I concede that much of the content in the BrokeAndBroker.com Blog is of the "dog bites man" variety. That should be understandable. There just isn't much point in continuing to post the same drivel about recurrent violations with similar fact patterns and similar arcs from investigation through settlement. You seen one, you seen them all. General Francisco Franco is still dead.
Notwithstanding my desire to report about the edgy, the oddball, and the shocking, every so often I do come across a regulatory document that is so well crafted that I feel compelled to acknowledge its stunning beauty and pause to honor one of those rare moments when the dull prose of Wall Street regulation is rendered lively, informative, and worthy of a compliment. Today we feature just such an offering: a regulatory settlement from FINRA.Case In Point For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Daniel E. Peltier submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Daniel E. Peltier, Respondent (AWC 2015047070801, August 11, 2017). The AWC asserts that Peltier was first registered in 1995 and by 2008 was registered with FINRA member firm RBC Capital Markets. The AWC states that "Peltier has no relevant disciplinary history" 82 Buy Orders The AWC asserts that during the relevant period of July 2014 through February 2015, Peltier placed about 82 buy limit orders for Mix Life, Inc. ("MIXX"), which the AWC characterizes as a "thinly-traded over-the-counter (OTC) security." The cited orders were placed in accounts held in Peltier's and his son's name and (after Peltier had recommended the purchase to various customers) in the names of five customers. The AWC alleges that:
[T]he majority of these purchases were based on communications he had with a stock promoter. During this time period, Peltier was in near-daily contact with the stock promoter, who provided Peltier with the specific timing, price, and number of shares he should use for his orders to buy MIXX . . .
The AWC asserts that during the relevant period, on 46 days, the 82 buy orders exceeded 20% of MIXX's market volume and effectively stabilized the share price at around $6. Further, the AWC asserts that for the 46 days noted:
Peltier placed over 60 buy limit orders to purchase MIXX, nearly all of which were matched in amount and price with a recently placed sell order at another broker-dealer. Moreover, Peltier's buy limit orders frequently were entered at prices above the best available ask price for MIXX.
Facilitating MIXX Market Manipulation
FINRA asserted that Peltier should have known that his buy orders were being used to facilitate a market manipulation of the price of MIXX. The AWC alleges that by "negligently facilitating a market manipulation by others, Peltier violated FINRA Rule 2010." [Un]Solicited Notwithstanding RBC's alleged policy against soliciting the purchase of OTC securities, the AWC asserts that Peltier solicited his customers' purchase of MIXX. In furtherance of his apparent circumvention of his firm's policy, Peltier allegedly mismarked as "unsolicited" about 30 buy orders in the five customers' accounts. FINRA deemed Peltier's mismarking as causing RBC to maintain inaccurate books and records, and, by doing so, he violated FINRA Rules 4511 and 2010.Due Dilly In pertinent part FINRA Rule 2114: Recommendations to Customers in OTC Equity Securities states:
(a) Review Requirement
No member or person associated with a member shall recommend that a customer purchase or sell short any OTC Equity Security, unless the member has reviewed the current financial statements of the issuer, current material business information about the issuer, and made a determination that such information, and any other information available, provides a reasonable basis under the circumstances for making the recommendation. . .
The AWC asserts that during the relevant time, MIXX, an OTC Equity Security, was covered under the requirements of Rule 2114. The AWC alleges that Peltier failed to review MIXX's financial statement in order to determine whether there was a reasonable basis for his recommendation to his customers to purchase the security, in violation of FINRA Rules 2114 and 2010.
Sanctions In accordance with the terms of the AWC, FINRA imposed upon Peltier a $40,000 fine and a 10-month suspension from associating with any FINRA member firm in any capacity. Bill Singer's Comment Compliments to the scrivener of this AWC. Excellent content and context. A patiently presented fact pattern replete with an explanation of the rationale for alleging violations. One quibble that I have with the AWC is its allegation that Peltier "negligently" facilitated the market manipulation of MIXX "by others." In alleging negligence in contradistinction to asserting that Peltier had knowingly engaged in market manipulation on his own, the AWC raises an unanswered question. The fact pattern presents Peltier as working with an unscrupulous stock promoter and given the available market data about MIXX, it would seem that Peltier knew the significance of his entry of the buy limit orders in the manner noted. In characterizing Peltier's misconduct as negligent, the AWC implies that he didn't actually know that he was facilitating others in their market manipulation of MIXX. At best, the qualification of "negligence," implies that FINRA was only going so far as to allege that Peltier "should have known" that his cited order entries were furthering the efforts of others to manipulate MIXX's price. If that's what the AWC intended, a few additional words of explanation should have been added. If that's not what the AWC intended, well, that's how I read the settlement. That delimiting use of the term "negligence" in the AWC may be the byproduct of some deft negotiations by Peltier's lawyer or a grudging bit of wordsmithery by FINRA that was necessary in order to convince the Respondent to settle. Whatever the case, my comments on that issue are merely conjecture and the settlement says what it says and speaks for itself.FINRA's online BrokerCheck records for Peltier as of August 18, 2017, under the heading "Customer Dispute -- Settled" disclose that on October 5, 2015, RBC received a customer complaint seeking $103,000 in damages based upon allegations that:
Clients claim that improprieties occurred relative to their purchase of Mix 1 Life stock and request that the firm repurchase the shares at the original purchase price. Time frame is 10/28/2014 to 9/18/2015.
RBC reported the matter settled on May 12, 2016, for $45,044.63, of which Peltier is reported as not having contributed any portion. Peltier's BrokerCheck records disclose a second settled customer settlement in 2001.