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by Bill Singer
 
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Written: April 25, 2015


Today's BrokeAndBroker.com Blog discusses a civil Complaint involving the somewhat esoteric legal issue of "spoliation," which involves the alleged destruction or alteration of evidence. Although that doesn't necessarily sound like a riveting story, consider the fact that the federal lawsuit under consideration names as one of the Defendants Wall Street's self-regulatory organization, the Financial Industry Regulatory Authority ("FINRA"). READ


On April 22, 2015, the Securities And Exchange Commission announced it was awarding to a compliance professional a whistleblower award of between $1.4 and $1.6 million. According to the SEC's Press Release "SEC Announces Million-Dollar Whistleblower Award to Compliance Office," the compliance officer: 

had a reasonable basis to believe that disclosure to the SEC was necessary to prevent imminent misconduct from causing substanital harm to the company or investors.

The Press Release asserts that this is only the second award made to an internal audit/compliance employee. Apparently a second Claimant's request for an award was denied in the underlying matter. READ

On April 21, 2015, Nvinder Singh Sarao, 36, Hounslow, United Kingdom was named as a Defendant in a criminal Complaint  alleging 1 count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and 1 count of "spoofing." United States of America, Plaintiff, v. Nvinder Singh Sarao, Defendant (Complaint, NDIll, 15-CR-75, February 11, 2015).Sarao was arrested and is facing extradition to the United States pursuant to an unsealed Complaint. The allegations suggest that he was responsible (in whole or in part) for the infamous May 6, 2010 "Flash Crash" which saw various market indices plummet within a matter of minutes. At the heart of the government's Complaint is the assertion that Sarao used an automated trading program to manipulate the E-Mini S&P 500 futures contracts on the Chicago Mercantile Exchange. READ


Among the false perceptions that many have is the reliability of so-called official records. If it's something maintained by a regulator, we tend to believe that there are so many levels of checks and balances that a falsehood would not ultimately makes its way into a database accessible by the public. In fact, as has been demonstrated over and over again, our expectations and reality don't always match. In a recent FINRA expungement arbitration, FINRA's online BrokerCheck records asserted that a former Merrill Lynch registered representative had contributed half of the financial settlement paid to a complaining customer -- except the rep adamantly insisted that he had not made any contribution.  READ


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In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in March 2013, Claimant Marriott asserted breach of fiduciary duty; common law fraud; violation of the Texas Securities Act; violation of the Texas Deceptive Trade Practices Act; and lack of adequate supervision in connection with allegedly unsuitable purchases purportedly made in Claimant’s Individual Retirement Account without her knowledge or consent. Among the disputed transactions were alleged short-term trades in shares of Apple, Rare Element Resources Ltd., and Zynga,. Claimant also cited trades in exchange-traded inverse funds ("ETFs"), including ProShares, Rydex, and Direxion. In addition to her allegations above, Finally, Claimant alleged that Respondent Hobbs had developed over-concentrated position of AIG shares. In the Matter of the FINRA Arbitration Between Patricia Marriott, Claimant / Counter-Respondent, vs. Andrew Garrett, Inc., Respondent, and Brian Keat Hobbs, Respondent /Counter-Claimant (FINRA Arbitration 13-00769, April 1, 2015). READ

 

Written: April 24, 2015

Today's BrokeAndBroker.com Blog discusses a civil Complaint involving the somewhat esoteric legal issue of "spoliation," which involves the alleged destruction or alteration of evidence. Although that doesn't necessarily sound like a riveting story, consider the fact that the federal lawsuit under consideration names as one of the Defendants Wall Street's self-regulatory organization, the Financial Industry Regulatory Authority ("FINRA").

