Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2010
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.
December 2010
Donnelly Penman & Partners and Charles Kirk Haggarty (Principal)
AWC/2009016347901/December 2010

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

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

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

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

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

Tags:  AML     |    In: Cases of Note : FINRA
Global Strategic Investments, LLC and Cesar Gabriel Hernandez (Principal)
AWC/2009016158801/December 2010

Acting through Hernandez, Global Strategic failed to:

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

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

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

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

Tags:  AML    SAR    CIP     |    In: Cases of Note : FINRA
Mark Edward Diemer (Principal)
AWC/2009016254302/December 2010

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

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

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

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

Mark Edward Diemer (Principal): Barred
Tags:  SAR    AML     |    In: Cases of Note : FINRA
Bill Singer's Comment
You're going to get, maybe, a little leeway with some AML cases but when we're talking foreign broker-dealers that are piggybacking -- fuggedaboudit.  Hard to imagine a worst set of facts.
Stanley Mark Kobin (Principal)
OS/2008011678304/December 2010

As his member firmís AMLCO, Kobin failed to

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

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

Kobin failed to

  • identify red flags in connection with suspicious account activity, did not timely investigate or review the red flags, and caused his firmís failure to timely report the suspicious activity;
  • implement the firmís procedures for suspicious activity detection and reporting, monitor and investigate approximately $6 million in suspicious wires to and from one of its branches,
  • detect and timely report suspicious activity and maintain documentation evidencing a review for suspicious activity of securities transactions, money movements and securities transfers;
  • ensure that a designated principal review and approve all correspondence to and from branch offices, including electronic correspondence.
  • failed to properly create, maintain and timely file records and reports of customer complaints, and failed to timely update Forms U4 and Forms U5 relating to persons who were registered with FINRA through his firm in his capacity as his firmís Chief Compliance Officer (CCO), .
  • take adequate steps to comply with the Firm Element of the Continuing Education Requirement and, as a result, his firm did not conduct the required annual needs analysis or develop a written training plan.
  • ensure that each registered person was clearly assigned to an appropriately registered representative and/or principal responsible for supervising that personís activities,
  • conduct an annual compliance interview or meeting,
  • implement an adequate supervisory control system over the firmís branch office managers, sales managers or any person performing a similar function; specifically, the firmís written supervisory procedures failed to identify producing managers for purposes of review and supervision of their customer account activity; assign a person who was either senior to, or otherwise independent of, the producing manager to perform such supervisory reviews; and reasonably ensure that the firm calculate, on a rolling, twelve-month basis, whether heightened supervision requirements were triggered with any respect to any producing managers.
Stanley Mark Kobin (Principal): Suspended 9 months in Principal capacity only; Required to requalify as GSP/Series 24; Required to complete 16 hours of AML education training; Required to fully and promptly cooperate with FINRA in any and all investigations and/or disciplinary proceedings of any person or entity, concerning conduct at and/or relating to the firm at issue during the time period he was associated by promptly providing requested information and documents and to appear and testify fully, completely and truthfully at any FINRA interview and/or disciplinary hearing.
Tags:  AML    CE    Cooperation Agreement         |    In: Cases of Note : FINRA
November 2010
York Securities, Inc.
AWC/2008011762701/November 2010

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

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

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

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

York Securities, Inc.: Censured; Fined $65,000
Tags:  CIP    AML    SAR     |    In: Cases of Note : FINRA
Bill Singer's Comment
First problem, you just can't ask for confirmation of the accuracy of a "criminal event" from the subject individual.  Independent confirmation is what is required under these circumstances. Consider how absurd the Firm's defense now looks: Well we did ask him if he owed money to the government and he swore that it was all resolved.
October 2010
Guy Steven Amico (Principal)
AWC/2007007151705/October 2010

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

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

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

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

Guy Steven Amico (Principal): Fined $100,000; Suspended Principal capacity only 4 months; Required to complete 8 hours of AML Training; Required to register for AML training within 60 days of issuance of the AWC and provide evidence to FINRA of the registration within 10 days of registration; attend such training within six months of issuance of this AWC and provide FINRA with evidence of completion of training within 10 days of completion of the training program.
Tags:  Supervision    AML     |    In: Cases of Note : FINRA
Bill Singer's Comment

An interesting case because it holds a firm's President liable not so much for what he did or didn't directly do, but, rather, for the fact that he "knew or should have known" that his Chief Compliance Officer and AML Compliance Officer were not performing their respective compliance jobs. It's a bit of a dicey proposition for FINRA to simply posit a President's liability upon an Exit Report, as those are frequently contentious affairs (that is the Staff's allegations and the firm's responses).  Moreover, if the exit reports merely cite "concerns" but do not elevate those to formal charges, then it's questionable as to what the firm's President should do.  Again, we need to keep in mind that The CCO and AMLCO were hired to do their jobs -- those jobs were not to be done by the President, who has other responsibilities.  It's one thing for a President to "know" of the malfeasance or nonfeasance of his compliance officers, and such knowledge should compel prompt action.  However, when a regulator says that a President "should have known" of compliance officers misconduct but the main proof is that he/she was on notice per an exit report, well, I'm not convinced that such a predicate is sufficient. 

