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.
Brandon Michael Kappes AWC/2010022662401/December 2010
Associated Person Kappes created fictitious homeowners-, automobile- and renters-insurance policies in order to meet production goals with his member firmís affiliated insurance company. Kappes did so by forging customer signatures or otherwise falsifying insurance application forms and related documents. The firmís affiliated insurance company paid Kappes approximately $18,000 in commissions as a result of the fictitious policies.
Dante Thomas Garcia DeMiro AWC/2008012498701/December 2010
DeMiro engaged in private securities transactions outside the scope of his employment with his firm when he sold $587,000 of promissory notes in a Regulation D offering of an entity to customers. DeMiro did not provide his firm with prior written notice of the sales and did not receive the firmís written approval or acknowledgement for these sales.
Dante Thomas Garcia DeMiro : Fined $5,000; Suspended 9 months
Dwight John Schaefer AWC/2008012636401/December 2010
Despite knowledge of his member firmís change in policy regarding the sale of equity indexed annuities that all business be sold and processed through the firm and representatives were only to sell specific annuities offered by firm-approved annuity companies, Schaefer sold annuities to customers, including firm customers, and did not sell or process the transactions through his firm and did not provide written notice to the firm of his intention to engage in outside business activities. The sales totaled approximately $1,856,597, and Schaefer was compensated approximately $93,163. Schaefer completed an annual questionnaire in which he falsely answered that he did not offer or sell equity indexed annuities to his clients.
Dwight John Schaefer: Fined $5,000; Suspended 4 months
Fox Financial Management Corporation and James Edward Rooney Jr. (Principal) OS/2008011592201/December 2010
Acting through Rooney, Fox Financial
sold zero-coupon bonds to customers and negligently omitted material facts concerning the fundís manager, who the State of Texas had charged with forgery of a financial instrument, and was sentenced to five years deferred adjudication and had been the subject of a Temporary Order of Prohibition for selling unregistered securities by the State of Illinois;
sold zero-coupon bonds to customers that were secured by interests in life insurance policies, and limited liability companies, which Rooney controlled and were affiliated with the firm, issued the bonds, and negligently omitted material facts to customers relevant to the criminal records of the bondsí manager and owning companies.
participated in private placement offerings of zero-coupon bonds limited liability companies issued, and each of the offerings claimed an exemption from registration under the Securities Act of 1933; however, the offerings were not separate and distinct, and were, therefore, subject to integration, and to the securities registration requirements of public offerings.
sold zero-coupon bonds, failed to establish a proper escrow account by using a limited liability company not chartered as a bank as the escrow agent, and falsely represented that customer funds would not be commingled.
Rooney failed to detect that customer funds had been commingled because he had neglected to obtain copies of the escrow account statements and to maintain such statements among the firmís records.
The firmís test of its system of supervisory controls was flawed because it failed to include a review of its private placement business, and Rooney stated in his annual certification of compliance that the firm had established and maintained policies and procedures reasonably designed to ensure compliance with FINRA rules. In addition,the firm failed to evidence its supervision over Rooney, in that Rooney was the only principal who had signed Subscription Agreements indicating approval of the customerís investment in an offering.
Fox Financial Management Corporation: Censured; Fined $40,000
James Edward Rooney Jr. (Principal): Fined $20,000; Suspended 15 business days in Principal capacity only
Mark William Beggs AWC/2009018374401/December 2010
Beggs engaged in outside business activities, in that he acted on behalf of an insurance company not affiliated with his firm and engaged in sales to customers of indexed deferred annuities involving a total principal investment of $112,000, for which he was compensated approximately $10,080 in commissions. Beggs accepted compensation from the insurance company for the sales without giving his firm prompt written notice.
Mark William Beggs : Fined $5,000; Suspended 20 business days
Kunita allowed a registered representative over whom he had supervisory authority to sell preferred stock through a private placement while not appropriately registered to sell that product. The registered representative knew that he was not appropriately registered to sell the product to the customer and asked Kunitaóhis supervisoróto sign the subscription agreement as the selling representative. Kunita agreed and signed the subscription agreement, and submitted the application, including the subscription agreement, to the member firm for processing. The firm approved the investment and executed the transaction. Kunita caused the firmís books and records to be inaccurate by signing the subscription agreement as the selling representative when, in fact, he was not the selling representative.
