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.

2006
NASD CASES OF NOTE 

 

DEVELOPING ENFORCEMENT TRENDS AS NOTED BY BILL SINGER

ESCROW ACCOUNTS

BORROWING

EXPENSES

FINOP

E-Communications

TRUSTEES

Gunnar, American Eastern, D.E. Wine, Sky, Certes, Formy-Duval, Lindros, Philadelphia, Cambridge, Springboard, J.P. Turner, Oak Ridge Bailey, Conte, Hanke, Lurry, XXXXX, Martin, Reiss, Cassano, Davis, Anthony. Hughes, Kendall. Kellogg, Newell, Ashooh, Lee, Lewis, Tyus, Federico, Buchalter, Kelly, Rhode Cheesman, Sussmander Merwe, Takacs Thieme, Drawbaugh, Groth, Galeotafiore, Eidarous, Lozinski, Sutterlin; Brighton; Davis, Energy, Daly, Rosen Tejas, Bisys, Gassoso , NYLife, Orion, Paradigm, Pulse, Raymond James, ING, ACR, Keating, Rosen, Hampton, Harris Williams Vaughan, Hughes, Hinchliffe, Sasaki
 
Chad Eugene Miller (Principal)
AWC/#20050005531-01/December 2006

Miller allowed public customers to trade online through an expelled firmís Web site, but never altered the Web site to reflect a change of ownership, and as a result, the Web site contained numerous statements that misleadingly portrayed the expelled firm as an active NASD member and broker-dealer. The Web site did not provide sufficient information to determine the relationships that existed among the expelled firm, Millerís member firm and its clearing firm. The site did not contain the appropriate Securities Investor Protection Corporation (SIPC) disclosures. 

Chad Eugene Miller : Censured; Fined $16,000

Bill Singer's Comment: Truly an oddball case --- you actually need to read it twice to make sure you didn't misunderstand.  Apparently, Miller used an expelled firm's web site for his customers.  All of the SIPC and notice issues aside, I wish NASD gave some explanation as to "why" Miller used the defunct firm's site and what the "relationship" was between his firm and the expelled firm.
Andrew Jerome Whelan (Principal)
AWC/#2005003189401/December 2006

Whelan signed and submitted audit reports to his member firm representing that he had conducted inspections of branch offices, although he had not

Andrew Jerome Whelan: Fined $5,000; Barred in Principal capacity; Suspended 30 days in all capacities

Bill Singer's Comment: No matter how long I remain in the securities industry, I know that this issue will never vanish.  What could be a simpler proposition?  If you certify that you did an audit, you really should have done it.  I can't tell you how many times compliance officers seem to think that the annual Florida branch office inspection is an excuse for a fishing trip or the annual Denver branch office inspection is actually a paid ski trip.
Charles Roland Triana Jr. (Principal)
AWC/#2005002343501/December 2006

Triana affixed a public customerís signature and the signature of a former associated person to insurance forms with their knowledge and consent but in violation of his member firmís written supervisory procedures that prohibited representatives from signing another personís name whether or not such person consented. 

Charles Roland Triana Jr.: Fined $5,000; Suspended 60 days in all capacities.

Ronald Shuichi Sasaki 
AWC/#20050002599-01/December 2006

Sasaki borrowed $74,818 from a trust for which he acted as a trustee in contravention of his member firmís written policy prohibiting its employees from borrowing money from firm customers. He engaged in business activities outside the scope of his member firm and failed to provide his firm with prompt written notice. 

Ronald Shuichi Sasaki : Fined $10,000; Suspended 1 year in all capacities.

Bill Singer's Comment: As I noted at the beginning of the year (and even added this issue to the matrix at the top of this page), RRs acting as trustees seemed to have attracted the NASD's scrutiny in 2006.  Here we have a double whammy --- another hot-button 2006 area: borrowing from clients.
Kurt Louis Rhode 
AWC/#2006004154401/December 2006

Rhode received a $30,000 loan from individuals, including a client, even though his member firm had written procedures forbidding registered representatives from borrowing money from customers. 

Kurt Louis Rhode : Fined $5,000; Suspended 60 days in all capacities

Michael Francis OíNeill
#E102003130804/December 2006

OíNeill conducted his securities business jointly with an unregistered person who had been barred from associating with a member firm in any capacity for serious misconduct, and OíNeill knowingly violated NASDís registration requirements by compensating the individual for soliciting customers. 

Michael Francis OíNeill: Barred

Bill Singer's Comment:  See Westpark, Gilmore and Centaurus for similar matters.
Sekou Mansur McClendon
AWC/#2005003508701/December 2006

McClendon exercised discretionary authority in a deceased public customerís account without the customerís written authorization to exercise discretionary authority in his account, and without having obtained his member firmís written acceptance to exercise discretionary authority in the account. 

Sekou Mansur McClendon: Fined $2,500; Suspended 10 business days in all capacities

Dominique Demetri Logan
AWC/#20060052481-01/December 2006

Qhile taking the Series 7 licensing examination, he retained in his possession and had access to notes related to the subject matter of the licensing examination even though he knew this was prohibited. 

Dominique Demetri Logan: Barred

Joseph Latour
AWC/#2005002247101/December 2006

In an effort to cause an annuity to be liquidated for a public customer and the proceeds sent to the customer so that the funds could be reinvested, Latour called the company that had issued the annuity, falsely identified himself as the representative of record and asked that the annuity be liquidated and the proceeds remitted to the customer. 

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

Bill Singer's Comment: We're seeing more and more of this so-called impersonation cases.  Seriously, folks, be careful about this type of situation.  I understand that you frequently view this as a form of customer service, but the regulators don't.
William George Kelly, Jr.
OS/#2005002049901/December 2006

Kelly borrowed $25,000 from a public customer in contravention of his member firmís written supervisory procedures stating that employees were not allowed to borrow money from, or lend money to, firm customers. Kelly falsely represented to his firm in a signed compliance questionnaire that he had not borrowed money from any firm customer. Further, Kelly delivered a personal check to the customer as repayment of the loan but the check was returned to the customer for insufficient funds due to a closed accountóKelly has never made any payment on the loan. Kelly failed to respond to NASD requests for information..

William George Kelly, Jr.: Barred

John Stuart Coffey  (Principal)
AWC/#E9A2005000602/December 2006

Acting on his member firmís behalf, Coffey failed to obtain the required written consent in connection with Central Registration Depository searches of individuals, who were not seeking employment with the firm, nor was the firm considering any of them for employment.  The searches were conducted to identify the member firms which employed registered representatives whose names had appeared in a commercial publication listing high-producing individuals and thereby determine if Coffeyís firm already had selling agreements with the firms. Also, Coffey failed to cause his member firm to have a supervisory system and procedures reasonably designed to ensure that the firm obtained the required written consent before conducting searches on Web CRD and that it retained required documentation. 

John Stuart Coffey : Fined $10,000; Suspended 3 months in all capacities.

Bill Singer's Comment: Keep an eye out for more of these unauthorized CRD query cases.  Seems like NASD is beginning to enforce these matters.
Qi Chen
#E8A2004107002/December 2006

Chen sent to a public customer a false account statement on a defunct companyís letterhead purporting to show investments in certificates of deposit (CDs) and a viatical settlement worth a total of $314,501, and failed to respond to an NASD request to appear for an on-the-record interview. 

Qi Chen: Barred

Bill Singer's Comment: This one does have a ring to it: A false statement for a defunct company showing purported holdings --- and what???? NASD was surprised about the OTR no-show?
Fausto Efrain Callava
#E072004088501/December 2006

Callava participated in the sale of an unregistered security to a public customer in contravention of Section 5 of the Securities Act of 1933, because no registration statement had been filed for the security and there was no exemption from registration. In an effort to cover up the sale of the unregistered security, he falsified documents and deliberately deceived his member firm.

Fausto Efrain Callava: Barred

Daniel Alan Buchalter (Principal) 
AWC/#2006004288601/December 2006

Buchalter borrowed $15,000 from a public customer and failed to 

  • obtain his member firmís written permission prior to borrowing the customerís money; and
  • disclose the loan when completing an annual compliance questionnaire that asked, among other things, whether he had ever accepted a loan from a customer. 

Daniel Alan Buchalter : Fined $7,500; Suspended 60 days in all capacities

Francis John Bello Jr. 
AWC/#2006005426501/December 2006

Bello submitted a Special Accommodation Request Form to NASD seeking an additional 60 minutes to complete the Regulatory Element of NASDís Continuing Education Requirements that required the signature of his member firmís compliance officer, but he signed the form himself without the compliance officerís knowledge, authorization or consent. 

Francis John Bello Jr. : Fined $5,000; Suspended 60 days in all capacities.

Track Data Securities Corporation 
AWC/#ELI2005004702/December 2006

While engaging in option trading, the Firm failed to 

  • assign and identify to NASD its senior registered option principal and its compliance registered options principal;
  • maintain a separate file or log for complaints received involving options securities;  and 
  • promptly report statistical and summary information regarding customer complaints to NASD. 

Also, the Firm published newspaper advertisements and did not retain evidence of principal approval. 

Track Data Securities Corporation : Censured; Fined $12,500

Libertas Partners, LLC
AWC/#E112005021201/December 2006

The Firm permitted individuals to perform duties that require registration while their NASD registrations were inactive due to their failure to complete the Regulatory Element of the Continuing Education Program.

Libertas Partners, LLC: Censured; Fined $10,000

Harris Williams LLC, nka Harris Williams & Co.
AWC/#2006003783701/December 2006

The Firm's supervisory system and written procedures were not reasonably designed to ensure compliance with email retention requirements because they did not provide for adequate follow-up and review to ensure that hard copies of email communications were being retained. The Firm did not maintain and preserve all email communications as SEC Exchange Act Rule 17a-4 requires. 

Harris Williams LLC, nka Harris Williams & Co.: Censured; Fined $50,000; Required to review its procedures regarding the preservation of electronic mail communications for compliance with federal securities laws, regulations and NASD rules. 

Bill Singer's Comment: Seems to me that if you have an electronic back-up system, that you should not also need to retain hard copies of emails --- you could print them out from the system.  Not sure I fully understand the issue here.
Hampton Securities (USA), Inc. 
AWC/#2006003899801/December 2006

The Firm did not maintain and preserve electronic communications as SEC Exchange Act Rule 17a-4 requires, in that it utilized an electronic back-up system to capture and retain email communications but recycled the back-up tapes each week, overwriting them with new data.

Hampton Securities (USA), Inc.: Censured; Fined $25,000; Required to review its system and procedures regarding the preservation of electronic mail communications for compliance with federal securities laws, regulations and NASD rules.

Bill Singer's Comment: Please read this case and note the problem:  You cannot over-write archived back-up tapes week after week.  I know this is a somewhat common cost-saving approach, but if you really think about it, it does defeat the whole point.
Friedman, Billings, Ramsey & Co. Inc.
AWC/#E9A2005004702/ December 2006

The Firm failed in certain respects to enforce its written supervisory procedures relating to securities transactions by its research analysts and other associated persons that required the firmís compliance department to obtain duplicate confirmations and statements for all securities accounts maintained by those associated persons at other firms. As a result of its failure to enforce those provisions with respect to the research analyst, the firm failed to detect and prevent the research analystís violations of NASD rules. 

Friedman, Billings, Ramsey & Co. Inc.: Censured; Fined $15,000

Bill Singer's Comment: 2006 was a year in which NASD seemed to focus on outside accounts maintained by research analysts.  This trend seems likely to continue.
Westpark Capital, Inc. and Richard Alyn Rappaport (Principal)
AWC/#E022004062801/December 2006

Rappaport failed to comply with a suspension NASD imposed, and continued to be actively involved in the management of his member firmís investment banking and securities business during the suspension period. The Firm failed to establish, maintain and enforce a supervisory system or written procedures reasonably designed to ensure that Rappaport did not act in a principal capacity during the suspension period. 

Westpark Capital, Inc.: Censured; Fined $10,000

Richard Alyn Rappaport : Fined $10,000; Suspended 30 days in all capacities

Bill Singer's Comment: No, no, no, no, no!!!  You just can't do this and, frankly, Rappaport is lucky that he got off with only a 30 day suspension.  He must have had one hell of a lawyer.  See Gilmore and Centaurus for similar matters.
The Oak Ridge Financial Services Group, Inc. and Laurence Stuart Zipkin (Principal) 
AWC/#E0420050103-02/#E0420050103-03/December 2006

In connection with private placement contingency offerings, acting through Zipkin, the Firm opened bank accounts to receive public customer funds for the offerings when there were no escrow agreements signed by the firm or the issuer. A separate account for one of the offerings was established, but funds continued to be deposited in the first account and were not promptly sent to the second account, which led to net capital problems. The Firm had possession and control of customer funds on contingency ďbest effortĒ offerings, yet did not conduct an NASD Rule 15c3-3 reserve account computation and segregate funds in a designated account. 

Acting through Zipkin, the Firm participated in a ďbest effortsĒ offering and, despite reaching the offering maximum, continued to offer shares of the common stock and did not 

  • give notice to the original investors that the offering maximum had changed;
  • give the original investors the opportunity to reaffirm or rescind their purchases; and
  • notify customers that the offering period had been extended.

The firm sent written requests to customers in the second offering requesting that the offering period be extended but did not 

  • terminate the offering even after the original maximum had been raised to offer shares; 
  • give notice to the original investors that the offering maximum had changed; and 
  • give them the opportunity to reaffirm or rescind their purchases. 

The Oak Ridge Financial Services Group, Inc: Censured; Fined $50,00

Laurence Stuart Zipkin: Fined $20,000; Suspended 4 months in Principal capacity. 

Bill Singer's Comment: Yet another in a growing line of 2006 NASD cases sanctioning escrow deficiencies.  Regrettably, the official publication of this case is not the model of clarity, but it serves the purpose of getting the point across.  Here are a few punchlist items to make sure are in place for your offerings. Confirm that you have signed escrow agreements in place for all proposed escrow accounts.  When conducting a Best Efforts offering, make sure you "close" the deal in accordance with its terms -- you cannot keep raising funds beyond the limits set in the offering without getting permission from prior investors.  More to the point, extensions of any nature typically require you to offer all investors the choice of staying in the deal or rescinding their purchase.  
J.P. Turner & Company, L.L.C and S. Cheryl Bauman (Principal) 
AWC/#E072003011201/December 2006

Acting through Bauman, the Firm  

  • failed to establish and maintain a supervisory system reasonably designed to ensure compliance with applicable laws, rules and regulations relating to the trading activity in a hedge fund account;
  • failed to reasonably supervise the offering of the fundís interest and the trading activity in the fund account to prevent violations; 
  • approved and permitted the use of a brochure for the fund that 
    • contained statements and claims for which it failed to provide a sound basis, 
    • failed to disclose the inherent risks associated with the absence of an operating history for both the partnership and the general partner,
    • exaggerated the experience and services the registered representatives operating the fund offered, and
    • made false statements regarding the fundís investment strategy;
  • failed to establish and maintain a supervisory system reasonably designed to ensure compliance with applicable laws, rules and regulations in connection with a private offering.

In connection with the hedge fund offering, the Firm made improper use of a public customerís funds by 

  • permitting the deposit of customer subscription funds into the hedge fund account and permitting the funds to be used to meet margin calls without prior approval of the subscription by the Firmís compliance department. and 
  • failing to return the deposit to the customer in a timely manner after the firm rejected his subscription. 

Also, the Firm failed to establish a proper escrow account for a private offering. and paid securities commissions that totaled $2,226,130.90 to non-member entities or persons. 

J.P. Turner & Company, L.L.C: Fined $211.372 (includes $86,372 disgorgement of commissions/fees; and $40,000 joint/several with Bauman); Prohibited from offering hedge fund interests or opening new hedge fund accounts for 6 months; (after 6 month offering/opening prohibition) Suspended from offering hedge fund interests and opening new hedge fund accounts until the firm submits revised written supervisory procedures with NASD that satisfactorily address the supervision of hedge fund offerings as well as the trading in hedge fund accounts; Subjected to a 6-month pre-use filing requirement with NASD for all customer advertisements and sales literature relating to hedge funds, beginning with the first use of such sales communications following the suspension from offering hedge fund interests and opening new hedge fund accounts. 

S. Cheryl Bauman (Principal) Fined $40,000 joint/several; Suspended 3 months in Principal capacity.

Bill Singer's Comment: An amazing, almost breath-taking case with which to close out the year.  Touches on many of the emerging regulatory issues of 2006 and likely continuing into 2007.  As to the violations, we see that NASD has hedge fund activities within its crosshairs.  Among the areas of regulatory focus are trading in the hedge fund's account and the marketing of the fund.  Also of interest are the citations for misuse of subscription funds, improper escrow practices, and the payment of commissions to non-members.  Finally, notice the tailored sanction pertaining to offering/opening hedge funds.  I suspect that we will see far more of these types of sanctions in 2007.
Dennis Russell Weddle II
AWC/#20050012479-01/November 2006

Weddle affixed customer signatures to documents concerning financial planning services. 

Dennis Russell Weddle II: Fined $7,500; Suspended 60 days in all capacities (NASD credited Weddle with 20 days served on the 60 day suspension in consideration of a 51-day suspension imposed upon him by his member firm)

Mark Allen Upchurch 
AWC/#2006004847601/November 2006

Upchurch signed a public customerís name to an account transfer form without her permission. 

Mark Allen Upchurch : Fined $5,000; Suspended 30 business days in all capacities

Andrew Mark Stinson (Principal) 
AWC/#20060049044-01/November 2006

Stinson cut a public customerís signature out of a copy of an original state-sponsored 529 plan account application and pasted it in onto an amended application, then submitted it to his member firm for processing. 

Andrew Mark Stinson : Fined $5,000; Suspended 60 days in all capacities

Bill Singer's Comment: If only Mr. Stinson knew Mr. Simpson (see two cases below).  Maybe he could have affixed the signature from a fancy computer graphics program and escaped detection.  Was this guy part of Respondent Sojka's (see immediately below) environment?
Kenneth Lewis Sojka (Principal)
OS/#2005002485301)/November 2006

Sojka directed, encouraged and/or permitted individuals to sign public customersí names on Account Transfer Forms, making the documents false and inaccurate, without the public customersí authorization or consent. Sojka promoted and maintained a workplace environment in which individuals were directed, encouraged and/or permitted to affix customer signatures to firm documents without the customersí authorization or consent. Sojka settled a customer complaint by paying the customer $592.40 without his member firmís knowledge or approval. 

Kenneth Lewis Sojka : Fined $10,000; Suspended 9 months in all capacities

Bill Singer's Comment: Okay, so maybe it's just my warped sense of humor, but this decision just strikes me as a tad too cute.  What kind of violation is this?  He "promoted and maintained a workplace environment in which individuals . . . affix(ed) customer signatures . . ."  Call me a sour-pus cynic, but anyone ever recall seeing a case in which someone was charged with promoting and maintaining a workplace environment that was racist or sexist?  Hmmm . . . can't really recall.  Guess that never happened.
Harold Stephen Simpson, Sr.
AWC/#2006004213501/November 2006

Simpson received a $6,250 check from a public customer for investment purposes but used the funds for his own use and benefit without the customerís authorization or knowledge. Simpson created and delivered a false certificate of stock for a nonexistent company to the customer in order to convince the customer that he had invested the funds as directed. Simpson failed to disclose in writing to his member firm the existence of a brokerage account in which he held a beneficial interest and failed to notify his member firm in writing of his association with another firm. 

Harold Stephen Simpson, Sr.: Barred

Bill Singer's Comment: Ain't computers wonderful?  I mean, hell, look at all the creativity these machines allow us to channel for profitable uses.  A false stock certificate in a nonexistent company.  Well, with the Bar, I guess Mr. Simpson can try his hand at something more challenging.  Anyone got a hundred dollar bill he can look at?
Thomas John Scipione
AWC/#E1020040957-01/November 2006

Scipione made a recommendation to a public customer without having reasonable grounds for believing that the recommendation was suitable based upon the customerís financial situation, investment objectives and needs. Scipione submitted to an insurance company an equity indexed annuity application a public customer executed in the state of New York, on which Scipione falsely represented that the customer executed the application in the state of Florida in order to circumvent the requirement that the insurance company be registered in New York to offer its products. 

Thomas John Scipione: Fined $10,000; Suspended 2 years in all capacities

Bill Singer's Comment: This foolish practice of screwing around with the state of origin is as old as the hills --- and doesn't get any smarter with each year's retelling.  Don't do it.  It's not worth the commission.  
Name REDACTED in sole discretion of RRBDlaw.com (Principal)
AWC/#2005002264901/November 2006

RR's housekeeper posed as her aunt on a telephone call to obtain information about an insurance policy the aunt owned. RR misled her member firm about the phone call her aunt purportedly made. 

RR : Fined $7,500; Suspended 10 business days in all capacities

Bill Singer's Comment: Omigod . . . is this for real?  
Robert Michael Ryerson (Principal)
#C9B20040033/November 2006 NAC Decision on Appeal from OHO Decision

Ryerson engaged in private securities transactions, for compensation, without providing prior written notice to, and receiving prior written approval from, his member firm. Also, he paid $100,000 in commissions to a non-member firm in connection with variable annuity referrals that he had received. Finally, Ryerson failed to fully and promptly provide on-the-record testimony NASD requested. No additional sanction, however, was imposed for Ryersonís failure to provide required testimony. 

Robert Michael Ryerson: 

For Private Securities Activities: Fined $230,000; Suspended 2 years in all capacities; Ordered to re-qualify in all capacities

For Payment of Commissions to an Unregistered Entity:  Fined $5,000; Suspended 15 business days in all capacities (suspensions run concurrently)

Bill Singer's Comment: I still don't understand why there is such hostility to paying referral fees (yes, I agree that the payments must be disclosed prior to the sales).  Seems to me that this is an area for rulemaking changes.  On the other hand, I am truly puzzled as to how someone fails to "fully and promptly provide" OTR testimony and isn't barred.  There must be some further details that NASD is unfortunately not providing.  Finally, this is one of the very few NASD cases in which the sanctions are specifically divided between two charges.  I applaud this break-out practice and hope to see more of it.
Richard Lewis Rosen (Principal) 
#E102002179201/November 2006

Acting through Rosen, his member firm 

  • served as a broker for transactions that involved unregistered securities for which Rosen received commissions;
  • violated its membership agreement with NASD and effected material changes in his member firmís business operations without filing an application for approval with NASD;
  • effected securities transactions while failing to meet its minimum net capital requirement; 
  • did not have an adequate system in place for the retention of electronic mail;
  • failed to designate a FINOP for more than a year; and
  • failed to create and maintain a general ledger, and to create records that reflected the firmís assets and liabilities, income and expenses and capital accounts.

Rosen failed to complete the regulatory element of NASDís Continuing Education requirement, which caused his registration to be inactive while he continued to effect securities transactions and serve as a president of the firm.

Richard Lewis Rosen: Barred

Bill Singer's Comment: If you read the Parks case immediately below, you will see that there is some NASD focus on the payment of commissions for securities sales.  In Rosen we also have a wonderful "study" case for year-end discussion:  So many violations and a number of them touching upon hot topics for this year.  
Samuel Conant Parks
AWC/#E3B2004021902/November 2006

Parks intentionally or recklessly, failed to disclose that he had received compensation from the issuer for his recommendations and sales of a stock to public customers. Parks failed to disclose conflict of interest and compensation to customers in that he knew, or had reason to know, that the agreement to compensate him for the sale of the stock and subsequent payments to him created an actual material conflict of interest at the time of he published research reports regarding the stock. Parks participated in private securities transactions, for compensation, without providing prior notice to, and receiving approval from, his member firm. Parks opened an account with another firm without providing prior notification to his member firm or of his association with the other member firm, and falsely stated that no NASD registered person had an interest in the account on a new account signature card

Samuel Conant Parks: Barred

Bill Singer's Comment: Rule #1 in any securities offering is to disclose all material conflicts, and nothing could be more material than the disclosure of compensation paid to recommend or sell the stock at issue.  Rule #1 in handling any regulatory matter is not to compound one violation by attempting to cover it up --- if you have an interest in an account at another firm you should not deny it in writing.  All of which explains Rule #1 in regulation: Bar folks for serious rule violations.
David John Palen
#E3A2004036501/November 2006

Palen withdrew approximately $203,000 from public customer accounts to pay for financial planning fees that the customers had not authorized or approved. Palen signed a public customerís name to an advisory service agreement without the customerís authorization or consent and submitted it to his member firm. Palen failed to appear for an NASD on-the-record interview. 

David John Palen: Barred

Mary Ann Naventi (Principal) 
AWC/#2006004215401/November 2006

Naventi falsely notarized the signatures of persons on deeds and a mortgage document without having actually witnessed the signatures.

Mary Ann Naventi: Barred

Bill Singer's Comment: You have to be an idiot to to something as stupid as this.  Just think about the cascade effect of liability this lunacy could set off.
William Andrew Malloy (Principal)
AWC/#20050000286-02/November 2006

Malloy failed to perform branch audits and failed to conduct regular compliance reviews of trading activity in customer accounts as his firmís written supervisory procedures required. 

William Andrew Malloy : Barred

Bill Singer's Comment: See Daly below for a similar case.
Peter J. Maldjian (Principal)
OS/#E9B2004028401/November 2006

Maldjian created and submitted a fictitious certificate of formation for a limited liability company to his member firm in attempt to open a brokerage account at his member firm, used the business filing number from another bona-fide limited liability company and replicated the New Jersey State Treasurer ďfiledď stamp. The false certificate of formation gave the impression that the firm was a bona-fide New Jersey established limited liability company, when in fact it was not. 

Peter J. Maldjian: Fined $5,000; Suspended 3 months in all capacities.

Bill Singer's Comment: Okay, so maybe I'm getting cranky in my old age, but only 3 months for creating and submitting false documents ?
Marvin Ray Koerselman 
AWC/#2005001737201/November 2006 

Koerselman engaged in outside business activities and failed to provide his member firm with prompt written notice. Koerselman completed and submitted questionnaires to his member firm wherein he falsely indicated that he was complying with the firmís requirement that he not accept customer checks made payable to him. 

Marvin Ray Koerselman : Fined $10,000; Suspended 3 months in all capacities

Bill Singer's Comment: It's bad enough to engage in an undisclosed outside business -- but to lie about it on the annual questionnaire?
Kimberly Pine Hardaker (Principal)
AWC/#20050002046-01/November 2006

Hardaker

  • acted as a broker-dealer without being registered with the SEC;
  • participated in a private securities transaction, for compensation, without providing prior written notice to, and receiving prior written approval from, her member firm; 
  • received $543,630 from public customers for the purchase of securities and commingled the monies with unrelated funds subjecting the customer funds to a risk of loss; and
  • created and mailed confirmation statements to public customers purporting to evidence the securities purchases (the confirmation statements Hardaker provided to the customers failed to disclose that the price of the shares included a one cent per share markup).

Kimberly Pine Hardaker : Barred

Roger Ernest Frank
AWC/#E1020041096-01/November 2006

Frankl traded securities through an account maintained at another member firm without providing notice to his member firm or notice of his association with the firm that maintained that account. Also, Frank engaged in private securities transactions without providing prior written notice to his member firm.

Roger Ernest Frank: Fined $17,500; Suspended 15 business days in all capacities

Bill Singer's Comment: Yet another area that seems to be popping back on the radar in 2006: accounts at another member firm.  Might be a good time during year-end to review the policies and procedures of away accounts with the firm's employees.
Timothy James Daly (Principal) 
AWC/#E112005009201/November 2006

Daly failed to establish and maintain a supervisory system and written procedures reasonably designed to supervise his firmís registered representativesí and associated personsí activities to achieve compliance with applicable securities laws, regulations and NASD rules. 

Acting on his member firmís behalf, Daly:

  • failed to conduct internal inspections of its offices of supervisory jurisdiction in accordance with the requirements of NASD Rule 3010(c);
  • failed to establish procedures for the review of transactions and its registered representativesí correspondence with the public; and
  • operated its business without a limited principal/financial and operations principal (FINOP). 

Timothy James Daly: Fined $15,000; Barred in Principal capacity

Bill Singer's Comment: Did Daly fail to conduct internal inspections (at all) or did he not conduct satisfactory inspecitons -- once again, I wish NASD would simply clarify most of his monthly releases to better educate us.  Nonetheless, it goes without saying that three of the hallmarks of even the most rudimentary of supervisory systems are 1. on-site inspections of OSJs, 2. reviews of transactions. and 3. review of correspondence with the public.
David Joseph Cottam
OS/#E9B2003026301/November 2006

Cottam improperly obtained Contigent Deferred Sales Charge (CDSC) waivers for public customers in connection with mutual fund redemptions by falsely representing, on his member firmís electronic order entry system, that the customers were disabled, when in fact, they were not. As a result, several mutual funds companies were deprived of fees to which they were otherwise entitled; and Cottamís actions caused his member firmís books and records relating to redemptions to contain false and misleading information regarding the disability status of the customers and their entitlement to a CDSC waiver. 

David Joseph Cottam : Fined $5,000; Suspended 18 months in all capacities.

John Ivey Amon, Jr.
AWC/#2005002553601/November 2006 

Amon reallocated a public customerís sub-account holdings for a variable annuity totaling $13,000 from a guaranteed fixed rate to equity mutual funds without the customerís knowledge or authorization. Amon agreed to reimburse the customer for his incurred losses as a result of the unauthorized transactions, wrote a check for $577.56, and then had these funds deposited directly into the customerís annuity without disclosing the settlement to his member firm. 

John Ivey Amon, Jr.: Fined $10,000; Suspended 4 months in all capacities.

Bill Singer's Comment: 2006 seemed destined to be a somewhat quiet year for these "undisclosed settlement" cases, but in the past two months I've noticed multiple violations cited by NASD.  The increase in sanction activity might indicate that folks are forgetting the prohibition about this conduct.  Compliance Depts might want to take the opportunity to remind the salesforces that this is a no-no.
Tower Square Securities, Inc. 
AWC/#E112005002601/November 2006

The Firm's supervisory system and procedures were not reasonably designed to ensure that the firm obtained and/or retained required written consent for pre-registration searches on Web CRD. The firm failed to obtain and/or retain the required written consent in connection with its pre-registration searches of individuals, many of whom were not seeking employment with the firm or were seeking employment with an affiliated broker-dealer and not the firm. (With respect to the latter searches, the individuals seeking employment with an affiliated broker-dealer had consented to a pre-registration search by the affiliated broker-dealer, but not by Tower Square.)

Also, the Firm failed to implement a written AML program reasonably designed to achieve compliance with the requirements of the Bank Secrecy Act and the regulations promulgated thereunder.

Tower Square Securities, Inc. : Censured; Fined $85,000; Required to review its written supervisory procedures and establish a supervisory system reasonably designed to achieve compliance with laws, regulations and rules concerning pre-registration Web CRD searches. 

Bill Singer's Comment: And NASD wonders why there is a vibrant dissident movement within its ranks?  As best I understand the allegations here, a member firm went onto the sacrosanct Web CRD system to confirm the backgrounds of applicants (or, yes --- I got it --- applicants for an "affiliated" BD but not for the firm) and didn't obtain or retain the required written consent. Okay.  And for that there is an $85,000 fine???  Yeah, I know, there was also an AML violation.  Still --- these violations required an $85,000 fine?  As I have harped on for so many years, the NASD's sanctions in this case may well be fair and appropriate, but the SRO must do a much better job explaining the underlying facts and circumstances to justify its conduct.
Sharebuilder Securities Corporation 
AWC/# 2006003887001/November 2006

The Firm committed several violations of NASDís advertising rules by means of various false and misleading statements regarding its services, including predictions of performance, incomplete and unbalanced comparisons with its Web site and Internet advertising. These misleading advertisements were available for widespread use by the investing public, not only for those who were the firmís customers. The Firm failed to file Exchange Traded Funds (EFT) related communications with NASD as it was required to do. 

Sharebuilder Securities Corporation : Censured; Fined $140,000; Required to file all advertisements used on the firmís Web site or on the Internet with NASD at least 10 days prior to their first use for one year

Morgan Keegan & Company, Inc. 
AWC/#2005002050701/November 2006

The Firm failed to timely file amendments to Uniform Applications for Securities Industry Registration or Transfer (Forms U4), and failed to timely file Forms U5 with NASD. 

Morgan Keegan & Company, Inc. : Censured; Fined $29,000

Fox & Company Investments, Inc. 
AWC/#E3A20050043-02/November 2006

The Firm failed to timely and accurately 

  • update the Uniform Termination Notice for Securities Industry Termination (Form U5) for former registered representatives for events that required regulatory disclosure; and
  • report municipal bond transactions to the MSRB

Also, the Firm erroneously made reports to the MSRB for transactions that did not actually occur, and failed to make and keep current order tickets for municipal securities transactions. The Firm failed to adopt and maintain written supervisory procedures reasonably designed to achieve compliance with MSRB rules. 

Fox & Company Investments, Inc. : Censured; Fined $25,000

Feldman Securities Group, L.L.C.
AWC/#E8A2005007601/November 2006

The Firmís written supervisory procedures were incomplete in certain respects and the firm did not fully implement other procedures with regard to its dissemination of research reports containing disclosure deficiencies. The Firm did not balance favorable discussions of securities identified in research reports with sufficient disclosures of risks associated with an investment in the securities. The Firm did not fully ensure compliance with SEC Regulation AC, in that some research reports did not include an Analyst Certification. 

Feldman Securities Group, L.L.C.: Censured; Fined $22,000

A.G. Edwards & Sons, Inc.
AWC/#EAF0400790002/November 2006

The Firm included an attorneyís fee clauseówhich provided that the customer would be responsible for the firmís costs and attorneyís fees in the event the customer brings a claim against the firm, regardless of whether or not the customer is successful in pursuing the claim in violation of NASD rulesóin its customer agreements. 

A.G. Edwards & Sons, Inc.: Censured; Fined $10,000; Required to provide a report to NASD attesting that it has given notice to all customers whose relationship with the firm is still controlled by any agreement containing the attorneyís fee clause at issue, by letter, that the firm will not take any action to enforce that clause.

Bill Singer's Comment: Now here's one you don't see everyday!  A major, national firm "threatens" to charge its customers for attorney's fees and costs in the event the customer files a claim against the firm --- and the NASD concluded that such a blanket warning could have been reasonably interpreted as covering both winning and losing cases.  Well, good for the NASD! And I'm serious.  One likely impact of such a blanket admonition in a customer agreement is to discourage less savvy clients from bringing legitimate claims.  Why?  Simple, such naive folks might read the warning and conclude that they would have to pay for costs and fees.  The warning is fair and appropriate when properly limited to a "victor" clause, but not when so broadly worded as apparently was the case here.  Sadly, it would have been nice if NASD included the offending language in the monthly disciplinary report so that others might learn from this mistake.
Torrey Pines Securities, Inc. and Jack Clark Smith, Jr. (Principal) 
AWC/#E0220050158-02/November 2006

In its membership agreement, the Firm (acting through Smith) represented to NASD that it would not receive securities or customer checks payable to the firm

Acting through Smith, the Firm 

  • received checks payable to the firm rather than to its clearing firm;
  • used the instrumentalities of interstate commerce to conduct a securities business while failing to maintain the minimum required net capital; and
  • amended its membership agreement to prohibit its receipt of customer checks payable to the firm, but failed to enforce it and, as a result, continued to receive customer checks payable to the firm. 

Torrey Pines Securities, Inc. and Jack Clark Smith, Jr. (Principal): Cenusred; fined $15,000 joint/several

Bill Singer's Comment: Frankly, I haven't seen this one for some time --- but it was a very popular violation in years past.  So, just in case we're seeing a resurgence of this problem, keep in mind that if you're operating under the typical net capital computation exemption, you likely are precluded from receiving securities/cash/checks from clients.  Sure, customers can mistakenly send such things in to you, but your policies/procedures must promptly forward the certs or payments to your clearing firm, and you should also admonish the client not to continue sending such things to you.
Energy Securities, Inc. and Lawrence Reed Buettner (Principal) 
AWC/#20050014461-01/November 2006

Acting through Buettner, the Firm used the mails or other instrumentalities of interstate commerce to effect transactions in securities when it failed to maintain the minimum required net capital

Energy Securities, Inc. and Lawrence Reed Buettner (Principal): Fined $15,000 joint/several; Firm's exemption from the requirement to qualify and register an individual as a limited principal-financial and operations was revoked.

Bill Singer's Comment: A fairly mundane net cap case but with an unusual sanction: Revocation of a Limited FINOP exemption.
Lawrence Michael Weinberg (Principal)
AWC/#E1020040813-01/October 2006

Weinberg opened or maintained accounts with other member firms without notifying, in writing, his member firm of the accounts, or the other member firms of his association. Weinberg purchased shares in ďhot issueĒ initial public offerings for accounts in which he had a beneficial interest. 

Lawrence Michael Weinberg : Fined $47,999 (includes $37,999 disgorgement of profit); Suspended 10 business days in all capacities

Bill Singer's Comment: Old timers (geez --- I guess I'm one) will likely recall the flood of "hot issue" cases in the 80s and 90s.  Not that we're exactly swimming in IPOs right now, but it might be a good time to review  NASD Conduct Rule 2790. Restrictions on the Purchase and Sale of Initial Equity Public Offerings .  What happened to the old Free-Riding and Withholding Interpretation?  On October 24, 2003, the approved the replacement of the former Free-Riding and Withholding Interpretation (IM-2110-1) with Rule 2790.

Rule 2790 generally prohibits a member from selling a "new issue" to any account in which a "restricted person" has a beneficial interest. The term "restricted person" includes most associated persons of a member, most owners and affiliates of a broker/dealer, and certain other classes of persons. Before selling a new issue to any account, a member must meet certain "preconditions for sale," which generally require the member to obtain a representation from the beneficial owner of the account that the account is eligible to purchase new issues in accordance with the Rule. The Rule also contains a series of general exemptions.

Kathy Hurst Seyle 
AWC/# 2005003297601/October 2006

Seyle falsified a Rollover Election, Deposit and Certification Form in order to facilitate the opening of a clientís rollover IRA account by copying the clientís signature from another form and affixing it to the document.

Kathy Hurst Seyle : Fined $5,000; Suspended 6 months in all capacities

Matthew Robert Nall (Principal)
AWC/#2005001028601/October 2006

Nall completed Change of Broker/Dealer and/or Representative Authorization Forms by changing the broker of record for variable annuities owned by public customers from another broker Nallís member firm previously employed, to Nall. Nall affixed the customersí signatures on the forms without their knowledge or consent. 

Matthew Robert Nall : Fined $5,000; Suspended 60 days in all capacities

David Matthew Garrity (Principal)
AWC/#20050017487-01/October 2006

Garrity purchased and/or sold securities of companies that he was covering as a research analyst, but he failed to

  • disclose in a research report that he had a financial interest in the securities of the company;
  • notify his member firms, promptly and in writing, that he had opened accounts at other member firms; and 
  • notify these firms when he became associated with his member firms. 

David Matthew Garrity : Fined $10,000; Suspended 45 days in all capacities.

Bill Singer's Comment: NASD Conduct Rule 3050: Transactions for or by Associated Persons was designed to obligate members to use reasonable diligence in determining whether executed transactions in the accounts of associated persons of another member firm, or accounts in which the associated person has discretionary authority, will adversely affect the interests of the employer member. These "other" account cases involving research analysts seem to be a growing problem.  Perhaps Compliance Depts should simply send out an annual memo reminding analysts of the prohibitions/requirements for maintaining accounts away from the employing firm.  
Leonel Federico
AWC/#20050018579-01/October 2006

Federico borrowed $55,000 from public customers in contravention of his member firmís written procedures prohibiting registered representatives from borrowing money from customers. Also, he failed to respond to NASD requests for information.

Leonel Federico: Barred

Robert Allen Dorman 
OS/#2005001091801/October 2006

Dorman completed and affixed a public customerís signature on a firm securities replacement form, even though his member firmís written supervisory procedures stated that registered representatives were not permitted to sign a customerís name or add the customerís initials to any document even pursuant to the customerís request. 

Robert Allen Dorman : Fined $5,000; Suspended 60 days in all capacities

Bill Singer's Comment: This seems to trip up a number of folks.  Even if the customer says "go ahead, sign my name," there may still be an in-house policy prohibiting that very act.  It may not be a "forgery" if the client consents, but that doesn't mean it is still not a violation of in-house policies and procedures.  
Kevin Edward Davis (Principal)
OS/#E1020050283-01/October 2006

While acting on his member firmís behalf, Davis conducted a securities business while the firmís net capital was below the minimum net capital requirement. 

Kevin Edward Davis: Fined $10,000; Suspended for 12 months in FINOP capacity; Required to requalify as FINOP within 90 days from the end of suspension.

Jeffrey Leonard Adell 
#20050003867-01/October 2006

Adell created false letters of instructions purportedly created and signed by a public customer directing his member firm to liquidate funds from the customerís securities account and to send the proceeds to a third-party address, which was actually Adellís home address. Adell falsely certified to his member firm that the forged signatures on the letters were authentic. He converted $29,460 from the customerís securities account through the use of the forged letters of authorization and used the funds for his personal benefit without the customerís knowledge or consent. Adell failed to respond to NASD requests for information. 

Jeffrey Leonard Adell : Barred

Vanguard Capital
OS/#E052003017102/October 2006

The Firm failed to establish and maintain a system reasonably designed to supervise the activities of a registered representative and a branch office, and failed to maintain an appropriately registered principal in an Office of Supervisory Jurisdiction (OSJ) for a time period, in contravention of NASD Rule 3010(a)(4):

Vanguard Capital: Censured; Fined $20,000

Bill Singer's Comment: NASD Rule 3010: Supervision  requires in pertinent part under (a)(4) that The designation of one or more appropriately registered principals in each OSJ, including the main office, and one or more appropriately registered representatives or principals in each non-OSJ branch office with authority to carry out the supervisory responsibilities assigned to that office by the member. 
Morgan Stanley DW Inc.
AWC/#E9B20050107-02/October 2006

The Firm's  Financial Advisor Heightened Supervision Review Committee failed to review financial advisors who met the criteria for heightened supervision, in that it did not review the firmís financial advisors until at least 100 days after meeting the review threshold.

Morgan Stanley DW Inc.: Censured; Fined $100,000; Required to provide a report describing the steps it has taken to enhance the operations of its Financial Advisor Heightened Supervision Review Committee to NASD. 

Mony Securities Corporation
AWC/#E1020040703-01/October 2006

The Firm permitted individuals to act in a capacity requiring registration with NASD when they were not registered. The Firm failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with NASD rules that require persons who function as representatives to be registered as such with NASD.

Mony Securities Corporation: Censured; Fined $20,000

Bill Singer's Comment: This Mony case is a perfect example of one of my oldest criticisms about NASD's inconsistent sanctioning policies.  It has been my long-held belief that NASD resorts to a two-tiered system when it comes to examining, investigating, and prosecuting smaller and larger firms.  Here is a perfect example. Compare this "failure to register" case with just these reported so far in October: Truman; Tullett; Brighton; Shields.  Note any dramatic dissimilarities?  Well, how come no human being is named in the MONY case?  In the four other cited matters, an individual is censured, fined, and/or suspended -- and all these cases involve the failure to properly register indivduals.  Are there no human being responsible for violations at MONY?
Hibernia Investments L.L.C. nka Capital One Investments, LLC
AWC/#E052005004101/October 2006

The Firm made payments to a bank for distribution to bank branch employees, who were not associated persons of the firm, as an incentive to employees who made referrals of potential customers to the firm during certain designated time periods. 

Hibernia Investments L.L.C. nka Capital One Investments, LLC: Censured; Fined $12,500

Springboard Securities, Inc. and Jonathan McKee Hansen (Principal) 
AWC/#E0220050147-02/October 2006

Acting under Hansenís direction and control, the Firm 

  • participated in a contingency offering and did not transmit investor funds it raised in the offering to an unaffiliated bank to hold in escrow for the investors until the contingency occurred, and instead, transmitted the funds directly to a business account for the issuer at a bank where Hansen acted as the sole control person and signatory on the account; and
  • solicited investments in the contingency offering through the use of a private placement memorandum (PPM) that represented that all subscription monies raised would be deposited into a separate bank account and not transferred to the issuerís trading account unless the contingency was met, but Hansen released the investor funds to the issuerís control before the contingency was satisfied, rendering the foregoing representations in the PPM false and misleading.

Springboard Securities, Inc. and Jonathan McKee Hansen (Principal) : Censured; Fined $15,000 jt/sev

Shields & Company and John Patrick Hughes, Jr. (Principal)
OS/#E102004036901/October 2006

Acting through Hughes,the Firm failed to have a properly registered municipal securities principal to supervise its municipal securities activities. Hughes was responsible for reviewing all municipal transactions the firm conducted, even though he was not registered as the municipal securities principal during that time. 

Shields & Company and John Patrick Hughes, Jr. (Principal): Censured; fined $25,000 jt/sev

MCL Financial Group, Inc. and Gary Lynn Flater (Principal) 
AWC/#E3A2005004701/October 2006

Acting through Flater, the Firm 

  • utilized the instrumentalities of interstate commerce to engage in a securities business while failing to maintain the minimum required net capital; and
  • failed to timely notify NASD regarding a 50 percent change in its ownership

MCL Financial Group, Inc. and Gary Lynn Flater (Principal): Censured; Fined $12,500 jt/sev

Brighton Securities Corp. and George Thomas Conboy (Principal) 
AWC/#E9B2005001701/October 2006

Acting through Conboy, the Firm failed to

  • ensure that it had a properly designated Limited Principal-Introducing Broker/Dealer Financial and Operations
  • comply with the claimed exemption in that it held public customersí funds in its general bank account [the Firm operated its business as an Introducing Firm and claimed an exemption under Section 15(c) of the Securities Exchange Act of 1934, and Rule 15c3-3(k)(2)(i) thereunder, which prohibits the receipt of customer funds and/or securities]. 

Brighton Securities Corp. and George Thomas Conboy (Principal): Censured; Fined $15,000 jt/sev

Tullett Liberty Brokerage, Inc., Richard Coppolino (Principal) and Anthony S. Arcabascio 
AWC/E1020040416-01/October 2006

The Firm and Coppolino permitted Arcabascio, an associated person, to be engaged in trading activity involving government securities, which required registration, and the firm paid him transaction-based compensation even though he was not properly registered with NASD. 

Tullett Liberty Brokerage, Inc.: Censured; Fined $40,000 ($20,000 of which jt/sev with Coppolino

Richard Coppolino (Principal) Fined $20,000 jt/sev with the Frim; Suspended 5 business days in government securities principal capacity

Anthony S. Arcabascio: Fined $10,000; suspended 5 business days in all capacities.

Bill Singer's Comment: In recent months, I'm seeing an increase in cases dealing with improperly registered persons.  See Brookstreet and Graboyes for similar issues.
Asensio Brokerage Services, Inc. nka Integral Securities, Inc. and Manuel Peter Asensio (Principal)
#CAF20030067/October 2006 NATIONAL ADJUDICATORY COUNCIL DECISION FOLLOWING APPEAL FROM OHO DECISION

Acting through Asensio, the Firm 

  • issued research reports that failed to define the meaning of each rating and that failed to disclose the distribution of the firmís ratings; and
  • made statements in research reports that were unwarranted or misleading. 

Also, Asensio failed to fully respond to NASD requests for information during an on-the-record interview. 

Asensio Brokerage Services, Inc. nka Integral Securities, Inc.: Fined $20,000

Manuel Peter Asensio (Principal): Barred

The Truman Group Inc. and Kenneth Jason Saluk
OS/#EFL2004000401/October 2006

Acting through Saluk, the Firm 

  • offered and sold shares of common stocks to public customers when there was no registration statement filed or in effect with the United States Securities and Exchange Commission (SEC) with respect to the common stocks, as Section 5 of the Securities Act of 1933 requires;
  • made material misrepresentations or omitted material facts in the offer and sale of unregistered securities;
  • failed to disclose the risks associated with investments in the stocks to customers;
  • failed to provide any prospectuses, offering memoranda, audited financial statements or other written materials regarding the securities because none existed; and
  • directed customers to send funds to the firm or another nonregistered entity that they led customers to believe was the firmís clearing firm or bank, but the customers failed to receive any documentation that evidenced that stocks were purchased, and their funds were not returned. 

Also, the Firm failed to register 1.Saluk and others as General Securities Representatives while they were soliciting investors, and 2. Saluk as a General Securities Principal while he was supervising the firmís operations and employees. Finally, Saluk failed to appear for an NASD on-the-record interview. 

The Truman Group Inc.: Expelled

Kenneth Jason Saluk: Barred 

Stanley Yung aka Quang Chi Dung
AWC/#20050025144-01/September 2006

With an accompliceís help, Yung reactivated an inactive customerís savings account and without the knowledge, authorization or consent of a second customer, arranged for the transfer of $60,000 from that customerís account to the savings account, had his accomplice cash out the savings account, received the cash proceeds, and used the funds for his own personal use and benefit. Yung withdrew $50,000 from a third customerís account without the customerís knowledge, authorization or consent and transferred the funds into his accompliceís own bank account. However, the bank froze the accompliceís bank account before the funds could be removed from it. 

Stanley Yung aka Quang Chi Dung: Barred

Robert Philip Yorba, III
AWC/#20050013421-01/September 2006

In an attempt to stop a public customer from transferring her accounts to another firm, and without the customerís knowledge, authorization and consent, Yorba created a letter to his firm and affixed a copy of the customerís signature through which she purportedly asked the firm to disregard her earlier transfer request. 

Robert Philip Yorba, III: Fined $5,000; Suspended 6 months in all capacities

Bill Singer's Comment: The sanction is totally warranted.  However, I wonder why we don't see sanctions imposed against firms who "jam up" the transfers of accounts by their departing brokers.
John Fitzgerald Tyus
AWC/# 2005003253401/September 2006

Tyus borrowed $30,000 from a public customer without first obtaining written approval from his member firm. 

John Fitzgerald Tyus: Fined $5,000; Suspended 10 business days in all capacities

Michael Antoine Rooms (Registered Principal)
#C0620020003/E0619980215/September 2006 
National Adjudicatory Council Decision sustained by the SEC and then upheld by The United States Court of Appeals for the Tenth Circuit 

The NACís found that Rooms violated certain provisions of the SECís penny stock rules by, among other things, recommending and selling penny stocks to customers without providing certain required disclosures. Rooms violated just and equitable principles of trade by attempting to obstruct NASDís investigation of the penny stock violations. Rooms used two methods to create the false impression that he had complied with the penny stock rules:

  1. he pressured his customers to sign forms that falsely indicated that the transactions had not been recommendedóan important factor because the penny stock rules in question only apply to recommended sales; and
  2. he backdated the forms, giving the false impression that the customers had signed the forms contemporaneously with the transactions. The firm then provided the misleading forms to NASD as part of a document production. 

Michael Antoine Rooms : Bar

Daniel Peter Ray
AWC/#2005002115301/September 2006

Ray made improper use of customer funds, in that he cashed money orders intended to purchase securities that were erroneously made out to him instead of his member firm, and then provided the proceeds to another registered representative so that the representative could satisfy gambling debts

Daniel Peter Ray: Barred

Bill Singer's Comment: I understand that Mr. Ray got a wonderful, warm, fuzzy feeling when he saw money orders mistakenly made out in his name.  I also understand (but not approve) that he decided to cash them for himself and justify it all under "tough -- it's their mistake, not mine."  But what defies commonsense is that here he takes the erroneous money orders IN HIS NAME and after he cashes them, he gives the proceeds to another RR to pay off that person's gambling debts.  Talk about crapping out!
Mark L. Lewis (Registered Principal) 
AWC/#E8A2004106201/September 2006

Lewis borrowed $650 from a public customer without first obtaining his member firmís written approval. Lewisí member firmís written procedures prohibited its representatives from accepting or borrowing funds from customers. 

Mark L. Lewis : Fined $2,500; Suspended 10 business days in all capacities

Richard Lewis Lee
AWC/#2005002016801/September 2006

Lee entered into a promissory note with public customers in contravention of the firmís written procedures prohibiting registered persons from borrowing money from customers.

Richard Lewis Lee: Fined $5,000; Suspended 90 days in all capacities

Jonathan Edward Kruse, Sr. 
AWC/#2005001626001/September 2006

Kruse engaged in private securities transactions without prior written notice to, and approval from, his member firm. Also, Kruse settled a customer complaint by purchasing back securities he had sold them without informing his member firms. 

Jonathan Edward Kruse, Sr. : Fined $25,750 (includes $15,750 disgorgement of financial benefits); Suspended 1 year in all capacities.

XXXXX (Principal) [name deleted at the discretion of RRBDLAW.com]

AWC/#E9A2005004701/September 2006

On numerous occasions, a member of XXXXXís household effected a purchase or sale of securities issued by a company XXXXX followed in their personal account in contravention of the restrictions against trading during periods before and after the issuance of a research report set forth in NASD Rule 2711(g)(2).  Some of the transactions were inconsistent with XXXXXís recommendation as reflected in the most recent research report that she prepared concerning the respective company. XXXXX purchased and sold shares of a companyís common stock in a securities account she owned individually at another member firm that was inconsistent with the recommendation reflected in her published research report. 

XXXXX prepared research reports that failed to disclose that a member of her household owned shares of the companyís common stock. In addition, XXXXX maintained a personal securities account at two other NASD member firms and failed to promptly notify those firms in writing of her association with her member firm, and failed to promptly notify her member firm in writing about a personal securities account she maintained. 

XXXXX: Fined $30,000; Suspended 30 days as a research analyst

Craig L. Josephberg
AWC/#EAF0400370005/September 2006

Josephberg opened several accounts for hedge fund clients for the purpose of market-timing mutual funds. Josephberg received increasing numbers of account blocks and trade rejects from mutual funds that were monitoring his clientsí market-timing activities for excessive market-timing. In an effort to hide from mutual funds that monitored for brokers that engaged in excessive market-timing, he requested new broker codes for his market-timing account and executed trades with the new broker codes in mutual funds that had already blocked a trade he had attempted to execute with his pre-existing broker codes. Josephberg was able to trade for clients in funds that may have been monitoring for and may have rejected trades associated with, his preexisting broker codes generating $34,000 in profits for his clients. In addition, Josephberg processed trades in a mutual fund after that fund had blocked his broker code from placing any further trades generating $86,000 in profits for his clients. 

Craig L. Josephberg: Fined $15,000; Suspended 35 days in all capacities

Bill Singer's Comment: Several of these additional broker code cases were reported by NASD, but I've merely cited to this one for illustrative purposes.  This type of violation puzzles me.  The RR's misconduct is evident -- no debate from me on that.  However, you would think that firms would be highly suspicious of any request for additional broker codes for the same RR.  Moreover, assuming you issue such extra codes, you would also expect enhanced scrutiny of their use.  The main thing I get out of these additional broker code cases is a growing skepticism of broker-dealers who claim they had no idea about the misuse of their firm for market-timing trades (how much more smoke do you need before you yell "fire")?  Also, see Davis for the situation in which a Registered Principal was charged in failing to monitor this type of activity.
John Vincent Hull
AWC/#2005000094002/September 2006

Hull engaged in a series of pre-arranged and other manipulative trades, including trades with Canadian firms. Hull made a market in a thinly traded pink sheet stock, and moved his quotes and traded over 7.5 million shares of the stock, at the direction of an individual barred by NASD. Hullís manipulative trading of the stock contributed to an increase of over 600 percent in the inside bid price of the stock, and his trading and other conduct created the false appearance of trading volume and market interest in the stock and artificially affected the securityís market price. As a result of this trading, Hull generated $18,500 in his wifeís IRA account. 

John Vincent Hull: Barred; Required to cooperate with NASD or any other regulator in any further investigation and hearing relating to his former member firm, including but not limited to, meeting with and being interviewed by NASD, without the need of NASD to resort to Rule 8210, and testifying at any hearing. 

Bill Singer's Comment: The underlying misconduct aside, the sanction is interesting.  See the Zentz case for a similar requirement to cooperate. 
Jeffrey Scott Hart
AWC/#2005001735401/September 2006 

Hart failed to properly disclose an outside brokerage account held in his wifeís name at another member firm over which he had discretionary trading authority

Jeffrey Scott Hart: Fined $2,500; Suspended 10 business days in all capacities

Steven Emil Ennis
AWC/#20050033860-01/September 2006

Ennis forged a public customerís signature on a new account form and submitted it to his member firm. When Ennis was questioned about this signature, he claimed that the customerís fiancť signed the form with her approval .  Apparently, in an effort to provide verification for that claim, Ennis also impersonated the customerís fiancť over the telephone.

Steven Emil Ennis: Fined $5,000; Suspended 1 year in all capacities

Bill Singer's Comment: "And then their dog ate all the original paperwork.  Then their grandmother died and the engaged couple had to go to Europe, where they couldn't be reached. " 

Oh, puhleease! 

Okay, so explain this to me:  Davilla was barred but Ennis wasn't --- why?  If it turns out that, in fact, the fiance' admitted to snookering Ennis (and the proffered explanation is actually true), wouldn't that have been a critical point for NASD to disclose in this decision?  And if the stuff about the fiance' is nonsense, then why the hell wasn't Ennis barred?  NASD probably has a legitimate explanation, but if we're left to guessing  then that state of affairs undermines the value of these decisions.

Glen Steven Davis (Registered Principal)
AWC/#EAF0400370004/September 2006

Davis approved new broker codes for brokers when, in fact, he knew that the brokers were engaging in extensive market-timing activity. Davis did not monitor the brokersí activity to ensure that they did not use the new broker codes for illicit market-timing. The brokers used these broker codes for the purpose of evading potential monitoring by mutual fund companies to detect and prevent market-timing. 

Glen Steven Davis: Fined $25,000; Suspended 23 business days in supervisory/principal capacities

Miguel Angel Davilla 
AWC/#2005002588901/September 2006

In order to earn production credits so that he could attend an upcoming sales meeting, Davilla prepared Insurance Cover Memos and Allotment Authorization forms for public customers, falsely represented to his member firm that the customers wanted to buy insurance and forwarded the documents to his firm for processing without the customersí authorization. 

Miguel Angel Davilla : Barred

Bill Singer's Comment: Part of me merely smiles at cases such as this and I say "thank god they got this guy out of the business before he really got dangerous."  I hope he at least got to attend the all-you-can-eat-buffet or got the free coffee mug before being barred.
Nancy Gold DíAnna
AWC/#2005002485302/September 2006

D'Anna signed public customersí names to account-related documents without their knowledge or authorization. 

Nancy Gold DíAnna: Fined $5,000; Suspended 30 days in all capacities

Bill Singer's Comment: Ohhhh . . . not again!  Would someone at NASD PLEASE explain to me the difference between "forging" a customer's name on a document and "sign(ing) public customers' names to account-related documents without their knowledge or authorization."  Please see Cook case immediately below and explain to me the difference.
Brandon John Cook
AWC/#2005003206201/September 2006

Without a public customerís knowledge or authorization, Cook caused checks to be issued to the customer drawn against her securities account, forged her endorsement on the checks or caused her endorsement to be forged on them, negotiated the checks, caused the funds to be wired out of the customerís account to an account he controlled at another institution and used them for his own benefit. Cook failed to respond to NASD requests to provide information and appear for testimony. 

Brandon John Cook: Barred

Bill Singer's Comment:  I'm not sure whether NASD meant that Cook "forged" the endorsement --- or meant that she merely signed without knowledge or authorization.  You're puzzled by my question.  Please see the D'Anna case immediately above.
Chekelea Fikira Brazelton 
AWC/NASD Case #20050033691-01/September 2006

While taking the Series 6 examination, she took a piece of paper containing written formulae into her testing session and transferred the written formulae from the piece of paper to scratch paper the testing center distributed.

Chekelea Fikira Brazelton : Barred

Bill Singer's Comment: Ah, the old written "formulae" caper.  Nice that someone uses "formulae" rather than "formulas" --- now, if only those NASD dictionary wizards would take a tad more time to better explain most of these monthly decisions.
Cathy Louise Biehl
AWC/#2005002294701/September 2006

Biehl photocopied signatures onto account-related documents for public customers without the customersí authorization, knowledge or consent. 

Cathy Louise Biehl: Fined $8,000; Suspended 6 months in all capacities.

Bill Singer's Comment: Surprising as it may seem, many associated/registered persons run afoul of this regulatory issue.  More often than not, this type of violation is caused by the failure to get the initial documents properly filled out in the first place --- and then the client has left the office for a distant home (and that client is apt to be an elderly person).  Folks, if you are not going to have the customer affix his or her original signature on any document, think carefully before you do anything other than sending the document to the client.  That includes not reaching for the white-out.  That includes not scanning the document and undertaking a clever computer alteration.  That includes not photocopying signatures from another document onto the one before you.  And --- to be extra cautious --- even if the client says to you "it's okay to do X," please speak to your supervisor before attempting to submit the form into the flow of commerce.  Even if what you've done isn't a "forgery," it may still run afoul of your firm's policies.  See the Cook and D'Anna cases two and three paragraphs above this for more confusion.
Elias Emile Ashooh (Registered Principal)
#2005000923801/September 2006

Ashooh borrowed $13,900 from a public customer despite his member firmís written supervisory procedures prohibiting such conduct. Ashooh attempted to borrow an additional $10,750 from the customer, but his member firm did not process the customerís request. Also, Ashooh falsely certified to his member firm that he had no outstanding loans or other financial dealings with customers. 

Elias Emile Ashooh: Barred; Ordered to pay $13,900 plus interest in restitution to a public customer

Gary Steven Artzt (Registered Principal)
OS/#E102004103701/September 2006 

Artzt failed to ensure that his member firm timely and completely complied with the undertakings specified in a previous Letter of Acceptance, Waiver and Consent. 

Gary Steven Artzt : Fined $10,000; Suspended 45 days in all capacities

Bill Singer's Comment: One of the most elemental propositions on Wall Street is that if you get in trouble and enter into a settlement with the NASD, then you damn well better observe all the promises you enter into as part of that settlement.  
W.G. Nielsen & Co.
AWC/#E3A20050033-01/September 2006 

The Firm failed to implement its anti-money laundering (AML) compliance program when dealing with investors purchasing interests in private placements through the firm, in that it did not verify the investorsí identities as the joint Treasury-SEC rules pertaining to customer identification programs requires.

W.G. Nielsen & Co.: Censured; Fined $10,000

Keating Securities, LLC 
AWC/#E3A2005001301/September 2006 

In connection with work being done on the Firmís electronic mail backup system, it failed to preserve any of its internal or external email communications.

Keating Securities, LLC : Censured; Fined $25,000

Credit Suisse Securities (USA) LLC
AWC/#EAF0401490001/September 2006 

Credit Suisse Securities (USA) LLC published research reports that failed to clearly and prominently disclose the valuation methods used to determine price target valuation methods and the risks that might impede achievement of the price target. The Firmís disclosures concerning risks that might impede achievement of the price target were comparably deficient. The Firm failed to establish, maintain and enforce its written supervisory procedures reasonably designed to ensure compliance with NASD rules concerning price target disclosures. 

Credit Suisse Securities (USA) LLC: Censured; Fined $225,000; "Required to review a meaningful sample of its research reports, and describe the methodology used to review this sample of reports and certify in writing to NASD that the firm is in compliance with NASD Rules 2711(h)(7) and 2711(h)(10) with respect to such sample, including the requirement that price target valuation methods and risks that might impede achievement of the price target be disclosed in a clear, comprehensive and prominent manner. "

Bill Singer's Comment: And yet another six-figure fine imposed upon a major NASD broker-dealer --- and yet another case in which no human being is held responsible for principal deficiencies.  See the Citigroup and A.G. Edwards cases immediately below.
Citigroup Global Markets Inc.
AWC/#2005000792101/September 2006 

Citigroup Global Markets Inc failed to include in its tech/quant research reports whether the analyst or a member of his household held a position as officer or director or whether the firm acted as a market maker for the stock. The reports also failed to include whether the firm or the analyst had 

  • an ownership interest in the company, 
  • a material conflict of interest, or
  • received income from investment banking transactions with the company

None of the firmís tech/quant research reports included 

  • a description of the ratings used, 
  • a distribution of the ratings, or 
  • a price chart illustrating closing prices for particular stocks. 

The Firm failed to establish and maintain a supervisory system reasonably designed to detect and prevent the firmís violations of Rule 2711(h) and failed to implement the Rule in a timely manner. 

Citigroup Global Markets Inc.: Censured; Fined $350,000; Required to undertake a comprehensive review of its disclosure in its technical and quantitative (tech/quant) research reports. 

Bill Singer's Comment: This is a bit of an oddity: Tech/Quant research report violations.  Usually we see these charges involving fundamental analysis.  On the other hand, doesn't any human being work at Citigrouop Global Markets Inc.?  Did these reports get prepared by robots?  Did these reports get reviewed by robots?  Were robots supervising the human staff?  Look at the A.G. Edwards & Sons, Inc. case below for a more extensive statement of this issue.
A.G. Edwards & Sons, Inc.
AWC/#20050001631-02/September 2006 

A.G. Edwards & Sons, Inc. failed to 

  • use reasonable diligence to ascertain the best inter-dealer market and failed to buy or sell in such market so that the resultant price to its customers was as favorable as possible under prevailing market conditions;
  • establish, maintain and enforce written procedures for its fixed income department and supervise its associated personsí activities that were reasonably designed to achieve compliance with applicable securities laws, regulations and NASD rules concerning best execution of debt securities; and 
  • register individuals as the firmís principals when each was actively engaged in the management of its securities business as supervisors.

A.G. Edwards & Sons, Inc.: Censured; Fined $125,000; Ordered to pay $17,017.50 in restitution to public customers.

Bill Singer's Comment: As many of you know, I am a critic of what I see as unfair NASD regulation that I perceive frequently comes down more heavy-handed on smaller firms.  Here is yet another puzzling decision.  Given the six-figure fine and serious allegations involving failures to 1.obtain the best price for public customers; 2.properly supervise fixed-income/debt business; and 3.register multiple persons as principals --- why is no human being named as a Respondent?  And, please, before you are so quick to answer, at least look at the Sands Brothers/Steven Brett Sands case below and explain why Mr. Sands was named if no one at A.G. Edwards was? Yes, the Sands firm may well have acted through Mr. Sands --- but do large firms never act through human beings?  You rarely see wirehouses named as respondents on the same line and in the same decision as currently employed principals of those firms. Either principals at both large and small firms should be named with similar frequency, or no one should be named --- frankly, I'm in the former camp.
A.C.R. Securities, Inc.  
AWC/#2006003890001/September 2006

A.C.R. Securities, Inc. did not have a system to retain electronic communications the firm or its registered representative sent or received, and failed to preserve copies of electronic communications relating to its business sent or received by the firm or its registered representative. 

A.C.R. Securities, Inc. : Censured; Fined $10,000; Required to certify to NASD that the firm has reviewed its procedures regarding email retention and has established systems and procedures reasonably designed to achieve compliance with the laws, regulations and rules concerning the retention of electronic mail communications.

The Dratel Group, Inc. and William Marshall Dratel (Registered Principal) 
AWC/#2005001123301/September 2006

Acting through Dratel, the Firm failed to timely:

  • report statistical and summary information regarding a settlement with a public customer to NASD. 
  • amend Dratelís Form U4 to disclose a material fact; and
  • obtain an opinion of counsel concerning a lawsuit asserting a claim that could have had a material impact on the firmís net capital, failed to include the claim in the calculation of aggregate indebtedness and failed to timely notify the SEC or NASD of the deficiencies. 

The Dratel Group, Inc. and William Marshall Dratel:Censured; Fined $15,000 (jt/sev)

Bill Singer's Comment: Once again, the NASD issues a decision in which it fails to take advantage of an opportunity to educate the membership.  What should have been more fully explained here is that an NASD broker-dealer that is the subject of a lawsuit that could have a material impact on its net capital must obtain an outside counsel's opinion regarding the potential effect of such a suit on the firm's financial condition. Why?  Because in the absence of such opinion, under SEC Rule 15c3-1(c)(1) [the Net Capital Rule] the item must at least be considered a contingent liability, and  included in the calculation of aggregate indebtedness.
Cambridge Legacy Securities, LLC and Oran Ben Carroll (Registered Principal)
AWC/#E062005004001/September 2006

Acting through Carroll, the Firm 

  • commenced a best efforts, ďminimum-maximumĒ offering an affiliated company conducted, and failed to deposit the checks the first two public customers sent into a bank escrow account, and held the funds for a period of time before transferring them to an escrow account; 
  • held customersí funds by virtue of its failing to place the funds raised in the offering into a bona fide escrow account and instead, deposited the funds into an account on which Carroll had signature authority; and
  • conducted a securities business while failing to maintain its required minimum net capital.

Cambridge Legacy Securities, LLC. and Oran Ben Carroll: Censured; Fined $10,000 (jt/sev)

Bill Singer's Comment: Yet another in a growing line of 2006 cases in which escrow account misconduct occurs.  I suspect that many of these violations are inadvertent or based upon a misunderstanding of what constitutes an independent escrow --- however, this violation could have drastic consequences and the attention to meticulous detail is imperative.  See the "Escrow Accounts" box at the top of this page for more examples.
Sands Brothers & Co., Ltd. and Steven Brett Sands (Registered Principal) 
OS/# E102004106801/September 2007

Acting through Sands, the Firm 

  • failed to file a continuing membership application with NASD seeking approval for the transfer of customer accounts and registered representatives to another firm Sands had founded; and
  • permitted an individual to engage in the firmís investment banking and securities business without the benefit of registration. 

Also, Sands failed to disclose a material fact on his Uniform Application for Securities Industry Registration or Transfer (Form U4). 

Sands Brothers & Co., Ltd.: Censured; Fined $150,000 ($100,000 of which jt/sev. with Steven Brett Sands) 

Steven Brett Sands: Fined $100,000 (jt. sev with Sands Bros); Suspended 60 days in principal capacity

Bill Singer's Comment: The transfer of customer accounts and RRs is likely as material a change to one's business as can be imagined.  Such changes require an application to modify one's Membership Agreement.  Although a $150,000 fine for the matters noted may well be appropriate, I don't think the NASD has stated the case well enough to justify the six-figure fine.  Again, it may well be justified but NASD's decisions should provide sufficient support for such a fine and this decision doesn't.
Great American Investors, Inc and David Kennedy Richards (Registered Principal) 
AWC/#E0420030367-02/September 2006

Acting through Richards, Great American Investors failed to 

  • adequately supervise a registered representative by allowing him to trade excessively in a public customerís account when Richards knew, or should have known, that these transactions were unsuitable for the customer; and 
  • make and maintain a memorandum of each transaction in the form that the SEC and NASD required. 

Great American Investors, Inc: Fined $12,500 (jt/sev with David Kennedy Richards)

David Kennedy Richards: Fined $12,500 (jt/sev with Great American Investors); Suspended 30 days in supervisory capacity

Brad Allan Weaver (Principal)
#E8A2004050201/August 2006

Weaver permitted an unregistered person who was also barred from the securities industry to engage in securities transactions. Weaver failed to maintain complete, accurate and current books and records. Weaver guaranteed a public customer against loss in his securities account. Weaver engaged in outside business activities, for compensation, without providing his member firm with prompt written notice. 

Brad Allan Weaver : Barred

Bill Singer's Comment: Frankly, this is an impressive accomplishment.  One rarely sees so many varied violations credited to one individual.  
Raymond Henry Sutterlin
AWC/#E1020040750-01/August 2006

Acting through Sutterlin, his member firm 

  • failed to adequately ensure that the firmís ledgers and other records accurately reflected all of the firmís assets, liabilities and expenses, causing the firmís records to be inaccurate, which violated Section 17 of the SEC Act of 1934 and Rule 17a-3 thereunder;
  • filed inaccurate FOCUS reports; and 
  • failed to maintain its minimum net capital requirement (as a result of failing to adequately track and book various incurred expenses) and to give timely notice to the SEC and NASD, pursuant to SEC Rule 17a-11. 

Raymond Henry Sutterlin: Fined $12,000; Suspended 15 business days in FINOP capacity

Bill Singer's Comment: Yet another in a growing line of cases in which FINOPs are being fined and suspended.  See the Developing Enforcement Trends matrix at the top of this page for more examples.
Alfred V. Rodriguez
AWC/#2006004107901/August 2006 

Rodriguez signed another member firm employeeís name on a verification of employment form without the employeeís knowledge or authorization, and Rodriguez also falsified his compensation figures on that form. 

Alfred V. Rodriguez: Barred

Emil Brian Panzarino, Jr. 
OS/#ELI20040386-01/August 2006

Panzarino received $877 from a public customer for the purpose of paying the premium on an automobile insurance policy, and rather than apply the funds to the policy, Panzarino kept and used the funds for his personal use and benefit without the customerís knowledge or authorization. Panzarino failed to appear for an NASD on-the-record interview. 

Emil Brian Panzarino, Jr. : Barred

Jeffrey Marc OíBrasky 
AWC/#E3A20040354-03/August 2006

O'Brasky entered orders for, and caused the execution of, call options transactions in a public customerís account that he was not authorized to trade pursuant to his member firmís procedures and without approval from the trustees of the transactions prior to execution. OíBrasky provided to a principal of the firm an Options New Account Form for approval of options trading in a customerís account without disclosing that the signatures were not genuine, causing one of his member firmís required records to be falsified. 

Jeffrey Marc OíBrasky : Fined $20,000; Suspended 2 years in all capacities.

Bill Singer's Comment: I am well known for my tirades against unfair and uneven regulation --- particularly when sanctions seem to vary widely for similar misconduct.  Sometimes, the explanation is that the NASD's disciplinary report makes facts seem worse or better than they truly were, and sometimes the regulator simply fails to fully disclose what happened.  Nonetheless, to get a better sense of the type of thing that drives me nuts, please consider the facts and sanctions in the O'Brasky case and compare to those in the Fatta case.  Okay -- so why does one respondent get $20,000/2 years but the other only $14,000/3 months?????  I cannot understand why one individual is suspended eight times longer than the other.  Either one respondent is over-sanctioned or the other is under-sanctioned.
Nora Lynn Newell
OS/#E052004024601/August 2006

Newell borrowed funds totaling $45,000 from public customers and to fund these loans, she recommended and executed the liquidation of various mutual fund holdings in the customersí accounts. Newell falsely represented to the customers that the funds would be used for real estate investments and she would pay the loans with interest. She never made any principal or interest payments on the loans. Newell did not have reasonable grounds for believing that the recommendation to liquidate and the resultant mutual fund sale transactions were suitable for the customers based on their financial situations, investment objectives or needs. In addition, Newell failed to respond to NASD requests for information. 

Nora Lynn Newell: No fine in light of financial status; Barred

Bill Singer's Comment: I dunno but it always bothers me when I see piling on --- whether it's in football or regulation.  I have little, if any, sympathy for Ms. Newell.  Based upon the facts, she should have been barred.  So, please, don't make me out to be some bleeding-heart defense lawyer.  I understand charging her for improperly borrowing money from clients (which, oddly, either wasn't the case or it just wasn't charged), I understand charging her for falsely representing that the borrowed funds were earmarked for real estate investments.  I understand charging her for promising to repay the loans and her failure to  repay.  And, most certainly, I understand charging her for failing to respond.  

On the other hand, come on . . . what the hell is not having "reasonable grounds for believing" that both the "recommendation to liquidate" and the "resultant" sales were suitable?  I mean, lemme see here for a minute --- like what?  you expected her to undertake a suitability assessment when she's conning folks out of their money for some bogus investment?  That strikes me as charging someone with murder because they fired a shotgun at pointblank range at the deceased; and then charging them with negligence because they did not have reasonable grounds to believe that a shotgun fired at pointblank range would be harmless. 

Stacey Joe McBee
#E072004088201/August 2006 

McBee opened a securities account with another NASD member firm and failed to disclose to that firm that he was associated with his member firm. He failed to give his member firm written notification that he opened a securities account with another member firm. McBee engaged in outside business activities, for compensation, without giving his member firm prompt written notice of his outside business activities. He failed to respond to NASD requests for information and documents. 

Stacey Joe McBee: Barred

Nathan Edward Lubow (Principal) 
AWC/#2005001375201/August 2006

Lubow entered into a settlement agreement with public customers in response to a complaint, failed to disclose the settlement agreement to his member firm, and further, failed to satisfy his obligations pursuant to the agreement. 

Nathan Edward Lubow : Fined $10,000; Suspended 1 year in all capacities

Bill Singer's Comment: If there is one thing worse than an undisclosed settlement, it's an undisclosed settlement whose terms you do not honor.
Carl Phillip Kellogg 
AWC/#2005001351501/August 2006

Kellog borrowed approximately $140,000 from public customers in violation of his member firmís written procedures that prohibited its registered representatives from borrowing money from customers unless the customers are the representativeís immediate family members and the representative obtains the firmís prior written permission. The findings stated that the customers were not related and Kellogg had not obtained written permission. 

Carl Phillip Kellogg : Fined $10,000; Suspended 60 days in all capacities

Bill Singer's Comment: Yet another in a growing number of "Borrowing" cases in 2006.  See the Developing Enforcement Trends matrix above for more examples. 
Melanie Erin Howell 
AWC/#2006004235701/August 2006

During a Series 7 qualification examination, Howell retained in her possession notes related to the subject matter of the qualification examination. Therefore, she violated the Rules of Conduct she had signified acceptance of prior to the examination.

Melanie Erin Howell : Barred

Jorge Guillermo Fernandez (Principal)
#2005000545601/August 2006 

Fernandez induced public customers to participate in a new investment and to make their checks made payable to the firm, which he deposited into an unauthorized corporate bank account he had opened in the firmís name by falsely identifying himself as the president of the firm. Fernandez wire transferred $1,500,000 from the unauthorized bank account to a bank overseas for his personal use. He failed to respond to NASD requests for information.

Jorge Guillermo Fernandez : Barred

Philip Orezio Fatta (Principal) 
AWC/#E1020040299-05/August 2006

Fatta improperly altered account transfer forms that had been signed and used by public customers from his previous firm as though they were new account transfer forms for purposes of transferring the customersí accounts to his firm, thus causing his firmís books and records to be inaccurate. Fatta charged customers unreasonable and excessive option commissions on covered call transactions. 

Philip Orezio Fatta: Fined $14,000 (which includes $4,000 in disgorgement of commissions); Suspended 3 months in all capacities

Kelly Ann Burke 
OS/#2005001331101/August 2006

Burke, an associated person completed and submitted electronic applications for automobile insurance to an insurance company with false information, including Social Security numbers, to qualify the applicants for insurance at better rates. Burke failed to respond to NASD requests for documents and information. 

Kelly Ann Burke: Barred

Bill Singer's Comment: Talk about being in good hands! 
Joseph Michael Blackwell (Principal) 
AWC/#20050011006/August 2006

Blackwell failed to establish and implement an AML compliance program reasonably designed to achieve compliance with the Bank Secrecy Act. 

Joseph Michael Blackwell : No fine in light of his financial status; Suspended 1 year in principal/supervisory capacity; Required to attend and satisfactorily complete 16 hours of continuing education concerning AML before he reassociates with any NASD member firm in any principal or supervisory capacity or as an AML compliance officer

Dean Russel Baker 
OS/# E072004052202/August 2006

Baker effected, or caused to be effected, securities transactions in public customersí accounts without their prior authorization, knowledge or consent. In order to induce customers to make authorized purchases, Baker made baseless price predictions, used time sensitivity when recommending stocks and failed to disclose material facts such as risks and conflicts of interest associated with the stock purchases. 

Dean Russel Baker: Barred

Bill Singer's Comment: As best I can tell, Baker was cited for unauthorized trading.  Okay, that's clear.  Then he is also apparently charged with inducing "authorized" purchases.  Frankly, I would have written "in order to fraudulently induce . . . " Why?  Because I think it's clearer and more precise.  However, issues of style aside, what I'm having a bit of trouble with is what exactly is meant by alleging that Baker "used time sensitivity when recommending stocks . .  ."  What exactly is the use of "time sensitivity"?  Is there a proper and improper use of this sensitivity?  Is there even some NASD Rule that defines "time sensitivity" and outlines when using it is improper?  
ING Investment Management Services LLC 
AWC/#E102004019901/August 2006

The Firm failed to maintain and preserve all electronic communications relating to its business as SEC Rule 17a-4 requires. In determining the amount of the fine, NASD took into account the demonstrable corrective action undertaken by the firm before the staff commenced its examination. 

ING Investment Management Services LLC : Censured; Fined $50,000; Required to review its procedures regarding the preservation of electronic mail communications for compliance with NASD rules and federal securities laws and regulations.

Bear Stearns & Co. Inc.
AWC/#E1020040050-01/August 2006 

Bear Stearns & Co. Inc. failed to submit options communications for review by a Compliance Registered Options Principal or an appropriate designee, and the firmís educational material was not submitted to NASD or another self-regulator for review and approval at least 10 days prior to the firmís use, as NASD Rule 2220 requires. 

The Firmís options communications omitted material facts that made them false and/or misleading, suggested a certainty of future performance, used hedge clauses or disclaimers that attempted to disclaim responsibility for the communications, and included discussion of the advantages and opportunities presented by option investments without the proper disclosure of risks. The communications failed to include the required warning that options are not suitable for all investors, potential risks associated with options, the name and address of a person who could provide an Options Disclosure Document, relevant costs and a statement that supporting documentation for any claims made in the communication would be supplied upon request. 

The Firmís research report failed to 

  • define the meaning of the ratings used in the report, 
  • disclose the distribution of ratings used in the firmís rating system. and
  • provide required disclosures or references to where the disclosures could be found on the front page of the research report. 

The Firm failed to establish, maintain and enforce a supervisory system and procedures reasonably designed to achieve compliance with certain federal securities laws and NASD rules regarding content standards and principal approval of options communications with the public. 

Bear Stearns & Co. Inc.: Censured; Fined $150,000

Bill Singer's Comment: Under NASD Rule 2220(a)(2), the term "educational material" means any explanatory material distributed or made generally available to customers or the public that is limited to information describing the general nature of the standardized options markets or one or more strategies.  

NASD Rule 2220 (b) states:  Association Approval Requirements and Review Procedures (1) In addition to the approval required by paragraph (b) of this Rule, every advertisement and all educational material of a member or member organization pertaining to options shall be submitted to the Advertising/Investment Companies Regulation Department of the Association* ("Department") at least ten days prior to use (or such shorter period as the Association may allow in particular instances) for approval . . .

One thing that puzzles me with this decision is why no individual was named?  I have to tell you --- seems to me that if the same violations had occurred at a smaller firm, we would have seen the name of the CROP and possibly another supervisor in the research area.  I'm not saying that larger firms get special treatment.  I'm not saying that smaller firms get hosed.  No, I'm not saying that --- but, gee, maybe some of these cases are saying that for me?

Banorte Securities International, Ltd.,
AWC/#E1020050483-02)/August 2006 

The Firm 

  • failed to enforce its written supervisory procedures to ensure that it conducted its business in accordance with MSRB rules. 
  • did not have a properly registered municipal securities principal
  • failed to properly complete order tickets for municipal securities, 
  • reported late its municipal securities transactions to the MSRB; and 
  • failed to seek approval for a change to its membership agreement prior to engaging in business as a municipal broker or dealer.

Banorte Securities International, Ltd.,: Censured; Fined $17,500

Bill Singer's Comment: In case anyone forgot --- if you decide to enter a new line of business (one that is NOT covered in your current Membership Agreement), you are supposed to file a Modification Request to have your Membership Agreement amended.  For some odd reason, I tend to see folks stepping over that line with MSRB business more than anything.  
Andrew Garrett, Inc. 
AWC/#E1020050019-01/August 2006

Andrew Garrett, Inc. conducted a securities business when its net capital fell below the minimum amount required under SEC Rule 15c3-1. Acting through an individual, the Firm prepared inaccurate net capital computations. 

Andrew Garrett, Inc.: Censured; Fined $17,500 (of which $7,500 "was imposed jointly and severally with an individual")

Bill Singer's Comment: Sure, this is just another garden-variety Net Cap case --- to that extent, nothing new and nothing special.  However, I keep noticing a growing number of cases in which NASD cites "another individual" and then jointly and severally fines that "individual" but we never learn that person's name.  What is this all about anyway?  If someone's conduct is considered so unacceptable as to warrant a fine in excess of $5,000, then why isn't that individual named?  What troubles me with this type of approach isn't that some poor soul whose conduct may have been minimal is avoiding the embarrassment of public disclosure --- frankly, that's okay.  We long ago took down the public pillory in our town squares.  What does bother me is "who" at NASD makes the decision as to when a sanctioned party gets named?  What are the criteria for getting that consideration?  Maybe the good folks at NASD could send around a Notice to Members explaining when you could petition to not have your name disclosed in a disciplinary press release?
Thor Capital, LLC  and Peter A. Kambolin (Principal)
AWC/#E1020030516-01/August 2006

Acting through Kambolin, the Firm published a Web site that contained inaccurate statements regarding 

  • the trading volume the firm handled on behalf of customers, 
  • the type of securities in which it conducted an active business and 
  • the number of states in which it was currently registered. 

The Firmís new account documentation for public customer accounts failed to include employment information, income information, net worth and investment objectives.

Thor Capital, LLC: Censured: Fined $15,000 ($10,000 of which is jt/several with Kambolin)

Peter A. Kambolin (Principal): Censured: Fined $10,000 (jt/several with Thor)

Bill Singer's Comment: The NASD is certainly sharpening its knives when it comes to any online activity:  emails, instant messaging, and websites. Many firms have little (if any) idea as to what is on their website.  I have often found that the task of designing, publishing, and maintaining websites is often left to some young web developer --- often in another state, often left to his or her own, and often without a clue as to industry rules and regulations.   This is a warning, and one that you all should heed.  Review your website for content and compliance.  Make sure you have a system in place that requires all changes to your pages to be first reviewed by compliance.  

The other part of this case that I find amusing --- yeah, I'll be honest, I did chuckle at this one --- is how any member firm could have a new account form lacking a customer's employment, income, net worth, and investment objectives.  Wow!  Talk about throwing darts and totally missing the dartboard!

The Shemano Group, Inc., William David Corbett, Michael Keith McDonough (Principal) and Gary Jay Shemano (Principal) 
AWC/20050001727-01/20050001727- 02/20050001727-03/August 2006

Shemano sold Corbettís shares of a publicly traded company while Corbett was reviewing drafts of a pending research report on the company that contained mismanagement allegations, and Corbett, as lead banker, and McDonough, as Chief Compliance Officer, failed to detect and prevent the sales. 

The firm, Shemano and McDonough failed to establish, maintain and enforce a system of supervision and written supervisory procedures reasonably designed to prevent the misuse of material and nonpublic information.

Corbett 

  • provided knowing and substantial assistance to his firm in violation of its written supervisory procedures; and
  • knowingly hired, and the firm made payments to, an individual for consulting services relating to the issuance of research reports and investment banking activities who they knew to be statutorily disqualified from association with any NASD member, and failed to report the association to NASD.

The Firm 

  • published research reports the barred individual wrote that deleted material risk disclosures and failed to disclose material facts, and McDonough failed to supervise the preparation of the research reports; and
  • failed to reasonably supervise the firmís research and investment banking departments and the barred consultant in connection with their activities relating to the issuance of research reports. 

The Shemano Group, Inc.: Fined $425,000 (jt/several with Gary Jay Shemano); Barred from publishing research reports as the term is defined in NASD Rule 2711(a); Required to hire an independent consultant to review the adequacy of the firmís policies, systems, procedures and training

William David Corbett: Fined $150,000; Suspended 60 days in all capacities

Michael Keith McDonough (Principal): Fined $20,000; Suspended 9 months as a general securities principal

Gary Jay Shemano (Principal): Fined $425,000 (jt/sev with The Shemano Group); Suspended 90 days in all capacities; Barred from publishing research reports as the term is defined in NASD Rule 2711(a)

Bill Singer's Comment: Hats off to NASD with this case.  For once, we have a concise explanation of what could have been a difficult fact pattern to understand (given the range of violations and their seriousness).  This is an excellent case for Compliance Dept's to read and incorporate into a year-end checklist.  Also a super case to discuss with your Research Dept.  
PGP Financial, Inc. and Ellen Rose Lozinski (Principal) 
AWC/#ELI2005000631601/August 2006

Acting through Lozinski, the Firm 

  • operated a securities business without a properly registered financial and operations principal (FINOP);
  • failed to timely file the Uniform Termination Notice for Securities Industry Registration (Form U5) concerning a registered person within 30 days from the date of termination; and
  • conducted a securities business while failing to maintain its minimum net capital requirement.  

PGP Financial, Inc.: Censured; Fined $25,000 (jt/several with Lozinski)

Ellen Rose Lozinski (Principal): Fined $25,000 (jt/sev with PGP Financial); Suspended 10 business days in principal capacity

Bill Singer's Comment: Yet another FINOP case in 2006 where this principal gets fined and suspended.  Clearly this is a developing enforcement trend as noted at the top of this page.  
Greater Metropolitan Investment Services, Inc., Chintaman M. Dalvi (Principal) and James Thomas Patten (Principal) 
OS/#2005000245601/August 2006

Greater Metropolitan Investment Services, Inc. and Patten falsely marked many customer order tickets as unsolicited orders when, in fact, they had solicited customers to buy or sell the stock. The respondents countenanced a supervisory system that did not apply or monitor procedures with regard to Pattenís trading activities, and thereby failed to establish, maintain or enforce a system to supervise the activities of each of the firmís registered representatives and associated persons. Dalvi failed to establish, maintain and enforce written procedures designed to achieve compliance with anti-fraud and recordkeeping provisions. In addition, the Firm and Dalvi failed to reasonably supervise Pattenís trading activities in a security and his improper marking of customer order tickets in the security as unsolicited.

Greater Metropolitan Investment Services, Inc.: Expelled

Chintaman M. Dalvi (Principal): Barred

James Thomas Patten (Principal): Barred

Bill Singer's Comment: When I first started working on Wall Street, you saw this "solicited/unsolicited" order ticket cases all the time.  Frankly, I just don't see as many lately, but perhaps we're once again closing the circle. Note the extreme nature of the sanctions:  Expulsion and Bars.
LaCedric DeShawn Williams
AWC/#E0620040296-01/July 2006

Williams misled public customers into believing that he was a registered person with the firm when, in fact, he was not, and made recommendations regarding their investments, upon which the customers acted. The findings stated that Williams failed to disclose to a public customer that, in connection with the liquidation of her variable annuity, she would incur a surrender charge

LaCedric DeShawn Williams: Fined $10,000; Suspended 6 months in all capacities

Frank R. Rivera
AWC/#E072004085101/July 2006 

Rivera effected unauthorized transactions in a deceased public customerís account without authorization of the customerís estate or the beneficiary of the account to engage in such transactions. Rivera did not adhere to his firmís policies and procedures regarding the handling of an account upon notification of a customerís death that required for the account to be frozen and that all pending transactions and outstanding orders be immediately canceled. 

Frank R. Rivera: Fined $7,500; Suspended 10 business days in all capacities.

Richard William Radez
AWC/#20050000292-01/July 2006

Radez recommended purchases of an unseasoned OTCBB security through false representations and omissions of material facts as well as baseless and unrealistic price projections. He recommended the security without reviewing the companyís available current publicly filed financial statements and current material business information, and without determining if there was a reasonable basis for the recommendation. Also,  Radez made unauthorized purchases of the security in public customersí accounts. Additionally, he engaged in a business activity outside the scope of his relationship with his member firm and failed to provide written notice to his firm.  Radez failed to respond to NASD requests for documents and to testify truthfully in NASD on-the-record interviews.

Richard William Radez: Barred

Young Min Kim (Principal)
AWC/#E022004017603/July 2006 

While associated with a member firm, Kim participated in securities transactions while he was suspended from association with any member firm. 

Young Min Kim: Fined $25,000; Suspended 3 months in all capacities; Barred in principal/supervisory capacities

Bill Singer's Comment: And yet another poor soul doesn't understand that being suspended means that you can't be involved in the securities business --- which means that you can't "participate" in a securities transaction. 
William A. Kendall 
AWC/#2005003111201/July 2006

Kendall entered into lending arrangements with customers and failed to inform his member firm or to obtain the firmís permission, contrary to the firmís written supervisory procedures that prohibit its representatives from borrowing money from customers. Also, Kendall failed to appear for an NASD on-the record interview. 

William A. Kendall : Barred

William Edward Kassar, Jr. (Principal) 
OS/#CLI050003/ELI2004009805/July 2006

 

  • engaged in excessive trading in public customersí accounts in light of their objectives, financial situations and needs; 
  • effected, or caused to be effected, unsuitable transactions or trading on margin in public customersí accounts without their prior knowledge, authorization or consent; and
  • settled a customer complaint without his member firmís knowledge or consent. 

William Edward Kassar, Jr.: Fined $10,000; Ordered to pay $57,086.28 in restitution; Suspended 6 months in all capacities; Required to requalify by exam as a General Securities Representative

Dennis Jordan (Principal)
OS/# E072003092501/July 2006 

Jordan engaged in the unregistered offer and sale of securities he owned to public customers, and failed to prepare and preserve required books and records in connection with the unregistered offer and sale of securities. Jordan failed to reasonably supervise a representativeís sales activities to prevent fraudulent sales practices and ensure compliance with recordkeeping and confirmation requirements. 

Dennis Jordan: Fined $27,500; Required to pay $98,000 plus interest in restitution to customers; Suspended 18 months in all capacities; Required to requalify by exam in any capacity

Michael Ta-Zen Huang
#2005000476101)/July 2006 

Huang misrepresented his identity by using another registered representativeís computer password to complete a firm-required continuing education session for the other registered representative. Huang failed to respond to NASD requests for information. 

Michael Ta-Zen Huang: Barred

Bill Singer's Comment: This type of violation typically occurs when an idiot (definition: an individual who lacks the commonsense to take his own damn CE session) pays or otherwise influences another idiot (definition: an individual who doesn't realize that taking a qualifying exam or session for another person is a violation) to do something in violation of the rules. 
Michael Todd Hinchliffe
AWC/#2005002008601/July 2006 

Without the customersí knowledge or consent, Hinchliffe affixed or caused to be affixed public customersí signatures, as trustees of a family trust, to a Request For Transfer of Assets, in order to effect the transfer of the trustís assets from another broker-dealer to his member firm. 

Michael Todd Hinchliffe: Fined $5,000; Suspended 60 days in all capacities.

REDACTED(Principal) 
AWC/#20050011263-01/July 2006

REDACTED participated in a private securities transaction without providing prior written notice to, and receiving prior written approval from, his member firm. Also, he effected securities transactions in a public customerís account based upon the oral trading instructions he had received from a third party, and failed to provide prior notice to, or receive prior written approval from, his member firm to permit him to accept trading instructions from a third party. 

REDACTEDBarred

Jerome Louis Galant
AWC/#E062004003003/July 2006 

As a member firmís research analyst, Galant prepared and issued research reports covering common stocks in which he held positions, and maintained buy recommendations in his reports even though he was selling the securities as they continued to increase in value. Galant prepared research reports for a member firm that failed to comply with the Regulation Analyst Certification Rule and failed to include the meaning of each rating the firm used in it is rating system, the distribution of its ratings and a price chart.

Jerome Louis Galant:Fined $35,000 (includes $25,000 disgorgement); Suspended 30 business days in all capacities

Bill Singer's Comment: This is one of those rules that a lot of industry folks think is just a myth.  You telling me that there is actually a rule against an analyst selling his own personal holdings even though he has a "buy" recommendation out?  And my standard answer is "yes," and here's the citation:  NASD Conduct Rule 2711(g):Restrictions on Personal Trading by Research Analysts: 

(3) No research analyst account may purchase or sell any security or any option on or derivative of such security in a manner inconsistent with the research analyst's recommendation as reflected in the most recent research report published by the member.

(4) Legal or compliance personnel may authorize a transaction otherwise prohibited by paragraphs (g)(2) and (g)(3) based upon an unanticipated significant change in the personal financial circumstances of the beneficial owner of the research analyst account, provided that [see extensive explanations that follow[

John Joseph Doria
OS/#EAF04001900/July 2006 

Doria aided and abetted the manipulation of securities by placing wash sales and matched trades in OTCBB stock in and between the group of interrelated accounts at his member firm at the direction of his customers. Doria knew, or was reckless in not knowing, that his customers were engaged in manipulating the stock. The matched trades Doria placed were reported to the OTCBB, grossly inflating and distorting the bona fide volume of trading in the OTCBB stocks, and created the false appearance of trading volume and market interest in the stocks. 

John Joseph Doria: Censured; Fined $35,000; Suspended 6 months in all capacities; Barred from participating, directly or indirectly, in any public or private offering or transaction involving a penny stock. 

Bill Singer's Comment: A fascinating sanction of a bar from participating in penny stock offerings.  
Neal Albert Bohlman (Principal) 
AWC/#20050004969-01/July 2006

Pursuant to a scheme to ultimately obtain money and property by false means, Bohlman forged a customerís name on a Wire Funds Authorization form and wired $46,322 from the customerís securities account to the customerís checking account without the customerís authorization. Then,  Bohlman contacted the customer and falsely advised him of a clerical error of $45,000- 50,000 on his monthly securities account statement and that he would resolve the issue, but he never returned the money to the customerís account. Bohlman failed to respond to NASD requests for information. 

Neal Albert Bohlman: Barred

Bill Singer's Comment: If I'm reading this case correctly, Bohlman attempted to steal the customer's funds but was apparently prevented from taking the last step.  I would have liked to have learned what apparently prevented that last step from happening.  It seems that the funds were wired from the securities account to the checking account, and then the customer told it was a clerical error.  However, the NASD doesn't seem to allege that Bohlman finally converted the funds to his own use --- just that he never returned the funds from the checking account to the brokerage account. 
Raymond James Ltd (USA), Inc.
AWC/#E112005000901/July 2006

The Firm did not maintain and preserve all electronic communications as required by SEC Rule 17a-4.

Raymond James Ltd (USA), Inc.: Censured; Fined $50,000; Required to review its procedures regarding the preservation of electronic communications for compliance with federal securities laws, regulations and NASD rules.

Bill Singer's Comment: July is an odd month for electronic communication cases.  See this case and the prior five.
Pyramid Financial Corp. 
AWC/#E0120050069-02/July 2006

The Firm failed to preserve, for a period of time, communications it sent and received relating to its business, and retain evidence that communications the firm sent were approved. 

Pyramid Financial Corp. : Censured; Fined $25,000: Required to establish and implement procedures reasonably designed to verify the adequacy and effectiveness of its system for retaining emails. 

Bill Singer's Comment: July is an odd month for electronic communication cases.  See this case and the prior four, and the following two.
Pulse Trading, Inc. 
AWC/#E112005000601/July 2006

The Firm utilized a vendor to maintain and preserve registered personsí instant messages, but the vendor failed to capture and/or retain all of the messages. As such, the Firm failed to maintain and preserve all electronic communications as SEC Rule 17a-4 requires.

Pulse Trading, Inc. : Censured; Fined $50,000; Required to review its procedures regarding the preservation of electronic mail communications for compliance with NASD rules and federal securities laws and regulations.

Bill Singer's Comment: July is an odd month for electronic communication cases.  See this case and the prior three, and the following three.  This one notes an interesting variation on the theme:  If you're going to use an outside vendor, you will still be liable if the vendor fails to satisfy the rules.
Paradigm Capital U.S. Inc.
AWC/#E112005017402/July 2006 

The Firm permitted registered representatives to use instant messaging and wireless handheld devices to send electronic communications, but failed to preserve the communications as required by SEC Rule 17a-4.

Paradigm Capital U.S. Inc.: Censured; Fined $75,000; Required to review its procedures regarding the preservation of electronic mail communications for compliance with NASD rules and federal securities laws and regulations.

Bill Singer's Comment: July is an odd month for electronic communication cases.  See this case and the prior two, and the following four.  This one notes an interesting focus on both instant messaging AND handheld devices.
Orion Securities (USA) Inc. 
AWC/#E112005017301/July 2006

The Firm permitted its registered persons to use instant messaging to communicate with its institutional clients, but failed to maintain and preserve the communications. 

Orion Securities (USA) Inc. : Censured; Fined $50,000; Required to review its procedures regarding the preservation of electronic mail communications for compliance with NASD rules and federal securities laws and regulations.

Bill Singer's Comment: July is an odd month for electronic communication cases.  See this case and the prior one, and the following five.
NYLife Securities Inc.
AWC/#EAF0401160003/July 2006 

The Firm failed to retain emails for required periods of time in violation of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4 promulgate thereunder. 

NYLife Securities Inc.: Censured; Fined $150,000

Bill Singer's Comment: July is an odd month for electronic communication cases.  See this case and the following six.
Capital Growth Financial, LLC and Michael Scott Jacobs (Principal)
AWC/# E072005004301/July 2006 

The Firm failed to 

  • conduct independent testing for compliance with its anti-money laundering (AML) procedures, and
  • designate independent individuals to conduct testing and failed to maintain evidence that it had filed one suspicious activity report (SAR). 

The Firm issued research reports that failed to 

  • provide sound bases for evaluating the company as a potential investment by failing to discuss risk factors associated with the company, 
  • disclose the time periods for the price targets indicated in the reports and 
  • disclose the percentage of securities the firm rated as ďbuy,Ē ďsellĒ or ďhold.Ē 

Acting throug Jacobs, the Firm reduced the minimum for a private placement offering and provided for the offering to close when the reduced minimum was met, and after modifying the offering, the firm failed to afford existing investors the opportunity to withdraw their investments based on the offeringís modification. 

Capital Growth Financial, LLC: Censured; Fined $55,000 ($10,000 of which jt/several with Jacobs)

Michael Scott Jacobs (Principal): Fined $10,000 (jt/several with Capital Growth Financial)

Bill Singer's Comment: This case shows an issue that seems to be tripping up a number of folks.  YES!!! --- if you are going to use ratings, you must define the categories and show the percentage distribution.  Look at the specific language in NASD Conduct Rule 2711: Research Analysts and Research Reports, under Section (h)Disclosure Requirements:

(4) Meaning of Ratings
A member must define in its research reports the meaning of each rating used by the member in its rating system. The definition of each rating must be consistent with its plain meaning.

(5) Distribution of Ratings

(A) Regardless of the rating system that a member employs, a member must disclose in each research report the percentage of all securities rated by the member to which the member would assign a "buy," "hold/neutral," or "sell" rating.
(B) In each research report, the member must disclose the percentage of subject companies within each of these three categories for whom the member has provided investment banking services within the previous twelve months.
(C) The information that is disclosed under paragraphs (h)(5)(A) and (h)(5)(B) must be current as of the end of the most recent calendar quarter (or the second most recent calendar quarter if the publication date is less than 15 calendar days after the most recent calendar quarter).

 

Pyramid Funds Corporation and James Thomas Biondo 
AWC/#E9B2005013001/July 2006

Biondo served as the firmís president and a member of the Board of Directors without registering as a principal by taking and passing the appropriate qualification examination. 

Pyramid Funds Corporation: Censured; Fined $10,000 (joint/several with Biondo)

James Thomas Biondo: Fined $10,000 (jt/several with Pyramid); Barred in principal/supervisory capacity 

Bill Singer's Comment: Please consider the following NASD Membership and Registration Rule:

1021. Registration Requirements
(a) All Principals Must Be Registered
All persons engaged or to be engaged in the investment banking or securities business of a member who are to function as principals shall be registered as such with NASD in the category of registration appropriate to the function to be performed as specified in Rule 1022. Before their registration can become effective, they shall pass a Qualification Examination for Principals appropriate to the category of registration as specified by the Board of Governors. A member shall not maintain a principal registration with NASD for any person 

(1) who is no longer active in the member's investment banking or securities business, 
(2) who is no longer functioning as a principal, or 
(3) where the sole purpose is to avoid the examination requirement prescribed in paragraph (c). A member shall not make application for the registration of any person as principal where there is no intent to employ such person in the member's investment banking or securities business. A member may, however, maintain or make application for the registration as a principal of a person who performs legal, compliance, internal audit, back-office operations, or similar responsibilities for the member or a person engaged in the investment banking or securities business of a foreign securities affiliate or subsidiary of the member.

(b) Definition of Principal
Persons associated with a member, enumerated in subparagraphs (1) through (5) hereafter, who are actively engaged in the management of the member's investment banking or securities business, including supervision, solicitation, conduct of business or the training of persons associated with a member for any of these functions are designated as principals. Such persons shall include:
(1) Sole Proprietors
(2) Officers
(3) Partners
(4) Managers of Offices of Supervisory Jurisdiction, and
(5) Directors of Corporations...

Leif Christian Strahan
AWC/#2005001461501/June 2006 

Strahan obtained authorization from a public customer to withdraw $750 from the customerís account to pay for legal and/or accounting advice he had recommended, and instead, without the customerís knowledge or consent, deposited the funds into his personal bank account and used the funds for his own benefit. 

Leif Christian Strahan: Barred

Bill Singer's Comment: Oh, my.  I could understand and forgive almost anything. But not paying for legal advice?  Heaven forbid!  Tsk. Tsk. Tsk.
Epko Anthony Steele
#ELI20040286-02/June 2006

Steele pled guilty to participating in a scheme to defraud mortgage lenders, in that he received $15,000 for assisting an impostor with obtaining a fraudulent mortgage when he knew that the impostor was not an authentic purchaser of the property.

Epko Anthony Steele: Barred

Bill Singer's Comment: I've noticed an increase in cases involving individuals needing false statements for their landlords, co-op/condo lenders.  See the Jalomo case. This may be an area worth monitoring.
Steven Lawrence Schlesinger (Principal)
AWC/#20050003239-02/June 2006 

Schlesinger purchased a municipal bond and engaged in a fraudulent and manipulative scheme in which he orchestrated prearranged non-bona fide sales and purchases of the bond by setting a same-day settlement when he sold the bond, and an extended settlement date when he repurchased the bond.  Schlesinger promised a profit to contra parties of the transactions and assured them they were exposed to no risk of loss, although he knew the prices he predicted did not reflect the actual market value of the bond. Schlesinger knew that the purchases and sales of the bond he arranged caused the publication and distribution of reports that were fictitious and in furtherance of his fraudulent, deceptive and manipulative purpose. Schlesinger made false and misleading statements under oath during an NASD interview.

Steven Lawrence Schlesinger: Barred

Young Hui Lee
AWC/#20050019366-01/June 2006 

Lee signed the customerís name to a policy change form after determining that the customer had signed the wrong form.

Young Hui Lee: Fined $5,000; Suspended 60 days in all capacities

William Joseph Julian 
#CLI20030464-01/ELI20030464-01/June 2006

Julian prepared a falsified account statement for a public customer that misrepresented the accountís net worth and securities positions for the purpose of misleading the customer as to the actual value of the investments. 

William Joseph Julian : Barred

Lisa Marie Jalomo (Principal)
#E062004037101/June 2006

Jalomo instructed an employee at her member firm to sign, on behalf of the firm, an incomplete Request for Verification of Deposit Form.  Jalomo completed the form with false information that overstated the value of her personal account with the firm, and transmitted the form to a mortgage broker in connection with her pending application for a home mortgage loan. 

Lisa Marie Jalomo: Barred

Bill Singer's Comment: I've noticed a number of these mortgage cases beginning to appear with increasing frequency.  Some industry folks don't think this has anything to do with "regulation/compliance" and apparently think they can do this stuff without any risk to their registrations.  Guess what?  They're wrong.  See the Steele case
Paul Howard Hughes 
AWC/#E3B20040207/June 2006

In his capacity as a trustee of a public customer trust, Hughes opened an account in the name of the trust, took loans for himself from the trust account, and as a result, the assets of the trust account were substantially depleted. In order to distribute the income or principal of the trust account to the customer, Hughes made quarterly distributions totaling $11,727.42 from the trust account to the customerís bank account without the customerís knowledge, authorization or consent, thereby making improper use of customer funds. Hughes drew checks totaling approximately $9,582 from the trust account to pay for personal expenses without the customerís knowledge, authorization or consent. During the same time period, Hughes deposited approximately $9,014.70 of his own funds into the trust account. Hughes thereby misused $9,014.70 in customer funds without the customerís knowledge, authorization or consent, and did not account for approximately $567.30 in customer funds, which Hughes thereby converted for his own use and benefit. Hughes affixed, or caused to be affixed, a customerís signature to letters purporting to authorize transfers totaling $5,858.16 from the customerís trust account to the customerís bank account without the customerís knowledge, authorization or consent.

Paul Howard Hughes : Barred

Bill Singer's Comment: As I noted earlier this year, we're seeing a number of these trustee cases.  See the TRUSTEES tab at the top of this page 
Kenneth Joseph Gilmore (Principal)
OS/#C9B20050022/E102003130805/June 2006

Gilmore violated an NASD suspension order by engaging in securities activities during his suspension. He attempted to conceal his active role at the firm from NASD, therefore violating the suspension order. 

Kenneth Joseph Gilmore : Fined $40,000; Suspended 6 months in Principal/Supervisory Capacity; Required to sell his ownership interest in his firm within 6 months.

Bill Singer's Comment: This is the third case in June in which a suspended/disqualified individual is engaging in some securities industry activity --- all with dire results!
Johnny Phillip Figliolini, Jr. (Principal)
#E9B2003039303/June 2006

Figliolini permitted a statutory disqualified individual to be associated with an NASD member firm. 

Johnny Phillip Figliolini, Jr.: Barred.

Reyheena Maria Eidarous (Principal)
AWC/#20050011549-02/June 2006

While acting on behalf of her member firm, Eidarous conducted a securities business while failing to maintain the minimum net capital required by SEC Rule 15c3-1. 

Reyheena Maria Eidarous: Fined $15,000; Suspended 15 business days as a FINOP

Bill Singer's Comment: If anything 2006 is the year when FINOPs have started to come under regulatory fire and are being suspended.
Manuel Marcelo Corsino
#E012004022101/June 2006 

Corsino deliberately falsified the results of his Series 7 qualifications examination in an effort to mislead his firm about his qualifications to serve as a registered representative.

Manuel Marcelo Corsino: Barred

LaMarr Andrew Anthony 
AWC/#2005001868501)/June 2006

Anthony borrowed money from a public customer in violation of his member firmís written procedures and NASD rules. 

LaMarr Andrew Anthony : Fined $5,000; Suspended 10 business days in all capacities

Research Capital USA Inc.
AWC/#E112005001102/June 2006

The Firm failed 

  • to implement and enforce its Customer Identification Program, failed to establish an independent testing function to review and assess the adequacy of and level of compliance with its own anti-money laundering (AML) compliance program, and failed to conduct AML training;
  • (acting through an individual)  conduct required annual compliance meetings with each of its registered representatives, and failed to enforce its written supervisory procedure requiring their attendance; and
  • have a written needs analysis and a written training plan in order to achieve compliance with the Firm Element of the Continuing Education Rule.

Research Capital USA Inc. : Censured; Fined $20,000 ($5,000 of which joint/several with unnamed individual)

Centaurus Financial, Inc.
AWC/#E022004017602/June 2006

The Firm paid commissions to an individual in connection with public customer equity transactions during a time period in which the individual was suspended from associating with the firm. The Firm's supervisory system failed to provide for reasonable follow up and review to ensure that an individual would not receive compensation for customer equity transactions during his or her suspension. 

Centaurus Financial, Inc.: Censured; Fined $15,000

Bill Singer's Comment: Yet another case this year where commissions are being paid to ineligible parties. Here we have a particularly stupid situation where payments are being made to a suspended party.
Philadelphia Brokerage Corporation, Robert Albert Fisk (Principal), and Brinton Wesley Frith (Principal)
AWC/#E9A2003016102/June 2006

Acting through Frith, the Firm 

  • utilized the instrumentalities of interstate commerce, or the mails, to effect transactions in non-exempt securities when it failed to maintain the minimum required net capital;
  • prepared inaccurate month-end net capital computations and filed inaccurate quarterly Financial and Operational Combined Uniform Single (FOCUS) reports. 

The Firm, acting as a placement agent for the distribution of securities, deposited the funds it received from securities purchasers into a separate bank account it owned and controlled rather than handling the funds as required under the provisions of SEC Rule 15c2-4 applicable to the respective offerings. In one contingent offering, the firm released funds to the issuer before the amount required to satisfy the offering minimum had been received. 

Acting through Fisk, the Firm failed to establish and enforce written supervisory procedures reasonably designed to achieve compliance with applicable rules and regulatory requirements pertaining to the firmís participation in best efforts and contingent securities offerings.

Philadelphia Brokerage Corporation : Censured; Fined $15,000 (jointly/severally with Fisk); Fined $10,000 (jointly/severally with Frith)

Robert Albert Fisk (Principal) : Fined $15,000 (jointly/severally with Philadelphia Brokerage)

Brinton Wesley Frith (Principal) : Fined $10,000 (jointly/severally with Philadelphia Brokerage)

Bill Singer's Comment: Another in a growing line of "escrow" cases.  See the top of this page for a number of similar cases.
Bullaro Securities Corp.and Sal Stephen Bullaro (Principal)
AWC/#ELI20040026-01/June 2006

Firm permitted Bullaroóthe firmís president and sole executive officer, Chief Compliance Officer and Financial and Operations Principalóto conduct securities business while his securities registration was inactive due to his failure to timely satisfy the Continuing Education/Regulatory Element requirement. Acting through Bullaro, the Firm failed to include in its trial balances any of the firmís proprietary positions and related haircut charges associated with its substantial American Stock Exchange floor business that resulted in its net capital computations being inaccurate. 

Bullaro Securities Corp.: Censured; Fined $10,000 (joint/several with Bullaro)

Sal Stephen Bullaro (Principal):  Fined $10,000 (jt/sev with Bullaro Securities); Suspended 30 days in FINOP capacity

Bill Singer's Comment: Frankly, Bullaro got off relatively lightly with only a 30 day suspension.  Nonetheless, as if it still needs to be told, the Continuing Ed/Regulator Element must be timely satisfied and anyone who hasn't met the requirements should be immediately flagged and prohibited from engaging in the securities business until such time as compliance is obtained.  Yeah, there are always a few prima donnas who don't think they need to bother with this nonsense.  Show them this case to explain why this isn't a game.
Donner Corporation International nka National Capital Securities, Inc., Jeffrey Lyle Baclet (Principal), Paul Alan Runyon (Principal)and Vincent Michael Uberti (Principal)
#CAF020048/June 2006 NAC Decision
RESPONDENTS HAVE APPEALED NAC DECISION TO THE SEC

Baclet and Uberti 

  • issued research reports on reporting companies that failed to disclose material information and contained misleading, exaggerated and false statements, and
  • intentionally or recklessly failed to disclose material information on research reports issued to the public, and failed to disclose that the firm had received compensation for preparing and disseminating them. 

The Firm and Baclet failed to

  • obtain signed approval of research reports prior to their dissemination;
  • establish, maintain and enforce adequate written supervisory procedures reasonably designed to achieve compliance with applicable securities laws and NASD rules concerning research reports. 

Uberti and Runyon fraudulently failed to disclose material negative financial information, and included exaggerated and misleading information in their research reports. 

Donner Corporation International nka National Capital Securities, Inc : Expelled

Jeffrey Lyle Baclet (Principal): Barred 

Paul Alan Runyon (Principal): Fined $20,000; Suspended 6 months in all capacities; Requalify as General Securities Representative and General Securities Principal

Vincent Michael Uberti (Principal): Barred

Bill Singer's Comment: This case underscores the sensitivity of NASD to any research report that finds its way before the subject company prior to public dissemination.  If you are going to give a subject company a "free look" at your hand before it's played, you had best make sure that you've gone through all the punchlist items required under the research rules for this practice.  Pointedly, make sure that compliance and legal have signed off on the proposed viewing before anything leaves your premises.
Carl Edward Lindros (Principal)
AWC/#E022004004502/May 2006

Acting through Lindros, an unidentified member firm failed to properly escrow investor funds in accordance with SEC Rule 15c2-4.

Carl Edward Lindros : Censured; Fined $10,000

Kai Richardson Walker 
#2005000688601/May 2006

Walker changed the address of record on the account of the estate of a deceased public customer to an address under his control, and issued a debit card and checks to this new address. Using the fraudulently obtained debit card and checks, Walker made purchases totaling $9,689.11, thereby, converting the funds for his own use and benefit. Walker converted funds belonging to his member firm by depositing checks totaling $1,092.30 into his own personal account. Walker failed to respond to NASD requests for information. 

Kai Richardson Walker : Barred

Otto Keith Vaughan, Jr. 
OS/#E3A2003052101/May 2006

While acting as trustee for a trust, Vaughan purchased a condominium for himself using $75,000 that he borrowed from one of the trustís accounts, and did not disclose this loan to the trustís beneficiaries. Vaughan withdrew an additional $247,000 from the trustís bank accounts and used the funds to pay for personal expenses, and failed to keep any records or documents detailing such withdrawals. Vaughan failed to provide the beneficiaries with an account containing details of all disbursements from the trust assets, and kept no records detailing the amount of fees he paid to himself. 

Otto Keith Vaughan, Jr. : Ordered to pay $129,348 in restitution to public customers; Barred

Bill Singer's Comment:  For similar cases, see Regina Eades SFC/NYSE Hearing Panel 06-2/January 17, 2006  and Boston
Thomas Robert Van Tassel 
AWC/#E8A2004085001/May 2006

Van Taseel affixed a public customerís signature to a letter removing the customerís deceased husband from an account, and submitted the document even though Van Tasselís member firm had written supervisory procedures stating that registered representatives were not permitted to sign documents on behalf of clients, even if the clients instructed them to do so, as was the case in this instance. In spite of firm policy to the contrary, at the request of public customers, Van Tassel affixed their signatures on a Third Party Check Request form and an Authorization to Change form and submitted the documents to his member firm. Van Tassel affixed a public customerís signature at her request, and submitted the document to his member firm although the firmís supervisory procedures required that all client signatures be original. 

Thomas Robert Van Tassel : Fined $5,000; Suspended 60 days in all capacities

Bill Singer's Comment: See the Patel case below for my thoughts on this sanction.
David Joseph Sanducci (Principal) and Brian Che Featherstone 
OS/#CMS040165/2005000631101/May 2006

Acting individually and as members of a sales group, Sanducci and Featherstone participated in a fraudulent scheme to sell shares of a security to public customers, utilizing classic, boiler-room techniques to induce customers to purchase the security and to dissuade them from selling it. Sanducci and Featherstone used high-pressure sales pitches, material misrepresentations, omissions of fact and unauthorized transactions in customer accounts. They failed to provide customers with disclosures concerning the risks associated with investing in penny stocks. Sanducci provided false and misleading sworn testimony denying his role at the member firm. 

David Joseph Sanducci (Principal) and Brian Che Featherstone: Barred

Bill Singer's Comment: I've never quite understood how regulators know of "classic, boiler-room techniques" but just never seem to 1. keep those "classic boiler rooms" from opening, and 2. put such firms out of business until after they've raped and pillaged.  I guess a little knowledge isn't just dangerous but, at times, useless.  Of course, I wonder when the NASD and NYSE will recognize "classic, wirehouse techniques" and cite them as such --- you know, pushing recommendations that the head of research doesn't really think favorably about, issuing tainted research as a favor to new investment banking clients, giving preferential treatment to the big players to the detriment of the small fry.  Gee, I really could go on and on . . . but if you've read my thoughts on this dichotomy between larger and smaller BDs, you probably knew that.
Jonathan Charles Raney (Principal)
AWC/#20050013624-01/May 2006

Raney induced public customers who received rebate checks from his member firm to send checks payable to Raney, claiming he was owed 10% of the rebate for lost commissions, or that the funds were needed to pay for attorney fees incurred as a result of obtaining the rebates. Raney induced customers to send him checks by falsely claiming that fees were owed for compliance with the ďPrivacy Act,Ē the ďPatriot Act,Ē or that new annual fees were due for various administrative reasons. Finally, he made the claims knowing them to be false, cashed the checks, and converted $4,370 for his personal benefit. 

Jonathan Charles Raney : Barred

Sanjay Chatur Patel 
AWC/#E8A2004102001/May 2006

Patel completed and affixed public customersí signatures, with their knowledge and consents, on Financial Planning Services Agreements and Financial Planning Services Agreement Special Redemption Request forms, even though his member firmís written supervisory procedures stated that representatives should not sign clientsí names to any documentóeven pursuant to the clientsí request.

Sanjay Chatur Patel: Fined $5,000; Suspended 60 days in all capacities.

Bill Singer's Comment: A 60-day suspension in all capacities for signing customers' signatures WITH prior knowledge and conset?  Call me a softie but that suspension strikes me as excessive, if not overly punitive.  And before you jump all over me  --- yes, I fully comprehend that he violated his firm's WSPs and I certainly understand the potential liability for such action --- but, come on, he signed with the customers knowledge and consent.  This ain't no forgery case.  60 days is over the top. Also, see the Van Tassel case for similar facts.
John Henry Groth (Principal)
AWC/#E9A2004056101/May 2006

Acting through Groth, a member firm used the means or instrumentalities of interstate commerce or the mails to effect transactions in nonexempt securities while failing to maintain the minimum required net capital;and filed FOCUS reports that were materially inaccurate in that they failed to include amounts in the firmís liabilities relating to an outstanding loan balance with a bank. 

John Henry Groth: Fined $5,000 joint/several with unnamed individual/entity; Suspended 30 days in FINOP capacity

Bill Singer's Comment: The once-rare sanctioning of a FINOP is now more common.  See Drawbaugh and Galeotafiore for additional examples.
Kenneth Joseph Gilmore (Principal)
OS/#C9B20050022/E102003130805/May 2006 

Gilmore violated an NASD suspension order to not engage in securities activities during his suspension by performing work-related duties on the firmís premises, communicating with employees regarding work-related matters, providing instruction to the firmís employees, meeting with public customers and soliciting business from customers. Moreover, Gilmore attempted to conceal his active role at the firm from NASD in violation of the suspension order. 

Kenneth Joseph Gilmore: Fined $40,000; Suspended 6 months in all capacities; Barred in principal/supervisory capacity; Required to sell his ownership interest in his member firm within 6 months.

Bill Singer's Comment: Not sure I understand why Gilmore was only suspended for 6 months and not barred in all capacities.  First, he apparently was under a prior suspension.  Second, he violated that prior suspension. Third, he attempted to conceal his violation.  And the reason he wasn't barred was what?  Compare this to the Abney case and see if you can reconcile the two.  Is this a case of great lawyering or inconsistent sanctions?  

Michael Frank Dispenza
AWC/#E052004030201/May 2006 

Dispenza purchased municipal securities from public customers at prices that were not fair and reasonable, resulting in losses for the customers. Further, Dispenza accepted reimbursement for one of the losses from the brokerís broker for a portion of the price differential without his member firm knowledge or approval. 

Michael Frank Dispenza: Fined $5,000; Suspended 10 business days in all capacities

Bill Singer's Comment: If only NASD would learn that they are not supposed to be "teasing" the industry and the public with their descriptions of disciplinary cases.  Dispenza  raises a number of intriguing questions.  Did he know he was buying customer munis at below-market prices?  Did he orchestrate such purchases with the broker's broker, and the two of them then agreed to divvy up the excess profit?  I just wish the reported case gave us a bit more flesh on the bone.
Ron Davis
AWC/#20050004447-01/May 2006

Davis executed transfers totaling $65,000 from a public customerís investment account to bank accounts Davis and his wife owned and controlled, without the customerís knowledge, consent or authorization. Davis borrowed $102,500 from public customers in contravention of his firmís written procedures prohibiting registered persons from borrowing money from customers. Davis failed to respond to NASD requests for information. 

Ron Davis: Barred

Daniel Castro
AWC/#2005001982501)/May 2006

Castro withdrew and converted $47,000 from deceased public customersí accounts; and he then failed to respond to NASD requests for an on-the-record interview. 

Daniel Castro: Barred

Gregory Thomas Boston
#E8A2004107701/May 2006 

Boston served as a public customerís treasurer and financial representative and wrote checks totaling $23,000 payable to another individual and himself on the customerís account without the customerís authorization, thereby converting the funds for his own use. Boston failed to respond to NASD requests for information. 

Gregory Thomas Boston: Barred

Bill Singer's Comment:  For a similar case, see Regina Eades SFC/NYSE Hearing Panel 06-2/January 17, 2006
Imran Ahmad 
AWC/#20050000415-01/May 2006

Ahmad knowingly and intentionally entered small-lot orders through his own customer account into NASDAQís SuperMontage to sell (buy) NASDAQ securities to NASDAQ market makers at the inside bid (offer) when the market participant was quoting 100 shares at the NASDAQ Best Bid and Offer (QBBO) and received executions for the orders. Ahmad was aware that after his small-lot orders were executed, the relevant market makers utilized automatic quoting systems designed to keep a consistent spread between their bid and offer, and that this activity created a new QBBO with quotes more favorable to Ahmad, and resulted in more favorable executions of his orders.

Imran Ahmad: Fined $20,000; Required to pay $1,372 plus interest in restitution to market makers; Suspended 2 months in all capacities.

Maurice Wayne Abney (Principal)
AWC/#E8A2004089101/May 2006

While suspended in any capacity from NASD association with a member firm, Abney continued to solicit an individual to become a customer. Abney refused to appear at NASD and give testimony. 

Maurice Wayne Abney: Barred

Bill Singer's Comment: An easy rule of thumb is "what you can't do at the office, you can't do at home."  Sometimes the lore and law of Wall Street come into conflict, and this is a perfect example.  Some folks think that if they're suspended they can't solicit new clients at work but can do so at home.  The logic here is that you can't enter trades but can still try to build and maintain your Book.  Once again, just more water-cooler rubbish.  Also, see the Gilmore case.
S.W. Bach & Company
AWC/#ELI2003002601/May 2006

The Firm

  • failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, and NASD rules to detect and prevent excessive trading;
  • permitted an associated person to effect transactions in government securities on its behalf while not being properly registered with NASD;
  • permitted misleading advertisements and sales literature to be disseminated to the investing public by its former branch office;
  • permitted 
    • registered representatives to utilize a name that was not a bona fide division of the firm;and
    • the branch office to post a sign with the same name that incorrectly indicated that it was a division of the firm when, in fact, there was no bona fide business distinction to form the basis for the divisional classification; and
  • conducted a securities business while failing to maintain its minimum required net capital.

S.W. Bach & Company: Censured; Fined $40,000

Bill Singer's Comment: An interesting part of this case is the use of a "division" name by an RR and a Branch.  This is a fairly common misconception on Wall Street.  You cannot use fictitious or trade names without the NASD's express permission, and such may not be used in a manner to confuse the public.  I recently had a client who wanted me to sue XYZ, which he claimed was an NASD member firm.  When I checked the NASD's roster of firms, XYZ was not to be found.  Turns out that XYZ was a name created by a branch office of what is frequently referred to as a "franchise" BD. You just can't do that --- the public is confused into believing that XYZ is the NASD BD where funds/securities are held.
Desjardins Securities International, Inc. 
AWC/#E112004005401/May 2006

The Firm did not maintain and preserve all email and instant messaging communications, as required by SEC rule 17a-4. The Firm failed to complete an annual training needs analysis and to develop and implement its written training plan to achieve compliance with the Firm Element of the Continuing Education Rule. 

Desjardins Securities International, Inc.: Censured; Fined $130,000; Required to revise its procedures with respect to applicable securities laws and regulations, and NASD rules concerning the preservation of electronic communications. 

Franklin Ross, Inc. and Mark Gerald Ross, Jr. (Principal)
AWC/#E072004001501/May 2006 

Acting through Ross, the Firm failed to disclose material facts in a private placement memorandum (PPM) to investors. 

Franklin Ross, Inc.: Censured; Fined $20,000 (joint/several with Ross); Suspended from from engaging in any offering of securities on behalf of the firm or any of its affiliates for one year

Mark Gerald Ross, Jr.:  Fined $20,000 (joint/several with Franklin Ross, Inc); Suspended 10 business days in principal capacities.

Bill Singer's Comment:  An interesting sanction.  The Firm is suspended from offerings for one year.  We're seeing the development of this type of suspension during the past two years and I suspect it will continue to evolve.  See Hennion & Walsh, Inc., William Walter Walsh (Principal) and Richard Hennion (Principal) AWC/E9B02004201/September 2005 for a similar sanction.
RichMark Capital Corporation
#CMS040048/May 2006

RichMark Capital Corp. 

  • manipulated the market and the price of a common stock by permitting a registered representative to buy and sell shares of the stock in his personal accounts to mislead the investing public and market participants, and to give the false appearance of market interest in the stock at the arbitrary price created;
  • made unsuitable recommendations and intentionally or recklessly made material misrepresentations and omissions to public customers in connection with the securities sale;
  • permitted an unregistered person to associate with the firm and to trade the firmís proprietary account, and prior to letting the person engage in securities business, failed to determine that he had a significant disciplinary history and was subject to statutory disqualification; and
  • failed to 
    • establish an adequate supervisory system, 
    • establish and implement adequate written supervisory procedures, and 
    • enforce written supervisory procedures that would comply with securities laws and regulations to prevent the manipulation, unsuitable recommendations and registration violations that occurred at the firm

RichMark Capital Corporation: Expelled

Bill Singer's Comment:  Certainly a significant sanction.  It's oddly comforting when one has been on Wall Street long enough to see the same old games being recycled.  Here we see an old unsavory friend --- painting the tape.  Nothing like adding phantom volume to give the appearance of more activity than would otherwise exist under bona fide circumstances.  What's a bit disappointing is the lack of imagination.  Couldn't they come up with anything a bit more devious that using the personal account of an RR?  Of course, having an unregistered person trading your proprietary account isn't exactly a brilliant move either --- particularly when that person is statutorily disqualified.
Scott Frederick Takacs
#E3A2004032801/April 2006

Takacs prepared and submitted requests for reimbursements of business travel expenses that he had not incurred to his member firm, and accepted the funds knowing that he had not incurred them. Takacs failed to respond to NASD requests for information and to provide testimony. 

Scott Frederick Takacs: Barred

James Ronald Parker
AWC/#E0120040345-01/April 2006 

Parker distributed, or caused to be distributed, sales literature to public customers that did not conform to the applicable standards for communications with the public NASD requires. 

James Ronald Parker: No fine in light of financial status; Suspended 1 month in all capacities

Bill Singer's Comment:  Compare this case to the Capital Growth Financial and the MacDuff cases.  Clearly, NASD is looking for questionable sales literature. 
Richard Lawrence MacDuff 
OS/#2005000920402/April 2006 

MacDuff engaged in private securities transactions outside the regular course of his employment with a member firm, failed to provide prior notice to his firm describing in detail his proposed transactions and his role therein, and failed to receive written approval from his firm. Also, he prepared and distributed sales literature in the form of newsletters to public customers without the knowledge or consent of registered principals of his member firms, and some of these materials contained statements that were unwarranted and misleading, and failed to name the member firm with which he was associated, and failed to file the sales literature with NASDís Advertising Department. 

Richard Lawrence MacDuff: Barred

Bill Singer's Comment:  Compare this case to the Capital Growth Financial and Parker in which a PowerPoint presentation and non-conforming sales literature came under scrutiny.  It might be a timely move for Compliance Departments to remind their salesforce that you just can't prepare written materials and send them out to the public without prior approval from the BD.  In this age of word processing and laptops, it's so easy (if not tempting) for many RRs (well-intentioned and otherwise) to prepare their own marketing materials.  That also poses a challenge for Compliance officers to stay ahead of the curve.
William Hall Formy-Duval (Principal)
AWC/#E072004000301/April 2006

Formy-Duval 

  • allowed an individual to function as a registered person with his member firm without the benefit of registration, despite the fact that the individual was serving an NASD suspension;
  • failed to ensure that his member firm maintained its required minimum net capital;
  • caused his firm to prepare inaccurate net capital computations and to file inaccurate FOCUS reports;
  • failed to use a proper escrow account in connection with a securities offering;
  • failed to close the offering and return funds to customers at the offeringís expiration when the minimum contingency had not been met
  • failed to reasonably supervise his member firm and its representatives to prevent and detect sales practice violations; 
  • failed to enforce his firmís supervisory procedures; and
  • failed to establish and enforce an adequate supervisory system in that he failed to ensure that all covered employees attended annual compliance meetings, failed to ensure that the principal of the firm reviewed correspondence, advertising and sales literature, and failed to establish any written procedures for sales of private placements. 

William Hall Formy-Duval: Barred in principal/supervisory capacities; No monetary sanction in light of financial status

Bill Singer's Comment:  Wow --- an individual is under suspension and he's permitted to function in a registered capacity?  Not a smart move.  Also, note that this is yet another escrow case.
Michael Joseph Cassano
AWC/#20050004481-01/April 2006

Cassano borrowed $15,500 from public customers in contravention of his member firmís written procedures prohibiting registered representatives from borrowing money from customers. Cassano failed to respond to NASD requests for information. 

Michael Joseph Cassano: Barred

Christopher Wilson Black
OS/#CAF040084/April 2006

Black altered handwritten notes of meetings with a public customer to remove personal comments about the customer and to add information regarding conversations he claimed to have had with the customer about the customerís financial situation, holdings, margin and option strategies. Black placed the altered notes in the customerís file, subsequently provided the altered notes to his member firm during discovery in an arbitration hearing, and failed to timely notify his firm that the notes had been altered. 

Christopher Wilson Black: Fined $25,000; Suspended 1 year in all capacities

Bill Singer's Comment:  Frankly, I'm shocked by the fact that Black was given only a 1 year suspension.  I would have assumed that a Bar was in order.  Must have been either great lawyering or some mitigating facts that weren't disclosed.
Sammy Battista 
AWC/#20050022551-01/April 2006

In connection with a public customerís life insurance application, Battista requested that a co-worker impersonate the customer during a personal history interview his member firm conducted. Battista failed to respond to NASD requests for information.

Sammy Battista: Barred

Rance King Securities Corp. 
AWC/#E0220040124-01/April 2006

In connection with 

  • share transactions, Rance King Securities paid, or caused to be paid, $29,000 in commissions to real estate brokers who were not registered persons;
  • tenant-in-common transactions, paid, or caused to be paid, $294,000 in commissions to real estate brokers who were not registered persons. 

Rance King Securities: Censured; Fined $10,000

Bill Singer's Comment:  As I noted earlier this year, we are seeing an increase in NASD actions pertaining to the payment of fees/commissions to unregistered persons.  Frankly, I think much of the rationale against these practices is outdated and no longer recognizes the changed nature of Wall Street.  Nonetheless, any transaction-related payments to unregistered persons should be checked, reviewed, and scrutinized.
Integrity Trading, Inc. and Jeffrey Wade Hockanson (Principal)
AWC/#E3B2004001803/April 2006

Acting through Hockanson, the firm permitted associated persons to engage in the securities business of the firm while their registrations were inactive as a result of the firmís failure to timely submit appropriate and complete fingerprint cards to NASD. 

Firm and Individual Fined Integrity Trading, Inc. and Jeffrey Wade Hockanson (Principal): Censured; Fined $15,000 joint/several

Bill Singer's Comment:  I am not making light of the importance of submitting fingerprints, BUT --- still . . . $15,000 seems like a fairly high fine if the violation was not that the prints weren't submitted at all but merely not submitted "timely."  It's cases such as this one where you wish the NASD would provide just a bit more meaningful background: how many persons were involved, how long was the delay, etc.
Choice Investments, Inc, Donald Arthur Itzen (Principal), and Jean Paul Cruikshank 
AWC/#E062003053802/April 2006

Cruikshank recommended unsuitable investment transactions to a public customer and guaranteed the customer against losses, (to partially fulfill his guarantee, he gave the customer a $1,000 check drawn from his personal bank account). Also, he made unwarranted or misleading written claims, made predictions or projections of performance, and failed to provide a sound basis for evaluating facts regarding recommended investment products. 

Acting through Itzen, the firm failed to establish procedures reasonably designed to achieve compliance with applicable securities laws, regulations and NASD rules addressing how a supervisor conducts a suitability review of customer transactions. Itzen failed to supervise Cruikshankís securities recommendations to a public customer, and failed to enforce the firmís written supervisory procedures regarding the approval of new customer accounts

Choice Investments, Inc: Censured; Fined $10,000 joint/several with Itzen; Ordered to pay $9,048 plus interest joint/several with Cruikshank in restitution to public customer

Donald Arthur Itzen (Principal):Fined $10,000 joint/several with Choice; Suspended 10 days in principal/supervisory capacities

Jean Paul Cruikshank: Fined $15,000; Ordered to pay $9,048 plus interest joint/several with Choice in restitution to public customer; Suspended 1 year all capacities.

Bill Singer's Comment:  For some reason there has been a noticeable pick-up in guaranteeing-against-losses cases.  Might be interesting to keep an eye on this problem area.
Capital Growth Financial, LLC, Michael Barry Falken (Principal), and Michael Scott Jacobs (Principal)
AWC/#E072003099001/April 2006

Acting through Jacobs, Capital Growth Financial sold securities that were not registered with the SEC. In connection with the securities offering, the firm used general solicitation sales techniques and sold the securities to non-accredited investors, thereby eliminating the offering from any registration exemption. 

Acting through Falken, Capital Growth approved the use of letters and invitations to seminars to be sent to prospective clients of the firm that failed to disclose that the referenced securities were subject to a high degree of risk, failed to disclose risks specific to the securities, were misleading by being promissory of successful investment results, and otherwise made exaggerated, unwarranted or misleading statements. 

Jacobs prepared and approved a PowerPoint presentation that was misleading and inconsistent with the private placement memorandum, and made other statements concerning market conditions that were without a reasonable basis. Acting through Jacobs, Capital failed to establish, maintain and enforce an adequate supervisory system, including written procedures, reasonably designed to achieve compliance with applicable rules and regulations related to the sale of private offerings. 

Finally, the firm failed to establish anti-money laundering (AML) procedures reasonably designed to achieve compliance with the US Patriot Act and the Bank Secrecy Act. 

Capital Growth Financial, LLC: Censured: Fined $45,000 ($10,000 joint/several with Falken); Required to 

  • file all NASD Conduct Rule 2210(a) sales literature and advertisements with NASD (except for PowerPoint presentations used by the firm in public seminars) at least 10 days to their first use
  • provide a copy of its proposed PowerPoint presentations to NASD at least 30 days prior to conducting any such seminar, so as to allow NASD sufficient time to review and approve the proposed public communication; and

Agrees not to conduct any public seminar for 30 days from the date of acceptance of this AWC. 

Michael Barry Falken (Principal): Fined $10,000 joint/several with Capital Growth Financial; Suspended  10 business days in principal capacities  

Michael Scott Jacobs (Principal): Fined $10,000; Suspended 45 days in principal capacities  

Bill Singer's Comment:  Interesting case.  Among the more basic warnings lawyers give BD clients is to be careful not to compromise a private placement offering through general sales to the public (when such should be limited to accredited investors only) or by actual sales to non-accredited investors (hence the use of pre-qualification questionnaires).  Obviously, there was something went terribly awry here.  Also, we see an interesting problem caused by the prevalence of new software --- here, the popular PowerPoint.  When you have a formal offering document, such as a private placement memorandum, be careful that you are not inadvertently modifying or altering representations in the offering document.  In this case, it appears that "slides" on the PowerPoint may well have contradicted some express statements in the PPM.  

The NASD sanctions in this case are interesting in that they are somewhat tailored to the unique nature of the violation.  Not only must the firm submit all sales lit and ads to NASD at least 10 days before their use, but their is a specific embargo of 30 days on the use of PowerPoint presentations.  Note that the requirement is to "file" all Rule 2210(a) materials (which apparently doesn't require waiting for the Staff to approve) but the PowerPoint sanction imposes an obligation to allow NASD time to "review and approve."  Also note that the firm cannot conduct any public seminar for 30 days after the acceptance of the AWC.

James Geoffrey Morris 
AWC/#E1020020590-01/March 2006 

Morris prepared and submitted research reports containing price targets, research ratings and/or research summaries to companies whose equity securities were the subjects of the respective research reports, before publication of the reports and without providing complete drafts of them to his member firm. Morris published research reports he had prepared and that did not disclose the valuation methods used to determine price targets contained within.  

James Geoffrey Morris: Censured: Fined $15,000

Carl Van der Merwe (Principal)
AWC/#EAF0301180001/March 2006

Merwe created false and inaccurate books and records by falsifying expense reports reflecting $96,000 in personal and duplicate expenditures as legitimate business expenditures, and provided violative gifts and gratuities to municipal bond traders and other employees of municipal securities broker-dealer firms with whom he conducted business. 

Carl Van der Merwe: Barred

Anthony Peter Valois (Principal)
AWC/#E062003011905/March 2006

Valois failed to reasonably supervise registered representativesí activities, and failed to enforce his member firmís written supervisory procedures regarding heightened representative supervision and the handling of customer complaints. 

Anthony Peter Valois: Fined $5,000; Barred in principal/supervisory capacity. Suspended 30 days in all capacities

Ronald Mark Sussman
AWC/#2005002635301/March 2006 

Sussman charged a personal expense to a business credit card his member firm had issued to him for business use only, and submitted a written request for reimbursement of the expense, representing it as business-related when he knew it was not. 

Ronald Mark Sussman: Barred

Ernie Preston Simmons, III
AWC/#2005002314501/March 2006 

While impersonating a public customer, he contacted an outside brokerage firm by telephone and requested the liquidation of the customerís account at such firm without the customerís authorization to do so. 

Ernie Preston Simmons, III: Barred

Michael Ray Scheurich
AWC/#2005000163501/March 2006 

Without informing his member firm, Scheurich settled a complaint directly with a public customer on the condition that the customer would retain Scheurich as the broker of record.  Scheurich guaranteed another public customer that her total account value would equal or exceed $50,000, and that he would credit any deficiencies to the account. 

Michael Ray Scheurich: Fined $7,500; Suspended 5 months in all capacities

Bill Singer's Comment:  Yet another failed effort to settle a customer complaint without disclosure to the BD.  It's nice to see an old friend: the "If you work with me, I'll guarantee you that I'll build your account back to at least $50,000 or make good any shortfall."  Ah . . . another brick in the lawyers-full-time-employment wall.
Pierre Samuel Rosa 
AWC/#2005001923301/March 2006

Rosa received $13,200 from a public customer for investment purposes, but did not invest the funds as agreed. Instead, he converted the funds for his own use and benefit. Subsequently, prompted by his member firmís investigation of the conversion, Rosa prepared a fictitious letter addressed to himself that the customer purportedly had sent to him regarding the customerís investment, forged the customerís signature and provided a copy to his member firm as if it was genuine. 

Pierre Samuel Rosa: Barred

Leonard Joseph Reiss 
AWC/#20050023200-01/March 2006

Reiss borrowed $10,000 from public customers in contravention of his member firmís written procedures prohibiting representatives from borrowing money from customers. 

Leonard Joseph Reiss: Fined $5,000; Suspended 30 business days in all capacities.

Raymond Jude Murphy (CRD #3278046, Registered Principal, Bloomfield, New Jersey) 
AWC/#20042000046-01/March 2006

Using his firm's proprietary trading account, Murphy knowingly and intentionally entered one-share orders through the NASDAQ National Market Execution System (NNMS) to market makers in NASDAQ securities at prices that he knew would receive an execution and improve, and were intended to improve each market makerís bid or offer in the subject security. 

Immediately after receiving executions on the one-share orders (which updated both the bid and offer), Murphy knowingly and intentionally entered larger orders on the other side of the market to buy and sell shares of securities in a firm proprietary trading account to receive a more favorably priced execution at the new inside bid or offer Murphy caused to be created. 

Raymond Jude Murphy: Fined $10,211.21 (includes $211.21 disgorgement); Ordered to pay member firm $1,526 plus interest in restitution; Suspended 3 months in all capacities; 

Murphy knew that these market makers utilized proprietary trading systems that automatically updated their inferior bids or offers if the market makers were quoting 100 shares with no reserve size and their quote was executed against a one-share order. 
Timothy Merril Martin 
OS/#E8A2004045402/C8A050023/March 2006

Although his member firm prohibited its representatives from borrowing or accepting funds from customers, Martin obtained $50,000 from a public customer for his own use and benefit . Martin deposited the $50,000 into the customerís checking account, prepared a $50,000 check drawn on the customerís account payable to Martinís wife, which the customer signed, deposited the check into a bank account in his wifeís name, and used the funds in the account for his benefitónot the customerís. Martin made a written entry in the customerís check register falsely identifying the $50,000 check as payable to a company and not his wife. Martin prepared and provided the customer with a promissory note to repay the $50,000, but failed to adhere to the noteís terms.

Timothy Merril Martin: Barred

Bill Singer's Comment: This one reminds me of a South Park episode in which gnomes are caught stealing underwear from sleeping folks' homes.  When asked "why," the chief gnome explained that he had a three-part strategy.  One, steal underwear.  Two, make money.  Problem was he just hadn't figured out step two.  The gnomes were working on that.  And for all you registered gnomes who borrow money from clients, lemme give you a hint about your step two:  You have to repay the funds secured by a promissory note.
Marc Alan Luxenberg
AWC/#2005002187801/March 2006 

Luxenberg altered a registered representativeís lapsed insurance license by changing the dates to falsely reflect proper state registration without the representativeís knowledge, authorization or consent. 

Marc Alan Luxenberg: Barred

Bill Singer's Comment:  You really have to wonder what some folks are thinking.  
Rena Logan
AWC/2005001788701/March 2006

Logan settled a complaint with a public customer by paying the customer $500 without her member firmís knowledge or approval.

Rena Logan: Fined $5,000; Suspended 2 months in all capacities

Bill Singer's Comment:  I'm beginning to notice a resurgence in these self-help settlement cases.  It might be a good time for Compliance Departments to send out an in-house memo reminding registered person that they cannot privately settle disputes with clients.  
Brett Aaron Jurica
#E3A2004031001/March 2006

Jurica repeatedly misused a public customerís funds, in that he transferred funds and securities proceeds from the customerís accounts to an account he controlled for his own use and benefit without the customerís knowledge, authorization or consent. Jurica willfully failed to provide written notification to his member firm that he opened securities accounts at other broker-dealers, and failed to advise the other broker-dealers of his association with his member firm. Finally, he failed to respond to NASD requests for information. 

Brett Aaron Jurica: Barred

Bill Singer's Comment:  Well, I guess this is one way to fund an account.  Certainly, a fine example of Wall Street's credo about using OPM (other people's money).
Louis Joseph Galeotafiore, Jr. (Principal)
AWC/#ELI20030464-03/March 2006

Acting through Galeotafiore, a Financial and Operations Principal (FINOP), his firm conducted a securities business when its net capital fell below the minimum amount required by SEC Rule 15c3-1; and also failed to prepare and file accurate FOCUS Reports. 

Louis Joseph Galeotafiore, Jr.: Fined $7,500; Suspended 10 business days as a FINOP

Bill Singer's Comment:  See Groth and Drawbaugh for additional examples.
Jatinder Dua
AWC/#2005002107001/March 2006

Dua forged a supervisorís signature on a letter containing an apology for providing false information, and sent it to a public customer without the supervisorís knowledge or authorization. Also,  Dua failed to respond to NASD requests for information.

Jatinder Dua: Barred

Frank Collins (Principal) 
AWC/#E0220030854-02/March 2006

Collins did not promptly perform his supervisory responsibilities, altered the dates of the firmís mutual fund exception reports and added inaccurate information to surveillance reports. Collins failed to disclose the alterations to the exception reports to his member firm and, as a result, caused the firm to provide NASD with inaccurate information.

Frank Collins: Barred

Bill Singer's Comment:  Some things I will never, ever understand.  I mean, geez, altering dates on an exception report?  Adding false data to a surveillance report?  Doesn't it seem obvious that there's going to be a reconciliation problem down the road?
Marco Alfonsi (Principal) 
AWC/#E072004010401/March 2006

Alfonsi failed to 

  • establish and maintain a supervisory system and written supervisory procedures for his member firm that were reasonably designed to achieve compliance with the applicable securities laws, regulations and NASD rules; 
  • establish a system to ensure that the firm maintained 
    • correspondence
    • internal communications, 
    • complete customer complaint files, and
    • customer new account information; 
  • ensure that the firm filed customer complaints in a timely manner under NASD Rule 3070; and 
  • ensure that Forms U5 were timely amended. 

Marco Alfonsi: Fined $25,000; Suspended 1 year in all principal capacities.

Bill Singer's Comment:  Individual supervisors and principals are no longer being given a free ride, as in days of yore.  Here we see a hefty 1 year suspension.  
Merrill Lynch, Pierce, Fenner & Smith, Inc.
AWC/#E062002029302/March 2006

The firm failed to reasonably and promptly respond to ďred flagsĒ raised by customer complaints, written communications and telephone conversations regarding possible use of discretion by a registered representative and failed to institute heightened supervisory procedures targeting possible use of discretion by the representative. 

Merrill Lynch: Censured; Fined $20,000

Freedom Investments, Inc. (CRD #37674, Edison, New Jersey) 
AWC/#E9B2004004401/March 2006

Freedom Investments failed to 

  • conduct an independent test of its AML program;
  • have written procedures to address the firmís obligation to provide prompt notification to NASD regarding changes to their AML contact information;
  • enforce its Suspicious Activity Reports (SARs) procedures, in that the firm rejected at least seven questionable transactions involving ACH deposit requests which were classified as ďfraudulentĒ on its internal books and records. The firm subsequently restricted and closed the accounts but never filed SARs for these transactions. 

Also, the firm improperly extended credit in violation of Reg. T, by failing to promptly cancel or liquidate the transactions in cash accounts where customers had used ACH (Automated Clearing House) deposits to pay for securities transactions, but their deposits failed to clear. 

Freedom Investments, Inc.: Censured; Fined $20,000

Certes Capital Securities, LLC, Dean Richard Hedeker (Principal), and James Patrick Kozak (Principal)
OS/#C8A050023/March 2006

Acting through Hedeker and Kozak, Certes Capital Securities, LLC 

  • permitted an individual to act in a capacity requiring registration when he was not registered;
  • allowed the individual to exert control and/or direct certain of its operations, including participating in employment-related decisions and coordinating the firmís private placement offerings;
  • failed to amend the firmís Form BD to disclose the individualís role there; and
  • failed to supervise the associated unregistered individual. 

Also, the respondents engaged in violations in connection with two private placements by not properly escrowing funds and prematurely releasing funds before the minimums were met. 

Certes Capital Securities, LLC, Dean Richard Hedeker (Principal), and James Patrick Kozak (Principal): Censured: Fined $40,000 joint/several

Bill Singer's Comment:  As noted in previous comments, the NASD has certainly put escrow compliance on its punchlist.
First Securities USA, Inc. and Stanley Clifton Brooks (Principal) 
AWC/#E0220030046-02/March 2006

Acting through Brooks, the firm violated the supervision rule by failing to commence and complete compliance inspections that were undertakings in the firmís membership agreement. 

First Securities USA: Censured; Fined $60,000 joint/several with Brooks

Stanley Clifton Brooks:Fined $60,000 joint/several with First Securities; Suspended 2 years in supervisory capacity

Bill Singer's Comment:  The explanation here is a bit obtuse --- presumably, First Securities had some unique inspection obligations that were embedded in its Membership Agreement and apparently above and beyond the requirements imposed under the NASD's rules.  But that the NASD would have clarified what was required and what was not complied with, but, hey, why not make regulation fun?  Guessing games are becoming the norm in deciphering these disciplinary reports.  Nonetheless, there is a lesson here.  Make sure to familiarize yourself with your firm's Membership Agreement, which may include some unique obligations.  If you're a new compliance officer, don't assume that your firm's Agreement is run of the mill --- if you do, you could be in for a very unpleasant surprise.
Frederick E. Graboyes (Principal) 
AWC/#E9B2004027203/February 2006

In connection with securities transaction referrals, Graboyes paid an unregistered person $12,700 in commissions. 

Frederick E. Graboyes: Censured; Fined $10,000

Bill Singer's Comment:  I've noticed an increase in these improper payments cases (finder's fees and referral fees), but really wish the NASD would publish a comprehensive Notice to Members that fully details and explains what you can pay and to whom.  See the Brookstreet case for a similar issue.
Scott Martin Zimmerman (Principal)
AWC/#2005000880301/February 2006

Zimmerman knowingly or recklessly prepared and disseminated misleading offering materials, monthly statements and newsletters to investors in that he made exaggerated, unwarranted and/or misleading statements concerning, among other things, the performance of a private limited partnership compared to the S&P 500, the accuracy of market predictions, the purchasing of insiders compared to sales, the effectiveness and understanding of trading strategies, and indicators of market peaks. Finally, Zimmerman failed to fully testify at an NASD on-the-record interview. 

Scott Martin Zimmerman; Barred

Bill Singer's Comment:  Sorry, but NASD really must do a better job explaining its violations.  I simply don't understand what it means that someone "failed to fully testify."  Does that mean he didn't answer questions truthfully?  If so, then say that.  Does it mean that he was evasive and non-responsive.  Then, say that.  But if a witness is asked a question and doesn't answer to the satisfaction of the Examiner, then the Examiner should continue to ask additional questions to elicit the sought information.  If the witness refuses to answer --- then that's a "failure to cooperate" or a "failure to answer."  I just don't understand the exact nature of a failure to "fully testify."
Doyle Mark White
OS/#CMS040048/February 2006

White manipulated the market for, and the price of, a companyís common stock. He engaged in a series of wash trades in the companyís stock at arbitrary and artificial prices, which were misleading to the investing public and market participants in that they gave the false appearance of market interest in the stock at the arbitrary prices White had created. White permitted an unregistered person to associate with a member firm. Also, White failed to notify member firms of his association with his member firm and failed to notify his member firm of his accounts at other member firms. Finally, he failed to update his Form U4 with material facts. 

Doyle Mark White: Barred

Jason XXXXX (Principal) [name deleted at the discretion of RRBDLAW.com]
AWC/#2005001031101/February 2006

XXXXX borrowed money from public customers without first obtaining his member firmís written approval. 

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

Bill Singer's Comment:  Seems that "borrowing money" has become a growth-industry violation for NASD.  See Bailey, Conte, Hanke, and Lurry for similar violations.
Kenneth Robert Rowlett (Principal) 
OS/#C3B050003/February 2006

Rowlett affixed, or caused to be affixed, the signatures of public customers on a mutual release that he delivered to attorneys representing his former member firm in defense of an arbitration claim brought by the customers. 

Kenneth Robert Rowlett: Barred

Bill Singer's Comment:  It would have been interesting to know whether the public customers had agreed to the settlement/release --- and Rowlett foolishly affixed their signatures; or,k whether he merely forged their assent.  Regardless, a forged release isn't really worth much.  Of course, commonsense isn't necessarily a prerequisite to engaging in a regulatory violation.
Gordon Scott Lurry
AWC/#2005001829701/February 2006

Lurry received a loan from a public customer and did not obtain his member firmís written approval to borrow the customerís funds. 

Gordon Scott Lurry: Fined $5,000; Suspended 10 business days in all capacities

Vincent Alan Krey (Principal) 
AWC/#E8A20040386801/February 2006

Krey affixed a public customerís signature on a change of broker-dealer authorization Form without the customerís knowledge or consent.

Vincent Alan Krey: Fined $5,000; Suspended 1 year all capacities

Stephen Craig Hanke
AWC/#2005003475901/February 2006

Hanke borrowed funds from a public customer without obtaining his member firmís written pre-approval. 

Stephen Craig Hanke: Suspended 20 business days in all capacities; no fine in light of financial status

Thomas Edwards Grimm
AWC/#2005001069901/February 2006

Grimm altered the date on a previously signed automated customer account transfer (ACAT) form in order to effect a transfer of a public customerís account from his former employing firm to his new employing firm without the customerís authorization. 

Thomas Edwards Grimm: Fined $5,000; Suspended 60 days in all capacities

Bill Singer's Comment:  Yeah, yeah, yeah -- I know.  It's wrong to alter dates on any forms.  Nonetheless, what irritates me with this case is that Broker-Dealers frequently engage in all sorts of nonsense to "jam up" account transfers or to inhibit departing RRs from transferring accounts, and I really can't recall any regulatory cases against those practices.  Seems to me that management and labor should be treated the same.
Gregory Gassoso
OS/#C10050048/E102003059702/February 2006

Gassoso effected unauthorized transactions in public customersí accounts without their prior knowledge, authorization or consent. Gassoso failed to forward incoming and outgoing electronic correspondence for his member firmís review that prevented his firm from discharging its supervisory obligation. 

Gregory Gassoso: Fined $6,000; Suspended 30 days in all capacities

Joyce Lynn English
#C8A040091/February 2006

English was in possession of unauthorized materials and cheated during a qualifications examination, which violated Registration Rule 1080 and Conduct Rule 2110. 

Joyce Lynn EnglishL Barred

Daryl Irvin Drawbaugh (Principal) 
AWC/#E0220040193-01/February 2006

Drawbaugh failed to make and keep accurate financial records. On behalf of his member firm, utilized instrumentalities of interstate commerce to engage in a securities business while failing to maintain the required minimum net capital. Drawbaugh submitted FOCUS reports on behalf of his firm, which contained materially inaccurate net capital computations. 

Daryl Irvin Drawbaugh: Fined $5,000; Barred in FINOP capacity

Bill Singer's Comment:  See Groth and Galeotafiore for additional FINOP sanctions
Frank Joseph Conte
AWC/#2005001426601/February 2006

Conte borrowed funds from a public customer without providing notification of such borrowing to his member firm. He failed to respond to NASD requests for information or to appear for testimony. 

Frank Joseph Conte: Barred

Richard Dean Carter 
AWC/#E8A2004064504/February 2006

Carter circumvented a heightened supervision plan by falsely representing that other registered representatives were the representatives on public customer accounts, when, in fact, Carter was the representative on the accounts and the one effecting the trades. 

Richard Dean Carter: Barred

Bill Singer's Comment:  So let's see.  Someone who is subject to heightened supervision tries to circumvent that supervision by putting his trades through other RRs.  Gee, now that's something no one ever thought about before.  Yeah, right.  Not surprised to see a Bar here.
Wave Securities, LLC
AWC/#20041000038-01/February 2006

Wave Securities LLC did not make and annotate an affirmation determination prior to accepting customer short sale orders; it relied upon a document that did not meet the requirements that any hard to borrow list include securities that are restricted pursuant to Uniform Practice Code Rule 11830, and the creator of the list attest in writing that the NNM or listed security not on the list is easy to borrow or available for borrowing; and the firm did not limit its use of the list to NNM and listed securities. 

The firm incorrectly classified a hedge fund customer account as a broker-dealer account, and accepted short sale orders from the hedge fund customer and failed to make/annotate an affirmative determination. In addition, the firmís supervisory system did not provide for supervision reasonably designed to achieve compliance with respect to marking customer order tickets, bid test, prompt receipt and delivery of securities and ACT reporting. 

Wave Securities, LLC: Censured; Fined $125,000; Required equired to revise its written supervisory procedures with respect to applicable securities laws and regulations concerning marking customer order tickets, bid test, prompt receipt and delivery of securities and ACT reporting.

Southwest Texas Capital, LLC 
AWC/E062005004201/February 2006

Acting through an unnamed individual, Southwest Texas Capital conducted a securities business while failing to maintain its required minimum net capital. The firm failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with applicable securities laws and regulations and with NASD rules. Specifically, the firm's procedures stated that the firm and its associated persons could take possession of and promptly forward customer funds and securities, when in fact, based on its net capital requirement, the firm could not take possession of customer funds or securities, not even to forward the funds or securities to the firm's clearing firm on the same business day. 

Southwest Texas Capital, LLC: Fined $10,000 ($5,000 of which is joint/several with unnamed individual)

Bill Singer's Comment:  This is an age-old problem.  Introducing firms are generally not permitted to hold or receive customer funds/securities, and if they do so, that produces a cascade effect, which, among other things, can raise your Net Capital requirement.  Hence, you often find a seemingly minor problem mushrooms into a larger one.
Sky Capital LLC (CRD #114657, New York, New York) 
AWC/E1020030479-02/February 2006

Sky Capital LLC acted as a placement agent in private placement offerings involving minimum-maximum contingencies, and was not included as a party in any written agreement with a bank under which the bank agreed to hold all money or other consideration received in escrow for the persons who had the beneficial interests therein, and to transmit or return such funds directly to the persons entitled thereto when the appropriate event or contingency had occurred. The firm permitted an individual to act in a capacity that required registration while his NASD registration status was inactive due to his failure to complete the Regulatory Element of NASDís Continuing Education Requirement. 

Sky Capital LLC: Censured; Fined $15,000

Bisys Fund Services Limited Partnership 
AWC/E112004043501/February 2006

Bisys' written supervisory procedures were not reasonably designed to ensure compliance with email retention requirements in that they did not provide for adequate follow-up and review to ensure that hard copies of all email communications were being retained. 

Bisys Fund Services Limited Partnership: Censured; Fined $50,000; Required to revise its email communication preservation procedures. NOTE: In determining the fine, the NASD took into account the "demonstrable corrective actions undertaken by the firm before the staff commenced its examination).

Bill Singer's Comment:  Email retention is certainly a focus of regulatory examinations these days.  Note that the NASD gave the firm some "credit" for correcting the problems before the examination.  Of course, I would wonder why a sanction would even be necessary under those circumstances if the firm uncovered a problem and fixed it on its own.  Seems to me you would want to encourage that conduct rather than sanction it.  
D.E. Wine Investments, Inc. and Robert Anthony Yrshus (Principal) 
AWC/E062005005901/February 2006

Acting through Yrshus, D.E. Wine Investments, Inc. failed to 

  • deposit customer funds received in connection with a network offering into a bank escrow account as required by SEC Rule 15c2-4; and
  • terminate the offering and return investor funds when the minimum offering amount was not obtained. 

Acting through an unnamed individual, D.E. Wine Investments, Inc. failed to 

  • terminate another offering and return investor funds after failing to raise the minimum offering amount during the offering period; and 
  • make any computations or deposits into a special reserve bank account for the exclusive benefit of the offeringís customers. 

