FINRA requires employees of FINRA-member firms to disclose all outside business-related activities and all investments recommended to any customers to the member firm. FINRA’s Department of Enforcement investigated Shockey and found he participated in two dozen private securities transactions involving MIH, which is the parent company of MIAX Option Exchange. All of these transactions were executed “away” from Merrill Lynch.
As a preliminary matter, the MIX shares were not registered with the SEC and were not exempt from registration. Nevertheless, according to FINRA, Shockey sold 49,000 shares of MIH he personally owned to 18 individuals, five of whom were Merrill Lynch customers, and referred seven individuals, two of whom were MLCO customers, to MIH directly. In total, 24 individuals purchased 101,650 MIH shares for approximately $633,750.
Based upon the foregoing misconduct, FINRA alleges Shockey violated NASD Conduct Rule 3040, FINRA Rule 2010, as well as Section 5 of the Securities Act of 1933. For example, NASD Rule 3040 states no FINRA registered person may be an employee or receive compensation for outside business transactions unless he or she has provided prior written notice to their employer. Outside business transactions and selling away are prohibited activities because they serve to undercut the supervisory system implemented by FINRA-member firms and FINRA itself to protect the investing public.
Lufrano Law, LLC is a national securities litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. If you suffered investment damages investing with Shockey while he worked for Merrill Lynch, you may be able to recover your losses through FINRA arbitration. Our firm only receives a fee if you recover money. Please contact one of our attorneys at (800) 627-2179 to schedule a free consultation or complete our free case evaluator.