The Firm failed to

• create and maintain adequate records of customer complaints,
• report timely statistical and summary information concerning the complaints, and
• timely report the settlement of one of the complaints.
• timely update a registered person’s Uniform Application for Securities Industry Registration or Transfer (Form U4) upon learning of the facts and circumstances giving rise to the amendments.
• implement its own heightened supervisory procedures with respect to registered representatives on heightened supervision.

When establishing its heightened supervision procedures, the firm decided to exclude brokers on heightened supervision from its monthly surveillance report; accordingly, the activities of the registered representatives under heightened supervision were not shown. The special supervisor designated to manually review all trades of registered representatives on heightened supervision for suitability and excessive trading relied on his manual review when determining which accounts should be reviewed and contacted “for cause,” rather than choosing clients at random and with cause based on trading activity. FINRA found that this was inadequate because the manual review failed to identify numerous accounts that had turnover ratios in excess of six times the average equity annualized.

Abbott maintained personal margin accounts at his member firm and met initial margin calls in his personal margin accounts by liquidating the position that created the margin call because he did not have sufficient equity in the account to pay for the securities purchased on margin, nor did he deposit sufficient funds to meet the margin calls.

Abbott placed an unauthorized short-sell order of a company’s stock, at a total cost of $90,331.71, in a customer’s account, and the trade was marked “unsolicited” although the customer had not authorized a short sale of the stock or any other specific transaction. Abbott maintained that he made an error and meant to enter an order for a short sale for a smaller number of shares, but the customer did not authorize this trade transaction either. The Firm cancelled the transaction, resulting in a market loss of approximately $20,000, which the firm absorbed.

In connection with joint accounts he held with his relative at the firm, Abbott knowingly entered information that overstated his net worth and annual income on new account forms. Abbott entered the false information on the new account forms so he could engage in trading activity the firm would not have allowed if he disclosed his true net worth and annual income. In addition, Abbott’s actions resulted in the creation of false books and records.

Schmelzer failed to fulfill his supervisory responsibilities over the activities of a registered representative under his supervision at his member firm. The registered representative recommended that his insurance business customers participate in a Stock to Cash program, offered by a third-party entity under which customers would pledge stock to obtain loans to purchase other products; and the representative’s customers, including clients of the firm, participated in the program at his recommendation, obtaining loans of more than $4.2 million in the aggregate.

Schmelzer failed to ensure that the registered representative promptly disclose his participation in the program to the firm, and failed to ensure that the registered representative promptly disclose to his firm his recommendations that his customers utilize the program, even after he learned that the representative had ignored his prior instruction to make such disclosure. As a result of Schmelzer’s supervisory deficiencies, the representative engaged in conduct that the firm deemed inappropriate and which potentially put the firm’s clients’ assets at risk.

Kurtz created a false document, which he labeled a “Contract Investment Summary,” that showed a balance of $9,193.36 in an account when the actual value at the time was less than $500, and placed his firm’s logo on the document without the firm authorizing his use of either the form of the document or the information contained in it. The false document was an intentional misrepresentation of the value of a 529 plan account established for Kurtz’ relative’s benefit.

Kurtz used the document when an opposing counsel in Kurtz’ divorce case informally, not as part of the divorce proceeding, inquired about the value of the 529 plan account, and Kurtz may not have had an obligation to respond to the inquiry.

Kurtz had withdrawn funds from the account to pay for household expenses and provided the document to the counsel in a manner that suggested that it was an authentic and official document of his firm.

Much recommended that his customers participate in a “Stock to Cash” program under which customers would pledge stock to obtain loans, the proceeds of which were, in many cases, used to purchase non-securities insurance products; and some of Much’s customers participated in that strategy at his recommendation, obtaining loans of more than $4.2 million. Much failed to conduct adequate due diligence concerning the operations or financial stability of the Stock to Cash program lender, and failed to take sufficient action to determine whether his clients’ ownership interest in the pledged securities was adequately protected. Much did not understand the potential risks inherent in the strategy and therefore did not have a reasonable basis for his recommendations.

Much engaged in private securities transactions through his marketing of the program, and he failed to notify or seek his member firm’s approval before engaging in these transactions. Much’s supervisor directed him to disclose his participation in the program to the firm, and despite this direction, Much failed to provide notification until the day that his supervisor’s annual branch examination began, and still continued to recommend transactions in the program while the firm was reviewing his participation. The firm’s sales practice unit told Much that he was not allowed to recommend Stock to Cash transactions.

Despite the requirement that it monitor compliance with the requirements of the Bank Secrecy Act, 31 USC 5311, et seq., and the regulations promulgated thereunder, and despite a previous regulatory sanction by FINRA, the firm, acting through Haggarty, continued to fail to conduct and evidence an independent test of its AML program.

The firm failed to create a required report, which a principal or principals must submit to its senior management at least annually, detailing each member’s system of supervisory controls; a summary of test results to determine whether its supervisory procedures are reasonably designed with respect to the firm’s and its registered representatives’ and associated persons’ activities, to achieve compliance with applicable securities laws, regulations and rules; and significant identified exceptions and any additional or amended supervisory procedures created in response to the test results.

The firm failed to prepare and execute a Chief Executive Officer (CEO) certification confirming that the firm has processes in place to establish, maintain, review, test and modify written compliance policies and supervision procedures reasonably designed to achieve compliance with applicable FINRA rules, Municipal Securities Rulemaking Board (MSRB) rules and federal securities laws and regulations; and that the CEO has conducted one or more meetings with the chief compliance officer in the preceding 12 months to discuss such processes.

Donnelly Penman & Partners: Censured; Fined $10,000; Fined an additional $10,000 jt/sev with Haggarty

Charles Kirk Haggarty (PrincipalCensured; Fined $10,000 jt/sev with Donnelly Penman

Acting through Rooney, Fox Financial

• sold zero-coupon bonds to customers and negligently omitted material facts concerning the fund’s manager, who the State of Texas had charged with forgery of a financial instrument, and was sentenced to five years deferred adjudication and had been the subject of a Temporary Order of Prohibition for selling unregistered securities by the State of Illinois;
• sold zero-coupon bonds to customers that were secured by interests in life insurance policies, and limited liability companies, which Rooney controlled and were affiliated with the firm, issued the bonds, and negligently omitted material facts to customers relevant to the criminal records of the bonds’ manager and owning companies.
• participated in private placement offerings of zero-coupon bonds limited liability companies issued, and each of the offerings claimed an exemption from registration under the Securities Act of 1933; however, the offerings were not separate and distinct, and were, therefore, subject to integration, and to the securities registration requirements of public offerings.
• sold zero-coupon bonds, failed to establish a proper escrow account by using a limited liability company not chartered as a bank as the escrow agent, and falsely represented that customer funds would not be commingled.

Rooney failed to detect that customer funds had been commingled because he had neglected to obtain copies of the escrow account statements and to maintain such statements among the firm’s records.

The firm’s test of its system of supervisory controls was flawed because it failed to include a review of its private placement business, and Rooney stated in his annual certification of compliance that the firm had established and maintained policies and procedures reasonably designed to ensure compliance with FINRA rules. In addition,the firm failed to evidence its supervision over Rooney, in that Rooney was the only principal who had signed Subscription Agreements indicating approval of the customer’s investment in an offering.

Fox Financial Management Corporation: Censured; Fined $40,000

James Edward Rooney Jr. (Principal): Fined $20,000; Suspended 15 business days in Principal capacity only

Marasco overstated his trading volume in separate securities and caused reports of purchase and sale transactions to be published or circulated when each such purchase or sale transactions were not bona fide purchases or sales of such security. Marasco was responsible for entering orders, executing trades, and determining the quotations at which his firm would buy and sell securities in the health care and biotech sector. Marasco entered buy and sell orders into his firm’s trading platform, and then entered orders on the opposite side of the market for approximately the same number of shares, which executed against one another, resulting in separate transactions being executed against one another, creating non-bona fide market activity in the securities. Each of these separate transactions was publicly reported to NASDAQ through the Automated Confirmation Transaction Service and disseminated to the public.

Marasco’s firm advertised trading volume in order to, among other things, attract customer order flow using private service providers, and Marasco’s advertised trading volume from entering orders that executed against one another accounted for more than 90 percent of his firm’s advertised trading volume in some securities and more than 50 percent of the firm’s advertised trading volume in separate securities.

Acting through Hernandez, Global Strategic failed to:

• adequately implement or enforce its anti-money laundering (AML) compliance program, and to otherwise comply with their AML obligations, by failing to identify and analyze numerous transactions to determine if they were, in fact, suspicious and were required to be reported on a Suspicious Activity Report (Form SAR-SF), and
• establish and implement customer identification procedures (CIP) for verifying a customer’s identity.

The Firm and Hernandez permitted foreign customers to deposit funds into their accounts and, within days and/or weeks, disburse funds from their accounts to first and third parties, and in certain instances in amounts slightly below $10,000; although one customer told Hernandez he did this to avoid questions from his bank, the firm and Hernandez permitted the activity to continue and did not file a Form SAR-SF until approximately one year after the activity occurred.

Global Strategic Investments, LLC: Censured; Fined $150,000 

Cesar Gabriel Hernandez: Fined $25,000; Suspended 3 months in Principal capacity only

In his capacity as the president of a member firm, Smith failed to reasonably supervise a firm registered principal.

Smith did not take steps to inquire into red flags indicating the registered principal’s possible misconduct, and failed to follow-up on the registered principal’s outside business activities and excessive absences from the firm. Smith subsequently failed to timely investigate allegations that the registered principal was participating in private securities transactions away from the firm, and once the firm confirmed the selling away activities, Smith, in his capacity as president, took no steps to place the registered principal on heightened supervision.

Registered Sales Assistant Himes violated her member firm’s policies and procedures when she facilitated day-to-day interactions between a registered representative’s customers and a non-FINRA regulated investment group outside of her firm that operated as a commodity pool. Himes failed to disclose these activities to her member firm even though firm policies and procedures required her to do so. Himes failed to use the firm’s email system on numerous occasions when communicating regarding the firm’s business and customers as her firm required to meet its requirements under Section 17(a) of the Securities Exchange Act of 1934 and SEC Rule 17a-4.

At another registered representative’s direction, Himes communicated with the commodity pool using non-firm email addresses and relayed messages from the representative that specifically advised customers not to use firm email addresses for communications regarding the commodity pool.

Himes engaged in this conduct to prevent the firm from detecting that she and the representative were involved with the commodity pool, causing the firm to fail to retain certain email communications relating to its business.

Serrano entered into a formal “Advisor Agreement” with a financial public relations firm. The findings stated that the website issued press releases recommending specific securities to the public, with the releases implying that the recommendations were made by Serrano, whom they identified by name and CRD number as a registered person the website employed.

Serrano failed to provide written notice of this outside business activity to either of the member firms through which he was registered, and signed a disclosure document in which he specifically and falsely denied that he was engaging in any outside business activity. Serrano acknowledged in a letter to FINRA that he had failed to disclose his outside employment to his member firms and conceded in on-the-record testimony that he was obligated to disclose the outside activity to both firms.

Kim changed customer telephone numbers to report inaccurate information, without the customers’ knowledge or authorization; and by making the changes to customers’ contact profiles, he caused the firm to create and maintain inaccurate books and records in the firm’s client account information system. Kim was aware that his firm’s policies prohibited its employees from making false and misleading entries in its books and records.

Kim subsequently admitted that he made the changes to the customer account information based on the instruction of senior members of his working team, in preparation for their departure from the firm. The findings also included that the firm immediately terminated Kim’s employment.

Shaw violated his member firm’s policies and procedures when he recommended that certain customers invest in a non-FINRA regulated investment group outside of his firm that operated as a commodity pool, and facilitated the day-to-day interactions between certain customers and the commodity pool without providing his firm with written notice. Shaw used, and directed others in his office to use, unapproved email addresses that prevented the firm from reviewing communications regarding his activities.

The commodity pool was exposed as a Ponzi scheme and most of Shaw’s firm customers lost a total of approximately $660,000 of their investments. Shaw failed to use the firm’s email system on numerous occasions when communicating regarding firm business, and its customers and the firm relied on his compliance to meet its requirements under SEC Rule 17a-4. Shaw directed certain of his staff to communicate with the commodity pool using non-firm email addresses and advised customers not to use firm email addresses for communications regarding the commodity pool in order to prevent the firm from detecting his involvement in the commodity pool. In addition, Shaw caused his firm to fail to retain certain email communications related to its business.

Shaw failed to fully and completely respond to a FINRA request for documents and information.

Associated Person Reed participated in a scheme that involved causing fraudulent checks to be issued and drawn from her member firm’s bank account. In connection with the scheme, Reed prepared fraudulent check requests and disbursed numerous checks drawn on her firm’s bank account in various amounts under $1,000 and totaling over $290,000. The checks were made payable to entities that did not provide services to her firm; this was done under the guise that the entities were firm-authorized transfer agents and the payments were for related fees.

Reed’s coworker provided her with fictitious billing invoices from such entities and, in turn, Reed initiated check requests through the firm’s computer system to pay the fictitious fees; the check requests were processed and approved, and the checks issued and delivered back to the securities processing area where she worked.

Upon receipt of the checks, Reed gave the checks to her coworker, who provided them to a third party not employed by the firm; in return for initiating and processing the fictitious check requests, Reed received periodic cash payments from her coworker, totaling an estimated $10,000, for her own personal use.

The firm became aware of this matter when the New York City Police Department contacted it regarding an individual (a non-firm employee) who was taken into custody in an unrelated matter; the individual was in possession of certain of the firm checks issued as a result of the scheme. In addition, the firm investigated the matter, including questioning Reed, who admitted that she engaged in the above-referenced conduct; the firm then terminated Reed’s employment.

While acting as his member firm’s Anti-Money Laundering Compliance Officer (AMLCO), Diemer failed to

• implement policies and procedures reasonably designed to detect and cause the reporting of suspicious transactions, and
• detect, investigate and/or file SARs as appropriate, on occasions when “red flags” of suspicious activity were present.

The Firm is an introducing firm that maintains “piggyback” arrangements with foreign broker-dealers and executes their transactions with a clearing firm. Many of these suspicious activities occurred in accounts of foreign broker-dealers with whom the firm had a piggyback relationship, and Diemer failed to conduct an adequate investigation into these activities and did not file as appropriate, any SARs.

Finally, Diemer failed to appear for a FINRA on-the-record interview.

