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.

2008

FINANCIAL INDUSTRY REGULATORY AUTHORITY
FINRA
NASD CASES OF NOTE 

VISIT WALL STREET'S LEADING ONLINE COMMUNITY
BrokeAndBroker.com

DEVELOPING ENFORCEMENT TRENDS AS NOTED BY BILL SINGER

REGISTRATION

BORROWING

MEMBERSHIP AGREEMENTS

E-COMMUNICATIONS

WEBSITES

 PRIVATE PLACEMENTS

American Securities; Lehman; Doolittle; Grady; Perpetual; Myers; Schinazi; Stipek; InvestMgmt. Peacock; Svete; Lindboe; Leonard; Bryant; Chicago; Citigroup; Reynolds;SWS; Sloan; Wachovia Nay; Nemanich; Owen; Siero; Young ; Dixon ; Myers ; Ranfeld; Muia; Tiedeken; Mann; Ajedewe; Murdough; Talbot; Gerome; Lopez; Sommers; Christner; Helms; Lemoine; Voris; White: LangweilerDoty; McCaskill; Mosshart; Iriarte; Karem; Rose; Turner Investprivate; ITRADE; Redwood; Legend; Newbridge; Leonard: Donnelly American Securities; Hunter Scott; Green Manning; Kuprianchik; NIS; Schinazi; Seslia; Newbridge; Leonard; AIS; Chicago;Rosenthal; Argosy; Kong; Lauderdale; Johnson; U.S. Financial; Guenther; Russick; Sexton; Sloan; Granta;Zaragoza; Black; Douglas; Tripp; Saunders American Securities; Oppenheim; Robins; Choice ITRADE; Nemanich; Reinhard; Oppenheim; Schinazi; InvestMgmt;Leonard; Chicago; Kassar; Sloan; QA3; Alterna; Smith Hayes; Trustfirst, Inc. ; Lakers
 
Michael Valerio Jr.
AWC/2008012143901/December 2008 

Valerio was the broker of record on a public customerís account while at a member firm and, after changing employment and becoming registered through another member firm, Valerio forged the public customerís signature on account transfer forms and submitted them to the firm because the customer did not intend to transfer her brokerage account to the new firm.  

Michael Valerio Jr.: Barred

Bill Singer's Comment: I can sort of understand doing this if you know that the customer wants to transfer and you think that you're just cutting down on the paperwork -- that's wrong but at least it sort of makes some sense.  But here, where the customer doesn't want to transfer to begin with, wow, not a particularly smart move.
Malcolm Alphonso Turner II
2007008061701/December 2008

Turner borrowed $75,000 from a public customer contrary to his member firmís written supervisory procedures prohibiting borrowing money from customers, and failed to disclose the loan on his firmís annual compliance questionnaire. Turner failed to respond truthfully to firm personnel when questioned about the loan, and failed to respond to FINRA requests for information. 

Malcolm Alphonso Turner II: Barred

David Stanley Shelton
AWC/2008012728901/December 2008 

Shelton borrowed $20,000 froma non-family customer without notifying or receiving written approval from his firm regarding the loan and in contravention of the firmís written supervisory procedures prohibiting its registered representatives from borrowing funds from customers unless they are immediate family members. 

David Stanley Shelton: Fined $5,000; Ordered to pay $20,000 plus interest in restitution to a public customer; Suspended 1 month in all capacities

Dorian K. Saunders
AWC/2007010720401/December 2008 

Saunders sent public customers electronic mail from a personal email account, regarding potential currency trading programs and instructed the customers not to send him emails at his member firmís email address or contact himat the firmís office regarding the trading program. The Firmís written procedures required that for any correspondence with public customers regarding a personal financial program or financial need, a copy of correspondence  must be sent to the representativeís supervisor and a copy must be placed in the customerís file. Saunders did not provide his member firmís supervisor with any emails regarding the currency trading program, nor did he put any emails in the client files. After Saunders separated from the firm, a public customer complained about an investment made with him and it was then that the firm knew about the emails. Saunders failed to respond to FINRA requests for documents and written information. 

Dorian K. Saunders: No fine in light of financial status; Barred

Noel Andrew Rose (Principal)
AWC/2007011011501/December 2008 

Rose borrowed $41,500 from public customers in contravention of his member firmís written policies prohibiting registered representatives from borrowing money from customers without disclosure to the firm. The findings stated that Rose failed to repay completely all the loan amounts. 

Noel Andrew Rose: Barred

Gordon Lee Powers Jr. 
AWC/2006007512201/December 2008

Powers 

  • participated in securities transactions without prior written notice to his member firm; 
  • engaged in business activity, for compensation, outside the scope of his relationship with his member firm and failed to provide prompt written notice to his firm;
  • borrowed $48,000 from public customers contrary to his member firmsí written procedures prohibiting borrowing money from firm customers; and
  • denied on firm compliance questionnaires being involved in any outside investment opportunities or business activities or that he borrowed money from customers. 

Gordon Lee Powers Jr.: Fined $15,000; Suspended 2 years in all capacities.

Bill Singer's Comment: Am I just missing something here? Two substantive violations and then, to make matters worse, lying about it on the annual compliance questionnaire--and for all of that a lousy $15,000 and 2 years?  As I often say in connection with this type of inconsistency: The Respondent either had a great lawyer or FINRA over-stated this matter.
Daniel Kevin Mennemeyer
AWC/2007011359201/December 2008 

Mennemeyer used the identification information of an elderly public customer, without her knowledge or approval, to obtain a credit card in the customerís name which he used. Mennemeyer committed credit card fraud in that he used the customerís credit card to pay his business and personal expenses totaling $11,670, without her knowledge or approval, which he failed to repay. In response to investigative inquiries by his member firm, Mennemeyer repeatedly lied by claiming a fictitious part-time employee, whom he refused to identify, was responsible. 

Daniel Kevin Mennemeyer: Barred

Mark Allen Lakers
AWC/2006007353804/December 2008 

While in charge of a private offering for his member firm, he permitted funds to be released to the issuer prior to the minimum contingency being met, and did not send a timely notice and reconfirmation to investors in order to extend the offering period. Lakers did not set up a proper escrow account for the offering, and allowed the funds in the escrow account to be invested in impermissible investments. Lakers attempted to invest $100,000 of his own funds in the offering but his capital commitment was not permitted because of certain requirements regarding qualified retirement funds, but his attempted investment was considered in calculating the amount of funds pledged for the fund offering. 

Mark Allen Lakers: Fined $10,000; Suspended 30 days in all capacities

Thomas Joseph Karem (Principal)
AWC/2007009420201/December 2008

Karem borrowed $30,000 from a public customer and failed to pay any of the owedmonies by the specified due date. Karem failed to notify his member firm of the loans contrary to firm policy. He eventually paid $1,000 to the customerís estate after she passed away but failed to contribute further to the firmís settlement with the estate. 

Thomas Joseph Karem: Censured; Fined $25,000 (includes $20,000 disgorgement of financial gains); Ordered to pay $9,000 in restitution; Suspended 90 days in all capacities

Jose Daniel Iriarte Jr.
2007010369701/December 2008

Iriarte borrowed $132,000 from a non-family public customer, contrary to his member firmís written procedures prohibiting registered employees from borrowing money from customers, unless they were family members. Iriarte received $130,000 from another customer for investment but converted the funds to partially repay his loan. Iriarte failed to respond to FINRA requests for information.

Jose Daniel Iriarte Jr.: Barred

Kathleen Patricia Faulhaber
AWC/2007010482101/December 2008 

Faulhaber received a loss settlement check for $7,745.38 from an insurance company in connection with an automobile accident. Faulhaber had an outstanding balance on a bank loan secured by the damaged automobile so the check was made payable to Faulhaber and the bank where she was also employed, but she did not endorse the check and turn it over to the bank for repayment of the bank loan but, without the bankís authorization or consent, improperly used a bank stamp to endorse the settlement check and converted the proceeds for her own use and benefit

Kathleen Patricia Faulhaber: Barred

Morton Bruce Erenstein
C9B20040080/December 2008
Petition for Review Denied by U.S. Court of Appeals, following SEC affirmation of a NAC decision on appeal from an OHO decision

Erenstein failed to respond to a question during a 2003 FINRA on-the-record interview and failed to timely respond to a FINRA request for information. 

Morton Bruce Erenstein: Suspended 1 year in all capacities.

Bill Singer's Comment: The Erenstein case --or more aptly put, the Erenstein saga-- raises many questions about the state of industry regulation.  Although a strong case has been made by NASD/FINRA that the tax return whose belated production seems at the core of this mess should have been timely produced, it seems that the necessary information was eventually provided.  More to the point, there seems to have been a fair legal basis for the initial objection to production. Frankly, this tempest seems more the result folks standing on principle than anything even remotely warranting some five years of litigation and appeals. I find it outrageous that the OHO imposed a Bar given the facts at issue. Among the great oddities of self-regulation is the fact that NASD's Enforcement Staff only sought a one-year suspension! Thankfully, cooler heads prevailed at the NAC , which reduced the sanction to a more appropriate 1-year suspension (which I still find excessive). 

For an interesting review of this matter see the following:

 

Cheryl Simone Eaton
2007009838001/December 2008 

Associated Person Eaton willfully failed to disclose material information on her Form U4. The NAC has denied Eatonís request for a late appeal as result of her failure to respond to its request for information. 

Cheryl Simone Eaton: Barred

John Christopher Correro
E102004083702/December 2008
National Adjudicatory Council (NAC) affirmed findings and sanctions on appeal from the Office of Hearing Officers (OHO).

Correro caused his member firmís books and records to contain inaccurate information about certain customers selling Class B and Cmutual fund shares by entering sales charge waivers for those customers by erroneously representing that they were disabled. Correroís actions were to benefit the customers and not to enrich himself. 

John Christopher Correro: Fined $7,110; Suspended 90 days in all capacities

Peter Morley Coghill
AWC/2007009352801/December 2008 

On a public customerís behalf, he placed a phone call to an insurance companyís customer service call center misrepresenting himself as the customer

Peter Morley Coghill: Suspended 10 business days in all capacities

Bill Singer's Comment: If I take FINRA at its written words, Coghill appears to be acting "on a public customer's behalf," which implies to me that the customer was aware and had authorized the call.  It that were the case, then I appreciate FINRA's concern about discouraging impersonations but am not sure why a 10-day suspension isn't a bit heavy handed.  On the other hand, if the customer was unaware of the impersonation, then don't write that the call was placed on the customer's behalf--say that it was unauthorized.  
Wayne Anthony Bulls
AWC/2008012130101/December 2008

Bulls misused $400,000 received for investment purposes from about 19 persons, including several customers of his employer member firm, by depositing the funds into his personal account, commingling their funds with his personal funds. Bulls transferred substantial amounts of the investorsí funds to a securities account he maintained in his name through which he engaged in short-term securities trading that resulted in substantial net realized losses. Bulls used some of the funds received from investors to pay back other investors who asked their funds to be returned and used some of the funds for his personal benefit. 

Wayne Anthony Bulls: Barred

Bill Singer's Comment: You all know that I just can't resist taking this shot!  So lemme see if I got this. Bulls they can catch but Madoff they couldn't.  You fill in the blanks and make your own jokes.
Christopher James Bray
AWC/2007008699501/December 2008 

Bray submitted inaccurate expense reports to his member firm requesting reimbursement of $450 for more people than actually attended seminars he conducted

Christopher James Bray: Barred

William Ross Barto
OS/2006004352401/December 2008

Barto recommended securities transactions to public customers without having reasonable grounds for believing that the transactions were suitable based on the customersí financial situations and needs. Barto failed to inform customers that the recommended equity indexed annuity was not approved for sale in the customersí state of residence and, in completing the paperwork for the transactions, falsified the location where the customers signed the paperwork. He failed to respond to FINRA requests for information and documents and failed to appear for a FINRA on-the-record interview. 

William Ross Barto: Barred

Brian Douglas Anderson
AWC/2007010981201/December 2008

Anderson entered into an impermissible arrangement to have an employee of a bank with which his member firm had a contractual networking agreement to purchase pre-initial public offering (IPO) shares of the bank on Andersonís behalf when he knew he was not qualified to purchase the shares. Anderson engaged in this conduct in contravention of a subscription agreement and without informing his member firm of the arrangement or his purchase. He failed to respond to FINRA requests for information and documents. 

Brian Douglas Anderson: Barred

Wachovia Securities, LLC
AWC/2007010115401/December 2008

The Firm permitted an individual to manage its advisory services group without being properly licensed as a general securities principal (GP) and to supervise its equity research analysts without being properly licensed as a research principal (RP). The Firm failed to enforce its procedures requiring its associated persons who function as principals to be properly registered as such. 

Wachovia Securities, LLC: Censured; Fined $75,000

Tripp and Company, Inc.
AWC/2007007232201/December 2008 

The Firm did not have an adequate email retention system to preserve emails sent or received by registered representatives as required by SEC Rule 17a-4. The Firm failed to fully comply with the Firm Element of FINRAís Continuing Education requirements in that, acting through an individual, it failed to develop a written training plan and to maintain records documenting the completion of its continuing education program by covered registered persons. 

Tripp and Company, Inc.: Censured; Fined $24,000 (of which $5,000 jt/sev with unnamed individual).

Jefferies & Company, Inc
AWC/2005001265801/December 2008

The Firm's written supervisory procedures identified a trading manager with overall responsibility for proprietary trading of securities on the OTC Bulletin Board (OTCBB) and the Pink Sheets to ensure that firm traders honored their posted quotations. The procedures stated that the trading manager should review executions to ensure that transactions were not effected to mark the close but the trading manager was not performing these supervisory responsibilities nor had the manager effectively delegated the responsibilities to any other principal at the firm. The Firm failed to establish a supervisory system reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules because no registered principal was carrying out the supervisory responsibilities concerning quotation and trading activity at or near the close of the trading day on the OTCBB and Pink Sheet desk.

Jefferies & Company, Inc: Censured; Fined $25,000; Required to revise its written supervisory procedures concerning quotation and trading activity at or near the close of the trading day.

Douglas Financial LLC 
AWC/December 2008/2007007252801

The Firm  failed to establish, maintain and enforce a reasonable supervisory system to achieve compliance with FINRA rules governing the review of email correspondence, in that the firm allowed its registered representatives to use third-party email systems without enforcing a system to audit or review the emails on a systematic basis. The firm used electronic storage media and failed to notify FINRA of its use as required by SEC rules. 

Douglas Financial LLC: Censured; Fined $15,000

Private Consulting Group, Inc, David Carl Hock (Principal) and Robert Lee Keys (Principal)
AWC/1200700740720/December 2008

Acting under the direction and control of Hock and Keys, the Firm received investor funds in connection with a contingency offering of general partnership units and failed to transmit the funds to a bank escrow account pending satisfaction of the contingency. The funds were forwarded to the issuer, which placed the funds in a segregated, non-escrow bank account in its own name. Also, the Firm failed to establish, maintain and enforce written procedures reasonably designed to ensure compliance with SEC Rule 15c2-4.

Private Consulting Group, Inc, David Carl Hock (Principal),and Robert Lee Keys (Principal): Censured; Fined $20,000 joint/several

James I. Black & Company and Jess Gove Tucker III (Principal) 
AWC/2006003702701/December 2008

Acting through Tucker, the Firm failed to 

  • retain the firmís instant messages;
  • issue margin calls with regard to security transactions;
  • obtain payment by the Regulation T date; 
  • obtain Regulation T extension requests and to impose a 90-day freeze on customer cash accounts, allowing them to effect securities purchases;
  • provide written notification to customers of the amount of any remuneration the firm received, or was to receive, in connection with transactions involving shares of investment companies;
  • ensure that for each account to which credit had been extended, that the account received a written statement disclosing interest period and annual interest rate(s) information; 
  • ensure that customers, whose accounts held debit balances as a result of prior purchases of securities on margin, had a signed agreement on file with the firm;
  • ensure that customer new account forms contained pertinent information; and 
  • establish and maintain a supervisory system, including written procedures, reasonably designed to ensure compliance with SEC and FINRA rules. 

James I. Black & Company: Censured; Fined $70,000 (jt/sev with Tucker)

Jess Gove Tucker III: Fined $70,000 jt/sev with Firm; Suspended 3 months in Principal only capacity.

Aura Financial Services, Inc. and Timothy Michael Gautney (Principal) 
OS/E052005000702/December 2008

Acting through registered representatives, the Firm 

  • recommended and effected the purchase of limited partnership interests in hedge funds without having reasonable grounds for believing that the recommendations and resultant transactions were suitable for the customers;
  • failed to reasonably supervise the sale of hedge fund investments by the representatives;
  • failed to perform due diligence on the hedge funds or have any method for principal review of customer hedge fund purchases. 

The Firm 

  • had no documentation confirming that each registered representative had attended an annual compliance meeting or participated in a phone call to satisfy the requirements of an annual meeting;
  • failed to accurately report municipal securities transactions to the Municipal Securities Rulemaking Board (MSRB);
  • failed to report through the Automated Transaction Commission Reporting Service any last sale reports or non-tape, non-clearing reports for its ďrisklessĒ principal transactions in NASDAQ securities because it failed to activate its Market Participation Identifying symbol (MPID) and verify that its trades had been reported. 
  • executed Trade Reporting and Compliance Engine (TRACE)-eligible securities transactions and incorrectly characterized them as principal transactions; failed to timely report while failing to maintain a minimum net capital, causing a Financial and Operational Combined Uniform Single (FOCUS) Part IIA Report and its books and records to be inaccurate; and
  • engaged in a securities business (while acting through its Financial and Operations Principal (FINOP)) without establishing a reserve bank account or qualifying for an exemption. 

Aura Financial Services, Inc.: Ordered to pay $100,000 plus interest in public customer restitution (Satisfactory proof of payment of the restitution amounts or of reasonable and documented efforts undertaken to effect restitution shall be provided to FINRA no later than 15 days following each payment)

Timothy Michael Gautney (Principal): Note that the published decision does not specifically denote any fine or suspension for Gautney, which I suspect is a reporting error; particularly so since there is a notation of "The suspension is in effect from November 17, 2008, through December 30, 2008"

Bill Singer's Comment: Haven't seen too many hedge fund suitability cases from FINRA. Perhaps this is a new trend?
Nancy Robyn Ziering
AWC/2006006364301/November 2008 

Ziering used communications with public customers, in the form of written financial plans, that contained misleading statements and omitted material information. Ziering failed to obtain approval from her firm to use the communications with clients and failed to arrange for the communications to be filed with FINRA. Ziering recommended variable universal life (VUL) insurance policies to public customers that were not suitable based on each customerís financial situation and needs. Ziering dealt unfairly with these public customers in recommending the funding of VUL policies in amounts that were inconsistent with the reasonable expectation that the customers had the financial ability to meet such a commitment. 

Nancy Robyn Ziering: Fined $60,000 (including disgorgement of $32,720 in commissions paid to her for unsuitable transactions); Suspended 9 months in all capacities.

Joseph Andrew Zaragoza Jr.
E8A2002109804/November 2008
National Adjudicatory Council (NAC) affirmed findings and sanctions on appeal from the Office of Hearing Officers (OHO).

Zaragoza engaged in excessive trading in a public customerís account that was inconsistent with the customerís investment objectives and financial situation and was thus unsuitable. The sanction was also based on findings that stated that Zaragoza exercised discretion in the customerís account without prior written authorization from the customer and written notice to his member firm and that he failed to submit pieces of email correspondence to his firm for review and approval. Also, Zaragoza engaged in outside business activities, for compensation, and failed to provide his member firm with written notice, but the NAC declined to impose a sanction for this violation because of the bar imposed for the other violations. 

Joseph Andrew Zaragoza Jr.: Barred in all capacities

Mary Ann Yzaguirre aka Mary Ann Vargas
2007010840401/November 2008

In her role at her member firm's cashiering department, Associated Person Yzaquirre  systematically misappropriated $45,500 by engaging in a check kiting scheme. Yzaguirre deposited personal checks backed by insufficient funds into her personal firm accounts and improperly coded the checks on the firmís system so that she could have same-day access to the funds, thereby creating artificial balances in her firm accounts that caused the firm to sustain significant losses when her scheme ultimately collapsed. Yzaguirre made false entries in her firmís books and records to effectuate her scheme. 

Mary Ann Yzaguirre aka Mary Ann Vargas: Barred in all capacities

Bill Singer's Comment: WARNING!!! HEAVY DOSE OF SARCASM TINGED WITH CYNICISM TO FOLLOW:  

So, okay, just to confirm my understanding of this case: a lowly Associated Person engaged in a scheme whereby she created artificial balances in her firm's accounts that caused significant losses. For that she is rightfully barred. Please note the underlined and red-colored word. Under no circumstances do I support or minimize this misconduct. She got what she deserved from FINRA, and one can only imagine whether there are further criminal charges pending or adjudicated.

However, I am just sitting here with bated breath waiting for the deluge of cases that FINRA will soon bring against all the highly placed executives at its largest member firms for their various schemes involving the systemic creation of false entries and artificial balances (including overblown and unsupported valuations) of subprime assets, CDO assets, CDS assets, ARS assets, and all the other now-tarnished assets.  When those execs' scheme ultimately collapsed, their firms and the accounts of many of their customers sustained significant losses. (I have highlighted the similar allegations in the Yzaguirre case to the facts in my supposed FINRA regulatory initiative.)

What say you?  Oh, you're right. FINRA's "largest member firms" ain't necessarily what they used to be. Okay, sorry, let me rephrase that target group to now include some of FINRA's current largest member firms; some of FINRA's once largest member firms now defunct and/or bankrupt and/or otherwise out of business; and those erstwhile, large FINRA member firms that are no longer independent entities but affiliates or subsidiaries of other financial institutions. I'm sure that our zealous regulator is already sitting at the grinding wheel, honing the edge on its many enforcement knives, and preparing for its onslaught against the once well-heeled and powerful ne'er do wells of Wall Street who brought us to the edge of the present chasm, and then pushed us over the precipice and into our present state of freefall.  With all the practice that FINRA's staff has going after the Yzaguirrs of Wall Street, putting together a meaningful case against the big boys should be a slam dunk.

Bruce Arthur Tucker
AWC/2006005546005/November 2008

Tucker 

  • made recommendations to public customers to open accounts with his member firm and invest in collateralized mortgage obligation (CMO) securities without having reasonable grounds for believing that his recommendations were suitable based on the customersí financial situations and needs;
  • made misstatements of material fact and omitted material facts in connection with the CMO recommendations;
  • delegated the authority (without obtaining written authorization from his clients and a firm principal to authorize Tucker or another representative to exercise discretion in any of the accounts) to another representative to utilize his discretion to 
    • select particular CMO investments for his customers, 
    • decide how much of the security his customers would buy and when, and 
    • decide how much margin borrowing would be utilized to purchase the CMOs. 

Bruce Arthur Tucker: Barred in all capacities

Guadalupe Rivera
AWC/2007010853701/November 2008 

While acting as a licensed personal banker and registered with a member firm, Rivera used the bankís systems to obtain information regarding a public customer and his moneymarket account. Without the customerís prior knowledge or authorization, Rivera used the information to withdraw $50,000 from the customerís account for her personal use and benefit, and failed to return any of the funds to the customer or reimburse her firm after it repaid the customer. Rivera failed to fully respond to FINRA requests for documents and information. 

Guadalupe Rivera: Barred

Ara Proudian (Principal)
CMS040165/20050006311/November 2008
The Review Subcommittee of the National Adjudicatory Council (NAC) called this matter for discretionary review under NASD Rule 9312, and NAC affirmed the findings of the Office of Hearing Officers (OHO) Panel and modified by way of increase the OHO sanctions.

Proudian aided and abetted a market manipulation of a stock by entering buy and sell orders for the stock at the direction of others, with the vast majority of the orders being crossed or effectively matched to permit his member firmís continued control of the market for the security. Proudian recklessly abdicated his duty to investigate his member firmís trading and closed his eyes to the circumstances indicative of a scheme to create the false appearance of an independent market.  #)

Ara Proudian: Fined $25,000; Suspended 1 year; Ordered to requalify in all capacities prior to reassociating with any FINRA member.

Bill Singer's Comment: In December 2006, OHO imposed a $5,000 fine, 90-business day suspension in all capacities, and a requal in all capacities based upon findings that Proudian aided and abetted market manipulation in violation of Section 10(b) of the Exchange Act, SEC Rule 10b-5 thereunder and NASD Rule 2120; and that he processed orders in spite of red flags, thereby aiding and abetting the manipulation.

Following a call for review by the NAC, that body  affirmed the Hearing Panelís findings that Proudian aided and abetted a market manipulation, in violation of NASD Rule 2110, further affirmed the conclusion that Proudian was not responsible for the sale of unregistered securities, and agreed that the fourth cause of Market Regulationís complaint should be dismissed as to Proudian. As to sanctions, the NAC ordered that Proudian be suspended for one year from associating in any capacity with any FINRA member firm, fined Proudian $25,000.51; and ordered him to requalify in all capacities prior to associating with any FINRA member firm in the future.

Nicholas Anthony Natale (Principal)
E072005005401/November 208

Natale failed to 

  • ensure that his member firm complied with the Taping Rule requirements under NASD Rule 3010(b)(2);
  • ensure that firm research analysts had passed the qualifying examinations before they published research reports;
  • file amended Forms U4 for registered representatives of the firm in response to written customer complaints the firm received; and
  • report, or to timely report, customer complaints to FINRA. 

Nicholas Anthony Natale: Fined $90,000; Barred in Principal capacity only

Steven Fisher Mosshart
OS/2005001798201/November 2008 

Mosshart 

  • engaged in private securities transactions and failed to give written notice to, and receive written acknowledgement from, his member firm;
  • borrowed funds from public customers contrary to his member firmís prohibition from borrowing from customers; and
  • completed and submitted questionnaires to his firm that were false and misleading, in that he represented that he had not borrowed money from firm customers. 

Steven Fisher Mosshart: Ordered to pay $905,000, plus interest, in restitution to public customers; Suspended 1 year in all capacities

Carl McCaskill
2007009417801/November 2008 

McCaskill borrowed $159,000 from a public customer in breach of his member firmís policies and procedures prohibiting borrowing money from customers without prior written approval. McCaskill failed to respond to requests for information from FINRA and the New York Stock Exchange, LLC. 

Carl McCaskill: Ordered to reimburse a public customer $109,000 plus interest; Barred

Carlos Lopez III
AWC/2008013774201/November 2008

Lopez took $398.26 in public customer bank funds and converted the funds for his personal use. 

  1. He assisted a public customer by telephone with renewal and rollover of certificate of deposit (CD) funds for which the customer mistook the amount, and acting without the customerís knowledge or consent, Lopez took the $100 difference and used it for his own benefit or some benefit other than that of the customer;
  2. Without another public customerís knowledge and consent, opened a checking account in the customerís name, used the banking center address as the mailing address for the account, and created an ATM card for access to the account and withdrew $126.45 from the account at a non-affiliated bank for his own benefit. 
  3. Lopez assisted a third public customer by telephone with rolling over a CD prior to maturity and advised the customer that there would be a $171.81 penalty fee. Lopez renewed the CD without a penalty fee, resulting in $171.81 less being rolled over, which Lopez used for his own benefit.

Carlos Lopez III: Barred

Bill Singer's Comment: A fascinating case and one that should serve as a compliance template for banks and their affiliated BDs.  As I have previously noted, there is a mini-explosion in the abuse/misuse of ATM cards, and Lopez merely underscores this phenomenon. Moreover, it would seem a fairly prudent policy to at least review all incoming mail from another financial institution that is addressed to anyone at your firm's business address--of course, all incoming/outgoing correspondence is supposed to be reviewed anyway but this specific red flag seems something worth keeping an eye out for. I mean, seriously, how many folks don't have such communications sent to their home address?  Kudos to FINRA for this case.  Succinctly reported and actually quite helpful.
Cindy Lee Kontorowicz
AWC/2008012473001/November 2008 

Kontorowicz signed her managerís signature, without authorization or consent, on an income verification form that she submitted to a lender when applying for a personal mortgage loan. 

Cindy Lee Kontorowicz: Fined $5,000; Suspended 3 months in all capacities

Lee Alexander Gold (Principal)
AWC/2006006719101/November 2008

Gold settled a customer complaint outside of his member firm without immediately informing his firmor obtaining its consent to do so. 

Lee Alexander Gold: Fined $5,000; Suspended 40 days in all capacities

Roberto Giovanni Gatti (Principal)
AWC/2008013294101/November 2008

Gatti charged unfair and excessive commissions on Treasury and fixed income trades for corporate trust customers of his member firmís bank

Roberto Giovanni Gatti: Fined $100,000 in light of his financial status (includes disgorgement of commissions); Suspended 3 months in all capacities

Bill Singer's Comment: Among the more prominent anecdotal stories making the rounds in the media is that many investors are fleeing the equity, commodities, futures, and real estate markets for the perceived safety of U.S. Treasuries; and that many leading pundits are espousing investments in corporate debt in lieu of stock.  Regardless of the suitability of such investment advice, there is clearly a pick-up in business among those seeking a haven in these tough times.  Consequently, word to the wise compliance types among us, your once sleepy backwater of treasuries and fixed-income may be the only transactional hotbed at your shop.  With a drop off in new accounts and a drop off in the frequency of trading, some registered persons may succumb to the temptation of tacking on a few extra points when selling whatever it is that they can push out the door.  I would urge all compliance departments to schedule this unfair/excessive commission issue for discussion during your annual compliance conference. Similarly, start testing your commission runs for these trades.
Dena Meacham Fisher (Principal) 
AWC/2008012913001/November 2008

Fisher sought and received reimbursement for more than $9,400 from her member firm to which she was not entitled, thereby misappropriating her member firmís funds for her own use. Fisher falsified expense reports, causing her firmís books and records to be false. 

Dena Meacham Fisher: Barred

Roxanne Lynn Doty
AWC/2007008714301/November 2008 

Doty borrowed $22,500 from a public customer contrary to her member firmís written procedures prohibiting its employees from borrowing funds from, or lending funds to, a public customer under any circumstances. Doty did not request or obtain permission from her member firm but repaid the loan with interest. Doty submitted a false statement to her firm regarding the loan although she later provided a truthful account. 

Roxanne Lynn Doty: Fined $10,000; Suspended 13 months in all capacities

Lace Anne Daniels (Principal) 
2006007089902/November 2008

Daniels induced her branch officeís comptroller to issue her a $22,000 check, falsely representing that the branch manager had approved that amount as a bonus by providing an unsigned compensation agreement and falsely stating that the manager had forgotten to sign the form, thereby converting the funds to her own use without her member firmís knowledge or consent. Daniels accessed the branch officeís payroll program and ordered the payment of $5,527 to herself without her firmís knowledge or consent. Daniels failed to respond to FINRA requests for information. 

Lace Anne Daniels: Barred

Bill Singer's Comment: Some folks really have this strong conviction that they are entitled to a bonus, and, I guess, when their belief is shattered, they have a tendency to engage in self help.  

Given the difficult financial times we now live in, it is only prudent for member firms to anticipate that their employees are under financial stress and some folks may opt for fraudulent and criminal means to obtain funds. A fairly simple fix for this type of problem would be to either 

1. forward such checks directly to the BOM for his/her handing over to the broker (a second fail-safe practice--if you require the BOM sign an authorization form pre-issuance of the check, why not add the "belt" to that "suspender" by forwarding the cut check to the same BOM for his/her final review); or, 

2. (even better) forward the check directly to the BOM and provide for his/her additional signature on such checks prior to issuance.  If necessary, open a special account with you bank for the limited purpose of branch-related checks (bonuses, expenses, payroll, etc.) and require a counter-signature from the BOM.

As some of the more astute among you may note, individuals such as Daniels may try to intercept such internal mail packages and simply steal the check and forge the signature, but, hell, at least make it all that more difficult and add the criminal charge of forgery of the BOM's signature on the purloined check.

Richard P. Buss
OS/2006005732801/November 2008 

Buss instructed 

  • a public customer to sign blank checks from her money market account to purchase unspecified investments, but converted the funds totaling $271,975 from her account to pay his credit card bills and other personal expenses without the customerís knowledge or permission; and
  • another public customerís trustee to sign 
    • checks totaling $163,500 for unspecified investments for the customerís benefit, but used the funds to pay credit card bills. 
    • account checks totaling $407,000, which were used to pay initial and annual insurance premiums for unrelated customers and for which Buss received $47,000 in commissions.

Buss failed to respond to FINRA requests for information. 

Richard P. Buss: Barred

Bill Singer's Comment: A growing problem for our industry, and with a worsening economy, the prospects are for even more such incident.  I'd like to see FINRA tackle this issue by detailing effective measures that member firms can take to detect such misconduct. Also, I would love to see a comprehensive discussion of the pre-emptive policies and procedures member firms can implement with an aim of preventing such fraud. 
Stacey Lynn Budd
AWC/2007011294601/November 2008 

Budd used public customersí automatic teller machine (ATM) card to withdraw $7,000 from their bank checking account without their permission and consent. 

Stacey Lynn Budd: Barred

Kerry Lane Bryan
AWC/2007007580301/November 2008 

Bryan misappropriated at least $100,000 from a charitable organization affiliated with his member firm by issuing checks made payable to himself or ďcashĒ from the organizationís bank account. Bryanís actions were taken without the organizationís knowledge, authorization or consent, and he utilized the misappropriated funds for personal expenses. Bryan failed to respond completely to FINRA requests for information and documents. 

Kerry Lane Bryan: Barred

Bryan Scott Behrens (Principal)
AWC/2007011249401/November 2008 

While selling notes relating to an entity he controlled, Behrens failed to disclose to investors that funds from new investors were being used to pay earlier investors. Behrens did not disclose in writing to his member firm that he was selling the notes to investors, and his member firm did not provide written approval for him to do so. Behrens failed to respond to FINRA requests for information. 

Bryan Scott Behrens: Barred

Bill Singer's Comment: One of the purposes of uniformly reporting similar violations is that it helps present the industry with a population of similar cases and a range of sanctions within that population.  Consequently, if you are faced with allegations of having violated Rule X, you could look up recently reported Rule X cases and get a sense of the size of the fines and suspensions you could face, and then propose a settlement within those parameters.  

Unfortunately, when a regulator doesn't uniformly describe or characterize its cases, the system is less amenable to indexing and takes on a less useful ad hoc cast.  In the Behrens case, we are confronted with just such a lapse.  It would appear that the facts in this case fall within either (or both) a NASD/FINRA Conduct Rule 3030 (outside business activity) and Rule 3040 (private securities transaction) violations, but nary a reference is made to either enumerated rule or the generally accepted descriptive terms that I have noted within the parentheses.   

