NYSE Arca, Inc.

Edward W. Wedbush was named a respondent in a FINRA complaint alleging that his firm Wedbush Securities Inc. (the firm, WEDB, or respondent) knew and systemically failed to oversee and supervise the trading activities of its principal, Edward W. Wedbush. The complaint alleges that in addition to serving as the President of WEDB and the Chairman of WEDB's parent company, Wedbush, Inc., Mr. Wedbush spent several hours each trading day actively managing and trading in more than 70 accounts (collectively, the "EW Controlled Accounts"). These accounts consisted of multiple discretionary accounts over which he had power of attorney (including accounts for relatives, friends, and WEDB employees), as well as personal and proprietary accounts for affiliates of WEDB and Wedbush, Inc. (of which Mr. Wedbush was also the majority shareholder). 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 the EW Controlled Accounts, including for potential conflicts of interest and potential manipulative activity. The absence of monitoring or supervision of his trading activities allowed Mr. Wedbush to handle the EW Controlled Accounts in an unfettered manner that was not permitted for other traders at the Firm. For example, Mr. Wedbush 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 EW Controlled Accounts (i.e., to customers, personal accounts, or proprietary accounts). Mr. Wedbush's post-execution allocations were determined based entirely on his own discretion, and the Firm had no process to ensure that trade allocations among the EW Controlled Accounts were not being made to steer profitable trades to preferred EW Controlled Accounts or for other improper purposes. Mr. Wedbush's orders for the EW Controlled Accounts were made and executed on a separate trading platform, not used by other WEDB traders. And no other Wedbush employees, besides Mr. Wedbush, were allowed to make post-execution allocations. The complaint also alleges that in managing the EW Controlled Accounts, Mr. Wedbush: (i) handled various customer accounts together with proprietary and personal accounts, in the same securities at the same time; (ii) "bunched" orders for the EW Controlled Accounts; (iii) failed to record account names or designations prior to trade execution; and (iv) waited until after trade execution to allocate trades among the EW Controlled Accounts. The complaint further alleges that WEDB and Mr. Wedbush failed to mark proprietary orders with the appropriate designator. On at least six different occasions, WEDB, at the instruction of Mr. Wedbush, changed on its internal records the official closing prices of selected equity securities, including for purposes of calculating margin. WEDB's supervisory systems and procedures were inadequate and were not reasonably designed for its business as it related to the EW Controlled Accounts.

Decision & Order of Offer of Settlement

Censure

Civil and Administrative Penalty(ies)/Fine(s)

$900,000.00

U.S. DEPARTMENT OF LABOR

COMPLAINT FOR ERISA VIOLATIONS; VIOLATING FIDUCIARY DUTIES AND ENGAGING IN PROHIBITED TRANSACTIONS.

Settled

Civil and Administrative Penalty(ies)/Fine(s)

Restitution

$2,090,909.09

MR. WEDBUSH AS THE PRESIDENT OF THE FIRM FAILED TO SUPERVISE ONE OF THE FIRMS BROKERS

$1,000,000.00

$1,365,855.00

FINRA

FINRA RULE 2010, NASD RULES 2110, 3010: WEDBUSH, AS CEO AND PRESIDENT OF HIS MEMBER FIRM, FAILED TO ESTABLISH AND MAINTAIN A SUPERVISORY SYSTEM, AND ESTABLISH, MAINTAIN AND ENFORCE WRITTEN SUPERVISORY PROCEDURES REASONABLY DESIGNED TO ACHIEVE THE FIRM'S COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS WITH RESPECT TO REGULATORY FILINGS. DESPITE RED FLAGS, WEDBUSH FAILED TO FOLLOW UP ON INFORMATION HE RECEIVED REGARDING DILATORY FILINGS TO ENSURE THAT THE FIRM'S SYSTEM IN PLACE TO FILE REGISTRATION DISCLOSURES WAS ADEQUATE. ALTHOUGH WEDBUSH MAY HAVE TOLD HIS TOP MANAGERS TO IMPROVE THE FILINGS AT THE FIRM, HE NEVER FOLLOWED UP TO MAKE SURE THAT HIS MANAGERS HAD IN FACT ADEQUATELY ADDRESSED THE PROBLEM. WEDBUSH FAILED TO HEED THE NUMEROUS WARNINGS OF DEFICIENCIES RAISED BY REGULATORY EXAMINATIONS, WHICH EVIDENCED THAT THE MANAGERS HAD FAILED TO ADEQUATELY ADDRESS THE PROBLEM. WEDBUSH PERSONALLY TOOK OVER SUPERVISION OF THE BUSINESS CONDUCT DEPARTMENT, THE DEPARTMENT AT HIS FIRM RESPONSIBLE FOR REGULATORY FILINGS. NEVERTHELESS, THE REGULATORY FILINGS CONTINUED TO BE NON-COMPLIANT UNDER HIS DIRECT SUPERVISION. DURING THE TIME WEDBUSH SUPERVISED THE BUSINESS CONDUCT DEPARTMENT, THE FIRM FAILED TO FILE A FORM U5 AND FORM RE-3, LATE FILED FORMS U5, FORMS RE-3 AND FORMS U4, AND FILED FORMS U5, U4 AND RE-3 WITH INACCURATE STATEMENTS IN CONNECTION WITH CUSTOMER-RELATED DISCLOSABLE EVENTS. WHILE WEDBUSH WAS PHYSICALLY PRESENT IN THE BUSINESS CONDUCT DEPARTMENT, HE FAILED TO SUFFICIENTLY IMPROVE THE REPORTING PROCESS. THE BUSINESS CONDUCT DEPARTMENT LACKED AN EFFECTIVE SYSTEM OF FOLLOW-UP AND REVIEW TO INSURE COMPLIANT REGULATORY FILINGS - NOTWITHSTANDING WEDBUSH'S KNOWLEDGE THAT THE FIRM'S REGULATORY FILINGS WERE DILATORY. AS THE FIRM'S CEO, WEDBUSH HAD THE ABILITY TO PROVIDE THE BUSINESS CONDUCT DEPARTMENT WITH A SYSTEM OF FOLLOW-UP AND REVIEW, BUT WEDBUSH FAILED TO DO SO. WEDBUSH'S OWN FORM U4 WAS NOT KEPT TIMELY AND ACCURATELY UPDATED AND HE FAILED TO SUPERVISE THE REGISTRATION DEPARTMENT AT HIS FIRM IN A MANNER THAT WOULD ENSURE THAT HIS OWN FORM U4 WAS TIMELY AND ACCURATELY UPDATED.

