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
Internet Securities and Michael Wayne Beardsley (Principal)
AWC/2009020930302/December 2011
Beardsley was a registered representativeís direct supervisor who was responsible for reviewing and approving the representativeís securities transactions, but failed to exercise reasonable supervision over the representativeís recommendations of exchange-traded funds (ETFs) in customersí accounts, thereby allowing the representative to conduct numerous unsuitable transactions. 

As the firmís chief compliance officer (CCO), Beardsley was responsible for ensuring that the firm filed all necessary Uniform Applications for Securities Industry Registration or Transfer (Forms U4), Uniform Termination Notices for Securities Industry Registration (Forms U5) and Rule 3070 reports. The Firm and Beardsley failed to timely amend Beardsleyís Form U4 to disclose the settlement of an arbitration against him, the firm and the registered representative; the firm failed to timely amend a registered representativeís Form U5 to disclose settlement of the arbitration; and the firm and Beardsley failed to timely report the settlement to FINRAís 3070 system

The Firm and Beardsley failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules as they pertain to private placements. The firm and Beardsley failed to conduct investigations of offerings for suitability but relied on information the registered representative who proposed selling the offering provided; never reviewed issuersí financials, nor attempted to obtain information about the issuers from any third parties; failed to maintain documentation of their investigations; allowed a registered representative to draft selling agreements with offerings which allowed the issuer to make direct payment to an entity the representative, not the firm, owned,; failed to implement supervisory procedures to ensure compliance with SEC Exchange Act Rule 15c2-4(b); and failed to implement supervisory procedures to prevent general solicitation of investments in connection with offerings made pursuant to Regulation D. 

The Firmís written procedures required Beardsley to obtain and review, on at least an annual basis, a written statement from each registered representative about his or her outside business activities; despite the fact that several registered representatives were actively engaged in outside business activities, Beardsley failed to obtain any such written statements. 

For almost a three-year period, Beardsley did not request any duplicate statements of outside securities accounts firm employees held; he neither requested nor obtained any written notifications from firm employees concerning their actual or anticipated outside securities activities. In addition, the Firm and Beardsley failed to implement an adequate system of supervisory control policies and procedures regarding testing supervisory procedures for compliance, erroneous criteria for identifying and supervising producing managers, including Beardsley, review and monitoring transmittal of funds or securities, customer changes of address, customer changes of investment objectives, and concomitant documentation for its limited size and resources exception in FINRA Rule 3012. Moreover,he firm and Beardsley completed an annual certification in which Beardsley certified that he had reviewed a report evidencing the firmís processes for establishing, maintaining and reviewing policies and procedures reasonably designed to achieve compliance with applicable FINRA rules, Municipal Securities and Rulemaking Board (MSRB) rules and federal securities laws and regulations; modifying such policies and procedures as business, regulatory and legislative changes and events dictate; and testing the effectiveness of such policies and procedures on a periodic basis, the timing and extent of which is reasonably designed to ensure continuing compliance with FINRA rules, MSRB rules and federal securities laws and regulations. In fact, the report did not evidence any processes for testing the effectiveness of such policies, and no such testing was done.

Furthermore, on the firmís behalf, Beardsley executed an engagement letter committing the firm to serve as a placement agent for an issuer of limited partnership units. The letter, which a registered representative of the firm drafted, falsely represented that the firm was not a registered broker-dealer. 

The Firm and Beardsley failed to enforce the firmís Customer Identification Program (CIP) in that they completely failed to verify four customersí identities. The Firm and Beardsley failed to conduct a test of the firmís anti-money laundering (AML) compliance program for a calendar year. FINRA found that the firm conducted a securities business while failing to maintain its required minimum net capital.

Internet Securities: Censured; Fined $12,500; Required to retain an outside consultant to review and prepare a report concerning the adequacy of the firmís supervisory, and compliance policies and procedures, and supervisory controls; the report shall make specific recommendations addressing any inadequacies the consultant identifies, and the firm shall act on those recommendations. FINRA imposed a lower fine after it considered the firmís size, including, among other things, the firmís revenues and financial resources. 

Michael Beardsley: No fine in light of financial status: Suspended 1 year in Principal capacity only
Tags:  ETF    Private Placement    Suitability    Annual Compliance Certification    Away Accounts    AML    CIP     |    In: Cases of Note : FINRA
James Malcolm Reardon
AWC/2010021058404/December 2011
Reardon helped prepare a document called ďInvestor LetterĒ for a company,  which his member firm distributed sometime later. The Investor Letter constituted a research report, but it failed to disclose Reardonís ownership interest in the company and his receipt of compensation from the company. Reardon helped prepare presentations regarding the company that the firmís registered representatives used to solicit potential investors at seminars. The presentations contained statements and projections that were without basis and were false, exaggerated, unwarranted and/or misleading, and failed to provide a balanced presentation by omitting material information regarding the significant risks associated with an investment in the company. 

