Regulators Knew About MMTLP Manipulation More Than a Year Before Delisting
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Transcripts obtained through FOIA requests have surfaced, revealing conversations between the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) regarding the MMAT/MMTLP matter. The transcripts suggest that regulators knew about the manipulation happening in MMTLP more than a year before the events that occurred in December 2022.
On December 5th, 2022, Sam Draddy, the Senior Vice President in FINRA’s National Cause and Financial Crimes Detection Programs, Market Investigations Team, and head of FINRA’s Insider Trading, Market Fraud, and Offering Investigations Units, informed the SEC that the MMAT/MMTLP matter had hit his Fraud team's radar screen. He suggested that his Fraud team could have a conversation directly with the SEC to avoid duplicating efforts. Draddy also mentioned that they were looking at the two issuers from a fraud/manipulation angle and were bluesheeting both MMAT and MMTLP.
A Bluesheet investigation is a request for trading data made by the U.S. Securities and Exchange Commission (SEC) to broker-dealers in order to gather information about potentially suspicious market activities. This information may include the names of the buyers and sellers, the dates of the trades, and the amounts traded. The SEC uses this data to investigate potential violations of federal securities laws, such as insider trading or market manipulation. The term "Bluesheet" comes from the color of the paper used to collect this data.
Patricia Casimates, the Vice President of Market Operations for FINRA Transparency Services, reached out to an undisclosed person on November 29, 2021, according to Draddy's email. She was responsible for managing FINRA's TRACE, Alternative Display Facility (ADF), and the OTC trade reporting facility, as well as OTC corporate action and dividend announcements. Transcripts indicate that regulators were aware of the manipulation of MMTLP before the delisting of the stock.
On December 2nd, FINRA’s Market Fraud Investigations team received several tips related to the manipulation of MMTLP. The tips were also sent out to the SEC. The transcripts suggest that notices could have been sent out warning MMTLP investors of the events that would occur on December 8, when MMTLP was halted and later delisted, freezing investors' money in the process.
Investors were disheartened to learn that regulators were aware of the manipulation of MMTLP for over a year and took no action to correct it. Transcripts have also been released confirming reports of large amounts of complaints related to the U3 halt. On December 11, 2022, FINRA CEO Robert Cook acknowledged that they had received a large number of complaints (on social media and directly to FINRA) related to the trade halt that they had issued on Friday. Some of these communications included threats related to FINRA in general, as well as to certain employees. As a precaution, they asked their team to work from home unless there was a particular business need to be in the office.
John Brda, former CEO of Torchlight, said that "this was not something regulators would be able to sweep under the carpet. The proof is all there. The question now is how regulators will proceed moving forward". Investors are encouraging FINRA employees to blow the whistle and come forward.
The revelation of collusion between the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) to halt trading on $MMTLP in order to protect broker dealers from covering an excessive amount of short positions is a damning indictment of the regulatory capture that has taken hold in the financial industry. The implications of this revelation are profound, as it shows that the very agencies that are supposed to be overseeing and regulating the industry are instead working hand in glove with the very institutions they are meant to be policing. This is a clear conflict of interest and raises serious questions about the ability of the regulators to act in the public interest.
The collusion between the SEC and FINRA has serious implications for retail investors, who rely on these agencies to ensure that the market is fair and transparent. When the regulators are colluding with broker dealers to protect their interests, it creates an uneven playing field that disadvantages small investors. This is particularly troubling when you consider the growing trend of retail investors participating in the market through apps like Robinhood. These investors need to be able to trust that the regulators are acting in their best interests, and this revelation undermines that trust.
Finally, this revelation also underscores the need for systemic reform in the financial industry. The fact that regulatory capture has become so pervasive is evidence of a broken system that needs to be reformed. This includes measures to increase transparency, enhance oversight, and ensure that the regulators are truly independent of the institutions they are meant to be regulating. Until these reforms are implemented, we will continue to see a system that is rigged in favor of the powerful at the expense of everyone else.
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