NOTE: Offers of Settlement (OS) and Letters of Acceptance, Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions and to the entry of findings.

2005
NASD CASES OF NOTE 

 

John Yasushi Hasegawa
AWC/2005000435802/December 2005

Hasegawa received a prospective public customer referral from an unregistered person, then paid the unregistered person a referral fee. Hasegawa engaged in electronic communications with customers from his personal computer, but failed to provide notice to his member firm, preventing the firm from discharging its obligations to review and retain outgoing correspondence relating to its securities business.

Censured; Fined $10,000

Bill Singer's Comment: I still don't understand why you can't pay finder's fees provided you disclose the conduct in writing to all parties.  Moreover, I'm not sure that the NASD has this issue exactly correct --- I thought you couldn't pay a "transaction related" fee (for example, a percentage of a commission) to an unregistered person but that under certain circumstances a flat or nominal fee (not related to any transaction) was okay.  For example, why shouldn't an RR be allowed to pay $10 per new account opened?  Frankly, I think this is yet another perfect example where the NASD needs to better explain its decision and provide some minimal detail.  

Finally, here is yet another case in which we see growing regulation of online conduct.  Folks, ask yourself before you use your computer to send any message or post any comments whether your conduct could be deemed "relating to the securities business."  It's not as clear-cut a question as you may think.

Melissa Jean Williams
C8A20050022/December 2005

Williams submitted a falsified Series 7 examination score report to her member firm and failed to respond to NASD requests for information and documents. 

Barred

Bill Singer's Comment: And as 2005 comes to a close, we find yet another case in which someone thought they had found a new and improved way to pass a registration exam.  See Levardsen, Raymond, and Tedeeva for additonal examples of this not-so-clever approach.
Terry Shane Taylor 
AWC/2005000771001/December 2005

Taylor caused public customersí accounts to be charged fees for investment advisory services that they had not authorized and did not receive, by forging, or causing to be forged, customersí signatures on various documents to authorize the fees to be charged. He failed to respond to NASD requests for information.

Barred

Palit Paul Suranakapan
AWC/E022004064901/December 2005

Surankapan falsified and forged customer signatures on authorization letters and converted $24,000 of customersí funds without the customersí knowledge, authorization or consent. In an attempt to conceal his misconduct, changed the address of one of the customerís accounts and, when the customer became aware of the unauthorized change of address and a wire transfer from the customerís account, he created and sent the customer a letter on his member firmís letterhead, without the firmís knowledge, authorization or consent, falsely representing that the wire transfer was due to a firm system error which was then corrected. 

Barred

Raymond James Morrison, Jr.
AWC/E9B2004040001/December 2005

Morrison received $750 from public customers to pay the premium on a homeowner policy; instead, he deposited the funds to his personal checking account without the customersí knowledge or consent.

Barred; Required to pay $750 in restitution

Bill Singer's Comment: It's not that this is a noteworthy case; to the contrary, it's far too typical of the rather mundane frauds perpetrated upon the public.  I simply note it here because its banality is such that it serves a valuable lesson.  Even something as mundane as a premium payment can be stolen or converted.  Thankfully, the overwhelming majority of Wall Street employees are decent, hardworking, and honest folks.  Still, when it comes to money, you just never know.
Brian Robert Mitchell 
OS/CLI20050009/2005001017102/December 2005

Mitchell, an associated person, prepared and issued, or caused to be prepared and issued to the trustees of the customer account, false account statements, confirmation statements and Forms 1099 of the Internal Revenue Service that purported to represent the performance of the customer account to conceal his misconduct, and that overstated the value of the customerís account by several million dollars. 

Barred

Bill Singer's Comment: Not to be a nitpicker, but this is getting annoying. Why would an associated person --- presumably one not getting commissions --- engage in this subterfuge?
Terrence Edward Maryniw
AWC/E8A2003082802/December 2005 

Maryniw purchased securities in the securities account of a stockbroker, who was registered at a different NASD firm than Maryniw --- and he did so without notifying 

  • the other NASD firm that he was associated with an NASD firm, and 
  • his own firm that he had a beneficial interest in the other brokerís securities account

Maryniw participated in a private securities transaction in that he failed and neglected to give written notice to his employing NASD firm, and failed to receive written approval from his firm, prior to engaging in such activity. 

Fined $5,000; Suspended 10 business days in all capacities

Michael Louis Lieb
AWC/E8A2004063701/December 2005

Lieb attempted to compensate a public customer for penalties incurred when withdrawals from the customerís IRA account were not returned to the account in a timely manner. Lieb wrote a personal check payable to the customer without informing his member firm that he had attempted to compensate the customer, and without obtaining authority from his firm to settle the loss in this manner. 

Fined $5,000; Suspended 10 days in all capacities.

Bill Singer's Comment:  Grrrr!!!!  Why can't the NASD just provide a few facts to explain what happened.  What do you mean "attempted to compensate" --- like, what --- Lieb wrote the check, gave it to the client, and for some reason it wasn't deposited?  And why weren't the withdrawals timely returned.  And were these withdrawals made by the client?  As they used to say on the television show Dragnet:  Just the facts
Patricia Anne Kwan
AWC/E9B2003045001/December 2005

Kwan obtained CDSC waivers for customers by misrepresenting that they were disabled. The waivers deprived mutual fund companies of fees that they were otherwise entitled to, and that caused her companyís books and records relating to the redemptions to contain false information regarding the customersí disability statuses. Also, Kwan exercised discretion in public customersí accounts of without written authorization.

Barred

Bill Singer's Comment:  The first one of these cases I recalled seeing was in April, and now we have a second.  My guess is that this is an area that has fallen under regulatory scrutiny. See the Levy case for similar facts.
Donald Jordan Haskell
 AWC/E0220040658-01/December 2005 

Haskell participated in private securities transactions without providing written or oral notification to, or receiving prior written approval from, his member firm. He settled a customer complaint and did not inform his member firm of the customerís complaints, or of his agreement to personally help repay the notes to the customer. 

Fined $5,000; Suspended 6 months in all capacities; Requalify as General Securities Representative

Craig Tyson Feltz
OS/E102004085603/December 2005

On behalf of his member firm, Feltz obtained a subordinated loan agreement for $5 million, but then entered into a side agreement with the lender that contradicted the terms of the secured demand note. The side agreement states that Feltz, on behalf of the firm, would not attempt to pledge, hypothecate or encumber the collateral for the note and that, in furtherance of the side agreement, a limited power of attorney was signed giving the lender control of a bank account containing the funds used for collateral. Feltz, on behalf of the firm, filed the required documents with NASD to get approval of the $5 million subordinated loan for net capital purposes without disclosing the side agreement and power of attorney to NASD. If the filing had not been misleading, NASD would not have approved the demand note. As a result, the firm was allowed to conduct business for over a year until NASD learned of the side agreement and power of attorney. When NASDís approval was rescinded, the firm was forced to cease doing business for lack of adequate net capital. 

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

Bill Singer's Comment:  We just don't see many sub loan cases from NASD, and any decision involving one is normally noteworthy.  If lenders are given assets of a broker-dealer either directly or indirectly to collateralize subordinated loans, the loans do not qualify as satisfactory subordination agreements pursuant to Appendix D of SEC Rule 15c3-1 and cannot be considered part of a firmís capital.  Once again, I'm sorry to keep harping, but NASD must really do a much better job explaining its decisions.  There is simply no mention in the official report as to why the above scheme is a violation --- not a single cite to any rule or regulation . . . I shouldn't be doing the SRO's homework.
Dean Anthony Esposito
OS/CLI20050015/ELI2003017305/December 2005

Esposito signed new account forms with the purported signature of another registered representative without his authorization. Esposito provided inaccurate, incomplete testimony during an NASD on-the-record interview. 

Barred

Hurson Belizaire, Jr. 
C10050026/December 2005

Belizaire published an unbalanced electronic bulletin board message on the Internet which failed to disclose material facts and to have sent a misleading, false, exaggerated and unwarranted e-mail to a public customer without his member firmís prior approval. Also, he failed to respond to NASD requests for information.  

Barred

Bill Singer's Comment:  What exactley did Belizaire post on the BB?  Which BB did he use and did he identify himself as affiliated with a BD?  Was the message pertaining to a security?  What was in the email to the client?  

I wish the good folks  at NASD would take a page from the NYSE's book and begin to give us just a tad more meaningful information.  Again, don't take my word for it --- compare for yourself. For example, see the recent NYSE Romano case [Mitchell Allan Romano SFC/HPD 05-106/September 19, 2005]. Compare the NYSE's Romano decision with the NASD's Belizaire case, and you will see the chasm in reported information.  No, I'm not suggesting the NASD needs to issue as detailed a decision as the NYSE -- and I fully understand that the NASD's caseload is far more extensive than that of the NYSE; nonetheless, the devil is always in the details.

Sentra Securities Corporation
AWC/E3A2004007001/December 2005

The Firm

  • filed late, or did not file, amendments to the previously filed Forms U4 of persons registered with the firm and Forms U5 pertaining to persons formerly registered with the firm;
  • failed to report, or reported late, matters that required disclosure within 10 days as required by NASD;
  • reported late, did not report or inaccurately reported matters required to be included on quarterly statistical reports; and
  • paid transaction-related compensation to a person previously, but no longer, registered with the firm. 

Individuals of the firm who were required to participate in an annual compliance interview did not. Written supervisory procedures documenting the supervisory system did not assign a principal with the responsibilities for the review of the firmís supervisory system and procedures and for making recommendations to the firmís management for changes to them; and the firm did not consistently and systematically enforce some of its written supervisory procedures. In addition, the firmís supervisory system and procedures for its municipal securities business did not include provisions for record retention, new municipal securities accounts, transaction reporting, suitability reviews and mark-up reviews. 

The firmís supervisory system and procedures were not reasonably designed to 

  • achieve compliance with applicable rules;
  • oversee the activities of the firmís geographically dispersed sales force;
  • assure that proper steps were taken to review the conduct of persons whose histories in the securities business indicated the propriety of heightened supervision;
  • assure that proper steps were taken to recover firm records and property from persons whose registrations were terminated; and 
  • timely report information required by NASD. 

Censured; Fined $122,500

Bill Singer's Comment:  Geez . . . all that for only a measly $122,500 in fines?  Either the NASD has engaged in a bit of overkill in describing the facts (not that they would ever do that) or Sentra was ably represented by a defense lawyer with backbone.  Nonetheless,  an interesting year-end case that truly ties up many of 2005's regulatory themes.  Again we see an emphasis on timely filing of U4s/U5s.  We also see the enhanced focus on WSPs and supervisory systems.  Noteworthy is the implicit warning about what I call scalability issues --- is your firm so "geographically dispersed" that you may not be adequately supervising?  Harkens back to one of the earliest cases of the year: Olsen  

I was also struck by what was a fairly new charge; namely, that the firm had failed to "recover firm records and property" from terminated registered reps.  Frankly, I wish NASD had explained this one in a bit more detail.  What exactly was the issue here --- that "confidential" records involving customer information had been taken?  

Pruco Securities, LLC.
AWC/E9B2003004301/December 2005

Pruco failed to file certain amendments to Forms U4 and U5 in a timely manner, and filed Forms U5 for terminated registered representatives late. The firmís supervisory system and procedures were not reasonably designed to achieve compliance with its reporting obligations. 

Censured; Fined $550,000; Required to conduct internal audits to evaluate the effectiveness of its system for ensuring compliance with the reporting obligations of the Uniform Applications for Securities Industry Registration or Transfer (Form U4) and the Uniform Termination Notice For Securities Industry Registration (Form U5); and an officer of the firm must certify that such audits have occurred, that recommendations from the audits have been implemented, and that the firm has established systems and procedures reasonably designed to achieve compliance with NASD reporting requirements.

Bill Singer's Comment:  Interesting case at year end --- sort of underscores NASD's ongoing message this year about the need to timely amend/file U4s and U5s.  Note the sanction imposed an internal audit obligation upon the firm to ensure that it is evaluating the "effectiveness" of its system.  Moreover, note that an officer of the firm must certify the occurrence of such audits and the implementation of recommendations.  
Susanne Smith Pruitt (Principal)
AWC/E3B2003029701/November 2005

Pruitt failed to preserve memoranda brokerage orders and any other instruction given or received for the purchase or sale of securities, whether executed or unexecuted. 

Acting on behalf of her member firm, Pruitt also failed to

  • preserve any of the firmís internal or external email communications;
  • print and review the firmís email as required by the firmís written supervisory procedures; and
  • implement her firmís written supervisory procedures for review of email correspondence.

Censured; Fined $20,000 ($5,000 joint/several with Firm)

Bill Singer's Comment:  As part of the NASD's apparent shift towards holding Principals responsible for an increasing range of lapses, we see yet another example of this trend in action.  Here, Pruitt was fined for for failure to preserve orders and emails.  Note that the email violations cover the full range: failure to preserve internal AND external email; failure to print/review the emails as required by the WSPs; and failure to implement the WSP's provisions concerning email review.

Pardon me for a bit of sarcasm here, but, geez, you can't pile on in football but on Wall Street the regulators always seem to get in a couple of extra, late shots. Look, charge her with failing to preserve the orders. That's okay. Charge her with failing to follow the WSPs as pertaining to printing and reviewing emails.  But, come on folks, isn't it just a bit gilding the lily to also charge for failing to "implement" WSP procedures for failing to review emails when you already charged here with failing to review those same emails in accordance with the WSPs?  

Ryan Christopher Stewart 
AWC/2005001807801/November 2005

Stewart accepted a $5,000 loan from a public customer without obtaining prior written approval from his member firm to borrow the funds. Also, Stewart failed to respond to NASD requests for information. 

Barred

George Margossian
AWC/20050007348-01/November 2005

While acting as treasurer of a business networking organization, Margossian forged the signature of the organizationís president on a company check, cashed the check and misappropriated $700 of the organizationís funds.

Barred

Richard Leaf Levardsen
A
WC/E102004117601/November 2005

Levardsen took the NASD Series 7 examination, received a failing score of 45 percent, then altered the proctorís report to reflect that he received a failing score of 65 percent. He then presented the altered proctorís report to his firmís managers, thereby misrepresenting that he had received a higher score than the one he actually received.

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

Bill Singer's Comment:  You know, I was going to say something.  It's really hard to resist in the face of such stupidity.  But sometimes you laugh so hard that you just have to stand up and applaud the boundless limits of human ingenuity and imagination.  Also, take a look at Raymond and Tedeeva.
Thomas Garcia Lara, Jr.
OS/#E3A20040328-03/November 2005

Lara prepared and submitted requests for reimbursement to his member firm for business travel expenses totaling $26,268 that he did not incur, and accepted the reimbursement payment knowing that he had not incurred the expenses for which he was being reimbursed. 

Barred

Mark Augustine Kollar (Principal) 
AWC/E072004033901/November 2005

Kollar accepted $54,449 in compensation from an insurance company unaffiliated with his member firm for the sale of an annuity and an insurance policy to a public customer without providing notice to his member firm.

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

Joseph Eugene Hamlet
AWC/2005000738701/November 2005

Hamlet settled verbal customer complaints without informing or obtaining authorization from his member firm. 

Fined $5,000; Suspended 3 months in all capacities

Robert Glenn Bard (Principal)
AWC/E9A2004043301/November 2005

Bard 

  • signed public customersí names on client agreements/new account forms, discretionary power forms, variable annuity purchase applications and related documents, and third-party management agreements without the authority to sign the names;
  • obtained signature guarantees for some of the signatures, notwithstanding that some of the signatures were fake;
  • effected transactions in customersí accounts based on oral or written discretionary power the customers had granted him but failed to obtain his member firmís acceptance of the discretionary power; and
  • effected a purchase of a variable annuity on behalf of a customer and guaranteed a minimum investment return, both orally and in writing. 

Barred

Bill Singer's Comment:  I'm just plum tuckered out and tired of writing up yet another annuity case involving forged signatures.  Trust me, there are far more NASD annuity/forgery cases reported this year than you'll find on this 2005 page.  Fact is, if it's mere repetition I don't see any point in simply posting yet another iteration of the same violation with the same sanction.  Nonetheless, this case should serve to remind you of the mess that's out there in the annuity sector.  Don't blame the NASD for doing its job.
Meyers Associates, L.P.
OS/CE2050003/November 2005

The Firm failed to comply with 

  • its discovery obligations by failing to produce, in a timely manner, documents in its possession or control that were requested by the claimant; and
  • orders issued by an arbitration panel requiring the firm to produce documents in its possession or control, or to submit an affidavit from its CEO providing specific information related to the production of documents. 

Censured; Fined $25,000; Required to revise its written supervisory procedures to notify all counsel representing the firm in arbitration proceedings of the firmís policy to comply with discovery requirements as set out in the Code of Arbitration, and to comply with all orders of arbitration panels relating to discovery obligations

Bill Singer's Comment:  Even as jaded an industry pundit as I am sits up every once in a while when an odd case comes across my desk.  You rarely see NASD (regulation) get involved in allegations of discovery abuses in an NASD arbitration.
Avalon Research Group, Inc. 
AWC/E072004009801/November 2005

The Firm issued research reports that failed to 

  • adequately disclose the valuation method used to determine price targets;
  • adequately disclose the risks that may have impeded achievement of the price targets;
  • contain disclosures on the front page of each report; and 
  • prominently display the reference to the pages on which the disclosures were located.

In consideration of the above lapses, the Firm failed to present the required disclosures in a clear, comprehensive and prominent manner. 

Censure; Fined $10,000

Bill Singer's Comment:  One of the big pains for supervisors dealing with research analysts, is that the analyst tend to whine about why they have to do "this" and have to do "that."  Well, here, in fairly terse language, the NASD provides a checklist for the use of price targets.  Next time an analyst complains about your editing of his/her report --- show 'em what the NASD says has to be in there.
Northwestern Mutual Investment Services, LLC and Diane Barbara Horn (Principal)
C8A030071/November 2005

Respondents violated Rule 3070 by failing to timely report customer complaints to NASD as statistical and summary information. 

The Firm failed to 

  • properly train its registered representatives and other personnel with respect to the handling of customer complaints;
  • adequately maintain and enforce supervisory procedures; 
  • timely report customer settlements; and
  • failed to timely amend a former registered representativeís Uniform Termination Notice for Securities Industry Registration (Form U5). 

Northwestern Mutual Investment Services, LLC: Censured; Fined $110,000

Diane Barbara Horn: Censured; Fined $15,000

Bill Singer's Comment:  Without question the NASD has clamped down on 3070 reporting lapses this year.  Moreover, there is a clear focus on a firm's intake of customer complaints and timely processing of same.
Kuhns Brothers Securities Corporation and John Douglas Kuhns (Principal)
AWC/E112004010401/November 2005

Acting through Kuhns, the Firm 

  • violated the membership rules by initiating a 50 percent transfer of its ownership to another person without giving prior notice, and without NASD approval; 
  • failed to comply with their claimed exemption under Section 15(c) of the Exchange Act in that during various periods of time, the firm acted as the placement agent for a private offering and held customer funds in a firm bank account; 
  • used the instrumentalities of interstate commerce to conduct a securities business while failing to maintain its minimum required net capital; and
  • failed to make, maintain and preserve required customer information records and/or subscription agreement documents for offering investors. 

Kuhns Bros and Kuhns: Censured; Fined $15,000 joint/several

Bill Singer's Comment:  I'm noticing a bit more of this Membership Agreement cases involving transfers of assets/ownership issues.  As the findings state, you need to give prior notice AND obtain NASD approval of changes of control.
David Lerner Associates (DLA), SSH Securities, Inc (DLA Affiliate), David Lerner(Principal), and John Dempsey (Principal)
October 2005

Without admitting or denying the allegations, the firms and individuals consented to NASD's findings of advertising and supervisory failures and agreed to the imposed sanctions.

In a September 2004 complaint, NASD charged DLA and David Lerner with using 11 radio advertisements and other communications between May 2001 and May 2003 that contained numerous statements and claims that were misleading, exaggerated or unwarranted. The firm advertised heavily on New York metropolitan area radio stations with 60-second spots that ran several days a week, frequently throughout the day. DLA spent $2.3 million during the review period on radio ads, which represented 71 percent of its total marketing expenditures. As the spokesman for the firm, David Lerner narrated all of the ads. A recurring theme of the radio advertisements was the concept of ďproviding returns of 10 percent and moreĒ to ďtens of thousandsĒ of customers. 

