Post by Sapphire Capital on Jul 16, 2008 20:50:16 GMT 4
Violated NYSE Rule 410A by failing to submit accurate trading information through submission of electronic blue sheets in response to requests by NYSE; violated NYSE Rule 401 by failing to adhere to principles of good business practice in conduct of its business affairs in that it submitted inaccurate trading information on electronic blue sheets in response to requests by NYSE; violated NYSE Rule 342 by failing to establish and maintain appropriate systems and procedures for supervision and control of areas responsible for complying with electronic blue sheet reporting requirements and failing to establish separate system of follow-up and review to reasonably ensure compliance with NYSE Rules relating to preparation and submission of electronic blue sheets. Censure, $300,000 fine, and undertaking, reduced to $200,000 by Board of Directors.
Case Summary
Wedbush Morgan Securities, Inc. of Los Angeles, California, a member firm, after a contested hearing, including the granting of the Division of Enforcement's motions for partial summary judgment, was found guilty of failing to submit accurate trading information on electronic blue sheets, failing to adhere to good business practice by submitting inaccurate trading information on blue sheets, and supervisory deficiencies in connection with the preparation and submission of blue sheets.
An NYSE hearing panel found that the firm submitted inaccurate blue sheets to the NYSE in response to regulatory inquiries over a period of more than 3 years because of systemic deficiencies in the firm’s blue sheet systems.
Blue sheets are documents that are generated by member organizations at the request of regulators in connection with investigations of questionable trading. It is the responsibility of members and member organizations to reasonably ensure that the information submitted to regulators via blue sheets is accurate.
The firm’s blue sheet systems caused certain short sale transactions to be identified erroneously as long sale transactions. The inaccurate information undermined the integrity of the information utilized by the NYSE during the course of investigations.
The firm experienced two separate failures with its blue sheet systems pertaining to short sales being reported as long sales.
The firm was also put on notice as early as September 2003 of inaccurate information contained on a blue sheet it had submitted to the NYSE. However, the firm continued to submit erroneous blue sheets to the NYSE.
Due to the problem at the firm’s vendors and the ineffective measures taken by the firm to correct the problem, in all likelihood, every blue sheet reflecting short sale transactions in a DVP/RVP account submitted by the firm to the NYSE from May 2002 until September 2006 contained erroneous short sale information.
The NYSE Hearing Panel found that "[t]he fact that a firm relies on a third-party vendor to assist with the execution of certain tasks required by NYSE Rules or federal securities laws does not alter the firm’s duty to comply with those rules and laws."
The firm was also found guilty in the Summary Judgment Opinion with respect to supervisory deficiencies for the period prior to September 2003—when the firm alleged that it began using the Confirm Note Workaround—because it was undisputed that, prior to that time, the firm had no procedure in place whatsoever to ensure the accuracy of its blue sheets.
Based on the evidence presented at the hearing, the NYSE Hearing Panel found that the firm did not properly carry out its supervisory duties with respect to blue sheets, in that it did not have in place an adequate, separate system of follow-up and review to ensure the accuracy and completeness of those blue sheets.
The NYSE Hearing Panel also found that, "as between the NYSE and a regulated member organization like [the firm], the obligation to identify mistakes or deficiencies in regulatory submissions and to follow-up when any red flags are raised falls upon the member organization, not the NYSE. [The firm’s] failure to recognize this fundamental principle was only further evidence of [the firm’s] inadequate supervisory practices, for which it must be held accountable."
In explaining the extent of the supervisory violations, the NYSE Hearing Panel determined that Wedbush attempted to turn the firm's "supervisory duties on their head. To be sure, it is [Wedbush's] obligation under NYSE Rule 342 to adopt and maintain procedures and practices that allow the Firm to identify deficiencies in its regulatory reporting, rather than the NYSE's responsibility to cross-check every bit of information submitted by a member firm. Attempting to shift blame to the NYSE for [the firm's] failure to catch its own mistakes -- and thereby avoid its responsibilities under Rule 342 -- demonstrates a fundamental misunderstanding of the regulatory process, and it will not be countenanced."
The NYSE imposed a censure, a $300,000 fine and an undertaking to retain an independent consultant to review and prepare a report that contains recommendations concerning the adequacy of the firm's legal and compliance resources.
