Investor Lawyers Blog
On October 16, 2017, NYSE Regulation — the regulatory enforcement subsidiary of NYSE Arca, Inc. (“NYSE”) — filed a Complaint against Wedbush Securities Inc. (“Wedbush”) (CRD# 877), and its founder, Mr. Edward Wedbush. The Complaint centers on Wedbush’s alleged systemic failure to supervise certain trading purportedly conducted by its owner and founder, Mr. Wedbush, who allegedly devoted “several hours each trading day actively managing and trading in more than 70 accounts.”
As alleged by NYSE Regulation, “Despite Mr. Wedbush’s active trading in dozens of customer, personal, and proprietary accounts, Respondents failed to implement any process to monitor or supervise Mr. Wedbush’s order entry, trade executions, or trade allocations…” in certain accounts controlled by Edward Wedbush (“Controlled Accounts”). Further, NYSE Regulation has alleged that Mr. Wedbush utilized a separate trading platform only accessible to him and, moreover, “regularly instructed a Firm employee to enter orders under a general account, waiting until the end of the trading day to allocate executed trades…” among the various Controlled Accounts. In this manner, as has been alleged by NYSE Regulation, Respondents’ practice of allocated trades in the Controlled Accounts at the conclusion of the trading day violated Wedbush’s own written supervisory procedures (“WSPs”).
By purportedly failing to properly designate the Controlled Accounts for which orders were being entered (and “[i]nstead allocating trades to accounts after the fact based on Mr. Wedbush’s discretion”), NYSE Regulation has asserted that such activity exposed numerous customers to a host of conflicts of interest, as well as “opportunities for fraud, manipulation and customer harm” in contravention of NYSE Arca Rule 9.14-E (Account Designation). Additionally, NYSE Regulation has alleged violations of various NYSE Arca and Exchange Act Rules, including NYSE Arca Rule 2.28 (Books and Records), as well as Exchange Act Rules 17a-3 and 17a-4. Among other things, these rules are designed to prevent against practices such as “cherry picking,” whereby traders choose to allocate the best performing and most profitable trades to certain accounts, to the detriment of non-favored accounts.