Reardon opened a personal securities account at another broker-dealer and failed to disclose to the executing broker-dealer that he was associated with a firm. The suspension is in effect from November 7, 2011, through December 19, 2011. (FINRA Case #)
James Malcolm Reardon: Fined $7,500; Suspended 30 business days
Tags:  Away Accounts     |    In: Cases of Note : FINRA
Ronak C. Patel
2010024540401/December 2011
Patel failed to respond to FINRA requests for information and to appear for testimony regarding loans from a firm customer. 

Patel failed to make appropriate disclosure of an outside securities account after he became associated with his member firm and failed to notify the firm that held his securities account that he had become associated with a firm.Patel made a false statement on an annual compliance certification to his firm that he completed after he signed and filed his initial Form U4 subjecting himself to FINRAís jurisdiction. Patel acknowledged receipt of and adherence to the firmís policies, including obligations to comply with the firmís policies and to adhere to the applicable federal, state and selfregulatory organization laws and rules. Patel falsely stated that he did not have a securities account when, in fact, he did.
Ronak C. Patel : Barred
Stephen Michael Mazurek Jr.
AWC/2010021749202/December 2011
Mazurek and his relative agreed to act as co-trustees for their deceased relativeís trust. Mazurek began collecting the assets from the deceasedís estate and distributing them to the beneficiaries of the trust. After Mazurek had withdrawn his allotted share, he misappropriated approximately $60,854 from his late relativeís trust for his own use and benefit, without the knowledge or authorization of the trustís beneficiaries, by writing checks made payable to ďcashĒ in amounts ranging from $100 to $5,000, and used the funds for his own personal use and benefit. Mazurek attempted to conceal his misconduct by convincing another relative to sign an affidavit and promissory note after Mazurek had already misappropriated the funds. 
Stephen Michael Mazurek Jr. : Barred
Tags:  Promissory Notes    Trust Account     |    In: Cases of Note : FINRA
October 2011
Yaman Huseyin Sencan (Principal)
AWC/2009016323801/October 2011

Sencan  failed to reasonably supervise the activities of member firm personnel engaged in the charging of excessive commissions, sharing commissions with a non-member and misusing funds on deposit with the firm.

Acting through its head trader, Sencan's firm improperly shared about $4 million in commissions with one of the firmís hedge fund clients and charged excessive commissions totaling over $580,000 in transactions.

Sencan was the head traderís direct supervisor and was aware that the firm had entered into a commission sharing arrangement with the hedge fund client, and he was responsible for reviewing that arrangement and the head traderís trading activities. The firmís procedures required the chief compliance officer (CCO) to periodically review emails firm personnel sent and received. Sencan failed to perform periodic reviews of the head traderís electronic correspondence or otherwise take reasonable steps to supervise his activities.

Acting through its FINOP, the firm misused at least $61,000 in funds on deposit with the firm. 

Sencan was the FINOPís direct supervisor but failed to monitor the firmís financial records, perform periodic reviews of the FINOPís electronic correspondence or otherwise take reasonable steps to supervise the FINOPís activities.

Sencan became the firmís AMLCO, and in this position, he was responsible for ensuring that the firmís AML compliance procedures (AMLCP) were enforced but failed to do so. The CIP portion of the firmís AMLCP required the firm, prior to opening an account, to obtain identifying information such as the customerís passport number and country of origin; but acting through Sencan, the firm failed to obtain the identifying information the CIP required for some of its customers (a portion of whom were located outside of the United States). In addition, the firmís AMLCP required the firm to maintain transmittal orders for wire transfers of more than $3,000, and those orders had to contain at least the name and address of the transmitter and recipient, the amount of the transmittal order, the identity of the recipientís financial institution and the recipientís account number; on numerous occasions, a firm customer account wired out funds in excess of $3,000. Sencan did not take steps to ensure that the firm retained information regarding those wires, including the recipientís name, address and account number and the identity of the recipientís financial information. Furthermore, acting through Sencan, the firm failed to provide AML training to its registered personnel.

Sencan was attempting to find transactional business for the firm in medium-term notes (MTNs).  As part of an effort to purchase MTNs for resale to its clients, the firm entered into an agreement with a Switzerland-based entity. Sencan signed the agreement on the firmís behalf, and the agreement called for the entity to provide the firm with the opportunity to purchase $100 million (face value) in specified MTNs; however, the agreement included clauses containing material misrepresentations about the firmís ability to purchase MTNs.

