UNITED STATES OF AMERICA 

Before the 

COMMODITY FUTURES TRADING COMMISSION 

In the Matter of: 

Wedbush Securities Inc., 

Respondent. 

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CFTC Docket No. 23-37

ORDER INSTITUTING PROCEEDINGS PURSUANT TO 

SECTION 6(c) AND (d) OF THE COMMODITY EXCHANGE ACT, MAKING 

FINDINGS, AND IMPOSING REMEDIAL SANCTIONS 

I. INTRODUCTION

The Commodity Futures Trading Commission (“Commission”) has reason to believe that 

from at least 2018 to the present (“Relevant Period”), Wedbush Securities Inc. (“Wedbush” or 

“Respondent”), a Commission-registered Futures Commission Merchant (“FCM”), violated, as 

set forth below, Section 4g of the Commodity Exchange Act (“Act”), 7 U.S.C. § 6g, and 

Commission Regulations (“Regulations”) 1.31, 1.35, and 166.3, 17 C.F.R. §§ 1.31, 1.35, 166.3 

(2022). Therefore, the Commission deems it appropriate and in the public interest that public 

administrative proceedings be, and hereby are, instituted to determine whether Respondent 

engaged in the violations set forth herein and to determine whether any order should be issued 

imposing remedial sanctions. 

In anticipation of the institution of an administrative proceeding, Respondent has 

submitted an Offer of Settlement (“Offer”), which the Commission has determined to accept. 

Respondent admits the facts set forth in Section II below, acknowledges that its conduct violated 

the Act and Regulations and consents to the entry of this Order Instituting Proceedings Pursuant 

to Section 6(c) and (d) of the Commodity Exchange Act, Making Findings, and Imposing 

Remedial Sanctions (“Order”), and acknowledges service of this Order.1

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 Respondent agrees that the findings of fact and conclusions of law in this Order shall be taken as true and 

correct and be given preclusive effect without further proof in this proceeding and any other proceeding brought by 

the Commission or to which the Commission is a party or claimant, including but not limited to, a proceeding in 

bankruptcy or receivership. Respondent does not consent to the use of the Offer or this Order, or the findings or 

conclusions in this Order, by any other party in any other proceeding. 
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II. FINDINGS 

The Commission finds the following: 

A. SUMMARY 

The Act and Regulations impose recordkeeping and supervision requirements on 

Commission registrants to ensure that they responsibly discharge their crucial role in our 

markets. Compliance with these requirements is essential to the Commission’s efforts to 

promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound 

regulation. 

 Wedbush is a Commission-registered FCM. During the Relevant Period, Wedbush 

employees, including those at senior levels, communicated both internally and externally using 

personal text messages. These written communications were sent and received by Wedbush 

employees and included messages related to Wedbush’s business as a Commission registrant that 

were required to be maintained under Commission-mandated recordkeeping requirements. 

These written business-related communications via unapproved methods generally were not 

maintained and preserved by Wedbush, and Wedbush generally would not have been able to 

furnish the communications promptly to a Commission representative if and when requested. As 

a result, Wedbush violated, as set forth below, Section 4g of the Act, 7 U.S.C. § 6g, and 

Regulations 1.31 and 1.35, 17 C.F.R. §§ 1.31, 1.35 (2022). 

In addition, the widespread use of unauthorized communication methods by Wedbush’s 

employees to conduct firm business violated Wedbush’s own policies and procedures, which 

prohibited such communications. Wedbush did not maintain adequate internal controls with 

respect to the use of unapproved communication methods for business-related communications. 

Because Wedbush failed to implement a diligent supervisory system to ensure compliance with 

Commission recordkeeping requirements and the firm’s own policies and procedures, and 

because the widespread use of unauthorized communication methods resulted in the firm’s 

failure to maintain Commission-required records, Wedbush failed to diligently supervise matters 

related to its business as a Commission registrant in violation of Regulation 166.3, 17 C.F.R. 

§ 166.3 (2022), as set forth below. 

