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BUSTING REVERSE CONVERSION SCAM OF WALL STREET SHARKS
By Reza Ganjavi
Reza Ganjavi helped FINRA by spearheading this investigation/report, and had a couple of conference calls with FINRA’s excellent team who put a stop to this abusive Reverse Conversions of Arena (ARNA) stock. A regularly occurring abusive behavior of some market participants was stopped for good. Good job FINRA!!
TO ■ Mr. Thomas Gira, Executive Vice President, Market Regulation
Financial Industry Regulatory Authority (FINRA)
■ Honorable Kara M. Stein, Commissioner
U.S. Securities and Exchange Commission (SEC)
SUBJ Circumventing RegSHO With Reverse Conversions & A Case To Investigate
Dear Mr. Gira, Ms. Stein:
America is the world’s hub of innovation. Innovation improves lives and is the engine of economic growth. American companies rely on financial markets for funding, and people who invest their hard-earned money rely on fair and efficient markets in a regulatory environment which can swiftly contain abusers regardless of their wealth or political power.
Having witnessed abuse for a long time, we have recently gathered clues which may lead you to a case of abuse. We’ve analyzed the information deeply and believe it warrants an investigation, which we respectfully ask you to conduct. Please note that some of the parties involved have had a history of regulatory abuses and were previously penalized by FINRA.
Recently the SEC and DOJ have shown tremendous resolve by putting some financial criminals behind bars. Their efforts for putting away people like Rajaratnam, Martoma, and Steinberg are truly admirable. We hope more financial criminals are locked up so a strong message is sent that nobody is above the law. As it stands today, the public is increasingly losing trust in the integrity of the financial markets, as exemplified by two recent quotes:
“You do your research. Find a good company. Invest hard earned money. And get screwed by thieves and cheats. Ain't America great!”
“This has been going on now for longer than I care to remember. I have completely lost faith in the US markets.”
Individual investors are fed up with getting scammed, defrauded, cheated and robbed by corrupt miscreants in the financial markets who’ve learned to circumvent RegSHO via use of Reverse Conversions (“RevCon”), in order to fabricate and utilize over a long period, fake, phantom shares, without getting caught. This practice disrupts the integrity and efficiency of markets, and destroys value of innovative American companies and wealth of its shareholders who play by the rules.
RevCons are utilized by some broker dealers, market makers and hedge funds in order to:
- Use the shares as bullets to cap rallies and post fake offers to deter buyers.
- Defer making good on previous obligations and roll the fraud forward, or simply pay off an obligation with this illegitimate “rental” of shares vs. buying them in the open market which would only subject it to the normal dynamics of supply and demand like other investors.
- Use RevCons as an alternative to borrowing shares legitimately, in order to contain the cost of borrowing.
- protect an existing large short holding by manipulating the market price through these fabricated shares.
Arena Pharmaceuticals (NASDAQ: ARNA)’s shares have been manipulated by the miscreants through use of RevCons and other ways of “short & distort” involving collusion of large short sellers together with financial journalist, analysts, and even paid doctors who follow the motto of Jim Cramer who vandalized an SEC subpoena on national TV, and has said hedge funds should not do anything remotely truthful – that truth is the enemy. This is against the very fundamentals of a civil society, and highlights the morally corrupt environment you are regulating.
There are many examples of the deliberate effort to distort truth. Cramer’s journalist, Adam Feuerstein, has been getting by with repeatedly misleading investors with distortions and lies. These attacks are apparently done in coordination with parties like Credit Suisse (convicted criminal) whom many speculated their highly inadequate coverage of ARNA was a service to big short seller clients. Washington Post wrote about Feuerstein recently:
“A biotech reporter whose relentlessly negative blog posts for thestreet.com this year have not only been filled with exaggeration, mischaracterization and half-truths, but curiously have also coincided with the spikes in short trading.”
Shorts have it made. The proponents of the hedge fund industry and shorting, with help from the SEC’s previous two Republican Commissioners persuaded the SEC to have plenty of sympathy for short sellers, including the completely senseless policy of giving large short sellers the protection of anonymity, for the excuse that it prevents front running, while large shareholders’ identities are publicly known do not lead to front running, neither would it if the shorts’ identities were known, which would give the benefit to a company and shareholders to know who their enemies are. Presently, large short sellers are operating in a fog.