Case In Point

In the federal lawsuit of Thaddeus J. North and Mark P. Pompeo, Platintiffs, v. Smarsh, Inc. and Financial Industry Regulatory Authority/Department of Enforcement (Complaint, DDC, 15-CV-00494, April 6, 2015), Plaintiffs North and Pompeo seek damages and relief against Defendants Smarsh and FINRA for spoliation, tampering and destruction of evidence and to prevent use of such spoliated and tampered evidence in federal proceedings.

NOTE: Defendants in a civil lawsuit are presumed innocent unless and until proven guilty by a preponderance of the evidence in a court of law.

SMARSH Retained To Archive

The DDC Complaint alleges that from 2008 to August 2011, Plaintiff North was registered as the Chief Compliance Officer with Southridge Investment Group, LLC and thereafter, until January 2013, with Ocean Cross Capital Markets, LLC. As further explained in the DDC Complaint [Ed: yellow highlighting provided]:

[In] January 2013. Mr. North and approximately half of the registered representatives from Southridge became registered with Ocean Cross when Southridge came under investigation by FINRA and other regulators who were investigating a hedge fund managed by the owner of Southridge and an alleged tip about a business relationship between LK,1 who was registered with Southridge and TC,2 a statutorily disqualified person. Mr. North is a respondent in FINRA Enforcement Disciplinary Proceeding No. 2010025087302 involving Southridge (“Southridge Proceeding”) and Disciplinary Proceeding No. 2012030527503 involving Ocean Cross (“Ocean Cross Proceeding”). In both Disciplinary Proceedings Mr. North was accused of failing to review sufficient electronic correspondence; in the Southridge matter he was also accused of not detecting and reporting the business relationship between LK and TC.  

4. Plaintiff Pompeo is an individual who resides in Massachusetts. Mr. Pompeo was registered as a securities broker with Southridge from January 2010 to September 2011 and subsequently registered with Ocean Cross from September 2011 to September 2012; his business for the firm involved sales and marketing. He was charged with FINRA rule violations in an August 16, 2013 pursuant to FINRA Examination No. 20120305375.3  

Smarsh's Role

In order to satisfy regulatory requirements for the storage/review of electronic communications, Southridge and Ocean Cross purportedly contracted with Defendant Smarsh to preserve exact and unchangeable copies of internal and external electronic communications for all registered representatives of the firms. As asserted in the DDC Complaint:

14. FINRA does not require that broker-dealers use specified systems or companies to satisfy SEC and FINRA rule requirements for the storage and review of electronic communications; Southridge and Ocean Cross complied with their regulatory duty of preserving electronic communications by contracting with Smarsh to (a) use proper care to preserve by commercially responsible methods exact, unalterable, non-rewriteable, and non-erasable copies of each firm’s registered representatives’ domain emails, Bloomberg messages and other electronic correspondence in a permanent file for the Relevant Period, (b) provide access to that database of ESI for compliance review, and (c) maintain an accurate electronic record that documents ESI compliance reviews. See supra para. 5.

. . .

21. Smarsh handled the Ocean Cross domain set-up and provided instructions to registered representatives for the transition from Southridge to Ocean Cross for setting up their various electronic and handheld devices with specific IP addresses that enabled Smarsh to preserve all internal and external firm and Bloomberg domain electronic communications.

22. Even though Bloomberg, LP maintains a permanent archive or “vault”, for its customers’ messaging, e.g. email communications and “chats”, additional set-up time and protocols were necessary to have Smarsh preserve copies of registered representatives’ Bloomberg communications at both Southridge and Ocean Cross. Bloomberg required Smarsh to obtain written authorization from LK, a user ID and password to allow daily file transfer protocol (“FTP”) for Bloomberg email and instant messaging to Smarsh from a site separate from Bloomberg’s communication system.

23. In addition to preserving the ESI, Smarsh had a duty to place the ESI, from both the firm domain email systems and Bloomberg in an accessible, searchable database to which Mr. North and others with supervisory and compliance responsibilities would have access in order to satisfy and perform the duty of reviewing internal and external electronic communications.

