Apex was fined $3.2M for rule violations of its fully paid securities lending program - this is on top of previous fines to four broker-dealers on the same issue that totaled $2.6M (including $1M in restitution to retail investors). Basically, Apex borrowed securities from clients of various broker dealers, but failed to determine whether those retail investors should have been allowed to loan their shares. There were serious disclosure problems here, with FINRA highlighting that Apex did not disclose to retail investors that lending their shares would result in:

1. The loss of their voting rights;

2. Receiving cash in lieu of a dividend, with potential adverse tax consequences;

3. Their positions not being covered by SIPC insurance when they were lent out; and

4. The risk that they might not be able to recover their positions.

Apex’s broker customers were supposed to pay retail investors part of the lending fees, but some of them did not, leading to misleading disclosures from Apex.