Morris Noriaki Kunita (Principal): Fined $7,500; Suspended 15 business days
Randall Walter Hess (Principal) AWC/2007008310201/December 2010
Hess's member firmís written supervisory procedures required all of its registered representatives to submit a weekly correspondence log, along with copies of the correspondence, to the compliance department. Hess did not submit any of his correspondence to and from a public customer to a principal of his firm for review prior to mailing, and did not submit the correspondence to his firmís compliance department as its written supervisory procedures required.
Randall Walter Hess (Principal): Fined $5,000; Suspended 10 business days
Raymond Wing Fai Lau AWC/2009019051901/December 2010
Lau sold preferred stock through a private placement while not appropriately registered to sell that product.
Lau informed a customer about a private offering of preferred stock in a company, stating that he intended to invest in the company, and provided the customer with brochures, disclosure documents and an application, including a subscription agreement, to invest in the company. The customer completed the application for a $300,000 investment in the company and returned it to Lau. Because Lau knew that he was not appropriately registered to sell the product to the customer, he asked his supervisor to sign the subscription agreement as the selling representative.
The supervisor agreed and signed the subscription agreement, and submitted the application, including the subscription agreement, to the member firm for processing. The firm approved the investment and executed the transaction; and, as such, Lau caused the firmís books and records to be inaccurate by having his supervisor sign the subscription agreement as the selling representative.
Raymond Wing Fai Lau : Fined $7,500; Suspended 15 business days
Stanley Mark Kobin (Principal) OS/2008011678304/December 2010
As his member firmís AMLCO, Kobin failed to
implement policies and procedures reasonably expected to detect and cause the reporting of transactions required under 31 USC 5318(g) and implementing regulations;
provide AML training for firm personnel, failed to adequately review customer activity for compliance with AML rules and to adequately review suspicious activity and file timely SARs where appropriate;
fulfill his responsibility to access the Financial Crimes Enforcement Network (FINCEN) of the United States Department of Treasury to review requests for information, under Section 314(A) of the USA Patriot Act, relating to possible money laundering or terrorist activity;
search firm records to determine whether the firm maintained, or had maintained, any account for, or had engaged in any transactions with, any individual, entity or organization named in FINCENís requests.
As a result of the firmís inadequate AML program, the firm, acting through Kobin, failed to timely detect, investigate and report suspicious activity to achieve compliance with the Bank Secrecy Act.
Kobin failed to
identify red flags in connection with suspicious account activity, did not timely investigate or review the red flags, and caused his firmís failure to timely report the suspicious activity;
implement the firmís procedures for suspicious activity detection and reporting, monitor and investigate approximately $6 million in suspicious wires to and from one of its branches,
detect and timely report suspicious activity and maintain documentation evidencing a review for suspicious activity of securities transactions, money movements and securities transfers;
ensure that a designated principal review and approve all correspondence to and from branch offices, including electronic correspondence.
failed to properly create, maintain and timely file records and reports of customer complaints, and failed to timely update Forms U4 and Forms U5 relating to persons who were registered with FINRA through his firm in his capacity as his firmís Chief Compliance Officer (CCO), .
take adequate steps to comply with the Firm Element of the Continuing Education Requirement and, as a result, his firm did not conduct the required annual needs analysis or develop a written training plan.
ensure that each registered person was clearly assigned to an appropriately registered representative and/or principal responsible for supervising that personís activities,
conduct an annual compliance interview or meeting,
implement an adequate supervisory control system over the firmís branch office managers, sales managers or any person performing a similar function; specifically, the firmís written supervisory procedures failed to identify producing managers for purposes of review and supervision of their customer account activity; assign a person who was either senior to, or otherwise independent of, the producing manager to perform such supervisory reviews; and reasonably ensure that the firm calculate, on a rolling, twelve-month basis, whether heightened supervision requirements were triggered with any respect to any producing managers.
Stanley Mark Kobin (Principal): Suspended 9 months in Principal capacity only; Required to requalify as GSP/Series 24; Required to complete 16 hours of AML education training; Required to fully and promptly cooperate with FINRA in any and all investigations and/or disciplinary proceedings of any person or entity, concerning conduct at and/or relating to the firm at issue during the time period he was associated by promptly providing requested information and documents and to appear and testify fully, completely and truthfully at any FINRA interview and/or disciplinary hearing.
Timothy James Carroll AWC/2009016531801/December 2010
Carroll executed transactions in a customer account without the customerís prior knowledge, authorization or consent; however, only one of the transactions resulted in commissions, which totaled $91.76. Carroll borrowed $500 from another customer although his member firm had procedures that generally prohibited borrowing money from customers, and it did not know of or otherwise approve the loan. Carroll falsely represented on a firm annual compliance questionnaire that he had never received loans from a customer.