FINRA Exams

Sometime in 2010, FINRA was conducting examinations and issued Rule 8210 letters demanding information and documents from Southridge and Ocean Cross. At that point, the member firms allegedly were relying upon Smarsh to provide archived electronic materials to the self-regulator.  

As will likely be more fully developed during motion practice and/or at trial, what was asked for, what was maintained, and what was produced by the firms became points of dispute. More critically, individuals were questioned by FINRA staff during on-the-record interviews and among the exhibits put before the witnesses were some of the electronic materials now at issue. Consider these allegations in the DDC Complaint:

 34. In the course of FINRA examination(s) and various 8210 letter requests for information that began in 2010, the Southridge and Ocean Cross firms arranged for Smarsh to deliver the firms’ electronic communications records directly to FINRA, because the 8210 letters demanded delivery of electronic communications in “a special format”, e.g. .pst. CEO Schloth stated under oath before Enforcement attorneys and investigators, “… when you guys request something, we just don’t want to screw it up in terms of download. So we just ask SMARSH [sic] to do it. That’s generally what - - the best way to do it.” Excerpts from Schloth On the Record Interview (“OTR”) (In the Matter of Southridge) dated February 9, 2012 p. 89, ll. 2-9,marked Exhibit 1. As a result, Smarsh delivered Southridge and Ocean Cross ESI directly to Enforcement according to FINRA Rule 8210 requests throughout the Relevant Period.  
 . . .  

37. Beginning in November 2013 Enforcement delivered CDs/DVDs to Mr. North containing ESI alleged to be exact copies of the database of emails received directly from Smarsh and upon which it based its disciplinary actions against Mr. North and Mr. Pompeo.  

38. The CDs/DVDs contained predominantly electronic communications for many if not all firm members, scans of documents obtained from the firms, and copies of OTR interviews in the Southridge and Ocean Cross Proceedings conducted by Enforcement of Messrs. North and Schloth in April 2012 and LK in September 2011 and August 2012 in the Disciplinary Proceedings. Mr. North and LK had not retained counsel to attend their respective OTRs.  

39. During the OTRs the witnesses were shown exhibits purporting to be printed copies of email communications, which exhibits created unexplainable confusion in the witnesses: Mr. North did not remember seeing or reviewing any of the emails represented in the exhibits shown to him in OTRs; and while being shown a series of emails in one OTR, LK remarked, “ - - you know this is deceiving. This isn’t true.” See Excerpts from LK OTR (In the Matter of Southridge) dated September 13, 2011 p. 183, ll. 3-4, marked Exhibit 2.  

Pompeo Settled


As explained in Footnote 3 to the
DDC Complaint, Plaintiff Pompeo asserts that he had settled FINRA's regulatory allegations only after he was shown emails during an on-the-record interview -- and Pompeo now alleges that he was unaware that those emails had been spoliated. The implication and inference of such an allegation is that a witness is now arguing that his testimony was based upon a form of deceit in that he was asked questions about documents that were not "original" in the form placed before him.

SIDE BAR: The following December 2013 FINRA Disciplinary Notices were published concerning Pompeo [Ed: yellow highlighting provided]:

Mark Peter Pompeo (CRD #1897147, Registered Supervisor, Hull, Massachusetts) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for 10 business days. Without admitting or denying the findings, Pompeo consented to the described sanctions and to the entry of findings that he participated in the offer and sale of a private placement offering at his member firm. The findings stated that as part of his sales efforts, Pompeo periodically sent emails to current and prospective investors providing updates and information on the company. The emails constituted a communication with the public as defined by NASD Rule 2210(a), and Pompeo’s emails contained various false and misleading statements. The suspension was in effect from November 18, 2013, through December 2, 2013. (FINRA Case #2012030527502)

Schloth Settled

During the relevant times cited in the DDC Complaint, non-party William E. Schloth (“Schloth”) was Southridge’s and Ocean Cross’s the Chief Executive Officer (“CEO”), and General Securities and Financial Operations Principal. In July 2009 CEO Schloth hired non-party LK, whom he directly supervised at Southridge and Ocean Cross.  Schloth had interviewed and allegedly determined not to hire TC in June 2009 due to the purported cost and regulatory procedures that would have been necessary if TC were hired by the Southridge firm. Schloth asserts that in August 2009, he had discussed TC’s status with FINRA’s manager of Statutory Disqualification Regulatory Operations in August 2009.

