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Ascendiant and Wedbush: Who are they and why are they publishing negative research reports on GameStop?

On April 12, finance news sites were lit up by a research analyst publishing that GME was overvalued and putting a terrifically low price target on it. Boomer fear central. Most GME holders immediately identified it as “FUD” and rightly so, but it got me thinking: who is this Edward Woo, and what are his qualifications for valuing GameStop? And why would this investment bank Ascendiant pay him to put out blatantly biased coverage?

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𝘜𝘯𝘷𝘦𝘳𝘪𝘧𝘪𝘦𝘥 𝘋𝘋

My suspicions of Wedbush were raised weeks ago, with their publishing of an UNDERPERFORM rating on March 24. Two sketchy lowball reports felt like more than a coincidence. I got curious, so like the crayon-eating ape I am, I dove into every document I could get my hands on that is related to Ascendiant and Wedbush. I wanted to know who they are and why they care.

TLDR:

Ascendiant and Wedbush both have a history of naked shorting, lock/cross trading, failure to report shorts, and fines by FINRA, SEC, NYSE, and NASDAQ. They’re off-Wall Street broker-dealers on the fringes of the securities world. Ascendiant provides “research” for obscure biotech investments that they also promote stock offerings for, so they’re essentially a high-class boiler room. Ascendiant also has a fund that is losing money, and they are late reporting last year’s results. It seems possible (but not proven) that Ascendiant’s investment fund is short on GameStop and trying to stop the bleeding.

OK, let’s dive into this shady world of research analysts and investment banks with conflicts of interest and a penchant for breaking the rules…Edward Woo

Edward Woo is a “Senior Analyst” at Ascendiant Capital Markets, LLC (ACM). He publishes research reports on small life sciences firms, biotech, and a travel company, and has been doing it for 12+ years. He announces his ‘price targets’ and a ‘rating’, which in his case is BUY, HOLD or SELL. ACM appears to do a lot of research on companies whose capital raises are coincidentally being handled by the other arm of ACM, Ascendiant Capital Partners (ACP).

Prior to Ascendiant, Mr. Woo was an equity analyst at Wedbush Securities. Wait, the same Wedbush? Yes, that other firm that is also putting out bearish analysis about GameStop? The one who has been in trouble with the SEC and FINRA for their founder’s blatantly illegal and unethical behavior? (https://www.investmentnews.com/wedbush-securities-once-again-in-trouble-with-regulators-72520) Yeah, but that’s probably just a coincidence…again.

Looking into his ratings, Mr. Woo puts BUY ratings on stocks that are already shooting up, after they’re shooting up. He has also published BUYs on a lot of stocks which subsequently dropped or traded sideways for years. If you had followed his advice over time, you’d probably regret it. (Ref: https://www.tipranks.com/analysts/edward-woo)

Let’s have a run through a few of his recent picks, shall we?

r/DDintoGME - Ascendiant and Wedbush: Who are they and why are they publishing negative research reports on GameStop?

Those are some questionable recommendations. The third one looks like it could have been a pump/dump. And he’s holding a $7.75 target on this clunker?

r/DDintoGME - Ascendiant and Wedbush: Who are they and why are they publishing negative research reports on GameStop?

Another penny stock recommendation, with a $3.75 prediction.

r/DDintoGME - Ascendiant and Wedbush: Who are they and why are they publishing negative research reports on GameStop?

Yikes, another penny stock in biotech that’s going nowhere.

r/DDintoGME - Ascendiant and Wedbush: Who are they and why are they publishing negative research reports on GameStop?

Travelzoo? That’s an odd recommendation for a biotech analyst.

Looks like he was covering TZOO heavily back in 2010, including some terrible recommendations in 2012/2013, and then stopped. Then the stock just languishes for the last 8 years, during which he says nothing. Then, he opportunistically jumps in with a HOLD and BUY in late 2020 as the stock picks back up.

r/DDintoGME - Ascendiant and Wedbush: Who are they and why are they publishing negative research reports on GameStop?

This one looks on the surface like a good recommendation, at least it was in April 2019, although his target of $0.90 on a $0.90 stock is kind of weird.

AMTX started skyrocketing in Feb 2021, then the company issued a grand forward-looking five-year expansion plan in March and got a lot of positive finance/MSM articles.

Frankly, it looks like a pump/dump of a penny stock. The BUY recommendation on March 19, combined with coverage in Motley Fool is more than a tad suspicious. (NOTE: recent revelations of the connection between Citadel, IBKR, and Motley Fool make this even more suspect)

I could keep going, but they’re all pretty similar.

So, in the last 2 years, out of 34 stocks Mr. Woo has covered, he’s got 33 with BUYs. Hey, he’s just a positive person.