B. RESPONDENT 

Wedbush Securities Inc. is a financial services company headquartered in Los Angeles, 

California. Wedbush is registered with the Commission as an FCM. 

C. FACTS 

In connection with the Commission’s investigation, Wedbush disclosed that it conducted 

a review of the use of unapproved communications methods by its employees. That review 

demonstrated that there was widespread and longstanding use of unapproved communication 

methods by employees—including senior-level employees—to engage in firm business, 

including relating to Commission regulated derivatives markets. 
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Importantly, during the Relevant Period, Wedbush’s policies and procedures prohibited 

employees from using unapproved communication methods, such as personal text messages, to 

engage in business-related communications unless they were exchanged via a Wedbushsponsored system that enabled capture and retention of those communications. 

Messages sent through Wedbush-approved communications methods were monitored, 

subject to review, and when appropriate, archived. By contrast, messages sent using unapproved 

communication methods, including over personal text messages, were generally not monitored, 

subject to review, or archived. 

As a result of Wedbush’s failure to ensure that employees—including supervisors and 

senior-level employees—complied with the firm’s communications policies and procedures, 

Wedbush failed to maintain thousands of business-related communications, including 

communications in connection with its commodities business, and thus failed diligently to 

supervise its business as a Commission registrant. These supervision failures resulted in the 

widespread use of unapproved methods of communication by Wedbush employees in violation 

of the firm’s policies and procedures, as well as a widespread failure to maintain certain records 

required to be maintained pursuant to Commission recordkeeping requirements. 

A sampling analysis, for example, of the personal devices of twenty-one Wedbush 

employees, including two Commission-registered associated persons of Wedbush’s FCM 

business, illustrates the breadth of Wedbush’s supervision and recordkeeping failures. Of those 

twenty-one employees, which included several senior representatives, including division heads, 

all but two had violated Wedbush’s communications policies and procedures by using personal 

text messages to communicate with coworkers and, on some occasions, market participants. 

Notably, none of these personal text messages were communicated via a Wedbush-sponsored 

system that enabled capture and retention. Further, those employees’ communications revealed 

that numerous additional Wedbush employees conducted firm business via unapproved methods. 

The Commission’s investigation concluded that certain of the communications by 

Wedbush employees using unapproved communication methods constituted records that were 

required to be kept pursuant to Commission recordkeeping requirements, but were not preserved 

and maintained by Wedbush. 

Wedbush’s recordkeeping and supervision failures were firm-wide and involved 

employees at all levels of authority. Moreover, employees’ use of unapproved communication 

methods was not hidden within the firm. To the contrary, certain supervisors—the very people 

responsible for supervising employees to prevent this misconduct—communicated using 

unapproved methods on their personal devices. In fact, senior supervisors responsible for 

implementing Wedbush’s policies and procedures, and for overseeing employees’ compliance 

with those policies and procedures, themselves failed to comply with firm policies by 

communicating using unapproved methods on their personal devices about the firm’s 

Commission-regulated business. 
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III. LEGAL DISCUSSION 

A. Wedbush’s Failure to Keep Required Records in Violation of Section 4g of 

the Act and Regulation 1.35 

Section 4g of the Act requires FCMs and other registrants to create and keep books and 

records pertaining to transactions and positions in such form and manner and for such period as 

may be required by the Commission. 7 U.S.C. § 6g. Regulation 1.35(a)(1), 17 C.F.R. 

§ 1.35(a)(1) (2022), sets forth some of the books and records that are required to be created and 

maintained by FCMs. Specifically, an FCM must: 

(i) Keep full, complete, and systematic records . . . of all 

transactions relating to its business of dealing in commodity 

interests . . . which shall include all orders (filled, unfilled, or 

canceled), . . . and all other records, which have been prepared in the 

course of its business of dealing in commodity interests . . . . 

 

* * * 

(iii) Keep all oral and written communications provided or received 

concerning quotes, solicitations, bids, offers, instructions, trading, 

and prices that lead to the execution of a transaction in a commodity 

interest . . . whether transmitted by telephone, voicemail, facsimile, 

instant messaging, chat rooms, electronic mail, mobile device, or 

other digital or electronic media . . . . 

