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Archive for the ‘Wedbush’ Category


Timary Delorme and Wedbush Securities, Inc.

The Securities and Exchange Commission announced charges against Wedbush Securities Inc. for failing to supervise employee Timary Delorme after the broker-dealer ignored numerous red flags indicating that Delorme was involved in a long-running pump-and-dump scheme targeting retail investors.  Delorme agreed to settle fraud charges stemming from the same scheme.  This is the second SEC action against Wedbush this year and the third since 2014.

The SEC’s investigation found that Delorme – a registered representative of Wedbush – received undisclosed benefits for investing her customers in microcap stocks that were the subject of a “pump-and-dump” scheme orchestrated by Izak Zirk Engelbrecht, who was previously charged by the Commission and criminal authorities in separate actions.  According to the SEC’s order, Wedbush ignored multiple signs of Delorme’s fraud, including a customer email outlining Delorme’s involvement in the scheme and multiple FINRA arbitrations and inquiries regarding her penny stock trading activity.  In response to these clear red flags, Wedbush conducted two flawed and insufficient investigations into Delorme’s conduct but failed to take appropriate action.

The SEC’s order instituting administrative proceedings against Wedbush charges that the broker-dealer failed reasonably to supervise Delorme with a view to preventing and detecting her violations.  The matter will be scheduled for a hearing before an administrative law judge, who will hear the case and prepare an initial decision.  A separate order finds that Delorme violated the antifraud provisions of the federal securities laws.  Without admitting or denying the findings, Delorme agreed to entry of the order, which requires her to pay a $50,000 penalty, imposes industry and penny stock bars, and orders her to cease and desist from future violations.

The SEC previously charged Engelbrecht, 15 other individuals, and several entities in the related manipulation scheme:

Eleven individuals, including Engelbrecht, pleaded or were found guilty in parallel criminal proceedings.

Wedbush Securities Inc. fined $1.5 Million by FINRA

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Wedbush Securities Inc. $1.5 million for violating the Securities and Exchange Commission’s (SEC) Customer Protection and Net Capital Rules, and for related supervisory and books and records failures.

The SEC Customer Protection Rule creates requirements to protect customers’ funds and securities. To ensure that customers could recover their assets in the event of the broker-dealer’s insolvency, the rule requires the broker-dealer, which maintains custody of customer securities, to obtain and maintain physical possession or control over certain of those securities. These securities must be segregated in a “control location,” free of liens or any other encumbrance that could prevent customers from taking their possession. The rule also requires the broker-dealer to maintain a reserve of cash or qualified securities, in a bank account, that is at least equal in value to the net cash the broker-dealer owes its customers.

The SEC Net Capital Rule regulates the ability of broker-dealers to meet their financial obligations to customers by requiring broker-dealers to maintain a minimum amount of net capital and to compute their net capital in accordance with specified formulas.

FINRA found that, during a five-month period in 2015 and 2016, Wedbush was net capital deficient, ranging between $10.5 million and $59.4 million. The deficiencies resulted from Wedbush’s failure to take required deductions when valuing certain certificates of deposit for purposes of computing its net capital.

In addition, from 2011 to 2016, Wedbush failed to accurately calculate its customer reserve requirement on 84 occasions, causing the firm to underfund its customer reserve account 73 times, in amounts ranging from approximately $2 million to $77 million. Wedbush also included ineligible assets in its customer reserve account, causing it to underfund its reserve an additional 110 times, in amounts ranging from approximately $9 million to $375 million.

Also, from 2009 to 2016, Wedbush repeatedly violated the possession or control requirement of the Customer Protection Rule by creating and/or increasing deficits in the quantity of securities it was required to keep in its possession or control, and holding customer assets in locations that were not protected from claims by third parties.

