According to FINRA, Wedbush Securities Inc. was censured and fined a total of $975,000 for failing to review electronic trading customers' trading activities for potential manipulation.

The firm stopped providing market access services to its customers but still provided certain electronic trading customers with access to third-party electronic trading platforms that routed these customers' orders to other broker-dealers for execution. The firm mistakenly believed it was not required to review this trading for any type of potentially manipulative activity since it was no longer providing market access, believing instead that the obligation rested solely with the executing broker-dealers.

As a result, the firm did not conduct any supervisory reviews of the trading activities by its electronic trading customers for potentially manipulative trading, such as layering, spoofing, wash sales, or marking the close or open. The firm failed to detect potential layering activity by an institutional electronic trading customer comprised of hundreds of foreign day traders. Upon receiving notice of the potential layering activity from the executing broker-dealer, the firm closed the electronic trading customer's account but did not take any steps to detect and prevent other electronic trading customers from engaging in potentially manipulative trading.

Approximately 90 electronic trading customers effected more than 3.4 million transactions involving 13.5 billion shares without being subject by the firm to any review for potentially manipulative trading.

The firm also failed to implement any supervisory system, including written supervisory procedures, to review for potential layering and spoofing by the firm's proprietary traders and all firm customers. While the firm later added a reference to layering and spoofing in its procedures requiring weekly reviews of supervisory reports, those reports were designed to capture other forms of potential manipulative trading and were not reasonably designed to detect layering and spoofing.

This case illustrates that firms cannot abdicate their supervisory responsibilities simply because they are not the executing broker-dealer. Market manipulation harms all investors by distorting prices and undermining market integrity.