With the exception of pre-trade communications, all such records are required to be “kept in a 

form and manner that allows for the identification of a particular transaction.” Regulation 

1.35(a)(5), 17 C.F.R. § 1.35(a)(5) (2022). 

As a result of the widespread use of unapproved methods of communication by firm 

employees, which communications were not preserved and maintained, Wedbush failed to keep 

full, complete, and systematic records of all transactions relating to its business of dealing in 

commodity interests, in violation of Section 4g of the Act and Regulation 1.35. 

B. Wedbush’s Failure to Keep Records in Required Manner in Violation of 

Regulation 1.31 

Regulation 1.31(b)(4), 17 C.F.R. § 1.31(b)(4) (2022), requires that registrants keep all 

books and records that are required to be maintained under the Act and Regulations in such 

manner as to make them “readily accessible” for a period of two years for paper records and for 

the duration of the retention period for electronic records. Upon request of the Commission, all 

of these documents are required to be “promptly” produced. Regulation 1.31(d), 17 C.F.R. 

§ 1.31(d) (2022). Regulation 23.203(b)(1), 17 C.F.R. § 23.203(b)(1) (2022), requires that 

records required to be kept pursuant to Part 23 of the Regulations, be kept in accordance with 

Regulation 1.31, 17 C.F.R. § 1.31 (2022). 
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By failing to keep all Commission-required records in such a manner as to make them 

“readily accessible,” Wedbush violated Regulation 1.31. 

C. Wedbush’s Failure to Diligently Supervise in Violation of Regulation 166.3

Regulation 166.3 states: 

Each Commission registrant, except an associated person who has no supervisory duties, 

must diligently supervise the handling by its partners, officers, employees and agents (or 

persons occupying a similar status or performing a similar function) of all commodity 

interest accounts carried, operated, advised or introduced by the registrant and all other 

activities of its partners, officers, employees and agents (or persons occupying a similar 

status or performing a similar function) relating to its business as a Commission 

registrant. 

17 C.F.R. § 166.3 (2022). 

A violation under Regulation 166.3 is an independent violation for which no underlying 

violation is necessary. See In re Collins, CFTC No. 94-13, 1997 WL 761927, at *10. A 

violation of Regulation 166.3 is demonstrated by showing either that: (1) the registrant’s 

supervisory system was generally inadequate; or (2) the registrant failed to perform its 

supervisory duties diligently. Murlas Commodities, Inc., 1995 WL 523563, at *9; Sansom 

Refining Co. v. Drexel Burnham Lambert, Inc., CFTC No. 82-R448, 1990 WL 282783, at *11 

(Feb. 16, 1990) (noting that, under Regulation 166.3, registrants have a “duty to develop 

procedures for the detection and deterrence of possible wrongdoing by [their] agents” (internal 

quotation omitted)); In re GNP Commodities, Inc., CFTC No. 89-1, 1992 WL 201158, at *17–19 

(Aug. 11, 1992) (providing that, even if an adequate supervisory system is in place, Regulation 

166.3 can still be violated if the supervisory system is not diligently administered); see also In re 

Rosenthall Collins Grp., LLC, CFTC No. 12-18, 2012 WL 1242406, at *6 (Apr. 12, 2012) 

(consent order) (respondent failed to perform supervisory duties diligently by not following its 

compliance procedures that were in place). Evidence of violations that “should be detected by a 

diligent system of supervision, either because of the nature of the violations or because the 

violations have occurred repeatedly” is probative of a failure to diligently supervise. In re 

Paragon Futures Assoc., CFTC No. 88-18, 1992 WL 74261, at *14 (Apr. 1, 1992) (“The focus 

of any proceeding to determine whether Rule 166.3 has been violated will be on whether [a] 

review [has] occurred and, if it did, whether it was ‘diligent.’”). 

