Advisers Act of 1940 and related rules in connection with alleged material misstatements/omissions related to its automated tax loss harvesting service ("TLH"), Betterment LLC consented to the entry of SEC Order and agreed to a cease-and-desist order, a Censure, and to pay a $9 million civil penalty that will be distributed to affected clients.
https://www.sec.gov/litigation/admin/2023/ia-6288.pdf As alleged in part in the SEC Release:

[F]rom 2016 to 2019, Betterment, in communicating with clients, misstated or omitted several material facts concerning TLH, a service that scans clients’ accounts for opportunities to reduce their tax burden. According to the order, at different times, Betterment failed to disclose a change in the software related to its scanning frequency, failed to disclose a programming constraint affecting certain clients, and had two computer coding errors that prevented TLH from harvesting losses for some clients. Collectively, these issues adversely impacted more than 25,000 client accounts, resulting in those clients losing approximately $4 million in potential tax benefits.

The SEC’s order also finds that Betterment failed to provide advance notice of changes to its advisory contract, which is a violation of its fiduciary duty as an investment adviser, and failed, during certain times, to maintain accurate and current books and records reflecting written agreements with certain clients. Also, the order finds that, in connection with the failures related to TLH, Betterment failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Investment Advisers Act of 1940.

SEC Settles Offering Fraud Case Against Convicted Fraudster and His Companies, and Returns Funds to Certain Investors Harmed by the Fraud (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25697.htm
The United States District Court for the Southern District of New York entered Final Judgments against Donald G. Blakstad, and Energy Sources International Corporation ("ESI"). Previously, the Court entered an Amended Final Judgment against Xact Holdings Corporation ("Xact"), a company that also was controlled by Blakstad. As alleged in part in the SEC Release:

[B]etween at least July 2015 and May 2019, Blakstad fraudulently raised money from investors through Midcontinental Petroleum, Inc. ("MPI"), a purported oil, gas, and alternative energy resources company, as well as through ESI and Xact. Rather than use investors' funds as represented, the SEC's complaint alleges that Blakstad treated the company bank accounts as his own personal piggybank.

Blakstad was charged criminally by the U.S. Attorney's Office for the Southern District of New York. On June 8, 2021, Blakstad was convicted at trial of: (1) conspiracy to commit securities fraud; (2) securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder; (3) conspiracy to commit wire fraud; (4) wire fraud; and (5) aiding and abetting. Blakstad was sentenced to 36 months of imprisonment; three years of supervised release; criminal forfeiture of $4,518,103; restitution of $669,000; and an assessment of $700.

Blakstad consented to the entry of a judgment that permanently enjoins him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, imposes an officer and director bar, and orders him to pay disgorgement and prejudgment interest relating to each the following aspects of the fraud:

- MPI: Disgorgement of $669,000, plus prejudgment interest of $49,250 (deemed satisfied by orders of restitution and forfeiture in United States v. Blakstad).
- ESI: Disgorgement of $108,683, plus prejudgment interest of $9,488 (jointly and severally with ESI).
- Xact: Disgorgement of $806,106, plus prejudgment interest of $24,494 (with $640,901 of this obligation deemed satisfied by the order of forfeiture in United States v. Blakstad, resulting in $189,699 remaining to be paid on this obligation).

ESI consented to the entry of a judgment that contains permanent injunctions for the charged antifraud provisions and orders it to pay disgorgement and prejudgment interest jointly and severally with Blakstad as noted above.

Xact consented to the entry of a judgment that ordered disgorgement of $750,000, but deemed that obligation satisfied by the return of Xact investors' respective share of the $750,000, plus accrued interest, previously deposited by a third party in the Court Registry Investment System.