Not knowing the identity of big short sellers, a company and its investors don’t know who their enemies are. A company cannot even trust its own market makers. According to a March 2014 SEC filing, Wedbush Securities is the Clearing Organization for Fog Equities. Wedbush Securities was recently sued by Life Partners Holdings for having engaged in a “naked short sale” scheme. The Complaint against Wedbush states:
“Naked short selling destabilizes and depresses a company’s share price because it removes any supply constraint on stock sales,” the Life Partner’s complaint said. “An unlimited supply of any commodity, including a company’s stock, places a downward pressure on the price of that commodity.”
ARNA, a victim of the miscreants, has had a number of RevCons done to its shares. We have reported some of these to the SEC, for example:
- 3/20/13 400,000 shares at $7.90 vs 4000 April 13 puts and calls.
- 3/25/13 720,000 shares around $8.53 vs 7200 April 12 puts and calls.
- 3/27/13 700,000 shares around $8.30 vs 7000 April 11 puts and calls.
- 3/27/13 75,000 shares around $8.30 vs 750 May 11 puts and calls.
- 4/10/13 500,000 shares at $8.10 vs 5000 May 13 puts and calls.
- 4/11/13 929,000 shares at 8.245 vs 9,290 May 13 puts and calls.
- Etc. – and the latest being reported presently.
We do not believe the SEC ever investigated these. Apparently, instead, it released a warning. On 9 August 2013 the SEC issued a “Risk Alert On Options Trading Used To Evade Short-Sale Requirements" [2013-151] indicating:
“The SEC’s Office of Compliance Inspections and Examinations (OCIE) issued the alert after its examiners observed options trading strategies that appear to evade certain requirements of the short-sale rule.”.
We do not believe this warning made any difference to miscreants who calculate a fine as normal cost of doing business.
We believe RevCons are rampant and we know of several companies which have been a victim of this fraudulent scheme. We’ve been able to locate only one case in which the SEC fined a party for engaging in an abusive RevCon.
Please see APPENDIX 1 for a very important discussion of the matter in the SEC vs. Wolfson et al. (Release No. 66283 / January 31, 2012 – File No. 3-14726).
The other reference we found with regards to circumventing RegSHO is FINRA vs. New Albion Partners (belongs to the owners of Fog who did the ARNA transaction) as discussed below.
Please note that RevCons do not necessarily need to happen on threshold securities. They are profitable and save their wicked purpose on any stock that is heavily shorted.
GROUNDS FOR INVESTIGATION
The last RevCon which was done – we were luckily able to at least find out the first tier brokers involved. We are not alleging any wrongdoing because we are missing some key information which SEC/FINRA could easily obtain. But given several factors, we believe the likelihood of this RevCon to be abusive is there, and we implore you to investigate this. These factors are:
- The owners of the brokerage that performed the stock transaction, as well as the broker’s clearing agent have had a history of regulatory violations.
- In today’s tax and regulatory environment, most RevCons with these characteristic (Involving OOTM Calls and DITM Puts) are abusive and are circumventing RegSHO Rule 203(b)(1) market maker naked shorting exemption.
- Shares of ARNA have been heavily manipulated by past RevCons and organized efforts to distort the truth to the extent of even trying to dissuade doctors, patients, and investors by causing unfounded fear, uncertainty, and doubt.
- ARNA has been on SEC’s FTD list for the period that led to this RevCon http://www.sec.gov/foia/docs/failsdata-archive.htm) October 2014, second half October 2014, first half
20141001 40047102 ARNA 40902 4.19
20141002 40047102 ARNA 10643 4.09
20141003 40047102 ARNA 8084 4.07
20141006 40047102 ARNA 49012 4.07
20141007 40047102 ARNA 34970 3.97
20141008 40047102 ARNA 355146 3.89
20141009 40047102 ARNA 279534 3.84
20141010 40047102 ARNA 137647 3.74
20141014 40047102 ARNA 904 3.53
20141015 40047102 ARNA 6153 3.62
20141016 40047102 ARNA 645846 3.83
20141017 40047102 ARNA 53387 4.04
20141020 40047102 ARNA 86600 4.01
20141021 40047102 ARNA 984 4.17
20141022 40047102 ARNA 10454 4.16
20141023 40047102 ARNA 24146 4.08
20141024 40047102 ARNA 3177 4.1
20141027 40047102 ARNA 2183 4.17
20141028 40047102 ARNA 22 4.19
20141029 40047102 ARNA 505 4.35
20141030 40047102 ARNA 14 4.26
20141031 40047102 ARNA 74 4.45
Therefore, we believe there is enough grounds for SEC/FINRA to launch an investigation into these trades and get to the very bottom of it.
