NOTE: Stipulations of Fact and Consent to Penalty (SFC) 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.

2009

FINANCIAL INDUSTRY REGULATORY AUTHORITY
FINRA
NEW YORK STOCK EXCHANGE CASES OF NOTE 

VISIT WALL STREET'S LEADING ONLINE COMMUNITY
BrokeAndBroker.com

DEVELOPING ENFORCEMENT TRENDS AS NOTED BY BILL SINGER

Between January 2003 and March 2004 (the “relevant period”), while employed at Baseline Securities Inc. and LaBranche Financial Services, Inc. (“LFSI”), institutional sales representative Cronin engaged in an undisclosed outside business and profit- sharing arrangement with a third party, whereby Cronin would refer customers to the third party for NASDAQ trading in exchange for 50 percent of the after expense profits. During the relevant period, Cronin received monthly payments of between $60,000 and $100,000. Cronin never made a written request or received the prior written approval of LSFI to engage in this profit-sharing arrangement. When the profit-sharing arrangement ended, Cronin received a payment of $950,000 as compensation for lost profits. Subsequently, in connection with an NYSE Enforcement investigation, Cronin was asked to provide testimony concerning his outside business activities. Cronin made material misstatements in testimony to NYSE Enforcement about the profit-sharing arrangement and about the $950,000 he received. Further, in October 2004 Cronin made misstatements to his member firm employer, LFSI, on a questionnaire concerning his business relationship with another individual. 

Violated NYSE Rule 

• 346(b) by engaging in outside business activity by entering into profit-sharing arrangement with third party without making written request and receiving prior written consent of member organization employer; 
• 476(a)(4) by making material misstatements to NYSE; 
• 476(a)(6) by engaging in outside business without approval of member organization employer, making material misstatements to Exchange and making material misstatements to member organization employer about business relationship. 

Steven Lloyd Cronin: Censure, $50,000 fine; 4 month suspension, and 

In or about January 2003, while dually employed with Baseline and LFSI, Cronin assisted BS to start an NASDAQ trading desk (the “S Group”) with a separate self-clearing broker-dealer that was engaged in proprietary trading and securities execution. Cronin referred clients, including three Direct Access clients of LFSI, to the S Group. In January 2004, the S Group joined B Trading Inc. (“B Trading”) and in March 2004, Cronin’s profit-sharing arrangement with the S Group came to an end. To compensate Cronin for future lost profits, B Trading agreed to pay Cronin $950,000, which was predicated upon future revenue projections of the S Group. In order to conceal the true purpose of this payment, Cronin and B Trading entered into an agreement stating that the payment was for Cronin’s past and future consulting services (“consulting agreement”)

On Appeal, Individual Disciplined for Sales Practice Violations Gregory W. Gray, Jr. Hearing Board Decision: 08-003 07 Jan 2009

Gregory W. Gray, Jr. (“Respondent”), a former registered representative with Quick & Reilly, Inc. (“Quick & Reilly”) and H&R Block Financial Advisors (“H&R Block”), both member organizations, was charged with having: 

I. Violated NYSE Rule 476(a)(6) by engaging in conduct inconsistent with just and equitable principles of trade, in that he effected unauthorized trades in the accounts of one or more customers. 

II. Violated NYSE Rule 476(a)(7) by engaging in acts detrimental to the interest or welfare of the Exchange in that he threatened and/or harassed one or more complaining customers and/or their family members. 

The Charge Memorandum specifically identified two instances in which Respondent was alleged to have executed trades in the accounts of Customers A and B without the prior authorization of those customers. In his Answer, and at the hearing, Respondent admitted to having executed the unauthorized trade in Customer B’s account. Respondent testified that he purchased $150,000 in shares of XYZ for Customer B’s account so that he could “park” the shares until they could be transferred into the account of the customer for whom they were originally intended. Respondent stated that he was not able to purchase the shares for that customer directly because the customer’s account was restricted and Respondent’s supervisor had refused to authorize the trade, but he he believed his supervisor would later change his mind and approve the trade. The Hearing Panel accepted Respondent’s admission regarding the unauthorized trade in Customer B’s account. 

Respondent denied that the trade in Customer A’s account was unauthorized. He testified that Customer A authorized the purchase of $100,000 in shares of ABC for her son’s custodian account, but later changed her mind when she learned that her father, on whom she relied for investment advice, disapproved of the purchase. When Customer A complained, he immediately sold the shares without charging Customer A a commission. Given Customer A’s history of trading inactivity, lack of sophistication regarding securities issues and conservative investment objectives, the Panel did not credit Respondent’s testimony that Customer A had agreed to such a large purchase of shares in a closed end fund that she did not understand. 

The Panel took Respondent's admission of parking in Customer B's account and its finding of unauthorized trading in Customer A's account, and found Count I sustained.

Count II alleged that Customers A, C and D made complaints about Respondent to Quick & Reilly and H&R Block, Respondent called those customers and their family members and made threatening and harassing remarks in an effort to cause them to withdraw their complaints. Testimony from  Customer A, Customer D’s son and Respondent’s former supervisor at H&R Block was presented at the hearing. The Panel found Respondent guilty on Count II.

The Board affirmed the Hearing Panel's sanctions.

Gregory W. Gray, Jr.: Censured; Barred for 3 years from membership, allied membership, approved person status, and from employment or association in any capacity with any member or member organization.

In considering Charge II, the Hearing Panel found the similarities among the experiences of the three unrelated complaining customers to be significant. In the case of each complaining customer, the evidence and testimony presented by Enforcement documented Respondent’s inability to handle customer complaints in an appropriate or professional manner. The Panel found Customer A’s testimony regarding the menacing message left on her answering machine to be credible, and also credited the testimony of Customer D’s son that he felt threatened by Respondent’s comments regarding the making of a false accusation against him. In addition to the credible testimony and the police reports filed by two of the customers, Respondent admitted yelling at both Customer C and Customer D’s son. 

Respondent claimed that his actions were justified. The Panel finds no justification for Respondent’s actions. The frequency and tone of the telephone calls Respondent placed to these three customers and their family members were unreasonable and inconsistent with the behavior that is expected of a registered representative. While the Panel recognizes that there will inevitably be disagreements and even conflicts between registered representative and their customers, there are procedures within the firms and the self-regulatory organizations to resolve them. Yelling, cursing, harassing and threatening are inappropriate and unprofessional – especially, as here, when such behavior is repeated – and constitute acts detrimental to the interests of the NYSE, which requires that customers be treated with respect, even during difficult times.