SEC, FINRA Enforcement: Money Manager Charged in Free-Riding Scheme

In addition, the firm did not enforce its own WSPs with regard to the formation, operation, marketing and sale of the private partnerships, including supervisory review of sales materials. That resulted in failure to approve the sales materials being used for the private partnerships before they were used, and failure to provide statements of securities held by the private partnerships to mandated firm departments. It also meant that insufficient disclosure in the documents disguised risks.

The firm neither admitted nor denied the findings, but consented to the censure and fine.

FINRA Hits Wedbush on OATS, WSPs

In two separate actions, FINRA censured and fined Wedbush Securities Inc. for failures in Order Audit Trail System reporting and supervision and for failures in its written supervisory procedures.

In the first case, the fine was $750,000, and the firm was required to bring in an independent consultant to review and suggest modifications to its OATS reporting and supervisory procedures.

According to FINRA's findings, for approximately 18 months, Wedbush failed to transmit approximately 1.6 billion ROEs to OATS; that constituted the overwhelming majority of its OATS reporting obligation for the period. Also, during four different review periods, the firm submitted approximately 270 million ROEs late; it consistently logged late reporting violation rates many times higher than its peer group and industry averages. It also failed to repair and resubmit more than 12.7 million ROEs that were rejected because of context and system errors.

The firm had more than 45 million order reports that OATS was unable to link to the related order routed to Nasdaq or to the corresponding New Order Report because of inaccurate, incomplete or improperly formatted data. Also, for more than two years, the firm had violations for non-reporting, over-reporting, late reporting, failure to repair repairable rejected ROEs within the required time period, and failure to populate the proper ROE reconciliation identifier on resubmitted ROEs.

It also did not consistently conduct required daily and monthly supervisory reviews and failed to maintain required daily and monthly supervisory logs. Moreover, its supervisory system was designed to correct errors as they occurred instead of preventing them and being in compliance with OATS rules.

Also included in this particular instance was the fact that the firm's vice president in charge of correspondent services was not properly registered during a 34-month period.

In the second case, for which the firm was fined $72,500 and required to revise its WSPs, FINRA found that it failed to provide written notification disclosing to its customers its correct capacity in transactions and the reported price. It made available reports that included incorrect information, and its supervisory system was not adequate to ensure compliance.

In addition, there were other failures, including a lack of supervisory review for trade reporting and other rules as well as failure to provide accurate information to customers on transaction capacity, correct pricing and average pricing detail; to properly mark sale orders as short, which meant that it failed to report transactions in reportable securities to the Trade Reporting Facility (TRF) with a short sale indicator; and to show the correct order entry time and the correct long/short sale indicators in its proprietary trading ledger.

In both cases, the firm neither admitted nor denied the findings, but agreed to the censures and fines.