  • ďFor 25 years, we at David Lerner Associates have provided tens of thousands of people with investments that, even in these turbulent times, continue to pay over 10%.Ē 
  • ďWe are currently providing returns of 10 percent and more in investments that have nothing to do with the stock market.Ē 

The firmís advertisements also suggested that individuals who invested with DLA would retain the value of their assets regardless of market conditions, or would regain prior losses sustained in the stock market downturn in 2000. 

  • ďWhile past performance can never be a guarantee of future results, we at David Lerner Associates are proud and pleased that for 26 years, tens of thousands of our investors have been receiving high income and solid returns regardless of whether interest rates or the stock market went up or down.Ē 
  • ďBy counseling them to select value-oriented investments, our clients have not only weathered the financial storm, they have actually seen their income grow and their assets more than hold their value.Ē 

Like radio advertising, investment seminars were also important to the firmís marketing efforts. During the relevant period, the firm conducted approximately 70 to 80 seminars for the public, with Lerner appearing as the principal speaker at each seminar. As with the radio ads, the firm did not have factual support for many of the claims and also failed to disclose material information. 

SSH Securities, Inc. prepared inaccurate fact sheets distributed by DLA to promote its Spirit of America proprietary family of mutual funds. 

Dempsey, the principal of DLA responsible for approving advertisements, failed to discharge his supervisory responsibilities. 


David Lerner Associates: Fined $115,000; Ordered not to conduct any public seminar for 30 days; Ordered to pre-file all sales literature and advertisements with NASD's Advertising Regulation Department for at least 10 days prior to their first use for a period of 6 months

SSH Securities, Inc.: Fined $10,000

David Lerner: Fined $25,000

John Dempsey: Fined $25,000; Suspended for 30 days in principal/supervisory capacity

Bill Singer's Comment:  I dunno --- maybe I'm just too demanding, but the timeframes for the NASD's actions seem a bit excessive.  I mean, come on, the "misleading, exaggerated or unwarranted" advertisements (what...they couldn't find any more adjectives???) first ran in May 2001.  In case you don't have a calendar handy, that's about four and a half years before the date the NASD announced the settlement of this case. And of course that's also about 13 months from the date of the issuance of the Complaint.  Frankly, these are somewhat iconic radio spots in the NYC market.  I've been listening to Lerner's radio ads for years.  I never thought they were over the top and if NASD objected to "pay over 10%," I'm wondering why they couldn't have contacted the firm, raised that pointed concern, and "jawboned" a change rather than filing charges.  Additionally, it would be nice if the NASD press release made just a bit more of an effort to note that Lerner's radio ads promoted investments in bonds --- hence, the repeated references to the poorly performing "stock" market and stock market's conditions.  

Alas, there's so much we don't know from those fairly circumspect NASD press releases.  Hey guys, maybe spend a bit less time looking up synonyms and a bit more time on improving your response times.  

Matthew Gary Winslow (Principal) 
AWC/E062001028601/October 2005

Winslow engaged in trading activities that resulted in negative equity balances in his accounts totaling $750,000. His financial inability to eliminate the negative equity balances in his accounts caused his member firm and the clearing firm to incur substantial losses. 

Suspended 30 business days; Ordered to comply with the terms and conditions of the General Release and Settlement Agreement with the clearing firm.

Bill Singer's Comment:  If I'm reading this decision correctly, after Winslow trashed his own accounts to the tune of $750,000, he was unable to pay the debit --- but that this was as clear from the NASD's baffling turn of the phrase "financial inability to eliminate the negative equity balances in his accounts . . ." Hey guys and gals, ever heard of plain English?  Most interesting is the Order to comply with the terms of an apparent settlement Winslow entered into with the clearing firm.  Might have been nice if NASD gave us some details as to what he failed to comply with.  I simply can't figure out if he was suspended for incurring the $750,000 debt and not paying it; or if he was suspended for failing to honor a settlement agreement.  
Brad David Wilson (Principal)
C0720040086/October 2005

Wilson affixed a notary publicís signature and seal without the knowledge or authorization of the notary public. 

Fined $5,000; Suspended 60 days in all capacities.

Bill Singer's Comment:  Using a notary's signature/seal without authorization is among the more idiotic things you can do.  The ramifications can be explosive.  See these other cases: Kelsey, Harper, and Mizenko
David James Swiat
AWC/E8A2004068801/October 2005

Swiat received $300 in cash from a public customer for investment purposes and failed to promptly use the customers funds as instructed. Swiat created and gave to the customer a fictitious order ticket and a fictitious receipt on which he signed his member firmís branch office managerís name without his knowledge or consent. He misused customer funds by failing to follow instructions, in that he used the funds for some purpose other than the benefit of the customer. 

Barred

Glen Joseph Santangelo
AWC/E1020031690-01/October 2005

Santangelo disseminated, by email, material confidential and non-public information to different institutional customers concerning stock preferences and trading for other large institutional customers. Santangelo improperly disseminated, by email, draft research reports to institutional customers without the prior approval of a registered principal of his member firm. 

Fined $50,000; Suspended 60 business days in all capacities

Kendra Ann Reed
AWC/E9A2004025401/October 2005

Reed did not disclose to her member firm that the data on the applications for public customersí variable life insurance had been altered by her and was not the product of the paramedical examiner.

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

Gary Allen Randa
AWC/E8A2004082401/October 2005

Randa fraudulently obtained a public customerís checkbook without the consent or knowledge of the customer, forged the customerís signature on deposit slips and checks totaling $60,500, made them payable to himself, and deposited the funds in his bank account, thereby converting the customerís funds to his own use and benefit. 

Barred

Michael Jay Margolis
AWC/ELI20040383-01/October 2005

Margolis commingled a public customerís funds with his own in that he deposited $10,000 in cash from a customer into his personal bank account and simultaneously had the bank issue a $9,990 check, and used the check to pay the semi-annual premium for a variable life insurance policy owned by customerís wife. 

Fined $2,500; Suspended 15 business days in all capacities

Bill Singer's Comment:  My, my, my --- how clever.  Did he stay up all night coming up with this scheme to avoid the need to declare a $10,000 cash deposit?  I'm just surprised that he didn't just make it $9,999.
David Benjamin Lazarus (Principal)
AWC/2004200001804/October 2005

Lazarus knowingly and intentionally 

  • entered priced limit orders to buy or sell shares of NASDAQ securities into an Electronic Communications Network (ECN) at prices that he knew would improve, and were intended to improve, the National Best Bid or Offer (NBBO) in such securities; and 
  • bought and sold shares of these securities at prices that were lower than he would otherwise have been able to buy, thereby obtaining a financial benefit. 

Lazarus caused to be published or circulated 

  • limit orders at prices that affected the NBBO and became quotations for the securities, without believing that those quotations represented bona fide bids or offers for the securities; and
  • purchases and sales of securities that he did not believe were bona fide purchases and sales

Fined $30,000; Suspended 42 days in all capacities; Ordered to disgorge $1,413.35 (plus interest)

David Ray Kelsey
AWC/20050006024-02/October 2005 

Kelsey asked a colleague to notarize 401(k) rollover forms, knowing that the signatures for the participantsí spouses were not genuine.

Fined $5,000; Suspended 6 months in all capacities; Required to requalify in all capacities

Bill Singer's Comment: See Mizenko, Harper and Wilson cases.  
Richard Francis Huston
AWC/E9B2004018301/October 2005 

Huston photocopied a public customerís signature onto nine trading authorization forms used in connection with penny stock transactions without the customerís knowledge or consent. 

Fined $5,000; Suspended 60 days in all capacities

Roger Dean Harper, Jr
AWC/20050006024-01/October 2005

Harper knowingly notarized 401(k) rollover forms that contained non-genuine signatures. 

Fined $10,000; Suspended 18 months in all capacities; Required to requalify

Bill Singer's Comment: See Kelsey, Mizenko  and Wilson cases.  
Douglas William Daniels
AWC/E9B2004050101/October 2005

Daniels invested $5,000 in a variable annuity that required a minimum investment of $10,000 for a public customer with the notation that it was an initial deposit and additional funds would follow. When the insurance company failed to receive the additional $5,000, it issued a check canceling the customerís application and returned the initial deposit. Without the knowledge or consent of the customer, Daniels negotiated the $5,000 check and misappropriated the proceeds to his own use and benefit.  Daniels failed to respond to NASD requests for information.

Barred

Bill Singer's Comment: I wish the NASD would not have left the recitation of the facts at such a pregnant point.  I can't figure out whether Daniels scammed the client by getting the $5,000 with the intent to NOT deposit the necessary additional $5,000, and to then misappropriate the first $5,000 by improperly negotiating the returned investment.
Thomas Michael Aretz
AWC/2005001180902/October 2005

Aretz borrowed $25,000 from a public customer in contravention of the firmís written procedures, and although he repaid the loan with interest, he did so only after the customer complained to NASD and his firm. 

Fined $5,000; Suspended 60 days in all capacities.

Bill Singer's Comment: Ummm . . . lemme see if I can explain this.  One, it ain't a good idea to borrow money from a client.  Two, if you have to borrow money from a client make sure it's in full accordance with your firm's written policy.  Three, you really want to repay the principal borrowed from the client on a timely basis.  Four, you really want to pay all the interest due to the client on a timely basis.  Five, you really don't want the client to complain the your firm that you haven't complied with steps #3 and #4 above (thereby notifying your firm that you didn't comply with Step #2.  Six, you really don't want the client to complain to the NASD that you haven't complied with steps #3 and #4, and then have the NASD find out that you didn't comply with Step #2.  If you would like a written chart explaining the detailed steps noted below, please send an email request to bsinger@rrbdlaw.com, together with $24.95 to cover shipping and handling.
John Joseph Amore 
OS/E102004102402/October 2005

Amore engaged in securities transactions at his member firm that required him to be registered with NASD; and he failed to appear for an NASD on-the-record interview. 

Barred

1717 Capital Management Company 
AWC/E112002095801/October 2005

The Firm failed to enforce written supervisory procedures for special supervision of registered representatives who had a history of customer complaints.

Censured; Fined $25,000

Bill Singer's Comment: You see it's like this --- it's sort of understandable that a firm might not enforce some policies when it comes to an isolated customer complaint against a clean RR.  Hey, it happens.  However, when you've got an RR under "special supervision" and he/she has a "history of customer complaints" ... hmm... let's all think about this.  Okay, enough thought.  Yo!!!  The regulators will come down on you like a ton of bricks for inadequate WSPs under these circumstances. Duh.
Legacy Financial Services, Inc. 
AWC/E012004004501/October 2005

Firm failed to 

  • timely 
    • file disclosures for reportable events to NASD within 10 business days after learning of such events;
    • report complaints to NASD by the 15th day of the month following the calendar quarter in which the complaints were received; and 
  • promptly update Forms U4 and U5 for events that required regulatory disclosure. 

The Firm had inadequate written supervisory procedures relating to prompt reporting of events requiring regulatory disclosure filings. 

Fined $54,250

The Jeffrey Matthews Financial Group, L.L.C. 
AWC/E9B2004025501/October 2005

The Firm's supervisory system and procedures were not reasonably designed to ensure that the required written consent was obtained before pre-registration searches on WebCRD, and that the firm retained the required documentation. 

Censured; Fined $75,000

Bill Singer's Comment:See Millenium Brokerage case.  This looks like an area of increased NASD scrutiny.  Word to the wise.
Eastlake Securities, Inc.
AWC/E1020040133-01)/October 2005

The Firm developed and implemented an AML program that was not reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and the implementing regulations thereunder. Also, the firm allowed a representative to maintain his registration as a general securities representative through his purported association with the firm, when in fact he was not actively involved in the firmís securities business or otherwise functioning as a representative of the firm. 

Censured; Fined $10,000

Clayton, Dunning & Company, Inc.
AWC/E1020040891-01/October 2005

The Firm failed to develop and implement an AML program reasonably designed to achieve and monitor its compliance with the requirements by failing to implement an adequate customer identification program in that the firm did not adequately verify the identity of new customers. 

Censured; Fined $10,000

American Funds & Trust, Inc.
AWC/E3A2004003401/October 2005

Firm's anti-money laundering (AML) compliance program failed to implement procedures required by the firmís customer identification program by failing to establish and maintain records of information obtained and reviewed to verify the identity of 49 customers of 50 new accounts opened. The Firmís independent test of its AML program was limited to certain aspects of the firmís AML program as opposed to the entire program. 

Censured: fined $10,000

Viewtrade Securities, Inc. and James Joseph St. Clair, Jr., (Principal
AWC/E072003014001/October 2005

Acting through St. Clair, the Firm 

  • failed to establish, maintain and enforce taping procedures for supervising the telemarketing activities of all of its registered persons;
  • sent a signed ďcertification regarding special written supervisory procedures for compliance with NASD 3010(b)(2)Ē to NASD that contained material misrepresentations; 
  • failed to establish and implement policies and procedures that were reasonably designed to achieve compliance with the Bank Secrecy Act and regulations thereunder, by failing to have procedures to monitor accounts for described red flags, and failing to identify and adequately investigate suspicious activity in customer accounts despite the existence of red flags;
  • failed to establish, develop and implement an adequate supervisory system or procedures allowing the firm to monitor, achieve and retrieve instant messages sent and received by its registered persons, and the use by its registered representatives of email; and
  • failed to establish and maintain a system of supervision reasonably designed to ensure compliance with the rules of NASD and the applicable laws and regulations.

The firm also failed to obtain foreign bank certifications, and failed to have supervisory procedures designed to prohibit insider trading in accounts maintained for public customers.

Viewtrade Securities, Inc.: Censured; Fined $185,000 ($30,000 jt/sev with St. Clair); Required to retain an independent consultant to conduct a complete audit of the firmís policies, practices and procedures

James St. Clair, Jr.: Fined $30,000 jt/sev with Firm; Suspended 18 months in principal capacity

Presidential Brokerage, Inc., Anthony Joseph Campen (Principal) and Eric Joel Lempe (Principal)
AWC/E3A2002001601/October 2005

Acting through Campen, the Firm 

  • reported customer complaints with inaccurate information and failed to report, or reported late, matters that required disclosure within 10 days pursuant to NASD Rule 3070;
  • reported late amendments to Forms U4 and U5 and did not disclose information required to be disclosed on a Form U5;
  • failed to establish a supervisory system; and 
  • failed to establish, maintain and enforce written supervisory procedures reasonably designed to achieve compliance with applicable NASD rules pertaining to Rule 3070, reporting the timely and accurate filing of Forms U4 and U5, and the suitability of mutual funds share class recommendations. 

Acting through Lempe, the Firm recommended the purchase of mutual fund ďClass BĒ shares to customers for whom a recommendation of ďClass AĒ shares would have been economically more beneficial. 

Acting through an employee, the Firm failed to supervise the activities of registered representatives who were employing trading strategies with customers located abroad in a manner reasonably designed to achieve compliance with NASD rules. 

Presidential Brokerage, Inc.

Censured; Fined $70,000 jt/sev with Campen (includes $65,083 restitution); required to attest in writing that it complied with the requirements of NASD Rule 3070

Anthony Joseph Campen (Principal)

Fined $70,000 jt/sev with Firm (includes $65,083 restitution); Suspended 15 business days in principal capacity

Eric Joel Lempe (Principal)

Fined $224,618; Suspended 6 months in all capacities

Samuel John Trigillo
8A040082/September 2005

Trigillo affixed a customerís signature to securities related documents without the customerís knowledge or consent; and transferred a customerís funds from a fixed annuity to a variable annuity without the customerís knowledge or consent. Trigillo affixed another registered representativeís signature on customer forms without the registered representativeís knowledge or consent. In addition, Trigillo engaged in outside business activity without providing prompt written notice to his member firm. 

Barred

Victor Thomas Travaglianti
AWC/ELI20040403-03/September 2005

Travaglianti signed or affixed customer signatures on firm account documentation for public customers as an accommodation to the customers in question and failed to disclose this fact to his member firm. 

Fined $5,000; Suspended 9 months in all capacities

Bill Singer's Comment: Yet another example of where more information is needed in order to better understand the case.  It appears that Travaglianti had the customer's permission to sign account documents ("as an accommodation""-- otherwise, I assume the NASD would have charged him with the more serious "forgery." As best I can understand the facts here, Travaglianti didn't inform hi firm that he was signing for the client.  Okay, not the best course of conduct but if the client corroborates the signing was authorized, why is there a 9 month suspension?   Before you're so quick to put me in my place, look at the Hetzer case below where the NASD imposed only a 60 day suspension for someone who acted as an imposter--- pretended to be a client in connection with false complaints filed on both the SEC's and the NASD's websites. I'm not defending Travaglianti's conduct but the sanction seems awful severe.
David Bruce Medansky 
AWC/E3A2004024201/September 2005

Medansky obtained a credit card in the name of an individual by submitting an application and representing himself to be the individual. He then used the credit card to obtain goods, services or funds for his own benefit. He made payments on the cardís balance due, accepted an offer of a second credit card, and cashed a $500 promotional check drawn on the account of the credit card company payable to the individual. 

Barred

Bill Singer's Comment:  And this is an NASD regulatory matter because...what?  You better be careful if you jaywalk or spit on the street.
Kristin Stockmar Hetzer 
OS/C02040049/September 2005

Hetzer filed an anonymous complaint on the SECís and NASDís Web sites, posing as a public customer, without the customerís knowledge or consent. In addition to falsely identifying herself as the customer, the material allegations in the NASD and SEC Web site postings were false. 

Fined $5,000; Suspended 60 days in all capacities.

Bill Singer's Comment:  Geez, this is a really bizarre case.  On the one hand, I thought the whole point of encouraging "anonymous" complaints was to ensure that efforts aren't made to investigate a poster's identity.  I'm not sure that the public disclosure of this case is necessarily a positive thing---it may discourage future tippers.  On the other hand, what the hell did she actually post that got everyone so upset?  This is one of those matters where a bit more information would be helpful.
Gordon Trevor Gibson (Principal) 
AWC/E102003022304/September 2005

Gibson failed to ensure that his member firm accurately computed its net capital and complied with its minimum net capital requirement. 

Fined $2,500; Suspended 2 months in FINOP capacity

Bill Singer's Comment:  As I noted in August, I sense that NASD has decided to begin to suspend FINOPs with greater frequency than in the past.  Lo and behold, we now have the second such sanction in the past two months!  See the prior Stoever case.
Michael Charles Caska (Principal) 
AWC/#E102004102902/September 2005

Caska actively engaged in the management of a former member firmís investment banking or securities business without being registered as a general securities principal. Acting on behalf of his member firm, he failed to file an application with NASD prior to transferring 25 percent or more of the firmís assets or brokerage business to another NASD member firm. 

Fined $10,000; Suspended 15 business days in all capacities

Millennium Brokerage, LLC
AWC/E9B2003041708/September 2005

The Firm allowed 

  • allowed a representative to perform duties as a registered person while his registration with NASD was inactive due to his failure to complete the regulatory element of the continuing education program
  • permitted employees to function in a capacity that required fingerprinting under SEC Rule 171-2, but failed to submit fingerprint cards to NASD; 
  • failed to file Forms U5 for representatives in a timely manner, in contravention of Article V of NASDís By-Laws;
  • failed to establish, implement and enforce policies, procedures and internal controls that were reasonably designed to achieve compliance with all requirements imposed by the Bank Secrecy Act and books and records retention requirements. 

Also, the firmís supervisory system and procedures were not reasonably designed to ensure that the required written consent was obtained before pre-registration searches on Web CRD and that the firm retained the required documentation. The firm did not maintain and preserve all electronic instant messaging as required and failed to report trades within 90 seconds of execution.

