Oppenheimer’s Penny Stocks Results in $20M Fine 

PennyStocks

Oppenheimer fined for failure to report suspicious penny stocks

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

Brokerdealer firm, Oppenheimer & Co. Inc., has reach a deal with the SEC and FinCEN resulting in the firm paying $20 million, pleading guilty, and hiring an independent consultant over improper penny stock trades. The SEC and FinCEN said,  firm failed to prevent suspicious penny stock trading and pump-and-dump schemes.

The firm, which runs a retail brokerage operation with around 1,400 financial advisers, failed to properly detect and report suspicious trades in penny stocks, which are thinly traded securities that can be vulnerable to manipulation by stock promoters, according to FinCEN. The regulator identified at least 16 customers in five states who engaged in “patterns of suspicious activity.”

“Broker–dealers face the same money laundering risks as other types of financial institutions,” said FinCEN Director Jennifer Shasky Calvery, in a release. “And by failing to comply with their regulatory responsibilities, our financial system became vulnerable to criminal abuse. This is the second time FinCEN has penalized Oppenheimer for similar violations. It is clear that their compliance culture must change.”

In a parallel action, the SEC pointed to two instances between 2008 and 2010 in which the firm engaged in unregistered sales of penny stocks.

In one case, a financial adviser and his branch manager willfully engaged in unregistered sales of 2.5 billion shares of penny stocks on behalf of a customer, despite the fact that the shares were not exempt from registration, according to the SEC settlement. The trades generated $12 million in proceeds, of which Oppenheimer was paid $588,400 in commissions.

The settlement did not name the broker or branch manager, but said that its investigations into the matter were ongoing.

The other charge revolves around Oppenheimer’s role in possibly assisting allegedly illegal activity by a Bahamas-based brokerage firm, Gibralter Global Securities.

The firm disclosed in quarterly filings earlier this year.

that it was setting aside $12 million to deal with the possible fallout from regulatory investigations, mostly dealing with penny stock issues.

The head of the firm’s retail brokerage, Robert Okin, resigned in December, reportedly to pursue other interests. His Finra BrokerCheck record discloses he is facing an SEC investigation.

A spokesman for Oppenheimer, Stefan Prelog said in an email that the firm was “pleased to put these matters, which involve activity that occurred years ago, behind it.”

The firm has also agreed to hire an independent consultant as part of the settlement.

 

BrokerDealers Battle Their Own Regulator: Sifma v. Finra Over Privacy

iStock_000010356316XSmallBrokerdealer.com blog update courtesy of The New York Times’ Susan Antilla.

Finra has proposed a new plan that requires brokerdealers to share extensive information about their clients’ accounts and brokerdealers are not happy about it.

The proposal by the Financial Industry Regulatory Authority, or Finra, is “a troubling and serious threat to investors’ civil liberties and constitutional rights,” Carrie L. Chelko, chief counsel of the Philadelphia financial firm Lincoln Financial Network, wrote in one of hundreds of letters to the agency criticizing the plan.

Finra argues that regular, monthly reports from brokers detailing purchases, sales, margin calls and risk profiles will give it a chance to stop abusive practices before further harm is done.

Finra is considering the feedback on its plan, called the Comprehensive Automated Risk Data System, or Cards, and making changes in advance of seeking approval from its board of governors and forwarding a proposal to the Securities and Exchange Commission, Finra’s chief executive, Richard G. Ketchum, said in a telephone interview.

Finra has often been dismissed as an apologist for the Wall Street firms that finance it, but it has made some efforts since the financial crisis to play a tougher role. It fought the discount brokerage firm Charles Schwab & Company in 2012 after the firm tried to force customers to waive their rights to bring class-action lawsuits, winning its case last April. It also strengthened its standards for brokers who are making investment recommendations, advising them that a product must be consistent with a customer’s best interest. Several powerful investor advocacy groups, includingAARP and the Consumer Federation of America, have applauded Finra’s plan, noting that it would allow agency regulators to match the 21st-century data capabilities of the Wall Street firms it regulates. But the brokerage firms that pay Finra to be their regulator say that keeping so much investor information in one place is an example of regulatory overreach and an invasion of customers’ privacy.