The first clause represented that the firm was the actual legal and beneficial owner of cash funds in excess of $100 million on deposit at a major bank. In addition, the second clause was a representation that these funds were free and clear of liens, had been legally earned and could immediately be utilized for the purchase of financial instruments; neither of these clauses was true, as the firm never had $100 million on deposit at any bank at any time.

Yaman Huseyin Sencan (Principal): Fined $20,000; Barred in Principal capacity only; Suspended 6 months in all capacities.
Tags:  Commissions    Correspondence    Trading    AML    CCO    CIP    FINOP     |    In: Cases of Note : FINRA
September 2011
Scott J. Baklenko
AWC/2009019500401/September 2011

Baklenko engaged in private securities transactions without prior written notice to, and approval from, his member firm, in that he participated in the sales to firm customers of limited partnership interests in an entity he and a business associate had formed for a total of $1,095,000.

Baklenko and the business associate opened an account with another member firm in their entityís name; Baklenko failed to notify his member firm in writing that he had established the account with the other firm and he failed to notify the other firm, with which he opened the account, in writing that he was associated with a firm. Baklenko effected trades in his entityís account at the other firm, which included securities purchases totaling approximately $176,575 and securities sales totaling approximately $57,109.

Scott J. Baklenko : Fined $20,000; Suspended 20 months
Tags:  Away Accounts     |    In: Cases of Note : FINRA
August 2011
Midtown Partners & Co., LLC
OS/2008012242901/August 2011

The Firm failed to have a supervisory system reasonably designed to detect and prevent the misuse of material, nonpublic information by employees through an information barriers system.

The Firm did not have WSPs addressing the creation or distribution of a watch list, which is a list of securities whose trading is subject to close scrutiny by a firmís compliance or legal department, and the firm did not maintain any list of this nature. The firm maintained a restricted list but it was not maintained in the manner its own procedures required; securities were added to the list in a haphazard manner, often after the issuer had signed a private placement agent agreement with the firm. The list did not reflect when a security was added or deleted from the list, and did not identify the contact person.

The firm did not adequately monitor employee trading outside the firm for transactions in the restricted-list securities; the firm permitted employees to maintain securities accounts with other broker-dealers, requiring any employee to have duplicate confirmations and account statements sent to the firm. Firm employees were required to disclose their outside accounts to the firm upon hire and annually in an attestation form, but the firm failed to obtain annual attestations from some employees and did not ensure that it was receiving the required duplicate confirmations and account statements.

In addition, because the firm failed to maintain a watch list, to timely add securities to its restricted list, to record the required restricted list information, and to obtain confirmations and account statements for employee accounts, it could not reasonably monitor its employeesí trading for transactions in restricted or watch-list securities. Moreover,the firm did not have procedures to restrict the flow of material, nonpublic information and routinely shared restricted-list information with unregistered individuals who were firm owners, and occasionally shared with these unregistered individuals the details of investment banking contracts; consequently the firmís procedures were not reasonably designed to prevent violation of securities rules prohibiting insider trading.

Midtown Partners & Co., LLC: Censured; FIned $30,000
Tags:  Away Accounts     |    In: Cases of Note : FINRA
Richard A. Garaventa
OS/2009017072301/August 2011

While employed by his member firmís New York Positions Services (NYPS) Group, Associated Person Garaventa was responsible for processing corporate actions. In that capacity, he

Garaventa entered, or caused to be entered, numerous false journal entries into the firmís electronic system to transfer and credit at least $59,349 of unreconciled customer funds to other NYPS suspense accounts that Garaventa was using to misappropriate funds. Garaventa misappropriated customer funds from an SEC settlement fund by entering, or causing to be entered, numerous false journal entries into his firmís electronic system to credit SEC checks totaling approximately $120,395 to the other NYPS suspense accounts he was using to misappropriate funds.

Garaventa entered, or caused to be entered, into the firmís electronic system check requests against the suspense accounts that Garaventa was using to misappropriate funds; in this way, Garaventa misappropriated at least $179,744 of customer funds for his own benefit. Garaventa misappropriated funds from the firm by entering, or causing to be entered, numerous false journal entries into the firmís electronic system to transfer and credit approximately $1,786,052 from different firm sources, including the firmís Foreign Exchange accounts, leftover balances from corporate actions and accumulated American Depositary Receipt (ADR) fees, commingled with funds from other sources, to the NYPS suspense accounts; Garaventa then entered, or caused to be entered, into the firmís electronic system check requests to be issued against those funds.