The Firm acted as the sole placement agent for contingent offerings and failed to ensure proper control of investors’ funds by sending them directly to the issuer, and also neglected to promptly transmit customers’ checks.

Further, the firm failed to

• meet the minimum contingency by a contingent offering’s termination date,
• break escrow for a contingent offering until after the termination date,
• amend the offering and offer each investor rescission or reconfirmation to continue with the offering, thereby willfully violating SEC Rule 17a-3(a)(2) and NASD Rule 2110,
• book liabilities associated with its expense sharing agreement,
• enter into an adequate expense sharing agreement with its affiliate, and
• properly accrue liabilities, so it operated in net capital deficiency.

Gissendaner engaged in private securities transactions when he sold ULPs in various resort properties to investors. Gissendaner participated in a sale of a total of $172,989.23 worth of ULPs to investors and received approximately $15,380 in commissions from the sales. Prior to participating in these sales, Gissendaner failed to provide his member firm with written notice of the sales of ULP products, and failed to obtain the firm’s written approval. Gissendaner completed his firm’s Outside Business Activities/Private Securities Transactions form, and submitted his firm’s Annual Compliance Questionnaire and stated that he had no outside business activities or private securities transactions to report, and that he had not engaged in any private securities transactions while associated with the firm.

FINRA found that Gissendaner also falsely answered “No” when he was asked whether he accepted compensation from any person or entity that was not a firm-approved arrangement or that was not disclosed on his Outside Business Activities Questionnaire.

Lau sold preferred stock through a private placement while not appropriately registered to sell that product.

Lau informed a customer about a private offering of preferred stock in a company, stating that he intended to invest in the company, and provided the customer with brochures, disclosure documents and an application, including a subscription agreement, to invest in the company. The customer completed the application for a $300,000 investment in the company and returned it to Lau. Because Lau knew that he was not appropriately registered to sell the product to the customer, he asked his supervisor to sign the subscription agreement as the selling representative.

The supervisor agreed and signed the subscription agreement, and submitted the application, including the subscription agreement, to the member firm for processing. The firm approved the investment and executed the transaction; and, as such, Lau caused the firm’s books and records to be inaccurate by having his supervisor sign the subscription agreement as the selling representative.

Moss participated in the sale of $50,000 worth of Universal Lease Programs (ULPs) without prior written notice about the sale to his member firm and his firm’s prior written approval.  He earned approximately $6,000 in commissions from his sale of the ULP.

Moss participated in sales of

• payphone programs totaling $65,000,
• an automatic teller machine (ATM) program totaling $48,000 with an additional $2,400 for surety bonds

to members of the public and failed to provide his firm with written notice about the sales and never obtained the firm’s written approval.

Moss initialed and signed business activity statements in which he agreed that he was aware that his firm must be notified of all his business activities, even those that did not relate to the securities industry; these statements were incomplete and misleading because Moss failed to disclose his participation in the sales of the ULP, the payphone program and the ATM program.

As his member firm’s AMLCO, Kobin failed to

• implement policies and procedures reasonably expected to detect and cause the reporting of transactions required under 31 USC 5318(g) and implementing regulations;
• provide AML training for firm personnel, failed to adequately review customer activity for compliance with AML rules and to adequately review suspicious activity and file timely SARs where appropriate;
• fulfill his responsibility to access the Financial Crimes Enforcement Network (FINCEN) of the United States Department of Treasury to review requests for information, under Section 314(A) of the USA Patriot Act, relating to possible money laundering or terrorist activity;
• search firm records to determine whether the firm maintained, or had maintained, any account for, or had engaged in any transactions with, any individual, entity or organization named in FINCEN’s requests.

As a result of the firm’s inadequate AML program, the firm, acting through Kobin, failed to timely detect, investigate and report suspicious activity to achieve compliance with the Bank Secrecy Act.

Kobin failed to

• identify red flags in connection with suspicious account activity, did not timely investigate or review the red flags, and caused his firm’s failure to timely report the suspicious activity;
• implement the firm’s procedures for suspicious activity detection and reporting, monitor and investigate approximately $6 million in suspicious wires to and from one of its branches,
• detect and timely report suspicious activity and maintain documentation evidencing a review for suspicious activity of securities transactions, money movements and securities transfers;
• ensure that a designated principal review and approve all correspondence to and from branch offices, including electronic correspondence.
• failed to properly create, maintain and timely file records and reports of customer complaints, and failed to timely update Forms U4 and Forms U5 relating to persons who were registered with FINRA through his firm in his capacity as his firm’s Chief Compliance Officer (CCO), .
• take adequate steps to comply with the Firm Element of the Continuing Education Requirement and, as a result, his firm did not conduct the required annual needs analysis or develop a written training plan.
• ensure that each registered person was clearly assigned to an appropriately registered representative and/or principal responsible for supervising that person’s activities,
• conduct an annual compliance interview or meeting,
• implement an adequate supervisory control system over the firm’s branch office managers, sales managers or any person performing a similar function; specifically, the firm’s written supervisory procedures failed to identify producing managers for purposes of review and supervision of their customer account activity; assign a person who was either senior to, or otherwise independent of, the producing manager to perform such supervisory reviews; and reasonably ensure that the firm calculate, on a rolling, twelve-month basis, whether heightened supervision requirements were triggered with any respect to any producing managers.

Severio solicited customers at his member firm to invest in a purported arbitrage investment which he stated would be held away from his firm. Severio told these clients that he would invest their funds and pay them the principal amount invested plus interest of 15 percent to 20 percent after six months. Each of the customers gave Severio a check personally made out to him in amounts ranging from $5,000 to $75,000 for a total of $685,653, with the intention that he invest the money in his arbitrage investment as he indicated.  However, Severio cashed the checks and converted the money for his own personal use.

Severio failed to respond to FINRA’s requests for information and failed to appear for his on-the-record testimony.

Lamoreaux borrowed money from her member firm’s customer without seeking the firm’s permission to borrow the funds and against the firm’s borrowing procedures, which required its registered representatives to request and obtain the firm’s approval before borrowing money from or lending money to a customer. The firm repaid the customer the loan amount plus interest. The

Lamoreaux failed to respond to FINRA requests for documents and information, and to provide testimony.

Acting through Gautney, Aura Financial Services failed to

• establish, maintain and enforce an adequate supervisory system and adequate written supervisory procedures to detect and prevent excessive trading in customer accounts;
• reasonably supervise registered representatives; and
• respond to red flags indicating the representatives’ apparent excessive trading.

The Firm failed to comply with a previous Offer of Settlement, which Gautney signed on the firm’s behalf, requiring each to pay $100,000 in restitution to customers; approximately half of which remains unpaid.

Gautney failed to respond to a FINRA request to provide testimony.

Aura Financial Services, Inc.:  Suspended from association with any FINRA member until a total of $42,166.60, plus interest, is paid in restitution to customers.

Timothy Michael Gautney: Ordered to pay a total of $42,166.60, plus interest, in restitution to customers; Barred from association with any FINRA member in any Principal capacity; Suspended 8 months all capacities

Biremis employed an individual as its controller and as controller for several of its affiliated companies who was arrested and charged with numerous criminal violations. The individual informed Beck that criminal charges had been filed against him and, although the individual misrepresented the nature of the charges, Beck failed to follow up or otherwise investigate the criminal allegations against the individual. Beck failed to instruct other firm employees to investigate the charges against the individual. The Firm's written supervisory procedures, which were Beck’s responsibility, did not require any such follow-up.

FINRA found that the individual was convicted, which made him statutorily disqualified from employment in the securities industry; and the firm, acting through Beck, failed to file a written application (Membership Continuance Form-400 (MC-400)) for relief from the statutory disqualification so that the individual could continue to associate with the firm, and the individual continued working as the firm’s Financial and Operations Principal (FINOP).

Acting through Beck, the Firm failed to establish, maintain and enforce a supervisory system and/or written supervisory procedures reasonably designed to investigate prospective employees’ backgrounds, follow up on any red flags and achieve compliance with its registration and Uniform Application for Securities Industry Registration or Transfer (Form U4) reporting obligations.

Biremis, Corp: Censured; Fined $50,000

Peter Beck: Fined $10,000; Suspended 6 weeks in Principal capacity only

Keating participated in private securities transactions involving the offer and sale of interests in a company, outside the scope of his employment with his member firm. Keating sold interests in the company totaling approximately $17.6 million to investors and received compensation in the approximate amount of $1.7 million for his participation. Keating failed to provide his firm with prior written notice of his proposed participation in these transactions and failed to receive the firm’s prior written approval. At all times, the firm’s written procedures prohibited employees from engaging in private securities transactions.

Keating was employed by outside businesses where he held various positions, including officer and director with these outside businesses, while he was associated with his firm, and failed to provide the firm with prompt written notice of these outside business activities.

Shields assisted a relative, an unregistered person at the time, with the sale of a fixed and variable annuity. Shields signed and submitted the customer’s annuity application to his member firm and the annuity company after discussing the matter with firm principals; Shields also signed the firm’s new account application as the customer’s introducing agent, thereby facilitating his relative’s violation of registration rules.

Shields certified on the annuity application that he had explained the contract to the customer even though he knew he had not done so. Shields’ relative became registered with the same firm and the day after he became registered, the annuity transaction settled. Shields later received a commission payment for the annuity sale from his firm for approximately $50,500, he shared the payment with his relative.Shields did not disclose to the firm that he shared the commission payment, and from the time his relative became registered with the firm until the termination of Shields’ association with the firm, it was his relative, not Shields, who was the registered representative responsible for advising the customer on the annuity and for servicing the customer’s account in which the annuity was held at the firm. In addition, Shields failed to take any steps to correctly disclose on the firm’s books and records that his relative was the responsible representative, rendering the firm’s records inaccurate.

Sawyers recommended to certain customers whose accounts he serviced at his member firm that they open online brokerage accounts at another broker-dealer, not affiliated with his firm, and that they give Sawyers discretionary authority over those accounts. The firm’s customers opened online brokerage accounts, but they did not give Sawyers written authority to trade in the accounts.

Sawyers conducted transactions on his firm’s customers’ behalf in the online brokerage accounts without notifying his firm in writing or verbally that he intended to use discretionary authority in the online brokerage accounts, and did not notify the online broker-dealer, in writing, that he was associated with a member firm. Sawyers took steps to conceal these activities from his firm and from the online broker-dealer by not using his own name in connection with the accounts, using a computer that was not his firm’s computer and a non-firm email address to set up the online-brokerage accounts and maintaining an exclusive email account to communicate about trade confirmations and monthly account statements with customers.

Sawyers falsely attested in his firm’s compliance questionnaire that he had not maintained any outside brokerage accounts that the firm had not approved in writing, and that he had not participated in any outside business activities that the firm had not approved in writing. Sawyers failed to timely respond to FINRA requests for information and failed to timely appear for a FINRA on-the-record interview.

Niebler received approximately $358,000 from an elderly customer, for whom he was appointed power of attorney, in the form of personal checks written directly to him or his credit card companies to pay down his credit card debt; at least $172,900 of that amount was received after the customer had been diagnosed as incompetent and suffering from dementia and Alzheimer’s disease.

Niebler invoked his power of attorney to sign the customer’s name to certain of the checks. Niebler falsely denied to his firm on compliance questionnaires that he had received any gifts valued in excess of $100 from any of his customers when he was receiving substantial amounts of money from the customer’s bank account, and failed to report that he had obtained the customer’s power of attorney to his firm. In effecting the transfer of funds from the customer to himself or his credit card company, Niebler acted contrary to his duty as a power of attorney, in that he failed to act in the customer’s best interest and did not have the customer’s explicit written authorization to transfer money to himself.

Kaminski failed to supervise his member firm’s timely review of variable annuity transactions and failed to address the breakdown of the compliance department’s Trade Review Team’s review of Red Flag Blotters. Cohen and Sanfilippo created and maintained inaccurate books and records relating to the firm’s variable annuity trading. Cohen’s and Sanfilippo’s suspensions are in effect from October 18, 2010, through April 19, 2012. Kaminski has appealed to the SEC, and the sanctions are not in effect pending consideration of the appeal.

Sanctions imposed on appeal by the National Adjudicatory Council (NAC) following appeal and call for review of an Office of Hearing Officers (OHO) decision.

Kevin Lawrence Cohen: Suspended 18 months and required to requalify before acting in any capacity requiring qualification

Dennis Stanley Kaminski: Fined $50,000; Suspended 18 months and required to requalify before acting in any capacity requiring qualificationcapacity

Gari Craig Sanfilippo: Suspended 18 months and required to requalify before acting in any capacity requiring qualification

The Firm 

• issued research reports that the firm labeled “Asset Analysis Focus” (AAF) on a paid subscription basis;
• did not consider the AAF a research report;
• did not have in place policies and procedures designed to ensure compliance with the various research related rules applicable to firms that issue research reports, such as those relating to research analyst and research principal registration, disclosures, conflicts, annual attestations and written supervisory procedures;
• allowed registered representatives at the firm to collaborate in the preparation of AAFs without having passed a qualifying examination,
• allowed an individual also to collaborate in the preparation of AAFs without being registered as a general securities representative or in any other capacity through the firm, and without having passed a qualifying examination.

A general securities principal supervised the preparation of AAFs without having passed the qualifying examination.

Certain AAFs the firm issued failed to disclose certain NASD Rule 2711 required information, including the financial interest in the issuer of the research analysts who prepared the reports, price charts for issuers where the firm has assigned a price target for at least one year, and the valuation methods used to determine price targets and the risks that may impede achievement of the price targets.

An individual who collaborated in the preparation of AAFs purchased securities of companies during the 30-day period before the publication of the research reports concerning those companies. In addition, The firm did not have the required research report-related written supervisory procedures in place, and the firm did not have a senior officer make the required annual attestation that the firm had adopted and implemented the required written supervisory procedures.

Moreover, the Firm did not make the required annual attestations for several years and filed inaccurate annual attestations for other years.

Zayed willfully failed to disclose material information on multiple Forms U4.

Tavelman recommended an unsuitable concentration of high-risk investments for an estate account. As a result of Tavelman’s investment choices, approximately 50 percent to 95 percent of the estate account’s investments during the relevant period included one or more high-risk income funds.

Tavelman recommended the transactions without having reasonable grounds for believing that such transactions were suitable for the customer in view of the nature of the account and the customer’s financial situation, investment objectives and needs. The recommendations were unsuitable in that the executor of the estate account was seeking conservative, growth investments for the account without risk to principal, and the estate account suffered losses as a result of Tavelman’s unsuitable recommendations.

