NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.
Goddard actively engaged in a member firmís investment banking and
as a principal without proper registration.
Goddard signed selling
agreements and consulting agreements with issuers on the firmís
behalf as an officer of
the firm and worked closely with the firmís outside counsel to
establish the terms of selling
agreements and private placement offerings that the firm
conducted. Unbeknownst to
Goddard, the firmís CCO amended the firmís Application for
(Form BD) to list Goddard as the firmís CEO.
Goddardís entire association with the firm, he was only registered
as a general securities
representative; Goddard took the Series 24 examination but failed.
believed that he could function in the capacities set forth above
without a principalís
Alan David Goddard Jr.: Fined $10,000; Suspended 45 days
Patel forged homeowner signatures on uniform mitigation verification
(UMVI forms) in connection with inspections performed by a
qualified inspector regarding
construction information; the form is submitted to the homeownerís
in connection with insurance pricing.Pattee forged the signatures
to accommodate his clients, who were either not at home at the
time of the inspection
or were his longtime clients.
acted as an officer for
a company formed to conduct inspections to determine homeowner
for compensation, without providing prompt written notice to his
member firm for this
outside business activity.
annual compliance online certifications for his firm representing
that he had complied with
the requirements of NASD Rule 3030 and for the certifications,
certified that no changes
were needed to his Form U4 or that he had requested appropriate
changes to the Form U4
regarding outside business activities.
Rodriguez misappropriated approximately $5,903 from a customerís
account by effecting
withdrawals and either signing the customerís name or writing ďPer
on the withdrawal ticket without the customerís or the bank
or authority to withdraw funds from the account.
received illegitimate incentive compensation, totaling $3,750, by
enrolling bank affiliate
customers in online bill pay service without their authorization
or consent; none of these
transactions involved funds from an account held at a FINRA
The Firm negligently omitted material facts in
connection with its sale of
promissory notes, issued by an entity that a real estate
developer controlled. The firm negligently failed to disclose to
investors that the entity had
been experiencing cash flow problems and that the entity and other
with the real estate developer had failed to make required
interest payments to investors.
The firm negligently failed to
disclose that it was unlikely that
the entityís affiliated company would be able to make its
scheduled principal payments
totaling $10 million that were due to its note-holders.
The firm distributed a document called ďInvestor LetterĒ for a
company; the Investor Letter
constituted a research report, but it failed to disclose a firm
interest in the company and his receipt of compensation from the
The firm permitted its registered persons to use
the company to solicit potential investors at seminars; the
statements and projections that were without basis; were false,
and/or misleading; and failed to provide a balanced presentation
by omitting material
information regarding the significant risks associated with
investing in the company. The firm failed to establish, maintain and enforce
a system of supervisory
control policies and procedures that tested and verified that its
were reasonably designed with respect to the activities of the
firm, its registered
representatives and associated persons to achieve compliance with
laws and regulations, and created additional or amended supervisory
such testing and verification identified a need. The firmís
supervisory control policies
and procedures failed to identify producing managers and assign
qualified principals to
supervise such managers, and the firm failed to electronically
notify FINRA of its reliance
on the limited size and resources exception.
In addition, F for one
year-end, the firm failed to prepare an annual certification from
its CEO or equivalent
officer, that it had in place processes to establish, maintain,
review, test and modify written
compliance policies and WSPs reasonably designed to achieve
compliance with applicable
FINRA rules, MSRB rules and federal securities laws and
regulations, and that the CEO had conducted one or more meetings with the firmís CCO in the
preceding 12 months to
discuss such processes. For another year-end, the firm filed an
annual certification that
did not fully comply with FINRA Rule 3130(c). Moreover, the firm failed
to establish, maintain and/or enforce WSPs reasonably designed to
with the laws and regulations applicable to its business in
conducting private placement
offerings (including training representatives regarding the risks
for these offerings and
establishing standards for determining the suitability of these
offerings for investors), the
review of electronic correspondence and the review and approval of
Alternative Wealth Strategies, Inc.: Censured; Fined $75,000 (includes $40,000 disgorgement of commissions)
In completing life insurance policy applications, Aqeel placed fictitious electronic funds transfer account numbers on the accounts of customer applicants that he knew were incorrect and submitted the applications for further processing; the fictitious numbers were actually variations of Aqeelís personal checking account number. Aqeel forged two customersísignatures on electronic signature authorization forms, bank authorization forms and/or acknowledgement forms, in completing their life insurance policy applications, without their knowledge or authorization.
Based on the submission of the applications, Aqeel received credit towards his compensation; the policies subsequently lapsed due to invalid account numbers.
Aqeel created a credit guarantee document purporting to be a fully executed and authenticsurety bond for $12,500,000 by including fictitious information, and used the documentin an attempt to secure funding for the development, ownership and management of a hotel project by an entity, and Aqeel was paid approximately $155,000 as a finderís fee.
Aqeel failed to timely respond to FINRA requests to appear for on-the-record testimony
By the time Plew discovered a trading
error in a public customerís
account, the mutual fund shares had declined in value by
approximately $50,000. Plew
and the customer agreed to reallocate the securities holdings in
the account and hope that
the market would rebound to make up the loss.
Plew sent the
customer letters on his member firmís letterhead promising to
recoup her loss and later
guaranteeing that the money would be replaced if his efforts to
restore the value of the
account were unsuccessful within a year. Plew did not consult with
his supervisor or the
firmís compliance department prior to sending the letter with the
guarantee. The customer decided she wanted a trade
correction and faxed Plewís letter
to the firmís compliance department, asking that the guarantee be honored. Plewís firm
reimbursed the customer for the error.
Brett Michael Plew: Fined $5,000; Suspended 20 business days
Perrone instructed a bank teller under her supervision, while acting as a
bank branch manager, to
process a withdrawal of $2,500 from her personal savings account,
knowing the account
had insufficient funds to cover the withdrawal, but misrepresented
to the teller that the
account belonged to one of her customers. When the teller
discovered that the account
had a $5 balance, Perrone falsely claimed that the customer would
be making a deposit
into the account in the near future, and Perrone performed an
override on the account. The
teller processed the transaction and gave Perrone $2,500 in cash.
Perrone forged a relativeís name on a signature card, opened a
checking account in her
relativeís name at another bank branch, traveled to another bank
branch and instructed
a bank teller, whom she formerly supervised, to process a
withdrawal of $6,500 from that
account, without her relativeís knowledge or authorization.
Perrone knew the account had
insufficient funds to cover the withdrawal but misrepresented to
the teller that the account
belonged to one of her customers. When the teller discovered that
the account had a $25
balance, Perrone falsely advised him that she had just completed a
wire transfer deposit
into the account for the customer and that it would take a few
minutes to appear on the
system. After the teller processed the $6,500 withdrawal, Perrone
directed him to give her
$2,500 in cash and to deposit the remaining $4,000 into a checking
account her relative
Schams accepted appointment
as an alternative agent attorney-in-fact over a customer account,
without his member
firmís express written consent.
Schams was to receive
approximately $90,000 from the
customersí estate. Schams accepted two $20,000 interest-free loans
on the anticipated
inheritance, without signing a promissory note evidencing the
loan, contrary to the
firmís compliance policies that prohibited registered
representatives from exercising or
maintaining discretionary authority or power of attorney over
customer accounts and
borrowing money, accepting loans, issuing or transacting
promissory notes or other similar
forms of debt for customers without the express written consent of
the firmís compliance
Schams made material
misstatements to his
firm in a compliance questionnaire regarding borrowing money or
accepting a loan from
a client, holding any securities, stock powers, money or property
belonging to a client,
accepting client checks made payable to him, or endorsed to him
personally or in the name
of an entity, and managing or handling, in any way, the affairs of
any client account on a
The Firm entered into
a de facto
commission recapture agreement with a firm customer without
minimum required net capital of $250,000 and without filing an
for amendment of the firmís FINRA membership agreement.
The Firm and a customer entered into a
agreement whereby the customer was to provide research and
services. However, the firm did not request, nor did the customer
research reports or advisory services or any of the other services
set forth in
the consulting agreement. Moreover, the Firm paid the customer a
$1,215,000, which exceeded by $885,000 the payments due to the
per the contractual requirements under the consulting agreement.
payments exceeded the contractual requirements of the consulting
because the agreement was a de facto commission recapture
through which the customer was paid larger amounts based upon the
security transactions the customer was executing in its brokerage
Dawson's CEO Poliak was responsible for the
creation of the
consulting agreement and approved each wire transfer payment to
customer, including the payments that were in excess of amounts
due to the
customer under the consulting agreement.
Kaiser (who acted at times as both the firmís head of trading and the Financial and Operations Principal (FINOP)) was responsible for calculating the payments owed to the
and he pulled research concerning the customerís trades in an
document the consulting agreement, but the Firm was unable to
its use of the purported research or other financial benefit
the consulting agreement.
Poliak and Kaiser acted unethically in
facilitated the improper commission recapture arrangement between
and customer, and caused the firm to fail to comply with the
NASD Rule 1017.
Acting through Poliak and
Kaiser, the Firm violated the
Customer Protection Rule in several ways:
with the commission
recapture agreement described above, the firm held, or was in
control of, customer funds
without establishing a special reserve bank account for the
exclusive benefit of the
customer in violation of Securities Exchange Act Rule 15c3-3, By
holding customer funds
and failing to forward the funds to its clearing firm, the firm
became a broker or dealer
that receives and holds funds for customers, which required it to
increase its net capital
and establish a reserve bank account for customer protection;
after a commission
recapture agreement was ultimately established for the customer by
the firmís clearing
firm, the firm deposited into its own checking account a check
from the clearing firm
which included at least $136,700 in commission rebates due to the
customer. Rather than
record a liability to the customer, the firm made a journal entry
to reduce the commission
receivable. The firmís receipt of customer funds increased its
minimum net capital to
$250,000, a level that the firm did not meet;
the firm held
and segregated security
positions in its proprietary account for the benefit of two
customers in order to satisfy the
obligation of promissory notes and a confidential private
placement memorandum (PPM);
the firm acted in the capacity of a noteholderís agent to
facilitate the repayment
to firm customers of $2,715,000 of principal plus interest on
defaulted notes and warrants
issued by an unaffiliated issuer. By doing so, the firm acted in a
carrying, transferring and
safekeeping capacity for customers, which required the firm to
maintain a minimum net
capital of at least $250,000. The firmís net capital was below
that required minimum, and
as a result the Financial and Operational Combined Uniform Single
(FOCUS) reports it
filed, and its books and records, were inaccurate. The firm also
failed to timely file Securities
and Exchange Commission (SEC) Rule 17a-11 notices when notified by
examining authority that the broker-dealerís net capital was, or
had been, below its
When acting in the capacity as the firmís FINOP, Kaiser was
responsible for supervision
and/or performance of the firmís compliance under all financial
promulgated pursuant to provisions of the Securities Exchange Act
of 1934. Kaiser failed
to adequately perform his FINOP responsibilities in that he failed
to take adequate steps to
ensure the accuracy of the firmís net capital calculations.
As Poliak participated
in the firmís holding of customer funds in violation of Rule
15c3-3, Poliak caused the firmís
net capital and books and records violations.
The firmís compensation committee did
the basis upon which a research analystís compensation was
established, thus failing
to establish a written record of whether specific factors required
by NASD Rule 2711
were properly considered, and whether research analyst
compensation was tied to
any investment banking activities.
FINRA found that a
senior officer at the
firm inaccurately represented in required attestations submitted
to FINRA that the
compensation committee documented the basis upon which each
compensation was established. The senior officer should have known
that each attestation
submitted contained false information. Furthermore, the Firm sold securities for customer accounts that were not registered pursuant
to Section 5 of the
Securities Act of 1933, nor exempt from registration; the sales
constituted an unregistered
distribution by the firm.
Dawson James Securities, Inc: Censured; FIned $90,000
Albert James Poliak: Fined $30,000; Suspended 1 year
Douglas Fulton Kaiser: Fined $30,000; Suspended 1 year
The Firm contracted with a third-party
vendor for purposes of
email retention, but did not implement an audit system regarding
such email storage
and was therefore not aware that the third-party vendor did not
certain emails, which resulted in the firmís failure to maintain
Edgemont Capital Partners, L.P.: Censured; Fined $30,000
Bloom made materialmisrepresentations and omissions of fact and unwarranted, exaggerated and misleadingstatements to investors in connection with the sale of private placement offerings.
Bloom misrepresented in an offeringís subscription agreement thatthe use of proceeds for the offering was initial funding of the companyís ventures in technology risk management solutions and business development of services. The proceeds were actually used to purchase shares of a stock from an individual. Bloom did not disclose the stock purchasing agreement between the company and the individual that predated the offering and failed to disclose the conflicts of interest and control relationships that existed among the company and his member firmís outside counsel. Bloom failed to disclose that the firmís outside counsel, who prepared all the offering documents,had created the company to operate out of his residential address and that the outside counselís relatives actually owned and operated the company.
In another offering, Bloom misrepresented the offering in the PPM as an investment in membership interests of a company but did not disclose to investors that there was a promissory note between his firmís CEO and the companyís owner, and that $400,000 was due pursuant to the note. Bloom failed to disclose to investors that $400,000 of investorsífunds had already been paid to satisfy the note and that $352,200 of investor funds from the offering had already been paid by check to pay back the promissory notes from the offering. Until a supplement to the offering memorandum, Bloom failed to disclose to investors the profit distribution from the offering and further failed to disclose the conflicts of interest and control relationships among the offering company, the company thatcontrolled the offering company, and the firmís outside counsel and counselís family.
For two other offerings, Bloom failed to disclose to investors in the subscription agreements of both companies the significant regulatory history ofthe controlling partners of the offerings who had been charged by FINRA in a market manipulation scheme in connection with alleges sales of over $3.5 million of stock to firm customers.
Bloomís firmís counsel prepared the offering documents in consultation with Bloom. Bloom relied to his detriment on the counselís advice about which facts needed to be disclosed and which could be omitted in the offering documents. Bloom was the principal at the firm responsible for supervising all aspects of the firmís business, including ensuring compliance with FINRAís rules regarding communications with the public. Bloomís firm acted as the sole placement agent for an additional private placement, and the offering memorandum was not fair and balanced regarding the potential investment returns of the partnership. The offering memorandumutilized past performance of the Average of Top 25 S&P 500 Fund as compared to the anticipated returns of investing in the offering.
Bloomís firm participated in best efforts, minimum-maximum offerings conducted by companies, andinstead of having investors deposit their funds into a bank escrow account as required by SEC Rule 15c2-4, the offering documents set forth that an escrow account with a transferagent would be established for investor funds during the contingency period, causing thefirm to violate Section 15(c) of the Securities Exchange Act of 1934 and SEC Rule 15c2-4.
Taber intentionally converted or misappropriated customer
funds. Taber discussed with a customer an investment that would yield
a 15 percent rate of
return and the customer gave Taber a check for $30,000 payable to
deposited the customerís check into the investment checking
account. The customer repeatedly called Taber to determine the
status of his investment,
and each time Taber reassured the customer that his funds had been
invested. Taber failed
to inform the customer that the investment checking account was
actually Taberís personal
Taber did not make
any investment with
the customerís funds; instead, Taber used the customerís funds for
and personal expenses.Taber ultimately refunded
the customerís funds,
but not until FINRA began its investigation into the customerís
Charry failed to enforce his firmís WSPs
regarding the handling of PPM,
subscription documents and investor funds for private placement
offerings his firm sold,
and he failed to effectively supervise the associated personsí
handling of such documents.
Charry did not prevent the associated persons from sending
directly to the private placement issuer, which precluded the firm
adequate oversight or review of the transactions and from
Charry failed to review private placement
suitability and typically did not review or approve private
placement transactions effected
by the associated persons he supervised. He failed to
enforce the firmís WSPs and failed to effectively supervise the
associated personsí use
of non-firm email for securities business. Charry was aware of,
and did not prevent, the
associated persons from using personal email accounts to conduct
The use of non-firm email accounts prevented the firmís compliance
staff from reviewing
the associated personsí customer communications, and the firm was
unable to retain
When Charry resigned
from the firm, he left the keys for the office and the key for
filing cabinets containing
firm customersí non-public personal information with the officeís
landlord, who was not
affiliated with Charryís firm. This failed to safeguard the
customersí non-public personal
information and, in addition, made such information available to a
party without providing customers with the appropriate notice,
thereby causing the firm to
violate Rules 10 and 30 of SEC Regulation S-P.
Hernan Charry Jr. aka Herman Charry (Principal): Fined $10,000; Suspended 20 business days
Lee borrowed $20,000 from his customer and
repaid the loan in full,
plus interest. During the time of the
loan transaction, the firmís
procedures specifically prohibited registered representatives from
borrowing money from
Leeís conduct was aggravated by the fact that he failed
to disclose the loan
when completing the firmís annual compliance inspection forms for
two years, when he
answered ďyesĒ to the question, ďDo you understand and comply with
the rule that you
cannot loan money to, or borrow money from your clients?Ē
The Firm permitted registered persons assigned to a branch office to
utilize outside email accounts
to conduct firm business, even though the firm did not have a
system or procedure in place
to capture, preserve and monitor those emails. As a result, the
firm failed to preserve
all firm-related email communications of registered persons
assigned to that branch as
The firm failed to perform any
supervisory review of email
communications of registered persons assigned to that branch, and
that Ritz permitted
a firm registered representative to engage in investment advisory
activity through the
representativeís state-registered investment advisor (RIA) and
failed to supervise that
activity. Ritz was the principal responsible for supervising the
representative, but failed
to supervise any facet of his investment advisory business and was
generally unaware of
what it entailed. As a result of
Ritzí lack of supervision, the
representative was able to engage in extensive selling-away
misconduct without the firmís
detection, raising more than $5 million from investors through
sales of promissory notes
without the firmís knowledge. The firm failed to obtain all
required information for some customers who purchased securities
through the firm in
private placement offerings.
Institutional Capital Management, Inc.: Fined $65,000
Daniel Lee Ritz Jr.: In light of financial status, no fine; Suspended in Principal capacity only for 4 months
Beardsley was a registered
representativeís direct supervisor who was responsible for reviewing
and approving the
representativeís securities transactions, but failed to exercise
reasonable supervision over
the representativeís recommendations of exchange-traded funds
(ETFs) in customersí
accounts, thereby allowing the representative to conduct numerous
As the firmís chief
compliance officer (CCO), Beardsley
was responsible for ensuring that the firm filed all necessary
Uniform Applications for
Securities Industry Registration or Transfer (Forms U4), Uniform
Termination Notices for
Securities Industry Registration (Forms U5) and Rule 3070 reports.
The Firm and Beardsley failed to timely amend Beardsleyís
Form U4 to disclose the
settlement of an arbitration against him, the firm and the
registered representative; the
firm failed to timely amend a registered representativeís Form U5
to disclose settlement of
the arbitration; and the firm and Beardsley failed to timely
report the settlement to FINRAís
The Firm and
Beardsley failed to establish and
maintain a supervisory system reasonably designed to achieve
compliance with applicable
securities laws, regulations and FINRA rules as they pertain to
private placements. The
firm and Beardsley failed to conduct investigations of offerings
for suitability but relied
on information the registered representative who proposed selling
the offering provided;
never reviewed issuersí financials, nor attempted to obtain
information about the issuers
from any third parties; failed to maintain documentation of their
a registered representative to draft selling agreements with
offerings which allowed the
issuer to make direct payment to an entity the representative, not
the firm, owned,; failed
to implement supervisory procedures to ensure compliance with SEC
Exchange Act Rule
15c2-4(b); and failed to implement supervisory procedures to
prevent general solicitation of
investments in connection with offerings made pursuant to
The Firmís written procedures required Beardsley
to obtain and review, on
at least an annual basis, a written statement from each registered
representative about his
or her outside business activities; despite the fact that several
were actively engaged in outside business activities, Beardsley
failed to obtain any such
For almost a three-year
period, Beardsley did not
request any duplicate statements of outside securities accounts
firm employees held; he
neither requested nor obtained any written notifications from firm
their actual or anticipated outside securities activities. In
addition, the Firm and Beardsley failed to implement an adequate system of
policies and procedures regarding testing supervisory procedures
for compliance, erroneous
criteria for identifying and supervising producing managers, including
and monitoring transmittal of funds or securities, customer
changes of address, customer
changes of investment objectives, and concomitant documentation
for its limited size and
resources exception in FINRA Rule 3012. Moreover,he firm and Beardsley completed an annual certification in which Beardsley certified
that he had reviewed a
report evidencing the firmís processes for establishing,
maintaining and reviewing policies
and procedures reasonably designed to achieve compliance with
applicable FINRA rules,
Municipal Securities and Rulemaking Board (MSRB) rules and federal
and regulations; modifying such policies and procedures as
business, regulatory and
legislative changes and events dictate; and testing the
effectiveness of such policies and
procedures on a periodic basis, the timing and extent of which is
reasonably designed to
ensure continuing compliance with FINRA rules, MSRB rules and
federal securities laws and
regulations. In fact, the report did not evidence any processes
for testing the effectiveness
of such policies, and no such testing was done.
Furthermore, on the firmís behalf, Beardsley executed an engagement
letter committing the firm to serve as a placement agent for an
issuer of limited
partnership units. The letter, which a registered representative
of the firm drafted, falsely
represented that the firm was not a registered broker-dealer.
The Firm and Beardsley failed to enforce the firmís Customer
Identification Program (CIP) in
that they completely failed to verify four customersí identities.
The Firm and Beardsley failed to conduct a test of the firmís
(AML) compliance program for a calendar year. FINRA found that the
firm conducted a
securities business while failing to maintain its required minimum
Internet Securities: Censured; Fined $12,500; Required to retain an outside consultant to review and prepare a report concerning the adequacy of the firmís supervisory, and compliance policies and procedures, and supervisory controls; the report shall make specific recommendations addressing any inadequacies the consultant identifies, and the firm shall act on those recommendations. FINRA imposed a lower fine after it considered the firmís size, including, among other things, the firmís revenues and financial resources.
Michael Beardsley: No fine in light of financial status: Suspended 1 year in Principal capacity only
Solomon participated in the sale of
securities outside his employment
at his member firm and failed to give written notice to his firm
of his intention to engage
in the transactions and obtain the firmís authorization to engage
in such activities.
Solomon referred individuals, some of whom were his firmís clients,
to an individual and
an entity so the customers could invest with the entity. The entity
initially claimed to offer foreign exchange trading opportunities,
but later claimed to
offer investments in a hedge fund that would engage in various
trading strategies; the
customers invested approximately $750,000 with the individual and
entity, and Solomon
also invested with the individual and entity. Solomon
introduced the customers to the individual, typically during a
conference call where the
individual promised guaranteed returns of 12 percent per year for
two years; Solomon
recommended the investment to most of the customers and received
$8,600 from the
entity for his efforts. Solomon
engaged in discussions with
the individual and the entity about possible employment with the
Isaiah Solomon : Fiend $15,000 (includes $8,600 disgorgement of financial benefit from sales); Suspended 18 months
Acting through Gaul and another
firm principal, his firm negligently
omitted material facts in connection with its sales of promissory
The notes were issued by an entity that a real estate
developer controlled. Acting through Gaul and another firm principal,the firm negligently failed
to disclose to investors
that the entity had been experiencing cash flow problems and that
the entity and other
companies affiliated with the real estate developer failed to make
payments to investors.
Acting through Gaul and
another firm principal, the firm negligently failed to disclose that it was
unlikely that the entityís
affiliated company would be able to make its scheduled principal
payments totaling $10
million that were due to its note holders.
through Gaul, the firm failed to establish, maintain and enforce a system
of supervisory control
policies and procedures that tested and verified that its
supervisory procedures were
reasonably designed with respect to the activities of the firm,
its registered representatives
and associated persons to achieve compliance with applicable
securities laws and
regulations, and created additional or amended supervisory
procedures where such testing
and verification identified a need. The firmís supervisory control
policies and procedures
failed to identify producing managers and assign qualified
principals to supervise such
The firm also failed to notify FINRA electronically of
its reliance on the limited
size and resources exception. For a year-end, the firm, acting through Gaul,
failed to prepare an annual
certification from its CEO, or equivalent officer, that it had in
place processes to establish,
maintain, review, test and modify written compliance policies and
designed to achieve compliance with applicable FINRA rules, MSRB
rules and federal
securities laws and regulations, and that the CEO had conducted
one or more meetings
with the firmís CCO in the preceding 12 months to discuss such
processes. For another
year-end, the firm, acting through Gaul, filed an annual
certification that did not fully
comply with FINRA Rule 3130(c).
Acting through Gaul, the Firm failed
to establish, maintain and/or enforce WSPs reasonably designed to
with the laws and regulations applicable to its business in
conducting private placement
offerings (including training representatives regarding the risks
for these offerings and
establishing standards for determining the suitability of these
offerings for investors), the
review of electronic correspondence, and the review and approval
of advertising materials.
James Carl Gaul (Principal): Fined $10,000; Suspended 30 business days in all capacities; Suspended 18 months in Principal capacity only
Reardon helped prepare a document called ďInvestor
LetterĒ for a company, which his
member firm distributed sometime later. The Investor
Letter constituted a
research report, but it failed to disclose Reardonís ownership
interest in the company and
his receipt of compensation from the company. Reardon helped
prepare presentations regarding the company that the firmís
used to solicit potential investors at seminars. The presentations
and projections that were without basis and were false,
exaggerated, unwarranted and/or
misleading, and failed to provide a balanced presentation by
omitting material information
regarding the significant risks associated with an investment in
Reardon opened a personal securities account at
another broker-dealer and
failed to disclose to the executing broker-dealer that he was associated
with a firm.
The suspension is in effect from November 7, 2011, through
December 19, 2011. (FINRA
James Malcolm Reardon: Fined $7,500; Suspended 30 business days
created an answer key for a state long term care (LTC) insurance
CE examination and
distributed the answer keys to an employee of the member firm. Lynch sent an email to a registered representative at the firm and
attached the study guide
for an eight-hour required course and exam, consisting of 50
multiple choice questions and
a blank answer sheet; a third-party educational testing company
appeared to have created
all the materials. In the email, Lynch stated he would have
the answers soon and later provided the registered representative
with a copy of the blank
answer sheet with the answers to the 50 questions circled by hand
and the words ďmaster
copyĒ written on the top of the page.
Jared Robert Lynch: FIned $5,000; Suspended 60 days
Harrison engaged in private securities transactions without providing
notice, written or otherwise,
to his member firm.
investments in bonded life
contracts an entity issued to his firmís customers by bringing the
to the customersí attention and referring them to the entityís
salesperson. The customers
subsequently invested a combined total of $150,000 with the
entity, and Harrison received
fees in the amount of $18,000 from the entity for the referrals,
which were paid in the
form of checks made payable to Harrisonís relative. Prior
to referring his firmís customers to the entity, Harrison had been
told that the firm had
prohibited its registered representatives from offering and
selling the entityís products due
to concerns that the firm had about the products. Harrison
ignored the prohibition, made several customer referrals to the
entity, and collected
undisclosed referral fees. The entityís investment subsequently
defaulted and all of the
customersí funds were lost.
Harrison engaged in
an outside business
activity in that he received $2,500 in undisclosed compensation
for a customer referral to a
life settlement issuer business, without having provided notice to
Jason Sean Harrison : Fined $15,000; Suspended 1 year
Smith failed to enforce his member firmís WSPs and failed to effectively
supervise the activities
of the firmís associated persons over whom he had supervisory
responsibility to ensure
that they were complying with FINRA rules and federal securities
laws and regulations.
Smith failed to
enforce the firmís WSPs
regarding the handling of PPM,
subscription documents, and investor funds for private placement
offerings sold by the
effectively supervise the associated personsí
handling of such documents
so that he did not prevent the associated persons from sending
directly to the private placement issuer, precluding the firm from
oversight or review of the transactions and from retaining
review the firmís
private placement sales for
suitability, and typically did not review or approve private
placement transactions effected
by the associated persons he supervised; and
enforce the firmís WSPs and failed to effectively supervise their
use of non-firm email
for securities business.
Smith was aware of, and did not prevent,
the associated persons
from using personal email accounts to conduct securities business.
The use of non-firm
email accounts prevented the firmís compliance staff from reviewing
personsí customer communications, and the firm was unable to
Jeffrey Alan Smith (Principal): In light of financial status, no fine; Suspended in Principal capacity only for 20 business days
Rachlin and another
firm principal, Rachlin's firm negligently omitted material facts in connection
with its sales of promissory
notes to investors.
The notes were issued
by an entity which was
controlled by a real estate developer. The firm, acting through
Rachlin and another firm
principal, negligently failed to disclose:
to investors that the
entity had been experiencing
cash flow problems and that the entity and other companies
affiliated with the real
estate developer had failed to make required interest payments to
that it was unlikely that the entityís
affiliated company would be able
to make its scheduled principal payments totaling $10 million that
were due to its note
Rachlin helped prepare a
document called ďInvestor
LetterĒ for a company; the letter was later distributed by his
firm. The Investor Letter
constituted a research report, but it failed to disclose a firm
interest in the company and his receipt of compensation from the
company. Rachlin helped prepare presentations regarding the company,
which the firmís
registered representatives used to solicit potential investors at
seminars. The presentations
contained statements and projections that were without basis and
were false, exaggerated,
unwarranted and/or misleading, and failed to provide a balanced
presentation by omitting
material information regarding the significant risks associated
with an investment in the
Jeffrey Rachlin (Principal): Fined $10,000; Suspended 30 business days in all capacities; Suspended 1 months in Principal capacity only
Abbruzzese recommended that a customer purchase a variable annuity with the proceeds of his relativeís Individual Retirement Account (IRA). The customer had executed the application for a qualified annuity and shortly thereafter it was determined that the customer could not use the funds to purchase a qualified annuity.
Abbruzzese copied the customerís signature, without his authorization, knowledge or consent, from an earlier letter, and pasted it on the variable annuity application to authorize the change from a qualified annuity to a non-qualified annuity.
Abbruzzese recommended that another customer purchase a variable annuity. The customer had entered into a reverse mortgage on her home and was referred to Abbruzzese to invest some of the proceeds to generate income for her retirement. Abbruzzese completed the variable annuity application and represented that the source of the funds was the sale of real estate, rather than a reverse mortgage, because his member firm did not permit brokers to recommend reverse mortgages. By including inaccurate information on the customerís variable annuity application, Abbruzzese prevented the firm from maintaining accurate books and records and from assessingthe suitability of his recommendations to the customers.
Abbruzzese failed to timely respond to FINRA requests for information and documents untilhe appeared for on-the-record testimony.
John Daniel Abbruzzese: FIned $15,000; Suspended 18 months
Grover borrowed $67,326.68 from a customer contrary to his member
firmís prohibition of
registered persons from borrowing money from customers. Grover
signed and dated a form acknowledging that the firm prohibited its
borrowing money or securities from a client. In light of the fact that the customer was not
a member of Groverís
immediate family and was not in the business of lending money, his Firm did not
approve the loan.
John Maraldi Grover III : Fined $5,000; Ordered to pay $67,326.68 plus interest as restitution to a customer; Suspended 90 days.
An individual who
subsequently became a trader with Giuliano's member firm provided
$250,000 to the firmís
parent company, without loan documentation or written agreement,
either as funds to be
traded in a firm proprietary account or be held as a security
deposit to insure the brokerdealer
against trading losses the individual might incur. Giuliano,
an owner of at least a 40-percent stake in the parent company and
the firmís chief financial
officer (CFO) and FINOP, caused the funds to be deposited into the
checking account and used some or all of the funds, without the
individualís consent or
authorization, to pay various expenses and debts of the parent
company and the firm,
thereby misusing the funds.
Gneuhs failed to enforce his member
firmís WSPs and failed to
effectively supervise the activities of firm associated persons
over whom he had supervisory
Gneuhs failed to
enforce the firmís WSPs
regarding the handling of PPM, subscription documents and investor
funds for private
placement offerings his firm sold, and failed to effectively
supervise the associated personsí
handling of such documents. Gneuhs did not prevent the associated
persons from sending
subscription documents directly to the private placement issuer,
which precluded the firm
from conducting adequate oversight or review of the transactions
and from retaining
transaction-related documents. Gneuhs failed to review the
firmís private placement sales for suitability, and typically did
not review or approve private
placement transactions effected by the associated persons he
Gneuhs failed to enforce the firmís WSPs and failed
to effectively supervise
the associated personsí use of non-firm email for securities
business. Gneuhs was aware of,
and did not prevent, the associated persons from using personal
email accounts to conduct
securities business. The use of non-firm email accounts prevented
the firmís compliance
staff from reviewing the associated personsí customer
communications, and the firm was
unable to retain securities-related communications.
Kenneth William Gneuhs (Principal): In light of Gneuhs' financial status, no fine; Suspended in Principal capacity only for 20 business days.
Blunk recommended that customers participate in a
under which customers would pledge stock to obtain loans to
purchase other products.
Customers obtained non-recourse loans, totaling approximately $1.8
million, from a
non-broker-dealer company and pledged stock to that entity as
collateral for the loans;
the pledged stock would be transferred to the loaning entityís
securities account, which
was maintained at a clearing firm.
The loans were in amounts
up to 90 percent of the value of the pledged stock and were
typically for a short period of
time, usually three years, with no payments required during the
term of the loan; instead,
customers were required to pay the full principal and interest due
at the end of the loan
term. Customers used some of the loan proceeds to purchase
insurance products through
Documentation used by the
loaning entity made it
appear that the entity was retaining the securities customers
pledged and might use
those securities to enter into hedging transactions, but the
customers actually conveyed
full ownership of their stock to the entity conducting the
program, which routinely sold
the securities upon receipt and often moved the money into its own
When the entity became unable to make
complete payments to
customers with profitable portfolios, it used the proceeds from
the sale of securities new
customers pledged to pay off its obligations to existing customers
and diverted money to
pay for expenses not related to its operation. Blunk did not undertake adequate efforts to find
out what happened to
the stock that was conveyed to the lender; he relied on
information the persons marketing
the program provided and assumed that the lender was a
broker-dealer holding the stock
for his customers in custodial accounts. Blunk did not undertake
any steps to verify this
The intermediaries with
whom Blunk dealt
refused to provide more information when he tried to obtain information
about the lender
and nevertheless, continued to entrust his clientsí securities to
Raymond Thomas Blunk: Fined $15,000; Suspended 25 days
misrepresentations in emails
to individuals representing entities with whom he had done past
business or hoped to conduct future investment banking business.
At that time, From and
his member firm were not actively engaged in any securities
business due to the firmís
failure to maintain minimum required net capital.
From stated that he was currently calling investors to recommend
investments in some
companies but, in fact, he never made any such calls. From merely
claimed he was doing
so in order to receive payment for his past investment banking
business with one of the
In an email, From
described the terms of a reverse
merger that he claimed he had recently completed when, in fact, he
did not participate
in the reverse merger at all, but was instead describing a deal a
he knew conducted. Fromís purpose in making the false claim was to
investment banking business with the company.
In another email
to an individual representing another company, From represented
that he had already
obtained indications of interest from potential investors for an
offering of securities the
company contemplated, although he had not spoken to any potential
investors but merely
claimed he had done so for the purpose of generating future
investment banking business
with the company.
Richard Scott From aka Richard Scott Winther (Principal): Fined $5,000; Suspended 30 business days
Patel failed to respond to FINRA requests for
information and to appear
for testimony regarding loans from a firm customer.
Patel failed to
make appropriate disclosure of an outside securities account after
he became associated
with his member firm and failed to notify the firm that held his
securities account that
he had become associated with a firm.Patel made a false
statement on an annual compliance certification to his firm that
he completed after
he signed and filed his initial Form U4 subjecting himself to
FINRAís jurisdiction. Patel
acknowledged receipt of and adherence to the firmís policies,
including obligations to
comply with the firmís policies and to adhere to the applicable
federal, state and selfregulatory
organization laws and rules. Patel falsely stated that he did not
have a securities
account when, in fact, he did.
Garabed borrowed $15,000 from his customer at his firm contrary to
his firmís procedures,
which did not permit loans between registered representatives and
under any circumstances. Garabed
agreed to repay the
customer the principal loan amount plus an additional $5,000, he
ultimately repaid a total
of approximately $15,200. Garabed
denied on a compliance
questionnaire that he had ever solicited or accepted a loan from a
Garabed willfully failed to update his Form U4
to disclose material
Ronald John Garabed Sr.: Fined $10,000; Suspended 6 months
Cheney borrowed $10,000 from his customers without
his member firmís
Although his firmís WSPs require review and written approval before a registered representative may borrow from a customer , Cheney did not
request or receive the
firmís permission to borrow money from the customers.
Cheney incorporated this loan into another loan from the customers, for a total sum borrowed of $23,000.
Cheney completed his firmís annual certification questionnaire in which he was asked if he had borrowed from, or loaned money to, any customers, and responded that he had not.
While registered with another member firm, Cheney was paid $5,187 for work he performed on behalf of the beneficiaries of a trust account. That firmís procedures required that a representative submit a written request for approval to the designated supervisory principal prior to engaging in any outside employment or business activity. ICheney submitted outside business activity forms and an internal questionnaire to the firm in which he responded that he had not engaged in any outside business activity without prior written approval.
Ronald William Cheney : Fined$10,000; Suspended 60 business days.
Roges falsified a customerís signature without the customerís
knowledge or consent in an
attempt to correct the customerís social security number and
beneficiaryís birth date on
an amendment to a fixed life insurance policy. The member firmís
WSPs specifically prohibited registered representatives from
falsifying and/or forging
customersí signatures on transaction documents and/or other
Scott Andreu Roges: Fined $5,000; Suspended 30 days
McElhenny applied one investment model in numerous customersí
accounts by executing
thousands of trades on a group basis in a variable annuity
platform offered by one
company and a mutual fund platform offered by another company.
McElhenny could place
one trade, which was not individualized for each of his customers,
and that trade would be
processed for all of his customers that were part of the trading
group. The group trading
executed by McElhenny in his customersí accounts involved inverse
and leveraged funds.
McElhenny engaged in such trading without
grounds for believing that the recommendation was suitable for
each of his customers in
light of their individual investment objectives, financial
situation and needs. As a result
of McElhennyís recommendations, the customers sustained a
collective loss exceeding $1
million. McElhenny exercised
discretion in the customersí
accounts without each customerís written authorization and his
member firmís acceptance
of the accounts as discretionary. McElhenny executed more
than one hundred unauthorized securities transactions in one
Mazurek and his relative agreed to act as co-trustees for their
deceased relativeís trust. Mazurek began collecting the assets from
the deceasedís estate
and distributing them to the beneficiaries of the trust. After
Mazurek had withdrawn
his allotted share, he misappropriated approximately $60,854 from
his late relativeís
trust for his own use and benefit, without the knowledge or
authorization of the trustís
beneficiaries, by writing checks made payable to ďcashĒ in amounts
ranging from $100 to
$5,000, and used the funds for his own personal use and benefit. Mazurek attempted to conceal his misconduct by convincing
another relative to sign
an affidavit and promissory note after Mazurek had already
misappropriated the funds.
Winters willfully failed to timely amend
his Form U4 to disclose a
material fact and he borrowed $20,000 from a customer contrary
to his member firmís written procedures that expressly prohibited
firm employees from
borrowing money from, or lending money to, firm customers. Winters neither sought nor obtained approval from the firm before
receiving the loan from
the customer, and his arrangement with the customer did not
satisfy any of the conditions
set forth in NASD Rule 2370(a)(2)(A)-(E). To date, a $5,500
balance remains unpaid by
Winters on the principal of the loan.
Steven Gayne Winters (Principal): FIned $10,000; Ordered to pay $5,500 restitution to a customer; Suspended 8 months
Peaslee participated in
private securities transactions by soliciting individuals to
invest approximately $399,850
in an offering of a company he owned and controlled without
providing written notice
of his intent to participate in the sale of an offering to his
member firm, and failed to
obtain his firmís written approval before engaging in such
activities.Peasleeís firm did not permit registered representatives to
participate in the sale of
private equity offerings. The offeringís purpose was to capitalize
an entity through which
Peaslee operated his securities business, which he wholly owned.The offering purported to be issued in compliance with Rule
506 of Regulation D of
the Securities Act of 1933 (Reg. D), but Reg D documents were not
filed with the SEC.
Peaslee did not receive any written
representation from any of
the investors that they met the requirements to be an accredited
FINRA found that Peaslee negligently made untrue statements of
material facts and/or
omitted to state material facts in a PPM and subscription
agreement for the offering. In
reliance on Peasleeís misrepresentations, the customers and the
in the offering.
Peaslee failed to establish
an escrow account in
the name of the issuer, his business entity, and no investor funds
from the offering were
ever held in an escrow account; rather, Peaslee deposited investor
funds into the entityís
operating account and immediately began making withdrawals. In
addition, Peaslee distributed investor funds before the
was satisfied, thereby rendering the representations in the
offering documents false and
Scanlon impersonated customers and a
in order to obtain confidential customer information from his former
Scanlon made telephone calls to his former
firmís customer service
line in order to obtain confidential customer information
concerning certain of his former
clients accounts still maintained at that firm. Scanlon was no
longer the agent of record
on the customer accounts and, therefore, was not entitled to
access to this confidential
information. Scanlon made a number
of telephone calls to his
former firmís customer service line in which he impersonated the
at that firm who had been assigned to a number of Scanlonís former
Scanlon sought the confidential customer information in order to
during his upcoming meetings with the customers about possibly
accounts to his new employer member firm.
Thomas William Scanlon: Fined $7,500; Suspended 3 months
Elevation commenced an options business, engaged in
options transactions and
designated an individual as its Registered Options Principal (ROP)
until his resignation
from the firm. The firm did not notify
FINRA of his resignation
but instead continued to engage in options business without
registering a new ROP. The firm failed to establish, maintain
and enforce an adequate
supervisory system for its options activities, including written
designed to achieve compliance with application securities regulations,
and to supervise
options transactions in which it engaged. Thefirm failed
to comply with multiple requirements of FINRA Rule 2360, the
options rule, by failing
to comply with its registration and customer agreement
Cronin participated in
private securities transactions without prior written notice to,
and prior written approval
from, his member firm. The findings stated that Cronin sold
approximately $1,712,500 in
notes and debentures to investors, most of whom were his firmís
customers at the time.
The notes and debentures, which were securities, were sold through
Cronin received approximately $171,000 in commissions from these investments.
Cronin borrowed $10,000 from one of his
customers at his firm.
Cronin executed a promissory note stating that the loan was to be
paid in full by a certain
date, but failed to repay the loan according to the terms of the
note. Cronin eventually
repaid the loan with interest, but only after the customer filed
an action against him.
Cronin borrowed $5,000 from another
customer through a loan
that was not reduced to writing, and had no repayment terms;
Cronin repaid the loan.
Cronin did not disclose either of the loans to
his firm, which prohibited
loans from customers without prior firm approval.
William Alexis Cronin Jr.(Principal): Fined $181,000 (included $171,000 disgorgement of commissions); Suspended 2 years
Boppre was a member of his firmís new product committee, which was responsible for conducting due diligence and approving new products at the firm. Boppre knew of an issuerís failure to make payments to its investors and was also aware of other indications of the issuerís problems but approved the offering as a product available for his firmís brokers to sell to their customers. Also, Boppre suspended the offering sales and then reopened the sales after further discussions with issuer executives.
Boppre allowed his firmís brokers to continue selling the offering despite the issuerís ongoing failure to make principal and interest payments, and despite other red flags concerning the issuerís problems. Acting on his firmís behalf, Boppre failed to conduct adequate due diligence of the offering before allowing firm brokers to sell this security; without adequate due diligence, the firm could not identify and understand the inherent risks of the offering and therefore could not have a reasonable basis to sell it. By not conducting adequate due diligence, Boppre failed to reasonably supervise firm brokersí sales of the offering.
Brian Wade Boppre (Principal): Fined $10,000; Suspended 6 months in Principal capacity only
While associated with the firm, registered representatives made misrepresentations or omissions of material fact to purchasers of unsecured bridge notes and warrants to purchase common stock of a successor company.
The registered representatives:
guaranteed customers that they would receive back their principal investment plus returns, failed to inform investors of any risks associated with the investments and did not discuss the risks outlined in the private placement memorandum (PPM) that could result in them losing their entire investment. The registered representatives had no reasonable basis for the guarantees given the description of the placement agentís limited role in the PPM; and
provided unwarranted price predictions to customers regarding the future price of common stock for which the warrants would be exchangeable and guaranteed the payment at maturity of promissory notes, which led customers to believe that funds raised by the sale of the anticipated private placement would be held in escrow for redemption of the promissory notes.
The Firm, acting through a registered representative, made misrepresentations and/or omissions of material fact to customers in connection with the sale of the private placement of firm units consisting of Class B common stock and warrants to purchase Class A common stock; the PPM stated that the investment was speculative, involving a high degree of risk and was only suitable for persons who could risk losing their entire investment. The representative represented to customers that he would invest their funds in another private placement and in direct contradiction, invested the funds in the firm private placement.
The Representative recommended and effected the sale of these securities without having a reasonable basis to believe that the transactions were suitable given the customersí financial circumstances and conditions, and their investment objectives. The representative recommended customers use margin in their accounts, which was unsuitable given their risk tolerance and investment objectives, and he exercised discretion without prior written authorization in customersí accounts.
Acting through Locy, its chief operating officer (COO) and president, the Firm failed to reasonably supervise the registered representative and failed to follow up on ďred flagsĒ that should have alerted him to the need to investigate the representativeís sales practices and determine whether trading restrictions, heightened supervision or discipline were warranted. Moreover, despite numerous red flags, the firm took no steps to contact customers or place the representative on heightened supervision, although it later placed limits only on the representativeís use of margin. The firm eventually suspended his trading authority after additional large margin calls, and Locy failed to ensure that the representative was making accurate representations and suitable recommendations.
Turbeville, the firmís chief executive officer (CEO), and Locy delegated responsibility to Mercier, the firmís chief compliance officer (CCO), to conduct due diligence on a company and were aware of red flags regarding its offering but did not take steps to investigate.
Acting through Turbeville, Locy and Mercier, the Firm failed to establish, maintain and enforce supervisory procedures reasonably designed to prevent violations of NASD Rule 2310 regarding suitability; under the firmís written supervisory procedures (WSPs), Mercier was responsible for ensuring the offering complied with due diligence requirements but performed only a superficial review and failed to complete the steps required by the WSPs; Locy never evaluated the companyís financial situation and was unsure if a certified public accountant (CPA) audited the financials, and no one visited the companyís facility. Neither Turbeville nor Locy took any steps to ensure Mercier had completed the due diligence process. Turbeville and Locy created the firmís deficient supervisory system; the firmís procedures were inadequate to prevent and detect unsuitable recommendations resulting from excessive trading, excessive use of margin and over-concentration; principals did not review trades or correspondence; and the firmís new account application process was flawed because a reviewing principal was unable to obtain an accurate picture of customersí financial status, investment objectives and investment history when reviewing a transaction for suitability. The firmís procedures failed to identify specific reports that its compliance department was to review and did not provide guidance on the actions or analysis that should occur in response to the reports; Turbeville and Locy knew, or should have known, of the compliance departmentís limited reviews, but neither of them took steps to address the inadequate system.
Brookstone Securities, Inc.: Censured; Fine $200,000
David William Locy (Principal): Fined $10,000; Suspended from 3 months in Principal capacity only
Mark Mather Mercier (Principal): Fined $5,000; Suspended from 3 months in Principal capacity only
Antony Lee Turbeville(Principal): Fined $10,000; Suspended from 3 months in Principal capacity only
McMahon worked as an associate financial
representative for registered representatives and assisted each of her assigned
registered representatives with their daily brokerage tasks, which included
ensuring that all incoming checks were properly deposited in the appropriate
bank account. McMahon misappropriated $2,024.22 by
forging a registered representativeís signature on commission checks from
insurance product sponsors; McMahon made each of the checks payable to herself
and deposited the forged checks into her personal bank account.
Neri improperly created an answer key for a state insurance LTC CE examination when he sat with a registered representative taking the CE examination and provided the registered representative with his opinion as to the correct answers to certain questions, recorded the answers the registered representative selected on a piece of paper, retained the answer key for several months and then transferred the answer key to an email.
Neri improperly distributed that answer key to other employees of his member firm when he sent that email to other wholesalers of the firm; after a wholesaler emailed Neri to inquire whether he had answers for the CE test, Neri sent the email to other wholesalers of the firm. On multiple occasions, Neri improperly assisted registered representatives outside of the firm taking the LTC CE examination by referring to the answer key and providing them with some or all of the examination answers; either in person or over the phone, Neri provided the registered representatives with his opinion as to the correct answers to some or all of the examination questions without reference to the answer key while they were taking the exam. The findings also included that on multiple occasions, Neri took the LTC CE examination, in whole or part, for registered representatives outside of the firm by meeting with registered representatives in their offices, sitting at their computers and either answering all the questions himself without assistance from the representative, or the representative would provide some of the answers, which Neri would enter then into the computer.
Christopher James Neri : Fined $5,000; Suspended 90 days
Darling engaged in outside business activity without providing written notice to his member firms; Darling formed and operated, as the managing member, a limited liability company for the purpose of securing and managing a commercial office building. He borrowed a total of $218,484.28 from a few customers while he was associated with firms without receiving the required written pre-approval. In a firm compliance questionnaire that asked whether Darling had a debt obligation to a non-institutional lender or person, Darling falsely answered ďnoĒ to that question.
Corey Vernon Darling: No fine in light of financial status; Suspended 18 months
Voccia was a brokerage partner with another registered representative, shared clients and commissions and collaborated on outside ventures, including a private company they formed. Voccia and his partner orally informed their member firm they were involved in an outside business activity relating to their company, and the firm gave oral approval with the understanding they would only solicit one firm customer; however, the two partners solicited other investors, including firm customers, without the firmís knowledge and approval.