SIDE BAR: The following February 2013 FINRA Disciplinary Notices were published concerning Schloth:

William Edward Schloth (CRD #2644188, Registered Principal, Fairfield, Connecticut) submitted an Offer of Settlement in which he was fined $20,000 and suspended from association with any FINRA member in any principal capacity for 22 months. The fine must be paid either immediately upon Schloth’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the allegations, Schloth consented to the described sanctions and to the entry of findings that he was the principal at his member firm responsible for supervising a registered representative. The findings stated that Schloth knew that the representative had a business arrangement with a non-registered and statutorily disqualified individual. Schloth failed to implement a system to appropriately supervise, or otherwise monitor, the representative and the individual’s relationship to ensure that the representative was not aiding and abetting the individual to participate in the securities business despite his non-registered and statutorily disqualified status. The findings also stated that Schloth did nothing to adequately supervise this relationship. Schloth did not independently verify the representative’s representations to him, that she was not facilitating trades for the individual or paying him for a commission-driven business. Schloth did not review the Service Agreement of the individuals, of which his firm was aware of and had approved. Schloth did not request from the representative her business’ general ledger or bank statements, or copies of the non-registered individual’s business invoices issued to the representative’s business. The findings also included that while Schloth represented to FINRA that following the examination of the firm he periodically requested and reviewed the representative’s business general ledgers and the non-registered individual’s business invoices, at no point did he do anything else to independently verify the scope of her relationship with the individual or his business, or otherwise follow up on any red flags that should have put him on notice to heighten or otherwise alter his supervision of the representative. Schloth did not independently contact her brokers, traders or public customers to inquire whether the non-registered individual was involved in the trading activity.The suspension is in effect from September 16, 2013, through July 15, 2015. (FINRA Case #2010025087302)

William Edward Schloth (CRD #2644188, Registered Principal, Fairfield, Connecticut) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $20,000 and suspended from association with any FINRA member in any principal capacity for six months. The fine must be paid either immediately upon Schloth’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Schloth consented to the described sanctions and to the entry of findings that as CEO, chief financial officer (CFO) and FINOP of the firm, Schloth handled all investment banking responsibilities at the firm, including interactions with current and potential banking clients, conducting due diligence on possible investment banking deals to be sold by the firm and supervising any private placement transactions. The findings stated that Schloth was responsible for the firm’s WSPs; however, he was not the firm’s CCO or municipal securities principal. Schloth failed to conduct adequate due diligence on a firm private placement offering and failed to ensure that the firm established, maintained and enforced an adequate supervisory system, including WSPs, addressing due diligence of private placements. The findings also stated that Schloth was the registered principal responsible for the supervision of all firm registered representatives when a registered representative sent an email regarding a private placement offering to current and prospective investors. The email, which Schloth reviewed and approved, constituted a communication with the public and contained various false and misleading statements. The findings also included that Schloth failed to ensure that the firm established, maintained and enforced an adequate supervisory system, including WSPs, addressing, inter alia, municipal securities, safeguarding customer information and the retention of business-related communications. The WSPs were not tailored to address the needs of the firm’s business and they provided little useful guidance as to what reviews and other supervisory steps were required by firm personnel. Schloth also failed to enforce certain firm procedures, including those requiring the firm to contract with its clearing firm to provide material disclosures to customers prior to purchasing a municipal security, relating to the inspection of the firm’s branch offices and regarding the use of personal email addresses for sending business related emails. The suspension is in effect from September 16, 2013, through March 15, 2014. (FINRA Case #2012030527501)

Spoliation Allegations

The DDC Complaint asserts the following:

41. In April 2014, LK purchased access to her entire Bloomberg vault for the Relevant Period, which a computer technologist downloaded from a secure FTP website managed by Bloomberg, for the purpose of comparing the contents of the Bloomberg vault to the ESI allegedly preserved by Smarsh and purporting to be Bloomberg messages and to determine why the ESI appeared to be spoliated and, if possible, to determine the circumstances under which such spoliation occurred.