Garaventa misappropriated:

  • funds from a firm counterparty; the counterparty calculated a payment to the firm related to a corporate action based on an incorrect tax withholding rate, which resulted in a $1,000,000 overpayment by the counterparty, which was credited to an NYPS suspense subaccount;
  • approximately $320,422 of the $1,000,000 overpayment by entering numerous false journal entries into the firmís electronic system, transferring the funds to other NYPS suspense accounts that he was using to misappropriate funds, and caused checks to be issued against those funds by having NYPS employees who reported to him enter check requests on his behalf, which Garaventa approved and used the identification number and password of another NYPS employee who reported to him to enter check requests; one of the checks contained funds from other firm sources; and
  • an additional $228,031 from other undetermined sources by entering numerous false journal entries into the firmís electronic system to transfer those funds to other NYPS suspense accounts he was using to misappropriate funds, and caused checks to be issued against those funds, which had been commingled with funds from other sources.

FINRA also found that Garaventa issued, or caused to be issued, approximately 50 false check requests and entered, or caused to be entered, hundreds of false journal entries in the firmís systems to foster his misappropriation of funds from the firm, its customers and a firm counterparty.

Garaventa failed to respond to FINRA requests for information.

Richard A. Garaventa : Barred
Tags:  Suspense Account     |    In: Cases of Note : FINRA
Bill Singer's Comment
Quite a prodigious undertaking for a mere associated person. What a waste of talent.
July 2011
Alfonso Fiero (Principal)
2008015329001/July 2011
While registered with a member firm, Fiero maintained a corporate brokerage account which he controlled at another member firm (the executing firm) without disclosing the existence of this account to his firm or his association with his firm to the executing firm. Fiero failed to disclose the existence of any outside securities account, including any accounts where he had control over the investments on an annual certification form he submitted to his firm. Fiero failed to respond to FINRA requests for information and documents.
Alfonso Fiero (Principal): Barred
Tags:  Away Accounts     |    In: Cases of Note : FINRA
Bill Singer's Comment
There's certainly been an increase in FINRA prosecutions for RRs using so-called "away accounts."  Typically, before you can open such an account (or continue such use), you need to notify your firm and the firm where you have the account.  Duplicate confirms are then sent to your employing FINRA member firm.
Brian Daniel Parker (Principal)
AWC/2008015729701/July 2011
Parker failed to provide written notice to his member firm prior to opening a brokerage account with another FINRA member firm and, upon opening the account, failed to advise the executing member firm in writing of his association with his firm. Parker engaged in outside business activities without providing prompt written notice to his firm.
Brian Daniel Parker (Principal): Fined $5,000; Suspended 30 days
Tags:  Away Accounts     |    In: Cases of Note : FINRA
Prestige Financial Center, Inc. and Lawrence Gary Kirshbaum (Principal)
AWC/2009016405902/July 2011

Prestige, acting through Kirshbaum and at least one other firm principal, were involved in a fraudulent trading scheme through which the then-Chief Compliance Officer (CCO) and head trader for the firm concealed improper markups and denied customers best execution.

As part of this scheme, the CCO falsified order tickets and created inaccurate trade confirmations, and the hidden profits were captured in a firm account Kirshbaum and another firm principal controlled; some of the profits were then shared with the CCO and another individual.

The trading scheme took advantage of customers placing large orders to buy or sell equities. Rather than effecting the trades in the customersí accounts, the CCO placed the order in a firm proprietary account where he would increase or decrease the price per share for the securities purchased or sold before allocating the shares or proceeds to the customersí accounts; this improper price change was not disclosed to, or authorized by, the customers, and this fraudulent trading scheme generated approximately $1.3 million in profits for the firmís proprietary accounts. Kirshbaum was aware of and permitted the trading. In an account that Kirshbaum and another firm principal controlled. 47 percent of the profits from the scheme were retained. In furtherance of the fraudulent trading scheme, the CCO entered false information on the corresponding order tickets regarding the share price and the time the customer order ticket was received, entered and executed; the corresponding trade confirmations inaccurately reflected the price, markup and/or commission charged and the order capacity.

In addition, acting through Kirshbaum, Prestige entered into an agreement to sell the personal, confidential and non-public information of thousands of customers to an unaffiliated member firm in exchange for transaction-based compensation from any future trading activity in those accounts. In connection with that agreement, Kirshbaum provided the unaffiliated member firm with the name, account number, value and holdings on spreadsheets via electronic mail. Furthermore, Kirshbaum granted certain representatives of that firm live access to the firmís computer systems, including access to systems provided by the firmís clearing firm, which provided access to other non-public confidential customer information such as Social Security numbers, dates of birth and home addresses. Prestige and Kirshbaum did not provide any of the customers with the required notice or opportunity to opt out of such disclosure before the firm disclosed the information, as Securities and Exchange Commission (SEC) Regulation S-P requires.