On appeal, the censure of Wedbush is affirmed, the fine of $300,000 is reduced to $200,000, and the scope of the undertaking is modified to require a review of the adequacy of the firm's regulatory and compliance resources but not the firm's legal resources.
See also Sanford C. Bernstein & Co., LLC, Decision 05-142 (NYSE Hearing Board Jan. 3, 2006 ); Calyon Secs. (USA ) LLC, Decision 05-143 (NYSE Hearing Board Jan. 3, 2006); E*Trade Clearing LLC, Decision 05-144 (NYSE Hearing Board Jan. 3, 2006); Goldman, Sachs & Co., Decision 05-145 (NYSE Hearing Board Jan. 3, 2006); LaBranche Fin. Servs., Inc., Decision 05-146 (NYSE Hearing Board Jan. 3, 2006); Lazard Capital Mkts. LLC, Decision 05-147 (NYSE Hearing Board Jan. 3, 2006); Lehman Bros., Inc., Decision 05-148 (NYSE Hearing Board Jan. 3, 2006); Merrill Lynch, Pierce, Fenner & Smith Inc., Decision 05-149 (NYSE Hearing Board Jan. 3, 2006); Nat’l Fin. Servs. LLC, Decision 05-150 (NYSE Hearing Board Jan. 3, 2006); Neuberger Berman, LLC, Decision 05-151 (NYSE Hearing Board Jan. 3, 2006); NF Clearing, Inc. f/k/a Fiserv Secs., Inc., Decision 05-152 (NYSE Hearing Board Jan. 3, 2006); Pershing LLC, Decision 05-153 (NYSE Hearing Board Jan. 3, 2006); Piper Jaffray & Co., Decision 05-154 (NYSE Hearing Board Jan. 3, 2006); Preferred Trade, Inc., Decision 05-155 (NYSE Hearing Board Jan. 3, 2006); Charles Schwab & Co., Inc., Decision 05-156 (NYSE Hearing Board Jan. 3, 2006); Southwest Secs., LLC, Decision 05-157 (NYSE Hearing Board Jan. 3, 2006); SunGard Global Execution Servs. LLC, Decision 05-158 (NYSE Hearing Board Jan. 3, 2006 ); UBS Secs. LLC, Decision 05-159 (NYSE Hearing Board Jan. 3, 2006); Wachovia Capital Mkts. LLC, Decision 05-160 (NYSE Hearing Board Jan. 3, 2006); Credit Suisse First Boston LLC , Decision 06-14 (NYSE Hearing Board Jan. 24, 2006) (collectively, settlements with member firms for inaccurate blue sheets submissions).
www.nyse.com/pdfs/06-196.pdf
Case Summary
Wedbush Morgan Securities, Inc. of Los Angeles, California, a member firm, after a contested hearing, including the granting of the Division of Enforcement's motions for partial summary judgment, was found guilty of failing to submit accurate trading information on electronic blue sheets, failing to adhere to good business practice by submitting inaccurate trading information on blue sheets, and supervisory deficiencies in connection with the preparation and submission of blue sheets.
An NYSE hearing panel found that the firm submitted inaccurate blue sheets to the NYSE in response to regulatory inquiries over a period of more than 3 years because of systemic deficiencies in the firm’s blue sheet systems.
Blue sheets are documents that are generated by member organizations at the request of regulators in connection with investigations of questionable trading. It is the responsibility of members and member organizations to reasonably ensure that the information submitted to regulators via blue sheets is accurate.
The firm’s blue sheet systems caused certain short sale transactions to be identified erroneously as long sale transactions. The inaccurate information undermined the integrity of the information utilized by the NYSE during the course of investigations.
The firm experienced two separate failures with its blue sheet systems pertaining to short sales being reported as long sales.
The firm was also put on notice as early as September 2003 of inaccurate information contained on a blue sheet it had submitted to the NYSE. However, the firm continued to submit erroneous blue sheets to the NYSE.
Due to the problem at the firm’s vendors and the ineffective measures taken by the firm to correct the problem, in all likelihood, every blue sheet reflecting short sale transactions in a DVP/RVP account submitted by the firm to the NYSE from May 2002 until September 2006 contained erroneous short sale information.
The NYSE Hearing Panel found that "[t]he fact that a firm relies on a third-party vendor to assist with the execution of certain tasks required by NYSE Rules or federal securities laws does not alter the firm’s duty to comply with those rules and laws."