During the Relevant Period, Wedbush failed to supervise its business as a Commission 

registrant by failing to maintain adequate supervisory systems to ensure that employees complied 

with Commission recordkeeping requirements and firm policies and procedures that prohibited 

business-related communications on unapproved methods of communication. The inadequacy of 

Wedbush’s supervisory systems is demonstrated by the longstanding and repeated violations of 

Wedbush’s Commission recordkeeping obligations and firm policies and procedures and the fact 

that the supervisory failures resulted in the repeated failure to maintain Commission-required 

records, to ensure that the required records were readily accessible, and that the records could be 

promptly produced upon request. By this conduct, Wedbush failed to supervise diligently its 

officers, employees, and agents in violation of Regulation 166.3. 
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IV. FINDINGS OF VIOLATIONS 

Based on the foregoing, the Commission finds that, during the Relevant Period, Wedbush 

violated Section 4g of the Act, 7 U.S.C. § 6g, and Regulations 1.31, 1.35, and 166.3, 17 C.F.R. 

§§ 1.31, 1.35, 166.3 (2022). 

V. OFFER OF SETTLEMENT 

Respondent has submitted the Offer in which it: 

A. Acknowledges service of this Order; 

B. Admits the facts described in Section II above and acknowledges that its conduct violated 

the Act and Regulations; 

C. Admits the jurisdiction of the Commission with respect to all matters set forth in this 

Order and for any action or proceeding brought or authorized by the Commission based 

on violation of or enforcement of this Order; 

D. Waives: 

1. The filing and service of a complaint and notice of hearing; 

2. A hearing; 

3. All post-hearing procedures; 

4. Judicial review by any court; 

5. Any and all objections to the participation by any member of the Commission’s 

staff in the Commission’s consideration of the Offer; 

6. Any and all claims that it may possess under the Equal Access to Justice Act, 5 

U.S.C. § 504, and 28 U.S.C. § 2412, and/or the rules promulgated by the 

Commission in conformity therewith, Part 148 of the Regulations, 17 C.F.R. pt. 

148 (2022), relating to, or arising from, this proceeding; 

7. Any and all claims that it may possess under the Small Business Regulatory 

Enforcement Fairness Act of 1996, Pub. L. No. 104-121, tit. II, §§ 201–253, 110 

Stat. 847, 857–74 (codified as amended at 28 U.S.C. § 2412 and in scattered 

sections of 5 U.S.C. and 15 U.S.C.), relating to, or arising from, this proceeding; 

and 

8. Any claims of Double Jeopardy based on the institution of this proceeding or the 

entry in this proceeding of any order imposing a civil monetary penalty or any 

other relief, including this Order; 

E. Stipulates that the record basis on which this Order is entered shall consist solely of the 

findings contained in this Order to which Respondent has consented in the Offer; 
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F. Consents, solely on the basis of the Offer, to the Commission’s entry of this Order that: 

1. Makes findings by the Commission that Wedbush violated Section 4g of the Act, 

7 U.S.C. § 6g, and Regulations 1.31, 1.35, and 166.3, 17 C.F.R. §§ 1.31, 1.35, 

166.3 (2022); 

2. Orders Wedbush to cease and desist from violating Section 4g of the Act and 

Regulations 1.31, 1.35, and 166.3; 

3. Orders Respondent to pay a civil monetary penalty in the amount of six million 

US dollars ($6,000,000), plus post-judgment interest within fourteen days of the 

date of entry of this Order; and 

4. Orders Respondent and its successors and assigns to comply with the conditions 

and undertakings consented to in the Offer and as set forth in Part VI of this 

Order; and 

G. Represents that Respondent has engaged in a review of certain recordkeeping failures and 

begun a program of remediation. 

Upon consideration, the Commission has determined to accept the Offer. 

VI. ORDER 

Accordingly, IT IS HEREBY ORDERED THAT: 

A. Wedbush and its successors and assigns shall cease and desist from violating Section 4g 

of the Act, 7 U.S.C. § 6g, and Regulations 1.31, 1.35, and 166.3, 17 C.F.R. §§ 1.31, 1.35, 

166.3 (2022). 