The last Reverse Conversion of ARNA was done on 21-Oct-2014 involving 600,000 shares & 6000 option contracts (Jan2015 $9 puts & calls).
- 6000 Jan2015 $9 puts at $4.80, and 6000 Jan2015 $9 calls were traded on PHBX (Philadelphia) by CV Brokerage.
- 600,000 ARNA were traded at $4.305, in one block on CHX (Chicago) by Fog Equities’s trader Rita Boyle Vevers (FINRA CRD# 1305668) (aka Rita Marie Boyle). She admitted to one of our friends on the telephone that “it was definitely a Reverse Conversion”, and that it involved the options trade done on PHLX.
See APPENDIX 2 – “Reverse Conversion Trade Prints”
We analyzed various scenarios and came up with the following as the most plausible:
- Client of CV Brokerage who may already have a large short position in ARNA bought 6000 ARNA Jan 2015 $9 puts from itself or another broker dealer / market maker at $4.80 ($2,880,000 + commissions) on PHLX.
- The same client of CV Brokerage sold short 6000 ARNA Jan 2015 $9 call to the party who sold it the shares -- at $0.05 ($30,000 plus commissions) on PHLX.
- The same client coordinated with Fog Equities to buy 600,000 shares of ARNA at $4.305 on CHH,
The seller of the shares may have sold the 600,000 shares in the form of "market maker exempted share entitlements" to the buyer, circumventing RegSHO as described above and the buyer could utilize the shares to its benefit as discussed in section REVERSE CONVERSIONS SCAM above.
For the seller of shares this is a guaranteed profitable transaction due to the spreads and commissions. It’s a win-win situation for the parties involved but catastrophic for common shareholders and Arena who are scammed by getting the float illegally diluted with bogus shares on top of being a subject of long term abuse and distortion by short sellers and their shills who want to enforce their version of reality to cover up for a wrong decision by scamming shareholders instead of taking responsibility for it.
- Fog Equities owned by George Gasparini & John Fitzpatrick who also own Casey Securities & New Albion Partners; they all have been penalized by FINRA before.
- Client of Fog for whom this transaction took place (another broker-dealer / market makers which did the RevCon).
- Possibly a third party which participated as buyer of the 600,000 shares, seller of the calls, and buyer of the puts.
- Fog’s clearing organization. Wedbush Securities. We have no knowledge if the shares were cleared at all, where and how, or ex-cleared which is often used in scam transactions to circumvent RegSHO.
Finding out how the 600,000 shares and 12000 options were cleared is essential.
”I remain open to the possibility that the miscreants have figured out a way to shift illegal unsettled trades outside of the DTCC using ex-clearing transactions which the SEC (displaying its customary deference to criminal elites) has said that Regulation SHO does not apply." Mr. Patrick Byrne
“We also are concerned about the lack of transparency for those trades that are ex-clearing and not subject to Reg.SHO. Many of our correspondents suggest that the percentage of these trades is much greater then the staff originally thought. In order to rebut this notion the commission should require some transparency for this outlier.” A letter to the SEC
- Casey Securities and its principle who also controls Fog Equities which participated in the Reverse Conversion reported here, have been cited two times in the past for violation of Options Rules.