SEC Settles Multi-Tiered Insider Trading Case Against Convicted Fraudster, His Friend and Tippee, and a Former IIIumina Accountant (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25696.htm
In the United States District Court for the Southern District of New York, a Final Judgment was entered against Donald G. Blakstad; previously, Final Judgments were entered against Robert J. Maron, a personal friend of Blakstad, and Martha Patricia Bustos, a former accountant at Illumina, Inc. and close friend of Blakstad. As alleged in part in the SEC Release:

According to the SEC's amended complaint, Bustos tipped Blakstad material, nonpublic information concerning at least four different Illumina quarterly performance announcements. Blakstad enlisted two individuals to trade on his behalf ahead of two of the announcements, and also tipped Maron and at least three other individuals, each of whom traded in advance of at least one of the announcements. After receiving the tip, Maron purchased out-of-the-money, near-expiration Illumina put option contracts in an account owned by his friend Joubin Torkan, which generated $900,000 in unlawful profits for Maron and $113,833 for Torkan. Torkan previously settled the SEC's relief defendant claims against him, agreeing to disgorge $113,833 and to pay prejudgment interest of $8,606, which the Court approved on September 29, 2021.

Blakstad and Bustos were both charged criminally by the U.S. Attorney's Office for the Southern District of New York. On June 8, 2021, Blakstad was convicted at trial of: (1) conspiracy to commit securities fraud; (2) securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder; (3) conspiracy to commit wire fraud; (4) wire fraud; and (5) aiding and abetting. The Court sentenced Blakstad to 36 months of imprisonment; three years of supervised release; criminal forfeiture of $4,518,103; restitution of $669,000; and an assessment of $700.

Bustos pleaded guilty to (1) securities fraud; (2) conspiracy to commit securities fraud; and (3) conspiracy to commit wire fraud. The Court sentenced her to time served, two years of supervised release, criminal forfeiture of $12,000, a criminal fine of $20,000, and 250 hours of community service.

In the SEC action, both Blakstad and Bustos have consented to the entry of judgments enjoining them from violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Blakstad was ordered to pay disgorgement of $3,639,784, plus prejudgment interest of $188,068. Bustos was ordered to pay disgorgement of $12,000. For each, the monetary judgments were deemed satisfied by the orders of forfeiture against them in the criminal matters.

Maron consented to the entry of a judgment permanently enjoining him from violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and ordering that he pay a civil penalty of $1,800,000.

Additionally, on April 17, 2023, the Commission entered an administrative order suspending Bustos from appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission's Rules of Practice based on her criminal conviction.

Blakstad also was charged and agreed to settle the securities fraud charges against him in Securities and Exchange Commission v. Blakstad, et al., Civil Action No. 1:20-cv-00163 (S.D.N.Y., filed January 8, 2020), as described in the litigation release for that case.

SEC Charges South Florida Broker with Misrepresenting Securities Registrations to African-American Investors of the Christian Faith (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25695.htm
In the United States District Court for the Southern District of Florida, the SEC filed a Complaint charging Marcus K. Moon with violating the registration provisions of Section 15(a)(1) of the Securities Exchange Act, and the antifraud provisions of Sections 17(a)(2) and (3) of the Securities Act, and Section 206(2) of the Investment Advisers Act of 1940.
https://www.sec.gov/litigation/complaints/2023/comp25695.pdf Without admitting or denying the allegations, Moon consented to an injunction, disgorgement of $3,000 with $158 in prejudgment interest, a $31,080 civil penalty, plus post judgment interest. As alleged in part in the SEC Release:

[F]rom at least 2020 to 2021, Moon - an insurance agent and registered representative of an SEC-registered broker-dealer - through Increase Financial Strategies LLC and Faith Financial Strategies, two companies he owned and controlled, entered into brokerage agreements and engaged in trading activity with investors, without his employer's knowledge or consent. As alleged in the complaint, Moon stated that he was a "financial services professional" who held "various registrations in the financial services space" and portrayed Increase Financial as a brokerage services firm. The SEC alleges that, in fact, Moon was neither authorized by his employer, nor licensed by FINRA, to purchase or sell common stock for others. As alleged in the complaint, Moon entered into brokerage agreements with nine investors, and with their consent accessed their online brokerage accounts and conducted hundreds of trades. Moon's trading resulted in approximately $31,800 in losses to investors, who collectively paid Moon $3,000 in fees for his services.