42. LK’s Bloomberg vault contained over two hundred twelve thousand (212,000) emails and a few thousand chats of various types in extensible markup language (“XML”) for the Relevant Period.

43. The electronically stored records initially produced by Smarsh in the Southridge Proceeding and delivered by Enforcement in late 2013 contained less than sixty thousand (60,000) records in .pst format, allegedly emails attributable to LK and her sister-assistant; the email records for LK and produced by Smarsh in the Ocean Cross Proceeding contained fewer records purporting to be LK’s emails than LK’s Bloomberg records for the comparable period of time.  

44. The spoliation observed by the computer technician retained in March 2014 included tens of thousands of emails with language added to sender line descriptions, the substitution or insertion of inaccurate sender and recipient names, formatting and time differences, lost and incomplete content, and multiple copies of the same communication in different formats; further, because Mr. North was familiar with the large number of email communications for the Southridge and Ocean Cross firms, it appeared that tens of thousands of  6 LK was also a co-respondent in the Southridge Proceeding.  
 . . .  

46. In a Declaration dated July 30, 2014, Dustin Sachs, Managing Consultant with Navigant Legal Technology Solutions, confirmed the findings of the computer technician that certain CDs/DVDs delivered by Enforcement contained permanent read errors and certain anomalies, formatting and content differences existed in the data produced by Smarsh that were not present in the original source emails from the Bloomberg accounts of LK and TC.  
 . . .  

55. In February and March 2015, Berryhill Computer Forensics, Inc. (“Berryhill”) examined the data allegedly preserved by Smarsh and ultimately delivered by FINRA to the parties in the disciplinary proceedings against Messrs. North and Pompeo; Berryhill determined the following: My conclusion, based on the evidence I have examined to date, is that FINRA has been massively misled by Smarsh. The data produced by Smarsh has been altered and manipulated to the point of being nearly unrecognizable when compared to the original source data. Among the many problems I have observed are date and time stamps that have been altered, sender and recipient header information changed, and body content altered or deleted. Overall, these give a misleading and false impression of the facts in this case. The errors and other problems I have highlighted in this report are not occasional occurrences found in only a few messages. They are examples among hundreds of thousands of systematic and widespread failures in how Smarsh has collected, processed and produced the data for which they are supposed to be a neutral third party repository.  See Declaration of Jon Berryhill dated March 2, 2015 ¶ 5, marked Exhibit 8.  

56. Berryhill further concluded:  

The scope of spoliation of the emails is so broad that no information produced through Smarsh can be deemed reliable. This would include not only the header information and content of any message or groups of messages, but also any reports or summaries derived from or referencing those messages. The multiple and repeated failures of Smarsh’s processes leave me with no confidence in anything they produce. (Emphasis added.)  Id. ¶ 24.  