But can you guess which one is a SELL? C’mon, guess!

r/DDintoGME - Ascendiant and Wedbush: Who are they and why are they publishing negative research reports on GameStop?

They go waaaay back

Nailed it, GME! Woo started out bullish on GME as far back as 2012, issuing BUY after BUY, even while the stock meandered along, mostly trending lower, and arguably should have been a HOLD. He even gave another BUY in 2018.

But wait, in mid-2019, he suddenly downgrades to “HOLD”! Again in 2020, and then he keeps reiterating it faster and faster; “HOLD” “HOLD” “HODL” (oh wait, that’s what I’m doing!). He issued 5 recommendations just in 2020. Right up until April 12, 2021, and his “SELL” at $140, with a $12 price target.

His coverage of GME is literally unlike any other coverage he has put out in years. It’s an outlier. He doesn’t cover e-commerce, gaming, or retail. He absolutely never puts a SELL on a stock that’s going up. And he began downgrading it around the same time that the SHFs began to short the stock.

Almost like someone at Citadel looked up GME analysts and started contacting them (or their boss), seeing which ones might be willing to provide negative coverage.Ascendiant Capital

Let’s return to Mr. Woo’s firm. They must have been aware of his GME coverage and could have stopped him (or encouraged him). Why would ACM want him to provide coverage on GME? It’s not in their focus of biotech. Who are they and why are they paying his salary to cover a game retailer?

Their official statement is:

Ascendiant Capital Markets, LLC is a full-service boutique investment banking firm providing corporate finance, M&A advisory, equity research, market making, and institutional sales and trading services.

So they raise capital for corporations, arrange M&As, provide research, and also buy/sell equities. They seem to specialize in small or micro-cap biotech. Typical investment bank: lots of room for conflicts of interest, but that’s not unique on Wall Street.

What does FINRA have to say about Ascendiant? A lot, it turns out. (Ref: https://files.brokercheck.finra.org/firm/firm_152912.pdf)

Ascendiant was formed in 2010 in Nevada. Its main office is in Jupiter, Florida, and it has another office in Irvine, CA. Hold up just a second, ACM’s offices are in Jupiter, Florida. That’s just 30 minutes down the freeway from the Four Seasons Palm Beach, until recently the home of Citadel trading desk. That’s just another coincidence, right? Yeah, right.

ACM is 75% or more owned by Ascendiant Capital Partners, LLC (ACP). But, there’s more: Ascendiant Capital Group, LLC is the owner of both ACP and ACM. Layers within layers. And where is ACP located? Yep, also in South Florida.

According to FINRA, there have been 9 “final, formal proceedings initiated by a regulatory authority” against ACM. Let’s take a little trip down memory lane:

In their earliest regulatory tangle, on 9/17/2014, FINRA caught ACM running locking/crossing quotations in OTC securities. That sounds familiar, doesn’t it? These are the same techniques implicated in some of the dark web and Philadelphia exchange moves against GME being discussed here. They claimed it was a result of inadequate supervision and got a censure and a $7.5k fine. (aka. a slap on the wrist)

NASDAQ, on 2/12/2015, found 20 times the firm had failed to provide an order/execution record corresponding to an apparent proprietary order entered into the NASDAQ system. They broke several rules and blamed it again on bad supervision and training. But get this, they were also caught “LOCKING/CROSSING AN EXISTING NASDAQ QUOTE”. So they were playing with order entries and got caught on NASDAQ after getting caught 5 months prior on the OTC. But again, “bad training.” Censure with another measly $7k fine.

2/23/2015 – FINRA fines and censures again. Ascendiant was not disclosing information properly to customers, not sending FINRA the right data on time, and…wait for it:

EFFECTED A SHORT SALE IN AN EQUITY SECURITY FOR ITS OWN ACCOUNT WITHOUT: BORROWING THE SECURITY, OR ENTERING INTO A BONA-FIDE ARRANGEMENT TO BORROW THE SECURITY OR HAVING REASONABLE GROUNDS TO BELIEVE THAT THE SECURITY COULD BE BORROWED SO THAT IT COULD BE DELIVERED ON THE DATE DELIVERY IS DUE

So they didn’t have reasonable grounds to believe the security could be borrowed? And failed to deliver? That’s naked shorting, in a nutshell. Holy hell. They got off with censure and a $52.5k fine, without admitting guilt.

Right after this, it breaks in the press that there’s been a lot more bad behavior for the previous few years. According to FINRA investigators, two traders at Ascendiant were actively committing fraud between July 2012 and July 2014:

The first Spearman case (12-04191) proved especially egregious, as a FINRA arbitration panel found he engaged in “acts of fraud and malice” in penny stock trading, and that he and Ascendiant Capital engaged in acts of fraud and malice in bad faith by trying to cover up the fraud by giving false testimony at FINRA hearings. FINRA ruled against Spearman and Ascendiant Capital jointly and ordered them to pay their claimant $437,603.25, plus interest, in compensatory damages, plus $10,000 in punitive damages, costs and attorneys’ fees.

