Jeffrey Mark Winik 
(AWC/C05040077/December 2004)

Censured; Fined $15,000

Barbara Newman O’Shields aka Barbara Newman Leslie aka Barbara Newman 
(AWC/C07040087/December 2004)

Fined $5,000; Suspended 10 business days

Bill Singer's Comment:

I don't get the sanction in this case.  NASD regularly comes down hard on folks who forge, fabricate, or duplicate signatures on a whole host of documents.  Here the sanction is a measly 10 business days.  Perhaps more explanation from NASD would be helpful to understand this apparently lenient sanction.

Neal Moskowitz 
(AWC/CMS040171/December 2004)

• his association to other member firms with whom he maintained securities accounts in which he had a financial interest or for whom he had discretionary authority, and 
• to his member firm that he maintained securities accounts at other member firms. 

While acting as an investment banker at a firm and while registered with a broker dealer, purchased securities from an investment firm through an account he maintained at another firm and failed to disclose the transactions to his member firm. In addition, he failed to notify member firms with which he maintained securities accounts and in which he had a financial interest, or for which he had discretionary authority, that he was associated with other member firms. 

Fined $5,000; Suspended 1 year

Raj Indrajit Mehta 
(AWC/C10040105/December 2004)

Barred

Gregory Martin Jensen
(AWC/CAF040076/December 2004)

Fined $5,000; Suspended 6 weeks in all capacities

Bill Singer's Comment:

Just not a good idea to alter evidence.

Hugh Robert Hunsinger, Jr.
(AWC/C9B040094/December 2004)

Fined $5,000; Suspended 30 business days in all capacities

Bill Singer's Comment:

For a variation of this theme, see the Miramar case below.

Justin Wallace Herman 
(AWC/C07040083/December 2004)

Herman 

1. established securities accounts with an NASD member, but failed to promptly advise the member firm that he became associated with another NASD member firm;

2. participated in a private securities transaction through the sale of $293,000 in equity securities to investors without giving his member firm prior written notice of his intent to engage in such transactions and without receiving approval for his participation in these transactions; and

3. drew a check from a customer account of a family member that was made payable to another family member and caused the check to be deposited in the second family member’s bank account without the knowledge or authorization of the customer (first family member). 

No fine because of financial status; Suspended 12 months in all capacities; Ordered to pay $100,000 (plus interest) restitution to public customers

Miramar Securities, LLC. 
 (AWC/CAF040080/December 2004)

Bill Singer's Comment:

Here we have an ongoing problem for many BDs --- knowing the difference between "puffery" and potentially fraudulent misrepresentations.  Among the more common "exaggerations" we see on Wall Street are business cards proclaiming someone to be a "Managing Director" or "Senior Vice President," when such titles neither exist and if they do, the newly entitled individual is not reflected on the Form BD.  In the NASD case cited above we see the other line of cases:  Firms proclaiming divisions or services that don't exist.  The existence of a "world-class research department" and "one of Wall Street's leading Investment Banking Divisions" are examples that I often come across in my practice.  In-house Compliance pros would do well to be on the lookout for such indulgent language.  See the Hunsinger case above.

Hunter, Keith, Marshall & Co. and Henry C. Marshall, Jr.
 (AWC/C10040102/December 2004)

Acting through Marshall, the Firm 

• maintained registrations for employees who were not active in the firm’s securities and investment banking business and who ceased to function as principals and/or representatives; and 

• permitted an individual to perform in a capacity requiring registration while he was deemed inactive due to his failure to complete timely the Regulatory Element of NASD’s Continuing Education Requirements

John Troy Morrison 
 (AWC/C9B040072/November 2004)

Morrison failed to supervise a registered representative who recommended and effected transactions in the accounts of public customers without having reasonable grounds for believing that the transactions were suitable, or that using margin was suitable. Also, he failed to take appropriate action to supervise the registered representative to prevent violations and achieve compliance with applicable securities laws, regulations, and NASD rules. 

Fined $5,000; Suspended 10 business days in principal/supervisory capacity.

Gary Scott Lochansky
 (OS/C9B040072/November 2004)

Additionally,  Lochansky entered into an agreement with his sales manager to participate jointly in a financial trade show and to split the costs between them.  Subsequently, he falsely represented to his sales manager that he had paid $3,750 of the costs, and provided him a copy of an invoice falsely marked to indicate such payment. Accordingly, Lochansky’s sales manager gave him a $1,775 check that Lochansky deposited into his personal bank account.  However, Lochansky failed to make any payment on the trade show invoice, failed to use the proceeds of the check to make any payment on the invoice, and failed to refund or repay the money to his sales manager. 