- New Albion Partners, owned by same owners of Casey & Fog have had a very serious case at FINRA where they had engaged in a case which is very similar in characteristics to the case we’re complaining about:
- FINRA wrote about New Albion Partners: ”HUNDREDS OF OCCASIONS THE FIRM RECEIVED COMMISSIONS FOR ACTING AS THE EXECUTING BROKER ON BEHALF OF TWO OF ITS BROKER-DEALER CUSTOMERS WHO WERE INTERESTED IN EXECUTING PAIRED BUY-WRITE TRANSACTIONS AT PRICES BELOW PARITY. SUCH TRANSACTIONS COULD BE CONSIDERED INDICATIVE OF POTENTIAL TRANSACTIONS DESIGNED TO CIRCUMVENT THE PROVISIONS OF REGULATION SHO OF THE SECURITIES EXCHANGE ACT OF 1934 BY IMPROPERLY CREATING THE APPEARANCE OF A BONA-FIDE STOCK PURCHASE”
- Wedbush Securities, Clearing Organization for Fog Equities has been cited 74 times for regulatory transgressions.
[The following information may not be 100% accurate despite our diligent research.]
ALSO SEE: APPENDIX 3 – PRIOR VIOLATIONS OF OPTIONS RULES BY CASEY SECURITIES & NEW ALBION PARTNERS.
- Entity performing the Reverse Conversion, e.g. a Market Maker or Broker-Dealer: “MM”, may have engaged in abusing naked shorting exemption.
- Entity: “HF”, client of “MM” which may have colluded with MM to “borrow” shares which the MM shorted while circumventing RegSho. Likely this HF hold a big short interest in ARNA and uses the shares it obtained through the Reverse Conversion in order to pressure and manipulate the stock as has been done for a long time through several Reverse Conversions.
- CV BROKERAGE, INC (FINRA CRD# 462) Alternate Names: CV BROKERAGE INC, CV BROKERAGE, INC, JAMES C. BUTTERFIELD INC. SEC Number: 8-12429 , 1001 CONSHOHOCKEN STATE ROAD, SUITE 211, WEST CONSHOHOCKEN, PA 19428 , (610)862-0880 , fax (484)351-8093 cvbrokerage.com / www.cvinv.com [also listed as 200 Four Falls, Suite 211] – it executed the two options trade legs of the Reverse Conversion on PHLX.
Brenda Smith, President – email@example.com , (610) 862-0880 x202, fax: (484) 351-8043
Larry Hollin, Managing Director – firstname.lastname@example.org
“Ensuring that clients have easy access to CEFs and hard to borrow securities”!
- FOG EQUITIES LLC (FINRA CRD# 157067), (SEC Number: 8-68831) 400 S LaSalle St, Suite 700, Chicago, IL 60605 – (312) 957-1215
SEC filing indicates Fog’s based in California. 220 Bush St Ste 462 San Francisco, CA 94104 (President: Scott Epstein, 312-663-2712)
Scott Noel Epstein (37) (CRD# 4550908), President (email@example.com – 312.663.2884)
Rita Boyle Vevers (FINRA CRD# 1305668)
aka Rita Marie Boyle, Broker who executed the stock trade and confirmed it was a Reverse Conversion. (firstname.lastname@example.org)
CHX Account Symbol: “FOGA” (Kevin Curtin 312.663.2252 email@example.com)
Fog is designated as an “institutional broker” (one of five at CHX) and CHX stated Fog is not a market maker.
50% of Fog Equities is owned by George Joseph Gasparini
50% of Fog Equities is owned by John Timothy Fitzpatrick
- CASEY SECURITIES, LLC (FINRA CRD# 35230) (SEC Number: 8-21205) 220 Montgomery Street, Suite 462, San Francisco, California 94104, (415) 544-9100
CEO, George Joseph Gasparini, also seems to control Fog Equities.
Penalized by FINRA twice for violating Options Rules.
Seems to be parent company of Fog Equities (they have the same compliance officer, office in Chicago).
50% of Casey Securities is owned by George Joseph Gasparini
25% of Casey Securities is owned by John Timothy Fitzpatrick
- NEW ALBION PARTNERS LLC (CRD# 119518), (SEC Number: 8-65205). Alternate Names: CASEY PROFESSIONAL SERVICES, INC., CASEY PROFESSIONAL SERVICES, LLC”:
Has same address and phone, and has the same Compliance Officer as Casey Securities: 220 Montgomery St #462, San Francisco, CA 94104, (415) 544-9100. com
“leading equity and equity derivative agency broker”.