Spearman also faces a pending dispute alleging that he failed to liquidate a customer’s entire position with Dewmar International BMC (DEWM) by selling shares in the open market, as ordered by the complaining customer. The complaint charges that Spearman and Ascendiant were shorting a large position in DEWM, which posed a conflict of interest and, according to the complaint, was the reason Spearman refused to sell the shares. Alleged damages are $150,000.

Kevin Tufts has worked with Ascendiant from February 2011 to the present in the Irvine branch office. Tufts filed for bankruptcy in 2013.

(Ref: https://www.stocklaw.com/securities-fraud-blog/2015/july/finra-fines-ascendiant-capital-markets-of-irvine/ and http://disciplinaryactions.finra.org/Search/ViewDocument/54155)

Digging into these two, I found that Sean Spearman lost his license and was barred from the securities industry forever. Kevin Tufts, however, was not. And he wasn’t even fired from Ascendiant for what was some pretty shady behavior. Guess where he is today? That’s right, he’s still at Ascendiant. He’s listed as in charge of “Trading Operations”, no less. (Ref: https://ascendiant.com/Team/Market-Making-Trading)

6/25/2015 – FINRA complaint about not updating the status of “two registered representatives” that they were under investigation by FINRA, and that another was subject to an IRS tax lien and had a customer complaint. It seems likely this is referring to Spearman and Tufts. Ascendiant was trying to hide the investigation. The firm was censured and fined $20k. Mysteriously, “A lower fine was imposed, after considering, among other things, the firm’s revenue and financial resources”. Fine wasn’t paid until 8/14/2017.

3/11/2016 – Two separate regulatory findings around while it was offering a company’s common stock, purchased the stock on its own, violating Rule 101 of Regulation M. Another set of censures and two $12.5k fines.

3/23/2016 – Failed to transmit to the FINRA/NASDAQ trade reporting facility (FNTRF) last sale reports of transactions. They accepted a censure and fine of $57k. It took them until Aug 2019 to pay the fines.

11/28/2016 – Late to pay their FINRA membership fees of $33k. Mark Bergendahl was trying to work a payment plan with FINRA but they suspended ACM for a few days over it. So the firm is having money troubles.

12/19/2017 – FINRA accused them of overcharged a customer $140k for stock trades. ACM initially denied the allegations and said they were “without merit”, but on 3/15/2018 they agreed to being censured, paying a $60k fine, and being “prohibited from engaging in principal basis stock and equity trades” for 12 months. So, they got pretty well busted there and out of the trading business for a year. Not that it stopped them from getting back into it, judging by their recent filings.

OK, so it’s been quiet since 2018, so they either stopped breaking the rules (haha) or got better at it. Ascendiant appears to have been running a small hedge fund/private office for the last few years. In their SEC annual filings for the years 2017-2019, their finances aren’t great. They ended 2017 with equity of $208mm, 2018 with equity of $336M, but ended 2019 down to $205M. They haven’t published their 2020 results, which is at least a month late for them; every year until now they filed it by March 11. Maybe bad news?

Refs: https://www.sec.gov/Archives/edgar/vprr/1800/18005225.pdf https://www.sec.gov/Archives/edgar/vprr/1901/19010276.pdf https://www.sec.gov/Archives/edgar/vprr/2000/20009495.pdfWedbush

Now Wedbush is larger and has been around a lot longer, starting in the 1980s, but has been up to much the same tricks. They have a massive FINRA violation file. It clocks in at 336 pages and has 111 violation disclosures. I read through it so you don’t have to. (Ref: https://files.brokercheck.finra.org/firm/firm_877.pdf)

The most interesting behavior by Wedbush is in the last 6 years. Spoiler alert: FTDs, naked shorting, improper reporting. I know, shocking, right?

In 2015, Wedbush was caught allowing a client over a period of 2 years to redeem ETFs it was not long on, in a scheme to reset Failure-To-Delivers while shorting a stock. Here we go again with the FTDs:

During the review period, Scout Trading submitted at least 255 naked redemption orders through Wedbush in 11 ETFs, totaling over 295 million shares. This naked redemption activity, along with short selling of the ETFs on the secondary market by Scout Trading, resulted in substantial, repeated fails to deliver by Wedbush.(Reference: https://www.finra.org/media-center/news-releases/2016/finra-and-nasdaq-fine-wedbush-securities-inc-675000-supervisory)

In 2017, they did it again. On 9/26/2017, Wedbush accepted a censure and $70k fine for violating Rule 204 of Regulation SHO, ie. FTDs/naked shorting. They also got hit the same day for failing to transmit 548,669,414 orders, creating 171 naked short orders, and not properly reporting their short positions for 61 dates. Censure of course, and $470k in fines, which they probably laughed about and wrote it off as a “Cost of Doing Business.” Wedbush is like a low-rent Citadel.