Michael Joseph Becker (Principal) 
AWC/ELI2003041302/November 2008

Becker was responsible for trading in proprietary accounts at his member firm. He traded directly with a market maker or through an electronic communications network, but settlement was handled by a clearing firm. While the contra parties received securities or monies due if there was a trade break, settlement of the firmís positions would be delayed until the trade break was resolved. Becker was responsible for responding to trade breaks and was reckless in his approach to the trade breaks because he repeatedly made entries on the clearing firmís systems that did not properly resolve the breaks and settle the trades. While Beckerís entries removed the trade break from his computer screen, they failed to result in a final settlement in his firmís account and would reappear when his new entries again failed to match the contra partyís entries. A new clearing firm identified the unsettled trades and sought payment from Beckerís firm; but when the firm did not pay, the clearing firm liquidated the unsettled positions, causing the firm to cease its business operations when it could not remit the approximately $3 million dollars owed to the clearing firm. 

Michael Joseph Becker: Fined $10,000; Barred as an Equity Trader; Suspended 60 calendar days in all capacities

Bill Singer's Comment: First off, I can't remember seeing an individual barred as an Equity Trader; so, for nothing else, this is a noteworthy sanction. Second, this is an intriguing fact pattern but unfortunately lacking in some necessary detail.  What exactly did Becker report concerning the trade breaks? How long did he defer proper reporting and why didn't anyone in his firm's Compliance Dept. catch the improper reconciliations and demand immediate rectification?  
John Douglas Audifferen
C1020030095/November 2008
Securities and Exchange Commission sustained findings of violation and sanctions on appeal of a National Adjudicatory Council decision on appeal from Office of Hearing Officers decision 

Audifferen 

  • improperly extended credit and caused member firm of registered securities association to extend credit to customer;
  • engaged in free riding with respect to customerís account; 
  • enjoyed beneficial use of and shared in the profits of the improperly extended credit;
  • caused member firm to extend credit improperly in registered representativeís brokerage accounts with member firm; and
  • failed to report a customer complaint on Form U4

John Douglas Audifferen: Fined $9,665; Ordered to pay $7,835 in restitution to a public customer; Barred

Bill Singer's Comment: The SEC's Opinion is quite well crafted and sets forth the issues with unusual clarity and then provides understandable explanations concerning the violations. Also, an interesting discussion of alleged FINRA hearing improprieties pertaining to alleged witness intimidation, sanctioning, advocacy by Hearing Officer, etc.
Timothy Luke Allen (Principal)
AWC/2006006316001/November 2008

Allen obtained and used customer funds totaling $704,315 from a private placement offering for personal and business expenses without authorization, and did not immediately repay the funds. 

Timothy Luke Allen: Barred

Bill Singer's Comment: Talk about a quick sweep under the rug!  What the hell happened here?  Was Allen operating as the placement agent?  When FINRA says that he "obtained and used customer funds," how does that differ from, say, "stealing customer funds"?  When FINRA says he did not "immediately repay" the funds, is the regulator suggesting that he eventually did repay the funds--is the regulator also suggesting that it was okay for Allen to have "obtained and used customer funds...without authorization" provided he had immediately repaid the diverted dollars?  

While I appreciate that these squibs are meant to serve as summaries, I wish that FINRA would understand that since the regulator does not provide online links to the underlying AWC, that it often needs to offer  more details to place the facts in context and to support the sanctions imposed.  Note, the NYSE provides online links at the end of its comparable monthly decisions in the form of PDF files for the underlying Stipulation of Facts and Consent to Penalty.  I have never understood why NASD and now FINRA failed to adopt a similar policy of full disclosure.  While FINRA may think that an acceptable substitute is "call us and we'll send you the AWC or OS," it is a cumbersome undertaking to make that request, especially when a lawyer or public investor is researching numerous settlements.

Trustfirst, Inc.
AWC/2007007423401/November 2008

The Firm served as a placement agent in a private placement offering of equity and debenture securities. The offering was made without registration in reliance on the exemption from registration contained in SEC Rule 506 of Regulation D, which prohibits general solicitation or advertising in connection with such offerings. In soliciting sales of the securities, the firm mailed announcements of the offering to prospective investors; only some had a pre-existing relationship with the firm or the issuer at the time of the solicitation so that the offering constituted a general solicitation. In failing to comply with Regulation D requirements, the firmís sales of the unregistered securities were in contravention of Section 5 of the Securities Act of 1933. 

Trustfirst, Inc.: Censured; Fined $14,000

Bill Singer's Comment: Private placement violations have been on a noticeable upswing recently.  See the Smith Hayes immediately below for an example, and see the "Private Placements" box at the top of this page in the far right column for other examples. While you have some safe harbor under the rules to solicit folks with whom you have a prior relationship (and thus not technically a "general" solicitation), you had best scrutinize such solicitations to make sure that you are within the carve-out exception set forth under Reg. D.
Smith Hayes Financial Services Corp. 
AWC/2006007353802/November 2008

The Firm had policies and procedures regarding private offerings, including setting up an escrow account and releasing funds from the escrow account to the issuer, but failed to adequately implement its written procedures with respect to an offering. The Firm did not follow its procedures regarding 

  • establishing an escrow account for the offering;
  • monitoring the activities in the account; 
  • returning funds to investors when the minimum contingency was not met; and 
  • calculating whether the minimum contingency amount had been met. 

Smith Hayes Financial Services Corp.: Censured; Fined $10,000

Raymond James & Associates, Inc.
AWC/2007009525901/November 2008

The Firm 

  • permitted a person or entity not registered as a broker-dealer and who had been barred from the securities industry to perform duties that required registration;
  • permitted a person who was not registered with, qualified by or acceptable to the NYSE to regularly perform the duties customarily performed by a securities lending representative; 
  • compensated alleged finders in connection with stock loan transactions when the finders had not performed any services in connection with the transactions; 
  • transmitted transaction-based compensation to an unregistered person or entity operating as an unregistered broker-dealer
  • failed to 
    • reasonably supervise or control certain of its business activities;
    • provide for appropriate procedures of supervision and control;
    • establish a separate system of follow-up and review to determine that delegated authority and responsibility were being properly exercised; and
    • make and keep accurate records reflecting its stock loan activities. 

Raymond James & Associates, Inc.: Censured; Fined $1,000,000

Bill Singer's Comment: This one truly puzzles me. Visit FINRA's Press Release page at http://www.finra.org/Newsroom/NewsReleases/2008/index.htm and note the hodgepodge of announcements listed.  I see a number of sub-$1 million settlements trumpeted and any number of actions against smaller firms, but, hmmmmm...how come this million dollar settlement didn't make it into a publicized press release. 

I see that when FINRA fined Raymond James Financial Services $2.5 million in 2007 for lax supervision of branch managers, that the regulator issued a press release http://www.finra.org/Newsroom/NewsReleases/2007/p018681; and in 2005 there was that press release about the $750,000 fine against Raymond James & Associates for fee-based violations http://www.finra.org/Newsroom/NewsReleases/2005/p013876 .

Not sure what to infer from this other than it just seems inconsistent.  Still, who decides at FINRA what gets publicized and what doesn't?  And if a $1 million fine doesn't earn a press release, then what does?

Granta Capital Group LLC fka Sky Capital LLC 
AWC/E102003193001/November 2008

The Firm failed to preserve copies of all electronic mail communications for three years, and/or maintain electronic mail communications for the first two years in an accessible place, as required by Section 17(a) of the Securities Exchange Act of 1934. 

Granta Capital Group LLC fka Sky Capital LLC :Censured; Fined $100,000

Credit Suisse Securities (USA) LLC
AWC/2006004268901)/November 2008 

The Firm sold corporate bonds to customers and failed to sell the bonds at a price that was fair, taking into consideration all relevant circumstances, including market conditions with respect to each bond at the time of the transaction, the expense involved and that the firm was entitled to a profit. 

Credit Suisse Securities: Censured; Fined $200,000; Ordered to pay $193,023, plus interest, in restitution to customers.

Alterna Capital Corp.
AWC/2006006316002/November 2008 

The Firm served as the placement agent for contingency offerings and, acting at the direction of its former principal, prematurely disbursed investor funds from escrow before the contingencies had been satisfied through bona fide investments, thereby rendering the offering memoranda false and misleading. The findings stated that the firm failed to designate a licensed Limited Principal Ė Introducing Broker/Dealer Financial and Operations (FINOP) or open a window for a designated replacement for a three-month period. 

Alterna Capital Corp.: Censured; Fined $48,000

Bill Singer's Comment: Looks like FINRA is focusing on private placements as a potential compliance problem. This is the third citation for that area this month: See, Sloan and QA3
QA3 Financial Corp. and Theodore Aaron Lange Sr. (Principal) 
AWC/2006007353801/2006007353803/November 2008

The Firm and Lange 

  • failed to adequately supervise a registered representative who conducted a private offering;
  • permitted funds to be released to the issuer prior to the minimum contingency being met; and
  • did not send timely notice and reconfirmation to public customers in order to extend the offering period. 

The representative did not set up a proper escrow account for the offering and allowed the funds in the account to be invested in impermissible investments. Lange participated in the offering and was aware of developments in the offering 

QA3 Financial Corp.: Censured; Fined $15,000

Theodore Aaron Lange Sr.: Fined $10,000; Suspended 15 business days in Principal capacity

Bill Singer's Comment: Looks like FINRA is focusing on private placements as a potential compliance problem. This is the second citation for that area this month. See Sloan RRBDLAW.comcase immediately below.
Sloan Securities Corp. and James Curtis Ackerman (Principal) 
AWC/E9B2005014202/November 2008

Acting through Ackerman, the Firm 

  • allowed a registered representative to act as an unregistered principal of a branch;
  • failed to establish, maintain and enforce a supervisory system and written procedures to supervise the activities of registered members to achieve compliance with applicable rules and regulations regarding 
    • markups/markdowns
    • commission charges
    • municipal securities and private securities transactions, 
    • outside business activities, 
    • Securities and Exchange Commission (SEC) Regulation SP
    • sale of private placements
    • free-riding and withholding
    • advertising and sales literature, and 
    • the Regulatory Element of the Continuing Education Requirement;
  • failed to enforce its supervisory system and written procedures regarding the securities activities of a branch office so that the firm failed to provide for supervision of that branchís registered representatives, particularly with respect to suitability of unregistered securities;
  • in connection with its branch office inspections, failed to prepare a written inspection report that included the testing and verification of its policies and procedures regarding the safeguarding of customer funds and securities, validation of customer address changes, transmittal of funds and other areas;
  • failed to establish or enforce procedures for a registered principal to review business-related electronic correspondence in one of its branch offices;
  • failed to designate and specifically identify to FINRA one or more principals to establish, maintain and enforce a system of supervisory control policies and procedures and, therefore, failed to establish procedures providing for the review and supervision of customer account activity conducted by branch office managers, sales managers or other supervisory persons;
  • failed to establish procedures reasonably designed to provide heightened supervision over the activities of each producing manager responsible for generating 20 percent or more of the revenue of the business units supervised by the producing managerís supervisor;
  • in connection with a transaction in which the firm received approximately $350,000 in customer funds to purchase shares of an unregistered stock, the firm failed to 
    • establish and maintain a Special Reserve Bank Account for the Exclusive Benefit of Customers, 
    • prepare computations to determine the amount of funds and/or qualified securities needed to be deposited in the reserve account, and 
    • make the required deposit of funds and/or qualified securities to the account. 
    • accurately post the receipt and payment of customer funds in its general ledger. 
  • in connection with a contingent private offering in which it was seeking to raise $60 million as a placement agent, caused the release of public customer funds from escrow before the satisfaction of the contingency, contrary to the terms of the offering. 
  • failed to maintain a Checks Received and Forwarded Blotter in a branch office, and that order tickets for equity, corporate bond and municipal securities transactions contained deficiencies;
  • failed to file summary and statistical information with FINRA for customer complaints

Sloan Securities Corp.: Censured; Fined $65,000

James Curtis Ackerman: Fined $35,000, Suspended 3 months in Principal capacity; Suspended 10 business days in all capacities (suspensions to run concurrently); Ordered to requalify by examination as a general securities principal by passing the Series 24 examination within 60 days of the end of the three-month suspension. If Ackerman fails to pass the examination, he may not perform any functions requiring principal registration until such time as he passes the required examination.

Bill Singer's Comment: First off, I've been working on Wall Street for more than a quarter of a century.  Frankly, I can't think of any case that I've read or been involved with where there was such a breathtaking panoramic scope of violations.  Sloan is absolutely impressive on that account alone.  

However (and, yes, there is always that qualifier), I still have a nagging feeling or fear that all is not what it seems.  Assuming that FINRA hasn't hyped the facts here (and we know that would never, ever happen), I did quite a double take when I saw that the firm was fined a mere $65,000.  I rubbed my eyes because I thought the fine was $650,000, which made sense to me given the enormity of the violations; but when I saw that there were only three zeroes after the "65" I was astonished.  Then I figured that Mr. Ackerman was going to be barred as a Principal or certainly sat down for a few years.  Gee, imagine my puzzled look when I saw he got three months with a requal for the Series 24 and a mere 10 business days in all capacities.

My research revealed that Sloan has been an NASD/FINRA member since 1987.  I truly do not understand how all of the above just materialized in 2008, out of the blue, to the apparent shock and mystification of regulatory staff.  Moreover, since Mr. Ackerman was apparently suspended in 2005 to 2006 by NASD for one-year as a Compliance Director, you would think that his activities and that of his firm would have been subjected to all the more scrutiny during examinations since then. 

Ultimately, Sloan is the single most illustrative case of all that I see wrong with how Wall Street is regulated. I find it hard to believe that the good old FINRA examiners just happened to stroll into Sloan one fine day and, voila, the firm was in total disarray.  A compliance meltdown of this magnitude does not occur all at once. So many things had to be wrong from day one, so many things had to take months to go wrong, that you have to wonder why FINRA just didn't catch any of this earlier.  And if the best that FINRA can do for our industry and the investing public is to read the toe tag on this corpse of a member firm, then we're not really talking so much about pre-emptive regulation as post-mortems. 

Midas Securities and Jay S. Lee (Principal)
OS/2005000075703/November 2008

The Firm and Lee failed to update Leeís Uniform Application for Securities Industry Registration or Transfer (Form U4) with material information. 

Midas Securities: Censured; Fined $15,000

Jay S. Lee: Fined $15,000: Suspended 45 days in all capacities.

Bill Singer's Comment: Although the fact pattern here is fairly garden-variety (see this U4 tab for examples), the noteworthy exception is that both the member firm and applicant were sanctioned.
Michael Douglas Stebbins (Principal)
AWC/2006004969702/October 2008 

While associated with member firms, Stebbins held a financial interest in a brokerage account at another firm without giving prompt written notification to his member firms that he had such an account, and without notifying the other brokerage firm of his association with member firms. 

Michael Douglas Stebbins: Fiend $5,000; Suspended 15 business days

William Alan Sirls (Supervisor)
AWC/2006006808701/October 2008

Sirls persuaded member firm employees and public customers to invest in Ponzi-type investments purportedly involving real estate and the firmís ďbusted tradeĒ account, neither of which existed. Sirls failed to respond to FINRA requests for information. 

William Alan Sirls: Barred

Bill Singer's Comment: Frankly, I'm intrigued by this case and wish that FINRA gave more detail in its published online report.  Now I'm going to stay up nights trying to figure out how the "I have this piece of land and this Busted Trade Account" spiel went. With that gift of gab, one wonders why Sirls declined FINRA's requests for information--maybe he could have woven his spell on the staff and walked away with their dollars and no bar.  Alas, we'll never know.
Jerrold Robin Sexton
AWC/#2007008542602/October 2008 

Sexton borrowed $30,000 from a public customer contrary to his member firmís written procedures that permitted loans if the loan fell within an enumerated category. Sextonís loan from the customer did not fall within one of the enumerated categories of permissible loans.

Jerrold Robin Sexton: Fined $5,000; Suspended 20 business days

Norman Harley Russick II
AWC/2006007108501/October 2008

Russick borrowed $1,000 from a public customer contrary to his member firmís procedures that prohibited the borrowing and lending of money between registered representatives and firmcustomers. Russickís firm did not know or otherwise approve the loan. 

Norman Harley Russick II: Fined $5,000; Suspended 10 business days

Ara Proudian (Principal)
OS/2006003684701/October 2008

Proudian failed to ensure that his member firm complied with FINRAís Taping Rule by allowing registered representatives to use cellular telephones outside the office and office telephone lines that were known to be unrecorded to communicate with firm customers. Proudian provided false and misleading testimony in FINRA on-the-record interviews. 

Ara Proudian: Barred

Bill Singer's Comment: Now here's a dinosaur of a rule. The Taping Rule is found at FINRA/NASD Conduct Rule 3010(b)(2): Supervision/Written Procedures/Tape Recording of Conversations. We don't see much of this anymore because, well, frankly, the industry is in shambles and the types of boilerrooms/pennystock firms that this was aimed against just aren't around in the numbers that they used to.  Also, a lot of the kids who used to populate such places left the industry in search of subprime scams, precious metals scams, and who knows what other rip-offs.  Nonetheless, since the Taping Rule imposes an obligation for "tape-recording all telephone conversations between the member's registered persons and both existing and potential customers," then it's hard to imagine how the subject firm could tape such calls if they are done outside the office on cellphones.  Good catch!
Delfin Joaquin Paris III 
OS/2006006997701/October 2008

Paris drafted a letter to a company that issued a variable annuity stating that a public customer had a checking account in good standing, as required by the company, in order to transfer $70,000 from the annuity to the customerís checking account, and signed a nonregistered bank officerís name to the letter without the officerís knowledge or consent. Paris submitted the letter to his member firm for processing without disclosing that he had signed the officerís name to the letter, and the firm processed the transaction, resulting in a $70,000 transfer from the customerís variable annuity to his checking account. Paris failed to timely respond to FINRA requests for information. 

Delfin Joaquin Paris III: Barred

Max Morehouse
2007010607601/October 2008 

Morehouse made withdrawals totaling $240 from a public customerís bank account using a temporary automatic teller machine (ATM) card he had linked to the account, and without the customerís knowledge or consent, converted the funds for his personal use. 

Max Morehouse: Barred

Bill Singer's Comment: In keeping with the New York Post news story that broke in April 2008, this ATM scam is not so isolated as to still be funny.  Banks must take better steps to ensure against such theft.
Tara Moree Lewis (Principal)
AWC/2006004969701/October 2008

Lewis failed to reasonably supervise administrative personnel in a branch office who had failed to obtain customer signatures on non-solicitation letters and altered previously executed non-solicitation letters (which the customers signed) by photocopying the letters and inserting a new date and/or new security. Lewis failed to recognize that this practice was improper and failed to prevent it. 

Tara Moree Lewis: Fined $10,000; Barred in Principal/Supervisory capacities only

Bill Singer's Comment: If my "in-box" is any measure, there has been a huge increase in RRs seeking the protection of NSLs. One would think that the hallmark of gaining such protection would be 1. a well-drafted letter setting forth the customer's admission that the trade is unsolicited; 2. specification of the trade(s) that were unsolicited; and 3. a dated, original signature. It's quite challenging to think why administrative personnel would resort to photocopying documents that require contemporaneous signatures--much less altering the dates and trades to conform to subsequent transactions.
David Willingham Lentz
AWC/2007010505801/October 2008

Lentz falsified public customersí signatures by cutting and pasting their signatures onto Explanation of Transaction forms without their authorization or knowledge, and placed the forms in the customer files until he received the signed forms. Lentzí firm discovered the falsified forms the following day. 

David Willingham Lentz: Fined $5,000; Suspended 1 month 

Bill Singer's Comment: Lemme see if I understand this one. The RR cut and pasted signatures onto a form--okay, that's a mistake and a violation. Keep in mind that a cut-and-pasted signature doesn't exactly suggest a clever attempt to deceive--I mean, geez, it's CUT AND PASTED. 

Then he placed the forms in a file in anticipation of getting signed copies. Okay, if his intent was to simply prepare a "place-holder" type dummy document to be replaced with the originally signed one, well, hmmm...not exactly the best way to go about it but it strongly suggests a misguided approach rather than an outright deceitful one. If that's the scenario (and we truly can't tell from FINRA's published squib), then I understand the $5,000 fine but am not sure what's gained by the suspension.

Craig Gary Langweiler
AWC/2007010515001/October 2008 

Langweiler borrowed $40,000 from a public customer without his member firmís approval and contrary to his firmís written supervisory procedures prohibiting such loans. 

Craig Gary Langweiler: Fined $5,000; Suspended 10 business days

Matthew Samuel Kaplan
2007007758701/October 2008

Kaplan converted and misappropriated funds from his member firm to his own use and benefit by using his firm-issued corporate credit card to charge personal expenses and falsifying his expense report to induce his member firm to pay for personal charges. Kaplan intentionally submitted false expense reports to his member firm, disguising his personal expenses as legitimate business expenses, which caused his firm to have false books and records. 

Matthew Samuel Kaplan: Barred

Bill Singer's Comment: Oddly, a year and two years back, there were a number of the credit card cases, but perhaps in light of the deteriorating scene on Wall Street, fewer RRs still have such cards or authorized expenses have been dramatically curtailed.  In any event, for those who think that FINRA's jurisdiction is solely limited to misconduct involving a public customer or a trade, think again.
John Foster Hoschouer (Principal) and Andrew James Moleff (Principal) 
AWC/#2007008242801/2007008242802/October 2008

Hoschouer and Moleff made false, exaggerated and misleading statements about Moleffís background at seminars for senior citizens concerning securities investments. 

Moleff 

  • made false, exaggerated, misleading and unwarranted statements in his presentation;
  • discussed certificates of deposit (CDs) and annuities but omitted material information pertaining to the investment characteristics, risks and features of different options, thereby creating an incomplete comparison;
  • included (during seminars) non-standardized return numbers for a mutual fund, yet omitted the standardized returns, contrary to SEC Rule 482(d)(3) requirements; 
  • distributed a booklet and gave a slide show presentation that a registered principal had not approved, and had not been filed with FINRA within 10 business days of first use or publication. 
    • the slide presentation and booklet omitted material facts that caused them to be misleading; and 
    • contained exaggerated and unwarranted statements with respect to annuities. 

John Foster Hoschouer: Fined $5,000; Suspended 10 business days in all capacities

Andrew James Moleff: Fined $15,000; Suspended 4 months in all capacities

Braden Scott Hill (Principal)
AWC/2007010706601/October 2008

Without informing his member firm and without the firmís approval, Hill deposited $3,200 into a public customerís bank account to compensate the customer for a loss incurred in the purchase of securities

Braden Scott Hill: Fined $5,000; Suspended 10 business days in all capacities.

Christopher Ronald Guenther
AWC/2007009414201/October 2008

Guenther 

  • engaged in private securities transactions without prior written notice to, and written approval from, his member firm;
  • transferred a customer from an existing fee based account to a commission-based IRA (without the public customerís permission) and began making unauthorized trades in the account;
  • sold securities from the customerís other retirement accounts without authorization and transferred the funds into the commission-based account;
  • made unauthorized trades in the accounts, causing the accounts to sustain trading losses of $25,300 and to generate commission fees of $34,220; 
  • placed the customer into the commission-based account (without regard to the customerís fee structure preferences) with a fee structure that could reasonably have been expected to result in a greater cost than the previous fee-based account;
  • sent the customer an email that his member firm did not review or approve from his own personal email address;
  • solicited and recommended a highly risky and speculative investment to a public customer that was inconsistent with the customerís investment objectives and financial situation; and
  • made untrue statements during a FINRA on-the-record interview. 

Christopher Ronald Guenther: Barred

Bill Singer's Comment: The interesting twist here is that we typically see charges against firms/RRs for transferring folks from commission-based accounts (where they pay a per-transaction charge) to a fee-based account (which regulators have lately deemed as too expensive if the threshold level of transactions are not achieved).  As such, the usual complaint is that customers were paying a flat annual percentage for services that they were not using, when a cheaper per-trade commission would have been more economical.  Here, we have the mirror image.  Apparently, Guenther transferred a customer from fee-based to commission-based. Not only was that compounded by undertaking the transfer without the customer's prior permission, but the RR then engages in unauthorized trading that generate five-figure losses.  Of course, for good measure, we also have the improper use of a personal email address and the ever-charming "untrue statements" during an OTR.
Michelle Renee Foster
AWC/2007011290801/October 2008

Associated Person Foster forged an insurance clientís signature as the purported co-signer on a personal loan application and listed that personís social security number and other identifying information on the application. Foster submitted a copy of one of the clientís pay statements with the application and took these actions without the clientís authorization or consent. 

Michelle Renee Foster: Barred

Bill Singer's Comment: Imagine that just a mere Associated Person concocted this impressive scheme.  If she had only studied and passed her Series 7 and became a full fledged Registered Representative, imagine how more sophisticated her scams could have become!
Michael P. Butcher
AWC/2007010497401/October 2008 

Butcher signed public customer names on documents (otherwise accurate client profile forms and documents relating to authorized transactions) without their authorization or consent.

Michael P. Butcher: Fined $5,000; Suspended 6 months in all capacities

Bill Singer's Comment: A worthwhile case for compliance staff to circulate.  This falls squarely under the "no harm, no foul" misguided school of thought.  The theory many RRs follow is that it's just easier to sign the customer's name to an "accurate" document, rather than go through the pain of tracking the client down, sending the document, and awaiting its return. I know, frequently there was a minor typo on the originally signed form and why bother the client since they signed the thing.  And, yeah, I know the other reason, the client is on vacation for two weeks and if I don't just sign on the dotted line the transaction may be in jeopardy.

Not saying all of your reasons and excuses don't make sense. Frankly, they often do.  However, "making sense" and being compliant conduct are two different things.  This is about rules, and you better follow them.

Daniel Christopher Browne (Principal)
AWC/2008013377701/October 2008

Browne converted a bank customerís funds to his own use and benefit, in that he directed a teller at the bank where he worked to close out a deceased customerís accounts and issue cashier checks totaling $78,194.43 to institutions to which he owed money, using the customerís funds to pay for and reduce his own debts. Browne admitted his conversion when confronted by bank authorities and returned the funds to the customerís accounts. 

Daniel Christopher Browne: Barred

Seth Delos Botone
2005000075704/October 2008

Botone sold unregistered shares of stock on public customersí behalf; and he failed to take appropriate action to determine if the stock was registered pursuant to Section 5 of the Securities Act of 1933 or was exempt from registration. 

Seth Delos Botone: Barred

Delbert Foster Blount III
2006007525401/October 2008 

Blount deposited customer funds intended for investment into his personal account and converted and misused the funds for his own benefit. Blount created fictitious investments in the customersí accounts to mislead theminto believing that their funds had been invested as directed, and created falsified online account statements purportedly showing their investmentsí status. Blount failed to respond to FINRA requests for documents and information. 

Delbert Foster Blount III: Barred

U.S. Financial Investments, Inc. 
AWC/2007007288701/October 2008

The Firm did not have an adequate email retention system to preserve emails that registered representatives sent or received; and its procedures did not:

  • provide for adequate follow up and review to ensure compliance;
  • require retention of all emails relating to its business

Emails were not properly maintained, and personal email accounts used for firm business were not preserved. 

U.S. Financial Investments, Inc.: Censured; Fined $40,000

SWS Financial Services
AWC/E062005006701/October 2008

The Firm failed to 

  • establish and implement a schedule to inspect its unregistered branch offices to ensure that all of its registered representatives were properly supervised; 
  • supervise the activities of a registered representative who made unsuitable investment recommendations, which resulted in losses of over $54,000 in a customerís account, and failed to follow up on ďred flagsĒ indicating improper activity in the customerís account;
  • enforce its written supervisory procedures regarding following up on activity identified on its exception reports
  • supervise certain of the firmís discretionary accounts;
  • enforce its supervisory procedures regarding supervisory review and approval of ďapplication-wayĒ mutual fund transactions; and
  • retain required books and records

The Firm permitted individuals who did not hold the requisite securities licenses to act as the firmís principals, and the firm had inadequate procedures to ensure all of its principals were properly registered. 

SWS Financial Services: Censured; Fined $150,000

Morgan Peabody, Inc.
AWC/2007008415701/October 2008

The Firm held numerous seminars for senior citizens at which one registered representative used a script and slides, and the remaining were conducted by registered representatives using a script, that had not been committed to writing at the time the seminars were held. The written and unwritten scripts contained statements that were unbalanced, exaggerated, misleading and otherwise failed to provide a sound basis for evaluating the facts in regard to the securities or types of securities, industries and services discussed. The Firm failed to file the written script with FINRA within 10 business days of first use, and failed to maintain, in a separate file, the written script, the name of the registered principal who approved it and the date that approval was given. 

Morgan Peabody, Inc.: Censured; Fined $30,000

Bill Singer's Comment: Many seniors have been damaged (often beyond repair) by Wall Street's collapse. These are folks in need of protection and I applaud all regulatory efforts to do so.  Without a doubt, compliance departments should anticipate that this will be an area of increased focus, and with Congressional hearings likely post-election on all aspects of the markets' meltdown, expect an outcry for enhanced regulation for this demographic.
Lehman Brothers, Inc.
AWC/2004100012901/October 2008 

The Firm's written plan of organization maintained to identify each aggregation unit, specify its trading objective(s) and support its independent identity failed to accurately describe a separate aggregation unit established for its risk management purposes. The Firm failed to ensure that all traders in each aggregation unit pursued only the particular trading objective(s) or strategy (or strategies) of that aggregation unit and did not coordinate strategy (or strategies) with any other aggregation unit. The Firmís supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws and regulations, including SEC Rule 200(f), according to which the firm should have maintained a written plan of organization that identified each aggregation unit, specified its trading objective(s), supported its independent identity and ensured that all traders in an aggregation unit pursued only the particular trading objective(s) of that aggregation unit. The Firmís failure to comply with these requirements affected the accuracy of the aggregation methodology used to support its trade-by-trade calculations of net position. 

The Firmís ability to ensure the accuracy of its trade reports as to whether a particular trade was long or short, and whether a particular short sale was prohibited, was impaired and that, in some instances, this impairment resulted in flawed calculations of net positions, which resulted in violations of NASD Rules 3350 (the short sale rule) and 6130, and SEC Rule 10a-1. The Firm accepted short sales in securities for its proprietary account and customer short sale orders and, for each order, failed to annotate an affirmative determination that the firm would receive delivery of the security or that the firm could borrow the security or otherwise provide for delivery of the securities by settlement date. The Firmís supervisory system did not provide for supervision reasonably designed to achieve compliance with NASD Rule 3370(b)(2). 

Lehman Brothers, Inc.: Censured; Fined $250,0000; Required to revise its written supervisory procedures regarding compliance with SEC Rule 200(f) and NASD Rule 3370(b)(2)

Bill Singer's Comment: On September 15, 2008, Lehman Brothers Holdings Inc. announced its intention to file a Chapter 11 bankruptcy petition, which would not include certain of its subsidiaries, most notably including Lehman Brothers and Neuberger Berman Holdings, LLC. The holding company further advised that it was exploring the sale of its broker-dealer and investment management operations. Although Lehman Brothers and Neuberger Berman Holdings would continue conducting business and may not be subject to the holding companyís creditorsí claims, the company stated that it anticipates the orderly winding down outside of bankruptcy of Lehman Brothers, Inc. and Neuberger Berman, LLC

Grrrrrrrrrrrrrrrr!!!!!! 

Oh, puhleeeease! On September 15, 2008, Lehman Bros. filed for bankruptcy. Sadly, that fact seems to have escaped the busy FINRA regulators who likely spent weeks and months (perhaps years??) hot on the tail of this noncompliant member firm. But let the industry and public rest assured that there are rewards for such vigilance. About 30 days after the firm's bankruptcy, FINRA has published a condemnation of the firm's short sale practices. Not only has FINRA slammed the firm with a Censure--oh, such a powerful arrow in the regulator's quiver--but the SRO imposed a crippling $250,000 fine (just don't cash the check for a week or two, and if it bounces, maybe hold off before the redeposit). Moreover, just to really get Lehman's attention and to underscore the very relevant status of self-regulation in this day and age of collapsing capitalism, FINRA imposed the ultimate sanction: this now defunct firm must revise its written supervisory procedures. 

I mean is FINRA serious? How uncomfortable the regulator must feel having to publish this crap--especially when it references Lehman's "risk management." What risk management? Perhaps if FINRA and other regulators had been less consumed by the minutiae and details of regulating major players like Lehman, and had actually picked up their heads and looked at the bigger picture (and perhaps smelled the stench), then we would not now be outraged by this post-mortem action. 

While FINRA is executing the corpse of Lehman, perhaps the SRO will undertake an independent outside investigation of its own failure to timely detect the chronic and systemic misconduct of its major member firms. A few more belated investigations like this Lehman one, and last one out, turn off the lights. 

If you have been splashed by my dripping sarcasm, I'm sorry. Send me the cleaning bill.

Crucible Capital Group, Inc.
AWC/2006006657801/October 2008

The Firm failed to adequately ensure that its ledgers and other records accurately reflected all assets, liabilities and expenses. The Firm's records, net capital computations and Financial Operational & Combined Uniform Single (FOCUS) reports were inaccurate. 

Crucible Capital Group, Inc.: Censured; Fined $10,000

Bill Singer's Comment: Oh for godsakes, gimme a break.  Virtually every member firm--hell, virtually every company in the world--has bookkeeping and accounting errors on its books and records.  Frequently, that's simple human error and, as powerfully demonstrated in recent news, often the result of deceit and fraud.  Nonetheless, if I take FINRA at its published word, Crucible experienced massive failures on its ledgers and other core records--so severe that it corrupted the firm's records, Net Cap computation, and FOCUS reports (that's reports with an "s").  And for all of that, FINRA imposes a mere $10,000 fine?

If you will pardon my cynicism here, this just doesn't make much sense.  You can't have a situation where a member's books and records are so screwed up that it warrants a published disciplinary report with dire findings but only a lousy $10,000 fine. Makes you wonder if this wasn't more of a case of regulatory "make work" and a beleaguered member firm that simply chose the expeditious solution of a quick settlement for less bucks than a lawyer would charge to fully defend the allegations.

WFG Investments, Inc. and Wilson Henry Williams (Principal)
AWC/E062003014607/October 2008

Acting through Williams, the Firm

  • approved the publication of research reports that did not contain any disclosure regarding the risks associated with investing in the subject company; and
  • failed to establish written supervisory procedures reasonably designed to achieve and monitor compliance with the requirements of NASD Rule 2711. 

The Firm

  • failed to develop and implement an anti-money laundering (AML) program reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and implementing regulations. 

The firmís AML program was deficient, in that 

  • senior management had not approved the AML program in writing
  • its AML written procedures did not provide for on-going training of appropriate personnel; 
  • its written procedures did not provide for independent testing
  • its written procedures did not identify a specific individual as an AML compliance officer
  • its AML written procedures did not address recordkeeping requirements; and 
  • the firm had inadequate internal controls to detect an attempt to open or maintain correspondent accounts for foreign banks, or regarding freezing accounts and prohibiting transactions with persons suspected of terrorist activities and for filing relevant reports. 