Thank you, NASAA President Hartnett, for that kind introduction.

It is a pleasure to be here today to address NASAA’s Annual Public Policy Symposium, my first time doing so since being sworn in last July. [1]

Today, the SEC is at the forefront of addressing critical investor protection issues – from climate and ESG disclosures, to private fund oversight, to cybersecurity, to market resiliency. These reforms are aimed at benefiting the investing public and our markets, a goal that all of us share.

The reforms also reflect the spirit of NASAA’s founding commitment to protect investors and promote market integrity, in jurisdictions across the U.S., Canada, and Mexico.

NASAA’s creation preceded Congress’ enactment of the first federal securities statute, the Securities Act of 1933, by about 14 years.

In the great American tradition of forming a professional association, state securities regulators came together in the year 1919 to become more effective advocates for their interests as well as those of the investing public they were given the responsibility to protect.

The speculative boom of the “Roaring Twenties,” a time of rapid technological change and unprecedented developments in mass production, culminated in the market crash of 1929.

In the absence of a federal law framework to protect investors, the states filled the void. By 1931, before there was an SEC, every state had adopted a blue sky law.

Blue sky laws enshrined the same basic principles that are the bedrock of our system today: to be sold, securities must either be registered or qualify for an exemption; and, sellers who offer securities fraudulently must be held accountable.

State and federal securities regulators share a unique and critically important role in continuing to uphold these fundamental principles.

Having been raised in southern California, the term “blue sky laws” has a certain resonance. Putting aside the unresolved debate about the true origins of the term, to me, it conveys a sense of sunny optimism. The same optimism that working families are channeling when they invest in our markets with the hope of building a brighter future.

That’s where our work and our partnership makes a meaningful difference. Consistent with the laws Congress gave us, and those that your jurisdictions gave you, our job is to ensure investors have the information they need to make the most informed investment decisions, so that they can have the confidence to invest in markets that operate with integrity.

Whether you represent a jurisdiction that has adopted some version of a NASAA-developed Uniform Securities Act, or a state or jurisdiction that offers merit regulation, all of us share the common responsibility of ensuring we’re up to the task of protecting investors against marketplace abuses.

In the last two decades, the markets’ size, complexity, reliance on technology and interconnectedness with other financial hubs around the globe has changed drastically. As securities regulators, we share the responsibility of keeping up with that change to fulfill our mission – protecting investors, maintaining fair and orderly markets, and promoting broad-based capital formation.

Our securities law framework is timeless, dynamic, and adaptable to change. A key question for all of us here today is: how can we work smarter within that framework and in the face of rapid change to deliver long-lasting protections for the investing public?

So as you gather to discuss today’s agenda, you will be leveraging NASAA’s long history in working tirelessly to elevate the discussion on responsible capital formation. This is an area where we – individually and together – can continue to make meaningful progress.

To me, promoting responsible capital formation means fostering transparency in both public and private markets.

It means working smarter to facilitate access to capital for smaller businesses and entrepreneurs in underrepresented communities that have historically been left out.

It means pursuing robust enforcement, a powerful deterrent against market misconduct.

It means ensuring that Regulation Best Interest lives up to its name.

It means strengthening our commitment to protect investors regardless of the specific technology used in the issuance or transfer of securities.

And it means meeting investor demand for accurate, reliable, and standardized disclosures in areas such as climate and ESG.

As in all of the areas of our work, there is room for improvement in the transparency of private markets. The SEC is undertaking reforms through updates to Form PF and private fund adviser regulation, among others. It is my hope that these reforms can provide greater visibility into private markets.

Another question that is ever-present in our work is: how can our capital formation mission reach the smallest of the smallest businesses in our most underserved communities, so that they, like other businesses that are better served by the current system, also have the opportunity to meaningfully raise growth capital that lifts them and the communities they serve? I encourage you to bear this question in mind in your discussions today.