Tavelman exercised discretion in the estate account without the executor’s prior written authorization and his member firm’s written acceptance of the account as discretionary.

Deroziere converted $10,000 from his member firm by endorsing and depositing a check made payable to the firm into his personal bank account without the firm’s knowledge or permission. Deroziere also converted $750 from a nonsecurities customer by endorsing and depositing checks made payable to the customer into his personal bank account without the customer’s knowledge or permission. Deroziere failed to respond to FINRA requests for information.

Klebba financially exploited elderly women by convincing them to grant him general power-of- attorney and to sign a document waiving any conflict of interest that Klebba might have. Klebba also had the elderly women name him as

• beneficiary on assets,
• a joint owner on bank accounts,
• joint tenant on a warranty deed for real estate.

Klebba also had the elderly women give him a $50,000 gift from the proceeds of the sale of a condominium.

Klebba’s acts directly violated his employer’s rules prohibiting registered representatives from being the beneficiary of a contract policy or from accepting a grant of power-of-attorney from customers.

The Firm failed to establish an effective supervisory system and written supervisory procedures reasonably designed to ensure that discounts were correctly applied on eligible UIT purchases. The Firm’s written supervisory procedures had limited information regarding UIT sales charge discounts, and omitted the fact that certain UIT sponsors permitted exchange discounts for purchases made with the proceeds from a UIT holding of another sponsor; this was particularly relevant because the firm’s UIT business was almost exclusively with UIT sponsors that provided this sales charge discount.

The Firm's procedures lacked substantive guidelines, instructions, policies or steps for brokers, trading personnel or supervisors to follow to determine if a customer’s UIT purchase qualified for, and received, a sales charge discount. The broker and firm compensation diminished when the customer received a sales charge discount and, because of this, the firm needed to be particularly diligent in providing guidance to brokers, supervisors and trading personnel on UIT sales charge discounts.

The Firm failed to provide eligible customers with appropriate discounts on both UIT rollover and breakpoint purchases. The firm failed to identify and appropriately apply sales charge discounts in certain top-selling UITs and, as a result, the firm overcharged customers in the sample approximately $20,000.

In addition, the Firm sold UITs that imposed a deferred sales charge that was generally charged upon redemption if a customer sold a UIT before the deferred sales charges were imposed. Moreover, the Firm failed to ensure that its customers’ UIT purchase confirmations included the required language stating that “on selling your shares, you may pay a sales charge. For the charge and other fees, see the prospectus.” The Firm misstated on certain UIT confirmations that a sales charge discount had been applied when, in fact, it had not.

Brough, Elliott, Falabella and Sheinkop induced customers to invest in complex, illiquid and risky collateralized mortgage obligations (CMOs). Through misrepresentations and omissions, the respondents led customers to believe that through CMO investments they could safely achieve consistently high annual returns, regardless of market conditions, with the government backing the investments. The CMOs the respondents bought for customers were generally not government-guaranteed, and they were subject to price volatility, uncertain cash flows and maturities, based on changes in interest rates. The respondents failed to disclose material characteristics of, and risks associated with, different CMOs with substantially different payment structures and interest rate sensitivity, and failed to ensure that customers understood the characteristics and risks of CMOs.

The respondents failed to adequately investigate and understand the CMO products, and did not have reasonable grounds to believe that the individual CMO purchases were suitable for each customer. The risk was further magnified through the recommendations to the customers to buy CMOs on margin, and Elliott, Falabella and Sheinkop did not have reasonable grounds to believe the use of margin was suitable for customer CMO purchases based upon the customers’ disclosed investment experience, investment objectives, financial situation and needs.

In addition, Brough, Elliott, Falabella and Sheinkop exercised discretionary authority in customer accounts without obtaining the customers’ prior written authorization and their member firm’s prior acceptance of the account as discretionary. Moreover, the customers were exposed to significant risks that they did not understand, and Brough, Elliott Falabella and Sheinkop did not take the time to understand or ignored them so that some customers suffered considerable losses to their retirement savings.

Thomas Joseph Brough: No fine in light of financial status; Suspended 8 months

Eric Robinson Elliott: Fined $10,000; Ordered to pay $30,217, in restitution to customers; Suspended 6 months in all capacities;

Brian James Falabella: No fine in light of financial status; Suspended 6 months in all capacities

Jonathan Jay Sheinkop: No fine in light of financial status; Ordered to pay partial restitution in the total amount of $30,000 to customers; Suspended 12 months in all capacities.

Petracek recommended the purchase of a fixed and variable annuity to a customer, and since he was not registered with any FINRA member firm, he was unable to sign the annuity application. Petracek’s relative became associated with a member firm, signed the customer’s annuity application and submitted it to his firm, and the annuity company listed the relative as the introducing agent after discussing the matter with principals of the firm. Petracek knew his relative was not present when the customer signed the annuity application or during any of his meetings with the customer at which the annuity was discussed, and he knew that his relative never met or spoke with the customer. 

Petracek became registered at the same firm as his relative, and the annuity transaction settled the day after Petracek became registered. Petracek’s relative later received a commission payment of approximately $50,500 for the annuity sale from the firm, which he shared with Petracek, and Petracek did not disclose to the firm that he shared in this commission payment.

During his employment at the firm, Petracek continuously served as the registered representative responsible for advising the customer on the annuity and for servicing the customer’s account in which the annuity was held at the firm, although the relative’s name remained on the account as the responsible agent. In addition, Petracek failed to take any steps to correctly disclose on the firm’s books and records that he—not his relative—was the responsible representative, rendering the firm’s records inaccurate.

Harrison transferred customer funds out of bank accounts linked to the firm’s securities accounts into a single online account at another broker-dealer.

Harrison transferred funds that totaled at least $6.5 million belonging to multiple customers. Harrison established the online account in a relative’s name, but he had sole control over the online account and conducted significant options trading in the account, using the customers’ funds and engaging in the trading without the affected customers’ knowledge or consent. Harrison subsequently transferred some of the funds out of the online account to unknown destinations.

Harrison failed to respond to FINRA requests for information and failed to appear for a FINRA on-therecord interview.

The Firm operated a deficient Anti-Money Laundering (AML) program and failed to detect, investigate and report suspicious activity in connection to a firm customer’s participation in a fraudulent stock-lending scheme through the firm’s accounts.

The findings Firm's clearing firm advised it of a “negative hit” (any criminal, regulatory or civil action history) for an individual involved with a corporation that completed an online application to open an account at the firm through its trading direct division; after learning of the criminal action against the individual, the firm did not directly confront the individual or anyone associated with the corporation but instead, sent an email to the individual asking only whether or not it was correct that the individual had had a material monetary problem with a government agency, and the individual responded, confirming and stating the issue was resolved and there was no debt owed. The Firm informed the individual that it would open an account for the corporation on a cash only basis (i.e., no margin privileges).

The Firm's knowledge regarding the individual’s criminal record was a red flag that should have caused it to give heightened scrutiny to activity in the corporation’s account, but during a five month period, there were shares of securities valued at more than $12 million delivered into the corporation’s account, in some instances by deposit of physical certificates. These shares were then sold within days of being received into the account, and the proceeds were then wired to a domestic bank account in the name of the corporation; the firm did not investigate any of these transactions or deem them to be suspicious and did not speak with anyone at the corporation regarding the transactions. The day after a customer presented a share certificate, he sent the firm a letter of authorization requesting the firm transfer the shares from his account to the corporation’s account at the firm, and one week after the shares were transferred, the corporation sold the shares in separate sales transactions and the proceeds were wired to the corporation’s domestic bank account. In addition,  the sales of the stock, just a week after they were transferred from the customer to the corporation, were further red flags that should have caused the firm to ask additional questions concerning the transactions and consider filing suspicious activity reports (SARs).

Moreover, the Firm never followed up with the corporation to learn about the nature of its business activities and never obtained additional information regarding the fact it identified itself as a "loan underwriter" in its new account documents. Furthermore, the Firm did not follow its written customer identification program (CIP) procedures for individual customers domiciled in the United States; instead, the firm submitted customer names to its clearing firm to perform searches, which did not fulfill the firm’s CIP responsibilities. For customers who were individuals domiciled in the United States, there was no record maintained as to how verification occurred, and no records as to whether the firm utilized documentary or non-documentary means for verification existed or were retained. In light of the firm’s failure to conduct non-documentary checks, and failure to maintain records of the information used to verify customer identification, its CIP with respect to accounts for individuals domiciled in the United States was inadequate and failed to meet the standards of Section 326 of the Patriot Act, resulting in a willful violation of MSRB Rule G-41.

Tatgenhorst failed to respond to FINRA requests for information and documents.

Tatgenhorst borrowed a total of $33,028 from his member firm’s customers, signed a promissory note to the customers documenting the existence of the loans, at a time when his member firm did not have written procedures allowing borrowing money from customers and Tatgenhorst did not request or obtain permission from the firm to enter into the loan transactions, but later admitted the facts to FINRA and submitted a written statement to his firm admitting he borrowed the money from the customers. The customers filed a civil action against Tatgenhorst to recover the loan balance, which led to the court entering judgment against him in the amount of $33,028, plus interest. Tatgenhorst did not pay the judgment and his firm paid the customers $7,000 in settlement of any claims they had against the firm.

Commonweatlh commenced bond offerings on a “best efforts” basis including a minimum contingency, in which escrow was broken without disclosing in the offering memoranda the possible use of loan proceeds to close the offerings.

In order to raise sufficient funds for one of the offerings, the issuer obtained a loan from a bank prior to closing the offering, and while the firm was not involved with obtaining the loan, it was aware that the loan had been obtained and the escrow account had been broken prior to the sale of the required minimum.  To meet the required minium of the other offering, the issuer obtained a loan that the escrow agent considered in part as satisfying the offering contingency, and the funds were then used to retire the earlier bond issue as represented in the offering memorandum.

The Firm allowed the representations in the offering memorandums that investor funds would not be released until the contingency amounts were met to be rendered false and misleading. The Firm used unwarranted, exaggerated and oversimplified statements in connection with sales literature, including an oral presentation and a brochure, and failed to provide a sound basis to evaluate the bonds or risks involved.

Carr opened accounts with his member firm for customers, without speaking with the customers in connection with opening their accounts or receiving the customers’ direct authorization to liquidate their accounts, but relied on directions received from third parties. Carr exercised discretion in the customers’ accounts when he executed transactions without his member firm’s written authorization or acceptance of the accounts as discretionary.

Carr engaged in outside business activity for compensation, outside the scope of his business activities with his firm, relating to opening the customers’ accounts through third-party intermediaries. Carr engaged in the outside business activity without providing prompt written notice to his member firm of the outside business arrangement and of the compensation he received from the arrangement.

As his member firm’s president, Amico failed to adequately supervise the firm’s chief compliance officers (CCOs) and AML compliance officers (AMLCOs). Amico knew, or should have known, of substantive violations of FINRA rules and the potential inadequacy of firm compliance personnel through FINRA exit conference reports that the firm failed to

• properly report customer complaints and other reportable matters,
• make Form U4 or Form U5 amendments to report disclosable events, and
• timely amend Forms U4 or U5.

Amico received FINRA exit conference reports regarding violations of the BSA and FINRA AML rules. Amico received SEC written findings identifying suspicious penny stock transactions, AML program issues and reporting deficiencies.

As the president and owner of the firm, Amico was responsible for the firm’s compliance with regulatory requirements imposed on the firm and knew, or should have known, that the firm’s CCOs and AMLCOs were not performing the compliance functions designated to them. Amico knew through FINRA exit conference reports and SEC written findings that the firm, through the CCOs and AMLCOs, was not in compliance with BSA requirements and NASD Rule 3011, was not making necessary filings under NASD Rule 3070 and Article V, Sections 2 and 3 of FINRA’s By-Laws, and that one of the CCOs/AMLCOs had a disciplinary history but failed to take affirmative steps to ensure that they were performing the AML and reporting functions delegated to them.

Acting through Sweat, the Firm failed to

• enforce its written supervisory procedures pertaining to its annual compliance meeting, branch office inspections, outside business activities, outside securities accounts, Regulation SP, hiring practices and the use of personal computers; and
• maintain records of its Firm Element Continuing Education Needs Analysis and Written Training Plan for multiple years, and
• maintain continuing education (CE) records to evidence that the firm’s representatives participated in the Firm Element CE program during one year.

Sweat and the firm failed to maintain copies of registered representatives’ incoming and outgoing correspondence with the public relating to its securities business, and failed to maintain evidence of review as NASD rules and firm procedures required.

The Firm failed to implement

• procedures concerning the capturing, preservation, maintenance and storage of all original and copied communications the firm received and sent;
• a written anti-money laundering (AML) compliance program reasonably designed to achieve the firm’s compliance with the laws, rules and regulations to which it was subject; and 
• its AML procedures by failing to provide AML training in a manner specified in its written AML program, and did not properly update its AML compliance officer contact information as required.

Intermountain Financial Services, Inc.:  Censured; Fined $12,750

Kent Duane Sweat: Fined $7,500; Suspended in Principal Capacity only for 5 business days 

Acting in his capacity as the AMLCO, Brown  failed to

• implement policies and procedures reasonably designed to detect and cause the reporting of suspicious transactions under 31 USC 5318(g) and implementing regulations;
• detect and investigate suspicious activities and/or other activities in which red flags of money laundering were present and filing a SAR, when appropriate; and
• follow up on red flags indicating that a registered representative was selling unregistered shares of a stock on behalf of the CEO of the issuer, and did not follow up to ascertain what, if any, steps the representative took to inquire about the transactions.

Brown was notified by his member firm’s clearing firm that it was closing the CEO’s account and would allow only liquidating (sell) transactions, but although Brown responded to the clearing firm, he did not adequately follow up to ensure additional purchase transactions did not take place—which did occur. As his firm’s CCO, Brown failed to supervise firm personnel who had been delegated responsibility for reporting, and timely reporting, customer complaints under NASD Rule 3070(c), and to make Forms U4 and U5 amendments with FINRA to report disclosable events.

Martin was supervisor of his member firm’s sales and trading operations and direct supervisor of a registered representative who effected pre-arranged and fictitious trades in collateralized mortgage obligations through the firm’s proprietary trading account.

The transactions appeared to terminate the firm’s ownership of the securities and to generate profits for the firm and the trader, but they were sham transactions because the firm remained the beneficial owner of the securities and the purported transaction profits concealed actual and substantial losses.