Voccia made misrepresentations and omissions of material fact when he told prospective investors that the company and its related companies had good chances of success and would be able to sustain themselves even though he had insufficient knowledge of the companiesí finances, and his representations were misleading because he focused on the potential benefits of investing in the company without providing adequate disclosure about the risks. Voccia engaged in capital raising for his company and his related companies; individuals invested approximately $6 million dollars during a five-year period.
Voccia and his partner were able to sell investments without the firmís knowledge because the investments were not held with their firmís clearing firm but were held with firms that their firm allowed its brokers to use to maintain custody of illiquid investments such as their company.
Voccia did not provide the firm with written notice of any of the proposed offerings and did not inform the firm that he had received, or might receive, compensation for selling the offered securities. In addition, the firm did not approve the private securities transactions, did not record them on its books and records and did not supervise Vocciaís participation in the transactions. Moreover, Voccia failed to disclose numerous outside business activities unrelated to his company without prompt written notice to his firm. Furthermore, Voccia failed to amend his Form U4 to disclose material information and failed to respond to FINRA requests for information, documents and to timely appear for testimony.
Puplavaís non-registered assistant had access
to his signature guarantee stamp, and without Puplavaís knowledge, permitted the
member firmís registered representatives to use the signature guarantee stamp
to approve securities business-related transactions and paperwork that required
a signature guarantee stamp. Puplava discovered this
practice and instructed his non-registered assistant and the registered
representatives involved to discontinue the practice, but Puplava did not take
back his signature guarantee stamp or take steps to otherwise secure the stamp
to prevent its misuse. Puplava had customers sign
blank securities business-related forms, including non-brokerage change request
forms, mutual fund transfer forms and securities account forms, and retained
these forms in his customer files contrary to his member firmís prohibition
against this practice.
Daniel Lee Puplava (Principal): Fined $7,000; Suspended 3 months in all capacities; Suspended 20 business days in Principal/Supervisory capacities only
As the AMLCO and president of his member firm, Grossmanfailed to
demonstrate that he implemented and followed sufficient AML procedures to
adequately detect and investigate potentially suspicious activity.
Grossman did not consider the AML procedures and rules to be
applicable to the type of accounts held at the firm and therefore did not
adequately utilize, monitor or review for red flags listed in the firmís
procedures. His daily review of trades
executed at the firm and all outgoing cash journals and wires, Grossman did not
identify any activity of unusual size, volume or pattern as an AML concern. The
firmís registered representatives, who were also assigned responsibility for
monitoring their own accounts, failed to report any suspicious activity to
Grossman. Until the SEC and/or FINRA alerted
Grossman to red flags of suspicious conduct, Grossman did not file any SARs.
Grossman failed to implement adequate procedures reasonably designed
to detect and cause the reporting of suspicious transactions and, even with
those minimal procedures that he had in place at the firm, he still failed to
adequately implement or enforce the firmís own AML program. For example, accounts were opened at the firm within a short period of each other that
engaged in similar activity in many of the same penny stocks, and several red
flags existed in connection with these accounts that should have triggered
Grossmanís obligations to undertake scrutiny of the accounts, as set out in the
firmís procedures, including possibly filing a SAR. Additionally,individuals associated with
the accounts had prior disciplinary histories, including securities fraud
and/or money laundering. Because of Grossmanís
failure to effectively identify and investigate suspicious activity,he often failed to identify transactions potentially meriting reporting
through the filing of SARs. Moreover, Grossman failed to
implement an adequate AML training program for appropriate personnel; the AML
training conducted was not provided to all of the registered representatives at
Furthermore, Grossman failed to establish and
maintain a supervisory system at the firm to address the firmís
responsibilities for determining whether customer securities were properly
registered or exempt from registration under Section 5 of the Securities Act of
1933 (Securities Act) and, as a result, Grossman failed to take steps,
including conducting a searching inquiry, to ascertain whether these securities
were freely tradeable or subject to an exemption from registration and not in
contravention of Section 5 of the Securities Act. The firm did not have a system in place, written or unwritten, to determine
whether customer securities were properly registered or exempt from
registration under Section 5 of the Securities Act; Grossman relied solely upon
the clearing firm, assuming that if the stocks were permitted to be sold by the
clearing firm, then his firm was compliant with Section 5 of the Securities
Grossman failed to designate a principal
to test and verify the reasonableness of the firmís supervisory system, and
failed to establish, maintain and enforce written supervisory control policies
and procedures at the firm and failed to designate and specifically identify to
FINRA at least one principal to test and verify that the firmís supervisory
system was reasonable to establish, maintain and enforce a system of
supervisory control policies and procedures.
The firm created a report, which was deficient in several areas,
including in its details of the firmís system of supervisory controls,
procedures for conducting tests and gaps analysis, and identities of
responsible persons or departments for required tests and gaps analysis. Grossman made annual CEO certifications, certifying that the
firm had in place processes to establish, maintain, review, test and modify
written compliance policies and WSPs to comply with applicable securities rules
and registrations; the certifications were deficient in that they failed to
include certain information, including whether the firm has in place processes
to establish, maintain and review policies and procedures designed to achieve
compliance with applicable laws and regulations and whether the firm has in
place processes to modify such policies and procedures as business, regulatory
and legislative events dictate.
to ensure that the firmís heightened supervisory procedures placed on a
registered representative were reasonably designed and implemented to address
the conduct cited within SECís allegations; the additional supervisory steps
imposed by Grossman to be taken for the registered representative were no
different than ordinary supervisory requirements. Moreover, there was a conflict of interest between the registered representative and the
principal assigned to monitor the registered representativeís actions at the
firm;namely, the principal had a financial interest in not reprimanding or otherwise
hindering the registered representativeís actions. Furthermore,Grossman was aware of this conflict, yet nonetheless assigned the
principal to conduct heightened supervision over the registered representative.
The heightened supervisory procedures Grossman
implemented did not contain any explanation of how the supervision was to be
evidenced, and the firm failed to provide any evidence that heightened
supervision was being conducted on the registered representative. Also, Grossman entered into rebate arrangements with customers
without maintaining the firmís required minimum net capital. Similarly, he caused
the firm to engage in a securities business when the firmís net capital was
below the required minimum and without establishing a reserve bank account or
qualifying for an exemption. Grossman was required to perform
monthly reserve computations and to make deposits into a special reserve bank
account for the exclusive benefit of customers, but failed to do so.
Dennis Lee Grossman (Principal): Fined $75,000; Suspended 4 months in Principal capacity only
Duarte borrowed $50,000 in the form of a promissory note from a customer to start a business buying up distressed properties, and in order to do this, he needed money to establish a credit line. hen Duarte received the loan, his member firmís written procedures prohibited employees from accepting or soliciting loans from firm customers/He has not fully repaid the loan.
Also, Duarte engaged in an outside business activity without providing his firm with written notice of the activity; Duarte failed to disclose or obtain his firmís written permission of his outside business activity of purchasing distressed properties. Duarte made misrepresentations to his firm in an annual compliance certification that he had not accepted any loans from customers and was not engaged in any outside business activities when, in fact, he had already obtained a loan from the customer and was engaged in an outside business activity.
Donald Anthony Duarte Jr.: Barred; Ordered to pay $25,000 plus interest in restitution to a customer
At Hauserís request, firm customers borrowed a total of $202,000 from the cash value accumulated in whole life insurance policies that Hauser previously sold to them. Hauser then borrowed the funds from these customers, pursuant to secured (as to two of the loans) and unsecured (as to one of the loans) promissory notes providing for annual interest. Hauser has not made interest or principal payments on the notes.
Hauser's firmís WSPs prohibit associated persons from engaging in borrowing or loaning funds with a customer, unless the customer is an immediate family member and the firm provides prior written approval; none of the customers from whom Hauser borrowed funds were members of Hauserís immediate family, and Hauser did not seek or receive prior approval for the loans.
While associated with a member firm, Axel, through a company in which he held an ownership interest and co-managed, borrowed $200,000 from two customers in three transactions.
The first loan for $50,000, which Axel later repaid, was contrary to Axelís firmís written policy that prohibited individuals from borrowing money from firm customers, and Axel did not seek or receive his firmís approval for the loan he received from the customer. Prior to receiving the loan, the firmís CCO explicitly stated that Axel did not qualify to raise money with his customers.
Axel left the firm and became associated with another member firm; Axel, through his company, solicited another $50,000 from the first customer, who had now transferred his account to the firm where Axel remained his account representative. Axel did not repay the funds he borrowed in the second loan.
Finally, Axel, through his company, borrowed $100,000 from a second customer. The customer has received partial payment of the loan. Axel accepted these two loans contrary to his firmís written policy that prohibited registered persons from borrowing money from a customer, Axel had not asked for, nor had received, the firmís permission to borrow these funds.
Axel provided false information to his second member firm, when he responded that he never loaned money to, or borrowed money from, a customer, or arranged for a third party to loan or borrow from a customer on a compliance certification.
Euro Pacific failed to timely report quarterly statistical information concerning most of the customer complaints it received to FINRAís then 3070 System.
The firm failed to maintain complete complaint files and did not enforce its WSPs pertaining to customer complaint reporting, and the Uniform Applications for Securities Industry Registration or Transfer (Forms U4) for those representatives who were the subject of the complaints were not timely updated.
The firm failed to enforce its written supervisory control policies and procedures that would test and verify that the firmís supervisory procedures were reasonably designed with respect to the firmís activities to achieve compliance with applicable securities laws, regulations and self-regulatory organization (SRO) rules; the firmís annual NASD Rule 3012 report for one year did not comport with these procedures, and the firm failed to implement its supervisory control procedures to review its producing managersí customer account activity.
The firm prepared a deficient NASD Rule 3013 certification as it did not document the firmís processes for establishing, maintaining, reviewing, testing and modifying compliance policies reasonably designed to achieve compliance with applicable securities laws, regulations and SRO rules. The firm failed to timely file a Financial and Operational Combined Uniform Single (FOCUS) Report and Schedule I Reports.
The firm failed to preserve, in an easily accessible place, electronic emails for one of its representatives for almost a year.
The firm offered and sold precious metal-related products through an entity, but failed to develop, implement and enforce adequate AML procedures related to the business; the firm did not establish and implement policies and procedures reasonably designed to identify, monitor for and, where appropriate, file suspicious activity reports (SARs) for its business processed through its k(2)(i) account. Moreover, the firm failed to implement and enforce its AML procedures and policies related to its fully disclosed business through its then-clearing firm; aspects of its AML program that the firm failed to implement and enforce included monitoring accounts for suspicious activity, monitoring employee conduct and accounts, red flags and control/restricted securities. Furthermore, the firmís procedures provided that monitoring would be conducted by means of exception reports for unusual size, volume, pattern or type of transactions; the firm did not consistently utilize exception reports made available by its then-clearing firm, and the firm did not evidence its review of the reports and did not note findings and appropriate follow-up actions, if any, that were taken. When notified by its clearing firm of possible suspect activity, on at least several occasions, the firm did not promptly and/or fully respond to the clearing firmís inquiries. Such review was required by the procedures for employee accounts, but the firm did not maintain any evidence that such inquiries for employee accounts were conducted. The firmís procedures contained a non-exclusive list of numerous possible red flags that could signal possible money laundering, but the firm did not take consistent steps to ensure the review of red flags in accounts.
The firmís AML procedures reference that SAR-SF filings are required under the Bank Secrecy Act (BSA) for any account activity involving $5,000 or more when the firm knows, suspects, or has reason to suspect that the transaction involves illegal activity or is designed to evade BSA regulation requirements or involves the use of the firm to facilitate criminal activity; because the firm was not consistently reviewing exception reports or red flags, it could not consistently identify and evaluate circumstances that might warrant a SAR-SF filing.
The firm failed to establish and implement risk-based customer identification program (CIP) procedures appropriate to the firmís size and type of business; and the firm failed to provide ongoing training to appropriate personnel regarding the use of its internal monitoring tools as AML program required.
In addition, certain pages of the firmís website contained statements that did not comport with standards in NASD Rule 2210; FINRA previously identified these Web pages as being in violation of NASD Rule 2210, but the firm failed to remove such pages from its website.
Euro Pacific Capital, Inc.: Censured; Fined $150,000
a corporation for the business purpose of pooling funds to be used to finance
investments in various small businesses, and he operated the company for more
than four years without notice to his member firm. Gutta offered and sold company promissory notes to individuals, including some
firm customers, for proceeds of approximately $2.9 million; the firm did not
sponsor or approve the promissory notes, and Gutta did not provide written
notice to, seek or obtain approval from, his firm prior to engaging in the
offer and sale of the notes. Gutta recommended
the notes to a firm customer without having a reasonable basis to believe the
investment was suitable for her; the customer invested a total of $235,000 in
notes, which was inconsistent with her stated investment objective and risk
Frank A. Gutta aka Fazel A. Gutta: No FIne in light of financial status; Suspended 2 years
Wilson falsified a customerís signature on an account transfer form.
A new registered representative joined Wilsonís member firm and
sought to transfer her
securities holdings at another broker-dealer to an account at the
firm. In order to effectuate
the transfer, the new registered representative signed an account
transfer form authorizing
the transfer in-kind of her securities holdings.
responsible for ensuring that the transfer was made consistent
with the customerís
instructions, as reflected in the signed transfer form. Shortly
after submitting the transfer
form for processing, Wilson received notification from the
broker-dealer holding the
registered representativeís securities that her holdings could not
be transferred in-kind. Rather than communicating this issue
to the customer, Wilson
transposed a copy of the registered representativeís signature
onto a new transfer form
requesting liquidation of her securities and submitted the
falsified transfer for processing,
causing liquidation of her securities, without her authorization
Gavin Michael Wilson: Fined $5,000; Suspended 6 months
Sarian impersonated customers via telephone in order to effect transactions in their
accounts. He signed a relativeís name on a
brokerage account withdrawal form to effect a transaction in the account.
McGrath failed to reasonably supervise a registered representative who recommended and effected unsuitable and excessive trading in a customerís account. McGrath had supervisory responsibility over the registered representative and was responsible for reviewing his securities recommendations to ensure compliance with member firm procedures and applicable securities rules. McGrath failed to reasonably supervise the registered representative by, among other things, failing to enforce firm account procedures and failing to respond to red flags regarding the registered representativeís trading activity in the customerís account.
The firmís supervisory procedures required McGrath to review account transactions, such as the registered representativeís recommended transactions in the customerís account, on a daily and monthly basis for, among other things, general suitability, excessive trading and churning, in-and-out trading and excessive commissions and fees; the firmís procedures also required that McGrath review all exception reports related to the individuals who he supervised and take appropriate measures as necessary. Through these required reviews, McGrath was aware of red flags of possible misconduct in the customerís account, including frequent short-term trading, excessive commission and margin charges, high turnover and cost-to-equity ratios, and substantial trading losses, and the account frequently appeared on the firmís exception reports; McGrath failed to reasonably respond to and address the red flags in the customerís account.
McGrath never spoke with the customer despite the fact that the firmís compliance department sent several emails to McGrath advising him that the customerís account needed customer contact as required by the firmís WSPs; McGrath never spoke with the customer directly to confirm that he was aware of the activity level in his account or that such activity was appropriate in light of his financial circumstances and investment objectives.
McGrath failed to ensure that an Active Account Suitability Supplement and Questionnaire was sent to the customer within the time frame the firmís WSPs required. Moreover, months after the registered representative began trading in the customerís account, McGrath instructed the registered representative to curtail the short-term trading in the account and hold positions for a longer period; that was the only time McGrath spoke to the registered representative about the customerís account. Furthermore, McGrath reduced the registered representativeís commissions for purchases in the customerís account, but this measure did not have the desired impact; the registered representative actually increased the number of purchases and frequency of short-term trading to offset the effects of the commission reduction until the customer closed the account after suffering losses of approximately $120,000.
McGrath failed to take any action against the registered representative based on his failure to comply with his instructions; among other things, McGrath never restricted the trading in the customerís account, spoke to the customer, placed the registered representative on heightened supervision, recommended disciplinary measures against him to address these concerns, or spoke with the firmís compliance department regarding the supervision of the registered representative. The firm allowed the registered representative to effect transactions in the customerís account for months without obtaining a signed and completed new account form from the customer, and failed to enforce its review of active accounts as the WSPs required. The firm failed to send a required suitability questionnaire to the customer until almost a year after the account had been opened and suffered significant losses, failed to qualify his account as suitable for active trading and failed to perform a timely quarterly review of the account.
Pedigo submitted a fixed annuity
contract for his customer with an insurance company. The insurance company
issued the annuity contract and sent it to Pedigo in accordance with its
selling agreement. The insurance company never
received the customerís executed annuity contract confirmation (ACC); and, as a
result, mailed letters to Pedigo numerous times requesting that he have the
customer sign and return the ACC.
the insurance company that the customer was deceased and requested paperwork to
submit a death claim. According to the insurance company, it never received the
death claim paperwork. After receiving a
surrender request form that same day, the insurance company contacted Pedigo to
inform him that a full surrender could not be processed because the customer
was deceased. Amazingly, about a year after the customer had passed,
Pedigo falsely informed the insurance company that the customer was still
alive. Pedigo faxed the insurance company an ACC which the customer purportedly
signed and dated almost 20 days after the customer had died.
Cramer conducted transactions on behalf of the
firm and its parent company after these entities terminated her as an employee
and officer. After receiving the termination notice,
Cramer sent a fax on firm letterhead instructing the firmís bank to transfer
$3,075 from the firmís account to the firmís parent companyís operating
account. The bank processed the transaction as a journal entry according to
Cramerís instructions. Cramer sent the fax and signed it as president of the
firm and its parent company although she never held the office of president of
either the firm or its parent company. The journal entry was necessary to cover a $4,000 check payable to Cramer from the
parent companyís operating account, which she wrote and presented for payment.
At the time of Cramerís termination, she was in
possession of another check payable to her in the amount of $65,679.88 written
against the account of the parent companyís defined-benefit plan; this check
was dated for a certain date before her termination, but Cramer did not present
it for payment until a few days after her termination. Cramer
sent an email to a representative of the firmís clearing firm requesting that
an inactivity fee be reversed; Cramer closed the email with her name, the
firmís name/the firmís parent companyís name, and made no reference to the fact
that she no longer had a position with either the firm or its parent company.
Joanne Lynn Cramer (Principal): Fined $5,000; Suspended 1 month in all capacities; Suspended 6 months in FINOP only capacities
Grant executed unauthorized
transactions in an account belonging to trustees of a family trust. The
principal value of these unauthorized trades was
$1,088,561.12; the commissions amounted to $11,517.90. For 18 months prior to these unauthorized transactions, there was no
activity in the account aside from interest and dividend credits and the
ensuing automatic purchases of shares in a money market fund.
Garvey, as the supervisor of
his member firmís securities lending desk, permitted a non-registered
individual associated with a non-registered finder firm to act in a capacity
that required the non-registered individual and/or his firm to be registered as
a broker dealer and caused his firm to pay the non-registered individual
transaction-based compensation through the non-registered finder firm.
Garvey regularly caused his firm to permit an unregistered
natural person to negotiate, solicit and enter into stock borrow and loan
transactions, which are duties customarily performed by a registered securities
lending representative. Garvey performed the
duties of a securities lending supervisor without being properly registered.
Garvey consented and/or caused the continuation of the
practice of paying finders on transactions with certain counterparties in which
the finder had provided no service, and permitted individual traders to
subjectively determine the cut-in transactions on which a finder was to be paid
and the amount of the finderís compensation on those transactions even though
the finder had not provided service on the transactions.
Garvey caused his firm to create and preserve inaccurate books and records on
the stock loan activity on the securities lending desk, in that the firmís
automated records of the cut-in transactions were inaccurate, in that they
reflected that certain finders had participated in stock loan transactions
when, in fact, they had not performed any function. In addition, these false entries were transferred to its accounting records,
which inaccurately indicated that payments were made to finders on the basis of
services rendered when, in fact, no services had been rendered to justify the
payments on the transactions indicated.
Kevin Francis Garvey (Principal): Fined $35,000; Suspended 30 days.
Associated Person created expense reports associated with personal
expenses charged to her member firm-issued credit card, which she ultimately
paid. Each expense report, Jacques labeled each
expense as ďpersonalĒ and attached a check to reimburse the firm for the
personal expenses charged. Jacques signed her
supervisorís signature on a line on each expense report titled ďauthorized
approval signature,Ē and stamped her supervisorís printed name on a line with
the instruction ďprint approver name.ĒJacques
submitted the expense reports to the firm; neither the firm nor Jacquesí
supervisor gave her permission or authority to add her supervisorís signature
to the expense reports.
Kristen Anne Jacques: Censured; Fined $5,000; Suspended 1 year
Ray solicited prospective investors to purchase promissory notes as a vehicle to fund the start up of a hedge fund and to pay the ongoing operations of the fund; investors purchased more than $675,000 in promissory notes from Ray. Ray represented he could pay above-U.S. market interest rates based in part on the fact he could obtain these rates by investing the funds in a foreign bank; Ray failed to invest the proceeds of the notes with the foreign bank, used some of the proceeds for personal expenses and used proceeds from later sales to pay interest and repay principal amounts due on notes earlier purchasers held.
Ray made materially misleading statements and omissions of fact, including misrepresenting the use of proceeds from the sale of the promissory notes, misrepresenting how and where the proceeds were to be invested, and failing to disclose he was using the proceeds from the sale of promissory notes to pay interest and principal amounts due to earlier note holders. Ray participated in private securities transactions through the sale of promissory notes without providing written notice to his firm describing in detail the proposed transaction, his role therein and stating whether he received, or would receive compensation, and without obtaining his firmís approval.
Legent cleared transactions in accounts a former FINRA member firm introduced, including a corporate account the former member firmís customer, an entity, maintained. The trading activity in the entityís account generated multiple margin calls. Through a course of conduct FINRA alleged involved improper agreements, misleading statements and omissions to disclose material information by the entity and the former member firm, the entity acquired control over assets in qualified and non-qualified accounts customers of another former FINRA member firm previously owned and controlled. Those assets, including assets previously held in qualified accounts, were transferred into the entityís account held at the firm, where they secured margin debits resulting from options trading and short-selling.
Legent firm provided material assistance to the former member firm and the entity in connection with their efforts to obtain additional assets in the entityís account in order to support continued trading on margin. Although there were relevant facts that the former member firm and the entity withheld from, or misrepresented to, the firm, the firm was, or should have been, aware of other facts and circumstances that should have caused it to decline to take, or to inquire further before taking, certain actions the former member firm and its customer requested. which facilitated the asset transfers and placed the other former member firm customers at risk of loss; more specifically, two senior managers of the firm, who are principals, had access to facts and circumstances that, at the very least, should have prompted them to inquire further regarding the nature of the assets being transferred. In addition, as a result of trading in the entityís account after it was transferred from the firm to another broker-dealer, some customer assets were liquidated to meet margin calls, assets that would not have been available for liquidation but for their improper transfer into the entityís account while it was held at the firm.
that a customer have her trust purchase a $500,000 variable annuity that would
make payments to her heirs.
Purportedly, the purchase of the $500,000 annuity, issued by an
insurance company, would provide the customerís heirs with a monthly income
until a certain age. The customer advised Howard that
she owned rural real estate, which was held in the trust, and she believed that
the property could be sold following her death realizing sale proceeds of
Howard arranged for the
trust to borrow $500,000 from a bank using the real estate as collateral for
the loan and using the proceeds to purchase the variable annuity. The trust had
to encumber virtually all of its major assets to secure the loan, including the
underlying variable annuity, because the market value of the property was only
$375,000. Howard received $38,526.86 in
commission for his sale of the variable annuity to the customer.
found that Howard knew, or should have known, that the cost of the annuity far
exceeded the appraised market value of the real estate and the customerís
liquid assets, and that the customer could not pay for the variable annuity he
recommended without borrowed funds secured in part by the annuity itself. Howard did not have a reasonable basis for believing that his
recommendation was suitable for the customer in light of her financial
circumstances and needs; Howardís recommendation exceeded the customerís
financial capability and exposed her to material risk. In addition, Howard completed the account documents and paperwork for the
customerís purchase of the variable annuity, including the variable annuity
questionnaire, with false information about the trustís net worth and source of
funds. Further, he provided the completed questionnaire containing the false
information about the trustís financial situation to his member firm, and the
firm retained the document in its records. Moreover, in
reviewing and approving the annuity sale, Howardís supervisor reviewed the
variable annuity questionnaire; Howard thus caused the firmís books and records
to be inaccurate and impeded supervision of the annuity sale.
Michael Ray Howard (Principal): Fined $40,000; suspended 6 months
FINRA received investorsí complaints alleging that Calhoun had solicited them to invest in a foreign currency exchange trading (FOREX) program a foreign entity, which operated with Calhoun's assistance/ The digrunteled investors invested a total of $150,000 in the FOREX program. Ultimately, the entityís FOREX scheme was the subject of federal actions by both the SEC and the Commodity Futures Trading Commission (CFTC).
Calhoun solicited the investors to invest in the entity while he was employed as a registered representative with his member firm. alhounís participation in the private securities transactions was outside the regular course or scope of his employment with his firm; and he failed to provide prior written notice of his role in the transactions to his firm and did not receive the firmís written approval or acknowledgement concerning his participation in the private securities transactions. Finally, he failed to appear for a FINRA on-the-record interview.
Finkin's customer submitted an application to the firm for a mortgage, term loan, and
line of credit, and as part of the application process, the firm retained an
outside law firm to engage in negotiations on the term of the loans with the
customerís counsel. Finkin sent fabricated emails to
various individuals involved in the negotiations, including the customerís
counsel, and each of the emails instructed the recipients to contact Finkin
with any questions or concerns; Finkin sent the emails from his personal email
account in a way that made the messages appear to the recipient to be from a
paralegal at the outside law firm, and not Finkin. Finkin failed to comply with a FINRA request for a document.
White recommended that a customer invest in non-listed real
estate investment trusts (REITs) and a tenants-in-common (TIC) interest in
undeveloped rural real estate without a reasonable basis to believe that the
recommendations were suitable for the customer based on the customerís
financial status and investment objectives, and the customerís need for
liquidity, preservation of capital, ready access to cash, and safety of
principal. The customer instructed White to sell the REITs
and White acknowledged receipt of the sell instructions and informed the
customer to expect to receive a check for the sale proceeds within one to two
weeks, but later refused to process the sell orders.White participated in the sale of TIC interests totaling $3,700,000,
outside the course or scope of his employment with his firm and collected
selling compensation of approximately $1,653,958 but failed to provide his firm
with prior written notice describing the proposed transactions.
Phillips' customers gave him funds to invest in various securities; and he instructed his customers to make their checks payable to a consulting company that Phillips owned and controlled. Phillips deposited the customersí funds into the consulting companyís bank account, which he controlled, often delayed making the investments, and then only invested a portion of the funds his customers gave him. Phillips misused the customersí funds by using those funds to pay the consulting companyís expenses.
Phillips willfully filed a Form U4 with materially false information.
Howes participated in a securities transaction without providing
prior written notice to his member firm of the proposed transaction and his
role therein. Howes referred a customer to a company
to invest in a debenture, and based on his referral, the customer invested
$50,000 in a debenture and lost his entire investment; Howes received $1,000
for the referral of the customer to the company.
Lenhardt directed an associate to use personal information of
some of Lenhardtís customers to establish online access to their accounts at
another firm, and through that access, obtain value and performance information
relating to whole life insurance policies that the customers held at that firm.
Although the purpose for obtaining the information was
to include it in personalized financial reports that were prepared for the
customers, the access to their accounts and insurance policy information was
obtained without the customersí knowledge or consent.
Richard Edwin Lenhardt Jr.: Fined $5,000; Suspended 2 months
McLean recommended to a customer that he transfer his existing mutual
funds to McLeanís member firm, and told the customer that, if he became
dissatisfied, he could liquidate the account at no expense. Shortly thereafter,
the customer accepted McLeanís recommendation and transferred the mutual funds.
Thereafter, the customer had suffered losses in those mutual fund
investments and wanted to liquidate his holdings. Accordingly, McLean reimbursed the
customer $252 for the charges he incurred in selling the mutual funds, thereby
improperly sharing in the customerís losses. The firmís written procedures expressly prohibited registered representatives from
sharing in any benefits or losses with clients resulting from securities
Scott Stafford McLean (Principal): Fined $5,000; Suspended 1 business days
Krasner made unsuitable recommendations to a
customer who was a retiree and inexperienced investor.
Although the customer agreed to each of Krasnerís recommendations, Krasner
employed a trading strategy that was not suitable for the customerís particular
financial situation. The customer had indicated in account opening documents that
he had an investment objective of capital preservation and a low risk
Krasner recommended the use of margin
to execute trades in the customerís account and at times exposed the customer
to inappropriate financial risk. Krasner never
read the customerís account opening documents, though they were available to
him, and was unaware of the customerís financial situation and risk tolerance,
as stated in the account opening documents.
Krasnerís member firmís database and computer platform that he used
to place trades, as well as the account statements that were mailed to the
customer each month, inaccurately indicated that the investment objective was
speculation. In his conversations with the customer, Krasner never confirmed
the accuracy of the investment objective. Krasner
employed a short-term and speculative trading strategy of short selling stock
and using margin. Since Krasner was not
fully aware of the customerís stated financial condition, he based his
recommendations on the erroneous view that the customer could absorb the high
risks of these transactions.
The customer frequently
spoke with Krasner on the phone, gave Krasner express permission to execute the
recommended trades and informed Krasner that he was willing to engage in some
speculation. Furthermore, Krasner based his recommendations on
his conversations with the customer and the firmís inaccurate database, not the
accurate financial information that was contained in the account opening
Krasner executed solicited trades in
the customerís account, while charging the account $51,790 in commissions and
fees. Although several of the individual trades were profitable, including
commissions, the customerís account lost $54,160 in net value, dropping from a
net equity value of $162,571 to $108,410.
Steven Krasner aka Steven Zarkhin : Fiend $10,000; Ordered to disgorge to a customer $18,126.81 (payable as partial restitution); Suspended 2 months
Jessup improperly requested and received an answer key to a state LTC CE exam and improperly distributed the answer key to a registered representative outside of his member firm. Jessup was an external wholesaler who marketed an insurance product to financial advisors at financial services firms. Certain states began requiring financial advisors to successfully complete a LTC CE course before selling LTC insurance products to retail customers. Jessupís firm authorized its wholesalers to give financial advisors vouchers from a company, which the financial advisors could use to take CE exams through the company without charge. Firm employees created and circulated answer keys to the companyís CE exam for various states.
The suspension was in effect from October 3, 2011, through November 2, 2011. (FINRA Case #)
Steven Lenard Jessup Jr. : Fined $5,000; Suspended 1 month
Higgins sold equity indexed annuities (EIAs) to people outside the
scope of his employment with his firm and without providing the firm prompt
written notice of the business activity. Higginsí
undisclosed EIA sales totaled about $127,000 and he received compensation
totaling about $6,340 from the transactions.
Timothy Clarke Higgins: Fined $3,000; Suspended 30 business days.
Associated Person McInchak wrote
numerous checks, totaling $461,013.14, from her member firmís corporate
checking account made payable to herself and to her personal credit card
companies. McInchak cashed the checks and used them for
her own benefit without the firmís knowledge or permission.
Coculo converted funds from bank customer accounts while employed with his member firmís bank affiliate. Coculo ordered and intercepted automated teller machine (ATM) cards and withdrew funds from those accounts, which totaled approximately $5,500. Coculo improperly obtained ATM cards from relatives and effected unauthorized withdrawals totaling approximately $9,000; in total, Coculo misappropriated approximately $14,500 from the customer accounts without permission or authority from the customers or the bank. The transactions did not involve funds from an account held at a FINRA regulated entity.
A firm customer opened an account with a mutual fund company through Longoria and,acting on Longoriaís instructions, wrote a check to an entity Longoria owned for $12,000 to fund the account. However, Longoria never funded the account and did not return the $12,000 to the customer.
An individual, non-firm customer gave Longoria a check for $5,000 to invest in what Longoria had represented was an exchange traded mutual fund whose performance was tied to that of the Standard and Poor Index. Longoria instructed the individual to make the check payable to the entity he owned. The individual completed and signed forms to open an account, but no account was opened; the individual requested copies of the forms and evidence of the investment, but Longoria did not provide these documents to the individual. The individual repeatedly asked Longoria to return his $5,000; Longoria promised to do so, and eventually gave the individual a check for $5,820, but the check was returned for insufficient funds.
Longoria failed to respond to FINRA requests for information.
Andrew Joseph Longoria: Barred; Ordered to pay $5,000 plus interest restitution to a non-customer
Acting through Birkelbach, the Firm failed to adequately supervise to ensure the timely reporting of customer settlements. Birkelbach relied on an unregistered outside consultant to process Rule 3070 filings and amendments to Applications for Broker-Dealer Registration (Forms BD) and Uniform Applications for Securities Industry Registration or Transfer (Forms U4), gave the consultant inadequate instructions and guidance, and did not otherwise ensure that timely and complete filings and amendments were made.
Birkelbach neglected to instruct the consultant to process disclosures or otherwise take action to correct the deficiencies until a later date, even after FINRA advised him of the deficiencies.
Birkelbach and the firm failed to ensure the timely reporting of settlements with customers on 3070 filings and the amendment of Forms BD and Forms U4 to disclose this information.
Birkelbach Investment Securities, Inc.: Censured; Fined $10,000, jointly and severally with Carl Birkelbach
Carl Max Birkelbach: Censured; Fined $10,000, jointly and severally with Birkelbach Invst.; Fined additional $15,000; Suspended 30 days in all capacities; Suspended 90 days in Principal capacity only; Required to requalify by examination as a principal.
The Firm failed to disclose and to timely disclose material information and an arbitration on Forms U4, and failed to timely disclose arbitrations on registered representativesí Uniform Termination Notices for Securities Industry Registration (Forms U5). The firm received separate complaints against a registered representative and reported the statistical and summary information regarding the complaint to FINRA via an NASD Rule 3070 filing, but failed to disclose that the representative was the subject of both complaints.
A customer instructed Addington to purchase shares of a common stock in his account at Addingtonís member firm. Addington placed an order to purchase the stock and instructed the customer to write a check in the amount of $34,019 made payable to an entity to pay for the purchase. However, Addington did not credit the payment to the customerís account. As a result, Addington's brokerage firm liquidated the shares of the stock in the customerís account for non-payment.
The customer did not promptly learn of the liquidating transaction and instructed Addington to sell the shares of the stock he believed was still in his account. The customer received a $35,500.98 check from Addington drawn on the entityís account which Addington signed; however, when the customer deposited the check in his account, it was dishonored for insufficient funds.
After the customer called Addington and demanded that he repay him; Addington then paid the customer $35,000 in cash. In addition, Addington failed to respond to FINRA requests for information in connection with FINRAís investigation of the allegations in the Form U5 his firm filed.
The Firm failed to have reasonable grounds to believe that private placements offered by two entities pursuant to Regulation D were suitable for any customer.
The Firm began selling the offerings for one entity after its representatives visited the issuerís offices to review records and meet with the issuersí executives; the firm also received numerous third-party due diligence reports for these offerings but never obtained financial information about the entity and its offerings from independent sources, such as audited financial statements.
Despite the issuerís assurances, the problems with its Regulation D offerings continued; the issuer repeatedly stated to the firmís representatives that the interest and principal payments would occur within a few weeks, and the issuer made some interest payments but failed to pay substantial amounts of interest and principal owed to its investors, and these unfulfilled promises continued until the SEC filed its civil action and the issuerís operations ceased.
In addition to ongoing delays in making payments to its investors, the firm received other red flags relating to the entityís problems but continued to allow its brokers to sell the offering to their customers; in total, the firmís brokers sold $11,759,798.01 of the offering to customers.
Despite the fact that the firm received numerous third-party due diligence reports for the other entitiesí offering, it never obtained financial information about the issuer and its offerings from independent sources, such as audited financial statements, and although it received a specific fee related to due diligence purportedly performed in connection with each offering, the firm performed little due diligence beyond reviewing the private placement memoranda (PPM) for the issuerís offerings. The firmís representatives did not travel to the entityís headquarters to conduct any due diligence for these offerings in person and did not see or request any financial information for the entity other than that contained in the PPM.
The Firm obtained a third-party due diligence report for one of the offerings after having sold these offerings for several months already; this report identified a number of red flags with respect to the offerings. Moreover, the firm should have been particularly careful to scrutinize each of the issuerís offerings given the purported high rates of return but did not take the necessary steps, through obtaining financial information or otherwise, to ensure that these rates of return were legitimate, and not payable from the proceeds of later offerings, in the manner of a Ponzi scheme. Furthermore, the firm also did not follow up on the red flags documented in the third-party due diligence report; even with notice of these red flags, the firm continued to sell the offerings without conducting any meaningful due diligence.
The Firm failed to have reasonable grounds for approving the sale and allowing the continued sale of the offerings; even though the firm was aware of numerous red flags and negative information that should have alerted it to potential risks, the firm allowed its brokers to continue selling these private placements.The firm did not conduct meaningful due diligence for the offerings prior to approving them for sale to its customers; without adequate due diligence, the firm could not identify and understand the inherent risks of these offerings.The Firm failed to enforce reasonable supervisory procedures to detect or address potential red flags and negative information as it related to these private placements; the firm therefore failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations.
Capital Financial Services, Inc.: Censured; Ordered to pay $200,000 restitution to investors
The Firm allowed a statutorily disqualified person to associate with the firm.
The individual acted in an associated capacity for the firm, with its knowledge and consent, by
keeping regular business hours at the firm,
desk at the firmís office,
a telephone extension at the firm, and
a firm sponsored email account;
regularly communicating with customers in an effort to maintain their accounts at the firm and to preserve his relationships with them; and
handling administrative matters for the firm.
The firm initiated numerous telephone solicitations to persons whose numbers were in the national do-not call registry of the Federal Trade Commission (DNC Registry) at the time of the calls.
Tto achieve compliance with telemarketing rules and regulations, the firm used, and still uses, a system that blocks outbound phone calls to phone numbers in the DNC Registry. In order to call a phone number in the DNC Registry from a firm phone line, the firm must manually place the number on a list in the system (Allow List); calls to phone numbers on the Allow List bypass the screening system, irrespective of whether the number is in the DNC Registry. A firm principal added numerous phone numbers to the Allow List; the numbers came from leads that the firm had purchased. In addition, the firm maintained that it thought the leads consisted solely of business phone numbers that are not subject to certain do-not-call restrictions. Moreover, the firm placed calls to phone numbers that it had added to the Allow List; a substantial percentage were personal phone numbers that were in the DNC Registry when the firm initiated telephone solicitations to them.
Smith misappropriated approximately $231,000 from bank customers by completing credit line advance request forms seeking withdrawals from customer accounts without the customersí knowledge or consent, withdrew the money in cash and used it to pay personal expenses or deposited it into his personal bank accounts. When some of the customers questioned the withdrawals, Smith reimbursed their accounts by making some unauthorized withdrawals from other customer accounts.
Smith pleaded guilty to misapplication of bank funds in the U.S. District Court for the Western District of Louisiana for stealing approximately $231,000 that was entrusted to the bankís care and control.
Lee misappropriated $900 from his member firm by claiming and receiving reimbursement for personal expenses, which he claimed as business expenses, thus converting his firmís funds to his own use. Lee caused his firmís books and records to be inaccurate.
Associated Person Tao took the Series 6óInvestment Company Products/Variable Contracts Limited Representative Qualifications Examinationóand received a failing grade.Tao altered the Proctorís Report to reflect that she had received a failing score higher than the failing score she actually received; Tao presented the altered report to her manager.
While registered with a member firm, Pinney borrowed an aggregate of approximately $205,000 from customers, who were his long-time friends; each loan was a personal loan Pinney used to meet his personal financial obligations. Pinney repaid the outstanding balance of $85,000 owed on one of the loans but has not repaid any of the $120,000 on the loan to the other customer, which is payable on demand. The findings also stated that the firm had written procedures forbidding registered representatives from borrowing funds from customers except under certain circumstances; Pinneyís loans did not fit within any of the exceptions in the firmís procedures.
Edward Lee Pinney Jr.: Fined $5,000; Suspended 3 months; Ordered to repay $120,000 to customer
Lorie falsified Letters Of Authorization ("LOAs"), which caused his firmís books and records to be inaccurate, and used the LOAs to withdraw customer funds without the customerís authorization; these LOAs contained the purported signature of a customer and the customerís family members and authorized the transfer of checks totaling $21,290.60 to a mortgage company and another $15,000 check to a third-party account. The checks were issued as Lorie requested; neither the customer nor any of his family members authorized or signed the
Lorie failed to respond to FINRA requests for information.
Bianculli entered into an informal agreement with brokers at his member firm to share in commissions relating to undisclosed private securities transactions in an entity, which purported to advance cash to merchants in exchange for the merchantsí future credit card receivable; the entity promised returns of 4 percent or more per month, but it was a Ponzi scheme.
Bianculli helped brokers with servicing a customerís investment but failed to provide his firm with written notice of his involvement in an unapproved private securities transaction. Bianculli provided false and misleading information to FINRA during sworn on-the-record testimony.
Also, Bianculli provided false and misleading statements to his firm in response to a compliance questionnaire distributed by the firm inquiring into the scheme. Bianculli denied meeting any of the owners or principals of the entity and failed to disclose his participation in the customerís investment.
Porporino executed two unauthorized trades in a customerís account without the customerís prior knowledge, authorization or consent, which cost $474,000 and $444,000 respectively, resulted in approximately $37,000 in losses to the customer and netted Porporino approximately $16,200 in commissions.
Contrary to firm procedures that generally prohibited registered representatives from borrowing funds from customers unless they had the firmís presidentís prior written approval, Porporino borrowed $40,000 from a customer without disclosing the loan to his firm; he repaid the loan, including $8,000 in interest. The was unaware of and did not otherwise approve the loan.
Frank Porporino Jr. : Fined $5,000; Suspended 9 months; Ordered to pay $37,000 plus interest in restitution to a customer.
The Firm did not retain internal emails firm registered representatives sent or received for three years, and did not retain emails in a non-erasable, non-rewritable format.
The Firm used an internally created email retention system that retained email between firm registered representatives and individuals outside the firm, but did not retain internal email; instead, the firm retained internal email through the use of backup tapes, which the firm archived for less than the required three year period.
The firm implemented a new email retention system an outside vendor created to retain registered representativesí emails, and for an unknown number of emails, there was a difference in the time the firm registered representative sent or received the email and the timestamp on the email as saved in the archive of the new email retention system; in some instances, the difference was a matter of seconds, and as a result, the timestamps on an unknown number of emails in the archive of the new email retention system differed from the times firm registered representatives sent or received those emails.
While attempting to gather emails in response to a FINRA investigation, the firm discovered that, due to a problem with the new email retention system, certain emails were being held in a database of the new system and were not moving to the archive portion of the system.The Firm performed certain upgrades to the new email retention system in an attempt to move those emails from the database to the archiving portion of the system; prior to performing the upgrade, the firm did not copy the contents of the database where the emails were being held. During the upgrade, a default configuration superseded the customized server configuration that the outside vendor had originally utilized for the system, which resulted in a loss of certain header information when those emails were moved from the database to the archiving portion of the system.
In addition, in a statement submitted to FINRA, the firm reported the problem that resulted in email being ingested in the new email retention system without certain header information. Moreover, the new system also malfunctioned during parts of a year, which led to gaps in its email retention and the loss of emails responsive to FINRAís investigation; neither the firm nor the outside vendor was able to determine the cause of the malfunction or the total number of emails lost as a result of the malfunction.
Furthermore, the Firm did not retain or review emails firm registered representatives sent from firm-issued electronic devices to individuals outside the firm.
The Firm did not establish and maintain a supervisory system, including WSPs, reasonably designed to retain emails firm registered representatives sent or received for the required three-year period, to retain emails firm registered representatives sent from firm-issued electronic devices to individuals outside the firm, and to review electronic communications. The Firm did not establish a supervisory system, including WSPs, reasonably designed to detect and prevent malfunctions in the new email retention system.
Frost Brokerage Services, Inc.: Censured; Fined $200,000; Required to certify to FINRA in writing within 120 days of acceptance of the AWC that it currently has in place systems and procedures reasonably designed to achieve compliance with the requirements of Section 17(a) of the Securities Exchange Act of 1934, Rule 17a-4 thereunder and NASD Rule 3110 concerning the preservation of electronic communications.
Budreau exercised time and price discretion beyond the day on which the customer granted such discretion and without the customersí written authorization. Although the firmís policies required all registered representatives to indicate in the order entry system when they use time and price discretion when ordering trades, Budreau failed to make that disclosure.
Budreauís firm discovered his improper exercise of time and price discretion and issued a formal Letter of Education to Budreau reminding him of the rules regarding time and price discretion and instructing him to read compliance memoranda addressing discretionary trading and the recording of orders; Budreau signed the Letter of Education acknowledging his understanding the documentís terms and certifying that he read the relevant policies. Soon after receiving the Letter of Education, Budreau again exercised time and price discretion by purchasing shares of a different security in several customer accounts.
Although Budreau discussed the possibility of purchasing the security with his customers before entering purchase orders into the firmís system, none of the actual purchases occurred on the days when he spoke to his customers, and some of the purchases occurred a week or two after the customers informed him they were willing to purchase the security.
Gordon Michael Budreau : Fined $5,000; suspended 10 business days
After discussing with his member firm the possibility of him participating as an exhibitor during a dental convention by representing the firm at a booth in the exhibition hall and distributing literature, Lopez did not follow up and formally request permission, contrary to the firmís written procedures. Despite the lack of the firmís approval, Lopez arranged for and participated as an exhibitor representing the firm by staffing an exhibition booth at the convention and distributed, or had available for distribution, literature about the firm and himself.
Lopez provided FINRA with inaccurate and misleading information.
Jaime Campos Lopez : Fined $5,000; Suspended 2 years
Swank's customer purchased $935,465.50 of an agency bond with Swank at a member firm, and approximately one week later, Swank received a complaint from the customer stating that he misunderstood the bond purchase. Swank sold the position for $933,595.14 and at the same time, the customer demanded $1,850 in realized losses on the transaction and $3,300 accrued interest.
In lieu of the customer making a formal complaint to Swankís firm, the customer and Swank entered into a verbal settlement agreement and Swank paid the customer approximately $5,150 in cash., which Swank failed to advise his firm, orally or in writing, about the customerís complaint, the settlement or the $5,150 payment.
Jeremy Nathan Swank (Principal): Fiend $5,000; Suspended 10 business days.
Burch failed to disclose to customers that a brokerage account his relative controlled was selling shares of a stock at the same time he was recommending that customers buy it. Burch caused his firmís books and records to be inaccurate when he falsely represented to the firm that customer purchases of shares of stock were unsolicited. Burch failed to update his Form U4 with material information.
Head conveyed false and exaggerated account values to customers verbally and with falsified documents; and borrowed $20,000 from a customer and has repaid only $1,000 to the customer, contrary to the firmís written procedures prohibiting representatives from borrowing from customers without branch manager or other supervisor approval and the written approval of the firmís compliance department. Head did not request or obtain permission from her firm to borrow money from the firmís customer.
Head settled and/or offered to settle a customer complaint without her firmís knowledge or authorization. Head sent an unapproved and materially false letter to a bank by preparing, signing and mailing a letter to a bank stating that a customerís assets totaled over $4 million in order to assist the customer in obtaining a mortgage loan; although the firmís procedures required that outgoing correspondence be reviewed and approved before mailing. Head neither sought nor obtained approval for the letter.
Head exercised discretion in customer accounts without written authorization; Head neither sought nor obtained authorization from customers or her firm to exercise discretion in their accounts.
Head mischaracterized solicited trades in customersí accounts as unsolicited, causing her firmís books and records to be inaccurate. In addition,
Head repeatedly sent emails and text messages to customers from her personal email accounts, which violated her firmís policies forbidding the use of personal email accounts and mandating that business-related electronic communications with customers occur within the firmís network. Headís use of her personal email account prevented the firm from reviewing her email and text messages, and delayed the discovery of her misconduct in customersí accounts.
Head submitted false and evasive information to FINRA in response to a written request for information; and subsequentlyfailed to appear or otherwise respond to FINRA requests for testimony.
Jo Ann Marie Head: Barred; Ordered tp pay $19,000 restitution
Rodriguez converted and misappropriated $10,000 from the bank checking account of a customer of his member firm and the firmís bank affiliate.
While researching an investment for the customer, a bank employee discovered that Rodriguez had diverted a $10,000 check from the customerís bank checking account and made the check payable to a third party, who was also a bank customer and Rodriguezí close personal friend. The customer neither authorized Rodriguez to make the check payable to the third party nor divert the funds to the third partyís account at the bank. The third party made cash withdrawals totaling $10,000 from the bank account, and gave the money to Rodriguez, who used the funds for his personal benefit.
Ultimately, the bank re-deposited $10,000 into the customerís bank checking account, and as a result of the bankís inquiry, Rodriguez repaid approximately $5,000 to the bank.
Associated Person Fortney misappropriated approximately $75,864.12 from the company by withdrawing funds using checks or other debits from the company business checking account (a money market account). The checks or other debits were made payable to Fortney or to third parties. Fortney engaged in unauthorized transactions using the companyís credit card account, and then paid for those transactions using the companyís checking account.
Dusenberry borrowed $742,500 from his customers and, in several instances, Dusenberry used the proceeds of one loan to repay an earlier loan from a different customer. Dusenberry failed to repay a total of approximately $500,000 to his customers.