B. Respondent shall pay a civil monetary penalty in the amount of six million US dollars 

($6,000,000) (“CMP Obligation”), within fourteen days of the date of the entry of this 

Order. If the CMP Obligation is not paid in full within fourteen days of the date of entry 

of this Order, then post-judgment interest shall accrue on the CMP Obligation beginning 

on the date of entry of this Order and shall be determined by using the Treasury Bill rate 

prevailing on the date of entry of this Order pursuant to 28 U.S.C. § 1961. 

Respondent shall pay the CMP Obligation and any post-judgment interest by electronic 

funds transfer, U.S. postal money order, certified check, bank cashier’s check, or bank 

money order. If payment is to be made other than by electronic funds transfer, then the 

payment shall be made payable to the Commodity Futures Trading Commission and sent 

to the address below: 

MMAC/ESC/AMK326 

Commodity Futures Trading Commission 

6500 S. MacArthur Blvd. 

HQ Room 266 
8 

Oklahoma City, OK 73169 

9-AMC-AR-CFTC@faa.gov 

If payment is to be made by electronic funds transfer, Wedbush shall contact Tonia King 

or her successor at the above email address to receive payment instructions and shall fully 

comply with those instructions. Respondent shall accompany payment of the CMP 

Obligation with a cover letter that identifies the paying Respondent and the name and 

docket number of this proceeding. The paying Respondent shall simultaneously transmit 

copies of the cover letter and the form of payment to the Chief Financial Officer, 

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, 

Washington, D.C. 20581; 

C. Respondent and its successors and assigns shall comply with the following conditions 

and undertakings set forth in the Offer: 

1. Wedbush shall conduct, within 150 days of the entry of this Order: 

a. A comprehensive review of Wedbush’s supervisory, compliance, and 

other policies and procedures designed to ensure that Wedbush’s 

electronic communications, including those found on personal electronic 

devices, including without limitation, cellular phones (“Personal 

Devices”), are preserved in accordance with the requirements of the Act, 

the Regulations, and Wedbush’s policies and procedures. 

b. A comprehensive review of training conducted by Wedbush to ensure 

personnel are complying with the requirements regarding the preservation 

of electronic communications, including those found on Personal Devices, 

in accordance with the requirements of the Act and the Regulations, and 

Wedbush’s policies and procedures, including by ensuring that personnel 

certify in writing on a quarterly basis that they are complying with 

preservation requirements. 

c. An assessment of the surveillance program measures implemented by 

Wedbush to ensure compliance, on an ongoing basis, with the 

requirements found in the Act, the Regulations, and Wedbush’s policies 

and procedures to preserve electronic communications, including those 

found on Personal Devices. 

d. An assessment of the technological solutions that Wedbush has begun 

implementing to meet the record retention requirements of the Act, the 

Regulations, and Wedbush’s policies and procedures, including an 

assessment of the likelihood that Wedbush personnel will use the 

technological solutions going forward and a review of the measures 

employed by Wedbush to track employee usage of new technological 

solutions. 

e. An assessment of the measures used by Wedbush to prevent the use of 

unauthorized communications methods for business communications by 
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employees. This assessment should include, but not be limited to, a 

review of the firm’s policies and procedures to ascertain if they provide 

for any significant technology and/or behavioral restrictions that help 

prevent the risk of the use of unapproved communications methods on 

Personal Devices (e.g., trading floor restrictions). 

f. A review of Wedbush’s electronic communications surveillance routines 

to ensure that electronic communications through approved 

communications methods found on Personal Devices are incorporated into 

Wedbush’s overall communications surveillance program. 

g. A comprehensive review of the framework adopted by Wedbush to 

address instances of non-compliance by Wedbush employees with 

Wedbush’s policies and procedures concerning the use of Personal 

Devices to communicate about Wedbush business in the past. This review 

shall include a survey of how Wedbush determined which employees 

failed to comply with Wedbush policies and procedures, the corrective 

action carried out, an evaluation of who violated policies and why, what 

penalties were imposed, and whether penalties were handed out 

consistently across business lines and seniority levels. 