The firm was also found guilty in the Summary Judgment Opinion with respect to supervisory deficiencies for the period prior to September 2003—when the firm alleged that it began using the Confirm Note Workaround—because it was undisputed that, prior to that time, the firm had no procedure in place whatsoever to ensure the accuracy of its blue sheets.
Based on the evidence presented at the hearing, the NYSE Hearing Panel found that the firm did not properly carry out its supervisory duties with respect to blue sheets, in that it did not have in place an adequate, separate system of follow-up and review to ensure the accuracy and completeness of those blue sheets.
The NYSE Hearing Panel also found that, "as between the NYSE and a regulated member organization like [the firm], the obligation to identify mistakes or deficiencies in regulatory submissions and to follow-up when any red flags are raised falls upon the member organization, not the NYSE. [The firm’s] failure to recognize this fundamental principle was only further evidence of [the firm’s] inadequate supervisory practices, for which it must be held accountable."
In explaining the extent of the supervisory violations, the NYSE Hearing Panel determined that Wedbush attempted to turn the firm's "supervisory duties on their head. To be sure, it is [Wedbush's] obligation under NYSE Rule 342 to adopt and maintain procedures and practices that allow the Firm to identify deficiencies in its regulatory reporting, rather than the NYSE's responsibility to cross-check every bit of information submitted by a member firm. Attempting to shift blame to the NYSE for [the firm's] failure to catch its own mistakes -- and thereby avoid its responsibilities under Rule 342 -- demonstrates a fundamental misunderstanding of the regulatory process, and it will not be countenanced."
The NYSE imposed a censure, a $300,000 fine and an undertaking to retain an independent consultant to review and prepare a report that contains recommendations concerning the adequacy of the firm's legal and compliance resources.
On appeal, the censure of Wedbush is affirmed, the fine of $300,000 is reduced to $200,000, and the scope of the undertaking is modified to require a review of the adequacy of the firm's regulatory and compliance resources but not the firm's legal resources.
See also Sanford C. Bernstein & Co., LLC, Decision 05-142 (NYSE Hearing Board Jan. 3, 2006 ); Calyon Secs. (USA ) LLC, Decision 05-143 (NYSE Hearing Board Jan. 3, 2006); E*Trade Clearing LLC, Decision 05-144 (NYSE Hearing Board Jan. 3, 2006); Goldman, Sachs & Co., Decision 05-145 (NYSE Hearing Board Jan. 3, 2006); LaBranche Fin. Servs., Inc., Decision 05-146 (NYSE Hearing Board Jan. 3, 2006); Lazard Capital Mkts. LLC, Decision 05-147 (NYSE Hearing Board Jan. 3, 2006); Lehman Bros., Inc., Decision 05-148 (NYSE Hearing Board Jan. 3, 2006); Merrill Lynch, Pierce, Fenner & Smith Inc., Decision 05-149 (NYSE Hearing Board Jan. 3, 2006); Nat’l Fin. Servs. LLC, Decision 05-150 (NYSE Hearing Board Jan. 3, 2006); Neuberger Berman, LLC, Decision 05-151 (NYSE Hearing Board Jan. 3, 2006); NF Clearing, Inc. f/k/a Fiserv Secs., Inc., Decision 05-152 (NYSE Hearing Board Jan. 3, 2006); Pershing LLC, Decision 05-153 (NYSE Hearing Board Jan. 3, 2006); Piper Jaffray & Co., Decision 05-154 (NYSE Hearing Board Jan. 3, 2006); Preferred Trade, Inc., Decision 05-155 (NYSE Hearing Board Jan. 3, 2006); Charles Schwab & Co., Inc., Decision 05-156 (NYSE Hearing Board Jan. 3, 2006); Southwest Secs., LLC, Decision 05-157 (NYSE Hearing Board Jan. 3, 2006); SunGard Global Execution Servs. LLC, Decision 05-158 (NYSE Hearing Board Jan. 3, 2006 ); UBS Secs. LLC, Decision 05-159 (NYSE Hearing Board Jan. 3, 2006); Wachovia Capital Mkts. LLC, Decision 05-160 (NYSE Hearing Board Jan. 3, 2006); Credit Suisse First Boston LLC , Decision 06-14 (NYSE Hearing Board Jan. 24, 2006) (collectively, settlements with member firms for inaccurate blue sheets submissions).
www.nyse.com/pdfs/06-196.pdf