“Firms have a fundamental responsibility to safeguard the securities of their customers,” said Susan Schroeder, FINRA’s Executive Vice President, Department of Enforcement. “The Customer Protection and Net Capital Rules are important components of investor protection, and member firms must have reasonably designed and maintained systems and supervision to ensure both that they comply with the rules’ requirements, and detect and remediate any weaknesses.”

Wedbush also failed to establish and maintain supervisory systems and procedures reasonably designed to ensure compliance with the Customer Protection and Net Capital Rules, which exposed customer funds and securities to risk and prevented the firm from detecting the deficiencies for nearly seven years. Their supervisory failures also caused the firm to maintain inaccurate books and records, and to file 37 inaccurate FOCUS reports.

In settling this matter, Wedbush neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Energy losses with Wedbush Securities broker Mark Heiden?

Aidikoff, Uhl & Bakhtiari continues its investigation of the sales practices of Mark Heiden for his management of client accounts and the overconcentration of energy related stocks investments:

  • Energy XXI Bermuda Ltd.
  • Clearbridge American Energy MLP
  • Goldman Sachs MLP Energy
  • Arch Coal
  • Seadrill

We are currently investigating whether all material risks of the recommended investments were disclosed to clients as well as whether Wedbush broker, Mark Heiden, implemented an appropriate risk management strategy.

 

To discuss your options please contact an attorney below.

Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters. Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions.

Philip M. Aidikoff, pma@aublaw.com
Ryan K. Bakhtiari, rkb@aublaw.com
Aidikoff, Uhl & Bakhtiari
(800) 382-7969 Toll Free or (310) 274-0666
www.securitiesarbitration.com

Wedbush Securities Inc. – Los Angeles, California

An AWC was issued in which the firm was censured and fined $110,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it engaged in trading unit aggregation but failed to ensure that individual traders were assigned to only one aggregation unit (AGU) at any time. The findings stated that the firm failed to ensure that AGUs had operated autonomously and engaged in separate trading strategies without regard to other trading units, and that AGUs had not coordinated trading activities, interacted, or shared order or position information. The findings also stated that the firm employed four individuals who acted as both a trader in one AGU and as a trader or supervisor in another AGU, including two individuals who served in such dual capacities. Such an arrangement is improper because it could result in the coordination of trading strategies or trading based upon position or trading information of the other AGU. The firm failed to provide adequate supervision to monitor for compliance with Rule 200(f) of Regulation SHO requiring a firm to aggregate all of its positions in a security unless it qualifies for independent trading unit aggregation. Aggregation of a unit’s independent net position prior to each sale limits the potential for abuse associated with coordination among units. The firm’s written plan of organization reflected unclear strategies, strategies that overlapped for multiple AGUs, and traders that also acted as traders or supervisors in other AGUs. The firm also lacked adequate WSPs and supporting documentation reflecting its creation and approval of AGUs and its supervision of traders. The findings also included that the firm transmitted reports that contained inaccurate, incomplete, or improperly formatted data to the Order Audit Trail System (OATSTM), failed to report non-market making proprietary orders to OATS and erroneously submitted post-trade allocations as reportable order events to OATS. FINRA found that the firm failed to provide written notification disclosing to its customer that a transaction was executed by the firm at an average price, that transaction details were available upon request, and/or its capacity in the transaction. FINRA also found that the firm inaccurately marked short sell orders as long. In addition, FINRA determined that the firm accepted a short sale order in an equity security from another person, or effected 4 Disciplinary and Other FINRA Actions October 2017 a short sale in an equity security for its own account, without borrowing the security, or entering into a bona-fide arrangement to borrow the security or having reasonable grounds to believe that the security could be borrowed so that it could be delivered on the date delivery is due, and documenting compliance with Rule 203(b)(1) of Regulation SHO. (FINRA Case #2014039939801)

Mark Heiden Losses at Wedbush? Aidikoff, Uhl & Bakhtiari Announces the Filing of a FINRA Arbitration Claim Seeking More than $1.1 Million On Behalf Of Former Customers of Wedbush Securities, Inc. broker Mark Heiden