2. Written Report of Findings: 

a. Within forty-five (45) days after completion of the review set forth in subparagraphs 1.a. through 1.g. above, Wedbush shall submit a detailed 

written report of its findings to the Commission staff (the “Report”). The 

Report shall include a description of the review performed, the names of 

the individuals who performed the review, the conclusions reached, and a 

summary of the plan for implementing the recommended changes in or 

improvements to Wedbush’s policies and procedures. 

b. Wedbush shall adopt all recommendations contained in the Report within 

one hundred and thirty-five (135) days of the date of the Report. 

c. The Report will likely include confidential financial, proprietary, 

competitive business or commercial information. Public disclosure of the 

reports could discourage cooperation, impede pending or potential 

government investigations or undermine the objectives of the reporting 

requirement. For these reasons, among others, the reports and the contents 

thereof are intended to remain and shall remain non-public, except: 

(1) pursuant to court order; (2) as agreed to by the parties in writing; (3) to 

the extent that the Commission determines in its sole discretion that 

disclosure would be in furtherance of the Commission’s discharge of its 

duties and responsibilities; or (4) is otherwise required by law. 

3. One-Year Evaluation: Wedbush shall assess its program for the preservation, as 

required under the Act, Regulations, and Wedbush’s policies and procedures, of 
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electronic communications, including those found on Personal Devices, 

commencing one year after submitting the Report required by Paragraph 2.a 

above. Wedbush shall require this review to evaluate Wedbush’s progress in the 

areas described in Paragraph 1.a. through 1.g. above. After this review, Wedbush 

shall submit a report (the “One Year Report”) to the Commission staff and shall 

ensure that the One Year Report includes an updated assessment of Wedbush’s 

policies and procedures with regard to the preservation of electronic 

communications (including those found on Personal Devices), training, 

surveillance programs, and technological solutions implemented in the prior year 

period. 

4. Reporting Discipline Imposed: For two years following the entry of this Order, 

Wedbush shall notify the Commission staff as follows upon the imposition of any 

discipline imposed by Wedbush, including, but not limited to, written warnings, 

loss of any pay, bonus, or incentive compensation, or the termination of 

employment, with respect to any employee found to have violated Wedbush’s 

policies and procedures concerning the preservation of electronic 

communications, including those found on Personal Devices: (1) at least 48 hours 

before the filing of a Form 8-T; or (2) within ten (10) days of the imposition of 

other discipline. 

5. Recordkeeping: Wedbush shall preserve, for a period of not less than six (6) 

years from the end of the fiscal year last used, the first two (2) years in an easily 

accessible place, any record of compliance with these undertakings. 

6. Public Statements: Respondent agrees that neither it nor any of its successors and 

assigns, agents or employees under its authority or control shall take any action or 

make any public statement denying, directly or indirectly, any findings or 

conclusions in this Order or creating, or tending to create, the impression that this 

Order is without a factual basis; provided, however, that nothing in this provision 

shall affect Respondent’s: (1) testimonial obligations; or (2) right to take legal 

positions in other proceedings to which the Commission is not a party. 

Respondent and its successors and assigns shall comply with this agreement, and 

shall undertake all steps necessary to ensure that all of its agents and/or 

employees under its authority or control understand and comply with this 

agreement. 

7. Cooperation, in General: Respondent shall cooperate fully and expeditiously with 

the Commission, including the Commission’s Division of Enforcement, in this 

action, and in any current or future Commission investigation or action related 

thereto. Respondent shall also cooperate in any investigation, civil litigation, or 

administrative matter related to, or arising from, the subject matter of this action. 

8. Partial Satisfaction: Respondent understand and agree that any acceptance by the 

Commission of any partial payment of Respondent’s CMP Obligation shall not be 

deemed a waiver of its obligation to make further payments pursuant to this