Penalized by FINRA: “ON HUNDREDS OF OCCASIONS THE FIRM RECEIVED COMMISSIONS FOR ACTING AS THE EXECUTING BROKER ON BEHALF OF TWO OF ITS BROKER-DEALER CUSTOMERS WHO WERE INTERESTED IN EXECUTING PAIRED BUY-WRITE TRANSACTIONS AT PRICES BELOW PARITY. SUCH TRANSACTIONS COULD BE CONSIDERED INDICATIVE OF POTENTIAL TRANSACTIONS DESIGNED TO CIRCUMVENT THE PROVISIONS OF REGULATION SHO OF THE SECURITIES EXCHANGE ACT OF 1934 BY IMPROPERLY CREATING THE APPEARANCE OF A BONA-FIDE STOCK PURCHASE”
75% of New Albion is owned by Casey Securities
37.5% of New Albion owned by George Joseph Gasparini
37.5% of New Albion owned by John Timothy Fitzpatrick
[We wonder if this group will start a new company if like Casey and New Albion, Fog also gets regulatory disciplinary action in its record].
- David Spack, Chief Compliance Officer for FOG Equities, Casey Securities, and New Albion Partners, and part owner of all three entities. 220 Montgomery Street, Suite 462, San Francisco, California 94104, (415) 544-5030
- WEDBUSH SECURITIES – Clearing Organization for Fog Equities – might be the market maker in question as it’s also a market maker for some securities. Wedbush has been cited 74 times for regulatory transgressions.
- There are references to several other entities and incarnations of the Casey/Fog group such as CASEY TRADING, LLC (FINRA CRD# 134260) (SEC Number: 8-66822) 440 S LaSalle St, Suite 1717, Chicago, IL 60605, (312) 362-3529, Fog Markets, LLC, Fog Trading, LLC, Fog Partners, LLC, etc.
- Adam Feuerstein: journalist for TheStreet,com – has intentionally and maliciously published falsehoods about Arena Pharma and disparaged its product. The timing of his attacks have been suspect and possibly in concert with other manipulation efforts. There are many suspicious examples. s soon as a Credit Suisse
- Who was the market maker or broker dealer customer of Fog that bought the calls and sold the shares and puts?
- Who was the buyer of the puts and shares? Was it the same broker dealer doing the transaction with itself or a sister company with goal of fabricating 600,000 shares and not get caught by RegSho?
- Were those 600,000 shares that were sold, shorted or part of MM inventory? If shorted, can the MM provide reliable evidence that they located the shares prior to the trade? [keep in mind they know about this complaint and might engage in tampering with the evidence].
- If naked shorted, did the MM take steps to comply with RegSho?
- What did the buyer of the puts and shares intend to do with them? Were they for investment, trading, or manipulation purpose?
- Were the 600,000 shares bought for a) Investment purpose – if so, then why did the buyer effectively pay $9 a share (combined with the puts) instead of buying it at $4.x a share in the open market? b) Paying off an earlier Reverse Conversion delivery obligation or another option obligation (shorted naked call)? c) Manipulation: did the fund sell the shares as “bullets” in very small lots, or post fake offers, which we’ve witnessed so many times, in order to artificially suppress the price?
- Were George Gasparini, John Fitzpatrick, the major owners of New Albion Partners, Casey Securities, Fog Equities in any way related to this transaction?
- Is the client of CV & Fog located in the United States?
- How were the 600,000 shares and the 6000 options cleared, if at all; were they ex-cleared?
- Were CV&Fog involved in the past Reverse Conversions on ARNA which we’ve witnessed?
- Has Casey Securities been involved in trading ARNA stock or options and has there been any trading of ARNA between itself and Fog?
- If there was wrongdoing, to what extent did the Fog/Casey/Albion group or CV Brokerage were aware of it and to what they extent they were involved or facilitated it?
- Is Wedbush the market maker in this scheme?
- Is Wedbush still the clearning firm for Fog and if so has it performed its clearing duties correctly, given its history of 74 violations.