WFG Investments, Inc. and Wilson Henry Williams: Censured; Fined $30,000 (of which $25,000 jt/sev with Williams)

Bill Singer's Comment: I'm truly not sure what to believe about the recent spate of AML cases. On the one hand, having gone through 9/11 up close and far too personal, I am an ardent advocate of AML as an effective anti-terrorism tool. Moreover, I fully recognize the bona fide need to detect and disrupt money laundering.

On the other hand, I can't help but feel that in these dire economic times that many regulators seem compelled to dig up something as proof that they are doing their jobs (even though the present mess suggests that they sure as hell were not doing their jobs adequately for far too many years).  I can almost anticipate that when Congress begins to consider the restructuring of the U.S. securities regulatory system, that FINRA will point to its ongoing AML caseload as justification for its survival.  

None of which is to even remotely suggest that firms such as WFG haven't violated the rules in this regard, nor to suggest that financial sanctions and suspensions are unwarranted.  To the contrary!  However, I do note that there are only 18 pages of content for the October 2008 FINRA monthly disciplinary and other actions, which is about one-third shorter than typical monthly reports.  It's interesting what remains after the sifting.

Johnson Rice & Company, L.L.C. and Edward Douglas Johnson Jr. (Principal)
AWC/2007007422001/October 2008

the Firm

  • issued equity research reports where the front page did not identify the specific page(s) on which required disclosures appeared and the required-disclosures section was not prominently titled;
  • failed to adopt and implement written supervisory procedures reasonably designed to ensure that the firm and its employees comply with the provisions of NASD Rule 2711(g)(6), which mandates the pre-approval of all transactions of persons who oversee research analysts to the extent such transactions involve equity securities of companies covered by the research analysts they oversee; 
  • failed to preserve all communications in compliance with Section 17(a) of the Securities Exchange Act and SEC Rule 17a-4; 
  • had a systemin place for preserving electronic communications, but the system was not effective at preserving all electronic communications; and
  • had no procedures requiring periodic retrospective reviews or ďspot-checksĒ of the system to determine whether it was preserving communications in compliance with SEC Rule 17a-4. 

Acting through Johnson, the Firm

  • failed to adequately supervise two of its associated personsí participation in hedge fund-related private securities transactions that the firm had authorized;
  • authorized the associated persons to each operate and manage his own hedge fund, but failed to adequately supervise their hedge-fund-related activities; and
  • failed to establish and implement written supervisory procedures relating to supervision of private securities transactions that the firm approved. 

Johnson Rice & Company, L.L.C. : Censured; Fined $65,000 ($5,000 jt/sev with Johnson)

Edward Douglas Johnson Jr.: Fined $5,000 jt/sev with Firm; Suspended 10  business days in Principal capacity only

Bill Singer's Comment: This is a fairly comprehensive example of some of the hot issues of 2008, and an even more likely indicator of continuing enforcement trends. In recent months, FINRA has focused on research and research analyst trading.  We see an ongoing multi-year focus on all forms of electronic communication. Among the newer enforcement items on the punchlist seems to be qualitative aspects of supervision--with some recent emphasis on non-branch exams, supervision of analyst, associated person activities, and document retention.  Finally, in response to economic pressures, many RRs and associated persons are seeking additional streams of income from outside business activities and private securities transactions. We see the issue of private securities activities cited here.
Michael Anthony White
AWC/2006003881701/September 2008

White 

  • accepted loans totaling $504,000 from public customers without his member firmís permission prior to accepting the loans, and did not subsequently disclose to his firm that he had accepted the loans;
  • completed annual compliance questionnaires in which he falsely represented to his firm that he had not borrowed money from, or loaned money to, any firm customers. 

Also,White engaged in outside business activities without providing written notice to his firm. 

Michael Anthony White: Fined $20,000; Suspended 1 year in all capacities

Bill Singer's Comment: In a nutshell, this is what compliance staff must be carefully monitoring for the near future. RRs are under tremendous economic pressures from a lack of ongoing business and the inability to open new accounts. As with many Americans, they are hurting these days.  Unfortunately, RRs do not have the flexibility to deal with their worsening financial situation as many other employees in other industries do.  White provides a perfect example of the often unique rules imposed upon registered reps. Most businesses don't restrict their employees from borrowing or loaning money to their customers. Not saying that's good or bad; just pointing out that it's a specific limitation. Similarly, many Americans now hold down two or more jobs and typically don't need permission from a given employer to work other jobs. Again, not arguing for or against the restriction, just noting it exists.

Without question, if you squeeze folks financially they will look to borrow, and they will look to develop other streams of income.  A word to the wise. On Wall Street, the career of an RR offers incredible opportunities to generate not just a living but wealth--although in recent days that once visible goal is far more elusive. The quid pro quo exacted for that perceived opportunity are many unusual (and often unpopular) restrictions on your rights and options.  We may all debate the fairness or the wisdom of such rules. However, they exist and if not followed, there are financial consequences.  

William Howard Webster (Principal) 
AWC/20060071978-01/September 2008

Webster completed and submitted examination reports to his member firm representing that he had conducted examinations of a non-branch office when, in fact, he had not conducted the examinations. 

William Howard Webster: Fined $5,000; Suspended 2 years in Principal capacity; Suspended 30 days in all capacities

Benjamin Theodore Watts
AWC/2006006247601/September 2008

Watts borrowed $30,000 from an elderly public customer without his member firmís approval. The firm did not have written procedures allowing registered representatives to borrow money from customers. Watts failed to repay the loan

Benjamin Theodore Watts: Barred

Dennis John Voris
AWC/2007008505801/September 2008

Voris received loans from public customers in contravention of his member firmís written procedures prohibiting employees from borrowing money from, or lending money to, customers under any circumstances

Dennis John Voris: No fine in light of financial status; Suspended 30 days in all capacities

Stephen Mark Visser (Principal) 
OS/2006005261201/September 2008

Visser received a stock certificate from a public customer, completed paperwork to open an account for the customer, failed to submit the account form with supporting documentation to his supervisory principal and, instead, affixed the principalís signature to the account application without the principalís knowledge or consent. Visser failed to record his receipt of the stock certificate on his member firmís securities received and purchases/sales blotters, causing his firm to have inaccurate books and records. 

Stephen Mark Visser: Fined $7,500; Suspended 1 month in all capacities; Required to requalify by exam as a General Securities Representative

Shane Alexander Selewach (Principal)
2006005005301/September 2008

Selewach misused customersí funds by depositing $71,000 intended for investment purposes into an account he controlled and used the funds for various personal expenses.

Selewach borrowed $158,500 from public customers, contrary to his member firmís written supervisory procedures prohibiting registered representatives from borrowing money from customers, other than immediate family members. 

Shane Alexander Selewach: Barred; Required to pay $80,000 plus interest in restitution to public customers

Bill Singer's Comment: I can't tell from FINRA's official report whether Selewach borrowed $158,500 and used $71,000 of that amount for personal expenses (after he had promised he would use those borrowed funds for investment purposes), or whether Selewach borrowed the stated sum and separately obtained an additional $71,000 under false pretenses. Regardless, under either inference, the conduct was wrong and warranted a Bar.
Charles Michael Ronson (Principal)
AWC/2007009451201/September 2008

Ronson executed purchases and/or sales of securities issued by companies that were followed in his member firmís weekly research report in his personal securities account, during a period beginning 30 calendar days before and ending five calendar days after publication of the report. He was solely responsible for writing, reviewing, approving and distributing the research reports, and issued reports in which he failed to disclose that he held securities of the companies the reports covered. Ronson failed to adequately define the meaning of each rating used in the research reports and failed to further identify ďthe market.Ē

Charles Michael Ronson: Fined $25,000; Suspended 15 business days in all capacities; Suspended 30 business days as a Research Analyst

Bill Singer's Comment: Although I separately cover Research-related issues, we are seeing a dramatic increase, almost an explosion, in FINRA disciplinary cases pertaining to research practices and research analysts.  In Ronson you are reminded of two hallmarks of FINRA's scrutiny in this area: 1. Personal trading by analysts; and 2. Full disclosure of conflicts and rating criteria.
Lewis Allen Reynolds (Principal) 
AWC/2006007004701/September 2008

Reynolds permitted individuals to act as general securities representatives while failing to have them registered and qualified in such capacity. 

Lewis Allen Reynolds: Fined $20,000; Suspended 30 business days in Principal/Supervisory capacities

Donald Harold Relyea (Principal) 
AWC/2007010657601/September 2008

Relyea 

  • participated in private securities transactions without prior written notice to his member firm;
  • completed annual compliance questionnaires and falsely represented that he was not engaged, and had not engaged, in any private securities transactions;
  • engaged in outside business activities for compensation, without prompt written notice to his member firm; and
  • completed an annual firm compliance questionnaire in which he falsely represented that he had not engaged in any outside business activity. 

Donald Harold Relyea: No fine in light of financial status; Suspended 20 months in all capacities

Bill Singer's Comment: Although I separately cover Private Securities Transactions and Outside Business Activities, I thought it would be helpful to note that both of these areas seem to be on an upswing. My guess is that with the increased economic pressures on individual RRs (both reduced trades and difficulties cold calling new clients), many men and women are turning to supplemental forms of income.  This case should be sent around by compliance departments as a reminder of the ramifications of such activity --AND for the need to honestly answer annual compliance questionnaires.
Kevin Lee Mathis (Principal)
OS/2007008650301/September 2008

Mathis misappropriated more than $60,000 from a deceased public customerís account. Mathis converted customer funds to his own use by submitting false check requests and depositing the proceeds into his own bank account. He made unauthorized trades in the deceased customerís account. Mathis obtained a debit card in the customerís name, which was used to withdraw cash from the customerís account and to charge personal expenses. Mathis failed to respond to FINRA requests to provide testimony. 

Kevin Lee Mathis: Barred

Bill Singer's Comment: As the failing economy squeezes more and more folks, we see an increase in this type of misconduct.  Frankly, if you look over prior cases reported here, you'll see that delving into the assets of the deceased are not unheard of.  I'm guessing that if Mr. Mathis is playing poker during his forced retirement, he's now holding a pair of Aces and a pair of Eights. If you don't get the reference, Google it.
Peter Michael Lemoine Sr
2006006227901/September 2008. 

Lemoine borrowed $26,000 from a public customer contrary to his member firmís policy that prohibited borrowing money from customers; and failed to respond to FINRA requests for information. T

Peter Michael Lemoine Sr: Barred

Lee Dinh Lauderdale
AWC/2006006256301/September 2008

Lauderdale sent an email to a registered representative with another FINRA member firm containing non-public customer information. Lauderdale violated SEC Regulation S-P because he disclosed the information without giving the customers the opportunity to opt out of the disclosure. Lauderdale failed to respond fully in writing to FINRA requests for information. 

Lee Dinh Lauderdale: Fined $5,000; Suspended 1 year and 30 days in all capacities

Topang Kong
AWC/2007009423401/September 2008

Kong transferred firm models that contained confidential and proprietary information to his personal email account then, on at least two occasions, to a former firm colleague employed in a similar capacity at another member firm. The confidential firm material included Commercial Mortgage- Backed Securities models, deal documents, deal blotters, vendor passwords, login information and other deal-related information. 

Topang Kong: Fined $10,000; Suspended 6 months in all capacities

Bill Singer's Comment: A somewhat unusual regulatory case and one that compliance departments might want to circulate.  First, it's an interesting and different take on the misuse of email. Second, it serves as a reminder that firms have a proprietary right to certain information.
James Soo Jang
AWC/20070091180-02/September 2008 

Jang engaged in outside business activities by referring individuals to a mortgage lender for which he received $900. Jang failed to provide his member firm with prompt written notification of the referral activity and provided his firm with a written statement in which he falsely stated that he did not receive any money from the mortgage lender. 

James Soo Jang: Fined $5,000; Suspended 3 months in all capacities

Edward Durkin Helms
AWC/2006007232101/September 2008

Helms borrowed $134,773.22 from a public customer, even though his member firm did not have written procedures allowing representatives to borrow money from, or lend money to, customers. The loans did not fall within the enumerated categories of permissible loans set forth in NASD Rule 2370. Edward Durkin Helms: Fined $5,000 in light of financial status; Suspended 30 days in all capacities

Christopher Michael Hannan
AWC/20050034122-01/September 2008 

Hannan knowingly and intentionally engaged in trading activity that stabilized or decreased the price of a stock to facilitate a customerís buy order

Hannan 

  • entered non-bona fide sell orders that were the largest displayed in the stock throughout the trading day, representing greater than the average daily volume as of the trading day; and
  • entered non-bona fide buy orders of the same or similar size as the non-bona fide sell orders (in addition to buy orders placed for the customer) 
    • The non-bona fide buy orders wholly or partially executed against the non-bona fide sell orders and when the non-bona fide buy orders did not wholly execute against the non-bona fide sell orders, Hannan entered cancellations for the remaining shares of the non-bona fide sell order. 

Hannan created a false appearance of sell side activity that caused the stockís price to stabilize or decrease during the trading day, allowing him to accumulate shares through additional executions to fill the customer buy order throughout the trading day at prices lower than would have been available absent the artificially created downward price pressure resulting from the entry of non-bona fide orders. 

Christopher Michael Hannan: Fined $30,000; Suspended 2 1/2 months/10 Weeks (NOTE: FINRA states: "two and a half months (10 weeks)")

Bill Singer's Comment: Talk about going above and beyond to work a customer's order.  At least Hannan wasn't doing this for his own account.   
Stephen Ira Golden (Principal) and Richard Francis Kresge (Principal)
2005000323905/September 2008

Kresge participated in a fraudulent trading scheme involving directed, prearranged, circular, non-bona fide wash purchases and sales of unrated, zero-coupon, noninvestment grademunicipal bonds by which the bonds were parked repeatedly by a municipal securities trader and the price of the bonds was steadily and artificially increased. Golden and Kresge aided and abetted the fraudulent scheme to park and to manipulate the price of the bonds. 

Stephen Ira Golden (Principal): Fined $10,000; Barred in Supervisory capacity; Suspended 6 months in all capacities

Richard Francis Kresge (Principal): Fined $50,000; Barred in Supervisory capacity; Suspended 2 years in all capacities; Required to requalify by exam.

Bill Singer's Comment: Maybe I've been watching too much of Paulson and Bernanke on television and adding up the mounting debt and losses but, gotta tell ya, I don't get the sanctions on this one.  Perhaps FINRA has loaded the charges and things are really not as serious as the findings suggest, but, if I take the regulator at its word, how the hell are these respondents not barred in all capacities?  I mean, come on, in this day and age if you participate in a scheme involving wash trades, parking of securities, and price manipulation, how do you not get a plenary bar?  Yeah, I know, maybe they had a great lawyer. Still, this is exactly the type of thing that just can't go on and certainly will be fodder for critics of FINRA's role as a market regulator. 

Before you take me to task, look at the Deneal case below and explain to me why you get barred for pretending that you passed a test (when the score is computer generated and your failure is preserved on the regulator's database) but you only get a 6 months or 2 year plenary suspension when you are involved in a scheme to manipulate trades and prices. I certainly don't condone the conduct in Deneal and support the sanction in that case. However, which respondents put the public at greater risk?  

Charles Howard Evans
AWC/2006006801301/September 2008

Evans 

  • forged the signature of a deceased public customerís heir on Affidavits of Domicile to transfer the deceasedís assets to the heir, without the heirís knowledge or consent; and
  • falsified the notarizations on the affidavits and submitted them to his member firm for processing.

Charles Howard Evans: Fined $5,000; Suspended 1 year in all capacities

Dwight DíAngelo Deneal Jr.
AWC/2008012510101/September 2008

Associated Person Deneal submitted an altered Series 7 examination score report to his member firm and made a false representation that he had passed the examination when in fact he had failed.

Dwight DíAngelo Deneal Jr.: Barred

Bill Singer's Comment: Haven't seen one of these in a bit. Always leaves me a bit sad that (typically) some young guy or gal failed an exam and then told the sponsoring firm that the score result was a "pass".  The lie about passing served no meaningful purpose because the failure of the exam would have surfaced and registration denied.  The ultimate cost of this deceit is a bar.  
Susana Maria de la Puente
AWC/2007009466801/September 2008

De La Puente 

  • had a beneficial interest in family-held securities accounts that held securities which were managed by a local broker under a discretionary agreement;
  • neither informed her member firm of the existence of the accounts, nor did she pre-clear trades in the accounts or provide her firm with trade confirmations for executed transactions in these accounts; and
  • worked on firm investment banking engagements involving the issuers of securities simultaneously held and/or traded in one of the outside, undisclosed accounts. 

Susana Maria de la Puente: Fined $10,000; Suspended 60 days in all capacities

David Lee Christner (Principal)
AWC/2007010254101/September 2008 

Christner borrowed $7,500 from a public customer in violation of hismember firmís written procedures prohibiting its registered representatives from borrowing money from customers; and he declined FINRAís requests to appear for an on-the-record interview. 

David Lee Christner: Barred

Angelo Cappelli (Principal)
OS/2007009723301/September 2008

Cappelli converted $110,500 of a bank customerís estate and subsequently used $75,000 for his personal use. He forged another bank employeeís signature on bank debit tickets and then approved the tickets in his capacity as trust officer in order to withdraw the funds from the customerís accounts. 

Angelo Cappelli: Barred

Clay Eugene Cannon
AWC/2007010632901/September 2008 

Cannon signed public customersí names to new account documentation without the customersí knowledge or consent. The customers authorized the opening of the account, but did not give Cannon authorization to sign the new account documents on their behalf, nor did they want their dividends reinvested as Cannon had selected on the new account documents. Cannon did not receive any compensation in connection with the account opening, and subsequently, the customers' signed the new account document. 

Clay Eugene Cannon: Fined $5,000; Suspended 3 months in all capacities

Bill Singer's Comment: Sigh.........maybe it's just that I'm getting older and a bit softer, but, both a $5,000 fine and a 3 month suspension when the RR received no compensation and the customers' apparently ratified the new account docs?  On the other hand, ah, there it is, the old tug at my former regulator's heart, Cannon signed without prior authorization and selected dividend reinvestment. So it's not as if he followed the rules.  I guess the compelling question for me is whether this type of situation could not have been resolved just a forcefully by sitting Cannon down, asking him to send a letter to FINRA stating he was wrong and will not do it again, and putting him on special supervision and review at his firm.  And, yes, I know that investor advocates will not like that option and I am pointedly not arguing that they are wrong. I have long chastised the industry for its lax dealing with forgeries or unauthorized signatures. See the Cappelli case immediately above for just such a valid concern. Just consider this a thought piece.
Robert Jon Ackerman
AWC/2007007832101/September 2008 

Ackerman misrepresented and/or omitted material information about corporate bonds to a public customer, in that he informed the customer that the interest rate of the bonds was based on the Consumer Price Index (CPI) plus additional interest, but did not tell the customer that the interest rate was based on the rate of change in the CPI, not the value of the CPI itself, and that the minimum interest rate could be zero. 

Robert Jon Ackerman: Fined $10,000; Suspended 45 days in all capacities

Bill Singer's Comment: Okay, I see...Ackerman is fined for not fully and/or properly explaining the methodology for setting interest rates on the bonds he sold.  If you hold on a minute, let me look back through the past year and see how many similar cases FINRA brought against the executives at all those wirehouses for not fully and/or properly explaining how the Auction Rate Securities were set, or how the Subprime paper was toxic, or...oh, hell, by now you can do this rant without my help. But, gee, let's whack this guy for ten Gs and send him on an involuntary vacation for 45 days.  That's one hell of a message our regulators are sending.   
Tradition Asiel Securities Inc.
AWC/2008013615401/September 2008 

By failing to adopt, implement and enforce certain of its written supervisory procedures relating to its research analysts, the Firm failed to detect and prevent violations. 

The Firm ppermitted

  • a research analyst to execute purchase or sales of securities issued by companies that were followed in a research report in his personal account, during a period beginning 30 calendar days before and ending five calendar days after the publication of the report;
  • its research analyst to issue research reports in which the analyst failed to disclose that he held securities of the companies the report covered; and
  • its research analyst to issue research reports without adequately defining the meaning of each rating used in the report. 

Tradition Asiel Securities Inc.: Censured; Fined $65,000

Oppenheimer & Co. Inc.
AWC/2007011878301/September 2008

The Firm 

  • failed to establish, maintain and enforce a supervisory system, including written procedures, for its securities lending business and registered supervisor, reasonably designed to monitor its stock loan representativesí trading activities to prevent and detect fraudulent stock loan transactions;
  • delegated responsibility for the direct supervision of the securities lending department to an individual, and did not establish or maintain a system of independent supervisory review or follow-up to ensure that he was properly performing his supervisory responsibilities and properly exercising his supervisory authority; and
  • permitted an individual and another stock loan manager to negotiate stock loan transactions on the firmís behalf with no review or follow-up, contrary to its supervisory system. 

Oppenheimer & Co. Inc.: Censured; Fined $100,000

Nordic Partners Inc.
AWC/2007007251501/September 2008 

The Firm permitted a person registered solely as a general securities principal who had not passed a qualification examination to supervise the conduct of the firmís research analyst, including approving research reports the analyst prepared and the firm issued. The Firm failed to implement written supervisory procedures reasonably designed to achieve compliance with NASD Rules regarding the supervision of research activity, including the approval of research reports. A senior officer of the firm failed to annually attest to FINRA that the firm had adopted and implemented the procedures. 

Nordic Partners Inc.: Censured; Fined $10,000

Lehman Brothers Inc.
AWC/2005002206301/September 2008

The Firm published research reports with the names of research analysts appearing on the reports who did not have their research analyst registration and thus were not qualified. 

Lehman Brothers Inc.: Censured; Fined $75,000

Citigroup Global Markets, Inc.
AWC/2005002206101/September 2008 

The Firm 

  • permitted foreign-based research analysts associated with the firm to publish research without first obtaining required Series 86 and 87 qualifications or an exemption;
  • applied for and obtained a one-year grace period for each of its research analysts, including its non-U.S. research analysts, to take and pass the Series 86 and 87 examinations; however, the firm did not have its associated non-U.S. research analysts, with the exception of those residing in Mexico, take the examinations;
  • did not satisfy the conditions for a limited safe harbor in seven foreign jurisdictions because it failed to comply with disclosure requirements, yet permitted associated analysts in these jurisdictions to continue to publish research.

Citigroup Global Markets, Inc.: Censured; Fined $650,000

Tejas Securities Group, Inc. and Michael Lee Cuckler (Principal)
AWC/2006003679802/September 2008

Acting through Cuckler, the Firm

  • failed to disclose in research reports that the research analyst had a financial interest in the securities of the subject company and the nature of the financial interest, and 
  • failed to disclose in a research report that the firm and/or its officers had a financial interest in the subject companyís securities. 
  • failed to disclose the risks that might impede achievement of the stated price target in research reports, and 
  • failed to disclose in one research report that the firm had managed or co-managed a public offering of securities for the subject company in the past 12 months
  • permitted a research analyst account to purchase a security issued by a company that the research analyst had followed less than 30 days before the publication of a research report concerning the company, and 
  • permitted a research analyst account to sell a security in a manner inconsistent with his recommendation as reflected in the firmís most recently published research report. 
  • failed to establish, maintain and/or enforce adequate supervisory systems and procedures 
    • regarding supervisory review and approval of research reports and personal trading activity by research analysts, and to ensure that required disclosures were made in research reports as required by the Securities and Exchange Commission (SEC) and FINRA;
    • ensuring order tickets were marked with all required information;
    • regarding reviewing and documenting reviews of electronic correspondence; and
    • regarding supervisory review and approval of private investment in public equity (PIPE) transactions. 
  • had inadequate written supervisory procedures regarding the prevention and detection of potential insider trading;
  • failed to ensure that a representative, who disclosed on an annual compliance audit that he was engaging in undisclosed private securities transactions, was properly supervised;
  • permitted individuals who did not hold the requisite securities licenses to author research reports and to act as supervisory analysts. 
  • failed to disclose the distribution of its ratings in an equity research report, 
  • failed to cover the entire period that the firm had assigned a rating to the subject company in the price chart contained in one research report, and 
  • failed to ensure that research reports contained the analyst certifications that SEC Regulation AC required. 

In addition, the Firm failed to 

  • adequately investigate ďred flagsĒ indicating possible suspicious activity in a group of related customer accounts; 
  • failed to enforce its AML procedures regarding suspicious account activity reviews and investigations of customer backgrounds; 
  • reflect all required information on order tickets for equity securities transactions; and 
  • failed to obtain information regarding certain PIPE customersí financial status, investment objectives and tax status. 

Tejas Securities Group, Inc.:  Censured; Fined $175,000 ($15,000 jt/sev with Cuckler); Required to hire an independent consultant to review the adequacy of its supervisory systems and procedures (written and otherwise) and training relating to all aspects of its securities business, including but not limited to research reports, and adopt and implement the consultantís recommendations.

Michael Lee Cuckler: I don't understand FINRA's sanctioning language here "in which the firm and Cuckler were censured and fined $175,000, of which $15,000 was jointly and severally with Cuckler."

Bill Singer's Comment: First the regulator suggests that Cuckler and the Firm were fined $175,000, but I can't tell if that's two separate $175,000 fines or just one. Then FINRA says that $15,000 was jt/sev. That either means that each respondent is supposed to pay $175,000 and $15,000 of the Firm's fine is joint and several with Cuckler; or, FINRA meant that the Firm was fined $175,000 of which $15,000 was jt/sev with Cuckler. 

As to the substantive aspect of this case, once again I'm puzzled by the enormous laundry list of alleged violations and the relatively puny sanctions.  This type of regulatory reporting does no one any good.  There is just too much of a disconnect between the enormity and severity of the underlying violations and the fairly modest fine--and the absence of any suspension.  Either FINRA is playing games and figured that if the member firm and principal were going to settle, then this was an opportunity to tag team the respondents and throw in the kitchen sink for appearances' sake; or, there were some significant issues of mitigation, and we readers should have been more fully informed of them. 

Argosy Capital Securities, Inc. and John Hartridge Banzhaf Sr. (Principal) 
AWC/2007007136801/September 2008

The Firm failed to properly preserve business-related emails and to establish, maintain and enforce adequate written supervisory procedures relating to the preservation and review of the emails. 

Acting through Banzhaf, the Firm 

  • had deficient written AML and customer identification procedures, 
  • failed to timely obtain recertifications from two foreign banks that they were not being used to indirectly provide banking services to any foreign shell banks, 
  • failed to follow the proper procedures for filing SARs, and 
  • failed to notify its correspondent account holders that correspondent accounts may not be used to provide certain foreign banks access to the firm. 

Argosy Capital Securities, Inc. and John Hartridge Banzhaf Sr. (Principal) : Censured; Fined $10,000 jt/sev; Firm fined an additional $10,000

Stonegate Partners, LLC and Brian Westbrook Bernier (Principal)
E112005002003/September 2008

Acting through Bernier, the Firm 

  • submitted false and misleading information to FINRA, in that it provided what was purported to be its AML compliance procedures for the years of 2003 and 2004, when in fact the firm had no such procedures in place during that time;
  • failed to establish, maintain and enforce an adequate supervisory system and written supervisory procedures designed to ensure that the firmís representatives obtained sufficient suitability information from each customer before making a recommendation, and 
  • failed to preserve written reports of annual internal inspections detecting and preventing violations of, and achieving compliance with, applicable securities rules, regulations and NASD Rules. 

The Firm failed to develop and implement a written AML program in a timely manner. 

Stonegate Partners, LLC: Fined $25,000 jt/sev with Bernier; Fined an additional $10,000

Brian Westbrook Bernier: Fined $25,000 jt/sev with Firm; Suspended 1 year in Principal capacity.

Bill Singer's Comment: Woe be it for me to suggest that a given respondent(s) got off light, but this one puzzles me.  If I take FINRA at its written word, the Firm and its principal appear to have concocted AML procedures for 2003 and 2004 and then submitted such fabrications to the regulator.  That allegation by FINRA seems very serious and if that's what the SRO meant to imply, then I'm not sure how you satisfy your regulatory mission with a mere $25,000 fine and a one-year principal-only bar.  The other possible explanation, is that FINRA said one thing and meant another.  Truly, I can't figure out whether this is another case of regulatory overkill by way of overblown allegations that way overstate what happened, or if this is inexplicable regulatory sanctioning charity.
Erica Latishia Tolbert 
2007007580501/August 2008

Associated Person Tolbert ordered checks for a public customersí account using her personal address as the delivery address and either negotiated checks or caused checks totaling $12,200 to be negotiated by a third party, thereby converting $12,200, without the customersí authorization, knowledge or consent. Tolbert failed to respond to FINRA requests for information. 

Erica Latishia Tolbert: Barred

Bill Singer's Comment: This is one of those cases that truly infuriates me--because the misconduct seems so easily preventable.  You would think that one of the most basic compliance protections in place at financial institutions would be to NOT deliver checks to any address other than that indicated on the customer's account opening documentation.  If such a delivery request comes in, you would expect the institution to directly verify with the customer the changed address. Maybe even have a double or triple verification system in place.  It is unnerving to think that in this day and age that someone could become employed at a bank or brokerage firm, simply submit a request for delivery of checks to a location not listed on a customer's account documentation, and not only get the checks but effect the conversion of five figures (thank god not more!) through said checks. It's comforting to know that Tolbert was caught but less comforting to learn that the conversion wasn't prevented.
Mark Richard Sommers
AWC/2006005509601/August 2008 

Sommers borrowed $42,000 from public customers, contrary to his member firmís written procedures forbidding registered representatives from borrowing money from customers. Sommers failed to amend his Form U4 to disclose material information.

Mark Richard Sommers: No fine in light of financial status; Suspended 6 months in all capacities

Stephen Matthew Sirianni 
OS/E8A2004095401/August 2008

Sirianni participated in private securities transactions and failed to give prior written notice to, and receive written approval from, his member firm. While using the means and instrumentalities of interstate commerce to offer securities for sale, Sirianni made material misrepresentations in the form of price predictions to induce transactions, which did occur. Sirianni engaged in outside business activities and failed to give prompt written notice to his member firm. He failed to amend his Form U4 to disclose an SEC civil action

Stephen Matthew Sirianni: Fined $15,000; Suspended 2 years in all capacities

Peter Schmitt Jr. 
AWC/2006005570801/August 2008

While he was the executive secretary for a private association, he opened a securities account for the association at a member firm without authority to do so and later transferred the associationís securities account to another member firm. Schmitt opened another unauthorized securities account in the associationís name at this firm that was a deferred compensation account for Schmittís financial benefit. Schmitt caused securities transactions to be effected in the associationís securities accounts without the associationís knowledge or consent, and in the absence of written or oral authorization to exercise discretion in the accounts. Schmitt submitted false and misleading Resolution Agreements when he opened the accounts, certifying that the Associationís Board of Directors had voted to open the accounts when, in fact, there had not been any such vote. 

Schmitt opened a joint securities account in his and his wifeís names at the firm but failed to disclose the existence of the securities accounts in which he had a financial interest to his member firms, and failed to advise the firm with which he had the accounts, in writing, that he was a registered representative with other firms. Schmitt failed to give prior written notice of his intention to execute securities transactions with the firm where he maintained the accounts to a member firm. 

Peter Schmitt Jr.: Barred

Bill Singer's Comment: Without question, I have fielded more calls about "away" accounts in 2008 than in recent years.  As I have noted in earlier commentary on the matter, I understand the common sources of motivation for these event: cheaper price at other firm, pre-existing account at other firm, spouse opened the account, etc. Nonetheless, NASD Conduct Rule 3050: Transactions for or by Associated Persons, governs the issue and you best familiarize yourself with its requirements BEFORE opening away accounts or entering away orders.

Finally, this case also explains why so many member firms are saying "no" to requests by RRs to engage in outside business activities.  While not detailed in the FINRA report, Schmitt's role as Executive Secretary for the association coupled with his misconduct in opening securities accounts and entering orders could have exposed his member firm employer to lawsuits (regardless of whether the suits ultimately prevailed, the costs of defense and the negative publicity takes a toll). Again, please review NASD Conduct Rule 3030. Outside Business Activities of an Associated Person for guidance.

Allan Bruce Rosenthal 
AWC/2007009427201/August 2008

Rosenthal effected unauthorized transactions and/or failed to execute sell orders in public customer accounts. He marked all of the order tickets for the unauthorized trades as unsolicited when the trades, in fact, were solicited. Also, Rosenthal sent misleading and unapproved emails to customers from his personal email address, contrary to NASD rules and his member firmís policy requiring that all written correspondence be sent from the firmís system and prohibiting the recommendations of securities not followed by the firmís research. Rosenthal failed to provide prompt written notice to his firm of his outside business activities

Allan Bruce Rosenthal: Barred

Bill Singer's Comment: Interesting how a number of disparate threads come together to knit a case. He solicited trades but marked the tickets as "unsolicited." That's one violation.  Then there is the underlying fact that the trades were unauthorized. That's a second shot. Then he failed to execute sell orders. Strike three. Then he sends out emails that are misleading (fourth violation), unapproved (fifth), and sent from his personal email address in violation of Firm policy (sixth).  On top of that, some of his emails recommended securities not on the firm's approved research list in contravention of policy. Seven down. And, to top it all off with a not so lucky eight, he then violated the outside business activity rule.
Quay Allison Pund
AWC/20070114482-01/August 2008 

A public customer's mutual funds had been erroneously placed into Associated Person Pund's personal investment account. Pund converted $29,193.21 by requesting that the proceeds from liquidation of the customerís mutual funds  be sent to Pund's home address as a check, which she then cashed. Pund failed to appear for a FINRA on-the-record interview. 

Quay Allison Pund: Barred

Bill Singer's Comment: Many lawyers often sit through an initial consultation with a client that details how the client suddenly derived a windfall from the deposit of stock or cash into his or her account. The lucky beneficiary then talked to Murray the resident water-cooler lawyer.  Murray opined that the law is "finders keepers, losers weepers," and said to sell the stock or withdraw the cash and buy that flat screen tv and take that vacation.  Which, of course, the water-cooler client does.  Then--pick your timing: days or weeks later--the happy guy or gal gets a letter from the bank or brokerage firm. We made a mistake, it says. We want our money back, it says.  But the money is long gone.

Why did you spend it all, I ask (as if I had never asked the question before and never heard the litany of half-baked excuses and answers). Well, Murray said it was okay.  And Murray is a lawyer? Oh, no, he's one of the old guys at the branch.  And Murray has a law degree? Oh, no, he has a Series 24.  Well, Murray is wrong.  You can't keep the money and spend it.  It wasn't yours to begin with. You don't get to benefit just because it's a mistake.  

Christopher Daniel Nowak 
AWC/2007009835101/August 2008

Nowak forged his spouseís name on mortgage documents to secure loans totaling $273,500. 