Barred 

Karl Emil Keirstead 
 (AWC/C10040096/November 2004)

Fined $21,000 (includes after-tax profits disgorgement); Suspended 60 days in all capacities 

Rolf Willy Brunner
 (AWC/C10040098/November 2004)

Fined $10,000; Suspended 1 year in all capacities 

Bruce George Boyle
 (AWC/C10040095/November 2004)

Fined $5,000; Suspended 30 days in all capacities (given full credit for 30-day suspension in all capacities imposed by his firm); Suspended 15 days in principal capacity .

Edward D. Jones & Co., L.P. 
 (AWC/C07040079/November 2004)

Censured; Fined $200,000

Trautman Wasserman & Company, Inc. and Gregory Owen Trautman
 (OS/C3A030049/November 2004)

Acting through Trautman, the Firm offered a special sales credit to its registered representatives for selling a security and, either intentionally or recklessly failed to disclose or to take any steps to cause the disclosure of the credit to public customers (depriving the customers of the knowledge that the registered representatives might be recommending stock based upon the their own financial interest rather than the investment value of the security). 

Firm failed to report to NASDAQ principal purchases and sales of the security. Firm inaccurately reported securities transactions, failed to identify the report as an aggregate transaction, and reported the times of securities purchases to NASDAQ for which the corresponding order memoranda reflected a later time. 

Firm was a market maker in penny stocks and effected transactions with public customers in the stocks although the stocks did not qualify for a transactional exemption from the SEC's penny stock rules. The firm also failed to 

• furnish the customers with the requisite penny-stock risk disclosure document;  

• disclose the inside bid/outside offer quotations; 

• disclose the amount of compensation received by the firm and registered representatives; 

• give purchasing customers the requisite written statement relating to price determinations and market and price information for the penny stocks; and 

• properly approve the accounts for transactions in penny stocks for non-established customers and to receive the required purchase agreement. 

Moreover, NASD found that the firm’s written supervisory procedures were not reasonably designed to achieve compliance with Regulation M of the Securities Exchange Act of 1934. 

Fined $100,000

Fined $200,000 (including disgorgement of $135,000 of commissions in partial restitution to public customers); Suspended 31 days in all capacities, Suspended 6 months as a Series 24; Barred as a Series 55 equity trader. 

Ronald Dean Wightman
(OS/C02040016/October 2004)

Wightman failed to supervise a registered representative in a manner reasonably designed to achieve compliance with NASD Rule 3040 (Private Securities Transaction).

Fined $10,000; Suspended 30 business days in all capacities.  

Carlos Julio Penaloza
(AWC/C10040091/October 2004)

Penaloza permitted another individual of his member firm to act in the capacity of a general securities representative by effecting securities transactions without being registered as a general securities representative and to act in the capacity of a general securities principal by acting as a branch manager without being registered as a general securities principal.

Fined $7,500; Suspended 30 business days in all capacities.  

Steven Paul Mednick 
(AWC/C10040093/October 2004)

Mednick recommended that public customers purchase municipal bonds primarily based on statements by his member firm and failed to perform his own independent research or investigation relating to the bonds. He did not have reasonable grounds for believing that his recommendations and resultant transactions were suitable for the financial situation, investment objectives, and needs of the customers.

Fined $9,500; Ordered to ordered to disgorge $1,418, plus interest, in partial restitution to a public customer; Suspended 10 business days in all capacities.  

Bill Singer's Comment:

This one sort of bothers me because I'm not sure if the NASD means exactly what it said in this decision --- but if it did . . . hmmm.  It appears that a BD recommended the sale of certain municipal bonds and that its registered employees then adopted those investment ideas and proposed them to their clients.  Is the NASD really suggesting that RRs must independently research and investigate the same bonds that the firm is recommending?  Does the NASD really believe that RRs at major firms undertake the same rigorous independent research and investigations of all the stocks and bonds on their firm's recommended list?  I don't have any issue with the second part of this case; namely, that suitability must be undertaken independently by the RR.

Archie William Foor, III
(AWC/C9A040037/October 2004)

Without the prior knowledge or authorization of public customers, Foor completed change of broker-dealer forms and new account forms for certain customers, signed their names on the forms, and submitted the forms to his new member firm, which acted on the forms believing they were genuine.

