Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2011
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 2011
Ronald William Cheney
AWC/2010022535201/December 2011
Cheney borrowed $10,000 from his customers without his member firmís written authorization.  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.
November 2011
Corey Vernon Darling
AWC/2009020307101/November 2011
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
Tags:  Borrowing     |    In: Cases of Note : FINRA
Edgar Rhodes Hauser Jr
AWC/2010023178101/November 2011

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.

Edgar Rhodes Hauser Jr: Barred
Tags:  Borrowing    Life Insurance     |    In: Cases of Note : FINRA
Bill Singer's Comment
Something of a compound violation in that Hauser appears to have instigated his clients to borrow from their life insurance in order to lend Hauser money that he has not yet repaid in terms of principal or interest.  On top of that, he likely received some transactional compensation for the original whole life policies sales.
Eric Adam Axel
OS/2007010889202/November 2011

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.

Second Firm

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.

Eric Adam Axel: Fined $10,000; Suspended 1 year
Tags:  Borrowing     |    In: Cases of Note : FINRA
Bill Singer's Comment
Frankly, Axel either had a superb lawyer or FINRA's getting soft.  For a three-time loser to get off with only $1,000 and a one-year suspension is a relatively light sanction given the dollars involved, the repeat offenses, and the involvement of two member firms.
October 2011
Edward Lee Pinney Jr.
AWC/2010024882501/October 2011
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
Tags:  Borrowing     |    In: Cases of Note : FINRA
Frank Porporino Jr.
AWC/2010022072601/October 2011

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.
Tags:  Borrowing        Unauthorized Transaction    Discretion     |    In: Cases of Note : FINRA
Jo Ann Marie Head
2009017530101/October 2011

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
Tags:  Borrowing    Discretion    Correspondence    Bank    Mortgage    Rule 8210     |    In: Cases of Note : FINRA
Bill Singer's Comment
Talk about a cascade effect of violations!
Lonnie Lee Dusenberry
AWC/2010022516401/October 2011

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.

Lonnie Lee Dusenberry : Barred
Tags:  Borrowing    LOA    Signature     |    In: Cases of Note : FINRA
Bill Singer's Comment
Whoa, $500,000 in prohibited customer borrowing.  This guy wasn't kidding around.
Steve R. Caudle
AWC/2010022881701/October 2011
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
Steve R. Caudle : Fined $5,000; Suspended 90 days
Tags:  Borrowing     |    In: Cases of Note : FINRA
William James Lasko (Principal)
OS/2009020174801/October 2011
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
Tags:  Borrowing     |    In: Cases of Note : FINRA
September 2011
Julia Merritt Cameron
AWC/2010023339801/September 2011
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
Tags:  Borrowing     |    In: Cases of Note : FINRA
Bill Singer's Comment
I'm often asked by clients what FINRA's sanctions could be if they borrowed money from a client, repaid it, but, well, you know, just between you and me, sort of didn't tell the firm about it.  Allowing for the fact that there is no one-size-fits-all sanction and that all alleged violations have to be viewed on their own, it's still a fairly good indication that if you borrow and repay but did the borrowing in violation of your firm's policies, that you may likely be looking at a $2,500 fine plus 10 business days of downtime.  HOWEVER, as I said, that's not a sure thing.
Michael Braden Golembiesky
AWC/2011026436301/September 2011

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
Tags:  Borrowing     |    In: Cases of Note : FINRA
Bill Singer's Comment

In an earlier borrowing case this month, the broker borrowed from the client and fully repaid but failed to get the Firm's approval. That resulted in a $2,500 fine and 10 day suspension.  As such, it would appear that the cost of borrowing and not fully repaying but entering into an agreement to undertake full repayment is double the lesser fine and near three times the lesser suspension.  Again, that is NOT a hard and fast rule but merely an attempt to set up some staggered levels of sanctions for progressively worse violations of the same character.

