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

2005
Continuing Education
see the NASD Continuing Education Rule

 

Millennium Brokerage, LLC
AWC/E9B2003041708/September 2005

The Firm allowed 

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

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

Censured; Fined $125,000

Gryphon Financial Securities Corp. (CRD #100420, Palm Beach, Florida) and Younis Zubchevich (Principal)
AWC/E072004006003/September 2005

Acting through Zubchevich, the Firm failed to 

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

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

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

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

Great Eastern Securities, Inc. and Alphonse Mekalainas, Jr. (Principal) 
AWC/ELI2002004801/September 2005 

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

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

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

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

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

Bill Singer's Comment: These types of violations drive me crazy. I mean, it's one thing for a BD and its ownership to do a cost-benefits analysis and decide to engage in a massive fraud because they think you can make millions and if they get caught it's only a fine and suspension. That's wrong, but at least you can sort of understand the mind-set involved. However, when a firm and its principals get whacked for minor compliance failures, you simply have to wonder. There are often a whole host of explanations and reasons for such miscues --- staffing problems, communication failures, etc. Nonetheless, as I previously noted, the regulators are making a point of checking up on your timely reporting of customer complaints.
Joe Manuel Fernandez (Principal) 
AWAC/C02050051/August 2005)

Fernandez learned that another registered representative of his member firm had 

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

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

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

Bill Singer's Comment: Oh, please.  How thoughtful of the "other" RR to complete the Firm Element on behalf of Fernandez.  I simply can't imagine why Fernandez failed to take any action.  If that's the version the NASD wishes us to accept, fine --- maybe there are other facts at work here that the regulator hasn't set forth and I'm being just a bit too cynical.
Zions Investment Securities, Inc. 
AWC/C3A050027/August 2005

The Firm

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

Censured; Fined $35,000

Multitrade Securities LLC
AWC/ C10050056/August 2005

Firm permitted a registered person to act in a capacity that required registration while that personís registration status with NASD was inactive due to his failure to complete the Regulatory Element of NASDís Continuing Education Requirement. Also failed to show the required time of receipt, entry, and/or execution of order tickets; and conducted a securities business while failing to maintain its minimum net capital after its debt to debt-equity ratio had exceeded 70 percent for a period greater than 90 days. 

Censured; Fined $13,500

MML Distributors, LLC
AWC/C11050015/July 2005

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

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

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

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

Bill Singer's Comment: Now here's one we don't see everyday.  Even though the Street tends to treat the unauthorized search of Web CRD as something "everyone does," this case shows that the NASD may no longer be willing to turn a blind eye --- let's see if this is the start of a trend.
The Lugano Group Incorporated, Harold Emanuel Doley, III (Principal), and Amir Mireskandari (Principal) 
AWC/C05050027/July 2005 

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

Acting through Doley, the Firm failed to 

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

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

The Lugano Group Incorporated
Fined $25,000 ($20,000 joint and several with Doley and $5,000 joint and several with Mireskandari); Firm will provide no research services to its clients for two years and will retain an outside consultant to review and make recommendations concerning the adequacy of the firmís current polices and procedures. 
Harold Emanuel Doley, III
Fined $20,000 joint and several with Lugano Group; Suspended 10 business days in all capacities; Suspended 2 months in principal capacity 
Amir Mireskandari
Fined $5,000 joint and several with Lugano Group); Suspended 10 business days in all capacities
Bill Singer's Comment: The sanction of no research services for 2 years is a restriction I suspect we'll be seeing more and more of in months to come. Still --- how come we didn't see such teeth when the NASD when after the Big Boys for their research lapses? Anyone recall a major BD being prohibited from issuing research for 2 years?
Monex Securities, Inc. 
AWC/C10050012/May 2005

Monex Securities 

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

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

First Global Securities, Inc. and Noble Bradford Trenham (Principal)
AWC/C02050026/May 2005 

