Articles Posted in SEC

On January 30, 2023, the United States Securities and Exchange Commission (“SEC”) published a Risk Alert including its observations from Broker-Dealer Examinations Related to Regulation Best Interest (“Reg BI”).  The risk alert highlights deficiencies observed during regulatory examinations, as well as weak practices by broker-dealers that could result in deficiencies.

Reg BI requires that brokerage firms and brokers act in the best interest of a retail customer at the time of a recommendation to purchase, sell, or hold a security or investment strategy.  The broker-dealer and broker must place their retail customers’ interest ahead of their own financial interest.  The standard of care also applies to recommendations of account types.

Reg BI requires compliance with four component obligations:

On September 1, 2021, Robinhood ($Hood) filed its first amendment to its Form S-1 Registration Statement with the U.S. Securities and Exchange Commission (“SEC”).

The public filing, which amends the registration statement that Robinhood filed in connection with its July 2021 initial public offering (IPO), discloses that the SEC’s Division of Examinations and the Financial Industry Regulatory Authority (“FINRA”) have submitted inquires to Robinhood related to whether any employee executed trades in certain securities, including GameStop Corp. and AMC Entertainment Holdings, Inc., before the public announcement that Robinhood would restrict trading in those securities on January 28, 2021.

On Thursday, January 28, 2021, Robinhood designated specific stocks “position closing only,” restricting its customers from purchasing additional shares in those stocks.  The targeted stocks included GameStop (NYSE: GME), AMC (NYSE: AMC), Blackberry (NYSE: BB), Nokia (NYSE: NOK), Koss Corporation (NYSE: KOSS), and Express, Inc. (NYSE: EXPR).

Crown Capital Securities, L.P. (“Crown Capital”), a dually-registered investment adviser and broker-dealer based in California, agreed to pay $1.6 million to settle charges brought by the Securities and Exchange Commission (“SEC”) over the firm’s disclosure failures regarding investment advice it gave about mutual funds and cash sweep money market funds. Specifically, the SEC alleged that the company did not disclose its conflicts of interests related to mutual fund share classes, cash sweep arrangements, and no-transaction-fee revenues.

Without admitting or denying the findings, Crown Capital consented to a cease-and-desist order, censure, and agreed to pay disgorgement of $1,138,740, prejudgment interest of $154,173, and a civil penalty of $295,000. The firm also agreed to distribute funds to harmed clients and comply with certain undertakings.

If you have lost money with Crown Capital, contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account.

The Securities and Exchange Commission (“SEC”) announced an award of approximately $1.5 million to a whistleblower whose information and assistance led to a successful SEC enforcement action.

In connection with the announcement, Jane Norberg, Chief of the SEC’s Office of Whistleblower, said that the “whistleblower alerted the SEC to previously unknown conduct and thereafter provided multiple submissions, identified potential witnesses, and met with staff on several occasions.”

Congress established the whistleblower program to incentivize whistleblowers with specific, timely, and credible information about federal securities laws violations to report to the SEC.  A whistleblower may receive an award if they voluntarily provide the SEC with qualifying information that leads to a successful enforcement action. The award can range from 10 percent to 30 percent of the money collected as a result of the enforcement action.

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