Firm Fined $2.5 Million and Ordered to Pay Restitution of $1.25 Million for Failing to Supervise Former Oppenheimer Broker Mark Hotton

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced that it has fined Oppenheimer & Co. Inc. $2.5 million and ordered the firm to pay restitution of $1.25 million for failing to supervise Mark Hotton, a former Oppenheimer broker who stole money from his customers and excessively traded their brokerage accounts. FINRA permanently barred Mark Hotton from the securities industry in August 2013.

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Posted in: FINRA

The United States securities regulators, the Securities Exchange Commission ("SEC"), and the Financial Industry Regulatory Authority ("FINRA") and the United Kingdom's Financial Conduct Authority ("FCA") are tightening rules to impose stricter time-keeping standards on trading clocks that are used to recreate trading orders. The reason for the concern stems from high-speed trading from computers that transact thousands of trades in a millionth of a second. The acceleration is hindering the regulators ability to recreate trades by matching buyers and sellers.

Regulatory and trader clocks can fall out of synchronization if they measure time in different fractions of a second. The Wall Street Journal quoted FCA chief executive officer Martin Wheatley in an interview stating that "If two clocks are out of sync by even a 10th of a second, it's impossible to do proper surveillance across multiple have to make sure the market still has integrity."

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Posted in: Trading

The Wall Street Journal reported that the Securities Exchange Commission ("SEC") wants to even the field in the bond market between small investors and Wall Street's biggest banks. The SEC unveiled plans to make real time pricing information for the corporate and municipal bond markets less difficult for investors to obtain. This proposal would require public dissemination of the best buy and sell orders generated on private electronic networks for bonds that are currently accessed primarily by market insiders. Average investors typically see prices only after a trade is executed.

The SEC's effort to broaden access to pricing information comes amid a broader push to erode some of the trading advantages used by computer driven trading. Bond trading is dominated by, and highly profitable for big Wall Street banks, while regular investors have been shut out of the inner workings of the bond markets.

Unlike the stock market, where exchanges publish buy and sell orders in real time, there is little way for investors to check demand for bonds. Customers thus can't tell if they are being overcharged on bonds until after the trade is completed. The SEC's proposal resembles the changes the SEC made in the late 1990s which made trading information about stocks far more widely available to individual investors.

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Posted in: Securities Exchange Commission

On March 25, 2014 the Financial Industry Regulatory Authority ("FINRA"), through a Wells Notice, made a preliminary determination to recommend that disciplinary action be brought against Steven Stahler for potential violations of NASD Rule 2110, NASD Rule 2310 and FINRA Rule 2010.

NASD Rule 2110 entitled "Standards of Commercial Honor and Principles of Trade" states that "A member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade."

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Posted in: Investments

The Wall Street Journal reported that there are more than 51,500 stockbrokers that have failed, at least once, an exam to obtain a license to sell securities. Additionally, those brokers that failed the exam have worse disciplinary records than other brokers. This information is not disclosed on the Financial Industry Regulatory Authority ("FINRA") BrokerCheck website that is accessible to the public.

Each broker must pass a Series 7 exam given by FINRA and a Series 63 state broker examination. In analyzing the results from the state test, the Wall Street Journal found that, on average, the more times a broker failed a test correlated to the higher the number of problems associated with that broker, including criminal charges and firing. Those who failed the test more than twice were 77% more likely to report a felony or financial related misdemeanor and 55% more likely to be fired than brokers that passed the tests on their first try. About 14% of brokers failed the test at least once. A broker that failed the test at least three times was about two-thirds more likely to have three or more red flags on their record.

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Posted in: Investments

FINRA Stockbrokers' Background Not Always Disclosed

The Wall Street Journal has run articles about the deficiencies of reporting negative information on stockbrokers' backgrounds. The Financial Industry Regulatory Authority ("FINRA") requires all stockbrokers to report "red flag" information that will appear on a data base of information that is available to potential investors through the FINRA website called "BrokerCheck". Red flags can include bankruptcies, criminal charges, regulatory actions, terminations, tax liens and customer complaints.

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Posted in: FINRA

I have attached an article by Jonathan Weil that everyone should find interesting.

'Wolf of Wall Street' Offspring Never Quite Die

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Posted in: Investments

On Friday, January 17, 2014, the Wall Street Journal reported that a University of Virginia law professor's analysis revealed that the Justice Department hadn't charged employees at nearly two thirds of nearly 400 companies that have settled criminal investigations or been convicted of crimes in recent years.