Thomas Michael Aretz
2009017764301/September 2011

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.
August 2011
Jared Austin Poe
AWC/2010021867401/August 2011

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
Tags:  Elderly    Borrowing     |    In: Cases of Note : FINRA
Bill Singer's Comment
Frankly, based upon FINRA's recitation of the facts, I would not have let Poe off with only an 18 month suspension.  He should count his lucky stars for such leniency.
John Edward Good Jr.
AWC/2010023094301/August 2011
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
Tags:  Borrowing     |    In: Cases of Note : FINRA
July 2011
Frederick Xavier Veile III
AWC/2009020153401/July 2011

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
Michael Wilson Adams (Principal)
AWC/2010023818301/July 2011
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
Tags:  Borrowing     |    In: Cases of Note : FINRA
Prakash Devendranath Simha
AWC/2009020863401/July 2011

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
Tags:  Borrowing    Sharing Profits     |    In: Cases of Note : FINRA
Bill Singer's Comment

Note: if you're going to engage in something that might even remotely look shady, it's just not a great idea to tell the customer that FINRA (or any regulator) is auditing his/her account. 

It's sort of hard to imagine an easier way to piss off a regulator than misusing its name with the public.  Here, not only did Simha invoke the ire of FINRA but the client never shared in the profits -- so, all was for naught except that it cost $7,500 and 30 business days of downtime.

June 2011
David Alan Kepes
AWC/2009019009101/June 2011

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
Tags:  Borrowing    Elderly     |    In: Cases of Note : FINRA
Bill Singer's Comment

I get everything except that charge about Kepes "encouraging" a client to lend money to a realtor. Be it a "favor" or not to Kepes, that's not lending money to the registered person and it doesn't even suggest an inappropriate outside business activity (unless he was compensated for his efforts or had some other role that we're not told about).I'm truly perplexed as to why that's even included in this AWC and what violation that represents -- if there are more pertinent facts to that situation, then FINRA needed to add them in the monthly report.

The FINRA AWC states that the $50,000 loan was from an "elderly widow client," which I think should have been noted in the more cursory monthly squib of this settlement.  During the relevant times, Kepes was registered with Merrill Lynch.

Edward R. Von Lumm IV
AWC/2010024607801/June 2011

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.

Edward R. Von Lumm IV : Barred
Tags:  Borrowing    Promissory Notes     |    In: Cases of Note : FINRA
May 2011
Dinesh Devraj Suchak Jr.
AWC/2010021600601/May 2011
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
Tags:  Borrowing     |    In: Cases of Note : FINRA
Eric Renard Garrison (Principal)
AWC/2009020931201/May 2011
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
Tags:  Borrowing     |    In: Cases of Note : FINRA
Jon David Kurzmann
AWC/2009018783801/May 2011

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.

Jon David Kurzmann : Barred
Tags:  Borrowing     |    In: Cases of Note : FINRA
Jose Antonio Rivera
AWC/2010022031601/May 2011

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
Tags:  Borrowing    Promissory Notes     |    In: Cases of Note : FINRA
Mark Hermann Pollack
AWC/2009019904201/May 2011
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
Tags:  Borrowing     |    In: Cases of Note : FINRA
April 2011
Daniel A. Contreras (Principal)
AWC/2009018398701/April 2011

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.

Daniel A. Contreras (Principal): Barred
Tags:  Borrowing    Bankruptcy    Private Securities Transaction     |    In: Cases of Note : FINRA
Bill Singer's Comment
An all too typical scenario involving private securities transactions and borrowing from clients. A lot of folks are surprised when they learn how often those two factors go hand in hand.  Of course, an equally common factor is that an RR who fails to pay back customers from whom he borrowed money, also tends not to respond to FINRA requests for information and testimony.
Hyon Chu Kang
AWC/2010022258701/April 2011

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.

Hyon Chu Kang : Fined $7,500; Suspended 60 days
Tags:  Borrowing    Loaning    Promissory Notes     |    In: Cases of Note : FINRA
Bill Singer's Comment

Okay, just to be clear, very, very clear, I absolutely detest and hate this case. A fairer resolution would have been to send Kang a sternly worded letter explaining why she should not do this and how it was necessary to obtain pre-approval from her firm.  Nontheless, under the totality of the circumstances, I find it absurd to impose a $7,500 fine upon the RR.  Moreover, I see no reason to sit her down for 60 days. 

Justice is not blind. Justice wears a blindfold. Every so often, Justice needs to lift the blindfold and take a peak.  The reality of this case is that a broker lent a large amount of money to a friend in order to help out with a business issue.  The broker did not borrow the funds from the client. Yes -- I know, the rule prohibits both borrowing and lending. And, yes, I respect why such a rule is in place and am not disputing its wisdom.  However, sometimes you just need to dilute the consequences when the underlying facts argue for some compassion and leniency. 