Christopher Daniel Nowak: Barred

Bill Singer's Comment: Oddly, this is a somewhat sentimental fact pattern for me. Way back in the early 1980s, when I first started my career on Wall Street, I was asked to notarize a wife's signature on a mortgage document. I declined because the husband had brought me the document fully signed by both spouses but his wife was not in front of me.  Shortly thereafter, I got called into my boss's office and reprimanded for not accommodating the husband's request (he was a big shot in the organization). My redemption came soon after when it turned out that he was in the midst of a nasty divorce and had forged his wife's signature. I even got an apology from my boss.

Let this serve as a warning.  In these dire economic times, families are under tremendous stresses.  Don't assume that the documents presented to you are what they appear.  For many reasons, one spouse may feel the need to forge the other's signature on a wide array of materials -- to get loans, to hide loans, whatever.

Paul Andrew Niess
2005003332001/August 2008 

Niess participated in private securities transactions without prior written notice to, or written approval from, his member firm. Also,  Niess borrowed $405,000 from public customers in violation of his firmís written supervisory procedures, which prohibited registered representatives from ďmaking loans to or accepting loans from customers.Ē 

Paul Andrew Niess: Barred

Vicente Demetrius Lopez 
2006005998601/August 2008

Lopez improperly borrowed $22,000 from a public customer and reported false information on a firm compliance questionnaire relating to that loan. Lopez failed to respond to FINRA requests for documents and information. 

Vicente Demetrius Lopez: Barred

William Edward Kassar Jr. (Principal)
OS/2005000075703/August 2008

Kassar sold unregistered shares of securities on public customersí behalf, which violated Section 5 of the Securities Act of 1933 and NASD Rule 2110. Kassar possessed information that should have alerted him to the necessity of conducting an inquiry into the registration or exemption status of the securities and did not ascertain any facts necessary to determine if the shares were exempt. 

William Edward Kassar Jr.: Fined $10,000; Suspended 30 days in all capacities.

Dennis Todd Lloyd Gordon (Principal) and Sterling Scott Lee (Principal)
C0620040027/August 2008
Securities and Exchange Commission sustained in part and set aside in part findings of violation and sanctions on appeal of a National Adjudicatory Council decision on appeal from Office of Hearing Officers decision 

Below is the verbatim comment from FINRA's monthly report (highlights not in original). I would ask that you read my comment immediately following.

were barred from association with any FINRA member in any capacity and suspended from association with any FINRA member in any capacity for six months. In addition, Lee was suspended from association with any FINRA member in any capacity for an additional 30 days. Leeís suspensions shall run concurrently. The Securities and Exchange Commission (SEC) affirmed and imposed the sanctions following appeal of a NAC decision. The sanctions were based on findings that Gordon and Lee permitted an unregistered and statutorily disqualified individual to function as a principal of the firm and failed to disclose the individualís association with the firm on its Uniform Application for Broker-Dealer Registration (Form BD). The findings also stated that Gordon and Lee charged public customers excessive and undisclosed markups, and that Lee was responsible for his firmís failure to disclose its markups on customer confirmations. 

The suspensions in any capacity are in effect from July 7, 2008, through January 6, 2009. Leeís additional suspension in any capacity was in effect from July 7, 2008, through August 5, 2008. The bars have been in effect since the issuance of the NACís decision.

Dennis Todd Lloyd Gordon: Barred; Suspended 6 months in any capacity

Sterling Scott Lee: Barred; Suspended six months in all capacities; Suspended an additional concurrent 30 days in all capacities

Bill Singer's Comment: First off, I ask you to note FINRA's own description of the outcome on appeal to the SEC of the Gordon/Lee: 

The Securities and Exchange Commission (SEC) affirmed and imposed the sanctions following appeal of a NAC decision.

At first blush, FINRA seems to state that on appeal the SEC affirmed all of its findings below (as finalized in the NAC decision).  Imagine my surprise when reading the SEC's Opinion to learn that what FINRA advertised was not what the SEC delivered.

As I have never made a secret of my general loathing for the current state of self-regulation, and FINRA in particular, let me minimize my personal slant here by presenting for your consideration the following verbatim statements from the SEC Opinion in Gordon and Lee.  

In the Matter of the Application of DENNIS TODD LLOYD GORDON AND STERLING SCOTT LEE
For Review of Disciplinary Action Taken by
NASD 
(SECURITIES EXCHANGE ACT OF 1934 Rel. No. 57655 / April 11, 2008 Admin. Proc. File No. 3-12573/ "CORRECTED" Version) 
http://sec.gov/litigation/opinions/2008/34-57655.pdf

 (NOTE: highlights below are not in original) 

This is cited verbatim from the page 1 synopsis of the appeal, as published by the SEC:

Individuals who served, respectively, as (a) chairman, chief executive officer, and principal and (b) president, chief compliance officer, and principal of former NASD member firm (1) permitted an unregistered individual to function as a principal of the firm, (2) failed to maintain the accuracy of the firm's membership application, and (3) charged retail customers excessive markups. President was responsible for firm's failure to disclose those markups on customer confirmations. Held, association's findings of violations and sanctions imposed are sustained in part and set aside in part. 

Consider these SEC statements on page 24 of its Opinion:

Although NASD also found Gordon liable for failing to ensure that the confirmations contained appropriate disclosure of the Firm's remuneration, we find that the record does not establish Gordon's liability. Lee was responsible for the contents of the confirmations. The record does not demonstrate that Gordon knew or should have known that Lee was not fulfilling his responsibility. 72/ We therefore reverse NASD's finding that Gordon was responsible for LSVL's violations of Rule 10b-10.

Also, consider these SEC statements on page 28 of the SEC's Opinion:

We find, however, that, in light of the relatively small number of trades over a three-month period, the sums involved, and the commensurately limited financial benefit to Applicants, the bar imposed by NASD for Applicants' markup violations is excessive, and we therefore impose instead a six-month suspension on both Applicants, and an additional thirty-day suspension (to run concurrently) on Lee based on the violations of Exchange Act Section 10(b) and Exchange Act Rule 10b-10. 92/

Finally, consider these statements on the last two pages of the SEC Opinion:

ORDER SUSTAINING IN PART AND SETTING ASIDE IN PART DISCIPLINARY ACTION TAKEN BY REGISTERED SECURITIES ASSOCIATION

On the basis of the Commission's opinion issued this day, it is 

ORDERED that NASD's findings that Dennis Todd Lloyd Gordon and Sterling Scott Lee violated NASD Rules 1021 and 2110 and were responsible for violations of Article IV, Section 1(c) and Article V, Section 1 of NASD's By-Laws and the sanctions imposed by NASD for these violations be, and they hereby are, sustained; and it is further 

ORDERED that NASD's findings that Gordon and Lee violated NASD Rules 2110 and 2440 and IM-2440 and that Lee violated Exchange Act Section 10(b) and was responsible for violations of Exchange Act Rule 10b-10 be, and they hereby are, sustained; and it is further 

ORDERED that NASD's findings that Gordon and Lee violated Exchange Act Rule 10b-5 and NASD Rules 2120 and 2230 and that Gordon violated Exchange Act Section 10(b) and was responsible for violations of Exchange Act Rule 10b-10 be, and they hereby are, set aside; and it is further 

ORDERED that the permanent bar imposed by NASD for the violations of Exchange Act Section 10(b), Exchange Act Rules 10b-5 and 10b-10, NASD Rules 2110, 2120, 2230, and 2440, and IM-2440, be, and it hereby is, reduced to a six-month suspension, with a concurrent thirty-day suspension in the case of Lee; and it is further 

ORDERED that NASD's order of restitution and its assessment of costs be, and they hereby are, sustained. 

By the Commission.

The decisions from FINRA's Hearing Panel and then on the internal appeal from its National Adjudicatory Council are  fair and definitive. That is not a qualified compliment.  It is sincere and warranted.  The Panel and the NAC did a commendable job adjudicating the case and explaining their rulings.

Without question the ruling by the SEC was essentially a victory for FINRA, but it was a measured win, and that should not have been glossed over in FINRA's monthly report.  Lost in FINRA's monthly report is what I think is an important fact: that the SEC "set aside" findings of violation of '34 Act Rule 10b-5 and of NASD's Rules 2120 and 2230 against both Gordon and Lee.  Further, the SEC also set aside separate findings of violation of '34 Ace Section 10(b) and '34 Act Rule 10b-10 as against only Gordon. Without question, I believe that respondents were entitled to have the reversals of findings noted in FINRA's reporting of the SEC's Opinion.  Similarly, the SEC's reduction of one of Gordon's and Lee's bars to a six-month suspension (with a concurrent 30-day suspension for Lee), is a substantive fact that should have been noted in FINRA's report.  

Ultimately, there is no need for FINRA to whitewash the outcome of this or any SEC appeal.  At the end of the day, the respondents here were barred for some of their actions and the restitution imposed by FINRA stood. By any metric, FINRA won its cases, and from the facts presented, deservedly so.  

The troubling question is why FINRA downplayed the SEC's set asides.  Regulation of Wall Street is not a game, nor is it an opportunity for regulators to spin their cases.  The concerns and reservations inherent in the SEC's reversals here are important facts and should be part of the education of the industry.  I would hope that future monthly reports by FINRA of matters appealed to the SEC will be more fastidious to detail -- even negative ones.

Gary Mark Giblen (Principal)
OS/2005001601001/August 2008

Giblen issued a public research report on a stock through his member firm with an ďAccumulateĒ recommendation, an upgrade from his previous ďNeutralĒ rating on the company. Without revising his recommendation and contrary to previous recommendations, Giblen purchased put options on the stock, reflecting his negative short-term view on the stock, which was inconsistent with his then-current recommendation of ďAccumulate.Ē 

Gary Mark Giblen: No fine in light of financial status; Suspended 7 business days in all capacities

Paul Michael Giarmoleo (Principal) 
2005000191701/August 2008

Giarmoleo made fraudulent misrepresentations and omissions in his recommendation of a speculative stock. Giarmoleo recommended the stock without having a reasonable basis for believing the stock was suitable for the customers and failed to base his recommendation on a review of the issuerís current financial statements. He made made price predictions concerning the stock that were reckless material misrepresentations because they lacked a reasonable basis. 

Paul Michael Giarmoleo: Fined $27,500; Suspended 1 year in all capacities.

Arthur Anthony Gerome
AWC/2006006417301/August 2008 

Contrary to his member firmís written procedures, Gerome borrowed $14,500 from a public customer without receiving his firmís written approval or without disclosing the borrowing arrangement before receiving the loan. 

Arthur Anthony Gerome: Fined $5,000; Suspended 30 days in all capacities

William Ewing
AWC/2007007792901/August 2008

Ewing failed to conduct an adequate inquiry into and follow up on a public customerís trades, in that he had knowledge of various orders from a hedge fund customer to sell shares of a stock and that each of the orders was placed just before the marketís open and close. Ewing knew that the customer benefited from a decreased share price and should have known that these trades could represent the customerís attempts to improperly manipulate the share price by marking the open and close

William Ewing: Censured; Fined $10,000; Suspended 4 months in all capacities; Ewing must also cooperate with FINRA in its prosecution of any other disciplinary action related to these events and to testify truthfully at any related hearing

Bill Singer's Comment: I'm not sure about this one.  I'll have to ponder it a bit more.  Should have known that trades could manipulate the market. I'm not totally comfortable with that phrasing. 

I can understand charging the RR here if it was shown that he knew the trades manipulated the market. I can understand charging him if he didn't know but should have, provided that FINRA proved the shoulda aspect.

BUT it's that "could" manipulate that bothers me most.  Seems to me that either the trades did or didn't manipulate the market. If they did and Ewing knew or should have known, okay.  However, if the trades didn't manipulate the market and we're left to argue whether someone should have known that some act could have done something but didn't -- geez, that's a bit of a stretch.

I am left thinking about the following charge: Ewing should have know that if his aunt were a man she would be his uncle.

Stephen Patrick Dunbar
C0720050050/August 2008 National Adjudicatory Council Sanctions on Appeal from Office of Hearing Officers decision

Dunbar engaged in unsuitable trading in public customersí accounts. In an effort to conceal the unsuitable trading in the accounts, Dunbar provided the customers with false and misleading account summaries. He exercised discretion in the customersí accounts without written authorization. 

Stephen Patrick Dunbar: Barred

Bill Singer's Comment:  Suitability is sometimes a debatable issue. Unauthorized discretion is less of a debate because you need to have it in a signed writing---I know, I know...the customer pointedly told you it was okay for you to trade as you saw best.  Doesn't matter. If the grant of authorization isn't in writing and signed, it's a violation. However, even if you can make allowances for the suitability and discretion aspects of this case, there is never any excuse to doctor up account statements. 

Separately, let me commend the NAC for issuing a well-reasoned and comprehensive decision in this matter.  I would urge you to read the ruling at http://www.finra.org/web/groups/enforcement/documents/nac_disciplinary_decisions/p038541.pdf

As I have long noted, given my role as a FINRA gadfly and critic, I impose upon myself an obligation to bring to the industry and public's attention the good works of the regulator.  This is a case where rather than paint Dunbar's conduct with broad brushstrokes, both OHO and NAC discerned that some of the customer's allegations (and arguments presented by the Staff) did not fully comport with the facts.  Yes, there was unauthorized discretion, but the clients did give some oral grants of authority.  There was some gray amidst the black and white issues here, and it makes for stronger regulation when those are noted and addressed.

Good job FINRA!

Edward Nelson Colburn Jr. 
AWC/2007009433801/August 2008

Colburn executed discretionary trades in a customerís account without prior written authorization; and falsely marked the order tickets as unsolicited, although these trades were, in fact, solicited. 

Edward Nelson Colburn Jr.: Fined $10,000; Suspended 75 days in all capacities; Required to requalify by exam as a general securities representative

Bill Singer's Comment: Another walk down memory lane.  Haven't seen a lot of this nonsense since the 80s and 90s but, hey, why not continue to go with something that still works?  Of course, if a fine, suspension, and requal are your idea of a good thing, enjoy!
Jeanne Marie Caspersen
AWC/2007009396501/August 2008

Casperson misappropriated funds from another employee of her member firm, in that she credited her personal firm account with $1,000 transferred from another registered representativeís personal firm account by entering a credit request through the firmís internal system.

Jeanne Marie Caspersen: Barred

Jack Alexander Arnold 
AWC/2007009927401/August 2008

Arnold participated in private securities transactions, for compensation, without prior written notice to, or prior written approval from, his member firms. He "invested $145,000 in a common stock without providing his member firm with prior written notice of his intent to purchase this stock and obtaining his member firmís approval." 

Jack Alexander Arnold : Barred

Bill Singer's Comment: Yet another pristine example of the type of monthly report from FINRA that drives me nuts (okay, so maybe it's not such a long drive but it still annoys me).  Assuming that Arnold violated the private securities transaction rule, fine, okay, no problemo.  Not sure what he did to require a Bar but I'll even concede the point to the folks at FINRA.

On the other hand, since when did buying common stock require prior written notice to a member firm?  I quoted the monthly report verbatim as noted above, and leave it to you to figure out what was meant by FINRA.  

Here are some of the options that the regulator didn't clarify:

1. Arnold's member firm specifically prohibits the buying of stock without prior written notice of the intent and upon prior approval; or

2. Arnold's conduct violated some unspecified FINRA rule that now prohibits the purchase of common stock by RRs without firm approval; or

3. The common stock Arnold purchased was somehow related to the private securities transaction and maybe constituted compensation but for the fact that he apparently paid $145,000 for it, so that doesn't seem the case, but, hey, what do I know?...I just read what FINRA writes and then sort of close my eyes and hit whatever keys my fingers are moved to and whatever comes out is what I go with.

Geez...would you FINRA folks (nice alliteration there!) please toss us just a few more crumbs with these explanations.  And please don't tell me that it's fully explained in the AWC.  You don't provide the AWC online. Oddly, NYSE attaches a full decision to its monthly online reports but you at the old NASD don't.  

End of rant.

Philip Craig Albrecht
AWC/2007010827501/August 2008

Albrecht effected 

  • securities transactions in public customersí accounts without the customersí contemporaneous prior knowledge and consent, as required by his member firmís written supervisory procedures; and
  • the transactions one and two months after the customers made the orders, and as a result, he engaged in discretionary trading without the customersí authorization and against his firmís policy. 

Philip Craig Albrecht: Fined $5,000; Suspended 10 business days in all capacities.

Bill Singer's Comment: NASD Conduct Rule 2510: Discretionary Accounts  prohibits the exercise of any discretionary power in a customer's account unless such customer has given prior written authorization (a Power of Attorney/Trading Authorization) to a stated individual or individuals and the account has been accepted by the member firm, as evidenced in writing by the firm or the partner, officer or manager, duly designated by the firm, in accordance with NASD Rule 3010.

However, Rule 2510 allows for a "time and price exception" (T&P):

(d) Exceptions
This Rule shall not apply to:
(1) discretion as to the price at which or the time when an order given by a customer for the purchase or sale of a definite amount of a specified security shall be executed, except that the authority to exercise time and price discretion will be considered to be in effect only until the end of the business day on which the customer granted such discretion, absent a specific, written contrary indication signed and dated by the customer. This limitation shall not apply to time and price discretion exercised in an institutional account, as defined in Rule 3110(c)(4), pursuant to valid Good-Till-Cancelled instructions issued on a "not-held" basis. Any exercise of time and price discretion must be reflected on the order ticket;. . .

Note that T&P requires that the order be from the customer and for a definite amount of a specified security. The order may not be to buy or sell whatever you think is best, but must specify 1,000 shares of XYZ. Further, and this is critical, the T&P order is essentially a day order that must be placed by the end of the business day or subsequently renewed on a daily basis until executed (or, you could get a written order signed and dated by the customer in lieu of daily oral updates).  In years past, oral T&P orders did not have a daily expiration.  That practice has been pointedly stopped by the rule and trips up many veterans.

Choice Investment, Inc.
AWC/2007008278201/August 2008

The Firm committed several violations of NASD rules by means of various false and misleading statements regarding its services, including incomplete and unbalanced discussions of market timing and the use of leverage, within its Web site. These misleading advertisements were available for widespread access and use by the investing public, not only by those who were the firmís customers. The Web site discussed and presented performance data for a specific registered investment company but failed to comply with the specific disclosure requirements of Rule 482 under the Securities Act of 1933, and noted that it was a member of the Securities Investor Protection Corporation (SIPC) but failed to properly comply with SIPCís by-laws. The Firm failed to file its Web site with FINRA as it was required to do. 

Choice Investment, Inc.: Censured; Fined $20,000; Required to file all advertisements used on its Web site or on the Internet with FINRA at least 10 days prior to first use for six months.

A.G. Edwards & Sons, Inc.
AWC/2007011877401/August 2008

The Firm's former securities lending representatives facilitated improper stock loan transactions with counterparties at artificially low rates, directed or facilitated unwarranted payments to finders, and participated in transactions that did not serve the firmís interest whatsoever, but benefited counterparties and finders who made payments back to the firmís registered stock loan representatives. 

The Firm 

  • failed to establish, maintain and enforce a system and written supervisory procedures regarding its securities lending business and lending representatives in order to prevent and detect fraudulent stock loan transactions;
  • permitted an individual to serve as its securities lending manager although the New York Stock Exchange had never registered, approved or found him to be qualified; and
  • failed to retain copies of facsimile transmissions stock loan desk sent or received. 

The Firm's supervisory system failed to require an independent supervisory review to ensure that delegated supervisory authority and responsibility were being properly exercised. 

A.G. Edwards & Sons, Inc.: Censured; Fined $300,000

Linsco/Private Ledger Corp. nka LPL Financial Corporation and Phillip Scott Eggers (Principal) 
AWC/E062004027401/August 2008

Eggers 

  • recommended securities transactions to public customers without reasonable grounds for believing that his recommendations were suitable for the customers;
  • utilized discretion in the customersí accounts without the customersí written authorization to use discretion, and without his member firmís approval of the accounts as discretionary;
  • distributed misleading sales literature to the customers regarding the growth rate of their accounts and the inflation rate. 

The Firm firm failed to reasonably supervise Eggers in connection with the strategies he employed, his use of marketing materials and the appropriateness of the investments he recommended to the customers. 

Linsco/Private Ledger Corp. nka LPL Financial Corporation: Censured; Fined $125,000 (of which $25,000 jt/sev with Eggers)

Phillip Scott Eggers (Principal): Fined $25,000 jt/sev with Firm; Suspended 15 business days in all capacities.

Chicago Investment Group, LLC, Richard Paul Lynch (Principal) and George Ernest Reilly (Principal)
AWC/E8A2005004601/August 2008 

Acting through Lynch, the Firm 

  • sold shares of a private placement offering pursuant to a private placement memorandum that contained negligent material misrepresentation or omissions
  • failed to timely report settlements;
  • failed to report a $20million arbitration award for a registered representative who was subject to a special supervisory plan;
  • failed to keep the registered representativeís Uniform Application for Securities Industry Registration or Transfer (Form U4) current by disclosing the arbitration award; and 
  • failed to register representatives as principals based upon the activities in which each was engaged. 

Acting through Reilly, the Firm

  • failed to establish, maintain and enforce an adequate supervisory system and procedures regarding the activities of a registered representative under a special supervisory plan;
  • failed to ensure that email correspondence a registered representative sent and received under a special supervisory plan was maintained in a non-rewritable, non-erasable format; and 
  • failed to implement and enforce an adequate supervisory system and procedures to ensure compliance with SEC and FINRA recordkeeping requirements. 

Chicago Investment Group, LLC, Censured; Fined $75,000 (of which $15,000 jt/sev with Lynch, and $20,000 jt/sev with Reilly); Required to retain an independent consultant to conduct a comprehensive review of the adequacy of its policies, systems, procedures (written and otherwise) and training related to supervising individuals with a disciplinary history, preserving electronic communications and conducting due diligence in its participation in private placement offerings.

Richard Paul Lynch (Principal): Censured; Fined $15,000 jt/sev with the Firm 

George Ernest Reilly (Principal):Censured; Fined $20,000 jt/sev with the Firm; Requalify as general securities principal

John David Webberly (Principal)
AWC/2006005546001/July 2008 

Webberly made recommendations to public customers to open accounts with his member firm to buy and sell Collateralized Mortgage Obligation (CMO) securities, but each of the customers who opened accounts to invest in CMOs incurred substantial losses. Webberly did ďnot have reasonable grounds to believe that his recommendations to invest in CMOs were suitable based on the customersí financial situations and needs. In recommending that customers invest in CMOs, Webberly made misstatements and omitted material facts in connection with the CMO investments. Webberly knew at the time that he opened accounts for his customers that another registered representative would be exercising discretion over the accounts, and failed to obtain written authorization from any of his clients and a firm principal, to authorize him or anyone at the firm to exercise discretion in any of his customer accounts. Webberly was aware that all of his customers had non-discretionary accounts and that he needed to receive authorization from the customers before each and every trade, but delegated the authority to this other individual to (a) select particular CMO investments for his customers; (b) decide how much of the security his customers would buy and when; and (c) decide howmuch margin borrowing would be utilized to purchase CMOs. 

John David Webberly: Censured; No fine in light of financial status; Suspended 2 years in all capacities; Webberly also consented to cooperate with FINRA in its continued prosecution of matters related to his FINRA-registered employment, including, but not limited to, matters arising from FINRAís investigation into the activities at his former member firm without the need to resort to NASD Rule 8210 and testifying truthfully at any hearing held in connection with the investigation.

Bill Singer's Comment: One of the first FINRA cases involving CMO/CDOs but most certainly not the last.  Note that the respondent consented to ongoing cooperation without the compulsion of an 8210 demand.
Aaron Donald Vallett
AWC/2006005754402/July 2008 

Vallet engaged in outside business activities, for compensation, without prompt written notice to his member firm. He completed firm forms in which he falsely represented that he was not engaged in outside employment, that he understood firm employees were not to sell equity-indexed annuities and that he had never sold equity-indexed annuities. 

Aaron Donald Vallett: Fined $5,000; Suspended 4 months in all capacities

Bill Singer's Comment: Equity-Indexed Annuities (EIA) are typically offered by insurance companies. During the accumulation period (when lump sum payment or serial payments are made) the insurance company credits a return keyed to an equity index (e.g., S&P 500) but the product normally includes a guaranteed minimum rate of return.  FINRA explains the guaranteed rate as 

The guaranteed minimum return for an EIA is typically 90% of the premium paid at a 3% annual interest rate. However, if you surrender your EIA early, you may have to pay a significant surrender charge and a 10% tax penalty that will reduce or eliminate any return.

After the accumulation period, the insurance company makes periodic payments unless a lump-sum provision applies.  While seemingly risk-free, EIA involve risk. If you cancel too early, you may jeopardize any indexed rate of return and could default to the guaranteed rate. Even with such a default, you could lose money with a guarantee rate in place if that guarantee is calculated upon a sum less than what you have accumulated to date.  Break-even often takes years to reach. Also, surrender charges and tax penalties may further impact early cancellations.

FINRA and other regulators have become growingly suspicious of EIA claims and have adopted enhanced consumer-protection policies in policing this area. With the finances of many insurers coming under scrutiny, EIAs will likely attract even more regulatory attention--especially if the ability to refund or pay guarantees seem compromised by looming insolvency.

Bernard Factora Santos
AWC/2007009411601/July 2008 

Associated Person Santos misappropriated a member firmís funds for his own use and benefit. Santos falsified dividend claims and supporting documentation from legitimate customers in order to effect wire transfers from a firm account established to pay dividends, without the firmís knowledge or authorization. Santos initiated wire payments totaling $523,000 made to accounts he controlled at different banks, based upon the falsified dividend claims. Santos failed to respond to a FINRA request for information. 

Bernard Factora Santos: Barred

Charles Thomas Popenoe 
AWC/2008012250201/July 2008

Associated Person Popenoe took $550 in cash lying on a counter at a bank and, without the bankís knowledge or consent, used the funds for his own benefit or for some benefit other than that of the bank. 

Charles Thomas Popenoe: Barred

Anthony Gregory Palmer
AWC/2006006298701/July 2008 

In connection with his financial services seminars, he used invitations and an informational brochure without his member firmís prior approval of a registered principal. The invitation failed to make proper disclosures regarding fees and how a guaranteed high rate of return was being calculated. 

Anthony Gregory Palmer: Fined $5,000; Suspended 15 business days

Bill Singer's Comment: Among the most common queries I get are those about seminars and acceptable marketing materials.  For those who still pooh-pooh the need to get mailers approved, consider this case.
Michael Harold McClellan (Principal) 
AWC/2007009610101/July 2008

McClellan was appointed trustee for trusts public customersí established and, without authorization, disbursed $301,127.59 from the trustsí bank and money market accounts and a trustís brokerage account, and used the funds for his own benefit, thereby converting $301,127.59 of the trustsí assets. 

Michael Harold McClellan: Barred

Sean Patrick Martin 
AWC/2007011008801/July 2008

Martin affixed a public customerís signature on an asset reallocation form by cutting and pasting it from another document, and submitted the form for processing without the customerís authorization or consent.

Sean Patrick Martin: Fined $5,000; Suspended 30 days in all capacities

Bill Singer's Comment: The first time I saw one of these cut-and-paste cases, I laughed.  The next time, I smiled. The next time, I shook my head.  Now they just annoy me.  At least I could understand trying to put one over on the firm by scanning a signature and scanning a form, and then electronically pasting the signature onto the form.  That's still wrong but at least it shows some pride in the wrongful conduct.  But taking scissors and paste?

As the old reprobate Nietzsche stated: The criminal is quite frequently not equal to his deed: he belittles and slanders it.

Alexander Goldstein
AWC/20070075515-01/July 2008 

Goldstein intentionally effected paired security transactions between his personal brokerage account and brokerage accounts he traded on behalf of a foreign-owned financial institution (the bank) and knowingly failed to disclose to the bank that he was the party on the other side of the transactions. Goldstein realized trading profits of at least $25,667.72 from the transactions, and the bank incurred a loss. By the use of means or instrumentalities of interstate commerce, or of the mails, Goldstein intentionally and recklessly effected transactions in, and induced the purchase and sale of, NASDAQ securities by means of deceptive, manipulative and other fraudulent devices or contrivances. 

Alexander Goldstein: Barred

Robert Frederick Glessner Jr.
AWC/2007008425501/July 2008

Glessner wrote checks to himself totaling $38,000 from an association for which he was the treasurer, used the funds for some purpose other than for the associationís benefit and without the knowledge or consent of the association or its authorized representatives. Glessner failed to respond to FINRA requests for documents and information. 

Robert Frederick Glessner Jr.: Barred

Kevin Howard Gavigan
AWC/2007011492501/July 2008 

Gavigan wrote $51,400 worth of checks from a sailing clubís bank account payable to ďcash,Ē cashed the checks and converted the proceeds to his own use and benefit without the clubís authorization or consent. Gavigan willfully failed to amend his Form U4 to disclose material information. 

Kevin Howard Gavigan: Barred

Bill Singer's Comment: Up front, let me write it so that you see it and don't pretend I'm defending Gavigan:  He stole money from the sailing club and likely committed a felony.  In the vernacular, he is a crook and if a "felon" is barred for at least ten years.  That's fine with me.  Please, note that last sentence too.

Nonetheless, how does this become a FINRA regulatory matter?  Assuming that Gavigan received a felony conviction, then he is statutorily disqualified and barred from the industry.  I'm not disputing FINRA's jurisdiction here because I don't know how the matter came before the regulator.  All I'm asking if for a minimal explanation so that compliance departments can better understand what is expected of them.

Benjamin Allan Centeno and Jeffrey Ken Santohigashi 
OS/2005000075703/July 2008

Centeno and Santohigashi sold unregistered shares of a thinly traded penny stock quoted on the Pink Sheets on public customersí behalf, and failed to determine whether the securities were registered or were going to be sold in transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933. 

Benjamin Allan Centeno: Fined $10,000; Suspended 30 days in all capacities

Jeffrey Ken Santohigashi: Fined $10,000; Suspended 20 days in all capacities

Bill Singer's Comment: Don't tell me that the '80s are making a comeback?  Unregistered pennystock shares?  Omigod, here we go again.
William Brian Butler
AWC/2007009409901/July 2008

Butler engaged in stock loans and borrows with a family member who was a trader in the securities lending department at another member firm. The trades were often below the rates of other transactions in the same securities Butler made on the same day at his member firm, and he sometimes agreed to terms less favorable for the firm than those originally offered by the other member firm. Butler entered into conduit, or what the firm described as ďput-through,Ē securities lending transactions with the other member firm, although it was not necessary to do so. Butler gave the family member inappropriate access to his firmís secondary ďpush list,Ē which is the list of securities the firm needed to borrow or lend after its initial list of needs was met. Butler sent the ďpush listĒ to the family member before he distributed it more broadly to the market and his other counterparties. 

William Brian Butler: Censured; Fined $5,000; Suspended 6 months in all capacities

Bill Singer's Comment: Every so often you come across a unique case and Butler is certainly not the typical FINRA action.  Wall Street used to be a fairly clubby place where you had lots of friends and family scattered around at other firms.  Obviously, things ain't as friendly as they used to be, what with firms closing and the economy taking a nosedive.  Still, family is family--or so Butler thought.  I'm not sure that most industry folks wouldn't want to toss a bone to their family at other firms, and if where a trade or transaction goes is simply a matter of prerogative, that too ought not be a big deal.  However, and certainly Butler drives the point home, the money and securities handled by Butler and other RRs is generally not theirs but that of their member firm (and its investors).  Consequently, if you're doing a "favor" at least make sure that it will stand up to the sniff test.   
Steven Ernest Bryant (Principal)
E072005001101/July 2008

Bryant operated an unregistered securities dealer in violation of Section 15(a)(1) of the Securities Exchange Act. Bryant failed to respond to a FINRA request for information and documents. 

Steven Ernest Bryant: Barred

Marcelo L. Assis 
AWC/2006006758901/July 2008

Associated Person Assis used information obtained from a public customerís driverís license to open a bank account under the customerís name without the customerís consent and knowledge, and signed a bank signature card that would allow him to make deposits into the account and also obtained a debit card for the account. Assis took a $749 money order made out to a corporate customer to fund the bank account he secretly opened and controlled, and used the debit card for the account to pay for personal items for himself and a friend. Assis also withdrew some of the money from the account through automatic teller machine (ATM) transactions for personal expenses. 

Marcelo L. Assis: Barred

Bill Singer's Comment: He steals a money order and a customer's identity, and sort of makes out like the proverbial bandit.  I would have like to have learned how they caught him: customer complaint, bank surveillance, what?  That kind of information would be helpful to the industry. I'm just guessing here, but I'll bet that he forgot that most ATM machines have hidden cameras recording the transactions.     
Next Financial Group, Inc. 
AWC/2007007165602/July 2008

The Firm failed to timely report statistical and summary information regarding customer complaints to FINRA. The Firm failed to timely file Form U4 and Form U5 amendments with FINRA to reflect customer complaints against registered representatives. 

Next Financial Group, Inc.: Censured; Fined $10,000

Morgan Stanley & Co. Incorporated 
AWC/2007009428301/July 2008

The Firm failed to submit, or cause to be submitted, the fingerprints of certain permanent employees, temporary workers, interns and consultants, and failed to investigate the individualsí previous records. The Firm failed to provide for, establish and maintain adequate procedures to ensure compliance with NASD rules and federal securities laws relating to the employment of certain permanent employees, temporary workers, interns and consultants who may have been subject to statutory disqualification. (FINRA Case #2007009428301)

Morgan Stanley & Co. Incorporated: Censured; Fined $425,000

EKN Financial Services Inc. 
AWC/ELI2005000604/July 2008

The Firm failed to 

  • meet disclosure requirements for research reports
  • include the required disclosures on the front page of reports in a prominent, clear and comprehensive manner; 
  • provide a valuation method to determine the price target and a disclosure of risks that impeded achievement of price targets; 
  • maintain records of public appearances by research analysts
  • balance favorable discussions with disclosures of associated risks; 
  • enforce its procedures for reviewing duplicate account statements for the accounts of its brokers, including research analysts, to detect an analystís purchase of restricted stock; and 
  • conduct an annual attestation that the firm had adopted and implemented its research analyst rule procedures. 

The Firm maintained inaccurate balances in its general ledger and trial balance, and filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) reports. The Firm conducted a securities business while failing to maintain the required minimum net capital, and failed to timely file a FOCUS Part IIA report and an annual audit. The Firm failed to amend or file Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registry (Forms U5), and filed Forms U5 late. The Firm failed to report customer complaints, employee suspensions and an arbitration, and filed reports late or inaccurately pursuant to the NASD Rule 3070 reporting system. 

The Firm failed to maintain or preserve order tickets and confirmations in connection with equity, corporate debt, short sales and mutual fund transactions. The Firm failed to preserve and maintain time of order receipt, solicitation status, associated registered representative and/or customer name, and execution price on order tickets for municipal, government security or corporate debt transactions. Moreover, FINRA found that the firm failed to preserve and maintain, in an accessible place, written incoming and outgoing correspondence. The Firm indicated on confirmations that it was a market maker in a security when it was not. The Firm permitted $7,312.91 in excessive commissions to be charged in equity retail transactions, which the firm has since refunded to the affected customers. 