- Why have the Casey/NewAlbion/Fog group had so many different LLC’s / entities? Was this related to regulatory action against them (take on a new name?) or by having more entities they could be more “foggy”?
- How many of this group’s entities were involved in the ARNA transaction on 21-OCT-2014?
- Is the CHX more prone to abuses and sham trades since it is not as well regulated as some other exchanges and what can be done to close the loopholes?
- Would the SEC finally change the current rules so that identity of big short sellers in a company is known to public? There is absolutely no good reason for shorts to have a privilege of anonymity that large shareholders do not have.
- Why are financial journalists who try to defraud public never prosecuted despite compelling evidence against them?
- Why are analysts who publish research reports to cater to their investment banking side of the business not investigated?
Please let us know if you have received this complaint and it’s not just filed away as a statistics. The house is on fire and the SEC needs to do something about it – and this is a very easy case to investigate.
Thanks & Best Wishes
Abuse of market maker exemption to naked short:
These proceedings arise out of violations of the locate and close-out requirements of Regulation SHO of the Securities Exchange Act of 1934 (“Reg. SHO”) by the Respondents, who, from July 2006 through July 2007 violated these requirements by taking advantage of an exemption to the locate rules to which they were not entitled and engaged in hundreds of sham transactions that caused large persistent fail to deliver positions in threshold securities generating over $17 million in unwarranted profits through their violative conduct.
The following has the exact same elements of the case we are reporting to you:
These violations occurred as a result of the Respondents’ routine practice of engaging in a combination of three types of transactions in threshold securities. The first type of transaction, known in the industry as a “Reverse Conversion” or “reversal,” involves selling stock short while also selling a put option and buying a call option that each have the exact same expiration date and strike price. The option combination creates what is known as a “synthetic long position” that hedges the short stock sale. All three of these transactions are executed with the same counterparty – which is engaging in a “conversion.”
Paragraph 7 explains how the naked shorting exemption was abused:
“7. The Respondents in this matter, who were not conducting bona-fide market making activities but were instead engaged in “naked” short sale transactions for their personal investment purposes, improperly utilized the Market Maker Exception from Rule 203(b)(1) in order to avoid locating shares before effecting short sales as part of “Reverse Conversion” and “assist” transactions, as further described below. Because the Respondents failed to borrow or arrange to borrow securities to make delivery when delivery was due, the short sales as part of the Reverse Conversions and assists were “naked” short sales. These same Respondents also violated Rule 203(b)(3) by repeatedly engaging in a series of sham transactions to ostensibly “reset” the thirteen-day clock for complying with the close-out requirement, but without actually purchasing shares in a bona fide transaction. These sham transactions enabled the Respondents to circumvent Reg. SHO, allowed them to generate millions of dollars in profits because they did not actually borrow or arrange to borrow the securities they were selling short, and caused their clearing broker to have large persistent fail to deliver positions in these threshold securities, thus undermining one important purpose of Reg. SHO.”
21 OCTOBER 2014
STOCK LEG OF REVERSE CONVERSION ON CHX: (LAST ROW)
21 OCTOBER 2014
OPTIONS LEG OF REVERSE CONVERSION ON PHLX: (ROWS 2,3)
Casey’s Securities LLC is a Northern California company whose CEO AND 37.5% owner is George Joseph Gasparini (CRD# 4593136) of Novato, California, the very 2 people who own Fog Equities (50% each).
On at least two different occasions Casey’s Securities has been in violation of Options Rules and in both cases it received penalties.
- On September 16, 2013, the company was censured, fined, and ordered disgorgement for violating a number of NYSE Arca Options Rules and in some cases numerous times.
- On September 16, 2013, Casey’s President and Managing Director, George Gasparini (CRD# 4593136), and its employee and minority owner Daniel Randall (CRD# 4554911), each separately, were censured, fined, and temporarily suspended for repeatedly violating a number of NYSE Arca Options Rules.
- Total fines and disgorgement: $334,000.