The registered representative was able to accomplish and maintain his scheme because Martin reviewed his activity on a daily basis rather than in a manner that would evidence trading patterns over time and expose the firm’s losses and risk. Martin was responsible for the firm’s overall compliance with applicable laws, rules and regulations and for implementing the firm’s supervisory policies, practices and procedures, and Martin failed to supervise the registered representative in a manner reasonably designed to achieve compliance with applicable laws, rules and regulations.

Martin failed to cause the firm to preserve electronic communications.

Mello served as her member firm’s FINOP and was responsible for monitoring the firm’s financial condition to determine whether its net capital was sufficient to conduct a securities business. The firm’s registered representatives effected trades in collateralized mortgage obligations (CMOs) through the firm’s proprietary trading account. The transactions appeared to remove beneficial ownership of the CMOs from the firm, but they were sham transactions because the securities remained in the firm’s inventory.

The registered representative was able to accomplish and maintain his scheme because Mello and others at the firm reviewed his activity on a daily basis rather than in a manner that would evidence trading patterns over time and expose the firm’s losses and risk. As a result of the registered representative’s activity and the firm’s method of monitoring it, the firm conducted a securities business on multiple days while failing to maintain its required minimum net capital and, because Mello failed to discern the true effect of the registered representative’s trading on the firm’s net capital, she allowed the firm to conduct a securities business on multiple occasions while in violation of SEC Exchange Act Rule 15c3-1.

O’Brien

• signed the name of a customer of his member firm on a Letter of Authorization form and then used the form to effect a transfer of $3,000 from the customer’s brokerage account to O’Brien’s personal bank account without the customer’s knowledge or approval; 
  
• borrowed $13,000 from the customer, who was not related to O’Brien and contrary to his member firm’s written procedures prohibiting its registered persons from entering into lending agreements with customers unless the customer was an immediate family member;
  
• executed a trade in the customer’s account without the customer’s knowledge or consent; and
  
• failed to respond to FINRA requests for information and documents.

Claiborne asked a customer if he could borrow approximately $600 to pay for his travel expenses and the customer agreed, using his credit card to pay for the expenses. Claiborne failed to notify his member firm of the loan, which he repaid in full, and was contrary to his firm’s procedures prohibiting registered representatives from borrowing money from customers.

Claiborne received a $1,000 check with the payee line left blank from the customer to deposit into the customer’s Roth Individual Retirement Account (IRA) with the firm; Claiborne made the check payable to himself and deposited it into his personal checking account and used the proceeds for his own use and benefit, thereby converting the funds. Claiborne admitted to his supervisor that he had deposited the check into his own account and subsequently returned the funds to the customer.

Newbridge facilitated the manipulative trading of the stock of a company created as the result of a reverse merger.

A group of control persons and promoters used accounts at the firm to execute pre-arranged in-house agency cross and wash transactions that were intended to generate volume and support or increase the price of the stock. The firm permitted control persons to sell unregistered securities through firm accounts, and the sales were not made in compliance with any applicable exemption from registration. The firm failed to

• adequately supervise the registered representatives who participated in the sales of unregistered securities; 
• take adequate measures to ensure that the registered representatives assigned to the accounts did not engage in the sale of unregistered securities;
• take steps to ensure that the registered representative ascertained 
• whether the securities being sold were registered
• how and from whom the customers had obtained their shares,
• whether and when the shares were paid for, and
• whether the transactions were subject to any exemption from registration.

Further, the Firm failed to adequately supervise registered representatives who participated in the manipulative trading.

The firm did not have adequate systems or controls to implement and enforce its policies, particularly adequate systems to detect improper cross, wash and other manipulative trading. The firm’s AML procedures required the firm to investigate red flags indicating suspicious activity or trading, and to investigate and take appropriate steps, including limiting account activity, contacting a government agency or filing a SAR, but the firm failed to follow its AML program in regard to the manipulative trading, unregistered distributions and other suspicious activities.

The firm failed to report, or timely report, customer complaints reportable under NASD Rule 3070(c). In addition,  firm failed to file Forms U4 or U5 to report disclosable events and failed to timely amend a Form U4 to report a disclosable event.

Acting through Rodgers,NWT:

• allowed opening options transactions in accounts without signed options agreements;
• allowed accounts to day-trade prior to firm approval;
• failed to evidence that accounts had been approved for daytrading;
• failed to evidence that customers had been furnished a risk disclosure statement prior to engaging in day-trading activities.

Each of the above noted accounts came to the firm as part of a mass transfer of accounts from a former member firm.

Acting through Rodgers and Niederkrome, the firm failed to implement portions of its supervisory control procedures, in that Rodgers and Niederkrome failed to test and verify that the firm’s supervisory control procedures and policies were reasonably designed to achieve compliance with applicable rules; and, prepare and submit a report to senior management detailing the firm’s system of supervisory controls, the summary of the test results, significant identified exceptions and any additional or amended supervisory procedures created in response to the test results.

Rodgers and Niederkrome failed to complete an annual certification pursuant to NASD Rule 3013(b), verifying that the firm had in place processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures to comply with applicable securities rules and regulations.

Censured; Fined $10,000 jt/sev with Niederkrome and Rodgers; Fined additional $5,000 jt/several with Rodgers

David Eric Niederkrome: Censured; Fined $10,000 jt/sev with NWT and Rodgers;

Stephen Rudolph Rodgers: Censured; Fined $10,000 jt/sev with NWT and Niederkrome; Fined additional $5,000 jt/sev with NWT

Coil failed to

• determine the surrender fees related to variable annuity exchanges she recommended to a customer, and the customer agreed to the exchanges based on his understanding that there was no penalty associated with the exchanges; 
• perform adequate analysis on the variable annuities to determine their surrender periods and the customer was charged surrender fees totaling $26,286.84; and
• ensure that the imposition of the surrender fees was accurately disclosed on her member firm’s variable annuity switch form.

If the customer had held the variable annuities for two additional months, he would not have incurred the fees.

In his capacity as Director of Compliance in his member firm’s trading department (DCTD), Bush failed to adequately supervise registered representatives who sold unregistered securities on certain clients’ behalf in violation of Section 5 of the Securities Act of 1933. He also failed to take adequate steps to ensure that the registered representatives ascertained whether the securities being sold were registered, how and from whom the customers obtained their shares, whether and when the shares were paid for, and whether the transactions were subject to any exemption from registration.

As his firm’s Designated Securities Compliance Officer (DSCO), Bush was responsible for evaluating and supervising designated securities (penny stock) transactions to evaluate whether they were part of a “pump-and-dump” or other fraudulent scheme; evaluating and investigating suspicious transactions when numerous shares were deposited and immediately sold; conducting background checks on customers who were expected to engage in a significant amount of designated securities transactions to determine whether the customer had a criminal or securities disciplinary background, or had an affiliation with the issuer; meeting with customers to ensure his firm had the requisite knowledge about customers’ background and trading intentions; and reporting to the firm’s CCO and AMLCO any findings regarding issuers or customers and to certify monthly that he had reviewed, approved and monitored all accounts that conducted a significant amount of transactions in designated securities.

Bush failed to take identifiable steps to ascertain relevant information regarding customers’ disciplinary history and how they obtained the shares being deposited, and did not believe that customers’ background or numerous transactions constituted red flags.

Acting in her capacity as her member firm’s AMLCO, Bush failed to implement policies and procedures reasonably designed to detect and cause the reporting of suspicious transactions under 31 USC 5318(g) and implementing regulations thereunder.Bush failed to ensure her firm’s overall compliance with NASD Rule 3011 by detecting and investigating suspicious activities or other activities in which red flags of money laundering were present and, when appropriate, filing SARs. 

As her firm’s CCO, Bush failed to adequately supervise firm AMLCOs and ensure they were performing their functions pursuant to the firm’s AML program and written procedures, and failed to ensure they were properly investigating suspicious activities, recommending and filing SARs or documenting the rationale for concluding that a SAR was unnecessary.

Bush failed to adequately supervise the firm’s DSCO to ensure he was taking adequate investigative steps to ascertain whether certain customer transactions were part of a manipulative or fraudulent scheme, conducting adequate criminal or securities disciplinary background checks, and conducting adequate due diligence to ascertain whether customers engaging in significant designated securities transactions had any affiliations with the issuers; in fact, many customers had criminal or securities disciplinary backgrounds or had close ties to issuers whose shares they were trading.

As her firm’s CCO, Bush failed to ensure her firm reported, and timely reported, customer complaints to FINRA. FINRA also found that Bush failed to ensure her firm filed, and timely filed, Forms U4 and U5 with FINRA to report disclosable events.

Acting through Anthony DiGiovanni Jr., Seaboard participated in the distribution of unregistered thinly traded securities for firm customers that resulted in proceeds over $3.8 million from the customers and approximately $400,000 in gross commissions for the firm, and failed to perform an adequate inquiry to determine the registration or exemption status of the shares, including failing to make any inquiries to determine the circumstances of how its customers received their shares of unregistered stock, the customers’ relationships with the relevant issuers, or any other relevant facts or circumstances that could have revealed whether the shares were, in fact, exempt from registration. The firm accepted the self-serving statements of its customers and counsel that the shares were exempt and ignored “red flags” indicating the customers and the firm were participating in a scheme to evade registration requirements.

Acting through DiGiovanni Sr., Seaboard failed to adequately supervise DiGiovanni Jr. in his participation in the sales of unregistered securities. DiGiovanni Sr. reviewed the firm’s trade blotters on a daily basis and was aware of the customers’ trading activity and also approved new account documents that raised red flags, but failed to take any action to investigate or prevent the firm’s or DiGiovanni Jr.’s participation in, and illegal sale of, unregistered securities.

Acting through Still, as compliance officer, Seaboard

• failed to establish and maintain adequate policies and procedures, including written supervisory procedures, reasonably designed to achieve compliance with applicable laws, rules and regulations with respect to the sale of unregistered securities.
• failed to develop and implement AML policies and procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act (BSA) and implementing regulations.
• failed to identify or ignored red flags involving numerous instances of potentially suspicious activities, and thus failed to investigate and report these activities in accordance with the firm’s procedures and the requirements of the BSA and implementing regulations.

Moreover, FINRA found that the firm and Still should have detected the suspicious nature of the customers’ liquidation of their penny stocks, investigated the activity and made the appropriate Suspicious Activity Reports (SAR) filings.

Seaboard Securities, Inc.: Fined $125,000, of which $10,000 was jointly and severally with DiGiovanni Sr. and $10,000 was jointly and severally with Still;
Ordered to retain, within 60 days of the date of the Order accepting the Offer of Settlement, an independent consultant to conduct a comprehensive review of the adequacy of the firm’s AML program and its policies, systems and procedures (written and otherwise) and training relating to determining whether securities are freely tradable; the independent consultant is required to submit to FINRA a written report addressing these issues and making recommendations. The firm shall submit to FINRA a written implementation plan, certified by a firm officer, of its implementations of the consultant’s final recommendations. Furthermore, until the firm provides FINRA with the written implementation report, the firm shall be prohibited from selling any securities deposited in certificate form or by Deposit Withdrawal At Custodian (DWAC) unless the stock has been held in an account at the firm for at least one year; and the firm retains an opinion from counsel retained by the firm opining that the stock may be sold in compliance with Section 5 of the Securities Act of 1933.

Anthony Joseph DiGiovanni Sr.: Fined $10,000 jt/sev with Seaboard; Suspend in Principal capacity only 45 days

Sonya Terez Still:  Fined $10,000 jt/sev with Seaboard; Suspend in Principal capacity only 30 days

Anthony Joseph DiGiovanni Jr.: Fined $35,000, which includes the disgorgement of $25,000 in financial benefits received; Suspended 45 days.

Marsh borrowed $50,000 from a customer at her member firm and did not disclose to the customer that she already had borrowed $90,000 from another individual and that the debt was still largely outstanding. The Firm’s procedures specifically prohibited registered representatives from borrowing money from customers; Marsh did not inform her firm of this loan, which was repaid.

Marsh repaid the $50,000 loan referenced above to the customer by transferring her membership interest in a limited liability company formed to invest in real estate projects in Costa Rica. Marsh had purchased the membership interest, which is a security for $50,000, using the funds she had borrowed from the customer.

While registered at a different member firm, Marsh borrowed $3,500 and $5,600 from another customer, and the firm’s procedures specifically prohibited registered representatives from borrowing money from customers. In addition, FINRA determined that Marsh did not inform the firm of this loan, which was repaid, and falsely represented on the firm’s Annual Compliance Certification Questionnaire that she had not borrowed money from a customer.

Marsh engaged in a private securities transaction without prior written notice to, or prior written approval from, her member firm.

The Firm permitted a then-proprietary trader and associated person to engage in proprietary firm options trading when he was not properly licensed to do so and, as a result, the firm failed to register a person engaged in its investment banking or securities business in the category of registration appropriate to the function to be performed as specified in NASD Rule 1032. The Firm's written supervisory procedures required all proprietary traders to possess the Series 7 general securities representative license and Series 55 equity traders limited representative license (and Series 63 qualification), and provided for no exceptions unless approvals were obtained and the trader’s activities were restricted until the licensing deficiency was rectified; the associated person possessed none of the licenses required by the firm nor were activities restricted. As a result, the firm failed to enforce its written supervisory procedures by allowing the associated person to disregard FINRA licensing requirements and the firm’s internal licensing requirements applicable to its proprietary traders.

The Firm failed to enforce written internal firm trading limits that applied to the associated person by failing to enforce its written supervisory procedures concerning the imposition of individual trading limits on proprietary traders; the firm failed to take adequate steps to ensure the associated person and other relevant associated persons of the firm understood the meaning and application of the terms of the associated person’s individual trading limits, and allowed the associated person to exceed his individual trading limits on several occasions.

Acting through Carroll, its president and registered principal, the Firm failed to adequately implement a supervisory system designed to achieve compliance with applicable securities laws and regulations; specifically, the firm and Carroll failed to implement an adequate system to supervise a branch office’s activities in light of deficiencies identified during branch audits, and failed to appoint a properly qualified principal to supervise the branch office’s activities.

The Firm allowed Carroll and Childs to accept, and they did accept, a gift and/or gratuity in excess of $100 from the president and general partner of an entity that offered an alternative investment product, and Childs sold almost $6 million of that product to customers at the firm’s branch office.

The Firm failed to properly maintain its email communications and, acting through Carroll, failed to have a procedure in place to ensure that his own email, which was designated as legal and confidential, was properly maintained and reviewed. The Firm failed to establish and maintain an adequate supervisory system in the areas of internal communications and correspondence.