The firm prohibited borrowing money from customers unless the borrowing arrangement fell within certain enumerated exceptions, such as a loan from an immediately family member; regardless of the circumstances, however, employees were required to obtain the firmís written pre-approval for all loans, and Dusenberry neither requested nor received the firmís written pre-approval for any of his loans.
In order to effect one of the loans, Dusenberry signed the customerís name to a Letter of Authorization (LOA) and submitted it to the firm, which caused the firm to transfer $30,000 from the customerís account to another customerís account. In order to effect a loan from a different customer, Dusenberry signed that customerís name to an LOA without her knowledge, authorization or consent, and submitted it to the firm, which caused the firm to transfer $32,000 from the customerís account to another customerís account.
Camp was the operations manager for branch offices of his member firm and was responsible for supervising registered representativesí timely completion of the internal, computer-based Firm Element Continuing Education program. Camp completed the required Firm Element Continuing Education program proficiency tests for registered representatives and improperly assisted other registered representatives by providing them with answers. Camp offered to assist or take the proficiency tests for additional firm registered representatives but they rejected his offer.
Marcus Patrick Camp (Principal): FIned $10,000; Barred in Principal capacity only; Suspended 6 months in all capacities.
Pletscher exercised discretion in customer accounts despite the fact that his member firmís WSPs strictly prohibited discretionary trading in customer accounts, and he was aware of this prohibition.
The firm required that its registered representatives place trade orders immediately after receiving the customerís authorization for trades, but at times Pletscher received oral authorization from customers to place trades in their accounts, yet he waited several weeks or months before placing the trades.
Pletscher requested to have variable annuity holdings for customers transferred into money market accounts without the customersí authorization. The customers requested the unauthorized transactions be reversed, causing his firm to incur reversal fees of $8,863.37.
Pletscherís firm required its customers review and sign transaction related forms, but Pletscher instructed customers to provide transaction forms that contained only the customersí signatures, which Pletscher later completed and submitted to the firm for processing, despite his firm prohibiting him from accepting incomplete forms from customers. Pletscher knew that by allowing his customers to pre-sign blank forms, he failed to ensure that customers had properly reviewed and understood the agreements they had signed. In addition, Pletscher caused the firmís books and records to be false and misleading and to appear that the customers had agreed to the terms of each form on the date the forms were signed in blank.
Markus Beat Pletscher: Fined $15,000; Suspended 1 year
After customers had informed Mangum that they might file a complaint against her firm for significant losses in their account, she instructed them to register a complaint with her member firm based on inaccurate information. Mangum instructed them to assert to the firm that the losses were her responsibility because she had failed and/or refused to purchase protective puts in their account after being instructed to do so. This advice was inaccurate since it was one of the customers, not Mangum, who had refused to sell any portion of their highly margined position, and Mangum had already advised the customers that they would not be able to purchase protective puts because their account lacked sufficient buying power.
Rosas wrongfully converted a customerís funds totaling $14,000 for his personal use by submitting withdrawal requests he forged to his member firm and an annuity company without the customerís knowledge or consent. Rosas completed and forged other customersí signatures on variable annuity withdrawal forms and submitted them to annuity companies, without the customersí knowledge or consent, in an effort to convert funds totaling $45,000 from the customersí variable annuity accounts for his personal use.
As indicated on these forms, the funds were to be made payable to a limited liability company for which Rosas was the president and CEO. One of the annuity companies cancelled the withdrawal requests and the other annuity company placed stop payments on the checks that were issued.
NAME REDACTED executed mutual fund transactions in customersí accounts without their knowledge or authorization.
In an effort to conceal his misconduct,
NAME REDACTED falsified his member firmís books and records. Also, he completed and submitted firm switch forms related to the unauthorized transactions he effected in the customersí accounts and falsely represented that he had spoken to each of the customers and had obtained their authorization before executing the trades. NAME REDACTED provided false information relating to the reason why these customers authorized the transactions, and he knew at the time he made these written statements on firm documents that they were false.
NAME REDACTED altered the firmís customer telephone call logs with respect to customersí accounts to falsely show that he had spoken to each of the customers and obtained their authorization to effect the transactions.
Finally, NAME REDACTED accessed the firmsí internal system and changed the telephone number of some customers whose accounts he had effected the unauthorized transactions to incorrect telephone numbers.
Harte participated in the sale of unregistered securities, in violation of Section 5 of the Securities Act of 1933.
Harte and a registered representative at his member firm sold millions of shares of a thinly traded penny stock, resulting in proceeds exceeding $9.3 million for firm customers; the total commissions generated were $481,398.
Harte failed to conduct any due diligence prior to the stock sales; the circumstances surrounding the stock and the firmís customers presented numerous red flags of a possible unlawful stock distribution.
Harte did not determine if a registration statement was in effect with respect to the shares or if there was an applicable exemption; Harte relied on transfer agents and clearing firms to determine the tradability of the stock. Harte failed to undertake adequate efforts to ensure that the registered representative ascertained the information necessary to determine whether the customersí unregistered shares could be sold in compliance with Section 5 of the Securities Act of 1933. Also, he did not consider the determination of the free-trading status of shares to be within his supervisory responsibilities.
Harte failed to follow up on red flags; he was on notice of the inconsistencies between customersí trading experience and activity in their firm accounts but took no action.
In addition, Harte received customer emails which evidenced a greater level of market sophistication than reflected in their account forms but failed to investigate these discrepancies.
Walker's member firm was issued a Letter of Caution following a FINRA examination, which advised of numerous deficiencies in the firmís WSPs; these deficiencies included maintenance of the firmís Form BD, prohibition of commission payments to non-registered entities, designation of an appropriately licensed principal for each of the firmís product lines, maintenance of WSPs at each OSJ, investigation into the qualifications of new hires, obligations of the firm when handling accounts of associated persons employed at other FINRA-regulated broker-dealers, timely providing account records to customers, prompt notification to regulators of deficiencies in required net capital, and prohibition of the sale of unregistered securities beyond the private offeringís expiration dates. The Letter of Caution also indicated that the firmís WSPs were deficient with respect to Regulation S-P.
Although issued only to the firm, the Letter of Caution was delivered to Walker in his capacity as president and chief compliance officer of the firm; thus, Walker had notice of the deficiencies but failed to update and amend the WSPs to correct the deficiencies. A later FINRA examination disclosed the same deficiencies outlined in the Letter of Caution, but Walker failed to update and amend the WSPs to correct the deficiencies. In addition, FINRA determined that Walker failed to establish, maintain and enforce WSPs and supervisory control procedures in the cited areas to ensure compliance with applicable securities laws and regulations, including Regulation S-P.
Patrick Thomas Walker (Principal): Fined $5,000; Suspended in Supervisory/Principal capacities only for 10 business days.
Marvin misused approximately $145,000 in funds obtained from investors in a limited partnership that he owned and controlled.
Marvin established the limited partnership as a general investment fund and referred to it as a hedge fund. The limited partnership had investors who were Marvinís long-standing friends/customers. Marvin maintained the limited partnershipís brokerage account at his member firm and made all of the investment decisions for the fund, which primarily involved stock transactions; Marvin was also the registered representative for the limited partnershipís account and received commissions from trades in the account.
The general partner of the limited partnership was another entity Marvin owned and controlled. Under the terms of the limited partnershipís offering memorandum, the limited partnership was required to pay an annual management fee of 1 percent to the other entity Marvin owned and controlled. There was approximately $1 million invested in the limited partnership; therefore, the other entity was only entitled to an annual management fee of approximately $10,000, but Marvin wired approximately $145,000 more from the limited partnershipís brokerage account to the other entityís bank account and used those funds to pay his salary and other expenses of the other entity. In addition, Marvin had no authority to withdraw the additional $145,000 from the limited partnershipís account; Marvin repaid the limited partnership for the excess funds he had withdrawn from its account.
At the request of a member firm customer, Bunshaft was directed to make direct payments from one of the customerís brokerage accounts at the firm to pay some of the customerís personal bills; instead, without the customerís knowledge or authorization, Bunshaft initiated $23,471.25 in unauthorized transfers of funds from the customerís brokerage account to pay her own personal credit card charges.
Bunshaft failed to respond to FINRA requests for information.
Velez converted funds from two of his member firmís customers. In the first instance, Velez signed the customerís name on a withdrawal ticket in order to withdraw funds from the account. In the second instance, Velez received a check from a customer intended to initially fund an IRA account; instead of using the check for its intended purpose, Velez cashed the check for his own personal use. In both instances, Velez did not have permission or authority from the customers or his firm to misappropriate the customer funds. Also, the transactions did not involve funds from an account held at a FINRA
Montgomery was employed as an insurance consultant at his member firm, and in that capacity, assisted financial advisors with selling insurance products, including long-term care (LTC) insurance to their clients. Certain states implemented new LTC continuing education (CE) requirements that obligated financial advisors to complete an LTC CE course and exam before selling LTC insurance products to customers who resided in those states. In order to assist financial advisors in obtaining this requirement, Montgomery requested and received an answer key to a state insurance LTC CE examination, and distributed it to financial advisors at his firm through emails.
Stephen Christopher Montgomery (Principal): Fined $5,000; Suspended 45 days in all capacities
Caudle borrowed $55,000 from a customer at his member firm in order to purchase real estate without providing prior written notice to, or obtaining prior written approval from, his member firm. At the time Caudle borrowed the money, the firmís written procedures prohibited borrowing money from customers under any circumstances. Caudle completed a firm questionnaire and falsely answered ďnoĒ to the question, ďHave you, or any related person or entity, borrowed or loaned any money or securities from/to a client (including situations where the loan is still outstanding and occurred prior to the individual becoming a client)?Ē
Goel placed a customerís signature on statements he prepared in connection with providing a rationale for his recommendations that the customer sell mutual funds and invest the proceeds in an equity-indexed annuity and a variable annuity, without the customerís knowledge, authorization or consent.
Unbeknownst to Goel, the firm did not require a customerís signature on the registered representativeís statement of rationale.
Lasko borrowed $12,000 from his customer while associated with his member firm, and signed a promissory note in which he agreed to repay the $12,000, plus interest. Lasko did not notify his firm of this loan and did not attempt to receive the firmís approval of this loan contrary to his firmís procedures that did not allow its registered representatives to borrow money from their customers. Lasko did not repay the money he borrowed from the customer.
William James Lasko (Principal): Fined $5,000; Suspended 3 months
Sencan failed to reasonably supervise the activities of member firm personnel engaged in the charging of excessive commissions, sharing commissions with a non-member and misusing funds on deposit with the firm.
Acting through its head trader, Sencan's firm improperly shared about $4 million in commissions with one of the firmís hedge fund clients and charged excessive commissions totaling over $580,000 in transactions.
Sencan was the head traderís direct supervisor and was aware that the firm had entered into a commission sharing arrangement with the hedge fund client, and he was responsible for reviewing that arrangement and the head traderís trading activities. The firmís procedures required the chief compliance officer (CCO) to periodically review emails firm personnel sent and received. Sencan failed to perform periodic reviews of the head traderís electronic correspondence or otherwise take reasonable steps to supervise his activities.
Acting through its FINOP, the firm misused at least $61,000 in funds on deposit with the firm.
Sencan was the FINOPís direct supervisor but failed to monitor the firmís financial records, perform periodic reviews of the FINOPís electronic correspondence or otherwise take reasonable steps to supervise the FINOPís activities.
Sencan became the firmís AMLCO, and in this position, he was responsible for ensuring that the firmís AML compliance procedures (AMLCP) were enforced but failed to do so. The CIP portion of the firmís AMLCP required the firm, prior to opening an account, to obtain identifying information such as the customerís passport number and country of origin; but acting through Sencan, the firm failed to obtain the identifying information the CIP required for some of its customers (a portion of whom were located outside of the United States). In addition, the firmís AMLCP required the firm to maintain transmittal orders for wire transfers of more than $3,000, and those orders had to contain at least the name and address of the transmitter and recipient, the amount of the transmittal order, the identity of the recipientís financial institution and the recipientís account number; on numerous occasions, a firm customer account wired out funds in excess of $3,000. Sencan did not take steps to ensure that the firm retained information regarding those wires, including the recipientís name, address and account number and the identity of the recipientís financial information. Furthermore, acting through Sencan, the firm failed to provide AML training to its registered personnel.
Sencan was attempting to find transactional business for the firm in medium-term notes (MTNs). As part of an effort to purchase MTNs for resale to its clients, the firm entered into an agreement with a Switzerland-based entity. Sencan signed the agreement on the firmís behalf, and the agreement called for the entity to provide the firm with the opportunity to purchase $100 million (face value) in specified MTNs; however, the agreement included clauses containing material misrepresentations about the firmís ability to purchase MTNs.
The first clause represented that the firm was the actual legal and beneficial owner of cash funds in excess of $100 million on deposit at a major bank. In addition, the second clause was a representation that these funds were free and clear of liens, had been legally earned and could immediately be utilized for the purchase of financial instruments; neither of these clauses was true, as the firm never had $100 million on deposit at any bank at any time.
Yaman Huseyin Sencan (Principal): Fined $20,000; Barred in Principal capacity only; Suspended 6 months in all capacities.
Spotts wrongfully misappropriated approximately $197,860 from a coworker at his member firm by taking blank personal checks belonging to the coworker and forged the coworkerís name on the checks without the coworkerís knowledge or authorization. Spotts made some of the checks payable to himself and deposited the checks into his personal account, or made the checks payable to credit card companies and other creditors to pay his personal bills.
Spotts failed to appear and testify at an onthe- record interview.
Acting through Ayre, its CCO, Ayre Investments failed to establish and maintain a supervisory system and establish, maintain and enforce WSPs to supervise the activities of each registered person that were reasonably designed to achieve compliance with the applicable rules and regulations related to
CRD pre-registration checks,
exception report maintenance and review,
supervisory branch office inspections,
approval of transactions by a registered securities principal,
annual compliance meeting,
financial and operations principal (FINOP) review of checks received and disbursements blotter,
NASD Rule 3012 annual report to senior management,
review and retention of correspondence, Regulation S-P and outsourcing arrangements.
The Firm's WSPs were purchased from a third-party vendor and were intended to meet the needs of any broker-dealer, regardless of the firmís size or business. Acting through Ayre, the Firm failed to tailor the template WSPs to address the firmís particular business activities. With respect to the areas identified above, the firmís WSPs failed to describe with reasonable specificity the identity of the person who would perform the relevant supervisory reviews and how and when those reviews would be conducted; and with respect to the maintenance of electronic communications, the firm completely failed to establish, maintain and enforce any supervisory system and/or WSPs reasonably designed to ensure that all business-related emails were retained.
Acting through Ayre, the Firm violated the terms of a Letter of Acceptance, Waiver and Consent (AWC) by failing to file a required written certification with FINRA regarding the firmís WSPs within 90 days of the issuance of the AWC. Despite being given multiple reminders and opportunities by FINRA staff during a routine examination to file the certification, the firm and Ayre have yet to file the certification the AWC required.
The Firm only had one registered options principal (ROP) who was required to review and approve all of the firmís option trades; for more than half a year, however, the ROP resided in another state and did not work in the firmís main office. Furthermore, the firmís WSPs did not address or explain how the ROP, given his remote location, was to accomplish and document the contemporaneous review and approval of all options trades firm customers placed; the firm executed approximately 450 options transactions, none of which the ROP approved.
The firm failed to maintain and preserve all of its business-related electronic communications, and therefore willfully violated Securities Exchange Act Rule 17a-4.
The Firm permitted its registered representatives to use email to conduct business when the firm did not have a system for email surveillance or archiving. Each firm representative maintained electronic communications on his or her personal computer or arranged for the retention of electronic communications in some other fashion, and the firm relied on representatives to forward or copy their businessrelated emails to the firmís home office for retention. Not all of the representativesí business-related emails were forwarded to the home office, and the firm did not retain the electronic communications that were not forwarded or copied to the firmís home office; as a result, the firm failed to maintain and preserve at least 10,000 business-related electronic communications representatives sent to or received.
Ayre Investments, Inc.: Censured; Fined $10,000 (note: FINRA states that itimposed a lower fine against the firm after it considered, among other things, the firmís revenues and financial resources); Undertakes to review its supervisory systems and WSPs for compliance with FINRA rules and federal securities laws and regulations, including those laws, regulations and rules concerning the preservation of electronic mail communications, and certify in writing to FINRA, within 90 days, that the firm has in place systems and procedures to achieve compliance with those rules, laws and regulations.
Timothy Tilton Ayre: Fined $10,000; Suspended 2 months in Principal capacity only.
Brewer failed to adequately supervise a registered representativeís variable annuity sales activities.
Brewer personally reviewed and approved variable annuity switches of the registered representativeís customers despite the misstatements and omissions on the switch forms and numerous red flags revealing that the transactions were unsuitable. After becoming aware of the inaccurate information and omissions contained in the forms the registered representative submitted, Brewer did not require that all of the deficiencies be corrected on his member firmís books and records and that customers be presented with forms that were completely accurate. At no time did Brewer take any action to reverse the transactions the registered representative had already effected, nor did he take any actions to prevent the registered representative from completing additional unsuitable switches.
Brewer was responsible for replying to the audit reports and implementing adequate systems and procedures relating to the supervision of variable annuities at his firm; although he was made aware of issues in the variable annuities sales review process cited by the firmís Audit Division, he failed to take adequate steps to correct the identified failings. Brewer failed to maintain an adequate system of supervision and follow-up review, and failed to maintain and enforce written procedures reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules in connection with the sale of variable annuities.
Brian Scott Brewer (Principal): Fined $20,000; Suspended 12 months in Principal capacity only
Knieriem was a registered customer service associate in a branch of her member firm, where she was assigned to assist branch financial advisors and other employees, including the branch manager, with administrative duties, including preparation of certain internal administrative forms in documenting and processing requests the branch manager or financial advisor received verbally from a customer. Knieriem prepared the forms for approval and signed the names of the relevant firm employee who received the verbal instruction without authorization to sign the forms and submitted them for processing.
Carmela Lina Moro Knieriem : Fined $5,000; Suspended 60 days
Caputo provided falsified account statements to a customer for a personal and a corporate account the customer held at Caputoís member firm, with the intent of leading the customer to believe the all-but-worthless accounts held securities valued as high as $600,000; both accounts had incurred substantial losses.
The accounts were held at Caputoís firm, the customer received account statements through the firmís clearing firms; however, the customer also received fabricated account statements Caputo provided him. The typical one-page fabricated account statement listed the account name and number, the statement period, a false market value, a false cash balance and a false option value. These fake statements were transmitted by facsimile from Caputoís home-office fax number. The false statements the customer received from Caputo reported that the personal account was valued at $292,020.53 and that the corporate account was valued at $325,446.36; in reality the personal account was valued at less than $70 and the corporate account had been closed.
Apparently relying on the values shown on the false statements, the customer contacted Caputo and requested that he wire $120,000 from the corporate account; Caputo advised the customer that there was no money in either account.
Caputo failed to appear and testify in a FINRA on-the-record interview.
Averill misappropriated funds from an elderly customerís securities accounts over a period of three years, and was convicted of multiple felonies stemming from her conduct. Averill continued her thefts even after her member firm terminated her employment for lack of production.
Klecka created a non-genuine email purporting to be from the Arizona Department of Insurance (AZ DOI) regarding the agencyís investigation into Kleckaís activities at his former firm, and then provided a copy of the email to the member firm with which he was associated.
Kleckaís firm commenced an internal investigation of Klecka concerning questionable business activities related to his sale of life insurance policies. During the course of the firmís review, it was learned that Klecka was the subject of an investigation being conducted by the state regarding activities that occurred while Klecka was associated with another member firm.
Klecka forwarded an email from his personal email address to his managing director at the firm --the forwarded email was purportedly from the state insurance department, which contained a timeline documenting Kleckaís contact with the agency, and the email bore what appeared to be the typed signature of an investigator with the AZ DOI. However, Klecka subsequently admitted that he was not truthful on the dates and fabricated the email to lead his firm to believe that the state investigation was more recent than it actually was. The forged document provided an explanation for Kleckaís failure to disclose the investigation to the firm earlier than he did.
The firm subsequently terminated Klecka for, among other reasons, creating a non-genuine email purporting to be from the AZ DOI regarding its investigation into Kleckaís activities at his former firm. In addition, Klecka failed to appear for a FINRA on-the-record interview.
Chase wrote fictitious fire insurance policies and fictitious life insurance policies while an insurance company employed him; these policies were written without the insuredsí knowledge and consent.
With regard to the fire insurance policies, in most cases, the billing notifications were sent either to the home of Chaseís relatives, Chaseís former insurance agency address or his residence; as a result, the purported insureds did not receive any communications from the insurance company concerning these policies. By writing these policies, Chase received compensation of approximately $2,725 and he qualified to remain on the insurance companyís career program.
Chase failed to respond to FINRA requests for information and documents.
Anand converted customer funds by wiring funds totaling $51,289 from the customerís account to outside bank accounts of which Anand was associated; the customer did not authorize and had no knowledge of any of the wire transfers Anand made. Anand attempted to wire additional funds totaling $24,000 from the customerís account but Anandís member firm did not complete the wires.
Anand 18 Disciplinarmisappropriated funds from a non-customer (the individual was an employee of a business Anandís relatives owned) by creating a false account, borrowing $49,500 in funds from her 401(k) account without her knowledge or authorization, depositing the money into a bogus account he created in the noncustomerís name at his firm, and then wiring funds out of the account for his benefit. The individual did not authorize Anand to open an account, did not complete or sign any new account opening documents and, in furtherance of the scheme,
Anand created false documents related to the opening of the account which he submitted to his firm, thereby causing his firm to maintain inaccurate books and records. Anand failed to respond to FINRA requests for information and to appear and testify at an on-the-record interview.
While conducting a securities business, the Firm failed to maintain the required minimum net capital. The firmís financial books and records, including the firmís trial balances and net capital calculations, were inaccurate; the firm improperly netted payroll advances against its monthly payroll accrual, improperly included amounts held in a brokerage account as an allowable asset even though the firm did not have a Proprietary Accounts of Introducing Broker/Dealer (PAIB) agreement, failed to accrue some expenses and took a larger deduction for a fidelity bond deductible than it was permitted.
The Firm failed to report to FINRA statistical and summary information for complaints. NASD Rule 3070 reporting was inaccurate in that firm reports for these complaints included erroneous complaint dates, incorrect product codes, inaccurate problem codes and/or identified the wrong registered representative. In connection with some of its registered employees, the firm failed to amend or ensure the amendment of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) to disclose customer complaints and the resolution of those complaints, and the firm also filed late Forms U4 amendments.
The Firm failed to have an adequate system to preserve instant messages (IM) sent or received by registered representatives of the firm; the firm did not archive IMs in a non-erasable, non-rewritable format.
E1 Asset Management, Inc. : Censured; Fiend $75,000
OíLear failed to execute a customerís sale of preferred stocks in her account as instructed, when the customer complained to his member firm, he provided her with a $6,866 check to settle her losses. The customer deposited OíLearís check but it was declined for insufficient funds. Next, OíLear wrote a second check for $6,900, including the non-sufficient fund (NSF) charges, which the customer deposited and the check cleared.
OíLear made this payment to the customer without his firmís knowledge or authorization.
Frank Patrick OíLear Jr. (Supervisor): Fined $10,000; Suspended 20 business days
H. Beck Inc. failed to maintain and preserve certain of its business-related electronic and written communications.
Most of the firmís registered representatives are independent contractors operating from ďone-manĒ branch office locations throughout the country; the firmís representatives were allowed to maintain written correspondence at their branch offices; and the firm permitted representatives to send emails from their personal computers. The firm did not have an electronic system to capture emails, but instead required representatives to print and make copies of their emails, which along with their written correspondence were reviewed during annual branch inspections; representatives were required to send emails and written correspondence involving the solicitation of products to compliance for pre-approval. The firm did not have prior system or procedures in place to retain all other emails and written correspondence after the representatives terminated from the firm. and, as a result, the firm did not subsequently retain most of the emails and written correspondence for representatives who terminated from the firm.
Also, the firm did not establish and implement policies and procedures that could be reasonably expected to detect and cause the reporting of suspicious transactions. In addition, the firmís WSPs relating to the reporting of suspicious activity failed to provide reasonable detail, such as the specific reports and documents to be reviewed, the timing and frequency of such reviews, the specific persons to conduct the reviews, and a description of how the reviews would be conducted and evidenced. Moreover, the firmís supervisory procedures did not provide adequate guidelines regarding the reporting of suspicious activity, including when a suspicious activity report should be filed and what documentation should be maintained. Furthermore, although the firm had 140,000 active accounts, it used only a minimal number of exception reports, relying instead on its clearing firms to assist in the review of suspicious activity. The firm failed to conduct adequate independent tests of its AML compliance program (AMLCP), failed to sufficiently test topics and failed to adequately memorialize what was reviewed. The findings also included that with respect to a sample of corporate bond transactions and municipal securities transactions the firm executed, it failed to accurately disclose the receipt time on the majority of the order tickets.
H. Beck, Inc. : Censured; Fined $150,000; Firm's President required to certify to FINRA in writing within 30 days of the issuance of the AWC that the firm currently has in place systems and procedures reasonably designed to achieve compliance with the laws, regulations and rules concerning the preservation of electronic mail communications.
Carroll invested approximately $100,000 of his own money in a Ponzi scheme from which he made a $25,000 profit; Carroll did not invest any customer funds in the Ponzi scheme. Carroll failed to disclose his private securities transaction to his member firm until after the Ponzi scheme collapsed and his firmís home office began investigating possible involvement of its registered representatives. Carroll engaged in outside business activities and failed to provide prompt written notice to his firm regarding his involvement.
James Leo Carroll : Fined $7,500; Suspended 30 days
Jacobs attempted to share, directly or indirectly, in the profits and/or losses of a customer account his member firm carried without his firmís and the customerís prior written authorization. Jacobs made trading errors in the customerís account and in an attempt to correct the losses that resulted from the errors, he began engaging in short-term short sale activity that resulted in further losses. Rather than report his concerns to his firm, Jacobs attempted to avoid a customer complaint by depositing funds, totaling approximately $13,398.80, into the customerís account.
Jason Forsythe Jacobs : FIned $10,000; Suspended 45 days
Larson represented to an elderly widow that she could earn a higher rate of return by investing her funds in a particular high-interest savings account; at the time, she was not his member firmís customer. Based on Larsonís recommendation and direction, the elderly widow wrote checks totaling $51,600 payable to the ďW.F.G. Fund,Ē and gave the checks to Larson who, in turn, promptly deposited the checks into a W.F.G. Fund account at a bank. Contrary to Larsonís representations, the W.F.G. Fund was not a high-interest savings account, had no relation to his firmís affiliate bank, and was a basic checking account that Larson owned and controlled. Within two weeks of the receipt and deposit of the customerís checks, Larson withdrew $6,000 and transferred $27,800 to his day-trading account (at another broker-dealer) and $17,500 to his credit union account, converting the funds for his own use and benefit without the customerís knowledge, consent or authorization.
The customer complained to FINRA and others about Larsonís conduct; Larson then returned the funds to her. Larson failed to appear for FINRA on-the-record testimony.
Haeffele was appointed as a co-trustee for a trust and, wrongfully and without authorization, disbursed funds to himself from the trustís mutual fund accounts and checking accounts.
Haeffele was appointed as a co-trustee for another trust, which owned life insurance policies for which Haeffele was the agent of record on, and Haeffele, wrongfully and without authorization, disbursed funds to himself from the life insurance policies held in the name of the trust. Haeffele used the funds from both trusts for his own benefit, thereby converting assets from the trusts.
As trustee, Haeffele received account statements for the first trust from mutual fund issuers, but only provided the trustís creators false and misleading account statements and related correspondence that he created on his computer for the trust. The fabricated account statements and correspondence grossly overstated the value of the trustís assets.
Haeffele failed to provide written notice to his member firm that he had been serving as a trustee for the trusts, and had been receiving compensation for such activities. In addition, Haeffele completed a series of questionnaires submitted to the firm in which he failed to disclose that he was serving as a trustee and receiving compensation.
Pappas converted funds totaling $157,563.75 from customer accounts, without the customersí knowledge or authorization, and attempted to convert an additional $14,260 from another customer account.
Pappas misappropriated the funds by activating the online bill payment feature in the clientsí accounts and then directed payments to his personal credit cards. Pappas placed an unauthorized trade totaling $6,893.43 in a deceased firm customerís account.
Pappas refused to respond to FINRA requests for information and testimony.
Cameron borrowed $1,500 from one of her customers at her member firm, which was repaid but did not seek approval for the borrowing and did not otherwise obtain approval from the firm to borrow money from the customer. When the borrowing occurred, the firm required representatives, before borrowing money from a customer, to obtain a designated officialís written approval. Cameron did not disclose to the firm that she had borrowed money from a customer.
Julia Merritt Cameron : Fined $2,500; Suspended 10 business days
Martindell forged the signatures of her immediate supervisor and of her branch manager at her member firm.
Martindell signed the name of her supervisor, a firm financial advisor, to firm documents titled ďAdvice of TradeĒ letters without the financial advisorís authorization or consent and mailed the letters to the customers involved; each of these letters informed a firm customer of trades that had been effected in that customerís account.
Martindell signed her branch managerís name to an internal firm form authorizing the transfer of funds and securities from the account of a customer to a joint account held by the customer and the customerís relative. Martindell signed the branch managerís name on another internal firm form that memorialized the multiple names that another customer could use in signing documents related to his account.
Martindell completed an IRA distribution form for her own account in order to access funds held in that account and Martindell again signed her branch managerís name on this form. In addition, Martindell signed the branch managerís name on these forms without his authorization or consent, and submitted the forms for further processing.
Marilyn Geen Martindell : Fined $10,000; Suspended 6 months
Crump was the CCO at his member firm and utilized his position to convert approximately $14,000 from firm customersí brokerage accounts by using fictitious documents to effect unauthorized transfers of securities and cash from the customersí accounts to a trust account he established at his firm.
Crump transferred securities and cash worth approximately $4,000 from one customerís account by using a fictitious letter of authorization to effect the conversion. The findings also stated that two days before the transfer, Crump used the firmís systems to temporarily change the address on the customerís account to Crumpís attention at his work address, the effect of which was to have correspondence and other notices relating to the account sent to him at his firm.
Crump used a fictitious retirement account distribution form and a fictitious letter of authorization to effect the conversion of securities and cash worth approximately $10,000 from another customerís Individual Retirement Account (IRA) to the customerís cash account, and Crump transferred the securities and cash from the customerís cash account to the trust account he controlled. The customers did not know about or authorize the transfers.Crump used the unlawfully converted funds to pay for his personal and business expenses.
During the Series 7 test, Kim took unscheduled bathroom breaks lasting between three and eight minutes long, and during these breaks, he reviewed notes pertaining to the examination that he had previously concealed in one of the bathroom stalls.
Merrill Lynch failed to enforce its AMLCP and written procedures by accepting third-party checks for deposit into a customerís account that, contrary to the procedures, did not identify that customer by name. As a result, one of its customers, a registered representative at another member firm, was able to move more than $9 million of misappropriated funds through his Merrill Lynch cash management brokerage account.
The registered representative deposited his customersí checks for a purported investment into his personal account at the firm; the investor checks were non-personal checks made payable to the firm and, in most instances, the customer had written the registered representativeís account number on the check. The absence of the registered representativeís name on the checks gave no indication to those outside of the firm, including the registered representativeís investors, that the money was going to the registered representativeís personal account.
In accepting these deposits, the firm failed to follow its written procedures because these non-personal checks were accepted for deposit without containing the name of the firm client who owned the account; had the firm enforced its procedures, the registered representative would not have been able to move the proceeds of his misappropriation scheme through the firm. The Firm disregarded certain indications of the registered representativeís misconduct, such as the fact that he was depositing large amounts of money into, and then moving large amounts of funds out of, an account that had no market investment activity through the use of large dollar checks payable to himself or to cash; and depositing the funds of third parties with whom he had no apparent family or fiduciary relationship. In addition, the Firm did not have internal controls in place to ensure compliance with its deposit acceptance procedures regarding non-personal checks. Moreover, the firm did not have an adequate system to monitor deposit activity in accounts such as the registered representativeís that lacked securities activity and displayed indications of misconduct.
Golembiesky borrowed $30,000 from a customer without his member firmís knowledge or approval. The firm prohibited registered representatives from borrowing money from customers unless that customer was a member of the registered representativeís immediate family and the registered representative had requested and received prior written permission from the firm. The customer was not a member of Golembieskyís immediate family and the loan was thus prohibited under the firmís written procedures.
By the time the firm became aware that Golembiesky had borrowed money from the customer, Golembiesky had repaid the customer $10,000 on the loan. The firmís bank affiliate repaid the balance of the loan to the customerís estate.
Golembiesky entered into an agreement whereby Golembiesky promised to pay the bank $22,275 plus any applicable interest; Golembiesky has reduced the outstanding balance to $10,000.
Michael Braden Golembiesky : Fined $5,000; Suspended 30 days
The Firm failed to preserve, for a period of not less than three years, the first two years in an easily accessible form, all email correspondence relating to the firmís business.
The emails involving research and emails viewed by the firm as administrative or technical were deleted, emails were not indexed and were not easily located; consequently, the firm was not able to locate various emails sent or received in one year in response to FINRA requests. The firm failed to preserve all emails relating to the firmís securities business exclusively in a non-rewritable, non-erasable format as required by SEC 13 September 2011 Rule 17a-4(f)(2)(ii)(A). Not only were individual emails users able to delete emails, in which case, they would not be stored, the medium that the firm used to back-up and store emails was rewritable and erasable. FINRA found that the electronic storage media the firm used did not automatically verify the quality and accuracy of the storage media process, and the firm did not have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved by electronic storage media. FINRA also found that the firm failed to engage at least one third party who has access to, and the ability to, download information from the firmís electronic storage media to another acceptable medium, and who undertakes to promptly furnish to FINRA information necessary for downloading information from the firmís electronic storage system and provide access to information contained on its storage system. In addition, FINRA determined that the firm failed to retain records evidencing supervisory review of email correspondence of registered representatives relating to the firmís securities business. Moreover, FINRA found that the firm failed to report transactions in TRACE-eligible securities to TRACE that it was required to report, and failed to report the correct price for transactions in TRACE-eligible securities to TRACE. Furthermore, FINRA found that in connection with corporate bond transactions, the firm failed to prepare brokerage order memoranda, in that order memoranda did not show the account for which the order was entered, the time the order was received, the order entry time, the execution time and the identity of each associated person responsible for the account. (FINRA Case #)
Nanes, Delorme Capital Management LLC : Censured; Fined $15,000 (FINRA imposed a lower fine in this case after it considered, among other things, the firmís revenues and financial resources)
Dito obtained possession of a computer flash drive that contained non-public customer account information and mined out selected excerpts for his own use by emailing the information, on separate occasions, to his member firm email address. Among other things, the flash drive contained approximately 350 account statements of customers from a FINRA member firm -- each of the customer account statements contained in the flash drive displayed non-public financial information including customer names, addresses, account numbers, financial positions, broker identification numbers and account values. Subsequent to reviewing the contents of the flash drive, Dito copied customer account information from the non-public customer account information contained in the flash drive.
The first email he sent to his firm email address contained the names and addresses of approximately 300 customers, which Dito had copied directly from FINRA member firm customer account statements contained in the flash drive. Dito intended to use the customer account information contained on the first email to cold-call prospective customers.
The second email Dito sent to his firm email address consisted of a listing of financial positions on the flash drive that were for a FINRA member firm securities account a customer owned that showed the customerís equity stock holdings and their total net value.
Dito failed to fully cooperate with FINRA and answer all of FINRAís questions at an on-the-record examination.
The Firm failed to properly implement its AML procedures to detect potentially suspicious transactions.
The AML procedures were created using a template for small firms available on the FINRA website which provided examples of red flags that would alert employees to suspicious activity. The firm failed to monitor for at least one of the red flags listed in its AML procedures that would alert employees to suspicious activity, and the firm conducted no review of potentially suspicious transactions involving penny stocks. The firmís procedures did not address red flags associated with the receipt and/or sale of physical certificates of penny stocks and restricted securities by the firm or the type of due diligence required to be performed if a stock certificate was received.
Since the firm did not examine the physical stock certificates and did not perform any due diligence on stock certificates presented for deposit, the firmís procedures were deficient, and the firm failed to implement the minimal procedures it did have to detect potentially suspicious activity. The Firm improperly relied on its clearing firm to conduct due diligence inquiries with regard to stock certificates presented for deposit into the firmís customer accounts. In addition, although the firmís procedures listed the red flags that could indicate suspicious activity, many of which were raised by the transactions at issue, the firm failed to review the trading activity to detect these potential red flags and to analyze them to determine if they were suspicious and reportable under the Bank Secrecy Act. As a result, the firm accepted approximately 130 stock certificates representing 439,344,949 shares of 52 different stocks without taking any independent action to learn and/or verify the facts and circumstances to determine if the transactions were suspicious and reportable.
OC Securities, Inc. : Censured; Fiend $30,000 (FINRA imposed a lower fine after it considered, among other things, the firmís revenues and financial resources).
Holody sold equity-indexed annuities (EIAs) to individuals, through insurance companies, with investments totaling approximately $1,002,555, without providing prompt written notice to his member firm; none of these individuals were customers of his firm. Holody received commissions of approximately $79,594.34 from these sales.
The firm prohibited its representatives from selling EIAs not on the firmís approved product list; the annuities Holody sold were not on the approved product list and his acceptance of compensation for the sales constituted engaging in an outside business activity.
Holody recommended that a retired individual liquidate some variable annuity contracts and transfer the proceeds to purchase an EIA an insurance corporation issued. Holody processed all of the paperwork on the individualís behalf to effect the variable annuity contract liquidations to purchase the EIA contract, and the insurance corporation issued a nine-year term EIA contract in the approximate amount of $253,997.37. As a result of these transactions, the individual lost approximately $49,604 in enhanced guaranteed death benefits available under the variable annuity contracts that the individual could never recover. In addition,the insurance corporation EIA contract was also not beneficial to the individual since the variable annuity contracts offered the individual other more favorable features. Moreover, based on the individualís disclosed investment objectives of guaranteed returns on his retirement assets and to provide for his beneficiaries, and the individualís financial situation and needs, Holody lacked reasonable grounds to believe that liquidating the variable annuities to generate funds for the purchase of the EIA contract was suitable for the individual.
Richard Barry Holody: Fined $10,000; Suspended 4 months
Byerly engaged in unsuitable, excessive trading in elderly customersí accounts.
The customers were retirees with conservative investment objectives living on fixed incomes who suffered collective losses of approximately $390,000 during the period of excessive trading. Byerly recommended and effected the transactions without having reasonable grounds for believing that such transactions were suitable for the customers in view of the size and frequency of the transactions, the transaction costs incurred, and in light of the customersí financial situations, investment objectives and needs. Byerly exercised discretion in these accounts as well as in other customersí accounts without the customersí written authorization or his member firmís written acceptance of the accounts as discretionary; his firm did not permit discretionary accounts.
Byerly continuously misrepresented to his firm on annual compliance questionnaires over a three-year period that he did not maintain any accounts in which he had exercised discretion. In response to a written FINRA request seeking information regarding a customer complaint, Byerly submitted a letter to FINRA in which he falsely misrepresented that he had received the customerís prior approval for all trades in the customerís account.
Richard Harold Byerly: No fine in light of financial statuts; Suspended 2 years; Ordered to pay $30,000 partial restitution to customers.
Baklenko engaged in private securities transactions without prior written notice to, and approval from, his member firm, in that he participated in the sales to firm customers of limited partnership interests in an entity he and a business associate had formed for a total of $1,095,000.
Baklenko and the business associate opened an account with another member firm in their entityís name; Baklenko failed to notify his member firm in writing that he had established the account with the other firm and he failed to notify the other firm, with which he opened the account, in writing that he was associated with a firm. Baklenko effected trades in his entityís account at the other firm, which included securities purchases totaling approximately $176,575 and securities sales totaling approximately $57,109.
Scott J. Baklenko : Fined $20,000; Suspended 20 months
Pierson administered an insurance companyís insurance CE instruction program for his member firm, and because of a heavy workload, he got behind in the administration of the program, resulting in expired courses being taught and the late filing of courses, instructor approval requests and attendance rosters with states. To cover up these problems, Pierson issued false CE completion certificates to course attendees and substituted on CE completion certificates the names of state-certified instructors for courses uncertified instructors taught.
CE courses require annual or biannual renewals in some states, and Pierson allowed courses to expire without renewal. Pierson wasnít aware the courses had expired until after they had been taught. On one occasion Pierson issued certificates of completion for approved courses as opposed to the expired courses that were actually presented and did this over approximately a five-year period.
On one occasion Pierson issued CE completion certificates to course attendees for one hour of credit that had not been taught. In addition, Pierson substituted the names of state-certified instructors on CE completion certificates to conceal the fact that the instructors who actually taught the courses were not certified at the time the courses were taught.
Scott Roy Pierson : Fined $15,000; Suspended 1 year; Required to requalify as an investment company/variable contract products representative.
Although the Firm sought and received permission to conduct its private placement activity, it failed to timely amend its Application for Broker-Dealer Registration (Form BD), as it did not identify this business on its Form BD until years later.
Acting through Searle, the Firmís president and CCO failed to establish, maintain and enforce an adequate system and written procedures reasonably designed to supervise its placement business; and failed to adequately supervise the placement business conducted by a former registered representative who conducted firm business at an unregistered office. The Firm failed to adequately ensure that its ledgers or other records accurately reflected all of the firmís assets, liabilities, income and expenses. The Firm impermissibly ďnettedĒ the commission revenue it received, failing to reflect the gross amount of commission the firm received and the amount paid to the registered representative who placed the business, thus understating gross revenues and expenses. As a result, the Firm filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) Reports and inaccurate annual audits.
The Firm failed to establish, maintain and enforce adequate WSPs regarding the use of outside emails for firm business and the review and retention of emails; the firm permitted associated persons to use personal email accounts to send and receive emails related to the firmís securities business without capturing, reviewing or retaining them.
In addition, the Firm paid fees and commissions totaling $21 million to non-registered limited liability company (LLC) entities of which the firmís registered representatives were the sole members. Moreover, the Firm improperly paid the non-registered entities rather than paying the commissions and fees directly to the registered representatives who owned the non-registered entities. The suspension was in effect from August 15, 2011, through August 26, 2011. (FINRA Case #)
Searle & Co.: Censured; Fined $47,500 ($10,000 was jointly and severally with Searle)
Robert Southworth Searle: Fined $10,000 joint/several with Searle & Co.; Suspended 10 business days in Principal capacity
Tang opened an account at his member firm on customersí behalf based upon the representations of a registered representative at another FINRA member firm, although Tang never met or spoke directly with the customers. Instead, all of Tangís communications with the customers were through the registered representative.
Tang caused a variable annuity, in the amount of $532,874.02, to be purchased in the customersí account based upon an order from the registered representative, for which Tang received $28,775.20 in net commission for the transaction but his firm never granted him authority to place third-party orders in the customersí account.
Tang failed to notify his firm that a third-party placed a variable annuity order and failed to obtain the firmís approval to cause this third-party order to be executed in the customersí account.
Terry Tin Sing Tang (Principal): Fined $33,775.20 (includes $28,775.20 disgorgement of commissions); Suspended 10 business days.
Aretz established an outside business activity and never made a written request to, or received permission from, his member firm to engage in the outside business activity.
In connection with the outside business, Aretz borrowed approximately $242,800 from firm customers without requesting or obtaining permission from his firm, and has yet to repay the loans. Aretzí firm prohibited its registered representatives from borrowing funds from customers without the express written consent of the firmís chief compliance officer or a member of the firmís senior management. Aretz failed to disclose the loans on several annual firm compliance questionnaires and that he failed to respond to FINRA requests for information.
Thomas Michael Aretz : Barred; Ordered to pay $251,907, plus interest, in restitution to customers.
Cross failed to supervise the activities of a registered representative of his member firm in a manner that was reasonably designed to achieve compliance with applicable securities laws and regulations. Cross was the registered representativeís designated supervisor. The registered representative, through her fraudulent scheme, converted to her own use and benefit at least $8 million from clients, including the firmís customers.
The representative persuaded her clients to liquidate existing investments, for the purpose of purchasing other investments, and instructed the customers to make the checks payable to an entity Cross owned and with which she conducted business. Rather than use the clientsí funds to purchase the other investments, she diverted their funds to her own personal use.
In order to conceal her conversion of the clientsí funds, she prepared and sent to the clientsí false account statements, and she concealed from the firm the personal bank account where the clientsí funds were deposited.
Approximately once a month Cross received from the representative a blotter that listed purchases and sales processed through direct applications to issuers. Also, Cross received reports from the firmís insurance affiliate, which showed the representativeís insurance sales activity, except for the business she conducted with other insurers. Some of the representativeís outside insurance business was conducted through Crossí insurance agency; Cross was therefore able to track all of the representativeís business except for a portion of her outside insurance business.
The representativeís income from her securities business and from insurance business conducted through the firmís affiliate was not sufficient to pay her expenses; and that, although it was obvious that the representative had additional income, Cross did not attempt to determine the source of that income. In addition, the securities blotters Cross reviewed showed numerous sales of securities by the representativeís clients and did not show that they had purchased other products with the proceeds of those sales; but Cross did not take note of the liquidations shown on the blotters and make inquiries to determine what happened to the proceeds of those sales.
Moreover, Cross conducted an inspection of the representativeís office; and that the firmís inspection checklist required him to complete a checking account review form for each doing business as (DBA) and outside business activity (OBA) accounts owned or controlled by the representative as well as any other accounts where commissions are deposited, including business accounts, DBA accounts and personal accounts. Furthermore, before the inspection of the representativeís office, Cross participated in the firmís webcast training session regarding office inspections; a significant portion of the training was devoted to the review of checking accounts. As part of the inspection, Cross reviewed account statements for the registered representativeís business account; the representative told Cross that the business account was her only bank account.
There were several reasons why Cross should have known that the representative had another bank account and that some of her commissions were deposited into that account; Cross should have realized that the commissions deposited into the business account represented less than all of the registered representativeís income. Cross knew that the representative frequently sold an entityís annuities and there was no evidence that the entityís commissions were deposited into the business account; and that Cross could also see that the representative did not pay her personal expenses from the business account, a further indication that she had another account. Cross failed to note large deposits that were shown on the business account statements; that the statements showed 35 deposits of $2,000 or more from unidentified sources in a 12-month period, and that the total amount of those deposits was approximately $497,585.
In addition, pursuant to his firmís directives, Cross should have requested documentation showing the sources of those payments; had he done so, Cross would have learned of the personal account where the registered representative had deposited clientsí funds, and thus would have discovered that the representative had received large payments from customers.
Timothy Charles Cross: Fined $1,000; Suspended 6 months in Principal capacity only; Required to requalify as a general securities principal by examination before association with any member firm in a principal or supervisory capacity.
The Firm failed to establish and maintain a supervisory system or WSPs reasonably designed to detect and prevent the charging of excessive commissions on mutual fund liquidation transactions.
The Firm failed to put in place any supervisory systems or procedures to ensure that customers were not inadvertently charged commissions, in addition to the various fees disclosed in the mutual fund prospectus, on their mutual fund liquidation transactions. The firmís failure to take such action resulted in commissions being charged on transactions in customer accounts that generated approximately $64,110 in commissions for the firm.
The firm had inadequate supervisory systems and procedures to ensure that a firm principal reviewed, and the firm retained, all email correspondence for the requisite time period; the firm failed to review and retain securities-related email correspondence sent and received on at least one registered representativeís outside email account, and the firm did not have a system or procedures in place to prevent or detect non-compliance.
The firm failed to conduct an annual inspection of all of its Offices of Supervisory Jurisdiction (OSJ) branch offices.
The Firm failed to comply with various FINRA advertising provisions in connection with certain public communications, including websites, one billboard and one newsletter, in that a registered principal had not approved websites prior to use; websites did not contain a hyperlink to FINRAís or Securities Investor Protection Corporation (SIPC)ís website; one website, the billboard and the newsletter failed to maintain a copy of the communication beginning on the first date of use; and sections of websites that concerned registered investment companies were either not filed, or timely filed, with FINRAís Advertising Regulation Department. In addition, websites contained information that was not fair and balanced, did not provide a sound basis for evaluating the facts represented, or omitted material facts regarding equity indexed annuities, fixed annuities and variable annuities. Moreover, websites contained false, exaggerated, unwarranted or misleading statements concerning mutual B shares; the firmís websites and the billboard did not prominently disclose the firmís name, and a website, in connection with a discussion of mutual funds, failed to disclose standardized performance data, failed to disclose the maximum sales charge or maximum deferred sales charge and failed to identify the total annual fund operating expense ratio, and a website, in a comparison between exchange-traded funds (ETFs) and mutual funds failed to disclose all material differences between the two products.
Furthermore,the firm failed to report, or to timely report, certain customer complaints as required; the firm also failed to timely update a registered representativeís Uniform Termination Notice for Securities Industry Registration (Form U5) to disclose required information. The firm failed to create and maintain a record of a customer complaint and related records that included the complainantís name, address, account number, date the complaint was received, name of each associated person identified in the complaint, description of the nature of the complaint, disposition of the complaint or, alternatively, failed to maintain a separate file that contained this information.
The firm failed to ensure that all covered persons, including the firmís president and CEO, completed the Firm Element of Continuing Education (CE). The firmís 3012 and 3013 reports were inadequate, in that the 3012 report for one year was inadequate because it failed to provide a rationale for the areas that would be tested, failed to detail the manner and method for testing and verifying that the firmís system of supervisory policies and procedures were designed to achieve compliance with applicable rules and laws, did not provide a summary of the test results and gaps found, failed to detect repeat violations including failure to conduct annual OSJ branch office inspections, advertising violations, customer complaint reporting, and ensuring that all covered persons participated in the Firm Element of CE. FINRA also found that the firmís 3013 report for that year did not document the processes for establishing, maintaining, reviewing, testing and modifying compliance policies to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws, and the manner and frequency with which the processes are administered. In addition, the firm also failed to enforce its 3013 procedures regarding notification from customers regarding address changes.