The Justice Department did not contest the figures but defended its role in fighting white collar crimes. It countered that it has criminally prosecuted thousands of defendants for financial fraud and related crimes in the last five years and that it has a high burden of proving executives intended to commit fraud. According to the Justice Department, federal prosecutors have charged more than 10,000 people with white collar crimes since September of 2011.

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Posted in: Investments

The Wall Street Journal reported that many stock market strategists are expecting the stock market to cool significantly in 2014. They see returns in the mid-to-high single digit percentages for the S&P 500 Index in 2014 because of the economy. The January 15th US Government funding deadline, February 7th Debt Ceiling deadline and the Fed transition/QE tapering dialogue are sources of near term risk. No one knows what the consequences of Obamacare will have on the markets. Additionally, the Fed might start to tighten its easy-money policy, which they believe is a key reason why the markets have performed so well this year. These forecasts could be adjusted upward if interest rates remain low or if there are changes to the economy.

Stock strategists traditionally have been cheerleaders when forecasting year ahead outlooks. Since 2000, stocks have returned an average annual gain of 3.3%, well below the 10% predicted by strategists. Furthermore, they missed all four years when the stock market declined. However, stocks outpaced analysts forecasts in seven of those years.

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Posted in: Investments

USA Today reported that JPMorgan Chase, Barclays, Credit Suisse and 10 other international banks have been sued by a federal credit union regulator on charges they manipulated a financial benchmark used to set rates on trillions of dollars in loans.

The National Credit Union Administration ("NCUA") lawsuits charge that the banks conspired to rig the daily London Interbank Offered Rate ("LIBOR") that's used to set the rates on mortgages, car loans, student loans, credit cards and complex financial derivatives contracts.

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Posted in: Investments

As part of the $920 million agreement with regulators in the U.S. and U.K.,, including the U.S. Securities and Exchange Commission ("SEC"), New York-based JP Morgan Chase & Co. ("JP Morgan") admitted that it violated federal securities laws when it failed to catch traders hiding losses in 2012 relating to the "Whale". In settling claims with JP Morgan, the SEC began fulfilling its pledge to force wrongdoers to admit guilt.

Under SEC Chairman Mary Jo White, 65, the enforcement division has shifted its long-standing policy of allowing defendants to settle matters without admitting or denying any wrongdoing. The practice had been thrown into question when U.S. District Judge Jed Rakoff rejected a settlement with Citigroup Inc. in part because the bank didn't admit to any misconduct.

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Posted in: Securities Exchange Commission

The Securities and Exchange Commission charged the Chicago Board Options Exchange (CBOE) and an affiliate for various systemic breakdowns in their regulatory and compliance functions as a self-regulatory organization, including a failure to enforce or even fully comprehend rules to prevent abusive short selling.

CBOE agreed to pay a $6 million penalty and implement major remedial measures to settle the SEC's charges. The financial penalty is the first assessed against an exchange for violations related to its regulatory oversight. Previous financial penalties against exchanges involved misconduct on the business side of their operations.

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Posted in: Securities Exchange Commission

The Federal Reserve's QE Infinity program may be finite rather than "infinite" after all. QE Infinity has been the tongue-in-cheek term given the Fed's Quantitative Easing program, which has expanded into their purchasing $85 billion per month in mortgage-backed securities and Treasuries. But the winds of change may be blowing. Investors have been abuzz as the Wall Street Journal recently reported that officials at the central bank are considering an exit strategy from the massive stimulus measures that have been driving the U.S. economy for nearly the last five years.


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Posted in: Investments

The Wall Street Journal, Bloomberg, and Reuters have all reported that the Commodity Futures Trading Commission ("CFTC") is allegedly examining whether high-frequency-trading firms are violating rules by using wash trades to artificially inflate volume and distort markets in futures contracts. Wash trading is the buying and selling of identical futures contracts through different futures commission merchants at the same time. Repeated wash trading is done to manipulate the market and induce others to trade.

Wash trades are banned under U.S. futures law. When wash trades occur, "it might appear to be liquidity, but it is not. It isn't really there. It's fantasy liquidity," Bart Chilton of the CFTC was to say in a speech last Sunday.

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Posted in: Futures Commission Merchant

When it comes to selling stock, companies must be aware of their obligations to their investors. Among the most important of these obligations is the necessity of properly representing to investors the financial and legal status of the company and how that might affect the company's stocks.

One company that recently failed to do this is YPF Sociedad Anonima. In November, 2010, YPF filed a Form F-3 Registration Statement for their offering with the SEC. In March, 2011, the Prospectus with respect to the offering went into effect and more than 26.2 million shares of YPF American Depositary Shares were sold to the public at a rate of $41 per share. This put the total value of the offering at more than $1 billion.

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Posted in: Investments