The Firm charged both commissions and advisory fees on transactions in alternative investment products whose offering documents specifically prohibited such activity.

Childs

• charged customers commissions, in the amount of $434,589.03, and an annual percentage-based advisory fee on transactions in alternative investments; and
• made unsuitable recommendations to customers and had no reasonable basis for believing that his recommendations of nonliquid alternative investments were suitable for the customers in light of their age, financial needs, annual income, liquid net worth and risk tolerance.

Cambridge Legacy Securities, L.L.C.: Censured, Fined $50,000; Ordered to pay $21,864.74, plus interest, in restitution to customers; If the firm fails to provide proof of restitution within 15 days, it shall be immediately suspended from FINRA membership until proof has been provided

Oran Ben Carroll (Principal): Fined $25,000; Suspended 3 months in Principal only capacity

Russell Kent Childs (Principal): Fined $25,000; Ordered to pay $412,724.28, plus interest, in restitution to customers;Suspended 9 months in all capacities; If Childs fails to provide proof of restitution within 15 days, he shall be immediately suspended from association with any member in any capacity until proof has been provided

Mintz falsified journal requests for customers’ accounts without their knowledge or authorization. Mintz submitted the falsified journal requests to his member firm as authentic and caused securities to be journaled from the customer accounts to his personal account. Mintz sold the securities that had been falsely journaled to his account and converted the proceeds in the amount of $1,054,440.97.

Mintz failed to respond to FINRA requests for information.

Randall used a a firm-approved presentation during retail seminars with customers that contained misleading, exaggerated and unwarranted statements, despite his knowledge that FINRA had determined that the presentation violated NASD advertising rules and should not be used; the firm had received a Letter of Caution from FINRA regarding the presentation.

Randall subsequently sought employment with another firm and submitted the presentation to that firm for approval with the intention of using it there; the proposed presentation was modified but still contained much of the violative content he had previously used. Randall knowingly failed to disclose that FINRA had determined that the presentation violated NASD advertising rules and had notified his prior firm of the violations on several occasions, including the Letter of Caution. While employed with the firm, Randall distributed the presentation to other registered representatives to use with their own potential customers.

DeWald participated in private securities transactions without first giving his member firm written notice of his intentions and receiving approval.

DeWald made unsuitable recommendations to customers given his complete failure to perform a reasonable investigation concerning the product and that, while reviewing the product information on the company’s website, he took its representations for face value and failed to independently verify those representations.

DeWald made negligent misrepresentations of material fact in connection with the sale of installment plan contracts; he misrepresented to customers that they could take charitable tax deductions in connection with their investments, which was not true. DeWald provided customers with sales materials containing misleading and oversimplified descriptions of the contracts, and failed to obtain a firm principal’s approval prior to their use.

DeWald failed to respond to FINRA requests for documents.

In his capacity as a financial consultant with his member firm, Ruggiero did not have authority or approval to sign or issue Letters of Credit, but he signed a Letter of Credit on the letterhead of the firm’s predecessor in the amount of $55,000 and gave it to a customer without the firm’s knowledge or authorization. Ruggiero signed another Letter of Credit on the firm’s letterhead in the amount of $75,000 and gave it to the customer without the firm’s knowledge or authorization. The beneficiaries of these Letters of Credit presented them to a bank, an affiliate of the firm, for payment. Ruggiero’s issuance of the unauthorized Letters of Credit to the customer caused the firm to pay a sum of money to the beneficiaries as part of a settlement in connection with the unauthorized Letters of Credit.

Ruggiero failed to appear for a FINRA on-the-record interview.

Acting with others, Jones participated in a fraudulent scheme to solicit investments in an unregistered hedge fund and its general partner. Jones engaged in a variety of fraudulent and deceptive sales practices and disregarded his duties and obligations of fair dealing to his customers. Jones knew, or was reckless in not knowing, that the hedge fund was engaging in a highly speculative trading strategy involving futures contracts and that information the hedge fund manager supplied, which Jones used, contained materially false and misleading statements and omissions, including a pending Commodity Futures Trading Commission (CFTC) fraud action against the hedge fund manager, the fund’s theoretical and unproven performance figures, the highly speculative nature of the hedge fund’s trading strategy, and the significant risks associated with an investment in the hedge fund and its general partner.

Jones ignored many “red flags,” including those in the hedge fund’s Private Placement Memorandum (PPM). Jones solicited his customers without conducting a reasonable investigation to determine whether the hedge fund and its general partner were suitable investments and without regard as to whether his customers were capable of evaluating and bearing the risks associated with such investments.

Employees of the firm's securities lending department knowingly made false entries into the firm’s system indicating that finders had been used to locate securities or counterparties when in fact the finders had performed no legitimate services. The Firm made payments to those purported finders and the finders subsequently paid a portion of their ill-gotten payments directly to the firm employees who made the finder entries into the firm’s system. These employees were indicted for their activities and pled guilty to charges of conspiracy to commit wire fraud, and another firm employee also caused the firm to pay finders in transactions for which he knew or should have known that the finders performed no services, but he was not criminally charged.

The Firm’s written procedures and guidelines addressing the firm’s use of finders were inadequate and that, while the firm’s procedures required a supervisor to review securities lending transactions on a daily basis, the procedures did not provide guidance to supervisors who assumed that responsibility; the procedures did not instruct the stock loan supervisors as to what they were to look for in reviewing transaction reports, how to determine what stock loan activity, including rates, was to be flagged as suspicious, how they were to review documents, how to maintain documentation of the reviews, or how they were to follow up on any suspicious activity they discovered. The Firm kept insufficient documentary evidence to establish that a supervisor adequately reviewed the firm’s securities lending activities.

Also, the Firm had no written procedures requiring supervisory review of electronic communications or addressing how the supervisor of the securities lending department should review employees’ communications with other employees, counterparties or finders.

In addition, the Firm created and maintained books and records that inaccurately reflected that finders had participated in stock loan transactions and were paid for services rendered when, in certain instances, finders had not performed any function relating to the transactions and had not rendered services to justify the payments. Moreover, the Firm failed to retain, as required, email sent and received via its primary corporate email system and an additional email system and failed to retain, as required, electronic communications using an instant messaging system.

Liberatore engaged in trading in customers’ accounts and did not have a reasonable basis for believing that his recommendations to the customers were suitable, based on the facts the customers disclosed as to their investment objectives and financial needs. One account was an IRA that traded in speculative and low-priced penny stocks, and the other account was a joint account and traded in options and on margin.

McLemore misappropriated member firm funds by using expense reimbursements for personal expenses, charging personal expenses to her corporate credit card and failing to pay the bills on the card. McLemore’s firm had previously sent her a memorandum about deficient and late payments on her corporate credit card, reminding her that she had agreed to use the card only for corporate expenses and to pay the balance in full each month. The credit card vendor notified McLemore’s firm that her account was delinquent with a balance of $6,442.20. McLemore’s firm terminated her employment and paid the credit card balance, including the charges incurred for her personal expenses, as it was obligated to do.

McLemore failed to respond to FINRA requests for information and to appear for an on-the-record interview.

The Firm sold stock shares of issuers that were not registered with the SEC for which no exemption from registration applied, which generated, through the transactions, proceeds of approximately $790,000 for customers; and failed to conduct a “searching inquiry” to ensure that the sales did not violate Section 5 of the Securities Act. The Firm failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to ensure compliance with applicable rules and regulations regarding the distribution of unregistered and non-exempt securities, and, in particular, its acceptance of the delivery of stock shares in certificate form and its subsequent sales of the same. The Firm's written supervisory procedures did not require an inquiry to be conducted into whether deposited stock shares were registered with the SEC or exempt from registration.

The Firm failed to identify activity in corporate accounts as suspicious, investigate it and report it through Form SAR-SF filings and, therefore, failed to implement or enforce its AML program by failing to identify suspicious activity, properly investigate it and file a Form SAR-SF on such activity, as appropriate.

Brenowitz

• falsified a client’s insurance policy application and related documents without the client’s knowledge, submitted the documents to his member firm’s insurance company affiliate and subsequently denied to his firm that he had falsified signatures or submitted falsely signed documents;
• falsified clients’ insurance policy-related supplement documents without the clients’ knowledge, submitted the documents to his firm’s insurance affiliate and, although the clients later stated that they approved of his actions, the firm’s insurance affiliate policy prohibited its insurance agents from signing another person’s name, even if the clients’ authorized them;
• falsely endorsed and deposited a check for $1,000 made payable to an insurance agent contracted to him into his personal bank account, and falsely claimed to his firm that the insurance agent authorized him to use the check to repay expenses;
• took an online computer examination on his office manager’s behalf that his firm’s insurance company affiliate required, and Brenowitz falsely denied to his firm that he did so;
• denied in writing to FINRA that he took any test posing as his office manager; and
• denied  in sworn testimony to FINRA that he took any test posing as his office manager and claimed that the insurance agent contracted to him had authorized him to endorse and deposit the check and use the proceeds for expense reimbursement.

Kim falsified certain account-related paperwork that had been previously signed by the customer; Kim altered the forms by changing the commission rate indicated from 1.1 percent to 1.4 percent and/or by changing the date next to the customer’s signature. Kim made these changes without the customer’s knowledge, authorization or consent and submitted the forms to his employer member firm.

Kim submitted a false and incomplete written statement to a FINRA request for information.

Harrell obtained loans from her member firm’s bank affiliate in the names of a relative and another individual by using certificates of deposit (CDs) in the relative’s name as collateral, deposited the loan proceeds in her bank account and withdrew money from the CDs, all without the relative’s knowledge or permission. The findings stated that Harrell embezzled in excess of $1,000 from the bank by fraudulently creating debit tickets from the bank’s general ledger accounts and depositing the money into her own account.

Harrell failed to respond to FINRA requests for information.

Vanderhoof established a corporation and a website to market an “equity repositioning strategy” to investors, with the strategy calling for investors to obtain a loan for equity in a home, through mortgage refinancing or a home equity line of credit, and invest the loan proceeds with the goal of earning more through the investments than the cost of the loan, but a prime purpose in marketing this strategy was to sell mutual funds to investors through a firm he founded.

Vanderhoof authored television advertisements that were false and misleading, and failed to provide a balanced discussion and disclose the name of the broker-dealer; and Vanderhoof failed to file the advertisements with FINRA’s Advertising Regulation department in violation of NASD Rule 2210(c)(2)(a) which required that advertisements concerning mutual funds be filed within 10 days of first use.

Vanderhoof designed and authored a website and made the publicly available website, which misleadingly failed to provide a balanced discussion of the risks associated with borrowing money through home equity loans to invest in securities, included false and misleading statements and claims and projected investment results, and was not filed with FINRA’s Advertising Regulation department.

Vanderhoof authored an information brochure, which the firm’s registered representatives sent to potential customers, that contained the same advertising content violations and was not filed with FINRA’s Advertising Regulation department. Vanderhoof approved the equity repositioning analysis for use with potential customers and caused it to be distributed to potential customers when the analysis failed to disclose the risks assumed when investors borrow money from their home to buy securities, contained statements and claims that were unwarranted or exaggerated, and made predictions or projections of investment performance.Vanderhoof failed to ensure adequate review of the equity repositioning sales materials and failed to ensure that the firm established written supervisory procedures regarding the suitability of equity repositioning recommendations.

Floyd requested and received temporary automated teller machine (ATM) cards in customers’ names and used the cards to withdraw a total of more than $15,000 from the customers’ accounts without their knowledge or consent, and used the funds for his own personal use and benefit.

Floyd failed to respond to FINRA requests for documents and information.

Faulks misappropriated customer insurance premium payments totaling over $9,600 from an insurance company by comingling her personal cash with cash premium payments and using the funds for her own purposes.Faulks paid earlier cash premiums with premium payments received at later dates, which was something the insurance company had cautioned her about in the past. The insurance company credited Faulks’ customers for the insurance premium payments that Faulks failed to deposit on their behalf.

Faulks failed to respond to FINRA requests for information and to appear for testimony.

Slonecker recommended and executed unsuitable variable annuity contract replacements or switches involving customers without regard for their age or financial backgrounds, and received $85,000 in commissions. Slonecker’s customers received no significant benefit from the transactions but incurred substantial surrender charges, new extended surrender periods and, in some cases, paid additional fees.

Slonecker made numerous false entries in his member firm’s electronic order-entry system and on other firm records to obtain approval for the switches he recommended to the customers, causing his firm to create and maintain inaccurate books and records. Slonecker’s false entries in the firm’s electronic order-entry system and suitability questionnaires were material false representations he made to his firm.

Slonecker falsely represented to customers that surrender fees associated with the switches would be fully recovered by the bonuses they would receive from their purchases of new variable annuity contracts, when he knew or should have known that the bonuses did not offset the surrender fees and he failed to disclose and explain to the customers the surrender charges associated with switch transactions.

Slonecker failed to respond to FINRA requests for information.

Collins forged customers’ signatures on financial documents and submitted the documents to his member firm and failed to send a copy to the customers.

Collins failed to disclose a variable annuity service fee in his discussion with customers and, when the customers inquired about the fee, Collins told them that the fee was an error; and to avoid further inquiries he used his own funds to pay the fee without informing the firm or the customers. Collins accomplished his payment of the fees when he executed money orders on the customers’ behalf, forged the customers’ signatures on the money orders and submitted the money orders to the firm to pay the variable annuity fees that he had not disclosed to the customers.

Acting through its chief compliance officer (CCO), the firm: 

• failed to establish and implement an adequate AML program and related procedures; adequately identify, investigate and respond to red flags of suspicious activities;
• timely file a Suspicious Activity Report (SAR); and
• provide AML training for firm personnel for one year.

Acting through a registered representative, the firm

• improperly facilitated the distribution of approximately 20 million shares of various unregistered securities;
• operated an unregistered branch office, in violation of the restriction on business expansion contained in its membership agreement, and
• engaged in improper telephone solicitations (from the unregistered office) by making materially false representations and omitting material facts in connection with the offer of securities and by using misleading telemarketing scripts that a registered principal had not approved.

Acting through the registered representative and CCO, the firm failed to perform adequate searching inquiries and take necessary steps to ensure that transactions did not involve distributions of unregistered and/or restricted securities.

Acting through a registered representative and firm principal, the firm sold securities to public investors using a private placement memorandum that omitted to disclose a convicted felon’s association with the issuer, a material fact to any reasonable investor.