EKN Financial Services Inc.: Censured; Fined $80,000

Bill Singer's Comment: All that for only $80,000?  Looks like someone had one hell of a lawyer. 
Donnelly Penman & Partners
AWC/2007007331401/July 2008 

The Firm failed to conduct and evidence an independent test of its AML program despite the requirement that it monitor compliance with the requirements of the Bank Secrecy Act and the regulations promulgated thereunder and despite prior notifications from FINRA, which included a Letter of Caution. The Firm received checks totaling $825,843.75 from public customers, placed the checks in a locked drawer rather than in a Special Reserve Bank Account for the Exclusive Benefit of Customers and failed to perform any reserve calculations regarding the checks that the firm held. The Firm failed to abide by the terms of its membership agreement with FINRA, failed to file a request to change its agreement with FINRA 30 days prior to making a material change in its business operations and engaged in business activities without maintaining the required minimum net capital. The  Firm failed to maintain a checks received and dispersed blotter in violation of SEC Rule 17a-3. 

Donnelly Penman & Partners: Censured; Fined $17,500

Crowell,Weedon & Co.
AWC/2007009457601/July 2008 

The Firm failed to 

  • promptly file Submissions of Required Information Pertaining to Members, Member Organizations, Allied Members, Registered and Non-Registered Employees (Forms RE-3) with the New York Stock Exchange (NYSE) in connection with the misappropriation of funds by firm employees
  • implement a business continuity plan that addressed procedures relating to an emergency or significant business disruption; and
  • make and keep current order tickets identifying who entered or accepted the orders on the customerís behalf of and the receipt time of the orders. 

Crowell,Weedon & Co.: Censured; Fined $25,000

AIS Financial, Inc.
AWC/20070085026-01/July 2008 

The Firm failed to preserve all of the firmís business-related electronic communications, in that some associated persons frequently used personal email accounts to conduct firm business. Some emails were copied or forwarded to an employee with a firm-sponsored account and were, therefore, preservedóbut the remaining emails were not. The Firmís written supervisory procedures prohibited firm personnel from sending the firmís business-related electronic communications from a home computer and/or using non-company sponsored electronic communications, but failed to enforce the procedures with respect to the employees who frequently used personal email accounts. 

AIS Financial, Inc.: Censured; Fined $11,000

Bill Singer's Comment: An interesting case showing how electronic communication issues are becoming a growing regulatory focus.  I wish FINRA provided a little more detail here.  It seems that the Firm had e-communication WSPs and made some effort to stay on top of things; however, FINRA should have explained how the member failed to enforce such policies regarding employees who frequently used personal email accounts.  If the firm was on notice of such use, then I would concur that a sanction was appropriate.   However, I am more interested as to what "notice" the firm had of the allegedly frequent personal email account usage and what (if any) action it took upon discovering such misconduct to rein the practice in.  If the delay between disclosure and enhanced supervision was lengthy, then a sanction may be understandable.  I just wish we had some more details here to understand the facts. 
James I. Black & Company and Jess Gove Tucker III (Principal)
AWC/2006007424601/July 2008

Acting through Tucker, the Firm failed to

  • adequately implement an AML compliance program, in that it failed to adequately detect, investigate and report potentially suspicious activity, and
  • conduct sufficient independent tests of its AML program on an annual basis and conduct annual AML training for its personnel. 

James I. Black & Company: Censured; Fined $125,000 (jt/sev. with Tucker); Required to have all of its personnel register for 16 hours of anti-money laundering (AML) training within 60 days of issuance of this AWC.

Jess Gove Tucker III: Fined $125,000 (jt/sev. with Firm); Suspended 3 months in Principal/Supervisory capacities only

Bill Singer's Comment: Not really sure why a $125,000 fine was necessary on top of the implementation of a 16-hour refresher course (which strikes me as a commendable way to redress the issue) and the principal's suspension -- then again, if FINRA provided a bit more detail as to the extent of the AML misconduct the fine might be justified.

Permit me one quibble here.  I fully understand the need to adequately detect, investigate and report suspicious activity.  I support that undertaking without question. We all clear on that point?    

However, why does FINRA cite the Firm and the principal for a failure to "adequately detect, investigate and report potentially suspicious activity?  It is precisely this type of bureaucratic parsing of words that drives me nuts. When firms and individuals are charged with misconduct, it seems to me that the regulators must use their words carefully and precisely.  There are more than enough rules and regulations (many woefully drafted) to run afoul of that we don't need to create a parallel universe of additional adjectives and adverbs to further confound those already beleaguered souls running the industry's compliance departments.

Exactly what is the difference between "potentially" suspicious and the run-of-the-mill suspicious activity?  If I run a FINRA member firm, how can I make sure that I am not only complying with my AML obligation to report suspicious activity, but also complying with this obligation to detect, investigate, and report potentially suspicious activity?  I know that this expansive characterization is now embedded in FinCen, FINRA, FDIC, and other regulator's written materials, but simply repeating an absurdity doesn't make it less absurd. 

Bottom line, either something is suspicious or it isn't.  If it is suspicious, then you have a clear duty to try to detect, investigate, and report the incident.  However, if the circumstance isn't suspicious, how do we ever begin to define the distinction between NOT being suspicious and being POTENTIALLY suspicious.  Before you debate the point with me, consider this:

In the State of Absurdity (the 51st State of the Union), doctors are required under law to detect, investigate, and report all pregnancies.  The medical self-regulatory organization in the State of Absurdity sanctioned Doctor Who for failing to detect, investigate, and report a potential pregnancy.  The good doctor protested that the patient was not pregnant when he examined her.  Ah...but the regulator said that she had the potential to be pregnant and failing to report that required a fine and suspension.

You're either pregnant or you're not. Something is either suspicious or it's not. 

David Wu 
AWC/20060037540-02/June 2008

Wu purchased securities issued by companies he followed in his capacity as a research analyst 30 calendar days before, and ending five calendar days after, the publication of research reports concerning one or more of the companies. The suspension in any capacity was in effect fromMay 19, 2008, through June 2, 2008. 

David Wu: Fined $5,000; Suspended 10 business days

Aurora Javier Tucay
20070092769/June 2008

Associated Person Tucay withdrew $8,000 from her cash drawer and the vault at her member firmís bank affiliate without permission, and used the funds for her own purposes. Also, Tucay failed to respond to FINRA requests for information. 

Aurora Javier Tucay: Barred

Bill Singer's Comment: Is withdrawing $8,000 from a cash drawer and vault anything at all like, say, "stealing"?  Ain't words grand?  Who'd a thunk that we would one day find ourselves referring to theft as "withdrawing funds without permission?" 
Richard Steven Petrell 
AWC/2007008318201/June 2008

Petrell obtained over $17,000 from his member firm by submitting falsified expense reimbursement requests. 

Richard Steven Petrell: Barred

Eric W. Mason 
AWC/20050001741-02/June 2008

First, Mason entered priced limit orders in NASDAQ securities for a proprietary account at his member firm at prices intended to impact the pre-opening best bid or offer (BBO), knowing that the full price and size of the orders would be reflected in the public quotation system as the best prices and sizes at which a market participant was willing to buy or sell the securities, and induced other market participants to reflect bids (offers) similar to the price of the displayed limit orders. 

Step 1: Enter priced limit orders for a prop account to move BBO

Then, Mason intentionally entered non-displayable odd lot limit orders to buy or sell securities into NASDAQ on the opposite side of the market, creating a crossed market knowing that the non-displayed orders would be executed against other participantsí quotations during the pre-opening spin, and did buy and sell on an automated basis during the pre-opening spin. 

Step 2: Enter non-displayed contra-side orders that cross market and get filled

Finally, after the displayed quotations had induced other market participants to enter similar quotations, and prior to the pre-opening spin, Mason intentionally and knowingly canceled most of the displayed priced limit orders he had entered into NASDAQ and, in some instances, prior to the pre-opening spin, updated the original displayed order with another displayed order, canceling the original displayed order. 

Step 3: Cancel the displayed prop orders.

By engaging in this course of conduct, Mason bought (sold) shares of the securities at prices that were lower (higher) than he would have otherwise been able to buy (sell) the securities, thereby receiving a financial benefit of $157,832.58. 

Eric W. Mason: Fined $175,000 (includes disgorgement of $157,832.58 in benefits); Suspended 1 year

Dening Suzanne Lohez
OS/2006005954101/June 2008 

Lohez possessed unauthorized materials while taking the general securities representative examination

Dening Suzanne Lohez: Fined $5,000; Suspended 2 years

Paul S. Kuklinski 
AWC/20070083155-01/June 2008

Kuklinski executed purchases or sales of securities issued by companies he followed 30 calendar days before, and five calendar days after, the publication of a research report he authored concerning the relevant company. Kuklinski executed securities transactions in a manner inconsistent with his recommendations in the most recent published research report concerning the relevant company.  He opened a personal securities account at a member firm although he was associated with another member firm, and failed to notify either firm in writing of his association or relationship with the other. 

Paul S. Kuklinski: Fined $200,000 (including $185,972.67 disgorged profits); Barred

Bill Singer's Comment: A growing and troubling trend!  I'm seeing and hearing about more analysts who are trading against their published recommendations and doing so from an undisclosed away account.  There are few regulatory issues that were more in the public eye and better publicized than the reform of research practices.  Paramount among the reforms were restrictions and prohibitions on analysts' conflicts, particularly those arising from trading against published recommendations and using a non-disclosed away account for that purpose.  Given the critical import of these rules, I am noting the relevant portion of NASD Conduct Rule 2711: Research Analysts and Research Reports below:

(g) Restrictions on Personal Trading by Research Analysts 

(1) No research analyst account may purchase or receive any securities before the issuer's initial public offering if the issuer is principally engaged in the same types of business as companies that the research analyst follows.

(2) No research analyst account may purchase or sell any security issued by a company that the research analyst follows, or any option on or derivative of such security, for a period beginning 30 calendar days before and ending five calendar days after the publication of a research report concerning the company or a change in a rating or price target of the company's securities; provided that:

(A) a member may permit a research analyst account to sell securities held by the account that are issued by a company that the research analyst follows, within 30 calendar days after the research analyst began following the company for the member;

(B) a member may permit a research analyst account to purchase or sell any security issued by a subject company within 30 calendar days before the publication of a research report or change in the rating or price target of the subject company's securities due to significant news or a significant event concerning the subject company, provided that legal or compliance personnel pre-approve the research report and any change in the rating or price target.

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

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

(A) legal or compliance personnel authorize the transaction before it is entered;

(B) each exception is granted in compliance with policies and procedures adopted by the member that are reasonably designed to ensure that these transactions do not create a conflict of interest between the professional responsibilities of the research analyst and the personal trading activities of a research analyst account; and

(C) the member maintains written records concerning each transaction and the justification for permitting the transaction for three years following the date on which the transaction is approved.

(5) The prohibitions in paragraphs (g)(1) through (g)(3) do not apply to a purchase or sale of the securities of:

(A) any registered diversified investment company as defined under Section (5)(b)(1) of the Investment Company Act of 1940; or

(B) any other investment fund over which neither the research analyst nor a member of the research analyst's household has any investment discretion or control, provided that:

(i) the research analyst accounts collectively own interests representing no more than 1% of the assets of the fund;

(ii) the fund invests no more than 20% of its assets in securities of issuers principally engaged in the same types of business as companies that the research analyst follows; and

(iii) if the investment fund distributes securities in kind to the research analyst or household member before the issuer's initial public offering, the research analyst or household member must either divest those securities immediately or the research analyst must refrain from participating in the preparation of research reports concerning that issuer.

(6) Legal or compliance personnel of the member shall pre-approve all transactions of persons who oversee research analysts to the extent such transactions involve equity securities of subject companies covered by the research analysts that they oversee. This pre-approval requirement shall apply to all persons, such as the director of research, supervisory analyst, or member of a committee, who have direct influence or control with respect to the preparation of the substance of research reports or establishing or changing a rating or price target of a subject company's equity securities.

 

Katherine Patricia Kozub 
OS/2005003511203/June 2008 

Kozub completed a Firm Element Continuing Education test on another registered representativeís behalf

Katherine Patricia Kozub: Fined $5,000; Suspended 30 days

Aric Kyle Heiselman
AWC/2007009474901/June 2008 

In order to transfer a public customerís Individual Retirement Account (IRA) from a broker-dealer to his member firm, Heiselman instructed his assistant to impersonate the customer in a conversation with the firmís representative. Heiselman falsely identified himself on the telephone as the same customer with a representative of another brokerage firmto complete a requested rollover of the customerís 401(k) account to Heiselmanís firm. 

Aric Kyle Heiselman: Fined $7,500; Suspended 30 business days

Bill Singer's Comment: You'd think that this was a somewhat isolated violation.  Think again.  Look at Battista and Ennis from 2006. 
Charles Rodney George (Supervisor)
AWC/2007009521501/June 2008 

George engaged in deceptive practices to facilitate a payment of funds from a customer through improper means, including omitting material information pertaining to his financial history and making material misrepresentations concerning collateral and his ability to repay a purported loan. George falsely represented on his member firmís compliance certifications that he had not borrowed money from any public customers. George requested that a notary public, who was an employee of the firm, notarize a signature previously completed by a firm customer who was not present at the time of the notarization. 

Charles Rodney George (Supervisor): Barred

http://registeredrep.com/mag/finance_signed_sealed_suspended/index.html

Bill Singer's Comment: All I can do is warn you and educate you -- whether you get the point is up to you.  Way back in 2006, I wrote this article about notary abuse. 
Terry L. Edlen
AWC/2007008631401/June 2008

In order to increase his production and earn additional commissions, Edlen completed and traced a public customerís signature on documents in connection with the purchase of a term life insurance policy, and paid the initial premium for the policy without the customerís knowledge and consent. 

Terry L. Edlen: Barred

Duane McKay Deane
2006007483801/June 2008 

Associated Person Deane improperly obtained and misused $8,800 by using his corporate credit card for cash advances to pay for personal items and failed to make payments to the credit card company or reimburse his member firm. Deane failed to respond to FINRA requests for information. 

Duane McKay Deane: Barred

Angel Cruz (Principal), Anthony Joseph Martinez (Principal) and Jericho Guazon Nicolas 
CAF040052/June 2008 National Adjudicatory Council Sanctions on Appeal from Office of Hearing Officers decision

Cruz, Martinez and Nicolas participated in a fraudulent scheme to trade ahead of customersí orders and reap risk-free trading profits; made material omissions in their communications with a public customer; and caused their member firm to issue false trade confirmations. Martinez failed to provide a customer with best execution. 

Angel Cruz (Principal), Anthony Joseph Martinez (Principal) and Jericho Guazon Nicolas: Barred

Frederic Ray Chavez
AWC/2006007383801/June 2008 

Chavez failed to inform his member firm about a public customerís complaintóas his firmís procedures requiredóand entered into a settlement agreement with the customer in which he agreed to pay her $60,000 to settle her complaint without his firmís knowledge or approval. 

Frederic Ray Chavez: Fined $5,000; Suspended 90 days

Scott William Carothers (Principal) 
AWC/2006003678602/June 2008

Carothers allowed his member firm to conduct a securities business while failing to maintain its required minimum net capital, and caused his firm to make an inaccurate FOCUS filing and to have inaccurate books and records. 

Scott William Carothers (Principal): Fined $10,000; Suspended 6 months in FINOP capacity only.

Bill Singer's Comment: Hmmm...without question, June has a number of Net Capital violations resulting in sanctions falling directly on the head of FINOPs.  Are member firms playing games with the all-critical Net Cap computation?  If the regulator is just announcing this first flood of cases in June, should we be concerned that there is even more going on in the stub-period from when these violations actually occurred to now? 
Hal Butts Jr. (Principal) 
AWC/2007008048101/June 2008 

Butts failed to ensure that his member firm accurately computed its net capital, maintained accurate books and records, and filed accurate FOCUS reports. Butts allowed the firm to conduct a securities business while failing to maintain its required minimum net capital. 

Hal Butts Jr. (Principal): Fined $10,000; Suspended 3 months in Introducing Broker-Dealer (IB)/Financial and Operations Principal (FINOP) capacities only; Must re-qualify by exam as an IB/FINOP.

Bill Singer's Comment: Just asking out of curiosity (and, yeah, to continue to make a pain out of myself as that lone voice in the wilderness trying to preach the need for fairness)--but did Butts work for a large or small firm?  You know--like in the Lehman case this month...did that firm's FINOP also get fined, suspended, and required to requalify? 
James Robert Brown (Principal) 
AWC/2005001502702/June 2008 

Brown failed to 

  • supervise registered representativesí activities, 
  • investigate ďred flagsĒ of possible misconduct by the representatives, 
  • enforce heightened supervisory measures against one of the representatives,
  • put systems or procedures in place to ensure that another representative did not continue to make misrepresentations to public customers. 

James Robert Brown (Principal): Fined $10,000; Suspended 90 days in Principal/Supervisory capacities only

Charles Edward Atwell (Principal) 
OS/2005001491701/June 2008

Atwell made 

  • unsuitable recommendations to public customers in connection with the sale of variable universal life policies without having a basis for making the recommendations given the customersí financial needs and circumstances, and
  • material misrepresentations or omitted material facts concerning the transactions, including failure to disclose 
    • surrender fees, 
    • interest fees charged for withdrawals, and
    • large premium amounts to keep the policies from lapsing. 

Atwellís total compensation from the unsuitable recommendations to the customers was $138,973.83. 

Charles Edward Atwell (Principal): Barred

Bill Singer's Comment: For those of you who still haven't gotten the message, the regulatory community at nearly all levels is cracking down on variable life fraud. Sure, I understand these are profitable products for you folks.  Hell, Atwell made six-figures from his efforts.  On the other hand, he also got himself barred!  
Kim Alan Almendinger
AWC/20050001915-01/June 2008 

Almendinger recommended a security to customers who bought shares of the security during the same period that Almendinger also bought shares for his own account. One of Alemendingerís relatives received shares of the same stock from a promoter for the issuer, and that the stocks were placed in an account at a non-member financial institution. Almendinger had a financial interest in the account and failed to notify his member firm, in writing, of the existence of the account and the transactions, including the receipt of the shares of stock and their sale. Also, Almendinger failed to provide written notice to his member firm describing the transactions in detail and his role in the transactions. 

Kim Alan Almendinger: Fined $15,000 (includes disgorgement of $7,650 in proceeds--Almenddinger's "financial status" was taken into account in determining the fine), Suspended 6 weeks in all capacities. 

Bill Singer's Comment: Looks like we've got a number of folks who are starting to open away accounts without disclosing that to the other member firm and their own--which, of course, is a no-no!  I'm noting a pick-up in this conduct and particularly among research analysts.  As a lawyer who represents RRs, I know all too well why this is typically done:  1. To hide improper trading from one's employer firm; and 2. My firm is hosing us with its commissions and it was just cheaper for me to trade at the online, discount firm.  Pick your poison.  Either excuse isn't likely to cut it with FINRA.  
Lehman Brothers Inc. 
AWC/2007009486201/June 2008

The Firm failed to 

  • accurately compute its net capital, and filed Financial Operational & Combined Uniform Single (FOCUS) reports with the New York Stock Exchange (NYSE) reflecting a net capital figure that incorrectly included $1.49 billion of debt covered by supplemental subordinated indentures, and
  • make and/or preserve accurate books and records reflecting and/or relating to its net capital and excess net capital.

Lehman Brothers Inc.: Censured; Fined $125,000

Bill Singer's Comment: Wow!!! With all the negative press about Lehman lately, I was somewhat staggered to see that FINRA uncovered the erroneous inclusion of $1.49 billion (that's a breathtaking number).  I just didn't recall seeing much publicity from the SRO about that. Under the circumstances, I wish that FINRA had made it a bit clearer as to whether this was intentional/unintentional and how this error occurred.
J.P.Morgan Securities Inc.
AWC/20060067541-01/June 2008

The Firm advertised its trade volume for securities in private service providers and its aggregate trade volume (buy and sell) for equity securities advertised in the providers substantially exceeded its executed trade volume for the securities. The Firm did not determine whether the trade volume that it advertised in these services accurately reflected its executed trade volume; and the Firmís supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and NASD rules concerning NASD Rule 3310. Also,the Firm did not supervise the trade volume that it advertised in these systems. 

J.P.Morgan Securities Inc.: Censured; Fined $150,000; Required to revise its written supervisory procedures regarding NASD Rule 3310. 

Bill Singer's Comment: If you go back to the beginning of this year in January, you will see a more extensive case citing similar issues January 8, 2008 FINRA Press Release; FINRA Fines 19 Firms a Total of $2.8 Million for Inaccurate Advertised Trade Volume Information.  
Penn Plaza Brokerage, Ltd. and Leonard Thomas DíAngelo (Principal)
AWC/2006004375702/June 2008

Acting through DíAngelo, the Firm signed and submitted Uniform Applications for Securities Industry Registration or Transfer (Forms U4) to FINRA on behalf of an individual who was statutorily disqualified from associating with any member pursuant to Article III, Section 4(g) of FINRAís By-Laws. The Firm and DíAngelo submitted the Forms U4 while aware of the individualís securities fraud-related criminal history and allowed the individual to become associated with the firm. 

Penn Plaza Brokerage, Ltd.: Censured; Fined $25,000 jt/sev with D'Angelo

Leonard Thomas DíAngelo (Principal): Fined $25,000 jt/sev with Firm; Suspended 10 business days all capacities; Suspended 45 days in Principal capacity.

Scott Howard Weissman
2005001067201/May 2008

Weissman transferred $30,000 from a customerís securities account to the bank account of a movie production company for which he was the president, thereby converting the funds to his own use and benefit. Weissman executed a transaction in customersí joint account without the customersí knowledge or consent. Weissman offered and sold securities that were not exempt from registration and for which no registration statement was in effect, in violation of Section 5 of the Securities Act of 1933. 

Scott Howard Weissman: Ordered to pay $16,000 plus interest in restitution to a public customer; Barred

Ike Joseph Talbot
AWC/2006006856601/May 2008

Talbo borrowed $87,500 from public customers in violation of his member firmís written supervisory procedures that prohibited borrowing from customers under any circumstances. Ike Joseph Talbot: Barred

Robert James Roesch Jr.
AWC/2007009042401/May 2008 

Roesch wrote checks totaling $2,200 payable to himself against a personal bank account that had been closed, knowing that the checks would be dishonored, but he cashed them anyway. Roesch subsequently deposited sufficient funds to cover the checks. 

Robert James Roesch Jr.: Fined $5,000; Suspended 3 months

Jeffrey Scott Ramson (Principal)
AWC/2005003607001/May 2008 

In his capacity as his member firmís Chief Executive Officer (CEO), Ramson approved a retroactive application of a higher commission rate to transactions that had been previously confirmed in writing to a public customer, thereby increasing the commissions charged from $12,500 to $480,000. 

Jeffrey Scott Ramson: Fined $5,000; Suspended 60 days

Francie Bea Rachal (Principal)
AWC/2005002154902/May 2008 

Rachal failed to reasonably supervise a registered representative who engaged in unauthorized transactions and sold securities in states in which he was not licensed. 

Francie Bea Rachal: Fined $5,000; Suspended 10 business days in Principal capacity only

Terrance Reid Pipenhagen (Principal) 
AWC/2006006849601/May 2008

Pipenhagen solicited individuals to invest $475,000 in commodities trading accounts he maintained and controlled. Pipenhagen lost all of the investorsí funds and sent false account statements to the investors in order to conceal their losses and to prevent them from pulling out their investments before he had a chance to recover their losses. Also, Pipenhagen engaged in private securities transactions without prior written notice to his member firm. 

Terrance Reid Pipenhagen: Barred

Oscar Donald Overbey Jr.
2006006292602/May 2008 

Overbey borrowed $50,000 from a public customer in violation of his member firmís policy that prohibited registered representatives from borrowing money from customers unless they were family members. Overbey failed to respond to FINRA requests for information. 

Oscar Donald Overbey Jr.: Required to pay $50,000 plus interest in restitution to public customer;Barred

Charles Robert Murdough
2006005136901/May 2008

Murdough borrowed $25,000 from a public customer, contrary to his member firmís policy prohibiting registered representatives from borrowing money from customers unless they were family members. 

Charles Robert Murdough: Barred

John Edward Mulligan (Supervisor) 
AWC/2007008540901/May 2008

Mulligan ďcut and pastedĒ a public customerís signature to a spousal IRA rollover form without the customerís knowledge or consent. 

John Edward Mulligan: Fined $5,000; Suspended 1 month

John Walter Keller
AWC/2007009429901/May 2008

Keller submitted account-related documents to his member firm on which he signed public customersí names without their authorization. Keller did not make a notation on the documents that he signed on the customersí behalf and did not notify his firm that he was signing the documents for the customers. Keller did not have discretionary authority, letters of authorization or powers of attorney over any of the customers and signed the customersí names knowing that it was against security industry rules. Also, he failed to respond to FINRA and NYSE requests to provide on-the-record testimony. 

John Walter Keller: Barred

Bill Singer's Comment: At first blush, a somewhat innocuous case; but, to my eye, a fairly helpful one.  FINRA is actually noting some "better practices" you could engage in if you are in a situation where the client cannot physically sign a document.  First, and most obviously, FINRA suggests that you could sign such signatures but would need the clients' authorization.  Second, if you are signing with authorization, you should note that situation on the document.  Third, that mere notation is not enough and should be underscored with direct notice to your firm.  

Keep in mind that even though FINRA is suggesting better practices, that does not mean that your member firm's policies permit such conduct.  Make sure you know what leeway you have before you sign any document on behalf of a client.  And, as FINRA suggests, the two most sensible things to do is to clearly note that you have signed AND give your firm a clear head's up.

Juan Carlos Hernandez
AWC/2007009435601/May 2008 

Hernandez engaged in a pattern of charging commissions on equity trades substantially in excess of his member firmís standard commission rate that began at the start of, and continued throughout, his employment with the firm. He manipulated the firmís order entry system so as to enable him to charge the commissions in question. Hernandez had an express agreement with a public customer to charge a lower commission rate, but he fraudulently violated the agreement. Hernandez failed to report complaint letters from the customer as reportable complaints to his member firm, causing his firm to violate NASD Rule 3070(c). 

Juan Carlos Hernandez: Barred

Bill Singer's Comment: I'm seeing a pick-up in FINRA cases involving excessive commissions/mark-ups/mark-downs.  Also interesting to note that the respondent here was found to have manipulated his firm's order entry system.  On the heels of the Kerviel scandal, we're seeing a move by regulators to force members to more carefully monitor their order-entry systems--even to the point where mandatory vacations are urged as a device to prevent ongoing fraud.  Might not be a bad idea to review your firm's system, from time to time; especially during the summer when folks are on vacation.
Bernard Bennedict Gross 
AWC/2006005125301/May 2009

Gross opened and/or had control over securities accounts at brokerage firms and failed to inform his member firm that he had opened the accounts, and failed to inform the brokerage firms where he had the accounts that he was associated with a FINRA member firm. In connection with these accounts, Gross made intentional misrepresentations on the account opening documents as well as on subsequent forms concerning his employerís identity, his affiliation with a securities firm and his occupation, in order to avoid detection. 

Bernard Bennedict Gross: Fined $10,000; Suspended 2 years

Victor Gregory Grieco
 AWC/2007008267701/May 2008 

Grieco engaged in outside business activities without prompt written notice to his member firm. He referred public customers to an independent insurance broker to purchase life insurance and received $18,000 in commissions from the sale of the policies. 

Victor Gregory Grieco: Fined $10,000;Suspended 10 business days

Bill Singer's Comment: Geez, you say -- I never thought about that.  If I refer customers to an insurance guy, and get a few points on the deal, that's an outside business activity that has to be disclosed in writing to my firm?  Absolutely, I reply/  You wrinkle your brow and say those words that drive every industry lawyer nuts: You sure?  

Hey, don't take my word for it.  Read the case. Note the fine and suspension.

Paul Brian Bulgajewski
2006006436101/May 2008

Bulgajewski engaged in a check kiting scheme by drawing checks totaling $1,150 from a bank account which exceeded the funds available and depositing them into his personal account maintained at the bank affiliate of his member firm, which created inflated balances of uncollected funds and allowed other checks to clear when he knew, or should have known, that there were insufficient funds in his personal account at the bank to cover the checks. Bulgajewski failed to respond to FINRA requests for information. 

Paul Brian Bulgajewski: Barred

Bill Singer's Comment: Another example example of how non-securities industry related conduct can still get you in trouble.  Oh, the nonsense that gets spewed around the office water cooler.  Folks, here is a situation not involving any stock or public customer.  FINRA's reach is long.  Be wary of such foolishness.  Note the Bar.
Lori Jean Barnes
AWC/2005003298301/May 2008 

Barnes implemented a covered call writing strategy and used her discretion to effectuate securities transactions in a public customerís account without the customerís prior written authorization and her member firmís written acceptance

Lori Jean Barnes: Fined $5,000; Suspended 10 business days

Bill Singer's Comment: Actually, Barnes raises an interesting point.  The trap that many brokers fall into is that they see covered-call strategies as inherently conservative and safe (in reality, the better perspective is to view such a strategy as "relatively" safe).  As such, the mind set in implementing covered-call programs is that it's in the best interest of the client to realize some income from the written call and to achieve some "insurance" for the long, underlying stock.  That is all well and fine BUT you still need to get prior authorization for the trade or to obtain a written discretionary agreement.
Chaluru Ajedewe (Principal)
AWC/2007011355801/May2008

Ajedewe borrowed $1,500 from a public customer without notifying or receiving approval from his member firm regarding the loan and in contravention of the firmís compliance manual prohibiting registered representatives from borrowing money from customers. 

Chaluru Ajedewe: Fined $5,000; Suspended 30 days

SG Americas Securities, LLC
AWC/20070095217/May 2008

The Firm distributed research reports and research notes/updates to its U.S. institutional customers that its non-member foreign affiliates prepared and failed to determine whether disclosures were required. A qualified individual did not review any of the reports prior to their distribution to U.S. customers. By displaying the firm logo, the research reports inaccurately represented that the firmís U.S. member affiliate had produced them. The Firm failed to detect and correct the inaccurate representation as to the source of the research reports in a timely manner, and failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with applicable NASD disclosure and communication rules. 

SG Americas Securities, LLC: Censured; Fined $175,000

Bill Singer's Comment: I have seen a few of these foreign-report issues recently.  I'm not sure if the issue is driven by the ability to get cheaper coverage from overseas or whether multi-national companies just don't have adequate internal compliance controls.  Whatever the issue, you just can't stuff a research report in the mail (regardless of whether its from one of your affiliates) without confirming that it satisfies FINRA's requirements.  For those of you distributing such materials, you have been warned.
Leonard & Company 
AWC/E8A2005012903/May 2008

In connection with the sale of unregistered promissory notes, the Firm was unable to establish that the sale of the notes qualified for any exemption from registration. The Firm failed to submit any documentation about the public offering of the unregistered promissory notes to FINRA prior to their sale, and made no written disclosures to the purchasers of the conflict of interest in the offering of unregistered promissory notes prior to their purchase. 

Leonard & Company: Censured; Fined $25,000

===============

Leonard & Company 
AWC/E8A2005012904/May 2008

The Firm failed to 

  • disclose on order memoranda the execution time in inter-dealer municipal debt securities transactions, and the receipt time and execution time in other customer transactions for municipal debt securities; 
  • include an execution time on customer order memoranda regarding corporate debt securities;
  • maintain all of the required information for customer accounts;
  • retain email communication registered representatives sent and/or received;
  • comply with the terms of its membership agreement in that it opened branch offices while failing to obtain prior approval from FINRA because of its material change in business operations;
  • establish and maintain a system to supervise each registered representativeís activities reasonably designed to achieve compliance with applicable securities laws and NASD rules, in that the firm failed to have a supervisory system designed to ensure that its offices were registered as branch offices;
  • report a reportable event within 10 business days after it knew, or should have known, of the existence of disciplinary action it was taking against an individual; and
  • timely file amended Forms U4 and Uniform Termination Notices for Securities Industry Registration (Forms U5). 

Leonard & Company: Censured; Fined $65,000

Bill Singer's Comment: Not sure I can recall the last time that one member was cited in three different actions in one month.  Note the two cases in this box and the earlier self-offering matter below. 
Global Crown Capital
AWC/20060037540-01/May 2008

The Firm conducted a securities business, utilizing the means and instrumentalities of interstate commerce, while failing to maintain the minimum net capital required by SEC Rule 15c3-1. The Firm failed to adopt and implement written supervisory procedures reasonably designed to achieve compliance with NASD Rule 2711 as it pertains to 

  • personal trading by research analysts
  • accurately identifying research publications as reports subject to that rule, 
  • disclosures in research reports; and 
  • the qualifications of persons who supervised research analysts and the preparation of research reports. 

The Firm maintained a materially inaccurate Uniform Application for Broker-Dealer Registration (Form BD) in that it represented that a family trust established by a principal of the firm was a firm owner when the trust had no ownership interest. 

Global Crown Capital: Censured; Fined $20,000 ($2,500 of which is jt/sev with unnamed individual)

Bill Singer's Comment: Frankly, much of the uproar about the need to reform research practices on Wall Street seems to have died down as the market has tanked and larger issues now loom.  Nonetheless, Global  should serve as a reminder that FINRA is still monitoring for Rule 2711 compliance and such oversight typically begins with a review of your written supervisory procedures (WSPs).  At a minimum, it would seem sensible for you to ensure that there is ample coverage in your WSPs concerning trading by your analysts, the disclosures in their reports, and the qualification standards that must be met by supervisors.

My guess is that Global did not fail to have any language in its WSPs for all of the above cited deficiencies.  I could be wrong -- that wouldn't shock me -- but my sense of these things is that FINRA didn't deem the WSPs to adequately state the necessary compliance policies: a deficient sentence here, a vague paragraph there, a cut-and-paste provision from another firm's WSP that didn't make sense, and so on.  To that extent, it would have been helpful for FINRA to have presented the inadequate provisions in Global's WSP and then note what would have been proper.  Without that guidance, these form of regulation is merely akin to opening a cash register in the market that is Wall Street and ringing up the various violations, as if so much produce or canned goods.  That may put money in FINRA's pockets and pay its expenses and salaries, but it truly fails to educate the members as to better practices.

