BrokerDealer Smacked With Price Gouging Penalty-Class Action Award for $850k Against Newbridge

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Brokerdealer.com blog update couresy Bruce Kelly of InvestmentNews from 25 February.

An independent broker-dealer, Newbridge Securities Corp., has reached an agreement to settle a class action suit costing the firm $850,000. The suit filed was filed by Newbridge clients from June 2008 to January 2013. The former clients alleged the firm price gouged clients for postage and handling on securities transactions. In addition to the class action suit, Newbridge Securities Corp., was fined $138,000 by FINRA for failing to buy and sell corporate bonds at a fair price for their customers. 

Per Investment News:

The Financial Industry Regulatory Authority Inc. fined the firm $138,000 for allegedly failing to buy and sell corporate bonds at a fair price for their customers. The firm allegedly failed to take into consideration relevant circumstances “including market conditions with respect to each bond at the time of the transaction, the expense involved and that the firm was entitled to a profit,” according to Newbridge’s BrokerCheck profile. The firm did not admit or deny the allegations as part of the settlement.

The firm lost $434,600 on $37.9 million in revenue in 2013, according to its most recent annual audited financial statement submitted to the Securities and Exchange Commission.

In May 2011, Finra CEO and chairman Richard Ketchum raised the issue of postal price gouging by broker-dealers in a speech to industry executives.

Postage and handling fees charged by broker-dealers ranged at the time from $3 or $4 to as high as $75 per transaction, executives said. Some firms had been inflating postage and handling fees after the financial crisis as a way to boost profits.

The issue of postage and handling costs has been hanging over Newbridge for four years. In April 2011, the Connecticut Banking Commissioner fined Newbridge $10,000, alleging that the firm charged a “handling fee” that was unrelated to actual transactional costs and that the firm failed to tell customers the fee included a profit to Newbridge, according to BrokerCheck. Finra in January 2013 fined Newbridge $50,000 over the same issue.

For the entire article from InvestmentNews, click here

Broker-Dealer Enforcement Cases and Developments: Fines & Restitution Record

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Brokerdealer.com blog update is courtesy of the law firm, Morgan Lewis.

In a record year for enforcement, the SEC brought a landmark number of cases, and FINRA imposed an exceptional level of fines and restitution.

This LawFlash highlights key U.S. Securities and Exchange Commission (the SEC or the Commission) and Financial Industry Regulatory Authority (FINRA) enforcement developments and cases regarding broker-dealers during fiscal year 2014. The full 2014 Year in Review is available here.

The SEC

There were few significant personnel changes at the SEC last year. The Commission’s composition was stable in 2014 with Chair Mary Jo White continuing to lead the SEC. The other commissioners are Luis A. Aguilar, Daniel M. Gallagher, Kara M. Stein, and Michael S. Piwowar. Notable changes were made with appointments in two major SEC divisions (Stephen Luparello was named the director of the Division of Trading and Markets, and Stephanie Avakian was named the new deputy director of the Division of Enforcement). New directors were also appointed to lead the Philadelphia and Atlanta regional offices.

The enforcement statistics compiled by the SEC during fiscal year 2014 (which ran from October 1, 2013 through September 30, 2014) set several records. Other aspects of the enforcement program led the Commission to dub fiscal year 2014 “A Year of Firsts.”

In fiscal year 2014, the SEC brought a record 755 cases, a figure likely boosted by the number of open investigations carried over from the prior year. Moreover, the SEC’s actions resulted in a record tally of monetary sanctions being imposed against defendants and respondents.

With respect to its caseload, in what has become a trend, the SEC brought 7% fewer cases against investment advisers and investment companies—130 cases in fiscal year 2014, compared to 140 actions in fiscal year 2013. To contrast, in fiscal year 2014, the SEC reversed its downward trend from fiscal year 2013, bringing 37% moreactions against broker-dealers—166 in fiscal year 2014, compared to 121 in fiscal year 2013. Nevertheless, taken together, the SEC continues to devote significant resources to investigating regulated entities: cases in these areas have represented about 39% of the Commission’s docket in each of the last two fiscal years.