57. Regarding the CDs/DVDs produced on October 15, 2014, Berryhill continued:  The flawed processing by Smarsh has led to even the most fundamental of errors in identifying evidence data types. Ms. Miller provided to me two DVDs identified as  FINRA production no. 2010025087302, discs 1 and 2. These two discs contain more than 9GB of data saved in PST format in 8 separate files. It was represented to me that FINRA was told by Smarsh that these two discs, produced by Smarsh, contained some 190,000 instant messages recovered from the Bloomberg archives, but that had some how been previously “overlooked.”  
…  

This XLM data appears to be in the same format, with the same XML tags as all the other Bloomberg messages. I see nothing to indicate they are in any way “instant messages.” All of the messages I have observed from these two DVDs are consistent in format …. I do note that in this case, as with all the other instances of Bloomberg XML data being converted to PST format, that a substantial amount of information has been added that gives a false and misleading impression of the nature and form of these messages. In Smarsh’s processing, produced on the PSTs, they have added to the beginning of each (approximately 190,000) message body the text “BB Message”. This text does not appear in the originals.  Id. ¶¶ 20-21.  

Much Ado About Nothing
 

The DDC Complaint acknowledges that FINRA's view of the spoliation issues raised by Plaintiffs is, essentially, much ado about nothing:

60. In both the Southridge and Ocean Cross matters, Enforcement claims that spoliation is irrelevant as to the content of the emails and whether or not sufficient email review was conducted; therefore, at no time since bringing concerns about spoliation to the attention of Enforcement in February 2014 and again in July 2014, have either Smarsh or FINRA investigated the claims and explained how and why multiple non-native format versions of email files exist in the records delivered by Smarsh or the spoliation evident in the form of added language, altered time and date formats, lost and incomplete content, and the absence of more than half of the data that should have been preserved by Smarsh in an unalterable, nonrewriteable, and non-erasable format.  .

Wrongful Action By FINRA

In making their case, Plaintiffs North and Pompeo asserted four counts against Smarsh and two counts against FINRA's Enforcement Department:  

COUNT I –SPOLIATION OF ELECTRONICALLY STORED INFORMATION BY SMARSH (Intentional Spoliation)  

COUNT II – SPOLIATION OF ELECTRONICALLY STORED INFORMATION BY SMARSH (Spoliation by Gross Negligence)  

COUNT III – SPOLIATION OF ELECTRONICALLY STORED INFORMATION BY SMARSH AND ENFORCEMENT (Negligent Spoliation)

COUNT IV – INJUNCTIVE RELIEF AS TO SMARSH AND ENFORCEMENT

In offering the bases for their claims, Plantiffs assert in the DDC Complaint:

93. Enforcement’s instructions to convert ESI to a certain format breached the duty to deliver ESI in native format as to substantial portions of ESI, e.g. Bloomberg messaging, were a proximate and contributing cause of spoliation to the ESI, resulted in the foreseeable harm of unwarranted disciplinary actions against Plaintiffs, the failure of evidence to defend against such actions, damage to their reputations, loss or reduction of employment and income, and caused them to incur attorneys fees, court costs, and the costs associated with proving the spoliation, all in amounts to be proven at trial.

. . .

98. In this case, a computer technician, a consultant from Navigant, and Berryhill  independently concluded that pervasive spoliation to ESI allegedly preserved by Smarsh  occurred; at no time did Plaintiffs handle or process the ESI, therefore, Messrs. North and  Pompeo are likely to prevail on the merits of their claim for injunctive relief.  

99. Both Messrs. North and Pompeo suffered irreparable harm when each experienced loss of employment, reduction in wages, and or loss of professional reputation due  to unwarranted and unfounded claims made by FINRA against each, which claims are based  substantially if not exclusively on ESI spoliated due to Smarsh’s intentional or grossly negligent  or other negligent handling.  

100. Irreparable harm in the form of unwarranted legal actions will continue to occur  as long as FINRA or any other third party or entity can use or make available for use in  Enforcement and other legal proceedings any ESI processed and spoliated by Smarsh during the  Relevant Period due to Smarsh’s intentional or grossly negligent or negligent mishandling.  

101. Neither FINRA nor Smarsh will suffer harm if injunctive relief is granted because it is unlawful to knowingly use corrupted evidence in federal proceedings.  