Newbridge Securities Corporation, Kenneth Brown (Principal) and Eric Manuel Vallejo (Principal)
AWC/E072003019507/May 2008

The Firm 

  • charged excessive markups/markdowns totaling $66,019.48 on customer stock transactions,  supervisory procedures regarding markups/markdowns;
  • failed to develop and implement a written anti-money laundering (AML) program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and the regulations promulgated thereunder;
  • failed to timely report customer complaints within the time frame NASD Rule 3070 specified;
  • failed to enforce its written supervisory procedures with regard to internal disciplinary actions against registered representatives with patterns of Regulation T violations, restricted/watch list procedures, prospective registered representative screening procedures, procedures related to special supervision of registered representatives and enforcement of margin account restrictions placed on representatives;  
  • failed to file an application for approval of a material change in business activity;
  • failed to implement an adequate supervisory system to ensure compliance with NASD Rule 1017; and
  • failed to register one of its offices as a branch office

Acting through Vallejo, the Firm failed to reasonably supervise the markups/markdowns charged in stock transactions to ensure that they were not excessive and failed to follow its written supervisory procedures regarding markups/markdowns

Acting though Brown, the Firm 

  • approved the use of variable annuity seminar materials that contained misleading statements, material omissions and inadequate risk disclosures, and Brown failed to file the materials with FINRA. 
  • failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable rules and regulations in the following areas: 
    • markups/markdowns, 
    • AML requirements, 
    • customer sellouts and 
    • instant message correspondence;
  • failed to establish and maintain a supervisory system reasonably designed to ensure that the firmís practice of paying trading credits to registered representatives as extra compensation in connection with the sales of certain stocks did not result in sales practice problems. 

Newbridge Securities Corporation: Fined $177,500 ($10,000 of which was jointly and severally with Brown and $10,000 was jointly and severally with Vallejo); Ordered to pay $61,416.35, plus interest, in restitution to public customers;  and Consented to a one-year pre-use filing requirement with FINRA for all customer advertisements and sales literature relating to seminars the firm and/or its representatives offer. 

Kenneth Brown (Principal): Suspended 15 days in Principal capacity only

Eric Manuel Vallejo (Principal): Suspended 15 days in Principal capacity only

Bill Singer's Comment: Every so often a case comes along that is a truly useful tool.  Newbridge touches on so many current regulatory "hot" buttons, that I would urge Compliance Dept's to print it out and use it as a checklist of things not to do.  
Leonard & Company and James Sylvester Currier (Principal)
AWC/E8A2005012902/May 2008

The Firm 

  • engaged in a private placement self-offering of unregistered preferred shares the firm issued, pursuant to private placement memoranda (PPM) to public customers
    • The offerings failed to qualify for the intra-state exemption from registration because on many occasions, the firm sold shares to investors who lived out of state
    • The offerings failed to qualify for a Regulation D exemption because shares were sold to non-accredited investors without providing them with financial information, which is required under SEC Rule 502. 
  • did not qualify for a claimed exemption under NASD Rule 2710 and failed to submit any documentation about the public offering of the preferred shares to FINRA prior to their sales; 
  • made no written disclosure in the PPMs of conflicts of interest and other information; and
  • failed to obtain and retain subscription agreements with regard to the sale of the preferred shares. 

Acting through Currier, the Firm 

  • failed to disclose in the PPMs that remuneration in the form of finderís fees was being paid to the firmís registered representatives in connection with the sale of preferred shares;
  • failed to disclose in the PPMs that proceeds would be used to retire debt related to operating expenses;
  • omitted and negligently misrepresented to the customers that the firmís cash flow was sufficient to meet its operating expenses; 
  • negligently misrepresented a material aspect of the firmís financial condition in that the PPMs failed to disclose the parent companyís financial condition; and
  • failed to maintain a reasonable supervisory system and failed to develop reasonable written supervisory procedures relating to the creation and development of PPM and the training of representatives who solicited potential investors and sold them shares of the private offering.

Leonard & Company:  Censured; Fined $100,000. 

James Sylvester Currier (Principal): Suspended 10 business days in Principal capacity only

Bill Singer's Comment: As I previously noted, in dire economic circumstances as we are presently experiencing on Wall Street, there is little (if any) investment banking activity.  Moreover, go try and raise funds from the public for any financial services company today -- good luck (think Bear Stearns).  Consequently, fundraising for member firms will most likely be via the private placement route and we should expect to see more "Broker-Dealer Self Offerings" (BDOs) activity.  Of course, as a result of years of BDO abuse in which disreputable firms hoodwinked the elderly and the unsophisticated, FINRA has set in place numerous limits and restrictions upon its members ability to raise funds from its clients or the public.  See these cases for examples:

Make sure to familiarize yourself with the provisions of FINRA Conduct Rule 2720. Distribution of Securities of Members and Affiliates ó Conflicts of Interest

Garry Bruce Lindboe
AWC/2007007331101/April 2008

Acting through Lindboe, a member firm, operated a securities business without employing a properly registered financial and operations principal (FINOP); and failed to prepare a general ledger and a trial balance from February 2003 through October 2007. 

Garry Bruce Lindboe: Censured; Fined $25,000 (includes $2,500 jt/several but not noted as with what or whom)

Donald Fruehauf Chamberlin Jr. (Principal)
AWC/2008012114301/April 2008

Chamberlin negligently allowed his father and brother, who were both barred from association with any broker, dealer or investment adviser pursuant to a settlement with the SEC, to engage in securities related activity with public customers. 

Donald Fruehauf Chamberlin Jr.: Censured; Fined $10,000; In the event that he becomes associated with a FINRA member firm at anytime in the future, must, within 30 days of such association, advise the compliance officer of the firm of the securities industry bars imposed on his father and brother.

Ibrahim Ziblim
AWC/2007010930401/April 2008

Ziblim created an ATM card for a banking customerís account without the customerís authorization or consent, and subsequently used the card to withdraw $1,000 from the account, converting the proceeds for his own use and benefit. 

Ibrahim Ziblim: Barred

Fredrick Anthony Woods Jr. 
2006005689501/April 2008

Woods submitted loan applications to a bank on public customersí behalf and photocopied their signatures from their bank signature cards onto the loan documents before submitting them to the bank, without their knowledge, consent or authorization. Woods failed to respond fully to FINRA requests for information. 

Fredrick Anthony Woods Jr.: Barred

Ellerd Bruce Tomte
OS/E0420040478-01/April 2008

Tomte failed to tell public customers that his member firm  would not agree to him charging an hourly fee in lieu of receiving commissions for securities transactions in their account, but received $23,723.02 in commissions for the transactions he recommended and executed in their account. Tomte gave the customers excuses for why he could not give them an accounting of the hours he was purportedly charging to work on their account. Tomte submitted correspondence to the customers that contained exaggerated or unwarranted statements or claims without approval from his firm, in violation of his firmís written supervisory procedures. 

Ellerd Bruce Tomte: Fined $5,000; Suspended 4 months

Bill Singer's Comment: Once again, a FINRA decision that no matter how many times you re-read it, still doesn't make much sense.  Here's what is stated:

1. Tomte didn't tell his customers that his firm would not permit him to charge an hourly fee in lieu of commissions.

2. However, in that same sentence we are informed that he received commissions.

3. Then we are told that Tomte did not provide an accounting for hours charged--but, ummm, we are not told that he charged his clients by the hour (we're only told that he got commissions--there's no mention of his getting paid hourly fees).

4. Finally, reference is made to correspondence Tomte submitted to customers with exaggerated/unwarranted statements, but it is unclear as to whether those statements were in connection with the alleged hourly fees or something else.

Helloooooooooooo, FINRA.  Any chance of spending a bit more time writing and reviewing this monthly reports?

William Jerome Svete (Associated Person)
AWC/E062005003201/April 2008

Svete actively engaged in the management of his member firmís securities business without being registered with FINRA in a principal capacity. 

William Jerome Svete: Fined $10,000; Suspended 15 business days

Timothy James Stauffer 
AWC/20070094652/April 2008

Stauffer misappropriated $523,822.50 from his member firmís public customers by obtaining letters of authorization (LOA) signed in blank by the customers and subsequently, without authorization, filled in the LOA to direct that checks or wire transfers be paid out of the customerís account. Stauffer wrongfully used an ATM debit card issued to his brotherís account to misappropriate $8,134 by ATM withdrawals from the account. Stauffer failed to respond to FINRA requests to provide testimony.

Timothy James Stauffer: Barred

Bill Singer's Comment: We are seeing an explosion in ATM cases and I wish that FINRA would prepare a comprehensive Notice to Members in which it would offer some guidance as to how best to deter such misconduct and what, if any, preventative measures are being used by member firms with success. Here is the typical challenge that regulators consistently fail to surmount:  You see a growing problem, you ramp up the prosecutions, but you fail to provide useful guidance as to how to detect and deter.  Let's try to nip this garbage in the bud, for once.
Donna Marie Shurot
AWC/2006006753101/April 2008 

Shurot received $58,000 from a public customer to purchase a life insurance policy, deposited the funds in her own personal account at her member firm, transferred $58,479 to her IRA account at the firm and failed to submit a life insurance application for the customer to the firm . Shurot caused another member firm to transfer $6,712 from a deceased customerís account at that firm by completing a request for redemption form, without authorization from the customerís estate, and included instructions on the form that the funds be made payable to an account belonging to Shurot at her member firm.

Donna Marie Shurot: Barred

George Sepero
AWC/2006005804301/April 2008

Sepero effected unauthorized securities transactions in public customersí accounts and provided false testimony during a FINRA on-the-record interview. 

George Sepero: Barred

Bill Singer's Comment: As noted recently, FINRA now seems to be citing "false testimony" at OTRs with more frequency than in years past.  See the S.G. Martin case for another recent example.
Stephen G. Rittenberg 
AWC/2006006533901/April 2008

Rittenberg prepared and distributed unapproved sales literature at seminars for active and retired educators. The sales literature failed to disclose Rittenbergís member firm, and a principal at his firm did not review the sales literature and evidence its review in writing. Some of the customer information questionnaires Rittenberg prepared for distribution at the seminars were misleading because they claimed that any information provided would be held confidential when that was not the case.

Stephen G. Rittenberg: Fined $5,000; Suspended 30 days

Bill Singer's Comment: Without question, FINRA has put the industry on notice that it is watching out for potential abuses in the seminar arena.  The regulator has been steadily increasing its docket over the past few years with examples of misconduct in that arena, and as Rittenberg demonstrates, there is no let up.  The confidentiality issue in this case is intriguing because it is clearly an area ripe for abuse and we haven't seen many FINRA actions involving such misconduct. 
Paula Ludwig Nordquist
AWC/2007009038901/April 2008

Associated Person Nordquist effected unauthorized withdrawals totaling $3,500 from a public customerís bank account and used the funds for her own use and benefit. 

Paula Ludwig Nordquist: Barred

Bill Singer's Comment: Usually I criticize regulators for using bureaucratic doublespeak to make their cases look better.  Here, I'm sort of dumbfounded by the choice of description: unauthorized withdrawals.  Are unauthorized withdrawals related to what many of us call stealing or larceny?  Is there any relationship between an unauthorized withdrawal and--let me try my hand at this creative writing stuff -- borrowing without prior notice or approval?
Joel S. Mitchell (Principal)
AWC/2007009448901/April 2008

Mitchell changed a public customerís address for her individual retirement accounts to his own address without her authorization or consent, entered numerous unauthorized redemptions of mutual fund shares in the accounts, forged the customerís signature on checks totaling $44,697.70, then converted the proceeds for his own use and benefit. Mitchell improperly opened several credit card accounts in the customerís name, listed himself as an authorized user and obtained $63,169.16 in cash advances, which he misappropriated for his own use and benefit.

Joel S. Mitchell: Barred

Susan A. Mann 
AWC/2007010717301/April 2008

Mann borrowed $10,000 from a public customer contrary to her member firmís written supervisory procedures prohibiting its representatives from borrowing money from customers. Mann failed to inform her firm of the loan or otherwise obtain permission. 

Susan A. Mann: Fined $5,000; Suspended 10 business days

Julianna Lynn Makuch
AWC/2006005191201/April 2008

Instead of requiring employees to execute new corrected investment-option selection forms for 401(k) retirement savings plans, Makuch completed the forms using information provided on the original employee forms and affixed a photocopy of the employeeís signature on the new forms

Julianna Lynn Makuch: Fined $5,000; Suspended 4 months

Bill Singer's Comment: Without question we are in the midst of an explosion of these types of violations.  If you merely look back over the past few months of 2008, you will see a number of "affixing" cases involving signatures of customers or colleagues.  There is also a variant of this situation in which folks take CE or qualifying exams for others.  Regardless of whether you think there is too much damn paperwork or it's too much of a bother to get an original signature--this is just not a smart alternative.  I know my warning will continue to fall on deaf ears but, seriously folks, take the time to get the original signature.  
Jeffrey Michael Laster
AWC/2007009113301/April 2008

Laster submitted a falsified letter in another registered representativeís name requesting a hardship withdrawal of $3,308 from that representativeís trading account without his authorization or consent. Laster forged the registered representativeís signature on the letter and on the check that was subsequently issued as a result of his request and received the proceeds. 

Jeffrey Michael Laster: Barred

Mary Denise Gustavson
2006007458501/April 2008 

Gustavson assisted a public customer in obtaining a loan from a bank and to ensure that the customer obtained the loan, she retrieved a financial statement from a third person and pasted the customerís name and date of birth over the third personís name and date of birth to make it appear as if it were the customerís financial statement. Gustavson copied the altered document and submitted the copy to the bank to support the customerís loan application. Gustavson failed to respond to FINRA requests for information. 

Mary Denise Gustavson: Barred

Bill Singer's Comment: Wow!!! I can't even get a free toaster anymore when I open an account and, come to think of it, I think my bank stopped sending me those free calendars.  This is what I call old-fashioned customer service.  All kidding aside though, we are seeing an increase in these types of cut-and-paste cases.  
Beatriz Fresquez
AWC/#2007010423101/April 2008 

Fresquez converted funds from a public customer by ordering an automatic teller machine (ATM) card for the customer, creating a personal identification number (PIN) number for the card and using the card to withdraw $23,323.50 from the customerís bank account. Fresquez also used bank counter withdrawal forms to withdraw $42,923.50 from the account without the customerís knowledge or consent. Fresquez failed to respond to FINRA requests for information. 

Beatriz Fresquez: Barred

Steven Dubinsky (Principal) and Michael John Pata (Principal)
AWC/ELI2004035401/ELI2004035402/April 2008 

Dubinsky and Pata failed to properly supervise a registered representative who was engaged in excessive trading in customer accounts.

Steven Dubinsky (Principal) : Fined $5,000; Suspended 10 business days in Principal Capacity only

Michael John Pata (Principal): Fined $5,000; Suspended 10 business days in Principal Capacity only

Gregory Orlan Dartez and Jerry Glenn Griggs
AWC/20060066266-01/20060066266-02/April 2008

Dartez and Griggs wrote and disseminated press releases touting the securities of an oil and gas company that were not fair and balanced, and failed to provide a sound basis for evaluating the facts regarding the securities. The press releases omitted material facts, including the companyís recent revenues, causing the press releases to be misleading. 

Gregory Orlan Dartez: Barred

Jerry Glenn Griggs: Barred

AWARD WINNER
MOST OBTUSE EXPLANATION OF OBFUSCATION WITH OAK CLUSTERS

John Shim Cho
AWC/2006007065701/April 2008

FINRA's official monthly report states that Cho

received $8,400 from a public customer for assisting him in avoiding overdrafts in his business checking account. The findings stated that Cho affixed the customerís signature to checking account withdrawal slips to withdraw the funds from the customerís business checking account as payment for avoiding overdrafts in the account. 

John Shim Cho: Barred.

Bill Singer's Comment: Okay, so...here's my first question to you:  What exactly did Cho do?  Okay, now that you've sort of come up with an answer to that first questions, here's a second one for you: What did Cho do that was a violation?

In answering my own first question, the best that I can figure is that Cho "affixed" a customer's signature to a withdrawal slip for $8,400.  Not sure why that's not called "forged" a signature but it's possible that the customer okayed the signature (in which case the act was legal and not forgery).  But, hey, who am I to complain if FINRA doesn't take the time to explain things? Oh, yeah, I forgot, I make a living complaining about FINRA, so, guess I am the guy to complain.  Moving along, then.  So, Cho signs his customer's signature to a withdrawal slip for $8,400 and that is compensation from the customer for avoiding an overdraft?  

What I'm missing here is --- well, hell, I'm missing everything from what happened to what was done in violation of FINRA rules.  It's possible, mind you, that Mr. Cho forged the withdrawal or that he lent money to the client in violation of company policy or that he waved a dead chicken around over his head and summoned the Devil.  Unfortunately, regulation isn't supposed to be a guessing game and these cases should educate us as to what not to do and the consequences of such misconduct.

Dean Robert Bordeaux
AWC/2007009423701/April 2008 

Bordeaux solicited the purchase of a security to his customers although it was not blue-sky registered in Illinois during the relevant period. Bordeau mismarked order tickets for purchases of the security in some of his customersí accounts as ďunsolicitedĒwhen, in fact, the trades were solicited and caused Non-Solicitation Letters to be sent to some of the customers who purchased the security (the NSL stated that Bordeaux had not solicited in any way, nor had the purchase been made on the basis of any recommendation of information from his member firm, its Research Department, or any of its employees when, in fact, he knew that he had solicited these purchases at the time he caused these letters to be sent to his firm ís customers. 

Dean Robert Bordeaux: Fined $10,000; Suspended 12 months

Tarrant McCutchen Augustine 
AWC/2007009299901/April 2008

Augustine created and sent falsified account statements to a public customer that inflated the value of the customerís mutual fund.

Tarrant McCutchen Augustine: Barred

Seslia Securities
AWC/2007007154201/April 2008

The Firm failed to retain instant messages in violation of Securities and Exchange Commission (SEC) Rule 17a-4, and failed to maintain records documenting the content of its continuing education programs (firm element) and covered registered personsí completion of the programs. 

Seslia Securities: Censured; Fined $17,500

Pershing LLC
AWC/2007009522001/April 2008 

The Firm employed persons who were statutorily disqualified because it failed to submit the fingerprints of temporary workers who were working for the firm for a background check to the Federal Bureau of Investigation (FBI), and failed to promptly notify the New York Stock Exchange (NYSE) of its association with persons subject to statutory disqualification. The Firm failed to establish, maintain and enforce written procedures, including a system of follow-up and review of its business activities, with respect to its hiring of temporary workers to achieve compliance with federal securities laws, NASD and NYSE Rules relating to association with statutorily disqualified individuals.

Pershing LLC: Censured; Fined $95,000

ING Financial Advisers, LLC 
AWC/2007007182602/April 2008

The Firm failed to timely file summary and statistical information for numerous public customer complaints that the firm received. The Firmís supervisory system 

  • was not reasonably designed to ensure that summary and statistical information concerning customer complaints was filed in accordance with NASD Rule 3070; and
  • failed to provide for reasonable follow-up and review to ensure that required customer complaint filings were made. 

ING Financial Advisers, LLC : Censured; Fined $15,000

The Robins Group LLC and Marcus Whitney Robins (Principal)
AWC2005001863901/April 2008

The Firm permitted research analysts, including Robins, to execute

  • sales of securities in research analyst accounts in a manner inconsistent with their recommendations, as reflected in the most recent research reports the firm published; and
  • transactions of securities issued by companies that the research analysts followed in research analyst accounts 30 days before and five days after the publication of a research report concerning the companies. 

The Firm authorized stock transactions that NASD Rule 2711(g)(3) prohibited, purportedly based on an unanticipated change in the personal financial circumstances of the beneficial owner of the research analyst account, and failed to maintain written records regarding the transactions and the justification for permitting them for three years after the dates when the transactions were approved. 

The Firm, acting through Robin, published research reports another analyst had written regarding a company, but the report did not disclose that the company had compensated the analyst within the past 12months.  The Firm published research reports regarding a company and failed to disclose that the company had compensated a business entity affiliated with the firm within the past 12 months. Robins published magazine articles, which a research analyst considered to be public appearances, and failed to disclose to the publisher that he or a member of his household had a financial interest in the securities of the companies, and the firm failed to maintain records of the articles sufficient to demonstrate Robinsí compliance with the applicable disclosure requirements of NASD Rule 2711(h) for three years after the articles were published. In addition, the Firm failed to adopt or implement written supervisory procedures reasonably designed to ensure that it and its employees comply with NASD Rule 2711. Moreover, the Firm published on its website an inaccurate list of its registered persons, including its research analysts, and the companies covered by their research, because some of the persons had terminated their association with the firm. 

The Robins Group LLC: Censured; Fined $25,000 ($5,000 of which jt/sev with Robins)

Marcus Whitney Robins (Principal): Fined $5,000 jt/sev with Firm; Fined $31,458.59 (includes $16,458,59 disgorgement of benefits); Suspended 20 business days in all capacities 

Bill Singer's Comment: Note that FINRA sanctioned the firm because its website disclosed the ongoing employment of terminated individuals.
Kensington Capital Corp., Abram Joseph Silver (Principal) and Jeffrey Mitchel Simon
OS/2005000094003/April 2008

Acting through Simon, the Firm aided and abetted a market manipulation of a thinly traded over-the-counter bulletin board (OTCBB) common stock orchestrated by an individual previously barred from the securities industry, and his brother who had a retail account at the firm. 

Acting through Silver and another individual, the Firm failed to establish and implement AML policies and procedures reasonably designed to monitor, analyze and investigate suspicious transactions, and to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder.

Acting through Silver, the Firm failed to establish, maintain, and enforce a supervisory system and written supervisory procedures appropriate to its market making and retail trading business and the activities of its registered representatives s relating to market making and trading. 

Because Silver failed to reasonably supervise Simonís trading and market making activities, the Firm, acting through Simon, rendered substantial assistance to the stock price manipulation. 

Kensington Capital Corp.: Censured, Fined $85,000 ($10,000 of which was jointly and severally with Simon); Required to retain an independent consultant to conduct a comprehensive review of the adequacy of the firmís trading and Anti- Money Laundering (AML) policies, systems and procedures (written and otherwise), and its training related to trading and AML. 

Abram Joseph Silver: Fined $10,000 jt/several with the Firm;  Suspended from association with any FINRA member in any principal capacity for 90 business days and immediately upon the completion of the 90-day principal suspension, Silver has agreed not to serve in the capacity of Chief Compliance Officer for 6 months; must also complete 25 hours of AML continuing education within 12 months, and provide FINRA with written proof of his completion of the continuing education within 30 days. 

Jeffrey Mitchel Simon: Suspended from association with any FINRA member in any capacity for 6 months; Requalify by exam as a general securities representative (Series 7) and/or as an equity trader limited representative (Series 55) before again becoming associated with any FINRA member in those capacities. 

Brian Anthony Zirnheld
AWC/#2006005319701/March 2008 

Zirnheld recommended the purchase of a variable annuity to public customers without having reasonable grounds for believing that the recommendation was suitable based upon the customersí investment objectives, financial situation and needs. Zirnheld knowingly submitted a false written statement to his member firm claiming that at the time he made the unsuitable recommendation, he was not aware that both customers suffered from dementia

Brian Anthony Zirnheld: Fined $10,000; Suspended 1 year

Bill Singer's Comment: Truly, this one bothers me.  If the facts are as FINRA suggests -- that Zirnheld knew that the customers suffered from dementia, then why does that not get you barred?  Moreover, assuming that the customers' mental states were so readily apparent that this RR should have known, why were the customers not declared mentally incompetent to handle their financial affairs by a court--or why had no one been appointed to act as their legal guardian?  And, to follow that trend of thought, why doesn't FINRA think that any of those facts are worth disclosing as part of this supposedly educational monthly disciplinary report?
Roger Chi Fung Tsui
AWC/20060069560-01/March 2008

Tsui possessed unauthorized materials during a General Securities Representative Qualification (Series 7) examination

Roger Chi Fung Tsui: Fined $5,000; Suspended 2 years

Joseph P. Tiedeken Jr.
2005003119501/March 2008 

Tiedeken failed to completely respond to FINRA requests for information and documents. Tiedeken borrowed $11,000 froma public customer contrary to his member firmís written policy that prohibited its registered representatives from borrowing money or securities from customers. 

Joseph P. Tiedeken Jr.: Barred

Dennis Wayne Sharp (Principal)
AWC/2006006587101/March 2008

Sharp engaged in private securities transactions without prior notice to, and approval from, his member firm. Sharp represented to public customers that payments on promissory notes were guaranteed when he should have known that they were not guaranteed, and failed to inquire sufficiently into their status before making representations. Sharp made recommendations to public customers without reasonable grounds for believing they were suitable for the customers on the basis of facts disclosed by them as to their other security holdings, financial situation and needs. 

Dennis Wayne Sharp: Barred

Frank Giorgio Muia
AWC/2007009609501/March 2008 

Muia borrowed $2,700 froma public customer of his member firm without notifying or receiving written approval from his firm regarding the loan and in contravention of the firmís written supervisory procedures prohibiting borrowing monies or securities from a firm customer. 

Frank Giorgio Muia: Fined $5,000; Suspended 30 days.

Shawna Lee Mendoza (Associated Person) 
AWC/2006006943001/March 2008

Mendoza was instructed by registered representatives at her member firm to complete missing items and obtain new customer signatures on Point of Sale-Variable Life (POS) forms that the customers had previously signed in connection with their applications for variable universal life insurance policies. Because Mendoza was unable to get timely responses from the customers and receive newly signed POS forms, she obtained information from other customer documents and, without the customersí knowledge and consent, photocopied their signatures to the POS forms and inserted more recent dates tomake it appear that the customers had signed new POS forms.  Mendoza altered the dates on the POS forms next to the registered representativesí signatures without their knowledge and consent

Shawna Lee Mendoza: Fined $5,000; Suspended 3 months

James Robert Kelly (Principal) 
OS/2006005457801/March 2008

Kelly failed to provide complete and timely responses to FINRA requests for information. He willfully failed to amend his Form U4 with material information, and filed an amendment to his Form U4 that included an optional comment regarding an AWC which constituted a public statement denying directly or indirectly an allegation in the AWC, and created the impression that the AWC was without factual basis, which was in violation of the terms of the AWC. 

James Robert Kelly: Fined $10,000; Suspended 8 months

Bill Singer's Comment: I have long counseled clients against denying the allegations set forth in a settlement document that is predicated upon the defendant/respondent neither admitting nor denying the allegations.  I guess the one thing here that puzzles me is whether this is yet another example of how regulators apply a double standard as between the "big fish" and the "small fry."  

On May 2, 2003, the New York Times reported (MORGAN STANLEY DRAWS S.E.C.'S IRE by Floyd Norris) that the Securities and Exchange Commission, the New York State Attorney General (Eliot Spitzer) and other states alleged that Morgan Stanley paid $2.7 million to other Wall Street firms so that they would provide research on companies whose initial public offerings were underwritten by Morgan. The day after the announcement of a $1.4 billion settlement of the research scandal involving leading Wall Street firms, (Morgan's contribution to that settlement was $125 million) then Morgan Stanley CEO Phillip J. Purcell had attended a investors conference where he appeared to dismiss the allegations by stating that 

"I don't see anything in the settlement that will concern the retail investor about Morgan Stanley.  Not one thing."

As Norris reported, then SEC Chairman William H. Donaldson wrote a letter to Purcell:

'First, your statements reflect a disturbing and misguided perspective on Morgan Stanley's alleged misconduct,'' Mr. Donaldson wrote. ''The allegations in the commission's complaint against Morgan Stanley are extremely serious. They include charges that Morgan Stanley paid other firms to provide research coverage, compensated its research analysts, in part, based on the degree to which they helped generate investment banking business, offered research coverage by its analysts as a marketing tool to gain investment banking business and failed to establish adequate procedures to protect research analysts from conflicts of interest.

''In light of these charges,'' Mr. Donaldson continued, ''your reported comments evidence a troubling lack of contrition and lead me to wonder about Morgan Stanley's commitment'' to complying with the law.

Mr. Donaldson noted that the settlement required Morgan Stanley not to deny the allegations, and added that that requirement applied to Mr. Purcell. ''I caution you that the commission would regard a violation of that obligation as seriously as a failure to comply with any other term of the settlement,'' the chairman wrote.

. . .

NASD, the nation's largest self-regulatory organization, also expressed concern about Mr. Purcell's comments at the conference on Tuesday. A spokeswoman for NASD said: ''Chairman Donaldson's letter is clear. We share his concerns and we're in communication with Morgan Stanley about that meeting.''

I have found absolutely no indication that either Morgan Stanely or Mr. Purcell were sanctioned in any manner by the apparently outraged SEC, states, or NASD (now FINRA).  Clearly, at some point, regulators must regulate and enforce the sanctity of their settlements.  I fully appreciate the principle upon which Chairman Donaldson rebuked Purcell.  Nonetheless, whatever James Robert Kelly did, it could not have risen to the enormity of the public comments by Morgan's CEO.  Kelly seems to have taken a shot at a lousy AWC on his U4.  Perhaps not the smartest move in the world, but not exactly the stuff makes the headlines of the next day's news.  

Odd, isn't it--that the Kellys of Wall Street wind up getting suspended for much the same misconduct that the CEOs of major firms get nasty letters.  I am oh so heartened that FINRA's predecessor (NASD) shared the SEC's concerns and was in communication with Morgan Stanley.  Now, why couldn't FINRA have just communicated with Mr. Kelly rather than suspend him?  And before you're so quick to answer -- why didn't Purcell get suspended for eight months or fined one cent?  You give me an answer that fairly addresses both scenaria and then we can begin the debate.  

Kyle Timothy Holland (Principal) 
AWC/20060054866-01/March 2008

Acting through Holland, the Firm 

  • engaged in a securities business while failing to maintain adequate net capital;
  • filed an inaccurate Financial and Operational Combined Uniform Single (FOCUS) report with FINRA; 
  • failed to establish and maintain a reasonable supervisory system, including written procedures, related to 
    • the receipt and handling of customer stock certificates  when public customers inadvertently forwarded their certificates to the firm instead of the clearing firm, and 
    • how the firm would instruct customers regarding the correct way to deposit stock certificates into their accounts. 

The findings also stated that Holland engaged in activities requiring principal registration while suspended in that capacity. 

Kyle Timothy Holland: Fined $20,000; Suspended 30 days in all capacities; Suspended 3 months as a FINOP; Requalification by examination before acting in FINOP capacity.

Bill Singer's Comment: More than two decades ago when I was a young lawyer with NASD, some of the most common violations that came across my desk were member firms that were receiving cash and/or certs from customers--and those same firms were operating under a Net Capital exemption that did not permit them to "hold" securities or cash but required that they be sent directly to the clearing firm.  Okay, so, even as this decision notes, sometimes customers are not intentionally enticed by the firm to send case/certs but just make a mistake.  Nonetheless, if the customer makes such an error, members must promptly forward the cash/certs to the clearing firm (or under certain circumstances return them to the client).  Moreover, you must have policies in place that notify such clients not to continue the improper practice.  Ignoring the goof is not enough, as this case shows.
Hossien Shane Dez Dezfoolyzadeh
AWC/2007008657501/March 2008 

Without the customersí knowledge or consent, Dezfoolyzadeh signed their names to firm forms in order to transfer their customer accounts from his prior firm to his then current firm. 

Hossien Shane Dez Dezfoolyzadeh: Fined $5,000; Suspended 6 months.

Jill Erin Dell 
AWC/2006006604001/March 2008

Dell deposited $30,500 into a public customerís bank account through monthly payments of $500 as purported income from a variable universal life policy to avoid a complaint from her member firmís customers. Dellís payments to the customer precluded a timely analysis of whether she had made misrepresentations and omitted material facts in connection with the sale of the policy to the customer. 

Jill Erin Dell: Fined $10,000; Suspended 30 business days

Gloria Michelle Crayton
AWC/20070082798-01/March 2008

Crayton submitted payroll reimbursement claims totaling $11,440 to an affiliate of her member firm for an individual who did not work for her, and Crayton did not actually incur the payroll expenses claimed. 

Gloria Michelle Crayton: Barred

Timothy Patrick Barry
AWC/20060063677-01/March 2008 

Barry attempted to compensate public customers for losses incurred related to a delay in processing a stock sale.  Barry wrote personal checks totaling $7,000 to the customers without informing his member firm that he had attempted to compensate the customers, and without obtaining authority from his firm to settle the loss in this manner. 

Timothy Patrick Barry: Fined $5,000; Suspended 10 business days

Andrew Cy Banks 
AWC/2007009447801/March 2008

Banks mismarked order tickets corresponding to discretionary transactions executed in a public customerís account as ďunsolicited,Ē when in fact the transactions were solicited. Banks exercised discretionary authority in the customerís account without prior written authorization, and failed to make and preserve accurate books and records. 

Andrew Cy Banks: Fined $5,000; Suspended 10 business days

Strand, Atkinson,Williams & York, Inc. 
AWC/2006007078101/March 2008

The Firm 

  • allowed registered representatives to effect transactions in its average price account in order to provide multiple customers of a single representative an average price execution;
  • failed to establish, maintain and enforce a supervisory system and written supervisory procedures regarding the use of the average price account;
  • prepared brokerage order memoranda for customer transactions effected via the firmís average price account, but the memoranda lacked one or more required elements such as 
    • accurately denoting the time the order was received, 
    • the time the order was executed, 
    • the terms and conditions of the order, and 
    • whether the order was entered pursuant to an exercise of discretionary authority; and 
  • allowed registered representatives to exercise discretionary authority without prior written customer authorization when executing customer trades via the firmís average price account. 

Strand, Atkinson,Williams & York, Inc.: Censured; Fined $15,000

Bill Singer's Comment: Not an earth shattering case in terms of facts, violations, or sanctions, but, nonetheless, an interesting topic.  We don't see many allegations of "average price" misconduct and that should serve to compel compliance staff to consider this case.  Keep in mind that when a member handles an agency order on an average price basis, members are required to show the receipt and execution of the customer order by reporting a New Order Report and an Execution Report to OATS, with the time of execution reflected as the time at which the average price of the agency execution was determined.
Reliance Securities, LLC
AWC/2006003957801/March 2008

The Firm failed to establish, maintain and enforce adequate written supervisory procedures related to fee-based brokerage accounts, and overcharged accounts for fee-based services even though the SEC had previously found the firm to have overcharged customer accounts. (FINRA Case #)

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

Bill Singer's Comment: Another fee-based case--clearly, FINRA is revisiting this issue with gusto in 2008.  See the Fee-Based Account box in the Developing Trends matrix atop this page.
Peacock, Hislop, Staley & Given, Inc.
AWC/2007007461501/March 2008

The Firm knowingly permitted an individual to continue to associate with the firm while statutorily disqualified, and permitted the individual to function as a municipal securities representative although he was not registered with FINRA or the MSRB in any capacity.

Peacock, Hislop, Staley & Given, Inc.: Censured; Fined $30,000

Berry-Shino Securities, Inc.
OS/E3A20050037-02/March 2008 

The Firm effected mutual fund transactions for public customers and charged transaction fees that were unreasonable and unfairly discriminatory. Some of these transactions involved the purchase of mutual funds with sales loads and that the firm 's imposition of charges in addition to the sales loads constituted the sale of mutual funds at prices other than the current public offering prices described in the funds' prospectuses. 