Acting through Kirshbaum, Prestige failed to establish and maintain a supervisory system, and establish, maintain and enforce written supervisory procedures to supervise each registered personís activities that are reasonably designed to achieve compliance with the applicable rules and regulations regarding interpositioning, front-running, supervisory branch office inspections, supervisory controls, annual compliance meeting, maintenance and periodic review of electronic communications, NASD Rule 3012 annual report to senior management, review and retention of electronic and other correspondence, SEC Regulation S-P, anti-money laundering (AML), Uniform Application for Securities Industry Registration or Transfer (Form U4) and Uniform Termination Notice for Securities Industry Registration (Form U5) amendments, and NASD Rule 3070 reporting. FINRA found that the firm failed to enforce its procedures requiring review of its registered representativesí written and electronic correspondence relating to the firmís securities business. In addition, the firm failed to establish, maintain and enforce a system of supervisory control policies and procedures that tested and verified that its supervisory procedures were reasonably designed with respect to the activities of the firm and its registered representatives and associated persons to achieve compliance with applicable securities laws and regulations, and created additional or amended supervisory procedures where testing and verification identified such a need. Moreover, the firm failed to enforce the written supervisory control policies and procedures it has with respect to review and supervision of the customer account activity conducted by the firmís branch office managers, review and monitoring of customer changes of address and the validation of such changes, and review and monitoring of customer changes of investment objectives and the validation of such changes. Furthermore, firm failed to establish written supervisory control policies and procedures reasonably designed to provide heightened supervision over the activities of each producing manager responsible for generating 20 percent or more of the revenue of the business units supervised by that producing managerís supervisor; as a result, the firm did not determine whether it had any such producing managers and, to the extent that it did, subject those managers to heightened supervision.

Acting through one of its designated principals, Prestige falsely certified that it had the requisite processes in place and that those processes were evidenced in a report review by its Chief Executive Officer (CEO), CCO and other officers,and the firm failed to file an annual certification one year. The findings also included that the firm failed to implement a reasonably designed AML compliance program (AMLCP). Although the firm had developed an AMLCP, it failed to implement policies and procedures to detect and cause the reporting of suspicious activity and transactions; implement policies, procedures and internal controls reasonably designed to obtain and verify necessary customer information through its Customer Identification Program (CIP); and provide relevant training for firm employeesóthe firm failed to conduct independent tests of its AMLCP for several years. Acting through Kirshbaum and another firm principal, the firm failed to implement policies and procedures reasonably designed to ensure compliance with the Bank Secrecy Act by failing to enforce its procedures requiring the firm to review all Section 314(a) requests it received from the U.S. Department of the Treasuryís Financial Crimes Enforcement Network (FinCEN); as a result, the firm failed to review such requests. In addition, Kirshbaum and another principal were responsible for accessing the system to review the FinCEN messages but failed to do so. Moreover, FINRA found that the firm permitted certain registered representatives to use personal email accounts for business-related communications, but failed to retain those messages.

Furthermore, the firm failed to maintain and preserve all of its business-related electronic communications as required by Rule 17a-4 of the Securities Exchange Act of 1934, and failed to maintain copies of all of its registered representativesí written business communications. The  firm failed to file summary and statistical information for customer complaints by the 15th day of the month following the calendar quarter in which the firm received them. The findings also included that the customer complaints were not disclosed, or not timely disclosed, on the subject registered representativeís Form U4 or U5, as applicable.The Firm failed to provide some of the information FINRA requested concerning trading and other matters.

Prestige Financial Center, Inc. : Expelled

Lawrence Gary Kirshbaum (Principal): Barred

Bill Singer's Comment

Whoa -- one of the all-time, most comprehensive FINRA disciplinary actions. Frankly, not much that could be done wrong wasn't, according to the terms of the settlement. One of the few times when a FINRA member firm is expelled. Also, one of the few times when a CCO is barred. A powerful case. Well written and presented.

Keep in mind that registered persons from this firm may trip your Taping Rule threshold.