Veritrust Financial, LLC : Censured; Fined $90,000; Ordered pay $34,105.40, plus interest, in restitution to customers
Gallagher acted as a principal of his member firm without being registered as such and the firm allowed Gallagher to act in an unregistered capacity.
Gallagher failed to adhere to the heightened supervisory requirements FINRA imposed and the agreements he entered into with three states; because of his controlling role at the firm and the transitory nature of supervision at the firm, he was able to sidestep the heightened supervision requirements. The firm failed to ensure that Gallagherís heightened supervisory requirements from the states and FINRA were being followed, and failed to have a system to adequately monitor Gallagherís compliance.
Gallagher was responsible for the firm adhering to the requirements to establish, maintain and enforce written supervisory control policies and ensuring the completion of an annual certification certifying that the firm had in place processes to establish, maintain, review, test and modify written compliance policies and WSPs to comply with applicable securities rules and regulations. The firm failed to conduct the analysis required to determine whether, as a producing manager, Gallagher should have been subjected to the heightened supervision requirements.
The firm failed to establish, maintain and enforce written supervisory control policies and procedures and failed to identify at least one principal who would establish, maintain and enforce written supervisory control policies and procedures. In addition, through Gallagher, the firm, failed to ensure that an annual certification was complete, certifying it had in place processes to establish, maintain, review, test and modify written compliance policies and WSPs to comply with applicable securities rules and regulations.
Moreover, FINRA found that the firm failed to report customer complaints against Gallagher and one customer-initiated lawsuit in which he was listed as a defendant.
Furthermore, the firm failed to make the necessary and required updates to Forms U4 and U5 for representatives to reflect customer complaints, arbitrations and lawsuits within the required 30 days.
Thefirm failed to conduct and evidence an independent test of its AML program, and failed to conduct and evidence an annual training program of its CE program for its covered registered persons.
While testifying at a FINRA on-the-record interview, Gallagher failed to respond to questions.
Gallagher willfully failed to timely amend his Form U4 with material facts. Gallagher appealed the decision to the NAC and the sanction is not in effect pending the appeal.
Boehm entered into a handwritten agreement with a customer of his member firm wherein he agreed to provide financial advisory services to the customer in exchange for older vehicles, which the customer sold to him at a discounted price.
Boehm entered into the business agreement to provide financial advisory services, outside the scope of his relationship with his firm, and without first notifying the firm or obtaining the firmís written approval of the arrangement. His firm's WSPs specifically prohibited registered representatives from entering into outside employment or business activities without obtaining the firmís prior approval.
Aaron Lee Boehm (Supervisor): Fined $5,000; Suspended 30 days
Smith provided partial responses to FINRA requests for information and failed to provide requested documents. Smith engaged in outside business activity without providing prompt written notice to, and receiving written approval from his member firm.
Smith served as executor of a customerís estate and as successor trustee to the customerís trust. Smith understood that he would receive compensation when he was required to perform the duties, and he did receive compensation for performing the duties of executor and trustee; his firmís procedures required written notice of outside business activities, and the firmís written approval, before a representative could engage in such activity.
Smith never notified his firm that he had accepted the appointment to serve as the executor of the estate, and never received his firmís written approval. The customerís heirs filed a lawsuit against Smith, which resulted in a default judgment against him for $851,985.81; the judgment included compensation for various substantial diversions of funds from the customerís accounts, her trust and her estate, including diversion of annuity funds from the customerís grandchildren to Smithís relatives by substituting his relatives as beneficiaries.
Laskey signed representativesí names on forms related to customer accounts without the representativesí authorization or consent in order to expedite the customersí paperwork.
Laskey was the representativesí assistant. The documents were new account forms, disclosure forms and Individual Retirement Account (IRA) distribution request forms. The customers had signed the forms and authorized the transactions, and the representatives knew about the transactions but neglected to sign the documents.
Swartz reported to his member firm that he passed the Series 7 examination when, in fact, he received a failing score.
Swartz submitted to his firm a document that he represented was a photocopy of his score report, which reflected a passing score. Swartz knew, or should have known, that the documents he submitted to his firm were neither the original nor a true copy of the score report as he received it from the testing center, and that they falsely represented that he had passed the examination when he had not.
Cheviron wrongfully converted a total of $75,331.08 from customers by withdrawing funds from a customerís bank account and then took the funds to another branch of the bank, where he deposited the funds into his own personal account. Ultimately, he used the customerís funds to make home improvements to his personal residence.
Chevironís member firm compensated the customer for the funds wrongfully taken from her account; Cheviron has not reimbursed his firm.
Cheviron caused other customers to sign distribution requests to an insurance company with instructions to mail checks to Chevironís attention at several banks and his personal residence. Upon receipt, Cheviron deposited these funds into his personal bank accounts and used the funds for his personal benefit. In an effort to conceal that he was the beneficiary of the customersí funds, Cheviron created false account statements, which he provided to one of the customers.
Beadle used an answer key to complete a state insurance continuing education (CE) exam.
Certain states began requiring financial advisors to complete a long-term care (LTC) CE course and exam before selling LTC insurance products to customers who reside in those states. Beadle was advised that he would be required to complete the LTC CE exam for a particular state before he was able to complete the sale of a policy to a colleagueís relative. Beadle received an email from a wholesaler that included a copy of the stateís LTC CE exam questions, with the answers filled in by hand. Beadle used the answer key to complete the stateís LTC CE exam.
Dennis Osborn Beadle: Fined $5,000; Suspended 1 month
Deutsche Bank held contractual agreements with third-party investment advisers who provided financial services to firm customers through the firmís adviser select program for a fee the customers paid, and the firm customers granted discretionary trading authority to the third-party advisers. The agreements contained a confidentiality clause prohibiting firm employees from using the third-party advisersí portfolio recommendations for other clients.
The firm instituted a written policy and procedure manual distributed to firm employees, including Tubridy, that contained guidelines related to the adviser select account and prohibited shadowing adviser select accounts, but the firm did not implement any specific systems to detect and prevent shadowing; no exception reports were created to identify shadowing, no applicable training was conducted, and no supervisory systems were put in place to monitor accounts for possible shadowing.
In one branch office while Tubridy was responsible for performing trade reviews, shadowing was egregious and continued for years. Although the firm did not implement exception reports to identify shadowing, shadowed trades were flagged for other reasons, which required Tubridy to follow up; she examined and approved shadowed trades on the exception reports, made notations on certain trades, which indicated an awareness of shadowing, but failed to follow up on the information and neglected to raise the issue with compliance or her supervisors.
Through shadowing, firm registered representatives circumvented the fee arrangement the firm had in place for the adviser select program and violated the provisions of confidentiality agreements prohibiting the use of the third-party investment advisersí proprietary information. In addition, the firm and involved registered representatives failed to pay a combined total of over $200,000 to third-party investment advisers. Moreover,the firm failed to establish, maintain and enforce an adequate supervisory system to detect and prevent shadowing, and Tubridy failed to recognize and follow up on ďred flagsĒ of shadowing.
Once the firm learned that shadowing had occurred, with Tubridyís assistance, it conducted an extensive and immediate internal investigation across all branch offices to identify and halt any other shadowing activity.
Deutsche Bank Securities Inc.: Censured; Fined $350,000. In assessing the fine, FINRA took into account financial benefits the firm obtained, and the firmís discovery, reporting, investigation and corrective measures are reflected in the sanctions.
Adrienne Barrett Tubridy: Fined $10,000; Suspended 10 days in Supervisory capacity only; Required to cooperate with FINRA in its prosecution of any other disciplinary action related to these events by, among other things, meeting with and being interviewed by FINRA staff without the need of staff to resort to FINRA Rule 8210, and testifying truthfully at any related hearing.
The Firm failed to evidence any review of incoming or outgoing written and electronic correspondence; failed to review the incoming and outgoing electronic correspondence of its CCOís personal email account that he used to conduct securities related business, and the CCO had business cards with his personal email address included.
The firm failed to maintain its electronic correspondence (email) and electronic internal communications (email) for almost two years, and failed to maintain the incoming and outgoing electronic communications of an individualís personal email account used to conduct business. The firm failed to notify FINRA prior to employing electronic storage media.
The Firm failed to file an attestation by at least one third party who has access and the ability to download information from its electronic storage media to an acceptable media for such records that are exclusively stored electronically. The firmís electronic storage media failed to have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved, and inputting of any changes to every original and duplicate record maintained and preserved.
Indiana Merchant Banking and Brokerage Co., Inc. : Censured; Fined $20,000. FINRA imposed a lower fine after it considered, among other things, the firmís size, revenues and financial resources.
Work requested and received the answer key for a stateís LTC CE exam and distributed it to a financial advisor outside of his member firm.
Certain states began implementing a LTC CE requirement that obligated financial advisors to complete a LTC CE course and exam before selling LTC insurance products to customers who resided in that state. In order to help financial advisors obtain the LTC CE requirement, Workís firm provided them with vouchers that allowed financial advisors to take the CE exams for free through a specific company. In addition to providing financial advisors with vouchers, certain firm employees improperly created, requested, received and distributed the answer keys for state LTC CE exams.
Jacen Darrel Work (Principal): Fined $5,000; Suspended 1 month
Gibson met with customers of his member firm to discuss their joint securities account, which had sustained losses. At the meeting, Gibson gave them a check for $10,000 drawn against a personal bank account Gibson owned. In issuing the check, which the customers negotiated, Gibson shared in losses the customers had sustained in their joint account at Gibsonís firm.
James Spottswood Gibson: Fined $5,000; Suspended 10 business days
Poe borrowed a total of $125,000 from an elderly customer of his member firm without seeking or obtaining his firmís approval for any of these loans.
Poe and the elderly customer memorialized the loans by executing a promissory note in which Poe promised to repay the $125,000 that he had borrowed; Poe has not repaid any portion of the loans.
Poe completed the firmís annual sales questionnaire and falsely answered ďnoĒ in response to a question that asked whether he had received loans from any of his clients or family members who have accounts at the firm within the preceding 12 months. The Firm terminated Poe and, on a Uniform Termination Notice for Securities Industry Registration (Form U5), reported that Poe had been under internal review for violating firm policy by borrowing money from a client.
Subsequently, Poe caused his Form U5 to be amended to include a comment addressing the internal review in which Poe stated, among other things, that the loan at issue was made by the elderly customer, who he had known since adolescence and served as a mentor and pseudo-grandfather. FINRA found that Poe had not known the customer since adolescence and had met the customer several years earlier when he had solicited him to become a client.
Jared Austin Poe : Fined $10,000; Suspended 18 months; Ordered to pay $125,000 plus interest in restitution
Good borrowed approximately $1,500 from his customer at his member firm without disclosing the loan to his firm. The findings stated that the loan was not reduced to writing and had no repayment terms; Good paid back the customer. The firm had a policy prohibiting representatives from borrowing money from customers. Good completed a field inspection report in which he falsely stated to the firm that he had not borrowed money from any customers.
John Edward Good Jr.: Fined $5,000; Suspended 1 month
Mondello misappropriated $585,376.20 from an elderly customer.
Mondello regularly instructed the customer to give him funds from her savings and checking accounts in the form of cash, personal checks and cashierís checks made payable to him, which the customer believed were for investment purposes. ondello converted the funds to his own use, and diverted funds that the customer gave him to pay life insurance policy premiums to his own personal use.
Galiani engaged in an investment strategy that resulted in a principal loss of $662,108 in an elderly customerís accounts and provided fictitious account documents to the customer to hide the substantial losses in the account.
Galiani made material false oral representations to the customer concerning the value of his investments and repeatedly told the customer to disregard the confirmations and statements sent to him by Galianiís member firm. Galiani claimed that the majority of the customerís money was held in a third account, which he described to the customer as an institutional account that was not reflected on documents sent by the firm.
The customer subsequently demanded that Galiani provide him with statements for the institutional account; Galiani created and provided the customer with fictitious firm account summaries that overstated the customerís actual holdings at the firm by approximately $600,000. On the same date, Galiani created and provided the customer with a fictitious account statement for the institutional account reflecting a purported value of $682,861.55. The institutional account was a complete fabrication by Galiani; no such account existed and the account number listed on the institutional account statement was related to a closed account previously held by one of Gialaniís relatives.
Gregory served as vice president and board member of a purported charitable foundation he managed with other non-registered principals, and unbeknownst to his member firm, he effected the transfer of approximately $400,000 from member firm customers (most of whom are now deceased) to the foundation as supposed donations. Of that $400,000 Gregory transferred nearly $184,000 to the foundation from the sole known surviving donor customerís brokerage account. For almost seven years, Gregory, in conjunction with the other non-registered principals, collectively converted for their personal use a total of $79,444.70 from the foundation account they controlled, which was maintained at Gregoryís member firm. The money generally was used to fund the educations of the principalsí relatives; Gregory personally converted a total of $26,619.45 of that amount for his own personal use.
For more than a decade while associated with both the foundation and his member firm, Gregory failed to disclose to his firm his officer and director positions and role in a business activity outside the scope of his relationship with his firm; Gregory did not disclose his association with the foundations until after the firm undertook an internal review of his activities related to the foundation.
Gregory assisted an elderly customer in causing a bank to issue him a $40,061.48 check as a gift from the customer, contrary to his firmís WSPs that required associated persons, including Gregory, to notify the firm of, and receive approval for any non-de minimis gifts received from customers, Moreover, the firm's procedures imposed an annual $100 cap on customer gifts. Gregory failed to disclose, and receive written approval for, the $40,061.48 gift, violating his firmís WSPs.
As a result of his violations of the firmís procedures, Gregory impeded his firmís ability to effectively supervise over subjects of regulatory importance, including, but not limited to, issues relevant to customer protection.
As his member firmís president, CEO and registered principal, Paris had overall supervisory responsibilities for the firm, including reviewing and performing due diligence for private placements and for reviewing and approving new products, including the assignment of a new product to a business unit.
Paris signed a sales agreement for a private placement offering and failed to perform due diligence beyond reviewing the private placement memorandum (PPM), and while he had received third-party due diligence reports regarding earlier private placements, he did not seek or obtain a report for the latest offering and did not conduct any continuing due diligence or follow-up because of the limited time between offerings, the similarity of the deals and representations from the issuer that no additional due diligence was necessary. Unlike earlier offerings, there were serious red flags that Paris could not identify without adequate due diligence.
In his firmís sale of several offerings by another issuer, Paris failed to perform due diligence even though his firm received a specific fee related to due diligence purportedly performed in connection with each offering. Paris did not travel to the issuerís headquarters to conduct due diligence and did not seek or request any financial information other than what was contained in the PPM. Once he had concluded that his firm could sell the offerings, Paris did not conduct any continuing due diligence or follow-up, and due to limited time between the offerings, the similarity of the deals and representations from the issuer that no material changes had occurred, he concluded that no additional due diligence was necessary. In addition, Paris did not believe it necessary to pay for due diligence reports for the new offerings because they would say the same thing as previous reports but they did identify numerous red flags. Moreover, Paris should have scrutinized each of the offerings given the high rates of return to ensure they were legitimate and not payable from proceeds of later offerings, as in a Ponzi scheme.
Acting on his firmís behalf, Paris failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations with respect to the offerings.
Leroy Henry Paris II (Principal): Fined $10,000; Suspended 6 months in Principal capacity only
A firm representative submitted a written request to conduct a live call-in finance- and investment-related radio show to be broadcast in Farsi; the firm had various written procedures relating to the supervision of its representativesí public appearances, which, among other things, required that the first three radio shows be submitted to the firmís advertising compliance department as soon as they had aired and that the advertising compliance department would contact representatives quarterly to request copies of specific shows during a randomly chosen date range for review.
The firm approved the representativeís request and required the representative to provide a translated copy of the show upon a quarterly request, and an unaffiliated third-party translation company was to complete the translation. For five years, the representative, together with another representative, aired approximately 520 shows on a particular radio station; the format was typically a live call-in show, in Farsi, discussing financial issues and investments, but the firm failed to request or review copies or transcripts of the broadcasts.
The Firm failed to have a supervisory system reasonably designed to detect and prevent the misuse of material, nonpublic information by employees through an information barriers system.
The Firm did not have WSPs addressing the creation or distribution of a watch list, which is a list of securities whose trading is subject to close scrutiny by a firmís compliance or legal department, and the firm did not maintain any list of this nature. The firm maintained a restricted list but it was not maintained in the manner its own procedures required; securities were added to the list in a haphazard manner, often after the issuer had signed a private placement agent agreement with the firm. The list did not reflect when a security was added or deleted from the list, and did not identify the contact person.
The firm did not adequately monitor employee trading outside the firm for transactions in the restricted-list securities; the firm permitted employees to maintain securities accounts with other broker-dealers, requiring any employee to have duplicate confirmations and account statements sent to the firm. Firm employees were required to disclose their outside accounts to the firm upon hire and annually in an attestation form, but the firm failed to obtain annual attestations from some employees and did not ensure that it was receiving the required duplicate confirmations and account statements.
In addition, because the firm failed to maintain a watch list, to timely add securities to its restricted list, to record the required restricted list information, and to obtain confirmations and account statements for employee accounts, it could not reasonably monitor its employeesí trading for transactions in restricted or watch-list securities. Moreover,the firm did not have procedures to restrict the flow of material, nonpublic information and routinely shared restricted-list information with unregistered individuals who were firm owners, and occasionally shared with these unregistered individuals the details of investment banking contracts; consequently the firmís procedures were not reasonably designed to prevent violation of securities rules prohibiting insider trading.
Murillo recommended and effected excessive transactions in a customerís account that were unsuitable in light of the customerís financial situation, needs and investment objectives.
Murillo controlled and directed the trading in the customerís account by recommending and executing all the transactions in the account. The customer was unable to evaluate Murilloís recommendations, did not understand the meaning of ďmargin,Ē and was unable to exercise independent judgment concerning the transactions in the account due to his lack of investment knowledge and limited English skills; the customer trusted Murillo completely to make and execute recommendations in his account.
Murillo did not have a reasonable basis for believing that the volume of trading he recommended was suitable for the customer in light of information he knew about the customerís financial circumstances and needs, and given the amount of commissions and fees the customer was charged; and as a result, the transactions Murillo recommended and executed were unsuitable, even if the investment objectives were speculative as reflected on the customerís new account form. The customer told Murillo that he wanted a conservative retirement account set up because he was nearing retirement age and could not risk any losses with his funds; nevertheless, the new account forms listed the customerís investment objective as speculation and his risk tolerance as aggressive.
The trades were excessive in number and resulted in excessive costs to the customerís account, and the vast majority of the transactions in the customerís account were effected through the use of margin and resulted in the customer incurring additional costs in the form of margin interest. In addition, Although the customer signed a pre-completed margin agreement, along with other pre-completed new account forms Murillo sent to him, the customer did not understand margin and did not realize that Murillo was effecting trades on his account on margin. Moreover, owing to the customerís lack of investment knowledge and inability to decipher his monthly account statements, the customer was unaware that he had a margin balance and did not understand the risk of the margin exposure in his account; at one point, the customerís account had a margin balance of approximately $106,818.52 while the accountís equity was approximately $67,479.98. The transactions on margin Murillo effected in the customerís account were unsuitable for the customer in view of the size and nature of the account and the customerís financial situation and needs.
Miguel Angel Murillo: No fine in light of financial status; Suspended 20 business days; Ordered to pay partial restitution of $35,000 to a customer
While employed as a risk arbitrage research analyst with a member firm, REDACTED lied during conference calls convened for him to respond to questions FINRA posed regarding his involvement in Internet blogging activity.
Throughout his employment with the firm as a research analyst,REDACTED regularly posted responses to columns and articles published on Internet financial blog/media sites.REDACTED made his blog postings using different aliases and posted his comments on the blog sites during business hours using his firm computer.
Jan attempted to arrange an outside third-party business loan for a prospective client without obtaining written authorization or otherwise notifying his member firm; if successful, Jan would have received a referral fee. The potential client agreed and Jan, using his personal email account on his home computer, sent the prospective client a detailed client information sheet from an outside lender; the document Jan sent required the prospective client to provide numerous pieces of information relating to the potential loan, including a passport number, business tax ID number and bank account information. Jan requested a copy of the potential clientís passport and a copy of a bank guarantee or standby letter of credit for review and acceptance. Although Jan used his personal email account, his signature block identified him as a financial consultant with his firm.
Jan engaged in business outside the scope of his relationship with his firm without providing prompt written notice to his firm, and Janís conduct was contrary to his firmís written policies and procedures. Along with conducting outside business with a prospective client through his personal email account, Jan admitted to attempting to solicit business from an unspecified number of other customers using his personal email account. In addition, at times, Jan communicated with a customer who had firm accounts through his home email account about details relating to an asset that was to be deposited in one of the customerís accounts. Moreover, Jan knew that his firmís procedures required approval of his email and he thereby circumvented his firmís supervisory procedures and compromised the firmís ability to supervise and monitor his communications with the public.
Sabado offered and sold entitiesí oil and gas investments to several of her clients without her member firmís knowledge or consent.
The SEC filed a partially settled civil injunctive action alleging that the entities and an individual had fraudulently sold investments in Texas oil and gas projects, raising approximately $22 million from investors nationwide. As a result of Sabadoís recommendations, some of her current firm clients made investments with the entities totaling $491,880.
Sabado failed to provide her firm with prior notice of her participation in these securities transactions.
While employed by his member firmís New York Positions Services (NYPS) Group, Associated Person Garaventa was responsible for processing corporate actions. In that capacity, he
Garaventa entered, or caused to be entered, numerous false journal entries into the firmís electronic system to transfer and credit at least $59,349 of unreconciled customer funds to other NYPS suspense accounts that Garaventa was using to misappropriate funds. Garaventa misappropriated customer funds from an SEC settlement fund by entering, or causing to be entered, numerous false journal entries into his firmís electronic system to credit SEC checks totaling approximately $120,395 to the other NYPS suspense accounts he was using to misappropriate funds.
Garaventa entered, or caused to be entered, into the firmís electronic system check requests against the suspense accounts that Garaventa was using to misappropriate funds; in this way, Garaventa misappropriated at least $179,744 of customer funds for his own benefit. Garaventa misappropriated funds from the firm by entering, or causing to be entered, numerous false journal entries into the firmís electronic system to transfer and credit approximately $1,786,052 from different firm sources, including the firmís Foreign Exchange accounts, leftover balances from corporate actions and accumulated American Depositary Receipt (ADR) fees, commingled with funds from other sources, to the NYPS suspense accounts; Garaventa then entered, or caused to be entered, into the firmís electronic system check requests to be issued against those funds.
funds from a firm counterparty; the counterparty calculated a payment to the firm related to a corporate action based on an incorrect tax withholding rate, which resulted in a $1,000,000 overpayment by the counterparty, which was credited to an NYPS suspense subaccount;
approximately $320,422 of the $1,000,000 overpayment by entering numerous false journal entries into the firmís electronic system, transferring the funds to other NYPS suspense accounts that he was using to misappropriate funds, and caused checks to be issued against those funds by having NYPS employees who reported to him enter check requests on his behalf, which Garaventa approved and used the identification number and password of another NYPS employee who reported to him to enter check requests; one of the checks contained funds from other firm sources; and
an additional $228,031 from other undetermined sources by entering numerous false journal entries into the firmís electronic system to transfer those funds to other NYPS suspense accounts he was using to misappropriate funds, and caused checks to be issued against those funds, which had been commingled with funds from other sources.
FINRA also found that Garaventa issued, or caused to be issued, approximately 50 false check requests and entered, or caused to be entered, hundreds of false journal entries in the firmís systems to foster his misappropriation of funds from the firm, its customers and a firm counterparty.
Garaventa failed to respond to FINRA requests for information.
Cochran effected unauthorized transactions in the joint account of customers at his member firm. One of the customers complained to Cochran concerning the unauthorized activity in his account, and in an attempt to placate the customer, Cochran provided the customer with checks totaling $70,000; the checks were returned for insufficient funds. Cochranís attempt to settle the customerís claims was made without the firmís knowledge or consent.
Robert Laurence Cochran : Fined $10,000; Suspended 1 year
Taylor received $11,000 from a customer purportedly for an investment in Taylorís relativeís business; however, Taylor did not provide the customer with a written loan agreement, purchase agreement or any other documentation memorializing the transaction.
The customer gave Taylor a cashierís check for $11,000, made payable to Taylor; Taylor negotiated the check and received $11,000 in cash from his financial institution. Only after his member firm confronted him did Taylor return the funds to the customer, thereby misusing the funds for several weeks.
Sammie Bernard Taylor: Fined $5,000; Suspended 6 months
Brandt provided written notice to his firm that he was engaged in sales of secured real estate notes outside the regular course and scope of his employment with the firm; however, the firm failed to recognize that the notes were securities and allowed Brandt to continue selling them without further supervision. Brandt again disclosed his sales of the notes on his annual Outside Business Questionnaire (OBQ) form, following which the firm determined that the notes were actually securities and ordered him to stop selling the notes and remove any mention of note sales from his OBQ. Thereafter, Brandt submitted a new OBQ devoid of any mention of note sales.
Brandt sold a note to a customer and received a commission of $3,459.21 for the sale although he failed to obtain the firmís prior written approval to sell the note. Brandt sold additional notes to other customers without receiving any compensation for those sales and obtaining the firmís prior approval. The total value of the notes Brandt sold, after submitting the new OBQ devoid of any mention of note sales, was $637,293.21. In addition, Brandt recommended and sold notes totaling $805,000 to other customers who were referred to him without having reasonable grounds for believing that his recommendations were suitable for these customers.
Moreover, Brandt failed to obtain information about these customersí investment objectives, risk tolerances, financial circumstances or other information upon which he could reasonably base a suitability determination. Furthermore, Brandt relied upon representations from the referring individuals that they had analyzed the customersí profiles and determined the notes to be suitable for the customers. Brandt received at least $54,450.00 in commissions for these sales.
Scott Thomas Brandt : Fined $67,909.21 (includes a $57,909.21 disgorgement of commissions received); Suspended 18 months.
Camarillo entered into a contract with a company to sell its private placements, and sold approximately $370,000 of these private securities to his customers, receiving over $13,000 in commissions, without providing notice to, or receiving approval from, his member firm.
Camarilloís firmís written procedures, which he attested to reading and understanding, instructed employees to provide notice to the firmís compliance department and to seek the firmís written approval prior to engaging in any securities transactions not executed through the firm. The company provided Camarillo with sales literature, and without submitting the brochure to his firm for approval, he distributed the brochure to his customers; the brochure contained several unwarranted, exaggerated and misleading statements, omitted material facts and ignored risk while guaranteeing success.
Camarillo did not have a reasonable basis to recommend that his customers purchase the securities, had no experience selling these types of products and did not conduct proper due diligence. Camarillo did not sufficiently understand the products offered through the company or how the investments were managed; all of Camarilloís customers who invested in the products informed Camarillo that they were seeking preservation of capital and viewed the investments as a retirement investment. Camarillo did not investigate the claims made in the sales literature that the returns were guaranteed, he had no basis to recommend the investment to customers seeking preservation of capital, and his recommendations to invest in the company were unsuitable.
Camarilloís customers lost tens of thousands of dollars by relying on his recommendation, because even after partial reimbursement from the companyís court-ordered receivership, Camarilloís customers only recouped 69 percent of their investment. Moreover, the products, as marketed, were securities, the sale of which required Camarillo to possess a Series 7 license; at the time he sold the securities, Camarillo held only a Series 6 license.
Timothy D. Camarillo : Fined $10,000; Suspended 4 months; Ordered to pay $13,000 restitution to customer
The Firm failed to develop and enforce written procedures reasonably designed to achieve compliance with NASDģ Rule 3010(d)(2) regarding the review of electronic correspondence. Although the firm had certain relevant procedures in place, it did not have a satisfactory system for providing designated principals with access to such correspondence for review; instead, the firm relied on registered representatives to forward any emails involving customers to a central email address, which was accessible to the firmís president and chief compliance officer (CCO), for review.
The firm did not have effective procedures to monitor its representativesí compliance with the email forwarding requirement; instead the firm relied on branch inspections to monitor compliance, but, because the firmís branch offices were non-Office of Supervisory Jurisdictionís (OSJs), they were inspected infrequentlyóonce every three years.
During the infrequent branch office inspections, the firm generally failed to conduct adequate reviews of representativesí personal computers to determine if they were complying with the email forwarding requirement; other than some very limited reviews during the inspections, the firm failed to provide for surveillance and follow-up to ensure that email correspondence review procedures were implemented and adhered to.
The firm failed to enforce its written procedures requiring a designated principal to conduct a daily review of business-related electronic correspondence and to evidence that review by initialing the correspondence.
Acting through Dochinez, the firmís president, chief executive officer (CEO) and a firm principal, failed to establish, maintain and enforce an adequate system of supervisory control policies and procedures that tested and verified that its supervisory procedures were reasonably designed with respect to the activities of the firm, its registered representatives and associated persons to achieve compliance with applicable securities laws and regulations, and created additional or amended supervisory procedures where the need was identified by such testing and verification. In addition, The firmís supervisory control policies and procedures failed to address the requirements of designating a principal responsible for the firmís supervisory control policies and procedures; testing and verification to ensure reasonably-designed supervisory procedures; updating the firmís written supervisory procedures (WSPs) to address deficiencies noted during testing; designating a principal responsible for the annual report to senior management on the firmís system of supervisory controls procedures, summary of test results, significant identified exceptions, and any additional or amended procedures; identifying producing managers and assigning qualified principals to supervise such managers; using the ďlimited size and resourcesĒ exception for producing managersí supervision, including documenting the factors relied on in determining that the exception is necessary; electronically notifying FINRA of its reliance on the limited size and resources exception; reviewing and monitoring all transmittals of customer funds and securities; reviewing, monitoring and validating customer changes of address and customer changes of investment objectives; and providing heightened supervision over each producing managerís activities. Moreover,acting through Dochinez, the firm failed to conduct independent tests of its AMLCP.
While registered with a member firm, Fiero maintained a corporate brokerage account which he controlled at another member firm (the executing firm) without disclosing the existence of this account to his firm or his association with his firm to the executing firm. Fiero failed to disclose the existence of any outside securities account, including any accounts where he had control over the investments on an annual certification form he submitted to his firm. Fiero failed to respond to FINRA requests for information and documents.
Without authorization, Franz took possession of checks payable to the investment adviser firm where he was employed, deposited the checks, which totaled about $21,000, to a personal bank account, and converted a portion of the funds to his own use and benefit.
Franz was the broker of record for a money market mutual fund account that an investor owned, and while the investor was out of state and without his knowledge or authorization, Franz contacted the mutual fund company multiple times and instructed it to issue checks to the investor drawn against his money market account. The mutual fund company issued checks payable to the investor totaling about $271,250 and mailed them to the investorís residence in Ohio.
Franz obtained possession of the checks at the investorís residence and, without the investorís knowledge or authorization, Franz forged his signature on the checks, deposited the checks to a personal bank account and converted a portion of the funds to his own use and benefit and remitted the rest to the investor.
Christensen sold approximately $650,000 in a companyís promissory notes to customers without providing his member firm with written notice of the promissory note transactions and receiving the firmís approval to engage in these transactions.
Based upon expected interest payments from the promissory notes, some of the customers also purchased life insurance policies from Christensen and another registered representative the firm employed. These customers expected to use the promissory note interest payments to pay for the life insurance premiums.
Christensen received direct commissions from the company related to the sale of the promissory notes to customers and received commissions from the sale of life insurance products to the customers, who intended to fund those policies with the interest payments from the promissory notes.
The company defaulted on its obligations and the customers lost their entire investment. The customers who also purchased life insurance based upon the expectation that they would receive interest payments from their investment relinquished their policies and the firm compensated them for the premiums paid, but the customers did not receive any reimbursement for the investments in the company that sold the promissory notes.
Christensen completed a firm annual compliance questionnaire, in which he falsely stated that he had not been engaged in any capital raising activities for any person or entity; had not received fees for recommending or directing a client to other financial professionals; had not been personally involved in securities transactions, including promissory notes, that the firm had not approved; and had not assisted a client with an application for investments not available through the firm or contracted or otherwise acted as an intermediary between a client and a sponsor of such investments without the firmís prior approval.
Finally, Christensen failed to respond to FINRA requests for documents and testimony.
Parker failed to provide written notice to his member firm prior to opening a brokerage account with another FINRA member firm and, upon opening the account, failed to advise the executing member firm in writing of his association with his firm. Parker engaged in outside business activities without providing prompt written notice to his firm.
Brian Daniel Parker (Principal): Fined $5,000; Suspended 30 days
Acting through Locy, Brookstone Securities did not have WSPs addressing due diligence requirements for third-party placements.
Acting through Locy, Brookstone failed to conduct an adequate due diligence of a third-party private placement offering before Locy approved the offering of shares to customers. Locyís due diligence efforts did not include any investigation into an equity fund, despite acknowledging that he knew very little about it or the third-party placement and could not get any solid information about the fund, including pending litigation or financial statements. Locy knew nothing about the fund that was not contained in a PPM the issuer prepared, but accepted that the firm representatives forming the offering had conducted due diligence and relied on their opinion of the fund. Locy acknowledged the representatives had limited, if any, experience forming a private placement.
The firm's representatives sold or participated in sales of shares to customers without notifying Locy or anyone else at the firm, which caused those sales to not be recorded on the firmís books and records.
Brookstone Securities, Inc. and David William Locy: Censured; Fined $25,000 jointly/severally
The Firm failed to properly archive its business-related electronic communications for individual users in some of its Offices of Supervisory Jurisdiction (OSJs).
The Firm stored these emails on stand-alone servers or individual machines only, which theoretically permitted individual users to delete incoming or outgoing emails, and thereby failed to properly preserve its business-related electronic correspondence.
The firm failed to
review business-related electronic communications for the individuals and an additional user;
evidence its review of individualsí business-related electronic communications as the firmís WSPs required; and
provide notification and thirdĖparty attestation to FINRA regarding the use of electronic storage media 90 days prior to employing such media.
Brown Associates, Inc. : Censure; Fined $50,000; Required to certify to FINRA in writing within 90 days of issuance of the AWC that the firm currently has in place systems and procedures reasonably designed to achieve compliance with the laws, regulations and rules concerning the preservation of electronic correspondence.
Smith improperly accepted $15,300 in cash gifts from a customer and her relative.
The customer and her relative gave Smith cash gifts when they visited their safe deposit boxes. Smith was given and accepted a cash gift during a visit to the customerís home. At the time Smith accepted the gifts, he was aware that the bankís code of conduct where he was employed prohibited employees from accepting gifts from customers.
This matter came to light when the customer offered cash to another bank employee after assisting her with her safe deposit box; the employee refused the gift and reported the matter to his supervisor. When Smithís supervisor questioned him, Smith admitted to accepting gifts from the customer, and his employment was terminated.
Baker requested, received and distributed answer keys for long-term care (LTC) continuing education (CE) exams to member firm representatives, and asked other firm representatives to distribute LTC CE answer keys to outside financial advisors.
Certain states implemented an LTC CE requirement that obligated financial advisors to complete an LTC CE course and exam before selling LTC insurance products, including the product Baker sold, to customers who resided in that state. In order to help financial advisors obtain the LTC CE requirement, Bakerís firm provided them with vouchers that allowed financial advisors to take CE exams for free through a specific company. In addition to providing financial advisors with the vouchers, certain firm employees improperly created, requested, received and distributed answer keys for state LTC CE exams.
Catherine Laura Baker : Fiend $5,000; Suspended 1 month
Henry added information to an earlier copy of a private placement investor questionnaire that had previously been signed by a customer. The questionnaire itself had been completed by the customer while Henry was registered with a prior member firm and was later replaced at that prior firm by a different version; Henry maintained a copy of the earlier signed copy.
In response to an inquiry made by Henryís new firmís CCO regarding the source of a particular stock in the customerís account, Henry utilized the earlier copy of the previously signed questionnaire from the customer that Henry had in his files and made alterations to the document by adding on the updated requested information sought by the CCO. Henry presented that altered document to the CCO without disclosing that he had made the alterations and by making the alterations to the questionnaire, he caused the document and, consequently, the firmís records to be inaccurate.
Dane Raymond Henry: Fined $5,000; Suspended 30 business days
Martin misappropriated at least $81,670 from her employer and its owner through the use of credit cards and checks for unauthorized purposes.
Without authorization, Martin used her employerís personal credit cards and business credit account to purchase personal items, totaling at least $34,516, and used her employerís business checking account, without authorization, to issue checks for personal items exceeding $1,603. The Martin issued checks from the business account to herself and made cash withdrawals for herself without authorization; these withdrawals exceeded the actual business expenses by at least $23,385. Martin issued, or caused to be issued, checks to herself for unauthorized bonus payments totaling at least $22,166.
Martin failed to appear for FINRA on-the-record testimony.
Naefke circumvented his member firmís guidelines regarding investing in illiquid investments by submitting documents, including illiquid investment letters and account information forms, that falsified and exaggerated customersí net worth which in turn permitted investments in amounts that the firm would have otherwise prohibited and that were unsuitable for the affected customers.
The firm had internal guidelines that limited the amounts customers were permitted to invest in illiquid investments; the internal policy further stated that illiquid investments for older investors required additional review and consideration pertaining to their needs for liquidity and income. Naefke submitted documents that knowingly falsified customersí net worth, causing his firmís books and record to be inaccurate and customers to invest in illiquid investments in amounts that his firm would have otherwise prohibited; and Naefke impeded his firmís ability to adequately supervise the suitability of his recommendations.
On three illiquid investment letters, Naefke falsely stated that a
50-year-old customerís adjusted net worth was $2,000,000, when in fact it was about $150,000;
O at least two account information forms, Naefke falsely stated that an
87-year-old customerís net worth was between $1,000,000 and $2,999,999, when, in fact, it was approximately $250,000; and
O four illiquid investment letters, Naefke falsely stated that the
87-year-old customerís adjusted net worth was $1,000,100.
Naefke recommended and sold illiquid investment interests in publicly registered non-traded real estate investment trusts (REITs), direct participation programs and a limited partnership to customers totaling about $299,000. When Naefke made the recommendations and sales, he did not have reasonable grounds for believing that the recommendations were suitable based on each customerís other security holdings, financial situation and needs.
Tieger convinced his junior partner to call an annuity company and impersonate his relative for the purpose of confirming a $275,000 withdrawal from one of the relativeís variable annuity contracts.
The relative attempted to make a distribution from his variable annuity and after growing frustrated with the withdrawal process, instructed Tieger to take care of it. After multiple requests, Tiegerís junior partner agreed to make the telephone call using the relativeís cellular phone, spoke to the annuity company representative and, pretending to be Tiegerís relative, asked the representative to process the contract withdrawal. The junior partner answered the representativeís questions by reading from a script that Tieger had prepared. Tieger watched the junior partnerís call from outside a glass conference room.
After Tieger left the office building, the junior partner called the representative back to inform him that he was not the relative and that he had called because someone standing next to him asked him to impersonate the relative.
David Lewis Tieger : Fined $5,000; Suspended 30 business days
Associated Person Miller converted $19,736.76 from her member firm.
In her capacity as assistant to the branch manager, Miller had authority to request that checks be issued from the branch office general ledger account to pay for branch expenses. Miller caused checks to be issued off the branch office general ledger to her boyfriend for construction work at the branch that was never performed.Each check was created in an amount equal to or less than $500 so that she could authorize the payments without the need for another firm managerís approval.
Miller caused another check to be issued to herself from the branch office general ledger. Miller reported to branch management that she did not receive her paychecks and obtained replacement checks totaling $1,035.80 from the branch, with the understanding that she would return her paychecks to the branch if she received them; when Miller received her paychecks, she deposited them into her personal account without reimbursing her firm.
Miller failed to respond to FINRA requests for information and documents.
Gelb solicited individuals, including customers at his member firm, to invest in entities that were purportedly engaged in the export and import business with a manufacturer based in China.
Gelb raised approximately $1.8 million from investors and received approximately $79,500 from the entities as compensation derived from his solicitation of, and directing investors to, the entities.
Private Securities Transaction
Gelb was aware of his firmís policies and procedures, which specifically prohibited its registered representatives from participating in any manner in the solicitation of any securities transaction outside the regular scope of their employment without approval. Gelb signed annual certifications attesting to this knowledge and failed to notify his firm about his solicitation of investors for the entities because he did not expect the firmís approval of the product.
Gelb failed to obtain adequate information about the investment and instead relied upon unfounded representations, including guarantees that the investorsí principal would be protected despite the fact that, at no time, had Gelb seen any financial documentation for the entities. The information available on the Internet about the entities was limited to the companiesí own website.
FINRA determined that despite the highly risky nature of the investment, Gelb led the customers to believe that the investment he was recommending was a safe and secure investment and, in some cases, Gelb was aware that customers were taking out home equity lines of credit on their homes to fund their investments in the entities. Customers who invested in the entities Gelb recommended had low risk tolerances and had investment objectives of growth and/or income, and Gelb did not have a reasonable basis for recommending the entities to the customers.
Gelb utilized an outside email account, without his firmís knowledge or consent, to conduct securities business.Although the firm was aware of the outside email account, Gelb had not been approved to utilize that email address to conduct securitiesrelated business and by operating an outside email account for securities-related business without the firmís knowledge and consent, Gelb prevented his firm from reviewing his emails pursuant to NASD Rule 3010(d).
Without the customer's authorization or knowledge, Scarcello effected an online wire transfer of $8,024.54 from a bank customerís account for his personal use and benefit.
Scarcello obtained an ATM card linked to the customerís account and used the card to make withdrawals totaling over $12,000 from the account, using the funds for his personal benefit without the customerís authorization or knowledge. When the customer discovered the funds were missing and confronted Scarcello, Scarcello executed an unauthorized wire transfer of $20,000 from the line of credit of another bank customerís account to the customerís account, thereby converting approximately $32,000 from two bank customersí funds for his personal benefit.
Scarcello failed to respond fully and completely to FINRA requests for information and to appear for an on-the-record testimony.
Frank J. Scarcello III : Not ordered to pay restitution to the bank customers because FINRA did not request an order of restitution; Barred
Veile borrowed $800 from one of his customers at his member firm. The loan was not reduced to writing and had no repayment terms, and Veile did not disclose this loan to his firm and the firm had a policy prohibiting representatives from borrowing money from customers.
Veile paid back the customer after FINRA began its investigation. Veile completed an annual compliance statement for the firm in which he falsely stated that he had not engaged in any prohibited practices, including borrowing from or lending to a client.
Frederick Xavier Veile III : Fined $5,000; Suspended 1 month
The Firm failed to ensure that it established, maintained and enforced a supervisory system and written supervisory procedures (WSPs) reasonably designed to achieve compliance with the rules and regulations concerning private offering solicitations.
The firmís procedures were deficient in that they failed to specify, among other things, who at the firm was responsible for performing due diligence, what activities by firm personnel were required to satisfy the due diligence requirement, how due diligence was to be documented, who at the firm was responsible for reviewing and approving the due diligence that was performed and authorizing the sale of the securities, and who was to perform ongoing supervision of the private offerings once customer solicitations commenced. As a result of the firmís deficient supervisory system and WSPs, the firm failed to conduct adequate due diligence on private placement offerings. The Firm's WSPs required due diligence to be conducted on every private placement it offered, and required that such review had to be documented; the firm failed to enforce those provisions with respect to an offering. Had the firm conducted adequate due diligence, it reasonably should have known that the company had defaulted on its earlier notes offerings and that there was a misrepresentation in the private placement memorandum (PPM) with respect to principal and interest payments to investors in the earlier offerings. The Firm failed to take reasonable steps to ensure that it timely learned of the missed payments on the earlier notes offerings and disclosed them to prospective investors in the notes. Due to the firmís lack of due diligence, DeRosa sold notes issued to customers, and in connection with those sales, the firm and DeRosa mischaracterized and/or negligently omitted certain material facts provided to investors. DeRosa sold $833,000 of the notes to customers and generated approximately $37,485 in gross commissions from the sales of the notes. Through DeRosa and another registered representative, the Firm solicited customers to invest in another companyís stock but failed to conduct adequate due diligence.
The owner of an investment banking firm represented that the customersí funds would be wired to a client trust account at a bank and then forwarded to an escrow account, which a third party would control, before being invested; the firm did not take any steps to verify this claim before wiring the customer funds to the account. No one at the firm verified the existence of the client trust and escrow accounts, and, after the funds were wired, no one requested or received a bank account statement to verify the receipt and location of the funds; the firm failed to question why the wire instructions failed to reference the client trust account in the bank account title section on the form, but instead referenced the investment banking firm. Instead of directing the customersí money into the escrow account, the owner of the investment banking firm kept the funds in bank accounts he controlled and used the funds for his own benefit.
In addition, in connection with his sales of the companyís stock, DeRosa disseminated to prospective investors a presentation he had received from the owner of the investment banking company, which summarized the offering. Moreover, the presentation constituted sales literature but did not comply with the content standards applicable to communications with the public and sales literature. Furthermore, the presentation failed to provide a fair and balanced treatment of risks and potential benefits, contained unwarranted or exaggerated claims, contained predictions of performance and failed to prominently disclose the firmís name, failed to reflect any relationship between the firm and the non-FINRA member entities involved in the offering, and failed to reflect which product or services the firm was offering.
Garden State Securities, Inc.: Censured; Ordered to pay jointly and severally with DeRosa, $300,000 in restitution to investors. FINRA did not impose a fine against the firm after it considered, among other things, the firmís revenues and financial resources
Kevin John DeRosa (Principal): Fined $25,000; Ordered to pay jointly and severally with Garden State $300,000 in restitution to investors; Suspendedfrom association with any FINRA member in any capacity for 20 business days, and Suspended from association with any FINRA member in any Principal capacity only for 2 months.
The Firm made material changes in its business operations without first filing an application and obtaining FINRA approval.
The Firm increased the number of its registered representatives, an increase of 80 percent over the number of representatives provided for in its membership agreement, and increased the number of its registered and non-registered branch offices, an increase of 113 percent over the number of branch offices provided for in the membership agreement.
Poland allowed a representative of a non-FINRA member insurance company to improperly assist him in completing a state insurance LTC CE exam.
The representative sat with Poland for half of the time it took him to complete the exam, and the two discussed the topics covered on the exam, and as a result, Poland received assistance on some of the answers on the exam. After completing the exam, Poland completed an exam certification form/declaration of compliance, and despite having received assistance on the exam, he signed the form and inaccurately certified that he completed the exam without assistance from any outside source.
John Stultz Poland : Fined $5,000; Suspended 1 month
Vinas converted approximately $3.3 million from customers, mostly Mexico-based, while he was associated with member firms and served as the registered representative responsible for these customersí brokerage accounts.
Vinas asked customers to sign blank documents, including firm documents that were printed in English when none of the customers spoke or read English, but they complied with Vinasí request.
A variable credit line account was opened at Vinasí firm in the customersí name, and Vinas submitted or caused to be submitted applications requesting increases in the credit line that the firm approved, but the customers had not authorized the opening of the credit account or the subsequent credit increases, nor were they aware of the existence of the credit account. Vinas forged, or caused to be forged, customer signatures on Letters of Authorization (LOAs) and had a customer sign blank LOAs, which he submitted to his firm purportedly authorizing the transfer of customer funds without these customersí authorization or knowledge. Vinas submitted, or caused to be submitted, to another member firm fraudulent verbal LOAs without the customersí authorization or knowledge, which allowed him to wire funds from the customersí accounts. In addition, Vinas presented false account documents to the customers, which reflected fictitious account balances although he had closed the account after taking the last remaining funds from the account.
Vinas failed to respond to FINRA requests to appear and provide testimony.
Campbell failed to enforce his member firmís heightened supervisory procedures with respect to one of its representatives.
According to those procedures, Campbell was responsible for determining the scope of the heightened supervision and ensuring that the representativeís supervisor was enforcing the heightened supervision plan. The firm required that the plan be individualized based on the representativeís disciplinary history. Campbell placed a representative on heightened supervision because of his disciplinary history, and the plan Campbell prepared was deficient because it was not tailored to that representativeís history of engaging in private securities transactions and did not provide for any material additional supervision beyond the usual steps that were taken to oversee other firm representatives. Campbell failed to ensure that the plan was implemented and, as a result,the following actions that were required pursuant to the plan were not undertaken:
a log was not created of the representativeís trades,
certifications were not made to the compliance department that the heightened supervision plan was implemented, and
and an annual review of the plan did not take place.
Kenneth Richard Campbell III (Principal): Fined $5,000; Suspended 1 month in Principal capacity only.
Mehlman facilitated securities investments away from his member firm and received compensation as a result of the sales.
Workikng with others through an entity, Mehlman distributed secured investment notes in a company to insurance agents who in turn marketed the notes, which were securities. The entity sold approximately $60 million in the notes and generated more than $6 million in gross commission revenues from which Mehlman received approximately $430,000 from the sales. The investments were not made through Mehlmanís firm and Mehlman did not provide written notice to, or obtain approval from, his firm prior to facilitating the investments.
Clark was her firmís Chief Financial Officer and co-Chief Operating Officer with authority to write checks from its checking accounts, including checks for her own compensation, and she misappropriated $8,333.33 from her member firm. Clark was entitled to a payroll check in the amount of $8,333.33 and issued a check to herself for that amount and, without the firmís permission, issued herself another $8,333.33 check. Both payroll checks were deposited in Clarkís personal banking account.