As with all regulatory matters, this case may well be "fact specific," and the details of what the President knew may be fare more extensive than what's presented in FINRA's monthly squib.  Of course, I'd like to see the exit reports for major firms, and then I would like to see whether FINRA will hold the presidents of such members to the same standards.

Intermountain Financial Services, Inc. and Kent Duane Sweat (Principal)
OS/2008011579401/October 2010

Acting through Sweat, the Firm failed to

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

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

The Firm failed to implement

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

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

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

Tags:  WSP    Electronic Communications    Email    AML     |    In: Continuing Education
Kenneth Brown (Principal)
AWC/2007007151703/October 2010

Acting in his capacity as the AMLCO, Brown  failed to

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

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

Kenneth Brown (Principal): Fined $5,000; Suspended Principal capacity only 1 year; Required to complete eight hours of AML training. The fine must be paid either immediately upon Brownís 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.
Tags:  AML    SAR    Unregistered Securities     |    In: U4, U5, RE-3, Rule 3070
Newbridge Securities Corporation
AWC/2007007151704/October 2010

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

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

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

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

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

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

Newbridge Securities Corporation : Censured; Fined $600,000; Required to have its president and Chief Executive Officer (CEO) each register for eight hours of AML training within 60 days of issuance of the AWC, provide FINRA with evidence of registrations within 10 days of registration, have the individuals attend and complete the training within six months of issuance of the AWC and provide FINRA with evidence of completion of training within 10 days of completion. The firm is prohibited from effecting any purchase transactions in penny stocks for either proprietary or customer accounts, and shall not engage in market making of such stocks, for one year following acceptance of the AWC. The firm shall hire an independent consultant to review the firmís systems relating to timely and accurate filing of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5), disclosure events and customer complaints under NASD Rule 3070 and, within 60 days after delivery of a written report, adopt and implement the consultantís recommendations or propose alternative procedures in writing to the consultant and FINRA. Within 30 days after issuance of the consultantís final written report, the firm shall provide FINRA with a written implementation report certified by a firm officer.
Tags:  Unregistered Securities    AML    SAR     |    In: Cases of Note : FINRA
Robin Fran Bush (Principal)
AWC/2007007151701/October 2010

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

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

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

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

Robin Fran Bush (Principal): Fined $10,000; Suspended 1 year in Principal capacity only; Required to complete eight hours of AML training prior to reassociation with a member firm or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier.
Tags:  SAR    AML     |    In: Cases of Note : FINRA
Scott Howard Goldstein (Principal)
AWC/2007007151706/October 2010
As his member firmís CEO, Goldstein knew, or should have known of substantive violations of FINRA rules and the potential inadequacy of firm compliance personnel. The firmís AML compliance program, as its CCOs and AMLCOs administered, did not fully comply with the requirements of the BSA and regulations thereunder, and therefore violated NASD Rule 3011. Goldstein knew through FINRA exit conference reports, firm responses to the reports and the SECís written findings, that the firm, through its CCOs and AMLCOs, was not in compliance, and FINRA expressly identified firm customers who had problematic backgrounds and/or engaged in suspicious transactions but Goldstein did not take affirmative steps to ensure that the CCOs/AMLCOs were performing the AML functions delegated to them. Goldstein knew that one of the CCOs/AMLCOs had a FINRA disciplinary history and had engaged in supervisory deficiencies. FINRA found that the firm, through its CCOs/AMLCOs, failed to report numerous customer complaints reportable under NASD Rule 3070(c) and other reportable events under 3070(b), failed to make Forms U4 or U5 amendments to report disclosable events in numerous instances, and failed to timely amend a Form U4 or U5 in numerous other instances. Goldstein knew through FINRA exit conference reports, firm responses to the reports and SEC written findings that the firm, through the CCOs/AMLCOs, was not making the necessary filings but did not take any affirmative steps to ensure that they were performing reporting functions.
Scott Howard Goldstein (Principal): Fined $100,000; Suspended 1 year in Principal capacity only; Required to complete eight hours of AML training. Goldstein must register within 60 days of issuance of the AWC for the AML training and provide FINRA with proof of evidence of registration within 10 days of registration, attend such training within six months of issuance of the AWC and provide FINRA with evidence of completion of training within 10 days of completion.
Tags:  AML    Supervision     |    In: Cases of Note : FINRA
Bill Singer's Comment
Another FINRA case holding a senior executive liable for "knew or should have known" supervisory violations.
Seaboard Securities, Inc., Anthony Joseph DiGiovanni Sr.(Principal), Sonya Terez Still (Principal) and Anthony Joseph DiGiovanni Jr.
OS/2007008724801/October 2010