After a sharp decline in 2013, the Commission brought 52 insider trading cases in fiscal year 2014, an 18% increase from fiscal year 2013, but this increased number is still lower than the fiscal year 2012 total. We will see in the coming year how changes to the legal landscape may affect the SEC’s enforcement in this particular area.

FINRA

An interesting enforcement record emerged at FINRA last year. Although it instituted fewer disciplinary cases in 2014, its fines doubled from the prior year. Moreover, the amount of restitution that FINRA ordered in 2014 more than tripled the amount that had been returned to investors in 2013.

Specifically, in 2014, FINRA brought 1,397 new disciplinary actions, a noticeable decline from the 1,535 cases initiated in 2013. Along the same lines, FINRA resolved 1,110 formal actions last year; 197 fewer cases than it had in the prior year. With respect to penalties and restitution, in 2014, FINRA levied $134 million in fines (versus $60 million in 2013) and ordered $32.3 million to be paid in restitution to harmed investors (versus $9.5 million in 2013).

FINRA’s use of Targeted Examination Letters seems to be declining. In 2014, FINRA posted only two letters on its website, versus three in 2013 and five in 2012. Last year’s letters sought information on cybersecurity threats and order routing/execution quality. (In February 2015, FINRA published its Report on Cybersecurity Practices.)

To read the entire article from Morgan Lewis, click here.

The Odds Aren’t In Morgan Stanley’s Favor With Parody Video

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Brokerdealer.com blog update is courtesy of InvestmentNews’ Mason Braswell.

morgan stanley parodyMorgan Stanley, a leading investment firm specializing in wealth management, investment banking and sales and trading services, just wanted to have little fun at their 2014 branch manager’s meeting. They created a parody to the “Hunger Games: Catching Fire” movie but choose not to show it, for very good reason. Unfortunately for them InvestmentNews obtained a copy of the video and has shared, the news has been catching fire (pun intended) and people aren’t happy. 

One senior executive from corporate branding firm, The JLC Group, which counts a number of financial service firms as clients stated, “On the one hand, one could defend the video production as an effort to appeal to a certain employee demographic. On the other hand, whoever enabled the video to be released should have both hands tied behind their backs. Or, MS execs should simply take a cue from the video’s title and fire the manager who was behind this project.”

There’s a grain of truth in every joke, and while a video Morgan Stanley produced last year as entertainment for a branch managers’ meeting was an obvious parody of the “Hunger Game” film series, it provides a unique, behind-the-scenes look at the country’s largest wealth management firm.

The 10-minute video, titled “Margin Games: Manager on Fire,” was ultimately shelved and never shown at the branch managers’ meeting in February 2014. But the video, a copy of which was obtained byInvestmentNews, seems to reflect a cutthroat culture among wirehouse managers and a lack of congeniality between leaders in the field and executives in the home office.

(The video is being presented here in its entirety because it is a parody and individual scenes may not make sense without the full context and plot.)

Starring a number of the firm’s top brass, including Shelley O’Connor, who oversees the firm’s approximately 16,000 advisers, the film has executives in a war room at headquarters, pitting branch managers against each other in a death match resembling the one portrayed in the “Hunger Games” series.

There are moments where managers joke about the coldness of senior leadership: “They’ll have somebody at your desk on Monday,” one manager says to a competitor.

Stereotypes?

Other scenes feature jokes that hinge on racial stereotypes, including having an Asian woman appear as the expert in martial arts who pulls knitting needles from her hair and throws them at a dart board.

The company won’t talk about the video or say why it decided not to show it. A spokeswoman for the firm would say only that the video was never released.

But according to sources familiar with the video who did not want to be identified, Greg Fleming, the president of Morgan Stanley Wealth Management, was involved in the decision. Sources cited different possible reasons for pulling the video, including concerns of human resources personnel about some of the jokes or scenes of violence in the workplace.