“Not a week goes by without some data breach being reported in the press,” Ira D. Hammerman, general counsel of the Securities Industry and Financial Markets Association, a Wall Street lobbying group known as Sifma, said in an email response to questions about Finra’s plan. “And if Cards is built, the question is when, not if, there will be a data breach.”

In December, the American Civil Liberties Union wrote to Finra to express its “very serious security and privacy concerns” about Cards.

Mr. Hammerman and other critics have said that Finra’s plan would invade investors’ privacy, put personal information at risk, take supervisory authority away from brokerage firms and put small brokers out of business. After Sony disclosed in December that its systems had been hacked, Mr. Hammerman even took the opportunity during a media interview to liken Sony’s predicament to the risks that Cards would pose.

Barbara Roper, director of investor protection at the Consumer Federation of America, said Wall Street was “using every tool in their toolbox.” She added, “Their reaction is so over the top that the only thing I can see is that they just don’t want their regulator to be able to keep an eye on them.”

Given Finra’s reputation among some critics, Ms. Roper said, the aggressive Cards proposal has taken some Wall Streeters by surprise. “The industry sees this as evidence of Finra becoming less of a lap dog,” she said.

Mr. Ketchum said that the proposal would make it possible for Finra to spot patterns that suggest bad behavior by a brokerage firm, a branch office or an individual broker.

Dishonest brokers do not usually take advantage of only one client, Mr. Ketchum said. Instead, “they fall in love with a product or they fall in love with a strategy and they put tons of people in it.” Thus, a comprehensive database that displays all of the activity at a firm or branch can help Finra zero in on abuse, he said.

Ms. Roper said the program would let Finra jump on problems more quickly. “It creates a real deterrent,” she said. “Who’s going to churn an account if it immediately sends off a warning siren at Finra?”

In objecting to Cards, the securities industry has been most vocal about the potential for a vast repository of investor information to be hacked. After perusing the data security objections raised in a first round of comment letters in early 2014, Finra revised its proposal and said that customers’ names, addresses and tax identification numbers would not be included.

To continue reading this article from the New York Times, click here.

Biggest BrokerDealer Compliance Officer Charged In Insider Trading Case

BrokerDealer.com blog update courtesy of reporting by InvestmentNews.

InvestmentNewsThe Securities and Exchange Commission announced Wednesday that it was taking enforcement action against a former compliance officer at brokerdealer Wells Fargo Advisors who allegedly altered a document before it was provided to the SEC during its investigation into a former broker’s insider trading.

The charges stem from the case of Waldyr Da Silva Prado Neto, whose alleged scheme made more than $2 million from insider trades in Burger King Holdings Inc. stock ahead of an acquisition announcement on Sept. 2, 2010. )

The SEC said that after it charged Mr. Prado in September 2012, Judy K. Wolf, who was responsible for identifying potentially suspicious trading activity at broker-dealer Wells Fargo Advisors, went back and revised a 2010 report to make it appear that she had performed a more thorough review of Mr. Prado.

Initially, she had closed the report into Mr. Prado’s Burger King trades with “no findings” and did not notify any superiors of potential red flags, the SEC said.

To gain greater insight to the global universe of brokerdealers, the BrokerDealer.com database provides information on thousands of brokerdealers throughout the world.

The SEC said in its action that Ms. Wolf should have reported multiple red flags that were noted, including that Mr. Prado and his customers represented the top four positions in Burger King Securities firmwide, he and his customers purchased the securities within 10 days of the announcement, made substantial profits and that he, his customers and the company acquiring Burger King were all Brazilian.

To continue reading this story, please visit InvestmentNews.com