Timothy James Carroll : Fined $10,000; Suspended 60 days
William Hanson Hauser AWC/2010022661001/December 2010
Associated Person Hauser created fictitious homeowners insurance policies in order to meet production goals with his member firmís affiliated insurance company. Hauser did so by forging customer signatures or otherwise falsifying insurance application forms and related documents. The firmís affiliated insurance company paid Hauser approximately $4,000 in commissions as a result of the fictitious policies.
Gazmen recommended that his member firmís customer use part of her available funds to purchase a variable universal life insurance (VUL) policy through him, and recommended that the customer open an account at another firm. Gazmen assisted the customer in opening a margin account with the other firm and was given trading authority over the account for which he made all of the investment decisions and entered the trades directly, but was not compensated in any way for managing the account. Gazmen was not licensed to recommend the sale of individual securities to a customer or to engage in the purchase or sale of individual securities on a customerís behalf, he did so in handling the customerís account at the other firm. Gazmen failed to give notice to his firm of his proposed role in handling the customerís account, as the firm and FINRA rules required.
Ethelbert Pacis Gazmen : Fined $10,000; Suspended 30 days
John Christopher Romanoff 2008014858101/November 2010
Romanoff borrowed $70,000 from customers and evidenced the loan by a promissory note, even though his member firmís written procedures prohibited registered representatives from borrowing funds from firm customers. Romanoff did not notify his firm of the loan or obtain the firmís permission to borrow funds from the customers, defaulted on the promissory note and failed to repay any of the principal balance due to the customers, even though the customers complained to his firm. Romanoff provided his firm with a Financial Advisor Compliance Questionnaire which falsely represented that he had not entered into any loan with a customer. Romanoff failed to respond to FINRA requests for information.
John Christopher Romanoff : Ordered to pay $70,000 plus interest in customer restitution; Barred
Mark Boyar & Company, Inc. AWC/2008011794901/November 2010
issued research reports that the firm labeled ďAsset Analysis FocusĒ (AAF) on a paid subscription basis;
did not consider the AAF a research report;
did not have in place policies and procedures designed to ensure compliance with the various research related rules applicable to firms that issue research reports, such as those relating to research analyst and research principal registration, disclosures, conflicts, annual attestations and written supervisory procedures;
allowed registered representatives at the firm to collaborate in the preparation of AAFs without having passed a qualifying examination,
allowed an individual also to collaborate in the preparation of AAFs without being registered as a general securities representative or in any other capacity through the firm, and without having passed a qualifying examination.
A general securities principal supervised the preparation of AAFs without having passed the qualifying examination.
Certain AAFs the firm issued failed to disclose certain NASD Rule 2711 required information, including the financial interest in the issuer of the research analysts who prepared the reports, price charts for issuers where the firm has assigned a price target for at least one year, and the valuation methods used to determine price targets and the risks that may impede achievement of the price targets.
An individual who collaborated in the preparation of AAFs purchased securities of companies during the 30-day period before the publication of the research reports concerning those companies. In addition, The firm did not have the required research report-related written supervisory procedures in place, and the firm did not have a senior officer make the required annual attestation that the firm had adopted and implemented the required written supervisory procedures.
Moreover, the Firm did not make the required annual attestations for several years and filed inaccurate annual attestations for other years.
Mark Boyar & Company, Inc. : Censured; Fined $20,000
Ronald Arthur Knight (Principal) AWC/2009016709007/November 2010
Knight sold interests in ULPs to members of the public and failed to provide his member firm with prior written notice about the sales and failed to obtain the firmís prior approval. Knight participated in the sales despite his member firm denying his request and received approximately $30,270 in commissions from the sales. Knight completed a firm questionnaire containing statements that he had not engaged in any outside business activities, which was false.
Darryl Wayne Golter AWC/2008015003201/October 2010
Golter failed to forward insurance premium payments of $102,635 made by customers to insurance companies as he was required to do, but instead deposited the funds into his personal account and used the money for his personal activities without the customersí or the insurance companiesí permission or authority. When a hurricane struck Texas, Golterís customers filed insurance claims and discovered they were not entitled to coverage; however, the insurance companies provided assistance with property losses and paid out approximately $713,000 in damage claims and refunded premiums. Golter failed to appear for a FINRA on-the-record interview.