Cyrus failed to supervise representatives at her member firm who made unsuitable recommendations to customers at their firm.
Cyrus was responsible for supervising the representatives but failed to take appropriate action to supervise the representatives that was reasonably designed to prevent their violations and achieve compliance with applicable rules. Cyrus failed to adequately review and follow up on the over-concentration of the customersí liquid assets in preferred stocks and the risks associated with those securities.
Lauren Tricia Cyrus (Principal): Fined $5,000; Suspended 1 month in Principal capacity only
Huynh forged her supervisorís signature on one of his personal banking account checks, made the check payable to herself in the amount of $9,000, cashed the check without her supervisorís knowledge or authority, and deposited the funds into her relativeís checking account, thereby misappropriating her supervisorís funds and converting the funds for her personal benefit and use. The Huynh attempted to conceal her wrongdoing by writing ďcompensation/bonus quarter 1 and quarter 2Ē on the checkís ďre:Ē line. The supervisorís bank reimbursed him for the fraudulent transaction.
Leon recommended that a couple invest $167,000 in a private securities transaction without providing notice of his proposed role in the transaction to his member firms.
Leon formed a company through which he sought to operate an independent branch of a broker-dealer and did not have reasonable grounds to believe that the recommended investment in the company was suitable for the couple in light of their investment objectives, financial situation and needs; the recommended investment was too risky for the customers, who were a retired couple of limited means. The recommendation led to most of their investable assets being overconcentrated in the security.
Prior to its dissolution, the company made interest and principal payments totaling approximately $26,000 to the couple, who lost approximately $141,000 on their investment in the company.
Leon failed to respond completely to FINRA requests for information and documents.
Cruz participated in an outside business activity without providing her member firm with prior written notice.
An individual offered Cruz $3,000 in exchange for referring firm clients and others with available credit on their personal credit cards who would invest in his newly created business. The individual failed to pay those who invested in his business as promised. Cruz misrepresented to her firm her involvement in the outside business activity on a compliance her firm review conducted. Upon admitting her involvement in the outside business activity to her firm, the firm immediately suspended Cruz, conducted an internal investigation and later terminated Cruz.
Maritza Del Carmen Cruz : Fined $5,000; Suspended 3 months
Iskric misused his member firmís funds by using the firmís corporate credit card for personal purposes, including purchases of gift cards from various retailers. The amount of unauthorized charges was in excess of $10,000.
While registered with a different member firm, Iskric failed to timely update his Form U4 with material information.
Adams borrowed $85,000 from a customer of his member firm contrary to the firmís compliance manual, which generally prohibited representatives from borrowing money from a customer other than an immediate family member, which the customer was not.
Michael Wilson Adams (Principal): Fined $5,000; Suspended 3 months in all capacities; Ordered to pay $85,000 plus interest in restitution to customer
National Securities failed to have reasonable grounds to believe that certain private placements offered pursuant to Regulation D were suitable for customers. Acting through Portes, as the firmís Director of Alternative Investments/Director of Syndications, National failed to adequately enforce its supervisory procedures to conduct adequate due diligence as it relates to an offering. Portes and the firm became aware of multiple red flags regarding an offering, including liquidity concerns, missed interest payments and defaults, that should have put them on notice of possible problems, but the firm continued to sell the offering to customers. Acting through Portes, the Firm failed to enforce its supervisory procedures to conduct adequate due diligence relating to other offerings.
Portes reviewed the PPMs for these offerings and diligence reports others prepared, but the review was cursory.The due diligence reports noted significant risks and specifically provided that its conclusions were conditioned upon recommendations regarding guidelines, changes in the PPMs and heightened financial disclosure of affiliated party advances, but the firm did not investigate, follow up on or discuss any of these potential conflicts or risks with either the issuer or any third party. In addition, acting through Portes, the Firm failed to enforce reasonable supervisory procedures to detect or address potential ďred flagsĒ as related to these offerings; and the firm, acting through Portes, failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations.
National Securities Corporation: Censured; Odered to pay a total of $175,000 in restitution to investors.
Matthew G. Portes (Principal): Fned $10,000; Suspended from association with any FINRA member in any principal capacity only for 6 months.
Palumbo activated ATM cards, linked them to bank customer accounts and affected unauthorized ATM withdrawals from the customersí accounts, which totaled approximately $36,895.
Palumbo did not have permission or authority from the customers or the bank to link the ATM cards to the customersí accounts or withdraw funds from the accounts. Palumbo effected a $1,000 direct cash withdrawal from another customerís account without permission or authority from the customer or bank. These transactions did not involve funds from an account held at a FINRA-regulated entity.
Kennedy continued recommending and effecting put options trading in a customerís account even though he knew that the trading was unsuitable because the customer was unemployed and the risk was inconsistent with the customerís financial resources, investment objectives and risk tolerance.
Kennedy recommended that an elderly couple invest $50,000 in a put options trading strategy with approximately $57,000 to be invested in mutual funds and bonds with none of the mutual funds to be used for put options trading. The customersí account, which had approximately $267,298.55, suffered realized and unrealized losses of $195,046.40 due to Kennedyís put option trading strategy and the liquidation of mutual funds to cover losses from the put options trading and to meet margin requirements of securities that were purchased in the customersí account due to the put options trading.
Patrick Shawn Kennedy (Supervisor): Fined $5,000; Suspended 9 months
Simha borrowed approximately $51,000 from customers at his member firm in order to complete renovations on his house.
The loans were not reduced to writing and had no repayment terms; the customers had been Simhaís friends for many years, and one was his relative. The firm had a policy prohibiting representatives from borrowing money from customers; one of the loans was repaid before Simha disclosed it to the firm and the other loans have since been forgiven by the customers.
Simha sent an email to a former customer requesting a share of the profits that were made in the customerís account while the account was with the firm. In that email, Simha represented that FINRA was auditing the customerís account, but this was not correct; the client never sent Simha the share of the profits he requested.
Prakash Devendranath Simha : Fined $7,500; Suspended 30 business days
Prestige, acting through Kirshbaum and at least one other firm principal, were involved in a fraudulent trading scheme through which the then-Chief Compliance Officer (CCO) and head trader for the firm concealed improper markups and denied customers best execution.
As part of this scheme, the CCO falsified order tickets and created inaccurate trade confirmations, and the hidden profits were captured in a firm account Kirshbaum and another firm principal controlled; some of the profits were then shared with the CCO and another individual.
The trading scheme took advantage of customers placing large orders to buy or sell equities. Rather than effecting the trades in the customersí accounts, the CCO placed the order in a firm proprietary account where he would increase or decrease the price per share for the securities purchased or sold before allocating the shares or proceeds to the customersí accounts; this improper price change was not disclosed to, or authorized by, the customers, and this fraudulent trading scheme generated approximately $1.3 million in profits for the firmís proprietary accounts. Kirshbaum was aware of and permitted the trading. In an account that Kirshbaum and another firm principal controlled. 47 percent of the profits from the scheme were retained. In furtherance of the fraudulent trading scheme, the CCO entered false information on the corresponding order tickets regarding the share price and the time the customer order ticket was received, entered and executed; the corresponding trade confirmations inaccurately reflected the price, markup and/or commission charged and the order capacity.
In addition, acting through Kirshbaum, Prestige entered into an agreement to sell the personal, confidential and non-public information of thousands of customers to an unaffiliated member firm in exchange for transaction-based compensation from any future trading activity in those accounts. In connection with that agreement, Kirshbaum provided the unaffiliated member firm with the name, account number, value and holdings on spreadsheets via electronic mail. Furthermore, Kirshbaum granted certain representatives of that firm live access to the firmís computer systems, including access to systems provided by the firmís clearing firm, which provided access to other non-public confidential customer information such as Social Security numbers, dates of birth and home addresses. Prestige and Kirshbaum did not provide any of the customers with the required notice or opportunity to opt out of such disclosure before the firm disclosed the information, as Securities and Exchange Commission (SEC) Regulation S-P requires.
Acting through Kirshbaum, Prestige failed to establish and maintain a supervisory system, and establish, maintain and enforce written supervisory procedures to supervise each registered personís activities that are reasonably designed to achieve compliance with the applicable rules and regulations regarding interpositioning, front-running, supervisory branch office inspections, supervisory controls, annual compliance meeting, maintenance and periodic review of electronic communications, NASD Rule 3012 annual report to senior management, review and retention of electronic and other correspondence, SEC Regulation S-P, anti-money laundering (AML), Uniform Application for Securities Industry Registration or Transfer (Form U4) and Uniform Termination Notice for Securities Industry Registration (Form U5) amendments, and NASD Rule 3070 reporting. FINRA found that the firm failed to enforce its procedures requiring review of its registered representativesí written and electronic correspondence relating to the firmís securities business. In addition, the firm failed to establish, maintain and enforce a system of supervisory control policies and procedures that tested and verified that its supervisory procedures were reasonably designed with respect to the activities of the firm and its registered representatives and associated persons to achieve compliance with applicable securities laws and regulations, and created additional or amended supervisory procedures where testing and verification identified such a need. Moreover, the firm failed to enforce the written supervisory control policies and procedures it has with respect to review and supervision of the customer account activity conducted by the firmís branch office managers, review and monitoring of customer changes of address and the validation of such changes, and review and monitoring of customer changes of investment objectives and the validation of such changes. Furthermore, firm failed to establish written supervisory control policies and procedures reasonably designed to provide heightened supervision over the activities of each producing manager responsible for generating 20 percent or more of the revenue of the business units supervised by that producing managerís supervisor; as a result, the firm did not determine whether it had any such producing managers and, to the extent that it did, subject those managers to heightened supervision.
Acting through one of its designated principals, Prestige falsely certified that it had the requisite processes in place and that those processes were evidenced in a report review by its Chief Executive Officer (CEO), CCO and other officers,and the firm failed to file an annual certification one year. The findings also included that the firm failed to implement a reasonably designed AML compliance program (AMLCP). Although the firm had developed an AMLCP, it failed to implement policies and procedures to detect and cause the reporting of suspicious activity and transactions; implement policies, procedures and internal controls reasonably designed to obtain and verify necessary customer information through its Customer Identification Program (CIP); and provide relevant training for firm employeesóthe firm failed to conduct independent tests of its AMLCP for several years. Acting through Kirshbaum and another firm principal, the firm failed to implement policies and procedures reasonably designed to ensure compliance with the Bank Secrecy Act by failing to enforce its procedures requiring the firm to review all Section 314(a) requests it received from the U.S. Department of the Treasuryís Financial Crimes Enforcement Network (FinCEN); as a result, the firm failed to review such requests. In addition, Kirshbaum and another principal were responsible for accessing the system to review the FinCEN messages but failed to do so. Moreover, FINRA found that the firm permitted certain registered representatives to use personal email accounts for business-related communications, but failed to retain those messages.
Furthermore, the firm failed to maintain and preserve all of its business-related electronic communications as required by Rule 17a-4 of the Securities Exchange Act of 1934, and failed to maintain copies of all of its registered representativesí written business communications. The firm failed to file summary and statistical information for customer complaints by the 15th day of the month following the calendar quarter in which the firm received them. The findings also included that the customer complaints were not disclosed, or not timely disclosed, on the subject registered representativeís Form U4 or U5, as applicable.The Firm failed to provide some of the information FINRA requested concerning trading and other matters.
Kirkpatrick sold millions of unregistered shares of stock for accounts opened at his member firm on his customersí behalf, realizing approximately $9.3 million in proceeds for the customers without taking the necessary steps to determine whether his customersí unregistered shares could be sold in compliance with Section 5 of the Securities Act of 1933.
Kirkpatrick signed new account forms for the customers, did not review them in depth, neither met nor spoke with the customers, and communicated with them solely via email and instant message. Kirkpatrick failed to conduct the necessary due diligence prior to the entityís stock sales from the customersí accounts; the circumstances surrounding the entityís stock and the firmís customers presented numerous red flags of a possible unlawful stock distribution.
The sales through one of the customersí accounts at Kirkpatrickís firm realized approximately $5.8 million in proceeds for the customer, and another customer realized approximately $3.5 million in proceeds; the total commissions generated for these sales were $481,398 of which Kirkpatrick received commissions totaling $91,466.
Kirkpatrick admitted that he did not determine if a registration statement was in effect with respect to the customersí entity shares, or if there was an applicable exception; instead he relied on the issuerís transfer agent to determine if the entity stock the customers deposited could be sold.
Kirkpatrick did not review the customersí incoming stock questionnaires, nor did he request or review the stock certificates, which indicated information about how and from whom the shares were purchased, whether the customer was affiliated with the issuer and whether the stock was restricted. In addition, Kirkpatrick noticed that the accounts seemed to have the same trading pattern, yet he failed to investigate and failed to make any effort to determine the source of the customersí shares.
Ryan Jeffrey Kirkpatrick: Fined $25,000; Suspended 6 months; Ordered to disgorge $91,466, which represents the commissions earned on the sales of unregistered securities
Demeo converted funds from a customerís account by withdrawing $9,417.11 from the customerís bank account without the customerís knowledge or authorization, deposited the funds into a bank account for his company and used them for his personal benefit. Demeo failed to appear for FINRA on-therecord testimony.
Page converted a total of $1,207,440.61 from retail customer brokerage accounts by arranging for transfers of funds from the customersí accounts, by way of one check and automated clearing house (ACH) debits, for payment of a corporate credit card account held in her name, without the customersí authorization.
Page provided false information to a Certified Public Accountant (CPA) who was acting on one of her customerís behalf with respect to some of the ACH debits made from that customerís brokerage account totaling $286,330.72, each debit having been made payable to Pageís corporate credit card account.
Page told the CPA that the debits were made to fund an outside real estate investment in which she had placed a portion of the customerís investment portfolio. Page fabricated an account statement purportedly demonstrating that the customer had an ownership interest in a particular REIT when no such ownership existed, and faxed the fabricated statement to the CPA. When the CPA sought further information about any dividends arising from the REIT investment, Page falsely explained to the CPA that while dividends were expected, they would not be forthcoming until the following tax year.
By deliberately deceiving one of her customerís appointed representatives in such a fashion, Page, in the conduct of her securities business, failed to observe high standards of commercial honor and just and equitable principles of trade.
Acting through Searle, the Firm shared approximately $326,000 worth of profits in the account of a customer of another FINRA member firm. Neither the firm nor Searle contributed financially to the customerís account; and, therefore, neither could share in the profits in direct proportion to their financial contributions to the account.
The Firm failed to establish, maintain, and enforce adequate WSPs related to sharing in profits and losses in FINRA member firmsí customer accounts.
Donahue requested, received and improperly distributed the answer key for a state LTC CE examination to a financial advisor outside his member firm.
Certain states began requiring financial advisors to successfully complete an LTC CE examination before selling long-term care products to retail customers. The firm authorized its wholesalers to give financial advisors vouchers from a company, which the financial advisors could use to take the LTC CE examinations without charge. Donahue was an internal wholesaler at a firm who supported the selling efforts of external wholesalers who marketed an insurance product to financial advisors at financial service firms. Firm employees, other than Donahue, created answer keys for the companyís LTC CE examinations for various states, and distributed them to other firm employees.
Shaun Michael Donahue : Fiend $5,000; Suspended 1 month
Nicklas misappropriated $4,329.52 from his member firm. Nicklas wrote firm checks payable to himself, forged signatures on the checks and then deposited the checks into his personal trading account. Nicklas withdrew firm funds, without authorization, from automatic teller machines (ATMs)
Kinser converted approximately $330,000 in customerís funds. Kinser called the mutual fund company through which he had invested customerís funds to change the address on the account from the customerís residential address to Kinserís office address. At Kinserís request, the mutual fund company sent redemption checks drawn on the customerís account to Kinser without the customerís knowledge, consent or authorization, and Kinser forged the customerís signature on the checks, endorsed them to make them payable to him and deposited the funds in his own account. In order to conceal the conversions, Kinser fabricated account summaries and documents, including charts and statements purporting to reflect the customerís account balance, which he presented to the customer in periodic meetings, misleading the customer into believing all of his money was still invested in mutual funds and was still earning interest. Kinser failed to respond to FINRA requests for information and documents.
Foster recommended to customers that they purchase UITs without having reasonable grounds to believe the recommendations were suitable based on the customersí risk tolerance, investment experience, need for income, net worth, investable assets and annual income. Fosterís member firm paid the customers a total of $23,199.25 in restitution and compensated customers $124 for a missed breakpoint.
Timothy Martin Foster : Fined $10,000; Suspended 20 business days
Newman converted $10,166.34 by using her member firmís corporate credit cards to pay for a personal vacation and misappropriating her firmís credit card rewards points for her personal use.
Newman did not have the firmís permission or consent or the authority to charge her personal vacation to her firm issued credit cards or appropriate reward points for her own use.Newman did not inform anyone at her firm or memorialize or otherwise create a record of these charges. She reimbursed the firm for the charges but not for the credit card rewards points. Newman intentionally created fictitious and false entries in the firmís books to cover up her conversion of firm funds for her personal benefit.
UBS failed to update the company codes in the client-based database after the individual responsible for that task left the firm.
The emails indicating that the company codes had been added were not sent to the firmís Client Management Team (CMT) by another group at the firm, the Core Client Data Services Group (CCDS).
UBS employed Client Data Strategist (CDS), a senior officer in CMT. The CDS was in charge of producing a business object report that combined the research and revenue information for each client to create required non-investment banking disclosures in equity research reports. Unfortunately, the CDS continued to produce the business object report without confirming that the company codes were updated -- because the CDS continued to produce the reports, a file was created and uploaded in the firmís central disclosure database, even though it contained incomplete information.
Since the reports were completed, email alerts were not triggered at the end of the process, and as a result of the failures during the update process, equity research reports the firm published failed to include one or more required non-investment banking disclosures (non-investment banking compensation, non-investment banking securitiesrelated services and non-securities services). As a result of certain information contained in the firmís central disclosure database not being updated due to the update process failure, research analysts creating and sending information about the impacted subject companies to media outlets in connection with public appearances failed to disclose the firmís non-investment banking related compensation and the types of services (non-investment banking securities-related services and non-securities services) it provided during the prior 12 months.
Moreover, the firm failed to adequately implement its supervisory procedures concerning compliance with NASD Rule 2711(h), and the firm failed to conduct follow-up and review to ensure that its employees were performing their assigned responsibilities of collecting and updating data to generate accurate disclosures, and to have a verification process to confirm that each group was performing its task to ensure the flow of updated information at each stage had accurate disclosures. The firm failed to adequately implement its written procedures that provided for step-by-step guidance for updating the required disclosures in the relevant databases in order to reasonably ensure that they were disclosed in the research reports and in public appearances.
Stern charged personal expenses on her corporate credit card totaling approximately $5,200. Stern made approximately $2,700 in payments to the bank affiliate of her member firm for the personal expense which she charged on her corporate credit card.
The bank notified Stern on several occasions about a number of aged items that were charged on the card for which no employee expense reports were submitted by Stern. Subsequently, the bank notified Stern that her card was two payments past due and it was being suspended.
Stern then admitted that she had made the personal purchases on her corporate credit card. Stern also made a $500 payment to the bank and thus reduced the outstanding amount owed due to her personal use of the corporate card to $1,984.
Sternís employment at her firm and the bank were terminated for improper use of the corporate credit card.
Chakrabortti failed to ensure proper disclosure of his personal financial interests in the securities of companies that were subjects of his research reports and public appearances, although FINRA conceded that he informed his firm of his ownership interest in each security, gave advance notice of all transactions in these securities to the firmís compliance department and provided the firm with a record of the transactions.
Certain of the research reports Chakrabortti co-authored included information reasonably sufficient upon which to base an investment decision in the companies in which he held shares, among other securities, but the reports did not disclose his personal financial position in some of the companies.
Chakrabortti made public appearances at which he mentioned one or more equity securities of individual companies but did not disclose his personal financial position in the securities in some of the companies. Because Chakraborttiís disclosure of his personal financial holdings was incomplete in certain research reports and public appearances, these communications violated NASD Rule 2210(d)(1)(A), which requires sales material, including research reports, to provide a sound basis for evaluating the facts relating to the securities covered in the reports. Moreover, after disclosing all of his personal financial holding to his firm, Chakrabortti did not ensure that these holdings were subsequently disclosed in certain research reports, which caused his firm to publish incomplete research reports.
Also, Chakrabortti did not inform his firm of certain of his public appearances in a timely manner, and did not obtain the firmís approval to discuss certain issuers during his public appearances, and these omissions caused the firm to have incomplete records of his public appearances.
Abhijit Chakrabortti : Fined $15,000; Suspended 14 days; Required to re-qualify as a research analyst by such examination as required by FINRA, prior to participating in any capacity in any research reports and/or public appearances involving any FINRA member.
Ameriprise failed to establish, maintain and enforce a supervisory system reasonably designed to detect and prevent one of its brokerís misconduct. The broker who was registered with the firm forged customersí signatures on various financial documents that he submitted to the firm for processing. The broker agreed to pay certain fees for customers without alerting the firm in order to avoid complaints from these customers. The broker agreed to a Bar.
An Ameriprise surveillance analyst became aware of potential forgeries by the broker and failed to follow up with a timely investigation, and the firmís supervisory system did not ensure that a timely investigation was conducted.
The firm had implemented a new set of procedures for its surveillance department through which the firm discovered that the investigation of the broker had not been completed, and the firm promptly reassigned the matter to other surveillance personnel. The firm completed its investigation of the broker nearly two and a half years after it first opened the investigation and found ample evidence of repeated forgeries by the broker, whose employment was then terminated.
Ameriprise Financial Services, Inc. : Censured; Fined $50,000
The Firm permitted individuals who were registered as general securities representatives (GSRs), and another individual who was registered as a GSR and a research analyst, to function as principals without being registered as general securities principals (GSPs). Each of the individuals was actively engaged in the management of the firmís investment banking and/or securities business by, among other things, supervising persons associated with the firm. The firm did not establish and maintain a supervisory system reasonably designed to achieve compliance with the rules and regulations applicable to the registration of principals. The firm failed to adequately ensure that individuals had the requisite registrations to supervise employees and business areas to which they were assigned. Specifically, the firm failed to promptly identify all persons who needed principal registrations, and after identifying individuals who should become registered as principals, the firm permitted them to delay taking the required examinations, which, in turn, contributed to the registration violations.
Brean Murray Carret & Co., LLC : Censured; Fined $40,000; Required to review its supervisory system and procedures concerning compliance with applicable laws, regulations and rules regarding principal registration, and to determine whether individuals previously identified as requiring principal registration have become so registered. No later than 60 days after issuance of the AWC, the firm shall prepare a writtenreport detailing its review, findings and recommendations, and submit a copy of that report to FINRA. A firm officer must certify to FINRA in writing that it has completed its review and has established systems and procedures regarding principal registration.
The Firm failed to adopt and implement WSPs reasonably designed to supervise its research analysts and ensure that its research reports complied with NASD Rule 2711. Although the firm maintained some relevant WSPs, those procedures did not provide any real guidance to its employees about the specific steps they needed to take to achieve compliance with Rule 2711. The WSPs required that all public appearances by firm analysts be approved by the research director, that the appropriate disclosures be made to the media outlet, that a record documenting the disclosures provided to the media be maintained, and that the firmís marketing department receive a copy of such disclosure. The WSPs made the research analyst responsible for meeting these obligations but provided little or no guidance on how these tasks could be successfully carried out or supervised.
The WSPs contained provisions broadly describing what portions of draft research reports could and could not be provided to covered companies, but failed to provide specific guidance to firm employees regarding the manner in which these requirements were to be fulfilled.
The WSPs permitted the research department to send sections of a research report to a subject company before publication to verify the accuracy of information in those sections, provided that a complete draft of the research report was first provided to the compliance department.
The Firm sent research report excerpts to a subject company before its compliance department had received a complete draft of the report, and in one of those instances, the complete draft was not sent to the compliance department. Moreover, in connection with public appearances by its research analysts, the firm failed to retain records that were sufficient to demonstrate compliance by those analysts with the disclosure requirements of NASD Rule 2711(h).
Canaccord Genuity, Inc. fka Canaccord Adams, Inc. : Censured; Fined $22,500; Required to review its supervisory system and procedures concerning research reports and the supervision of research analysts for compliance with FINRA rules and federal securities laws and regulations, and to certify in writing within 90 days that the firm completed its review and that it currently has in place systems and procedures reasonably designed to achieve compliance with those rules, laws and regulations
Cooper forged a LOA for a customer by copying the customerís signature from another document and pasting it on the LOA. Cooper used the forged LOA to authorize the transfer of assets from the customerís account into another customerís account, which was a trust account Cooperís relativesí controlled. Based on the forged LOA, Cooperís member firm transferred securities valued at $19,632.35 from the customerís account into the other account without the customerís knowledge or authorization.
Hicks used the debit card belonging to a customer of her member firmís bank affiliate, in transactions for personal expenses without the customerís knowledge, authorization or consent, and converted at least $1,100.43.
Sheedy engaged in private securities transactions without providing written notice to, or obtaining written approval from, his member firm.
Sheedy facilitated two firm customersí investments in securities issued by an entity in the form of investment agreements.Sccording to the investment agreements the entity issued, the company invested in and brokered life settlement contracts. Sheedy participated in the customersí investments by reviewing the customersí investment agreements, providing the customers with wiring instructions for the issuer, providing status updates to the customers regarding their investments and telling the customers to call him if they had any questions about their investments.
Sheedy utilized an unapproved personal email account to communicate with the customers.
The customers invested a total of $350,000, and pursuant to the terms of the customersí investment agreements, the customers were to receive return of their principals plus a total of $42,000 within five days of the end of their investment period for which certain life settlement contracts were invested. Neither of the customers received the return of their investment principal or the promised investment returns. All of their funds were lost all of their funds were lost.
Daniel Scott Sheedy: Fined $25,000; Suspended 2 years
Contrary to his member firmís prohibition on accepting loans from customers, Kepes borrowed $50,000 from a customer in the form of a loan, not documented and not backed by collateral, was a ďbridge loanĒ pending payment of the firmís annual retention bonus, to assist Kepes with a number of immediate expenses.
Kepes held the loan for six months and 20 days, repaying $53,000 to the customer. Kepes encouraged the same customer to loan $30,000 to a realtor to assist in ďflippingĒ (buying, repairing and then selling) a house. The customer advanced the funds as a favor to Kepes, without documentation or collateral, but the realtor never repaid the loan. Kepesí firm paid the customer $30,000 to compensate her for the money the realtor failed to repay.
Kepes accepted a $1,000 check as a gift from the customer although firm policy prohibited accepting gifts in excess of $100.
Moreover, contrary to firm policy and without informing his firm, Kepes entered into an Advisory Board Agreement to serve as an independent contractor for a privately held business and was compensated by stock options with some of the shares being exercisable on the date the agreement was signed, in recognition of services already provided prior to signing the agreement. Furthermore, Kepesí supervisor directly informed him that he could not join the company advisory board or engage in other activities called for by the agreement when compensated by stock options; nevertheless, Kepes signed the agreement and engaged in various activities called for by the agreement. Subsequently, Kepes requested approval to participate on the Advisory Board without informing his firm that, prior to his request, he signed the agreement and began service as an independent contractor to the company. After the request was denied, Kepes continued his service to the company as an independent contractor without informing his firm until the firm terminated him.
David Alan Kepes : Fined $20,000; Suspended 7 months
In his capacity as the vice president of compliance, McKee failed to supervise certain aspects of his member firmís securities business.
Acting on his firmís behalf, McKee failed to
establish and maintain a supervisory system or written supervisory procedures reasonably designed to detect and prevent the firm from charging excessive commissions on mutual fund liquidation transactions;
adequately supervise the firmís communications with the public;
adequately supervise the firmís compliance with NASD Rule 3070 and Uniform Termination Notice for Securities Industry Registration (Form U5) reporting provisions and customer complaint recordkeeping requirements; and
comply with NASD Rules 3012 and 3013, in that the Rule 3012 and 3013 reports that he prepared on his firmís behalf were inadequate.
Thee firmís 3012 report for one year was inadequate because it failed to provide a rationale for the areas that would be tested, failed to detail the manner and method for testing and verifying that the firmís system of supervisory policies and procedures were designed to achieve compliance with applicable rules and laws, and did not provide a summary of the test results and gaps found. The 3012 report also failed to detect repeat violations including, the failure to conduct annual Office of Supervisory Jurisdiction (OSJ) branch office inspections, advertising violations, customer complaint reporting and ensuring that all covered persons participated in the Firm Element of Continuing Education.
The firm's 3013 report for one year did not document the processes for establishing, maintaining, reviewing, testing and modifying compliance policies to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws, and the manner and frequency with which the processes are administered. In addition, the firm failed to enforce its 3013 procedures regarding notification from customers regarding address changes.
David Elijah McKee (Principal): Fined $15,000; Suspended 30 business days in Principal/Supervisory capacities only
Cronister participated in the sales of a total of $266,302.51 in Universal Lease Programs (ULPs) to public customers and failed to provide his member firms with prior written notice and failed to obtain the firmsí prior written approval; Cronister received approximately $33,080 total in commissions.
Cronister engaged in outside business activities and accepted a total of $64,491.64 in checks from a ULP issuer made payable to a corporation he wholly owned; the checks were for sales of ULPs made by independent agents of his corporation. Cronister failed to provide prompt written notice of his outside business activities to his member firms. Cronister participated in a face-to-face interview with a compliance officer at one of his firms, acknowledged that all forms of outside business activities must be disclosed on an outside business activity form and must receive the firmís written approval prior to engaging in any outside business activity but never provided oral or written notification that he was engaged in outside business activity and receiving overrides on the sale of ULPs by other individuals.
Dean Irwin Cronister (Principal): Fined $43,000 (includes disgorgement of commissions); Suspended 6 months
Von Lumm borrowed $5,000 from one of his customers and executed a promissory note stating that the loan was to be paid in full by a certain date, with $1,000 interest. Von Lumm repaid approximately $2,100 to the customer but did not disclose the loan to his member firm, which prohibited its representatives from borrowing from customers.
The same customer gave Von Lumm $500 towards the purchase of auto and homeowners insurance, but Von Lumm failed to procure any insurance policies for the customer and did not immediately return the funds to the customer. Pursuant to the customerís request, Von Lumm wrote a note to the customer promising to return the $500 and has since returned the funds to the customer.
Von Lumm provided an incomplete response to FINRA requests for information and failed to appear for testimony.
Lichtenstein intentionally provided false testimony during a FINRA on-the-record interview regarding his knowledge of, and participation in, private securities transactions involving solicitation and sale of private placements within the branch for which he was employed as the branch manager.
Lichtenstein participated in the sale of private securities in the total amount of $234,303.68 to customers without his member firmís prior written approval.
Lichtenstein failed to reasonably supervise a branch office for which he acted as a branch manager. In response to a request to sell private placements at the branch, which Lichtensteinís firm had specifically denied, stating that no one at the branch had approval to sell any private placements and Lichtenstein was aware of this prohibition, he learned of other private placements being sold by a branch registered representative and failed to inform the firmís compliance department of the sales.
Because Lichtenstein was responsible for the review of electronic mail at the branch, he knew, or should have known through email review, of red flags indicating the sale of additional private placements but did not conduct additional investigation and did not inform the firmís compliance department of the red flags.
Anton effected fictitious trades in securitized Small Business Administration (SBA) loans, totaling $82,652,497, in order to reduce his member firmís SBA deskís inventory levels.
Anton effected the fictitious trades to purported institutional buy-side customers and by doing so, Anton could gradually sell the SBA securities and eventually comply with the firmís prescribed inventory level. The fictitious trades created the false impression that Anton had purportedly sold SBA securities to certain of the firmís institutional customers and that the firmís SBA desk had decreased overall inventory levels by a total of $75 million. Anton purportedly sold each of the fictitious SBA securities to other broker-dealers instead of institutional customers; and by entering the fictitious sales of the SBA securities at a price above the mark-to-market price, Anton created the false impression that he had avoided selling the SBA securities at a loss.
Anton manipulated forward the settlement dates for the trades to afford him additional time to try to sell the SBA securities. In 30- day forward settlement intervals, Anton cancelled and corrected trades in the same pool of SBA securities at the same transaction quantity, which triggered the creation of a ďcancel & correctĒ ticket. In addition, a firm employee discovered a discrepancy in the SBA securitiesí reporting position and reported the observation to the firmís management, which investigated and noted the repeated pattern of cancellation and corrections relating to the SBA security trades in 30-day intervals.
Although Anton neither colluded with any other firm employees to enter the fictitious trades nor did he personally benefit from the fictitious trading, he misrepresented to certain non-supervisory firm staff that he had mistakenly effected the trades and that he would correct the errors. Furthermore,when Antonís managers confronted him, he admitted that he effected false trades and manipulated the corresponding settlement dates.
Francis Paul Anton II : Fined $10,000; Suspended 6 months
Medina falsified an account application by copying a customerís signature from a document she had previously signed and then cut-and-pasted the signature on to the account application without her knowledge, authorization or consent. Medina presented the falsified application to his member firm without disclosing that the customer had not actually signed it, thus causing his firm to retain and preserve a false and/or inaccurate record.
The Firm failed to preserve all of its business-related electronic communications. The Firm attempted to preserve such communications by burning them to a non-rewriteable, non-erasable disc on a monthly basis, but the process was deficient because it did not result in all such communications being saved to the disc. The Firm did not identify this deficiency in its audit of its electronic communications preservation system.
In contravention of its written supervisory procedures, permitted registered representatives to use outside or non-firm-sponsored email accounts to send and receive securities business-related emails. The firmís preservation process did not capture these emails that were sent to or from those accounts; therefore, the firm did not retain and review them.
The firm relied exclusively on electronic storage media to preserve its business-related electronic communications but did not retain a third party who had the access or ability to download information from its electronic storage media.
Gunnette took more than $925,000 from investment accounts owned by an elderly customer at her member firm and converted the funds to her personal use. Gunnette caused her personal residence to be reflected as the address of record for certain investment accounts of the elderly customer, and established an account for the customer at another member firm, using her personal residence address as the accountís address of record. Gunnette received checks drawn on the customerís accounts totaling approximately $925,513.28 and deposited the checks into bank accounts she owned or controlled. Gunnette failed to observe high standard of commercial honor and just and equitable principles of trade. Gunnette caused her firmís and another firmís records to be falsified by changing the customerís address of record with her firm to her personal residence address, and by designating her address as the customerís address of record on the other firmís account she opened for the customer.
Lombardi improperly transferred confidential and proprietary information outside of his member firm for purposes other than the firmís business.
Lombardi sent to
a non-affiliated, third-party member firm internal compliance reports of his member firm that contained non-public personal information regarding customers;
his personal email address
internal documents of his firm that included non-public personal information of individuals derived from a request by Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury and the firmís internal summary regarding certain registration requirements; and
documents with another firm customerís non-public personal information.
In each of these instances, Lombardi acted without the firmís authorization and knowledge, and contrary to its written policies and procedures. By sending a report with confidential, non-public personal customer information to a non-affiliated third party, Lombardi caused his firm to violate SEC Regulation S-P.
By transferring information from a FinCEN list to his personal email account, Lombardi acted for purposes other than those provided for under FinCEN regulations, and thereby caused his firm to violate FinCENís regulations.
Lombardi knew of his firmís policies regarding the dissemination of confidential and/ or proprietary information, knew or should have known that SEC Regulation S-P prohibits financial institutions from disclosing non-public personal information about a customer to non-affiliated third parties unless certain notice is given to the customer and the customer has not elected to opt out of the proposed disclosure, and knew, or should have known, that information derived from a FinCEN request may not be used for any purpose other than in accordance with FinCEN regulations. In addition, Lombardi signed an affirmation and a certification that he had read and would comply with a Code of Business Conduct and Ethics applicable to firm employees and would comply with the firmís written policy governing confidentiality of information and use of office equipment. Moreover, Lombardi signed a registered representative agreement in which he agreed that confidential and proprietary information about the firm and/or about existing and prospective firm customers may not be disseminated without requisite permission, and agreed to safeguard confidential and proprietary information from disclosure.
Jeffrey Nicholas Lombardi (Principalo): Fined $5,000; Suspended 15 business days
Benson engaged in outside business activity, outside the scope of his employment with his member firm, when he facilitated the sale of his relativeís company to an individual without providing prompt written notice to his firm of the dealings and, as compensation for facilitating the acquisition, accepted a finderís fee in the form of 50,000 shares of stock in the newly formed corporation.
Benson provided the individual with $11,000 to be used to pay expenses of the newly formed corporation, and in exchange, Benson acquired 1.1 million shares of stock in the corporation. The shares of stock were securities, the transaction was conducted entirely apart from Bensonís employment with his firm, and Benson did not give his firm prior written notice of, and the firm did not give him prior written approval of, the transaction.
John Brady Benson Sr.: Fined $5,000; Suspended 45 days
Roberts sent unapproved emails from his personal email address to his member firmís customers and a potential investor that consisted of emails with attached documents containing misrepresentations and misleading statements that he created on his home computer that were written on his firmís letterhead.
Roberts misrepresented that his firm would approve the issuance of a line of credit of up to $10 billion to a firm customer and a potential investor if certain conditions were met. Roberts attached another document concerning the issuance of a multi-billion dollar line of credit to additional emails he sent to a firm customer.
Roberts did not provide copies of the documents for review and approval to his firm. By attaching documents that contained misrepresentations and misleading statements to emails sent to a firm customer and a potential investor, Roberts exposed his firm to significant potential liability. Roberts sent an unapproved email from his personal email to another firm customer and attached a letter on firm letterhead with wire transfer instructions in connection with certificates of deposit. In addition, Roberts forwarded the unapproved correspondence from his home computer, thereby bypassing the firmís surveillance systems and preventing the firmís review and approval.
Orendorff failed to respond to FINRA requests to appear for an on-the-record interview.
Further, Orendorff, in an attempt to correct errors made on a customerís signed asset transfer disclosure form that his firm had returned to him for correction and resubmission obtained the customerís signature on a blank asset transfer disclosure form, affixed the customerís signature from the blank form to revised forms and submitted the forms to his member firm instead of having the customer sign a corrected form. When the firm questioned Orendorff about the documents, he admitted to altering and submitting them. Thereafter, the firm terminated Orendorffís employment because the firm prohibited its representatives from affixing signatures to documents and required original signatures on each form.
Rairigh submitted false life insurance applications to an insurance carrier in order to generate commissions and to inflate his production numbers. The proposed insureds had never agreed to apply for the policies and the policies were submitted without their knowledge or consent. The Rairigh completed the life insurance applications, falsified the customersí signatures, listed his business address as the address to send the next quarterly premium notice and paid the initial premium. After the life insurance policy was issued, Rairigh would take the policy to the customer and seek to convince the customer to keep the policy by explaining that the customer merely had to continue to pay the quarterly premiums in order to keep it.
Larsen convinced an elderly bank customer to surrender annuities totaling approximately $355,000, which he deposited into the customerís bank checking account. Larsen debited the customerís bank checking account approximately $94,000 and purchased a bank check in that amount payable to an entity and opened an account at that entity for the customer; Larsen then executed an internal form with the entity that effectively changed the name on the account to an entity that Larsen owned and controlled, thereby misappropriating the customerís money, without the customerís authorization.
Larsen, took approximately $261,000 from the customerís bank checking account at his member firm kept $4,500 for his personal use, gave $1,250 to the customer and had a bank check issued for the remaining approximately $255,000 payable to the entity Larsen owned and controlled, and deposited the funds into a checking account at the bank in the entityís name.
Larsen used a debit card associated with the checking account in the name of his entity to make purchases for his personal benefit totaling approximately $72,000, which was funded by proceeds from the customerís bank checking account, without the customerís authorization.
When the customer reviewed his bank statements and noted that some of his money was not in the bank account, he made inquiries to the bank and the bank sued Larsen to recover funds that he had transferred out of the customerís bank account. The bank was able to recover approximately $183,000 from Larsen, which it used to repay the customer and paid the customer an additional $171,000 to make him whole.
Larsen failed to respond to FINRA requests for documents.
Evans converted securities and funds in the joint brokerage account of customers, without their knowledge, authorization or consent, and deposited the funds into his personal checking account, converting an aggregate total of $60,000.
Evans forged a customerís signature on checks linked to the customersí bank account and made the checks payable to ďcashĒ or to himself. Evans forged the customerís signature on a cash withdrawal form linked to the customersí bank account. Without the customersí knowledge, authorization or consent, Evans sold securities totaling $30,000 from their brokerage account, transferred $10,000 to their bank deposit account and applied $10,000 to their brokerage account margin balance.
Evans failed to respond to FINRA requests for a signed, written statement regarding its investigation.
Michael Wayne Evans : No restitution sought by FINRA because Evan's former firm reimbursed full losses; Barred.
NOTE: Evans reimbursed his former firm approximately $47,000 of the $60,000 that he misappropriated from the customers and is in the process of earning the remaining $13,000.
The Firm failed to properly supervise and properly register its foreign finders; and it had no written procedures concerning its use of foreign finders.
The Firm terminated the registrations of all its foreign associates and made them foreign finders; thereafter, the firm employed foreign finders and no foreign associates. Many of the firmís foreign finders were previously registered foreign associates at the firm who worked on the premises of the firmís affiliated broker-dealer. As registered sales representatives and foreign associates for the firm, they acted as general securities representatives engaging in securities activities for non-U.S. residents, citizens or nationals.
Whenthe firmís foreign associatesí registrations were terminated with FINRA and re-affiliated as foreign finders, their job functions were supposed to be limited to those of a foreign finder. As such, the firmís foreign findersí sole involvement with the firm should have been the initial referral of non-U.S. customers; however,all of the firmís foreign finders serviced customer accounts, processed new account documents and letters of authorization (LOAs) for customers containing confidential client information and serviced customer accounts -- these activities went well beyond the initial referral of non-U.S. customers to the firm.
Also, given the expanded roles of the firmís foreign finders, they should have been registered as foreign associates; however, the firm failed to register any of its foreign finders as foreign associates.
A concerned customer visited the firmís affiliateís branch office and explained that a foreign finder of the firm had provided him with an account statement that differed from the statement he recently received from the firmís clearing firm. In response,the Firm immediately instituted an internal investigation into all accounts the foreign finder had introduced to the firm. The firm discovered that unauthorized statements had been provided to customers by its rogue foreign finder. Those unauthorized statements inflated market values and net worth. Further, the rogue foreign finder altered correspondence that he forwarded to customers by making the documents incorrectly appear as if the firm had authorized them.
The firm contacted and interviewed every customer the rogue foreign finder introduced to the firm, which revealed that some of the customers had received false statements; and that the false statements inflated customersí account values by over $2 million U.S. dollars. The investigation led to the rogue foreign finderís termination, foreign finders being discontinued, written supervisory procedures being added, the firmís supervisory system being enhanced and substantial compensation paid to affected customers. The Firm claimed that it inspected the offices of its foreign finders, including the rogue foreign finder, to ensure that they were properly supervised, but failed to document or memorialize the office inspections and other supervisory activities in any way.
Will made a series of political campaign contributions to various candidates and parties, donating a total of approximately $121,000 to campaigns in his relativesí names.These campaigns included local, county and municipal races, statewide races and state political parties. Will admitted that by making the political contributions in his relativesí names, he violated Ohio Revised Code Section 3517.13(G)(2)(a), which prohibits a person from making a campaign contribution in another personís name.
Montford Sater Will (Principal): Fined $10,000; Suspended 60 days.
After consideration of the sanctions the State of Ohio previously imposed on Will, FINRA determined to give him credit for the amount he paid the state and the 45-day suspension he previously served. Accordingly, the $10,000 fine and 45 days of the suspension assessed were deemed to have been fulfilled.
A former associated person and employee of Morgan Stanley in its New York Position Services Group (NYPS) misappropriated approximately $2.5 million from the firm, institutional firm customers and a firm counterparty by entering, or causing to be entered, numerous false journal entries into the firmís electronic system to transfer and credit money associated with corporate actions.
The former employee entered, or caused to be entered, into the firmís electronic system requests for checks to be issued to his shell corporation against the suspense and/or fee accounts that he was using to misappropriate funds. The former employee entered some check requests himself, which NYPS employees that reported to him later approved. The former employee caused employees who reported to him to enter check requests, and he used the identification number and password of another NYPS employee who reported to him to enter the remaining check requests; he later approved all of the check requests.
Morgan Stanley failed to establish and implement an adequate system of follow-up and review of journal entries and adequate procedures for reviewing and approving check requests related to corporate actions.
No review procedures
The firm did not have any procedure to review the former associated personís check requests and journal entries.
In addition, the firm failed to properly supervise the former associated person and failed to detect that he entered, or caused to be entered, false check requests and false journal entries related to corporate actions, which allowed him to misappropriate approximately $2.5 million from the firm, its institutional customers and a firm counterparty.
The firm introduced a new system, the Summary of Manual Journals (SOMJ), to replace the review of all journal entries and require the review and approval of journal entries that the firm determined to be high priority. Furthermore, these journal entries remained on the SOMJs until a supervisor reviewed and approved them, and the former associated person was assigned to review and approve all high-priority journal entries flagged on the SOMJs, including his own.
The firm assigned some NYPS supervisors, all of whom reported directly to the former associated person, to review and approve journal entries flagged on SOMJs, but nobody was assigned to review high-priority journal entries entered by anyone not on one of those teams, including the former associated person. The firm failed to have a system to inform NYPS management if journal entries flagged on the SOMJs were not approved. The former associated person made numerous journal entries, some of which were flagged as high-priority; he approved several of them; many were not reviewed and were listed on the SOMJs pending approval at the time of his termination.
Check requests NYPS personnel entered were required to be approved by another NYPS employee, but the firm did not require the person approving the check to be a supervisor or have supervisory responsibility; as a result, NYPS associates approved check requests an NYPS supervisor entered, and entered check requests on a supervisorís behalf, which the supervisor subsequently approved. In addition, FINRA determined that the firm did not require any review to determine if the check request was associated with a corporate action and the approver simply ensured that all the required information was included in the check request.
Morgan Stanley & Co. Incorporated : Censured; Fined $375,000
The Firm approved advertising materials a registered representative used in his retail equity-indexed annuity (EIA) business conducted at workshops for senior citizens that contained false, exaggerated, unwarranted or misleading statements. The firm failed to document, with a principalís signature or initial, its approval of a piece of advertising material the representative used and failed to maintain a record of its approval of a piece of the representativeís advertising material.
The firm did not supervise the representativeís workshops, in that it did not require him to produce a copy of the script for the workshops and did not attend any of the live workshops to confirm that the contents of the workshops complied with NASD rules and that only firm-approved materials were being used. If the firm had required the representative to submit a script and had attended his workshops, it would have discovered that he made statements, used materials and engaged in conduct that violated NASD Rules 2110 and 2210, and could have prevented further violations of these rules.
Ortiz took and failed the Series 63 examination several times, and shortly after becoming employed with his member firm, he told the firm that he had passed the Series 63 exam. When the firm questioned Ortiz about his claim to have passed the Series 63 exam, he provided the firm with a photocopy of a fabricated score report that purported to establish his passing grade on the Series 63 exam.
Also, Ortiz provided the firm with information and documents through which he falsely represented his college credentials.
Mahler improperly created answer keys to state insurance continuing education (CE) exams a company administered.
The companyís president approached Mahler on different occasions and offered to provide him with answers to the companyís CE exams. The president provided Mahler with the answers to the CE exams over the phone or by handing copies of the answers to Mahler, and Mahler used these answers to create answer keys for the exams.
Mahler improperly distributed the answer keys to an employee at his member firm and to multiple registered representatives outside of his firm. On multiple occasions, while he was an external wholesaler, Mahler provided assistance to non-firm registered representatives while they were taking a state annuity examination for CE credit. Mahler was in the offices of some registered representatives while they were taking the annuity examination; some of these registered representatives asked Mahler to give them the answers to certain of the questions on the examination, which Mahler provided.
Mahler failed to supervise in that he gave one direct report answer keys to state insurance CE exams.
Philip Kenneth Mahler (Principal): Fiend $10,000; Suspended 4 months in all capacities; Suspended 6 months in Principal/Supervisory capacities only (to run concurrently)
Respondents failed to put any heightened supervisory measures in place for a branch manager or to follow up on ďred flags.Ē Notwithstanding the branch managerís remote location, prior disciplinary history, outside business disclosures or his disclosure that he was potentially under financial stress and unable to meet financial obligations, the Firm and Long failed to put any heightened supervisory measures in place or to follow up on the red flags after he disclosed information on a compliance questionnaire, for which the affirmative answer required that he attach a separate sheet providing complete details about the disclosed activities, which Long did not complete or enforce. Also, the firmís and Longís heightened supervision of the branch manager was inadequate in that it consisted only of inspecting his office annually and speaking on the phone on a fairly regular basis. Long inspected the branch managerís branch office, and although she was aware that the manager was involved in certain outside business activities, based on the disclosures that he made on his Uniform Application for Securities Industry Registration or Transfer (Form U4), she admitted that she did not inspect any files or financial records associated with his disclosed outside business activities and did not detect any undisclosed outside business activities or private securities transactions.During a subsequent inspection, Long again did not review documentation regarding the branch managerís disclosed outside business activities and did not detect any undisclosed outside business activities or private securities transactions.
Additionally, the branch manager had participated in private securities transactions wherein he had raised more than $1.5 million from investors, many of whom were firm customers.
In addition, the firm and Long failed to review or retain email communications on the branch managerís outside email account, and Long did not review his outside email account during her inspections of his branch office. Moreover, FINRA found that the firm did not have any supervisory procedures regarding the review and retention of email communications on outside email accounts.
