Wall Street

FINRA charges Wedbush Securities with violations

The logo for the Financial Industry Regulatory Authority is displayed in front of the New York office.
Mark Lennihan | AP

Wall Street's self-funded regulator on Monday charged brokerage firm Wedbush Securities with having shoddy risk controls, a flaw that in turn allowed thousands of traders to flood U.S. markets and execute manipulative trades.

The Financial Industry Regulatory Authority's case marks the second time this year that regulators have filed civil charges against the major brokerage firm over so-called market access rule violations.

Earlier this summer, the U.S. Securities and Exchange Commission filed a related against Wedbush; its former vice president, Jeffrey Bell; and its current senior vice president, Christina Fillhart.

In FINRA's complaint on Monday, the regulator accuses Los Angeles-based Wedbush of having "egregious and systemic anti-money laundering supervisory violations" that occurred between January 2008 and August 2013.

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Under FINRA's rules, the firm can now file a response to the charges and request a hearing before a disciplinary panel. Possible remedies may include a fine, censure, suspension or bar from the industry, and an order to pay back ill-gotten gains.

Matthew Chisum, a spokesman for Wedbush, could not be immediately reached for comment on the latest complaint.

The SEC matter, meanwhile, is slated to be heard before an SEC administrative law judge, with pre-hearing briefs due by the end of September.

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Wedbush has denied the SEC's charges, saying its controls were "reasonably designed to achieve compliance" with federal market access rules.

Market access rules were put in place in 2010 by the SEC as one of the responses to the "flash crash" that year in which the Dow Jones Industrial Average plunged sharply by about 700 points before sharply rebounding. They require brokerages that provide customers with direct access to the market to have reasonable controls in place.

The first brokerage to ever face charges for violating the rules was Knight Capital, now called KCG Holdings, which paid $12 million in a 2013 settlement.

Wedbush, which is one of the largest firms by trading volume on the Nasdaq stock exchange, became the second firm to face charges over market access rules by the SEC in June.

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That marked the first time the SEC had ever sued Wedbush. However, the firm has a very long regulatory disciplinary history with FINRA that stretches back decades.

—By Reuters