May 2011
Douglas Daniel Ivan (Principal)
AWC/2010022805201/May 2011

Ivan executed an agreement purportedly on the firmís behalf, in which a non-customer corporation agreed to pay the firm a $35,000 refundable deposit in exchange for the firm agreeing to act as an exclusive placement agent to assist the corporation in arranging for $8 million dollars in debt financing. Subject to the agreement, Ivan instructed the corporation to wire the $35,000 deposit to a personal brokerage account he controlled at another FINRA member firm. Instead of using the funds as he represented to the corporation and in accordance with the terms of the signed agreement, Ivan diverted the corporationís funds by wiring $25,000 of the deposit to another business entity that was supposedly going to assist the corporation with arranging the financing and used the remaining $10,000 for his personal benefit. The debt financing for the corporation never materialized, and the corporation did not receive the return of its $35,000 deposit.

Ivan made untruthful statements and provided false documents to FINRA when he untruthfully represented in his written response to FINRA that he had forwarded the $35,000 from the corporation to a business entity assisting with the financing, and that he did not receive any compensation or payments relating to his participation in arranging the financing. Ivan provided FINRA a document purporting to be an account statement for his outside brokerage account, which falsely reflected a wire transfer of $35,000 out of his account to a business entity assisting with the arrangement of financing, when in fact, the wire transfer amount had only been $25,000. That brokerage account statement had false entries for the figures representing the total amount of checks written and the total amount of checking, debit card and cash withdrawals.

Moreover, Ivan held a financial interest in a brokerage account maintained at another FINRA member firm without giving prompt written notification to the firm that he had such an account, and without notifying the other brokerage firm of his association with his member firm. Furthermore, Ivan falsely answered ďN/AĒ on the firmís outside brokerage account new hire certification form when requested to list every brokerage account over which he had full or partial ownership.

Douglas Daniel Ivan (Principal): Barred
Tags:  Away Accounts    Conversion    False Statements    Outside Accounts     |    In: Cases of Note : FINRA
Grand Capital Corp. and Eliezer Gross Homnick (Principal)
AWC/2007008158203/May 2011

Acting through Homnick, the firmís president, chief compliance officer (CCO) and AML compliance officer (AMLCO), the Firm failed to comply with AML requirements. The Firmís AML compliance program, which Homnick implemented, did not fully comply with the requirements of the Bank Secrecy Act (BSA) or the regulations thereunder, and violated NASDģ Rules 3011(a) and (b). The AML procedures in effect required the firm to make a preliminary risk assessment for each existing and potential customer of the firm, and the firmís representatives were required to document any significant information they learned pursuant to such risk assessment, but the firm did not create or maintain written risk assessments for its customers.

The firmís AML procedures required scrutiny of the activities of each firm customer organized as a limited liability company (LLC); specifically, for LLC customers, the firm and its registered representatives were to assess the correlation between their business activities and their formation documents and to conduct further investigations to determine the customerís risk profile. These assessments and determinations of risk profiles were not conducted. Several accounts that were LLCs that engaged in suspicious transactions did not provide formation documents.

The AML procedures had a section that described the process firm employees were to use to report suspicious customer activities, but these procedures were not followed. In addition, registered representatives were required, upon detection of suspicious activity in customer accounts, to consult with one of the firmís designated principals, one of whom was Homnick; no firm representative reported to, or consulted with, the firm principals about suspicious customer activities. Moreover, the firmís procedures identified a form called the Preliminary Suspicious Activity Report (P-SAR); the purpose of the form was to identify, in writing, suspicious activities for Homnickís internal review, but no P-SARs were completed or submitted. Furthermore,Homnick was assigned the responsibility for filing Suspicious Activity Reports (SARs) and was responsible for drafting, implementing and maintaining the AML program and procedures at the firm, but he did not file any SARs and did not consider filing any SARs. FINRA also found that numerous suspicious transactions were conducted by firm customers, and the firm, acting through Homnick, did not conduct a reasonable investigation, in that they failed to file a SAR, consider filing a SAR or document rationale for not filing a SAR.

Grand Capital Corp.: Censured; Fined $20,000 (In light of the firmís revenues and financial resources, among other things, a lower fine was imposed.)

Eliezer Gross Homnick:  Fined $10,000, Suspended in Principal capacity only for 1 month;  and Required to complete eight hours of anti-money laundering (AML) training.

