On October 16, 2017, NYSE Regulation — the regulatory enforcement subsidiary of NYSE Arca, Inc. (“NYSE”) — filed a Complaint against Wedbush Securities Inc. (“Wedbush”) (CRD# 877), and its founder, Mr. Edward Wedbush. The Complaint centers on Wedbush’s alleged systemic failure to supervise certain trading purportedly conducted by its owner and founder, Mr. Wedbush, who allegedly devoted “several hours each trading day actively managing and trading in more than 70 accounts.”

As alleged by NYSE Regulation, “Despite Mr. Wedbush’s active trading in dozens of customer, personal, and proprietary accounts, Respondents failed to implement any process to monitor or supervise Mr. Wedbush’s order entry, trade executions, or trade allocations…” in certain accounts controlled by Edward Wedbush (“Controlled Accounts”). Further, NYSE Regulation has alleged that Mr. Wedbush utilized a separate trading platform only accessible to him and, moreover, “regularly instructed a Firm employee to enter orders under a general account, waiting until the end of the trading day to allocate executed trades…” among the various Controlled Accounts. In this manner, as has been alleged by NYSE Regulation, Respondents’ practice of allocated trades in the Controlled Accounts at the conclusion of the trading day violated Wedbush’s own written supervisory procedures (“WSPs”).

By purportedly failing to properly designate the Controlled Accounts for which orders were being entered (and “[i]nstead allocating trades to accounts after the fact based on Mr. Wedbush’s discretion”), NYSE Regulation has asserted that such activity exposed numerous customers to a host of conflicts of interest, as well as “opportunities for fraud, manipulation and customer harm” in contravention of NYSE Arca Rule 9.14-E (Account Designation). Additionally, NYSE Regulation has alleged violations of various NYSE Arca and Exchange Act Rules, including NYSE Arca Rule 2.28 (Books and Records), as well as Exchange Act Rules 17a-3 and 17a-4. Among other things, these rules are designed to prevent against practices such as “cherry picking,” whereby traders choose to allocate the best performing and most profitable trades to certain accounts, to the detriment of non-favored accounts.

According to the Complaint, “Mr. Wedbush had the unchecked ability to grant the preferential treatment, including to himself and his family, with no effective mechanism at the firm to ensure that the allocations were made fairly.” As characterized by NYSE Regulation, Wedbush’s “abject failure” as a broker-dealer to properly supervise its owner’s trading continued unchecked for years, citing as one of the key reasons Mr. Wedbush’s own “refusal to devote the resources required to do so.”

Founded in 1955, Wedbush is headquartered in Los Angeles, CA. As of June 2017, Wedbush’s Wealth Management Group provides various wealth management services through approximately 400 financial advisors located in roughly 100 offices nationwide. Brokerage firms like Wedbush have a duty to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with applicable laws, regulations and securities industry rules. In instances where firms fail to ensure that an adequate supervisory structure is established and maintained, and such failure leads to investor losses, firms like Wedbush may be held liable for such losses.

Attorneys at Law Office of Christopher J. Gray, P.C. have successfully resolved a number of disputes on behalf of investors, including losses sustained due to instances of fraudulent conduct, market manipulation, and related misconduct. Investors may contact an attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

The Financial Industry Regulatory Authority (“FINRA”), which oversees the U.S. brokerage industry, found that the brokerage failed to have an adequate supervisory system to monitor employee accounts for potential misconduct.

The wayward broker, Bruce Hammonds, has been sentenced to 57 months in federal prison for convincing 11 people to invest more than $1 million in a Ponzi scheme he ran as a Merrill branch representative in San Antonio, Texas.

Hammonds ran his scheme for 10 months out of the Merrill Lynch, Pierce, Fenner & Smith Inc unit in Texas. He has been barred since December 2009, FINRA said.

Merrill Lynch supervisors reportedly approved Hammonds’ request to open a business account as B&J Partnership, the name under which he also ran the Ponzi scheme. He told Merrill supervisors that he was funding the account through proceeds from a house-flipping business, according to the settlement.

Hammonds told investors that B&J was affiliated with Merrill and promised returns between 30 percent and 100 percent, according to the settlement. In reality, B&J was reportedly nothing more than a Ponzi scheme. A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.

Investors who believe they may have been a victim of “selling away” or a Ponzi scheme may contact the Law Office of Christopher J. Gray, P.C. for a confidential, no-cost consultation.