Financial Counsel by Eccleston Law

Statutorily Disqualified Broker is Approved by SEC to Return

In an uncommon development, recently a statutorily disqualified broker was approved to return to the securities business.

FINRA filed a notice containing an application (“Application”) with the SEC seeking consent for Bowen to associate with First Liberties Financial as a general securities representative.  In this Application, FINRA and First Liberties represented that non-registered person Bowen would be employed as a general securities representative on the firm’s institutional sales desk and compensated on a commission basis. 

The SEC Division of trading and Markets (the “Division”) reviewed the Application and the record before FINRA.  The Division concluded that it was appropriate for the SEC to approve the Application, which was so approved. 

The original disqualification stems from the following facts.  On October 27, 1999, the SEC issued an Order Instituting Administrative Proceedings that resulted in Gregory L. Bowen’s Bar from association with any broker or dealer, with the right to reapply for association after two years.  He was also ordered to pay $33,664 disgorgement, $31,258 in interest, and a $5,000 civil penalty. 

In the Order, the SEC alleged that while Bowen was employed with Government Securities Corporation (“GSC”) from July 1987 to December 8, 1997, he willfully violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder from March 1989 through March 1994.  Specifically, it is alleged that he violated these rules by misrepresenting and omitting material information in his communications with clients in order to induce them to purchase high-risk collateralized mortgage obligations (“CMOs”).  As a result of this Order, Bowen was deemed statutorily disqualified under Section 3(a)(39)(B) of the Exchange Act.  Since 1999, Bowen has worked for various mortgage firms as a mortgage broker.  He currently conducts a mortgage origination business.

Eccleston Law Offices counsels, represents and defends financial advisers nationwide in regulatory, compliance, disciplinary and employment matters in arbitration and litigation, and before regulatory bodies such as the SEC, FINRA and state securities regulators.  We frequently defend forgivable loan collection actions, prosecute Form U-5 defamation actions, counsel advisers as to how to transition successfully from firm to firm and negotiate the best possible agreements with their new firm, and
provide succession planning, buy-sell agreements and other exit strategies and strategic consulting, practice transitions, mergers, acquisitions and divestitures.

SEC Whistleblower Program Reported To Be A Success in 2012

The SEC recently submitted its Annual Report to on the Dodd-Frank Whistleblower Program for
2012.  The report details several features of the program, including the activities of the Office of the Whistleblower, the kind of whistleblower tips received and the whistleblower incentive awards that
the SEC made in 2012.  The report also provides a helpful chart dividing whistleblower tips by type of allegation as well as by geographic location.  Let’s examine the highlights of the report.

As background, Fiscal Year 2012 was the first year of the SEC’s whistleblower program.  Chairman Mary Schapiro commented that, “In just the first year, the whistleblower program already has proven to be a valuable tool in helping us ferret out financial fraud”, because when “insiders provide us with high-quality road maps of fraudulent wrongdoing, it reduces the length of time we spend investigating and saves the agency substantial resources.”  Indeed, law firms such as ours which represent whistleblowers can take advantage of the program’s provision that whistleblowers with legal counsel can file whistleblower claims with anonymity.  That anonymity encourages the kind of insider reporting that the SEC has praised. 

As further background, by statute the SEC is directed to make monetary awards to eligible individuals who voluntarily provide original information that leads to a successful SEC enforcement action resulting in the imposition of monetary sanctions over $1,000,000, and certain successful related actions.  Awards are required to be made in the amount of 10% to 30% of the monetary sanctions collected.  Awards are paid from the SEC’s Investor Protection Fund.

Turning to the activities of the office of the whistleblower, critical functions to be aware of include:

• Communicating
  with whistleblowers, including meeting with whistleblowers and their legal
  counsel, consulting with SEC staff and providing guidance as to expectations
  and follow-up;
• Reviewing and
  processing applications for awards; and
• Working with SEC
  staff to identify and track all enforcement cases potentially involving a
  whistleblower, and to assist in the documentation of the whistleblower’s
  information and cooperation in anticipation of an eventual claim for an award.

The report next details the kind of whistleblower tips received during Fiscal Year 2012.  Specifically, the SEC received 3,001 whistleblower tips, known as Forms TCR (Tips, Complaints and Referrals).  The most common complaint categories reported by whistleblowers were Corporate Disclosures and Financials (18.2%), Offering Fraud ((15.5%), and Manipulation (15.2%).  Other major categories included Insider Trading, Trading and Pricing, as well as Unregistered Offerings. 
Geographically, the SEC received tips from all 50 states, the District of Columbia, Puerto Rico and 49 countries outside of the United States.  Residents of California, New York, Florida and Texas submitted the largest number of whistleblower tips.

In terms of awards, the SEC reports that there were 143 enforcement judgments and orders issued during Fiscal Year 2012 which potentially qualify as eligible for a whistleblower award.  The Office of the Whistleblower provided the public with notice of those actions because they involved sanctions exceeding the statutory threshold of more than $1 million.  As an example, in August a whistleblower who helped the SEC stop an ongoing multi-million dollar fraud received an award of 30 percent of the amount that the SEC had collected.  The whistleblower had helped the SEC by submitting a tip and by providing documents and other significant information to the SEC.

Finally, the SEC reports on its Investor Protection Fund.  The fund fully is funded, and carried as of September 30, 2012 a balance of more than $450 million.  Undoubtedly, the SEC means business when it says that it wants to hear from whistleblowers!  That is good news for the securities industry and for the investors that it serves.