102. The public interest is furthered by injunctive relief that will prohibit FINRA’s use  of spoliated ESI in federal proceedings against Messrs. North and Pompeo because it is unlawful  to knowingly use false or corrupted evidence in federal proceedings; the public interest is better  served by preventing and providing sufficient sanctions for the use of spoliated, false or  corrupted evidence in federal proceedings.  

103. Messrs. North and Pompeo have no adequate remedy at law (a) as long as Smarsh uses protocols and processes that spoliate electronic communications, denies that spoliation occurred, and is willing to testify falsely about its business and performance of its duties; and (b) as long as FINRA contends that spoliation of ESI is irrelevant to lawful defenses to claims and proceedings predominantly, if not entirely, dependent upon spoliated ESI, while using spoliated  evidence in proceedings to advance monetary and non-monetary sanctions that cause permanent and irreversible harm.  

THEREFORE, Plaintiffs pray for:  

a. Judgment against Smarsh and findings that Smarsh agents and or employees  intentionally or with gross neglect spoliated the electronic files used in federal proceedings;  
b. Judgment against Smarsh and findings that Smarsh agents and or employees  negligently spoliated the electronic files used in federal proceedings;  
c. Judgment against FINRA and findings that FINRA agents and or employees negligently contributed to the spoliation of the electronic files used in federal proceedings;  
d. Judgment against one or both defendants to each for present and future lost wages, in the amounts of one million eight hundred twenty-six thousand dollars ($1,826,000) for
Mr. North and one million one hundred twenty-five thousand dollars ($1,125,000) for Mr.  Pompeo, plus costs and allowable attorneys fees;  
e. Judgment against Smarsh for punitive damages based upon economic and other  applicable damages due to Smarsh’s intentional conduct or gross neglect in processing ESI  during the Relevant Period;  
f. For permanent injunction, enjoining Defendant Smarsh, and its agents, servants, ;and employees, and all persons acting under, in concert with, or for them from actions and  methods that spoliated the ESI described herein, and enjoining delivery of the spoliated records  described herein to others for use in pending and any future litigation involving Plaintiffs;  
g. For permanent injunction, enjoining Defendant FINRA Enforcement, and its agents, servants, and employees, and all persons acting under, in concert with, or for them from  using the ESI and records described herein and spoliated by Smarsh in pending and any future  Enforcement or other FINRA related litigation involving Plaintiffs . . .

READ the Full DDC Complaint

 

Written: April 22, 2015

On April 22, 2015, the Securities And Exchange Commission announced it was awarding to a compliance professional a whistleblower award of between $1.4 and $1.6 million. According to the SEC's Press Release "SEC Announces Million-Dollar Whistleblower Award to Compliance Office," the compliance officer: 

had a reasonable basis to believe that disclosure to the SEC was necessary to prevent imminent misconduct from causing substanital harm to the company or investors.

The Press Release asserts that this is only the second award made to an internal audit/compliance employee. Apparently a second Claimant's request for an award was denied in the underlying matter.

READ: In the Matter of the Claim for Award (Order, '34 Act Release 74781; Whistleblowing Award Proc. File No. 2015-2 / April 22, 2015).

Bill Singer's Comment

In light of my recent BrokeAndBroker.com Blog: "SEC Whistleblower Program Is A Black Hole Of Despair," I don't want to rain on anyone's parade, so I will limit my comments about today's announcement.  

The  SEC Order indicates that in December 2014, this compliance officer's claim was subject to both a Preliminary Determination by the SEC's Claims Review Staff and a waiver by the Claimant of any contest/appeal. By my calendar, the SEC has inexplicably managed to spend over four months waiting to issue a final Order approving an uncontested CRS recommendation  Hopefully, the Claimant and his/her lawyers have been paid or will be paid soon. 

Similarly, I hope that the matter that I am handling and I griped about in "SEC Whistleblower Program Is A Black Hole Of Despair," will enjoy a similar resolution replete with payment before the end of this year . . . or perhaps 2016?

Also READ:

 

 
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