Aidikoff, Uhl & Bakhtiari announces the filing of a FINRA arbitration seeking more than $1.1 million and its continuing investigation of the sales practices of Mark Heiden for his management of client accounts and the overconcentration of energy related stocks investments:

  • Energy XXI Bermuda Ltd.
  • Clearbridge American Energy MLP
  • Goldman Sachs MLP Energy
  • Arch Coal
  • Seadrill

We are currently investigating whether all material risks of the recommended investments were disclosed to clients as well as whether Wedbush broker, Mark Heiden, implemented an appropriate risk management strategy.

“Mark Heiden’s transactions in the energy sector raise serious concerns about the level of supervision Wedbush chose to exercise,” added Philip Aidikoff.

“The level of concentration in energy related securities posed a risk that customers could not appreciate,” said Ryan Bakhtiari.

To discuss your options please contact an attorney below.

Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters. Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions.

Philip M. Aidikoff, pma@aublaw.com
Ryan K. Bakhtiari, rkb@aublaw.com
Aidikoff, Uhl & Bakhtiari
(800) 382-7969 Toll Free or (310) 274-0666
www.securitiesarbitration.com

Wedbush Securities Inc. fined $675,000 For Supervisory Violations

The Financial Industry Regulatory Authority (FINRA) and The Nasdaq Stock Market LLC (Nasdaq) announced today that they jointly censured and fined Wedbush Securities Inc. $675,000 for supervisory violations in connection with its handling of a client’s redemption activity and trading of leveraged exchange-traded funds (ETFs) that led to chronic fails to deliver in several ETFs for over two years.

Wedbush served as the clearing firm for its broker-dealer customer, Scout Trading, LLC, and acted as an Authorized Participant of various ETFs. This enabled Wedbush to submit redemption/creation orders on Scout Trading’s behalf and on behalf of its other clients. From January 2010 to March 2012, Scout Trading routinely submitted “naked” redemption orders in ETFs to Wedbush, meaning Scout Trading was insufficiently long in the ETF shares comprising the redemption orders. During the review period, Scout Trading submitted at least 255 naked redemption orders through Wedbush in 11 ETFs, totaling over 295 million shares. This naked redemption activity, along with short selling of the ETFs on the secondary market by Scout Trading, resulted in substantial, repeated fails to deliver by Wedbush. Scout Trading submitted creation orders, used to create new shares of the ETFs, through Wedbush to close out the fails to deliver; however, Scout Trading, shortly thereafter, submitted further naked redemption orders, or engaged in additional secondary market selling activity in the ETFs, through or with the assistance of Wedbush, that led to fails to deliver redeveloping at Wedbush. This pattern of naked redemption orders followed by creation orders resulted in persistent and sustained fails to deliver at Wedbush, and was profitable but impermissible.

Wedbush repeatedly effectuated Scout Trading’s ETF orders without first ascertaining whether Scout Trading owned, or had full legal and beneficial right to tender for redemption, the requisite number of ETF shares associated with its orders, contrary to its obligations as an Authorized Participant, and without taking sufficient follow-up actions concerning Scout Trading’s systemic and cyclical fails to deliver. As such, Wedbush failed to observe high standards of commercial honor and just and equitable principles of trade, and failed to meet its supervisory obligations to ensure that its activities as an Authorized Participant, including its processing of ETF orders, complied with applicable securities laws and regulations.

Thomas Gira, FINRA Executive Vice President and Head of Market Regulation, said, “Timely delivery of securities is a critical component of sales activity in the markets, particularly in ETFs that rely on the creation and redemption process. Naked trading strategies that result in a pattern of systemic and recurring fails flout such principle and do not comply with Regulation SHO. Authorized Participants and their broker-dealer clients need to have adequate supervisory procedures and controls in place to ensure that they are properly redeeming and creating shares of ETFs.”