Fined $10,000; Suspended 3 months in all capacities.  

Bill Singer's Comment:

Well, it certainly is an easier and more convenient way of opening an account.

Robert Paul Arnold 
(AWC/C11040032/October 2004)

Arnold billed $44,646 of personal expenses to his corporate credit card without the knowledge or consent of his member firm. 

Barred  

Sterling Financial Investment Group, Inc. 
(AWC/CAF040064/October 2004)

Sterling published and distributed a research report on a biopharmaceutical company with a sell/sell short recommendation on the company's common stock that contained substantive errors and other statements that made the report exaggerated, unwarranted, or misleading. The firm failed to make disclosures required by NASD Rule 2711(h) in a clear and prominent manner. Despite the fact the firm had potential errors in the report brought to its attention, it published a "morning note" that repeated errors in the report and failed to disclose in the note that it made a market in the securities at the time the report was published.

Additionally, the firm had no effective system in place to save e- mails or other electronic messages and failed to retain e-mails for three years or for the first two years in an accessible place. Furthermore, although the firm's research department director had been suspended in a principal or supervisory capacity, he performed acts that were principal or supervisory in nature during his suspension. Moreover, NASD found that the firm had no system or procedures in place to ensure compliance with regulatory suspensions generally or with the director's suspension specifically. 

Bill Singer's Comment:

Seems like the sanctions was quite modest in consideration of the allegations.  Not only does NASD seem to allege that the firm knew it had errors in its research report --- but the firm repeated those errors in another report.  Then, the NASD notes that the report failed to disclose the market making capacity of the firm.  However, what seems a bit glossed over is that the firm allowed a suspended individual to engage in activity for which he was suspended.  I'm not sure that the sanctions fit the violations as described by the NASD . . . or else, someone did a great job of lawyering.

FEA, Inc.  and John Herman Cox
(AWC/C8A040075/October 2004)

FEA used the mails or other means or instrumentalities of interstate commerce to effect transactions in securities, or received and held customer funds or securities while the firm failed to maintain the minimum required net capital. The firm failed to comply with the terms of its membership agreement when it received funds from public customers for the purchase of interests in securities and held the funds in a bank account controlled by Cox while pursuant to the Membership Agreement, the firm and Cox agreed that it would not hold customer funds and operate pursuant to the exemptive provisions of SEC Rule 15c3-3(k)(2)(i).A

Acting through Cox, the firm received and held public customer funds in bank accounts while failing to open and use a special reserve bank account for the exclusive benefit of customers and failed to compute the firm's special reserve requirement pursuant to SEC Rule 15c3-3 as of month-end and withdrawal dates. 

The firm commenced an offering of limited partnership interests through the use of private placement memorandum at a price of $50,000 per unit. The memorandum represented that the offering was contingent upon the number of subscription units by the termination of the offering with the right to extend the offering for an additional 30 days or "all subscriptions received will be promptly refunded to subscribers without interest, charge or deduction". The memorandum further represented that payments received from subscribers would be held in a demand deposit escrow account and would not be commingled with any other funds. 

• Acting through Cox, the firm failed to promptly return the subscribers' funds or obtain written reconfirmations of the offerings from the existing subscribers by the due date; such failure rendered the representation in the Memorandum and Subscription Agreement false and misleading. 

• Although the memorandum disclosed the fact that Cox could purchase units of securities, it failed to disclose the total amount of units that the general partner and its affiliates could purchase and that the purchases would be for investment, not resale, rendering the Memorandum as false and misleading. 

Bill Singer's Comment:

Among the signs that Wall Street may finally be coming back to life is an increase in corporate finance activity.  Unfortunately, a lot of folks apparently need to dust off their old compliance books when it comes to private placements.  Once again, if you are going to accept funds/securities from customers you better make sure that the terms of your membership agreement permit it --- otherwise you will be charged with a higher net capital requirement and be deemed to be out of compliance during the period the deal is in play.

Cardinal Capital Management, Inc., and Christopher Alan Sweeney
(AWC/C07040073/October 2004)

Acting through Sweeney, the Cardinal 

• failed to prepare a written needs analysis and training plan for the calendar year 2000;
• permitted at least two representatives to act in registered capacities while their registrations were inactive due to their failures to satisfy the Regulatory Element of their Continuing Education Requirements; and
• filed five quarterly reports in an untimely manner.

