Blog by Bill Singer Esq WEEK IN REVIEW

July 9, 2022
The SEC filed charges against two alleged fraudsters, who purportedly misappropriated a website and impersonated its owner; and, thereby encouraged investors to liquidate their retirement accounts in order to purchase fixed indexed annuities. Seems like and open-and-shut, down-and-dirty SEC fraud case, right? Except the fact pattern troubles veteran Wall Street lawyer Aegis Frumento. There's wrongful conduct in the takeover of the website. There's wrongful conduct in impersonating the site's owner. Beyond that, Aegis wonders: What exactly is the deceptive conduct, or material misstatements or omissions "in connection with the purchase or sale of securities."
A UBS Financial Services, Inc. customer bought municipal bonds; and, at this point in time, that's about all you really need to know concerning the transaction. Where problems arose was when UBS provided several years of Forms 1099 allegedly reporting only the amount of interest paid without including amortizable bond premium. As the customer argues in his federal lawsuit, UBS screwed up and it caused him to overpay his federal taxes.
The 2015 Flash Crash is the Wall Street gift that keeps on giving. In today's blog we got a FINRA arbitration and two federal lawsuits. Then we got spoofing. Is spoofing illegal? Is it fraudulent? Or, as a federal court muses, is it just a byproduct of things getting faster to the point that it's all pretty much a blur and, spoofing or not, we're all moving close to the speed of light on Wall Street.
Schwab Intelligent Portfolios ("SIP") was advertised as a robo-adviser that didn't charge advisory fees; however, from March 2015 through November 2018, Schwab profited on its clients' cash holdings by arbitraging the difference between what was earned by Schwab lending out those balances and what Schwab paid to the clients -- and, SIP had allocated relatively high levels of cash rather than investing those amounts. SIP clients were were not fully informed about the interest earned on the cash balances in their portfolio, which prompted the SEC to order Charles Schwab & Co. to pay a $52 million in disgorgement and prejudgment interest, and a $135 million civil penalty. In one of those troubling quirks of Wall Street regulation, while the SEC was finalizing its multi-million dollar settlement against Schwab, the firm was battling it out in a FINRA arbitration with a SIP customer, who was complaining about transaction errors. Read about that arbitration in today's blog.