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

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

Acting through Still, as compliance officer, Seaboard

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

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

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

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

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

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

Tags:  Unregistered Securities    AML    SAR     |    In: Cases of Note : FINRA
Bill Singer's Comment
We continue to see FINRA cases involving unregistered securities, and this is but another example. Noteworthy here is the sanction that prohibits the firm from selling certain securities unless held at the firm for at least one year and subject to an opinion of counsel per Section 5 / 33 Act compliance.
September 2010
Murphy & Durieu
AWC/2008013233001/September 2010

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

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

Murphy & Durieu : Censured; Fined $75,000
Tags:  Unregistered Securities    WSP    SAR    AML     |    In: Cases of Note : FINRA
August 2010
Brookville Capital Partners LLC fka New Castle Financial Services LLC
AWC/2008011678303/August 2010

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

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

Acting through a registered representative, the firm

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

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

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

Acting through various FINOPs, the firm

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

Acting through the CCO and other compliance officers, the firm

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

The firm had additional supervisory deficiencies, including that

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

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

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

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

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

Brookville Capital Partners LLC fka New Castle Financial Services LLC : Brookville Capital Partners LLC fka New Castle Financial Services LLC : Censured; FIned $200,00; Required to retain an independent consultant to conduct a review of the adequacy of its policies, systems, procedures and training regarding AML rules and regulations; compliance with Section 5 of the Securities Act of 1933; and rules and regulations relating to private placements, financial requirements, customer complaints and supervision. In addition, the firm was required to have its associated persons complete 16 hours of AML continuing education training and to fully and promptly cooperate with FINRA in any and all investigations.
Bill Singer's Comment

Quite possibly the singlemost comprehensive clusterf&%k of a regulatory case that I have ever seen -- and that's some three decades of reading this crap.  It might have saved time if FINRA simply stated what the Firm had complied with.

CMG Institutional Trading, LLC and Shawn Derrick Baldwin (Principal)
2006006890801/August 2010

Acting through Baldwin, CMG Institutional Trading

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

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

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

CMG Institutional Trading, LLC: Expelled

Shawn Derrick Baldwin (Principal): Barred

Tags:  Unregistered Principal    WSP    MSRB    AML    NAC    FINOP    FOCUS    Material Change Of Business     |    In: Cases of Note : FINRA
Bill Singer's Comment

On August 30, 2007, FiNRAís Department of Enforcement (ďEnforcementĒ) filed a 14-cause complaint against CMG and Baldwin alleging the aforementioned violations of SEC, NASD, and MSRB Rules.

On September 26, 2007, CMG and Baldwin filed answers to the complaint. The Hearing Panel conducted a hearing on July 7, 2008.

On October 14, 2008, the Hearing Panel found CMG and Baldwin liable under each cause alleged in the complaint.

On November 4, 2008, the Respondents appealed the Hearing Panelís decision. Oral argument was held on June 12, 2009. The Decision was published on May 3, 2010.

See the 2010 NAC Decision at http://www.finra.org/web/groups/industry/@ip/@enf/@adj/documents/nacdecisions/p121380.pdf

See the 2008 Office of Hearing Officers Decision at http://www.finra.org/web/groups/industry/@ip/@enf/@adj/documents/ohodecisions/p117583.pdf

I commend both the OHO and the NAC decisions to you as they are well-written and reasoned, and set forth in a comprehensive manner the allegations, findings, and rationale.  An excellent effort by FINRA.

July 2010
Greg Scott Schaefer (Principal)
2008012034701/July 2010

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

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

Greg Scott Schaefer (Principal): Fined $42,500; Suspended 1 year
Tags:  AML    Fingerprints     |    In: Cases of Note : FINRA
Marsco Investment Corporation and Mark E. Kadison (Principal)
AWC2009016078101/July 2010

Acting through Kadison, the Firm failed to

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

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

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

Tags:  Electronic Communications    AML     |    In: Cases of Note : FINRA
Noble Bradford Trenham (Principal)
2007007377801/July 2010
Trenham structured cash deposits for a customer in order to evade federal reporting requirements by obtaining cashierís checks for under $10,000. Trenham functioned in a principal capacity with his member firm while being suspended in that capacity. Trenham willfully failed to update his Form U4 with material information.
Noble Bradford Trenham (Principal): Barred
Tags:  AML     |    In: Cases of Note : FINRA
May 2010
A.B. Watley Direct, Inc.
OS/2005001121401/May 2010
Acting through its Compliance Officer and Anti-Money Laundering Compliance Officer, the FIRM failed to establish and enforce an adequate and reasonable AML program, in that it failed to detect and investigate red flags of possible suspicious activity in customer accounts and failed to timely report such activity. Acting through the registered principal, the Firm failed to perform independent testing of the AML program during two years, performed an inadequate independent AML test in another year, and failed to establish and implement policies, procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and implementing regulations thereunder.