While registered with a member firm, Kossak directed his assistant to sign a customerís name to a document related to a fixed insurance contract without the customerís knowledge or authorization. Kossak had sold the fixed insurance contract to the customer while at a previous member firm and the customer was not a customer of his present firm. The assistant, acting at Kossakís direction, forged and notarized required signatures on the document, which Kossak subsequently submitted as authentic. The customer complained of fraud and forgery to the insurance company, which notified Kossak of the complaint, but he failed to update his Form U4 within 30 days of learning of the complaint.
David Alan Kossak : Fined $15,000; Suspended 1 year
Hugh Alexander Ross Sr. AWC/2008016154401/October 2010
Ross borrowed $100,000 from firm customersóa husband and wifeócontrary to firm written procedures, and he did not obtain his member firmís written pre-approval for the loan. Ross falsely claimed to the firmís affiliate that the funds were not borrowed, and falsified a letter in support of that claim by affixing one of the customerís signature on the letter. Ross falsely certified on a firm compliance questionnaire that he had not borrowed money from customers.
Hugh Alexander Ross Sr. : Fined $10,000; Suspended 1 year
Jeffrey David Rosen (Principal) AWC/2009021029611/October 2010
Because certain states began requiring individuals to successfully complete a LTC CE course before selling long-term care insurance products to retail customers, Rosen created an answer key for a long-term care exam for one state and also instructed some of his direct reports to create answer keys for exams. Rosen distributed answer keys to the exams to firm employees and instructed his direct reports to obtain from and provide answer keys to other firm employees; the direct reports provided the answers to financial advisors at other firms and Rosen was aware that they had done so. Rosen failed to supervise his direct reports, in that certain registered individuals who reported to him created answer keys to LTC CE exams, obtained from, and provided answer keys to, other employees, provided the answers to financial advisors and Rosen was aware that they had done so.
Jeffrey David Rosen (Principal): Fined $10,000; Suspended 3 months in all capacities; Suspended 6 months in Principal capacity only
NWT Financial Group, LLC, David Eric Niederkrome (Principal), and Stephen Rudolph Rodgers (Principal) AWC/2009016295901/October 2010
Acting through Rodgers,NWT:
allowed opening options transactions in accounts without signed options agreements;
allowed accounts to day-trade prior to firm approval;
failed to evidence that accounts had been approved for daytrading;
failed to evidence that customers had been furnished a risk disclosure statement prior to engaging in day-trading activities.
Each of the above noted accounts came to the firm as part of a mass transfer of accounts from a former member firm.
Acting through Rodgers and Niederkrome, the firm failed to implement portions of its supervisory control procedures, in that Rodgers and Niederkrome failed to test and verify that the firmís supervisory control procedures and policies were reasonably designed to achieve compliance with applicable rules; and, prepare and submit a report to senior management detailing the firmís system of supervisory controls, the summary of the test results, significant identified exceptions and any additional or amended supervisory procedures created in response to the test results.
Rodgers and Niederkrome failed to complete an annual certification pursuant to NASD Rule 3013(b), verifying that the firm had in place processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures to comply with applicable securities rules and regulations.
Censured; Fined $10,000 jt/sev with Niederkrome and Rodgers; Fined additional $5,000 jt/several with Rodgers
David Eric Niederkrome: Censured; Fined $10,000 jt/sev with NWT and Rodgers;
Stephen Rudolph Rodgers: Censured; Fined $10,000 jt/sev with NWT and Niederkrome; Fined additional $5,000 jt/sev with NWT
April N. Berkholder AWC/2009021029609/September 2010
Berkholder requested and received an answer key to a state long-term care continuing education (LTC CE) exam from another firm employee. Berkholder asked an external wholesaler for the test and answers to the exam, which he sent to her via email.
April N. Berkholder: Fined $5,000; Suspended 5 business days
John Allan Jones (Principal) OS/2005001398602/September 2010
Acting with others, Jones participated in a fraudulent scheme to solicit investments in an unregistered hedge fund and its general partner. Jones engaged in a variety of fraudulent and deceptive sales practices and disregarded his duties and obligations of fair dealing to his customers. Jones knew, or was reckless in not knowing, that the hedge fund was engaging in a highly speculative trading strategy involving futures contracts and that information the hedge fund manager supplied, which Jones used, contained materially false and misleading statements and omissions, including a pending Commodity Futures Trading Commission (CFTC) fraud action against the hedge fund manager, the fundís theoretical and unproven performance figures, the highly speculative nature of the hedge fundís trading strategy, and the significant risks associated with an investment in the hedge fund and its general partner.