Robust enforcement is a powerful deterrence tool. According to NASAA’s 2022 Enforcement Report, state securities regulators obtained more than $145 million in fines, representing a 313 percent increase from the previous year.

Like NASAA’s members, the SEC has to work with limited resources relative to the size and complexity of our capital markets. Approximately 4,500 staff members oversee a $100-trillion capital market, representing 38 percent of the capital markets worldwide.

It is a daunting task. I am strongly supportive of ensuring that those who conduct this important, painstaking and highly scrutinized work receive the support they merit. Their work protects the public.

The staff’s dedication to our mission means more money can go back to harmed investors. Their work ensures that those who violate the federal securities laws are held accountable, without fear or favor.

To cite a few numbers, in FY 2022, the SEC filed 760 total enforcement actions, a 9 percent increase over the prior year. Civil penalties, disgorgement, and pre-judgment interest totaled almost $6.5 billion, the most on record in SEC history.

All of us are familiar with the adage that if it’s too good to be true, it probably is. That adage plays out in our space all too often. In my time at the Commission, we have voted on numerous cases involving Ponzi, pyramid, and other fraudulent schemes. Some of these schemes specifically target seniors, service-members, ethnic and religious minorities, and other vulnerable groups.

These are some of the saddest cases that come before us because, more often than not, wronged investors are unable to recoup their losses.

NASAA has made considerable progress on this front. In 2021, you developed a model law to help victims achieve restitution in such situations. That is investor protection at its finest.

In 2021, NASAA also embarked on a nationwide survey aimed at determining the efficacy of Regulation Best Interest. This survey found that broker-dealers still needed to make considerable strides to implement and comply with this regulation, flawed as it is.

You deserve much credit for raising the bar of compliance among market participants and for promoting the benefits that Regulation Best Interest could bring to the retail investor. NASAA’s ongoing engagement on the implementation of Regulation Best Interest is important to ensure that investors can feel confident and protected when they invest in our markets.

Modernized, comparable, and reliable disclosures on issues that matter to investors’ investment and voting decisions are also key aspects of our mission. The SEC’s proposed rules on ESG- and climate-related disclosures address these issues directly.

In the issuer climate rule, the SEC has aimed to provide the standardization and comparability that investors are asking for.

Investors with $130 trillion in assets under management have requested that companies disclose their climate risks.

And according to the Governance and Accountability Institute, 96 percent of S&P 500 companies published sustainability information in 2021.

The U.S. Forum for Sustainable and Responsible Investment reported that the “U.S. sustainable investment universe” had increased more than 25 times, from $639 billion in 1995 to $17.1 trillion in 2020.

The SEC has also proposed enhanced ESG disclosures by funds and advisers.

These disclosures would provide investors with qualitative and quantitative decision-useful information on how a fund or adviser takes into account ESG factors in its decision-making.

And the SEC has proposed a fund names, “truth-in-advertising” rule.

These proposed rules would help provide comparable and decision-useful ESG disclosures, and would require funds and advisers to stand behind their ESG claims.

In combination, the climate and ESG proposed rules are part of our ongoing efforts to modernize the disclosure framework to keep up with investor demand and to increase transparency in our markets so that investors have the tools they need to allocate their capital.

In the process of modernizing our rules, it is essential to safeguard the public trust and to work tirelessly to place the public interest and that of working families who invest in our markets above all others.

Both NASAA and the SEC were formed during a time of staggering and uncontrolled fraud and abuse in the financial marketplace. Blue sky laws and the federal securities laws from the Roosevelt era have served our country well. The work of the Commission and that of state, territorial, and provincial regulators in providing for truthful disclosures and fair and honest dealings in capital markets is more relevant than ever.

Since my arrival at the Commission, we have proposed or adopted over a dozen rulemakings. From critical rules on how mutual fund investors receive information about their investments and how mutual funds vote their proxies, to Dodd-Frank Act rules on pay-for-performance and executive compensation clawbacks, to insider trading reforms. All of these meaningful improvements have the potential to strengthen investor protections and market integrity.

