Prop Trader Takes FINRA To The Mat And Wins
July 8, 2015
Some Wall Street regulatory complaints name multiple individuals and entities as respondents amid multiple causes of action (not all of which include each named party). If you're a regulator, your purpose in casting a broad net is to cover all the bases. Some of the charges may be coin tosses; however, a regulator's job is to protect the public and find justice for defrauded investors. In some cases, the best that you can accomplish in a complaint is to narrow it all down to a likely handful of malefactors because you're not 100% certain as to who did what.
Notwithstanding the regulators' rationale, some respondents in shotgun complaints feel like they've been unfairly lumped in with a bunch of really, really bad guys. All of which fosters the impression that the purpose of corralling so many folks and charges under one litigation caption is to force the small fry to settle. In the end, those on the receiving end of this tactic feel like they're being sandbagged and unfairly pressured.
I've been on both sides of the shotgun pleading as a regulator and a defense lawyer. Normally, the regulator has all the power and leverage, and many respondents cave in under the pressure. It's expensive to hire a lawyer. It's risky to take on a regulator. Sometimes the sound business decision is to negotiate the best settlement that you can -- even if you're convinced that you did nothing wrong and that you're being railroaded by over-zealous regulators. Every so often, however, a principled respondent won't settle, invites the regulator to bring it on, and intends to go down fighting after a hearing and whatever number of appeals are available.
In a recent FINRA regulatory case, the regulator learned that an immovable force of an industry trader froze the unstoppable regulatory juggernut in its tracks.
Case In Point
In FINRA Department of Market Regulation, Complainant, v. Robin Maranda Oscher, Respondent (Decision, Office of Hearing Officers, No. 20070092503-01, June 24, 2015), the Financial Industry Regulatory Authority ("FINRA") investigated purportedly suspicious Over-The-Counter-Bulletin-Board trading in shares of Search Help, Inc. ("SHLP"), at FINRA member firm E.H. Smith Jacobs & Co., Inc. ("EHSJ")
Subsequently, FINRA's Department of Market Regulation ("Department") filed a five-count Complaint against Raymond Forbes, Christopher Forbes, Patricia Forbes, Marie-Regina Forbes (co-owners of EHSJ), and trader Robin Maranda Oscher. The Complaint alleged that the Respondents had engaged in manipulative trading and the publication of non bona fide purchases and sales; the Forbes Respondents were also charged with supervisory violations. Although the Forbes Respondents settled with FINRA prior to a hearing, Respondent Oscher opted to contest her case at a FINRA Office of Heariong Officers ("OHO") hearing.
- FINRA Department of Market Regulation, Complainant, v.
Christopher John Forbes, Marie-Regina Forbes, Patricia Mary Forbes, and Raymond
James Forbes, Respondents (Order Accepting
Offers of Settlement, FINRA,Disciplinary Proceeding No. 20070092503-01,
August 22,
2014)
- FINRA Department of Market Regulation, Complainant, v. Christopher John Forbes, Raymond James Forbes, and Robin Maranda Oscher, Respondents (Complaint, FINRA, Disciplinary Proceeding No. 20070092503-01, October 23, 2013)
Two Causes of Action
FINRA charged Respondent Oscher
with two causes of action, which alleged
that:
- from February 1,2007 through December 16, 2008
,Oscher willfully violated Section 10(b) of the Securities Exchange Act of 1
934 and Rule 10b-5 thereunder, NASD Rules 2120 and 2110, and FINRA Rules 2020
and 2010, by engaging in a scheme to manipulate the price of SHLP individually
and in concert with Raymond and Christopher Forbes (the''Forbes Traders")
by making 18 SHLP purchases that marked the opening and closing prices in order
to raise the price of SHLP or prevent further decline in the price of SHLP;
and
- in marking the opening and closing prices of SHLP, Oscher violated NASD Rules 3310 and 2110, IM-3310, and FINRA Rule 2010, by engaging in the publication or circulation of reports of non bona fide purchases or sales of SHLP.
Dismissed
In deciding to Dismiss the
charges against Respondent Oscher, an OHO Panel found
that:
All of the 18 allegedly manipulative purchases were made in the open market at the SHLP ask price. Fifteen of the 18 purchases were made within 20 minutes of the close of the market, and the remaining three trades were made approximately 45 minutes after the opening of the market. Oscher does not dispute that she made the 18 SHLP purchases, but states that none of the purchases were done for any manipulative purpose.
After careful consideration of Oscher's trading and the circumstances surrounding her trading, the Panel concludes that Market Regulation failed to establish that she made the 18 purchases as part of a manipulative scheme or for any manipulative purpose. . .
Page 6 of the OHO
Decision
In
offering its rationale for dismissal, the OHO Panel found that
Oscher:
- did not exhibit any pattern with the 18 purchase;
- bought SHLP in varying quantities;
- increased her SHLP position throughout the relevant period;
- typically did not sell any SHLP stock immediately after the 18 purchases;
- made other purchases at the ask price on the dates of the 18 purchases;
- was unaware that the Forbes Traders were selling SHLP;
- did not trade in response to any communications from the Forbes Traders; and
- did not facilitate SHLP sales by the Forbes Traders pursuant to any financial incentive.
As to the cause of action alleging that she had
placed non-bona fide orders, the OHO Panel apparently gave considerable weight to
the fact that that upon learning that the Forbes Traders were
"selling their SHLP stock as she was buying . . .," Oscher "was very angry . .
. and she resigned from EHSJ the next week."
Bill Singer's Comment
Compliments to this OHO Panel for a thoughtful presentation of the facts and of their rationale. I urge all serious industry participants to read the full-text Decision