Acting through various FINOPs, the firm

• failed to maintain accurate financial books and records,
• filed inaccurate FOCUS reports and
• operated a securities business while under minimum net capital requirements.

Acting through the CCO and other compliance officers, the firm

• failed to forward customer funds it received in connection with contingency offerings to an escrow agent by noon of the next business days after receipt of such fund;
• adequately review and approve customer correspondence;
• timely and accurately report customer complaints;
• timely update Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5);
• comply with the Firm Element of the Continuing Education Requirement for a year;
• conduct an annual compliance meeting; and
• establish an adequate business continuity plan, which consequently led to the loss of access to certain customer records upon termination of its relationship with a particular clearing firm.

The firm had additional supervisory deficiencies, including that

• its written supervisory procedures failed to establish adequate procedures for review of producing managers’ customer account activities,
• it failed to have written supervisory procedures for identifying producing managers that should be subject to heightened supervision, and
• failed to place certain producing managers on heightened supervision, in that, acting through various individuals, the firm failed to clearly assign each registered person to an appropriately registered representative and/or principal responsible for supervising that person’s activities, and designate principals with actual authority to carry out the supervisory responsibilities over the firm’s business.

Acting through a supervising principal, the firm failed to reasonably supervise registered representatives working out of the unregistered branch office.

Acting through firm officers, the firm failed to establish and maintain a supervisory system reasonably designed to supervise the sales activities of firm personnel conducted outside of its registered offices, and failed to establish and maintain a supervisory system for determining whether customer securities were properly registered or exempt from registration.

Acting through its CCO, the firm failed to implement adequate procedures to ensure that the firm did not telephone persons who stated they did not wish to receive calls and/or who registered on the national do-not-call registry, and failed to adequately update and maintain a do-not-call list.

Acting through various supervisors, the firm failed to perform heightened supervision over numerous individuals.

Acting through Baldwin, CMG Institutional Trading

• participated in securities related activities without employing a qualified municipal securities principal;
• failed to timely file quarterly lists of issuers with which it engaged in a municipal securities business;
• failed to adopt, maintain and enforce written supervisory procedures reasonably designed to ensure that the conduct of the broker and associated persons in municipal securities activities are in compliance with Municipal Securities and Rulemaking Board (MSRB) rules and that the procedures shall codify the broker’s supervisory system for ensuring compliance;
• had an inadequate Anti-Money Laundering (AML) compliance program, in that it failed to
• verify customer identification information,
• conduct independent testing of its AML program,
• designate a person to transmit contact information to FINRA and
• to provide AML training for two years;
• failed to timely create and maintain a business continuity plan and engaged in securities transactions without a qualified financial and operations principal (FINOP);
• conducted a securities business while its net capital was below the required minimum;
• failed to prepare an accurate general ledger, trial balances and books and records; and failed to file an annual audit report and a quarterly Financial and Operational Combined Uniform Single (FOCUS) report; and
• failed to file an application for approval of a material change in its business operations even though it participated in an offering as an underwriter on a firm commitment basis, and disseminated sales literature that contained numerous inaccuracies and misrepresentations.

Also, the firm permitted Baldwin to engage in its securities business even though his registration was inactive because he had failed to complete a continuing education course.

FINRA's National Adjudicatory Council (NAC) imposed these sanctions following appeal of an Office of Hearing Officers (OHO) decision:

CMG Institutional Trading, LLC: Expelled

Shawn Derrick Baldwin (Principal): Barred

Carrig participated in the sale of unregistered shares of a thinly traded penny stock into the public markets on customers’ behalf, resulting in proceeds of $106,320.89 to the customers. Carrig failed to

• perform adequate due diligence prior to executing these sales, notwithstanding his duty to do so and the “red flags” indicating potential violation of the registration requirements of the Securities Act of 1933;
• undertake adequate efforts to ascertain the information necessary to determine whether the customers’ unregistered shares could be sold in compliance with Section 5 of the Securities Act; and
• determine how the customers came to obtain the stock or whether there was an applicable exemption to registration.

The Firm 

• did not have a qualified individual to supervise the conduct of the firm’s head of research, who was a senior research analyst—but instead permitted senior principals to supervise the analyst when they were not qualified to do so;
• reviewed and approved its research reports prior to use, but did not evidence such approval; as a result, the firm issued research reports that were not approved by a registered principal’s signature or initial;
• failed to adopt or implement written supervisory procedures reasonably designed to achieve compliance with applicable rules regarding the supervision of research activity and the approval of research reports;
• failed to attest annually (for two years) that it had adopted and implemented such procedures, and that the firm failed to make or obtain research analyst attestations in connection with their public appearances as Securities and Exchange Commission (SEC) Regulation AC required.

Gest

• recommended risky and illiquid CMO positions to his customers, and intentionally and/or recklessly made misrepresentations of material facts and omitted to disclose material facts to customers in connection with their CMO investments;
• failed to provide his customers with material information concerning the bonds as contained in prospectuses, prospectus supplements or any offering circulars relating to the particular CMO tranches purchased that document various applicable risk factors that an investor should consider before investing;
• recommended CMO positions to customers without investigating and understanding the products and without reasonable grounds to believe that CMO investments were suitable, as he lacked an understanding of the material characteristics of, and risks associated with, the CMOs offered;
• lacked reasonable grounds to believe the CMO program and CMO investments were suitable for his customers based upon their disclosed investment experience, investment objectives, financial situation and needs, and he did not have reasonable grounds to believe that the use of margin was suitable for customer CMO purchases;
• exercised discretionary authority in customer accounts without his customers’ prior written authorization and his member firm’s prior written acceptance of the accounts as discretionary; and
• willfully failed to timely update his Form U4 with material facts.

Daniel took confidential customer information, including social security numbers, upon her departure from a member firm and used the information to solicit business at her new member firm. As a result of Daniel’s former firm findings, her new firm conducted a review of her files that revealed that she had retained copies of or originals of her former firm’s account documents.

Daniel responded falsely to a FINRA request for information pertaining to the matter, but later acknowledged to FINRA that she had provided false information after being confronted with copies of documents she had retained.

E*Trade introduced several new money market sweep funds and, when entering certain back-office processing instructions relating to some of the funds, the firm made an error that resulted in the system failing to recognize these fund positions and customers being erroneously charged margin interest for that day. When the firm became aware of this coding error and corrected the problem, it did not identify or reimburse affected customers until later in the year; the firm reimbursed affected customers a total of $43,938.57 in erroneous margin interest charges several months later.

The Firm acquired customer accounts through conversions from other firms, and it erroneously charged margin interest to conversion customers who traded options.

The Firm failed to designate an employee to review, reconcile and resolve fractional share differences between its Depository Trust Company (DTC) position and the actual quantity of securities on deposit at the DTC.

The Firm’s systems failed to accept delivery instructions if customers had pending dividends or unsettled positions in their accounts.

FINRA also found that the firm failed to establish a system reasonably designed to supervise and written procedures reasonably designed to prevent and/or correct erroneous margin interest accruals in customer accounts holding certain money market sweep funds, prevent and/or correct erroneous margin interest charges to converting customers who traded options at the time of the conversion and had available cash in their accounts, ensure the review and reconciliation of fractional share differences with the DTC, and ensure the prompt transfer of physical certificates to customers. In addition, the Firm failed to accurately mail account statements to customers, liquidated fractional shares in customer accounts without their authorization and failed to report customer complaints in an accurate and timely manner.

Moreover, in connection with its conversion to a new back office system, a functionality that impacted the segregation of long positions in suspense accounts was not activated as required and, as a result, the firm’s possession and control system failed to issue segregation instructions on long positions in suspense accounts.

E*Trade failed to adequately prepare for, and respond to, its acquisition of another member firm and, prior to the conversion, it identified approximately 88,000 converting customers whose login information was likely to be incompatible with the firm’s systems. The Firm communicated with those customers and provided them with temporary login IDs and instructions, but an additional number of conversion customers who the firm had not initially identified also had login information that was incompatible with the firm’s systems. The login problem led to higher-than-expected call volumes, which the firm was not equipped to handle, and the problem was not completely resolved for several months and the conversion customers continued to inquire about their passwords and access to their accounts. The Firm had over 17,000 unanswered emails from converting customers regarding conversion issues.

The Firm disclosed that a technological problem had prevented it from transmitting customer orders to various market centers on a particular day and, as a result, the firm’s customers were unable to enter orders online or log on to the firm’s website. The Firm's website experienced sporadic slowness and continued delays because requests had accumulated in excess of what the systems were normally able to process. In addition, the Firm failed to establish a system reasonably designed to supervise, and written procedures reasonably designed to ensure, customers’ ability to log in to their accounts and contact customer service for assistance, ensure customers’ ability to enter orders online on one particular day and to timely enter orders online.

Acting as his firm’s Anti-Money Laundering Compliance Officer (AMLCO), Schaefer failed to ensure the implementation of independent tests of the firm’s AML compliance programs. Schaefer did not use an independent third party to conduct the firm’s AML tests; rather, he drafted reports and presented them to an unqualified administrative assistant, who signed off on the reports without conducting any AML testing. Schaefer created and submitted inaccurate substitute compliance meeting attendance lists to FINRA staff during the course of FINRA’s examination of Schaefer’s firm and without telling FINRA staff that the sheets were recreations.

Schaefer failed to timely submit the administrative assistant’s fingerprints to CRD, even though the individual had access to the firm’s books and records, maintained the firm’s check book and possessed an ink stamp of Schaefer’s signature, which he used to sign firm checks. Schaefer failed to ensure that his firm established, maintained and enforced written supervisory control policies and procedures, and failed to ensure that an employee’s fingerprints were submitted to CRD, thereby causing his firm to violate Section 17(f)(2) of the Securities Exchange Act of 1934 and Rule 17f-2 thereunder.

Glover engaged in private securities transactions without providing his member firm with prior written notice. Glover recommended that his customers invest in investment funds of an entity which was not approved by his firm and was exposed by federal authorities as a Ponzi scheme.

Glover did not receive any compensation and his customers lost approximately $470,000 by investing in the funds.

Acting through Lim, the Firm failed to

• preserve emails in nonrewritable, non-erasable format;

• failed to provide FINRA with notifications of its use of electronic storage media;

• provide FINRA with a letter from a third party describing the third party’s undertakings regarding the firm's electronic storage media as specified by Securities and Exchange Commission (SEC) Rule 17a-4; and

• evidence the review of all incoming and outgoing email communications with customers.

• inspect branch offices even though it had been previously warned in a Letter of Caution that branch offices needed to be inspected on a regular basis.

The firm's written procedures failed to identify locations that regularly conducted the business of effecting securities transactions by soliciting new accounts as branch offices, and failed to address the firm's requirement to conduct internal inspections of these offices.

Investscape, Inc.: Censured, Fined $7,000; and Fined $17,500, jointly and severally with Lim

Richard Michael Lim: Fined $17,500, jointly and severally with Investscape and Suspended 1 year in Supervisory capacity only 

Coen borrowed approximately $2,700,000 from a customer and used the loan to trade in his personal brokerage account and cover a margin call. Coen wired $300,000 that he borrowed from the customer to an account another firm customer controlled, claiming that the money was a loan to the customer.

Coen borrowed approximately $270,000 from another firm customer for whom he managed the brokerage accounts for entities the customer controlled.

Coen’s firm did not permit loans from or to customers, and Coen did not request or obtain his firm’s pre-approval (either verbally or in writing) prior to borrowing or lending monies from or to customers, nor did he otherwise inform his firm of the loans.

Acting through Kadison, the Firm failed to

• maintain and preserve all business-related electronic communications;
• establish and maintain a supervisory system,
• establish, maintain and enforce written supervisory procedures, reasonably designed to achieve compliance with the rules and regulations applicable to the retention of electronic communications;
• implement a customer identification program in compliance with its written anti-money laundering (AML) compliance procedures for verifying customer identity for accounts opened with the firm.

Marsco Investment Corporation:  Censured; Fined $25,000; Within 90 days of the issuance of the AWC, the firm’s Chief Executive Officer must certify in writing to FINRA that the firm has systems and procedures in place that are reasonably designed to achieve compliance with the laws, regulations and rules concerning the preservation of electronic mail communications.  

Mark E. Kadison: Censured; Fined $10,000.

Brookstone Securities failed to ensure that each of its registered representatives and registered principals participated in an annual compliance meeting. The Firm failed to timely update a registered representative’s Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose required information and failed to timely disclose customers’ complaints pursuant to NASD Rule 3070.

The Firm failed to report quarterly statistical customer complaints; failed, in some instances, to create and maintain a record of customers’ complaints and related records that included the complainant’s information; and, alternatively, failed to maintain a separate file that contained complainant’s information.

The Firm failed to report transactions to the Trade Reporting and Compliance Engine (TRACE) and failed to evidence the creation and maintenance of order tickets for sell transactions in corporate bond transactions.

Budvitis misappropriated a total of $26,500 from a customer’s account by completing Client Verbal Instructions Forms requesting that a check be issued to his family member, and funds transferred from the customer’s account to his family member’s account without the customer’s permission or authority. Budvitis misappropriated an additional $40,000 but later issued a stop payment on a check and deposited a cashier’s check for the withdrawn funds back in the customer’s account.

Budvitis failed to respond to FINRA requests for information and to testify at an on-the-record interview.

Derieg served as an elderly customer’s attorney-in-fact pursuant to a power of attorney (POA) designation, and became a co-successor trustee and a beneficiary of the customer’s living trust. Derieg’s member firm generally prohibited representatives from accepting fiduciary appointments, except in connection with family. Derieg completed his firm’s associate annual attestations, in which he failed to disclose that he was named as a co-successor trustee of the elderly customer’s restated trust, that he was a beneficiary of her trust and life insurance policy, or that he was designated as an attorney-in-fact under the power of attorney should the customer become incapacitated.

Derieg improperly borrowed money from the customer when his firm’s written procedures prohibited registered representatives from borrowing money from customers, other than family members, and only then with management approval, and Dereig did not notify the firm of the loans or obtain its prior approval.

Derieg engaged in unauthorized transactions in the customer’s investment portfolio that were unsuitable in light of the customer’s deteriorating medical condition, her resulting financial situation and need for preservation of principal.

