NYSE Regulation filed a Statement of Charges on behalf of NYSE Arca, Inc. (“NYSE Arca” or “Exchange”) naming Edward W. Wedbush and Wedbush Securities, Inc. as Respondents. In order to resolve the matter, the Exchange entered into an Offer of Settlement and Consent with each Respondent. By stipulation of the parties, the Statement of Charges is amended to conform to the agreed upon terms of each Respondent’s Offer of Settlement and Consent.
In addition to serving as the president of Wedbush Securities, Mr. Wedbush spent several hours each trading day actively managing and trading in a number of accounts held by approximately 20 client relationships, including multiple discretionary customer accounts over which he had power of attorney (including accounts for relatives, friends, and Firm employees), as well as personal and proprietary accounts for affiliates of Wedbush Securities and Wedbush, Inc., the Firm’s parent company (of which Mr. Wedbush was also the largest shareholder) (collectively, the “EW Controlled Accounts”).
Despite Mr. Wedbush’s active trading in the EW Controlled Accounts, Respondents failed to implement adequate processes to monitor or supervise Mr. Wedbush’s order entry, trade executions, or trade allocations in the EW Controlled Accounts. The absence of adequate monitoring or supervision of his trading activities allowed Mr. Wedbush to handle the EW Controlled Accounts in a manner that was not permitted for other traders at the Firm.
Mr. Wedbush’s trading violated numerous Securities Exchange Act of 1934 (“Exchange Act”) and NYSE Arca rules, including:
- Exchange Act and NYSE Arca rules regarding account designation;
- Exchange Act and NYSE Arca rules requiring firms to make and retain books and records;
- NYSE Arca rules regarding order marking;
- Rules relating to price adjustments on equity securities without formal processes or review; and
- Rules relating to margin requirements.
Respondents’ violations resulted, in large part, from the Firm’s failure over a period of years to (i) establish and maintain a supervisory system, including written supervisory procedures (“WSPs”), reasonably designed to ensure compliance with laws, regulations, and rules relevant to Mr. Wedbush’s trading in the EW Controlled Accounts, and (ii) devote the resources required to supervise and monitor Mr. Wedbush’s trading in the EW Controlled Accounts. In addition to the above violations, Wedbush Securities, for more than three years, also failed to implement adequate internal controls, including a system of follow-up and review, reasonably designed to detect and prevent potentially manipulative activity at the Firm more generally, including but not limited to wash sales, marking the open, and marking the close.