Also, the firm filed inaccurate FOCUS reports, and (acting through Yrshus) conducted a securities business while failing to maintain its required minimum net capital

D.E. Wine Investments, Inc: Censured; Fined $20,000 ($15,000 of which joint/several with Robert Yrshus and $5,000 of which is joint/several with unnamed individual)

Robert Anthony Yrshus: Censured; Fined $15,000 joint/several with D.E. Wine Investments, Inc.

Bill Singer's Comment:  Yet another escrow case.  See Gunnar and American Eastern  for further examples.
American Eastern Securities, Inc. and Charles Trangchong Hung (Principal) 
AWC/E0220040041-02/February 2006

American Eastern Securities engaged in securities business while failing to have and maintain sufficient net capital. 

Acting under Hungís direction and control, the American Eastern participated in a contingency securities offering issued by a company, which it intended to operate as a hedge fund. The firm did not transmit investor funds it raised in the offering to an unaffiliated bank to hold in escrow for the investors until the contingency occurred. Further, the firm solicited investments in the contingency offering through the use of a private placement memorandum, which represented the offering would not be funded unless a minimum dollar amount was received by the specified date --- but, when the contingency deadline was not met, it was not extended and the investorsí funds were not returned. The release of investor funds to the control of issuer before the contingency was satisfied rendered the foregoing representations in the private placement memorandum false and misleading. 

American Eastern Securities, Inc.: Censured; Fined $15,000 jointly/severally with Hung; Fined an additional $5,000

Charles Trangchong Hung: Censured; Fined $15,000 jointly/severally with American Eastern Sec. Inc.

Bill Singer's Comment:  We're seeing a marked increase in "escrow" account violations and in failed contingencies.  As I've been warning, with Wall Street back in deal mode, a lot of folks likely forgot some of the punchlist items they need to check when doing private placements/IPOs.  See the Gunnar case for another example.
Tejas Securities Group, Inc. and Arnold Reed Durant (Principal)
AWC/E062004010901/February 2006

Acting through Durant, Tejas 

  • provided a copy of a research report to an issuer without redacting all necessary information, including analystís opinions, estimates and other nonfactual information; and
  • allowed an analyst to purchase warrants, at a discount, from an issuer Durant covered within two days following the issuance of a research report on that issuer 

Acting through Durant, Tejas failed to 

  • disclose its ratings distribution and the meaning of those ratings on research reports; 
  • include a required price chart on research reports; 
  • disclose the receipt of investment banking compensation on a research report; 
  • disclose its market making status on research reports; 
  • ensure that research reports contained analyst certifications;
  • ensure that all principals were appropriately registered;
  • establish a system to maintain and preserve all emails;
  • maintain emails, and failed to implement a system to monitor, archive and retrieve instant messages;
  • evidence email reviews, and failed to provide notification of retention of electronic correspondence by means of electronic storage media; and
  • maintain records evidencing that the firm prepared a written needs analysis and training plan for the firm element of the continuing education program. 

In addition, Tejas failed to 

  • report corporate bond trades through TRACE
  • accurately report the execution time and/or quantity or price; 
  • timestamp municipal trade order tickets with the receipt time, entry and execution; and
  • maintain municipal trade order tickets; and failed to reflect all required information on order tickets. 

Tejas Securities Group, Inc.: Censured; Fined $225,000

Arnold Reed Durant: Fined $10,000; Barred in principal/supervisory capacities

Bill Singer's Comment:  Note that the Principal was Barred in principal/supervisory capacities --- a sanction that I suspect will become more common.  The breadth of violations here is awesome.  In addition to the research violations, note the emails and instant messaging charges.  
Brookstreet Securities Corporation  and Stanley Clifton Brooks (Principal)
AWC/#E0220030154-02/February 2006

Acting through Brooks, Brookstreet failed to establish, maintain and enforce a system of supervisory control policies and procedures reasonably designed to prevent the firm from issuing payments to non-registered recruiters. 

Brookstreet Sec. Corp and Stanley Clifton Brooks: Censured; Fined $25,000 jointly and severally

Bill Singer's Comment:  This is a perfect example of what the NASD does that infuriates me.  Here, the SRO has censured and imposed a $25,000 fine (a fairly sizable sanction) for payments to "non-registered" recruiters.  I am not aware that a recruiter needs to be registered with the NASD.  I doubt that most of the folks who place all those "Wall Street" employment ads are registered --- clearly, they are not.  More pointedly, I am not aware of any prohibition against paying a non-transaction related fee to a recruiter. Ahh!!!! Could it be that that's what the regulator meant to say?  Did Brookstreet pay transaction-related fees (for example, X% of commissions or $X per trade)?  Ultimately, what's the point of investigating alleged misconduct and of bringing charges and of publishing decisions if you're not educating the industry as to what's wrong and why?  If I were being cynical, I'd say that such regulation exposes the main motivation for such enforcement activity --- to generate income for a regulatory.  But, of course, I'm just not a cynical person.  And this decision clearly details the precise violation and fully explains what happened. Yeah.  Right.
Aura Financial Services, Inc., Leonard Peter Farber, (Principal), and Timothy Michael Gautney (Principal)
OS/#CLI20050014/ELI2003020802/February 2006

Farber failed to supervise a registered representative. Acting through Gautney, Aura Financial Services, Inc. failed to establish, maintain and enforce a system to supervise registered representativesí activities that was reasonably designed to achieve compliance with applicable securities laws and regulations, and NASD rules. 

Aura Financial Services, Inc.: Censured; Fined $15,000 (jointly and severally with Gautney)

Leonard Peter Farber, (Principal): Fined $7,500; Suspended 20 business days in principal capacity

Timothy Michael Gautney (Principal): Fined $15,000 (jointly and severally with Aura Financial); Suspended 5 business days in principal capacity

Roy Clifton Zentz (Principal)
AWC/EAF0300770002/January 2006

Zenta exercised discretionary power in a public customerís account without customersí prior written authorization, or without written acceptance approval from his member firm. Also, he failed to reasonably supervise registered representatives with respect to discretionary trading.

Roy Clifton Zentz: Censured; Fined $10,000; Required to cooperate with NASD in any further investigation and hearing relating to his former member firm and/or any current or former registered or associated persons of the firm, including but not limited to, meeting with and being interviewed by NASD, without the need of NASD to resort to Rule 8210, and testifying at any hearing. 

Bill Singer's Comment:  A fascinating case on a number of levels.  First, we seem to have the target-of-choice for 2006: The Producing Manager/Supervisor.  Just take a look at NASD Rule 3012 for an idea as to how fond the SRO is of producers engaged in supervision.  Second, the sanction is intriguing.  I first flagged this "required to cooperate" trend at the NYSE in May of 2005 (see the Weiner, McDonald, and Zellers cases at this link .  It seems clear that this is an arrow in the SROs' quivers that they intend to use more frequently.  I'm curious to see how the ability of NASD to "force" someone to cooperate without having to "resort to Rule 8210" will play out (Rule 8210 requires the production of documents and inforrmation, and general cooperation during investigations).  Also see the September 2006 Hull case.
Joseph T. Tancredi (Associated Person)
AWC/2005002203801/January 2006

Tancredi took the NASD Series 7 examination and received a failing grade, then altered the proctorís report to reflect that he had received a higher score than the one he had actually received. Tancredi presented the altered report to his member firm. 

Joseph T. Tancredi: Fined $5,000; Suspended 6 weeks in all capacities

Bill Singer's Comment:  We had so many of these cases in 2005 that I wrote an article about them for Registered Rep. Magazine . You can read that article by linking to it at 
Harrichand Persaud 
AWC/20050000350-01/January 2006

Persaud received simultaneous buy and sell instructions from companies that instructed him to sell a total of two million shares for one company and purchase two million shares at $0.05 a share above the initial transaction price for the other. He was also instructed not to cross the trades between the two accounts. Persaud offered an individual at another company an opportunity to purchase shares with the understanding that the individual would be able to sell those shares almost immediately at $0.05 a share above his purchase price. The transaction was executed as planned and the unnamed individual realized approximately $100,000 in profits.

Harrichand Persaud: Censured; Fined $50,000 (includes $1,600 disgorgement of commissions); Suspended 2 months in all capacities

Bill Singer's Comment:  This one puzzles me.  Persaud engages in what NASD seems to imply is a deceptive scheme.  At a minimum this would appear to operate as a fraud on the market and would give the false appearance of bona fide activity.  Looks as if Persaud "interpositioned" the third-party individual between the selling company and the buying company, and that individual got about $100,000.  So let me see if I have this straight . . . you enter into a scheme to sell 2 million shares and to then buy them back pursuant to an improper pre-arranged transaction, you earn $1,600 in commission, and the third party who's working with you nets about $100,000 --- and that only gets you a 2 month suspension? My guess is that Persaud hired one hell of a lawyer (and, no, it wasn't me).
Anil Parbhubhai Kumar
AWC/2005001269401/January 2006

Kumar received $30,000 in gifts and gratuities for his efforts in facilitating the conversion of funds held by his member firm in its related suspense accounts to be improperly diverted to outside parties. He also failed to respond to NASD requests for documents and information. 

Anil Parbhubhai Kumar: Barred

Joseph Paul Guasconi 
OS/E9B2004037702/January 2006

Guasconi provided false information concerning a customerís brokerage account to another financial institution. 

Joseph Paul Guasconi: Fined $10,000; Suspended 7 months in all capacities

Bill Singer's Comment:  If you check RRBDLAW.com's many years of regulatory reports, you will see a number of cases where RRs are sanctioned for falsely representing all sorts of things about clients: account values, real estate holdings, employment status, and so on.  I'm sure that many of these misrepresentations were motivated by what seemed to be noble, if not savvy, motives.  Help out a friend.  Get in good with a client.  Alas, the road to Hell is paved with good intentions.  Moreover, with all the focus today on deceptive practices involving banking/brokerage accounts, there isn't much to be said in favor of a little white lie as a means of client development.
Christina Wood Goodridge
AWC/E012004033902/January 2006

When an investment Goodridge had recommended became insolvent and stopped making payments of quarterly dividends, she began making deposits of her own money into a public customerís bank account on a quarterly basis (without the customer's and her member firmís knowledge). Goodridgeís actions prevented the customer from discovering that the preferred stock was worthless and potentially complaining to her firm --- and also precluded a timely analysis of whether her initial recommendation was suitable for the customer. 

Christina Wood Goodridge: Fined $5,000; Suspended 15 business days in all capacities

Bill Singer's Comment:  These cases are always tough because you somewhat sympathize with the RR's actions.  Your initial impression is that the RR is trying to do the right thing.  However, more often than not, the broker is simply trying to buy time --- hoping to trade out of the problem or come up with some "believable" explanation.  The sad thing with many of these cases is that the broker is always to blame; sometimes the stock just goes South.  Not every recommendation is a home run.  More to the point, if it's just a case of a suitable trade not working out, there's no violation.  For the NASD to impose such a modest fine and suspension, you have to believe that there were extenuating circumstances here and the regulator showed some leniency.  I don't see that often, and when I do I like to point it out --- nice to see that NASD doesn't always strain its mercy.
Roger Martin Faulring (Registered Supervisor) 
AWC/E9B2004025801/January 2006

Faulring failed to take appropriate action to supervise a registered representative that was reasonably designed to prevent his violations and achieve compliance with applicable securities rules, regulations and NASD rules. 

Roger Martin Faulring: Fined $10,000; Suspended 6 months in principal/supervisory capacity; Requalify by examination as principal/supervisor.

Bill Singer's Comment:  Well, I may as well get my gripes in early --- so this guy did something severe enough to warrant a five-figure fine and a six-month suspension, but NASD doesn't think it's important enough to explain to us what happened?  Of what use is this case to anyone?  Fine, great . . . make sure to always take "appropriate" action when you're supervising. Why?  Because if you fail to take "appropriate" action you could be fined $10,000 and suspended for six months.  Clear enough?
Stephen James Congdon
AWC/E8A2004075001/January 2006

While employed with a member firm, Congdon engaged in outside business activities, in that he received a check from a public customer for ďfinancial counsel servicesĒ without giving his firm prompt written notice of these outside business activities. 

Stephen James Congdon: Fined $5,000; Suspended 10 business days all capacities

Angel Chi (Associated Person) 
AWC/E3A2003052301/January 2006

Chi 

  • participated in private securities transactions for compensation, and failed to provide written notification or receive express written authority from her member firm;
  • failed to maintain documentation adequately evidencing how she invested $550,000 received from public customers for investment purposes, and commingled portions of these funds into a bank account under her control;
  • established brokerage accounts at two other broker-dealers, placed orders in a public customerís discretionary account at another broker-dealer, and failed to notify these broker-dealers in writing that she was associated with her member firm (and did not notify her member firm in writing of the existence of these accounts). 

Angel Chi: Barred

Jay Frederick Cheesman
AWC/2005000999801/January 2006

Cheesman sought and accepted reimbursement from his member firm for inaccurate business expense claims. 

Jay Frederick Cheesman: Barred

Kenneth Anton Carlson 
AWC/E8A2004085301/January 2006

Carlson affixed a public customerís signature to money orders purchased with Carlsonís personal funds without the customerís consent or authorization. 

Kenneth Anton Carlson: Fined $5,000; Suspended 60 days in all capacities.

Robert Anthony Bellia, Jr. (Principal) and James Robert Brown (Principal) 
AWC/ELI2002010504/January 2006

Brown charged excessive mark-ups and mark-downs in connection with transactions in a public customersí account. Bellia failed to adequately supervise Brown in that he knew or should have known of the excessive charges. 

Robert Anthony Bellia, Jr: Fined $5,000; Suspended 30 business days in principal capacity.

James Robert Brown: Fined $5,000; Suspended 20 business days in all capacities

Bill Singer's Comment:  This is definitely a trend to watch --- NASD is on the warpath over excessive charges/commissions, and is also scrutinizing the supervision of those responsible.  
Lawrence Bruce Bailey
AWC/2005002220501/January 2006

Bailye borrowed $3,000 from a public customer in violation of his member firmís written procedures prohibiting registered persons from borrowing money from customers. 

Lawrence Bruce Bailey: Fined $5,000; Suspended 20 business days in all capacities.

Keating Securities, LLC 
AWC/E3A20040024-01/January 2006

The Firm did not enforce its Customer Identification Program (CIP) in that 

  • the firm did not follow its CIP procedures, 
  • the CIP was not implemented with respect to customers who purchased interests in a private placement, and 
  • the CIP was not implemented with respect to a customer who participated in an income fund offering through the firm.

As to the private placement/fund customers noted above, prior to the establishment of their accounts, the Firm did not provide the required written notice that the firm is requesting information in order to verify identity. 

Also, the Firm's written AML program was not reasonably designed to report suspicious activity because the procedures referred to prospective reporting rules, and had not been updated upon effectiveness. Further, the Firmís written AML program was not reasonably designed to cause the firm to comply with its obligation to review and respond to requests for information from the Financial Crimes Enforcement Network (FinCEN). 

Finally, the Firmís customer account records did not include all of the information required by NASD and SEC books and records rules. 

Keating Secs,LLC: Censured; Fined $25,000

Bill Singer's Comment:  The CIP is viewed as an annoying pain by many, but --- like it or not --- it's on the books and must be complied with.  As such, don't make the mistake of thinking it's only applicable to stock sales; it includes private placements and fund purchases.  On the other hand, gimme a break . . . you cite a firm because it has WSPs that referenced rules that would be going into effect (but weren't)?  Yeah, I know, the violation wasn't that the WSPs anticipated the new rules; the violation was because someone failed to go into a word processor and delete "to be effective" and change it to "now in effect."  And that atrocious short-coming results in the entire AML program being deemed "not reasonably designed to report suspicious activity"?  The Examiner couldn't have simply asked the Firm to update the references?  This required a formal citation? Boy, that gives a whole new meaning to bureaucratic pettiness.
Joseph Gunnar & Co. L.L.C.
AWC/E102002034201/January 2006

In connection with a contingency private placement offering of securities, the Firm violated the escrow agreement in that amendments to the offerings were not compliant with  Rule 10b-9. When the minimum offering was reached pursuant to the amended offering documents, the funds were released from the escrow account to the issuer; however, the original escrow agreement had never been properly amended --- thus, pursuant to the escrow agreement in place, the funds were released early. 

The Firm amended the terms and conditions of a second offering to 

  • reduce the maximum from $2.3 million to $1.2 million (the minimum was $1 million), and 
  • extend the termination date from June 30 to July 19, 2002

However, the escrow agreement was not amended, so when the funds were disbursed to the issuer on July 23, 2002, in accordance with the terms of the amended offering, it was inconsistent with the terms of the escrow agreement, under which the funds should have been returned to the customers when the minimum had not been met by June 30. 

Also, the Firm failed to timely file or ensure the timely filing of amendments Forms U4 and U5 to report complaints received by the firm. In addition, while conducting a securities business, the firm failed to maintain the required minimum net capital required by SEC Rule 15c3-1. 

Joseph Gunnar & Co LLC: Censured; Fined $20,000

Bill Singer's Comment: Private Placements can be tricky and it's a good opportunity at the beginning of the new year to call your attention to a frequent source of aggravation.  Always keep in mind that these deals tend to have two basic documents:  1. The Offering Memorandum, and 2. The Escrow Agreement.  If you are amending the Offering Memo, make sure to read the Escrow Agreement, which will likely need to be changed too.  With Wall Street starting to see the resurgence of investment banking activity, this is one of those "checklist" items that a lot of folks used to remember to confirm but with the lack of deal activity the past few years they may have forgotten.
Good Morning Shinhan Securities (USA) Inc. 
AWC/E102004017701/January 2006

The Firm 

  • permitted an individual to actively engage in the management of the firmís securities business without being properly registered in that capacity: 
  • operated a securities business without having at least two registered principals or without obtaining an NASD waiver; and
  • failed to implement policies, procedures and internal controls reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act 

Good Morning Shinhan Sec. (USA) Inc.: Censured; Fined $10,000

Thieme Securities, Inc. and Heiko Helmut Thieme (Principal)
AWC/E102004040401/January 2006

Acting through Thieme, the Firm 

  • operated without a registered Financial and Operations Principal (FINOP) from February 2002 to September 2004; and 
  • failed to develop an annual written training plan for Firm Element/Continuing Education requirement for 2000 to 2004; and
  • failed to maintain monthly bank reconciliations. 

Thieme Securities and Heiko Helmut Thieme: Censured; Fined $15,000 (joint/several)

Bill Singer's Comment: Frankly, the sanctions here seem a bit light when compared to other recent matters involving similar lapses --- possibly the Respondents had excellent legal representation or the NASD considered some mitigating factors.  In any event we're talking about a firm without a FINOP for over 2 years and without a CE plan for 4 years.  And let's not even forget the basic requirement to maintain your bank recons.  
Royal Alliance Associates, Inc. and Jeffrey Scott Drejza (Principal) 
AWC/E8A20010343/January 2006

Acting through Drejza, the Firm failed to 

  • establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with the plan of supervisory procedures and operating restrictions, and 
  • properly supervise the statutorily disqualified registered representative to ensure compliance with the heightened supervision that was specifically ordered in a notice. 

Royal Alliance Assoc, Inc.: Censured; Fined $100,000

Jeffrey Scott Drejza: Fined $5,000; Suspended 2 weeks in supervisory capacity

Bill Singer's Comment: The NASD is clearly responding to critics who have long complained that it had a penchant for sanctioning firms but not individuals.  Continuing the trend of 2005, Principals are more frequently fined AND suspended.  The good old days are gone.  A noteworthy aspect of this matter is that failure to provide "heightened supervision" of a statutorily disqualified RR as "specifically ordere in a notice."  Okay, so, what should we all know about regulators, boys and girls?  That's right.  It's bad enough to violate one of their rules.  It's even worse if they ORDER you to do something and you don't do it.  And it's much worse if that Order involves someone who is statutorily disqualified.  Not only might the NASD fine you but they seem intent to give you some quiet time to sit down and ponder their prior Orders and your non-compliant response to same.
Leonard & Company  and James Sylvester Currier (Principal) 
AWC/E8A2003049501/January 2006

Acting through Currier, the Firm 

  • received customer complaint notices, arbitration claims and settlements that were subject to NASD reporting requirements, but failed to report these events to NASD; 
  • failed to timely file amendments to the Forms U4 and U5; and
  • failed to enforce its written supervisory procedures to ensure compliance with NASD rules. 

Leonard & Co: Censured; Fined $40,000

James Sylvester Currier: Fined $5,000; Suspended 10 business days in principal capacity; Required to requalify as Principal per Series 24

Bill Singer's Comment: And we have an early leader for 2006 --- lapses in customer complaint reporting and U4/U5 amendments.  We discussed this trend in 2005 and it's clear that NASD is not kidding around.  Not only were there some $45,000 in fines imposed but a 10-day sitdown with a requal.  You all better make sure the paperwork is getting done.
Ryan & Company, LP and Scott William Ryan (Principal) 
OS/CLG050062/20041000024/January 2006

Respondents engaged in a scheme to create and maintain short positions in Over-the-Counter (OTC) equity securities on behalf of the firmís client hedge funds, in that they willfully and intentionally effected short sale transactions. The Firm failed to report option positions to NASD, and failed to report transactions and reported incorrect information to the Automated Confirmation Transaction Service (ACT). In addition, the Firm reported non-bona fide wash sale transactions to ACT, and failed to provide for supervision reasonably designed to detect and prevent NASD rule violations.

Ryan & Co, LP: Expelled

Scott William Ryan: Barred

Bill Singer's Comment: The first two NASD case I read for 2006 are expulsions of members (see Delta immediately below).  We're not in Kansas anymore folks --- the regulators are getting serious.  Unfortunately, I wish the NASD would spend a bit more time detailing some of these more important cases.  Clearly, it's not a violation to effect short-sales.  But that seems to be what the Respondents were charged with, in part.  I suspect NASD meant that the shorts were misused as part of some undescribed scheme that had something to do with hedge funds and wash sales.  Hey, if you're going to expel and bar, maybe you could flesh things out for us?  This isn't spitting on the sidewalk.
Delta Asset Management Company, LLC and Adam Robert Goldstein (Principal)
AWC/E072003005104/January 2006

Acting through Goldstein, the Firm failed to 

  • establish, maintain, and enforce an adequate supervisory system that included written procedures reasonably designed to achieve compliance with industry rules and regulations related to sales practices;
  • ensure that disclosable events, such as customer complaints and securities related civil lawsuits and arbitration claims, were reported, or reported timely, through the Uniform Application of Securities Industry Registration (Form U4), the Uniform Termination Notices for Securities Industry Registration (Form U5) and amendments as appropriate;
  • report summary and statistical information for customer complaints (and reported some customer complaints late); and
  • develop and implement a written anti-money laundering program (AML) reasonably designed to achieve compliance with the requirements of the Bank Secrecy Act and the implementing regulations promulgated thereunder. 

Delta Asset Mgmt Co, LLC: Expelled

Adam Robert Goldstein: Fined $10,000; Suspended 2 years in principal/supervisory capacities

Bill Singer's Comment: Whoa!  A member firm gets expelled for this?  Supervisory system failures are fairly mundane.  Failures to report (or report timely) U4/U5s and customer complaints is also somewhat garden variety. Ditto for non-compliant AML programs.  So  . . . things were either much worse than NASD is letting us know, or there may be some other issues going on we aren't privy to.  Regardless, this is a stiff sanction.


Email Bill Singer Connect with Bill Singer on Facebook Follow Bill Singer on Twitter Link up with Bill Singer on LinkedIn Join Bill Singer on Google+