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Archive for October, 2017


FINRA receives SEC approval to streamline proficiency exams

The U.S. Securities and Exchange Commission has approved a proposal from the Financial Industry Regulatory Authority (FINRA) to streamline the process for prospective broker-dealer reps to meet their proficiency requirements, FINRA announced Thursday.

The proposal aims to reform the industry exam process, with an eye on expanding opportunities for brokers to enter, or return to, the securities industry. The new regime will take effect starting Oct. 1, 2018.

Under the new structure, aspiring brokers will be required to pass a general knowledge exam, and a revised rep-level qualification exam, such as the Series 7 exam, which is specific to their job functions, FINRA says its announcement.

“The restructured program eliminates duplicative testing of general securities knowledge on representative-level examinations and eliminates several representative-level registration categories that have become outdated or have limited utility,” the announcement says.

“This is an important change built upon the need to streamline the examination process and eliminate redundancies in qualification and registration requirements,” says Robert Cook, FINRA president and CEO, in a statement. “The new structure brings greater consistency and uniformity to the process for entering and returning to the brokerage industry.”

 

Morgan Stanley agrees to $13 million fine and restitution for supervisory lapses of UIT trading

FINRA ordered Morgan Stanley to pay $13 million in fines and restitution to clients for failing to properly supervise trades that increased charges and fees to customers of certain investment funds.  FINRA said that Morgan Stanley provided insufficient guidance to its staff on how to detect unsuitable short-term trades of unit investment trusts, or UITs.

From January 2012 through June 2015, Morgan Stanley representatives advised thousands of customers to sell their UITs before their maturity date and roll their investment into a new trust.

By selling their UIT position before the maturity date and then rolling the funds over into a new trust, clients may pay higher sale charges over time.

UITs are a type of investment fund that offers units in a portfolio of securities. At the end of the trust’s life, investors can receive cash equal to the net asset value of the units or they can roll the current value of their investments into another trust.

Finra fined Morgan Stanley $3.25 million, while the bank will have to pay about $9.78 million in restitution to more than 3,000 customers.

More information can be found at:

http://www.finra.org/newsroom/2017/finra-sanctions-morgan-stanley-13-million-failing-related-uits

SEC Charges NY based investment adviser

he Securities and Exchange Commission today charged a Westchester, New York-based investment adviser with fraud stemming from lies to retail investors about the value of their investments in a Ponzi-like scheme.

The SEC alleges that, starting in approximately 2010, Michael Scronic began to raise money from at least 42 friends and acquaintances, many of whom were from his suburban community, in order to invest in a risky options trading strategy. He allegedly lured investors by informing them that he had a long and impressive track record of proven returns. He also allegedly lied to investors about the liquidity of investments, telling one investor that “what’s cool about my fund is that i’m [sic] only in publicly traded options and cash so any redemptions are met within 2 business days so if you do need to withdraw for your business needs it will be quick and painless.” However, the SEC alleges that Scronic was actually hemorrhaging investor money through massive trading losses, with at least $15 million in investment losses since April 2010. For the period ending June 30, 2017, Scronic allegedly reported to investors total assets of at least $21,837,475 while the balance in his brokerage account on June 30, 2017 was just under $27,500.

According to the SEC’s complaint, when certain investors attempted to redeem their investments, Scronic did not disclose his inability to repay them. Rather, he allegedly provided investors with a steady stream of implausible excuses for why he could not pay them back. In other instances, Scronic sought to obtain additional investment funds from new and existing investors in order to satisfy redemption requests from other investors.

“Scronic’s alleged scheme is just another example of a so-called investment professional acting as fiduciary, but failing to deal honestly with his investors for his own financial benefit,” said Lara S. Mehraban, Associate Regional Director of the SEC’s New York Regional Office. “Investors should be wary anytime they are promised high or consistently positive returns in a complex, hard to understand investment strategy.”

The SEC also alleges that Scronic began identifying himself as an investment adviser to a fictitious hedge fund in which he purported to sell interests, or “shares.” The SEC encourages investors to check the backgrounds of people selling investments by using the SEC’s Investor.gov website to quickly identify whether they are registered professionals and confirm their identity.

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