Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2011
NOTE: Stipulations of Fact and Consent to Penalty (SFC); 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 & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.
Scott Davis Johnson (Princiipal)
AWC/2009018077101
Johnson was employed with a state-registered investment adviser company and after learning that performance values being reported in monthly statements to investors were inconsistent with actual performance figures to investors, he continued to forward monthly statements to investors when requested to do so. After discovering that the gain/loss values reported in the monthly statements were inconsistent with actual performance of the funds, Johnson questioned the investment adviser company’s president, who falsely stated that the statements reflected personal monetary contributions he made to the funds in the form of waived management fees. Johnson continued to forward the statements to investors without informing the recipients that the performance values represented “adjusted” values, and without attempting to confirm whether the investment adviser company’s president was actually making monetary contributions.
Scott Davis Johnson (Princiipal): Fined $5,000; Suspended 4 months
Tags: Hedge Fund  RIA  
Bill Singer's Comment

Solely based upon the explanation in FINRA's squib, I don't like the outcome here. It seems that Johnson "suspected" that something was wrong (in contradistinction to "knowing for certain") and asked the RIA's President for an explanation, which was given to him suggesting that there was a waived fee that had altered the reported numbers.  FINRA records note that Johnson had no role whatsoever in preparing the reports at issue.

FINRA records suggest During the period from September 2004 through October 2008, Johnson was employed by a Louisiana-registered investment adviser company, Greenwing Securities, Inc. ("GSF'), which served as the general manager of three hedge funds, and Johnson's job responsibility was to assist GSI's president (who made the misrepresentations at the heart of this matter) in managing the investment portfolio of one of the three hedge funds. In June 2007, Johnson became associated with NWT Financial Group, LLC ("NWT") and registered with FINRA as a General Securities Principal, a General Securities Representative, and a Registered Options Principal. With the approval of NWT, Johnson continued in his employment with GSI while associated with NWT.

Barring more, I'm not understanding how Johnson's query and subsequent conduct warrant a $5,000 fine and a four-month suspension.  If there is a stronger case here, and FINRA may well have one, then the regulator needs to spell out more specifics.

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