FINRA Fines Deutsche Bank Securities $1.4M
The Financial Industry Regulatory Authority is fining Deutsche Bank Securities Inc. (DB) $1.4M for Regulation SHO violations, as well as for supervisory failures. According to the self-regulatory organization, for more than 10 years, the firm improperly included securities positions of a broker-dealer affiliate who isn’t from the US in a number of aggregation units. Deutsche Bank purportedly did this when trying to figure out the net position of each unit.
Under Reg SHO, firms can use an aggregation unit to track positions in a security from certain trading operations or trading desks separate from other positions. However, to determine the aggregation unit’s net positions, firms are not allowed to use the securities positions of a non-US brokerage firm affiliate.
Also, FINRA mandates that firms—barring specific exemptions—regularly report total short positions in customer and proprietary firm accounts in equity securities. The positions have to be reported not on a net basis. Instead, they should be based on a gross basis. The SRO said that for more than eight years, Deutsche Bank reported net positions in its financial aggregation accounts, submitting those as its short interest position.
The SRO said that Deutsche Bank’s supervisory system as it relates to short interest reporting and its aggregation unit structure were not designed in a reasonable enough manner to identify and stop these rule violations. By settling, Deutsche Bank is not denying or admitting to the violation charges.
Scottrade Ordered to Pay $2.6M Fine for Electronic Records, Email Retention Failures
Scottrade, Inc. must pay a $2.6M fine to settle FINRA allegations accusing the firm of not keeping a lot of securities-related electronic records in the format mandated, which is known as WORM. Scottrade is also accused of not keeping specific categories in outgoing email and failing to have a supervisory system in place that could fulfill compliance related to certain FINRA and Securities and Exchange Commission rules regarding books and records.
According to FINRA, from 1/11 to 1/14, Scottrade did not have procedures or processes for centralized document retention that its departments could follow. The SRO also said that no one at the firm was given the responsibility of making sure that such procedures not only existed but also were in compliance with the rules for record retention.
The SRO said that Scottrade did not copy over 168 million outgoing emails to the WORM storage device, which allowed these emails to be deleted. By settling, Scottrade is not denying or admitting to the FINRA charges.
NJ Firm Charged with Misrepresentations Related to Promissory Note Sales, Blamed for $6M in Investor Losses
Cantone Research Inc. and its president Anthony J. Cantone are charged with fraud related to the sales and extensions of over $8M of certificates of participation (COP) in five promissory notes. According to FINRA’s complaint, four of the five notes defaulted, resulting in $6M in investor losses. The regulator said that Cantone Research and Cantone received over $1 million in fees, commissions, and other payments.
FINRA said that the promissory notes were executed for several entities controlled by Christopher Brogdon, who worked in the nursing home and assisted living industry. Under the COPS’ terms, Brogdon was to use investor money to buy and/or redevelop a facility or other real estate. Investors were promised 10% interest plus return of principal. However, said the SRO, the firm and Cantone misrepresented or did not disclose material information to investors when certain COP were extended, including the fact that Brodgon already had been barred more than once from the securities industry, found liable for breaching a stock repurchase guarantee agreement, and indicted for theft, racketeering, and Medicaid fraud.
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FINRA Files Complaint Charging Cantone Research Inc., President Anthony Cantone with Fraud, FINRA, November 20, 2015