Oftring was responsible for supervising a former registered representative of his member firm and failed to take appropriate action to reasonably supervise her to detect and prevent her violations and achieve compliance with applicable rules in connection with a customerís account. Among other things, Oftring failed to take reasonable steps to follow up on certain indications of potential misconduct that should have alerted him to the representativeís violations.
The representative engaged in excessive, short-term trading in the customerís account, which resulted in losses of approximately $60,000; the account was subject to frequent margin calls and transfers from a third-party account to satisfy margin calls in the account, and once, the representative transferred funds back to the third-party account by forging the customerís signature on an LOA.
Oftring was aware of
the active trading in the customerís account and knew that the representative was effecting securities transactions in the account while it had a negative balance, but he never stopped the representative from trading and never contacted the customer to discuss the activity; and
and approved the transfer of funds between the customerís account and the third-party account, and accepted the representativeís explanation for the same without contacting the customers involved in the transfers.
Robert Joseph Oftring (Principal): FIned $5,000; Suspended 6 months in Principal capacity only
Johnson was employed with a state-registered investment adviser company and after learning that performance values being reported in monthly statements to investors were inconsistent with actual performance figures to investors, he continued to forward monthly statements to investors when requested to do so. After discovering that the gain/loss values reported in the monthly statements were inconsistent with actual performance of the funds, Johnson questioned the investment adviser companyís president, who falsely stated that the statements reflected personal monetary contributions he made to the funds in the form of waived management fees. Johnson continued to forward the statements to investors without informing the recipients that the performance values represented ďadjustedĒ values, and without attempting to confirm whether the investment adviser companyís president was actually making monetary contributions.
Scott Davis Johnson (Princiipal): Fined $5,000; Suspended 4 months
Associated Person Akins misappropriated approximately $1.1 million from her member firm by creating false entries in the firmís books and records, ranging in amounts of $250 to $50,000, which caused the firm to pay her money to which she was not entitled.
Chima engaged in a pattern of unsuitable short-term trading and switching of unit investment trusts (UITs), closed-end funds (CEFs) and mutual funds in retired and/or disabled customer accounts without having reasonable grounds for believing that such transactions were suitable for the customers in view of the nature, frequency and size of the recommended transactions and in light of their financial situations, investment objectives, circumstances and needs. Some of the transactions were effected through excessive use of margin and without ensuring that customers received the maximum sales charge discount. In furtherance of his short-term trading strategy, Chima engaged in discretionary trading without prior written authorization, falsified customer account update documents and mismarked trade tickets for each of the customersí accounts, stating that the orders were unsolicited when, in fact, they were solicited.
The transactions generated approximately $450,000 in commissions for Chima and his firm, and approximately $370,000 in losses to the customers; some customers also paid over $75,000 in margin interest. In numerous UIT purchases, none of which exceeded $250,000, Chima failed to apply the rollover discount to which each customer was entitled.
Chima caused his member firmís books and records to be false in material respects, in that he provided false information on customer update forms for customersí accounts, signed the forms certifying that they were accurate and submitted them to his firm.
Uzo Omar Chima (Principal): Fined $75,000; Suspended 2 years; Ordered to pay $12,443.73, plus interest, in restitution to customers.
sold the private placement offerings of a company formed exclusively to acquire and provide growth to its parent company and a limited liability company for which Brewer was a director, without disclosing to the investors material facts that:
the parent company had defaulted on a $2.5 million loan,
had reported an operating loss of $1,622,912 for one calendar year and an approximate operating loss of $4.5 million for another calendar year, and
had defaulted on interest payments to note-holders.
continued to sell the limited liability companyís private placement offering to new investors, knowing that it had defaulted on its interest payments to existing investors and without disclosing that material fact to new investors.
The firm sold the private placement offerings to non-accredited investors without providing them with the financial statements required under Securities and Exchange Commission (SEC) Rule 506, resulting in the loss of exemption from the registration requirements of Section 5 of the Securities Act of 1933. Because no registration statement was in effect for the offerings and the registration exemption was ineffective, the firm sold these securities in contravention of Section 5 of the Securities Act of 1933.
Acting through Erickson, the Firm conducted inadequate due diligence related to its sale of the offerings in that it failed to ensure the issuers had retained a custodian to handle certain investorsí qualified funds prior to accepting investment of Individual Retirement Account (IRA) funds into the offerings.
Ating through Erickson and Brewer, the Firm offered to sell and sold the companyís private placement offering by distributing to the public a private placement memorandum (PPM) containing unbalanced, unjustified, unwarranted or otherwise misleading statements; among other things, the PPM implied that the parent company was not experiencing financial difficulty and failed to disclose that it reported a significant loss one year. In addition, the investors in the companyís notes were not provided with financial statements for either the company or the parent company. Moreover, the PPM was misleading in that it failed to state clearly how offering proceeds would be used, lacked clarity regarding the relationship between the issuer and its affiliates, and failed to provide the basis for claims made regarding the performance expectations of the issuer or its affiliates.
Furthermore, the firm failed to establish adequate written supervisory procedures related to its sales of private placement offerings, in that the firmís procedures failed to require that financial statements be provided to investors when private placement offerings are sold to non-accredited investors, pursuant to SEC Rule 506.
The Firm allowed Brewer to be actively engaged in managing the firmís securities business without being registered as a principal and a representative although Brewer signed and submitted an attestation to FINRA stating he would not be actively engaged in the management of the firmís securities business until he completed registration as a representative and principal. Among other things, Brewer reviewed and revised the firmís recruitment brochure, approved offer letters to prospective firm registered representatives, dictated the structure of new representativesí compensation, including the level of commissions and loan repayment terms, and instructed firm personnel to send private placement offering documents to prospective investors.
The firm maintained the registrations for individuals who were not active in the firmís investment banking or securities business or were no longer functioning as registered representatives.
The Firm conducted a securities business on a number of days even though it had negative net capital on each of those dates. The firmís net capital deficiencies were caused by its failure to classify contributions from the parent company as liabilities after the firm returned the contributions to the parent company within a one-year period of having received them, and improperly treating its assets as allowable even though all of its assets had been encumbered as security for a loan agreement the parent company executed. Moreover, the Firm had inaccurate general ledgers, trial balances and net capital computations, and filed inaccurate Financial and Operational Uniform Single
Brewer Financial Services, LLC: Expelled
Adam Gary Erickson (Principal) and Steven John Brewer: Barred
The Firm made certain unsecured loans to its parent that exceeded the parameters set forth in SEC Rules 15c3-1(e)(1)(i) and (ii), thereby triggering its reporting obligation. Through its financial and operations principals (FINOPs), Guerra and Robles, the Firm provided notices to FINRA at the beginning of several months of loans that it anticipated making during the course of the month, but the notices did not comply with the requirements of SEC Rule 15c3-1(e)(1); the firm did not provide adequate advance notice of loans that exceeded the 30 percent threshold on numerous occasions and did not provide subsequent notice of unsecured loans that exceeded the 20 percent threshold on other occasions. Guerra and Robles, as FINOPS at the firm, were responsible for providing the required notices on the firmís behalf but failed to do so.
The Firm had inadequate excess net capital for a year because it failed to include in its net capital calculation certain positions in Latin American and other debt securities held in firm accounts at its clearing firms, and did not report these positions as assets on its balance sheet or apply haircuts to these positions in its computation of net capital; deficiencies ranged from at least $900,000 to at least $13.7 million and all of the positions relevant to the net capital deficiency had later either paid down their principal or were sold by the firm.
The firm engaged in securities transactions in which commissions were split between the firm and a nonregistered foreign person with the person receiving most of the commissions and the firm getting the balance. In addition to making the initial referrals, the non-registered foreign person, along with the firm, among other things, negotiated the terms of the transactions, which the firm executed. The firm did not properly reflect the payment to the finder on its books and records, and also did not disclose the compensation arrangement as required.
Moreover, the Firm did not maintain adequate books and records concerning proprietary positions the firm held at separate clearing firms for over a year; this included failing to reflect the positions on any of the firmís internal books and records, failing to maintain documents related to the processing of the transactions such as the electronic or paper order tickets and the trade confirmations, failing to maintain documents related to the supervision of the transactions, and failing to appropriately reflect its liabilities and assets on financial documentation the firm maintained. Furthermore, although FINRA staff advised the firm that its procedures related to SEC Rule 15c3-1(e) were not reasonably designed to achieve compliance with that rule and needed to be amended, the firm failed to amend its procedures to establish supervisory procedures reasonably designed to ensure compliance with the rule.
Guerra engaged in outside investment activities through a limited liability company that used his firmís address, and he failed to provide prompt written notice of these business activities to his member firm.
Bulltick, LLC: Censured and Fined $300,000
Javier Guerra (Principal): Fined $20,000; Suspended 10 business days
Victor Manuel Robles (Principal): Fined $10,000; Suspended 5 business days
Blanchard participated in private securities transactions when a client of his accounting firm purchased promissory notes an individual issued. The findings stated that Blanchard failed to provide written notice to his firm describing in detail the proposed transactions with the individual issuing the promissory notes, his proposed role therein, and stating whether he had received or might receive selling compensation in connection with the transactions. Blanchard introduced the client to the individual, and the client invested a total of approximately $325,000 in the individualís promissory notes as a result of Blanchardís referrals.
The individual paid Blanchard about $16,434 in selling compensation for his referral. The customer lost approximately $290,000 as a result of the investment, and the firm made full restitution to Blanchardís client even though he was not a customer of the firm.
Carl Henry Blanchard : Fined $31,434 including disgorgement of $16,434 to be paid to the firm; Suspended 6 months
Madrigal misappropriated $102,054.55 from customersí bank accounts by using forged customer signatures on partial withdrawal general ledger tickets. Madrigal admitted to his member that he had engaged in this misconduct but then failed to respond to FINRA requests for information.
Brown failed to reasonably supervise a registered representative of his member firm who churned a customer trust account and recommended investments to the elderly beneficial owner of the trust account that were inconsistent with the customerís investment objectives, financial situation and needs.
Brown served as the assistant branch manager for his firmís branch office and, as such, was one of the individuals at the firm with supervisory responsibility over the registered representatives at the branch office. There were numerous red flags indicating that the registered representative was churning the trust account and recommending unsuitable investments to the customer:
the appearance of the account on numerous exception reports concerning active and aggressive trading;
the accountís relatively substantial fluctuations in value, including relatively significant declines in value in a certain year;
the customerís age;
the $2,500 monthly withdrawals that the customer was taking from the account; and
the prior customer complaints against the registered representative.
Despite these red flags, Brown failed to take adequate supervisory action reasonably designed to prevent the representativeís churning of the trust account and recommendations of unsuitable investments to the customer.
Charles Hyman Brown (Principal): $5,000 Fine; Suspended 30 days in Principal capacity only
Genitrini advertised guaranteed returns on investments of up to 20 percent per year on a website belonging to a company he wholly owned. Genitrini claimed that his company was a full-service investment firm and would, among other claims, provide high-yield investment opportunities. The website declared that the company invested nationwide and all industries were considered, but did not disclose the nature of the investment product or the risks of investment.
Genitriniís ads appeared on other websites guaranteeing returns, and his companyís contemplated private placement documents provided no assurance that by following its current investment strategy, it would be successful or profitable, although the subscription agreement also stated that the investments the company carried might be volatile and present operational risks.
Genitriniís Internet ads constituted communications with the public; were not based on principles of fair dealing and good faith; were not fair and balanced; did not disclose risks associated with the investment; guaranteed promising returns that were exaggerated, unwarranted or misleading; and the predictions of performance were also exaggerated or unwarranted.
Genitriniís private offering of securities, which involved promissory notes his company issued according to the private placement memorandum, was not made pursuant to an effective registration statement filed with the SEC; the offering was intended to be made pursuant to the exemption from registration in Section 4(2) of Rule 506 of Regulation D of the Securities Act of 1933, which prohibits offers or sales of securities by any form of general solicitation or general advertising. Genitriniís use of the Internet and his companyís website violated Section 5 of the Securities Act of 1933, and guaranteeing returns in the offer of securities over the Internet violated Section 17(a)(1) of the Securities Act of 1933.
In addition, Genitrini falsely described his work with his company on his member firmís outside business activity disclosure form and also failed to disclose that he maintained a website for the company; Genitrini told his firm, in writing, that his business and website were for tax-planning services.
Christian Genitrini : Fined $15, 000; Suspended 2 years; Required to requalify by exam for Series 7 and Series 63 before becoming re-associated with a member firm after the expiration of the suspension term.
NOTE: The fine shall be paid in installments beginning 90 days after Genitriniís reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier.
Eppler disclosed his outside business activities to his member firm as part of a branch office review and reported that he was engaged in the sale of new and renewal sales of a particular companyís insurance products that his firm did not approve for sale. In response to the disclosure, Eppler was informed, orally and in writing, that he should discontinue selling those products and he could only receive renewals on prior sales.
Eppler was sent an email reminding him of deficiencies found in the branch examination, which included his sale of the particular insurance products, and that he was to discontinue selling the insurance products. Eppler responded to the email by advising the firm that all of the deficiencies had been corrected, which was untrue because Eppler continued to sell the non-approved insurance products and received $967.79 as commissions from the sales.
Epplerís branch office was again reviewed, and as part of that review, Eppler reported his outside business activities and reported that he was receiving commissions only for renewals of the non-approved insurance products, which was false, in that Eppler continued to sell new non-approved insurance policies, for which he received compensation. Eppler engaged in these activities without giving prompt written notice to his firm that he was continuing to sell new non-approved insurance policies.
Dale Allen Eppler : Fined $7,500; Suspended 6 months
McLean failed to provide written notice of his involvement in unapproved private securities transactions to his member firm and lied to his firm during monthly supervisory meetings. McLeanís member firm prohibited its registered representatives from engaging in any private securities transactions unless they were personal investments and only after obtaining the firmís prior written approval, but McLean referred a customer and another individual to someone who was raising monies for real estate projects. These individuals invested approximately $75,000 in promissory notes with entities controlled by the individual to whom McLean referred them, and McLean received $1,500 in cash for the referrals. Because of concerns stemming from items reported on McLeanís personal credit report, his firm placed him on heightened supervision and, among other things, McLean was required to meet with his supervisor monthly to discuss securities-related and outside business activities; but not once during these meetings did McLean disclose his involvement with the individual. On seven separate occasions, he signed statements affirming that he was not engaged in outside business activity beyond those already disclosed and that it was unnecessary to update his Form U4.
While employed by another member firm, McLean acted as an agent for an entity not affiliated with his firm and over which his firm had no control, without providing written notice to his firm or receiving his firmís approval to serve in this role. In addition, as an agent for the entity, McLean introduced individuals to an individual through whom they invested in a purported diamond mining operation. Moreover, these individuals entered into promissory notes, investing more than $40,000 with an entity the individual controlled. Furthermore, in addition to making referrals, as an agent for the entity, McLean was expected to provide financial and consulting advice to investors once their investments began earning profits, and in exchange, McLean stood to earn $2 million worth of shares in a company the individual controlled.
McLean failed to respond fully to FINRA requests for documents and information.
Suchak borrowed $1,500 from one of his customers at his member firm without seeking approval for the borrowing and without obtaining the firmís prior written approval to borrow money from the customer. The loan terms were not memorialized in writing and when the borrowing occurred, the firm required representatives, before borrowing money from a customer, to obtain a designated officialís written approval. Suchak did not disclose to the firm that he had borrowed money from a customer.
Dinesh Devraj Suchak Jr. : Fined $2,500; Suspended 10 business days
Ivan executed an agreement purportedly on the firmís behalf, in which a non-customer corporation agreed to pay the firm a $35,000 refundable deposit in exchange for the firm agreeing to act as an exclusive placement agent to assist the corporation in arranging for $8 million dollars in debt financing. Subject to the agreement, Ivan instructed the corporation to wire the $35,000 deposit to a personal brokerage account he controlled at another FINRA member firm. Instead of using the funds as he represented to the corporation and in accordance with the terms of the signed agreement, Ivan diverted the corporationís funds by wiring $25,000 of the deposit to another business entity that was supposedly going to assist the corporation with arranging the financing and used the remaining $10,000 for his personal benefit. The debt financing for the corporation never materialized, and the corporation did not receive the return of its $35,000 deposit.
Ivan made untruthful statements and provided false documents to FINRA when he untruthfully represented in his written response to FINRA that he had forwarded the $35,000 from the corporation to a business entity assisting with the financing, and that he did not receive any compensation or payments relating to his participation in arranging the financing. Ivan provided FINRA a document purporting to be an account statement for his outside brokerage account, which falsely reflected a wire transfer of $35,000 out of his account to a business entity assisting with the arrangement of financing, when in fact, the wire transfer amount had only been $25,000. That brokerage account statement had false entries for the figures representing the total amount of checks written and the total amount of checking, debit card and cash withdrawals.
Moreover, Ivan held a financial interest in a brokerage account maintained at another FINRA member firm without giving prompt written notification to the firm that he had such an account, and without notifying the other brokerage firm of his association with his member firm. Furthermore, Ivan falsely answered ďN/AĒ on the firmís outside brokerage account new hire certification form when requested to list every brokerage account over which he had full or partial ownership.
Bartlett signed customersí names to documents related to purchases of mutual funds and insurance products without authorization. Although the customers authorized Bartlett to purchase the securities or insurance products for them, only one of the customers orally authorized Bartlett to sign his name.
Bartlett signed customersí names to new account applications, client profiles, risk questionnaires, insurance applications and transaction confirmation forms. In one instance, Bartlett forged a customerís name because he was concerned that he would lose a substantial commission if he went back to the customer to obtain her signature on a form.
Edward Charles Bartlett III: Fined $5,000; Suspended 5 months
Langholtz sold EIAs outside the scope of his employment relationship with his member firm and received approximately $74,498.65 in compensation. Langholtz did not provide prompt written notice to his firm of the outside business activity and on at least one occasion, represented on a firm outside business activity form that he was not engaged in outside business activity regarding non-variable insurance or annuities of other companies except through an approved firm agency selling agreement; that representation was false since he had received compensation from the outside sale of EIAs. Langholtz continued to engage in selling EIAs outside the firmís agency despite its specific prohibition against doing so in its WSPs.
Garrison borrowed $3,000 from a relative who was a customer at his member firm. The firmís procedures generally prohibited borrowing money from customers, except in limited circumstances; those procedures required registered representatives to make a written request and obtain written approval before entering into such loans. Garrison did not make a request and the firm did not give him approval to enter into that loan; and, he failed to repay the loan by the deadline and has repaid only $630.
Eric Renard Garrison (Principal): Fined $5,000; Ordered to pay $2,370, plus interest, in restitution to a customer;Suspended 3 months
The Firm implemented a succession plan that resulted in the transfer of ownership from the firmís chairman and majority shareholder to his relatives who were at that time minority shareholders, and the transfer represented 27.91 percent of the voting shares in the firmís holding company. The failed to file for FINRA approval of a material change in ownership or control
at least 30 days prior to a 25 percent or greater indirect change in ownership or control; and
related to the transfer until several years after the transfer had taken place.
First Dallas Securities Incorporated : Censured; FIned $10,000
The Firm did not have available, for examination by FINRA staff, facilities for immediate, easily readable projection or production of micrographic media or electronic storage media images and for producing easily readable images, as SEC Rule 17a-4(f)(3) (i) required. The firm maintained certain records in electronic formats but failed to notify its examining authority, FINRA, prior to employing electronic storage media. The firm did not have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved under SEC Rules 17a-3 and 17a-4 to electronic storage media. The firm was required to have the results of such an audit system available for examination by FINRA staff. The firm failed to provide the required access to allow a third-party vendor to download information from its electronic storage media and file the required undertakings with the proper authorities, including FINRA.
Firstrade Securities Inc. : Censured; Fined $20,000
Cohen sold equity indexed annuities (EIAs), issued by an insurance company that was not a FINRA member, outside the scope of his employment with a member firm, and without providing the firm prompt written notice of the business activity. Cohen effected undisclosed EIA sales totaling over $1.5 million and received compensation totaling about $176,000 from the transactions. Cohen effected the sales directly with the insurance company that issued the EIAs rather than through the insurance company affiliated with his firm.
Cohen completed an outside business activities questionnaire for the firm in which he falsely represented that he was not licensed as an insurance agent for the purpose of selling fixed insurance with any entity other then the insurance company affiliated with the firm and its approved programs, and that he had not engaged in any outside business activity.
Gary Scot Cohen (Principal): Fined $5,000; Suspended 4 months
Acting through Homnick, the firmís president, chief compliance officer (CCO) and AML compliance officer (AMLCO), the Firm failed to comply with AML requirements. The Firmís AML compliance program, which Homnick implemented, did not fully comply with the requirements of the Bank Secrecy Act (BSA) or the regulations thereunder, and violated NASDģ Rules 3011(a) and (b). The AML procedures in effect required the firm to make a preliminary risk assessment for each existing and potential customer of the firm, and the firmís representatives were required to document any significant information they learned pursuant to such risk assessment, but the firm did not create or maintain written risk assessments for its customers.
The firmís AML procedures required scrutiny of the activities of each firm customer organized as a limited liability company (LLC); specifically, for LLC customers, the firm and its registered representatives were to assess the correlation between their business activities and their formation documents and to conduct further investigations to determine the customerís risk profile. These assessments and determinations of risk profiles were not conducted. Several accounts that were LLCs that engaged in suspicious transactions did not provide formation documents.
The AML procedures had a section that described the process firm employees were to use to report suspicious customer activities, but these procedures were not followed. In addition, registered representatives were required, upon detection of suspicious activity in customer accounts, to consult with one of the firmís designated principals, one of whom was Homnick; no firm representative reported to, or consulted with, the firm principals about suspicious customer activities. Moreover, the firmís procedures identified a form called the Preliminary Suspicious Activity Report (P-SAR); the purpose of the form was to identify, in writing, suspicious activities for Homnickís internal review, but no P-SARs were completed or submitted. Furthermore,Homnick was assigned the responsibility for filing Suspicious Activity Reports (SARs) and was responsible for drafting, implementing and maintaining the AML program and procedures at the firm, but he did not file any SARs and did not consider filing any SARs. FINRA also found that numerous suspicious transactions were conducted by firm customers, and the firm, acting through Homnick, did not conduct a reasonable investigation, in that they failed to file a SAR, consider filing a SAR or document rationale for not filing a SAR.
Grand Capital Corp.: Censured; Fined $20,000(In light of the firmís revenues and financial resources, among other things, a lower fine was imposed.)
Eliezer Gross Homnick: Fined $10,000, Suspended in Principal capacity only for 1 month; and Required to complete eight hours of anti-money laundering (AML) training.
Adler participated in private securities transactions when customers of his accounting firm and customers of his member firm purchased promissory notes an individual issued. Adler failed to provide written notice to his firm describing in detail the proposed transactions with the individual issuing the promissory notes, his proposed role therein, and stating whether he had received or might receive selling compensation in connection with the transactions.
Adler introduced his clients to the individual and they invested a total of approximately $2.5 million in the individualís promissory notes as a result of Adlerís referrals. The individual paid Adler approximately $16,434 in selling compensation for his referral. The customers and the investors lost a total of approximately $2,103,375 and the firm made full restitution to Adlerís clients even though some were not customers of the firm.
Croes sold EIAs outside the scope of his employment relationship with his member firm and received approximately $84,917.14 in compensation. Croes did not provide prompt written notice to his firm of his outside business activity, and represented on annual certification statements and/or outside business activity forms that he was either not engaged in outside business activity or that he had previously disclosed such activity; these representations were false. Despite a specific verbal warning by his firm to discontinue selling EIAs outside the firmís agency, Croes continued to do so, despite the firmís specific prohibition against doing so in its WSPs.
John Godfried Croes Jr.: Fined $5,000; Suspended 8 months
Kurzmann borrowed $5,000 from one of his customers at his member firm. The loan terms were not memorialized in writing, and when the borrowing occurred, Kurzmannís firm prohibited its representatives from borrowing money from customers. Kurzmann did not obtain the firmís approval to borrow money from the customer and did not disclose to the firm that he had borrowed money from a customer; moreover, the borrowing arrangements did not otherwise meet the conditions set forth in NASD Rule 2370(a)(2).
Kurzmann served as the treasurer and as a board member of an incorporated scholarship fund. As the fundís treasurer, he received monthly account statements for a securities account that the fund owned at a FINRA member firm; Kurzmann was the representative for that account. and he provided board members, orally and in writing, materially false information about the total value of the fundís investments, in that he overstated the total value of the fundís investments.
Rivera borrowed a total of approximately $19,000 from a firm customer, signing promissory notes for the loans, contrary to firm policy that prohibited representatives from borrowing from a customer unless the customer was an immediate family member and the representative received the firmís prior written approval. The customer was not a family member and Rivera never informed the firm of the loan.
Rivera failed to repay the funds in full and his firm entered into a settlement with the customer, repaying the $17,700 still owed to the customer; Rivera did not make any contribution to the settlement.
Jose Antonio Rivera : Fined $5,000; Suspended 3 months
Gould converted more than $1,315,000 from customers who had purchased annuities from him by, among other deceptive means and devices, convincing his customers to sign blank annuity withdrawal request forms, which he subsequently completed with instructions to the insurance companies to transfer his customersí funds to a bank account held in the name of a company he owned and controlled. In some instances, the withdrawal request forms contained a medallion signature guarantee that he improperly obtained.
Gould converted funds from other annuity customers by using withdrawal request forms that contained customersí signatures to direct insurance companies to transfer funds from the customersí annuities to his bank account. Gould unlawfully converted customer funds from customersí brokerage accounts by, among other deceptive means and devices, improperly transferring funds from their brokerage accounts to the bank account he owned and controlled. The customers either did not authorize or were not aware of the conversion resulting from the transfer of funds from their annuities and brokerage accounts to Gouldís bank account.
Gould used the unlawfully converted funds to pay for his own personal and business expenses; none of the customers were aware he was withdrawing funds for his personal use. On numerous occasions, Gould falsified documents to make it appear that customers had authorized the transfer of funds from their annuities and brokerage accounts to his bank account, and in some instances, effectuated these transfers by convincing customers to sign withdrawal request forms, some of which were blank.
Kramer failed to reasonably supervise a registered representative of his member firm who churned a customer trust account and recommended unsuitable investments to the trust accountís elderly beneficial owner. Kramer served as a compliance officer for his firm, and as such, was one of the individuals at the firm with supervisory responsibility over the registered representatives at a branch office.
There were numerous red flags indicating that the registered representative was churning the trust account and recommending unsuitable investments to the customer. The red flags cited by FINRA were the:
appearance of the account on numerous exception reports concerning active and aggressive trading;
accountís relatively substantial fluctuations in value, including relatively significant declines in value in a certain year;
$2,500 monthly withdrawals that the customer was taking from the account; and
prior customer complaints against the registered representative.
Despite these red flags, Kramer failed to take adequate supervisory action reasonably designed to prevent the representativeís churning of the trust account and recommendations of unsuitable investments to the customer.
Lloyd Kramer (Principal): Fined $5,000; Suspended 30 days in Principal capacity only
Pollack borrowed $40,000 from a customer at his member firm contrary to his firmís WSPs prohibiting its registered representatives from borrowing funds from customers. Pollack executed a contract whereby he agreed to repay the customer the funds within one year; but to date, Pollack had not paid back the funds.
Mark Hermann Pollack : Fined $5,000; Ordered to pay $40,000 plus interest as restitution to customer; Suspended 60 days
Davies engaged in a pattern of check-kiting, in which he wrote checks totaling $1,070 from his personal bank checking account, maintained at another bank and payable to himself, deposited the checks into another personal checking account of his that was maintained at his firmís bank affiliate, even though he knew or should have known that he had insufficient funds in his account maintained at the other bank to cover the checks, and then immediately withdrew these funds via automatic teller machine (ATM) from that checking account at his firmís bank. Each of the checks was subsequently returned for insufficient funds.
Michael Jon Davies : Fined $5,000; Suspended 6 months
Dickamore used his member firmís corporate credit card for personal expenses in the amount of $50,413.56 without the firmís permission or authority, and submitted the charges as business expenses for the firm reimburse. During an interview with his firm, Dickamore admitted that he purchased personal items with his corporate credit card and falsely identified those items as business expenses. Dickamore reimbursed the firm in full. but failed to respond to FINRA requests for information and failed to appear for on-the-record testimony.
Jacobson sold Equity Indexed Annuties ("EIA") outside the scope of his employment relationship with a member firm, and received approximately $488,266.41 in compensation. Jacobson failed to give prompt written notice to his firm of his outside business activity and represented on annual certification statements and/or outside business activity forms that he was either not engaged in outside business activity or had previously disclosed such activity; these representations were false. Despite a specific verbal warning from his firm to discontinue selling EIAs outside his firmís agency, he continued to do so despite the firmís specific prohibition against doing so in its WSPs.
Michael Steven Jacobson : Fined $5,000; Suspended 18 months
The Firm failed to establish, maintain and enforce a supervisory system and written procedures relating to private offerings the firm sold to its customers. The firmís supervisory system and written procedures for private offerings were deficient; they did not identify due diligence steps to be taken for private offerings. The firm approved for sale, and sold, various private offerings by an entity that raised approximately $2.2 billion from over 20,000 investors through several Regulation D offerings.
The entity made all interest and principal payments on these Regulation D offerings until it began experiencing liquidity problems and stopped making payments on some of its earlier offerings; nevertheless, the entity proceeded with another offering. The firmís due diligence for the offering consisted merely of reviewing the PPM and investor subscription documents, without seeking or obtaining financial documents or information from the issuer regarding the offering, nor did the firm obtain any due diligence report for the offering or visit the issuerís facilities or meet with its key personnel. The firm approved for sale, and sold, a total of $258,597.16 to its customers for interests in another entityís private offering. In addition, the firm failed to conduct due diligence for these offerings; among other things, it did not obtain offering documentation beyond the investor subscription documents. Moreover, the firm sold additional unregistered offerings to its customers and failed to conduct adequate due diligence for each of these other offerings.
Mata participated in private securities transactions without prior written notice to, and prior written approval or acknowledgment from, his firm for these activities. Mata participated in outside business activities and failed to provide prompt written notice to his firm regarding these activities, for which he received compensation totaling $21,417.44.
Mata participated in numerous sales seminars with customers in which he failed to obtain prior written approval from a firm principal for the sales literature used in his seminars; failed to file the sales literature used in his seminars, which included information on variable contracts, with FINRAís Advertising Regulation Department; and used sales literature in his seminars that was not fair and balanced, contained exaggerated or unwarranted claims, and contained predictions of performance.
Paul Ricky Mata (Principal): Fined $10,000; Suspended 12 months
McRoberts effected private securities transactions without requesting and receiving her member firmsí permission. McRoberts sold $142,128 in promissory notes secured by pooled life settlements. Prior to engaging in these transactions, while associated with one of the firms, McRoberts had signed an Acknowledgement of Receipt and Review of Compliance Procedure Manual which stated that no private securities (or other investment or insurance) transaction may in any way be participated in by a representative unless the compliance director approves it in advance. Despite McRobertsí acknowledgement of the firmís procedures, she failed to give written notice of her intention to participate in the sale of the securities to, and failed to obtain written approval from, her firm prior to the transactions. McRoberts effected private securities transactions while registered with another member firm and also failed to give written notice of her intention to participate in the sale of the securities, and failed to obtain her firmís written approval prior to the transaction. McRoberts received $9,600 in commissions from the transactions. In addition,
McRoberts failed to conduct adequate due diligence and thus had no reasonable basis to determine whether the investments were suitable for her clients.
Penena Karpel McRoberts : Fined $20,000 including $9,600 in disgorged commissions; Suspended 1 year
Acting through Lapkin, the Firm failed to enforce its heightened supervisory procedures for a representative placed on heightened supervision based on his prior disciplinary history. Lapkin was responsible for implementing the heightened supervision plan, which required review of the representativeís correspondence on a daily basis, review of all of the representativeís transactions prior to execution, quarterly reviews with the representative of his business, and quarterly review of the representativeís journal of all conversations that resulted in any business. Lapkin did not perform any of the required steps and the firm failed to take any steps to ensure that he followed the plan. The firm, acting through Lapkin, allowed a representative to continue using a website, which is deemed an advertisement pursuant to NASD Rule 2210, that promoted investments to be made through the firm, even though it violated the content standards of the rule. The website failed to provide a sound basis for evaluating the investment products being promoted, and contained exaggerated, incomplete and oversimplified statements comparing alternative investments to traditional investment products. Also, the website further made unsubstantiated claims by identifying investments as ďpremierĒ alternative investments and stating that alternative investments can help dampen volatility and provide protection in down markets without providing a credible basis for these claims. In addition, the website also compared alternative investments to publicly traded investments, but failed to disclose all of the material differences between the investments, including the risks associated with the alternative investments.
Acting through Lapkin, the Firm allowed its representatives to sell shares of a fund through a flawed PPM that failed to disclose that the fundís manager had been terminated from his member firm because, according to his Uniform Termination Notice for Securities Industry Registration (Form U5), he had misreported, falsely input and reported late into the firmís internal booking systems for bond transactions, and that the fund manager had misreported numerous nondeliverable forward transactions, causing false profits on his profit and loss statements. Lapkin was aware of the content of the fund managerís Form U5 and knew that the PPM was silent about it. This omission was material because, as disclosed in the PPM, the fundís trading decisions relied primarily on the fund managerís knowledge, judgment and experience.
Puritan Securities, Inc. nka First Union Securities, Inc.: Censured, Fined $10,000 (A lower fine was imposed after considering, among other things, the firmís revenues and financial resources.)
Nathan Perry Lapkin: Fined $10,000; Suspended in Principal capacity only for 15 business days.
The Firm and Hsu failed to preserve electronic communications related to the firmís business when Hsu and another registered representative of the firm sent and received electronic communications related to the firmís business using personal email accounts that were not linked to the firmís email preservation system; the firmís failure to preserve electronic communications was considered willful.
Hsu and the firm failed to comply with AML rules and regulations in that they failed to access the Financial Crimes Enforcement Network (FINCEN) and review records, failed to develop and implement a written AML program reasonably designed to achieve compliance with the BSA and implementing regulations, and failed to properly conduct annual independent tests of its AML program for several years. Hsu signed and submitted certifications to FINRA that contained inaccurate information regarding preservation of emails in compliance with SEC Rule 17a-4. Hsu willfully failed to amend his Form U4, to disclose material information.
Pyramid Financial Corp.: Fined $55,000 jointly and severally with Hsu
John Hsu a/k/a Juan Hsu (Principal): Fined $55,000 jointly and severally with Pyramid; Fined an additional $10,000; Suspended 45 business days in all capacities; Barred as a Principal only.
A customer of Associated Person Cope's member firmís bank affiliate instructed her to use the proceeds from a maturing certificate of deposit (CD) to purchase new CDs in the names of different people. Cope purchased one of the CDs, took the remaining proceeds of $9,878.89, converted them to a cashierís check payable to the person for whom the CD should have been purchased, and later cashed the cashierís check and kept the money for her personal use. Cope failed to respond to FINRA requests for information and documents.
Reba Rose Cope : FINRA did not seek restitution because a bank reimbursed the customer for the amount Cope converted, plus interest; Barred
RR falsely prepared a letter on the letterhead of one of his member firmís institutional customers without the customerís or firmís knowledge or authorization. RR addressed the letter to the customerís plan vendor, directing the plan vendor to change the commission split on the customerís 457 plan to reflect that RR would receive a 100 percent commission; originally, the customerís plan revenue reflected a commission split of 96 percent to RR and 4 percent to another registered representative.
RRís member firm agreed to have commission revenues flow solely to him in the short term after the other registered representative resigned, but advised him that he needed to obtain a letter from the customer acknowledging his role as the sole broker of record due to the other registered representativeís resignation. The letter purportedly authorized RR to receive 100 percent of the commission from the plan revenue, and RR forged the signature of the customerís plan controller without her knowledge or authorization. RRís firm policy prohibits a registered representative from signing a customerís signature to any paperwork, regardless of whether the customer has given permission to do so, and prohibits a registered representative from signing a clientís name on any form, with or without the clientís authorization.
Davidson recommended and participated in securities transactions outside the scope of his employment with his member firm when he recommended that clients, nearly all of whom were firm customers, participate in a managed foreign currency exchange-trading program; these clients invested $2,682,518.19, for which he received $3,894.64 in compensation for the referrals.
Davidson did not provide prior written notice, or any notice at all, to the firm of his involvement with the transactions, nor was the firm aware of Davidsonís recommendations and referrals until two months after his resignation when a customer complained about her losses. The clients Davidson referred to the securities transactions lost more than $2.4 million of the approximately $2.68 million they had invested in the managed foreign currency exchange-trading program.
Davidson signed a customerís name to multiple account-related documents without her knowledge or consent.
Robin Bruce Davidson (Principal): Fined $10,000; Suspended 16 months
As her member firmís CCO, Bush was responsible for creating, maintaining and updating her firmís Written Supervisory Procedures (WSPs) and for conducting due diligence for private offerings. Bushís firm approved for sale, and sold, various private offerings, and for one offering, Bushís due diligence consisted of reviewing the PPM and investor subscription documents, but she did not seek or obtain financial documents or information from the issuer regarding the offering, did not obtain any due diligence report, did not visit the issuerís facilities or meet with its key personnel. Bush did not take steps to ensure, or otherwise verify, that other firm principals were conducting any due diligence of the offeringís issuer.
The firm and Bush obtained a third-party due diligence report after firm customers had already invested in the offering. In regards to a third private offering that her firm approved for sale and sold, Bush conducted due diligence after the product had been sold to customers -- and her due diligence consisted of obtaining investor subscription documents without obtaining PPMs for the offerings, did not obtain any due diligence report from an independent third party and did not meet with any executives to understand the nature of the offerings.
Bushís firm sold additional, different unregistered offering to customers, and Bush, acting in her capacity as CCO and the designed principal for private offerings, failed to conduct due diligence for each of these other offerings.
Moreover, the firmís supervisory system and the firmís written procedures for private offerings Bush drafted and maintained were deficient because the procedures Bush drafted and maintained did not identify, in any detail, specific due diligence steps to be taken for private offerings or identify specific documents to be obtained for private offerings the firm was contemplating selling. Furthermore, the firmís written procedures for private offering due diligence were conclusory, non-specific and lacking in the requisite minimum detail regarding steps to be taken and firm personnel responsible for such steps.
Robin Fran Bush (Principal): Fined $15,000; Suspended 6 months in Principal capacity only
As her member firmís CCO, Bush was responsible for creating, maintaining and updating her firmís Written Supervisory Procedures (WSPs) and for conducting due diligence for private offerings. Bushís firm approved for sale, and sold, various private offerings, and for one offering, Bushís due diligence consisted of reviewing the PPM and investor subscription documents, but she did not seek or obtain financial documents or information from the issuer regarding the offering, did not obtain any due diligence report, did not visit the issuerís facilities or meet with its key personnel. Bush did not take steps to ensure, or otherwise verify, that other firm principals were conducting any due diligence of the offeringís issuer.
The firm and Bush obtained a third-party due diligence report after firm customers had already invested in the offering. In regards to a third private offering that her firm approved for sale and sold, Bush conducted due diligence after the product had been sold to customers -- and her due diligence consisted of obtaining investor subscription documents without obtaining PPMs for the offerings, did not obtain any due diligence report from an independent third party and did not meet with any executives to understand the nature of the offerings.
Bushís firm sold additional, different unregistered offering to customers, and Bush, acting in her capacity as CCO and the designed principal for private offerings, failed to conduct due diligence for each of these other offerings.
Moreover, the firmís supervisory system and the firmís written procedures for private offerings Bush drafted and maintained were deficient because the procedures Bush drafted and maintained did not identify, in any detail, specific due diligence steps to be taken for private offerings or identify specific documents to be obtained for private offerings the firm was contemplating selling. Furthermore, the firmís written procedures for private offering due diligence were conclusory, non-specific and lacking in the requisite minimum detail regarding steps to be taken and firm personnel responsible for such steps.
Robin Fran Bush (Principal): Fined $15,000; Suspended 6 months in Principal capacity only
Adler participated in private securities transactions when customers of his member firm and his accounting firm purchased promissory notes an individual issued. Adler failed to provide written notice to his firm describing in detail the proposed transactions with the individual issuing the promissory notes, his proposed role therein, and stating whether he had received or might receive selling compensation in connection with the transactions.
Adler introduced the customers to the individual and they invested a total of about $700,000 in the individualís promissory notes as a result of Adlerís referrals. The individual paid Adler approximately $16,434 in selling compensation for his referral. The customers lost approximately $630,000, and the firm made full restitution to Adlerís clients even though one was not a customer of the firm.
Scott Jeffrey Adler : Fined $36,434 including $16,434 in disgorgement to be paid to the firm; Suspended 12 months
McMahon sat for the Uniform Investment Advisor Law (Series 65) examination, during which he possessed unauthorized materials. McMahon electronically confirmed his agreement to abide by the rules of conduct and that he would immediately turn over any personal items such as notes, formulas, study materials or electronic devices to the testing center staff. While taking the examination, McMahon possessed a page of handwritten notes, containing material relevant to the examination, underneath scratch paper that was found on his desk during the examination.
Thomas W. McMahon : Fined $5,000; Suspended 2 years
The Firm proceeded with new business operations prior to obtaining FINRA approval. The firm filed an Application for Approval of Change of Business Operations to move its futures business operations from fully-disclosed clearing to omnibus clearing operations, and while it requested expedited processing of its application, it did not wait for approval before commencing omnibus clearing.
FINRA notified the firm by letter that it had conducted an initial review of the application and requested additional information regarding the firm and the proposed change in business operations. The firm provided the requested information to FINRA by letter, in which it notified FINRA that it made the required net capital increases and went live with its omnibus arrangement although FINRA had neither concluded its review of the application nor granted the firmís request for provisional approval to effect the change from fully disclosed to omnibus clearing operations.
At the time the firm was undergoing the approval process for its application, the firm was also contemplating a change in its business operations to prime brokerage. The firm informed FINRA that prior to conducting any full scale prime brokerage business, it intended to submit a separate Rule 1017 application. In addition, the firm submitted another Application for Approval of Change of Business Operations requesting approval to conduct prime brokerage business, which FINRA approved, although the firm had been engaging in unapproved prime brokerage activity prior to approval.
TradeStation Securities, Inc. : Censured; Fined $15,000
The Firm allowed registered representatives to operate registered investment advisory (RIA) programs not affiliated with the firm. These RIA programs were operated by firm registered representatives who were dually registered as representatives and RIAs. The RIA programs maintained accounts away from the firm and had assets under management of over $350 million. The dually registered representatives who operated these RIA programs participated in the execution of securities transactions, through broker-dealers other than the firm, involving mostly equity investments. Because the firm viewed these RIA programs as outside business activities, the firm did not comply with its obligations under NASD Rule 3040 with regard to the RIA programs, including complying with supervisory obligations and the obligation to record the transactions on the firmís books and records. The firm failed to record the transactions executed away from the firm in its books and records as required by NASD Rule 3040; failed to supervise registered representative/investment adviser (RR/IA)sí participation in the securities transactions executed through brokerdealers other than the firm; and failed to establish, maintain and enforce a supervisory system to supervise the RR/IA activities reasonably designed to provide an understanding of the nature of the services provided by its RR/IAs, the scope of each RR/IAís authority, and the suitability of the transactions in which the RR/IA participated. In addition, the firm did not have WSPs to specifically address supervision of the securities activities of outside RIAs until a later date.
UVEST Financial Services Group, Inc. : Censured; Fined $75,000
The Firm did not retain certain books and records that were required to be retained pursuant to SEC Rule 17a-4, including employment applications, signed original Uniform Applications for Securities Industry Registration or Transfer (Forms U4), articles of incorporation, records of internal inspections, and compliance, supervisory and procedures manuals, including updates, modifications and revisions. The firm failed to properly designate a registered FINOP, but continued to file FOCUS reports as required. The firm had at least one affiliated entity for which a website was established that referenced the firmís broker-dealer business, and he website was never filed with and approved by FINRAís Advertising Regulation Department within 10 days of first use or publication, and the firm did not evidence that the website had been approved by a registered principal by signature or initial. The firm failed to conduct AML testing and training, and failed to timely file a quarterly FOCUS report.
Weston International Capital Markets LLC : Censured; Fined $15,000
Hernandez converted a total of $98,559.12 from elderly customers for his own personal use and benefit. Hernandez received checks totaling $14,378.27 from a customer to be deposited into the customerís brokerage account at his member firm for investment purposes; however, he did not invest those funds -- instead, he deposited the checks into his personal checking account.
Without any authorization, Hernandez withdrew $60,220.85 from a checking account belonging to a customer of his firmís bank affiliate and then deposited those funds into his personal investment account, converting the proceeds for his own use and benefit. Similarly, he withdrew without any authorization, another $24,000 from that same customerís account and deposited the funds into his personal checking account.
Hernandez failed to respond to FINRA requests for information and documents.
The sanctions were based on findings that Alvin and Donna Gebhart engaged in private securities transactions without prior written notification to, or prior approval from, their member firm. The findings stated that Alvin and Donna Gebhart sold unregistered securities that were not exempt from registration, and recklessly made material misrepresentations and omissions in connection with the sale of securities. Donna Gebhartís suspension is in effect from June 7, 2010, through June 6, 2011.
Alvin Waino Gebhart Jr.: Barred
Donna Traina Gebhart: Fined $15,000; Suspended 1 year; Must requalify by exam in all capacities.
Guaimano engaged in pre-arranged trading of CMO bonds in a proprietary trading account of his member firm. Guaimano effected CMO bond trades, consisting of paired purchases and sales, in the firmís proprietary trading account with a registered principal and trader as the contra-party. Each pair of matched transactions was pre-arranged and directed by the registered principal. The registered principal and Guaimano traded the bonds at prices consistent with the current market for the securities; simultaneously, the registered principal agreed to repurchase them from Guaimano, at a specified time, at an agreed-upon price that usually provided Guaimanoís firm with a profit. Guaimano participated in pre-arranged transactions in which he did not take a profit, but as a result of the riskless principal CMO transactions in the proprietary account, Guaimano generated trading profits, markups and interest income for his firm of approximately $455,144.23.
Guaimano participated in the pre-arranged trading with the principal as an accommodation based upon Guaimanoís belief that the principal was ďrefreshingĒ his CMO bond inventory in order to maintain positions he wished to maintain and still be in technical compliance with inventory risk controls at his employer relative to the length of time positions that could be held in proprietary accounts. Guaimano knew, or should have known, that the pre-arranged nature of the trades, particularly the agreement that the principal would repurchase the securities in short order, caused beneficial ownership of the securities to remain with the principalís employer.
Guaimano should have known that the principalís effort to create the appearance of compliance with the inventory restrictions by liquidating positions could only succeed if the principal concealed from his employer the fact that he had committed to repurchase the bonds from Guaimano at the same or a higher price. Furthermore, Guaimano should have known that his participation in the pre-arranged transactions enabled the principal to deceive his employer as to its inventory positions and risk.
Anthony Edward Guaimano (Principal0: Fined $10,000; Suspneded 6 weeks
Fiorucci relocated his business from a broker-dealer in one state to a broker-dealer in another state, and during the process of moving his customer accounts, Fiorucci falsified customer signatures on new account forms and change in broker-dealer forms. These customers consented to his signing these documents on their behalf, but others did not. The firmís written supervisory procedures specifically prohibited registered representatives from falsifying and/or forging customersí signatures on transaction documents and/or other documents.
Charles Joseph Fiorucci : Fined $5,000; Suspended 6 months
Malchin utilized his business credit card for personal expenses and submitted false expense reports to his member firm, pursuant to which he was reimbursed approximately $1,806 for expenses that were not business-related.
Christopher Malchin : Fined $5,000; Suspended 6 months
Miller caused a research report to be published on a website that he had previously operated when he was the owner and president of a former FINRA member firm. Miller caused a press release to be issued by a public relations firm announcing the research report that was distributed to financial wire services. Miller did not inform or obtain approval from his member firm where he was registered regarding either the intention to publish the report on the former FINRA member firmís website, or cause a press release to be issued announcing the research report. Neither the website nor the press release were approved by signature or initial and dated by a principal of firm where Miller was registered.
Millerís firm filed an application with FINRA seeking approval for the firm to produce and distribute research reports. Miller was aware that the application had been filed and at the time the research report was published and the press release issued, the application was still pending and FINRA had not approved it. In addition, even though Miller knew that his firm had filed the application, he took no steps to ascertain whether or not the application had been approved. Moreover, he caused his firm to engage in the production and distribution of a research report at a time when it was not approved to do so. Furthermore, the research report and press release contained false information that stated it was prepared by a member firm although it had withdrawn its membership and was no longer a FINRA member firm.
Courtlandt Gerdes Miller (Principal): Fined $7,500; Suspended 10 business days
Rials misappropriated approximated $70,000 from her member firm. Rials, as operations manager of her firmís branch office, had authority to approve credits to customer accounts up to a specified dollar amount without additional approval. Rials used this authority to credit reimbursements totaling approximately $50,000 for non-existent fees and expenses in accounts belonging to her friends and family. Rials then withdrew the credited amounts from family accounts or received cash or checks from friends for the credited amounts.
Rials submitted expense reports for approximately $20,000 in personal expenses, falsely identifying them as legitimate business expenses. Rials improperly accessed her supervisorís computer and approved some of her own expenses reports.
Contreras engaged in private securities transactions by recommending that customers invest in promissory notes, which were not approved investments of his member firm. Contreras failed to provide written notice to his firm describing in detail the proposed transactions and his proposed role therein, and stating whether he had received, or might receive, selling compensation in connection with the transactions.
The company that issued the promissory notes filed for Chapter 13 Bankruptcy, and all of Contrerasí customers lost their entire investment.