Tags:  CCO    AML    SAR     |    In: Cases of Note : FINRA
March 2011
Lillian S. Scales
AWC/2010023669001/March 2011
Scales was listed as a joint owner with a customer on a mutual fund account her member firm held, falsely maintaining that she and the customer were relatives because the firm allowed employeesĎ immediate family members to maintain joint accounts with them. The customer contacted the firm and reported funds missing from the mutual fund account and that Scales had improperly taken approximately $39,000 from the account and deposited the funds directly into her personal bank account, without the customerís knowledge or consent, for her own use and benefit.
Lillian S. Scales: Barred
Tags:  Mutual Funds    Joint Account    Conversion     |    In: Cases of Note : FINRA
Vincent Michael Bruno (Principal)
AWC/2009018771701/March 2011

As his member firmís Chief Compliance Officer, Bruno failed to ensure that his firm established, maintained and enforced a supervisory system and WSPs reasonably designed to achieve compliance with the rules and regulations in connection with private offering solicitations. Acting through Bruno, his firm maintained a deficient supervisory system and WSPs with respect to private offering solicitations in that those procedures did not specify who at the firm was responsible for performing due diligence, what activities firm personnel were required to satisfy the due diligence requirement, how due diligence was to be documented, who at the firm was responsible for reviewing and approving the due diligence that was performed and for authorizing the sale of the securities, and who was to perform ongoing supervision of the private offerings once customer solicitations commenced.

As a result of its deficient WSPs, the firm failed to conduct adequate due diligence on private placement offerings, and Bruno failed to take any other steps to otherwise ensure that it was conducted.

Vincent Michael Bruno (Principal): Fined $10,000; Suspended 1 month in Principal capacity only.
Tags:  Private Placement    CCO    Due Diligence    WSPs     |    In: Cases of Note : FINRA
William Echeverri
AWC/2009016948201/March 2011
Echeverri  failed to disclose to his member firms that he held an outside brokerage account at another member firm. While associated with one of the firms, Echeverri made written attestations to the firm that he did not have an outside brokerage account when, in fact, he did have one.
William Echeverri : Fined $7,500; Suspended 60 days
Tags:  Away Accounts     |    In: Cases of Note : FINRA
February 2011
Andy Young Lee
AWC/2008015985601/February 2011
Lee opened a brokerage account at another member firm without providing written notice to his firm prior to opening the account, and placed hundreds of trades in the outside account without disclosing that trading activity to his firm. Lee failed to provide notice to the firm providing the account of his association with his firm. When Lee became associated with another member firm, he failed to disclose the fact to the member firms at which he maintained brokerage accounts.
Andy Young Lee : Fiend $10,000; Suspended 30 days
Tags:  Away Accounts     |    In: Cases of Note : FINRA
Dennis OíNeal Blackstone (Principal)
2009020488001/AWC/February 2011
As the registered representative on the joint securities account of customers at his member firm, Blackstone created a false Letter of Authorization (LOA), without the customersí knowledge or authorization, and forged their signatures to authorize a transfer of funds from their joint account at the firm to a bank account that Blackstone controlled. Based on the forged LOA, the firm wired $28,320 from the customersí joint account to the bank account Blackstone controlled and, after receiving the funds in his bank account, Blackstone used the funds for his personal expenses.
Dennis OíNeal Blackstone (Principal): Barred
Tags:  Joint Account    LOA    Forgery    Bank     |    In: Cases of Note : FINRA
January 2011
Janney Montgomery Scott, LLC
AWC/2007009458001/January 2011

The Firm failed to

  • establish certain elements of an adequate AML program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and implementing regulations promulgated by the Department of Treasury;
  • establish policies and procedures reasonably expected to detect and cause the reporting of transactions required under 31 USC 5318(g) by failing to provide branch office managers with reports that contained adequate information to monitor for potential money-laundering and red flag activity; and for the firmís compliance department to perform periodic reviews of wire transfer activity, require either branch managers or the AML compliance officers to document reviews of AML alerts in accordance with firm procedures, identify the beneficial owners and/or agents for service of process for some foreign correspondent banks accounts, and establish adequate written policies and procedures that provided guidelines for suspicious activity that would require the filing of a Form SAR-SF;
  • establish policies and procedures that required ongoing AML training of appropriate personnel related to margin issues, entering new account information, verifying physical securities and handling wire activity;
  • ensure that its third-party vendor verified new customersí identities by using credit and other database cross-references, and after the firm determined that the vendorís lapse was resolved, it failed to retroactively verify customer information not previously subjected to the verification process;
  • establish procedures reasonably expected to detect and cause the reporting of suspicious transactions required under 31 USC 5318(g), in that it failed to include in its AML review the activity in retail accounts institutional account registered representatives serviced;
  • review accounts that a producing branch office manager serviced under joint production numbers;
  • evidence in certain instances timely review of letters of authorization, correspondence, account designation changes, trade blotters, branch manager weekly review forms and branch manager monthly reviews; failed to follow procedures intended to prevent producing branch office managers from approving their own errors;
  • follow procedures intended to prevent a branch office operations manager from approving transactions in her own account and an assistant branch office manager from reviewing transactions in accounts he serviced;
  • establish procedures for the approval and supervision related to employee use of personal computers and, during one year, permitted certain employees to use personal computers the firm did not approve or supervise,
  • include a question on thefirmís annual acknowledgement form for one year that required its registered representatives to disclose outside securities accounts and the firm could not determine how many remained unreported due to the supervisory lapse;
  • follow policies and procedures requiring the pre-approval and review of the content of employeesí radio broadcasts, television appearances, seminars and dinners, and materials distributed at the seminars and dinners; representatives conducted seminars that were not pre-approved by the firmís advertising principal as required by its written procedures; the firm failed to maintain in a separate file all advertisements, sales literature and independently prepared reprints for three years from date of last use; and a branch office manager failed to review a registered representativeís radio broadcast. A branch office manager failed to maintain a log of a registered representativeís radio broadcasts and failed to tape and/or maintain a transcript of the broadcasts and there was no evidence a qualified principal reviewed or approved the registered representativeís statements. Branch office managers did not retain documents reflecting the nature of seminars, materials distributed to attendees or supervisory pre-approval of the seminars; retain transcripts of a representativeís local radio program and TV appearances or document supervisory review or approval of materials used; and retain documents reflecting the nature of a dinner or seminar conducted by representatives or materials distributed;
  • record the identity of the person who accepted each customer order because it failed to update its order ticket form to reflect the identity of the person who accepted the order; and