ARCA DECISION 13-ARCA-20, FINRA STAR No. 20100238954
Casey Securities, LLC, Violated Section 17(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 17a-4(f) thereunder, and NYSE Arca Options Rule 11.16,
Violated Section 17(a) of the Exchange Act, and Rule 17a-4(b)(4) thereunder, and NYSE Arca Options Rule 11.16
- Violated NYSE Arca Options Rule 9.18, 11.3, 11.19, 11.11, 2.23, 11.18
Casey Securities, LLC is hereby censured by NYSE Arca Inc. and fined.
NYSE ARCA OPTIONS DISCIPLINARY ACTION – NYSE Arca Options Trading Permit Holder Disciplined for Financial and Operational Deficiencies
Casey Securities, LLC
Hearing Board Decision: 08-AO-02
NYSE ARCA, Inc. Options Enforcement Decision No. 08-AO-0
New Albion Partners (CRD# 119518) (SEC Number: 8-65205) was known as CASEY PROFESSIONAL SERVICES, LLC. Under its previous name it was penalized by FINRA and fined $75,000:
Date Initiated: 04/15/2014, Docket/Case Number: 2009020217701
“ON HUNDREDS OF OCCASIONS THE FIRM RECEIVED COMMISSIONS FOR ACTING AS THE EXECUTING BROKER ON BEHALF OF TWO OF ITS BROKER-DEALER CUSTOMERS WHO WERE INTERESTED IN EXECUTING PAIRED BUY-WRITE TRANSACTIONS AT PRICES BELOW PARITY. SUCH TRANSACTIONS COULD BE CONSIDERED INDICATIVE OF POTENTIAL TRANSACTIONS DESIGNED TO CIRCUMVENT THE PROVISIONS OF REGULATION SHO OF THE SECURITIES EXCHANGE ACT OF 1934 BY IMPROPERLY CREATING THE APPEARANCE OF A BONA-FIDE STOCK PURCHASE AND SHOULD BE SUBJECTED TO CLOSE SCRUTINY TO ENSURE THAT THIS WAS NOT THE MOTIVATION TO ENGAGE IN SUCH TRANSACTIONS. ALTHOUGH THE FIRM'S WRITTEN SUPERVISORY PROCEDURES (WSPS) IN EFFECT DURING THE REVIEW PERIOD GENERALLY ADDRESSED REGULATION SHO SHORT SALE REPORTING, THEY FAILED TO INCLUDE ANY REFERENCE TO "SHAM CLOSE-OUTS" OR THE INCENTIVE FOR MARKET MAKERS TO ENGAGE IN CONDUCT DESIGNED TO IMPROPERLY CIRCUMVENT THE REQUIREMENTS OF REGULATION SHO. THE FIRM FAILED TO ENGAGE IN REASONABLE FOLLOW-UP AND REVIEW TO ENSURE THAT IT WAS ADHERING TO THE REQUIREMENTS OF REGULATION SHO AND THE GUIDANCE PUT FORTH BY THE SEC, CBOE, AND NYSE ARCA. AS A RESULT OF THE FIRM'S FAILURE TO ESTABLISH AND MAINTAIN AN ADEQUATE SYSTEM OF SUPERVISION, INCLUDING ADEQUATE WSPS, TO ENSURE COMPLIANCE WITH THE REQUIREMENTS OF REGULATION SHO, THE FIRM VIOLATED NYSE ARCA OPTIONS RULE 11.18”.
Honorable Mary Jo White, Chairperson, SEC
Mr. Richard G. Ketchum, Chairman & Chief Executive Officer, FINRA
Ms. Sharon Binger, Regional Director, SEC
Mr. David A. Glockner, Regional Director, SEC
Ms. Jina Choi, Regional Director, SEC
Mr. Andrew Calamari, Regional Director, SEC
Mr. Steven A. Joachim, Executive VP, Transparency Services, FINRA
J. Bradley Bennett, Executive Vice President, Enforcement, FINRA
Mr. Donald K. Lopezi, VP and Regional Director, Market Regulation, FINRA
Mr. Edward Wegener, Vice President and Regional Director, FINRA
Mr. Michael Solomon, Senior Vice President and Regional Director, FINRA
Mr. Robert B. Kaplan, Vice President and District Director, FINRA\
Melanie Sloan, Executive Director, Citizens for Responsibility and Ethics in Washington
ALSO FILED AT:
- FINRA: www.finra.org/complaint/form