Contreras borrowed approximately $65,000 from his customers, contrary to his firmís written procedures prohibiting registered representatives from borrowing money or securities from any prospects or customers, including non-firm prospects/customers, and Contreras failed to pay back any of the money he borrowed.
Contreras failed to respond to FINRA requests for information and testimony.
In connection with the sale of investments in a film production company, Flowers made fraudulent misrepresentations and omitted to disclose material information. Flowers collected at least $92,000 from investors, falsely representing that he would use their funds to finance a film production business and promising exorbitant, guaranteed returns. Instead of investing the funds, Flowers misused $30,498 to repay other investors and pay for personal expenses without the investorsí knowledge, consent or authorization.
Flowers made recommendations to a customer to invest in private placement offerings that were unsuitable in light of the customerís financial situation, investment objective and financial needs.
Flowers attempted to settle away customersí complaints without his member firmís knowledge or consent.
Flowers signed an attestation form for a firm acknowledging that email communications with the public must be sent through the firmís email address and copied to the compliance department, but Flowers communicated with customers via unapproved, outside email accounts without his member firmsí knowledge or consent, and as a result of his outside communications, his member firms were unable to review his emails to firm customers. In addition, Flowers engaged in private securities transactions without providing prior written notice to, and receiving prior written approval from, his member firms.
Jordon participated in private securities transactions for which he received approximately $48,585 in commissions and failed to provide prior written notice to his member firm. Jordon concealed his participation because he did not believe his firm would approve the activity and completed the firmís compliance questionnaires without disclosing the private securities transactions.
Kang made loans totaling at least $294,000 to a firm customer who was also a close personal friend. The loans were in the form of cash and checks to the customer and undertaken to assist the customer in meeting her business obligations.
Although the customer had signed promissory notes, she died and Kang has not been fully repaid. At the time she made the loans, Kang was aware that her member firm did not permit loans from or to customers unless they were immediate family members; however, Kang did not obtain pre-approval from her firm prior to lending monies to the customer, nor did she otherwise inform the firm of the loans.
Doering willfully failed to disclose material information on his Form U4. Doering completed annual certifications for his member firm in which he falsely answered ďnoĒ to whether he had been the subject of a Form U4 reportable event.
James Gabor Doering (Principal): Fined $5,000; Suspended 4 months
McDermott effected transactions, including checks, debits and automatic teller machine (ATM) withdrawals, in the aggregate amount of approximately $11,403 on her personal account at her member firmís subsidiary, for which she did not have sufficient funds. McDermott opened a personal account at the subsidiary from where she began effecting transactions in amounts that she knew, or should have known, exceeded her available balance. This pattern continued, with McDermott causing transactions to occur on her account without sufficient funds until her account showed a month-ending deficit of $4,756, which included non-sufficient funds (NSF) charges of $2,130. The write-offs in the amount of $1,056 and a deposit of $3,700 reduced the deficit in her account to zero.
During a second period, McDermott again effected transactions on the account when she knew, or should have known, she had insufficient funds to cover the transactions. She failed to make a single deposit during this time to pay for the transactions, which caused her account to have a deficit of $7,049, which included NSF charges of $430.
McDermott's firm terminated her employment as a result of her conduct.
Guelinas converted at least $500,000 from the brokerage accounts of senior citizen customers of her member firm by signing, without authorization, wire transfer requests which resulted in the conversion of the funds from the customersí accounts to outside bank accounts she controlled and to third parties; the customers did not authorize the transfers. Without authorization, Guelinas signed
wire transfer requests,
real estate purchase agreements and
a promissory note
on senior citizen customersí behalf.
Guelinas arranged and participated in real estate investments with senior citizen customers of her member firm and received compensation.
Also, Guelinas received compensation from a rental apartment she owned and failed to disclose the real estate investments, the compensation from the investments or the rental income to her member firm.
Finally, Guelinas failed to disclose material information on her Form U4.
In an attempt to keep customers from filing a complaint against him with his member firm, Rose made a $500 payment to the customers without his firmís authorization or permission. Rose serviced the joint account of these customers who invested in private placements, and when the investments did not perform to their expectations, they sought reimbursement from Rose.
John Milton Rose : Fiend $5,000; Suspended 10 business days
Moyer effected discretionary transactions in a customerís account without obtaining the customerís or his member firmís written authorization. The customer and her relative each had an account for which Moyer was the broker, and a company they owned together had an account for which Moyer was the broker as well. Moyer spoke regularly to the relative about transactions in all the accounts, but only received prior authorization for the transactions in the customerís account from her for a minimum of the transactions, and the customer had not given her relative trading authority over her account.
Moyerís firm had not permitted its registered representatives to exercise discretion in customer accounts during this time.
Kevin Leslie Moyer (Principal): Fined $5,000; Suspended 30 business days
Johnson affixed the signatures of members of the public on documents to open a joint account and transfer mutual fund shares into the account, without their knowledge and consent, and submitted the forms to her member firm for processing. Johnson had a registered sales assistant execute a ďSignature GuaranteeĒ for the customersí signatures on the account transfer forms, based on Johnsonís representation to the assistant that she witnessed the customers sign the documents, which she knew was not true. During all relevant times, Johnsonís firm had a policy which prohibited representatives from signing documents or requesting anyone to sign documents on another personís behalf, even if that person gave permission to do so. Johnson affixed one of the customerís signature on a Letter of Instruction, which directed a member firm to sell $25,000 worth of the mutual fund that the customer owned, and forward the proceeds to Johnson. Although the customer authorized the transaction, Johnson affixed the customerís signature to the document without the customerís knowledge or consent, and bypassed her firmís internal procedures requiring its operations department to review the document prior to submission to the mutual fund.
Johnson altered portions of an Individual Retirement Account (IRA) Distribution Request Form that another customer had completed by changing the date and dollar amount on the form; she then submitted the altered form for a distribution of funds. Although the customer authorized the distribution of funds, Johnson altered the form without the customerís knowledge and consent.
Linda Louise Johnson : Fined $5,000; Suspended 6 months
Keleher falsified elderly customersí account information forms and used those forms to open commission-based brokerage accounts the customers did not authorize. Keleher made unauthorized transactions in customer accounts and received $16,694.28 in commissions. Also, he paid $78,266 in commissions to an unregistered individual.
The Securities and Exchange Commission (SEC) sustained the sanctions following appeal of a National Adjudicatory Council (NAC) decision. The sanctions were based on findings that the firm and Biddick converted and misused customer securities. The SEC affirmed the NACís findings that the firm and Biddick intentionally caused the transfer of securities from customersí accounts to the firmís account without any prior authorization from, or notification to, these customers. The findings also stated that the firm and Biddick then sold a portion of the converted shares and used some of the proceeds for the firmís operating expenses.
Mission Securities Corporation: Expelled
Craig Michael Biddick: Barred
The Firm and Biddick were ordered to pay $38,946.06, plus interest, in disgorgement to firm customers.
The Firm failed to file required amendments to Uniform Applications for Securities Industry Registration or Transfer (Forms U4), filed late Forms U4 amendments and filed inaccurate Forms U4. The Firm filed late amendments to Uniform Termination Notices for Securities Industry Registration (Forms U5), filed inaccurate Forms U5 and filed a Form U5 that failed to disclose a customer complaint against a registered representative.
failed to report statistical and summary information regarding a customer complaint,
failed to timely report statistical and summary information regarding customer complaints, and
filed inaccurate reports of statistical and summary information regarding complaints.
National Securities Corporation: Censured; Fined $22,500
Starner borrowed $50,000 from a customer at his member firm without informing his firm or otherwise having the loan approved. The firm had procedures which prohibited borrowing money from customers except under certain limited circumstances, which were not applicable in this case, and it did not know of or approve the loan. The loan had been repaid.
Ray Joseph Starner: Fined $10,000; Suspended 2 months
McKinnon recommended the purchase of bonds, bond funds and annuities to an elderly customer who entrusted McKinnon with funds for their purchase. McKinnon deposited the funds into his personal bank account and made improper use of the funds, which included payment of personal expenses.
McKinnon accepted additional funds from the customer, which he used for personal expenses, and accepted additional funds from the customer in exchange for a promissory note he signed. McKinnon did not notify his member firm nor obtain its approval prior to entering into this arrangement with the customer. McKinnon provided false and misleading statements during FINRA testimony regarding the amount of funds he had accepted from the customer, the disposition of the funds and his purchases of securities for the customer in connection with the receipt of the funds.
Keys made untrue statements and omissions in connection with the sale of a security; specifically, Keys recommended that a customer invest $1.1 million in a promissory note and represented to the customer that the promissory note was secured by $1.1 million in United States Treasury Bonds, when in fact, no such bonds existed. Keys provided wiring instructions to the customer in connection with the recommended purchase directing her to wire funds to the bank account of the issuing entityís owner. Keys failed to investigate and discover that no treasury bonds existed, and instead relied on information he was given during a conference call initiated by the issuerís owner to an unknown individual who claimed to be a representative of a well-known financial institution, the purported current custodian of the bonds; and Keys failed to investigate whether the unknown individual was in fact the financial institutionís employee.
At the time of Keysí recommendation to the customer, he did not disclose the compensation, direct or indirect, that he expected to receive. The first time the customer discovered that any commission would be paid in connection with the sale of the note was when she received the note itself, delivered several weeks after she had wired the funds for the purchase; the note disclosed that a commission would be paid in connection with the note, but it erroneously stated that $50,000 would be paid to Keysí member firm, and it did not disclose that Keys wholly owned the entity that received an additional $50,000. Keys was responsible for establishing, maintaining and enforcing his firmís supervisory control policies and procedures, but failed to implement reasonable supervisory controls when he failed to ensure that an individual at the firm who was senior to or otherwise independent of himself supervised and reviewed his customer account activity.
Shah made unauthorized foreign currency trades in a customer bank account, resulting in margin calls being generated for the account and consequently the customerís other bank accounts were frozen, preventing the customer from transferring funds from those accounts. Shah made unauthorized money transfers from another customerís bank account to satisfy, in part, the margin calls for the first client and to be able to transfer funds at its request.
In order to effect the unauthorized fund transfers, Shah forged a signature and created falsified Letters of Authorization (LOAs) by cutting a bank directorís signature from an account opening document and pasting it on a fabricated LOA. Shah fabricated documents regarding another clientís obligation to meet capital calls and falsely created a memorandum representing that the capital calls had been met.
Shah falsely told the customerís beneficial owner that all outstanding calls had been met and to ignore notices he too was receiving. To make the memorandum appear authentic, Shah fabricated an internal email address for a fictitious employee and sent the memorandum to the beneficial owner to make him believe that the calls had been met.
Shah failed to respond to FINRA requests to provide on-the-record testimony and to provide a signed statement.
Karn allowed a customer to sign relativesí names on life insurance applications, and before Karn submitted them for processing, she signed the insurance applications and certified that she had witnessed each of the proposed signatures on the insurance applications. Karn falsely certified on the Representativeís Information Supplement document for each insurance application that she had personally seen each proposed insured at the time the application was completed.
One of Karnís clients completed an application to purchase a municipal bond fund by signing her name on an electronic signature pad, and later that same day, Karn signed the clientís name on the electronic signature pad and thereby affixed the clientís signature on an application without the clientís authorization, consent or knowledge. The application Karnís member firm processed and sent to the client reflected the signature Karn had affixed rather than the clientís authentic signature. When the firm questioned Karn about the authenticity of the clientís signature, Karn initially stated it was the clientís original signature, but when questioned further, admitted she had signed the clientís name and in doing so, Karn misled her firm during its internal investigation into a customer complaint.
Whitehurst improperly borrowed funds from customers at his member firm. He borrowed a total of approximately $15,000 from a customer. The borrowings were unsecured and the loan terms were not memorialized in writing; to date, Whitehurst has only repaid $10,000 to the customer.
When these borrowings occurred, Whitehurstís firm prohibited its representatives from borrowing from customers. Whitehurst did not obtain the firmís approval to borrow money from the customer and did not disclose to his firm that he had borrowed money from her.
Whitehurst borrowed a total of approximately $10,000 from another customer and has repaid the loans.
When these borrowings occurred, the firmís written policies prohibited borrowing from customers unless the firm approved an exception, but Whitehurst did not obtain his firmís approval to borrow money from the customer, and did not disclose to it that he had borrowed money from her. In addition, With both customers, the borrowing arrangements did not otherwise meet the conditions set forth in NASD Rule 2370(a)(2). Moreover, FINRA found that Whitehurst provided FINRA with a false written response in regard to an investigation.
The Firm failed to ensure that investor funds from an offering were deposited into an escrow account during the offeringís contingency period. The firm participated in a best efforts, ďminimum-maximumĒ offering an entity conducted, and the offering summary stated that if the minimum offering amount was not raised during the offering period, the funds held in the segregated account would be returned to the investors; but prior to the minimum offering amount being raised, the issuer withdrew and utilized funds from the bank account.
After only $600,000 had been raised, the issuer withdrew $199,000 and utilized the funds to make a down payment on a portfolio of defaulted auto loans so that the minimum offering amount was not obtained until a later date. The findings also included that the representation in the offering summary that investor funds would be placed in a segregated account until the minimum offering amount had been received was rendered false when the issuer utilized investor funds before the minimum offering amount was raised.
have reasonable grounds to believe that a private placement an entity offered pursuant to Regulation D was suitable for any customer, after it received red flags that the entity had financial issues and was not timely making interest payments, but continued to sell the offering to customers;
enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, and NASD and FINRA rules in connection with the sale of private placements;
conduct adequate due diligence of the private placements or confirm that its representatives were doing their own due diligence;
conduct adequate due diligence of private placements other entities offered; and
enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, and NASD and FINRA rules in connection with the sale of the private placements the entities offered pursuant to Regulation D.
The Firm reviewed cursory private placement memoranda (PPMs) for the offerings but failed to investigate red flags or analyze third-party sources of information or take affirmative steps to ensure the information in the offering documents was accurate.
The Firm failed to preserve electronic communications in a non-rewritable, non-erasable or ďWORMĒ format that complied with books and records requirements, and the firm used third-party software for storing and retaining electronic communications that did not comply with the requirements of SEC Rule 17a-4(f). Although the Firm was informed that its electronic storage medium was non-compliant but did not take adequate remedial action to retain email properly.
Workman Securities Corporation : Censured; Ordered to pay $700,000 as partial restitution to investors; Ordered to certify in writing to FINRA that it has established and implemented a system and procedures reasonably designed to achieve compliance with recordkeeping requirements related to electronic communications, and provide a written report to FINRA describing the policies, procedures and controls it has established and implemented related to the integrity of the retention and retrieval process for electronic communications, and the supervisory system it has implemented to oversee the preservation of electronic communications.
As an active participant in the U.S. Private Investment in Private Equity (PIPE) market, Canaccord failed to have in place reasonable information barrier procedures with respect to its PIPE business. The firm failed to have a reasonable system in place to track employees who were brought ďover the wallĒ on specific PIPE transactions, and while the firm had a procedure in place requiring the maintenance of a ďwall-crossing log,Ē it did not maintain such a log. The firm stored information about over-the-wall employees in a computer file that was not readily accessible to persons with responsibilities to monitor trading and review emails of employees brought over the wall on investment banking matters.
The firm failed to maintain a specific log of employee transactions in securities on the firmís grey list and/or restricted list, and the firm was unable to provide documentation evidencing that it had investigated employee trading in grey list securities to determine whether employees had misused material, non-public information.
The Firm failed to have a reasonable system in place to monitor the flow of information concerning PIPE transactions to potential investors, and while the firmís procedures required sales persons to obtain verbal agreements from potential investors to keep information concerning PIPE transactions confidential and refrain from trading on such information, the firm did not reasonably ensure that the procedure was followed or document that such verbal agreements were obtained. The information that was maintained concerning the disclosure of information on PIPE transactions was not used for supervisory or compliance purposes.
In addition, the firmís system for review of email correspondence was unreasonable; while the firmís procedures required the review of a sample of email communications, the sample included mail boxes for users no longer employed at the firm and permitted Compliance Department employees, at their discretion, to mark emails as reviewed based solely on a review of the senderís name, recipientís name and subject line of an email; stated differently, the firm permitted ďbulk reviewĒ of emails without any written guidelines informing compliance staff of the parameters for such review.
Moreover, the Firm also utilized an Internet chat room system that allowed members of its business units, including but not limited to, the investment banking and research departments, to communicate and/or review each otherís communications. Furthermore, the firm did not have in place any written procedures relevant to monitoring internal communications between its business units on the internal chat room system and could not document that it actively monitored such communication.
Canaccord Genuity Inc. fka Canaccord Adams, Inc. : Censured; Fined $40,000
Neumeyer affixed customer signatures and a registered representativeís name on documents without their knowledge or consent. During the course of routine review of account documents, Neumeyerís member firm notified a registered representative whom Neumeyer assisted, that corrections were necessary on certain account documents, including obtaining customer signatures on forms for a number of accounts. Neumeyer sent by fax to her firm the documents with corrections that had been requested and upon review of the account documents that Neumeyer faxed, certain customer signatures were identified as appearing to have been cut and pasted on to the forms.
When Neumeyer was questioned about the suspected falsified documents, she admitted to altering the documentation for a customer, by cutting and pasting the customerís signature on separate forms without the customerís knowledge or consent; the forms included disclosures about the nature of the customerís investments.Neumeyer also signed the name of the registered representative whom she assisted on numerous different documents for a number of different customers. The forms on which Neumeyer signed the registered representativeís name were acknowledgments that the registered representative reviewed the customer account documents ďfor completeness, accuracy, suitability and proper disclosuresĒ and acknowledgments that the registered representative had scrutinized the customerís information in compliance with the Office of Foreign Asset Control (OFAC) and the customer identification program (CIP), relating to the firmís compliance with AML rules.
Christina Marie Neumeyer : Fined $5,000; Suspended 30 days
Even though she was a licensed insurance producer, Ryerson signed her own name as the ďproducerĒ or ďagentĒ on annuity application transfer and exchange forms when, in fact, she was not the producer or agent on those particular applications. Ryerson signed the documents for the benefit of a person who, as Ryerson knew, sought to conceal his identity from his member firm as the true agent on those documents. Ryerson misidentified herself as the ďproducerĒ or ďagentĒ on annuity application transfer and exchange forms for other insurance agents as well under similar circumstances.
Ryerson failed to produce some of the information FINRA requested.
Schwarten made an unsuitable recommendation to a customer, in light of the customerís financial situation and needs, for the purchase of a private placement offering. Schwarten recommended that the customer take equity out of her home through a refinanced mortgage and use $100,000 of the proceeds to purchase the private placement offering.
Schwarten failed to appear for a FINRA on-the-record interview.
Without his clientís authorization, Bettencourt created a debit memorandum from his clientís account for $35,000 and directed that the debit memorandum be converted to a check payable to a bank where Bettencourt held a personal account. The findings stated that Bettencourt endorsed the check and deposited it into his personal account at the bank, converting the funds to his personal use and benefit. To disguise the conversion, Bettencourt created a false Certificate of Deposit (CD) in his clientís name for $35,000, created a false CD account in his clientís name and delivered a receipt to his client.
The Firm permitted a person registered solely as a general securities principal who had not passed the necessary qualification examination to approve research reports a firm research analyst prepared, which the firm issued. The firm published a research report regarding a company, which did not disclose that the firm had co-managed an initial public offering of securities for the company during the past 12 months. The firm began making a market in a companyís securities, and on the same day the firm published a research report concerning the same company that did not disclose that it was making a market in the companyís securities. The firm published research reports containing disclosures NASD Rule 2711(h) required that were not presented on or referred to on the front page of such reports.
Dahlman Rose & Company, LLC : Censured; Fined $17,500
Sternecker attempted to determine a customerís total amount of investments without the customerís knowledge or consent. Sternecker called a representative at another investment firm and inquired about the customerís investments at that firm. Sternecker requested a firm office assistant to impersonate the customer and authorize the representative at the other firm to provide Sternecker with information about the customer over the phone. As part of the impersonation, the office assistant answered security questions about the customer from information the customer provided to Sternecker earlier; the security answers provided by the office assistant induced the other firmís representative to provide Sternecker with the customerís investment information.
The office assistant reported the impersonation to her manager, which led to an internal investigation and after Sternecker admitted to his misconduct, the firm terminated him.
Dane Carl Sternecker : Fined $5,000; Suspended 30 business days
Brown received an $80,000 check from a customer of his member firm to deposit into the customerís account. Instead, Brown deposited $18,000 of the customerís funds into an unrelated clientís account without the customerís authorization or knowledge. Brown failed to appear for a FINRA on-the-record interview.
Bombard signed customer names to insurance disclosure forms and disclosure statements in order to avoid meeting with the customers in person, in violation of New York State Department of Insurance Regulation 60, which requires that when agents sell annuity products, they complete a Definition of a Replacement Form, a Disclosure Form and a Disclosure Statement with the applicant signing each one. The customers intended to purchase the annuity products from Bombard notwithstanding their failure to sign the required documents.
David Wayne Bombard : Censured; Fined $5,000; Suspended 6 months
In connection with customersí purchases of a private placement offering, DiMaggio falsely represented to each of the customers that she had personally invested funds with the issuer. Based on DiMaggioís representation and recommendation, each of the customers invested $60,000 in the offering.
DiMaggio settled and/or attempted to settle potential customer complaints regarding undisclosed fees, failing to add a living benefit rider to a variable annuity and making unsuitable investment recommendations, without her member firmís knowledge or approval.
DiMaggio exchanged business-related emails with customers using an unapproved email account, thereby causing her firm to violate its recordkeeping requirements. (FINRA Case #)
Jefferies signed or traced customersí signatures on applications to purchase life insurance or critical care insurance through an electronic application system available at his member firm, without the customersí knowledge or consent and contrary to firm policy. Jefferies submitted life insurance applications for fictitious customers and, along with creating fictitious customer names and addresses, he created fictitious social security numbers, driverís license numbers and other information about the purported customers. Jefferies submitted these applications for fictitious customers in order to give the appearance that he was meeting his required production for insurance policies sold. When Jefferies submitted each of the fictitious applications, he listed fictitious credit card numbers made up of all zeros for the initial premium payment, knowing that the credit card would be rejected with no payment being collected or the customers billed, while at the same time, his firm would give him immediate credit for submitting a new insurance policy.
When questioned by his manager about the applications, Jefferies initially denied having any knowledge of the practice and when later pressured by his manager, he then offered that newer agents may have been engaged in the activity. Only after his manager noted that almost all of the applications with zeros for credit card numbers were submitted from his office that Jefferies admitted to his misconduct, stating he did so because the applications would be credited to his production numbers more promptly that month. In addition, Jefferies also admitted that he had submitted applications using fictitious names and other information.
Dustin Kent Jefferies (Principal): Fined $10,000; Barred in Principal capacity only; Suspended 1 year in all capacities
Spinelli improperly marked order tickets for transactions, which his member firmís research did not cover, in accounts as ďunsolicitedĒ when, in fact, they were solicited, thereby causing the firmís books and records to be inaccurate. Spinelli solicited the purchase of securities for which the firm did not have a research opinion for family membersí accounts even though he was aware that the firm prohibited its registered representatives from soliciting transactions in securities for which the firmís research department did not have a research opinion without firm approval. Spinelli effected transactions on a discretionary basis for the accounts, when neither customer had provided Spinelli or the firm with written authorization to exercise discretion.
Edward Gerald Spinelli : Fined $5,000; Suspended 20 business days.
Schrufer made unsuitable recommendations to customers to use the accumulated equity in their homes to generate cash to invest.Schruferís recommendations that the customers borrow the money against their homes to invest in securities were made without reasonable grounds for believing that the recommendations were suitable based upon the financial situations and needs the customers disclosed. The customers took ďcash outĒ mortgages and invested hundreds of thousands of dollars in securities, for which Schrufer received advisory fees and commissions of approximately $15,300. The customers disclosed to Schrufer that they lacked the funds necessary to purchase the securities Schrufer recommended without liquefying their home equity, and that they had insufficient assets and income to cover the monthly mortgage payments without the uncertain returns from the investments Schrufer recommended.
Schrufer told the customers that the investments they would make using the proceeds of their cash-out mortgages would generate enough income to make their monthly mortgage payments, even though Schrufer knew that there was a risk that the investment returns might not be sufficient to pay the mortgages over time. Schruferís statements to the customers that their investments would generate sufficient income to make the additional mortgage payments were misleading.
Edward Howard Schrufer Jr. (Principal): Fined $30,600 (includes $15,300 commission/fees disgorgement); Suspended 1 year
Kallies executed purchases of exchange-traded fund (ETFs) in a managed joint account of public customers without the customersí knowledge or consent, and without having obtained the customersí prior written authorization to exercise discretion and his firmís prior written acceptance of the account as discretionary.
Kallies made a presentation consisting of several slides to the customers in connection with an investment strategy program he was recommending and was considered ďsales literature.Ē Kallies made the presentation without first obtaining approval from the appropriate registered principal of the firm, and it was never filed with FINRA within 10 business days of its first use. The presentation generally failed to disclose the risks of investing in the securities that were discussed, failed to disclose the general risks associated with investing in mutual funds and ETFs, and failed to disclose the heightened risk of investing in inverse types of ETFs. The absence of certain disclosures resulted in the presentation not being fair and balanced and not providing the investor with a sound basis for evaluating facts in regard to a particular security or service, and the slides contained unwarranted and/or misleading information.
Charts in some slides failed to include the total annual fund operating expense ratio, a prospectus offer and standardized average annual total returns for one, five and ten years; rather, they included the annualized rates of return, which is considered non-standardized performance and must be accompanied by the standardized performance listed. In addition, the charts in some slides failed to include the performance disclosures required by SEC Rule 482(b)(3); these disclosures generally require that the sales material disclose that the performance data quoted represents past performance, that past performance does not guarantee future results and that performance may be lower or higher.
Eric Damien Kallies : Fined $15,000; Suspended 30 business days
The Firm's anti-money laundering (AML) program was inadequate, in that the firm reviewed transactions covering only a limited amount of potentially suspicious activity. The firm generated many exception reports and alerts dealing with potentially suspicious securities transactions and money movements in customer accounts that were introduced by unaffiliated broker-dealers to the firm; however, these reports were tools that the firm provided to its correspondent brokers to satisfy the introducing brokersí AML obligations. The firm did not consistently review reports for suspicious activity reporting, and the firm reviewed only a limited number and type of transaction for its own suspicious activity report (SAR) reporting obligation.
The firm failed to establish and implement an adequate AML compliance program for detecting, reviewing and reporting suspicious activity. The firm did not review or monitor suspicious activity in most of the exception reports that it prepared for, and distributed to, the introducing broker-dealers or otherwise conduct sufficient risk-based monitoring of activity in accounts its unaffiliated introducing broker-dealers introduced. The firm reviewed a limited amount of potentially suspicious money movements and penny stock activity and, as a result, it failed to establish and implement a transaction monitoring program reasonably designed to achieve compliance with the SAR reporting provisions of 31 U.S.C. 5318(g) and the implementing regulations as required by NASD Rule 3011(a).
The Firm failed to preserve for a period of not less than three years, the first two in an accessible place, copies of instant messages sent and received between several of the firmís traders and an external party on certain days within a total of approximately 10 weeks, and the new account form and clearing agreement for one of the firmís accounts at another broker-dealer. The firmís supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules concerning retention and review of electronic communications.
In response to an NASD Rule 8210 request, a firm principal orally asked the associated person originally responsible for the firmís reviews of such electronic communications to gather and deliver the evidence of such reviews but the associated person realized he had misplaced the file and was directed by his supervisor to duplicate past reviews. Instead of duplicating such reviews using the same parameters as were in effect during the review period, the associated person re-conducted such reviews using changed and expanded parameters, signed and hand-wrote in dates of when he estimated the reviews took place, and delivered them to the secretary of the firm principal who was responding to the inquiry on the firmís behalf. Without conducting any review of the newly created reports, the firmís principal submitted them to FINRA as evidence of the past reviews and the firm failed to take reasonable steps to confirm that the subject reports represented authentic and contemporaneous evidence of supervisory reviews that were actually conducted during the review period.
First New York Securities L.L.C. : Censured; Fined $65,000; Required to revise its written supervisory procedures concerning retention and review of electronic communications.
Riolo referred customers of his member firm to entities controlled by his relative, who was purportedly engaging in trading off-exchange foreign currency (forex) contracts, but in fact was running a fraudulent scheme. The customers invested more than $3.3 million with one entity, and for referring these customers, Riolo received more than $960,000 from his relative. Both entities were fraudulent schemes and Rioloís relative was subsequently convicted and sentenced in court for his fraudulent activities.
Customers that Riolo referred lost a combined amount of over $120,000. In referring these customers to his cousin and receiving compensation, Riolo engaged in an outside business activity, but did not provide written notice or receive approval from his firm. Riolo falsely stated in signed monthly compliance questionnaires that he was not engaging in any outside business activity. In addition, Riolo failed to respond to FINRA requests for information and documents.
Joe and John Still engaged in outside business activities for compensation without disclosing this to their member firm, in writing or otherwise. Joe and John Still referred or introduced prospective investors, including a customer of Joe Stillís member firm, to an individual and to the individualís business, and failed to conduct any due diligence on the individual and his business prior to referring or introducing the prospective investors; the investors subsequently invested over $4.8 million with the individualís business.
John Still received compensation totaling over $300,000 for the referrals and Joe Still received compensation totaling over $120,000 for the referrals and, with the exception of two checks, the referral fee checks were made payable to relatives who were not securities professionals and who had no role in referring customers to the business. John and Joe Still falsely represented on annual compliance questionnaires that they had disclosed all outside business activities.
Joe Evan Still: Fined $25,000; Suspended 18 months
White borrowed $20,000 from a customer at his member firm, in order to purchase a house, without providing prior written notice to or obtaining prior written approval from, the firm. White borrowed the money, and the firmís written procedures prohibited borrowing from customers unless the customer was either an immediate family member, or a person or entity regularly engaged in the business of lending money, and Whiteís customer was neither.
White completed an annual firm compliance survey and answered falsely that he had not borrowed money from clients.
John Leslie White : Fined $5,000; Suspended 2 months
Arnold participated in a scheme to obtain confidential information and documentation regarding insurance policies by impersonating policy owners during calls with insurance companies. In connection with a review of certain customer life insurance policies, Arnold and another individual called insurance companies even though neither were agents of record on the policies or otherwise entitled to have access to that information. Arnold impersonated different insurance policy owners in order to obtain the information and documentation so that the other individual could perform a review analysis of the policies.
Mattia authorized an email to be sent from him to his member firmís Office of General Counsel that contained statements concerning the resolution of a customer complaint against a firm registered representative that he knew, or should have known, were false and caused the firm to improperly report the resolution on the representativeís Form U4.
The client settlement had been improperly reported as withdrawn even though the clientís accounts had been credited with $9,198 and Mattia had personally agreed to settle the complaint. Even if Mattia believed the email might be accurate, he should have made a reasonable inquiry into the status of the complaint prior to authorizing the email to be sent, and he would have discovered that the complaint had not been withdrawn.
Joseph Jeffrey Mattia (Supervisor): Fined $5,000; Suspended 3 months
Certain states began requiring financial advisors to successfully complete a long-term care (LTC) continuing education (CE) course before selling LTC insurance products to retail customers. Egress allowed an individual to improperly complete an LTC CE exam for him in a state in which he had a prospect who was interested in an LTC product. The individual took the exam for Egress using identification information received from Egress, which included his social security number, insurance license number and expiration date, and address.
The prospect never purchased the insurance product through Egress.
Scales was listed as a joint owner with a customer on a mutual fund account her member firm held, falsely maintaining that she and the customer were relatives because the firm allowed employeesĎ immediate family members to maintain joint accounts with them. The customer contacted the firm and reported funds missing from the mutual fund account and that Scales had improperly taken approximately $39,000 from the account and deposited the funds directly into her personal bank account, without the customerís knowledge or consent, for her own use and benefit.
LPL failed to establish, maintain and enforce a supervisory system, including written supervisory procedures reasonably designed to review and monitor all transmittals of funds and securities from customer accounts to third party accounts and to registered representativesí accounts.
The firmís supervisory control procedures for third-party transmittals included the use of an Office of Supervisory Jurisdiction Review Tool (ORT) to monitor third-party disbursements; ORT was designed to identify only transmittals of cash, e.g. in the form of checks, Automated Clearing House (ACH) transactions, or wire transfers to third parties. The firmís control procedures for review using ORT did not address journals between accounts and one of the firmís registered representatives exploited this failure and journaled $40,000 in cash as well as securities out of customersí accounts to his personal account, and converted the cash and proceeds from the sale of the journaled securities in the aggregate amount of over $1 million.
The firmís procedures required that any journal that results in assets being journaled into a registered representativeís personal account must be submitted to a supervisor for approval, and the firm failed to document any approvals of the subject journals or document that the requests were escalated to a supervisor for further review. While the firmís procedures required that the firm send a written confirmation to the customerís address of record in conjunction with all third-party journals, the firm failed to send written confirmations in conjunction with some third-party journals.
LPL failed to enforce its supervisory system and written supervisory procedures relating to the review of electronic communications in certain branch locations. Approximately 3 million emails firm financial advisors transmitted and received from numerous bank branch locations related to one bank program were not processed through the Office of Supervisory Jurisdiction Review Tool (ORT) due to a technology problem concerning the interface between one bank programís email system and the firmís ORT; therefore, those emails were not subject to supervisory review by firm managers and principals. The firmís ORT flagged for supervisory review emails financial advisors in a branch office transmitted and received, but a branch manager or principal never reviewed them.
Following De Vietienís appeal of an Office of Hearing Officers (OHO) decision that barred him for participating in private securities transactions and outside business activities in violation of FINRA rules.
M. Paul De Vietien : Fined $16,000; Suspended 1 year
REDACTED submitted requests to her member firm to make charitable sponsorship payments to a non-profit organization that she served as a vice president and a member of the board of directors, which was disclosed in writing to, and approved by, her firm. The firm approved REDACTEDís requests and made the sponsorship payments through checks.
The founder and executive director of the non-profit wrote checks totaling $20,275 to himself from the non-profitís account at REDACTEDís firm. REDACTED communicated with the founder about his personal use of the funds in a series of emails through her firm email account, which show that the founder used the funds for a move to a new place of residence, for rent and utilities and for cell phone bills, among other expenses; in one of his emails to REDACTED, the founder promised to pay the funds back.
In an email to the founder, REDACTED told him to use the money from the non-profitís account to help him get established at his new place of residence and that they would find a way to build the funds back up over time. Thereafter, REDACTED submitted the final request for a sponsorship payment of $5,000 to be made to the non-profit.
In addition, REDACTED was in possession of a checkbook belonging to the non-profit and, per the founderís oral authorization, REDACTED wrote checks and improperly signed the founderís name to those checks, but REDACTED did not have written authorization to sign the checks and did not place any notation on the checks indicating that she was signing the checks on the founderís behalf. The checks totaled approximately $7,723 and were made payable either to third parties or to ďcashĒ; of this total, approximately $3,415 was paid through checks written to ďcash,Ē thereby REDACTED improperly signed the name of an authorized signatory of a customer account on checks.
REDACTED failed to timely comply with a FINRA request that she provide testimony in connection with a FINRA investigation.
NAME REDACTED (Supervisor): Fined $10,000; Suspended 2 years
The Firm entered into an agreement with an entity to sell a private placement for which the firmís brokers sold $1,415,940 of the private placement interests to customers, and the firm failed to create and maintain a reasonable supervisory system to detect and prevent sales practice violations in these transactions. The firm did not collect financial and other relevant information for the customers who purchased the private placement, and did not review these transactions to determine if the recommendations for the purchases were suitable for these customers.
Also, the firm failed to implement a supervisory system reasonably designed to review and retain electronic correspondence. The firm did not establish an email retention system that captured all of its brokersí emails. The firmís brokers were allowed to use email addresses using external domains, and the firm did not have the capability to review, capture and retain these emails.
Puritan Securities Inc. aka First Union Securities, Inc.: Censured; Fined $10,000 (in light of the firm's revenues and financial resources, a "lower fine" was imposed)
Griffin borrowed a total of $10,000 from a friend who was also a customer of his member firm through loans against the customerís life insurance policy, contrary to his firmís written supervisory procedures that required written approval from the firm before an employee could borrow money from any customer, including friends. Griffin supplied the customer with the necessary paperwork and asked the customer not to tell anyone at his firm about the loan. Griffin failed to obtain his firmís pre-approval in writing of the loans before accepting the loans. Also, Griffin provided false responses during firm face-to-face annual compliance interviews and on questionnaires regarding borrowing or lending money to clients.
Robert John Griffin : Fined $7,500; Suspended 7 months
Fulton submitted a variable annuity application and other documents to his member firm knowing that they contained falsified customer signatures. Fulton recommended that a customer switch a variable annuity he owned for another variable annuity, which had advantageous riders. The customer agreed to the switch, but Fulton agreed to delay the switch until market conditions improved.
Fulton determined that market conditions were appropriate for the switch on a certain date, but the customer was out of town on an extended trip at that time. Fulton and the customer then agreed that the customerís relative would sign the customerís name to the variable annuity application and the other documents necessary to complete the switch transaction, which she did with Fultonís knowledge. Fulton then submitted the annuity application and other documents the relative falsely signed to his firm as authentic, knowing that the customerís signature on the documents was not authentic. In addition, Fultonís submission of the falsified application and other documents to his firm caused the firmís books and records to be inaccurate.
Roger Craig Fulton (Principal): No fine in light of financial status; Suspended 3 months
Keyes borrowed at least $214,000 from customers without disclosing such borrowings to his member firm, and used the loan proceeds to meet personal financial obligations. Each loan was an undocumented personal loan and functioned like a line of credit; Keyes would borrow an amount, repay a portion and then borrow additional funds. Keyes repaid the outstanding balances owed to each of the customers but did not fully repay two customers until after he was terminated from his member firm and FINRA began its investigation.
Keyes failed to disclose the existence of the initial loans or the subsequent borrowings from them to his firm contrary to firm policy forbidding registered representatives from borrowing funds from customers except under certain circumstances, none of which fit Keyesí borrowing. Keyes was aware of the firmís procedures, certified to the firm that he had received and read the firmís policies and procedures, and understood that he was prohibited from borrowing money from customers. Keyes falsely certified to the firm that he had not received checks from customers made payable to him, and had not borrowed money from customers.
Stanley Jerome Keyes (Principal): Fined $5,000; Suspended 3 months
Miller and another individual were trainees in a member firmís professional development program and formed a partnership through which they jointly solicited and handled customer accounts as well as splitting any production credits that either generated.
As part of their efforts to attract clients, Miller and the individual created a spreadsheet that set a model fund portfolio that they either presented to potential customers during meetings or sent by email or mail to prospective customers. Miller and the individual sent a version of their model fund portfolio that included a mix of conservative and risky securities along with a chart of history of returns the individual securities and overall portfolio earned; Miller and the individual, in some communications with potential customers, misrepresented that this was a portfolio that they managed and that the stated returns were their returns. Neither Miller nor the individual sought or received a firm supervisorís prior approval for the use of the model fund portfolio or permission of its dissemination, nor was the model portfolioís spreadsheet filed with FINRAís Advertising Regulation Department, within 10 business days after first dissemination of the material as required.
The model fund portfolios did not include any information regarding the risks associated with the funds, and the chart did not include a sound basis for the performance evaluation for each of the securities included in the portfolio. The model portfolio failed to identify or to display in a prominent fashion Millerís and the other individualís association with their firm. In addition,
Miller had his assistant type up a stop transfer letter and he forged the customerís signature on the letter meant to prevent the customer from transferring his account to another firm. Moreover,Miller admitted to his branch manager that he had forged the stop transfer request and the firm immediately terminated Millerís employment.
Stuart Phillip Miller : Fined $10,000; Suspended 1 year
Acting through Shepherd, her member firm conducted a securities business while failing to maintain adequate net capital. Shepherd caused the firmís net-capital violations by improperly treating a debt the firmís parent company owned as an allowable asset for purposes of its net-capital calculations, and improperly treating as allowable the excess amount of concessions receivable for trails over the amount of corresponding commissions payable.
Teri Sue Shepherd (Principal): Fined $7,500; Suspended 45 days in Principal capacity only; Required to requalify by examination before acting in any FINOP capacity with any FINRA registered broker-dealer.
As his member firmís Chief Compliance Officer, Bruno failed to ensure that his firm established, maintained and enforced a supervisory system and WSPs reasonably designed to achieve compliance with the rules and regulations in connection with private offering solicitations. Acting through Bruno, his firm maintained a deficient supervisory system and WSPs with respect to private offering solicitations in that those procedures did not specify who at the firm was responsible for performing due diligence, what activities firm personnel were required to satisfy the due diligence requirement, how due diligence was to be documented, who at the firm was responsible for reviewing and approving the due diligence that was performed and for authorizing the sale of the securities, and who was to perform ongoing supervision of the private offerings once customer solicitations commenced.
As a result of its deficient WSPs, the firm failed to conduct adequate due diligence on private placement offerings, and Bruno failed to take any other steps to otherwise ensure that it was conducted.
Vincent Michael Bruno (Principal): Fined $10,000; Suspended 1 month in Principal capacity only.
Echeverri failed to disclose to his member firms that he held an outside brokerage account at another member firm. While associated with one of the firms, Echeverri made written attestations to the firm that he did not have an outside brokerage account when, in fact, he did have one.
William Echeverri : Fined $7,500; Suspended 60 days
McGrath engaged in an outside business activity and failed to provide prompt written notice to his member firm; McGrath sold EIAs and earned approximately $104,000 in commissions. McGrath completed and signed a firm annual questionnaire, on which he failed to disclose his outside business activity, and failed to update his Form U4 to disclose the outside business activity, and at no time did he provide written notice to his firm.
Andrew Gregory McGrath: Fined $5,000; Suspended 3 months
Lee opened a brokerage account at another member firm without providing written notice to his firm prior to opening the account, and placed hundreds of trades in the outside account without disclosing that trading activity to his firm. Lee failed to provide notice to the firm providing the account of his association with his firm. When Lee became associated with another member firm, he failed to disclose the fact to the member firms at which he maintained brokerage accounts.
Cohen violated FINRAís suitability rule by failing to understand or convey to customers the cost of a rider to a variable annuity, pursuant to transactions he recommended to customers. Cohen incorrectly communicated the imposed fee. Cohen did not understand the risks and rewards inherent in the variable annuity, with the rider feature, which he recommended to the customers.
Cohen conducted a trade in a deceased customerís account with a purchase of $4,662 of an entity Class A mutual fund share. Cohen had discussed with this customer purchasing the entityís Class A shares prior to the customerís passing, and he had prepared certain paperwork for the transaction prior to the customerís death, but the purchase had not been made at the time of the customerís death. At the time of the transaction, Cohen did not consult with any representative of the deceased customerís estate and also did not notify the firm that the customer had passed away.
In addition, Cohen failed to appear for a FINRA on-the-record interview.
Meckenstock failed to reasonably supervise a registered representative at his member firm in that the registered representative participated in sales of stock that were outside the course or scope of the registered representativeís employment with the firm. Meckenstock participated in certain sales of the stock himself, and failed to record the sales on the firmís books and records as required by NASD Rule 3040(c).
Meckenstock failed to submit a written request to participate in the sale of stock, failed to receive written approval to participate in the transactions and failed to provide written approval to the registered representative to participate in the sales.
Meckenstock failed to conduct sufficient due diligence on the offering, failed to investigate the nature of the individual with the issuer, failed to investigate his relationship with the issuer, failed to question him about any additional sales he may have made to firm customers, and failed to investigate compensation that the registered representative was promised or received from the sale of the interests in the company.
Meckenstock failed to adequately supervise the resale of stock through a registered investment adviser (IA) the representative owned, and failed to review the IAís books and records, which would have disclosed the representativeís sale of his shares of the stock to public customers.
Meckenstock reviewed a private placement memorandum and offering for his firm and approved it as a suitable investment, but failed to ensure that the issuer had established an escrow account, thereby failing to adequately supervise the sale of the offering and causing his firm to violate Securities Exchange Act Rule 15c2-4. In addition, Meckenstock failed to evidence his supervisory review and approval of customersí purchases of interests in numerous offerings.
Bobb Arthur Meckenstock (Principal): Fined $10,000; Suspended 30 days in Principal capacity only
Delp recommended that customers participate in a Stock to Cash program under which customers pledged stock to obtain loans to purchase other products; Delpís customers obtained loans totaling approximately $3.5 million. The customers borrowed up to 90 percent of the value of the pledged stock for a short period of time. The pledged stock would be transferred to the loaning entityís securities account maintained at a clearing firm; and no payments were required during the term of the loan, but customers were required to pay the full principal and interest due at the end of the loan term. The documentation the loaning entity used made it appear it was retaining the securities pledged and might use them to enter into hedging transactions, but in reality, the customers conveyed full ownership to the entity, which routinely sold the securities upon receipt and often moved the money into its own bank account.
The entity became unable to make complete payments to customers with profitable portfolios and used the proceeds from the sale of securities new customers pledged to pay off its obligations to existing customers, and money was also diverted to pay for expenses not related to its operation. Delp did not take adequate efforts to find out what happened to the stock conveyed to the lender and did not inquire into what would be done with the stock; failed to conduct due diligence into the lenderís financial condition but relied on unverified statements the promoter made, and told his clients they could receive their stock back at the end of the loan period. By failing to verify information about how the stock was held or secured and whether the lender had the ability to fulfill its obligations, Delp did not have a reasonable basis for recommending the Stock to Cash program to his customers and potential customers. Some of the customers, at Delpís recommendation and with his participation, initially used some or most of the proceeds to buy equity-based mutual funds along with other products in violation of Regulation U restrictions.
Bradley John Delp : Fined $25,000; Suspended 75 days
Nwigwe misappropriated customerís funds when he worked as a personal banker for his member firmís affiliate bank. Nwigwe requested that a credit card for a customer be delivered to his attention at the branch, used the credit card to incur approximately $1,746 in unauthorized charges for his personal use and forged the customerís signature on multiple occasions to complete purchases with the card. Nwigwe admitted to the firmís internal investigators that he used the unauthorized credit card for his personal use.
Buka Uzoma Nwigwe aka Chukwuebuka Nwigwe: Barred; The Hearing Officer did not order restitution because the customer was not required to pay for the unauthorized charges on the credit card.
Sarmiento converted a total of approximately $82,350 through checks, which he took and forged from a joint brokerage account firm customers held. Sarmiento admitted to one of the customers that he had taken the checks belonging to the customersí joint brokerage account, admitted to stealing their money, indicated that he would return the money and asked that he not be reported.
Sarmientoís former member firm contacted his current firm regarding Sarmientoís conversion of customersí funds while at the former firm, and when questioned, Sarmiento admitted to having taken the customersí funds.
Sarmiento failed to respond to FINRA requests for information and documents.
Carlos C. Sarmiento Jr. : Barred; Ordered to pay $82,350, plus interest, in restitution to a member firm.
Certain states implemented a LTC CE requirement that obligated financial advisors to complete a LTC CE course and exam before selling LTC insurance products.In order to assist financial advisors with the LTC CE requirement, Woods created an answer key for one state exam, distributed the answers for the exam to other firm representatives and distributed a portion of the answers for the exam to a non-firm employee.
Carson Jay Woods : Fiend $5,000; Suspended 60 days.
The Firm failed to develop and implement a reasonably designed anti-money laundering (AML) compliance program (AMLCP).
The firmís written procedures, which contained information primarily relating to customer identification procedures (CIP),
offered little or no guidance on how to comply with most requirements of the Bank Secrecy Act;
contained no provisions on conducting customer due diligence and enhanced due diligence, and insufficient guidance on responding to, and properly documenting responses to, information requests the United States Department of Treasuryís Financial Crimes Enforcement Network (FinCEN) issued pursuant to Section 314(a) of the U.S.A. PATRIOT Act; and
did not address how to monitor for and report suspicious activity, and the firm failed to conduct an adequate independent test of its AMLCP. FINRA found that the testing, which an independent auditor performed, was deficient by failing to test the firmís implementation of a suspicious activity report (SAR) surveillance program, AML training program and Bank Secrecy Act requirements, including customer identification procedures.
FINRA also found that the firm failed to
establish, maintain and/ or enforce a supervisory system and written procedures reasonably designed to record and supervise private securities transactions, and failed to record such transactions; and
make and keep current all account forms in compliance with Securities Exchange Act Rule 17a-3(17), and NASD Rules 3110(a) and (c).
Gibas failed to reasonably supervise a registered representative at his member firm by approving variable annuity transactions the representative recommended and affected; in approving these transactions, Gibas did not adequately respond to red flags that should have alerted him that the transactions were unsuitable.
Gibasí firm placed the representative under heightened supervision, which was formalized by a written agreement the representative and Gibas signed, and under the agreement, Gibas was required, among of things, to pre-approve all the representativeís annuity business and new accounts, to speak with each of the representativeís customers who were 65 or older, and to help the representative diversify her business.
With respect to the variable annuity transactions, they were unsuitable, in that the transactionsí costs outweighed the benefits, and in some of those transactions, the customers purchased a rider for which they were not eligible. At the time Gibas approved these transactions, there were numerous red flags regarding the representativeís variable annuity transactions, including transactions appearing on exception reports, that should have alerted him to the potential unsuitability of her transactions and required follow-up more comprehensive than Gibas otherwise took. Gibas did not adequately carry out his other responsibilities under the firmís heightened supervision of the representative; although Gibas reviewed the representativeís transactions and contacted certain elderly customers before those transactions were affected, some of the conversations with the representativeís customers lasted only a few minutes, were conducted when the representative was present, or before Gibas received any paperwork regarding the proposed transaction. While Gibas met with the representative, as well as with other supervisory and compliance personnel at the firm, none of the steps taken proved effective in preventing the representativeís unsuitable sales.