John Zecca, Senior Vice President of Market Regulation for Nasdaq’s U.S. Markets, continued, “Authorized Participants, as gatekeepers and conduits to the primary ETF markets, play vital roles in ensuring they carry out their obligations consistent with applicable securities laws and do not become a vehicle for misconduct. We will continue to monitor firms for adherence to Regulation SHO and adequate supervisory systems to ensure such compliance.”

In concluding this settlement, Wedbush neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. Scout Trading, which was a member of Nasdaq but not FINRA, was the subject of a separate Nasdaq disciplinary proceeding on April 7, 2015, in which it consented, without admitting or denying the charges, to the entry of findings by Nasdaq that Scout Trading violated Rule 204 of Regulation SHO and Nasdaq’s requirements that pertain to supervision and just and equitable principles of trade. That settlement resulted in a censure and $3 million fine against Scout Trading, a former Nasdaq member.

Super Bowl Tippee at Wedbush Charged with Insider Trading

In a less than festive recognition of Super Bowl weekend, the Securities and Exchange Commission last Friday charged a Wedbush Securities broker and two of his clients with insider trading.

While attending the 2011 Super Bowl between the Green Bay Packers and the Pittsburgh Steelers in Arlington, Texas, a client of Wedbush advisor Marc Winters learned about a forthcoming “strategic transaction” that e-commerce marketing company GSI Commerce was planning, according to an SEC lawsuit filed Friday in federal court in the Central District of California.

Less than two months later, eBay announced a $2.4 billion acquisition of GSI. Winters and his clients – Robert M. Munakash and Carlos A. Rodriguez – together made a profit of $226,000 through sales of stock across several accounts, including those of Munakash’s parents, the SEC alleged.

Munakash, who owns and operates three gas station/convenience stores in southern California,  learned about the forthcoming deal from a GSIC executive who attended the game with him, according to the SEC. Rodriguez is a manager of one of the gas stations. Mr. Rodriguez declined to comment. and Mr. Munakash could not be reached.

Winters, who has been with Los Angeles-based Wedbush Securities since 2004, declined in a phone call to comment. In August 2004, he was discharged from UBS for failing to provide accurate customer information relating to mutual fund sales, according to the Financial Industry Regulatory Authority’s BrokerCheck database.

Wedbush Securities Charged by FINRA With Systemic Market Access Violations, Anti-Money Laundering and Supervisory Deficiencies

The Financial Industry Regulatory Authority (FINRA) announced that it has filed a complaint against Los Angeles-based Wedbush Securities Inc. for systemic supervisory and anti-money laundering (AML) violations in connection with providing direct market access and sponsored access to broker-dealers and non-registered market participants.

During the period at issue, Wedbush was one of the securities industry’s largest market access providers, which included overseas high-frequency, high-volume, algorithmic day-trading firms, and made millions of dollars from its market access business.

The complaint alleges that from January 2008 through August 2013, Wedbush failed to dedicate sufficient resources to ensure appropriate risk management controls and supervisory systems and procedures. This enabled its market access customers to flood U.S. exchanges with thousands of potentially manipulative wash trades and other potentially manipulative trades, including manipulative layering and spoofing. Despite its obligations to monitor, review, and detect suspicious and potentially manipulative trades, Wedbush largely relied on its market access customers to self-monitor and self-report such trading without sufficient oversight and controls to detect “red flags.”

FINRA also alleges that despite receiving notice of regulatory and compliance risks associated with its market access business — including published industrywide notices, disciplinary decisions taken against other industry participants and multiple self-regulatory organization inquiries and examinations — Wedbush’s regulatory risk management controls and supervisory procedures were not reasonably designed to manage such risks, and, in fact, created incentives that rewarded Wedbush compliance personnel with compensation based on market access customer trading volume. Additionally, the complaint alleges that the firm failed to establish, maintain and enforce adequate AML policies and procedures, and failed to report suspicious and potentially manipulative transactions.

The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint. Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution.

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