If there’s one key lesson from the 2008 financial crisis, the worst since the Great Depression, it is that effective oversight and updated rules are essential to fostering market integrity and vibrant, liquid markets so that investors can invest with confidence.

The lessons from that time remind us all that our rules must be as robust and current as possible and as protective as possible of the investing public. We must also ensure that we’re doing our best to communicate the benefits of these protections to the public. I urge you to bear these important principles in mind in your discussions today.

Our partnership to achieve meaningful, significant, and long lasting investor protection is a permanent project, one that has served, and will continue to serve, the public interest well.

Together, we oversee tens of thousands of market participants but our job, our duty through our partnership, is to protect millions of investors.

I look forward to continuing to work smarter with you to elevate the interests of the investing public above all others.

Thank you for this opportunity, for your commitment to investor protection, and for all that you do in your respective jurisdictions to serve the public interest.

[1] The thoughts I express today are my own, and do not necessarily reflect the views of my fellow Commissioners or the staff at the SEC.

2023 Senior Investor Protection Conference: The Latest Trends, Scams and Schemes (FINRA UnScripted Podcast)
https://www.finra.org/media-center/finra-unscripted/2023-senior-investor-protection-conference
As stated in part on FINRA's website;

On this episode, we're taking an abridged look at one of the conference sessions on the various trends, scams and schemes currently impacting investors. Brooks Brown, Senior Director of FINRA's High-Risk Representative Unit, moderates the conversation with Amy Nofziger, Director of Victim Support for the AARP’s Fraud Watch Network, Mayur Patel, Senior Principal Intelligence Specialist with FINRA's Financial Intelligence Unit, and Elizabeth Yoka, Manager with FINRA's Vulnerable Adults and Seniors team.

= = =
4/17/2023

2Cir Remands to EDNY Disparate Sentence in Boiler Room Pumping (BrokeAndBroker.com Blog)
https://www.brokeandbroker.com/6988/edny-2cir-disparate-sentence/
There's crime and then there's punishment. On Wall Street, there seems to be an abundance of the former and a dearth of the latter -- then again, that's a view of society at large these days, so, who knows, maybe it's just the zeitgeist. Be that as it may, after a federal jury convicted Defendants of a number of crimes, the District Court may have gone a tad light on some prison sentences in order to facilitate the payment of restitution to the victims. The theory being that if you put someone in prison for a number of years, that's detracting from their ability to get a job and start repayment. That may be an enlightened bit of adjudication but did it come at too high a cost for deterrence?

Former broker accused of duping friends, classmates and colleagues out of $1M in crypto-fueled fraud (Financial Planning by Justin L. Mack)
https://www.financial-planning.com/news/former-broker-accused-of-1-million-crypto-fraud
Financial Planning's Justin L. Mack nails it with his spot-on coverage of the likely-upcoming trials and ongoing tribulations of former Deutsche Bank investment banker Rashawn Russell, who, at the young age of 27, faces both DOJ criminal and CFTC civil charges for what looks like a crypto scam.

Florida Woman Pleads Guilty To Defrauding Holocaust Survivor Of $2.8 Million In Connection With Romance Scam (DOJ Release)
https://www.justice.gov/usao-sdny/pr/florida-woman-pleads-guilty-defrauding-holocaust-survivor-28-million-connection-romance
BILL SINGER's COMMENT: This bit of depravity sort of got buried with a late-Friday release on April 14, 2023, so, in the spirit of shedding light on horror, I'm running this today just to make sure it's not lost.
In the United States District Court for the Southern District of New York,Peaches Stergo, 36, pled guilty to one count of wire fraud; and she agreed to pay $2,830,775 in restitution and to forfeit the same amount, along with over 100 luxury items she purchased with fraud proceeds, including Rolex watches, designer purses and clothing, and large amounts of gold and jewelry.As alleged in part in the DOJ Release:

From at least in or about May 2017, up to and including at least October 2021, STERGO engaged in a scheme to defraud an 87-year-old Holocaust survivor (the “Victim”) of over $2.8 million, which was his life savings.

