Portales Partners, LLC
AWC/2009016184701/August 2010

The Firm 

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

Portales Partners, LLC : Censured; Fined $25,000

Tags: Research  Supervision  

Garden State Securities, Inc.
AWC/2008011696501/June 2010

Garden State 

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

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

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

Garden State Securities, Inc.: Censured; Fined $55,000

Tags: Unregistered Securities  Scripts  Do Not Call  

Register Financial Associates, Inc.and George Robert Register (Principal)
OS/2007011496203/May 2010

The Firm allowed an individual to function as a research analyst without having the required licenses. The Firm

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

The Firm's research analysts failed to disclose their financial interests in stock picks and omitted material facts that rendered the stock pick section of research reports misleading.

The Firm and Register filed false attestations regarding compliance with NASD Rule 2711, and the Firm failed to make the certifications required by SEC Regulation AC for its stock pick sections that the views expressed accurately reflected the research analysts’ personal views. Furthermore, Register failed to adequately discharge his supervisory responsibilities and never took effective action to ensure that his firm was meeting its obligation to comply with FINRA rules, in that he never monitored the trading or ownership of stock picks by the firm’s research analysts, imposed no restrictions on whether the analysts could trade or own securities when they were profiled as stock picks, and allowed research analysts to publish research reports unsupervised.

Register Financial Associates, Inc.: Fined $50,000

George Robert Register (Principal): Fined $15,000; Suspended 30 days in Principal/Supervisory capacities only

Tags: WSP  research    

Michael Scott Heslep
AWC/2008011629602/April 2010

Heslap engaged in an email marketing campaign through which he distributed correspondence and/or sales literature to prospective customers via unsolicited emails. Many of the emails failed to provide a sound basis for evaluating the facts, provided exaggerated or unwarranted claims that are prohibited and/or contained performance claims that imply that past performance will recur.

Michael Scott Heslep: Censured; Suspended 10 business days

Tags: Email  Correspondence    

William Paul Pecoriello
AWC/2007011193302/April 2010

Pecoriello selectively disseminated material non-public information regarding a company, which caused a spike in trading volume and price of the company’s shares. Pecoriello’s member firm’s policies and procedures prohibited the selective dissemination of material nonpublic information.

William Paul Pecoriello: Fined $50,000; Suspended 30 business days

A.B.Watley Direct, Inc.
OS/2005003391301/March 2010

The Firm's website and television advertisements contained statements and claims that were misleading, exaggerated or unwarranted, and failed to provide a sound basis for evaluating the facts in regard tothe services offered. The firm claimed in public communications that it offered low commission rates, but failed to clearly disclose that the rates were only available to customers who placed a certain amount of trades the previous month, and the claim was misleading in light of the actual commission rates and fees it charged the majority of its customers. FINRA advised the firm that its television advertisements included misleading commission rate information, but nevertheless, the firm ran the TV advertisements without altering the material. The TV advertisements did not disclose any limitations or restrictions related to the stated commission rates. The website made various misleading claims regarding the speed of execution and level of market access the firm provided to clients. The homepage included a ranking by Barron’s, but failed to provide sufficient information to evaluate the rating or criteria on which it was based.

A.B.Watley Direct, Inc. : Censured; Fined $20,000; Required to file all sales literature and advertisements with FINRA’s Advertising Regulation Department at least 10 days prior to their first use for one year from the date of this order.

Tags: Website  television    

Chi Tu Chow
AWC/2007009453201/March 2010

Prior to the issuance of his research reports, Chow wrongfully shared earnings estimates, projected price targets and buy recommendations with institutional clients and member firm employees in contravention of his firm’s written policies regarding the disclosure of potentially market sensitive information.

Chi Tu Chow: Fined $15,000; Suspended 1 month

Manuel Peter Asensio
CAF20030067/March 2010

Acting through Registered Principal Asensio, a member firm

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

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

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

Manuel Peter Asensio: Fined $20,000; Barred

Eric Lowell Small (Principal)
AWC/2007007345601/February 2010

While associated with his former member firm as a registered principal but not registered as a research analyst or a research principal, Small supervised the conduct of the firm’s research analysts, including approving research reports they prepared and that his firm issued.