Decision

Civil and Administrative Penalty(ies)/Fine(s)

$50,000.00

Monetary Penalty other than Fines

$16,522.73

Suspension

Any principal capacity

31 days

8/20/2018

9/19/2018

EXTENDED HEARING PANEL DECISION RENDERED AUGUST 2, 2012 WHEREIN WEDBUSH IS FINED $25,000 AND SUSPENDED FROM ASSOCIATION WITH ANY FINRA MEMBER FOR 31 DAYS IN ANY SUPERVISORY CAPACITY, EXCEPT THAT HE IS NOT SUSPENDED FROM ANY SUPERVISORY ACTIVITIES WITH RESPECT TO TRADING OR ORDER ENTRY ACTIVITIES. WEDBUSH SHALL PAY $14,930.95 IN COSTS, JOINTLY AND SEVERALLY. THE SANCTIONS WERE BASED ON FINDINGS THAT WEDBUSH FAILED TO SUPERVISE HIS FIRM'S REGISTRATION FILINGS, BOTH AS HEAD OF THE COMPLIANCE DEPARTMENT FOR ABOUT A YEAR BEGINNING IN AUGUST 2006, AND AS PRESIDENT OF THE FIRM THEREAFTER. THE FINDINGS STATED THAT WEDBUSH FAILED TO ENSURE THAT THE FIRM COMPLIED WITH REGISTRATION REQUIREMENTS DESPITE FREQUENT WARNING SIGNS THAT THOSE WITH MORE DIRECT RESPONSIBILITY FOR THE FILINGS WERE FAILING TO PERFORM THEIR FILING DUTIES. WEDBUSH FAILED TO ENSURE THE FIRM'S REGISTRATION FILINGS WERE TIMELY AND ACCURATE. WEDBUSH KNEW OF THE FIRM'S REPORTING ISSUES. WEDBUSH ALWAYS ATTENDED THE EXIT MEETINGS WITH NYSE, NASD, AND FINRA EXAMINERS AFTER THE EXAMINERS HAD CONCLUDED THEIR EXAMINATIONS OF THE FIRM, AND REVIEWED THE EXAMINATION REPORTS. THE REGISTRATION FILING PROBLEMS AT THE FIRM PERSISTED FOR YEARS DESPITE REPEATED WARNINGS FROM REGULATORS THAT THE FIRM'S FILINGS WERE LATE AND INACCURATE, AND FREQUENTLY NOT MADE AT ALL. AS PRESIDENT OF THE FIRM, WEDBUSH SHOULD HAVE TAKEN MORE STEPS TO ENSURE THAT THE FIRM ADDRESSED ITS PROBLEMS, BUT HE DID NOT. APPEALED TO THE NAC ON AUGUST 3, 2012. NAC DECISION RENDERED DECEMBER 11, 2014 WHEREIN THE NAC AFFIRMED THE FINDINGS AND MODIFIED THE SANCTIONS IMPOSED AGAINST WEDBUSH. THE NAC IMPOSED ON WEDBUSH A 31 DAY SUSPENSION IN ALL PRINCIPAL CAPACITIES AND A $50,000 FINE. THE NAC ALSO AFFIRMED THE EXTENDED HEARING PANEL'S IMPOSITION OF HEARING COSTS IN THE AMOUNT OF $14,930.95, JOINTLY AND SEVERALLY, AND ORDERED THAT THE WEDBUSH PAY APPEAL COSTS IN THE AMOUNT OF $1,591.78, JOINTLY AND SEVERALLY. THIS MATTER HAS BEEN APPEALED TO THE SEC AND THE SANCTIONS ARE NOT IN EFFECT PENDING REVIEW. SEC DECISION RENDERED AUGUST 12, 2016 SUSTAINING THE NAC DECISION. On October 11, 2016, Wedbush appealed the decision to the United States Court of Appeals for the Ninth Circuit. The sanctions are not in effect pending the review. U.S. Court of Appeals decision rendered April 20, 2018 which denied Wedbush's petition for review. The decision became final on July 19, 2018. Fines paid in full on October 5, 2018.