Jones ignored many ďred flags,Ē including those in the hedge fundís Private Placement Memorandum (PPM). Jones solicited his customers without conducting a reasonable investigation to determine whether the hedge fund and its general partner were suitable investments and without regard as to whether his customers were capable of evaluating and bearing the risks associated with such investments.
John Allan Jones (Principal): Fined $25,000; Suspended 4 months
Jonathan Ross Davidson AWC/2009021029610/September 2010
Davidson requested and received answer keys for state insurance LTC CE exams for several states from member firm employees who created them and then distributed them to another firm employee and financial advisors outside the firm. Davidson asked his internal wholesaler to provide him with the last four digits of the wholesalerís social security number so that he could take one stateís LTC CE online exam and use the information to satisfy the online requirement of having someone proctor the exam. Davidson used the partial social security number to log in and access the exam, but did not complete the exam, but, in so doing, misrepresented having a proctor for the exam.
Jonathan Ross Davidson : Fiend $5,000; Suspended 45 days
Michael Aaron Brady AWC/2010022037401/September 2010
Brady converted a total of $194,424.81 from customers who entrusted him with money to invest and, instead, misappropriated the funds for his own personal use. One customer gave Brady over $90,000 to invest in an Individual Retirement Account (IRA) and in a Section 529 college tuition plan account but Brady used the money for personal purposes. In one instance, Brady created a fictitious account statement that falsely showed that the customerís account increased from about $37,000 to over $48,000 in one year; but, in fact, Brady never invested the customerís money and had converted over $56,000 of the customerís money to his personal use. In another instance, a customer surrendered a variable annuity and paid the proceeds to Brady to re-invest in another variable annuity; Brady did not do so and misappropriated the funds, which exceeded $41,000.
Nathan Joel Brenowitz (Principal) AWC/2008013450201/September 2010
falsified a clientís insurance policy application and related documents without the clientís knowledge, submitted the documents to his member firmís insurance company affiliate and subsequently denied to his firm that he had falsified signatures or submitted falsely signed documents;
falsified clientsí insurance policy-related supplement documents without the clientsí knowledge, submitted the documents to his firmís insurance affiliate and, although the clients later stated that they approved of his actions, the firmís insurance affiliate policy prohibited its insurance agents from signing another personís name, even if the clientsí authorized them;
falsely endorsed and deposited a check for $1,000 made payable to an insurance agent contracted to him into his personal bank account, and falsely claimed to his firm that the insurance agent authorized him to use the check to repay expenses;
took an online computer examination on his office managerís behalf that his firmís insurance company affiliate required, and Brenowitz falsely denied to his firm that he did so;
denied in writing to FINRA that he took any test posing as his office manager; and
denied in sworn testimony to FINRA that he took any test posing as his office manager and claimed that the insurance agent contracted to him had authorized him to endorse and deposit the check and use the proceeds for expense reimbursement.
Stephen N. Richards AWC/2009016955001/September 2010
Richards made a series of changes to the account of a deceased customer, including changing the account address to that of his member firm, the name on the account, and an instruction on the account in order to allow redemptions to be wired to his personal account. Richards effected mutual fund redemptions from the account and made corresponding wire transactions to his personal account totaling $38,194.38. Richards used his own login ID and those of his colleagues, without their knowledge or permission, to process these transactions.
Faulks misappropriated customer insurance premium payments totaling over $9,600 from an insurance company by comingling her personal cash with cash premium payments and using the funds for her own purposes.Faulks paid earlier cash premiums with premium payments received at later dates, which was something the insurance company had cautioned her about in the past. The insurance company credited Faulksí customers for the insurance premium payments that Faulks failed to deposit on their behalf.
Faulks failed to respond to FINRA requests for information and to appear for testimony.
Anthony F. Lodati (Principal) AWC/2008011678302/August 2010
Lodati and another individual at his member firm failed to establish and maintain a supervisory system at the firm to address its responsibilities for determining whether customer securities were properly registered or exempt from registration. While registered through and acting on his firmís behalf, he sold shares of a security to public investors using a private placement memorandum that omitted a convicted felonís association with the issuer, which is a material fact. Lodati and the firmís Chief Compliance Officer failed to clearly assign each registered person to an appropriately registered representative and/or principal responsible for supervising that personís activities and designate principals with actual authority to carry out the supervisory responsibilities over the firmís business.