  • to review Bloomberg emails and some firm employeesí instant messages

The Firm distributed a document, Characteristics and Risks of Standardized Options, that was not current, and the firm lacked procedures for advising customers with respect to changes to the document and failed to document the date on which it was sent to certain customers who had recently opened options accounts. Also, the firmís compliance registered options principal did not document weekly reviews of trading in discretionary options accounts.

Janney Montgomery Scott, LLC : Censured; Fined $175,000
Tags:  Annual Compliance Certification    Email    Instant Messaging    SAR    AML    Bank    Third Party Vendor    Away Accounts    Broadcast    Producing Manager     |    In: Cases of Note : FINRA
Bill Singer's Comment
What can I say -- even I'm impressed!
Jenny Quyen Ta (Principal)
AWC/2010021538701/January 2011

Ta engaged in outside business activities and failed to give prompt written notice to her member firm. Ta failed to disclose that she had financial interests and/or discretionary authority in multiple brokerage accounts at other broker-dealers and failed to give her firm prompt written notice of these accounts; on account applications, she falsely indicated that she was not affiliated with a securities firm. On a firm securities annual attestation form, Ta falsely stated that she did not have a personal securities account.

Ta created websites which included representations about her career accomplishments but never obtained a registered firm principalís approval for those sites. One of the websites stated that Ta founded a full-service broker-dealer that was a FINRA member when, in fact, it was not; although that entity had a new member application pending with FINRA, it was not an actual broker-dealer and never became a FINRA member.

Ta failed to inform a registered firm principal that she had a Twitter account which, on occasion, she used to tout a particular stock. In addition, Taís ďtweetsĒ were unbalanced, overwhelmingly positive and frequently predicted an imminent price rise, and Ta did not disclose that she and her family members held a substantial position in the stock.

Jenny Quyen Ta (Principal): Fined $10,000; Suspended 1 year.
Tags:  Away Accounts    Website    Internet    Electronic Communications     |    In: Cases of Note : FINRA
Mahmood Hasan Usmani
AWC/2010022476001/January 2011

By purchasing an issuerís stock while in knowing possession of material, non-public information, directly or indirectly, by use of means or instrumentalities of interstate commerce, Associated Person Usmani intentionally or recklessly employed a device, scheme or artifice to defraud or engaged in an act, practice or course of business which operated, or would operate, as a fraud or deceit in connection with the purchase or sale of a security. 

Prior to the public announcement of the tender offer for a security and after a substantial step or steps to commence the tender offer had been taken, Usmani purchased the issuerís securities while in possession of material information relating to the offer, which he knew or had reason to know was non-public and had been acquired directly or indirectly from a person acting on the offering personís behalf; the issuer of the securities sought or to be sought by the tender offer; or an officer, director, partner, employee, or other person acting on the offering personís or such an issuerís behalf.

Usmani failed to notify his member firm, in writing, of the existence of his personal securities accounts, in which he had a financial interest and maintained at another FINRA member firm, and failed to notify the other member firm, in writing, of his association with his member firm.

Usmani failed to respond to FINRA requests for information and documents.

Mahmood Hasan Usmani: Barred; Ordered to disgorge $24,286.67 in unlawful profits.
Tags:  Away Accounts    Insider Trading     |    In: Cases of Note : FINRA
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