STERGO met the Victim on a dating website approximately six or seven years ago. In or about early 2017, STERGO asked the Victim to borrow money to pay her lawyer, who she claimed was refusing to release funds from an injury settlement. After the Victim gave her the money, STERGO said the settlement funds had been deposited into her TD Bank account. In reality, bank records show STERGO never received any money from an injury settlement.

Over the next four and a half years, STERGO continued her lies. She repeatedly demanded that the Victim deposit money into her bank accounts. She claimed that if he did not, her accounts would be frozen and he would never be paid back. In total, the Victim wrote 62 checks — totaling over $2.8 million — that were deposited into one of two of STERGO’s bank accounts.

In furtherance of the fraud, STERGO created a fake email account, intended to appear as if it belonged to a TD Bank employee. She also created fake letters from a TD Bank employee and fake invoices.

While the Victim lost his life savings and was forced to give up his apartment, STERGO lived a life of luxury with the millions she received from the fraud: she bought a home in a gated community, a condominium, a boat, and numerous cars, including a Corvette and a Suburban. During the course of the fraud, STERGO also took expensive trips, staying at places like the Ritz Carlton, and spent many tens of thousands of dollars on expensive meals, gold coins and bars, jewelry, Rolex watches, and designer clothing from stores like Tiffany, Ralph Lauren, Neiman Marcus, Louis Vuitton, and Hermes.

SEC Charges Crypto Asset Trading Platform Bittrex and its Former CEO for Operating an Unregistered Exchange, Broker, and Clearing Agency / Bittrex Global GmbH also charged for failing to register as a national securities exchange (SEC Release)
https://www.sec.gov/news/press-release/2023-78
In the United States District Court for the Western District of Washington, the SEC filed a Complaint charging crypto asset trading platform Bittrex, Inc. and its Co-founder/Former Chief Executive Officer William Shihara for operating an unregistered national securities exchange, broker, and clearing agency; and further charged foreign affiliate, Bittrex Global GmbH, for failing to register as a national securities exchange in connection with its operation of a single shared order book along with Bittrex.
https://www.sec.gov/litigation/complaints/2023/comp-pr2023-78.pdf As alleged in part in the SEC Release:

Since at least 2014, Bittrex has held itself out as a platform that facilitated buying and selling of crypto assets that the SEC’s complaint alleges were offered and sold as securities. From 2017 through 2022, Bittrex earned at least $1.3 billion in revenues from, among other things, transaction fees from investors, including U.S. investors, while servicing them as a broker, exchange, and clearing agency without registering any of these activities with the Commission.

The complaint further alleges that Bittrex and Shihara, who was the company’s CEO from 2014 to 2019, coordinated with issuers who sought to have their crypto asset made available for trading on Bittrex’s platform to first delete from public channels certain “problematic statements” that Shihara believed would lead a regulator, such as the SEC, to investigate the crypto asset as the offering of a security. For example, in an effort to avoid regulatory scrutiny, before Bittrex would make an asset available on its platform, Bittrex and Shihara instructed issuer-applicants to delete statements related to “price prediction[s],” “expectation of profit,” and other “investment related terms.”

. . .

The SEC’s complaint, filed in the U.S. District Court for the Western District of Washington, alleges that Bittrex and Bittrex Global should have registered as an exchange because they brought together, using a shared order book, the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interacted, and the buyers and sellers entering such orders agreed to the terms of a trade.

The complaint further alleges that Bittrex should have registered as a clearing agency because it acted as an intermediary in making payments and deliveries upon matching sell and buy orders and maintained custody of customer assets. Finally, the complaint alleges that Bittrex should have registered as a broker because it regularly engaged in the business of effecting transactions for the accounts of others in crypto assets that were offered and sold as securities.