Ray Joseph Starner
AWC/2010022383001/April 2011
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
Tags:  Borrowing     |    In: Cases of Note : FINRA
Richard Mark McKinnon
AWC//April 2011

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.

Richard Mark McKinnon: Barred
Tags:  Borrowing    Promissory Notes    False Statements     |    In: Cases of Note : FINRA
Bill Singer's Comment
Good catch by FINRA.
William Robert Whitehurst
AWC/2010021401001/April 2011

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.

William Robert Whitehurst : Barred
Tags:  Borrowing     |    In: Cases of Note : FINRA
March 2011
John Leslie White
AWC/2009016876801/March 2011

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
Robert John Griffin
AWC/2009020328201/March 2011
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
Bill Singer's Comment
Once you start asking a client not to notify your firm, then you're really asking for trouble. Which is what the RR in this case got.
Stanley Jerome Keyes (Principal)
OS/2009017605101/March 2011

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
Tags:  Borrowing     |    In: Cases of Note : FINRA
Bill Singer's Comment
Frankly, all in all, a fairly modest sanction given the non-payment aspect to the clients (until payment was apparently prompted by the FINRA investigation) and the false certification to the firm. This could have ended far worse.
January 2011
Daniel J. Trolaro
AWC/2010021844401/January 2011
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.
Daniel J. Trolaro: Barred
Tags:  Borrowing    Checks     |    In: Cases of Note : FINRA
David William Reimers (Principal)
AWC/2010022393501/January 2011

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
David William Trende
2007008935010/January 2011
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 firm.
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 debts.

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.
Tags:  Borrowing    Stock To Cash    Variable Annuity     |    In: Cases of Note : FINRA
John Henry Fernandez
AWC/2009019405801/January 2011
Fernandez borrowed a total of $30,000 from an elderly customer contrary to his member firmís policy, which prohibited borrowing from customers who are not immediate family members. Fernandez failed to disclose the loans to his member firm and did not repay them until the firm discovered the loans after the customer complained. Fernandez then repaid the entire loan with $2,105 in interest.
John Henry Fernandez : Censured; Fined $5,000; Suspended 45 days
Tags:  Borrowing     |    In: Cases of Note : FINRA
Bill Singer's Comment
Wow, the sanction here strikes me a very lenient given the facts -- particularly since FINRA says that Fernandez did not repay the loans until the "firm discovered the loans after the customer complained."
Lyndall Conway Medearis Jr. (Principal)
AWC/2008014825001/January 2011

Medearis became an additional credit card holder on a customerís credit card accounts which were revolving lines of credit. Medearis made charges to the cards totaling approximately $134,000, effectively borrowing this amount through the credit card transactions, and subsequently made payments to cover the charges.

Medearisí member firmís written procedures prohibited registered representatives from borrowing money from or loaning money to customers unless the customer was a member of the registered representativeís immediate family and the registered representative had requested and received prior written permission from the firm. Medearis borrowed an additional $132,000 from the customer in separate transactions, and Medearis never informed his firm.

Medearis loaned $6,420.33 to a customer who was a member of his immediate family but failed to obtain the firmís prior written permission before entering into the loan arrangement with the customer.

Lyndall Conway Medearis Jr. (Principal): Fined $10,000; Suspended 90 days
Tags:  Borrowing    Credit Cards    Loaning     |    In: Cases of Note : FINRA
Bill Singer's Comment
FINRA essentially has Medearis coming (borrowing) and going (loaning) money to customers.
Winston John Cutter Jr.
OS/2009017532101/January 2011

Cutter borrowed a total of $55,000 from his customer in the absence of firm procedures allowing such borrowing; Cutter has repaid only $6,000.

Cutter made false statements to his firm concerning material facts relating to his borrowing or receiving of any money from the firmís customer, particularly in the context of the firmís attempts to discharge its supervisory functions. Cutter failed to provide information FINRA requested.

Winston John Cutter Jr.: Fined $12,500; Suspended 2 years
Tags:  Borrowing     |    In: Cases of Note : FINRA
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