FINRA Hearing Panel Expels Legacy Trading Co., Bars Firm's CEO, Imposes Fine of More Than $1 Million
Herb Perone (202) 728-8464
Panel Finds Respondents Made Almost $900,000 from Illegal Short Sales, Firm and its President Gave FINRA False Information During Investigation
Firm, President Appeal Ruling to FINRA's National Adjudicatory Council
Washington, DC — A Financial Industry Regulatory Authority (FINRA) hearing panel has expelled Legacy Trading Co., LLC of Edmond, OK, and permanently barred the firm's CEO and owner, Mark Uselton, from the securities industry for a wide range of misconduct — including violations of short selling rules, failure to maintain required books and records, and for providing false information and refusing to provide testimony to FINRA. The hearing panel also fined Legacy and Uselton more than $1 million, finding that they made almost $900,000 in profits from the illegal short sales.
Legacy and Uselton have appealed the ruling to FINRA's National Adjudicatory Council (NAC). Sanctions against both respondents have been stayed pending a ruling from the NAC. FINRA's Department of Enforcement filed its initial complaint against Legacy and Uselton in July 2007.
In its decision, the hearing panel found that Legacy and Uselton committed "egregious" violations of the short selling rules in connection with more than 2,000 transactions in 2004 and 2005. A short sale is the sale of a security that the seller does not own, or any sale that is consummated by the delivery of a security borrowed by the seller. FINRA and Securities and Exchange Commission (SEC) rules require that short sellers make an affirmative determination that they can borrow the securities for delivery by settlement date, unless the seller is a broker-dealer engaged in bona fide market making activities. The hearing panel found that Legacy and Uselton effected 2,192 short sales in connection with speculative proprietary trading activities that did not qualify as bona fide market making activities. The panel found that the violations were "an egregious case, involving willful misconduct."
The hearing panel also found that Legacy and Uselton provided false information to FINRA about a number of different issues, including the source of funds for a $300,000 capital contribution to the firm. In addition, Legacy and Uselton falsely represented that the firm did not use email for business purposes and falsely claimed that a bank account in the name of Legacy's holding company was not related to Legacy's business, when in fact it was used to pay virtually all of Legacy's financial obligations.
In addition, the hearing panel found that Uselton initially refused to provide testimony to FINRA, and later provided false testimony regarding his and Legacy's relationship with a firm that Uselton's father and cousin owned and operated. The panel found that Uselton falsely claimed that neither he nor Legacy had any business relationship with that entity.
The panel also found that Legacy and Uselton's failure to maintain required books and records impeded FINRA's investigation into the firm's activities, including its investigation into Legacy's relationship with the entity that Uselton's father and cousin owned and operated.
For these violations, the hearing panel expelled Legacy from the securities industry, permanently barred Uselton from working for a securities firm and fined the respondents a total of $1,007,035.
Those sanctions have been stayed pending resolution of Legacy's and Uselton's appeal to the NAC. The NAC is a 14-person committee composed of seven industry and seven non-industry members that decides appeals from disciplinary, membership and exemptions decisions and rules on statutory disqualification applications. NAC decisions may be appealed to the SEC.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2008, members of the public used this service to conduct 11.6 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through comprehensive regulation. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and firms.
For more information, please visit our Web site at www.finra.org.