Most recently, in 2018, FINRA fined them $1m, censured them, required them to bring in an outside auditor and hire a full-time regulatory compliance officer. Why? Because their late Owner/CEO Edward Wedbush was running 70 different accounts for himself, friends, family, and others, trading across them, between them, front-running and who knows what else, with no supervision. He broke all sorts of rules, too many to list here. But $1m?? It’s a joke.FINRA/SEC/NASD

One common theme from this DD (and I only looked at two broker-dealers) is that our security regulatory bodies are all talk and no teeth. They make a lot of serious-sounding noise about violations and failures to comply and supervisory negligence, but then they roll over and hand out meager fines and don’t even get them to admit guilt, much less pay serious fines or go to jail.

Wedbush, for example, got to enter into “an offer of settlement and consent for the sole purpose of settling this disciplinary proceeding without adjudication of any issues of law or fact, and without admitting or denying any allegations or findings referred to in the offer of settlement.” And this was for intentionally violating Rule 204(A) of Regulation SHO on FTDs! They don’t admit any guilt, they just pay a fine and do it again.

Reading Wedbush’s file, it’s painfully repetitive. The same violations with no real consequences. “Settlement and Consent” is all over the place. It’s no wonder that Citadel has been and continues to blatantly break the rules to try to avoid bankruptcy. Have enough expensive lawyers and a few connections in the regulatory agencies, and you can just do whatever you want.

And if you need any more confirmation on how employees in FINRA/SEC/NASD hit that sweet revolving door to cash in with private enterprise by using their knowledge of the rules to help them, check out these two individuals:

Michael O. Brown, a former FINRA compliance examiner, NASD arbitrator and member of NASD Examination Review Committee: https://ascendiant.com/Team/Compliance/Michael-O-Brown (According to his LinkedIn profile, he has been consulting for the last 27 years, and was consulting for Ascendiant while all these violations were going on)

Brian M. Megenity, a former FINRA compliance examiner, now works for Ascendiant: https://ascendiant.com/Team/Compliance/Brian-M-Megenity (According to his LinkedIn profile, he’s also an independent consultant for the last 20 years, and was consulting Ascendiant during the time of the violations)

So Ascendiant’s top two compliance officers are A) not full-time employees, B) were around during their violations, and C) seem to be asleep at the wheel or complicit in what their traders have been doing.Back to the present

Now, if you were a hedge fund that had your “Senior Analyst” telling you in early 2020 that GameStop is going flat or down, which is what Mr. Woo was publishing, AND you have low-conscience traders with experience in naked shorting, FTDs, and lock/cross trading, AND you only ever get minor fines for breaking the rules AND you’re desperate to make up for losses in 2019, you’d probably be tempted to go deep shorting GameStop into bankruptcy. Just like your well-heeled friends at Citadel or Susquehanna tell you they’re doing, over drinks in the Hamptons, or on the yacht in Marina del Rey.

Which was great fun, until things turned wrong for you in January and the apes bought the float. And to handle this catastrophe, you went back to your roots: naked shorting, because, well, the same reason Citadel is. Kick the can down the road. Bend the rules.

But now, it’s April, and you’re sitting on a stack of naked shorts, and you don’t have the resources of Citadel to keep kicking the can down the road, cycling FTDs, and paying journalists.

Maybe one of the SHFs offered you some loans, or let you in on the dark pool, or shared some shorted ETFs. However it happened, Ascendiant realized that if they don’t help out the SHFs and do whatever it takes to get GME down to $0, then their goose is cooked in the same pot.

And this brings us full circle back to Mr. Woo, who got them into this problem in the first place by publishing bearish reports on GME with low price targets. He chose to or was pressured to publish some even more bearish analysis, reduce the price target, and change to a SELL rating. This was then pushed out widely to MarketWatch, CNBC, Barron’s, Yahoo, and everywhere else that boomers get their news in a coordinated PR blitz.

Nice try, Mr. Woo and your shady compatriots. This time you’re going to get more than a fine and a slap on the wrist.

I just like this stock, and I give it a BUY AND HODL rating.

Full disclosure (because I’m not an off-Wall Street research analyst shill): I am long $GME. Very long. This is not financial advice. Do not make any financial decisions based on this article.

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Hope you liked my first DD. Although my account is new, I have been on Reddit for over 10 years. I put my real name in it and Reddit won’t let me change it. So I created this account to keep my anonymity.

Link : https://www.reddit.com/r/DDintoGME/comments/muux3w/ascendiant_and_wedbush_who_are_they_and_why_are/