Cardinal failed to maintain correspondence of its registered representatives relating to its investment banking or securities business. The Firm conducted a securities business while it failed to maintain its required net capital, inaccurately calculated its net capital, maintained inaccurate books and records, and filed inaccurate FOCUS reports. 

Bill Singer's Comment:

Hard to believe that in this day and age a firm would miss such basic compliance obligations.  Once again, folks, make sure you prepare your written needs analysis and training plan. If you haven't figure it out by now, that's one of the things the NASD routinely seeks.  Also, the NASD will check to see that everyone has satisifed their CE requirements.  Finally, you have to have a correspondence file.

Brookstreet Securities Corporation and Stanley Clifton Brooks 
(AWC/C02040031/October 2004)

Bill Singer's Comment:

An interesting fact pattern:  The U4 apparently disclosed some issue that implied that an RR was engaged in a private securities transaction.

Bossio Financial Group, Inc, and Alan John Bossio
(AWC/C8A040074/October 2004)

Bossio Financial Group commenced an offering of 2,000,000 shares of series C convertible preferred stock (Share) through the use of a private placement memorandum, which represented that the closing of the offering was contingent upon the subscription of a minimum number of Shares.  Pending said closing, all subscription funds would be held in a "segregated, interest bearing escrow account" by the firm and "will not be released to the company (or any selling commissions or finder's fees paid) until at least $500,000 of the Shares are sold." The document further stated that "unless at least $500,000 of Shares are sold by the Offering Termination Date, all of the investors' funds and interest earned thereon while they were deposited into that escrow account will be returned to them" by the firm. However,  funds were deposited into a bank account in the name of the company and the signators on the segregated account were Bossio and another individual.

Acting through Bossio, the firm

• permitted the release of $130,000 before collecting $500,000 from investors;
• rendered false and misleading representations in the memorandum and subscription agreement that the purchaser's funds would be held in a segregated, interest-bearing escrow account and would not be released to a company (or any selling commissions or finder's fees paid) until at least $500,000 of Shares were sold;
• failed to properly escrow purchasers' funds in a segregated account from June 28, 2002 to July 11, 2002;
• improperly forwarded the funds to the company prior to the collection of the required minimum purchases; and
• received and held customer funds in a bank account while failing to open and use a special reserve bank account for the exclusive benefit of customers that meets the requirements of SEC Rule 15c3-3(f), and failed to compute the member's special reserve requirement pursuant to SEC Rule 15c3-3.

The firm used the mails or other means or instrumentalities of interstate commerce to effect transactions in securities, or received and held customer funds or securities, while the firm failed to maintain the minimum required net capital.  Further, the firm filed with NASD a FOCUS Part IIA Report that was inaccurate in that, among other things, the report overstated the firm's net capital. The firm received funds from public customers for the purchase of shares of securities and held the funds in a bank account that was, in part, controlled by Bossio; while pursuant to the membership agreement, the firm agreed that it would not hold customer funds and operate pursuant to the exemptive provisions of SEC Rule 15c3-3(k)(2)(i).

Bill Singer's Comment:

This is all pretty basic stuff but folks continue to screw up segregation and escrow requirements --- and then are shocked to find out that it has a nast Net Capital impact.  Given the circumstances, the sanctions were quite reasonable.

American National Municipal Corporation and John Thomas Ford
(AWC/C02040034/October 2004)

Fined $10,000 joint/several

Bill Singer's Comment:

Another in a growing line of cases starting to hold individuals liable for failure to timely report 3070 matters.

Kirlin Securities, Incorporated , Anthony Joseph Kirincic , AiLin Khoo Dorsey , 
Paul Thomas Garvey , and Brian Francis McEnery
 (AWC/CAF040063/October 2004)

Acting through Kirincic, the firm failed to 

• establish and maintain an adequate supervisory system in connection with the advertising, sale, and distribution of Brady Bonds. (The written procedures failed to identify how the firm's principals were to review transactions for excessive pricing and markups, when such a review should take place, and how to determine markups if the firm was dominating and controlling the trading of a security.); and 
• maintain either hard or electronic copies of Brady Bond inventory sheets and discarded the sheets on a daily basis. 

Also, Kirincic failed to enforce or delegate the responsibility of enforcing the firm's procedures relating to review of equity securities transactions.

The firm and its employees failed to give public customers best execution on trades when it took "trading profits" and when it executed principal transactions at prices less favorable than the prevailing inter-dealer price at the time of the trade. 