The Firm failed to report, or timely report, items that NASD Rule 3070(a) required to be reported, and failed to timely report customer grievances required to be reported pursuant to NASD Rule 3070(c). The Firm failed to file required amendments to Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5), and submitted amendments to Forms U4 and U5 late. The Firm transacted an options business in a branch office without a qualified on-site principal. The Firm voluntarily created a heightened supervision plan for a registered representative but failed to implement the plan. 

Berry-Shino Securities, Inc.: Censured; Fined $40,000; Ordered to pay $24,918.62 plus interest in restitution to public customers.

Bill Singer's Comment: Okay, where to start?  One, if you have a complicated written document detailing all those mutual fund charges, maybe it's not that great an idea to take on additional charges that aren't set forth in that same document.  Two, pay attention to those nasty 3070 and U4/U5 disclosures.  Three, once again (second so far this month), if you have a heightened supervision plan make sure to enforce it.

Finally, a little bit of nuance for all you compliance nerd.

Rule 3070(c) actually states:

(c) Each member shall report to the Association statistical and summary information regarding customer complaints in such detail as the Association shall specify by the 15th day of the month following the calendar quarter in which customer complaints are received by the member. For the purposes of this paragraph, "customer" includes any person other than a broker or dealer with whom the member has engaged, or has sought to engage, in securities activities, and "complaint" includes any written grievance by a customer involving the member or person associated with a member.

So, what's with the red-lettered and highlighted language?  Well, a lot of you haven't digested what it says.  First, a customer is any person other than a broker or dealer. Okay, so that's like a lot of folks, including children and maybe even dogs that are dressed up on Halloween to look like Winston Churchill, Abe LIncoln, and so on.  Not sure about the dogs part, but I'll check that out.  Anyway, getting back to the serious stuff, so a customer is anyone whom the member has "engaged" (okay, so that's like an actual paying customer) and "sought to engage, in securities activities."  That's a truly amazing bit of expansive language.  If you seek to engage in securities activities with anyone, they are a customer; and if they "complain" about you, then you have a 3070 disclosure.  So...if you get someone on the phone and they were in the shower and are annoyed about that, I guess if they file a complaint against you that it's now a 3070 item.  Oh "no," you say!  Complaining that you got them out of the shower and that they dripped water on the carpet is not reportable.  The "customer" (the guy or gal in the buff who is dripping water on their floor) hasn't complained about a securities matter.  Oh yeah, I says.  Go look at the definition of "complaint": "any written grievance by a customer..."  ANY...WRITTEN...GRIEVANCE.  Of course, it would help if we knew what's a "grievance" and what's not a "grievance."

Sisung Securities Corporation and Lawrence John Sisung Jr. (Principal) 
C0520030036/March 2008
Securities and Exchange Commission set sustained/set aside in part findings of violation and sanctions on appeal of a National Adjudicatory Council decision on appeal from Office of Hearing Officers decision

NASD found that SSC violated Municipal Securities Rulemaking Board ("MSRB") Rules G-37(b), G-37(c), G-37(e), G-8, and G-9, and that Sisung violated, or was responsible for SSC's violations of, MSRB Rules G-37(c), G-8, and G-9. NASD fined SSC $20,000 for its violations of Rules G-37(b) and (c), fined Sisung $20,000 for his violations of Rule G-37(c), fined SSC and Sisung $10,000, jointly and severally, for the violations of Rules G-8 and G-9, and fined SSC $10,000 for its violations of Rule G-37(e).

Firm and its president appealed NASD findings that they engaged in municipal securities business with an issuer within two years of contributions to an official of such issuer, solicited contributions to an official of an issuer with which the firm was engaging in or seeking municipal securities business, and failed to record or report contributions

On appeal, the SEC was unable to find violations of MSRB Rules G-37(b) or (c) on this record, and thus have set aside NASD's sanctions with respect to these alleged violations. 

With respect to the fines NASD imposed for the violations of Rules G8, G-9, and G-37(e), the SEC  sustained.

Sisung Securities Corporation and Lawrence John Sisung Jr. (Principal): Fined $10,000 (jt/sev); Firm fined additional $10,000

Purshe Kaplan Sterling Investments, Inc.and Peter John Sheehan (Principal) 
AWC/2006007370401/March 2008

Acting through Sheehan, the Firm failed to establish, maintain and/or enforce a supervisory system and written procedures reasonably designed to achieve compliance with securities laws, regulations and NASD rules concerning suitability reviews of customer mutual fund transactions, and failed to enforce written procedures providing for special supervision of registered representatives after customers filed complaints

Purshe Kaplan Sterling Investments, Inc.: Censured; Fined $50,000 (jt/sev with Sheehan)

Peter John Sheehan (Principal): Fined $50,000 (jt/sev with Firm); Suspended 30 days in Principal Capacity

Bill Singer's Comment: Certainly an area of increasing FINRA focus: What are firms doing when notified of a customer complaint against an RR.  Here a Firm had WSPs providing for special supervision, but apparently failed to enforce those policies.  The regulators will get you every time for such a lapse.
S.G.Martin Securities LLC and Emanuel Pantelakis (Principal) 
OS/2005000191701/March 2008

Through the actions of Pantelakis and registered representatives, the firm fraudulently misrepresented and omitted material facts to public customers in connection with the sale of securities. The firm and Pantelakis failed to 

  • establish, maintain and enforce a supervisory system reasonably designed to enforce securities laws, regulations and NASD rules regarding the sales of securities to retail customers, and the firm 's written supervisory procedures were not reasonably designed to supervise the registered representatives and principals involved in the sale of securities; and
  • reasonably supervise the sales activities of registered representatives and failed to establish, maintain or enforce any procedures to supervise Pantelakis. 

The findings also included that Pantelakis knowingly provided false testimony during a FINRA on-the-record interview. 

S.G.Martin Securities LLC: Ordered to pay $25,294, plus interest, in restitution to investors and to retain an independent consultant to review its policies, systems and procedures (written and otherwise) and training related to sales practices and supervision, and to make recommendations which the firm should implement or suggest alternatives for approval by the consultant.

and Emanuel Pantelakis (Principal): Barred

Bill Singer's Comment: The supervisory issues aside, I find it interesting that Pantelakis "knowingly provided false testimony."  Frankly, that's a rare allegation to find in these reports because folks who expect to lie usually refuse to testify, or, if they do testify at an on-the-record interview, the regulator simply goes ahead and charges them with the underlying violation and not the "perjury" issue.  Given that the old NASD referred such testimonial misconduct to criminal prosecutors in the past, it will be interesting to monitor this case to see whether that happens here.  See the Sepero case for a more recent example.
Investment Management Corporation, Brian Young Horne (Principal) and Kevin Dee Kunz (Principal) 
OS/#2005000960301/March 2008

Kunz, knowingly and willfully, caused the firm to participate as primary placement or sales agent in public offerings, even though the firm was suspended from participation in securities offerings as primary placement or sales agent until it complied with the independent consultant requirement imposed in a previous NASD (nka FINRA) decision. 

Acting through Kunz and Horne, the Firm processed commissions earned by firm representatives in the private placements through a non- member mortgage company that Horne owned. Kunz functioned as a principal of the firm even though he was suspended in that capacity from an earlier NASD (nka FINRA decision). Horne, as the firm's president and compliance officer, knew of the independent consultant requirement in the earlier decision or acted with reckless disregard by failing to apprise himself of the sanctions imposed in the decision, but knowingly or recklessly permitted the firm to participate in the offerings without satisfying the independent consultant requirement. Horne knew, or should have known, that Kunz was not permitted to act as a general securities principal but failed to supervise Kunz to prevent him from functioning as a principal while suspended. 

Investment Management Corporation: Expelled

Brian Young Horne (Principal) and Kevin Dee Kunz (Principal): Barred

Bill Singer's Comment: As I noted in 2007 and predicted would continue into 2008 (see Developing Trends matrix at top of this page), "Private Placement" violations are clearly a regulatory hot topic.  And as I have noted countless times over the years, suspended firms cannot violate the terms of their suspension (duh) and suspended individuals cannot violate the terms of their personal suspension (double duh, or duh duh--as you prefer) and Presidents and CCOs of  member firms who fail to abide by the terms of a regulatory sanction will not be shielded from personal liability (ah, the ever rare and elusive triple duh with oakleaf flourishes).
State Farm VP Management Representatives 
March 6, 2008 FINRA Press Release 
FINRA Fines, Suspends 16 State Farm Representatives for Test-Taking Irregularities in the Firm's Continuing Education Program/Supervisors Directed or Allowed Registered Representatives of State Farm VP Management Corp. to Take "Firm Element" Proficiency Tests for Supervisors or Other Representatives

FINRA fined and suspended 16 current and former registered representatives of State Farm VP Management Corp. of Bloomington, IL (which is engaged in the business of selling mutual funds and variable products) for misconduct involving FINRA's Continuing Education requirements for registered representatives. The representatives engaged in this misconduct without any authorization from State Farm. State Farm reported the misconduct to FINRA after uncovering test-taking irregularities in one of its regions and conducting a preliminary investigation. State Farm then expanded its internal investigation nationwide and provided FINRA with its findings.

The Continuing Education requirements consist of a Regulatory Element and a Firm Element. The Regulatory Element requires all registered persons to take computer-based training, devoted to industry rules and regulations, on the second anniversary of their initial securities registration and every three years thereafter. The Firm Element requires firms to administer appropriate training to their registered persons who have direct contact with customers, and to the registered persons' immediate supervisors, on an ongoing basis. The training must cover topics specifically related to their business, such as new products, sales practices, risk disclosure, and new regulatory requirements and concerns. 

The 2005 Firm Element designed by State Farm was an internal, computer-based system. Covered representatives were required to complete a two-hour training session and then pass a proficiency test with a minimum score of 80%. In order to access the Firm Element training session and proficiency test, the participant was required to sign on to the system using a user ID and password. The subordinate representatives who took the test for their superiors signed on as the superiors for whom they were taking the test, using the superiors' user IDs and passwords. One sanctioned representative, a former registered principal of the firm, Rebecca Sappington directed a subordinate to obtain the user IDs and passwords of at least four State Farm registered representatives working in her area, and complete the Firm Element program for these representatives by taking their proficiency tests. When Sappington learned that her directive had not been carried out, she instructed her subordinate to delegate the task to another person, who was an unregistered and newly hired employee of State Farm. This unregistered person then obtained the user IDs and passwords for at least four representatives, logged onto the system and completed the Firm Element program for the representatives by taking their proficiency tests. 

In concluding these settlements, the registered representatives neither admitted nor denied the charges, but consented to the entry of FINRA's findings. The individuals agreed to the following sanctions: 

Series 26 Principals who directed a subordinate to take their proficiency tests

  • Todd Rindfuss received a $10,000 fine, a six-month suspension as a principal and a 90-day suspension in all capacities. 
  • Michael Stansbury received a $10,000 fine, a six-month suspension as a principal and a 90-day suspension in all capacities. 

Series 26 Principal who directed subordinates to take the test for others: 

  • Rebecca Sappington received a $10,000 fine, a bar as a principal and a six-month suspension in all capacities 

Series 6 Representatives who directed or allowed a subordinate to take their proficiency tests: 

  • Jeffery Coleman received a $5,000 fine and a 60-day suspension. 
  • Walter Culbreth received a $5,000 fine and a 60-day suspension. 
  • Beverly Lochard received a $5,000 fine and a 60-day suspension. 
  • William Nickum received a $5,000 fine and a 60-day suspension. 
  • Robert Olive received a $5,000 fine and a 60-day suspension. 
  • Valerie Tichy-Drummer received a $5,000 fine and a 60-day suspension. 
  • Karen Curtis received a $5,000 fine and a 60 day suspension. 

Series 6 Representatives who completed the proficiency tests for their superiors: 

  • Kenneth Capell received a $5,000 fine and a 30-day suspension. 
  • Mayka Hardy received a $5,000 fine and a 30-day suspension. 
  • Teresa King received a $5,000 fine and a 30-day suspension. 
  • Lori Love received a $5,000 fine and a 30-day suspension. 
  • Heather Montagne received a $5,000 fine and a 30-day suspension. 
  • John Reich received a $5,000 fine and a 30-day suspension.
Fredricka Dale Watson
20060052704/February 2008 

Watson took notes into a Regulatory Element of Continuing Education exam and looked at them before they were confiscated by an examiner, even though she had acknowledged that it was prohibited prior to the exam. Watson failed to respond to FINRA requests for information.

Fredricka Dale Watson: Barred

Dominic Joseph Vricella (Principal) 
AWC/2007008938701/February 2008 

Vricella engaged in private securities transactions without prior written notice to, or prior written approval from, his member firm. Vricella settled a customer complaint without his member firm 's knowledge or approval. Also, he failed to reasonably supervise a registered representative engaged in private securities transactions to prevent his violations and achieve compliance with applicable securities rules, regulations and NASD rules. 

Dominic Joseph Vricella: Barred

Edward Martin VanGrouw 
E9B2003026301/February 2008

VanGrouw obtained contingent deferred sales charge waivers for customers selling Class Bmutual fund shares by falsely claiming that the customers were disabled. The suspension in any capacity is in effect from July 2, 2007 through July 1, 2009. (FINRA Case #)

Edward Martin VanGrouw:  Fined $20,000; Suspended 2 years; Requalify by exam as registered rep

Bill Singer's Comment: Folks, this isn't anything new or clever, and if you try this device, chances are you're going to eventually get caught.  See Schwartz for another example.
Malcolm Thomas 
2006004663901/February 2008

Thomas submitted to his member firm forged forms for the purpose of requesting compensation for work he had not done. Thomas failed to respond to FINRA requests for information and to appear for an on-the-record interview. 

Malcolm Thomas: Barred

Leslie Clark Stipek (Principal) 
AWC/2006005166801/February 2008

While acting through a limited liability company he owned that was not a FINRA member, he effected securities transactions on public customers' behalf and received $1,248,340 in commissions for the sales. Acting thorugh Stipek, the LLC acted as a broker-dealer without being registered with the SEC. Stipek failed to appear for a FINRA on-the-record interview. 


Leslie Clark Stipek: Barred

Andrea Marie Selander
AWC/2007007771001/February 2008 

Selander cut and pasted a public customer's signature on withdrawal request forms without the customer's knowledge or consent in order to expedite the withdrawal of funds from the customer's securities account at the firm to the customer's bank account. 

Andrea Marie Selander: Fined $5,000; Suspended 60 days

Bill Singer's Comment: Cut and paste?  Cut and paste?? As in, cut with a scissor and then glue the signature on???  Though tempted to ask what she was thinking, perhaps I'll show some charity and just let it go...cut and paste????
Harvey Mitchell Schwartz
E102004083703/February 2008

Schwartz made false entries in his member firm 's electronic entry system that claimed that public customers were disabled when they were not, in order to obtain Contingent Deferred Sales Charges for mutual fund shares without informing the customers or confirming the practice with his branch Manager. Schwartz' false claims caused his firm 's books and records to contain false and misleading information. 

Harvey Mitchell Schwartz: Fined $1,000; Suspended 4 months

Bill Singer's Comment: Folks, this isn't anything new or clever, and if you try this device, chances are you're going to eventually get caught.  See VanGrouw for another example.
Isaac Schinazi (Principal) and Robert Ware Middleton 
AWC/#2005000777001/ 2005000777002/February 2008

At a time when the original stated contingency of $500,000 had not been met in connection with a "minimum maximum" contingency private placement offerings of securities, they caused investor funds to be disbursed from a bank account and transferred to the issuer and their member firm , and failed to return funds to the investors from whom the firm received the funds, rendering the terms of the private placement memorandum false and misleading. The Firm failed to maintain an escrow account to hold customer funds pending occurrence of each offerings' contingencies but instead, Schinazi and Middleton caused customer funds to be deposited with a bank in a savings account that was not an escrow account. 

Acting through Schinazi, the Firm failed to maintain the required minimum net capital while conducting a securities business and thus, Schinazi caused his firm to violate SEC Rule 15c3-1. Schinazi permitted Middleton to engage in activities that required him to be registered as a general securities principal when he was not so registered. 

Acting on his member firm 's behalf, Schinazi failed to maintain and preserve all of the firm 's electronic communication in violation of Exchange Act Rule 17a-4. 

Isaac Schinazi (Principal): No fine in light of financial status; Suspended 10 business days in all capacities; Suspended in Principal capacity 50 days

Robert Ware Middleton: Fined $22,500; Suspended 30 days 

Bill Singer's Comment: Because I read every NASD, NYSE, and SEC regulatory case, I'm often in a somewhat unique position to spot developing enforcement trends (which I note in a matrix at the top of this page).  This case was a three-bagger that touched on three of the trends I first noted at the beginning of 2008: 1. Private Placements; 2. Registrations; and 3. Electronic Communications.  As such, Compliance Departments might want to circulate this one around the office as a head's up.
Bruce Gilbert Reich
AWC/2006007035301/February 2008 

Reich borrowed $309,000 from public customers contrary to his member firm 's written procedures prohibiting its registered representatives from obtaining loans from customers unless they are immediate family members. 

Bruce Gilbert Reich: Fined $10,000; Suspended 60 days

Gary Lynn Ranfeld (Principal)
OS/2007007834501/February 2008

Ranfeld borrowed $34,120 from public customers in contravention of his member firm 's written supervisory procedures specifically prohibiting borrowing money from customers, without exception. Ranfeld failed to respond to FINRA requests for information. 

Gary Lynn Ranfeld: Barred

Darren James Powell
2005002154901/February 2008 

Powell opened accounts for public customers without their authorization and effected unauthorized transactions in the accounts. Powell failed to appear for a FINRA on-the-record interview.

Darren James Powell: Barred

Daniel M. Myers
AWC/E9B2005014201/February 2008

Myers lent $540,000 to public customers contrary to his member firm 's prohibition against lending money to customers. Myers performed functions at his firm requiring registration as a principal without being registered with FINRA in that capacity. 

Daniel M. Myers: Fined $15,000; Suspended 4 months

Bill Singer's Comment: Typically, the RR is borrowing from and not lending to a customer.  If nothing else, this case is a helpful reminder that the violation is a two-way street.
William Dennis Mattes Sr. 
2006005936701/February 2008

Mattes created an Automatic Teller Machine (ATM) card in the name of one of his customers and used it to make unauthorized withdrawals from the customer's accounts.

William Dennis Mattes Sr. : Barred

William Wells Learned Jr. 
AWC/2006007082701/February 2008

Learned signed a public customer's name to a form that authorized the release of the medical records of the customer's relative without the customer's knowledge or consent in order to obtain a life insurance policy for the customer's relative. 

William Wells Learned Jr.: Fined $5,000; Suspended 2 months

Bill Singer's Comment: Okay, here's my challenge.  Read the above fact pattern once and then close your eyes.  Hey!!! No peeking.  Now, you get one and only chance to explain exactly what happened.  

ANSWER: Learned signed a customer's name on a form that authorized the release of the customer's relative's medical records, not the customer's records but the customer's relative's records, but the customer had no knowledge that Learned was going to sign his name on the release form for his relative and the customer didn't even consent to that signing of the release form -- well, yeah, that's sort of obvious that the customer would not consent to something that he had no knowledge of in the first place but I digress -- so, let's see, after signing the customer's name on the release of the customer's relative's medical forms, Learned then submits that release in order to obtain a life insurance policy not for the customer but for the customer's relative.  I dunno know about you but I'm guessing that they fined him $5,000 and suspended him for 2 months just for driving everyone crazy trying to figure out what the hell was going on here.  If you don't have time to re-read the case, I believe that there is a DVD version coming out next month, and there's a director's cut bonus in which we learn that the relative was actually an alien whose spaceship crashed at Roswell and who has assumed the identity of a subprime mortgage broker.

Candice Elicia Hall
AWC/2007008809001/February 2008

Hall intentionally submitted a Request for Verification for Employment that overstated her salary and reflected an incorrect length of service of employment and incorrect position title; she transmitted the document to a mortgage company in connection with an application for a home mortgage loan.

Candice Elicia Hall: Barred

Bill Singer's Comment: Please see my comments in the Lerner case -- again, why did the firms discussed in that comment appear to have gotten off so lightly, whereas Hall was barred?  One promising aspect of this case is that we now know that FINRA, the SEC, and the states will all aggressively pursue and sanction the many financial entities who prepared and transmitted overstated financials and misstated representations in connection with subprime mortgages and their subsequent securitization.  I am absolutely certain of that. Positive. Well, okay, you know me too well -- I'm not holding my breath for that one.
Gregory Gibala
AWC/2007008400401/February 2008 

Gibala wrote checks against his mutual fund account at a company affiliated with his member firm and deposited the checks into his checking account even though he knew the mutual fund account had insufficient funds to cover the checks, and that no additional funds would be deposited into the mutual fund before the checks were presented for payment. Gibala withdrew funds from the bank checking account although he knew, or should have known, that, excluding the mutual fund checks he had deposited, the checking account did not contain sufficient funds to cover the withdrawals. 

Gregory Gibala: Fined $5,000; Suspended 4 months

Bill Singer's Comment: So let me get this straight.  FINRA is now a collection agency for its member firms when an employee's checks bounce?  Look -- don't get me wrong -- it's a serious matter to write a check when you KNOW that you lack sufficient funds and you KNOW that you will not have such funds in time to cover.  Fact is, in most states that is a crime.  Notwithstanding all of the above, I would like to know whether Gibala was convicted of a crime or whether the employer even filed criminal charges. I would also like to know the sum involved -- not to excuse the conduct but to place it within a given context.

Finally, and this is what ultimately troubles me, why is it that FINRA always seems ready and willing to go after industry employees for these types of violations but rarely seems to take up the banner when its vice versa?  I'm sure we all are aware of allegations by employees that they have not been paid, or not timely paid, or that they have been underpaid.  Does FINRA investigate those allegations and charge member firms with the same frequency and zeal as here?  We just finished a round of cases in which some BDs were found to have violated state/federal wage laws --anyone see FINRA file complaints against those member firms? When firms are named in racial or sexual discrimination/harassment suits (and often found guilty in court), does FINRA also fine and suspend the member firm?

I submit that one reason for this unfair discrepancy is that FINRA is a self-regulator in which only member-firm-employers have a vote on any proposal or in any election.  FINRA is essentially a tool of management because it has totally disenfranchised hundreds of thousands of registered men and women.  RRs have no vote on any FINRA matter.  Member firms do.  You don't think it matters?  Then explain to me the philosophical rationale for going after RRs who issue NSF checks but not after employer who abuse their employed RRs?

Charles Todd Finley (Principal) 
AWC/2006005217301/February 2008

Finley

  • failed to reasonably supervise an unregistered person; 
  • failed to monitor the activity in customer accounts assigned to him; and 
  • recklessly permitted an unregistered person to effect unauthorized transactions, unauthorized withdrawals and the transfer of $863,200 in customer funds and securities valued at $69,690 by means of forged authorization letters. 

Charles Todd Finley: Fined $25,000; Barred in Principal capacity; Suspended 2 years all capacities

Joan Lynea Elam
AWC/2007009097601/February 200

Elam engaged in the unauthorized use of a co-worker's credit card to purchase personal items totaling $1,005.94, without the individual's knowledge, authorization or consent.

Joan Lynea Elam: Barred

Timothy Edward Dixon
AWC/2007009992101/February 2008

Dixon borrowed $24,000 from one of his member firm 's public customers in contravention of the firm 's written procedures prohibiting registered representatives from borrowing money from customers. 

Timothy Edward Dixon: Fiend $5,000; Suspended 10 business days

David Michael DeMartino
AWC/2007009521201/February 2008

DeMartino selectively disseminated information obtained from a public company relating to its expected updated earning guidance before its official public release.

David Michael DeMartino: Fined $15,000; Suspended 3 months.

Richard Alan Daniels 
AWC/2005003642901/February 2008

Daniels sold unregistered securities in the form of promissory notes to public customers, and the securities did not have the represented purpose of generating extraordinarily profitable returns for investors, but rather had the purpose of promoting an illegal "Ponzi" scheme and supporting Daniels' personal debt and expenses. Daniels failed to respond to FINRA requests for information.

Richard Alan Daniels: Barred

Jeremy Tice Cundiff 
AWC/#20060054450-02/February 2008

Cundiff entered into a real estate business arrangement with a public customer and entered into a settlement agreement with the customer without being the customer's representative of record. Cundiff did not provide his member firm with a copy of the agreement before he signed it or before it became effective. 

Jeremy Tice Cundiff: Fined $5,000; Suspended 10 business days

Bill Singer's Comment: If FINRA is going to qualify something by pointedly noting that Cundiff was not "the customer's representative of record," it would be a tad helpful to explain why that was noteworthy.  What's the deal with that?  Was he pretending to be the RR of record, but wasn't?  Was he paying out of his own pocket for some problem caused by another RR?  Is there some more serious issue about an RR at a given member firm entering into a business deal with a client of the branch (but serviced by another RR)?

FINRA -- just too many damn questions that you should have answered!  Get your act together.

Kenneth Richard Campbell III (Principal)
AWC/2005001611002/February 2008

Campbell inadequately enforced his member firm 's written supervisory procedures regarding variable annuity exchanges, thereby failing to fulfill his responsibilities to reasonably supervise the firm 's variable annuity business. 

Kenneth Richard Campbell III: Fined $15,000;Suspended 6 months in Principal capacity; Required not to serve in a Chief Compliance Officer capacity during the suspension period and thereafter until he successfully requalifies by examination; Required to requalify as a general securities principal (Series 24) by examination.

Bill Singer's Comment:  I cite this case because I cannot recall a recent case in which an individual was specifically required NOT to serve as a CCO.  As such, this may indicate a future sanction trend.  One quibble -- assuming Campbell was simply suspended for sic months as a principal and required to requalify as a 24 (both the facts here), is it FINRA's position that such a dual sanction somehow kept the door open for him to serve as a CCO during his suspension and to similarly continue such service before he requalified as a 24?  I'm not sure I understand how a suspended Principal could serve as a CCO, no how someone required to requalify as a 24 could continue in the CCO slot until requalified.
Money Concepts Capital Corp
AWC/#2006003704001/February 2008 

The Firm failed to report customer-related matters disclosable under NASD Rule 3070 in a timely manner . The Firm failed to amend Forms U4 and U5 for registered representatives to report customer-related matters in a timely manner

Money Concepts Capital Corp: Censured; Fined $13,500

Legend Merchant Group, Inc.
AWC/20060036818-01/February 2008

The Firm effected material and ongoing changes in its business operations by adding a branch office and expanding the number of associated persons with direct customer contact without FINRA's prior approval. The Firm failed to timely report statistical and summary information regarding customer complaints; and failed to report the most egregious problem as alleged in customer complaints as FINRA required. 

Legend Merchant Group, Inc.: Censured; Fined $22,500; Required to file an application with FINRA, consistent with NASD Rule 1017 for approval of the material changes referenced in the AWC concerning changes to its Membership Agreement, and the firm must comply fully and timely with related FINRA requests for additional information and documents.

Bill Singer's Comment:  As my readers know, I have long warned firms about materially changing the terms/limits of their Membership Agreements without prior notice and approval from FINRA -- hell, that's a "Developing Enforcement Trend" item at the top of this page!  On the other hand, truly, I am mystified by FINRA's suggestion that there is some rule on its books that states it is a violation to fail "to report the most egregious problem as alleged in customer complaints."  Frankly, regulation is far too serious an undertaking to be subject to such whim and whimsey as a self-regulator making things up as it goes along.  Without question, NASD Conduct Rule 3070 sets forth numerous reporting obligations -- none of which I have any sincere dispute with.  Nonetheless, I find NOTHING therein that obligates a member to report the "most egregious problem as alleged in customer complaints."  If FINRA disagrees, I invite the regulator to communicate that dispute with me and I will publish the response.
H&R Block Financial Advisors, Inc. 
AWC/E8A2005010002/February 2008

The Firm failed to file Uniform Termination Notices for Securities Industry Registration (Forms U5) with FINRA in a timely manner. The Firm failed to establish and maintain a system to supervise the activities of each registered representative and associated person reasonably designed to achieve compliance with the requirements of Article V, Section 3 of FINRA's By-Laws to ensure timely filing of Forms U5. 

H&R Block Financial Advisors, Inc: Censured; Fined $150,000

First Republic Group, LLC 
AWC/2006003717801/February 2008

The Firm failed to adequately supervise registered representatives, whom the firm designated for heightened supervision, to ensure their compliance with applicable securities laws, regulations and NASD rules. The Firm 's supervisory system with respect to the registered representatives requiring heightened scrutiny was inadequate to ensure against unauthorized trading and other misconduct based upon various red flags, including 

  • the nature of customer complaints received, 
  • incomplete customer account documentation, and 
  • the high rate of trade cancellations. 

The Firm failed to 

  • conduct a detailed review of customer account activity more than once per month when more frequent, in-depth oversight was warranted under the circumstances, and
  • maintain account records with the signature of the registered representative introducing new accounts and the signature of the firm 's principal who accepted the accounts. 

First Republic Group, LLC: Censured; Fined $45,000

Bill Singer's Comment:  To FINRA's credit, at least they are clearly setting forth the nature of the "red flags."  Such guidance, while far too rare, is always helpful.  As I have often discussed with clients, you should always have a sense of your baseline numbers/percentages of cancellations (and rebills), and carefully monitor any material deviations.  Similarly, large numbers of "partial" account documents often indicate that RRs are not fully obtaining the know-your-customer information necessary to initiate trading and may indicate a pattern of opening accounts with debatable first orders (and trying to land the account by showing a profit on the unauthorized trade).
Ameriprise Financial Services, Inc.
AWC/2005000682901/February 2008

The Firm awarded non-cash compensation, including stock options and restricted stock, to field leaders through sales incentive programs based, in part, on criteria that favored or gave additional weight to the sale of the firm 's proprietary investment company products rather than on the sale of all investment company products in violation of NASD rules. The Firm failed to establish and maintain procedures, including written procedures, reasonably designed to achieve compliance with SEC Rule 17a-4 regarding record retention obligations. 

Ameriprise Financial Services, Inc.: Censured; Fined $145,000

N.I.S. Financial Services, Inc. and Carol Sharpe Boone (Principal) 
AWC/20060039815-01/February 2008

In connection with the sale of joint investments in life insurance and Mutual funds, the Firm failed to forward customer funds promptly and to comply with the requirements set forth in SEC Rule 15c3-3(k)(1) under which it operated, including maintaining a Special Reserve Account for the Exclusive Benefit of Customers. 

Acting through Boone, the Firm failed to

  • implement a supervisory system to review and retain electronic correspondence its associated persons received and/or sent;
  • establish written supervisory procedures for 
    • supervisory approval to changes in account names or designation; 
    • limitations on holding customer mail
    • maintaining internal communications and establishing adequate controls over the firm 's internal communications system; and
    • review and retention of associated persons' correspondence; and
  • implement a supervisory inspection program of its non-branch office locations (firm conducted no onsite inspections of these locations even though the SEC had previously warned the firm that its failure to conduct non-branch office inspections was a violation of securities rules and regulations. 

N.I.S. Financial Services, Inc.: Censured; Fined $70,000 (jt/several w/ Boone); Fined additional $20,000

Carol Sharpe Boone (Principal): Censured; Fined $70,000 (jt/several w/ Firm)

Bill Singer's Comment:  A common misconception is that so-called non-branch business locations (NBBLs) are exempt from routine oversight and need not be included in the normal office inspection protocol.  As this case makes clear, you must conduct onsites of such locations.  Moreover, as likely hinted at in the fact pattern, regulators tend to focus on communication/correspondence issues for firms utilizing NBBLs.  After all, if business is not being conducted from a standard OSJ or BO, then it would make sense that the home office needs to pay more attention to the panoply of in-house/customer communications to see what's going on.
E. Magnus Oppenheim & Co. Inc. and E. Magnus Oppenheim (Principal)
AWC/2006004863601/February 2008

The Firm and Oppenheim 

  • posted information regarding the benefits and advantages of investing in an unregistered private limited partnership on the firm 's Web site;
  • failed to register the fund with the SEC in violation of SEC Rule 506 of Regulation D;
    •  Although no sales of interest in the private limited partnership were made through the Web site, the material published on the firm 's Web site regarding the fund constituted a general solicitation of investors. 
  • published material on the firm 's Web site regarding the purported benefits and advantages of investing in the fund without providing a balanced disclosure of risks associated with the investment to provide a sound basis for evaluating the facts regarding an investment in the fund. 
E. Magnus Oppenheim & Co. Inc.: Censured; Fined $17,500; Required to file with FINRA within 60 days, all sales literature and advertisements, including but not limited to annual or semi-annual client letters, print ads, performance updates and Web site content that the firm currently uses. 

E. Magnus Oppenheim (Principal): Censured; Fined $10,000;  Must have completed six hours of continuing education relating to compliance with NASD rules and federal securities laws regarding advertising and/or use of the internet in connection with offerings of securities within 90 days. 

Bill Singer's Comment: This case should serve as a very critical warning -- federal and state securities laws generally do not distinguish between "sales" "offerings" and "solicitations.".  If one is not permitted, the others typically fall within that proscription.  As such, please review your website to make sure that you are not offering investments -- or directly/indirectly soliciting the same -- without having the requisite offering documents or a lawyer's opinion that you are exempted from same.
Thomas Group Capital and Thomas Borbone (Principal)
AWC/2005000323701/February 2008

The Firm and Borbone failed to supervise the sale of hedge fund interests by registered representatives to public customers. There was no review or endorsement by a registered principal of transactions in hedge fund interests; and sales of hedge fund interests were not subjected to principal review for suitability of recommendations. The due diligence reviews of hedge fund offering documents prior to sales by representatives were inadequate. 

Thomas Group Capital: Censured; Fined $50,000; Prohibited from offering hedge fund interests or opening new hedge fund accounts for six months, and thereafter suspended from offering hedge fund interests or opening new hedge fund accounts until the firm has submitted revised written supervisory procedures to FINRA that satisfactorily address the supervision of hedge fund offerings. Required to pre-file all customer advertisements and sales literature relating to hedge funds with FINRA for six months, beginning with the first use of such sales communications following the suspension from offering hedge fund interest and opening new hedge fund accounts. 