Small failed to establish and maintain adequate supervisory procedures concerning the review of

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

The Firm's procedures indicated that a supervisory principal must review all correspondence, but these procedures were not reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules. The procedures were inadequate in that they contained insufficient detail concerning how and when such reviews were to occur, and the firm had no written supervisory procedures addressing the review of outside brokerage accounts. Small failed to establish, maintain and enforce adequate written supervisory control procedures relating to

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

Eric Lowell Small (Principal): Fined $17,500; Suspended 10 business days in Principal capacity only

Tags: Unregistered Principal  Supervision  Supervisory System  Email  Correspondence  WSP  Producing Manager  

Michael James Jorgensen (Principal)
2008014433601/February 2010

Jorgensen posted comments regarding a competitor insurance company’s stock on an Internet message board without written approval from a principal of his member firm. Jorgensen made a recommendation to sell the insurance company’s stock in his advertisement on the Internet board without disclosing that he had a financial interest in the securities. His posts omitted material information, which caused the communications to be misleading, and failed to disclose that he owned puts on the company.

Michael James Jorgensen (Principal): Fined $25,000; Suspended 60 days in all capacities

Tags: Internet  

Westrock Advisors, Inc.
AWC/2007008162201/February 2010

The Firm failed to file required attestations that it adopted and implemented written supervisory procedures reasonably designed to ensure that the firm and its employees complied with provisions of NASD Rule 2711(i) governing research analysts and research reports. The Firm failed to adequately supervise its research analysts, including supervising communications between the research analysts and subject companies, and documenting its monitoring of trading in research analysts’ brokerage accounts. The Firm issued research reports that failed to accurately disclose material facts.

The Firm allowed its research analysts to use third-party email systems but did not reasonably enforce a system to audit or review their email correspondence.

The Firm permitted an individual registered as a General Securities Principal and General Securities Representative to supervise the conduct of its research analysts without passing either the Series 16 Supervisory Analyst or the Series 87 Research Analyst exams as FINRA rules required.

The Firm failed to develop and implement an AML program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and the implementing regulations thereunder; the firm’s AML program had inadequate procedures governing the testing of its AML program; and the firm’s testing of its AML procedures was inadequate and not independent one year, and not tested another year.

The Firm failed to timely report statistical and summary information regarding customer complaints and failed to amend, timely amend or ensure the amendment of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) or Uniform Termination Notices for Securities Industry Registration (Forms U5) to disclose customer complaints and their resolution.

The Firm failed to retain originals of certain incoming and outgoing written correspondence relating to its business, received by mail and by fax,or copies of such correspondence and failed to adequately enforce written supervisory procedures prohibiting firm personnel from using third-party, non-firm email accounts for firm business.

Westrock Advisors, Inc.: Censured; Fined $100,000

Tags: Supervision  WSP  AML  Email  Unregistered Supervisor  

David Alan Tucker
AWC/2008014583501/January 2010

Tucker engaged in radio broadcasts during which he made statements which were misleading and omitted material information, failed to provide a balanced presentation, and/or were exaggerated, unwarranted and promissory. Tucker placed a print advertisement in a local newspaper that failed to provide a sound basis for certain claims. Tucker engaged in the public radio broadcasts and placed the print advertisement without a firm registered principal’s approval.

David Alan Tucker: Fined $5,000; Suspended 20 days

Tags: Radio  

J.J.B. Hilliard,W.L. Lyons, LLC
AWC/2007009463801/January 2010

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

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

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

J.J.B. Hilliard,W.L. Lyons, LLC: Censured, Fined $200,000; Required to place $133,817 into a segregated, interest-bearing account for a period of five years to reimburse customers who can reasonably demonstrate that they made deposits to their firm accounts at a bank branch and that the firm failed to properly credit the deposits to their accounts.

Tags: WSP  Supervisory System  Check  Escheat  Public Appearances