The firm, Garvey, and McEnery charged excessive amounts on principal transactions and failed to take into account factors identified in NASD Rule IM-2440 (The Mark-Up Policy) that should be considered in determining the fairness of charges. Dorsey, as a registered principal, reviewed and approved the amount charged on each of the transactions.

Dorsey failed in her supervisory duties in her review of documents and knew, or should have known, that the majority of customer trades involved large undisclosed concessions taken by the firm in addition to commissions, markups, or markdowns, and failed to make reasonable inquiry into the transactions or conduct adequate follow-up.  As the registered principal responsible for reviewing and approving the amount charged on transactions, Dorsey failed to take appropriate action to ensure that the firm's charges to customers were reasonable.

The firm failed to 

• maintain books and records; 
• maintain trading tickets of customer's transactions; 
• maintain accurate records of the time of receipt of the customer's orders and the instructions the customer gave in making the orders; 
• make and keep memoranda of each order;
• mark limit orders and market orders with restrictions and the conditions of each order and trading tickets; 
• accurately record the terms and conditions on the customer's limit orders; 
• keep identifiable contemporaneous records showing whether an order was a market order or a limit order;

• establish and maintain a supervisory system reasonably designed to achieve compliance with NASD rules relating to charges to customers;

• reflect how the factors enumerated in NASD Rule IM-2440 should be taken into account;

• conduct an annual review of an Office of Supervisory Jurisdiction;

• failed to report, and to report timely, statistical and summary information regarding written customer complaints pursuant to NASD Rule 3070;
• properly notate whether a sale was "long" or "short" on order memoranda for sell transactions;
• report properly certain equity security transactions in a timely manner with all correct modifiers;
• report correctly the price at which transactions were executed; and
• report transactions reviewed to the Fixed Income Pricing (FIPS) reporting system.

The firm's records failed to reflect unsolicited orders.  Additionally, time stamps on orders failed to reflect the time the customer placed the order; and the firm reported transactions before it time-stamped order tickets and executed the transactions before it time-stamped the orders as received.  The firm sent confirmations to public customers that failed to disclose profits the firm received. 

• Trades with customers in which the firm  did not take secret profits were treated as riskless principal transactions but  the customers were given confirmations inaccurately describing the trades as principal transactions. 
• Also, in agency cross trades, the firm sent customers confirmations that failed to disclose the amount of all commission or remuneration and either the name of the person from whom the security was purchased, to whom it was sold, or the fact that such information would be furnished upon request. The firm reported or confirmed the trades as principal transactions and did not submit either a clearing-only report or a non-tape, non-clearing report in principal trades with public customers in which the firm did not take undisclosed profits; reported trades as principal transactions even though the trades were riskless cross trades; failed to submit or confirm trades with customers to ACT; and reported one transaction more than 90 seconds after execution.

The firm failed to establish and maintain supervisory procedures reasonably designed to achieve compliance with federal securities laws and NASD rules relating to interpositioning, front-running, best execution, books and records, and trade reporting requirements. Further, the firm failed to designate principals with supervisory responsibility for interpositioning and for implementing procedures when front-running was detected. 

Censured; Fined $155,800; 

Ordered to 

• pay $1,044,732.35 in restitution to public customers, $26,185.39 jointly and severally with Garvey, and $48,107.99 jointly and severally with McEnery; 
• file all sales literature and advertising with NASD's Advertising Regulation Department at least 10 days prior to their first use for one year from the date of acceptance by the National Adjudicatory Council (NAC) of the Letter of Acceptance, Waiver, and Consent (AWC); and 
• retain an independent consultant to review and make recommendations concerning the adequacy of the firm's supervisory and operating procedures as they relate to review of advertising and sales literature, books and recordkeeping, corporate debt, municipal securities, and equity transactions, including markups, markdowns, and commissions charged. 

Fined $25,000; Suspended 30 days in a Series 24 capacity. 

Fined $15,000; Suspended 20 business days in a principal or supervisory capacity. 

Censured; Fined $10,000; Ordered to disgorge $26,185.39 jointly and severally with Kirlin Securities; Suspended for 14 days in all capacities.

Censured; Fined $10,000; Ordered to disgorge $48,107.99 jointly and severally with Kirlin Securities

Bill Singer's Comment:

Certainly a sweeping action that goes to the core of charges to customers.  In-house compliance staff should set up a checklist of the items noted in this case and apply them to their own firm's practices.