Anthony F. Lodati (Principal): Fined $30,000; Suspended 2 months in Principal capacity only; Agreed to complete 16 hours of AML continuing education training within 120 days of acceptance of the AWC; Agreed to fully and promptly cooperate with FINRA in any and all investigations concerning conduct at and/or relating to a member firm
Brookville Capital Partners LLC fka New Castle Financial Services LLC AWC/2008011678303/August 2010
Acting through its chief compliance officer (CCO), the firm:
failed to establish and implement an adequate AML program and related procedures; adequately identify, investigate and respond to red flags of suspicious activities;
timely file a Suspicious Activity Report (SAR); and
provide AML training for firm personnel for one year.
Acting through a registered representative, the firm
improperly facilitated the distribution of approximately 20 million shares of various unregistered securities;
operated an unregistered branch office, in violation of the restriction on business expansion contained in its membership agreement, and
engaged in improper telephone solicitations (from the unregistered office) by making materially false representations and omitting material facts in connection with the offer of securities and by using misleading telemarketing scripts that a registered principal had not approved.
Acting through the registered representative and CCO, the firm failed to perform adequate searching inquiries and take necessary steps to ensure that transactions did not involve distributions of unregistered and/or restricted securities.
Acting through a registered representative and firm principal, the firm sold securities to public investors using a private placement memorandum that omitted to disclose a convicted felonís association with the issuer, a material fact to any reasonable investor.
Acting through various FINOPs, the firm
failed to maintain accurate financial books and records,
filed inaccurate FOCUS reports and
operated a securities business while under minimum net capital requirements.
Acting through the CCO and other compliance officers, the firm
failed to forward customer funds it received in connection with contingency offerings to an escrow agent by noon of the next business days after receipt of such fund;
adequately review and approve customer correspondence;
timely and accurately report customer complaints;
timely update Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5);
comply with the Firm Element of the Continuing Education Requirement for a year;
conduct an annual compliance meeting; and
establish an adequate business continuity plan, which consequently led to the loss of access to certain customer records upon termination of its relationship with a particular clearing firm.
The firm had additional supervisory deficiencies, including that
its written supervisory procedures failed to establish adequate procedures for review of producing managersí customer account activities,
it failed to have written supervisory procedures for identifying producing managers that should be subject to heightened supervision, and
failed to place certain producing managers on heightened supervision, in that, acting through various individuals, the firm failed to clearly assign each registered person to an appropriately registered representative and/or principal responsible for supervising that personís activities, and designate principals with actual authority to carry out the supervisory responsibilities over the firmís business.
Acting through a supervising principal, the firm failed to reasonably supervise registered representatives working out of the unregistered branch office.
Acting through firm officers, the firm failed to establish and maintain a supervisory system reasonably designed to supervise the sales activities of firm personnel conducted outside of its registered offices, and failed to establish and maintain a supervisory system for determining whether customer securities were properly registered or exempt from registration.
Acting through its CCO, the firm failed to implement adequate procedures to ensure that the firm did not telephone persons who stated they did not wish to receive calls and/or who registered on the national do-not-call registry, and failed to adequately update and maintain a do-not-call list.
Acting through various supervisors, the firm failed to perform heightened supervision over numerous individuals.
Brookville Capital Partners LLC fka New Castle Financial Services LLC : Brookville Capital Partners LLC fka New Castle Financial Services LLC : Censured; FIned $200,00; Required to retain an independent consultant to conduct a review of the adequacy of its policies, systems, procedures and training regarding AML rules and regulations; compliance with Section 5 of the Securities Act of 1933; and rules and regulations relating to private placements, financial requirements, customer complaints and supervision. In addition, the firm was required to have its associated persons complete 16 hours of AML continuing education training and to fully and promptly cooperate with FINRA in any and all investigations.
Murrell engaged in outside business activities without providing prompt written notice to his member firm. Murrell formed a partnership with a customer of a bank affiliated with his member firm to purchase, develop and sell private and commercial properties and make commercial loans secured by mortgages on realty, but failed to inform his firm. Murrell failed to disclose his outside business activities to his firm on an annual attestation form he completed on the same day he received in compensation from the partnership.
David Alan Murrell : Fined $10,000; Suspended 6 months
An affiliated insurance company of Baldridge's member firm began an audit of her insurance files after receiving a customer complaint. The customer gave Baldridge a check as a payment for a premium for a new fire insurance policy and Baldridge admitted to auditors that she deposited the check into her personal checking account and used the money for her mortgage payment. As such, Baldridge converted the customer check for $1,340. Baldridge repaid the insurance company $1,340 on the day of the audit.