Censured; Fined $125,000

Bill Singer's Comment:  See later Jeffrey Matthews Financial Group Case
Lincoln Financial Advisors 
AWC/C8A050067/September 2005

The firm received notice of events that were subject to the reporting requirements of NASD Rule 3070(a), but failed to 

  • report to NASD within 10 business days after it knew or should have known of the existence of the reportable events;
  • report customer grievances to NASD as statistical and summary information by the required deadline; and
  • prepare and maintain adequate written supervisory procedures to ensure compliance with NASD Rule 3070(a)

Censured; Fined $75,000

Ridgeway & Conger, Inc. 
AWC/E9B2004013201/September 2005

Acting through a representative, the firm permitted an individual to maintain his securities license with the firm although he was not actively involved in its investment banking or securities business, and permitted an individual to act as the firmís FINOP, although she possessed an inactive registration status with NASD. Also, the firm reported Trade Reporting and Compliance Engine (TRACE)- eligible securities and municipal securities transactions late or with the wrong MPID. 

Censured; Fined $10,000 (includes $5,000 jointly/severally with an unnamed individual)

Interactive Planning Corp. and Lawrence St. John York (Principal) 
AWC/E052003037401/September 2005

Acting through York, the Firm 

  • entered into an account purchase contract with a public customer that contained restrictive language prohibiting the customer from disclosing any information regarding the contract to securities regulators; and
  • failed to maintain a record of the complaints filed by a customer, failed to file the customerís complaint with NASD within 10 business days, and failed to amend Yorkís Form U4 as a securities representative to disclose a customerís complaint. 

Interactive Planning Corp. and Lawrence St. John York: Censured; Fined $10,000 joint/several

Bill Singer's Comment:  Compliance 101--you cannot prohibit a customer from cooperating with the regulators.  If you use such language in an agreement, you're going to get in trouble.  Please visit this page for citations to the applicable NASD Notices to Members on improper restraints on customer cooperation. September 2005 appears to be a watershed month for the NASD to focus on failures to properly intake and file customer complaints. 
Gryphon Financial Securities Corp. and Younis Zubchevich (Principal)
AWC/E072004006003/September 2005

Acting through Zubchevich, the Firm failed to 

  • prepare a written needs analysis and training plans for the firm element of the continuing education program; 
  • show that the training was executed and that all covered persons attended; and 
  • establish a bank escrow account to safeguard customer funds for contingent private placement offerings and failed to maintain records reflecting the receipt and disbursement of customer funds. 

Also, the firm failed to develop and implement an anti-money laundering (AML) program that was reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and the regulations promulgated thereunder.

Gryphon Finanical Securities Corp.: Censured and Fined $17,500 (includes $12,500 joint/several with Zubchevich

Younis Zubchevich: Fined $12,500 joint/several with Gryphon

Great Eastern Securities, Inc. and Alphonse Mekalainas, Jr. (Principal)

AWC/ELI2002004801/September 2005

Acting through Mekalainas, Great Eastern Securities failed to timely report on registered representatives Forms U4 (Uniform Applications for Securities Industry Registration or Transfer) :

  • customer complaints that alleged one or more sales practice violations and contained a claim for compensatory damages of $5,000 or more; and
  • settlement of a customer complaint that alleged one or more sales practice violations and was settled for an amount of $10,000 or more. 

Also, the firm permitted excessive commissions to be charged in agency transactions. Additionally, the firm permitted its president to conduct a securities business while his securities registration was inactive due to his failure to satisfy the continuing education regulatory element in a timely manner. 

Great Eastern Securities, Inc.: Censured; Fined $15,000 (includes $5,000 joint and several with an unnamed individual and $5,000 joint/several with Mekalainas, Jr.)

Alphonse Mekalainas, Jr.: Fined $5,000 joint and several with Great Eastern Securities, Inc.; Suspended 5 days in Principal/Supervisory capacities

Bill Singer's Comment:  These types of violations drive me crazy.  I mean, it's one thing for a BD and its ownership to do a cost-benefits analysis and decide to engage in a massive fraud because they think you can make millions and if they get caught it's only a fine and suspension.  That's wrong, but at least you can sort of understand the mind-set involved.  However, when a firm and its principals get whacked for minor compliance failures, you simply have to wonder.  There are often a whole host of explanations and reasons for such miscues --- staffing problems, communication failures, etc.  Nonetheless, as I previously noted, the regulators are making a point of checking up on your timely reporting of customer complaints.   
Hennion & Walsh, Inc., William Walter Walsh (Principal) and Richard Hennion (Principal)
AWC/E9B02004201/September 2005

Hennion & Walsh, Inc. 

  • failed to report written grievances from public customers on quarterly reports and reported written grievances from customers in an untimely manner. 
  • solicited and received payment from public customers for the purchase of shares prior to the effective date in the underwritings of closed-end mutual funds in violation of Section 5(a) of the Securities Act of 1933; and
  • acting through Walsh and Hennion, 
    • failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to achieve compliance with applicable securities laws, regulations and NASD rules. 

Hennion & Walsh, Inc.: Fined $35,000 ($15,000 joint/several with Walsh and also with Hennion); Suspended as an underwriter or selling group member for any offering of closed-end mutual funds for 30 days; Required to retain an independent consultant to review and make recommendations concerning the adequacy of the firmís current policies and procedures relating to past deficiencies, as well as the firmís 3070 reporting, underwriting activities, and suitability of recommendations. 

William Walter Walsh: Fined $15,000 joint/several with Hennion & Walsh, Inc.; Suspended 10 business days in Principal capacity

Richard Hennion: Fined $15,000 joint/several with Hennion & Walsh, Inc.; Suspended 10 business days in Principal capacity

Bill Singer's Comment:  See April 2005 Hennion & Walsh case.
One of the more dramatic regulatory initiatives the NASD and NYSE appear to have undertaken in 2005 is a focus on the timely reporting of customer complaints --- frankly, an area where they seemed to have been a bit lax in years past.  Nonetheless, the regulators appear intent to make up for lost time.  Similarly, as if mutual funds haven't come under enough of an attack in recent years, now we see that some folks are gun-jumping sales of closed-end funds by seeking and obtaining payment prior to the effective date.  Clearly, NASD is sending a message with this case--the firm has been suspended as a closed-end mutual fund underwriter/selling group member for 30 days.  Looks like there's some bite in the once toothless tiger.
Cardinal Capital Management, Inc., Hershel Francis Smith, Jr. (Principal), and Christopher Alan Sweeney (Principal)
AWC/E072003004201/September 2005

Respondents engaged in a course of conduct involving the unregistered offer and sale of common stock and promissory notes, in that Smith and Sweeney

  • failed to establish and maintain a supervisory system reasonably designed to achieve compliance by Cardinal Capital Management, Inc., and its registered representatives with applicable sales practice rules (thus failing to reasonably supervise its registered representatives);
  • failed to ensure full disclosure of all material facts, including the risks associated with the purchase of the notes, to the note purchasers; 
  • sent sales communication to shareholders that contained exaggerated statements and price predictions concerning the stock;
  • personally guaranteed the repayment of the notes when they had no reasonable basis for believing that they could fulfill their obligation; 
  • failed to prepare and preserve records for each transaction as required by Securities Exchange Act Rules 17a-3 and 17a-4;
  • failed to reflect said transactions on the firmís books and records, and issued promissory notes to public customers without their knowledge or authorization;
  • held customer subscription funds in a firm bank account before forwarding the funds onto the issuer; and
  • failed to respond to NASD requests for information. 

Cardinal Capital Management, Inc.: Expelled

Hershel Francis Smith, Jr.and Christopher Alan Sweeney: Barred in all capacities

Bill Singer's Comment:  This case is noteworthy on a number of levels.  First, we have the fairly rare event of an NASD member firm agreeing to its expulsion by way of a settlement (AWC).  Then, we have two of the firm's principals being barred.  Finally, we have the odd allegation that promissory notes were issued to public customers "without their knowledge." Sort of like if a tree falls in the forest but no one hears it...
Edwin Rodriguez, Jr.
AWC/C10050020/August 2005

Rodriguez sent a letter to a public customer concerning a transaction in the customerís account that was not on firm letterhead, was not made available for supervisory review, and was sent without his member firmís knowledge or consent. 

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

Kyle Timothy Holland (Principal)
AWC/C06050016/August 2005

Holland failed to ensure that his member firm included a $500,000 settlement agreement as a liability of the firm. He filed inaccurate FOCUS Reports with NASD that significantly overstated the firmís net capital position and Holland failed to give NASD notice of the firmís net capital deficiencies.  Holland participated in private securities transactions and failed to give his member firm prior notice of his transactions involving a stock, his role therein, and whether he might receive compensation in connection with the transactions.

Fined $25,000; Suspended 1 month in all capacities; Suspended 3 months in principal capacity

Kerry John Grinkmeyer (Principal) 
OS/C05050022/August 2005

Grinkmeyer failed to perform certain supervisory duties, including delegating certain compliance responsibilities to his unregistered assistant, failed to show evidence of review of and follow-up on certain exception reports, and failed to provide copies to his firm of certain executed forms. In addition, registered representatives assigned to Grinkmeyerís Office of Supervisory Jurisdiction (OSJ) effected all transactions under his advisor number and, as a result, neither Grinkmeyer nor his firm could monitor the activity of individual registered representatives. 

Fined $10,000; Suspended 1 month in general securities principal capacity

Bill Singer's Comment: 2005 is shaping up to be the Year of the Principal.  We're certainly seeing more principals being sanctioned more frequently than before.  Here is a clear-cut warning from the NASD.  The once winked-at practice of delegating compliance functions to unregistered assistants isn't going to be tolerated.  Come on, now --- you all do it; don't deny it.  Nonetheless, word to the wise.  Clean up your acts. 
Todd Grafenauer
National Adjudicatory Council/C8A030068/August 2005

Grafenauer falsified internal documentation so that he would be able to utilize uncompensated interns to promote his securities business and that of his partner. 

Barred

Scott West Jones 
AWC/C02050050/August 2005

Jones impersonated another registered representative of his member firm who was scheduled to complete a firm element continuing education training module, and completed the training module in his place. Subsequently, Jones submitted a completion certificate to the firm, falsely indicating that the other representative had completed the training module, causing the firmís books and records to be inaccurate. 

Fined $5,000; Suspended 18 months in all capacities

Bill Singer's Comment: See the Fernandez case immediately below. 
Joe Manuel Fernandez (Principal) 
AWAC/C02050051/August 2005)

Fernandez learned that another registered representative of his member firm had 

  • impersonated him and had completed the firm element continuing education training module in his place; and
  • submitted a completion certificate to the firm falsely indicating that Fernandez had completed the training module, causing the firmís books and records to be inaccurate.

However, Fernandez failed to take any action to correct the firmís books and records or to report the other representativeís misconduct. 

Fined $5,000; Suspended 18 months in all capacities

Bill Singer's Comment: Oh, please.  How thoughtful of the "other" RR to complete the Firm Element on behalf of Fernandez.  I simply can't imagine why Fernandez failed to take any action.  If that's the version the NASD wishes us to accept, fine --- maybe there are other facts at work here that the regulator hasn't set forth and I'm being just a bit too cynical.  See the Jones case immediately above.
Vincent Anthony Buchanan (Principal)
AWC/C10050050/August 2005

Buchanan consented to the described sanctions and to the entry of findings that member firms, acting through Buchanan, engaged in the securities business while failing to have and maintain sufficient net capital. 

Fined $15,000; Suspended 20 business days in all capacities.

Bill Singer's Comment: This strikes me as an odd report.  What does the NASD mean by the plural "firms"?  How many?  Is the regulator alleging that numerous firms were under Net Capital and that Buchanan was responsible for all of those violations?  Seems like a fairly light sanction if that's the case.  How come no requalification?
Charles Gabriel Bourdreaux, IV 
OS/C05050014/August 2005

Bourdreaux engaged in a scheme to evade federal cash reporting requirements by advising the purchase of multiple money orders in amounts less than $3,000 and causing money orders totaling $11,650 to be deposited into a brokerage account maintained at his member firm. Also, Bourdreaux failed to respond to NASD requests for information.

Barred

Bill Singer's Comment: One of the great myths:  No one will detect under-$10,000 cash deposits.  Oh yeah?  Gee. . . didn't I just write this same comment for the case immediately below?  Hmmm . . . like, maybe, just maybe, the NASD is making this an enforcement priority?  This must be a very, very difficult violation to detect.  Let's see, an examiner would have to investigate whether multiple deposits under $10,000 are being made to the credit of the same account and likely being deposited within a fairly short period of time.  Wow!  That must take all of about five minutes, even with a cup of coffee in one hand and a donut in the other.  Folks, wise up!  This is a stupid violation that is going to be quickly detected by even a rookie examiner.
Juan Carlos Alb
AWC/C9A050026/August 2005

Alb agreed to deposit $18,200 in cash received from another person into a bank account that Alb maintained at a bank where he worked, made two separate deposits of less than $10,000 on separate days to his account at the bank, and then gave the person from whom he had received the cash a check for $18,500. Alb intended to prevent the bank from filing a currency transaction report as required by federal law for any cash deposit exceeding $10,000. 

Barred

Bill Singer's Comment: One of the great myths:  No one will detect under-$10,000 cash deposits.  Oh yeah?
Zions Investment Securities, Inc. 
AWC/C3A050027/August 2005

The Firm

  • failed to report in a timely manner customer grievances required to be reported with quarterly statistical information or no more than 10 days following the firmís discovery;
  • failed to amend Forms U4/U5
  • failed to ensure that registered representatives of the firm participated in a required annual compliance interview;
  • failed to ensure that registered representatives of the firm completed one or both of two components of the required firm element continuing education program;
  • settled a customer complaint by means of a settlement agreement that contained language implying that the customer could not voluntarily assist NASD or any self-regulatory organization with respect to the subject matter of the settlement;
  • utilized two forms of written supervisory procedures that evidenced two forms of supervisory systems, both of which were not reasonably designed to achieve compliance with the reporting obligations of NASD Rule 3070, requirements to amend Forms U4 and U5, requirements to monitor for compliance with variable annuity and mutual fund compensation rules, rules pertaining to retail transaction in fixed income securities and corporate bond trading, continuing education provisions, SEC Rule 15c2-12, and the requirements for office inspections in NASD Conduct Rule 3010; and
  • did not enforce its supervisory system and procedures relating to annual compliance interviews, firm element continuing education, office inspections, and advertising and sales literature reviews.

Censured; Fined $35,000

Equity Trading Online, LLC
AWC/C10050057/August 2005

Firm permitted an individual to park his registration with the firm by maintaining his registration as a general securities representative through his purported association with the firm when, in fact, he was not actively involved in the firmís securities or investment banking business or otherwise functioning as a representative of the firm. Acting through an individual, the firm failed to designate properly a branch office as an Office of Supervisory Jurisdiction (OSJ). The firm inaccurately reported to the MSRB the capacity for transactions by publishing an extraneous transaction report, failing to timely report transactions, and inaccurately reporting inter-dealer transactions as customer transactions. The firm failed to report accurately the capacity on certain customer confirmations. 

Censured; Fined $13,500 ($6,000 jointly/severally with an unnamed individual)

CJS Securities, Inc. 
AWC/C3A050031/August 2005

CJS Securities, Inc. permitted its analysts to sell securities issued by companies for which the analysts were primarily responsible for research coverage at times when the firmís recommendation was to buy or hold the security. The firmís analysts bought or sold securities issued by companies for which the analysts were primarily responsible for research coverage during a period of time prior to or after the issuance of research reports concerning those companies. Also the firm issued research reports covering companies from which the firm had received, or expected to receive, compensation for investment banking services in connection with participation in public offerings of the companiesí securities. The firm did not have written supervisory procedures reasonably designed to achieve compliance with NASD Rule 2711. 

Censured; Fined $40,000

Chicago Investment Group, L.L.C. 
AWC/C8A050052/August 2005

The Firm

  • used the mails or other means or instrumentalities of interstate commerce to effect transactions in securities when it failed to maintain the minimum required net capital;
  • prepared inaccurate trial balances, general ledgers, and net capital computations;
  • filed FOCUS IIA reports that overstated the memberís net capital;
  • failed to prepare and maintain adequate written supervisory procedures to ensure that employees whose registrations were subject to numerous strict supervisory guidelines and restrictions by several state securities regulators remained in compliance with those restrictions; and
  • failed to obtain NASD approval prior to effecting a material change in business operations in that the firm increased the number of associated persons involved in sales activities beyond the limits delineated in IM-1011-1: IM-1011-1. Safe Harbors for Business Expansions

Censured; Fined $22,000

Strasbourger Pearson Tulcin Wolff Inc. and Michael J. Schumacher (Principal) 
AWC/C07050040/August 2005

Acting through Schumacher, the firm 

  • failed to establish and maintain a supervisory system, including adequate written supervisory procedures, reasonably designed to achieve compliance by the firm and its representatives with numerous NASD rules; and
  • permitted a registered representative to conduct a securities business while his registration was inactive. 

In addition, the firm failed to conduct independent testing of its antimoney laundering (AML) compliance programs, collect all required information for wire order/transfers, review wire orders, and verify the identities of customers who open accounts in violation of NASD Rules 2110 and 3011. 

Strasbourger Pearson Tulcin Wolff Inc.: Censured; fined $30,000 ($12,500 joint/several with Schumacher)

Michael J. Schumacher: Fined $12,500 joint and several with firm; Suspended 15 business days in principal capacities.

Stoever, Glass & Company Inc., and Michael Francis Carrigg ( Principal) 
AWC/C10050045/August 2005 

The firm 

  • commingled customer securities with non-customer securities to collateralize bank loans;
  • neglected to report to the Trade Reporting and Compliance Engine (TRACE) the underlying yield to inter-dealer corporate debt security transactions; and
  • failed to make a timely transaction report to TRACE. 

Acting through Carrigg, the firm collateralized the loan set up for firm trades with a customer security position that was not fully paid and permitted a customerís fully paid securities to remain in a non-control location for an extended period of time. 

Stoever, Glass & Company Inc.: Censured; Fined $7,000 joint and several with Carrigg; Fined an additional $5,000

Michael Francis Carrigg: Censured; Fined $7,500 joint and several with firm; Suspended 10 business days in FINOP capacity

Bill Singer's Comment: We just don't see FINOP suspensions that frequently --- so take note of this case.  Perhaps the beginning of a tougher trend?
Jersey Shore Trading Group, Inc. and John F. Helbock (Principal) 
AWC/C9B050038/August 2005

Acting through Helbock, the Firm permitted a statutorily disqualified person to be associated with and conduct activities on behalf of the firm. The firm executed order tickets for equity and municipal transactions that were deficient, and was late in reporting municipal securities transactions executed by the firm. 

Jersey Shore Trading Group,Inc.: Censured; Fined $25,000 ($15,000 of which joint/several with Helbock)

John F. Helbock: Fined $15,000 (Joint/several with firm); Suspended 30 business days in principal/supervisory capacity

David A. Noyes & Company and Anthony Michael Quirini (Principal) 
AWC/C8A050058/August 2005

Quirini created and distributed sales literature in the manner of form letters to the public, which the firm failed to file with NASDís Advertising Regulation Department. These form letters contained statements that 

  • exaggerated the safety of the products
  • failed to reflect the risks of fluctuating prices and the uncertainty of rates of return and the yield of investments;
  • failed to provide balanced presentations of the risks and rewards of the products offered
  • failed to disclose material information regarding the risks of each proposed investment, and 
  • failed to provide a sound basis for evaluating the recommendations contained in the letters. 

The firm failed to adequately and properly supervise the use of these form letters and failed to establish, maintain, and enforce adequate written supervisory procedures designed to achieve compliance with applicable securities laws and regulations. 

David A. Noyes & Company: Censured; Fined $10,000 (jointly and severally with Quirini) and fined an additional $30,000; Must obtain a ďno objectionĒ letter from the NASD Advertising Regulation Department on any proposed sales literature or advertising prior to its use for one year.

Anthony Michael Quirini: Fined $10,000 (jointly and severally with firm); suspended 10 business days all capacities

Bill Singer's Comment: The interesting aspect of this case is the imposition of a 1 year requirement to obtain a "no objection" letter from NASD Advertising.  
Paul Zdzieblowski 
NAC Hearing/C8A030062/July 2005 

Zdzieblowski willfully failed to disclose material information on his Form U4. 

Fined $5,000; Suspended 1 year in all capacities 

Bill Singer's Comment: An interesting case on appeal. The Hearing Officer Barred Zdzieblowski, but on appeal the NAC reduced the sanction to a $5,000 fine and a 1 year suspension. Respondent had been found in default for not timely responding to NASD charges that he willfully failed to disclose a prior conviction. The NAC sustained the Hearing panel's finding that Respondent was in default and failed to show good cause for same. 

On or about March 28, 1998, Michigan law enforcement charged Zdzieblowski with retail fraud, a misdemeanor. On July 29, 1998, Zdzieblowski pleaded guilty to the charge. The court placed him on probation for 12 months and ordered that he pay a fine and court costs. On or about December 30, 2001, Zdzieblowski submitted a Form U4 in connection with his registration as an investment company/variable contracts representative for USAllianz. On the Form U4, the Hearing Panel found that Zdzieblowski willfully failed to disclose that he had been charged with and convicted of a misdemeanor involving theft or wrongful taking of property. 

The NAC did not believe the record supported a finding that he had been convicted because the Court may not have "legally" accepted a guilty plea (but merely took the plea under advisement for one year and then closed the case). Nonetheless, the NAC was satisfied that the Respondent willfully failed to disclose the "charge" --- and that renders him statuorily disqualified in its own right.

Ricardo Alfonso Sibaja
AWC/C02050041/July 2005

Upon the request of public customers, Sibaja completed forms on their behalf to change the names of ownership on two of their accounts. After submitting the forms, Sibaja was notified that the forms were outdated and that the customers needed to submit an original, executed form for each account. However, in an attempt to accommodate the customers, he cut the customersí signatures from the outdated forms and pasted them onto the new forms without the customersí knowledge or consent. 

Fined $5,000; Suspended 45 days in all capacities

Bill Singer's Comment: What harm would a little cut and paste cause?  After all, it's what the customer wanted and it will save time.  Well, in this case it doesn't really save the RR any time --- in fact, it costs 45 days.
Steven Charles Kirsch (Principal)
CAF040025/July 2005

Kirsch provided false testimony about his activities at an NASD on-the-record interview. Also, he performed supervisory duties while subject to a 30-day suspension and failed to reasonably supervise his research department prior to his 30-day suspension to ensure that a research report issued by his member firm was accurate. 

Barred

Bill Singer's Comment: Yet another bit of Street wisdom --- if you're suspended , the regulators will never know if you're back in the office.  Oh yeah?  So, here, instead of a 30 day supervisory suspension, the Principal is Barred in all capacities.  Barred --- as in a lot more time than 30 days in supervisory capacities only.
John Basil Inferrera
AWC/C9B050032/July 2005

While not licensed to sell securities in the states of New Jersey and Indiana and in order to circumvent securities licensing requirements, Inferrera entered into an arrangement with registered representatives who were properly registered. As a part of this arrangement, he created inaccurate records related to public customer accounts so that other representatives appeared as the registered representatives of the record when he was actually handling the customersí accounts (the other registered representatives entered securities transactions for New Jersey and Indiana public customers on Inferreraís behalf).

Fined $10,000; Suspended 6 months in all capacity.

Hampton Forrest Hook 
AWC/C05050028/July 2005

Hook loaned $6,100 to public customers to be deposited into their account at his member firm for the purchase of shares of stock. Hook guaranteed public customers against loss in connection with the purchase of shares in a company. He opened a brokerage account for a public customer by completing and signing ďNew Account ApprovalĒ and ďClient Option Agreement and ApprovalĒ forms (the information on the forms was inaccurate). 

Hook shared in the account of a public customer of his member firm by funding all transactions with his own funds and keeping all but $1,000 of the account proceeds for himself without obtaining prior written authorization from his member firm.  Hook executed unauthorized purchase and sale transactions in the account of a public customer; and exercised discretion in the accounts of public customers without having obtained prior written authorization from the customers and without prior written acceptance of the accounts as discretionary by his member firm. Hook recommended unsuitable purchase and sale transactions in the account of a public customer.

Barred

John Baldwin Hoffmann (Principal) Kevin Johnson McCaffrey (Principal) 
AWC/CE4050006/July 2005 

Hoffman and McCaffrey failed to 

  • adequately supervise a representative with a view to prevent him from publishing fraudulent research reports; and
  • respond adequately to red flags that the representative made unreasonable research assumptions that led him to publish unrealistically bullish ratings and price targets. 

John Baldwin Hoffman
Censured; Fined $120,001 (includes $1 disgorgement)[fines to be reduced by the amounts paid pursuant to an SEC Order]; Suspended 15 months in all capacities

Kevin Johnson McCaffrey
Censured; Fined $120,001 (includes $1 disgorgement)[fines to be reduced by the amounts paid pursuant to an SEC Order]; Suspended 15 months in all capacities

Bill Singer's Comment: Yet further proof that NASD is holding Principals accountable for research lapses.  But would someone please explain the $1 disgorgement.
Ronald Edward Blaylock (Principal)
OS/CAF040065/July 2005

Blaylock wrongfully obtained employer funds by submitting travel and expense reports containing personal expenses, and received reimbursement of $22,700, to which he was not entitled. He submitted materially inaccurate reports and firm books and records by submitting expense reports containing personal expenses, occasionally using default names to complete the expense form when he could not recall the person entertained, and occasionally adding to the list of attendees to bring down of average cost. 

Fined $125,000; Suspended 20 business days all capacities

UVEST Financial Services Group, Inc.
AWC/CE4050005/July 2005

The Firm violated recordkeeping requirements in that the firm failed to preserve for three years certain electronic mail communications received by its employees that related to its business as a broker, dealer, or member of an exchange. The Firm failed to have a systematic means to retain electronic communications related to its business that were reasonably designed to achieve compliance with SEC and NASD rules. 

Censured; Fined $80,000

MML Distributors, LLC
AWC/C11050015/July 2005

The Firmís supervisory system and procedures were not reasonably designed to ensure 

  • that required written consent was obtained before any pre-registration searches on Web CRD and that the Firm retained the required documentation;
  • compliance with email retention requirements. 

The findings also stated that the Firm permitted individuals to perform duties as a registered person while their registration with NASD was inactive due to their failure to complete the Regulatory Element of NASDís Continuing Education Program. 

Censured; Fined $200,000; Required to review its written supervisory procedures and establish a supervisory system to address deficiencies relating to pre-registration Web CRD researches and its procedures regarding the preservation of electronic mail communications for compliance with NASD rules and federal securities laws and regulations. 

Bill Singer's Comment: Now here's one we don't see everyday.  Even though the Street tends to treat the unauthorized search of Web CRD as something "everyone does," this case shows that the NASD may no longer be willing to turn a blind eye --- let's see if this is the start of a trend.
American Express Financial Advisors Inc.
AWC/C05050021/July 2005

American Express Financial Advisors Inc. failed to 

  • have adequate procedures in place to monitor whether the managing principal representative (MPR) performed certain supervisory reviews of the office of supervisory jurisdiction (OSJ), or to identify and review transactions by individual registered representatives under the MPRís supervision.
  • reasonably ensure that the OSJ forwarded copies of letters regarding mutual fund switches to the home office on a consistent basis, as required by its written supervisory procedures. 

Censured: Fined $25,000; Required within 30 days to provide NASD staff with a report attesting to, and setting forth the details of, its implementation of procedures correcting supervisory deficiencies. 

Bill Singer's Comment: I'm sorry but this case just doesn't make any sense when compared to other cases against smaller firms.  For starters, look at the NASD's earlier February 2005 action.  How come no human being supervisor is named in this caption?  Is that a shot the NASD reserves solely for smaller firms?  And if individual supervisors were named, then why isn't their case attached to this caption --- look at virtually every other case reported below for July and you'll see my point.
A. Gary Shilling & Co., Inc. and Albert Gary Shilling (Principal) 
AWC/C9B050036/July 2005

Shilling purchased and sold securities in a manner inconsistent with recommendations made in his research reports, and sold common stock shares in two insurance companies that were restricted prior to the publication of the report. The Firm and Shilling issued research reports that failed to provide distribution of ratings and price chart information. Acting through Shilling,the Firm failed to adopt and implement any written supervisory procedures reasonably designed to ensure compliance with NASD Conduct Rule 2711: Research Analysts and Research Reports

A. Gary Shilling & Co., Inc.
Censured; Fined $15,000 jointly and severally with Shiling

Albert Gary Shilling
Censured; Fined $30,000 ($15,000 jointly and severally with A. Gary Shlling & Co.)

Bill Singer's Comment: Unquestionably, the NASD intends to hold Principals more accountable (than in years past) for their oversight of their firm's research area.
The Lugano Group Incorporated, Harold Emanuel Doley, III (Principal), and Amir Mireskandari (Principal)
AWC/C05050027/July 2005

The Firm permitted Doley and Mireskandari to perform duties as registered persons when they failed to complete the Regulatory Element of NASDís Continuing Education Requirement. 

Acting through Doley, the Firm failed to 

  • develop and implement a written anti-money laundering (AML) program reasonably designed to achieve and monitor the firmís compliance with the requirements of the Bank Secrecy Act and the implementing regulations promulgated by the U.S. Department of Treasury; and
  • establish adequate supervisory procedures. 

Acting through Doley and Mireskandari, the Firm failed to make required disclosures and certifications in a research report that reported on a publicly traded entity.

The Lugano Group Incorporate
Fined $25,000 ($20,000 joint and several with Doley and $5,000 joint and several with Mireskandari); Firm will provide no research services to its clients for two years and will retain an outside consultant to review and make recommendations concerning the adequacy of the firmís current polices and procedures.
Harold Emanuel Doley, III
Fined $20,000 joint and several with Lugano Group; Suspended 10 business days in all capacities; Suspended 2 months in principal capacity
Amir Mireskandari
Fined $5,000 joint and several with Lugano Group); Suspended 10 business days in all capacities
Bill Singer's Comment: The sanction of no research services for 2 years is a restriction I suspect we'll be seeing more and more of in months to come.  Still --- how come we didn't see such teeth when the NASD when after the Big Boys for their research lapses?  Anyone recall a major BD being prohibited from issuing research for 2 years?  
Grattan Financial Securities, Inc. and Georgene Marie Grattan (Principal) 
AWC/C02050039/July 2005

Acting through Grattan, the Firm 

  • permitted an individual, while he was statutorily disqualified, to become an associated person with the firm; and
  • failed to take timely or adequate supervisory action designed either to ensure that the firm complied with the requirements of Article III, Section 3(b) of NASDís By-Laws or to ensure that a statutorily disqualified individual did not associate with the firm. 

Grattan Financial Securities, Inc.
Fined $20,000 jointly and severally with Grattan

Georgene Marie Grattan (Principal) 
Fined $20,000 jointly and severally with Grattan Financial; Suspended 45 days in principal capacity; Required to requalify as general securities principal

Bill Singer's Comment: Without question the hiring of statutorily disqualified individuals has become an enforcement priority, as evidenced by a number of recent cases involving national firms.  Moreover, the trend is to holdthe supervising Principal liable for lapses in this area.  A 45 day suspension is no laughing matter, particularly when coupled with a requalification.  This is a serious and significant sanction.  Be warned!
Berthel, Fisher & Company Financial Services, Inc. and Craig Vincent Mineart (Principal) 
AWC/C04050017/July 2005

Mineart, acting as the firmís registered options principal, failed to adequately supervise a representative by allowing the representative to recommend and execute options transactions when Mineart knew or should have know that the transactions were unsuitable for customer. 

Berthel, Fisher & Company Financial Services, Inc.
Fined $10,000 jointly and severally with Mineart

Craig Vincent Mineart (Principal)
Suspended 10 business days in principal/supervisory capacities

Bill Singer's Comment: Not something we see everyday --- a disciplinary case involving unsuitable options trading and a ROP charged with failing to supervise the RR involved.   Would seem to indicate that NASD is taking a closer look at options trade (than in recent years), and that ROPs are on notice that their conduct will not only come under scrutiny but they may be suspended.  Certainly tougher enforcement than in the past.
Berry-Shino Securities, Inc. and Ralph Matthew Shino (Principal)
AWC/C3A050020/July 2005

Acting through Shino, the Firm failed to 

  • report customer complaints and an arbitration award, and reported customer complaints late; and 
  • file and amend Forms U4 and U5 in a timely manner. 

Also, the Firm failed to maintain accurate financial records and filed inaccurate FOCUS reports. Also the Firm failed to maintain its required minimum net capital and accepted funds for investment in a private placement, but did not forward the funds to an account established in accordance with SEC Rule 15c2-4. The Firm executed transactions in long-term options for which customers were charged commissions that were excessive in light of relevant factors. The Firmís supervisory system was not reasonably designed to achieve compliance with NASD conduct rules related to excessive options commissions.

Berry-Shino Securities, Inc.
Censured; Fined $45,050 (includes $7,550 disgorgement; $10,000 of the fine is joint and several with Shino, and $5,000 is joint and several with another individual) 

Ralph Matthew Shino (Principal)
Censured; Fined $10,000 joint and several with Berry-Shino Securities, Inc.

Kevin Mark Weaver
C06040034/June 2005

Weaver engaged in the fraudulent offer and sale of unregistered securities in the form of limited partnership interests through ostensibly separate offerings to public customers, and each offering was made pursuant to a private placement memorandum that contained numerous misrepresentations and omitted to state several material facts. Weaver failed to respond to NASD requests to appear and provide on-the-record testimony.

Barred; Ordered to pay $547,468 plus interest in restitution to public customers.

Bill Singer's Comment: Clearly, the sale of unregistered securities (particularly limited partnerships) is an area of increased NASD scrutiny this year.  Also see the Pond and Katona cases.
Mitchell John Pizzirusso
AWC/C9B050026/June 2005

Pizzirusso entered into an agreement with a registered representative in order to circumvent securities licensing requirements. Pizzirusso falsified a public customerís account records so that he appeared as the registered representative of record. 

Fined $10,000; Suspended 15 business days in all capacities

Bill Singer's Comment: We haven't seen this type of violation for a while --- guess it must be making a come-back.  The likely explanation is that retail is starting to pick-up and a number of RRs with dings on their records can't get registered in various states.  Apparently, some folks think the way to deal with that is to get a buddy to "sponsor" the account under his or her clean registration.  
Kelly P. Paterno
OS/C05040054/June 2005

Paterno engaged in fraudulent and deceptive devices and contrivances involving trading in stocks through the use of instrumentalities of interstate commerce, the mails, or a facility of any national securities exchange. Acting through his member firm, Paterno failed to act with reasonable diligence to ascertain the best inter-dealer market for the subject securities, and failed to act diligently to ensure that the prices paid by the customers were as favorable as possible under the prevailing market conditions at the time. In addition, he was never been registered with NASD in any capacity, but functioned as an equity trader for the firm by entering and reporting trades on behalf of the firm, determining when and how to execute trades, directing trades to market makers or the firmís clearing firm, and conducting proprietary trades for the firm. Acting through his member firm,  Paterno failed to make and preserve order tickets for the transactions as required by Rules 17a-3 and 17a-4.

Fined $5,000; Suspended 2 years in all capacities

Thomas Francis Kennedy, Jr. (Registered Supervisor)
AWC/C10050022/June 2005

Kennedy failed to adequately supervise a registered representative. 

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

Robert William English (Principal)
AWC/C3B050009/June 2005

English failed to supervise a registered representative. 

Fined $15,000; Barred in any principal capacity

Michael Blaise Doherty (Principal)
C9B040036/June 2005

Doherty failed to take appropriate action to supervise a registered representative. 

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

John Sheldon Cotton (Principal)
AWC/C05040090/June 2005

Cotton engaged in a ďponzi-typeĒ scheme involving totaling $2,565,725 in funds. He represented to public customers that the funds would be used to purchase securities from a private individual at a discounted price and then sold at the market price for an immediate profit. However,  Cotton did not purchase the securities and arranged for funds received from new investors to be wired directly to accounts of prior investors, purportedly representing investment profits without the knowledge or involvement of either of his member firms. Cotton caused $30,800 to be deposited into the securities account of public customers for the purpose of compensating them for trading losses in their accounts without the knowledge of his member firm. In addition, he created and sent a customer an account statement incorrectly reflecting an overstated value in the customerís securities account. 

Barred

Thomas James Burke
AWC/C9B050030/June 2005

Burke forged the signatures of public customers on insurance and/or investment-related documents. Burke submitted a falsified marketing expense report to his member firm. 

Barred

Michael Franklin Bestine
AWC/C9B050023/June 2005

Bestine settled a complaint with a public customer without the approval or authority of his member firm. 

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

Francios Belizaire
C10040110/June 2005

Belizaire falsified an authorization agreement for automatic deposits for public customers without the customersí knowledge, authorization, or consent. Belizaire failed to respond to NASD requests for documents and information.

Bar

Geoffrey Sherwood Beitner 
AWC/C9A050018/June 2005

Beitner borrowed $20,000 from a public customer, contrary to the firmís written procedures. 

Fined $5,000; Suspended 10 business days in all capacities

Bill Singer's Comment: This is another area that the NASD appears to be focusing on in recent months.  Look at the Tettenborn, Graves, and DeBock cases.
James Michael Begale
AWC/C8A050032/June 2005

Begale affixed a public customerís initials to a new account form and submitted the form to his member firm without the customerís knowledge or consent. 

Fined $5,000; Suspended 90 days in all capacities

Bill Singer's Comment: As I've asked before in the Schroeder case, what's the difference between forging and affixing?  I'm not sure I understand the difference.
John Douglas Audifferen 
C10030095/June 2005

Audifferen purchased shares of stock for a public customer in the customer's cash account at his firm and knew, or should have known, that the customer did not have sufficient cash to cover the cost of the purchases. Audifferen then deposited his own funds into the customerís account to cover the cost of the purchases, thereby willfully violating Regulation T by directly or indirectly extending credit to or for the customerís account. In addition, Audifferen sold securities from the account of the public customer, received $17,500 from the customer that represented, in part, proceeds from the sale, thereby obtaining the beneficial use of an extension of credit and willfully causing his member firm to violate Regulation T. 

Audifferen maintained his own securities account at his member firm, purchased and sold securities in the account, and knew he did not have sufficient margin or sufficient funds to cover the cost of the purchases, thereby causing his member firm to make an extension of credit to him in violation of Regulation T. Finally, Audifferen failed to disclose information on his Form U4.

Fined $17,500; Barred

THIS ITEM DELETED BY RRBDLAW.COM FOLLOWING QUESTIONS OF REPORTED ACCURACY
Joseph Abbondante (Principal) 
C10020090/June 2005  (Decision by NAC following OHO Decision)

The NAC found that  Abbondante 

  1. participated in private securities transactions without providing prior written notice to, and receiving prior written approval from, his member firm; 
  2. recklessly made material misrepresentations and omissions to public customers with respect to an investment fund; 
  3. engaged in outside business activities without providing prompt written notice to his member firm; and 
  4. knowingly facilitated another in providing false account statements to seven customers of his member firm.

Barred; Required to pay public customers $276,265 in restitution.

Hany Samir Awadalla
OS/CAF030058/June 2005

Awadalla threatened an official of a public company in an attempt to obtain a fee for his firmís investment banking services that was larger than the company was willing to pay. 

Censured; Fined $75,000

Bill Singer's Comment: This appears to be an area where NASD is taking an active interest --- word on the Street is that there are a few similar cases in the regulator's hopper.  Frankly, I'm a bit puzzled that the sanction is merely a fine and not a suspension.  Perhaps a case of excellent lawyering, or the facts weren't as straight-forward as the official NASD report implies.
Park Financial Group, Inc.
AWC/C07050026/June 2005

The Firm failed to 

  • establish and implement polices, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and implement regulations thereunder, including the obligation to report suspicious activities as required; 
  • provide for independent compliance testing to be conducted by a qualified outside party. 

Additionally, the Firm conducted a securities business while failing to maintain its required minimum net capital and filed a materially inaccurate FOCUS report in that its net capital calculation was inaccurate. 

Censured; Fined $12,500

NBC Capital Markets Group, Inc.
AWC/C05050016/June 2005

The Firm failed to take the necessary steps to make an accurate determination of the value of municipal security transactions, resulting in the firmís purchasing the securities from the customer at prices that were below the fair market value, and failed to ensure that the transactions were executed at aggregate prices that were fair and reasonable. The Firm failed to ensure that the municipal securities purchase and sales transactions were approved by a municipal securities principal

Censured; Fined $15,000; Required to pay $8,975 restitution to public customer, plus interest.

Morgan Stanley & Company, Incorporated
AWC/CE2050009/June 2005

The Firm failed to take reasonable steps to ensure that its representations to NASD that specific shares would not be sold prior to the expiration of lock-up periods would be adhered to. The Firmís supervisory system contained inadequate policies or procedures for monitoring restrictions on sales of securities:

  • which the firm had represented to NASD would not be sold for specified periods in connection with obtaining approval of the terms of an offering; abd
  • including securities held by firm affiliates or affiliated firms, which could not be sold for specified periods of time.

Censured; Fined $150,000; Ordered to pay $2,545,618.14 disgorgement

J.P. Morgan Securities Incorporated
AWC/CE2050008/June 2005

The Firm failed to take reasonable steps to ensure that its representations to NASD that specific shares would not be sold for specified periods of time from the initial date of the IPO would be adhered to. The Firmís supervisory system contained inadequate policies or procedures for monitoring restrictions on sales of securities held by individuals associated with the firm, which could not be sold for specified periods of time. 

Censured; Fined $150,000

Greenwich Global, LLC, Timothy James Daly (Principal), and Alice Jean Solomon (Principal)
AWC/C11050014/June 2005

Solomon served as Greenwich Globalís Limited PrincipalĖFinancial and Operational without registering with NASD as a Limited PrincipalĖFinancial and Operational by taking and passing the appropriate qualification exam. 

Acting through Daly, its CEO, and President, Greenwich failed to 

  • comply with its membership agreement in that the firm made a material change in its business activities without giving prior notification to and receiving approval from NASD; and
  • failed to establish, maintain, and enforce written procedures to supervise its options and variable annuity business. 

All Respondents were Censured; Fined $15,000, jointly and severally

Delano Group Securities, L.L.C. 
AWC/C8A050026/June 2005

The firm failed to implement an adequate written antimoney laundering (AML) compliance program. 

Censured; Fined $10,000

Wachovia Securities, LLC,  Larry Michael Phillips and Richard James DiCenso 
AWC/CE2050007/June 2005

Acting throught Phillips,  Wachovia created and distributed written communications that failed to disclose adequately material facts regarding investment products and strategies, or made exaggerated, unwarranted, or misleading statements or claims regarding those products, or both. 

Acting primarily through DiCenso, Wachovia failed to 

  • reasonably supervise a registered representativeís written communications activities in connection with correspondences and sales literature
  • failed to file Phillipsí sales literature with NASD; and
  • failed to establish and maintain procedures that were reasonably designed to achieve compliance with NASDís requirement for filing sales literature within 10 days of first use

Wachoviaís written supervisory procedures improperly instructed the firmís managerial personnel on when written communication qualified as sales literature that needed to be filed with NASD. 

Wachovia Securities: Censured; Fined $25,000

Phillips: Fined $20,000; Suspended 10 business days:

DiCenso: Censured; Fined $15,000.

Pond Equities, Incorporated and Stephen Joshua Greenberg
AWC/CE4050001/June 2005

Acting through Greenberg, Pond Equities sold shares of a stock to the public that were not registered, and no applicable exemption from registration applied. In effecting sales of a companyís shares to the public, Pond failed to comply with its obligations to exercise due care to prevent the sale of unregistered securities. The firm lacked an adequate supervisory system and written procedures for sales of unregistered stock, and failed to 

  • provide sufficient guidance to its brokers to enable them to identify circumstances that should lead them to conclude the stocks are restricted;  
  • instruct its brokers as to the steps necessary to conduct due diligence before selling stock that may be restricted; 
  • establish the steps supervisors or the compliance department needed to take to review transactions in such stock. 

The firm lacked systems to provide reasonable assurance that its brokers were conducting a reasonable investigation into whether securities were registered or subject to valid exemption from registration. 

Pond Equities: Censured; Fined $30,000 (includes $3,800 disgorgement); shall review its system and procedures regarding the purchase and sale of restricted securities for compliance with NASD rules and federal securities laws and regulations. 

Greenberg: Fined $10,000; Suspended 20 business days in all capacities. 

Bill Singer's Comment: We're seeing more and more of these unregistered stock cases.  With the modest pick-up in investment banking, now might be a good time to dust off your restricted stock sales procedures and brush up on the protocols.
Ralph Louis Vestuti Jr.
AWC/C07050015/May 2005

Vestuti effected purchase transactions and sell transactions for his own benefit in an error account of his member firm (without authorization) because he did not have funds to pay for the transactions (presumably in his own account). 

Fined $10,000; Suspended 2 years 

James Earl Tettenborn
AWC/C04050011/May 2005

Tettenborn borrowed $5,000 from a public customer contrary to his member firmís written procedures. 

Fined $5,000; Suspended 20 business days in all capacities

Bill Singer's Comment: Okay, it's now official --- three loan cases in one month.  This is definitely an enforcement focus area.  See Beitner, Graves and DeBock
Steven Keith Schroeder
C8A040092/May 2005

Schroeder

  • forged the signatures of public customers and their trustee to life insurance assignment forms involving insurance policies without the knowledge and consent of the customers and their trustee;
  • pledged the life insurance policies as collateral for a loan made to a company principally owned and operated by him, and 
  • affixed the signature of a loan officer of the bank that made the loan to his company to a release of one of the life insurance assignment forms without the loan officerís knowledge and consent; and
  • failed to respond to NASD requests for information.

Barred

Bill Singer's Comment: Not to be too picayune, but what's the difference between "forged the signatures of public customers . . ." and "affixed the signature of a loan officer . . .?"  Is it okay to "affix" a signature without the person's knowledge or consent . . . and how does this mechanically (and legally) differ from forgery?  I'm not really understanding the choice of language here. See the Begale case for a similar description.
Dulce Maria Salaverria
C07040077/May 2005

Salaverria submitted a falsified examination score report to her employing member firm. 

Barred

Bill Singer's Comment: Thankfully I'm not much of a betting man.  If you told me back in February when I wrote up the Raymond case that there would be yet another misguided soul who would submit a falsified exam score . . . well . . . you know what? . . . on second thought, I'm too old and have been on Wall Street too long to think that such things are simply brazen flukes. No, there must really be a mess of folks out there who think you can become a Registered Rep simply by using white-out.  I guess it's like all those pedestrians I see walking on the sidewalk talking into their cellphone headsets --- you really don't know which ones have the headsets plugged in to a working phone and which ones are just talking to themselves.  It's folks like Ms. Raymond and Ms. Salverria who still manage to get me to put a pained smile on my face after a long day defending Wall Street's best and brightest.
Jane Rosenberg Kornblut (Principal)
OS/C8A040047/May 2005

Kornblut failed to supervise a registered representative. 

Fined $5,000; Suspended 5 business days in supervisory capacity

Bill Singer's Comment: Ummm . . . hello there NASD folks  . . . but do you think you might just give us a teeny-weenie bit more information about this matter than that the Principal "failed to supervise a registered representative"?  Not much help from you and certainly not much education of the members is accomplished by such a terse write-up.
James Louis Hesdra
AWC/CLI050005/May 2005

While registered with a member firm, Hesdra impersonated another registered representative while soliciting clients to open new accounts or to engage in securities transactions.  Although Hesdra opened the accounts or handled the transactions in question, nonetheless, he entered the other registered representative's name on new account forms and order tickets as the RR of record (and forged the RR's signature on new account forms). 

Hesdra, in participation with other registered representatives and associated persons of his member firm, misrepresented to customers that he was selling them shares of stock, and thereafter diverted those customerís checks away from his member firm in order to convert those funds. Hesdra failed to respond truthfully to questions during an NASD on-the-record interview. 

Barred

Bill Singer's Comment: I haven't seen one of these RR  impersonation cases in some time.  Guess the market must really be coming back!
Robert Michael Graves Jr.
OS/C06050002/May 2005

Graves 

  • engaged in a private securities transaction with a public customer without providing written notice to his member firm;
  • recommended an unsuitable security to a public customer;
  • participated in outside business activities without prior written notice to his member firm; and
  • received a loan from a public customer, which violates his member firmís policy prohibiting the receipt or solicitation of loans from customers. 

Fined $7,500; Suspended 20 business days in all capacities

Bill Singer's Comment: You know how you never see someone for years and then twice in the same day.  Well, check out the DeBock case where we have another sanction for borrowing money from a customer.
Roger Lee DeBock, Jr.
AWC/C02050020/May 2005

DeBock borrowed $40,000 from a public customer contrary to his member firm's written procedures prohibiting registered persons from borrowing money from customers.

Fined $5,000; Suspended 60 calendar days in all capacities.

Bill Singer's Comment: Borrowing/lending money to clients is a very tricky area.  At one time, you could do it.  But some states prohibited the "practice" of such loans (which seemed to imply more than an isolated transaction).  Then a few years back a big stink arose when it was learned that some firms and RRs were lending money (usually to day traders) in order to either meet margin calls or facilitate off-the-books settlements --- and then there were growing cases involving elderly and infirm clients lending money to firms and RRs under less than pristine conditions.  So, they passed a rule.  I'd advise you all to read NASD Conduct Rule 2370. Borrowing From or Lending to Customers
Lance Neal Dahmer
C8A030086/May 2005

Dahmer engaged in outside business activities without providing prompt written notice to his member firm. Fined $5,000; Suspended 60 days in all capacities; Required to requalify as a General Securities Representative 

Bill Singer's Comment: This is one of the few reported "outside business activities" cases that apparently went to a hearing (no AWC or OS denoted). Interesting result. The fine and sanction are generally within the range of those obtained by settlement --- but do I detect just a little fit of pique in the imposition of the requalification? If you read the actual NASD Hearing Panel decision at http://www.nasd.com/web/groups/enforcement/documents/oho_disciplinary_decisions/nasdw_014133.pdf you will be amazed at the mitigating factors involved in this matter. Moreover, I trust that many of you will be disgusted to read that the NASD Staff sought to Bar Mr. Dahmer. As such, kudos to Dahmer's lawyers and to the Hearing Panel for not imposing the unwarranted sanction the NASD Staff sought. Simply judging this decision from the perspective of what the Staff sought, this is a substantial victory for the Respondent. Just another example as to why it may pay to fight some of these Enforcement cases.
Daniel John Cassin
AWC/C11050006/May 2005

Cassin forged signatures to letters and checks relating to an insurance claim. 

Barred

Akeem Folajimi Bello
AWC/C10050011/May 2005 

Bello made unsuitable recommendations to public customers; and engaged in outside business activities for compensation without providing prompt written notice to his member firm. 

Fined $26,718.92 (includes disgorgement of $26,718.92 --- apparently NASD limited the fine to the actual disgorgement because of Bello's "financial status"); Suspended 1 year.

Bill Singer's Comment: In and of itself Bello isn't that interesting, but note the unusual capping of the fine to cover only the disgorgement and nothing additional.  Similarly, look at Arseneau in which the NASD cobbled together an ad hoc suspension that included time served for an in-house suspension.  All worth while things for defense lawyers to keep in mind during negotiations.
Christopher Stuart Bell
AWC/C9B050018/May 2005

Bell forged the signatures of public customers on automatic extension forms that he filed with the Internal Revenue Service.

Fined $5,000; Suspended 6 months

Bill Singer's Comment: I know I'm frequently referred to as a "leading critic of the NASD, the NYSE, and self-regulatory organizations," but come on now.  Would someone, anyone, look at the Arseneau case immediately below and explain why both respondents are fined the same $5,000 but one serves a 30 business day suspension (actually 10 . . . but who's counting) and the other gets 6 months? Then, read the Rooney A. Sahai case at http://rrbdlaw.com/2005/0504sahai.htm for even more confusion --- that respondent was barred by NASD for his forgery (but the SEC wasn't quite so sure).
Todd Edward Arseneau
AWC/C8A050018/May 2005

Aresenau affixed the signature of a public customer on a life insurance illustration form and a life application supplement without the customer's knowledge or consent. 

Fined $5,000; Suspended 30 business days in all capacities (given 20 business days credit for firm imposed suspension . . . required to serve 10 business days).

Bill Singer's Comment: This presents an interesting factor for consideration.  By imposing internal suspensions you may well obtain an off-setting credit on an NASD imposed suspension.  Of course, the sanctions imposed by NASD and the NYSE on these "forgery" cases is all over the place.  Frankly, Arseneau seems to have superb legal representation in that he not only crafted a suspension that included the in-house set-off but he got what appears to be a very moderate sanction for two forgeries.
Harry Anthony Alessi IV
AWC/C9A050015/May 2005

Alessi received more than $18,000 in cash from a public customer who had been issued a day-trading margin call. Alessi then purchased cashier checks drawn to the order of his member firm, temporarily retained some of the funds, and later remitted the checks with a copy of the margin call to his member firm to meet the day-trading margin call, thereby structuring the deposit to evade the reporting requirements of 31 U.S.C. ß5313(a): Reports on domestic coins and currency transactions

Barred

Bill Singer's Comment: Wow, this is one of those violations that can set off a cascade effect of more trouble than you can ever imagine.  Forget the obvious problem of raising a money laundering and organized crime questions --- in this day and age, you could also run afoul of homeland security issues.  
Online Brokerage Services 
AWC/C8A050021/May 2005

Online Brokerage Services raised $2,270,000 for its general operating capital from private placement securities offerings that the firm represented were exempt from SEC registration when in fact none of the self-offerings offered and sold was registered with the SEC.  The Firm failed to make an offer of rescission to purchasers who invested in the self-offering when material terms of the offering changed, including changes in the 

  • offering price, 
  • minimum purchase required of investors, 
  • minimum and maximum amounts of the offering, and 
  • changes in the offering period. 

The findings also stated that the firm failed to file promptly with NASD documents and information relating to its self-offerings and failed to prepare and maintain an adequate written AML compliance program. 

Censured; Fined $37,500

Monex Securities, Inc. 
AWC/C10050012/May 2005

Monex Securities 

  • failed to file an application with NASD for approval of a change in ownership;
  • permitted a registered representative to engagein activities that required registration as a general securities principal when the individual was not registered as such; and
  • failed to complete a training needs analysis and develop a written training plan as required by the Firm Element of NASDís Continuing Education Requirement. 

Censured; Fined $10,500; Fined $7,500 joint/several with an unnamed individual

Fano Securities LLC (CRD #37867, Purchase, New York)
AWC/CLG050025/May 2005

Fano Securities LLC accepted a public customerís short sale orders, but failed to 

  • make/annotate an affirmative determination that the firm would receive delivery of the security on behalf of the customer, or that the firm could borrow the security on behalf of the customer for delivery by settlement date. 

  • preserve the memorandum of brokerage orders in an accessible place for a period of not less than three years. 

Firm's supervisory system did not provide for supervision reasonably designed to achieve compliance with respect to applicable securities laws and regulations and NASD Rules 3110(b)(1) (marking customer tickets), 3350 (bid test), 3360 (short interest reporting), and NASD Marketplace Rule 6130(d)(6) (ACT Reporting)

Censured; Fined $12,500

Sterling Financial Investment Group, Inc. and Bernard Lewis Golembe (Principal)
AWC/C07050024/May 2005

Acting through Golembe, Sterling Financial Investment Group failed to 

  • specify a cycle for the inspection of branch offices in its written supervisory procedures, 
  • conduct internal inspections of offices of supervisory jurisdiction and branch offices, 
  • conduct annual compliance meetings, and 
  • conduct a review of all of the businesses in which it engaged to assist in detecting and preventing violations of, and achieving compliance with, applicable securities laws, regulations, and NASD rules. 

The Firm utilized an offering memorandum that materially misrepresented the total compensation received or to be received by the firm in connection with a private placement offering; and the Firm failed to 

  • immediately display customer limit orders;
  • maintain the quote for other customer limit orders;
  • notify NASD prior to the employment of an electronic storage media for maintaining firm records;
  • determine the true beneficial owners of certain accounts carried by the firm (and failed to review the activity in those accounts);
  • file customer complaints in a timely manner;
  • make reports pursuant to NASD Rule 3070(a)(4) within 10 days of registered representatives being suspended; and 
  • failed to update or timely amend Forms U4 and U5 for its registered representatives.

 

Sterling Financial Investment Group, Inc.
Censured; Fined $90,000 ($37,500 joint/several with Golembe)
Bernard Lewis Golembe
Fined $90,000 ($37,500 joint/several with Sterling); Suspended 60 days in all capacities
Bill Singer's Comment: Summer is a perfect time of year to conduct those pesky firm inspections.  Make sure that you have promulgated a comprehensive schedule for inspections, check to see that the deadlines were met, and verify the documentation in your files.  Finally, do yourself a favor, re-read Rule 3070 and make sure you're not only complying with that rule but also understand the different requirements for Forms U4 and U5.
First Global Securities, Inc. and Noble Bradford Trenham (Principal)
AWC/C02050026/May 2005

First Global Securities failed to develop and implement a written anti-money laundering (AML) program in a manner that was reasonably designed to achieve and monitor compliance with the Bank Secrecy Act.

Acting through Trenham and other individuals, the firm effected transactions in securities and/or induced or attempted to induce the purchase or sale of securities when the firm failed to have and maintain sufficient net capital

Acting through Trenham, the firm 

  • permitted registered persons to act in capacities requiring registration while their NASD registrations were deemed inactive due to their failure to complete timely the Regulatory Element of NASD's Continuing Education requirements; and
  • failed to develop and maintain a continuing and current education program for its covered registered persons.
First Global Securities, Inc.
Censured; Fined $28,500 joint/several with Trenham
Noble Bradford Trenham
Fined $28,500 joint/several with firm; Suspended 30 business days in all capacities
Bill Singer's Comment: By now it should seem apparent to all industry Compliance/Legal staff that NASD is no longer giving a wide berth to Principals.  We are seeing increasing numbers of cases holding Principals personally liable, and imposing fines and suspensions.
Shoou Chyn Kan (Principal) 
AWC/C10050015/May 2005

Acting on behalf of her member firm, Kan 

  • permitted individuals to act in capacities that required registration while their registration status with NASD was deficient due to Kanís failure to submit fingerprint records on their behalf;
  • allowed individuals to ďparkĒ their registrations with her firm by maintaining their registrations as general securities representatives through their purported associations with the firm when in fact they were not actively involved in the firmís securities business or otherwise functioning as representatives of the firm; and
  • conducted a securities business when the firmís net capital fell below the minimum amount required under SEC Rule 15c3-1. 

Censured; Fined $10,000

Dennis Roy Roth
OS/CMS040016/April 2005

Roth issued a research report in which he recommended the purchase of an OTC Bulletin Board-traded company, which contained baseless and exaggerated sales projections, price predictions, and an unsupported claim that the company would achieve profitability. Also, he failed to disclose that he was being paid by the company in cash and securities to promote the company and to solicit investors to purchase its securities at the time of the issuance of the research report.

Barred

Michael B. Reynolds
C07040069/April 2005

Reynolds stole a check from his supervisor, forged the supervisorís signature on the check, and converted the funds to his own use and benefit without his supervisorís knowledge or authorization. Also, he failed to respond to NASD requests for information. 

Barred

Mark Francis Mizenko
C8B030012/April 2005

Mizenko committed forgery by tracing a corporate officerís name onto a document without his knowledge or permission and by using his notary seal to affix a purported corporate seal onto a document. This decision has been appealed to the SEC, and the sanction is not in effect pending consideration of the appeal. 

Barred

Bill Singer's Comment: SEC sustained NASD: http://sec.gov/litigation/opinions/34-52600.pdf  Also see, Kelsey, Harper and Wilson cases.  
Chantha Owen Lueung (Principal)
AWC/CLG050016/April 2005

Lueung fraudulently recommended and sold the securities of a certain company to public customers. He told his customers that he conducted an appropriate investigation and reasonable due diligence into the company, but failed to do so. Lueung made material misrepresentations about the companyís securities and failed to disclose material adverse facts that he was or should have been aware of, including the companyís financial condition.Further, he made statements about the company and its business, including stock price projections and guarantees, for which he had no basis.

Barred

Arthur Conrad Levy (Principal)
AWC/C07050011/April 2005

In connection with class B share liquidations for public customers, Levy falsified firm records by entering codes into his firmís computer system that falsely indicated that the customers had died or were disabled, which had the effect of waiving the CDSC charges for customers when they were not entitled to the waiver. 

Barred

Bill Singer's Comment: Doesn't this make him a consumer advocate?  See Kwan case for similar facts
Larry King Jr.
AWC/C8A050012/April 2005

King induced the customer to sign, unknowingly, withdrawal slips and a certified check request form, and made $75,409.59 in withdrawals from customerís bank account.  King  used the funds for a purpose other than the benefit of the customer for a period of time before returning the funds to the customer. King failed to respond to NASD requests for documents and information. 

Barred

Jason William Gregg
AWC/C9A050006/April 2005

Gregg was a co-owner of bank accounts maintained at a bank that was affiliated with his broker-dealer, and he caused sham service fee refunds to be credited to those accounts (he subsequently made a total of $2,160 in withdrawals from the accounts) and used the refunds for his own benefit. 

Barred

Massimo Fabio Colella 
AWC/C9A050004/April 2005

Colella charged a personal expense, or caused a personal expense to be charged, to a personal credit card owned by a business associate, who was also a co-worker, without that personís knowledge or authorization.

Barred

Rafael Ernesto Avila
AWC/C07050009/April 2005

Avila received $92,000 from public customers to invest in securities for the customers, but failed to follow the customersí instructions and converted the funds to his own use and benefit. Further, he owned or maintained control over two brokerage accounts at an NASD member firm, but failed to disclose his association with his member firm to the firm carrying the accounts, and failed to disclose the existence of the accounts to his member firm. Also, Avila failed to provide prompt written notice to his member firm that he was employed by, or received compensation from, an outside business activity. 

Barred

Peter T. Antipatis
AWC/CMS040204/April 2005

Antipatis circulated false and misleading investment opinions and research reports, which included fraudulent and deceptive representations and omissions of material facts about speculative, low-priced securities that were promoted by a stock promotion and public relations firm for which he worked and from which he received a salary. In furtherance of said violations he:

  • did not include financial information about companies he covered in his investment opinions;
  • failed to disclose material negative information about the companies that he covered; 
  • did not base his investment opinions on principals of fair dealing and good faith (they were not fair and balanced, and did not provide a sound basis for evaluating the facts in regard to any particular security or type of security);  
  • omitted material facts or qualifications that, in light of the context of the material presented, caused the communications to be misleading;
  • made false, exaggerated, unwarranted, or misleading statements or claims in his communications with the public;
  • published, circulated, or distributed public communications (or caused same), that he knew or had reason to know contained untrue statements of material fact or were otherwise false or misleading;
  • predicted or projected performance, implied that past performance will recur, or made exaggerated or unwarranted claims, opinions, or forecasts; and
  • issued investment opinions or research reports, which contained only favorable research, opinions, or news about the companies he covered and the directly or indirectly offered the favorable research report and a specific rating as consideration or inducement for the receipt by him of business or compensation.

Antipatis was registered with a member firm for the sole purpose of avoiding a lapse in his registration and re-examination requirements. Antipatis failed to provide prompt written disclosure to his member firm that he was working for, and being compensated by, a company for writing investment opinions and research reports. Antipatis did not disclose the true nature of his work and deceived his member firm into believing that his outside employment was not investment related.  Antipatis failed to notify his member firm, in writing, of his securities accounts at another member firm, and failed to notify a member firm of his associated status with another member firm.

Barred

Bill Singer's Comment: When the regulators drafted and enacted during the past couple of years so-called research reforms, they apparently thought they would be paving the way for better research.  Most Wall Street pros knew otherwise --- and this case likely underscores that it's a lot more difficult to eliminate the scourge of garbage research.  Stock promoters have been around for a long time, and they show no signs of disappearing.  Compliance staffs would be well advised to inquire as to whether any registered reps are circulating opinions or reports.  You should also inquire as to the nature of any promoters or PR firms involved with such communications.  Moreover, once you determine that a salary is being paid (or any compensation) to your employee/contractor, you should insist upon a prior review of any proposed materials to be disseminated.  You don't think it's worth the time and effort?  That's fine.  The regulators will do the work for you, and then you can explain your actions (or lack thereof) during an on-the-record, under oath interview.  
Hennion & Walsh, Inc., Richard Hennion, and William Walter Walsh (Principal) 
C9B040013/April 2005

Hennion made unsuitable recommendations to a public customer and exercised discretion in the customerís account without written authorization. Walsh failed to exercise reasonable supervision over Hennion. Hennion & Walsh, Inc. failed to have reasonable supervisory systems and procedures. 

Hennion & Walsh, Inc. fined $40,000 joint/several with Hennion and Walsh; Fined an additional $10,000; Ordered to retain an independent consultant approved by NASD to review its written policies and procedures and to prepare and submit to NASD a report setting forth the consultantís recommendations and the firmís actions to implement those recommendations.  Hennion fined $40,000 joint/several with Hennion & Walsh and Walsh; Fined an additional $35,000; Suspended 4 months all capacities; Required to requalify in all capacities. Walsh fined $40,000 joint/several with Hennion & Walsh; Fined an additional $25,000; Suspended 4 months in all supervisory capacities; Required to requalfiy in all principal capacities.
Bill Singer's Comment: See subsequent September 2005 action.
Ronald Dean Udy 
AWC/C3A050005/March 2005

Udy engaged in private securities transactions without providing prior written notice to his member firm. Further, he acted in a supervisory capacity at his member firm without registration as a general securities principal or investment company and variable contract products principal. 

Udy was Fined $12,500; Suspended 25 days in all capacities; Suspended 25 days in principal/supervisory capacity.
Patrick Clark Toole (Principal)
OS/C05040082/March 2005

Toole failed to: 

  1. establish, maintain, and enforce an adequate system reasonably designed to comply with NASD rules regarding exception reports
  2. supervise activities in connection with the sale of variable annuity and variable life products;
  3. supervise an agent adequately, in that he neither conditioned the agentís employment upon heightened supervision nor put a plan of heightened supervision into effect; and 
  4. maintain and enforce written supervisory procedures requiring annual compliance conferences with registered representatives, and to respond reasonably to red flags raised by a customer complaint. 

Toole was Fined $10,000; Suspended 6 months in principal capacity

Bill Singer's Comment:  We're seeing so many "red flag" cases all of a sudden that it seems like Tianaman Square.  I don't recall too many cases charging a failure to use "exception reports," so you all might want to make sure that you are incorporating those supervisory tools into your routines.  
Robert Jerome Toohey (Principal)
OS/CMS040016/March 2005

Toohey failed to supervise adequately the activities of a registered representative in connection with the publication of a press release and a summary buy recommendation that contained certain misleading, exaggerated, and unwarranted claims and omissions of material fact.

Fined $5,000; Suspended 5 business days in all capacities; Barred in supervisory capacities as a General Securities Principal

Bill Singer's Comment:  This is an interesting extension of the typical charge --- here the supervisor is also charged with permitting the dissemination of fraudulent statements.  The sanction is interesting in that he was suspended for 5 business days but barred as a GSP.  If a lawyer handled that bifurcation it was well done.  At least the client didn't wind up taking a multi-month or multi-year suspension.  I also suspect the fine was reduced in consideration of the bar.
Reuel Clarion Swanson (Principal)
AWC/C3B040024/March 2005

Acting on behalf of his member firm, Swanson had a supervisory system and written supervisory procedures that were inadequate and did not appropriately deter and detect violations of NASD rules, which included misrepresentations and omissions in the sale of its proprietary products, unsuitable recommendations, and inadequate review and approval of sales of proprietary products. Swanson failed to take effective supervisory action in the face of red flags indicating improper sales practices by registered representatives. 

Swanson Fined $5,000; Barred in principal capacity

Bill Singer's Comment:  Ah yes, another one of the growing legion of "red flag" cases.  We're seeing more efforts to hold supervisors responsible for what we lawyers often call the "knew or should have known" matters in which individuals are charged with what is essentially reckless conduct --- they looked the other way.
Scott Steven Powell
AWC/C3B040029/March 2005

Powell affixed his wifeís signature to a letter (which requested the registration and taxpayer I.D. number of the account be changed) addressed to the member firm where her securities account was maintained without her knowledge or consent; and effectively transferred control of the account from his wife to himself. 

Powell was Fined $20,000 and Suspended 3 months in all capacities.

Bill Singer's Comment: Either there were some very mitigating circumstances here (the wife was ill or something equally serious) or I just don't understand how the sanctions equate with the allegation.  Another case where perhaps the NASD needs to provide us with just a bit more detail.  I'm still trying to figure out how come Messrs. Livak and Coyner below got 2 year and 1 year suspensions but this is only 3 months.  Maybe Powell hired a great lawyer.
Stephen Michael Magee (Principal), Phillip Bradley Blackwell, and Gary John Ferrara
OS/CMS040165/March 2005

While acting individually and as a members of a group of salespersons, Magee, Blackwell, and Ferrara employed classic boiler-room techniques to induce customers to purchase shares of a company. They engaged in fraudulent misrepresentations and omissions to induce purchases or to discourage sales of shares in a company, and routinely predicted the stock would shortly increase in price. They engaged in unauthorized trading, as well as other deceptive practices, including buying more than the customer authorized or insisting that the customer pay for an unauthorized trade before selling the stock. In addition,  each member of the group knowingly or recklessly provided substantial assistance to other members of the group engaged in the same or similar misconduct, in furtherance of the scheme. 

The respondents and members of the group failed to furnish customers, prior to effecting such transactions, a risk disclosure document containing the information required by penny stock rules and failed to obtain from customers, prior to effecting customer transactions in a stock, a manually signed and dated written statement acknowledgement receipt of such risk disclosure documents. They failed to: (1) disclose to customers, either orally or in writing, prior to effecting customer transactions in a stock, the inside bid and offer quotations for the stock; (2) provide the same in writing prior to the time of any written confirmation sent to the customer pursuant to SEC Rule 10b-10; and (3) keep and preserve records of such disclosures as required by the penny stock rules.

Magee was Fined $10,000 and Suspended 2 years in all capacities
Blackwell was Barred
Ferrara was Barred

Alex Livak 
AWC/C10040114/March 2005

Livak prepared and submitted, or caused to be prepared and submitted, a letter to his landlord that contained a fabricated story as to why he could not pay his rent. The letter was written on his member firmís letterhead and was purportedly signed by the ďDirector of Security, NASD.Ē The individual who signed the letter was Livakís friend and had never been an employee of NASD or his member firm. In addition, Livak prepared and submitted a variable life insurance policy application to his member firm that contained false and inaccurate information. 

Livak was Fined $25,000 and Suspended 2 years in all capacities

Bill Singer's Comment:: Forgetting the life insurance policy aspect of the case, this is an NASD matter because what???  And again, assuming that I concede the legitimate public policy of discouraging forgeries or the fabrication of documents --- and I very much do appreciate the ramifications --- nonetheless, as noted in other cases, just scan the sanctions the NASD imposes for serious violations of securities rules/regulations.  Seriously, just look at the case immediately above this where Mr. Magee got suspended for 2 years (with only a $10,000 fine) and explain the rationale to me. Does this really seem like a 2 year and $25,000 case?  Maybe if NASD would spend just a tad more time going after the real bad guys and a tad less time worrying about folks not paying their rent, Wall Street would be all that much better.
Ki-Moon Kim 
AWC/C3A050006/March 2005

Kim withdrew or transferred $26,988 from the bank accounts of public customers without their authorization. Kim changed the mailing address on a public customerís account form to his branch office address without the consent or knowledge of the customer.

Kim was Barred

Lori A. Huck
C8A040069/March 2005

Huck

  1. endorsed and deposited into her personal securities and bank account, $59,079.69 in checks meant for her member firm, without the firmís knowledge or consent, and used the proceeds for her own benefit or for the benefit of someone other than the firm;
  2. received a $10,000 check, made payable to her member firm, with instructions to deposit the check into the account of a public customer but she deposited the funds into her own personal securities account and used the funds for some purpose other than for the benefit of the customer. She later had the deposit reversed and credited to the customerís securities account; and
  3. endorsed and deposited into her personal securities account, $2,800 in checks made payable to her member firm, and used the proceeds of the checks for her own benefit or for the benefit of someone other than the customer. 

Huck failed to respond to NASD requests for documents and information. 

Huck was Barred

Bill Singer's Comment:We seeing more and more of these conversion of funds/securities cases.  Wall Street will need to come up with a better system to prevent and detect.
Albert Joseph Gornatti, Jr., (Principal)
AWC/C05050002/March 2005

Gornatti issued 13 checks totaling $14,001.78, made payable to himself from the operating account of the member firm; converted the funds to his own use and benefit by endorsing and negotiating the checks without the knowledge or consent of his member firm; and concealed his activities by falsifying the general ledger and altering bank statements. 

Gornatti was Barred

Benjamin Lee Coyner 
AWC/C02050005/March 2005

Coyner forged a college administratorís signature on student Intern Agreement forms in an effort to facilitate the internsí participation in his member firmís summer program. 

Coyner was Fined $5,000 and Suspended for 1 year in all capacities.

Bill Singer's Comment:This case summary is exactly the type of thing that drives me nuts. You think that maybe NASD could give us just enough information to make sense of this? Was Coyner a young guy who was the student's buddy or was he a friend of the kid's family?  Was he doing this out of the goodness of his heart to help the kid get the job, or was he getting paid?  Was the BD harmed by the hiring --- did the intern steal money or never show up on time for work?  Look, I'm no fan of forgery and understand the public policy issue, but a one-year suspension and a $5,000 fine seems just a tad overboard.  Look at some of the other cases reported on this page and note how few folks get suspended for a year.
GunnAllen Financial, Inc. and Stephen Irvin Saunders, IV (Principal)
AWC/C07050004/March 2005

The Firm failed to implement its anti-money laundering (ďAMLĒ) program in a manner that was reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and the implementing regulations promulgated thereunder by the Department of Treasury. Acting through Saunders and an unnamed other individual, the Firm permitted registered representatives to act in a capacity requiring registration when such persons were deemed inactive for failing to complete the Regulatory Element of Continuing Education. 

Acting through Saunders, the Firm failed to 

  • report in a timely manner information regarding customer complaints to NASD, 
  • file all information regarding customer complaints, and 
  • report, within 10 business days, information regarding settlements of claims for damages against the firm and Registered Representatives and the receipt of a customer complaint alleging forgery, and
  • ensure that all new account forms contained the signature of a partner, officer, or manager accepting the account on behalf of the firm

Acting through an unnamed individual, the Firm failed to update in a timely manner the Forms U4 and U5 of registered representatives to disclose customer complaints, settlements, and/or arbitrations, as well as the Form U4 of Registered Representatives. 

GunnAllen and Saunder Censured and Fined $11,250 (jointly/severally); GunnAllen additionally fined $18,750 (of which $8,750 was jointly/severally with an unnamed other individual)

Clark Street Capital, Inc. and Marco Alfonsi (Principal) 
AWC/C07050005/March 2005

The Firm failed to 

  • obtain signed and dated receipts from public customers evidencing the receipt of penny stock risk disclosure documents for purchase transactions; and
  • failed to document a review of a companyís financial statements, and other material business information, to ensure that its representatives had a reasonable basis to recommend stock to clients. 

Acting through Alfonsi, the firm failed to establish, maintain, and enforce an adequate supervisory system that was reasonably designed to achieve compliance with the penny stock rules. Alfonsi failed to supervise reasonably the representatives in his branch office to ensure compliance with the penny stock rules. 

Clark Street Capital, Inc. and Alfonsi Censured and Fined $15,000 (jointly/severally); and Alfonsi Suspended 6 months in principal capacities.

Back Bay Capital, Inc. and Albert Tommie Carazolez (Principal)
OS/CMS040049/March 2005

Acting through Carazolez, the Firm  : 

  1. failed to register a person associated with the firm who was engaging in the firmís securities business and acting as a principal of the firm; and 
  2. failed to name this associated person in Schedule A of the firmís Form BD, even though this person held an ownership interest of more than 5 percent of the firm; and 
  3. encouraged and directed a registered representative acting under the firmís direction and control as its employee and agent to employ fraudulent sales practices and to make baseless price predictions and unsuitable recommendations of a security to public customers. 

The Firm and Carazolez egregiously failed to: supervise properly, establish and implement a supervisory compliance structure, and provide the firmís registered representatives with written supervisory procedures reasonably designed to prevent fraudulent sales practices. In addition, Carazolez provided misleading documents and made false and misleading statements under oath in response to NASDís requests for information. 

Back Bay Capital, Inc. was Expelled
Carazolez was Barred

Bill Singer's Comment:It's a good idea to annually refer to your firm's Schedule A (if not the entire Form BD) and make sure that what you think is supposed to be there is . . . and what someone said they changed last year, they did.  You'd be surprised how often a Compliance Officer sincerely believes that some subordinate (who left last week) submitted changes to the Form BD, only to be shocked when NASD points out that Mr. Smith, the new manager, isn't listed; and Mr. Jones (who sold his interest in the firm to Ms. Doe) still is, but Ms. Doe isn't.
Ding Ho Wang
AWC/C02050003/February 2005

Wang placed advertisements in a Chinese language newspaper and distributed sales literature in the form of a booklet without prior approval from his member firm. The advertisements and sales literature were variously misleading and contained exaggerated or unwarranted statements and claims. The advertisements discussed and promoted Wangís securities business but failed to identify his member firm as the broker-dealer that offered the securities.The sales literature provided incomplete and oversimplified comparisons and contained investment company performance not in accordance with the requirements set forth in SEC Rule 482 with regard to the inclusion of standardized average annual total returns, specific disclosure language, and prospectus offer. 

Wang was Fined $5,000 and Suspended 30 business days in all capacities.

Bill Singer's Comment: This case offers an excellent opportunity to underscore the importance for BDs to scrutinize advertising/sales literature directed at ethnic markets.  I always urge my clients to have all foreign language copy translated by an independent translation service (charge the RR if necessary) and to maintain on file the foreign language copy attached to the translation.  Additionally, it is critical to undertake the same rigorous oversight of all public communications in foreign languages, with particular emphasis on business cards, Internet postings, and even letterhead.
Carlos M. Urro
AWC/C9B040109/February 2005

Urro created fictitious reimbursement documents, forged the signature of a school official on the documents, and submitted the documents to his member firm in an improper attempt to obtain funds from the firm.

Urro was Barred

Edwin John Torres
AWC/C01040034/February 2005

Torres received $324,000 from a public customer for the purchase of municipal bonds and converted the proceeds to his own use and benefit. He created and sent false invoices to a public customer, purportedly reflecting her investments in municipal bonds that Torres had purchased for her when, in fact, no such bonds had been purchased. 

Torres was Barred.

Brian Patrick Taggart
AWC/C10040129/February 2005

Taggart allowed an individual to sign roster sheets indicating that the individual had attended insurance continuing education sessions taught by Taggart when he had not. and then he provided the individual with Insurance Department Course Completion documents for courses the individual had not completed. 

Taggart was Fined $10,000 and Suspended 45 days in all capacities.

Bill Singer's Comment: I'm not quite understanding the sanction here.  Look at the Raymond case, for example.  Taggart must have had a superb lawyer.
Eva Yee May Sung 
AWC/C02040055/February 2005

Sung forged the signatures of public customers and a branch manager on forms authorizing Sung to become the new representative of certain ďorphanedĒ brokerage accounts. 

Sung was Barred.

Bill Singer's Comment: Ah, every broker's dream --- the quick alternative to cold calling through D&B leads.
Max J. Silberman
OS/C8A040028/February 2005

Silberman exercised discretion in the account of a public customer by placing securities transactions after the customer had died without prior written authorization from the customer and prior written acceptance of the account as discretionary by his member firm. Despite knowing that the customer had died, Silberman sold, or caused to be sold, option call contracts, which were set to expire. The sale was made without the knowledge or consent of the executor of the customerís estate and in the absence of written or oral authorization to Silberman to exercise discretion on such account. 

Silberman was Fined $5,100 and Suspended 5 business days in all capacities.

Bill Singer's Comment:Given the mild sanctions, I'm going to assume that Silberman acted in what he genuinely believed was the deceased's best interests and likely attempted to close out options positions in an effort to avoid greater losses or to achieve greater gains.  On the silly side, does the NASD really mean to suggest that this broker is being sanctioned for not getting "prior written authorization" from the dead?  
Scott Bruce Seidman
AWC/C11040043/February 2005

Seidman changed a limit order to a market order without the customerís permission. 

Seidman was Fined $5,000 and Suspended 30 days in all capacities.

John Francis Richard, Jr.
AWC/C11040045/February 2005 

As director of recruiting for a branch office of his member firm, Richard created false firm recruiting profiles for individuals using firm customer social security numbers. 

Richard was Barred.

Bill Singer's Comment:Now this decision really drives me nuts.  What the hell happened here . . . and why can't the NASD simply explain the violation?  As best I can tell, the Director of Recruiting used social security numbers of firm customers for job applicants.  That seems wrong, but what else is the point?  Did he actually hire these folks and circumvented the registration process (and then got caught), or did the applicants conspire with him to hide their true identities?  Or was this a situation whereby the Director of Recruiting was claiming to have interviewed X numbers of candidates each day (when the number was substantially less than X) and was trying to cover his tracks by showing his firm that he had been busy interviewing?  Come on guys, would you give us just a bit more information so we can learn the lessons of these cases.
Heather Anne Raymond
AWC/C9B040107/February 2005

Raymond altered her copy of her test report for the Series 7 General Securities Representative exam to reflect a passing grade and provided a copy of the falsified test report to her member firm in an attempt to convince them she had qualified as a general securities representative. She provide false and misleading testimony during an NASD on-the-record interview. 

Raymond was Barred.

Oscar Armando Montenegro
C10040019/February 2005

Montenegro received $19,975 from public customers for investment and converted the funds to his own use and benefit. 

Montenegro created a Web site for his own direct-access trading firm and plagiarized copyrighted material from the Web site of his previous member firm. In addition, he failed to obtain approval for the Web site from a registered principal with the member firm with which he was registered. 

Montenegro provided false testimony during an NASD on-the-record interview. 

Montenegro was Barred

Bill Singer's Comment:By no means am I defending this broker; however, solely as to the allegation of plagiarization, is that really a legitimate concern for the NASD?  Seems to me that the alleged unauthorized use of web content is a matter that belongs in the civil courts.
Scott Ian Martin
AWC/C9A040064/February 2005

In response to margin calls, Martin credited his securities account at his member firm with a deposit of $3,000 using his member firmís computer system;  but time after he made these ďelectronic deposits,Ē he intentionally or recklessly failed to deposit the actual funds into his securities account. 

Martin was Fined $5,000 and Suspended 6 months in all capacities.

Brian Clifford Larsen
AWC/C8A050003/February 2005

Larsen affixed the signatures of public customers on an account authorization document without the customersí knowledge or consent. He recommended and effected transactions for public customers without having reasonable grounds for believing that the recommendations and resultant transactions were suitable for the customers based on their financial situation and needs. 

Larsen purchased securities in his personal accounts for which he did not make timely payments as required by Regulation X and sold each position before payment was due, using the proceeds of the sale to pay for the purchase. In addition,  Larsen caused his member firm to extend credit to him in violation of Regulation T by writing checks from one account, depositing that check in the other account, and then either transferring money back to the first account or depositing a check from the second account back to the first account before the initial check cleared. 

Larsen was Barred

Bill Singer's Comment:This case notes a fairly common problem and one that should often serve as a red flag for in-house supervisory staff.  RRs may attempt to trade in their accounts by using proceeds to pay for purchases, particularly when they may be experiencing financial difficulties and are trying to raise money through playing the market.  Moreover, the use of check "kiting" is another warning signal.
John Thomas Ford (Principal)
AWC/CMS040203/February 2005 

Ford failed to 

  • establish, maintain, and enforce a supervisory system reasonably designed to detect and prevent violations of federal securities laws and NASD rules;
  • establish and implement a supervisory system reasonably designed to supervise municipal securities representativeís sales practices while recommending the purchase of municipal securities to public customers; 
  • establish and maintain a supervisory system reasonably designed to respond to customer complaints of sales practices abuses;
  • recognize the ďred flagsĒ that indicated that a municipal securities representative was executing unauthorized transactions in public customer accounts and making misrepresentations and material omissions while recommending the purchase of municipal securities to public investors. 

Ford was Fined $3,000; Suspended for 1 year as a general securities principal and municipal securities principal; and Required to Requalify as a general securities principal and municipal securities principal.

Michael Ray Claiborne (Principal)
OS/C06030035/February 2005

Acting through Claiborne, a member firm violated its membership agreement because it made markets in at least 20, and at times as many as 46, OTC Bulletin Board (OTCBB) securities although the firmís membership agreement limited the firm from making markets in no more than 10 OTCBB securities. Claiborne failed to supervise a registered representative to ensure that the representative did not function as a general securities principal without the benefit of registration. 

Claiborne was Fined $5,000 and Barred in a principal capacity.

John Joseph Buehner
AWC/C9A040059/February 2005

Buehner caused funds totaling $4,783 to be electronically transferred from a proprietary account at his member firm to an account he owned at the firm without the firmís knowledge or authorization. He used the firmís funds from one to 13 days before transferring an equal amount from his personal account back to the proprietary account. Buehner caused $500 to be transferred electronically from an IRA at his member firm that was owned by a registered representative to an account Buehner owned at the firm without the representativeís knowledge or authorization and used the funds for two days before transferring $500 from his personal account at the firm back to the representativeís IRA. 

Buehner was Barred

Bill Singer's Comment: We're starting to see an increasing number of cases in which employees are improperly transferring funds to their own use.  I suspect that NASD is going to scrutinize journaling entries to/from employee-controlled accounts.  Another word to the wise --- check it out before the regulators do.  What did the Bard say?  Neither a borrower nor a lender be.
Kimberly Jean Boyce 
AWC/C3B040030/February 2005

Without the knowledge or consent of a public customer, Boyce caused online payments totaling $5,500 to be made from the customerís checking account to Boyceís credit card accounts in order to satisfy debts; withdrew $21,000 in the form of checks payable to the customer and to a business controlled by Boyce; and deposited them into bank accounts under her control, thereby converting the funds to her own use and benefit. In order to obtain possession and control of funds belonging to the customer and without the customerís knowledge or consent, Boyce affixed, or caused to be affixed, the signature of the customer as an endorsement to the checks she caused to be issued. 

Boyce was Barred.

Angelo Achilles Armenta (Principal) 
AWC/C02040058/February 2005

Armenta failed to disclose in his member firmís quarterly compliance questionnaires that he had borrowed money from a client of the firm when he had, in fact, borrowed $25,000 from a client.

Armenta was Fined $10,000 and Suspended 30 days in all capacities.

Bill Singer's Comment:NASD Conduct Rule 2370: Borrowing From or Lending to Customers, prohibits registered persons from borrowing money from or lending money to a customer unless (1) the member has written procedures allowing such lending arrangements consistent with the rule; (2) the loan falls within one of five prescribed permissible types of lending arrangements set forth in the rule; and (3) the member pre-approves the loan in writing.  Since the rule is now about a year old, I suspect we're going to see some increased enforcement activity in this area.  Heads up!
Steven L. Falk & Associates, Inc.
AWC/C9B040104/February 2005

Steven L. Falk & Associates, Inc. failed to establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with all requirements imposed by the Bank Secrecy Act and the regulations promulgated thereunder. The firm failed to 

  • identify an individual responsible for implementing and monitoring the firmís AML program; 
  • address in the firmís AML program the firmís responsibility to provide prompt notification to NASD regarding changes to the individualís contact information; 
  • conduct an independent testing of the firmís AML program; and 
  • have the firmís AML program approved, in writing, by a member of the firmís senior management. 

Steven L. Falk & Assoc. was Censured and Fined $10,000.

Bill Singer's Comment:Actually, this case sets forth a fairly good checklist for your AML program.  Makes sure, at a minimum, the program: 1. Identifies responsible staff; 2. Undertakes to notify NASD of staff changes; 3. Requires independent verification; and 4. Evidences senior mgmt's written approval.
NFB Investment Services Corp.
AWC/CLI040036/February 2005

NFB failed to amend Forms U4 and Forms U5 to disclose customer complaints in a timely manner, which may have 

  • impeded the investing publicís ability to assess the background of certain brokers through NASDís public disclosure program (NASD BrokerCheck), 
  • denied member firms access to relevant information in making hiring determinations, 
  • enabled some brokers to transfer firms without having their application reviewed by the appropriate state securities regulator, and 
  • hindered NASD from promptly investigating certain disclosure items. 

NFB was Censured and Fined $20,000. 

Bill Singer's Comment:I'm not sure why NASD just this point in time and this case to spell out the four consequences of failing to timely amend Forms U4/U5.  More to the point, NASD has specified its concern about the timely disclosure of "customer complaints." Nothing wrong with doing so --- but I'm just wondering why now and here.  Perhaps Compliance Departments should heed the regulator's explanations as a warning of more scrutiny to come?

Benson York Group, Inc. 
AWC/CLI040038/February 2005

Benson York was not approved to conduct options transactions in its membership agreement although the firmís customers were actively trading options. The firm completed a change in the equity ownership or partnership capital of the firm that resulted in a person or entity directly owning, indirectly owning, or controlling 25 percent or more of the equity or the partnership capital prior to the filing with NASD of an application for approval of change in ownership, control, or business operations at least 30 days prior to the change. The firm failed to report customer complaints through the Rule 3070 reporting system, and executed settlement agreements with its customers that contained language that restricted the customers from disclosing the settlement terms or underlying facts of the dispute to NASD. In addition,  while participating in a private placement, the firm made certain prohibited material misrepresentations in connection with the offering and failed to transmit properly, or maintain the payments received, in connection with the offering. 

Benson York Group was censured and fined $27,500.

American Express Financial Advisors, Inc. 
AWC/C8A040126/February 2005

American Express Financial Advisors failed to supervise a general securities representative with respect to his handling of public customer accounts. The firm assigned four consecutive supervisors to the representative.  All four supervisors failed to take corrective action when the accounts of the representativeís customers appeared on numerous Redemption/Purchase Reports, disclosing unsuitable trading through redemptions and subsequent purchases of different share funds of different mutual fund families within a 30-day period. The Redemption/ Purchase Reports that the firm prepared for the supervisory review of significant activity in customer accounts contained inaccuracies and were difficult to decipher, severely limiting their usefulness as a supervisory tool. 

American Express Financial Advisors was Censured, Fined $20,000, and Required to Demonstrate the adequacy and effectiveness of the supervisory tools the firm devised to detect and prevent mishandling of public customer accounts by registered representatives and to improve the accuracy of firm Redemption/Purchase Reports.

Bill Singer's Comment:I'm sorry but this sanction just isn't consistent.  Clearly, the NASD's case wishes to underscore the fact that the firm "failed to supervise" when it assigned four supervisors to an RR engaging in unsuitable trading, and each of those supervisors failed to take corrective action.  The message the regulator seeks to send is that you have to have supervisors capable of doing the job and they have to do it.  However, take a look at the Sandifur and Olsen cases.  In those cases, supervisors were specifically named and barred or suspended for 1 year because they couldn't get the supervisory job done, or knew they weren't getting it done.  How come American Express gets off with a mere $20,000 fine?  Were any supervisors at American Express barred or suspended?  Also, see later July NASD action involving supervisory lapses.
JLM Securities Company and Lionel Sydney Margolick (Principal)
AWC/C8A040124/February 2005 

Acting through Margolick, JLM Securities commenced offerings in limited partnerships through the use of an Offering Memoranda and Subscription Agreements and failed to segregate properly purchasersí funds while the funds were being raised and improperly forwarded the funds to the partnerships prior to raising the minimum required. 

JLM and Margolick were Censured and Fined $10,000, jointly and severally.

Bill Singer's Comment: This is a common slip-up for many firms.  When involved with LPs, make sure that you are not commingling investors' funds with the member firm's accounts or relinquishing control of those funds to the LP prior to meeting the mini.
Stuart Financial Corporation and Kelvin Gordon Tonner (Principal)
AWC/C07040100/February 2005

Acting through Tonner, Stuart Financial Corporation failed to maintain a supervisory system, including written supervisory procedures, internal operating procedures, and compliance procedures, reasonably designed to prevent and detect violations of federal securities laws, rules, regulations, and NASD rules. The firm failed to maintain a copy of its written supervisory procedures on site at the firm, and that the firmís procedures were not specifically tailored to its business activities and did not address how the firmís activities would be supervised, including the type of supervisory reviews to be performed and who would perform such reviews. The firm had no procedures for the review of incoming and outgoing correspondence and failed to maintain copies of any correspondence to or from customers. The firm failed to ensure that all of its registered personnel attended its annual compliance meeting. Moreover, the firm failed to develop and implement a written AML program reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and the implementing regulations promulgated thereunder by the Department of Treasury. 

Stuart Financial Corporation was Censured; Fined $35,000 ($15,000 jointly/severally with Tonner); and Required to Retain an independent outside consultant to conduct a review of, prepare a written report, and make recommendations as to the adequacy of the firmís supervisory and compliance policies and procedures and its system for applying and enforcing such policies and procedures.
Tonner was Suspended 10 business days in any principal/supervisory capacity. 

 

Bill Singer's Comment:Most industry pro know that among the first things you check on prior to a regulatory examination is whether your membership certificate is prominently displayed on the premises and you have a current copy of your WSPs readily available.  Failing to have a copy of your WSPs on site is the equivalent of amateur hour.  Nonetheless, I will note one long-standing objection to a pet NASD charge --- failure to have adequate WSPs.  NASD staff has to approve all member firms for admission and as part of that rigorous vetting process, they supposedly carefully read all proposed WSPs to ensure that they adequately cover the firm's business lines.  I've been through some of those wars where a firm is denied approval to become a member because some examiner deems the WSPs inadequate.  Also, when a member firm asks to modify its existing Membership Agreement in order to expand its business, the NASD puts the firm through an equally rigorous review and always checks the WSPs at that time too.  As such, I often cringe when I see the NASD charging a firm with not having adequate WSPs or procedures because I generally consider such lapses the failure of NASD's examining staff to previously warn the member firm of any concerns they have with the written materials.  How could an NASD member firm ever have been approved for membership (or even subject to an annual examination) without some regulatory staff noting that there weren't any correspondence procedures or an AML program?  I'm not excusing the firm but this seems like something that NASD is also to blame for.
Itradedirect.com Corp. and Eric David Arlt (Principal) 
AWC/C07040101/February 2005

Itradedirect.com and Arlt failed to establish, maintain, and enforce an adequate supervisory system reasonably designed to achieve compliance with industry rules and regulations regarding sales of private placements, Form U4 updates, and customer complaint reporting. They failed to supervise a representative of the firm by allowing him to conduct business without being properly registered in two states, failed to monitor reasonably the progress of a criminal case against the representative to ensure his Form U4 was properly amended and a Rule 3070 report was filed timely upon his guilty plea to fraud charges, and failed to ensure that the firm did not associate itself with a statutorily disqualified person.

Firm was Fined $20,000 ($7,500 jointly/severally with Arlt)
Arlt was Fined $7,500 jointly/severally with Itradedirect.com, and Suspended 30 business days in all principal capacities  (NASD Case #)

Bill Singer's Comment:I would urge you to consider that among the violations was one that requires member firms to "monitor reasonably the progress of a criminal case . . . to ensure his form U4 was properly amended and a Rule 3070 report filed timely upon his guilty plea . . ."  Compliance staff should review internal policies to ensure that registered and associated persons are providing you with timely updates on the progress of reportable criminal matters.  Moreover, it would seem from this and other recent cases that NASD is beginning to require member firms to undertake more affirmative steps to inform themselves of the developments in criminal proceedings.  
Crown Financial Group, Inc. and Mark Dennis Goldsmith (Principal)
AWC/C9B040110/February 2005

Acting through Goldsmith, Crown Financial Group 

  • failed to accrue virtually all of its liabilities and to record such liabilities in its financial statements; 
  • utilized the instrumentalities of interstate commerce to conduct a securities business while failing to maintain the minimum required net capital; and
  • prepared financial statements and filed periodic reports with the SEC and NASD that contained misstatements. 

Crown Financial Group was Censured and Fined $50,000; 
Goldsmith was Fined $10,000, Suspended in a FINOP capacity (four months?); and Required to Requalify as a FINOP (Series 27)prior to acting again in that capacity.

Bill Singer's Comment:This case doesn't compute on two levels for me.  First, the decision merely notes that Goldsmith was suspended and required to requalify, but I think the NASD meant to report that he had been suspended for four months.  I've advised the good folks at NASD of this apparent error and await their response.  Second, the findings seem quite serious in that there appears to be a gross failure to properly undertake the firm's financial reporting --- I mean, come on, failed to accrue virtually all liabilities?  And the firm was under the minimum Net Capital.  Seems like these sanctions are pretty light if the violations are as serious as NASD makes them sound.  Perhaps another case of excellent defense lawyering.
Harrison Securities, Inc., Frederick Clark Blumer (Principal), and Raymond Alan Leventhal (Principal)
AWC/CLI040039, CLI040040, CLI040042/February 2005

Acting through Blumer and Leventhal, Harrison Securities failed to 

  • establish and maintain a system to supervise the activities of each registered representative and associated person reasonably designed to achieve compliance with applicable securities laws, regulations, and NASD rules; 
  • develop an adequate supervisory system for review of customer accounts to detect and prevent excessive trading or churning;
  • respond to ďred flagsĒ indicating that excessive trading or churning was occurring in the customer accounts of certain registered representatives, including excessive account activity, excessive commissions earned, and customer complaints; 
  • timely amend Forms U4 (Uniform Applications for Securities Industry Registration or Transfer) or Forms U5 (Uniform Termination Notices for Securities Industry Registration) and the firmís Form BD (Uniform Application for Broker-Dealer Registration) to disclose reportable events. 
  • register properly the firmís office of supervisory jurisdiction (OSJ) with NASD; 
  • conduct an annual inspection of the firmís businesses and supervisory systems, including a periodic examination of customer accounts to detect and prevent irregularities or abuses, an annual inspection of each OSJ, and the maintenance of a written record of each such review and inspection;
  • operate with a properly registered financial and operations principal (FINOP); 
  • establish and maintain an adequate antimoney laundering (AML) compliance program; 
  • file an application, pursuant to NASD Membership and Registration Rule 1017, for approval of a change in ownership, control, or business operations upon the direct or indirect acquisition of substantially all of the firmís assets by another member firm; and 
  • make or keep current its arbitration, correspondence, and financial books and records, or to preserve such records, in a readily accessible place. 

Harrison Securities and Blumer: 

  • permitted advertisements and sales literature to be disseminated to the investing public that contained material misstatements and omissions and contravened NASDís rules relating to communications with the public;
  • permitted individuals to maintain registrations with NASD through the firm while the individuals were not actively engaged, or to be engaged, in the investment banking business or securities business of the firm; and
  • failed to comply with SEC Rule 17a-5(a)(2)(iii), in that the firm failed to file its quarterly FOCUS report

Additionally, Blumer failed to respond to NASD requests for information and or documents. 

Harrison Securities and Leventhal permitted a registered representative to continue to conduct a securities business while his registration was inactive due to his failure to complete the Regulatory Element of the Continuing Education Requirement, and they failed:

  • enforce the firmís written supervisory procedures (WSPs) related to options transactions by failing to conduct, and memorialize, periodic reviews of options activities in customer accounts;
  • report, and to report timely customer complaints in violation of NASD Conduct Rule 3070; 
  • enforce the firmís WSPs related to compliance with NASD Conduct Rule 3050 dealing with transactions for or by associated persons; and 
  • establish and maintain adequate procedures to ensure compliance with NASD Rule 2711 dealing with research analyst and research reports. 

Harrison Securities, Inc. was expelled from NASD membership. 
Blumer was Barred
Leventhal was fined $40,000, Suspended 1 year in principal/supervisory capacities and Required to Requalify as a Registered Principal (Series 24)

Bill Singer's Comment: I'm into my third decade on Wall Street and, frankly, I'm not sure I can recall too many regulatory cases that presented a more panoramic range of violations.  To that extent, this decision is impressive.  
Castle Securities Corp., Michael Thomas Studer (Principal)
C3A010036/February 2005

The SEC affirmed the NASD's National Adjudicatory Council decision imposing sanctions following appeal of an NASD Office of Hearing Officers decision. The firm churned the account of a public customer, and Studer and the firm failed to reasonably supervise trading in the account of a public customer by ignoring ďred flagsĒ that indicated potential problems with the account. The firm and Studer induced a public customer to execute margin guarantees that benefited the firm and exposed the customer to significant risk

Castle Securities was Expelled from NASD membership; Fined $98,300; and Fined $37,500 jointly/severally with Studer
Studer was Barred in all capacities and Fined $37,500 jointly/severally with Castle Securities 

Galina Tedeeva
AWC/CLI040035/January 2005

Tedeeva arranged for an imposter to take the Series 6 and Series 63 qualification exams on her behalf. 

Barred

Eloise Ruth Worden (Principal)
AWC/C04040054/January 2005

As the treasurer of a condominium association, Worden misused funds totaling $3,800 belonging to the association without the knowledge, consent, or authorization of the association. 

Barred

Bill Singer's Comment: And this is an NASD regulatory matter because . . . what?
Ramy M. Shaalan 
AWC/C9A040050/January 2005

Shaalan wrongfully obtained approximately $96,000 from his member firm and converted the funds to his own use and benefit. In perpetrating the scheme, he established a bank account under the name of a fictitious entity of which he was the purported owner. The entityís name was substantially similar to the name of an actual company with which his firm had a business relationship. Then using an invoice the firm had received from the actual vendor, Shaalan created an invoice template for the fictitious company and on various occasions generated false invoices for services the fictitious company purportedly provided the firm, submitting the false invoices to the firm for payment. At Shaalanís request, the checks issued to pay the false invoices were given to him to be transmitted to the fictitious company. Subsequently, he endorsed the checks and deposited them into the bank account he had established in the name of the fictitious company, thereby converting the funds to his own use and benefit. 

Barred

Bill Singer's Comment:News flash to NASD --- you guys think it might be helpful to explain to the industry how this guy (and others engaged in similar fraud) were caught?  Like, maybe, explaining how the fraud was detected might help others either uncover ongoing schemes or implement policies/procedures to prevent them.  Or is that too enlightened a form of regulation?
Cantwell Paul Sandifur, Jr. (Principal)
AWC/C3B040028/January 2005

Registered representatives of a member firm, under Sandifur's direction and control, engaged in fraudulent and deceptive sales practices by making material misrepresentations and omitting material facts with the sale of proprietary products to public customers without an adequate basis for recommending the proprietary products to customers for whom the sales were unsuitable. Sandifur and the firmís compliance officer spent the majority of their time working as officers and/or directors of affiliated companies, and the compliance officer delegated his responsibilities to others who were unqualified, inexperienced, and unable to perform the delegated tasks due to insufficient staffing. Sandifur knew, or should have known, that the compliance officer and the supervisor of all the registered representatives were not effectively discharging their responsibilities. 

As president of the firm, Sandifur was responsible for establishing an effective supervisory system at the firm, but the firmís supervisory system was not reasonably designed to achieve 

  • compliance with applicable securities laws, regulations, and NASD rules regarding monitoring the sales activities and recommendations of registered representatives; 
  • compliance training for sales presentations of proprietary products; and 

did not provide guidance concerning the risk level and suitability of proprietary products for investors with a low to medium risk tolerance and/or preservation of capital as a primary investment objective. 

Barred; agreed to testify  if NASD files disciplinary proceedings against the firmís current or former agents relating to the misconduct referenced in this AWC.

Bill Singer's Comment: I suspect the Olsen and Sandifur cases will be seminal for a number of factors.  In Sandifur, the NASD seems to be warning that it will be scrutinizing compliance/supervisory staff who are not devoting a "majority" of their time to their designated in-house roles.  Moreover, although the NASD appears to be willing to accept the reality of "delegating" some responsibilities, the regulatory clearly seems intent to investigate those to whom such powers are delegated to ensure that they are qualified, experienced, and provide with adequate staffing to discharge their duties.  

Sandifur is an important case to note because it holds the President of a BD responsible for ineffecitve supervision --- when many defense lawyers would argue that the liability should stop with the Director of Compliance.  Also note that Sandifur has agreed to testify against his current/former agents. most intriguing, his sanction seems to have taken into acount his "consent to testify" against his former firm and colleagues.

One concern I have is that the NASD must be careful not to go overboard with the criteria for "insufficient staffing."  A growing complaint among smaller firms is that they are being driven out of business by excessive regulation and paperwork demands.  We need to be very careful that in pursuing regulatory goals that NASD does not start creating policies that make it impossible to operate smaller, regional broker-dealers.  

Also read the Olsen decision

David Allen Regis
C06040017/January 2005

Regis was apparently a "limited" securities representative )not registered as a General Securities Representative) during a period in time when he was apparently selling payphone investment contracts to public customers. Such sales were outside his permissible range of products.  He engaged in private securities transactions without prior written notice to his member firm describing the proposed transaction, his proposed role in the transaction, and stating whether he had received, or might receive, compensation.  Regis failed to respond to NASD requests to appear and give testimony. 

Barred

Bill Singer's Comment:Our old friend the payphone investment contracts pops up bright and early for 2005.  Be careful when handling these products, they are generally deemed to be securities . . . even though, time and time again, many RRs just don't seem to realize it.
Kristi Ann Parrott
C06040019/January 2005 

Parrott prepared correct bank slips for deposit of her member firmís daily receipts into various accounts at the firmís clearing firm but transmitted false electronic lists to the clearing firm to divert approximately $23,168.70 into her personal account, which she quickly withdrew by check or ATM. She accomplished the diversion of funds by falsifying the amounts of deposit to her account, duplicating the amount of deposit to her account on the electronic list, or by listing fictitious deposits to her account on the electronic list. To conceal her conduct, Parrott used other employeesí electronic IDs when transmitting fraudulent electronic lists to the clearing firm and destroyed copies of the relevant deposit slips. 

Barred

Bill Singer's Comment:  An impressive scheme but apparently all for naught.
Albert Vincent Otero 
AWC/C11040039/January 2005

Without the knowledge or approval of Otero's member firm, he wrote checks totaling $404 to a public customer to prevent the customer from making complaints concerning contingent deferred sales charges.

Fined $3,500 and suspended 10 business days in all capacities.

Alfred Sinclair Olsen, IV (Principal)
AWC/C3B040027/January 2005

As the supervisor for the registered representatives of his member firm, Olsen was unable to monitor reasonably their sales activities. Although he knew, or should have known, that he would be unable to supervise reasonably such a large number of geographically disbursed registered representatives, he continued to act as supervisor while fraudulent and deceptive sales practices, material misrepresentations, and unsuitable recommendations persisted at his firm. Supervisory action taken by Olsen in the face of red flags indicating improper sales practices was inadequate in that he reviewed and approved subscription agreements that indicated the proprietary products were not suitable for the investing customers. 

Fined $5,000, suspended 1 year in any principal capacity, and consented to testify if NASD files disciplinary proceedings against his former member firmís current or former agents relating to the misconduct referenced in this AWC.

Bill Singer's Comment:I suspect the Olsen case will be seminal for a number of factors.  First, it raises an issue of whether a supervisor can "reasonably" supervise a large number of RRs, and, more pointedly, a large number "geographically disbursed."  Second, it clearly puts into play the regulators' old challenege about the need to engage in compliant supervision or to quit . . . "he continued to act as supervisor."  Third, and perhaps the most intriguing, his sanction seems to have taken into acount his "consent to testify" against his former firm and colleagues.

And now to throw down the gauntlet.  Fine, let these types of sanctions against the brokerage community stand.  But this standard should also be applied to the regulatory community as well.  I want to know why no individual regulator was held responsible for failing to supervise when the SEC sanctioned the NASD and the NYSE?  Look it up. Then show me the "failure to supervise" charges leveled in the wake of NY Attorney General Spitzer's landmark prosecutions of Wall Street --- where were NASD and NYSE for all the years these now discredited practices went on?  Any heads roll for that inability to supervise such a large number of member firms over a geographically disbursed area?

Also read the Sandifur decision

Deepak Shankardas Mirchandani
AWC/CLI040032/January 2005

Mirchandani falsified the social security number of a client on an insurance application as an accommodation to the customer who was in the process of marrying a United States citizen and was awaiting citizenship documentation and a valid social security number.

Fined $5,000 and suspended 3 months in all capacities.

Bill Singer's Comment:I'm not really sure that I'm understanding the NASD's sanctions in these types of falsification cases.  In this post-9/11 world with AML/PATRIOT Act concerns, it seems to be that we're flirting with danger by sanctioning the falsification of account data as a "minor" matter.  Take a look at the Kurtulus case for another troubling example.
Ross James McVey, Jr.
C8A040020/January 2005

McVey prepared and submitted documents on which the purported signatures of public customers were affixed without their knowledge or consent so that he could obtain payments for financial plans that he did not provide to the customers; as a result, the customers were improperly charged fees totaling more than $120,000 that were paid to and used by McVey. Also, McVey failed to respond to NASD requests to appear and provide testimony. 

Barred

Bill Singer's Comment:I mean, really, what can you say?  Do folks feel that they are really going to get away with a scam like this or are they so desperate that they don't care?  
Robert Stephen Marche
AWC/C8A040103/January 2005

Marche effected discretionary transactions in the accounts of a public customer pursuant to verbal authority without prior written authorization from the customer and prior written acceptance of the accounts as discretionary by his member firm. Also, he placed orders for transactions in securities accounts maintained at his former member firm without notifying the firm that he had become associated with another member firm and without notifying his new member firm that he had the securities accounts at his former firm.

Fined $5,000 and suspended 10 days in all capacities

Bill Singer's Comment:The old "verbal authority" defense --- still doesn't work.  You can't exercise discretion (other than as to time and price) without prior written authorization from client and from your firm.  We also have a Daily Double here in that the RR ran afoul of another common industry trap: You can't maintain a brokerage account away from your firm without written notice, written approval, and the forwarding of duplicate trade confirmations.
John Charles Levy
AWC/C8A040104/January 2005

Levy created a pledge agreement to assist a public customer attempting to use his account with Levyís member firm as collateral for a loan, signed the pledge agreement, and delivered the pledge agreement to the customer who submitted it to the bank even though it had not been approved or authorized by Levyís firm. 

Fined $5,000 and suspended 6 months in all capacities

Bill Singer's Comment:Yet another case that many brokers would normally think outside of NASD jurisdiction.  But I'm still trying to understand the logic inherent in the NASD's sanctions.  Look at the Kurtulus case immediately below.  How do you rationalize giving Levy 6 months and Kurtulus gets 10 business days?  
Ibrahim Ethem Kurtulus
OS/C10040030/January 2005

Kurtulus opened brokerage accounts for public customers at his member firm without the knowledge, authorization, or consent of the customers, and then effected transactions in those accounts

Fined $7,500 and suspended for 10 business days in all capacities

Bill Singer's Comment: This case really has me puzzled.  The sanction doesn't seem proportionate to the allegations --- perhaps some outstanding defense lawyering?  You open accounts with the customers' authorization, you trade those accounts, you potentially put the customers' credit histories at risk if you suffer losses; you put the firm at risk if you suffer losses, and in this day of AML/Patriot Act concerns you misrepresent the true account holder --- and all you get is a four-figure fine and 10 business days.  
Frank A. Katona
OS/CAF040020/January 2005

Katona substantially participated in the sale of unregistered securities by entering into an arrangement with the principals of a private company to help raise money by selling ďto be issuedĒ shares to public customers and failed to tell them that 25 percent of the money they invested was compensation to him. He also failed to amend his Form U4 to disclose material information. 

No fine in light of financial status; Suspended 1 year in all capacities; Required to requalify by exam

Bill Singer's Comment:  Sometimes a broker has a cup of coffee with friends, they talk about life, then they talk about work, then someone discusses a deal they're working on, and then the RR "helps" out . . . and then winds up in a mess of trouble.  Step One:  always, always, always verify that any security you are selling is either registered or subject to a proven exemption.  Step Two: Fully disclose your participation in the deal to your BD and get their written approval.  Step Three:  Fully disclose your compensation basis to anyone you're soliciting.
Fred Granik 
C9B040050/January 2005

Granik was authorized to use a corporate credit card by the cardís holder to charge airfare and hotel expenses for a business trip, but without authorization Granik also charged an additional $727.35 for personal expenses to the card and failed to pay the individual for the total amount of $3,304.07 he charged to the credit card. Also, Granik willfully failed to disclose material facts on his Form U4. 

Barred

Bill Singer's Comment:We're seeing more of these types of "personal" matters coming under regulatory scrutiny.  Brokers would be well advised to recognize that even matters not necessarily involved with a securities transaction may be deemed regulatory in nature. 

Kampta Doobay  
(AWC/CLI040033/January 2005) 

Doobay circumvented the requirements of New York State Department of Insurance Regulation 60 in connection with the replacement of life insurance policies for public customers. Although Doobay met with each of the customers on two different occasions to discuss the advantages and disadvantages of the replacement products versus the existing products as required by Regulation 60, he backdated replacement documentation for the customers to indicate that all of the documents had been signed by the customers during their initial meetings with Doobay. 

Kampta Doobay Fined $5,000; Suspended 30 business days all capacities.

Bill Singer's Comment:  The Reg 60 fallout continues.  For more extensive coverage on this issue and other cases, visit Reg 60 link 

Valerie Sue Chandler 
AWC/C9A040051/January 2005

Chandler caused a bank certificate of deposit (CD) owned by a customer of a bank affiliated with her member firm to be redeemed without the customerís knowledge or authorization by forging the customerís signature on a form she completed and used to redeem the CD, thereby converting $4,987 in cash to her own use and benefit. 

Barred 

Bill Singer's Comment: In addition to getting ATM cards (see case below), RRs are now branching out into converting CDs with forged signatures. 

Bryce Allen Boltz 
AWC/C8A040105/January 2005

Boltz issued, or caused to be issued, an ATM card for a public customer of his member firmís bank-affiliate without the knowledge or consent of the customer; and he used the card to withdraw funds totaling $2,700 from the customerís bank account, also without the customerís knowledge or consent. 

Barred

Bill Singer's Comment: Real clever --- I mean, come on, what was this guy thinking? 
Karl Francis Birkenfeld 
OS/C10040021/January 2005

Birkenfeld assisted an individual with obtaining a mortgage by falsely representing the individualís employment status and income on documents that comprised a portion of the mortgage application.

Fined $2,500 and suspended 10 business days in all capacities

Bill Singer's Comment: Most folks wouldn't think this type of conduct would fall under the NASD's jurisdiction. 

Louis Joseph Bacher, Jr., Robert Jay Holub, and Robert Stephen Minka (all Principal)
OS/C01040004/January 2005

Principals permitted a statutorily disqualified person to be associated with their member firm. 

Bacher and Holub: Barred
Minka: Fined $10,000 and barred in a principal capacity.

Bill Singer's Comment: Wow!  Can't get a more blunt sanction than this.  Based upon what I'm hearing from the field, NASD examiners are focusing on statutory disqualification issues after a recent spate of enforcement actions against major firms for deficient oversight in this area. 
Thomas Macaulay Babington, Jr. 
AWC/C07040095/January 2005

Babington misrepresented the sales charge on a unit investment trust product to public customers and forged their signatures on the transaction cover sheet that would have disclosed the correct sales charge.

Barred.

Bill Singer's Comment:  A growing problem area seems to be forgeries of customer signatures by RRs.  In many instances the RR thinks that it is merely an administrative nuisance --- the client has orally agreed to the undertaking, so why bother sending out the paperwork and the waiting for it to come back. As this case shows, the consequences are dire.  

W. R. Hambrecht & Co., L.L.C.
AWC/C01040028/January 2005

The firm failed to 

  • report correctly to ACT the transaction type for transactions that were reported as cross transactions when they were, in fact, riskless principal transactions

  • prepare and retain an order ticket for one side of the trade in trades effected on a riskless principal basis; and 

  • indicate the time of execution on order tickets in trades effected on a riskless principal basis. 

The firm's Anti-Money Laundering (AML) Program was not approved in writing by a member of senior management; and failed to:

  • identify the internal controls the firm would implement to detect attempts to open correspondent accounts by foreign banks

  • require the address of U.S. designated agents when opening correspondent accounts for foreign banks; 

  • specify the time frame in which the firm would terminate its relationship with a foreign bank upon notification by the Secretary of Treasury or the Attorney General that the foreign bank had failed to comply with or contest a summons;

  • specify the firmís policy on opening or maintaining private banking accounts for non-U.S. persons and failed to describe the internal controls the firm would implement to detect attempts to open such accounts; 

  • have procedures to freeze accounts and prohibit transactions with persons suspected of terrorist activities pursuant to Executive Order #13224 issued by the Office of Foreign Assets Control; and 

  •  have procedures for providing information to federal law enforcement officers not later than seven days after receipt of a request. 

censured and fined $20,000

Bill Singer's Comment: This case addresses two often elusive issues.  One, the need to properly characterize a "riskless" principal transaction --- a failure that trips up many firms.  Two, the need to comply with AML obligations.  Compliance Depts must be very attentive to any accounts opened by foreign banks.  
Fixed Income Securities, LP 
AWC/CMS040192/January 2005 

Firm failed to report 

  • the correct time of execution to the Municipal Securities Rulemaking Board (MSRB) in transactions for which the firm had reporting obligations; and 
  • timely any transaction information for transactions in Trade Reporting and Compliance Engine (TRACE) eligible securities. 

Firm also submitted Wells letters in which the firm provided incomplete or inaccurate information concerning who was responsible for supervision for municipal trade reporting and TRACE reporting, and whether that person met his/her responsibilities. Firm failed to establish, maintain, and enforce written supervisory procedures reasonably designed to achieve compliance with MSRB Rule G-14 relating to trade reporting in municipal securities and NASD Rule 6230 relating to trade reporting in TRACE-eligible securities. 

Censured and fined $80,000

Bill Singer's Comment:  The MSRB/TRACE issues aside, it's interesting that there is a reported matter in which an allegation is raised about incomplete/inaccurate Wells responses.    

1st Discount Brokerage, Inc.
AWC/CMS040185/January 2005 

An RR informed the firm he intended to perform clerical, non-investment related services for a company involved in the securities field when, in fact, he circulated misleading, exaggerated, and unwarranted investment opinions and research reports touting Over-the-Counter (OTC) Bulletin Board and Pink Sheet securities that contained unsubstantiated price projections. Firm failed to monitor reasonably an RR's outside business activities and its supervisory system failed to provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations, and NASD rules concerning compliance with NASD Conduct Rule 3030.

Censured and fined $12,500.

Bill Singer's Comment:  I'm sort of puzzled with the facts here.  The RR misleads his firm as to the true nature and extent of his outside business activities and somehow it's the firm's fault --- the firm's failure to supervise.  I don't think NASD has made its case here.  Certainly there is insufficient explanation as to the extent a brokerage firm is supposed to stick its nose into an employee's outside activities. 
Emmett A. Larkin & Co., and Melvin Lee Peterson (Principal)
AWC/C01040027/January 2005

Acting through Peterson, the firm failed to file timely disclosures for reportable events to NASD within 10 days and to update promptly Forms U4 (Uniform Application for Securities Industry Registration or Transfer) and U5 (Uniform Termination Notice for Securities Industry Registration) for events requiring regulatory disclosure. Firm had inadequate written procedures for the firmís supervision relating to the prompt reporting of events requiring regulatory disclosure filings. 

Firm fined $37,000 of which $32,000 was joint and several with Peterson.
Bill Singer's Comment:  NASD has recently been on a tear about untimely reporting --- Rule 3070, U4 amendments, U5s, and statutory disqualification events.  Note that in this matter not only was the firm sanctioned but also a Principal.  


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