Acting through individuals, the Firm conducted a securities business while it failed to maintain its minimum required net capital and, as a result ofits net capital calculation errors, it filed inaccurate quarterly Financial Operational &Combined Uniform Single (FOCUS) reports. The Firm failed to preserve and maintain copies of all of its internal and external emails asrequired.
A.B. Watley Direct, Inc.: Censured; Fined $125,000; Required to retain an Independent Consultant to conduct a review of the adequacy of its policies, systems and procedures, and training relating to its anti-money laundering (AML) compliance program; the firm was required to have its general securities principals register for eight hours of AML training and provide FINRA with evidence of completion of training.
Tags:  AML     |    In: Cases of Note : FINRA
Bill Singer's Comment
Okay, I get it.  Really. Truly. I have no quibble with fining a firm for AML lapses, and FINRA seems to have set out a compelling case here.

On the other hand, before the oft-times sanctimonious self-regulator pats itself too many times on the back, we should consider that an allegation by FINRA that one of its member firms failed to perform independent testing of the AML program during two years, also suggests that FINRA failed to note that shortcoming for two years. 

In light of FINRA's reported lapses in Madoff, Stanford, and other high-profile cases, perhaps the regulator needs to ask itself how any member firm could fail to perform independent AML testing for two years if FINRA is that firm's designated self-regulatory organization.  One year I get.  Two years suggests to me equally troubling deficiencies at FINRA.
March 2010
Brockington Securities, Inc.
AWC/2008011660901/March 2010
The Firm failed to develop and implement an AML program reasonably designed to achieve and monitor compliance with Bank Secrecy Act (BSA) requirements. The firmís AML program had inadequate procedures regarding the detection and reporting of suspicious activity, and the firm did not receive Financial Crimes Enforcement Network (FinCEN) requests pursuant to the BSA. The firm failed to timely detect, investigate and report multiple instances of suspicious activity in customer accounts. The Firm failed to conduct an independent AML test one year, failed to satisfy its supervisory control system requirements under NASD Rule 3012 and failed to prepare an adequate NASD Rule 3012 report detailing its system of supervisory controls and the summary of test results, which made its statement that ďno other modification of the written supervisory procedure (WSP) was deemed necessaryĒ baseless. The firm failed to properly supervise the transmittal of customer funds and/or securities.

The firmís employees utilized their personal email accounts to conduct business contrary to firm policy, but the firm did not have a system in place to review the emails.
Brockington Securities, Inc. : Censured; Fined $24,000; Required to conduct eight hours of Anti-Money Laundering (AML) training for all employees within six months after issuance of this AWC.
Tags:  AML    Email     |    In: Cases of Note : FINRA
February 2010
George Ernest Reilly (Principal)
2006006518904/February 2010
Reilly failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules for market making and for supervising market making activities and the activities of registered representatives.

Reilly failed to develop and implement an AML compliance program, as required by the Bank Secrecy Act, reasonably designed to detect suspicious money movements and trading activities in corporate customersí account, investigate the activity and make the appropriate Suspicious Activity Report (SAR) filing. The firmís AML program lacked procedures on monitoring and preventing money laundering and did not explain what follow-up would be required if a money laundering ďred flagĒwas detected or when a SAR must be filed. Reilly failed to detect and investigate the suspicious nature of transactions in a representativeís corporate customerís account.
George Ernest Reilly (Principal): Fined $50,000; Suspended 2 years in Principal capacity only.
Tags:  Supervisory System    Supervision    AML     |    In: Cases of Note : FINRA
Regal Securities, Inc.
AWC/2007007344801/February 2010
The Firm failed to
  • develop and implement an adequate supervisory system and written procedures for detecting and reporting suspicious activity;
  • provide adequate anti-money laundering (AML) training for its designated AML officers and firm employees; and
  • conduct adequate independent testing of its AML compliance program for two years.
Regal Securities, Inc.: Censured; Fined $50,000
Tags:  AML    Supervision    Supervisory System     |    In: Cases of Note : FINRA
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 analystsí 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 firmís AML program had inadequate procedures governing the testing of its AML program; and the firmís 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     |    In: Cases of Note : FINRA
Bill Singer's Comment
The proverbial kitchen sink: Research, AML, Email, Supervision, Customer Complaints, U4/U5.  Frankly, the member may have gotten off light with only a Censure and a $100,000 fine. 
Enforcement Actions
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