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.
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.

June 2010
Brookstone Securities, Inc.
AWC/2008011675701/June 2010

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

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

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

Brookstone Securities, Inc. : Censured; Fined $17,500
Tags:  Annual Compliance Meeting         |    In: Cases of Note : FINRA
February 2010
Alvarez & Marsal Securities, LLC
AWC/2008011639901/February 2010
Acting through a registered principal, the Firm it failed to
  • conduct inspections of its main office,
  • reduce inspections and reviews to a written report, and
  • conduct annual compliance meetings.
For one year, the firm failed to
  • document that it had administered a continuing education program in accordance with its evaluation of its training needs and written training plan for its covered registered personnel, and
  • conduct a needs analysis and prepare a written training plan or administer a continuing education program for its covered registered personnel.
Alvarez & Marsal Securities, LLC : Censured; Fined $15,000 ($5,000 joint/several with unnamed party)
Bill Singer's Comment
Among the most basic tenets of in-house Compliance is to ensure that you have instituted a "tickler" system on a calendar to remind you to conduct your annual office inspections, compliance meeting, and continuing education program.  If that comment strikes you as something like "Geez...that sounds like a good idea! An annual tickler, maybe three months ahead of time...hmmm, that Singer fellow is pretty sharp," you better make sure that you haven't already blown the annual deadlines.  Moreover, you can't just sleepwalk through these obligations.  FINRA isn't going to simply take your word that you satisfied your annual obligations.  You need to maintain written records. 
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