SEC Obtains More Than $5 Million in Final Judgments Against Two Defendants in IIIicit Trading Scheme (SEC Release)
https://www.sec.gov/litigation/litreleases/2023/lr25693.htm
In the United States District Court for the Eastern District of New York, Final Consent Judgments were entered against defendants Jonah Engler and Barbara Desiderio. Engler (who allegedly controlled Global Arena Capital Corp)was ordered to disgorge $1,440,683.51 in ill-gotten gains plus prejudgment interest of $420,561.71, and to pay a civil penalty of $2,295,977.90; and Desiderio was ordered to pay $391,000 in disgorgement, $114,140 in prejudgment interest, and a civil penalty of $391,000. As alleged in part in the SEC Release:

The SEC's complaint, filed on March 31, 2020 against Engler, Desiderio, Joshua Turney, and Hector Perez, alleged that the defendants engaged in illicit trading in over 360 retail customer accounts as Global Arena was going out of business, which resulted in over $4 million in net losses for their customers and generated over $2.4 million in unlawful markups, markdowns, and commissions for their firm. The SEC's complaint charged Engler with violating the antifraud provisions of Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder, and charged Desiderio with aiding and abetting her co-defendants' violations.

The Court previously entered partial consent judgments against Engler and Desiderio, permanently enjoining them from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Based on the entry of those judgments, the SEC also previously issued orders barring Engler and Desiderio from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock. For further information, see Litigation Releases No. 24874 (Aug. 25, 2020) and No. 25221 (Sept. 24, 2021).

Texas Securities Board Enters Final Order Against Crypto Firm Nexo Capital, Inc. (TSSB Release)
https://www.ssb.texas.gov/news-publications/texas-securities-board-enters-final-order-against-crypto-firm-nexo-capital-inc
The Texas State Securities Board entered a Final Order against Nexo Capital Inc. (“Nexo”).
https://www.ssb.texas.gov/sites/default/files/2023-04/ENF_23_CDO_1871.pdf As alleged in part in the TSSB Release:

[N]exo was organized as a Cayman Islands corporation and dealt in interest-bearing digital asset accounts. Clients invested in the accounts by lending digital assets to Nexo, and Nexo afforded complete discretion in using their digital assets to generate revenue. In exchange, Nexo promised to pay lucrative returns to investors – in at least one instance, the returns may have been as much as 36%.

The settlement requires the firm to cease and desist from offering or selling securities that are not registered, qualified or exempt to Texans. Nexo also agreed to pay a fine of approximately $212,000 to the Texas State Securities Board and, in a separate action, a fine of approximately $212,000 to the Texas Department of Banking.

The order was the product of an investigation conducted by state securities regulators in Washington, California, Kentucky, New York, Oklahoma, Indiana, Maryland, South Carolina and Wisconsin. The investigation was coordinated by the North American Securities Administrators Association (“NASAA”), and assisted by regulators from Alabama, Montana and Texas that lead the NASAA Enforcement Section Committee. Earlier this year, the state regulators negotiated a settlement in principle that contained the key terms of today’s order and requires Nexo to pay $22.5 million in fines to state securities regulators.

FINRA Fines and Suspends Rep For Removing Customer Information
In the Matter of Randell J. Ogden, Respondent (FINRA AWC 2021070656001)
https://www.finra.org/sites/default/files/fda_documents/2021070656001
%20Randell%20J.%20Ogden%20CRD%202019815%20AWC%20lp.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, Randell J. Ogden submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Randell J. Ogden was first registered in 1990, and by October 1997, he was registered with Sage, Rutty & Co., Inc.. In accordance with the terms of the AWC, FINRA imposed upon Ogden a $7,500 fine and a 15-business-day suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:

In anticipation of joining another FINRA member firm, and while associated with Sage Rutty, Ogden directed another Sage Rutty representative who reported to Ogden (Representative A) to remove nonpublic personal customer information from Sage Rutty, without Sage Rutty's or the customers' knowledge or consent. In January and early February 2021, while associated with Sage Rutty, Representative A then sent to his personal email address and to a drive external to Sage Rutty unencrypted documents containing nonpublic information of over 200 Sage Rutty customers.² This information included dates of birth, driver's license numbers, and social security numbers. Ogden and Representative A resigned from Sage Rutty on February 11, 2021 and joined a new firm that same day. The nonpublic personal information removed from Sage Rutty was used to populate a separate customer information database for use at the new firm.
In January 2021, prior to resigning from Sage Rutty, Ogden also directed Representative A and another employee working in an administrative capacity to obtain pre-filled new account packets to be sent to existing Sage Rutty customers to transition the customers to the new firm. These packets included customer nonpublic personal information, including dates of birth, account numbers, social security numbers, and driver's license numbers. At Ogden's direction, Representative A then caused these pre-filled forms to be saved on the drive external to Sage Rutty in January 2021. Ogden then distributed the pre-filled forms to customers using email and physical mail once he registered with the new firm.

By improperly directing the removal of customers' nonpublic personal information from Sage Rutty, Ogden failed to observe high standards of just and equitable principles of trade in violation of FINRA Rule 2010.

= = =

Footnote 2: Representative A has been subject to discipline in a separate AWC finding a violation of Rule 2010 for his improper removal of customers' nonpublic personal information.

FINRA Censure and Fines Regal Securities for Supervision
In the Matter of Regal Securities, Inc., Respondent (FINRA AWC 2021070656001)
https://www.finra.org/sites/default/files/fda_documents/2021070656001
%20Randell%20J.%20Ogden%20CRD%202019815%20AWC%20lp.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, Regal Securities, Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Regal Securities, Inc. has been a FINRA member firm since 1976 with about 65 registered representatives at 11 branches. In accordance with the terms of the AWC, FINRA imposed upon Regal Securities, Inc. a Censure and $50,000 fine (resolved with an additional Nasdaq Stock Market LLC. matter for a total fine of $100,000). As alleged in part in the AWC:

In July 2017, a Regal branch manager sought the business of a customer who once maintained an account with the firm. Regal’s compliance department initially recommended that the customer not be allowed to open a new account with the firm due to previous issues regarding margin calls and his trading activity. The branch manager then escalated the on-boarding of this customer to the trading desk, which, in response,also raised a concern. Nonetheless, the firm opened a new account for the customer on August 10, 2017. The firm delegated responsibility for supervision of this customer’s trading, including review of surveillance alerts, to the branch manager and another registered representative responsible for the account, both of whom were registered with FINRA as General Securities Principals. Both registered representatives provided the firm with assurances that they would monitor the customer’s account activity.

The customer began trading in the new account on August 22, 2017. Initially, some of the customer’s trading generated firm surveillance alerts indicating potential marking the close activity on August 23, 24, 28, and 29, 2017. Then, on August 31, a Regal executive informed the account representative that the account may need to be closed due to this trading activity. While surveillance alerts were being generated, the firm did not reasonably review them or take any action regarding the customer at that time.

The customer’s trading continued until January 31, 2019, when Regal terminated his ability to trade for failing to meet margin calls. During that period, the customer’s trading activity generated approximately 1,600 firm surveillance alerts indicating potential marking the close activity. Further, between November 2017 and June 2018, the customer’s trading activity generated approximately 40 surveillance alerts indicating potential wash trading.

The firm forwarded these surveillance alerts to the designated representatives for review, however, Regal’s WSPs did not describe how alerts were to be reviewed, or how those reviews were to be documented. Moreover, the firm did not evidence that reviews were in fact conducted to determine whether the activity was manipulative, except for in a small number of instances. In addition, neither representative on the account escalated any concerns about the customer’s trading to the compliance department, and the compliance department did not otherwise follow up with the representatives after forwarding the alerts for review.

Regal also failed to establish a supervisory system reasonably designed to detect other potentially manipulative trading. The firm had no surveillance to detect layering for similar activity until January 2019.

Therefore, Respondent violated FINRA Rules 3110(a) and (b) and 2010.

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