Garden State 

• offered and sold unregistered securities that were not exempt from registration to customers;
• made commission payments to representatives in branch offices through nonregistered entities; and
• failed to make proper use of the Federal Trade Commission’s national do-not-call registry, permitting its registered representatives to cold-call persons on that list;

Acting through a registered principal, the Firm prepared and used a telemarketing script and issued research reports in the form of newsletters that contained exaggerated, misleading or unwarranted statements and failed to disclose required information. The script contained statements regarding the purported aggregate performance of the firm’s individual stock recommendations, but failed to include past years’ performance information and a description of the risks associated with an investment in stock, including the risk of loss, and the script touted the successful performance of one of its stock recommendations and suggested that similar opportunities would be available in the future.

The Firm’s newsletters constituted research reports, which, among other things, made oversimplified, exaggerated, unwarranted and misleading statements regarding its stock recommendations. In addition, The research reports contained or referenced performance charts that provided oversimplified and incomplete presentations of the firm’s performance track record. Moreover, the research reports did not adequately disclose any ownership interests and material conflicts of interest concerning its recommendations, and did not adequately disclose the meaning of the firm’s “buy,” “hold” and “sell” ratings. Furthermore, the research reports contained ratings and price targets for securities without including a line graph of the securities’ daily closing prices for the required period and without disclosing the risks that could impede achievement of the price targets.

Without a bank customer’s knowledge or authorization, Barrett

• signed the customer’s name on a check withdrawal form requesting a $25,000 check from the customer’s account made payable to Barrett’s friend, and the funds were later deposited into the friend’s checking account; and
• activated and linked an ATM card to the bank customer’s savings account and used the card to withdraw $3,500 from the account for his own personal use and benefit.

Barrett failed to respond to FINRA requests for information and to appear and testify at an on-the-record interview.

Salerno exercised discretion in a customer’s account without the customer’s written authorization and his member firm’s acceptance of the account as discretionary.

Salerno sent electronic mail to a firm customer from a personal, unapproved email address and failed to seek or obtain his firm’s permission prior to doing so. Salerno’s private email account, his firm was unable to review his emails to the customer and Salerno was able to shield his discretionary trading activity from his firm.

Salerno failed to appear to provide testimony at FINRA on-the-record interviews.

McEwen converted $32,528.56 from a customer by falsely informing her that a check McEwen’s member firm sent to her pursuant to a consent order with the Missouri Securities Division for unsuitable variable annuity sales to the elderly was sent to her by mistake and actually represented commissions the firm owed him. McEwen instructed the customer to deposit the check into her bank account and then make a check payable to him in the same amount; after the customer followed these instructions, McEwen cashed the check and deposited the funds into his personal bank account. McEwen converted an additional $11,000 from the customer by depositing checks intended for investment into his personal bank account and failed to purchase investments on the customer’s behalf.

McEwen failed to appear for FINRA on-the-record testimony.

Dunham exercised discretion in customers’ account, without written authorization from the customers and his member firm’s acceptance of the accounts as discretionary.

Dunham attempted to settle a customer’s anticipated complaint without notifying the firm of the customer’s concerns or the fact that he had paid her a total of $20,000 to settle, even though he did not have his firm’s permission to settle customer complaints. The customer did not cash the checks Dunham gave her and subsequently filed a complaint with the firm regarding the margin balance in her account.

Hockensmith participated in transactions involving investment in a purported foreign currency exchange (FOREX) trading program and did not seek his member firm’s written authorization to participate, and the firm was unaware of and did not authorize his participation. The purported FOREX trading program was not a firm-approved product and the firm did not have a selling agreement with the purported trading program.

The firm’s written procedures advised representatives that prior to engaging in a private securities transaction, representatives must submit a written request to the compliance department describing the proposed transactions and that written authorization from the compliance department must be received before a representative could engage in such conduct. Hockensmith completed and executed his firm’s representative affirmations addressing the firm’s policies and procedures regarding selling away/private securities transactions, and the firm addressed the topic at multiple annual compliance meetings, as well as issuing compliance bulletins/notices to its representatives regarding selling away/private securities transactions.

Hockensmith borrowed $200,000 from a client without his firm’s knowledge or consent and contrary to the firm’s written procedures prohibiting representatives from borrowing from a customer. Hockensmith executed representative affirmations agreeing to his firm’s procedures manual regarding prohibited activities, which included borrowing from customers.

Hockensmith failed to respond to FINRA Rule 8210 requests for information.

Harwell engaged in private securities transactions without prior written notice to, or prior written approval from, his member firm. Harwell offered for sale and sold unregistered shares of stock to individuals for which he collected funds totaling approximately $130,950.

Harwell failed to respond to FINRA requests for information.

Ellis engaged in outside business activities without providing prompt written notice to his member firm. Ellis managed customers’ accounts and effected trades in commodity futures contracts and commodity futures options through commodity trading firms and earned commissions from the firms. Ellis completed quarterly compliance questionnaires for his firm that inquired if he had engaged in an outside business activity while associated with the firm, and he answered “no” to this question, thereby knowingly providing false information to his firm, which caused its firm’s books and records to be inaccurate.

Ellis willfully failed to timely amend his Form U4 with material information.

Ramsey served as a registered representative for an elderly customer who executed a power of attorney, giving Ramsey broad authority over her financial affairs. The customer asked Ramsey to invest $600,000 in a variable annuity, and then, without the customer’s knowledge or authorization, Ramsey used the power of attorney to obtain approximately $482,000 in withdrawals from the annuity, which, after taxes were deducted, totaled approximately $373,750. Checks for $373,750 were issued in the customer’s name and sent to Ramsey’s office. Ramsey deposited some of the money into the customer’s checking account, but converted some of the funds for his personal use without the customer’s knowledge or authorization. 

Separately, Ramsey borrowed $275,000 from the customer and, in total, owes the customer approximately $500,000.

Ramsey failed to appear to provide testimony.

Stellick completed an online application to open a brokerage account for a customer at a FINRA member firm with which he was not associated and completed the application by obtaining the customer’s signature on a separate page and submitting it to the executing member firm.

Stellick effected options transactions in the customer’s account at the executing member firm, but in light of the customer’s stated risk tolerance, Stellick did not have reasonable grounds for believing that the transactions were either qualitatively or quantitatively suitable for the customer. Stellick exercised discretion with respect to the options transactions effected in the customer’s account and never received written authorization from the customer, nor did he receive the executing member firm’s written approval. Stellick never notified his member firm, either orally or in writing, about the account he opened for the customer, or about any transactions he effected in that account. Stellick never informed the executing member firm about his control over the customer’s account and his status as an associated person of his firm.

Stellick borrowed $326,000 from his customers in violation of the written procedures of the firms with which he was associated.

Tiongson misappropriated $4,000 from an individual, who gave her the funds to trade in a commodities futures trading account that she held away from, and was approved by, her member firm which she had subsequently closed. Tiongson never used the individual’s funds to trade commodities futures, but instead used the funds for her personal benefit without the individual’s knowledge or consent.

Tiongson made full restitution to the customer.

Rukujzo participated in the negotiation and consummation of an Asset Purchase Agreement transaction, involving

• another FINRA member,
• a non broker-dealer entity, and
• an entity which was a customer of his member firm.

The transaction resulted in the transfer from the other FINRA member of multiple customer mutual fund positions for which Rukujzo’s firm had become the dealer of record to the dominion and control of his firm’s customer (the entity), which exposed customers’ accounts to losses as a result of the entity’s speculative margin trading. Rukujzo’s firm facilitated the transfer of certain positions held directly at mutual fund companies to an omnibus margin account held and maintained at the firm’s clearing firm in the name of the entity, for which the firm was the broker-dealer of record. The Firm advised its clearing firm that the customers had authorized the use of their mutual fund assets as collateral when in fact, the customers did not sign any margin authorization forms, and information sent to the customers did not mention a margin account, the use of margin in investment strategies, or the use of the customer’s assets as collateral to support margin trading in the omnibus account.

Rukujzo allowed an unregistered person to function as a representative and the firm’s principal without being registered. Under Rukujzo’s direction and control, his firm engaged in the change of dealer of record designation without the customer’s authorization, and allowed his firm to participate in a transaction that he knew, or should have known, required approval from FINRA, and that approval was neither requested nor obtained.

RESPONDENT'S NAME DELETED PER SOLE DISCRETION OF BROKEANDBROKER.COM processed options trades in his member firm’s average price account that its clearing firm then executed, but credited customers with inferior prices to the actual street execution price. Respondent created fictitious transactions to journal a portion of the difference between the street price and the inferior price booked to client accounts from the average price account to personal accounts he held at the firm, thereby depriving customers of best execution for their securities transactions. By using fictitious transactions, Respondent misappropriated from the firm’s average price account to his personal accounts $1,305 of the total $2,280 that represented the difference between the prices booked to the customer accounts and the street price to which the customers were entitled, thereby converting the $1,305.

Respondent used his firm’s inventory accounts to place trades that were ultimately allocated to his personal accounts and accounts his relatives held by creating fictitious trades as a means to move the gains he obtained by trading in the inventory accounts to his personal accounts his relatives held. Respondent used the firm’s inventory accounts rather than his personal accounts because he lacked the buying power in his personal accounts to place the trades.

The Firm verbally warned Respondent that he was not permitted to use inventory accounts for personal trading and distributed a written memorandum to all employees telling them that this practice was prohibited, but Respondent ignored the warning and, to avoid detection, stopped using his own accounts and began allocating trades to accounts his relatives held. Respondent ’s firm warned him in writing to stop using firm inventory accounts for personal trading or he would be terminated.

In addition, Respondent effected transactions in his relatives’ accounts to move profits generated by day trading in the firm’s accounts to his family members’ accounts without his family members’ prior written authorization to exercise discretion. Moreover, after effecting trades in the firm account and moving the proceeds to family members’ accounts, Respondent forged relatives’ signatures on wire transfer forms to move the funds he obtained to bank accounts in which he had an interest. Furthermore, Respondent caused his firm to maintain inaccurate books and records by creating fictitious trades in the firm’s inventory accounts to journal proceeds from day-trading activities and from the customer trades books at prices inferior to the prices executed with the street and by forging signatures on wire transfer forms.

• shared a draft of a section of a research report that contained a research summary, rating and price target with a subject company before it was published, and the draft was not provided to legal or compliance personnel at the firm;
• did not monitor or place restrictions on the trading of stock picks by research analysts, who placed trades in violation of the limits placed on analysts by NASD Rule 2711(g) and failed to retain records showing the dates that newsletters were published prior to 2005;
  
• failed to disclose the valuation methods it used to determine the price target and the risks to achieving the price target in the stock pick sections of its research report;
• failed to have a principal review, initial and date its published research reports before the earlier of its use or filing with FINRA’s Advertising Regulation Department;
• failed to adopt and implement written supervisory procedures to cover research reports distributed to the public and ignored red flags regarding stock pick sections qualifying as research reports; and
  
• failed to establish, maintain and enforce written supervisory procedures for its newsletter, in that the firm had no written supervisory procedures that governed research reports distributed to the public.

Seefried exercised discretion in a customer’s account without the customer’s prior written authorization or his member firm’s acceptance of the account as discretionary. Seefried knowingly provided false information to the firm when he completed Registered Representative Compliance Summaries and did not provide affirmative answers regarding exercising discretion, causing the firm’s books and records to become inaccurate.

Seefried knew that a customer’s signature on a New Issue Certification was not genuine, but he submitted it, or caused it to be submitted, to the firm so that the customer could purchase securities in an initial public offering, where it became part of the firm’s books and records; thereby falsifying the firm’s records.

Seefried recommended and effected transactions in a customer’s account without having reasonable grounds for believing that the transactions were suitable based upon the facts the customer disclosed as to her other security holdings, financial situation and needs.

Bentley-Lawrence and an unnamed registered representative settled a claim in connection with the representative’s mutual fund switching in a customer’s account.  Acting through Coskey, the Firm failed to

• report that settlement to FINRA;
• adequately and properly supervise the registered representative who engaged in mutual fund switching activities in customers’ account, which generated in excess of $178,000 in gross commissions, representing more than 50 percent of the firm’s mutual fund commission revenue for all registered representatives; and 
• adequately supervise to ensure the timely reporting of the settlement with the customer.

Bentley-Lawrence Securities, Inc.: Fined $50,000; Ordered to pay $117,623.68 restitution to customers, jointly and severally with Coskey.

Richard Lawrence Coskey: Fined $20,000; Ordered to pay $117,623.68 restitution to customers, jointly and severally with Bentley-Lawrence Securities; Suspended in Principal capacity only for 9 months.

Bank and Bodoh and misappropriated approximately $161,000 in commissions and other payments from Bank’s member firm for their own use. Bank directed his member firm to wire money from a subsidiary to an account Bodoh controlled;  Bodah, in turn, transmitted the majority of the funds to an entity Bank controlled and kept a portion for himself. Bank entered false information concerning securities transactions on his firm’s business records, willfully causing his firm to maintain inaccurate books and records. Bank and Bodoh provided false information in response to FINRA requests for information, and provided false and misleading testimony under oath in a FINRA on-the-record interview.

Bodoh participated in private securities transactions without notifying his member firm or obtaining its approval.

Daryl Gene Bank and Gregory Dean Bodoh: Barred

The sanctions were based on findings that acting on the firm’s behalf, Israel and Kirincic used deceptive techniques to manipulate the stock price of the firm’s publicly-traded parent company. Kirincic forged public customers’ signatures on stock certificates and authorization letters. Acting through Israel and another individual, Kirlin Securities failed to comply with best execution requirements for a customer order.

Kirincic has appealed this decision to the United States Court of Appeals for the Second Circuit. The bar is in effect pending consideration of the appeal.

Kirlin Securities, Inc.: Expelled

Andrew Joseph Israel: Barred with right to apply after 5 years

Anthony Joseph Kirincic: Barred

Through several of its employees at the branch office level and employees of an affiliate in the Office of General Counsel, the Firm made material misstatements to NYSE Regulation examiners relating to an on-site branch office examination relating to non-registered cold callers by

• providing the NYSE with inaccurate and deceptive information in response to various regulatory examination requests,
• instructing staff that an unapproved facsimile machine be hidden or removed, and
• by providing an inaccurate written statement in response to requests for information during an ongoing investigation.

Unlicensed Attorney

The Firm failed to properly supervise a registered person with the firm who held himself out as an attorney on firm stationery and business cards even though he was not licensed or admitted to practice before any state or federal bar.

Away Accounts

The Firm failed to

• provide letters from outside broker dealers, whose employees maintained accounts at the firm, confirming that they were aware of such accounts;
• receive and review duplicate confirmations and monthly account statements for accounts that employees maintained outside the firm;
• evidence the approval of such accounts; and
• send duplicate statement and confirmations to other firms whose employees had accounts at the firm.