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

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

Acting through Trenham, the firm 

  • permitted registered persons to act in capacities requiring registration while their NASD registrations were deemed inactive due to their failure to complete timely the Regulatory Element of NASD's Continuing Education requirements; and
  • failed to develop and maintain a continuing and current education program for its covered registered persons. 
First Global Securities, Inc. Censured; Fined $28,500 joint/several with  Trenham Noble Bradford Trenham Fined $28,500 joint/several with firm; Suspended 30 business days in all capacities 
Bill Singer's Comment: By now it should seem apparent to all industry Compliance/Legal staff that NASD is no longer giving a wide berth to Principals. We are seeing increasing numbers of cases holding Principals personally liable, and imposing fines and suspensions.
Redwood Securities Group, Inc. and Aditya B. Mukerji (Principal)
OS/C01040024/May 2005

Redwood Securities Group, Inc. allowed Mukerji to engage in securities activities, earn commissions, and review and approve securities transactions in his capacity as a registered principal of the firm when he was inactive for failing to fulfill his continuing education requirements. Acting through Mukerji, the firm 

  • allowed another individual to perform Financial and Operations Principal (FINOP) duties and submit monthly FOCUS reports as the firmís FINOP when both the individual and Mukerji were inactive, and
  • failed to establish, maintain and enforce an adequate written supervisory control system reasonably designed to ensure compliance with the Regulatory Element of NASD's continuing education requirements. 

Redwood Securities Group, Inc. and Aditya B. Jukerji were Censured and Fined $16,000 joint/several

Magellan Securities Inc. and Terry Michael Laymon (Principal) 
OS/C8A030081/April 2005

Magellan Securities permitted Laymon to 

  • be associated as its president and sole owner (capacities requiring him to act in a principal capacity) while he was subject to ďdisqualificationĒ as defined in Article III, Section 4 of NASD Bylaws; and 
  • perform duties as a general securities principal while his registration status with NASD was inactive due to his failure to complete in a timely matter the Regulatory Element of NASDís Continuing Education Requirement. 

Acting through Laymon, the Firm failed to 

  • qualify and register as a person associated with the firm, a financial and operations principal, or an introducing broker-dealer financial and operations principal; and  
  • to file 3070 reports disclosing reportable events and failed to amend Form BD and Form U4 to report these disciplinary actions.

Laymon intentionally, recklessly, or negligently created false account statements with incorrect or inflated valuations to induce a public customer to continue to maintain accounts with the firm. He also failed to respond completely and timely to NASD requests for information. 

Magellan Securities was Expelled

Terry MIchale Laymon was Barred

Nexus Financial, Inc. 
AWC/C3A050007/March 2005

The Firm permitted individuals to function in a principal capacity while their registrations were inactive for failing to sit for the Regulatory Element of the Continuing Education requirement by the specified date. The Firm failed to establish and maintain supervisory procedures, written or otherwise, reasonably designed to achieve compliance with rules pertaining to Regulatory Element Continuing Education. 

Nexus Censured and Fined $15,000

GunnAllen Financial, Inc. and Stephen Irvin Saunders, IV (Principal)
AWC/C07050004/March 2005

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

Acting through Saunders, the Firm failed to 

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

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

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

Brian Patrick Taggart
AWC/C10040129/February 2005

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

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

Bill Singer's Comment: I'm not quite understanding the sanction here.  Look at the Raymond case, for example.  Taggart must have had a superb lawyer.

Thor Capital LLC and Peter Kambolin (Principal)
OS/C10040092/February 2005

Acting through Kambolin, Thor Capital failed to 

  • maintain the required minimum net capital while conducting a securities business; and

  • comply with the Regulatory Element of the Continuing Education Requirement and allowed registered representatives to engage in securities related business at the firm while they were inactive for failure to complete the requirement. 

Thor Capital and Kambolin were Censured and Fined $10,000, jointly and severally

Harrison Securities, Inc., Frederick Clark Blumer (GSP), and Raymond Alan Leventhal (GSP)
AWC/CLI040039, CLI040040, CLI040042/February 2005

Acting through Blumer and Leventhal, Harrison Securities failed to 

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

Harrison Securities and Blumer: 

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

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

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

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

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

Bill Singer's Comment: I'm into my third decade on Wall Street and, frankly, I'm not sure I can recall too many regulatory cases that presented a more panoramic range of violations.  To that extent, this decision is impressive.  


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