Christopher Gregory Gibas (Principal): Fined $10,000; Suspended 5 months in Supervisory/Principal capacities only
Reinhard participated in private securities transactions without providing prior written notice to, and/or obtaining prior written approval from, his member firm. The findings stated that Reinhard sold at least $869,000 in stock and warrants to investors, including firm customers, and sold the securities, which a publicly traded company issued, as part of a private securities offering by hedge funds. Reinhard falsely represented on annual compliance questionnaires that he had not engaged in private securities transactions.
Reinhard failed to respond to FINRA requests for documents.
Bulinski made unsuitable recommendations to her elderly clients to purchase variable annuities. She repeatedly failed to tailor her recommendations to meet her customersí individual investment needs, and instead recommended the same variable annuity to her customers, irrespective of age, investment experience, liquidity needs, financial situation and risk tolerance.
Bulinski recommended that elderly customers purchase the same variable annuity with an enhanced death benefit rider, but demonstrated that she did not have reasonable basis for her recommendation because some of the customers were too old to purchase the rider and the rest gained little, if any, benefit from the rider while paying a substantial cost for it. Bulinski recommended unsuitable variable annuities with a rider that was inconsistent with her customersí investment objectives. In numerous instances, Bulinski demonstrated that she did not understand the variable annuity and inaccurately described the investment to a customer as a fixed annuity rather than a variable annuity, and with other customers, incorrectly stated the surrender period and surrender charges her customers would incur.
Bulinski was the subject of several written customer complaints about her lack of disclosure about surrender charges and other product details.
Seagraves willfully failed to amend his Form U4 with material information and to disclose the information on his member firmís annual compliance questionnaire. Seagraves failed to submit an invitation to his investment seminars for principal approval before sending it to the general public, and used unapproved slides at the seminars although he had previously submitted sales literature to his firm for advance approval and was therefore familiar with the requirement to do so. The seminar invitation and slides he used in connection with the seminars contained numerous exaggerated, misleading and promissory statements that contravened FINRA Rule 2210ís requirements for sales literature.
Dallas Ray Seagraves II (Principal): Fined $10,000; Suspended 9 months in all capacities; Barred in Principal capacity only
In connection with the opening of a new account for an existing institutional client, Doderer signed the names of officers for that client on sections of a Uniform Application for Investment Advisor Registration (Form ADV), without the signatoriesí authorization or consent, and added false dates to sections of the Form ADV. Doderer submitted the Form ADV in connection with the opening of another account for the client, his member firm rejected it because it lacked a manual signature. Rather than obtain the signatures from the institutional client, Doderer signed the name of the clientís vice president next to the electronic signature on the domestic investment adviser execution page and state registered investment adviser execution page on the Form ADV, and inserted a false execution date on the execution page. Doderer signed the name of the clientís president and inserted a false execution date on the non-resident investment adviser execution page of the Form ADV. Doderer signed the officersí names without their authorization or consent and submitted that Form ADV to the firm.
Daniel Michael Doderer: Fined $5,000; Suspended 1 month
Isolano's member firm willfully charged excessive and fraudulent markups to customers in connection with their purchase of penny stocks, and Isolano was personally responsible for failing to enforce the firmís supervisory procedures and was directly liable for the firmís fraudulent and excessive markups. Isolano engaged in a fraudulent markup scheme in connection with customersí transactions with the purchase or sale of a security. As his member firmís CEO, Isolano failed to reasonably enforce its supervisory procedures concerning markups and proprietary trading. Isolano knew a markup was assessed on customer transactions and failed to take steps to ensure the markup was fair and reasonable or in compliance with the firmís supervisory procedures.
David Scott Isolano (Principal): Fined $40,000; Suspended 5 months in all capacities and thereafter for 1 month in Principal capacity only
As the registered representative on the joint securities account of customers at his member firm, Blackstone created a false Letter of Authorization (LOA), without the customersí knowledge or authorization, and forged their signatures to authorize a transfer of funds from their joint account at the firm to a bank account that Blackstone controlled. Based on the forged LOA, the firm wired $28,320 from the customersí joint account to the bank account Blackstone controlled and, after receiving the funds in his bank account, Blackstone used the funds for his personal expenses.
Christenson converted customer funds by transferring $66,000 in several transactions from a bank customerís saving account into several of his personal checking accounts, without the customerís knowledge. Christenson failed to respond to FINRA requests for information.
McLaughlin checked several boxes on an Explanation of Transaction form and placed the customerís initials next to the boxes, without the customerís knowledge or authority; the customer had signed the signature page related to her annuity purchase but did not initial pages that explained the transaction and fees involved. McLaughlin signed a customerís name to a Mutual Fund & Certificate Redemption Exchange and/or Transfer Form without the customerís knowledge or authority.McLaughlin signed a customerís name to a Transfer on Death Account Agreement/ Payment on Death Account Agreement without the customerís knowledge or authority.
McLaughlin failed to respond completely to FINRA requests for information. (FINRA Case #)
Green affected trades in collateralized mortgage obligation (CMO) bonds in his member firmís proprietary trading account to conceal inventory positions and create the false appearance of profitability through the use of fictitious and pre-arranged trades. In some cases, no contra-party had agreed to the transaction at the time Green submitted an order, and in other cases, Green had agreed to repurchase the security from the contra-party at an agreed-upon price that guaranteed a profit to the contra-party, causing the beneficial ownership to remain with Green.
Green devised a strategy that not only hedged and concealed the positions, but circumvented trading capital and inventory limits his firm set, and created the impression of profitable trading by extending the settlement dates for certain bonds and coordinating fictitious transactions with other broker-dealers.
Green received compensation based upon the overall profitability of the firmís proprietary account, and because Greenís scheme created the appearance of profitability, he received compensation based upon the apparent profits; Green received $7,353,000, which resulted in an overstatement of the firmís net capital and caused the firm to cease business. Green caused the firmís books and records to be inaccurate. In addition, he failed to respond to FINRA requests for documents and information, and to appear for on-the-record testimony.
Duffy failed to fully accrue a $325,000 settlement of a customer arbitration claim against the firm as a liability on his member firmís ledgers and other records. Duffy only accrued as liabilities amounts when due under a payment schedule to the settlement agreement, and had not booked $125,000 of the settlement that had not been paid as a liability, which caused his firmís records to be inaccurate. As a result of failing to properly and accurately track assets, liabilities and expenses, the firm, while conducting a securities business, and acting through Duffy, failed to maintain its minimum net capital requirement. The deficiencies were primarily attributable to Duffy incorrectly viewing funds from private placements deposited in an escrow account of a separate but related company, as good capital to his firm before the funds were actually legally and physically available to the firm; and while Duffy was aware of past delays in the firmís ability to access funds deposited in escrow, he did not take into account the possibility of delays when estimating the firmís net capital position, and during that time period, was only performing a month-end formal computation of new capital after requisite capital was actually infused.
Francis Thomas Duffy (Principal): Fined $10,000; Suspended 10 business days in FINOP capacity only
Buchholz misappropriated approximately $1,350,000 from customers, a number of whom were retirees, by liquidating their variable annuities and/or mutual funds and then transferring the proceeds to his personal bank account, converting the proceeds for his own use and benefit. As part of this scheme, Buchholz falsely and fraudulently represented, at times by forging customer signatures on redemption documents, that certain customers had authorized the redemption of the securities in order to obtain the proceeds of the sale; fraudulently induced certain customers to authorize the redemption of securities, based on misrepresentations that the proceeds would be reinvested to the customersí investment accounts; and caused checks to be drawn in the customersí names and caused the checks to be sent directly either to his office or to the customers.
If the checks were sent directly
to the customers, Buchholz convinced those clients to turn the checks over to him, making false and fraudulent representations that he would deposit the funds in their securities accounts to be reinvested; however, he did not reinvest the proceeds but instead deposited the checks into his personal bank accounts and used the proceeds for his own purpose;
to his office, Buchholz simply deposited the checks in his own bank accounts for his personal use and sometimes forged the customersí signatures in order to cash the checks.
Lee sold approximately $500,000 worth of Treasury and municipal securities in a customerís firm account without the customerís permission or knowledge. Lee opened a checking account in the customerís name without the customerís knowledge or consent, placed the proceeds from the unauthorized sale in the checking account and then requested a $500,000 check to be drawn on the account made payable to a company under his control and ownership. When the check could not be processed because of irregularities, Lee requested checks for $280,000 and $220,000 be drawn on the account and made payable to another company he owned and controlled, endorsed both checks and deposited the proceeds into his own checking account, thereby converting the funds.
Lee failed to respond to FINRA requests for information and to provide testimony.
Kennebeck sold to four customers securities in the form of installment plan contracts offered by a Tennessee non-profit corporation without first providing written notice of his participation in these sales to his member firm or receiving its written approval; the Tennessee non-profit corporation promised a tax deduction and fixed deferred payments at an unspecified rate of return, in exchange for each customerís transfer of ownership of existing annuities to the non-profit corporation.
Kennebeckís customers exchanged existing annuities with a combined accumulated value of $1,078,428.10 for installment-plan contracts. Although the non-profit corporation applied for tax-exempt status, the Internal Revenue Service (IRS) never approved its application, and consequently, customers who purchased installment-plan contracts were unable to claim a tax deduction in connection with their investments.
Kennebeck obtained information from non-profit corporation personnel, which he accepted at face value and failed to independently verify, including the non-profit corporationís representation that it had been granted tax-exempt status as a charitable organization, and that investors could avail themselves of the touted tax deduction in connection with their investment. Kennebeck negligently misrepresented to his customers that they could take charitable tax deductions in connection with their respective investments, which was not true. In connection with his sale of the installment plan contracts, Kennebeck provided the customers with illustrations and other sales materials he received from the non-profit corporation that contained misleading and incomplete information without first presenting them for review and approval to a registered principal of his firm.
Jack Thomas Kennebeck (Principal): Fined $50,000; Suspended 10 months; Ordered to pay customers $12,709.59, plus interest, in restitution.
Milliner was an ATM custodian whom both his member firm and a bank suspected of misappropriating funds from an ATM, and both began an internal investigation of his actions. Milliner denied taking any funds from an ATM, but in response to specific questioning, he admitted that he had misappropriated $100 from his teller drawer several months earlier. In connection with the internal investigation, Milliner made full restitution of the $100 and voluntarily resigned his employment.
Beckett submitted an advertisement to a local newspaper, which listed an entity he owned as offering certain investments, including certificates of deposit (CDs) and fixed annuities, and that he did not submit the advertisement to his member firm for review and approval; moreover, the advertisement content included misleading statements regarding the offered investments.
Beckett maintained a website for an entity he owned, which was accessible to the investing public, and he failed to submit the website material to his firm for review until a later date. Beckett failed to obtain his firmís written approval of the website content prior to its use.
Beckett completed an annual certification, which he provided to his firm and he answered ďnoĒ to the question asking whether he anticipated using any type of electronic communication systems such as the Internet for soliciting business.
Jason Leekarl Beckett : Fiend $10,000; Suspended 2 months
Ellis signed customersí applications for fixed annuities, as a favor to another registered representative not authorized to sell products a company offered, without having met with or discussed the fixed annuity product or the points on each application with the customers, or ascertained the productís suitability for each customer as required; thereby his attestations on the annuity applications submitted to his member firm and the insurer were false. The falsified applications were submitted to the firm under Ellisí production number, and the insurer approved the applications and issued annuity contracts based on Ellisí misrepresentations on the applications. After the falsified annuity applications were discovered, Ellisí firm offered to rescind the transactions for the customers or choose another investment at no cost. Neither Ellis nor the other representative received any compensation for the transactions.
Joshua A. Ellis: Censured; Fined $7,500; Suspended 6 months
Elverud caused his member firm to use Internet advertisements, websites and other public communications that were misleading, did not supply fair and balanced presentations of risks and rewards, or failed to give a sound basis for evaluating information. Elverud failed to approve or maintain records of public communications his firm issued. Elverudís firm distributed a newsletter, which Elverud wrote, about a company whose securities the firm marketed; the letter was unduly and excessively positive, and failed to disclose material facts concerning the companyís financial difficulties, which caused the communication to be misleading.
Elverud made misrepresentations to investors through letters written on firm letterhead, about the securities the company issued, and the letters misrepresented the individual offers being made as a general reinvestment option to keep the investors from redeeming their holdings in the companyís securities, and omitted material information regarding the companyís financial difficulties.
Elverud caused his firmís books and records identifying personnel holding supervisory and compliance responsibilities to be inaccurate. Elverud caused his firm to conduct a securities business while it was in violation of its net capital requirements.
Leiker converted $1,001.31 from her member firmís parent company while serving as branch office manager with the signing authority for the officeís expense account. Leiker converted the funds by writing checks payable to herself from the branch officeís expense account. She signed the checks on the companyís behalf, cashed the checks, and used the proceeds to pay for personal expenses. The company did not authorize any of the disbursements, and none of the checks were used to pay for, or to reimburse Leiker for, any valid business expense.
Schurr engaged in an outside business activity involving a company, which was a marketing and advertising business through which she sought to generate leads for registered representatives and insurance agents. The companyís primary form of marketing was mass mailings, usually employing postcards that contained false and misleading statements that Schurr sent and caused to be sent to thousands of prospective customers. Schurr developed and directed the use of multiple false and misleading telephone operator scripts that were used in the companyís call center to respond to potential investors.
As a result of the misleading marketing practices involving her company, Schurr became the subject of state regulatory actions and willfully failed to timely update and amend her Form U4 to disclose these actions to FINRA as required.
Schurr associated with a FINRA registered member firm and acted in a registered capacity while subject to statutory disqualification.
Schurr provided false information and failed to disclose material information to the firm on firm annual compliance and outside business activity questionnaires concerning her outside business activity and regulatory actions.
In addition, Schurr failed to provide prompt and complete written notice to the firm of her outside business activities involving another insurance marketing firm when the other company was closed.
Linda Mary Bakalis Schurr : Fined $35,000; Suspended 2 years
Ohaimhirgin recommended that 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; customers accepted his recommendation, taking out loans in the Stock to Cash program totaling more than $3.3 million.
Ohaimhirgin made no effort to find out what happened to the stock that was conveyed to the lender, and did not inquire into what would be done with the stock. He assumed that the lender held the stock as collateral for the entire loan term and did not attempt to obtain any information from the lender to whom the stock was assigned, or to verify any information provided by the promoter of the program with the lender.
Because the Stock to Cash strategy involved in each case a pledge of stock, Ohaimhirginís advice to his clients constituted a recommendation of ďthe purchase, sale or exchange of any security,Ē and as a registered representative, he was obligated under NASD Rule 2310 to have a reasonable basis for recommending that his customers pledge their stock to this lender to participate in the Stock to Cash program. Ohaimhirgin failed to obtain and verify information about how the stock was held or secured, and whether the lender had the ability to fulfill its obligations before recommending that his customers participate in the Stock to Cash program. As a result of failing to ascertain the facts necessary to understand the potential risks inherent in the program, Ohaimhirgin did not have a reasonable basis for his recommendations.
Lochlainn Ohaimhirgin : Fined $15,000; Suspended 60 days
Wright engaged in private securities transactions when he participated in the sale of private placements related to telephone equipment and leasing agreements offered through various businesses connected to a company. Wright received no selling compensation, agreed to provide restitution of $1,617,485 to the customers by entering into purchase agreements with each customer and has commenced payment.
Wrightís member firm suspended him for 10 business days and placed him on heightened supervision for one year.
Louis A. Wright (Principal}: No Fine in light of financial status; Suspended 1 year
Takeuchi participated in private securities transactions by selling a viatical settlement companyís viaticals to outside investors while he was registered with his member firm. Takeuchi did not provide notice to, and receive approval from, the firm before participating in these private securities transactions; the firm also prohibited the sales of viaticals. Takeuchi earned approximately $4,400 as a result of his viatical sales and never gave the firm any notice, written or otherwise, that he had sold viaticals to outside investors.
Takeuchi repeatedly misrepresented and omitted material information to the firm concerning his sales of viaticals when he completed the firmís annual compliance meeting questionnaires and checked ďNo,Ē implying that he had not engaged in any activity involving viatical contracts.Takeuchi made false attestation to the firm when he executed a firm document that he had not participated in the sale or solicitation of viaticals. Takeuchi knew that his written statements to the firm regarding his viatical sales were inaccurate or incomplete.
Erlich failed to disclose to his member firm that he personally possessed stock certificates belonging to prospective firm customers and details concerning such shares. By failing to disclose, Erlich prevented his firm from complying with SEC Rule 15c3-3 in that the firm, without knowing of the securities he possessed, failed to bring the securities under possession or control as required, and compute and maintain sufficient cash and/or qualified securities in its reserve bank account, as required; and prevented the firm from complying with books and records rules, which required that firms record the receipt of securities.
Erlich used a personal email account to send business-related correspondence. Although Erlich courtesy-copied his firm email address on a few of the emails he sent from his personal email account, he failed to copy or forward any of these emails to his firm managers. Erlichís firm did not permit the use of non-firm email accounts for communications related to firm business, and that by using his personal email account for firm-related business and not copying or forwarding such emails to his firm, Erlich prevented his firm from discharging its supervisory obligations.
Mark Peter Erlich: Fined $15,000; Suspended 7 months
As President of his member firm, White permitted the creation and dissemination of misleading sales and advertising materials to various state securities regulators in an effort to draw scrutiny to a business established by former registered representatives who left the firm to start their own business selling oil and gas interests. White made it appear as if the documents had been generated by an entity the former registered representatives established. A firm employee drafted and assembled the mailings to create the appearance that an officer or employee of the former registered representativesí new business had generated and authorized the mailings. The mailings contained a cover letter drafted to draw regulatorsí interest to the former registered representativesí entity.
The mailings appeared to be from the former registered representativesí entity, listed the name of an officer or employee of the entity, contained a return address of the entity on the envelopes used in the mailings, included printouts from the entityís website, provided an executive memorandum, and also provided a ďConfidential Private Placement MemorandumĒ and ďSubscription AgreementĒ which both listed the former registered representativesí new business throughout the documentation.
Martin Dean White Sr. (Principal): Fined $5,000; Suspended 3 months
The Firms failed to ensure that emails were retained and timely reviewed.
The Firms, all subsidiaries of the same parent company, implemented a new, third party system for email archiving and review. In order for the emails to be archived consistent with the requirements of SEC Rule 17a-4 and NASD Rule 3110, the firms relied on their personnel to properly code new and existing email accounts to ensure that emails were journaled from usersí email accounts in the new system, and when email accounts were incorrectly coded, the affected usersí emails were not retained consistent with SEC and NASD rules. Instead, both sent and received emails were retained for 30 days, unless an individual employee double-deleted the email (in which case it would not have been retained at all); after 30 days, any emails remaining in an individual employeeís email inbox or outbox would be retained for an additional 30 days; and all emails would be deleted from the new system after 60 days (unless the auto-delete function was disabled), and additionally, would not have appeared in the new system for compliance department reviews, unless an email user whose account was properly coded sent or received the email message.
The Firms did not properly code certain email accounts and did not have written guidance to ensure that all email accounts for associated persons of each firm were properly recorded, nor did the firms have evidence that they conducted any testing of the new system to ensure that email accounts were being set up properly to capture emails for compliance with SEC Rule 17a-4 and NASD Rule 3110. As a result of the failure to retain emails, the firms also failed to timely review emails of affected users. In addition, FINRA determined that the failure to properly archive and review emails was discovered after a MBSC Securities Corporation compliance department employee searched for an electronic copy of an email he knew to have existed, and failed to locate it; prior to that event, the firms did not know that they were failing to properly archive and review emails.
Moreover, following the discovery of the retention and review problem at the firms, the firmsí parent company retained an outside consultant to assess the scope of the retention failure, and the outside consultant determined that there were 725 affected users between the three firms, for whom emails were not retained consistent with SEC and NASD rules. Furthermore, the outside consultant estimated that the three firms may have lost as many as 4 million emails through the failure to properly code email accounts for journaling to the new system.
In determining the appropriate sanctions in this matter, FINRA took into consideration that the firms self-reported to FINRA their failure to review and retain certain emails and the steps the firms took to remedy those deficiencies.
MBSC Securities Corporation, BNY Mellon Capital Markets LLC and BNY Mellon Securities LLC: Censured; Fined $300,000 joint/several
Rozenbaum misappropriated funds from a customer by depositing into his personal bank account a $5,000 check, which he endorsed, that the customer had sent for deposit into her Roth IRA account to fund a mutual fund purchase, and thereby converted the funds to his own use and benefit. The customer did not authorize Rozenbaum to deposit her funds into his bank account. The firm made the customer whole and Rozenbaum subsequently reimbursed the firm.
Certain states implemented a long-term care (LTC) continuing education (CE) requirement that obligated financial advisors to complete a LTC CE course and exam before selling LTC products to customers who resided in that state. To assist financial advisors with the LTC CE requirement, Cissne requested and received the answers for one state exam from member firm representatives, distributed the answers to the exam to other firm representatives and distributed the answers to outside financial advisors on several occassions. Cissne received and distributed the answers for another state exam to an outside financial advisor on one occasion.
Rodak assisted customers in participating 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. Customers that Rodak assisted took out stocks to cash loans totaling more than $7.8 million.
As part of the process of obtaining a loan through the Stock to Cash loan program, customers were required to provide documentation setting forth the intended use of proceeds in order to ensure compliance with Federal Reserve Board regulations restricting the extension of margin credit. In order to avoid violation of Regulation U, borrowers who pledge marginable securities must complete a Federal Reserve Form G-3, also referred to as a Purpose Statement, which requires them to certify whether they will be using the loan proceeds to buy margin securities and, if not, to describe the specific purpose of the credit; the Form G-3 includes a warning that the falsification of the purpose of the credit by a borrower on the form violates the margin rules.
Rodak completed the Purpose Statement for the customers, indicating that they would be using the proceeds for real estate, but at the time Rodak completed these forms, he did not know how the customers would be using the proceeds, or whether the customers had already decided to use the proceeds to buy insurance products; as a result, Rodak caused numerous Purpose Statements to be inaccurate, and a copy of the completed statement for each customer was subsequently provided to the promoter of the program.
Paul Michael Rodak (Principal): Fined $15,000; Suspended 60 days
Bonnell engaged in an outside business activity involving a company he owned and operated, which was a marketing and advertising business through which he sought to generate leads for registered representatives and insurance agents. The companyís primary form of marketing was mass mailings, usually employing postcards that contained false and misleading statements that Bonnell sent and caused to be sent to thousands of prospective customers.
Bonnell developed and directed the use of multiple false and misleading telephone operator scripts that were used in the companyís call center to respond to potential investors. As a result of the misleading marketing practices involving his company, Bonnell became the subject of several state regulatory actions and willfully failed to timely amend his Form U4 to disclose these actions to FINRA as required.
Bonnell associated with a FINRA registered member firm and acted in a registered capacity while he was subject to statutory disqualification. Bonnell provided false information, failed to disclose material information, and misrepresented material information on the firmís annual compliance questionnaires concerning his outside business activity and regulatory actions.
In addition,Bonnell failed to provide prompt and complete written notice to the firm of his outside business activities involving another insurance marketing firm he operated after closing the other company. Moreover, Bonnell failed to adequately supervise certain representatives to ensure they filed accurate and timely updates disclosing state regulatory actions and outside business activity.
Peter Joseph Bonnell III (Principal): Fined $35,000; Suspended 2 years
OíHearn placed a phone call to an insurance companyís customer service call center asking for information about a customersí policy and falsely identified himself as the representative assigned to the life insurance policy, providing the agent of recordís name and agent number. OíHearn also provided the service agent with the customersí updated mailing address, and requested that the agent send certain policy information to them.
Philip Michael OíHearn (Principal): Fined $5,000; Suspended 10 business days
The Firm used an external server to preserve its business-related electronic communications but the server only preserved the firmís business-related electronic communications for a period of 30 days.
The Firm conducted a securities business while it failed to maintain its required minimum net capital. The net capital deficiencies stemmed from its failure to take security haircuts and undue concentration deductions, its improper classification of a note receivable as an allowable asset, its improper classification of fixed annuity commissions and private placement receivables as allowable assets and double-counting a commission receivable. The firm maintained inaccurate books and records, and also filed inaccurate FOCUS reports.
Pinnacle Financial Group, LLC: Censured; In light of firm's financial status it was Fined $15,000
While serving as a licensed insurance agent, Robinson created fictitious property and casualty insurance policies in order to meet production goals with his firmís affiliated insurance company. Robinson did so by forging customer signatures or otherwise falsifying insurance application forms and related documents. Thefirmís affiliated insurance company paid Robinson approximately $16,000 in commissions as a result of the fictitious policies.
Sanford wrote personal checks against a number of her accounts maintained at her member firm while she knew, or should have known, that she had insufficient funds to cover payment on the checks. The checks were linked to her financial management account, addressed to herself and in response to or preceded by the firmís giving her notice that she had to deposit funds to cover checks on a margin call. In almost each instance, after receiving notice that she had to deposit funds into one of her accounts, Sanford responded by writing and depositing an insufficient funds check into that account, and then writing additional checks or effecting account transfers to prevent the first check from being dishonored. Sanford wrote checks from an account she knew, or should have known, had a negative balance, and deposited them into the same account resulting in an inflated account balance; the amount of the insufficient funds checks totaled an aggregate of approximately $109,000.
Sanford willfully failed to disclose material information on her Form U4.
The Firm approved advertising materials registered representatives used during several public seminars; the firm sent invitations to members of the public, and the seminar attendees received supplemental materials designed to introduce the firm and the financial services it offered. The invitations failed to provide a sound basis for evaluating the facts regarding the products or services offered. The supplemental materials contained exaggerated and unwarranted language, and the seminar handout had unwarranted language.
The seminar presentations failed to explain a product or strategy. The discussion of equity-indexed annuities (EIAs) failed to provide a balanced presentation and omitted information. The discussion of variable annuities omitted material information.
The presentations failed to disclose
that projections are hypothetical and are not guarantees,
risks attendant with options transactions, and
risks and rewards of real estate investment trusts (REITs) in a balanced way.
The discussion of expenses pertaining to mutual funds and variable annuities was misleading; discussion of annuities in Individual Retirement Accounts (IRAs) was misleading.
The list of benefits and features of variable annuities failed to disclose potential restrictions and costs, discussion of 1031 exchanges failed to elaborate on Internal Revenue Code restrictions. The discussion of variable annuities provided an incomplete, and oversimplified presentation and representation that safety and protection are provided by diversification market index certificates of deposit, puts, and living benefits profits provided by variable annuities was promissory and exaggerated.
The firm failed to reasonably supervise its communications with the public and its supervision was not reasonably designed to meet the requirements of FINRA Rule 2210(b)(2). The firmís procedures required the supervisory principal to evidence approval by signing public communications submitted for approval and use, but the supervisory principal only initialed a coversheet that did not identify which communication was approved. In addition, the firm failed to maintain records naming the registered principal who approved the public communication or the date approval was given, nor documentation establishing that a certified registered options principal approved options material or that the material had been properly submitted to FINRAís Advertising Regulation Department for pre-approval.
Resource Horizons Group LLC : Censured; Fined $15,000
Mailloux participated in private securities transactions without prior written notice to, or prior written approval from, his member firm. Mailloux referred customers to another registered representative of the firm, who executed promissory notes, called ďprivate investor agreements,Ē with the customers on a corporationís behalf. The findings also stated that the promissory notes, which were securities, indicated that the corporation promised to pay 10 percent and 12 percent annual interest, respectively, in return for the loans. The corporation subsequently defaulted on its payment obligations to Maillouxís customers, who incurred significant losses, and Mailloux did not inform his firm about his customersí investments.
Mailloux received a finderís fee of $500 from the firmís other registered representative for the investment one of the customers made.
Richard G. Mailloux Sr. : Fined $5,000; Ordered to disgorge ill-gotten gains and pay a partial restitution to a customer in the amount of $500, plus interest, Suspended 6 months
Hoffmann converted funds totaling $900 from customersí checking accounts. Automated teller machine (ATM) cards were sent to Hoffmannís attention at the bank and he was photographed using the cards to make unauthorized withdrawals at ATM machines. Hoffmann signed customer names to signature cards to reactivate the inactive checking accounts without customersí or the bankís permission to do so. Hoffmann repeated this procedure when the customer accounts again became dormant because they were not used within 30 days of reactivation. Hoffmann failed to respond to FINRA requests for documents and information.
While employed at a bank affiliate of his member firm, Yacovone obtained a bank withdrawal slip that was blank and signed by a bank customer. Yacovone completed the withdrawal slip indicating the customerís checking account number and a withdrawal of $40,000, and provided it to a teller at his branch with instructions to withdraw the funds from the customerís bank checking account and transfer the funds to Yacovoneís relativeís bank account. Yacovone used the $40,000 to repay a short-term loan and existing debt that he owed on an approved outside business he owned with his relative. The customerís assistant contacted Yacovone to advise him of the $40,000 unauthorized withdrawal from the customerís bank checking account and, as a result of the inquiry, Yacovone repaid the customer $40,000 with funds he received from his relatives.
Keane particpated in the marketing and implementation of 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. The ďpledgedĒ stock would be transferred to the loaning entityís securities account, which was maintained at a clearing firm, and Keane played an integral part in facilitating these loans; customers accepted his recommendations, taking out loans totaling more than $3.3 million. Keane facilitated his customersí pledging of the securities and recommended what stocks they should pledge and, in some cases, recommended that they sell specific securities and buy others to pledge to the lender, and affected those transactions.
Despite making these recommendations, Keane made no effort to find out what happened to the stock conveyed to the lender, and did not inquire into what would be done with the stock; he understood that the lender took ownership of his customersí securities but incorrectly assumed that the customers retained some interest in the pledged stock. Keane did not conduct an inquiry into the lenderís financial condition and whether it had the ability to fulfill its obligations, and when he attempted to find out about the lenderís hedging strategy, he was told that it was proprietary and that he could not get that information, but nevertheless entrusted his clientsí securities to this lender.
The Stock to Cash strategy involved in each case a pledge of stock, Keaneís advice to his clients constituted a recommendation of ďthe purchase, sale or exchange of any securityĒ; and as a registered representative, Keane was obligated under NASD Rule 2310 to have a reasonable basis for recommending that his customers pledge their stock to this lender to participate in the Stock to Cash program.
Keane failed to conduct adequate due diligence concerning the program lender, failed to take sufficient action to determine whether his clientsí ownership interest in the pledged securities was adequately protected and, as a result, he did not understand the potential risks inherent in the strategy and did not have a reasonable basis for recommending the strategy to his current and potential customers.
Robert Charles Keane (Principal): Fined $10,000; Suspended 30 days
Spomer engaged in an outside business activity without prior permission of his member firm by distributing unregistered securities through a non-FINRA regulated entity, and received in excess of $100,000 in compensation. Without his new member firmís knowledge or authorization, Spomer distributed correspondence to non-firm customers who had bought the unregistered securities because the State of Texas ceased the business operations of the issuer and placed the issuer into receivership. Spomerís letter used firm disclosure language at the bottom of the letter that gave the erroneous impression that the firm, with Spomer as agent, had issued the correspondence. Spomer failed to submit the letter to his member firmís principal for prior approval, and failed to provide a sound basis for evaluating the security by promoting the ďsimilar program,Ē and used improper promissory language to describe the product.
Spomer failed to respond to FINRA requests for information.
Charles sold variable universal life insurance products to his member firmís customers and after leaving the firm, Charles remained the assigned representative on the accounts and received modest annual ďtrailing commissions.Ē Charlesí former firm asked him to pay a ďsingle appointmentĒ fee of $100 to the firm or submit customer-signed ďTelephone or Electronic Transaction AuthorizationĒ forms for him to continue to service the customersí accounts. Charles chose to do neither, but when he realized the deadline was approaching, he signed the customersí names on the authorization forms without the customersí permission and sent them to the firm via facsimile.
One of the customers complained that Charles had not being authorized to sign her name on the authorization form; therefore, Charlesí former firm notified Charles and his present firm of the customerís allegation and asked Charles for a written explanation. During Charlesí present firmís investigation into the complaint, he made misstatements, verbally and in writing, to the firm, denying forging the signatures and fabricating a story to prevent the firm from discovering his misconduct. Also, Charles subsequently admitted to the firm that his alibi was false and that he signed the customersí names without authorization.
Thomas Jones Charles Jr. : Fined $35,000; Suspended 1 year
Mays falsified firm records pertaining to client accounts.When customers omitted to sign documents necessary to effect authorized changes or actions with respect to their accounts, Mays placed the customersí signatures on the documents himself, rather than returning the documents to the customers to sign. In each instance, the customer wanted and authorized the activity resulting from the submission of the falsified documents. While Mays was associated with another member firm, the firm learned from a customer that she had not signed a document purporting to bear her signature, and Mays initially told the firm that his falsification was limited to that one instance involving one client.
It was not until his firmís inspection of Maysí office that he admitted to the firm that he had placed other customersí signatures on documents when necessary to accomplish their objectives.
Mays misled his firm by delaying this admission about the extent of his past misconduct while registered through the first firm.
Timothy Robert Mays: Fined $5,000; Suspended 8 months
Ware introduced several customers to a Stock to Cash program under which customers would pledge stock to obtain loans to purchase other products. Ware recommended a customer participate in the program under which the customer obtained loans of approximately $388,000 and pledged securities in support of these loans, using the proceeds to purchase fixed annuities through Ware.
Ware 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 clientsí ownership interest in the pledged securities was adequately protected. Ware did not understand the potential risks inherent in the program and therefore did not have a reasonable basis for his recommendations.
Todd Randall Ware (Principal): Fined $15,000; Suspended 15 business days
UBS failed to reasonably supervise a junior trader on its Fixed Income Emerging Markets Latin American desk (the LatAm desk) who, by various means, made false and inaccurate entries into the firmís trading systems for non-deliverable forward (NDF) transactions and bond transactions, which caused incorrect calculations of his risk positions and profit and loss (P&L), overstating his profits and understating his losses; in contrast to other traders on the LatAm desk, the firm gave the junior trader authority to enter NDF transactions directly into internal trading systems.
In each instance, the junior traderís presumed goal was to conceal an unrealized loss associated with an actual transaction and/or create the appearance of a fictitious profit in connection with both actual and fictitious transactions, and by manipulating these trading systems, the junior trader was able to make undetected amended, late, mispriced and fictitious NDF transactions by which he concealed more than $28 million in trading losses.
The firmís existing policies and procedures did not adequately address the junior traderís ability to make entries directly into the trading systems; the firmís electronic supervisory system did not capture NDF trade data, and the firm failed to establish supervisory systems or procedures to reasonably ensure that the junior traderís entries were complete and accurate and that his trading system entries matched.
The firm likewise failed to establish policies and procedures providing for its creation and maintenance of required books and records of NDF transactions entered for its account, and failed to have written supervisory procedures, for the amending, settling and confirming of NDF transactions.
The junior trader concealed losses to the firm of approximately $700,000 through various false entries made in the firmís Bloomberg system, and the firmís electronic supervisory system did not capture his bond data.
The firm failed to provide the junior traderís supervisor with reports concerning the junior traderís trading in NDF and certain bonds that were necessary to supervise the junior traderís activities, and it failed to make and keep current a memorandum of each NDF transaction the junior trader entered. Moreover, based on false, delayed and fictitious entries the junior trader made in connection to his NDF and certain bond transactions, the firmís records of his and the LatAm Deskís overall P&L and corresponding risk positions were not accurate. Furthermore, when the issues concerning the junior traderís trading came to light, the firm conducted an internal investigation to identify the errant bond and NDF transactions and calculate the losses incurred in connection with them; thereafter, the firm instituted remedial measures to prevent a recurrence in the future.
Certain states implemented an LTC CE requirement that obligated financial advisors to complete an LTC CE course and exam before selling LTC insurance products. In order to assist financial advisors with the LTC CE requirement, Wrigley provided them with vouchers to take CE exams for free through a company. Wrigley requested, received and distributed an answer key for one of the state exams to an outside financial advisor, and asked another member firm representative to request, receive and distribute an answer key for the state exam to an outside financial advisor.
Andrew Thomas Wrigley: Fined $5,000; Suspended 1 month
Herrero-Rovira converted approximately $203,000 in customer funds by forging customersí signatures on Letters of Authorization (LOAs) and firm checks issued pursuant to the LOAs, and depositing the checks into his personal bank account or othersí account without the customersí knowledge or authorization.
Herrero-Rovira converted an additional $16,000 from a customer by causing a check payable to the customer in that amount to be withdrawn from the customerís account without the customerís knowledge or authorization, and forging the customerís check endorsement.
Herrero-Rovira failed to respond to FINRA requests for information.
The Firm failed to have a supervisory system, including written supervisory procedures, reasonably designed to ensure that its registered representatives charged its customers reasonable markups or markdowns and commissions on equity securities transactions (Commission Policy). The Firm did not provide sufficient training or guidance to its registered representatives, its trading department or its Office of Supervisory Jurisdiction (OSJ) managers to detect violations of the firmís Commission Policy, nor did it adequately provide for the use of exception reports to conduct a review of commission charges its registered representatives assessed. The Firm failed to establish adequate processes or have documented written supervisory procedures as to how it would handle a violation of the Commission Policy.
Brecek & Young Advisors, Inc. : Censured; Fined $25,000
Cambridge failed to have reasonable grounds to believe that a private placement offered pursuant to Regulation D was suitable for any customer.
Acting through Fincher, its Chief Compliance Officer and registered principal, the Firm failed to
conduct adequate due diligence of the private placement offering before allowing its brokers to sell the security,
maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, and
enforce reasonable supervisory procedures to detect or address potential red flags as it related to the offering.
Fincher was the principal responsible for conducting due diligence on the offering and approved the security as a new product available for firm brokers to sell to their customers; he allowed the firmís brokers to continue selling the security despite its ongoing failure to make overdue interest and principal payments. The Firm failed to have reasonable grounds for allowing the continued sale of the security even though the firm, through Fincher, was aware of numerous red flags concerning liquidity problems, delinquencies and defaults, but allowed its brokers to continue selling the security.
Cambridge Legacy Securities, L.L.C.:Censured; Ordered to pay $218,400 in restitution to customers. If the firm fails to provide FINRA with proof of restitution, it shall immediately be suspended from FINRA membership until such proof has been provided.
Tommy Edward Fincher: Fined $5,000; Suspended 6 months in Principal capacity only.
Without permission or authority, Duncan used $100,000 drawn from an elderly personís bank account to pay his personal credit card expenses, which were related to costs associated with the construction of his home. When the executor of the deceased personís estate became concerned about the withdrawals totaling $100,000, Duncan created fictitious cashierís checks totaling $100,000 and payable to charities, falsely representing that the checks represented evidence of the payments made by the deceased and the beneficiaries of the payments. The withdrawals were earlier used to purchase cashierís checks payable to an international commercial bank to pay down Duncanís credit card expenses.
A bank compensated the customer for the wrongfully taken funds, and Duncan has reimbursed the bank approximately $91,484.75 and continues to make monthly payments to cover the amounts the bank paid to the customer.
CMG Institutional Trading LLC was expelled from FINRA membership and Baldwin was barred from association with any FINRA member in any capacity. The National Adjudicatory Council (NAC) imposed the sanctions following appeal of an Office of Hearing Officers (OHO) decision. The sanctions were based on findings that the firm, acting through Baldwin, failed to respond to FINRA requests for information and documents.
Trolaro misappropriated approximately $1,533,000 from customers and, instead of reinvesting the funds on the customersí behalf, he deposited the checks into his personal bank account and used the funds for his personal benefit. Trolaro persuaded customers to make personal loans to him, totaling $310,000 contrary to his member firmís written procedures that specifically prohibited registered representatives from borrowing money from customers.
Reimers borrowed approximately $75,768 from one of his customers at his member firm despite the fact that the firmís procedures prohibited representatives from borrowing money from a customer, unless the customer was a family member and written notice was provided to the firm. The customer was not a family member and Reimers did not inform the firm of the loan, which was repaid in full, together with interest totaling $11,259.
Reimers falsely represented on his firmís annual compliance questionnaire that he had not borrowed money from a customer.
David William Reimers (Principal): Fined $5,000; Suspended 3 months
Trende falsified Federal
Reserve forms with
respect to customers and caused his firm to maintain false books
and records by providing
false information on Purpose Statements and submitting them to the
A Stock-to-Cash program was designed to help customers
of insurance agents
fund purchases of fixed annuity and fixed life insurance products; however, loan documents and
federal regulations prohibited investment of the loan proceeds in
margin securities and from investing in variable
annuities. As part of the
Stock-to-Cash loan process, Trende was required to provide a
Purpose Statement setting
forth the intended use of proceeds, in order to ensure compliance
with Federal Reserve
Board regulations restricting the extension of margin credit.
Trende had general discussions
with the customers who agreed to borrow approximately $180,000
concerning the possible
uses of the loan proceeds, but no decisions were made about how to
use the funds until
after the proceeds were received so real estate was written on the
Purpose Statement as
the specific purpose of the loan.
The customers did not use
the proceeds for the stated purpose of purchasing real estate;
they used more than 50
percent of the proceeds of the Stock-to-Cash loan to purchase a
variable annuity from an
entity, with Trende as their broker, and used the remainder of the
proceeds to purchase an
equity-indexed annuity, again through Trende, and to pay some
The firm received
a commission from the annuity sales, and Trende received a payout
from the firm.
Another of Trendeís customers agreed
to borrow approximately
$100,000 through the Stock-to-Cash program. In connection with
this customerís loan,
Trende completed a Purpose Statement for the customerís signature,
which stated that
the credit was going to be used for real estate. When the customer
signed the Purpose
Statement, he had discussed several options for the use of the
proceeds with Trende, but
had not determined how he would ultimately use the loan proceeds
but did not use the
proceeds to purchase real estate. The customer signed an
application to purchase a variable
annuity, with Trende as the broker, with most of the proceeds from
the Stock-to-Cash loan;
the firm received a commission from the annuity sale, and Trende
received a payout from
the firm. FINRA found that both customers profited on their
investments in the securities
that they bought for participation in the Stock-to-Cash program
and posted as collateral
for their loans.
Trende was well aware that
his customers had not
decided how to use the money at the time the Purpose Statements
were signed. Trendeís
conduct was unethical and reflects negatively on his commitment to
compliance with the
securities industryís regulatory requirements.
David William Trende : Fiend $10,000; Suspended 3 months.
Over a period of 10 years or longer, in face-to-face meetings with customers, Duvall had the customers supply account forms signed in blank, to support transactions the customers authorized. After obtaining information needed to complete the transactions, Duvall completed the forms and submitted them to his member firm for processing; but in some cases, he retained the blank, signed forms.
Duvallís firm prohibited staff from obtaining or retaining documents the customers pre-signed, and Duvall was aware of the prohibition. Duvall caused his firm to violate NASD Rule 3110 in that he caused the firmís books and records relating to customer accounts to be inaccurate.
Edmond Sloan Duvall: No fine in light of financial status; Suspended 12 months
The Firm failed to determine in all municipal securities transactions whether the underlying credit rating of the issuer of an insured municipal security constituted material information that was required to be disclosed at or before the time of purchase. The Firm failed to disclose to customers in connection with municipal securities transactions, all material facts at or before the time of purchase, in that the firm failed to disclose to customers the underlying credit rating of insured municipal bonds at or prior to the time of purchase.
Berry serviced a brokerage account a relative held but did not have power of attorney or discretionary authorization over the account. Berry failed to report his relativeís death to his member firm, and after leaving the firm, he removed funds from the account totaling $70,000 by requesting checks be drawn on the account, sent to her listed address, which was the same as Berryís home CRD address, and deposited the checks in a joint checking account he shared with his relative. When Berry submitted a written withdrawal request to the firm for $10,000, the firm discovered that the signature did not match the signature on file for the customer and froze the brokerage account after Berry acknowledged his relativeís death with the firmís customer relations staff.
The Firm amended Berryís Form U5 to reflect an internal review of his withdrawals and his failure to advise the firm of his relativeís death.
The Firm failed to adequately implement or enforce its anti-money laundering (AML) compliance program and otherwise comply with its AML obligations, as the firm did not identify and analyze numerous transactions to determine if they were suspicious and were required to be reported to the Department of Treasuryís Financial Crimes Enforcement Network (FinCEN) on a Suspicious Activity Report-Securities/ Futures Form (Form SAR-SF).
The Firm permitted foreign corporate accounts, all of which were controlled by one individual, to deposit a total of approximately 279 million shares of low-priced securities and/or penny stocks into the accounts, and after the securities were deposited into the accounts, they were promptly sold and all proceeds from the transactions were disbursed by wires to first-party bank accounts maintained with a Scotland bank. The Firm permitted these suspicious activities to occur without conducting adequate AML reviews and failed to file Forms SAR-SF as appropriate.
The Firm had no written procedures
to detect and prevent participation in an unregistered distribution of securities, and
addressing the acceptance of securities in either certificate or electronic form and the corresponding sales of those securities.
In fact, the Firm relied primarily on transfer agents to determine whether the securities were free trading.
Upon receipt of a large block of a low-priced stock (which was, in certain instances, unregistered), the firmís due diligence was essentially limited to verifying that the security was electronically quoted and contacting the transfer agent to determine the number of outstanding shares and whether the shares were free trading. Notably, the Firm failed to inquire about the length of time the securities had been held; how, when, and under what circumstances the securities had been acquired; the relationship, if any, between the customer and the issuer; and/or how much stock was owned by or under the customerís control.
establish certain elements of an adequate AML program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and implementing regulations promulgated by the Department of Treasury;
establish policies and procedures reasonably expected to detect and cause the reporting of transactions required under 31 USC 5318(g) by failing to provide branch office managers with reports that contained adequate information to monitor for potential money-laundering and red flag activity; and for the firmís compliance department to perform periodic reviews of wire transfer activity, require either branch managers or the AML compliance officers to document reviews of AML alerts in accordance with firm procedures, identify the beneficial owners and/or agents for service of process for some foreign correspondent banks accounts, and establish adequate written policies and procedures that provided guidelines for suspicious activity that would require the filing of a Form SAR-SF;
establish policies and procedures that required ongoing AML training of appropriate personnel related to margin issues, entering new account information, verifying physical securities and handling wire activity;
ensure that its third-party vendor verified new customersí identities by using credit and other database cross-references, and after the firm determined that the vendorís lapse was resolved, it failed to retroactively verify customer information not previously subjected to the verification process;
establish procedures reasonably expected to detect and cause the reporting of suspicious transactions required under 31 USC 5318(g), in that it failed to include in its AML review the activity in retail accounts institutional account registered representatives serviced;
review accounts that a producing branch office manager serviced under joint production numbers;
evidence in certain instances timely review of letters of authorization, correspondence, account designation changes, trade blotters, branch manager weekly review forms and branch manager monthly reviews; failed to follow procedures intended to prevent producing branch office managers from approving their own errors;
follow procedures intended to prevent a branch office operations manager from approving transactions in her own account and an assistant branch office manager from reviewing transactions in accounts he serviced;
establish procedures for the approval and supervision related to employee use of personal computers and, during one year, permitted certain employees to use personal computers the firm did not approve or supervise,
include a question on thefirmís annual acknowledgement form for one year that required its registered representatives to disclose outside securities accounts and the firm could not determine how many remained unreported due to the supervisory lapse;
follow policies and procedures requiring the pre-approval and review of the content of employeesí radio broadcasts, television appearances, seminars and dinners, and materials distributed at the seminars and dinners; representatives conducted seminars that were not pre-approved by the firmís advertising principal as required by its written procedures; the firm failed to maintain in a separate file all advertisements, sales literature and independently prepared reprints for three years from date of last use; and a branch office manager failed to review a registered representativeís radio broadcast. A branch office manager failed to maintain a log of a registered representativeís radio broadcasts and failed to tape and/or maintain a transcript of the broadcasts and there was no evidence a qualified principal reviewed or approved the registered representativeís statements. Branch office managers did not retain documents reflecting the nature of seminars, materials distributed to attendees or supervisory pre-approval of the seminars; retain transcripts of a representativeís local radio program and TV appearances or document supervisory review or approval of materials used; and retain documents reflecting the nature of a dinner or seminar conducted by representatives or materials distributed;
record the identity of the person who accepted each customer order because it failed to update its order ticket form to reflect the identity of the person who accepted the order; and
to review Bloomberg emails and some firm employeesí instant messages
The Firm distributed a document, Characteristics and Risks of Standardized Options, that was not current, and the firm lacked procedures for advising customers with respect to changes to the document and failed to document the date on which it was sent to certain customers who had recently opened options accounts. Also, the firmís compliance registered options principal did not document weekly reviews of trading in discretionary options accounts.
Ta engaged in outside business activities and failed to give prompt written notice to her member firm. Ta failed to disclose that she had financial interests and/or discretionary authority in multiple brokerage accounts at other broker-dealers and failed to give her firm prompt written notice of these accounts; on account applications, she falsely indicated that she was not affiliated with a securities firm. On a firm securities annual attestation form, Ta falsely stated that she did not have a personal securities account.
Ta created websites which included representations about her career accomplishments but never obtained a registered firm principalís approval for those sites. One of the websites stated that Ta founded a full-service broker-dealer that was a FINRA member when, in fact, it was not; although that entity had a new member application pending with FINRA, it was not an actual broker-dealer and never became a FINRA member.
Ta failed to inform a registered firm principal that she had a Twitter account which, on occasion, she used to tout a particular stock. In addition, Taís ďtweetsĒ were unbalanced, overwhelmingly positive and frequently predicted an imminent price rise, and Ta did not disclose that she and her family members held a substantial position in the stock.
Jenny Quyen Ta (Principal): Fined $10,000; Suspended 1 year.