Thomas Borbone (Principal): No fined in light of financial status; Suspended in Principal capacity for 3 months

Bill Singer's Comment:  Another powerful sanction from FINRA.  Here the firm is prohibited from offering hedgie interests or opening hedgie accounts for six months, and cannot renew such activities until it submits satisfactory written supervisory procedures.  Moreovoer, after that suspension is completed, there is further six month obligation to pre-file related ads and literature.
Redwood Securities Group, Inc.  and Aditya B. Mukerji (Principal)
OS/E0120050070/20060040112/20060043082/20060046541/February 2008

Acting through Mukerji, the Firm filed materially inaccurate Financial and Operations Combined Uniform single (FOCUS) reports, and some reports indicated they were filed by an individual who had resigned from the firm before Mukerji filed the FOCUS reports. Also, acting through Mukerji, the Firm failed to

  •  accurately compute the firm 's net capital;
  •  keep a current trial balance;
  •  keep and maintain a general ledger;
  •  maintain a complete checks received and disbursed blotter and computed its aggregate indebtedness incorrectly;
  •  maintain the minimum required net capital while conducting a securities business;
  •  timely file its annual audit and FOCUS reports and its Schedule I of FormX-17A-5 with FINRA.
  •  employ and register a financial and operations principal (FINOP) while conducting a securities business and submitting financial reports;
  •  request or receive a waiver of the FINOP requirement;
  • file an application for approval of change of ownership with FINRA when an individual began making capital contributions to the firm in return for equity ownership in the firm;
  • willfully to disclose material facts on his Uniform Application for Securities Industry Registration or Transfer (Form U4). 

Redwood Securities Group, Inc: Censured; Fined $20,000; Required to retain-within 60 days of acceptance of this Offer of Settlement-an independent consultant (IC) to conduct a comprehensive quarterly review of, at a minimum, the firm 's balance sheet, schedule of accrued liabilities, checks received and disbursed blotter, bank reconciliations, general ledger, trial balance and net capital computation for one year, and to require the IC to submit four quarterly reviews to the firm and FINRA to address-at a minimum-the adequacy of the firm 's financial records, a description of the review performed and conclusions reached, and the IC's recommendations for modifications and additions to the firm 's record- keeping systems, which the firm shall adopt and implement or propose alternatives acceptable to the IC.

Aditya B.Mukerji (Principal): Fined $77,500; Suspended 45 days in all capacities.

Perpetual Securities, Inc. Cathy Yiping Huang (Principal) and Youwei Paul Xu (Principal)
C9B20040059/February 2008 
Securities and Exchange Commission affirmed sanctions on appeal of a National Adjudicatory Council decision on appeal from Office of Hearing Officers decision

Xu and Huang allowed the firm to operate a securities business while its FINRA registration was suspended. Additionally, Huang was suspended for two years for failing to respond timely and completely to FINRA requests for information. 

Perpetual Securities, Inc. : Expelled

Cathy Yiping Huang (Principal): Suspended 2 years for failing to timely respond to FINRA requests for information; but also Barred for allowing the firm to operate while suspended

Youwei Paul Xu (Principal): Barred

Bill Singer's Comment:  First off, FINRA has a technical mistake in its reporting of this matter.  FINRA's report suggests that the sanctions imposed by it were affirmed by the SEC.  In reality, the majority of sanctions were affirmed by the SEC but there was a significant reduction of FINRA's Bar upon Huang (for failing to timely respond) down to a 2 year suspension.  As the SEC clearly stated in its Order Denying Motion for Reconsideration, In the Matter of Perpetual Securities et al. ('34 Rel. No. 56962 / December 13, 2007 Admin. Proc. File No. 3-12416):

We sustained NASD's expulsion of Perpetual from NASD, its bar of Xu and Huang from association with any NASD member in connection with the operation of the Firm while suspended, and reduced to a two-year suspension NASD's bar of Huang for her untimely and incomplete response to NASD's information request.

While clearly a fairly technical aspect of this case, the SEC's Opinion In the Matter of Perpetual Securities et al. ('34 Rel. No. 56962 / December 13, 2007 Admin. Proc. File No. 3-12416) does provide some interesting guidance on the proper sanction for a delayed response to FINRA, rather than an outright refusal:

We conclude, however, that the bar imposed by NASD against Huang in all capacities as a sanction for her failure to respond is an excessive remedy on the facts of this case. As discussed, NASD's own Sanction Guidelines provide that, in the absence of mitigating factors, a bar is the standard sanction for those who do not respond to a request for information "in any manner" but that where, as in this case, the individual made some response but "did not respond in a timely manner, [the Adjudicator should] consider suspending the individual in any or all capacities for up to two years." 66/ We agree with the remedial judgment reflected in the Guideline recommendation: a dilatory or incomplete response poses less risk to the self-regulatory system and investors than a complete failure to respond and, in the absence of aggravating circumstances indicating a fundamental unfitness to participate in the securities industry, can be remedied by a sanction less than a bar. 67/ Accordingly, we reduce the sanction imposed by NASD for Huang's failure to provide timely and complete responses to NASD's information requests from a bar to a suspension of Huang in all capacities for two years. 68/

Finally, one is still left scratching the head when trying to understand the rationale of imposing a Bar and a two-year suspension.  Thankfully, the SEC offers insight into its thought process by explaining its logic in this footnote:

68/ We recognize, of course, that, if the bar in all capacities against Huang for the operation of the Firm while the Firm was suspended is sustained after the appeal process has been exhausted, that the two-year suspension for her failure to respond will be redundant. This potential for redundancy does not make it excessive or oppressive, however: NASD may consider and impose sanctions separately and independently of one another for separate violations alleged in the same proceeding. In this way, if one of the sanctions is vacated during the appeal process, the remaining sanction need not be relitigated.

Walter Yun (Principal) 
AWC/#2006006195001/January 2008

Yun engaged in outside business activities, for compensation, without prior written notice, or any notice at all, to his member firm. When Yun was questioned by his firm about his business activities, he made misrepresentations regarding any involvement, receiving compensation, distributing sales or marketing material, discussing the business activity with any individuals and knowing any firm customers that had invested in the company. 

Yun settled customer complaints about their losses by giving the customers promissory notes without telling his firm about the customer complaints or purported settlements. Yun guaranteed customers against loss. Yun executed discretion in customer accounts without the customers' prior written authorization and his firm 's prior written acceptance of the accounts as discretionary, and exercised discretionary authority without disclosing it to his firm. 

Walter Yun (Principal): Barred

Bill Singer's Comment: This case is fairly typical of how regulators' often view certain violations as the likely tip of an iceberg, and, as such, use such opportunities as launching pads to uncover further misconduct.  As is often the case, an outside business activity (OBA) violation generally involves some deceit or effort to cover-up by the offending RR. [For more examples of this violation, visit the OBA page of this site]  It was bad enough that Yun failed to follow the OBA Rule and give prior written notice to his firm, but he then compounded his misconduct by misrepresenting the nature and extent of his involvement.  Moreover, as is often the natural result of such deceitful conduct, Yun had a number of customer complaints and similarly tried to handle those sub rosa by entering into undisclosed settlemetn. [For more about these cases, visit the Undisclosed Settlements page of this site].  

Many would think that juggling two such violations would be enough, but, frankly, veteran defense lawyers and enforcement attorneys know that there is even more below the surface.  Generally, if someone has covered up an OBA activity and entered into undisclosed settlements, there's a good chance that there's yet another improper side deal.  The way it often goes is that the RR says to the customer: "Look, give me a chance here to make it up to you.  Let me trade your account and I'll get your losses back."  And if the once-burned client says 'no,' then the RR often retorts with "Okay, how about I guarantee you against any loss?  Will that persuade you to keep this all quiet and give me a chance?"  I have no idea what happened with Yun, but I am not surprised to see how the dominos fell here.

Phillip Wesley Young 
OS/20060074277-01/January 2008

Young borrowed $238,500 from public customers even though his member firm did not have written procedures allowing the borrowing and lending of money between registered persons and customers. 

Phillip Wesley Young: Fined $12,500; Suspended 75 days

Gary Lee Wigand (Supervisor)
AWC/#2006005268101/January 2008

Wigand forged a notary public's signature of on a power of attorney that a customer of his member firm signed, and affixed a notary stamp to the power of attorney without the notary's knowledge and consent and without the notary's witnessing the signing of the document by the customer. Wigand failed to respond to FINRA requests for information.

Gary Lee Wigand (Supervisor): Barred

Sean Michael Walters
AWC/2007008948201/January 2008 

Walters received $285,000 from public customers to invest in the bonds, but instead, converted their funds for his own use and benefit. Walters submitted a fabricated brokerage account statement to  a mortgage company as part of a personal loan application by inserting his own name and address on a customer's account statement.

Sean Michael Walters: Barred

John Kent Thurston (Principal) 
AWC/2006005728201/January 2008

Thurston signed customers' names to agreements his member firm used to designate asset managers for the customers' managed consulting accounts without their knowledge or consent. Although it was the customers' intention to designate the particular asset managers, Thurston executed the agreements without their permission.

John Kent Thurston : Fined $5,000; Suspended 30 days

Rafael Jose Siero (Principal) 
AWC/#20060069502-01/January 2008

Siero borrowed $90,000 from a public customer contrary to his member firm 's prohibition of registered representative borrowing from customers. Siero failed to make a single scheduled payment on the loan, although he did make some payments at unpredictable times and in varying amounts, eventually paying off the loan in full with associated interest expenses, late penalties and fees. 

Rafael Jose Siero (Principal): Fined $10,000; Suspended 3 months

Rebecca Rhoden Sappington (Principal) 
AWC/2005003511202/January 2008

Sappington directed individuals under her supervision to complete the computer-based Firm Element Continuing Education program on registered representatives' behalf without any notice to, or authorization from, her member firm . 

Rebecca Rhoden Sappington (Principal): Fined $10,000; Suspended 6 months; Barred in Principal capacity

Bill Singer's Comment: And the reason that Sappington gets 6 months and Curtis got 60 days is what?  I'm not suggesting there isn't a valid reason, just pointing out that FINRA doesn't bother to offer one.

Follow-up (March 2008): Eureka!  We have an explanation!!  See March Press Release above.

Clark Alexander Reinhard 
AWC/2005000323702/January 2008

Reinhard sold interests in a hedge fund using a private placement memorandum and subscription documents that contained false and misleading information. Reinhard also used a marketing brochure that failed to provide a sound basis for evaluating a potential investment in the hedge fund, and failed to explain that hypothetical returns did not reflect applicable fees and charges. The brochure compared hedge funds and mutual funds but presented an incomplete and unbalanced comparison of the two products, and failed to disclose Reinhard's firm's name. 

Reinhard entered into settlement agreements with investors that contained a confidentiality clause that required each of the investors to keep the terms of the release strictly confidential and contained no provision allowing the investors to discuss the settlement terms with FINRA and other regulators. 

Clark Alexander Reinhard: No fine in light of financial status; Suspended 10 weeks

Bill Singer's Comment: NASD Notice to Members 04-44: Settlement Agreements:Impermissible Confidentiality Provisions and Complaint Withdrawal Provisions in Settlement Agreements warns against using certain confidentiality provisions in settlement agreements with customers or other persons that impede, or have the potential to impede, NASD (now FINRA) investigations/prosecutions. Confidentiality provisions that prohibit or restrict the customer or other person from disclosing the settlement terms and the underlying facts of the dispute upon inquiry to NASD or other securities regulators, are deemed violations of NASD Conduct Rule 1220. Similarly, requiring customers to withdraw regulatory complaints fas a condition to settlement, or requiring customers to provide false or misleading affidavits that repudiate or otherwise contradict earlier factual claims made by such customers, is in contravention of FINRA rules. An acceptable statement provided by NASD in NTM 04-44 reads as follows:

Any non-disclosure provision in this agreement does not prohibit or restrict you (or your attorney) from responding to any inquiry, or providing testimony, about this settlement or its underlying facts and circumstances by, or before, the Securities and Exchange Commission (SEC), NASD, any other self-regulatory organization, or any other federal or state regulatory authority.

David Thomas Owen III 
AWC/2006007082901/January 2008

Owen borrowed $12,000 from a public customer in contravention of his member firm's written procedures prohibiting its registered representatives from borrowing money from customers. 

David Thomas Owen III: Fined $5,000; Suspended 10 business days.

Henry Paul Nemanich (Principal) 
AWC/#2005003468701/January 2008

Nemanich misused public customer funds, in that he wired $2,665,000 from the bank account for a limited liability limited partnership he controlled to his personal checking account, and used the proceeds contrary to the representations made to the customers in a private placement memorandum. Nemanich participated in private securities transactions, for compensation, without prior written notice to, and prior written approval from , his member firm. Nemanich borrowed $2.8million from an elderly customer and stopped making monthly installment payments on the loan. Nemanich failed to respond to a FINRA request for documents and information.

Henry Paul Nemanich (Principal): Barred

Daniel William Nay II
AWC/#2006005034801/January 2008

Nay participated in private securities transactions, for compensation, and failed to give written notice to, and receive written approval from , his member firm prior to engaging in the transactions. Nay borrowed $40,000 from a public customer in violation of his member firm's written procedures. Nay declined to appear for a FINRA on-the-record interview.

Daniel William Nay II

Marat Lerner
AWC/2006007508201/January 2008 

Lerner opened checking and savings bank accounts for fictitious customers through an affiliate of his member firm in order to meet monthly sales goals

Marat Lerner: Fined $5,000; Suspended 1 year

Bill Singer's Comment: And now for yet another example of how FINRA's institutional bias against smaller firms and individual reps (in favor of larger firms) politicizes the regulatory process and essentially corrupts it.  Please look at this January 8, 2008 FINRA Press Release; FINRA Fines 19 Firms a Total of $2.8 Million for Inaccurate Advertised Trade Volume InformationIn that highly publicized settlement, FINRA explained:

The firms' overstated trade volumes were made available to market participants by the service providers. The service providers also used the firms' inaccurate advertised trade volumes to compile rankings and reports, including reports that rank the most active broker-dealers by security.
.  .  .  .

[E]
ight firms were fined $200,000 each (Broadpoint Capital, Inc., CIBC World Markets Corp., Lehman Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., Needham & Company, LLC, Robert W. Baird & Co., Inc., Thomas Weisel Partners, LLC and UBS Securities, LLC). Six firms were fined $150,000 each (Bear, Stearns & Co., Inc., BMO Capital Markets Corp., Cowen and Company, LLC, Deutsche Bank Securities, Inc., Leerink Swann & Company, Inc. and RBC Capital Markets Corp.). Four firms were fined $50,000 each (Friedman, Billings, Ramsey & Co., Inc., Jefferies & Company, Inc., JMP Securities, LLC and Pacific Crest Securities, Inc.).

The fine for one firm, Piper Jaffray & Co., was reduced to $100,000 because the firm conducted its own extensive internal investigation and then voluntarily provided the results to FINRA.

So here's what riles me.  Not a single individual at those 19 firms seems to have been suspended and the big boys cited just get off with fairly modest fines.  What actually did those 19 firms do?  Well, to reduce it to basics, they lied about their trade volumes in order to gain higher rankings among their competitors, and those rankings are important market metrics.  What did Lerner do in the case cited in this squib?  He lied about the number of accounts he opened in order to meet a sales goal.  Seems to me that if Mr. Lerner was suspended for 1 year, then the 19 firms involved in the fictitious trade volume stats should have at least been suspended from advertising those stats for a year... you know, in accordance with FINRA's creative sanctioning that it imposed upon Loeb  and MidSouth just this month.  Oh, but then again, the 19 firms cited in the settlement are generally larger firms and I guess there is one set of sanctions for them and one set for everyone else.

John Richard Kuprianchik III 
AWC/2007008119001/January 2008

Kuprianchik exercised discretion in a public customer's account without the customer's and his member firm 's prior written authorization. Kuprianchik sent an email to the customer that contained statements or claims that were exaggerated and misleading regarding a securities purchase recommendation. 

John Richard Kuprianchik III: Fined $5,000; Suspended 60 days

William Edward Jones
AWC/#2007009038001/January 2008

Jones misappropriated $300 from his member firm 's parent corporation for his own personal use and benefit by using a corporate debit card without the corporation's knowledge or consent. 

William Edward Jones: Barred

Reginald M. Jones (Associated Person) 
OS/#2007008248801/January 2008

Jones created a score report that falsely indicated that he received a passing score on the general securities representative qualification examination when, in fact, he had not, and knowingly submitted the fictitious score report to his member firm . Jones told his member firm the false score report was legitimate following an initial FINRA inquiry but admitted at a subsequent on-the-record interview that he had created the false report.

Reginald M. Jones (Associated Person): Barred

Bill Singer's Comment: Just do me one favor--read the Curtis case and explain to me why Jones gets barred but Curtis gets a fine and 60 day suspension.  I'm just not getting the distinction that FINRA is making.  Jones lies about passing an exam, but the official record would clearly disclose that he had failed--so his firm should not have put him into registered capacity without confirming.  Curtis gets a subordinate to take her CE exam and unless someone squealed, how would the employer have known?  I'm not sure I understand the disparity in sanctions based upon the conduct at issue.
John T. Grady (Supervisor)
AWC/#2005003424801/January 2008

Grady performed supervisory duties that required principal registration prior to being registered with FINRA in that capacity. 

John T. Grady (Supervisor): Fined $20,000; Suspended 10 business days

Kenneth Mark Doolittle (Principal) 
OS/#E0120040052-03/January 2008

Doolittle caused his member firm to respond untimely to FINRA requests for information and willfully omitted material information from his Form U4 by failing to timely amend it. Doolittle permitted a registered representative of his member firm to engage in conduct for which registration was required while inactive due to failure to complete regulatory element continuing education

Kenneth Mark Doolittle (Principal): Suspended 3 months

Karen Denise Curtis 
AWC/#2005003511201/January 2008

Curtis delegated a subordinate in her office to complete the computer-based Firm Element Continuing Education program on registered representatives' behalf. 

Karen Denise Curtis: Fined $5,000; Suspended 60 days.

Bill Singer's Comment: I have so many mixed emotions about this case.  A straight reading of the facts seems to suggest that the subordinate was taking the exams for other RRs (plural). A professional athlete--say a baseball player--could cheat by taking steroids and makes lots of bucks and then a former Senator would investigate and advise against any criminal prosecution.  On, how this case reminds me of the "Newspeak" of Orwell's 1984.  Isn't it charming how the act of CHEATING on a mandatory test is euphemistically transformed through the magic of regulatory language into the delegation  to a subordinate of the completion of the test.  I can just imagine some over muscled pro athlete claiming that he didn't take steroids but simply delegated the task of fitness conditioning to a trainer with a syringe.  Omigod!  Am I really lecturing a regulator to do the right thing and get tougher?  Maybe I can delegate this task to someone else?

Follow-up (March 2008): Eureka!  We have an explanation!!  See March Press Release above.

Brandi Marcella Cobb
AWC/2006007544001/January 2008

Cobb made withdrawals totaling $5,000 from a public customer's personal checking account without the customer's knowledge, authorization or consent, using the funds for her own use and benefit. To facilitate the conversion, Cobb accessed the customer's account with an automatic teller machine (ATM) card she procured by forging the customer's name to an ATM replacement request application

Brandi Marcella Cobb: Barred

John Douglas Audifferen 
#C1020030095/January 2008 National Adjudicatory Council Sanctions on Appeal from Office of Hearing Officers decision

Audifferen 

  • willfully caused his member firm to extend credit impermissibly to a public customer's cash account and willfully benefited from his firm 's extension of credit to the customer;
  • personally extended credit to the customer;
  • impermissibly shared in the profits generated in the customer's account;
  • caused his firm to free ride in the customer's account in violation of Regulation T;
  • caused his firm to extend credit impermissibly in his own cash and margin accounts by paying for his securities purchases or for a margin deposit in the accounts with checks that were returned for insufficient funds, thereby willfully causing his firm to violate Regulation T; and
  • failed to disclose a customer complaint on his Form U4

This decision has been appealed to the SEC and the sanctions, other than the bar, are not in effect pending consideration of the appeal.

John Douglas Audifferen: Fined $9,665; Ordered to pay $7,835 in restitution to public customer; Barred in all capacities

Bill Singer's Comment: Here's how RRBDLAW.com reported the OHO aspect of this case in 2005:

John Douglas Audifferen
C10030095/June 2005


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

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

Fined $17,500; Barred

This case unintentionally opens an interesting window on the machinery of self regulation.  Note that a case involving the relatively small sum of $17,500 took some 31 months to traverse the distance from the OHO decision to that of the NAC's--and now is postured for appeal to the SEC, which will likely add around 12 more months of delay.  I investigated some additional facts of this case; namely, that the Complaint was first filed on November 7, 2003 and that the earliest transaction involved in the allegations was January 21, 2000.  

Consequently, it has taken NASD and now FINRA in excess of 8 years from the date of the first violation to finish that SRO's in-house adjudication of this matter -- and there will likely be at least another year before the appeal at the SEC has run its course.  Even giving some benefit of that timeframe to FINRA, say we only hold the regulator accountable from November 2003 when it finally filed its Complaint, we still consumed over 5 years of the SRO's time to this point.  

Frankly, that's just not acceptable from any perspective.  Keep in mind that the current war in Iraq began in March 2003.  I'm not injecting politics; just making an uncomfortable point. You add whatever cynical commentary strikes you as appropriate.  For now, I'll just mumble under my breath.  

Stanford Group Company 
AWC/2005002203701/January 2008

In connection with the offers and sales of certificates of deposit (CDs) a bank affiliate issued, it distributed sales literature that did not comply with FINRA advertising rules, in that it failed to disclose that the affiliation between the firm and the bank could create a conflict of interest in connection with its offers and sales of the bank-issued CDs. The brochures failed to present fair and balanced treatment of the risks and potential benefits of a CD investment, failed to contain the name of the firm using the materials and contained misleading, unfair and unbalanced information. 

Stanford Group Company: Censured; Fined $10,000

Pritchard Capital Partners, LLC 
AWC/2006003800501/January 2008

The Firm issued research reports, one of which failed to disclose adequately the valuation methods used to determine the price targets or to disclose risks that may impede achievement of the price targets for the profiled stocks. Most of the research reports failed to present required disclosures on the first page or to refer to which page the disclosures were found; and some of the research reports contained language that was conditional or indefinite in regard to certain required disclosure. The Firm distributed research reports to institutional customers that other member firms produced without including the current applicable disclosures as they pertained to the Firm.  

Pritchard Capital Partners, LLC : Censured; Fined $10,000

Bill Singer's Comment: FINRA raises an interesting point here, and you should make a note. Today, many firms forward to customers reports prepared by other firms ("first generation reports").  If you are going to "repackage" such first generation reports, you cannot simply rely upon the disclosures contained in those reports. Make sure that you review first generation reports to ensure that any conflicts or disclosures your firm is obligated to include in its own research reports are now noted in the materials you are using from others.
Multi-Financial Securities Corporation
AWC/2006004754301/January 2008

The Firm's supervisory systems and procedures were not reasonably designed to detect and investigate the nature and extent of a registered representative's private securities transactions. The Firm failed to detect the ongoing private securities transactions, to approve or disapprove the transactions, to supervise any approved transactions and to record them on its books and records. 

Multi-Financial Securities Corporation: Censured; Fined $12,000

Bill Singer's Comment: A most unhelpful regulatory report.  Since the Private Securities Rule is predicated upon the RR's first notifying the employing BD and obtaining prior written authorization, I'm not sure exactly what it is that FINRA found to be unreasonable systems/procedures.  Which is not to suggest that a BD may properly turn a deaf ear or a blind eye to apparent misconduct, but what exactly didn't this firm do that FINRA wanted it to do--or what is it that the firm did that wasn't adequate.  
Lehman Brothers Inc. 
AWC/2005003424802/January 2008

The Firm permitted an individual to perform duties that required registration as a principal prior to his being registered with FINRA in that capacity.

Lehman Brothers Inc.: Censured; Fined $50,000

I-TRADEdirect.com Corp. 
AWC/#2006003853701/January 2008

The Firm 

  • charged customer markups, markdowns or commissions that were not fair and reasonable;
  • failed to timely amend a Form U5 to report a customer complaint;
  • failed to timely file with FINRA reports of disciplinary actions that the firm took against representatives;
  • failed to timely report statistical and summary information regarding customer complaints;
  • failed to keep and preserve a separate file for all customer complaints and grievances in its OSJ;
  • failed to keep and preserve documents associated with the complaints and grievances;
  • failed to file any application for the approval of its material change in business operations prior to hiring additional registered representatives. 

Also, the Firm received securities from customers and held the securities for short time periods in violation of its Membership Agreement, and opened a branch office but failed to promptly notify FINRA of such action. The firm received checks from customers, but failed to prepare and maintain a blotter showing the received and forwarded checks. Moreover, the Firm failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations related to handling and reporting customer complaints, implementing material changes to its business operations and changes to its membership Agreement. Furthermore, the Firm's compliance system was not kept current, and its written supervisory procedures failed to address, or adequately address, requirements to file customer complaints and grievances, obligations to amend Forms U5 for customer complaints after receiving termination information and requirements to submit requests for material changes in business operations. 

I-TRADEdirect.comCorp. : Censured; Fined $60,000; Ordered o disgorge $865.17, plus interest, to public customers.

Bill Singer's Comment: If you read between the lines here, you'll see that it's not so much a case of not doing things, as it is a case of not "timely" doing things.  Frankly, this is just one of those cases that the firm's Compliance Dept. must be blamed for.  It drives most of us compliance/regulatory professionals nuts when a firm gets charged for violations because someone forgot to prepare a required record or failed to file something on time.  That type of miscue is sort of silly because the firm is disclosing the problems anyway (here disciplinary actions, customer complaints, customer funds, etc.) and not hiding the events.  Ultimately, it's a dollar and a day late--which FINRA will simply take as a layup.
Investprivate, Inc. nka DPEC Capital, Inc. 
AWC/#E102004050901/January 2008

A registered representative at the firm engaged in the options business, which was apparently not approved under the Firm's existing Membership Agreement.  Because conducting an options business was considered a material change in the firm 's business operations, the Firm was required to seek and receive prior approval through a Continuing membership Application from FINRA (the Firm did not so apply). Also, the Firm had no written procedures addressing the supervision of options transactions. 

Investprivate, Inc. nka DPEC Capital, Inc.: Censured; Fined $15,000

Bill Singer's Comment: This type of case always puzzles me.  I just don't understand how it happens.  An RR takes an order for an options trade, which the member firm doesn't have permission to handle, for which it has no WSP provisions, and for which the Membership Agreement lacks authorization.  As a lawyer who represents BDs, it is often an intriguing exercise to speak with the client and walk through the many, many steps that transpired with a trade like this and see how many lost opportunities there were for Compliance to catch this violation--or for any number of employees in Trading or Operations to sound the alarm. 
Green Manning & Bunch, Ltd. 
AWC/#2007007504001/January 2008

The Firm failed to retain all electronic mail communications relating to its business for a three-year period, and to maintain the communications for the first two years in an accessible place as the Securities Exchange Act of 1934 required. The Firm failed to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to achieve compliance with the requirements of SEC Rule 17a-4 and NASD Rule 3110 with respect to electronic communications related to the firm 's business. 

Green Manning & Bunch, Ltd.: Censured; Fined $35,000

Banc One Securities Corporation
AWC/#2006006064101/January 2008 

The Firm failed to establish and maintain a supervisory system, including written procedures, reasonably designed to review and monitor its fee-based brokerage business. The Firm offered a fee-based brokerage program called the ONE Investor Advantage to its customers, and while it informed its brokers that the program was appropriate for active traders who may find the program costs more economical than a standard commission paying account, the firm had no system or procedures reasonably designed to determine whether the program was appropriate for its customers

Banc One Securities Corporation: Censured; Fined $50,000; Ordered to  pay $46,231.53, plus interest, in restitution, to public customers

Bill Singer's Comment: A short but somewhat interesting case.  Many firms offer fee-based accounts but in recent years there has been growing criticism as to whether such an option is merely a subterfuge to jack up revenues on the backs of the unwary customer who thinks the flat price is a bargain--when, in fact, pay-as-you-go commissions are actually cheaper.  Here FINRA properly dismissed the likely explanation that "we told our salesforce that this was a good deal for active traders," when the member could not demonstrate an ongoing audit of the cost-effectiveness for the platform of clients actually using the program.  This strikes me as fair and reasonable regulation and a perfect example of a case providing helpful guidance.  Bottom line, if you are presenting alternate fee structures to your customers, make sure that you are monitoring the actual charges versus the "what if" scenario of your standard commission matrix.  Not only is it a sensible way to maintain good customer relations, but you will avoid having egg on your face when the regulator asks you to defend your marketing of the product as cheaper.

See the Fee-Based Account box in the Developing Trends matrix atop this page.

Hunter Scott Financial LLC and Peter Alex Gouzos (Principal)
AWC/#2006003702101/January 2008 

Acting through Gouzos, the Firm 

  • failed to file, or to timely file, with FINRA statistical and summary information relating to customer complaints received by the firm that were required to be reported under NASD Rule 3070;
  • failed to file, or to timely file, amendments to Uniform Applications for Securities Industry License or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5) disclosing the receipt of customer complaints or arbitrations;
  • did not effectively enforce the firm 's procedures regarding the prohibition on external email accounts;
  • failed to maintain and preserve certain of its electronic communications as SEC Exchange Act Rule 17a-4 required;
  • failed to implement a written training plan to achieve compliance with the Firm Element of the Continuing Education Requirements; 
  • failed to conduct an annual internal inspection of its OSJ's activities;
  • failed to prevent public customers from purchasing securities in accounts that were supposed to be frozen pursuant to Section 220.8(c) of Regulation T without having cash on deposit to pay for the purchases.

Hunter Scott Financial LLC and Peter Alex Gouzos (Principal): Censured; Fined $125,000 jt/sev.

Bill Singer's Comment: A classic kitchen-sink case for starting the New Year.  Highlights a number of 2007's regulator hot buttons and likely signals an ongoing focus: customer complaint policies, timely U4 updates, external email policies, and  preservation of email.
American Securities Group, Inc. and Paul Bouthillier Perkins (Principal) 
AWC/E072005008602/January 2008

Acting through Perkins, the Firm permitted an unregistered associated person to act as the firm 's chief compliance officer

The Firm

  • failed to timely update and amend its supervisory procedures to reflect that the task of reviewing correspondence, email and wire transfer information was delegated to registered principals at the firm 's offices of supervisory jurisdiction (OSJs);
  • published a Web site that did not meet the requirements of applicable securities laws, rules and regulations, in that the required information regarding money markets was missing, the Securities Investor Protection Corporation (SIPC) Web site address was missing, and the site contained unbalanced, incomplete and misleading information; and
  • failed to conduct an independent test of its Anti-Money Laundering (AML) program as its procedures required, and failed to provide AML training to all appropriate personnel. 

American Securities Group, Inc. and Paul Bouthillier Perkins (Principal): Censured; Fined $15,000 jt/several; Firm fined $25,000

I-TRADEdirect.com Corp., Eric David Arlt (Principal) and Brian Edward Sanders (Principal)  
AWC/#2005001745201/January 2008

The Firm sold preferred shares of its parent company based on a private placement memorandum (PPM) that contained inaccurate or misleading statements, in that the PPM failed to adequately distinguish between the parent company and the firm (creating the false impression that the parent company was regulated by the Securities and Exchange Commission (SEC) and FINRA. The business plan attached to the PPM failed to include the current or past financial information related to the parent company, as well as certain non-financial information, such as the parent company's products, services, goals and strategies, and thereby failed to provide prospective investors with a sound basis for evaluating the facts with regard to an investment in the parent company. The Firm made misrepresentations regarding past performance, and made an exaggerated and unwarranted claim or forecast. 

Acting through Arlt, the Firm 

  • represented to the Individual Retirement Account (IRA) custodian that the price of the parent company's preferred shares had increased in value since their initial issuance without informing the custodian that these valuations were arbitrary;
  • failed to establish and maintain a reasonable supervisory system to ensure due diligence in connection with the private placement and subsequent sales of the parent company's preferred shares to the public, and 
  • failed to maintain a reasonable system to train and supervise its representatives who solicited and sold the parent company's preferred shares. 

Finally, acting through Sanders, the Firm failed to conduct an adequate due diligence investigation in connection with the parent company's private placement in order to ensure that it did not contain inaccurate or misleading statements and miscommunications to potential investors. 

I-TRADEdirect.com Corp.: Censured; Fined $35,000; Fined $10,000 jt/sev with Sanders.

Eric David Arlt (Principal):Fined $25,000; Suspended 60 days in Principal capacity.

Brian Edward Sanders (Principal): Fined $10,000 jt/sev with I-TRADEdirect; Suspended 10 business days in Principal capacity.

Bill Singer's Comment: Given the financial stress on Wall Street these days, it is likely to assume that this scenario is capable of reproduction.  Many member firms are structured as the prime or significant asset of holding companies.  As such, it is critical to distinguish in all offering documents between the status and obligations of the parent and the subsidiaries or affiliates.  
MidSouth Capital, Inc. and Mark David Hill (Principal)
AWC/#2006004243001/2006003959801/January 2008

Acting through Hill, the Firm failed to supervise and record a registered representative's private securities transaction activities in the manner NASD Rule 3040(c) required. The Firm failed to record private securities transactions on its books and records and failed to report municipal securities transactions within the time period MSRB Rule G-14 prescribed. The Firm failed to adopt, maintain and enforce written supervisory procedures reasonably designed to achieve compliance with its trade reporting obligations under MSRB Rule G-14. 

MidSouth Capital, Inc.: Fined $40,000 ($25,000 jt/sev with Hill); Suspended 6 months from approving any private securities transactions involving a hedge fund and/or a private investment partnership formed and/or managed by a firm representative registered with FINRA.

Mark David Hill (Principal): Fined $25,000 jt/sev with Midsouth; Suspended 20 days in Principal capacity.

Bill Singer's Comment: Another hefty suspension against a member firm.  Clearly, FINRA has come out swinging.  See Loeb case immediately below.
Loeb Partners Corporation
AWC/#2006003769501/January 2008 

The Firm 

  • permitted an unqualified principal to supervise the conduct of the firm's research analyst;
  • issued research reports that were not approved by a registered principal's signature or initial as NASD rules required;
  • failed to adopt or implement written supervisory procedures reasonably designed to achieve compliance with NASD rules regarding the supervision of research activity and the approval of research reports;
  • engaged in a pattern and practice of reporting fixed income transactions late and over-reporting certain inter-dealer transactions to TRACE (supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable TRACE rules).

Loeb Partners Corporation: Censured; Fined $25,000; Suspended 30 business days from conducting any research analyst activities (including, but not limited to, issuing research reports); Must have one of the firm 's officers certify in writing to FINRA that it has i) reviewed its written supervisory procedures regarding supervision relating to research analysts and research reports, and Trade Reporting and Compliance Engine (TRACE) reporting, and ii) established systems and procedures reasonably designed to achieve compliance with the laws, regulations and rules concerning those matters within 60 days.

Bill Singer's Comment: 2008 starts off with a bang!  Here is a rare sanction against a member firm in which its research activities are suspended for 30 business days.  I simply can't wait to see similar teeth and bite when FINRA eventually investigates the major wirehouses' conduct in the packaging, selling, and marketing of all the subprime products.  Let's see if the recent tough talk about how Wall Street is regulated fairly--regardless of the size of the firm involved in the violation -- was sincere or just so much public relations fluff.  Frankly, I've have my money on the latter bet but would love to find out that my cynicism is no longer warranted.

 

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