Some current and former Morgan Stanley executives who asked not to be identified said the fact that a video was even made that joked about people who were losing their jobs shows the detachment of executives from other employees. In fact, two months after the managers’ meeting,the firm began a reorganization. The firm cut the number of regions to eight from 12 and reduced the divisions from three to two. One of the divisional directors who was featured in the video, for example, left the firm after his position was eliminated. Four regional managers were moved to different roles.

For the complete article and to view the original video, click here.

FOMO Is Leading To Cramming Of Startups According To One Capitalist

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FOMOBrokerdealer.com blog update courtesy of the Wall Street Journal.

Venture capitalist and Benchmark partner, Bill Gurley, advised people against “cramming” too much money into startups, such as Uber, Snapchat, and WeWork, at last week’s Goldman Sachs technology conference. Following his speech, Gurley gave even further insight to investing in startups and how the slang word, FOMO, plays into investing.

After speaking about the risks of “cramming” too much money in startups at the Goldman Sachs technology conference last week, venture capitalist Bill Gurley exited the stage.

More than a dozen investors swarmed the lanky partner of Benchmark, eager to speak with him— but few were planning to heed the venture capitalist’s advice. According to Gurley, one man, who represented a large mutual fund, asked, “You don’t want us to invest in this but the big tech stocks are not delivering enough growth and my competitors are getting into these startups, so what are we supposed to do?”

Gurley says he didn’t have a good answer but he wasn’t surprised by the sentiment, which he describes as FOMO, a slang popular among millennials that stands for “fear of missing out.”

It is this infectious FOMO, according to Gurley and other venture capitalists, that has created a flotilla of billion-dollar startups with ever-soaring valuations and mixed financials.

According to The Wall Street Journal’s Billion Dollar Startup Club, there are now at least 73 private technology companies worth more than $1 billion dollars, versus 41 a year ago. Some, such as Uber, the $41.2 billion car hailing app backed by Gurley’s Benchmark, are worth enormous sums. At least 48 companies were valued at $1 billion or more for the first time, and another 23 members moved up the ranking after raising more money.

Many investors are treating these 73 companies as if they were publicly traded, says Gurley. They are investing sums of money usually reserved for IPO offerings and, sometimes, giving away those dollars with the kind of confidence usually associated with investors who’ve perused regulatory filings for detailed financial information. The investors themselves are a blend of traditional venture-capital players and typically public-market investors: hedge funds, mutual funds and banks. They are sort of meeting in the middle, with the venture capitalists investing in later-stage companies than they have historically done, through new growth funds, and the institutional investors getting in before the IPO.

“We’ve been calling this the private-IPO slice,” said David York, managing director of Top Tier Capital Partners, a fund of funds. “The valuation of risk is a public-market thought process versus a private-market thought process.”

Gurley, who has become a vocal critic of irrational behavior in the industry, says he’s also very worried about the pile-up in the “private IPO” market.

He’s worried that venture capitalists’ new bedfellows, such as mutual funds, are too new to venture capital to properly weigh the risks and realize that these billion-dollar companies are not guaranteed home runs.

“This replaces the IPO — but not all these companies are IPO level candidates,” he said. “Would you hand a teenager $200,000?”

According to data collected by The Journal, of the 29 firms that have invested in five or more current billion-dollar startups, only about half are traditional venture-capital firms. The rest are a mix of institutional investors, such as the Dragoneer Investment Group and Tiger Global Management, and strategic investors, such as Intel and Google. Near the top of the list is Tiger with 12 investments in private billion-dollar companies, and T. Rowe Price Group with 11. In this group, Tiger also raised the most money last year, keying up $4 billion, or 12% of all venture capital raised in 2014.

With such financial heavyweights jumping in, many of their peers are wondering: Can I afford to sit out?

It’s difficult to quantify exactly how much money is sloshing around at this level. Several top venture capital firms have raised large growth funds in the past few years, but total contributions from hedge funds, mutual funds and banks is practically immeasurable without knowing how much each invested in particular funding rounds. Whatever the amount, this layer of growth capital could warp prices, venture capitalists say.

