Wilson Davis Co. Inc. a securities broker dealer headquartered in Salt Lake City Utah as well as James C. Snow (President and Chief Compliance Officer) Lyle Wesley Davis (Chief Executive Officer) Byron Bert Barkley (Head of Trading) and Craig Stanton Norton (stockbroker) have been charged by Financial Industry Regulatory Authority (FINRA) Department of Enforcement in a Complaint alleging that (1) Wilson Davis and Norton engaged in market manipulation activities concerning NuGene International Inc. (NUGN) – a microcap securities which was traded over the counter (2) the firm failed to supervise Norton’s activities and (3) the firm failed to be forthcoming with FINRA during an investigation concerning NUGN. Department of Enforcement v. Wilson Davis Co. Inc. et al. Disciplinary Proceeding No. 2016048837401 (July 19, 2019).
FINRA Public Disclosure shows that Craig Stanton Norton has been the subject of ten regulatory actions over a period of several decades.
According to the Complaint, in February of 2015, two hundred fifty NUGN stock shares had been acquired by Norton. Supposedly, the shares were acquired by Norton at $5.00 a share and then placed into the securities broker dealer’s proprietary account. Allegedly, this transaction artificially set NUGN’s closing price at $5.00. During this time, millions of NUGN shares were purportedly held by Norton’s customers, and the transaction Norton executed supposedly helped the shares be released from any restrictions on resales that were in place between the issuer and Norton’s customers as part of a Lock-up / Leak-out Agreement.
The Complaint stated that Norton essentially became a market maker for NUGN over the ensuing four months. Supposedly, this took place while a customer of Norton engineered a stock promotion for purposes of making it falsely appear as though NUGN’s stock had been actively traded at higher prices. Allegedly, the manipulative activity in which Norton engaged permitted his customers to sell their shares of NUGN at inflated prices. FINRA alleged that the liquidations generated net proceeds totaling $10,000,000.00. Allegedly, Norton and Wilson Davis made commissions exceeding $400,000.00. FINRA alleged that the firm and Norton’s market manipulation conduct was violative of Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5 and FINRA Rules 2010 and 2020.
The Complaint additionally alleged that Wilson Davis enlisted supervisory personnel to be responsible for Norton’s trading activities; however, Norton’s trading was not adequately supervised. Particularly, there were a number of signs that the firm ignored relating to Norton’s market manipulation scheme. Manipulative trading issues were allegedly referenced within the written supervisory procedures utilized by the firm. However, the Complaint stated that those written supervisory procedures failed to set forth how the firm should supervise trading activity in order to identify and put a stop to manipulative trading.
FINRA stated that trading activity and microcap liquidations were not adequately reviewed by Barkley, Davis, Snow or any other supervisory personnel for purposes of stopping manipulative trading. Consequently, FINRA Department of Enforcement alleged that Barkley, Davis, Snow and Wilson-Davis failed to supervise; conduct violative of FINRA Rules 2010, 3110(a) and 3110(b).
The Complaint additionally stated that the firm failed to be truthful with FINRA during its investigation into the NUGN stock trading activity. Particularly, in 2016, Wilson Davis was instructed by FINRA to provide information about its supervision of NUGN trading activities. FINRA claimed that Wilson Davis produced a spreadsheet for FINRA which purported to show NUGN transactions being marked off by supervisory personnel. However, the firm was allegedly not able to confirm the veracity of the spreadsheet including when it was made, when transactions were supposedly marked off, or how the spreadsheet was prepared.
According to the Complaint, the firm did not actually provide any record of its supervision of NUGN trading activity during the period FINRA questioned. Rather, the spreadsheet that the firm provided was allegedly manufactured by Lyle Wesley Davis, and the markings on that spreadsheet only evidenced Davis’ actions following FINRA’s request for that information. FINRA alleged that the firm’s submission of false or misleading NUGN documentation was violative of FINRA Rules 2010 and 8210.
