South Florida Arbitration & Litigation Lawyer Blog
Cherry Picking Securities Fraud and Misrepresentation FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.
November, 2011:
Beta Capital Management, L.P. (CRD #38964, Miami, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $450,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that for at least two years, it failed to maintain an order entry system reasonably designed to prevent an improper post-execution allocation of trades. The findings stated that the firm’s third-party order entry system permitted trades to be entered into the system without assigning an account to the trades, and the firm’s operations department sometimes allocated trades in the system based on written order tickets provided to it well after the trades had been entered, at times after the close of trading and thus after securities may have increased or decreased in value. The findings also stated that the firm did not require its registered representatives to provide order tickets to its operations department as soon as trades were entered into the system and allowed order tickets to be completed and turned into the operations department later in the day. The findings also included that the firm facilitated the improper post-execution allocation of trades at the direction, and to the benefit, of a customer; the customer directed and controlled two accounts at the firm, one account of which the customer was the beneficial owner and a second, institutional account.
FINRA found that throughout the day, the customer called in orders to the firm’s trading desk; the firm entered the trades into its third-party electronic order entry system, at times, without assigning the trades to one of the accounts. FINRA also found that in certain instances, near or after the close of trading, after the securities had increased or decreased in value, the firm assigned the trades to one of the accounts based on the customer’s instructions; in many instances, more profitable and more favorably priced trades were allocated to the account for the customer’s personal benefit, while less profitable and less favorably priced trades were allocated to the institutional account. In addition, FINRA determined that in trading the same equities over a two-year period, the account beneficial to the owner realized a $586,220 profit and the institutional account realized a $50,789 profit. (FINRA Case #2010024016701).