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Regulation and Compliance > Federal Regulation > SEC

FINRA Fines Deutsche Bank $3.25M for Deficient Disclosures: Enforcement

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The Financial Industry Regulatory Authority has fined Deutsche Bank Securities Inc. $3.25 million for failing to provide the same information to all clients of its Alternative Trading System (ATS) relating to certain ATS services and features, and for related violations, according to the announcement.

An ATS is a trading venue that executes trades in securities on behalf of broker-dealers and other traders. Securities and Exchange Commission regulations require that ATS operators disclose certain information to the SEC by filing a Form ATS.

“ATSs are significant and important trading venues in today’s equity marketplace,” said Thomas Gira, executive vice president of FINRA’s Market Regulation Department, in a statement. “Broker-dealers that operate an ATS must provide complete and accurate information to their customers regarding access to the ATS’s services and features to ensure that customers using the trading platform are not disadvantaged.”

In its Form ATS, Deutsche Bank represented that it would provide all ATS users with “identical access to all services and features” offered by the trading system. FINRA found that Deutsche Bank, however, failed to timely or completely disclose to all users the availability of certain ATS services and features, most of which involved the ability to include or exclude counterparties or groups of counterparties against whom orders would execute.

As a result, some ATS clients – including high-frequency trading firms – requested and received services that others may not have known were available. This meant that although there was no inappropriate sharing of confidential information, all users did not effectively have identical access to all services and features offered by the ATS.  

FINRA found that Deutsche Bank also failed to have adequate supervisory procedures in place to ensure that it disclosed material information regarding the ATS’s services and features to all users and failed to provide accurate information in its Form ATS filings.    

In concluding this settlement, Deutsche Bank neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Allstate Financial Services Fine $1 Million by FINRA

FINRA fined Allstate Financial Services $1 million for failing to supervise certain communications and transactions, retain certain records, and provide customers with certain required notices and information.

According to FINRA, Allstate Financial Services, the broker-dealer arm of Allstate Insurance Co., omitted approximately 3,500 secondary email accounts from the list of email accounts that the firm monitored. As a result, AFS did not review approximately 44 million emails, which included emails with customers or otherwise relating to the firm’s securities business.

FINRA also found that AFS’s records for approximately 9,000 customer accounts were missing or incomplete, and were not linked to the firm’s software system for sending various notices. As a result, AFS did not verify the identity of certain of those account owners, determine whether recommendations were suitable for those customers, and send required periodic account records and notices explaining the firm’s privacy policies to those customers.

According to FINRA, AFS also paid commissions totaling $587,000 in connection with securities transactions to approximately 4,400 unregistered persons who either were previously registered with the firm or at the time worked for affiliated insurance companies, according to FINRA. Most of the payments were trailing commissions that AFS paid to persons who had been registered with the firm, but no longer were registered when they received the payments.

In addition, AFS also incorrectly labeled nearly 2,900 customers’ accounts as closed due to an error during a system conversion. Those customers then did not receive required periodic account records and notices explaining AFS’s privacy policies.

SEC Charges Platinum Partners and Founder With Defrauding Investors

The SEC charged the founder of Platinum Partners and two of its flagship hedge fund advisory firms with conducting a fraudulent scheme to inflate asset values and illicitly move investor money to cover losses and liquidity problems.

The SEC’s complaint alleges that Mark Nordlicht and the Platinum funds overstated the value of an oil company that was among their largest assets, and they concealed a growing liquidity crisis by transferring money between the funds, making preferential redemptions to favored investors, and using misrepresentations to attract new investors to the struggling funds during what internal documents described as “Hail Mary time.”

The SEC’s complaint further alleges that Nordlicht schemed with two colleagues and an executive at the Platinum funds’ other major oil investment to divert almost $100 million from that company to help boost the Platinum funds. 

The SEC’s complaint charges several other individuals in addition to Nordlicht for their roles in the alleged schemes. 

SEC Charges Gatekeepers in Microcap Frauds

The SEC barred several market participants from the penny stock industry for their roles in various sham initial public offerings (IPOs) of microcap stocks that defrauded investors, according to an announcement.

In one case, Newport Beach, Calif.-based securities lawyer Michael J. Muellerleile authored false and misleading registration statements used in sham IPOs for five microcap issuers in order to transfer unrestricted shares of penny stocks to offshore market participants. Muellerleile’s law firm, M2 Law Professional Corp. also is charged along with Lan Phuong Nguyen, an attorney who assisted Muellerleile by signing false and misleading attorney opinion letters, and Joel Felix, the CFO of one of the issuers, for making false and misleading statements.

Muellerleile agreed to pay $154,267 and Nguyen agreed to pay $13,039 while accepting penny stock bars and permanent suspensions from appearing and practicing before the SEC as attorneys. Felix agreed to a penny stock bar, officer-and-director bar, and payment of $63,695.

In another case, Nevada-based stock transfer agent Empire Stock Transfer and its supervisor of operations, Matthew J. Blevins, transferred large blocks of several penny stock securities without restrictions to offshore nominees despite red flags indicating the shares were likely part of an illegal operation. 

Empire Stock Transfer agreed to pay more than $154,000, and Blevins agreed to pay $20,000 and be permanently barred from the securities industry.

Tech Company Violated Rule Aimed at Protecting Potential Whistleblowers

A technology company has agreed to pay a penalty of $180,000 to settle charges involving its severance agreements that impeded at least one former employee from communicating information to the SEC, according to an announcement.

The SEC’s order finds that Virginia-based NeuStar Inc. violated a whistleblower protection rule in the federal securities laws by routinely entering into severance agreements with at least 246 departing employees from Aug. 12, 2011 to May 21, 2015 that contained a broad non-disparagement clause forbidding former employees from engaging with the SEC and other regulators. Former employees could be compelled to forfeit all but $100 of their severance pay for breaching the clause. 

NeuStar, which voluntarily revised its severance agreements promptly after the SEC began investigating, consented to the SEC’s cease-and-desist order without admitting or denying the findings. 

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