Joshua T. Thatcher (Principal) AWC/2009018404901/August 2010
Thatcher willfully failed to timely amend his Form U4 to disclose material information, and did not amend his Form U4 to reflect the material information until after the firm became aware of the information and completed an internal investigation. Thatcher completed his member firmís annual individual compliance review form, where one of the questions asked if he had complied with the responsibility for the prompt preparation and submission of Form U4 amendment as FINRA required; he checked the ďYESĒ box.
Joshua T. Thatcher (Principal): Fined $5,000; Suspended 9 months
Kenneth Francis Jewell AWC/2009017425001/August 2010
While employed at a member firm, Jewell consented was also employed by, and accepted compensation from, an outside business for providing consulting support and investment platform coordination for participants in ďprofessional employer organizationĒ plans. Jewellís business activities were outside the scope of his relationship with his firm, and he did not provide prompt written notice to his firm of his activities. Jewell inaccurately certified on an annual firm compliance questionnaire that he was not involved in any outside business activities.
Kenneth Francis Jewell: Fined $5,000; Suspended 2 months
Michael Wayne Beardsley (Principal) AWC/2009017653801/August 2010
Beardsley allowed his member firm to conduct a securities business while failing to maintain required minimum net capital. Beardsleyís firm received a Notice of Levy from the State of California, and he failed to notify any other firm personnel, including the firmís offsite FINOP, about the levy; the levy caused the firm to fall below its minimum required net capital.
Michael Wayne Beardsley (Principal): Fined $5,000 (jointly and severally with unidentified party); Suspended 15 business days in Principal capacity only
Jaffe was the broker of record for a customerís nondiscretionary account at his member firm and exercised discretion in the customerís account in multiple transactions without written authorization. Jaffe completed annual certifications for his firm, in which he attested that he had not exercised full or partial trading authorization over any client account without having obtained the required approvals.
Stephen Alan Jaffe : Fined $5,000; Suspended 1 month
In order to assist financial advisors taking their LTC CE state exams, Swisher created and distributed an answer key for one state exam, and received and distributed an answer key for another state exam .
Jill Meredith Swisher : Fined $5,000; Suspended 60 days
Brookstone Securities, Inc. AWC/2008011675701/June 2010
Brookstone Securities failed to ensure that each of its registered representatives and registered principals participated in an annual compliance meeting. The Firm failed to timely update a registered representativeís Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose required information and failed to timely disclose customersí complaints pursuant to NASD Rule 3070.
The Firm failed to report quarterly statistical customer complaints; failed, in some instances, to create and maintain a record of customersí complaints and related records that included the complainantís information; and, alternatively, failed to maintain a separate file that contained complainantís information.
The Firm failed to report transactions to the Trade Reporting and Compliance Engine (TRACE) and failed to evidence the creation and maintenance of order tickets for sell transactions in corporate bond transactions.
Brookstone Securities, Inc. : Censured; Fined $17,500
Rogers made an unsuitable recommendation to customers to each purchase $1,000,000 variable life insurance policies, using $30,000 that they had intended to use as a down payment for a home. Rogersí recommendation to the customers was unsuitable in light of their young age and lack of a need for $1,000,000 in life insurance coverage. Rogers received commissions totaling $6,841.22.
Ronald Douglas Rogers : Fined $15,000 (includes commissions disgorgement); Suspended 1 month
Merrill Lynch, Pierce, Fenner & Smith Incorporated AWC/2008012391401/April 2010
Through several of its employees at the branch office level and employees of an affiliate in the Office of General Counsel, the Firm made material misstatements to NYSE Regulation examiners relating to an on-site branch office examination relating to non-registered cold callers by
providing the NYSE with inaccurate and deceptive information in response to various regulatory examination requests,
instructing staff that an unapproved facsimile machine be hidden or removed, and
by providing an inaccurate written statement in response to requests for information during an ongoing investigation.
The Firm failed to properly supervise a registered person with the firm who held himself out as an attorney on firm stationery and business cards even though he was not licensed or admitted to practice before any state or federal bar.
The Firm failed to
provide letters from outside broker dealers, whose employees maintained accounts at the firm, confirming that they were aware of such accounts;
receive and review duplicate confirmations and monthly account statements for accounts that employees maintained outside the firm;
evidence the approval of such accounts; and
send duplicate statement and confirmations to other firms whose employees had accounts at the firm.