Communications and Computers

The Firm failed to

• evidence review and supervision of incoming or outgoing written communications and facsimiles at certain branches;
• evidence the approval for certain employees to maintain computers and software; and
• review, supervise and/or evidence supervisory review of communications that employees sent and received with non-firm issued computers.

The Firm failed to place certain accounts on 90-day restrictions; evidence the review, approval and/or supervision of order errors and account designation changes; and date or properly date corrections for order errors and account designation changes. Also, the Firm failed to evidence the review, approval and/or supervision of certain personal computer forms that had been backdated at a branch; failed to approve and/or timely approve seminars that firm employees conducted, and maintain certain seminar-related materials; failed to review, approve and/or retain certain facsimiles, including Fax-2-Mail correspondence and/or evidence its review and approval; and failed to maintain its "control" fax machine in a secure location in one branch.

Condos and Roberts had knowledge that a sales assistant and possibly others replaced customer email addresses with the sales assistant’s firm email address to facilitate the opening of online accounts and to lessen the amount of communications the customers received; therefore, trade confirmations were sent to the sales assistant rather than the customers, although the customers continued to receive their monthly account statements, prospectuses and 1099 federal tax forms by mail.

Roberts’ relative opened several accounts at his member firm; Roberts serviced those accounts but failed to disclose to the firm that the individual who owned the accounts was a relative. Had Roberts made such disclosure, the account numbers assigned to the accounts would contain a prefix identifying them as being employee-related.

Stephen George Condos: Censured; Fined $15,000; Suspended 3 weeks in all capacities

Chuck A. Roberts: Censured; Fined $40,000 and Suspended 4 weeks in all capacities

Delott engaged in improper seminar, training and sales activities in retirement planning workshops, fact finders meetings, annuity training and a breakout session at an insurance industry expo. Delott failed to disclose that he received commissions for the sale of EIAs and falsely created the appearance that people were signing up for a fact finders meeting by asking existing customers to come to the front room at the conclusion of a workshop.

Delott recommended and instructed attendees at annuity training sessions and an expo breakout session to make false, misleading, unwarranted or exaggerated statements in the sale of EIAs and other financial products; to omit material facts; to present information concerning EIAs that is not fair and balanced; and to use improper and high-pressure sales strategies. Delott made exaggerated, unwarranted and misleading statements, and statements that were not fair and balanced and did not provide a sound basis for the evaluation of facts during his workshops, fact finders meetings and annuity training classes. 

In connection with his marketing of EIAs, securities and insurance and annuity training, Delott used materials that his member firm had not approved. FINRA found that Delott did not disclose his member firm’s name on invitations, or failed to disclose it in a prominent manner, and engaged in outside business activities without disclosing the activities to his firm or seeking its approval.

Acting through Buchanan, Valores Finamex failed to produce evidence of Buchanan’s review of a registered representative’s correspondence. The Firm’s written supervisory procedures failed to

• identify the registered representative as a producing manager,
• contain procedures reasonably designed to provide heightened supervision over the activities of each producing manager who is responsible for generating 20 percent or more of the revenue of the business units supervised by the producing manager’s supervisor, and 
• assign a qualified supervisor to supervise the registered representative.

The Firm permitted Buchanan to conduct a securities business while he was “Continuing Education Inactive.”  Also, the Firm failed to

• send an annual privacy notice to its customers;
• provide an explanation to its customers of their right to opt out of disclosure of nonpublic personal information to nonaffiliated third parties; and
• establish policies and procedures that address and review administrative, technical and physical safeguards for the protection of customer records and information involved in the outsourcing of compliance and operations functions to nonaffiliated third parties.

The Firm effected Trade Reporting and Compliance Engine-eligible securities trades and failed to report, or properly report, those transactions.

Valores Finamex International, Inc.: Censured; Fined $27,500 ($10,000 of which was jointly and severally with Buchanan).

Vincent Anthony Buchanan: Fined $10,000 jointly and severally with Valores Finamex; Suspended in Principal capacity only for 20 business days. 

On his member firm’s behalf, O’Fee verbally confirmed a sell order with another member firm for U.S. Treasury to be announced (TBA) securities, entered the trade into his firm’s trading systems via Bloomberg and cancelled the trade shortly thereafter, despite agreeing to the trade without properly entering the trade or honoring his commitment. O’Fee did this multiple times. O’Fee’s firm honored his trade, closing out his short position at a loss to the firm of $152,751.97.

Once O’Fee realized the trade he failed to enter had gone against him, he engaged in a series of additional trades to conceal his conduct and, in an attempt to make up losses in his trading book, he entered buy orders with another member firm into his firm’s trading system via Bloomberg, but his firm’s clearing firm attempted to send a wire to the firm notifying it that there was no comparison.

O’Fee sold the securities to another member firm without the other firm’s authorization to effect the sales; therefore, he was short on the sale to the second firm. O’Fee’s firm covered the short position, and these transactions caused his firm to lose an additional $130,000, less a fail float of $15,000. In addition, when O’Fee effected the trades and cancellations, he only entered them into the firm’s trading system via Bloomberg and did not create handwritten tickets as firm policy required, thus permitting O’Fee to avoid supervisory review or detection and causing his firm’s books and records to be inaccurate.

• amend Uniform Applications for Securities Industry Registration or Transfer (Forms U4) to disclose registered representatives’ liens and bankruptcies,
  
• submit amended Uniform Termination Notices for Securities Industry Registration (Forms U5) to report investment-related complaints against registered representatives, and
  
• file FINRA Rule 3070 reports with FINRA.
  

Registered Principal Busacca failed to reasonably supervise the firm's operations and failed to diligently address numerous problems at the firm, including, but not limited to, inaccurate box counts, accurate securities position records, violations of section 220.8 of Regulation T of the Federal Reserve Board, failing to maintain margin requirements, failing to report data pursuant to NASD Rule 3150 and problems with transfers of customers’ accounts. As the firm’s President,  Busacca permitted a non-registered person to act in a principal capacity as the firm’s chief compliance officer.

The FINRA Hearing Panel (OHO) suspended Busacca for six months in all principal capacities and fined him $25,000 for failing to reasonably supervise the operations of North American Clearing, Inc., f/k/a Advantage Trading Group, Inc. (hereinafler, “North American” or the “Firm”), in violation ofNASD Rules 3010 and 2110. The OHO Panel also fined Busacca $5,000 for permitting North American, as its president, to employ an unregistered chief compliance officer, in violation of NASD Rules 1022 and 2110. On appeal, FINRA's National Adjudicatory Council (NAC) sustained the OHO's findings and sanctions. 

This decision has been appealed to the SEC and the sanctions are not in effect pending consideration of the appeal.

Acting through Registered Principal Asensio, a member firm

• issued research reports that failed to define the meaning of each rating and that failed to disclose the distribution of the firm’s ratings; and
• made statements in research reports that were unwarranted or misleading.

Also, Asensio failed to fully respond to FINRA requests for information.

This decision has been appealed to the Securities and Exchange Commission (SEC) and the bar is in effect pending consideration of the appeal.

Registered Principal Peterson was responsible for contacting representatives at his member firm whose accounts appeared on the active account surveillance reports to investigate the activity and contact the customers, if necessary. Despite being made aware of frequent transactions in customers’ accounts, Peterson failed to reasonably respond to “red flags” indicating unsuitable and excessive trading by not contacting the customers nor restricting activity in the accounts. Peterson relied on the representatives’ unsubstantiated and false claims and order entry records.

Rhodes failed to give notice to his member firm as required by the firm and FINRA rules that he was engaged in an outside business activity and was being compensated by an individual for providing financial services. The individual contacted Rhodes for financial advice on several businesses the individual owned and on a number of issues and Rhodes met with his firm’s officers to develop a plan for working with the individual.

Rhodes firm’s officers told him that he had to qualify and become registered as an investment adviser representative (Series 65) before he could provide the services the individual requested and be compensated for those services. Rhodes was paid $25,000 per month from one of the individual’s businesses even though he was not registered as an investment adviser representative. The Firm learned about the compensation through other means.

• conduct inspections of its main office,
  
• reduce inspections and reviews to a written report, and
  
• conduct annual compliance meetings.
  

• document that it had administered a continuing education program in accordance with its evaluation of its training needs and written training plan for its covered registered personnel, and
  
• conduct a needs analysis and prepare a written training plan or administer a continuing education program for its covered registered personnel.
  

• a pending Commodity Futures Trading Commission (CFTC) securities fraud action against the hedge fund manager,
  
• the fund’s theoretical and unproven performance figures,
  
• the speculative nature of the fund’s trading strategy, and
  
• the significant risks associated with an investment in the hedge fund and its general partner.
  

• email correspondence,
  
• incoming and outgoing hard copy correspondence at the firm’s branch offices that he was in charge of, and
  
• outside investment activity of registered representatives at the firm.
  

• NASD Rule 3012(a)(2)(B) and its requirement that members establish, maintain and enforce procedures reasonably designed to review and monitor transmittals of funds or securities between customers and registered representatives, and
  
• NASD Rule 3012(a)(2)(C) and its requirement of an analysis and determination of whether producing branch office managers should have been subjected to heightened supervision.

• a customer’s $928.78 automobile insurance policy check by depositing the check into her personal bank account instead of forwarding it to her member firm (later reimbursint the funds to the customer); and
  
• $5,148.51 in variable life insurance premiums by depositing customers’ checks into her personal bank account.

• develop and implement an adequate supervisory system and written procedures for detecting and reporting suspicious activity;

• provide adequate anti-money laundering (AML) training for its designated AML officers and firm employees; and

• conduct adequate independent testing of its AML compliance program for two years.
  

• reissue checks,
  
• recredit customer accounts,
  
• contact the customers regarding unclaimed funds, and/or
  
• comply with state laws concerning unclaimed property.

The Firm failed to have an adequate supervisory system, including written supervisory procedures and a supervisory control system, to properly and timely identify customer checks deposited at affiliated bank branches and ensure that all customer check deposits were duly credited to the appropriate customer accounts. The Firm escheated approximately $133,616.65 in funds to the Commonwealth of Kentucky when it was unable to identify the proper customer accounts. As a result of the unidentified customer check deposits, the firm failed to make and keep accurate daily records of all receipts and disbursements of cash and other debits and credits in its books and records, including entries to an Escheatment Account. The Firm understated its net capital charges and incorrectly calculated its Customer Reserve Formula. In addition, the Firm produced inaccurate month-end customer account statements, incorrectly liquidated certain customer fully paid securities, and failed to segregate some customers’ fully paid securities, resulting in intra-day possession or control deficits. The Firm did not prepare required inter-company account reconciliations, failed to properly record certain aged unfavorable reconciliation differences and failed to conduct supervisory reviews of certain reconciliations and accounts.

The Firm ’s supervisory procedures did not adequately ensure that its research analysts obtained the required approval for public appearances and provided proper disclosures during such public appearances. In addition, the Firm issued certain research reports that

• contained indefinite “may” language regarding future investment banking services that the firm expected to provide,
• did not include analyst certifications on the front page,
• contained front pages that did not specify the page or pages in the research report on which the analyst certifications were to be found, and
• incorrectly included the analyst certification information as part of the important disclosures.

Registered Principal Brennan failed to reasonably supervise and respond to warning signs that registered representatives were conducting and operating a securities business from an unregistered branch office without supervision. The representatives

• improperly solicited potential customers by telephone in connection with the offer of securities,
• made false representations, including unwarranted price predictions,
• omitted material facts, and
• used misleading telemarketing scripts that a registered principal had not approved.

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

The Firm failed to retain email communications related to its business that were sent to and from non-firm email accounts that firm registered representatives working from one of its branch offices used, and failed to establish and maintain a system for supervisory review of those outside emails.

Acting through a registered principal, the Firm failed to develop a privacy policy or disseminate privacy notices required by SEC Regulation S-P to its customers. censured, fined $5,000, jointly and severally, and fined an additional $60,000

The Firm failed to maintain new account documents for some accounts and failed to maintain complete new account documents for other accounts that lacked customer information. The Firm failed to enforce its written supervisory procedures concerning the dissemination of a privacy policy and the collection and maintenance of complete new account forms.

Tischler borrowed $67,000 from a public customer contrary to his member firm’s prohibition of registered representatives borrowing money from customers. Tischler completed, signed and submitted annual firm compliance questionnaires in which he failed to disclose the loans from the customer.

Tischler withdrew his appeal to the NAC.

Registered Supervisor Newton used her position as an operations manager to misappropriate more than $10,000 from her member firm. Newton

• entered false deposit amounts into her brokerage account at her firm, thereby creating artificial balances in the account,
• transferred money from the brokerage account to her personal checking account, and
• used the funds for personal purposes.

In an attempt to conceal the false deposits, Newton deposited checks into her brokerage account and made an online transfer knowing at the time that her checking account lacked funds to cover the checks, and used an ATM to intentionally enter an amount to be deposited that was greater than the check included with the deposit. By knowingly entering fictitious deposit amounts into her brokerage account at her firm, Newton created artificial balances in it and caused her firm’s books and records to be false.

Registered Principal Tucker misappropriated approximately $847,188.87 from customers’ accounts at her member firm and used the funds for her own use and benefit. To facilitate her improper use and misappropriation of customer funds, Tucker

• caused international customers’ accounts to be removed from an abandoned status,
• caused the addresses for the accounts to be changed to addresses that she controlled,
• effected unauthorized sales of securities in the customers’ accounts,
• forged Letters of Authorization (LOAs) and Wire Transfer Agreements (WTAs) to transfer funds out of the customers’ accounts, and
• approved and processed the fraudulent LOAs andWTAs.

Tucker’s conduct caused her firm to maintain inaccurate books and records. To make cash available, Tucker sold securities in several accounts without the customers’ knowledge or authorization, then transferred the proceeds to herself through relatives by wire or check. Tucker failed to respond to FINRA requests for information and failed to appear for an on-the-record interview.

The Firm failed to

• report quarterly statistical and summary information to FINRA regarding a substantial number of customer complaints;
• establish,maintain and enforce a supervisory system reasonably designed to identify, capture, analyze and report customer complaints that are required to be reported pursuant to NASD Rule 3070(c);
• put adequate systems and procedures in place to ensure that all customer complaints were identified and forwarded to the appropriate firm personnel,
• adequately train all personnel who might potentially receive customer complaints regarding proper handling of complaints, and
• ensure that sufficient guidance was given to personnel who were responsible for reviewing complaints to determine which complaints were reportable.