FINRA Lawyer

The Securities and Exchange Commission has announced that it obtained an emergency court order freezing brokerage accounts holding more than $29 million in illegal profits from insider trading in advance of the April 2016 acquisition of DreamWorks Animation SKG, Inc. by Comcast Corp.
The SEC alleges that in the weeks leading up to the news of the acquisition, Shaohua (Michael) Yin amassed more than $56 million of DreamWorks stock in the U.S. brokerage accounts of five Chinese nationals, including his elderly parents. DreamWorks stock price rose 47.3% once the acquisition was announced.

In a complaint filed in U.S. District Court in the Southern District of Utah, the SEC alleged the five accounts reaped $29 million from the DreamWorks trades. The complaint also alleges the accounts profited from other suspicious trading in another U.S.-based company and three China-based companies ahead of market-moving news.

Yin, a partner at Summitview Capital Management Ltd., a Hong Kong-based private equity firm, allegedly did not trade in DreamWorks stock through his own account but instead traded through five accounts from addresses in Beijing and Palo Alto and on a computer that also accessed Yin’s email accounts.

“Despite the defendant’s alleged attempts to hide his control over these accounts, the SEC’s data analytic investigative tools enabled us to determine who was behind the suspicious trading,” said Michele Wein Layne. “Our action today shows that the SEC will not hesitate to freeze the assets of foreign traders when they use our markets to conduct illegal activity.”
On February 10, Judge J. Paul Oetken of the U.S. District Court for the Southern District of Utah granted the SEC’s request for an asset freeze of the five brokerage accounts and issued an order to show cause why an injunction and other relief should not be issued. A hearing has been scheduled for February 17.

The SEC’s complaint charges Michael Yin with securities fraud and names the holders of the five brokerage accounts – Lizhao Su, Zhiqing Yin, Jun Qin, Yan Zhou and Bei Xie – as relief defendants. The SEC is seeking a permanent injunction, return of allegedly ill-gotten profits, civil money penalties, and other relief.

FINRA DISPUTE RESOLUTION AND ARBITRATION TASK FORCE RECOMMENDATIONS

The Financial Industry Regulatory Authority (FINRA) today released a status report on the recommendations made in the FINRA Dispute Resolution Task Force’s Final Report issued in December 2015. In July 2014, FINRA had formed a 13-member task force composed of individuals representing a broad range of interests in securities dispute resolution to consider possible enhancements to its arbitration and mediation forum. FINRA released an interim status report in October 2016 and today’s report sets forth further progress made to date. FINRA has discussed all of the task force recommendations with the National Arbitration and Mediation Committee (NAMC). FINRA has taken action on 35 of the 51 recommendations; 16 are pending.

Robert Cook, FINRA’s President and CEO, said, “We are very pleased to report that we have already implemented many of the task force’s recommendations, and we are diligently responding to the remaining recommendations. Many of the recommendations we are putting in place are meaningful changes that will position the forum to better serve all parties involved. The NAMC and FINRA staff are doing an effective job of comprehensively reviewing and promptly taking action on the recommendations.”

Many of the recommendations, particularly those involving forum transparency, arbitrator recruitment and training, and case administration processes did not require rulemaking and were implemented in 2016. Among those, the report notes that FINRA received 945 arbitrator applications in 2016, far exceeding its goal to recruit 750 new arbitrators. FINRA’s latest arbitrator demographic survey, which was conducted by an external consulting firm, showed particular progress in adding women and African-Americans to the roster. In 2016, 33 percent of the arbitrators added were women (compared to 26 percent in 2015) and 14 percent were African-American (compared to 4 percent in 2015).

FINRA commenced the rulemaking process on six of the recommendations. Of those, the SEC has already approved two proposals related to the number of public arbitrators on lists and motions to dismiss; there are four proposals in various stages in the rulemaking process, including a proposal addressing the task force recommendation to develop an intermediate form of adjudication for small claims.

The task force’s recommendations were reviewed by the NAMC, FINRA’s standing Board advisory committee, which recommended items to implement immediately, items that would require further discussion and items that may not be feasible.

FINRA, the Financial Industry Regulatory Authority, regulates securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms.

FINRA’S ACADEMIC CORPORATE BOND TRACE DATE PRODUCT

FINRA launched its new Academic Corporate Bond TRACE Data product, an enhanced historical data product available solely to institutions of higher education.

The product supports and encourages academic research on corporate bonds by providing academics with access to TRACE historical transaction-level, corporate bond data. The data is available on a 36-month delayed basis and include masked identifying information regarding the dealer reporting each transaction, as academics have requested. In addition, the product includes a security identifier, execution date and time, price, yield, quantity, commission, buy or sell, and principal or agency capacity. FINRA’s existing Historical TRACE Data product, which will continue to be available, provides transaction-level data on an 18-month delayed basis, but does not include any dealer-identifying information.

“With interest in the fixed-income markets and market design on the rise, the Academic Corporate Bond TRACE Data provides researchers with broad content to investigate issues of interest to market participants and regulators including liquidity provision, search costs, inventory models, price discovery and the treatment of retail orders,” said Jonathan S. Sokobin, FINRA Chief Economist and Senior Vice President. “We believe the product will lead to research that increases understanding of these important markets.”

The cost for the data is $500 per calendar year, plus a one-time set-up fee of $500. In addition, subscribers must sign an agreement specifying that they will not re-distribute the data or attempt to reverse engineer the identity of any market participant, among other requirements.

FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees.