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.

2007

FINRA
NASD CASES OF NOTE 

 

DEVELOPING ENFORCEMENT TRENDS AS NOTED BY BILL SINGER

 

REGISTRATION

BORROWING

AWAY ACCOUNTS

E-COMMUNICATIONS

MEMBERSHIP ISSUES

 
  Banif, Pactual, Advanced, Waddell, Labadie, Varner, Vo, Aladdin, Block, Waddell, Smith, Headwaters, HSBC, Natexis, Summit. Shemano, Paruch, Martins. McElwee, Thornes, Gordon, Huberman. Lee, Fidelity, Geneos, Hirth.Blacklake, White Pacific, Investprivate, Pension. Gunnar, Augusta. Dykes, Brookstreet, Boenning, Gem, Beerbaum; Dublind Brighton, Clarke, Lane, Lenz, Alldredge, Day, Guzman, Kavalec, Roberts, Westfall, Cahn, Ehrenberg, Martin, Thomas, Gaskill, Tzamalas, Flitt. Nagler Haywood, Malloy, Randall, Kao, DeAngelis, Wise, Hiller Banif, Archer, Strand, Poultre, Legend, McKim, Utendahl, Mongelli, Smith, Itradedirect, Wilbanks,Fidelity, Essex,State Street, Bathgate, White Pacific, Roseman, Investprivate, Pension, Colonial, Equity, Legend, Sandgrain, WhiteMt, Augusta, brokersXpress, Kuzma, Nguyen, Empire, Georgeson, Midas, Mischler, K-One, Investors McKim, McElwee, Vanthedge, Amerifinancial, BTIG, Griffin, Westrock, Empire, Brennan  
 
David Anthony Nagler (Supervisor)
OS/2005003406001/October 2007 

Nagler borrowed $3,000 from a public customer contrary to his member firm ís written procedures prohibiting its registered representatives from borrowing or lending money from or to a client under any circumstances. Nagler failed to request or obtain his firm ís permission to borrow money from a public customer.  He misled another member firm during the hiring process when he failed to advise the firm that he had been permitted to resign from a previous firm for violating its policy prohibiting borrowing funds from customers. 

David Anthony Nagler: Fined $10,000; Suspended 20 business days in all capacities

Maurice Duane Freed 
AWC/#20060060747-01/October 2007

Freed engaged in private securities transactions by selling $185,000 in promissory notes to public customers without prior written notice to his member firm of the sales or his role therein. 

Maurice Duane Freed: Fined $10,000; Suspended 6 months

Bill Singer's Comment: See the Amsler case below for a second PN matter this month. 
Daniel Stephan Flitt
AWC/#2006005734401/October 2007 

Flitt borrowed $2,660 from a public customer without his member firm ís approval and contrary to his firm ís written procedures prohibiting representatives from borrowing money from customers; and then failed to respond to FINRA requests for information.

Daniel Stephan Flitt: Barred

Michael R. Colletti (Principal) 
AWC/#2005003383701/October 2007

Colletti submitted timesheets for certain individuals that were false when he executed them, in that he knew the individuals did not work the hours that the timesheets presented.

Michael R. Colletti: Barred

Bill Singer's Comment: Can you imagine this?  False timesheets!  Okay, bar the guy.  Now, let's see how FINRA acts when it soon realizes the false pricing of all that subprime crap sitting in everyone's funds--and which have hammered the markets.  I wonder how many of the big boys will be barred for such a violation? 
Therese C. Castro (Principal) 
AWC/2005002680301/October 2007

Castro asked an unregistered employee of her member firm or its affiliate to place Castroís initials on numerous pieces of branch correspondence as evidence that she had reviewed the correspondence, although she had not done so. Castro falsely certified in monthly reports submitted to her member firm that a supervisor had reviewed daily trade blotters when many had not been reviewed. 

Therese C. Castro (Principal): Fined $15,000; Suspended 1 year; Barred in Supervisory/Principal capacities

Bruce David Bullock
AWC/#2006005693601/October 2007 

Bullock held several seminars to promote the sale of equity indexed annuities and fixed annuities to retirees, promoted the seminars through  the use of invitations and used a presentation that contained unwarranted, misleading, unsubstantiated and promissory statements, including false assurances of riskless investing and guarantees that the retirees would never run out of money. 

Bruce David Bullock: Fined $10,000; Suspended 20 business days.

Ramona Marie Bianchi 
AWC/#2007008767001/October 2007

Bianchi obtained possession of an automatic teller machine (ATM) card for a public customerís account and, without the customerís knowledge or authorization, used the ATM card to make unauthorized cash withdrawals from the customerís bank account, and unauthorized purchases totaling $68,000 for her own benefit. 

Ramona Marie Bianchi : Barred

Barry Lynn Amsler AWC/#2006005252001/October 2007 

Amsler engaged in private securities transactions for compensation; failed to give his member firm written notice; and his member firm did not authorized Amsler to engage in such activities. The firm ís written procedures specifically prohibited representatives from becoming involved with the sale of promissory notes. 

Barry Lynn Amsler : Fined $50,000 (including $31,860 in disgorged benefits from sale of promissory notes); Suspended 24 months

Bill Singer's Comment: I'm seeing a pick-up in private securities violations this year and a recent rise in promissory note cases.  Be aware that a promissory note may be deemed a security. See the Freed case above for a second PN matter this month.   
Pali Capital, Inc. 
AWC/#2005000717001/October 2007

The Firm permitted an associated person to engage in proprietary equity trading on the firm ís behalf without being properly registered. While serving as the placement agent for an issuer conducting a private placement, the Firm instructed the escrow agent bank for the private placement to release funds to the issuer before the contingency amount set forth in the escrow agreement had been received in the escrow account.

Pali Capital, Inc. : Censured; Fined $35,000

K-One Investment Company, Inc. 
AWC/2006003768501/October 2007

The Firm failed to maintain and preserve copies of internal and external electronic e-mail communications as Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4 require; and failed to implement and enforce an adequate supervisory system governing the review of external communication. 

K-One Investment Company, Inc. : Censured; Fined $50,000

Investors Capital Corporation
AWC/2006003901001/October 2007 

Some of the Firm's registered representatives sent business-related e-mail through  external electronic servers without first obtaining firm approval; and in some of those instances, the Firm:

  • failed to provide for reasonable follow-up and review upon learning that the registered representatives were using external e-mail accounts, 
  • did not timely detect and prevent such use; and 
  • did not effectively enforce its procedures relating to external e-mail accounts. 

The findings also stated that the firm failed to retain certain business-related e mails its registered representatives sent and received using external accounts and, as a result, it failed to maintain and preserve all of its electronic communications as the Securities Exchange Act of 1934 and Rule 17a-4 requires. 

Investors Capital Corporation: Censured; Fined $75,000; Required to 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: One of the problems with these cases is that you truly can't figure out how much of the fine is fair and how much is excessive.  If this member firm's RRs sent business emails through external servers "without first obtaining firm approval," how the hell does FINRA suppose that the member firm was supposed to know about this?  I mean this seriously.  If the RRs are not following firm policy and intentionally doing an end run, how is the firm supposed to know?  Now, clearly, there are some reasonable precautions that member firms can take in this regard, but where are they even noted in this decision?  Don't bother checking, no such help is offered. 

Now, to be fair, the decision does note that "upon learning that the registered representatives were using external e-mail accounts" the firm failed to provide reasonable follow-up and review.  If that's the case, then some fine is likely appropriate.  The problem is that we are left to guess at the extent of the violation, we are left to guess at what the firm could have done to detect the external server use, we are left to guess at how much of the fine was attributed to failures upon notice of the violation.

That's lousy regulation.  Help us to do things better.  Teach us.

First Montauk Securities Corp. (CRD #13755, Red Bank, New Jersey)
AWC/#2006003821801/October 2007

The Firm's order tickets for corporate bond transactions were deficient, in that the order tickets failed to identify the terms and conditions of the order; did not contain the time of receipt and did not indicate whether the order was solicited or unsolicited. 

First Montauk Securities Corp.: Censured; $10,000

Weller, Anderson & Co., Ltd. and Fenner Reese Weller Jr. (Principal) 
AWC/2006003681201/October 2007

Acting through Weller, the Firm failed to terminate the ďminimum-maximumĒ offering memorandum and return investor funds after failing to raise the minimum offering amount represented by the offering memorandum during the offering period, thereby rendering the representations in the memorandum false. The offering memorandum represented that investor funds would be deposited into a bank escrow account until the minimum offering amount was raised, and that investor funds would be promptly returned if the minimum offering amount was not raised during the offering period. Also, acting through Weller, the Firm failed to establish and maintain supervisory system reasonably designed to achieve compliance with applicable securities, laws, regulations and NASD rules regarding contingent securities offerings.

Weller, Anderson & Co., Ltd. and Fenner Reese Weller Jr. (Principal): Censured; Fined $10,000 jt/sev

Bill Singer's Comment: 2007 has definitely become the year of the failed escrow.  See the many cases discussed earlier this year for guidance. 
Dublind Securities, Inc. and Nestor Joseph Olivier (Principal)
AWC/2006006666501/October 2007

Acting through  Olivier, the Firm 

  • filed late Financial and Operations Combined Uniform Single (FOCUS) Reports and failed to timely file its Schedule I Report on Revenue and Expenses; and
  • failed to maintain a fidelity bond and failed to notify FINRA on the termination of the fidelity bond

Olivier acted in a capacity at the firm that required registration, while his registration status with FINRA was iinactive due to his failure to complete the Regulatory Element of the Continuing Education Requirements. 

Dublind Securities, Inc. and Nestor Joseph Olivier (Principal): Censured; Fined $15,000 jt/sev

Harvey A. Wall (Principal)
AWC/2006003714901/September 2007

Acting through Wall, a member firm failed to adopt a supervisory system and written procedures reasonably designed to ensure that the firm obtained and retained the required written consent for Web CRD searches. As a result of the supervisory deficiencies, Wall failed to obtain and/or retain the required written consent in connection with Web CRD searches for individuals who were not seeking employment with the firm . Wall affirmed to Web CRD that he had obtained and would keep on file the required written consent in connection with the pre-registration searches of the individuals. 

Harvey A. Wall: Fined $4,000; Suspended 30 days in all capacities

Peter Tzamalas
AWC/#2006006553601/September 2007

Without his member firm 's approval, Tsamalas borrowed $453,000 from public customers, contrary to his member firm 's written procedures that prohibit representatives from borrowing money from customers. Subsequently, Tzamalas failed to respond to NASD requests for documents and information. 

Peter Tzamalas: Barred

Jackie Gee-Kit To
AWC/#2005002832901/September 2007

To plagiarized the content of a research report another member firm issued and internally circulated the report, indicating that he was its author. The report was published by To's member firm as a research report written by the firm 's lead analyst and To. 

Jackie Gee-Kit To: Fined $7,500; Suspended 60 days; Required to requalify by exam as a Research Analyst Part II-Regulations Mode within 90 days of reassociation with a member firm . If To fails to requalify as a Research Analyst Part II-Regulations Mode within the 90 day period, he will be suspended from acting in such capacity until the examination is successfully completed. 

Bill Singer's Comment: Oh FINRA, FINRA, FINRA . . . you do have the ability to drive me nuts.  Let me see if I get this one.  To plagiarized a research report.  Okay, not a nice thing to do.  Now, would someone please pull out the FINRA rulebook and show me where it's a regulatory violation to plagiarize a research report?  I'm not saying this was a nice thing to do, and if the other report were copyrighted, well, it might certainly be an infringement of the copyright. However, is every single misconduct (including personal indiscretions and professional miscues) by a registered person a regulatory violation?  I mean, geez, where does this nonsense end?  Let's assume, for the moment, that Mr. To read this other report and agreed with its analysis, conclusions, and recommendation.  If he then issued the plagiarized report under his own signature, that subterfuge may well give rise to a lawsuit by the true author for copyright infringement, but I don't see how the "integrity" of the issued report is at issue -- my example was premised upon the fact that Mr. To agreed with all aspects of the prior report.  

Separately, and more to the point, I invite you to look at many of the other cases I have reported on this page for 2007 -- or even go back over the years of my website's content.  I want you to carefully consider the types of matters that result in lesser sanctions than that imposed upon Mr. To.  For example, look down two cases to the Solash matter.  There FINRA imposed a $7,500 fine and only a 45-day suspension on someone who effected unauthorized trades in an account related to a deceased customer.  Is it truly fair to suggest that sending out a plagiarized report is a worse violation than unauthorized trading?   Ultimately, you want to make Mr. To requalify, go ahead -- makes sense to me.  You want to fine him a few thousand dollars on top of that?  Okay, not much quibble from me on that too.  However, at some point enough is enough -- did he really need to be suspended for two months AND required to requalify?

Richard Adam Thayer
#2006005175401/September 2007

Thayer withdrew $2,000 from a public customer's bank account for his own use and benefit. In an attempt to conceal his wrongdoing, Thayer transferred $2,000 from another customer's account to replace the funds taken from the first customer and then transferred $2,000 from a third customer's account to restore the funds taken from the second customer's account. Subsequently,  Thayer failed to respond to NASD requests for information. 

Richard Adam Thayer: Barred

Bill Singer's Comment: Scorecards!  Get your scorecards!! Okay, so the broker comes to bat and takes money from a customer's bank account. Strike One!  Then he borrows from Peter to pay Paul.  Strike Two!!  Then, there's this third account . . . and . . . who's on first???? 
Robert Howard Solash 
AWC/#2006004735501/September 2007

Solash effected unauthorized sale transactions in a deceased customer's corporate brokerage account

Robert Howard Solash: Fined $7,500; Suspended 45 days in all capacities

Bill Singer's Comment: Talk about time and price discretion. 
Florence Sarah Pollard (Principal) 
#CAF20030042/September 2007 on remand to Office of Hearing Officers from National Adjudicatory Council 

Pollard solicited and received payment on her member firm 's behalf from issuers in exchange for making markets in the issuers' stock and submitting Form 211 applications.

Florence Sarah Pollard: Fined $5,000; Suspended 6 months in Principal capacity

Bill Singer's Comment: Sometimes the NASD/FINRA makes it too easy for me to take pot shots.  Here's a perfect example.  Ms. Pollard submitted herself to a full-fledged hearing before the Office of Hearing Officers.  Perhaps she could have settled the charges but decided she was "not guilty" and sought her day in court.  Rather than stand accused of loading the issue, let me simply quote directly from the OHO decision that was forthcoming after the National Adjudicatory Council agreed to consider the Staff's appeal of Ms. Pollard's case:

Following the disciplinary hearing relating solely to Pollard, the Hearing Panel issued an order on August 27, 2004, granting Pollardís motion for summary disposition and dismissing the Complaint, based on a finding that Pollard did not receive any compensation or benefit, directly or indirectly, from filing the Form 211 applications. On September 17, 2004, Enforcement appealed the Hearing Panelís decision to the National Adjudicatory Council (ďNACĒ). On December 30, 2005, the NAC issued an Amended Decision Ordering Remand. In its decision, the NAC (i) reversed the Hearing Panelís findings, (ii) granted Enforcementís motion for summary disposition, holding that Pollardís actions violated NASD Conduct Rules 2460 and 2110 because but for her actions Equitrade would not have received compensation for filing Form 211 applications in violation of Rule 2460, and (iii) directed the Hearing Panel to hold a hearing to determine appropriate sanctions for the violations. The NAC expressed no view on what sanctions would be appropriate.

Following a hearing -- let me repeat that: FOLLOWING A HEARING -- the Hearing Panel granted Pollard's motion to dismiss.  And after all of that, the NAC entertains an appeal by Enforcement and reverses the Panel and finds Pollard guilty.  Honestly, what the hell is the point of OHO?  

Ralph Curtis Lewis
AWC/#2006004774901/September 2007 

Lewis borrowed $18,367 from a public customer even though his member firm 's written procedures prohibited registered persons from borrowing from customers, and Lewis neither disclosed the loans to his firm nor obtained consent from the firm to borrow from the customer. 

Ralph Curtis Lewis: Barred; Required to pay $18,367 plus interest in restitution to public customer

Richard James Johnson
AWC/#2006006132001/September 2007

Johnson converted $42,000 from a church while serving as its treasurer. 

Richard James Johnson: Barred

Bill Singer's Comment: Which just proves that you really can't make this stuff up. 
Erica L. Hintze 
AWC/#2006007521401/September 2007

Hintze signed a branch manager's name on account-related documents and signed his name using a medallion guarantee stamp without his permission or authority. Hintze signed a public customer's name on name change forms without the customer's permission or authority. 

Erica L. Hintze: Barred

Lisa M. Hiller (Associated Person) 
AWC/2006003673301/September 2007

Hiller failed to disclose in writing to her member firm the existence of outside brokerage accounts in which she held a beneficial interest. She also failed to notify one of the member firms at which she had an account that she was associated with an NASD member firm . Hiller failed to respond to NASD requests to provide sworn testimony. 

Lisa M. Hiller: Barred

David S. Goldman
OS/#2006005586701/September 2007

Without a public customer's written authorization, Goldman affixed the customer's signature to a 403(b) payroll deduction application for purposes of increasing her retirement account contribution. Goldman did not provide any notation evidencing his signature on the document and did not notify his member firm that he was signing on the customer's behalf. 

David S. Goldman: Fined $5,000; Suspended 90 days in all capacities

Bill Singer's Comment: This case is a particularly poor example of FINRA's lack of clarity in explaining its sanctions.  The SRO's report specifically notes that the signature was affixed without a "written" authorization -- which begs the question as to whether there was an "oral" authorization (and one which, perhaps, even the customer acknowledges).  Are we to understand that the relatively modest fine and suspension were imposed in consideration of Goldman acting with "oral" but not "written" prior authorization, or did he simply sign the signature without any prior customer authorization?  I would remind the regulator -- for the umpteenth time -- that it has an obligation to educate the member and registered community as to the basis for its charges and subsequent sanctions.  This case is a terrible example of not saying enough.   
Tearle Guy Gaskill
#2006005746601/September 2007 

Gaskill borrowed $3,000 from a public customer, contrary to his member firm 's written policies and procedures prohibiting representatives from borrowing money from customers; and he subsequently failed to respond to NASD requests to appear for an on-the-record interview and to provide documents.

Tearle Guy Gaskill: Barred

Christopher Patrick Cataldo
AWC/#2006006843901/September 2007

Cataldo falsely represented to a public customer that he had listened to a recorded conversation his member firm maintained of an earlier conversation between the customer and another firm representative indicating that the customer had been advised that he would be charged a contingent deferred sales charge if he liquidated his mutual fund before a certain date, when no such recording existed. 

Christopher Patrick Cataldo: Fined $5,000; Suspended 6 months in all capacities

Bill Singer's Comment: Sounds like an old "Get Smart" episode --- Would you believe that I have a tape on which I told you that there would be a CDSC if you liquidated too early?  No??  Would you believe I have a tape on which I told you that I was on vacation and couldn't take your call?  No???  Would you believe . . . 
Michael Forrest Brinlee (Principal)
OS/#2005001575201/September 2007 

Brinlee misappropriated funds from public customer's estate by writing a $9,045 check against the customer's bank account in order to make a tuition payment for a family member's benefit.

Michael Forrest Brinlee: Barred

Kevin Patrick Brennan (Principal) and John Joseph Conroy (Principal)
AWC/#2006003890601/September 2007

Acting through Brennan and Conroy, the Firm 

  • failed to establish, maintain and enforce taping procedures for the supervision of all of its registered persons' telemarketing activities; and
  • transferred more than 25 percent of its assets or brokerage business to another member firm without filing an application for the transfer with NASD. 

Kevin Patrick Brennan and John Joseph Conroy: Fined $20,000 jt/sev; Suspended 60 days in Principal capacity only.

Mark Allen Borsky (Principal)
#2005000078501/September 2007

Borsky initially provided and caused his firm to provide false information to NASD although shortly thereof he corrected the false information. 

Mark Allen Borsky: Fined $5,000; Suspended 2 years in all capacities

Sidoti & Company, LLC 
AWC/#20060037743-01/September

The Firm sent draft research reports to approximately 200 subject companies prior to publication that contained analyses, estimates, projections and conclusions; and one of the research reports contained a price target and research rating.

Sidoti & Company, LLC : Censured; Fined $25,000

National Securities Corporation
AWC/#E8A2004064501/September 2007

The Firm ignored red flags indicating that a registered representative under heightened supervision was circumventing this supervision by engaging in a scheme with another registered representative who was his brother-in-law. 

National Securities Corporation: Censured; Fined $20,000

Mischler Financial Group, Inc. 
AWC/#2006003738401/September 2007

While it maintained and preserved communication sent through its Bloomberg system which was the predominant means by which its representatives communicated with the firm 's clients, the Firm failed to preserve properly in a non-rewriteable and non-erasable format email communications sent to and from its email addresses as well as personal email addresses three firm representatives used. The Firm lacked fully compliant systems and procedures for the preservation of all of its electronic mail communications. 

Mischler Financial Group, Inc. : Censured; Fined $10,000; Required to review its procedures regarding the preservation of electronic mail communications for compliance with applicable NASD rules, and federal securities laws and regulations, and certify to NASD (and now, FINRA) in writing that it has established systems and procedures reasonably designed to achieve compliance with those rules, laws and regulations. 

Bill Singer's Comment: Thankfully FINRA is fairly consistent in applying sanctions to the same or similar violations.  Otherwise, we would have fines and suspensions all over the place.  I mean here in Mischler we have a failure to properly preserve emails and the firm is fined $10,000.  And if you look one case down to Midas, you see that for a similar violation the firm was also fined $10,000 --- oh, wait a minute, Midas was supposed to be fined far more than $10,000 but out of the goodness of FINRA's heart, Midas was fined only $14,000.  Okay, so that's not a big deal percentage wise over Mischler -- ummm, well, gee, that's 40% more!  Well, thankfully, but for that one oddity, all of these email cases are closely sanctioned.  Just look two cases down at Georgeson where another member failed to properly preserve emails.  And they were fined . . . let's see . . . hmmm . . . $30,000.  Well that's close enough to Mischler at a 300% difference and close enough to Midas at about a 200% percent difference.  Wow, those Sanction Guidelines must be really flexible on the upside. 
Midas Securities, LLC
AWC/#E022005010601/September 2007

The Firm failed to establish and maintain a system to supervise the activities of each registered and associated person in a manner reasonably designed to achieve compliance with applicable securities laws and regulations, including email retention and review of correspondence. The Firm failed to establish, maintain and enforce adequate written supervisory procedures regarding electronic mail retention. 

Midas Securities, LLC: Censured; Fined $14,000 (Pursuant to the General Principles Applicable to all Sanction Determinations contained in the Sanction Guidelines, NASD imposed a lower fine in this case after it considered, among other things, the firm 's revenues and financial resources. See Notice to Members 06-55.); Required to review its procedures regarding the preservation of electronic mail communications for compliance with applicable NASD rules, and federal securities laws and regulations, and certify to NASD (and now, FINRA) in writing that it has established systems and procedures reasonably designed to achieve compliance with those rules, laws and regulations.

Bill Singer's Comment: Oh that someone at FINRA would routinely remind the powers that be, that the Sanction Guidelines are --duh -- GUIDELINES and not mandatory grids.  Here a member firm was only fined $14,000 because its revenues and financial resources were questionable.  Not that $14,000 is spit, but who knows how many more dollars the eager Staff was hoping to get for failing to retain emails.  I mean, you know, that's got to be at least a million dollar fine (okay, sorry for the sarcasm).
Georgeson Securities Corporation 
AWC/#2006004077101/September 2007

The Firm failed to maintain and preserve all of its electronic communications as required by SEC Rule 17a-4. The Firm electronically "backed-up" electronic communications at the end of each day, but failed to capture, maintain and preserve any electronic communication deleted from user's deleted items folder during the day

Georgeson Securities Corporation : Censured; Fined $30,000

Bill Singer's Comment: Frankly, this one is sort of funny.  The Firm apparently saves its electronic communications on an intra-day basis.  Good!  Then the firm does the next necessary step of electronically backing up each days communications at the end of the day.  Good again!  However, if someone merely deleted an item during the intra-day period, the member's system did not retain such deletions.  Ooops.  I mean, think about it, if all someone had to do was read an objectionable email alleging all sorts of nastiness and then simply hit delete, that wouldn't be much of an archiving system. 
Dougherty & Company LLC
AWC/#20050001341-01/September 2007

The Firm failed to purchase municipal securities for its own account from public customer or sell municipal securities for its own account to a customer at an aggregate price that was fair and reasonable, taking into consideration all relevant factors, including 

  • the best judgment of the firm as to the fair market value of the securities at the time of the transaction, and of any securities exchanged or traded in connection with the transaction;
  • the expense involved in effecting the transaction;
  • the fact that the firm was entitled to a profit;  and 
  • the total dollar amount of the transaction. 

The Firm bought/sold corporate bonds for its own account from /to another broker-dealer and failed to sell/buy the security to/from firm customer at a price that was fair, taking into consideration all relevant circumstances noted above.

The Fiirm failed to report the lower of yield to call or yield to maturity for transactions in TRACE-eligible securities to TRACE and the Firm 's supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and Municipal Securities Rulemaking Board (MSRB) rules concerning municipal bond pricing, and NASD rules concerning corporate bond pricing and TRACE reporting. 

Dougherty & Company LLC: Censured; Fined $167,500; Required to revise its written supervisory procedures regarding municipal bond pricing, corporate bond pricing and Trade Reporting and Compliance Engine (TRACE) reporting.

Dominick & Dominick, LLC
AWC/#20050006006-01/September 2007 

The Firm bought/sold securities for its own account from /to another broker-dealer and failed to sell/buy the securities to/from firm customers at prices that were fair and reasonable, taking into consideration all relevant circumstances, including market conditions with respect to the securities at the time of the transactions, the expense involved, and that the firm was entitled to a profit. The Firm failed to adequately enforce its written supervisory procedures to ensure compliance with applicable securities laws, regulations and NASD rules concerning fair pricing and markups

Dominick & Dominick, LLC: Censured; Fined $18,000

AIG Financial Advisors, Inc. 
AWC/#2006003910901/September 2007

The Firm permitted an individual subject to a statutory disqualification to be associated with the firm.

AIG Financial Advisors, Inc. : Censured; Fined $15,000

Ko Securities, Inc. and Terrance Yutaka Yoshikawa (Principal)
#CMS000142/September 2007 United States Court of Appeals denied Petition for Review of a Securities and Exchange Commission Decision.

The Firm and Yoshikawa executed short sales without making and annotating the affirmative determinations required for each short sale. Acting through Yoshikawa, the Firm failed to maintain a record of the terms and conditions, time of entry and execution time for each customer order. 

Ko Securities, Inc. and Terrance Yutaka Yoshikawa: Fined $147,450.81 jt/several; Firm fined $15,000 for recordkeeping violation.

Network 1 Financial Securities Inc., Richard William Hunt (Principal) and Damon Domenic Testaverde (Principal) 
AWC/#EAF0400940001/September 2007

Acting through Testaverde, the Firm solicited one of its customers, who was a controlling shareholder of a company, to sell the firm shares of a common stock in amounts that exceeded the limits that a controlling shareholder could sell in public transactions. The Firm purchased these shares with the intent to distribute them through its market making activities and then resold them to the public

Acting through Hunt, the Firm failed to establish, maintain and enforce a supervisory system, including written procedures, reasonably designed to ensure compliance with the requirements of Section 5 of the Securities Act of 1933, and failed to reasonably supervise Testaverde's activities in connection with soliciting the customer to sell large blocks of stock to the Firm.

Network 1 Financial Securities Inc.: Censured; Fined $100,000; Required to retain an independent consultant to conduct a comprehensive review of the adequacy of its policies, systems, procedures (written and otherwise) and training relating to market making and retail activity. 

Richard William Hunt: Fined $25,000; Suspended 45 days in Principal capacity only

Damon Domenic Testaverde: Fined $50,000; Suspended 4 months in all capacities

Empire Financial Group, Inc., George Randy Cupples (Principal) and Pamela Cathy Ohab (Principal)
AWC/#2005000450504/September 2007

Acting through Cupples and Ohab, the Firm 

  • conducted a securities business while failing to maintain the minimum net capital requirement; 
  • prepared and submitted materially inaccurate Financial and Operations Combined Uniform Single (FOCUS) reports; and 
  • prepared and maintained materially inaccurate net capital computations. 

The Firm 

  • implemented material change in business operations by materially increasing the number of equity securities in which it made market without filing an application for approval with FINRA;
  • failed to maintain electronic correspondence
  • failed to conduct an independent testing of its Anti-Money Laundering (AML) compliance program;
  • failed to develop and implement an adequate supervisory system for detecting and reporting suspicious activity;
  • failed to establish and implement policies, procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act, including an adequate Customer Identification Program (CIP);
  • failed to report a disclosable matter;
  • failed to timely report disclosable matters;
  • reported municipal securities transactions late, without a price and with an incorrect price. 

Empire Financial Group, Inc.:Fined $145k,000 ($10,000 jt/sev with Cupples; $10,000 jt/sev with Ohab)

George Randy Cupples: Suspended 30 business days in FINOP capacity only

Pamela Cathy Ohab: Suspended 30 business days in FINOP capacity only 

Bill Singer's Comment: Another one of these "once again" violations that I have been highlighting this year.  Bottom line, if you engineer a material change to your member firm's business (or you are involved on the buyer's/investor's side of such a change), please make sure that someone has notified FINRA in advance of the PROPOSED change -- and then make sure that you get FINRA's approval and that your Membership Agreement is modified as required. 

Beerbaum & Beerbaum Financial and Insurance Services, Inc. and Hans Norman Beerbaum (Principal)
#C0120040019/September 2007 Securities and Exchange Commission imposed sanctions on appeal from National Adjudicatory Council, on appeal from Office of Hearing Officers Decision.

Beerbaum, while suspended as a principal of the firm , actively engaged in the management of the firm 's securities business, and performed executive and supervisory responsibilities despite his suspension as a principal. See SEC decision at http://sec.gov/litigation/opinions/2007/34-55731.pdf

Beerbaum & Beerbaum Financial and Insurance Services, Inc.: Fined $15,000

Hans Norman Beerbaum: Barred

Griffin, Mills & Long, LLC and Walter Andrew Mills (Principal)
AWC/#2007007387901/September 2007

Acting through Mills and in participation with other registered representatives of the firm, the Firm sold common stock iin contravention of the terms of the private placement memoranda.  Specifically, public customers who participated in the offering were instructed to make their checks payable to a company Mills owned and controlled that was not a FINRA member firm, or to wire transfer funds directly to the company's bank account. By directing customer funds to the company's account, the customer funds were commingled with funds unrelated to the offering.  Further, acting through Mills, the Firm used the proceeds in a manner contrary to the representations made to the customers in the private placement memoranda. The firm and Mills failed to fully respond to NASD requests for information and documents. 

Griffin, Mills & Long, LLC : Expelled

and Walter Andrew Mills: Barred

Bill Singer's Comment: Clearly, 2007 continues to maintain FINRA's focus on escrow violations.  Folks, the funds are supposed to go into an independent bank account subject to a written escrow agreement.  If the funds are going into any other type of account, you're likely going to have a violation.  
John Griffin Wise (Principal)
AWC/#2006004364001/August 2007

Although Wise acted as the escrow agent for money-market escrow accounts, he did not disburse the additional interest earnings that were received into the escrow account after the transaction closed and escrowed funds had already been disbursed to the parties. Without the authorization or consent of the affected parties, Wise transferred $44,000 in post-closing earnings to a single consolidated account in his name, with his member firm identified as the registered dealer on the account statements. 

Wise guaranteed his own signature on wire transfer instruction letters he transmitted to mutual fund companies which required him to obtain a signature guarantee for letters that requested transfer of funds held in escrow in order to verify the authenticity of the escrow agentís signature. Wise fabricated a signature guarantee on wire transfer instruction letters by altering the appearance of his signature and applying the bank's medallion guarantee stamp. Wise opened securities accounts at other brokerage firms without notifying his member firming writing that he had opened the accounts and also failed to disclose his affiliation with his member firm to the other brokerage firms. 

John Griffin Wise: Fined $8,500; Suspended 9 months 

Bill Singer's Comment: It's nice that the escrowed funds were in an interest-bearing account, but no one gets to benefit from that accrual without written agreements to that effect.  But, if you're going to fabricate signature guarantees, why let a little thing like a piece of paper get in the way of $44,000? 
William Edward Thomas 
AWC/#2005003297801/August 2007

Thomas accepted $2,600 in loans from a public customer (not an immediate family member) in violation of his member firmís written procedures prohibiting registered persons from borrowing from customers, except for immediate family members for non-securities purposes. The  customer was not an immediate family member. 

William Edward Thomas: Fined $5,000; Suspended 10 business days

Long Hoang Nguyen 
AWC/#2006006999401/August 2007

While taking the Regulation Element of NASD's Continuing Education Requirement exam at a testing center, he reviewed email messages and made telephone calls on his wireless hand-held device contrary to the exam instruction's Rules of Conduct. Nguyen failed to respond to an NASD request for information. 

Long Hoang Nguyen: Barred

Bill Singer's Comment: Did he also play any forbidden ringtones? 
Peter John Murphy
AWC/#20050003239-06/August 2007

Murphy aided and abetted an individual's fraudulent and manipulative bond parking scheme involving pre-arranged, non-bona fide sales and purchases of zero coupon subordinate municipal bonds with a face value of two million dollars. Murphy obtained permission from his member firm to make a proprietary purchase but did not inform his supervisor that he would hold the bonds as a favor until his friend repurchased the bonds and did not disclose that he had been guaranteed a profit when the bonds were repurchased. Murphy was directed to purchase the bonds from a third party with a same-day settlement rather than the standard settlement of three business days after the trade, and did not inform his supervisor that he made the purchase from a third party instead of his friend. The bonds were repurchased at an increased price generating a profit to the firm and Murphy. 

Peter John Murphy: Fined $10,000 (but consideration given to his financial status); Suspended 90 days in all capacities

Bill Singer's Comment: Haven't seen a good, old-fashioned repo case in some time.  Nice to see that somethings live on. 
Dawn Anita Martin
#2006004392801/August 2007 

Martin borrowed $10,000 from public customer in contravention of her member firm's written supervisory procedures prohibiting borrowing money from customers, absent written authorization. 

Dawn Anita Martin: Fined $5,000; Suspended 90 days in all capacities

Andrew Joseph Lynch 
AWC/#2006006900201/August 2007

Lynch received an insurance application from joint applicants who signed their names on the wrong line of the application, crossed out the misplaced signatures, signed the customers' names on the correct line of the application, without the customers' authorization or consent, and submitted the application to the insurance company. 

Andrew Joseph Lynch : Fined $5,000; Suspended 3 months in all capacities

Bill Singer's Comment: Oh, how these cases trouble me.  On the one hand, I think a three month suspension for simply "fixing" an admittedly erroneous entry (which everyone understood as such and knew what was intended) is over-kill.  On the other hand, there are few things more troubling in our industry than forgery or filling in the blanks.  Still, all things considered, seems to me that a 30 day suspension plus the fine would have been okay here -- but I do appreciate and understand the NASD's concerns.  Let's call this a push. 
Frank Enrique Lumpuy
AWC/#2006005568401/August 2007 

Lumpuy shared in a public customer's loss without prior written authorization from his member firmer the customer before making the deposit into the customer's bank account. 

Frank Enrique Lumpuy: Fined $5,000; Suspended 10 business days in all capacities

Alan Edward Kuzma
AWC/#20050033591-01/August 2007 

Kuzma conducted financial services workshops and engaged email house to mail workshop invitations to prospective customers without advising his member firm that he was conducting the workshops or having invitations sent. Kuzma failed to request approval for the invitations by a registered principal of his firm prior to use; and the workshop invitations did not include all relevant information, were incomplete, and were not fair and balanced. 

Alan Edward Kuzma: Fined $5,000; Suspended 20 business days in all capacities

David S. Jarnoti 
AWC/#2007007962001/August 2007

Jarnoti signed a family member's name on change of address forms for individual accounts she held at his member firm without her permission or knowledge.  Jarnot was attempting to change her home address to his address. 

David S. Jarnoti : Barred

Steven Wayne Grossman 
AWC/#2005001180201/August 2007

Grossman churned and excessively traded public customersí accounts that resulted in commission-to-equity ratios in excess of 30 percent. Grossman recommended and effected securities transactions in customersí accounts without reasonable grounds for believing that the transactions were suitable in view of the size and frequency of the transactions, nature of the accounts and the customersí financial situation, investment objectives and needs. Grossman altered his member firmís record relating to a joint account of customers by deleting certain securities positions from the customersí Form 1099 and provided the altered document to their accountant. Grossman created a schedule of gains and losses for the customersí account that contained false information.

Steven Wayne Grossman: Barred

Anthony Mario Faiola 
AWC/#2006005577001/August 2007

Faiola and another registered representative sold $2,050,000 worth of limited partnership interests in a hedge fund that Faiola co-owned and controlled to public customers without prior written notice to, or prior written approval from, his member firm. 

Anthony Mario Faiola : Barred

John William Eugster
AWC/#20050022712-01/August 2007

Eugster participated in a private securities transaction for compensation without prior written notice to, and written permission from, his member firm. 

John William Eugster: Fined $10,000; Suspended  2 months in all capacities; Required to demonstrate to FINRA that he has relinquished his entitlement to any profits realized by a limited liability company (LLC) he formed and managed upon the distribution to its members securities acquired in a private placement and any document pertaining to the LLC requiring revision or amendment to effect his relinquishment of his entitlement to any portion of profit has been revised or amended as evidenced by the submission to NASD of the document(s) in their original and revised or amended forms.

Donald Fred Ehrenberg Jr. 
AWC/#2006007413501/August 2007

Ehrenberg borrowed $120,000 from a public customer and failed to inform his member firm. Ehrenberg willfully failed to amend his Form U4 to disclose material information. Ehrenberg failed to respond to NASD requests for information. 

Donald Fred Ehrenberg Jr. : Barred

Brian James Dunn 
#2006004809201/August 2007

Dunn submitted false expense reports to his member firm and was reimbursed for the expenses, thereby converting firm funds for his own use. Dunn failed to respond to NASD requests for information.

Brian James Dunn : Barred

Jeffrey Jay Cahn
#2006005134301/August 2007 

Cahn borrowed funds from a public customer in violation of his firmís policy prohibiting registered employees from borrowing from, or lending to, public customers with the limited exception of immediate family members. Cahn settled a customer complaint without his member firmís knowledge or authorization. The sanction was based on findings that Cahn failed to respond to NASD requests for information and documents. 

Jeffrey Jay Cahn: Barred

John Charles Burch (Supervisor) 
AWC/#2006004468101/August 2007  

Burch deposited $6,000 into a bank account for purposes of avoiding a transaction reporting requirement under federal law, knowing that the property involved in the financial transaction represented the proceeds of some form of unlawful activity. 

John Charles Burch : Barred

Porter Bernard Bingham (Principal) and Hal Butts Jr. (Principal)
OS/#E072005021301/August 2007 

Bingham and Butts failed to cause their member firm to maintain its required minimum net capital. They prepared and/or were responsible for the preparation of inaccurate net capital computations, trial balances and general ledgers for their member firm. They prepared and/or caused the preparation of inaccurate FOCUS reports for their member firm and filed the inaccurate reports with NASD. Bingham and Butts failed to submit timely notice to NASD of their firmís net capital deficiency. Bingham failed to file his member firmís annual audit report in a timely manner. 

Porter Bernard Bingham: Fined $10,000; Suspended 1 year in Principal capacity; Required to requalify as Principal

Hal Butts Jr.: Fined $5,000; Suspended 15 business days as FINOP

Glenn Edward Best (Principal)
AWC/#2006004125201/August 2007

Acting through Best, the Firm used the instrumentalities of interstate commerce to conduct a securities business while failing to maintain its minimum  required net capital

Glenn Edward Best: Fined $5,000; Suspended 30 business days in FINOP capacity; Required to requalify as a FINOP

Michael Clark Behrend
AWC/#20060069702-01/August 2007

Behrend created phony correspondence and forged signatures on requests for disbursements of funds from insurance and investment accounts held at his member firm and its affiliate in order to obtain money and property by false means. Behrend requested that checks drawn on customer accounts be sent directly to him, forged the customersí signatures on the back of the checks and added his own signature on the back of the checks. He deposited $20,460.99 into his own bank accounts through this scheme and never returned any of the funds to customer accounts. Behrend failed to respond to NASD requests for information. 

Michael Clark Behrend: Barred

Westrock Advisors, Inc.
AWC/#20060037272-01/August 2007

The Firm effected both a 100 percent change in its direct ownership and a material expansion of its business operations without seeking and obtaining approval for these changes as NASD Rule 1017 required. The Firm added branch offices without notifying NASD within 30 days of their opening as NASD By-Laws required, and failed to have reasonably written supervisory procedures in place to ensure compliance with NASD Rule 2711. The Firm conducted a securities business when the firmís capital was below the minimum amount required. The Firm failed to timely report customer complaints and did not report additional complaints as NASD Rule 3070(c) required; and failed to amend, and timely amend, Forms U4 or U5 for registered representatives to reflect customer complaints. The Firm conducted an options business at a branch office with a supervisor who was not registered as either an options principal or as a limited principal Ė general securities sales supervisor. 

Westrock Advisors, Inc.: Censured; Fined $42,000

Bill Singer's Comment: Ouch! I've been doing these sales of BDs for nearly two decades and one of the first things I remind the buyer and the seller is that the sale will constitute a "material change" under the Membership Agreement and to make sure that the NASD is notified of the proposed change.  You cannot simply finalize the transaction and then send the NASD notice.  The NASD (now FINRA) has to review and approve the transaction.  This oversight often causes a major headache in terms of approval delays and possible sanctions.  Make sure it's on your punchlist when you buy/sell a BD.
Perrin Holden and Davenport Capital Corp. aka PHD Capital
AWC/#E102002046001/August 2007

The Firm failed to report, or to timely report, to NASD statistical and summary information relating to customer complaints the firm received. 

Perrin Holden and Davenport Capital Corp. aka PHD Capital: Censured; Fined $12,500

Janco Partners, Inc. 
AWC/2006003976301/August 2007

The Firm permitted associated persons to function as research analysts without being properly registered with NASD and issued research reports the unregistered analysts prepared. The Firmís written supervisory procedures were not reasonably designed to achieve compliance with NASD Rule 2711 in that the procedures did not include steps to monitor and achieve compliance with the rule. 

The Firm failed to 

  • retain its emails in an easily accessible place;
  • implement its CIP in connection with new customer accounts as part of the firmís compliance with the requirements of the Bank Secrecy Act, and the firmís written supervisory procedures relating to the CIP did not accurately describe its AML program as implemented. (The Firmís implementation of its independent testing was inadequate in that it failed to retain all documentation evidencing areas that had been reviewed and tested, and it failed to detect the deficiencies with its CIP. The Firmís written procedures did not address how often its independent tests needed to be conducted and did not address how the firm would handle situations in which independent testing was conducted by a person who reported to a person whose activities he or she was testing).

Janco Partners, Inc. : Censured; Fined $60,000

Bill Singer's Comment: Seems we have a couple of firms that haven't been on this planet for a few years.  Read the Source case for some similar problems.  Here, it's a simple proposition:  You cannot serve as an analyst if you are not registered and you can't issue reports from unregistered analysts.  Period.
Grant Bettingen, Inc. 
AWC/#E0220050073-02/August 2007

The Firm participated in private placement offerings of stock and failed to transmit investor funds to an unaffiliated bank to hold in escrow until the offering contingency was met but, instead, investor checks were either made payable to and held by a law firm as escrow agent or were made payable to the firm and deposited into a bank account without a written agreement with the bank to hold the funds in escrow. The Firm the instrumentalities of interstate commerce to engage in the securities business while failing to maintain required minimum net capital. 

Grant Bettingen, Inc. : Censured; Fined $10,000

Bill Singer's Comment: All of sudden we're seeing more escrow problems.  See the Wise case.. 
First American Capital and Trading Corporation fka STC Securities, Inc. 
AWC/SAF2004044701/August 2007

The Firm failed to 

  • implement an adequate AML compliance program in that it failed to provide, or to document that it had provided, adequate AML training for either the firmís designated AML officers or the firmís employees;
  • establish and implement an adequate customer identification program (CIP);
  • independently test its AML compliance program; 
  • establish and implement an adequate CIP in that the firm did not establish or implement adequate policies or procedures to conduct additional due diligence for their higher risk accounts, including foreign account-holders;
  • establish and implement adequate suspicious activity reporting (SAR) procedures in that it failed to monitor for, identify and analyze unusual activity for possible SAR filing. 

In addition, the Firmís procedures identified various AML ďred flags,ď including large wire transfers and deposit of large amounts of low-priced securities, but failed to identify and analyze these transactions to determine if they were in fact suspicious and were required to be reported on a SAR-SF. 

First American Capital and Trading Corporation fka STC Securities, Inc: Censured; Fined $30,000; Required to have all its registered persons register for three hours of anti-money laundering (AML) training.

Bill Singer's Comment: Nothing gets a regulator's goat more than to see that you have drafted procedures but not followed them.  Of course, as we've discussed throughout this year, once NASD says there was a "red flag" and you missed it, well, that's going to be a major to-do. 
brokersXpress, LLC 
AWC/#2006003865601/August 2007

The Firm executed transactions in municipal securities that were not reported to the MSRB within 15minutes of execution time, and transaction information was reported inaccurately. The Firm failed to 

  • establish written supervisory procedures to ensure the timely and accurate reporting of municipal securities transactions within 15 minutes of trade execution;
  • enforce its written supervisory procedures that required that a 
    • principal of the firm print and review all incoming electronic correspondence
    • the firm provide notifications to NASD prior to implementing electronic storage media for primary record retention purposes for its electronic correspondence; and 
    • the firm capture, retain and preserve, in a readily accessible location, originals of all electronic communications originating from and received by one of its branch offices; and 
  • enforce its written supervisory procedures regarding email retention and review at one of its branch offices. 

brokersXpress, LLC : Censured; Fined $50,000

American SkandiaMarketing, Inc.
AWC/August 2007

The Firm failed to maintain and preserve all of its electronic communications as SEC Rule 17a-4 requires. The findings stated that the firmís supervisory system  and procedures were not reasonably designed to ensure that the required written consent for Web CRD searches was retained by the firm.

American Skandia Marketing, Inc.: Censured; Fined $75,000; Required to review its procedures regarding Web CRD searches and the preservation of electronic mail communications for compliance with federal securities laws, regulations and NASD rules. 

Bill Singer's Comment: NASD's 2007 poster child: improper Web CRD searches. In case you haven't heard the news, you must get prior written consent from the subject of your searches.
Source Capital Group, Inc., John Philip Boesel III (Principal) and Joseph Ezekiel Blankenship II 
AWC/#2006003803601/August 2007

Acting through Blankenship, the Firm sent drafts of a research report prior to its issuance to the subject company that included the research summary, research rating and price target. Blankenship, as the author of the research report, was restricted from purchasing the companyís stock 30 days prior to the issuance of the report but acquired stock from the company prior to issuance. Inconsistent with his buy recommendation in the research report, Blankenship then sold his shares. Acting through Blankenship, the Firm issued the research report and failed to disclose Blankenshipís acquisition of the shares of stock from the company. 

Acting through Boesel, the Firm failed to implement the firmís written supervisory procedures to ensure that the firm and its employees complied with the provisions of NASD Rule 2711. 

Source Capital Group, Inc.: Censured; Fined $20,000 ($10,000 jt/sev with Boesel, and another $10,000 jt/sev with Blankenship) 

John Philip Boesel III: Censured; Fined $10,000 jt/sev with Firm

Joseph Ezekiel Blankenship II: Censured; Fined $10,000 jt/sev with Firm; Fined additional $5,000 

Bill Singer's Comment: In the past ten years, has there been any more-publicized new rules than those pertaining to research?  You can't sent out a draft of a report to the covered company before publication.  That's basically chiseled into stone.  Of course, it's also not exactly a brilliant idea these days to obtain stock from a covered company (before you send out a supposedly pristine piece of research) and then sell the damn shares while your report is pumping them!  Now I do allow for the fact that some folks have been visiting the moon since Spitzer was the NYAG and now the state's Governor.  So that might explain the confusion. See Janco for a similar research violation.
Gem Advisors, Inc. and Julio Alfonso Marquez (Principal)
OS/# 20050024626-02/August 2007

The Firm and Marquez failed to employ a registered Financial and Operations Principal (FINOP). The Firm was deficient in that it had failed to employ at least two registered general securities principals with respect to each aspect of the firmís investment banking and securities business for more than two years and 10 months  before applying for a waiver of the requirement. The Firm failed to timely file a Financial and Operational Combined Uniform Single (FOCUS) report. 

Gem Advisors, Inc. and Julio Alfonso Marquez (Principal): Censured; Fined $15,000 jt/sev (Firm fined an additional $2,500)

Bill Singer's Comment: Two comments.  First, you must have a FINOP (and if you can't afford a full-timer, there are folks who serve as what has pejoratively become known as a rent-a-FINOP) and the rule is that you must have at least two General Securities Principals (but you can apply for a waiver).  Second, you mean to tell me that after nearly 3 years the good old NASD (now the more impressive sounding FINRA) didn't notice that one of its member firms had no FINOP and lacked two GSPs? 
Boenning & Scattergood, Inc., Thomas John Chancler (Principal) and James Still (Principal)
AWC/#2006003777301/August 2007

Acting through Chancler, the Firm permitted Still to head its Investment Banking Department and to engage in conduct that required registration as a general securities principal, even though he was not registered with NASD in any capacity. The Firm failed to timely report transactions in Trade Reporting and Compliance Engine (TRACE) eligible securities. 

Boenning & Scattergood, Inc., Thomas John Chancler (Principal) and James Still (Principal): Censured; Firm fined $20,000 (Chancler and Still jointly and severally liable for $15,000)

Bill Singer's Comment: We're seeing a noticeable increase in both "parking" cases and unregistered persons.  Sometimes the failure to register situation arises because of a failed transfer of prior registration (which wasn't caught or someone thought was but never checked).  With year-end approaching, this might be a good time to do a routine check of registrations. 
Brookstreet Securities Corporation, Stanley Clifton Brooks (Principal) and Kathleen Margaret McPherson (Principal) 
AWC/#EAF0400570001/August 2007 

The Firm failed to file, in a timely manner, Form U4/U5 amendments and initial Form U5 termination filings, and did not have adequate policies or procedures designed to ensure reportable items were forwarded to the firmís registration department and filed in a timely manner with NASD. The Firm's policies and procedures failed to enumerate which types of events are reportable, had no system to monitor timely filing of Forms U4/U5 and to provide for supervisory reviews for compliance. Brooks and McPherson had assigned responsibility for filing amendments to a non-registered clerical employee, and the firm did not have adequate policies or procedures with respect to the individualís duties. The Firm submitted Form U4/U5 amendments with electronic signatures before a registered principal of the firm received, reviewed and approved the amendments. Brooks signed U4/U5 amendments although he did not supervise registration functions related to filing of Forms U4/U5 or amendments, and approved of the firmís registration department submitting Form U4/U5 filings with his electronic signature before he received, reviewed or signed these filings. 

Brookstreet Securities Corporation: Censured; Fined $200,000 ($25,000 jt/sev with McPherson); Required to retain an independent examiner to conduct an audit to assess the effectiveness of its system and procedures for ensuring the timely filing of amendments to Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5) and initial U5 termination filings, and required to implement and certify changes in its supervisory system and personnel. 

Stanley Clifton Brooks" Fined $35,000; Suspended 60 days in supervisory capacity 

Kathleen Margaret McPherson" Suspended 45 days in principal capacity

Martin Yura (Principal) 
AWC/#E0420040369-03/July 2007

Yura instructed another supervisory principal to create a document stating that a registered representative had been suspended for resolving an incident with a public customer by paying the customer money when he had not been suspended. The document was to be placed in the representativeís file at a branch office. Yura falsely advised his firmís chief compliance officer that the representative had been suspended. 

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

Bill Singer's Comment: Wouldn't you love to know what started this mess?  Oh children.  Behave yourselves. 
Abigail Mann Whittle 
AWC/#2006006019001/July 2007

In order to transfer a public customerís account to her member firm from another broker dealer, Whittle contacted the other broker dealer and impersonated the customer over the telephone without the customerís knowledge or consent. 

Abigail Mann Whittle : Fined $5,000; Suspended 20 business days in all capacities

Bill Singer's Comment: Okay, but was it at least a good impersonation? 
Steve Brian Westfall
AWC/#2006005361201/July 2007 

Westfall borrowed $30,000 from a public customer in violation of his member firmís written procedures and failed to request an exception from his firm. 

Steve Brian Westfall: Fined $7,500; Suspended 30 days in all capacities

Ronald Vaughn 
#2006004213401/July 2007

Vaughn falsely represented to an insurance company that a public customer had not received $74,240.41 due to him from the liquidation of his fixed annuity when in fact, the customer had received the payment and used these proceeds to purchase a fixed annuity through another insurance company. The insurance company mailed a second check to Vaughn, who forged the customerís endorsement to the check and deposited the check to his personal bank account, thereby converting the funds to his own use and benefit. Vaughn failed to respond to NASD requests to appear for an on-the record interview; and willfully failed to amend his Form U4 to disclose material information. 

Ronald Vaughn: Barred

Bill Singer's Comment: Yeah, but the customer did purchase that fixed annuity from another insurance company.  I mean you can't just let the client get away with that.  If you have to forge the client's name and steal his money in order to teach him or her a lesson, what's wrong with that?  Bet you the client will think twice before taking his business elsewhere in the future.  (For those of you who can't tell --- I'm being incredibly sarcastic). Moi???? 
Eduardo M. Tejeda
AWC/#2005003386301/July 2007

Tejeda provided a company with letters on his member firmís letterhead that contained false and misleading representations confirming the companyís credit line and funds availability, although he knew the company planned to use the letters in an attempt to secure a loan, the company had no credit line at the firm and had not established an account with the firm. 

Eduardo M. Tejeda: Barred

Wilbert Kneeland Roberts (Principal) 
AWC/#2006006198001/July 2007

Roberts borrowed $3,500 from a public customer without providing notice to, or obtaining approval from, his member firm. Roberts refused to submit to an NASD on-the-record interview. 

Wilbert Kneeland Roberts: Barred

John Francis Kavalec 
#2005002707301/2006004842802 consolidated/July 2007

Kavalec borrowed $25,000 from a public customer in contravention of his member firmís written supervisory procedures specifically prohibiting borrowing money from customers. 

John Francis Kavalec : Barred

Kenneth Cecil Holtsclaw (Principal) 
AWC/#2006006831001/July 2007

Holtsclaw falsified business expense reports, receiving $282.72 to which he was not entitled, because he requested reimbursement for restaurant gift cards or meals for unauthorized guests in addition to reimbursement for actual meal expenses in violation of his member firmís written supervisory procedures.  Holtsclaw failed to appear for an NASD on-the-record interview. (NASD Case )

Kenneth Cecil Holtsclaw : Barred

Adeline Aguilon Guzman (Principal)
AWC/#20060064931-01/July 2007 

Guzman borrowed $3,000 from a public customer in violation of her member firmís written procedures that prohibited borrowing money from customers under any circumstances. 

Adeline Aguilon Guzman : Fined $5,000;Suspended 10 business days in all capacities

Joseph Marshall Francis Jr. 
AWC/#20060066655-01/July2007

Francis opened brokerage accounts on a foreign citizenís behalf without disclosing that the citizen was the accountsí true beneficial owner. Francis failed to disclose to the member firms at which the accounts were opened that he was a registered representative of another firm and lied to a representative of one firm about the source of the funds he used to open the account. Francis failed to properly notify his member firm of the existence of the outside securities accounts. Francis engaged in an outside business activity without notifying his member firm. 

Joseph Marshall Francis Jr. : Barred

Marlene Hall Foster
AWC/#20050002644-02/July 2007 

By passively participating in a companyís recruitment of new investors, opening new accounts for them, accepting customer funds and orders, and later complying with the stock promoterís instructions on when public customers were to purchase stock in the company, Foster negligently assisted the promoter in artificially increasing the companyís stock price

Marlene Hall Foster: Fined $10,000 (includes $2,459 disgorgement); Suspended 6 months in all capacities

Bill Singer's Comment: What????? "Negligently assisting a promoter to artificially increase prices?"  What does that even mean?  And how does one even begin to define what is "passively" participating as opposed to regular participation?  If you carefully read this case, Foster opened new accounts (legal); accepted customer funds and orders (legal), and then did something referred to as "complying" with a promoter's instructions on "when" customers were to purchase the stock (not sure whether that's a violation or not).
Carliss Donald Dykes (Principal) 
OS/#E062004029602/July 2007

Despite knowing an individual was not registered with NASD, Dykes instructed the individual to contact public customers and discuss investments with them. The individual gave Dykes an application and other documents for the transactions involving a public customer, Dykes assigned the accounts to other registered representatives who had no involvement with the transactions and instructed one of the registered representatives to give the unregistered individual a $2,000 personal check as compensation for the sale of the annuities. 

Carliss Donald Dykes: Fined $10,000; Suspended 3 months in all capacities 

Charles Lawrence Doraine 
AWC/#2005002388201/July 2007

Doraine effected securities transactions in a public customerís account pursuant to instructions from a third party who, although verbally authorized to trade the account, was not authorized in writing to execute transactions in the account. 

Charles Lawrence Doraine: Fined $5,000; Suspended 5 business days in all capacities

Kayel Guy DeAngelis (Principal)
 #ELI2004032101/July 2007 

DeAngelis engaged in private securities transactions and maintained an outside securities account without prior written notice to his member firm. DeAngelis failed to respond to NASD requests for information. 

Kayel Guy DeAngelis: Barred

James Russell Day 
AWC/#2006005543701/July2007 

Day engaged in outside business activities without prompt written notice to his member firm. Day accepted $35,000 in loans from public customers without his member firmís approval. 

James Russell Day: Fined $10,000;Suspended 2 months in all capacities

Robert Scott Copeland (Supervisor) 
AWC/#E9B2004057401/July 2007

Copeland 

  • effected trades in public customersí accounts pursuant to discretionary trading arrangements without obtaining 
    • written authorization from the customers, and 
    • his member firmís acceptance of the accounts as discretionary;
  • recommended unsuitable transactions in fee-based customer accounts and engaged in improper short-term trading in Class B shares of mutual funds and shares of new-issue, closed-end investment companies;
  • recommended the purchase of new-issue, closed-end fund shares to customers and then within two weeks or less, recommended their sale to purchase other securities (which experienced immediate price declines); 
  • sold the funds before the price had a chance to recover, causing the customers to suffer losses from this unsuitable short-term buying and selling activity; and
  • engaged in unsuitable short-term trading of Class B shares of mutual funds resulting in the customers having to pay CDSC. 

Customers suffered $88,242 in losses from this unsuitable short-term buying and selling activity, while Copeland received net commissions of $37,000.

Robert Scott Copeland: Fined $7,500;Suspended 6 months in all capacities; Ordered to pay $88,242 in restitution

Paul Jude Casella (Registered Principal)
#ELI20040411-01/July 2007 

Casella caused his member firm to charge customer accounts a $150 fee for the costs associated with his firm changing clearing firms, although none of the firms actually incurred the costs. Casellaís firm would not have met its net capital requirement but for the $91,950 capital infusion obtained through the assessment of the $150 fee. 

Paul Jude Casella: Fined $10,000; Suspended 1 year in all capacities

Bill Singer's Comment: What???!!!  You can hit your accounts with a bogus $150 fee and use that money to keep your firm afloat, and all that warrants is a $10,000 fine and a one year suspension?  Compare with the Bruno and Bremmer cases below (both resulted in Bars) and explain what the difference was?
Eric Whetham Carlton (Registered Supervisor) 
OS/#2005000726801/July 2007

Carlton submitted forged and falsified documents to his member firm, causing its records to be falsified. Carlton misused $33,000 of public customersí funds by causing unauthorized transfers from the customers family trust account to other customer accounts; and he engaged in unauthorized trading in a public customerís account without the customerís knowledge, authorization or consent. Carlton forged, or caused to be forged, customersí signatures on a letter of authorization that directed transfer of $5,250 out of the customersí family trust account. 

Eric Whetham Carlton: Barred

Stephen Ennio Capella 
AWC/#2007008076101/July 2007

Capella  received a completed application for an insurance policy from a public customer that was signed incorrectly. Capella crossed out the misplaced signature, signed the customerís name on the correct line of the application without the customerís authorization or consent and then submitted the application to the insurance company. T

Stephen Ennio Capella: Fined $5,000; Suspended 3 months in all capacities.

Bill Singer's Comment: I have long railed against forgery (and the NASD's many euphemisms for same) but this case troubles me -- even if only a bit.  I fully respect the decision to sanction this conduct because you simply do not want RRs signing customers' names to anything, without the customer's prior authorization.  Moreover, even with prior authorization, it's far better conduct to absolutely prohibit such an accommodation, which is what many firms follow.  Okay, so now we get to the big HOWEVER. Going solely on the basis of what the NASD reported, I would have agreed with the imposition of the $5,000 fine (although $1,000 would have been fine with me).  However, I see no reason to impose a 3 month suspension given the facts.  And for those who believe a suspension is necessary, I would suggest that one week or one month would have been more than appropriate.
Anna Bruno (Principal) 
AWC/#2006004927401/July 2007

Bruno improperly obtained $193.50 from a bank at which she was employed by submitting expense reports that overstated her actual expenses. 

Anna Bruno: Barred

Shannon Lynn Bremmer
#2005003490501/July 2007 

While working in a branch bank affiliate of her member firm, Bremmer "removed $7,800 in cash from the vault and her cash drawer without authority and converted the funds to her own use."

Shannon Lynn Bremmer: Barred

Bill Singer's Comment: What wonderful regulatoryspeak!  Where you and I would simply say that Bremmer "stole" the cash, the NASD manages to expand that term into removing the cash without authority and converting the funds for her own use.  It must be nice to have such a large dictionary at one's disposal.
Timothy Behany (Registered Supervisor) 
#E9B2003026301/July 2007

Behany improperly obtained contingent 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. As such,  several mutual fund companies were deprived of fees to which they were otherwise entitled; and his member firmís books and records relating to redemptions to contain false and misleading information regarding the customers. 

Timothy Behany: Fined $40,000; Suspended 2 years in all capacities and required to requalify

Ruben Francisco Augusta (Principal) 
AWC/#E9B2005016801/July 2007

August performed Web CRD searches on individuals who were not seeking employment with his member firm and falsely affirmed to Web CRD that he had obtained and would keep the required written consent in connection with those searches on file. Augusta failed to comply with his member firmís written supervisory procedures to retain hard copies of business-related email correspondence from outside email accounts in a file at his member firm. Augusta permitted associated persons to act in the capacity of research analysts without being properly registered with NASD. Finally, Augusta failed to review registered representativesí business-related email correspondence when they used outside email accounts

Ruben Francisco Augusta: Fined $25,000;Suspended 1 year in Principal capacity; Suspended 1 month in all capacties.

Bill Singer's Comment: And yet another Web CRD case this month.  Once again, if the guy or gal isn't registered with your firm, you're supposed to get written consent to conduct the search.  And, as in this case, if they're not even seeking employment with your firm, then you probably shouldn't even think of checking them out on CRD.  Why?  Well, geez, let's think about it for a second -- you're accessing of the records is likely leaving a footprint that will be traced back to you and/or your firm.
Flynn Lambert Andrew (Principal) 
AWC/#E0420040369-05/July 2007

In letters and emails sent to the public, he used the phrase ďguaranteeĒ or ďguaranteedĒ regarding specified rates of return without making the necessary commensurate disclosures about the issuerís claims-paying ability or that there might be holding periods to obtain the rates of return. Andrewís communications compared variable annuities and mutual funds without the necessary disclosures that there are numerous mutual funds available and other costs and restrictions associated with variable annuities that might not apply to mutual funds. 

Flynn Lambert Andrew: Fined $10,000; Suspended 10 business days in all capacities

White Mountain Capital, LLC
AWC/#E9B2005016802/July 2007

The Firm's written supervisory procedures were not reasonably designed to ensure that the firm obtained and retained the required written consent for pre-registration searches on Web CRD and because of its deficiencies, the firm failed to obtain and/or retain the required written consent in connection with Web CRD searches of at least eight individuals. The Firmís written supervisory procedures were not reasonably designed to ensure compliance with the email retention and review requirement, and that it failed to maintain and preserve all of its business-related electronic communications as SEC Rule 17a-4 requires. The findings also stated that it failed to implement a written AML program reasonably designed to achieve compliance with the requirements imposed by the Bank Secrecy Act and the regulations promulgated thereunder and specifically failed to establish and implement an adequate Customer Identification Program. The findings also included that the firm permitted associated persons to act in the capacity of research analysts without being properly registered with NASD, and issued several research reports the associated persons prepared. (NASD Case )

White Mountain Capital, LLC: Censured; Fined $100,000; Required to review its supervisory system and procedures concerning preservation of electronic communications, registration of representatives and pre-registration Web CRD searches for compliance with federal securities laws, regulations and NASD rules. 

Bill Singer's Comment: NASD remains on a tear over the improper use of its Web CRD system.  If the guy or gal isn't registered with your firm, you're supposed to get written consent to conduct the search.  
Sandgrain Securities, Inc. 
AWC/#2006003887501/July 2007

The Firm failed to preserve copies of internal and external electronic mail communications. The Firm failed to timely report 

  • statistical and summary information regarding customer complaints; f
  • report settlements in excess of $25,000 of customer claims against the firm and people associated with the firm; and f
  • the settlement of a customer claim in excess of $15,000 against people associated with the firm. 

Finally, the Firm failed to amend, or ensure the amendment of, Forms U4 and U5 to disclose customer complaints and the resolution of the complaints. 

Sandgrain Securities, Inc. : Censured; Fined $50,000; Required to provide to NASD written certification and documentation that any filings required under NASD Rule 3070 and amendments to Uniform Applications for Securities Industry Registration or Transfer (Forms U4) or Forms U5 and are the subject of this NASD disciplinary action have been completed.

Pruco Securities, LLC and Prudential Investment Management Services LLC
AWC/#EAF0401420002/July 2007

The Firms committed numerous separate violations of NASD rules, including failures to

  • file advertisements and sales literature in a timely manner with NASD;
  • have a registered principal approve advertisements and sales literature prior to use with the public;
  • comply with their recordkeeping obligations for communications with the public;
  • establish, maintain and enforce supervisory systems and procedures reasonably designed to achieve compliance with NASD rules governing filing, approval and recordkeeping with respect to advertising and sales literature;
  • file pieces in a timely manner with NASD (and lacked adequate systems and procedures to monitor the timeliness of NASD filings);
  • take sufficient remedial actions in response to written warnings from NASD that its filings were not timely

The firms used advertisements with the investing public before a registered principal approved the sales literature for use that went largely undetected by the firms, as they had no systems or procedures to record when advertisements were first used with the public, and their systems and procedures to detect when advertisements were used prior to the requisite internal approval were not adequate. The Firms failed to create and maintain reliable records of when advertisements were approved by a principal, and a flaw in their computer system caused inaccurate approval date records to be created and maintained. Finally, the Firms failed to retain records of filings with NASDís Advertising Department and filed inaccurate dates of principal approval with NASD.

Pruco Securities, LLC and Prudential Investment Management Services LLC: Censured; Fined $525,000 jt/sev; Required to conduct an audit and prepare written findings regarding their compliance with NASD rules relating to the filing, approval and recordkeeping requirements for advertisements and sales literature.

Legend Equities Corporation
AWC/#2006003703501/July 2007

The Firmís system and procedures were not reasonably designed to ensure that all registered representatives used the firmís electronic server for business-related electronic communications. The Firm failed to provide for reasonable follow-up and review on indications that some of its registered representatives were using external email accounts;and as the result of the supervisory deficiencies, the firm failed to maintain and preserve certain of its electronic communications as SEC Rule 17a-4 requires. The Firm failed to implement a reasonable supervisory system and written procedures for follow up and review to ensure that a registered representative conducting business at a bank location completed forms required in accordance with NASD Rule 2350(c)(3) and provided the forms to public customers. 

Legend Equities Corporation: Censured; Fined $110,000; Required to review its procedures regarding required disclosures to customers and the preservation of electronic mail communications for compliance with federal securities laws, regulations and NASD rules

Bill Singer's Comment: Another firm gets hit for external email accounts.  And just allow me this peevish comment:  If this is such a growing regulatory issue (which the increasing numbers of cases would suggest), then why doesn't NASD help us all out a bit --instead of writing a mystery novel.  I don't think that most folks can easily think of a way to detect that their firm's RRs are using external email accounts.  In this case, NASD says that there were "indications" of external accounts being used.  I can think of a few things that might give such a head's up, but wouldn't it have been more helpful if NASD explained what such red flags are?  At the end of the day, is this an academic exercise or are we all supposed to be learning something to aid us in remaining compliant?
Joseph Gunnar & Co. LLC 
AWC/#E102005022102/July 2007

The Firm permitted an individual to maintain his registration as a general securities representative through his purported association with the firm, when in fact he was not actively involved in the firmís securities or investment banking business, or otherwise functioning as a firm representative. 

Certain communications with the public contained several deficiencies in that: the firm failed to 

  • provide evidence that a registered principal approved its Web site prior to use
  • file communications that contained discussions of options, mutual funds and U.S. government securities; 
  • state the name and address of the person from whom current options disclosure documents could be obtained on pieces of the firmís promotional materials that contained discussions of options;
  • supplying a sound basis for evaluating the statements made in some of the firmís communications; and
  • meet the disclosure and content requirements in NASD Conduct Rule 2711(h) in research reports that it prepared and distributed.

Joseph Gunnar & Co. LLC : Censured; Fined $35,000

Bill Singer's Comment: And yet another "parking" case this month!  Word to the wise --- and the not so wise.  We also see another firm getting hit for supervisory deficiencies pertaining to its web site.
Griffin Securities, Inc.
AWC/#2006003689401/July 2007

The Firm held customer stock certificates in a safe on its premises, despite a provision in its membership agreement requiring that the firm not safe keep customer securities. As a result of the firm holding customer securities, it conducted a securities business while failing to maintain its minimum net capital requirement. The Firm caused draft research reports containing price targets and/or ratings to be sent to companies that were the subjects of the reports when they should not have been sent. 

Griffin Securities, Inc.: Censured; Fined $20,000

Bill Singer's Comment:  This is an interesting twist and one I haven't seen in years.  If you look at your Membership Agreement, most of you will see that you are an introducing firm and not permitted to maintain/receive cash or securities.  Moreover, your Net Capital requirement is actually geared to the fact that you are not maintaining cash/securities -- as such, you are permitted to maintain a lower dollar level.  However, if you hold certs (and put them in a safe on premises!), then you will not only be in violation of your Membership Agreement prohibiting such activity, but you will also blow you Net Cap requirement and find that a much higher obligation is retroactively imposed.
Gregory, Zent & Swanson, Inc.
AWC/#E8A2004095002/July 2007

The Firm failed to 

  • retain a copy of a discretionary authorization agreement for a customerís discretionary account;\
  • maintain a copy of a customerís written complaint;
  • adequately and properly supervise unregistered associated persons who were permitted to receive and direct the correspondence the firm received; and 
  • provide training to properly identify customer complaints related to securities activities and to forward them to the firmís appropriate registered principals so they could be properly reviewed, maintained and timely reported to NASD. 

Gregory, Zent & Swanson, Inc.: Censured; Fined $10,000

Equity Services, Inc. 
AWC/#2005002217001/July 2007

The Firm's supervisory system and written policies and procedures did not adequately ensure compliance with NASD rules relating to the payment or reimbursement of non-cash compensation. The firmís associated persons received non-cash compensation from insurance companies in connection with the sale of variable annuities and investment company securities that violated NASD rules, but the firm approved or failed to detect non-cash compensation programs. The Firm failed to properly preserve emails in its home office and failed to properly journal email for custodians in its Office of Supervisory Jurisdiction (OSJ).

Equity Services, Inc. Censured; Fined $350,000; Required o review its policies and procedures concerning non-cash compensation. 

Colonial Brokerage, Inc. 
AWC/#2006003761801/July 2007

The Firm failed to 

  • perform an annual evaluation and prioritization of its training needs and failed to develop a written training plan;
  • have a reasonable system for email review although it had established parameters through an automated system to flag emails that required review (The firm actually reviewed only some of the emails that met the parameters);
  • timely conduct branch office inspections for the branch offices that did not supervise non-branch locations; and
  • failed to report many of its municipal securities transactions to the MSRB

Colonial Brokerage, Inc. : Censured; Fined $25,000

Bill Singer's Comment: It appears that the Firm installed an automated system to flag emails.  It appears that the system worked.  However, it appears that human error resulted in the failure to review all flagged emails. I mean, geez, even if you're only going to go through the motions of such a review, you would at least think that the Firm would have documented such oversight.  Sort of puzzling that you have a computerized system flagging messages and then you don't review those messages . . . particularly given that NASD is so hot and heavy on this electronic correspondence stuff.
Casimir Capital L.P. 
AWC/#2005000863101/July 2007

The Firm failed to timely report statistical and summary information for customer complaints as NASD Rule 3070(c) requires. The Firm and its associated persons made numerous calls to people who had previously requested to be placed on the firmís do-not-call list, and the firm failed to adequately train its personnel in the procedures it had established to avoid violations of do-not-call rules. 

Casimir Capital L.P. : Censured; Fined $37,500

Bill Singer's Comment: Let's see . . . what upsets folks more than asking to be placed on a DNC list, and then getting called back?  Hmmm.  Not much of a surprise that some of these folks likely called up NASD with complaints.  Word to the wise!
Pension Fund Evaluations, Inc. and Gregory George Philipps (Principal)  
AWC/#ELI2005005401/July 2007

Acting through Philipps, the Firm 

  • permitted a registered person to continue to perform duties that require registration while his NASD registration was inactive due to his failure to satisfy the regulatory element of his continuing education requirements;
  • failed to develop an anti-money laundering (AML) program reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and the implementing regulations promulgated thereunder;
  • permitted an individual to park his registration with the firm;
  • failed to establish, maintain and enforce an adequate supervisory system and written supervisory procedures reasonably designed to achieve compliance with applicable securities laws, regulations and NASD rules concerning annual compliance meetings, customer complaint reporting, designation of titles, registration status and location of supervisory personnel, private securities transactions, outside business activities and review of correspondence;
  • did not have a system to retain email communications relating to its business that Philipps sent or received using his personal email account, and failed to preserve copies of such electronic communications; and
  • failed to maintain net capital, in the amount of $5,000, and actually had negative net capital. (NASD Case )

Pension Fund Evaluations, Inc.: Censured; Fined $7,500 jt/sev with Philipps; Fined $18,500 

and Gregory George Philipps (Principal): Censured; Fined $7,500 jt/sev with the Firm; Fined $2,500

Bill Singer's Comment: For all you vocal First Amendment advocates who persist in telling me that I'm wrong --- please note that NASD considered it a violation for a Firm to not maintain a system to monitor an RR's "personal email account" to send business email.  And we see our old friend, "Parking" has raised its head, yet again.
First Citizens Financial Plus, Inc. and James Thomas Hopper (Principal) 
AWC/#2006003762801/July 2007

Acting through Hopper, the Firm issued sales literature to its public customers that omitted material facts and failed to file the newsletters, which discussed registered investment companies, with NASDís Advertising Department 10 days prior to first use. 

First Citizens Financial Plus, Inc.and James Thomas Hopper (Principal): Censured; Fined $10,000 jt/sev.

Bill Singer's Comment: RRs are always writing to me and asking why they can't just write up some brochure and send it out at their own expense.  Well, here's one answer -- you need to file newsletters with NASD's Advertising Dept. 
Investprivate, Inc., Donald Geraghty (Principal), Scott Lee Mathis (Principal) and Ronald S. Robbins 
OS/# C1020040052/July 2007

Acting through Mathis, the Firm 

  • directly or indirectly, by the use of means or instrumentalities of interstate commerce or of the mails, negligently made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading by 
    • distributing, or causing to be distributed, to investors or potential investors, private placement memoranda (PPM) that contained material misrepresentations or omissions, and 
    • failing to supplement or amend the PPMs during periods in which each remained in effect so that they did not contain material misrepresentations or omissions of fact that occurred after the PPMs were issued. 
  • offered and sold securities without registration statements filed with the Securities and Exchange Commission (SEC). 

Acting through Geraghty, the Firm 

  • failed to report a written customer complaint
  • failed to timely report a written customer complaint; and 
  • failed to report the settlement of customer complaints to NASD that involved payments in excess of $25,000;
  • failed to implement, maintain and enforce an effective supervisory system that would have enabled the firm to comply with federal securities laws and NASD rules;
  • failed to implement, maintain and enforce reasonable systems and procedures to ensure that PPMs did not contain material misrepresentations and omissions; 
  • failed to ensure that the accounts used for deposit of contingency offerings the firm conducted complied with SEC Rule 15c2-4; and 
  • failed to retain email records related to its business in compliance with Rule 17a-4 of the Securities Exchange Act and NASD Rule 3110. 

Acting through Robbins, Mathis and Geraghty, the Firm 

  • violated NASD Membership and Registration rules by permitting Robbins to engage in activity requiring registration as a general securities principal and a general securities representative without obtaining the required registrations;
  • failed to establish qualified escrow accounts on contingency offerings as required by SEC Rule 15c2-4 and failed to maintain its minimum net capital;
  • failed to preserve complete electronic mail communications by routinely deleting the contents of electronic mail folders of all employees who left the firm and deleted portions of the contents of current employeesí electronic mail folders. 

Investprivate, Inc.: Censured; Fined $205,000 ($67,500 of which is jt/several with Mathis; $40,000 jt/sev with Mathis and Geraghty; and $15,000 jt/sev with Geraghty); Suspended 60 days from seeking or accepting new engagements to conduct or participate in the offer or sale of unregistered securities through any private offering, private placement or private investment in public equity (PIPE) transactions for 60 days (ED: the double reference to "60 days" is in the original). The firm was also required to retain an independent consultant to conduct a comprehensive review of the adequacy of the firmís policies, systems and procedures (written or otherwise) and training relating to the offer or sale of unregistered securities through any private offering, private placement or PIPE transactions. 

Donald Geraghty (Principal): Fined $40,000 jt/sev with Mathis and the Firm; and $15,000 jt/sev with the Firm; Suspended 30 days in principal capacity

Scott Lee Mathis (Principal): Fined $67,500 jt/several with the Firm; $40,000 jt/sev with Geraghty and the Firm; Suspended 30 days in principal capacity

Ronald S. Robbins: Fined $10,000; Suspended 10 business days in all capacities

Bill Singer's Comment: The sanction on the Firm is interesting.  The Firm is suspended for 60 days from private offerings.  Okay, fine . . . that's a sensible sanction for the underlying problem.  Now, when are we going to see such suspensions imposed on wirehouses? I'll let you know when I see one.
Arnold Ira Roseman (Principal) 
AWC/#E072004005002/June 2007

Roseman failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to achieve compliance with his member firmís obligation to preserve electronic communications related to its business. Roseman failed to establish and maintain written supervisory procedures reasonably designed to achieve compliance with the firmís obligation to conduct an annual inspection of each OSJ, to supervise the activities of each registered representative, in that the firmís procedures did not address the circumstances that would warrant heightened supervision of a representative after the representative was hired, and to amend its registered personsí Forms U4 if the information previously provided became inaccurate.  Roseman did not evaluate and prioritize the firmís training needs or develop a training plan. 

Arnold Ira Roseman : Censured; Fined $15,000

Marylan Katherine Taylor 
#C8A20050027/E8B20030292/June 2007 National Adjudicatory Council imposed sanction following appeal from Office of Hearing Officers Decision. 

Taylor submitted falsified documents to the insurance division of a state regulator that represented that her insurance licenses were in good standing when in fact they were inactive due to her failure to complete continuing education. Taylor failed to timely amend her Form U4 to disclose material information and that she failed to respond truthfully during an NASD on-the-record interview. 

Marylan Katherine Taylor: Barred

Alison Esther Taylor (Principal) 
AWC/#E0420040369-04/June 2007

Taylor failed to reasonably and adequately supervise registered representatives who violated various provisions of NASD Rule 2210 and SEC Rule 482 in their communications with the public. Taylor approved some of the public communications. Taylor failed to reasonably and adequately supervise a registered representative with respect to a customer complaint for a loss relating to an investment that the representative settled away from the firm, and Taylor failed to create a written record that there was a problem with the account or to follow-up with the representative prior to his decision to send a letter to the customer and make payment to the customer directly. Neither Taylor nor the representative notified the firm of the issue before payment was made and the letter was sent. 

Alison Esther Taylor: Fined $5,000; Suspended 15 business days in principal capacity only

Plase Michael Tansil 
OS/#2005002229201/June 2007

Tansil made an improper guarantee to public customers, misused customer funds to cover a shortfall regarding the guarantee, made material misrepresentations to customers that their funds would be used for investment purposes, and settled a customer complaint without his member firmís knowledge or consent. 

Plase Michael Tansil : Barred

James Everett Robson Jr. 
AWC/#2006005364001/June 2007

Robson signed a deceased customerís name to multiple Individual Retirement Account (IRA) Distribution Request Forms and checks without the knowledge and consent of the customer or his widow. After forging the customerís signature, Robson made checks totaling approximately $31,240 payable to himself and deposited the funds into his personal bank account without the customerís or his widowís knowledge or authorization, thereby converting the customerís funds. Robson failed to respond to NASD requests for information. 

James Everett Robson Jr.: Barred

Bill Singer's Comment: And how do you get the "knowledge and consent" of a deceased customer?  That one I would love to learn!  
Fredric Joseph Palmieri
AWC/#2006005437501/June 2007

Palmieri knowingly submitted a false claim to an insurance company requesting payment for the theft of his automobile when he was aware that the vehicle had not been stolen. 

Fredric Joseph Palmieri: Barred

Bill Singer's Comment: And this becomes an NASD regulatory matter because of what?????  Just out of curiosity, does NASD staff get terminated for DUIs or parking in a handicapped zone?  
Phillip Earl Nelson (Principal) 
AWC/#2006004829701/June 2007

Nelson submitted a handwritten note to a public customer in which he made a false, exaggerated, unwarranted and/or misleading claim and an impermissible performance prediction or projection regarding a variable annuity he recommended to the customer. 

Phillip Earl Nelson: Fined $7,500; Suspended 60 days in all capacities

Bill Singer's Comment: They're making it easy for you folks.  No off-the-cuff handwritten notes on cocktail napkins.  No instant messages.  No emails.  No mailings. Maybe in a few more months they won't let you use the telephone.  Hmm . . . could semaphores be coming back?
Darrell Craig Lerner 
OS/#2005000440701/June 2007

While registered with his member firm, Lerner did not conduct any firm business but parked his license with the firm. Lerner engaged in outside business activities and private securities transactions while his license was parked.  Lerner failed to disclose a material fact on his Form U4 and provided false testimony under oath during an NASD on-the-record interview. 

Darrell Craig Lerner : Barred

Bill Singer's Comment: We haven't seen too many of these parking cases lately -- perhaps the tide is now changing?  Of course, I'm still wondering how Lerner was  engaged in private securities transactions but the level of that activity was not sufficient to "validate" the need for a securities license.  Seems to me that he may have been able to argue that he needed to be registered given the possibility that his private securities transactions would necessitate such status or could result in business/referrals to his employing BD.
Alexis Casimir Korybut (Principal) 
OS/#E072004002301/June 2007

While acting on his member firmís behalf, Korybut failed to 

  • ensure that his firm complied with an independent consultantís recommendations to remedy the deficiencies identified in the firmís prior NASD settlements;
  • implement the various procedures recommended in the consultantís reports
  • establish and implement adequate systems and procedures for monitoring the activities of the firmís producing branch managers who approved account documentation and reviewed account activity and correspondence for their own customer accounts; 
  • designate a registered principal as an office of supervisory jurisdiction (OSJ) supervisor; 
  • establish and implement procedures for monitoring activities such as excessive ďcancels and rebillsď that might serve as ďred flagsď for detecting possible unauthorized transactions; and 
  • establish procedures in an OSJ for ensuring a registered principal reviewed outgoing and incoming branch correspondence. 

Alexis Casimir Korybut: Fined $25,000; Suspended 15 business days in all capacities; Suspended 60 days in principal capacity.

Bill Singer's Comment: As bad as it is to violate a rule, it's even worse to fail to keep your word when you've promised a regulator to do correct a prior violation (and then you don't).  
Charles James Cuozzo Jr. 
#C9B0050011/June 2007 National Adjudicatory Council imposed sanction following appeal from Office of Hearing Officers Decision. 

Cuozzo falsified dates and information on numerous Regulation 60 annuity replacement forms and inserted a false statement on a public customerís Regulation 60 annuity replacement form, which resulted in the falsification of a firm document. 

Charles James Cuozzo Jr. : Fined $5,000; Suspended 1 year in all capacities; Required to requalify as General Securities Representative.

Bill Singer's Comment:  Visit this LINK for more details on Regulation 60 issues: 
Carl Thomas Cirillo
OS/#20050000286-03/June 2007

Cirillo employed fraudulent sales practices when, in a private placement, he recommended and sold to public customers units of a company that had minimal assets and no business operations and was owned and controlled by his family member. Cirillo guaranteed a customer against loss. 

Carl Thomas Cirillo: Fined $12,000; Suspended 60 days in all capacities.

Bill Singer's Comment: Cirillo either had a great lawyer or the NASD has over-blown the allegations.  Frankly, he's lucky to have gotten off with only a $12,000 fine and a 60 day suspension.  
Francis Bart Bertholic Jr. (Principal) 
AWC/#2006004272701/June 2007

Bertholic engaged in private securities transactions without prior notice to, or approval from, his member firm. TBertholic received $435,000 from public customers to purchase a promissory note from which the proceeds were to be invested in real property or to maintain and improve real property and, instead, Bertholic used the funds for his personal benefit. Bertholic published newspaper advertisements, a brochure and a flier, and developed a Web site that did not disclose his firmís name and were not approved by a registered principal of the firm. The brochure and Web site did not provide a balanced discussion of the risks involved in real estate lending; did not disclose risks and contained false, exaggerated, unwarranted and/or misleading statements. The Web site presented testimonials from purported customers who, in fact, had never transacted any business with Bertholic. 

Francis Bart Bertholic Jr.: Barred

Bill Singer's Comment: An interesting case that explains why individual RRs should not simply go out and run their own promotional materials.  This case is also interesting in that we see an NASD warning against developing a Website -- a lot of folks only think of these issues in terms of written ads and brochures.  
James Wayne Alldredge (Principal) 
AWC/#2006005317101/June 2007

Alldredge borrowed money from public customers while registered with a member firm. Alldredge submitted false and misleading documentation to his member firm concerning variable annuity switch transactions, in which he concealed the fact that the funds for the new annuity purchase were the proceeds of the liquidation of an existing variable annuity, and failed to process the transactions as Section 1035 exchanges. Alldredge failed to respond to an NASD request to give testimony. 

James Wayne Alldredge : Barred

White Pacific Securities, Inc.  
AWC/#E0120040096-02/June 2007

The Firm's anti-money laundering (AML) compliance program and written procedures were not reasonable designed to achieve and monitor compliance with the Bank Secrecy Act in that

  • the AML compliance program as a whole was not ďrisk-basedď when viewed in the context of the firmís business, and 
  • the geographic locations of its customers and the procedures for monitoring accounts for suspicious activity were not reasonably designed to detect such activity in light of the nature of the firmís business and its customer base. 

The Firm failed to implement its AML compliance program, in that the procedures required annual training and no annual training was provided between April 2002 and September 2004, and the firm did not include all information required by the Bank Secrecy Act, the regulations promulgated thereunder and its AML procedures on documentation pertaining to wire transfers and other fund transmittals. 

The Firm failed to retain all electronic communications related to the firmís business and did not have a supervisory system or written procedures reasonably designed to detect and prevent failures to retain required communications. 

The Firmís supervisory system and written supervisory procedures, and its enforcement thereof, were not reasonably designed to achieve compliance with applicable laws, rules and regulations regarding 

  • the payment of transaction-based compensation to foreign finders
  • compliance with the requirement to conduct an annual compliance interview with each registered representative; 
  • providing account records to customers when an account is opened and at specified intervals thereafter; 
  • compliance with SEC Rule 17a-3(a)(6) concerning the completeness of order memoranda; conducting required reviews for compliance with ďbest executionď requirements; 
  • marking order memoranda to identify discretionary transactions; and 
  • compliance with NASD rules pertaining to communications with the public in light of the various methods and languages the firmís representatives used in such communication

The Firm paid transaction-related compensation to a foreign entity not registered as a broker-dealer and permitted its affiliated individuals who handled the referral business to function as firm representatives without registration. The Firm met some, but not all, of the conditions in NASD Rule 1060(b) for such payments to be permissible. 

White Pacific Securities, Inc. : Censured; Fined $125,000

Bill Singer's Comment: WOW!!! A truly impressive conglomeration of Don'ts.  I would certainly put this one in a Regulatory Casebook in order to train all budding compliance folks.  I'm just puzzled as to why no individual was named?  Wasn't any human being responsible for any of these shortcomings?
Taglich Brothers, Inc. 
AWC/#ELI2005004501/June 2007

The Firm failed to enforce its written supervisory procedures requiring annual reviews of its fee-based retail customer brokerage accounts to review the appropriateness of the compensation structure for each customer and documentation of the reasons customers choose a fee-based account. 

Taglich Brothers, Inc. : Censured; Fined $25,000

State Street Global Markets, LLC 
AWC/#2006003803901/June 2007

The Firm failed to implement an adequate supervisory system and written procedures designed to ensure that all electronic communications relating to its business as a broker-dealer are captured and retained. The firmís supervisory system failed to provide for effective follow-up and review or other monitoring of instant message (IM) usage at the firm to ensure that all IM users had properly synchronized their network login passwords and that all electronic communications were being retained. The Firm failed to maintain and retain all business-related IM communications its registered representatives sent and received. 

State Street Global Markets, LLC : Censured; Fined $100,000; Required to review procedures regarding the preservation of electronic mail communications for compliance with NASD rules and federal securities laws and regulations

Bill Singer's Comment: Another in a growing number of IM cases.  This looks like a regulatory growth area.
New York Global Securities, Inc.
AWC/#E1020050319-01/June 2007

The Firm prepared and issued research reports to public customers that violated NASD rules governing the content and disclosures required for equity research reports and rules governing content standards for communications with the public. The reports failed to disclose the firmís actual, material conflicts of interest, the percentage of all securities rated by the firm to which is would assign a ďbuy,Ē ďhold/neutralĒ or ďsellĒ rating, the risks that may impede the achievement of cited price targets. The firm also failed to provide clear and comprehensive disclosures, used appropriately conditional and/or indefinite language in disclosures, and failed to provide readers with a sound basis from which to evaluate a potential investment. 

New York Global Securities, Inc: Censured: Fined $45,000; Suspended from issuing any research reports for six months

Bill Singer's Comment: Assuming that the Firm failed to abide by the disclosure standards, I have no quibble with the sanctions.  However, when will we see a wirehouse suspended from issuing research reports for days and weeks (much less months)? 
Coker & Palmer 
AWC/#2006003761701/June 2007

The Firm issued research reports that (i) did not contain any disclosures concerning the risks that might impede achievement of a price target; (ii) contained price target-risk disclosures, but such disclosures were not presented in the required form; and/or (iii) failed to disclose the percentage of all securities the firm rated to which it had assigned a buy, hold or sell rating, and the percentage of companies within each category for which the firm had provided investment banking services within the preceding twelve-month period. 

Coker & Palmer : Censured; Fined $10,000

Bathgate Capital Partners LLC and Steven Charles Signer (Principal)
AWC/#E3A2005002701/E3A2005002702/June 2007

Signer sent and received electronic correspondence related to the firmís securities business using his own email provider and failed to copy the firm on all email communications as required by the firmís procedures. The Firm failed to retain and preserve all of Signerís business-related email and to preserve all of it in a non-erasable and non-rewritable format. The Firm's supervisory systems and procedures were not reasonably designed to achieve compliance with SEC Rule 17a-4 since they did not adequately provide for capturing, retaining and preserving Signerís business related emails when he failed to copy or forward them to the firm. Finally, the Firm failed to conduct an annual inspection of Signerís branch office pursuant to NASD Rule 3010(c) and its own written procedures. 

Bathgate Capital Partners LLC: Censured; Fined $50,000

Steven Charles Signer (Principal): Censured: Fined $15,000

Bill Singer's Comment: I'm just a tad puzzled by the sanctioning logic here --- which may well be valid but the NASD might have spent a bit more time clarifying what seems to be an inconsistency.  If Signer used his "own email provider" and "failed to copy the firm"  AS REQUIRED BY THE FIRM'S PROCEDURES, then why is the firm being charged with failing to retain his communications?  Isn't the firm a victim here of Signer's deceit or, at best, his misunderstanding of the email policy?  Something here just doesn't make sense.
Anderson & Strudwick, Incorporated and Bradley Allan Brown (Principal)
AWC/#2006003775301/June 2007

The Firm failed to timely report municipal securities transactions to the MSRB. In contravention of NASD Rule 2711(g)(3) trading restrictions in a ďresearch analyst account,ď Brown effected securities transactions in accounts he owned, each of which involved securities issued by a company he followed as a research analyst (moreover, the transactions were inconsistent with his recommendations as reflected in his most recent research report his member firm published). The Firm and Brown issued research reports that did not include either price charts and price target disclosures or information required by Rule 2711(h)(6) and (7), or information directing readers in a clear manner where they could obtain applicable current disclosures in written or electronic format, and issued one firm research report that failed to include price charts and price target disclosures. The Firm failed to establish, maintain and enforce written supervisory procedures reasonably designed to achieve compliance with its trade reporting obligations and failed, in certain respects, to implement and adequately enforce its written supervisory procedures relating to NASD Rule 2711(h). 

Anderson & Strudwick, Incorporated: Censured; Fined $17,500 ($5,000 of which is jt/several with Brown) 

Bradley Allan Brown (Principal): Censured; Fined $10,000 ($5,000 of which is jt/several with Firm)

Bill Singer's Comment: I've noticed a recent increase in research action. As I noted several months ago, I believe that NASD will be focusing on trading done by analysts, and this case underscores that contention.  Pointedly, Compliance Depts must be very careful to scrutinize not only all trading by an analyst on covered companies (by now you would think that would be a given) BUT -- even more important -- you MUST flag any trading activity that is inconsistent with published recommendations.  As critical as I am of so-called "red flags," there is no question in my mind that an analyst trading contra to a firm's published recommendation is a clear warning sign of potential trouble.
Donner Corporation International nka National Capital Securities, Inc., Jeffrey Lyle Baclet (Principal), Paul Alan Runyon 
#CAF20020048/June 2007 The United States Securities and Exchange Commission imposed sanctions on appeal of a National Adjudicatory Council Decision that imposed sanction following appeal from Office of Hearing Officers Decision

Acting through Baclet, the Firm issued research reports on companies whose stock traded below $5 per share that failed to disclose material information and contained misleading, exaggerated and false statements. The Firm and Baclet failed to disclose that the firm had received compensation for the preparation and issuance of research reports on the issuersí behalf. Through Baclet, the Firm failed to obtain signed approval of research reports prior to their dissemination. The Firm and Baclet failed to establish, maintain and enforce adequate written supervisory procedures reasonably designed to achieve compliance with applicable securities laws and NASD rules concerning the preparation and issuance of research reports. Runyon issued research reports that contained material misstatements and omissions. 

Donner Corporation International nka National Capital Securities, Inc: Expelled

Jeffrey Lyle Baclet: Barred

Paul Alan Runyon: Fined $20,000; Suspended 6 months in all capacities; Required to requalify as General Securities Representative and Principal  

Bill Singer's Comment: The SEC Opinion states that 

Under a typical agreement between Donner and an issuer, Donner received an initial retainer fee of $2,500, $2,000 per month for services provided, and $2 to $3 for each investor package mailed to potential investors. Some agreements also provided that Donner would receive stock if the company's share price exceeded a certain level after Donner initiated coverage of the company. Uberti testified that, for the companies Baclet gave him "to handle," Uberti received fifty percent of the amounts "generated by [Donner's] relationship with the company."

If you are unfamiliar with these "touting" cases, you might want to visit http://sec.gov/litigation/opinions/2007/34-55313.pdf and read the details of these types of arrangements.  The statement of facts is quite well crafted and offers some fascinating insight.

Blacklake Securities Corporation and Wesley Arthur Bennett Jr. (Principal)
#E102004005702/June 2007

Acting through Bennett, the Firm 

  • engaged in proprietary trades that required a higher minimum net capital and failed to file the required application, and receive NASD approval, to change the membership agreement under SEC Rule 15c3-1 before engaging in the proprietary trades. 
  • failed to report statistical and summary information regarding customer complaints

Bennett willfully failed to timely amend his Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose material facts. 

Blacklake Securities Corporation: Expelled 

and Wesley Arthur Bennett Jr. (Principal): Barred

Neilson Ojastro Valdejueza
AWC/#20060057612-01/May 2007

Valdejueza deposited cash in varying amounts to his personal bank account at an automated teller machine (ATM) and each time falsely represented the amount of the deposit by adding zeros to the deposit amount when entering it on the ATM keypad. Valdejueza intentionally entered the false deposit amounts knowing that the bank would credit them to his account and that he would have access to funds to which he was not entitled until the bank reconciled the false entries. 

Neilson Ojastro Valdejueza: Barred

Maria Teresa Taussi 
#2005002322601/May 2007

Taussi converted $80,000 from her member firm for her own use and benefit by cashing checks that were issued to ďCashĒ and falsely recording that these checks had been paid to vendors. Taussi failed to respond to NASD requests for information and documents. 

Maria Teresa Taussi : Barred

Lonnie Richard Shupak 
AWC/#2006006141401/May 2007

Shupak opened several money market accounts for public customers of a bank affiliated with his member firm, accessed the bankís electronic records system and changed a code in the records to show that the money market accounts had been opened as checking accounts, for which he entitled to receive more compensation from the bank for opening a checking rather than a money market account. 

Lonnie Richard Shupak : Barred

Kenneth Christopher Shelley 
#C3A20050003/ May 2007

Shelley attempted to cheat on the Series 24 examination and failed to comply with NASD Rules of Conduct governing securities examinations. 

Kenneth Christopher Shelley: Barred

Bill Singer's Comment: Truly, you must read this case to believe it.  Among the more bizarre facts is that Shelley's former joint-producer (who is referred to as CA in the decisions) had gotten into a physical altercation with Shelly that sent them both to the hospital and ended their business relationship.  CA apparently tipped off NASD that Shelly had previously bragged about cheating on his registration exams -- hiding notes in the bathroom, bringing in notes to the exam room, downloading notes onto a hand-held device, etc. There is also the odd issue as to how CA knew about Shelly's exam date.  That info is not publicly available and there was a intimation that CA had illegally or improperly obtained the information by using Shelly's social security number.  Also, a proctor found Shelley's Series 24 examination manual "hidden" behind the garbage can in the testing center bathroom -- Shelley apparently suggested that CA had arranged to place it there.
William Frederick Ross (Principal)
OS/#2005000094001/May 2007

Ross failed to 

  • establish, maintain and enforce written procedures reasonably designed to supervise his member firmís wholesale trading and market making business and its registered representativesí actions;
  • establish and maintain an adequate supervisory system reasonably designed to achieve compliance with federal securities laws, regulations and NASD rules to adequately supervise the trading and market making activity the firm conducted; 
  • adequately review a representativeís trading activities and ignored or failed to identify red flags associated with the representativeís manipulative trading;
  • provide adequate AML training for appropriate personnel and failed to provide for independent testing for AML compliance by member personnel or a qualified outside party; and
  • monitor and analyze manipulative trading, he did not further investigate suspicious activity to determine if he should file an SAR to report suspicious transactions. 

William Frederick Ross : Fined $50,000; Suspended 1 year in principal capacity; Required to complete 25 hours of AML conntinuing education within 12 months of becoming associated with any NASD member firm.

Bill Singer's Comment: Yet another "red flag" case for 2007.  See Nevwest and Prudential for earlier examples.
Jimmy Poma 
AWC/#2006006767601/May 2007

Poma improperly waived overdraft bank fees on his personal checking account at his member firmís affiliate bank, and he not been authorized and/or was otherwise not entitled to those waivers. 

Jimmy Poma : Barrred

Klaus Alois Robert Offenbacher (Principal) 
AWC/#20060063414-01/May 2007

Offenbacher knowingly and intentionally, artificially increased the market price of a stock in an attempt to comply with the provisions of SEC Rule 10b-18 and still execute a cross transaction between the issuer and the seller at the negotiated price. 

Klaus Alois Robert Offenbacher : Fined $25,000; Suspended 90 days in all capacities (credit to be given for 60-day suspension imposed by member firm without pay).

Bill Singer's Comment: Rule 10b-18 provides a voluntary "safe harbor" from liability for manipulation when an issuer or its affiliated purchaser bids for or purchases shares of the issuer's common stock in accordance with the Rule 10b-18's manner, timing, price, and volume conditions. Rule 10b-18's safe harbor conditions are designed to minimize the market impact of an issuer's repurchases, thereby allowing the market to establish a security's price based on independent market forces without undue influence by the issuer.
Kelly Irene OíBrien 
AWC/#2006007054301/May 2007

O'Brien submitted expense reports to her member firm in which she had forged her supervisorís name.

Kelly Irene OíBrien : Barred

Penny Dorton Montalvo
AWC/#2006004558801/May 2007

Montalvo made improper use of public customersí funds in that she notarized what was purported to be the customersí signatures on a Letter of Authorization (LOA) requesting a $1,000 wire transfer from the customersí account to a bank account in the name of Montalvoís family member, without the customersí authorization. Montalvo failed to appear for an NASD on-the-record interview. 

Penny Dorton Montalvo: Barred

Vikram S. Manhas
#20050027081-01/May 2007

Manhas had a public customer unknowingly sign documents to open a securities account at another broker-dealer, transferred $240,000 from the customerís old account to the new account and submitted false documents to the new broker-dealer to transfer the customerís assets to Manhasí personal account. Manhas sold the assets and withdrew the proceeds from his account, thereby converting the customerís funds to his own use and benefit. Manhas submitted falsified documents to a member firm in furtherance of his scheme to convert the customerís assets. Manhas failed to respond to NASD requests for information and failed to appear for an NASD on-the-record interview. 

Vikram S. Manhas: Barred

Randall Kevin Lenz
OS/#2005003138001/May 2007 

Lenz borrowed $3,500 from a public customer in contravention of his member firmís written procedures that prohibit borrowing money or securities from a customer. 

Randall Kevin Lenz: Fined $5,000; Suspended 10 business days in all capacities.

Timothy John Lane 
#20050019203-01/May 2007

Lane borrowed $5,000 from a public customer in contravention of his member firmís written procedures that prohibit employees from borrowing or otherwise obtaining any customer funds for personal use or investment. Lane failed to respond to NASD requests for information. 

Timothy John Lane : Barred

John Christian Krudop 
AWC/#20050034677-01/May 2007

Krudop placed large on-open orders through the NASDAQ Opening Cross through SuperMontage to create a buy or sell imbalance that would exert pressure on the securityís share price, then he placed transactions through an Electronic Communications Network (ECN) on the opposite side of the imbalance he had created to obtain an advantageous price that would not have been available but for his entry of a large on-open order. Upon receiving execution of his order(s), Krudop would cancel the subject orders prior to the time after which such orders could not be canceled. 

John Christian Krudop: Fined $10,000; Suspended 6 weeks in all capacities

Bill Singer's Comment: We haven't seen as many of these so-called National Best Buy/Offer (NBBO)-type cases as we did during the past few years.  Nonetheless, this type of market manipulation still occurs and it good to see the NASD policing the markets to ensure consistency among quotes.  However, I still wonder why this just isn't a form of "gaming" the system.  This case is interesting because it shows the vulnerabilities of SuperMontage.  First, any number of orders can be submitted that create an order imbalance -- as we see here, the entry can be done not for the legitimate purpose of seeking a "fill" for the entered order, but solely to "manipulate" the contra-side of the equation.  The order can then by used to short-circuit SuperMontage by entering an offsetting order through an ECN that elicits a fill on far better terms than a legitimate market would have permitted.

When all is said and done, you still have to wonder.  Why is it so easy to short circuit the market?  Clearly, there are other -- far more sophisticated maneuvers -- even supposedly legitimate ones, that permit market makers and market participants to "move" a stock one way or the other on any given day.  Bidders routinely seek to hide the size of their bids and firms seek to hide the "principal" client by breaking up orders.  Why are those gambits more savory?  Seriously, when all is said and done, Krudop entered orders that could have been "hit" and he could have suffered some market risk.  Moreover, as even NASD admits, he cancelled the orders within the legal time for such cancellation.  So his violation was that he entered at-risk orders in a manner calculated to game the system and which, in fact, permitted him to get better fills through the contra ECN orders.  Please understand, I am NOT defending the conduct and appreciate the violation --- however, there are always consequences when regulators prohibit some aspects of gaming the system but tolerate others.  Just a thought piece.

John David Kaweske (Principal) 
#C0720040042/May 2007 National Adjudicatory Council imposed sanction following appeal from Office of Hearing Officers Decision. 

Kaweske failed to promptly return investor funds after an offering closed without meeting its sales contingency, and failed to establish an escrow account for the contingency offering. He made fraudulent misrepresentations in connection with the purchase and sale of preferred stock. Also, Kaweske willfully failed to disclose material information on his Form U4

John David Kaweske: Fined $140,000; Barred

Gary Evert Hirth
AWC/#2006005683701/May 2007 

Hirth willfully failed to disclose material information on his Form U4. Hirth functioned as a member firmís associated person and engaged in a securities business even though he was statutorily disqualified. Also, he failed to respond to an NASD request for information and documents. 

Gary Evert Hirth: Barred

Brian Stuart Hirsch
AWC/#2005002601001/May 2007 

At the request of institutional public customers, he provided them with letters that contained false and misleading representations to the effect that each of the institutions maintained the required collateral to issue credit facilities in the amount of $130 million. Hirsch failed to verify deposit of funds prior to sending the letters, knowing that the institutions planned to use the letters to secure funds for investment in venture capital projects, and he knew that the institutions had no funds or securities in their accounts at his member firm. Hirsch neglected to obtain prior approval of the correspondence from a principal at his firm when he knew, or should have known, that prior approval of outgoing correspondence was required pursuant to firm procedures. 

Brian Stuart Hirsch: Fined $10,000; Suspended 18 months in all capacities; Ordered to requalify by exam as a general securities representative (Series 7) within 90 days of becoming re-associated with any NASD member in any capacity. If Hirsch fails to requalify within 90 days, he will be automatically suspended from association with any NASD member in any capacity until he requalifies. 

Bill Singer's Comment: An interesting case in that it provides insight into the shady-doings by institutions when it comes to raising funding for deals.  One wonders whether there is a more far-reaching criminal inquiry now ongoing.  Clearly, Hirsch is not the only bad guy here. What about the institutions that solicited the fraudulent letterhead?  What about the deals that were put together (or attempted) with funding secured through knowing fraud?  Why doesn't the NASD disclose the names of the institutions?
Newton Eduardo Gomez
AWC/#2006006511501/May 2007 

As a representative of a bank affiliated with his member firm, Gomez provided false information to a mortgage company in that he substantially overstated the amount of funds a bank customer had in his checking account and misrepresented the date on which the account was opened. Gomez submitted the falsified document to the mortgage company for processing. 

Newton Eduardo Gomez: Fined $5,000; Suspended 9 months in all capacities

Bill Singer's Comment: See the Basile case for similar facts.
Mark William Bender (Principal)
AWC/#2006005613701/May 2007

Bender received $1,000 from a public customer as a reward for the gains the customer realized in his brokerage account in violation of NASD Rule 2330(f), which prohibits registered representatives from sharing directly or indirectly in the profits in any customer account. 

Mark William Bender: Fined $5,000; Suspended 10 business days in all capacities.

Bill Singer's Comment: Hmm. . .lemme see if I have this one correct.  You get fined $5,000 for accepting $1,000 from a public customer after you made profits in his or her account. Okay, got that. On the other hand, NASD recently offered some $35,000 to all of its members if the membership approved the merger with NYSE.  And the big difference is what?  Oh, yeah, I see.  The RR made a profit for the customer.  Hey, what???  You expected me not to take one of my famous patented, sarcastic shots?
Alan Nicholas Basile 
AWC/#2006006249601/May 2007

While employed at a bank affiliated with his member firm and in connection with a mortgage application, Basile falsified a copy of a public customerís canceled check by changing the date and number on the check to make it appear that it was the missing check needed to prove that the customer had been making regular payments on an existing credit account, and submitted it and other check copies to the retail credit sales department in order to process the loan application. 

Alan Nicholas Basile : Fined $5,000; Suspended 6 months in all capacities

Bill Singer's Comment: And they say there's no more customer service?  Geez -- I wonder if Basile also gave the guy a free toaster (alas, I'm dating myself...they don't give free toasters anymore when you open a bank account.  Now, if only I could convince them to give out free iPODs!!)  See the Gomez case for similar facts.
W.R. Hambrecht + Co., LLC 
AWC/#E0120050083-02/May 2007

The Firm underwrote an offering of common stock on a firm commitment basis and in an effort to meet a perceived regulatory minimum deal size, it submitted a bid to purchase 200,000 shares that had not been bid for in the auction without identifying itself as the bidder. The Fiirm allocated shares for which it did not have orders to its market-making account and sold the shares the next day in the after-market at prevailing prices, thereby receiving $77,239 in profits. The preliminary prospectus did not disclose that the firm would or could submit a bid that indicated its intent to purchase shares in the auction, and the final prospectus did not disclose that the firm had sold the shares at prevailing market prices and realized a profit on the transactions. 

The Firm engaged in conduct inconsistent with just and equitable principles of trade by submitting a bid in the live-auction and purchasing shares offered in the auction in a proprietary capacity without disclosure. Further, the profit realized on the proprietary transactions constituted underwriting compensation that the firm failed to disclose. 

W.R. Hambrecht + Co., LLC : Censured; Fined $127,239 (includes $77,239 in disgorgement)

Bill Singer's Comment: Another tortured explanation from the NASD -- "an effort to meet a perceived regulatory minimum deal size..."  Truly, I have no idea what the NASD means by that and, frankly, doubt that the writer of the disciplinary report does either.  Is the SRO suggesting that this was a mini-max and the mini failed?  Is the SRO suggesting that the Firm thought it was obligated to sell a specific minimum number of shares to the public and panicked when it came up short?

As far as this case goes (and to the extent I understand what happened), it's actually quite interesting.  The Firm underwrote on a Firm Commitment basis but apparently came up short on the placement of about 200,000 shares.  The Firm then bid for its own undistributed shares (???) but did not disclose its identity.  Lacking sufficient indications of interest for the 200,000 shares, the Firm simply dumped the shares in its market-making account and then sold them in the after-market at prevailing prices to the public.  What NASD seems to have been troubled by (and rightly so ... if only they made the point), is that this didn't exactly come off as a bona fide public offering and for all intents and purposes, the Firm interposed itself within the offering and made a profit that should have gone to a public buyer.  Under the totality of circumstances, the sanctions seem a tad light.

Geneos Wealth Management, Inc.
OS/#2005000863703/May 2007

The Firm permitted a statutorily disqualified person to function as an associated person. The Firm failed to obtain fingerprints from that individual and submit them for identification and processing as SEC Rule 17f-2 required and failed to discover that the individual had previously been convicted of a felony

Geneos Wealth Management, Inc.: Censured; Fined $15,000

Essex Financial Services, Inc.  
AWC/#2006003916101/May 2007

The Firm failed to maintain and preserve all of its electronic communications as SEC Rule 17a-4 requires. (NASD Case )

Essex Financial Services, Inc.:Censured, Fined $25,000; Required to review its procedures regarding the preservation of electronic mail communications for compliance with federal securities laws, regulations and NASD rules. 

BTIG, LLC  
AWC/#20060039749-01/May 2007

The Firm accepted and executed unsolicited customer orders to purchase and sell options, and failed to timely submit an application for NASD approval of this material change in business. The Firmís written supervisory procedures were not reasonably designed to achieve compliance with rules applicable to its options business. 

BTIG, LLC: Censured; Fined $15,000

Nevwest Securities Corporation, Sergey Rumyantsev (Principal) and Antony Michel Santos (Principal)
OS/#E0220040112-01/May 2007

The Respondents were aware, or should reasonably have been aware, of ďred flagsĒ that should have triggered the firmís AML obligations. 

Acting through Rumyantsev and Santos,the Firm 

  • failed to adequately implement and enforce AML procedures, 
  • failed to adequately perform due diligence, file Suspicious Activity Reports (SARs) or cease trading in multiple accounts a public customer of the firm owned and controlled. 

Acting through Santos, the Firm 

  • participated in private placement distributions of securities for which the memoranda represented that the offerings were on a best efforts ďpart or noneĒ basis, and failed to properly escrow purchasersí funds in a segregated account until the minimum contingency had been satisfied. The Firm caused the release of funds before satisfaction of the contingency to sell the minimum amount of securities through bona fide transactions to non-affiliated investors, thereby rendering there presentations in the memoranda false and misleading;
  • failed to timely report written customer complaints to NASD;
  • failed to timely report the existence of conditions that required disclosure within 10 business days after the firm knew, or should have known, of the existence of the conditions. 

Santos failed to ensure that the firm establish and maintain an effective supervisory system, including adequate written procedures, reasonably designed to achieve compliance with federal securities laws, regulations and NASD rules relating to contingency offerings and reporting requirements. 

Nevwest Securities Corporation: Censured: Fined $100,000 ($100,000 jt/sev with Santos; $75,000 jt/sev with Rumyanstev); Required to hire an independent consultant to review the firmís policies, controls, systems, procedures and training relating to the firmís ability to comply with the Bank Secrecy Act, NASD Rule 3011 and other anti-money laundering (AML) statutes and regulations, and all rules and regulations related to its participation in private offerings; Ordered not to a) participate in any private offering for 30 days following the effective settlement date, and b) accept or hold customer securities until it certifies to NASD that it has adopted and implemented recommendations the consultant made in the initial written report. 

Sergey Rumyantsev (Principal): Censured; $75,000 jt/sev with Firm; Suspended 3 months in Principal capacity; Required to complete 16 hours of AML training each year for a two-year period (16 hours within six months after the settlementís effective date)

Antony Michel Santos (Principal): Censured; $100,000 jt/sev with Firm; Suspended 3 months in Principal capacity; Required to complete 16 hours of AML training each year for a two-year period (16 hours within six months after the settlementís effective date)

Bill Singer's Comment: Once again we see that NASD is focusing on so-called "red flag" issues.  Also, note that the escrow issues that started to pop up in 2006 are continuing in 2007.  Finally, note the very severe sanction that prohibits private offerings for 30 days and the suspension of the right to accept/hold securities until the adoption/implementation of the consultant's written report.  A very creative sanction.  Now let's see if such creativity is applied even-handedly to larger firms.  See the Prudential case for another red-flag case.
GunnAllen Financial, Inc., Richard Mark Nummi, (Principal), Brian Edward Sanders (Principal) and Stephen Irvin Saunders IV, (Principal)
OS/E072004006101/May 2007

Acting through Nummi, the Firm  

  • failed to establish and maintain a supervisory system, and failed to establish, maintain and enforce written supervisory procedures reasonably designed to provide a system of supervision for registered representatives with disciplinary histories of repeated customer complaints, disciplinary actions and/or arbitrations;
  • failed to establish and maintain a supervisory system, and failed to establish, maintain and enforce written supervisory procedures reasonably designed to prevent and detect unauthorized trading
  • failed to enforce the firmís written procedures relating to telecommunications; and 
  • permitted a registered representative to solicit an individual by telephone after the individual had requested to be placed on the firmís ďdo not callĒ list. 

Acting through Saunders, the Firm 

  • permitted an individual whose registration was CE Inactive to effect customer securities transactions;
  • failed to report, and failed to report timely, customer-related reportable matters as NASD Rule 3070 requires, and failed to timely update Uniform Applications for Securities Industry Registration or Transfer (Forms U4) or Uniform Termination Notices for Securities Industry Registration (Forms U5) with respect to customer complaints or arbitrations against registered representatives. 

Also, Sanders failed to reasonably supervise registered representatives in a branch office of the firm to prevent and detect unauthorized trading. 

GunnAllen Financial, Inc.: Fined $100,000 ($45,000 jt/sev with Saunders; $27,500 jt/sev with Nummi; $17,500 jt/sev with Nummi and Sanders

Richard Mark Nummi, (Principal) Fined $27,500 jt/sev with Firm; Fined $17,500 jt/sev with Firm and Nummi; Suspended 60 days in Principal capacity

Brian Edward Sanders (Principal) Fined $17,500 jt/sev with Firm and Nummi; Suspended 10 business days in Principal capacity

Stephen Irvin Saunders IV, (Principal) Fined $45,000 jt/sev with Firm; Suspended 60 days in Principal capacity

Amerifinancial and Anthony Joseph Fareri (Principal)
OS/E072004054601/May 2007

Acting through Fareri, the Firm 

  • commenced a private placement offering and participated in municipal securities transactions contrary to its NASD membership agreement, and did not file an application for approval to engage in new lines of business, including private placement offerings and municipal securities transactions, even though these were material changes in the firmís business operations; 
  • failed to adopt, maintain and enforce an adequate supervisory system regarding private placement transactions and the maintenance of internal communications. 

Acting through an unnamed individual, the Firm conducted a securities business without maintaining its required minimum net capital. Finally, Amerifinancial failed to timely create and implement its business continuity plan. 

Amerifinancial: Censured; Fined $30,000 ($25,000 jt/sev with Fareri; $5,000 jt/sev with unnamed individual) 

Anthony Joseph Fareri: Fined $25,000 jt/sev with Amerifinancial; Suspended 1 year in all capacities.

Bill Singer's Comment: As noted in earlier months, NASD appears to have a regulatory initiative oriented towards Membership Agreements and firms' failure to confine their business lines to the restrictions stated therein.  See the Membership Issues box at the top of this page.
  1. Fidelity Distributors Corporation (FDC): Principal Underwriter for Fidelity family of mutual funds;
  2. Fidelity Brokerage Services LLC (FBS): Introducing broker for Fidelity retail accounts;
  3. Fidelity Investments Institutional Services Company: Markets non-retirement/retirement plan products/services, Inc., and
  4. National Financial Services LLC: Clearing broker for FBS and others

No Docket Number or Date provided in NASD's April Monthly Report. The Fidelity BDs settled the action without admitting or denying the charges, but consented to the entry of NASDís findings. See, February 5, 2007 Press Release http://www.nasd.com/PressRoom/NewsReleases/2007NewsReleases/NASDW_018479

FDC permitted certain new employees hired by the investment advisor FMR Co. to ďparkĒ NASD licenses they held prior to joining Fidelityóeven though they did not perform any functions for the broker-dealer. The four Fidelity broker-dealers improperly maintained registrations for 1,100 individuals who did not perform jobs for which an NASD license is required or permitted. By parking and/or improperly maintaining those licenses, the Fidelity broker-dealers effectively gave those individuals the ability to rejoin a brokerage firm at a later time without the re-testing required of those who are unregistered for two or more years. NASD alleges that its qualification and registration requirements are intended to afford reasonable assurance to the investing public that registered individuals maintain and update their knowledge about products and services available to investors, as well as applicable rules, regulations, and policies governing the investment banking and securities business. 

In addition, the four broker-dealers failed to assign registered supervisors to 1,000 registered individuals. None of the broker-dealers had any mechanism, policy or procedure in place in place to ensure that registered individuals to whom no registered supervisor was assigned complied with NASD rules. NASD opines that these violations occurred because the Fidelity BDs permitted employees from every aspect of the Fidelity-wide enterprise to maintain registrations if they chose to do so, and they did not assess on an individual basis whether the activities of each individual fell within the ďpermittedĒ or ďrequiredĒ categories for NASD registration. 

From 2002 through 2004, at least nine of the FMR Co. investment advisor traders whose licenses were parked at FDC received gifts and entertainment valued at hundreds of thousands of dollars from employees of brokerage firms who sought business from FMR Co. During that time, FDCís gift policy and Fidelityís corporate-wide gift policy prohibited employees from giving or receiving gifts with a value of more than $100 per calendar year from a current or prospective customer. Likewise, Fidelityís entertainment policy prohibited employees from giving or accepting transportation (other than local ground transportation), lodging or other travel-related expenses to attend an entertainment event with customers without reimbursement from or to the customer for the expense. Fidelity also maintained a general policy governing professional conduct and conflicts of interest which provided that ďFidelity expects employees to have high standards of performance, integrity, productivity and professionalism.Ē This general policy also required employees to be familiar with and adhere to the more particular standards set forth in Fidelityís gift and entertainment policies. FDC failed to take any action to identify or examine the nature, frequency, extent and expense of the gifts and entertainment received by the investment advisor traders to determine if the gifts and entertainment were in compliance with Fidelityís policies. 

Examples of gifts provided by brokerage firm employees to the investment advisor traders included: several private chartered flights, including flights provided to an NASD-registered Fidelity trader and his wife for their honeymoon, tickets and lodging at expensive hotels for Wimbledon tennis tournaments, tickets to a Justin Timberlake/Christina Aguilera concert, tickets to the US Open Tennis Tournament, and twenty bottles of expensive wine, including twelve bottles of 1993 Chateau Petrus (Pomerol). Examples of entertainment provided by brokerage firm employees to the investment advisor traders included: private chartered flights to various destinations including, but not limited to, Palm Beach and Miami Beach, FL, and Nantucket, MA, for overnight and weekend golf outings, a bachelor party for one of the registered investment advisor traders, and tickets to the 2004 Super Bowl. The golf outings included annual, multiple-day golf trips at venues such as Las Vegas, NV, Cabo San Lucas, Mexico, and Arizona. These events included extravagant private accommodations for the investment advisor traders. 

From 2001 through 2004, the Fidelity broker-dealers failed to retain email related to their business as such as required by NASD rules and federal securities laws. Pursuant to a written, corporate wide policy applicable to each broker-dealer, the Fidelity broker-dealers retained email of only certain registered individuals and failed to keep email of 1,900 other registered individualsótotaling approximately 18 percent of all registered individuals at the time. This group consisted of NASD-registered individuals whom the firms determined were not doing the work of the broker-dealer. NASD requested that the Fidelity broker-dealers produce email for the investment advisor traders. The Fidelity broker-dealers, however, could not ensure that they had produced all email that should have been retained for these individuals and that they had fully complied with NASDís regulatory requests. In addition, prior to December 2002, the Fidelity BDs recorded over back-up tapes and, from 2001 to August 2003, failed to capture and preserve all Instant Messages and Bloomberg email

Fidelity Distributors Corporation (FDC); Fidelity Brokerage Services LLC (FBS); Fidelity Investments Institutional Services Company; and National Financial Services LLC: Fined $3.75 million; Ordered  to conduct comprehensive audits of the firmsí systems, policies and procedures relating to registration and electronic recordkeeping.

Daniel J. Varley
AWC/#2006006237801/April 2007

Varley made false entries into his member firmís internal customer relationship system that reflected he had had several contacts with a client regarding the clientís preceding purchase of mutual funds through an external wholesaler when, in fact, those contacts had not occurred. Based on the purported contacts, Varley would have been entitled to receive compensation in connection with the purchase if the firm had not discovered that the entries were false. 

Daniel J. Varley: Barred

Bill Singer's Comment: I seem to be scratching my head a lot more in April in an effort to understand what NASD means.  As best I can discern, this RR falsely stated that he had had several contacts with clients before they purchased mutual funds, when in fact he didn't have "several."  Okay, so does that mean he had only one or a few but not several?  Is the NASD saying that Varley's firm paid him fees on those sales solely based upon his false representation of "several" contacts even though the order was entered through him -- or the order wasn't entered through him -- or the order was but he only had one prior contact and that didn't entitle him to payment.  If you're going to bar someone, you think that maybe, just maybe, you could explain what the underlying conduct was that deserved such a severe sanction?  
John M. Meyers (Principal) and Brian Craig Klein (Principal)
#C3A040023/April 2007

Meyers and Klein engaged in fraud by recklessly failing to disclose to public customers potential sales incentives for selling a particular recommended stock. The sanctions were also based on the hearing panelís findings that Meyers and Klein made fraudulent price predictions for the stock in order to induce customers to purchase it. 

John M. Meyers: Fined $213,967; Barred

Brian Craig Klein: Fined $174,676; Barred

Dickson Virchill Lee (Principal) 
AWC/#E3B2004020501/April 2007

Acting through Lee, his member firm failed to record private placement transactions on its books and records. A company, acting through Lee, entered into a written agreement with an unregistered individual and retained him as an independent contractor to offer and sell its securities, and Lee caused the company to pay commissions to the individual, thus dealing with him on terms and conditions different from those it accorded the general public. Lee knew, or should have known, that the independent contractor effected transactions in securities without registration as a broker or dealer in violation of Section 15(a)(1) of the Securities Exchange Act of 1934. In connection with his companyís offers and sales of securities, Lee caused his company to make untrue statements of material fact and omitted to state material facts necessary in order to make the statements that it made, in light of the circumstances in which they were made, not misleading. 

Dickson Virchill Lee : Fined $65,000; Suspended 1 year in all capacities.

Bill Singer's Comment: Geez--could the NASD have made it any more difficult to understand a disciplinary action?  For starters, it's not exactly clear as to the distinction between the "member firm" and "a company."  I'm going to assume the NASD meant that there was an NASD Broker-Dealer/Employer of Lee and another non-BD entity (perhaps the issuing company).  Apparently the company paid commission to an unregistered persons but it's not exactly clear why Lee is responsible --- I mean, come on guys, "acting through Lee" doesn't explain jack.  So what if a company pays an independent contractor commissions; how did that become Lee's regulatory problem?  I'm not saying the facts don't support a violation.  I'm saying that it would have helped if someone at NASD bothered to add a few more explanatory sentences here.
Isac Huberman (Principal) 
OS/#E062004003004/April 2007

Acting through Huberman, his firm failed to establish and maintain a supervisory system, including but not limited to, the establishment and maintenance of written procedures reasonably designed to ensure that the firm and its associated persons complied with NASDís Research Analyst and Research Report Rule. Huberman failed to ensure the timely filing of Forms U5. Huberman continued to act in a registered capacity even though he became inactive for failing to complete the Regulatory Element of Continuing Education. 

Isac Huberman: Fined $15,000; Suspended 6 months in Principal capacity.

Thomas Michael Greenjack 
AWC/#2006006488001/April 2007

Greenjack falsified an annuity liquidation form in that he took a form a public customer signed and submitted in connection with an earlier withdrawal, altered the withdrawalís date and dollar amount and then submitted the falsified annuity liquidation form to the insurance company for processing. T

Thomas Michael Greenjack : Fined $5,000; Suspended 3 months in all capacities

Dennis Todd Lloyd Gordon (Principal) and Sterling Scott Lee (Principal)
#C06040027/April 2007 National Adjudicatory Council imposed sanction following appeal from Office of Hearing Officers Decision. On Appeal to SEC.

Gordon and Lee allowed a statutorily disqualified individual to function as the firmís principal without his properly being registered and failed to disclose the individualís association with the firm on a Uniform Application for Broker-Dealer Registration (Form BD). They caused their firm to charge retail customers fraudulently excessive markups and failed to disclose the markups on customer confirmations. 

This decision has been appealed to the SEC. The SEC denied Gordonís request for a stay of the bar. The sanctions, other than the bars, are not in effect pending consideration of the appeal. 

Dennis Todd Lloyd Gordon (Principal) and Sterling Scott Lee (Principal): Barred; Ordered to pay $20,832.40 plus interest in restitution to a customer.

William Daniel Fleno (Principal) 
AWC/#20050003239-04/April 2007

Fleno aided and abetted a registered representative in his fraudulent and manipulative parking scheme by participating in the non-bona fide sale and purchase of municipal bonds. Fleno purchased bonds into his member firmís proprietary account to hold the bonds for several days so the registered representative could purchase them back within several days.

William Daniel Fleno: Fined $5,000 (in consideration of his financial status); Suspended 4 months in all capacities

Philippe Alfred DeSaint 
#E102004090301/April 2007

DeSaint falsified documents regarding the price of convertible bonds in an effort to hide the excess market risk created by his losses accumulated from selling 10-year Treasury Note futures. By falsifying documents, DeSaint caused his member firm to fail to preserve accurate books and records in compliance with SEC Rule 17a-4. DeSaint failed to respond to NASD requests for information.

Philippe Alfred DeSaint: Barred

Richard Joseph Alderman Jr. 
AWC/#2006005141601/April 2007

Alderman failed to provide any notice to his member firm of his outside employment with another member firm. The findings stated that Alderman also failed to disclose his continuing employment with his member firm to the new firm. The findings also stated that Alderman failed to appear for an NASD on-the-record testimony

Richard Joseph Alderman Jr. : Barred

Thornes & Associates, Inc. Investment Securities
AWC/#E0220050156-01/April 2007 

The Firm allowed registered individuals to maintain their registrations as general securities representatives while they were not actively involved in the firmís investment banking or securities business, and were not functioning as the firmís representatives. The Firm failed to establish, maintain, and enforce a system of supervisory control and policies, and procedures reasonably designed to achieve compliance with NASD rules to prevent the firm from maintaining the registration of any registered representative not actively involved in the firmís investment banking or securities business, and not functioning as a representative of the firm. 

Thornes & Associates, Inc. Investment Securities: Censured; Fined $12,500

Hornor, Townsend & Kent, Inc. 
AWC/#E9A2005005701/April 2007

The Firm violated NASD Conduct Rule 2830: Investment Company Securities by maintaining programs in which participating mutual fund companies and other financial services companies paid fees and, in return, received preferential treatment from the firm, including exclusive listings on the firmís internal Web site, the use of ďblastĒ emails to the firmís representatives, participation in conference calls and speaking arrangements at various firm meetings. The mutual fund companies paid for their fees by directing a minimum of $90,790 in brokerage commissions to the firm. The Firm violated NASDís recordkeeping requirements by failing to make and keep adequate records concerning the compensation received from offerors who participated in the shelf space programs.

Hornor, Townsend & Kent, Inc. : Censured; Fined $50,000

Hibernia Southcoast Capital, Inc. nka Capital One Southcoast, Inc. (New Orleans, Louisiana)
AWC/#2006003763801/April 2007

The Firm failed to include conflict of interest disclosures in research reports as NASD Rule 2711(h) requires. 

Censured; Fined $10,000

Bill Singer's Comment: Just one comment--given that this firm was located in New Orleans and given the recent devastation of Hurricane Katrina, did the NASD so desperately need that $10,000?  You all couldn't let this one go with just the Censure?
Wilbanks Securities, Inc., Aaron Bronelle Wilbanks (Principal) and Randall Lee Wilbanks (Principal)
AWC/#E052005008501/April 2007

Acting through Aaron and Randall Wilbanks, the Firm failed to specify a cycle for the inspection of non-branch locations in its written supervisory procedures and to conduct inspections of 55 non-branch locations as NASD Rule 3010 (c)(1)(C) requires. The Firm and Randall Wilbanks failed to file quarterly reports with NASD that disclosed information regarding customer complaints. The respondents failed to preserve its received and sent electronic communications, including inter-office memoranda and communications, in an easily accessible place and to establish, maintain and enforce written supervisory procedures regarding the preservation of electronic mail correspondence. 

Wilbanks Securities, Inc.: Censured, Fined $25,000

Aaron Bronelle Wilbanks: Censured, Fined $25,000 (joint/several with the Firm)

Randall Lee Wilbanks: Censured, Fined $20,000 (joint/several with the Firm)

Bill Singer's Comment: Rule 3010 is the Supervision rule and, as such, a cornerstone of each member and each supervior's compliance role.  Note that you MUST periodically inspect even a non-branch location (NBL) and that cycle of inspection needs to be specified in your WSPs.  Please note that there is an annual compliance review of your business but there are different reviews specified for branch inspections.  Annually: OSJs and Branches supervising NBLs.  Every 3 years: Branches not supervising NBLs.  Periodic: NBLs.  Given the importance of subsection (c), let me cite a pertinent portion of that rule for your consideration:

(c) Internal Inspections 

(1) Each member shall conduct a review, at least annually, of the businesses in which it engages, which review shall be reasonably designed to assist in detecting and preventing violations of, and achieving compliance with, applicable securities laws and regulations, and with applicable NASD rules. Each member shall review the activities of each office, which shall include the periodic examination of customer accounts to detect and prevent irregularities or abuses. 

(A) Each member shall inspect at least annually every office of supervisory jurisdiction and any branch office that supervises one or more non-branch locations

(B) Each member shall inspect at least every three years every branch office that does not supervise one or more non-branch locations. In establishing how often to inspect each non-supervisory branch office, the firm shall consider whether the nature and complexity of the securities activities for which the location is responsible, the volume of business done, and the number of associated persons assigned to the location require the non-supervisory branch office to be inspected more frequently than every three years. If a member establishes a more frequent inspection cycle, the member must ensure that at least every three years, the inspection requirements enumerated in paragraph (c)(2) have been met. The non-supervisory branch office examination cycle, an explanation of the factors the member used in determining the frequency of the examinations in the cycle, and the manner in which a member will comply with paragraph (c)(2) if using more frequent inspections than every three years shall be set forth in the memberís written supervisory and inspection procedures. 

(C) Each member shall inspect on a regular periodic schedule every non-branch location. In establishing such schedule, the firm shall consider the nature and complexity of the securities activities for which the location is responsible and the nature and extent of contact with customers. The schedule and an explanation regarding how the member determined the frequency of the examination schedule shall be set forth in the memberís written supervisory and inspection procedures. 

Each member shall retain a written record of the dates upon which each review and inspection is conducted.

. . .

VanthedgePoint Securities, LLC and Geoffrey Michael Tudisco (Principal) 
AWC/#20060048009-01/April 2007

Acting through Tudisco, the firm 

  • underwent material changes in its business operations (expanded into omnibus BD and options business) without first seeking and receiving NASD approval;and
  • engaged in a securities business while failing to maintain sufficient net capital and that the firm failed to maintain a general ledger. 

VanthedgePoint Securities, LLC: Censured; Fined $18,000 ($17,500 jt/several with Tudisco)

Geoffrey Michael Tudisco:Censured; Fined $17,500 jt/several with Firm 

Bill Singer's Comment: "Membership Issues" appear to be making a modest come-back in 2007.  This is the third case this year I've reported in which a member firm has apparently expanded the scope of its business or undergone a material change of ownership without following the notice procedures.  If you haven't done so recently, please, review a copy of your member firm's NASD Membership Agreement.  
Claudia Joanne McElwee (Principal) 
AWC/#2005000468501/March 2007

McElwee failed to timely file an application with NASD for approval of a change in ownership of her member firm. McElwee performed the duties of a Financial and Operations Principal (FINOP) on her member firmís behalf without being registered as a FINOP.

Claudia Joanne McElwee: Censured; Fined $10,000 ($5,000 jt/several with unidentified party)

Bill Singer's Comment: One of the classic "oops" types of violations.  If you are selling some/most/all of your firm, make sure to consider filing a notice with NASD of the change of ownership.  Sometimes you think that it's the other guy's obligation, and that's often a costly mistake.  Also, don't act as a FINOP if you don't have that registration.  Okay?
Guillherme Loos Martins
AWC/#20050020893-02/March 2007

While associated with his member firm, Martins engaged in activities requiring registration while his registration status with NASD was inactive due to his failure to complete the Continuing Education Regulatory Element requirement.

Guillherme Loos Martins: Censured; Fined $10,000

Robert Sean Paruch Jr.
#EFL2004000401/March 2007 

Paruch 

  • offered and sold shares of common stock to public customers when there was no registration statement filed or in effect with the SEC with respect to the common stocks as required by Section 5 of the Securities Act of 1933, and the transactions were not exempt from registration requirements;
  • engaged in acts operating as a fraud or deceit in connection with the purchase or sale of securities; and 
  • misused public customersí funds intended to pay for their stock purchases and solicited investors to purchase securities without the benefit of a general securities representative registration.

Robert Sean Paruch Jr.: Barred

Gregory Roy Masceri 
#C8A20040079/March 2007 National Adjudicatory Council imposed sanction following appeal from Office of Hearing Officers Decision

Masceri forged public customersí signatures on insurance documents without the customersí authorization or consent. Masceri responded untruthfully to NASD requests for information. 

Gregory Roy Masceri : Barred

Richard Horton III (Principal) 
OS/# 2005003570601/March 2007

Horton improperly attempted to have his member firm reimburse him for his personal expenses.

Richard Horton III : Barred

Bill Singer's Comment: These bogus business expense cases were pretty hot during 2005 and 2006, but then started to cool off.  Maybe my coverage warned off a lot of folks?
Brown Jin Ho (Principa)
AWC/#20050035972-01/March 2007 

Ho signed customersí names on account transfer forms without the customersí knowledge or consent, and submitted them to his member firm to effect the transfer of the accounts from his previous firm to his new firm. After learning that one of the customers had complained about the unauthorized transfer, Ho contacted the customer several times to persuade her to drop the complaint without advising his firm. 

Brown Jin Ho: Fined $10,000; Suspended 4 months in all capacities

Bill Singer's Comment: NASD must be getting soft.  Only $10,000 and four months for this.  I would have expected at least six months.  Perhaps there were extenuating circumstances that the regulator didn't share with us.  As stated we have what looks like multiple forgeries and an effort to engineer an undisclosed settlement--but, as I said, NASD may have simply over-stated the case and the real facts are far less compelling.
Robert Allen Frost 
AWC/#20050013646-01/March 2007

Frost engaged in outside business activities, for compensation, without providing prompt written notice to his member firm. Frost maintained a desk in a local bank, falsely told a public customer that he was a salaried bank employee, and failed to disclose that he was a registered representative with a firm and received transaction-based commissions. Frost recommended a securities transaction to a public customer without having a reasonable basis for believing the transaction was suitable for the customer based upon her age, financial objectives, situation and needs. Also, he failed to fully and timely respond to NASD requests for information. 

Robert Allen Frost : Barred

Bill Singer's Comment: This is a very constructive case.  Many folks that contact me from the bank-side of things often have a tendency to blur the lines between their bank activities and their registered securities activities (and more than a few of the banks themselves seem to encourage just such confusion--now there's one hell of a surprise).  Sure, investors may feel more comfortable knowing that the guy or gal sitting at the "securities" desk isn't some cheesy stockbroker.  Those investors may even feel reassured that you're not on commission and are salaried by some reputable bank (unless, of course, that bank is drowning under a flood of subprime debt).  But--guess what--if you're actually a registered rep with that bank's NASD member firm, then that's what you must disclose to the clients.
Byron D. Forsythe
AWC/#2006004236902/March 2007 

Forsythe falsely represented to his member firm, in writing, that he had taken and passed the Series 6 examination and failed the Series 63 examination when he had failed to appear for both examinations. Forsythe failed to timely respond to NASD requests for information. 

Byron D. Forsythe: Barred

Bill Singer's Comment: Maybe he just falsely represented to NASD that he appeared at their offices to answer their questions?
Hong Joon Chun
#E1020041114-01/March 2007 

Chun failed to appear for an NASD on-the-record interview. Chun sent a response letter to a public customer without making the letter available to his member firm for prior supervisory review and approval, thus preventing the firm from discharging its obligation to review outgoing correspondence. 

Hong Joon Chun: Barred

Tom Chau 
AWC/#20060050897-01/March 2007

Chau shared in a public customerís trading loss by causing $40,000 to be deposited in the customerís account. Chau did not obtain written authorization from the customer or his member firm before making the deposit. 

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

Gerard Francis Byrne
#20050008469-01/March 2007

Byrne obtained a wrongful extension of credit in violation of Section 7(f) of the Exchange Act and Regulation X promulgated thereunder. Byrne failed to post trades made in his personal margin account to the clearing firm, which caused his member firmís books and records to be inaccurate. 

Gerard Francis Byrne: Barred

Joseph Abbondante (Principal) 
#C1020020090-01/ March 2007 Upheld by US Ct. App., which sustained SEC affirmation of NASD NAC findings.

Abbondante engaged in 

  • private securities transactions without providing prior written notice to, and obtaining prior written approval from, his member firm;
  • an outside business activity without providing written notice to his member firm; and
  • material misrepresentation and omission of material facts in connection with his recommendation of an investment to public customers. 

Also, Abbondante caused to be created, and knowingly facilitated an individual in providing, fictitious account statements purporting to show pertinent information to their investments.

Joseph Abbondante: Barred; Ordered to pay $276,265 (plus interest) in restitution to customers.

Vision Securities, Inc. 
AWC/#ELI20050012-01/March 2007

The Firm failed to 

  • fully comply with the Firm Element of NASDís Continuing Education requirements for the years 2001 and 2002 by failing to maintain records documenting the content of its continuing education programs and completion of the programs by covered registered persons;
  • develop an anti-money laundering (AML) program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and the implementing regulations promulgated thereunder; 
  • create or maintain a Business Continuity Plan; and
  • maintain the minimum required net capital. 

Vision Securities, Inc. : Censured; Fined $27,500

Bill Singer's Comment: More often than not, you'll find me criticizing overly zealous regulation by NASD.  However, lately I've noticed a rise in what I consider "silly" violations--those that reflect either laziness by the member firm in reviewing and updating its own WSPs or an outright failure to implement basic policies and procedures.  In  Vision we see a firm that dropped the ball in a number of basic areas: CE, AML, Business Continuity, and Net Capital.  My advice to most firms is that you might want to consider hiring an independent outside consultant to conduct a confidential, annual review of your supervisory procedures and to let you know --with fresh eyes-- what's missing and what's not being done right.  Speak to your outside law firm first about whether that firm should hire the consultant for this purpose.  On the other hand (and here's where I even things out), gimme a break!!!  You're just now getting around to charging a firm with 2001 and 2002 CE deficiencies?  Not much point in fining anyone for five and six year old violations.  Maybe the NASD needs to be fined for its own dilatory investigative policies.
The Shemano Group, Inc. 
AWC/#E0120050081-03/March 2007

The Firm failed to have a properly licensed and registered equity trader to supervise a representativeís equity trading activity.

The Shemano Group, Inc. : Censured; Fined $10,000

Summit Brokerage Services, Inc. 
AWC/#E072004009101/March 2007

The Firm failed to establish and maintain written supervisory procedures that identified the principal responsible for reviewing customer complaints, disclosures and arbitrations. The Firm reported customer complaints late and failed to amend Forms U4 and a Form U5 in a timely manner. Acting through an individual, the Firm failed to maintain a supervisory system reasonably designed to achieve compliance with applicable rules and regulations, in that the individual responsible for the direct supervision of the firmís equity trader was not licensed as a Series 55 trading principal. 

Summit Brokerage Services, Inc. : Censured; Fined $25,000 ($7,500 jt/se with unnamed party); Required to retain an independent consultant to conduct a complete audit of the firmís policies, practices, and procedures regarding reporting requirements under NASD Rule 3070 and NASD By-Laws Article V. 

Bill Singer's Comment: A literal reading of this case is that Summit failed to properly identify supervisors in its customer complaint-disclosure-arb area; and NOT that there wasn't someone handling these areas.  On the other hand, what a truly silly violation to be charged with, and, frankly, one that falls squarely in the firm's lap.  If you're going to have someone do a supervisory job, at least make sure that your WSPs name that person and identify the scope of his/her duties.  Separately, NASD seems on a hunt to confirm that supervisors of traders are registered trading principals.  Also see Shemano above for a similar concern.
Natexis Bleichroeder Inc. 
AWC/#20050002081/March 2007

The Firm failed 

  • within 90 seconds after execution, to transmit last sale reports of transactions in OTC equity securities through ACT;
  • to designate some last sale reports as late through ACT;
  • to enforce its written supervisory procedures with respect to best execution of customer orders as agent, ďriskless principalĒ trade reporting, ACT reporting, short sale reporting and recordkeeping;
  • to evidence (in documentation) that it conducted the reviews described in its written supervisory procedures;
  • to provide written notification (when it acted as principal for its own account) disclosing to its customers that 
    • it was a market maker in each security, 
    • its correct capacity in transactions, or 
    • that transactions were executed at an average price. 
  • failed to register a person engaged in the firmís investment banking or securities business in the registration category appropriate to the function to be performed. 

Also, the firmís supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and NASD rules concerning OATS and the ďThree Quote Rule.Ē 

Natexis Bleichroeder Inc: Censured; Fined $27,500 ($7,500 jt/several with unnamed party); Required to to revise the firmís written supervisory procedures regarding best execution, ďrisklessĒ principal trade reporting, ACT reporting, short sale reporting and recordkeeping.

Itradedirect.Com Corp.
AWC/#2005001025901/March 2007 

The Firm failed to preserve any of the firmís internal or external electronic mail communications, as SEC Rule 17a-4 and NASD Rule 3110 require. 

Itradedirect.Com Corp.: Censured; Fined $25,000

Bill Singer's Comment: Sometimes there's a failure to preserve "some" data, but this is quite an accomplishment: The firm failed to preserve ANY of its emails.  Ouch.
HSBC Brokerage (USA), Inc. 
AWC/#E102004098801/March 2007

The Firm 

  • permitted an individual to engage in activities that required registration as a General Securities Representative and General Securities Principal when he was not registered as either;
  • began to clear its own transactions and, as a result, the firmís supervisors no longer received consolidated transactional data from its clearing firm; and
  • was unable to create a consolidated transaction log for supervisory review and approval as its written supervisory procedures required. 

HSBC Brokerage (USA), Inc. : Censured; Fined $50,000

Bill Singer's Comment: I'm seeing a number of my clients converting to self-clearing or contemplating such a move.  This case is a good reminder that with such a dramatic change comes many new obligations.  First off, you are just not going to get the same supervisory reports from your clearing firm.  Make sure that you implement a comprehensive system of reports to compensate for those you are losing.
Headwaters MB, LLC
AWC/#2006003911601/March 2007 

The Firm permitted a representative to function in a registered capacity while his registration status was inactive due to his failure to complete the Regulatory Element of the NASD Continuing Education requirement. The Firm failed to enforce its written supervisory procedures pertaining to the Regulatory Element of Continuing Education. 

Headwaters MB, LLC: Censured: Fined $12,000

GunnAllen Financial, Inc. 
OS/#2005002392101/March 2007

While acting through an individual, the Firm it failed to obtain written consent to conduct numerous unauthorized Web-based Central Registration Depository (CRD) searches and falsely certified that the firm had obtained written consent. The Firm failed to 

  • establish and maintain written procedures to supervise the use of CRD;
  • supervise the use of Web CRD to ensure that the requisite written consents were obtained prior to conducting all Web CRD searches;
  • ensure that all Web CRD searches were conducted for authorized purposes. 

GunnAllen Financial, Inc. : Censured; Fined $50,000

Bill Singer's Comment: The unauthorized use of CRD seems to be an area of growing concern for NASD.  Worthwhile monitoring this issue.  Two key trends: 1. failure to document prior authorization to undertake a search; and 2. searches not used for requisite business-related purpose.
Blain Anthony West
AWC/#2006005007801/February 2007

During an internal audit, West was required to provide the file for a corporate customer and found that the Corporate Authorization to Open Account was missing a signature. In order to avoid a problem with the bankís internal auditors, West made a copy of the missing individualís signature from another document and placed it on the Corporate Authorization without the individualís knowledge or consent. 

Blain Anthony West: Fined $5,000; Suspended 60 days in all capacities

Thomas Avery Smith
AWC/#2005001028301/February 2007 

Smith falsified public customersí addresses to circumvent state securities laws because he was not licensed to sell securities in the state in which the customers resided (these inaccurate customer account records caused his member firmís books and records to be inaccurate).  Smith used his personal email account to communicate with the customers.  Also, he sent written communications to public customers that failed to provide a sound basis for evaluating the presented information and contained numerous false, exaggerated, unwarranted or misleading statements and claims regarding investments. 

Thomas Avery Smith: Fined $35,000; Suspended 2 years in all capacities; Ordered to requalify by exam in all capacities

Alexis Jose Rivera (Principal) 
AWC/#2005002440801/February 2007

Rivera engaged in a fraudulent trade allocation or ďcherry pickingď scheme, in that certain of his member firmís representatives aggregated retail customersí day trading orders and communicated an opening transaction to Rivera, who would work the order in a firm proprietary account to sometimes allocate a first profitable trade to a relativeís personal account and the resulting loss to the customersí accounts. Rivera failed to give the affected customers best execution. 

Alexis Jose Rivera : Barred

Robert Duane Ralston
AWC/#E8A2004108101/February 2007

Ralston made changes to insurance application forms a public customer signed and affixed the customerís initials to the changes with the customerís knowledge and consent and submitted the forms to his member firm to purchase life insurance for the customer, in contravention of his firmís written supervisory procedures

Robert Duane Ralston: Fined $5,000; Suspended 60 days in all capacities

James Anthony Parrelly (Principal)
OS/#E8A2003033801/February 2007

Parrelly recommended and effected transactions in Class B shares of mutual funds for a public customer without having reasonable grounds for believing the resultant transactions were suitable for the customer who would have benefited from owning Class A shares in the identical funds. Parrelly recommended the customer sell Class B shares and later recommended that she purchase additional Class B shares of the same funds so that she was subjected to contingent deferred sales charges (CDSCs) as well as a new CDSC period associated with the new purchases. Parelly engaged in short-term trading of Class B shares within one year of the initial purchase, thereby subjecting the customer to a 5 percent CDSC in connection with the sale. Parelly recommended that the customer use cash distributions from mutual fund positions to purchase additional shares of the same fund, generating new commissionable sales instead of reinvesting the shares with the fund group

James Anthony Parrelly: Fined $5,000; Suspended 20 days in all capacities; Ordered to pay customer the amount agreed upon pursuant to their written agreement.

Bill Singer's Comment: I pretty much stopped reporting these Class B actions because they tend to simply regurgitate the same fact pattern. However, since we've just started a new year and this one includes so many classic elements, here it is--but you're not likely to see too many more on this site for 2007.  And while you're at it, read the Parker case immediately below and tell me one thing:  How come Parker got suspended for 3 months and Parrelly on for 20 days?  I mean, come on, which case resulted in more harm to the public?  
Lamont Percell Parker
AWC/#2005002097001/February 2007 

Parker affixed public customersí signatures to his member firmís proprietary forms to replace lost original forms and placed them in the customersí records as authentic. 

Lamont Percell Parker: Fined $15,000; Suspended 3 months in all capacities.

Bill Singer's Comment: Okay, so here's the deal:  NASD acts correctly when it charges folks for "forging" signatures (I use that term to underscore how serious affixing someone else's signature is to any document, even if the circumstances of any particular act do not amount to illegal forgery).  Few things scare investors more than finding their names signed to something when they know they didn't do it.  So, folks, even if it seems harmless and you're doing it for all the right reasons---stop!!!  If you find yourself signing a client's name to any document, don't do it.  And if you are compelled by the customer to sign their name (let's say they are in the hospital or out of the country), please speak to your manager or compliance department before you present your handiwork.  All that having been said, a three-month suspension for replacing lost forms seems a tad harsh.  Hey, this is my website.  Show me where it says that I must be consistent.
Rocco Anthony Mongelli 
AWC/#E102003200301/February 2007

Mongelli induced a public customer to purchase a security by promising to place a stop loss order on the shares purchase, but failed to place the promised stop loss order and, as a result, the client suffered monetary losses. Mongelli transmitted an electronic mail message to a prospective customer that contained misleading statements that made unreasonable and baseless predictions regarding potential return on the customerís future investments. 

Rocco Anthony Mongelli : Fined $10,000; Suspended 60 days in all capacities

Bill Singer's Comment: Stockbroker 101:  If you promise to place a Stop/Loss order, make sure you place the damn thing!  If not, write out a check to your client (but first notify your firm of your intent to make the refund and get their permission).  Stockbroker 101.version2:  If you send emails to prospects, to put your overblown predictions in writing. 
Toby Allen McKnight 
#2005002806701/February 2007

"McKnight altered a Commission Override Form after signing it to reflect that he would receive 20 percent of future commissions rather than 10 percent, and he faxed the altered form to his member firm. The findings stated that McKnight failed to respond to NASD requests for information and failed to appear for an on-the-record interview." 

Toby Allen McKnight : Barred.

Bill Singer's Comment: You think it's an easy job reading each and every NASD monthly disciplinary report?  Okay, how about you play along.  Above is an unaltered extract from the monthly report about RR McKnight.  The red lettered language in the quotes is taken verbatim from the official NASD report.  Okay, so---now you tell me.  What the hell was going on here.  McKnight was supposed to get a 10 percent override (on what?  why?).  For some reason, McKnight alters some form and indicates an entitlement to a 20 percent override.  Was McKnight a manager supposed to okay these forms or was this RR simply hoping to slip one by?  How did McKnight get caught?  Were there any supervisory systems in place at the firm to detect whatever the fraud was here? Was this simply a stupid, ill-conceived scheme to double one's override by blatantly submitting a fraudulent form?

Now that you are beginning to understand some of my frustration, ask yourself the most basic of all questions: If McKnight's misconduct was so extreme as to warrant a Bar, then why doesn't NASD do a better job of explaining what the nature of the misconduct was and how firms might better deter and detect future iterations.  Frankly, this case sounds somewhat intriguing and I wish our regulators appreciated the import of this monthly disclosures as a teaching tool.  

Caliope Makris
#2005001405001/February 2007

Makris affixed a public customerís signature to a disability application without noting that the application had been signed by someone other than the customer; thereby violating her member firmís prohibition against representatives signing documents on behalf of customers, even with the customerís consent. Also, she failed to respond to NASD requests for information.

Caliope Makris: Barred.

Bill Singer's Comment: As I note every year--and for 2007 we start with my annual admonition in only the second month-- even IF your customer gives you consent to sign his or her name on a document, IF your firm has a policy prohibiting RRs from signing on behalf of customers, that prohibition will trump the authorization.  Yes, yes, a thousand times yes, the customer's authorization may well (and likely will) negate any allegation of criminal forgery, but that's not the point.  If you violate an internal policy that may serve as the springboard for an NASD violation.  You say you're not sure I'm correct about that?  Okay, then just read this case. And then go argue with NASD!
Angela Shuhui Kao 
AWC/#20060041966-01)/February 2007

While associated with a member firm, Cao maintained personal brokerage accounts at other member firms without giving prompt written notice to her member firm that she had accounts with those firms, and without notifying those firms of her association with her member firm. Kao participated in private securities transactions without giving prior written notice to her member firm. 

Angela Shuhui Kao : Fined $10,000; Suspended 40 business days in all capacities

Rocco Gerard Guidicipietro (Principal) 
AWC/#E072003011203/February 2007

Guidicipietro engaged in a private placement offering through means of an offering memorandum that was false and misleading. The offering memorandum failed to disclose that Guidicipietro would personally receive substantial commission payouts for all effected transactions and misrepresented the investment philosophy and trading strategy to be employed in the account, as well as the attendant risks. 

Rocco Gerard Guidicipietro : Fined $113,035 (includes commission disgorgement); Suspended 1 month in all capacities.

Paul Norman Germain (Principal)
AWC/#20060041038-01/February 2007

In his capacity as operations officer at his member firm, Germain converted shareholdersí funds totaling $184,337.96 by having mutual fund holdings liquidated and having the proceeds delivered to him by check or wired to his bank account. 

Paul Norman Germain : Barred

Richard Crawford Clarke II (Principal)
 #2005000336401/February 2007

Clarke borrowed $38,000 from public customers even though his member firmís written supervisory procedures specifically prohibited registered representatives from borrowing money from customers except immediate family members. Clarke failed to respond to NASD requests for information. 

Richard Crawford Clarke II : Barred; Ordered to pay $38,000 plus interest in restitution to public customers

Jeffrey Robert Chicola (Principal) 
AWC/#20050022347-01/February 2007

Chicola effected unauthorized trades in public customersí accounts. He failed to reasonably supervise an individual to prevent and/or detect unauthorized trades. Chicola settled a customer complaint without his member firmís knowledge or consent. 

Jeffrey Robert Chicola : Fined $10,000;Suspended 2 years in all capacities

Charles Randall Cherry
AWC/#20060052299-01/February 2007 

Cherry sent a letter to a variable annuity issuer requesting that the issuer reallocate the subaccounts in the variable annuities of many clients without his member firmís approval. He caused these changes to be effected based upon oral discretionary authority the clients gave him, although he had not obtained the clientsí written discretionary authority, nor had he gotten his member firm to accept the accounts as discretionary accounts. 

Charles Randall Cherry: Fined $5,000; Suspended 10 business days in all capacities

Bill Singer's Comment: Yeah, I know...BUT...was the 10 business day suspension truly necessary in this case?  I fully appreciate that he apparently circumvented his firm's approval (and I am not making light of that factor); however, he did have "oral" discretion to make the change and I'm not sure that anyone would confuse the discretion to reallocate with the discretion to engage in ongoing trading.  Nonetheless, the NASD has made a sensible point --- don't circumvent your firm's policies and procedures and unless it's "time and price" discretion, you probably need prior written customer authorization to exercise any other form of discretion.
Vicki L. Callaghan 
AWC/February 2007/#2005003415301

Callaghan discovered that errors had been made in calculating the required minimum distribution for public customersí IRA accounts, and in order to rectify the errors, altered and submitted disbursement request forms to her member firm without the customersí knowledge, authorization or consent. 

Vicki L. Callaghan : Fined $5,000; Suspended 60 days in all capacities

Francis Preston Mark Brighton 
AWC/#2006006045201/February 2007

Brighton borrowed $14,800 from public customers without his member firmís approval, and failed to repay the loan by the agreed upon date, and failed to fully repay the customer. In inducing and obtaining the loans, Brighton failed to disclose to the customers that he had obtained loans from other customers in the past and had not yet repaid those customers in full.

Francis Preston Mark Brighton : Barred

Waddell & Reed, Inc.
AWC/#E062004029603/February 2007

The Firm failed to ensure that a temporary employee was not engaging in activities requiring NASD registration. 

Waddell & Reed, Inc.:  Censured; Fined $20,000

Bill Singer's Comment: Here's a dubious distinctinon:  Waddell & Reed has been cited two months in a row for registration violations.
Utendahl Capital Partners, L.P. 
AWC/#E1020020590-03/February 2007

The Firm 

  • shared research reports prepared before their publication;
  • published research reports that did not disclose the valuation methods used to determine price targets; 
  • failed to preserve copies of all electronic mail for three years and/or maintain electronic mail for the first two years in an accessible location
  • permitted an individual to engage in securities business without being properly registered as a principal;
  • participated in municipal underwritings while not employing a qualified municipal securities principal;
  • permitted an individual to take customer securities orders, cause orders to be executed and solicit transaction while not registered as general securities representatives
  • did not comply with the Regulatory Element of the Continuing Education requirement and with the Firm Element of the Continuing Education requirement;
  • provided inaccurate information to NASD staff;
  • failed to make adequate inquiries and conduct sufficient due diligence
  • (acting through FINOPS) failed to establish and maintain ledgers and other records that accurately reflected all assets, liabilities and expense
  • failed to give notice and/or timely notice under SEC Rule 17a-11 of material inadequacy, failed to timely file an annual audit report, failed to establish, maintain and enforce a supervisory system reasonably designed to insure its compliance with applicable laws, regulations and NASD rules regarding electronic correspondence, research and underwriting activities, and failed to properly update its supervisory procedures. 

Utendahl Capital Partners, L.P. : Censured; Fined $240,000; Required to submit to NASD quarterly reports for calendar years 2007, 2008 and 2009 audited by an independent public accountant in accordance with generally accepted accounting principles; and revise the firmís written supervisory procedures to ensure that the firm maintains accurate financial books and records, maintains sufficient excess net capital to meet contractual commitments related to the firmís underwriting activities and other financial obligations, maintains minimum required net capital, and files accurate Financial and Operational Combined Uniform Single (FOCUS) reports. 

Redwood Brokerage, LLC 
AWC/#E1020050359-02/February 2007

The Firm distributed research reports prepared by an entity affiliated with the firm that were deficient, and those reports failed to contain the required research analystsí certifications attesting to the nature of the views contained in the reports and their compensation. 

Redwood Brokerage, LLC : Censured; Fined $15,000

Northland Securities, Inc. 
AWC/#E0420050078-01/February 2007

Northland failed to deposit investor funds in an appropriate escrow account for private offerings and released investor funds before the minimum contingency was met with bona fide investments. The Firm rendered false and misleading representations in a private placement memorandum that investor funds would be released to the issuer only after the minimum contingency was met. 

Northland Securities, Inc. : Censured; Fined $10,000

Bill Singer's Comment: These escrow cases were a pretty hot issue in 2006.  I don't expect to see the same level of enforcement activity this year, but let's see.
McKim Capital, Inc. 
AWC/#E0120050052-01)/February 2007

The Firm engaged in a general municipal securities business through the execution of unsolicited liquidating transactions in municipal securities for a public customer on a riskless principal basis. This activity comprised a material change in the firmís business for which it had not sought or obtained NASDís prior approval. The Firm conducted a municipal securities business without a qualified municipal securities principal and did not retain all electronic communications relating to its business. The Firm did not establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to achieve compliance with the requirements of the SEC and MSRB rules with respect to the retention of electronic communications. 

McKim Capital, Inc. : Censured; Fined $20,000

Bill Singer's Comment: Ouch!  My guess is that someone just didn't recognize that the occasional unsolicited liquidating trades required the amendment of the firm's NASD Membership Agreement.  This is a common cause of many violations -- the "degree" of activity crosses over a line.  However, it doesn't matter.  It's still a violation to engage in an unauthorized business line not expressed in your Membership Agreement.  Also, yet another failure to retain e-communications.
Legend Merchant Group, Inc. 
AWC/#E102004024201/February 2007

The Firm failed to maintain and preserve electronic communications relating to its business. The Firm utilized a vendor to maintain and preserve electronic communications, and while the vendor initially captured those communications, the vendor could not later retrieve them and the firm failed to retain those communications. The Firmís TRACE-eligible securities transactions were reported late. 

Legend Merchant Group, Inc. : Censured; Fined $30,000;  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: Sorry, but this is exactly the type of regulation that drives me (and many smaller firms) up the wall.  Putting aside the TRACE issue, this is apparently a case in which an NASD member firm hired a vendor to maintain and preserve its electronic communications.  Even according to the NASD's own statement, that vendor "initially captured" the communications.  However, for reasons that clearly appear to not be the fault of the member, the vendor experienced some problem that prevented it from retrieving the previously captured communications.  Now, before you put words into my mouth, let me be quite clear.  I fully appreciate the policy behind requiring firms to preserve their communications (even if I personally do not fully agree with that policy as it is written or implemented).  Nonetheless, this failure does not appear to have been the fault of any wilful or even negligent action by Legend, but seems to have been a breakdown at its vendor.  Was it really necessary to sanction the firm for this failure?  Moreover, did this violation warrant a $30,000 fine (or whatever portion is attributable ex-TRACE)?  Frankly, this smacks of NASD bully-boy tactics and a firm that found it simply cheaper to pay the fine than fight the case.
First Montauk Securities Corporation
AWC/#2005001028302/February 2007

The Firm failed to enforce its written supervisory procedures regarding the review of customer addresses and customer address change requests by the firmís legal and compliance departments. The Firm failed to prevent a registered representative from having a back office clerk change customer addresses to post office boxes and to his home address in violation of firm written supervisory procedures. 

First Montauk Securities Corporation: Censured; Fined $10,000

Block Orders Execution, LLC 
AWC/#2006003890801/February 2007 

The Firm failed to 

  • implement a system that allowed the firm to adequately retain and retrieve instant messages that registered representatives sent and received;
  • apply for the research analyst designation for a registered representative and for a supervisory designation for any of the firmís principals to supervise a registered representativeís activity in his capacity as a research analyst; and
  • adopt or implement written supervisory procedures reasonably designed to ensure compliance with research analyst rules. 

The Firm permitted an associated person to act in a capacity requiring registration as a general securities representative without being properly registered in that capacity. 

Block Orders Execution, LLC : Censured; Fined $11,000

Bill Singer's Comment: Only the second month of 2007 and we already have a number of E-communication and registration cases.  I'm sure that I've spotted two of the enforcement targets for this year.  Look at the prior Prudential Equity Group. case and you'll see that NASD is really getting serious about incoming/outgoing correspondence review --- here with instant messaging and in Pru's case with faxes.  Might be a good idea to check your policies and procedures.
AllianceBernstein Investments, Inc. 
AWC/#SAF2004016001/February 2007

The Firm provided non-cash compensation to associated persons of other NASD member firms in connection with the sale and distribution of investment company securities. The Firm failed to have systems and procedures in place that were reasonably designed to ensure compliance with NASD Rule 2830(L)(5) concerning non-cash compensation in connection with the sale of investment company securities. 

AllianceBernstein Investments, Inc. : Censured; Fined $100,000

Aladdin Capital LLC and George McMurray Marshman (Principal)
AWC/#2006003873401/February 2007

Acting through Marshman, the Firm permitted an associated person of the firm to function as its chief compliance officer and perform various supervisory functions without being registered as a principal with NASD. The Firm failed to conduct independent testing for compliance with its anti-money laundering (AML) program and to provide for ongoing training for appropriate personnel. 

Aladdin Capital LLC: Censured; Fined $5,000; Fined $10,000 jt/sev with Marshman

George McMurray Marshman: Fined $10,000 jt/sev with Aladdin

Bill Singer's Comment: Gotta tell ya --- this is the first time I can recall a case in which a firm permitted a non-Principal/Associated Person to act as its CCO.  Wow.
Prudential Equity Group, LLC fka Prudential Securities, Inc. and Gary Earl Evans 
AWC/#2005001720501/200500172 0502/February 2007

A branch office of the Firm failed to establish and maintain a system to supervise its registered representativesí activities reasonably designed to achieve compliance with applicable securities laws, regulations and NASD rules. The Firmís supervisory system 

  • failed to detect the activities of a registered representative engaged in an outside business activity (Evans did not review correspondence the representative received and facsimile correspondence he sent), and
  • was deficient in that it had inadequate procedures regarding review of customer account statements to detect irregular activity in the representativeís customer accounts (failed to follow up on a ďred flagď that might have uncovered the representativeís Ponzi scheme). 

Acting through Evans, the Firm failed to adequately investigate the nature of a business entity and to monitor the entityís account that would have revealed additional ďred flags.ď Evans failed to conduct any further investigation regarding the representativeís outside business activities including calling customers, reviewing statements and verifying financial arrangements, but instead relied on the representativeís statements

Prudential Equity Group, LLC fka Prudential Securities, Inc.: Censured; Fined $125,000 

Gary Earl Evans: Fined $7,500; Suspended 45 days in Principal capacity

Bill Singer's Comment: For once we get a fairly helpful explanation from NASD as to exactly what should have been done, rather than the typical finger wagging.  I have highlighted in "red" the Principal's unsatisfactory conduct and would urge all compliance departments to note the shortcomings.  What should be a Compliance 101 fact is that a key aspect of supervision is to review incoming and outgoing correspondence.  What are you supposed to do about faxes?  Many Compliance Dept. simply forbid the use of any fax other than one located in their office or immediately nearby.  You should maintain a log of transmissions in and out (which is normally a feature in most fax machines) and compare the daily handwritten logs to the total of incoming/outgoing transmissions.  Additionally, many firms require copies of all such transmissions to be provided to a supervisor before sending and upon receipt. see the subsequent Block case for an NASD action involving the review of incoming/outgoing instant messages.  Finally, in the event of a red flag involving a registered rep, firms are now advised that the NASD expects the minimal follow-up of calls to customers, statement reviews, verification of financial arrangements.  It is pointedly NOT sufficient to simply ask the RR to explain his or her conduct.  
Horace Mann Investors, Inc., Sherman Marc Bloom and Jerry Deamus Scott 
AWC/#E8A2005011501/E8A2005011502/E8A2005011503/February 2007

Bloom and Scott affixed public customersí signatures to forms without the customersí knowledge or consent. The Firm failed to promptly and accurately file with NASD an amended Rule 3070 Report and failed to amend Scottís Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose a written complaint alleging forgery

Horace Mann Investors, Inc.:Censured; Fined $10,000

Sherman Marc Bloom: Fined $5,000; Suspended 30 days in all capacities

Jerry Deamus Scott:Fined $5,000; Suspended 60 days in all capacities

Christopher M. Voelker 
#2005003255601/January 2007

Voelker forged a clientís signature on life insurance applications, submitted the applications to his member firm and paid the premiums for the policies, and failed to respond to NASD requests for information and documents. 

Christopher M. Voelker : Barred

Kiet Tuan Vo (Principal) 
OS/#2005001305701/January 2007

Vo allowed an unregistered individual (and Vo had no reasonable basis to believe that the individual was registered with NASD) who was also subject to disqualification from association with any NASD member, to be associated with his member firm.  Vo allowed him to 

  • exercise supervisory and managerial powers at the firm, 
  • control the firmís securities operations and activities, and 
  • engage in and perform a range of activities and functions that were impermissible and required registration. 

Vo made no reasonable effort to prevent the individual from exercising managerial powers at the firm. Vo willfully failed to amend his Form U4 to disclose material information. 

Kiet Tuan Vo : Fined $25,000; Barred in Principal capacity; Suspended 18 months in all capacities

James Lester Varner 
AWC/#2006005277201/January 2007 

Varner provided an affiliate of his member firm with a copy of what he claimed to be a valid insurance license issued by a state insurance department, when, in fact, his license with the state had expired, and he had altered the document to make it appear current before submitting it to his member firm.

James Lester Varner : Barred

Susan Lynne Rocchio 
AWC/#2006004989501/January 2007

Rocchio possessed unauthorized materials during a Series 7 qualifications examination. 

Susan Lynne Rocchio : Fined $5,000; Suspended 7 months all capacities

Michael Anthony Randall 
AWC/#2005002265701/January 2007

Randall was given discretionary trading authority over a public customerís account at another member firm and failed to give the firm and his member firm the required notifications. Randall engaged in excessive and unsuitable trading in the customerís account at another member firm. 

Michael Anthony Randall: Fined $5,000; Suspended 60 days all capacities

Michael Alcide Poutre II (Principal)
OS/#E9B2004041001/January 2007

Poultre failed to provide complete and timely information to NASD during an onsite examination, in that he deleted business-related emails prior to providing access to his email communications. 

Michael Alcide Poutre II : Fined $5,000; Suspended 10 business days all capacities

Bill Singer's Comment: I wish NASD fleshed this report out.  Given the relatively light fine and suspension, it doesn't appear that Poutre intentionally erased his emails within seconds of the NASD request.  However, these disciplinary reports shouldn't be detective novels in which the reader is titillated with clues and left to guess at who done it.  What the hell actually happened here?  Was this an accident?  What???
Robert Howard Petretta
AWC/#20050003712-01/January 2007 

Petretta failed to disclose to his member firm a public customerís oral complaint and his $400 payment to the customer to compensate for the surrender charges incurred in connection with cash withdrawals made against a variable annuity policy. By failing to disclose the complaint and the $400 payment, Petrettaís member firm was precluded from conducting a more timely analysis of the customerís written complaint. 

Robert Howard Petretta: Fined $5,000; Suspended 10 business days all capacities

Bill Singer's Comment: An interesting and important distinction to keep in mind. While you may not be required to report to a regulator a mere "oral" complaint, most firms require you to bring such an occurrence to their attention.  Moreover, you just can't undertake a private settlement of any complaint -- those payments must disclosed.
Brian L. Pauley
AWC/#2006004940901/January 2007

Pauley withdrew $95,000 from a deceased public customerís checking and savings accounts, transferred the funds to newly created bank accounts and moved $65,000 from the new accounts to an investment account in his name, thereby improperly using the customerís funds. 

Brian L. Pauley: Barred

Deane Joseph Pantaleo 
AWC/#20050022039-01/January 2007

Pantaleo was found in possession of unauthorized materials during an examination for Series 7 licensing. 

Deane Joseph Pantaleo: Fined $20,000; Suspended 2 years in all capacities

Meredith Anne Molenar
AWC/#2005001915101/January 2007 

Molenar affixed a copy of a public customerís signature to a corrected Explanation of Transaction Form after noticing a mistake on the original form that the customer signed, and signed the customerís initials on the second page of the corrected form without the customerís knowledge or consent. 

Meredith Anne Molenar: Fined $5,000; Suspended 60 days in all capacities

Bill Singer's Comment: As I have so often noted about these cases, I understand that the initial instinct is that the issue is merely a clerical error, BUT you all have to resist the impulse to add a signature as a means of fixing the problem.  We may all agree on some level that this is somewhat of a no-harm-no-foul situation.  However, the NASD doesn't take that view.  It's their opinion that counts.  And, frankly, I understand the overwhelming public policy in this regard.
David Lester McFadden (Principal)
OS/#2005000226001/January 2007 

In connection with the sales of securities, McFadden knowingly or recklessly made misstatements and omissions of material facts, in that he falsely represented to public customers that returns that would be generated by their investments were sufficient to allow customers to retire from their jobs and replace salary payments with regular, sustainable monthly withdrawals from their securities accounts. McFadden recommended securities transactions to customers that were unsuitable in view of the customersí financial situations and investment objectives, and he disseminated false and misleading sales literature to customers, including monthly account statements that contained material omissions and misrepresentations.  McFadden referred to himself as an experienced ďCPAĒ despite the fact that he did not have a current, valid, active certificate. McFadden did not submit the sales literature and correspondence to his member firm for prior approval. Finally, he effected transactions in the accounts of customers without their prior authorization, knowledge or consent. 

David Lester McFadden : Barred

Bill Singer's Comment: If you are a beleaguered compliance officer and tired of explaining to your salesforce why they can't put professional designations on their business cards or letterhead, show them this case and explain why you are not going to relax your policy.
William Andrew Malloy (Principal)
#ELI2004008101/January 2007

Malloy 

  • purchased and sold securities for a public customer at a member firm without providing written notification to his member firm and the executing firm of his association with another firm;
  • entered into an agreement with the customer to share in the profits without his member firmís prior written authorization;
  • engaged in a level of trading activity in public customersí accounts that was excessive in light of the customersí financial situation and objective;
  • settled a customer complaint without his firmís knowledge or authorization; and
  • failed to respond to NASD requests for information and document 

William Andrew Malloy: Barred; Ordered to pay $278,072.59 in restitution

Bill Singer's Comment: I have noticed an increase in NASD cases involving RRs activity in away accounts.  Clearly this will be a regulatory area of focus for 2007.  Keep an eye open for this trend. 
Steven Matthew Labadie 
OS/#EFL2004000401/January 2007

Labadie offered and sold unregistered shares of common stocks to public customers; and he made material misrepresentations or omitted material facts to customers in those offers and sales. He failed to disclose to customers any of the risks associated with investment in the stocks and failed to provide documentation regarding the securities. Further,  Labadie directed customers to pay for their stock purchases to the firm or another non-registered entity that Labadie led customers to believe was the firmís clearing firm or bank. He failed to provide documentation evidencing the purchases, and the customer funds were never returned to them by Labadie. Finally, Labadie failed to register as a general securities representative while soliciting customers to purchase securities. 

Steven Matthew Labadie : Fined $15,000; Suspended 18 months in all capacities.

Bill Singer's Comment: Okay, now here's one that I absolutely, positively don't get.  You sell unregistered stocks, don't adequately disclose the risks, direct payment to unregistered entities that you present as your clearing firm or bank, and don't provide confirmations --- plus you don't return the funds paid for those shares --- and for all of this you get an 18-month sit-down with a $15,000 fine???  Once again, I ask you --- is NASD overstating the severity of the facts and compensating for this by lessening the sanctions, or is there simply too much tolerance for customer abuse?
Harold Lawrence Klein 
AWC/#2006004836001/January 2007

Klein sent a hand-written note to a mutual fund company in which he falsely represented that he was a public customer. Klein never obtained the customerís consent or authority to send the letter on her behalf, designate himself as the representative for the account or change the customerís mailing address to his own. 

Harold Lawrence Klein : Barred

Christopher Lee Jacke
AWC/#2005003161001/January 2007

Jacke distributed sales literature to members of the public that contained false, exaggerated, unwarranted or misleading statements and claims; failed to identify the financial product being promoted as well as its features, benefits, fees, charges, withdrawal restrictions and risks; failed to provide investors with a sound basis for evaluating the product; failed to disclose his member firmís name; and failed to file sales literature concerning registered investment companies with NASD within 10 days of first use. 

Christopher Lee Jacke: Fined $10,000; Suspended 2 months in all capacities; Required to requalify as General Securities Representative; Subject to a "pre-use' filing requirement for all future advertisements for 2 years.

Bill Singer's Comment: A somewhat interesting sanction that imposes a 2-year filing obligation on an individual.  Perhaps I'm getting a bit cranky in my middle age, but, either the NASD has made this all seem far worse than it is (in which case the relatively light sanctions are a nod by the regulator that it over-stated the case for public relations purposes); or, if the facts were as severe as the disciplinary reports suggests, what else would you need to do in order to earn a long-term suspension or bar?  I'm just not getting the outcome of this one.
Dale Lee Gilliland (Principal) 
AWC/#20050031379-01/January 2007

Gilliland reimbursed public customers for surrender fees based on oral complaints without notifying his member firm that the surrender fees had been incurred when moving assets to the firm, or that the customers were verbally complaining. 

Dale Lee Gilliland : Fined $5,000; Suspended 10 business days in all capacities

Kathy Lynn Gallagher 
OS/#2005000863701/January 2007

This Associated Person misused $218,558.00 of public customersí funds intended to be invested on the customersí behalf, and rather than depositing the funds into the customersí accounts as instructed, Gallagher caused the funds to be deposited into a bank account she controlled without the customersí knowledge, authorization or consent. She forged, or caused to be forged, a registered representative and public customersí signatures on Investment Distribution Forms, causing funds to be wired from the customersí accounts to accounts under her control without the customersí knowledge or authorization to conceal her misuse of funds. Finally, Gallagher falsified books and records, and forged documents and customersí signatures in order to conceal her misuse. 

Kathy Lynn Gallagher : Barred

Bill Singer's Comment: I generally don't cover these forgery cases because they have become incredibly common and, to be blunt, there's truly not much noteworthy about them anymore.  Here we have a mere associated person who manages to convert six-figures of customer monies into her own accounts.  Frankly, what I wish that NASD would do with these cases is explain how the activity was eventually discovered and what steps could have been taken (if any) to have prevented the conversion or to have uncovered it earlier.
Waddell & Reed, Inc.
AWC/#E062004029603/January 2007

The Firm failed to ensure that an individual working at the firm did not engage in any activities requiring NASD registration. 

Waddell & Reed, Inc.: Censured; Fined $20,000

Strand, Atkinson, Williams & York, Inc. 
AWC/#E3B2005004401/January 2007

The Firm's written supervisory procedures failed to specify a cycle according to which its non Office of Supervisory Jurisdiction branches would be inspected. The Firm failed to retain email messages in an accessible, reviewable format, and to review incoming and outgoing emails during a period of time. Also, the Firm failed to develop and implement a written AML program reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and the regulations promulgated there under. 

Strand, Atkinson, Williams & York, Inc. : Censured; Fined $50,000

Bill Singer's Comment: NASD seems to be ready to make 2007 the year of regulating the quality and timing of office inspections.  Here there is a violation for failing to specify the timing of such inspections.  Also, looks like we pick up where we left off in 2006 with an ongoing focus on email policies.
Northwestern Mutual Investment Services, LLC 
AWC/#E8A2005015001/January 2007

The Firm failed to

  • timely report to NASD customer complaints regarding misappropriation of funds or forgery, 
  • timely report disciplinary actions of its registered representatives that resulted in terminations or suspensions and filing charges against an associated person;
  • pre-file sales material from a training seminar with NASD in accordance with a previous AWC; and
  • accurately report municipal securities transactions and accurately prepare municipal customer confirmations.

Northwestern Mutual Investment Services, LLC : Censured; Fined $115,000

Archer Alexander Securities Corporation
AWC/#E0420030634-02/January 2007

The Firm facilitated market timing activities of two hedge fund companies by using multiple accounts that cleared through different clearing firms in order to circumvent the trading restrictions the mutual fund companies implemented. The Firm failed to preserve copies of electronic communications associated persons in its branch offices sent or received. 

Archer Alexander Securities Corporation: Censured; Fiend $108,450.10 (includes $38,450.10 disgorgement)

Advanced Planning Securities, Inc. 
AWC/#ELI2004014201/January 2007

The Firm permitted individuals to act in a capacity that required registration while their registration status with NASD was inactive due to their failure to complete the Regulatory Element of NASDís Continuing Education requirement. The Firm failed to report statistical and summary information regarding customer complaints as NASD Rule 3070(c) requires. The Firm prepared an inaccurate month-end net capital computation and filed an inaccurate Financial and Operational Combined Uniform Single (FOCUS) report. 

Advanced Planning Securities, Inc.: Censured; Fined $10,000

Pactual Capital Corporation and Christina S.A. DeCastro (Principal) 
AWC/#20050020893-01/January 2007

Acting through DeCastro, the Firm permitted 

  • an employee to engage in activities that required registration while his general securities representative registration status with NASD was inactive due to his failure to complete the Regulatory Element of NASDís Continuing Education Requirement, and
  • its associated persons to engage in activities that require registration with NASD as Limited Representatives - Equity Traders (ET) when they were not so registered. 

Also, the Firm failed to ensure that the individual who supervises the individualsí ET-related activities was registered as an ET, as required. 

Pactual Capital Corporation: Censured; Fined $20,000 ($10,000 joint/several with DeCastro)

Christina S.A. DeCastro: Censured; Fined $10,000 joint/several with Firm

Haywood Securities (USA), Inc., John David Shepherd (Principal), David Brian Elliott and Nancylee Girling 
AWC/#E3B2004021901/January 2007

Elliot, Shepherd and Griling knew that an individual was an associated person of another member firm, had a financial interest in an account opened at Haywood Securities and failed to inform his employer that he would exercise discretionary authority over the account. Prior to executing transactions for this customerís account, acting through Elliott, Shepherd and Girling, the Firm did not notify the individualís member firm, in writing or otherwise, of its intention to open the account, nor did it notify the individual of its intention to provide notice to his member firm. 

Haywood Securities (USA), Inc.: Censured; Fined $50,000 ($15,000 jt/sev with Elliott; $15,000 jt/sev with Shepherd; and $10,000 jt/sev with Girling)

John David Shepherd: Fined $15,000 jt/sev with Firm; Suspended 10 business days all capacities

David Brian Elliott: Fined $15,000 jt/sev with Firm; Suspended 10 business days all capacities

Nancylee Girling: Fined $10,000 jt/sev with Firm

Bill Singer's Comment: This is one of the harshest cases I've seen involving a case in which as associated person maintained a financial interest in a customer's account.  If I take NASD at its word --- we're not looking at a situation involving a registered person, but one involving a mere associated person.  None of which excuses the failure to notify and monitor, but it is significant that the member firm and three individuals were all sanctioned.
Great Eastern Securities, Inc., Alphonse Mekalainas Jr. (Principal), Ernest Richard Viola (Principal) and Jeffrey Scott Ramson (Principal)
OS/#20042000053-02/January 2007

The Firm and Ramson failed to enforce the firmís supervisory system and written procedures, and Ramson failed to supervise the registered representatives assigned to the firmís home office. 

Acting through Ramson, the Firm failed to 

  • take reasonable measures to ensure that Viola, a designated principal assigned to supervise a registered representative, was diligently exercising the supervisory authority delegated to him, and
  • ensure that the designated principal responsible for maintaining and enforcing the firmís supervisory system and procedures and for supervising the representatives at the home office reasonably exercised the delegated duties assigned to him. 

Mekalainas failed to 

  • take reasonable steps to verify that a branch office was being adequately supervised and that Viola was diligently exercising his delegated supervisory responsibilities over the branch, and
  • reasonably supervise a registered representativeís activities and permitted him to engage in securities transactions without proper registration. 

Viola failed to 

  • monitor and inspect a registered representativeís off-site office
  • enforce effective procedures to supervise his outside business activities, and
  • review his customersí securities transactions daily and accurately identify his supervisors in the firmís written supervisory procedures as well as the specific areas of supervision for which the supervisors were responsible. 

Great Eastern Securities, Inc.: Fined $100,000 jt/sev with Ramson; Ordered to retain an independent consultant to review the firmís policies, systems, procedures and training relating to supervisory deficiencies, and submit a report to NASD with recommendations.

Alphonse Mekalainas Jr.: Fined $25,000; Suspended 1 year in all capacities followed by 18-month Principal capacity suspension

Ernest Richard Viola: Fined $5,000; Barred in Principal capacity; Suspended 60 days in all capacities

Jeffrey Scott Ramson: Barred in Principal capacity; suspended 6 months all capacities

Bill Singer's Comment: This is a heavy-duty failed supervision case --- note that three individuals were whacked with hefty suspensions/bars.  Note that inherent within these charges is the NASD's position that supervisors must do their jobs "diligently" and ensure that principals overseeing other principals must similarly stay on top of their underling.  We also see warning flares from NASD as to likely heightened regulatory concerns for 2007: off-site offices; branch reviews, and supervisors engaged in diligent oversight.
Banif Securities, Inc. and Richard John Kailer (Principal) 
AWC/#E1020050036-01/January 2007

The Firm permitted Kailer to actively engage in the management of its investment banking or securities business without being registered as a general securities principal. Acting through Kailer, the firm

  1. permitted a representative to conduct a securities business while his registration was inactive due to his failure to timely satisfy the Regulatory Element of the Continuing Education requirement; 
  2. failed to maintain all required information for new accounts; and
  3. failed to maintain email correspondence sent or received by Kailer relating to the firmís business. 

The Firm was unable to produce any written procedures relating to email or instant messaging prior to contracting for electronic storage. 

Banif Securities, Inc. : Censured; Fined $45,000 ($20,000 joint/several with Kailer)

Richard John Kailer: Censured; Fined $20,000 joint/several with Firm

Bill Singer's Comment: We start off the New Year with two areas that continue to attract the NASD's attention: unregistered activity and email.


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