FINRA

Powers was named a respondent in a FINRA complaint alleging that while employed at his member firm as an equity trader, he used his control over firm trading accounts to create fictitious trades between a firm trading account and his personal account for his own personal profit, converted customer funds, caused the firm to create trade confirmations that misrepresented the prices of customers' trades, and hid a loss he incurred in a firm trading account by repeatedly entering unauthorized, fictitious customer trades and subsequently canceling them before settlement. The complaint alleges that Powers was authorized to use firm trading accounts to facilitate trading on behalf of clients. Powers was authorized to execute trades between the firm account and the street and then allocate the trade to customer accounts to deliver the securities to customers in accordance with their orders. Powers abused this authorization to trade between the firm's trading account and his own personal account in transactions that had no business purpose and were conducted only to capture trading profits in Powers' own account. Through this fraudulent scheme, Powers guaranteed himself trading profits at the expense of the firm and received at least approximately $388,133 in illicit trading profits. Powers' use of the firm's average price account to engage in sham trades for his own personal benefit willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and FINRA Rules 2020 and 2010. The complaint also alleges that Powers converted customer funds by abusing the firm's trading accounts. After Powers conducted a trade on behalf of customers, he provided them a lower price than the actual execution price and then booked fictitious trades to convert the customers' remaining funds for his own profit. The complaint further alleges that Powers engaged in a fraudulent scheme and made material misrepresentations and omissions in connection with the purchase and sale of securities. Specifically, Powers made material misstatements and omissions when, among other things, he reported the executed trades to his customers who did not receive the price that they were due for their securities transactions and failed to inform the customers that the prices that they received were not accurate based on the corresponding street side execution with the market. Accordingly, Powers willfully violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder and FINRA Rules 2020 and 2010. In addition, the complaint alleges that Powers placed fictitious trades to disguise a losing position he held in one of his firm's accounts. After shorting 1,500 shares of a company, a position that became negative, Powers placed a series of unauthorized sales of the company for customer accounts into the firm's account to hide his short position. None of the customers authorized Powers to sell shares of the company's securities in any amount on or near the corresponding trade dates, and each of the transactions was therefore made by Powers without authorization or customer consent. Moreover, the complaint alleges that by executing and booking these unauthorized trades that he knew were not based on customer orders in the firm's trade booking system, Powers caused the firm to create false trade confirmations and to include false orders in the firm's trading blotters and order entry system. Powers caused the firm to create and maintain false and inaccurate books and records.

Decision

Bar (Permanent)

All capacities

Indefinite

5/22/2018

Disgorgement

$388,133.00

Monetary Penalty other than Fines

$8,921.48

Extended Hearing Panel Decision rendered November 8, 2017 wherein Powers was barred from association with any FINRA member in all capacities and ordered to pay $388,133, plus prejudgment interest, in disgorgement of ill-gotten profits derived from his sham trading. FINRA also ordered Powers to pay $8,921.48 in costs. The sanctions were based on findings that Powers engaged in a fraudulent scheme involving the execution of sham trades for his own profit, in willful violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and FINRA Rules 2020 and 2010, and engaged in unauthorized transactions in customer accounts. The findings stated that Powers engaged in the fraudulent scheme by executing fictitious trades through buying and selling securities to and from his member firm's accounts that he controlled, at prices he set, for his own benefit, with no corresponding market executions in the securities involved. Powers fabricated the transactions with no corresponding executions with market counterparties to transfer more than $388,000 from the account to his personal account at the firm, and then to his personal bank account at a bank. The sham trades involved more than 53,000 shares in eight stocks and generated the stated profits exceeding $388,000. The findings also stated that Powers engaged in unauthorized securities transactions in customer accounts when he booked a large short sale position into customer accounts without authorization 12 times over seven weeks, canceling each trade before it settled, then booking it into another customer account. Powers' series of unauthorized trades began when he acquired the short position in a company's stock. Powers did the short selling of 1,500 shares of the company at $364.54 per share without a customer order. Powers, having previously engaged in a profitable trade in the company's stock, attempted to repeat that success. Powers was unable to do so as the market price of the stock rapidly increased, leaving him in a progressively worse position. This led Powers to book the trades as he did in order to hide the position, in the hope that over time the market would become more favorable and allow him to recoup his loss. The firm's trade clearing firm noticed the pattern of cancellations and re-billings of the block of the company's stock and took the actions that compelled the firm to make Powers place the stock in his error account and cover the trade. The findings also included that when Powers booked the company's stock position into customer accounts without authorization, he caused the firm to create and maintain false records of orders and false trade confirmations. The firm's trading blotters and confirmations recorded Powers' transactions making it appear that his customers were placing sell orders for the company's stock that they then canceled on or before trade settlement dates when there were actually no customer orders. The decision found that FINRA failed to prove the allegations in the second and third causes of action by a preponderance of the evidence. Therefore, they dismissed the complaint's allegations that Powers converted customer funds and engaged in fraudulent practices by making material misstatements and omissions of fact in customer trade confirmations. On December 4, 2017, Powers appealed the decision to the National Adjudicatory Council (NAC). The sanctions are not in effect while on appeal. On May 22, 2018, Powers' appeal to the NAC was dismissed as abandoned. The Extended Hearing Panel decision shall constitute the final disciplinary action by FINRA.