“It’s like traffic on the highway, you add just 5% more cars and it slows down traffic considerably,” said Glenn Solomon, a managing partner at GGV Capital. His firm is an investor in four companies in The Billion Dollar Startup Club.

In some ways, Gurley’s firm has benefited from this influx of pre-IPO capital. His firm is an early investor in four companies in the Billion Dollar Startup Club: Uber, Snapchat, WeWork and Jasper Technologies. All four have since raised money from a big public-market investor.

For the entire article from the Wall Street Journal, click here

BrokerDealers Want To Ride With Uber

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Shanghai, China. February 13th 2014. Driver images for UBER marketing content.

Brokerdealer.com blog update is courtesy of the New York Times’ Deal Book’s Mike Isaac.

Uber is an app-based transportation network and taxi company based out of San Francisco, California. It began in 2009 and has slowly been making its way across the United States and the world. Customers use the app to request rides and track their reserved vehicle’s location. Uber vehicles range from black luxury SUVs and town cars, to taxis, drivers’ personal vehicles. Although Uber hasn’t gone public yet, they have recently expanded their venture round to a total capacity of $2.8 billion due to high demand. Now, it is only a matter of time before the company decides to go public and the brokerdealers can’t wait. 

Uber, the ride-hailing service, likes to trumpet its popularity with consumers. Their fervor is surpassed, perhaps, only by investors’.

Facing overwhelming demand from institutional investors, Uber has expanded its Series E round of venture financing by $1 billion, according to documents filed Wednesday with the Delaware secretary of state, bringing the total capacity for the round up to $2.8 billion.

The move, which was confirmed by Uber, occurred just weeks after the company closed a $1.2 billion round of financing. At the time, Uber said it had left capacity for about $600 million in additional strategic investments, according to a Delaware filing. The company is incorporated in Delaware and based in San Francisco.

But the appetite for a piece of Uber has proved to be greater than the company had imagined. The $600 million was quickly oversubscribed, and Uber decided to raise the amount. Baidu, the Chinese Internet giant, accounts for part of the additional investment beyond the $1.2 billion round.

The most recent expansion is on top of some $4 billion Uber raised, including a recent $1.6 billion round of convertible debt financing from the clients of the private wealth arm of Goldman Sachs, the investment bank previously confirmed.

Uber’s $40 billion valuation, extraordinary by any private technology company’s standards, remains unchanged since the company announced the first part of the round in December. Uber is one of the most richly valued private technology start-ups, second only to Xiaomi, the Chinese smartphone manufacturer.

“The participation we have seen in Uber’s Series E underscores the confidence investors have in Uber’s growth,” Nairi Hourdajian, the head of global communications at Uber, said in a statement.

Even in Silicon Valley’s recent venture capital environment, where hundreds of millions of dollars and high valuations seem much easier to come by, Uber remains an anomaly. The company has raised close to $5 billion in private financing since it was founded in 2009, and it appears in no hurry to introduce itself to the public markets.

Uber is likely to need full pockets to continue its rapid growth.

The company is working to expand UberPool, its ride-sharing initiative that links multiple passengers heading toward the same destination and lets them split the cost.

Uber has also said it intends to bolster its European operations and push into the Asia-Pacific region.

It can expect to meet opposition. Uber faces stiff resistance from taxi and limousine interests in countries like Spain, Germany and Belgium, among others, and will probably need to spend heavily to market itself to win favor with locals.

To do well in China, the world’s most populous country, Uber will probably have to spend heavily to take on services like Kuaidi Dache and Didi Dache, China’s two largest taxi-hailing services, which recently announced plans to merge. That deal, if completed, would give the two services more than 90 percent of the market.

Meanwhile, Uber’s largest United States competitor is also raising money. Lyft, identified by its signature pink mustache logo, is trying to raise at least $250 million in private capital, with participation from at least one previous investor, the Alibaba Group of China.

For the original article, click here.