Communications and Computers
The Firm failed to
evidence review and supervision of incoming or outgoing written communications and facsimiles at certain branches;
evidence the approval for certain employees to maintain computers and software; and
review, supervise and/or evidence supervisory review of communications that employees sent and received with non-firm issued computers.
The Firm failed to place certain accounts on 90-day restrictions; evidence the review, approval and/or supervision of order errors and account designation changes; and date or properly date corrections for order errors and account designation changes. Also, the Firm failed to evidence the review, approval and/or supervision of certain personal computer forms that had been backdated at a branch; failed to approve and/or timely approve seminars that firm employees conducted, and maintain certain seminar-related materials; failed to review, approve and/or retain certain facsimiles, including Fax-2-Mail correspondence and/or evidence its review and approval; and failed to maintain its "control" fax machine in a secure location in one branch.
Heslap engaged in an email marketing campaign through which he distributed correspondence and/or sales literature to prospective customers via unsolicited emails. Many of the emails failed to provide a sound basis for evaluating the facts, provided exaggerated or unwarranted claims that are prohibited and/or contained performance claims that imply that past performance will recur.
Michael Scott Heslep: Censured; Suspended 10 business days
Valores Finamex International, Inc. and Vincent Anthony Buchanan (Principal) AWC/2009016196001/April 2010
Acting through Buchanan, Valores Finamex failed to produce evidence of Buchananís review of a registered representativeís correspondence. The Firmís written supervisory procedures failed to
identify the registered representative as a producing manager,
contain procedures reasonably designed to provide heightened supervision over the activities of each producing manager who is responsible for generating 20 percent or more of the revenue of the business units supervised by the producing managerís supervisor, and
assign a qualified supervisor to supervise the registered representative.
The Firm permitted Buchanan to conduct a securities business while he was ďContinuing Education Inactive.Ē Also, the Firm failed to
send an annual privacy notice to its customers;
provide an explanation to its customers of their right to opt out of disclosure of nonpublic personal information to nonaffiliated third parties; and
establish policies and procedures that address and review administrative, technical and physical safeguards for the protection of customer records and information involved in the outsourcing of compliance and operations functions to nonaffiliated third parties.
The Firm effected Trade Reporting and Compliance Engine-eligible securities trades and failed to report, or properly report, those transactions.
Valores Finamex International, Inc.: Censured; Fined $27,500 ($10,000 of which was jointly and severally with Buchanan).
Vincent Anthony Buchanan: Fined $10,000 jointly and severally with Valores Finamex; Suspended in Principal capacity only for 20 business days.
Raymond James & Associates, Inc. AWC/2008015756901/March 2010
The Firm did not cause the exercise of time and price discretion to be reflected on an order ticket for applicable orders entered into its electronic Order Management System (OMS), or another firmís OMS, causing the firm to violate FINRA recordkeeping provisions. The Firm implemented a change to its electronic OMS, satisfying the specificity requirements of NASD Rule 2510(d)(1), but did not implement a similar change to another OMS that its financial advisors used for larger orders. By not conducting adequate supervisory reviews of data relating to the exercise of time and price discretion, and by not having a system or procedure in place to produce certain order ticket data in connection with regulatory requests for order tickets, the firm failed to exercise reasonable supervisionby not having adequate systems or procedures in place to cause it to be in compliance with the order ticket
Raymond James & Associates, Inc. : Censured; Fined $100,000; Required to review its practices and procedures concerning its compliance with NASD Rule 2510(d)(1) to include a determination of
* whether any order entry system the firm uses permits a registered representative or other associated person to exercise discretion as to the price at which or the time when an order given by a customer for the purchase or sale of a definite amount of a specified security shall be executed, and
* whether it has systems and procedures in place that are reasonably designed to cause an exercise of time and price discretion in that security to be reflected on the order ticket.
The firm shall develop written policies and procedures and cause changes to be made to its (or its agents) operational systems reasonably designed to cause the firm to be in compliance with NASD Rule 2510(d)(1).
Eric Lowell Small (Principal) AWC/2007007345601/February 2010
While associated with his former member firm as a registered principal but not registered as a research analyst or a research principal, Small supervised the conduct of the firmís research analysts, including approving research reports they prepared and that his firm issued.
Small failed to establish and maintain adequate supervisory procedures concerning the review of
incoming and outgoing hard copy correspondence at the firmís branch offices that he was in charge of, and
outside investment activity of registered representatives at the firm.
The Firm's procedures indicated that a supervisory principal must review all correspondence, but these procedures were not reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules. The procedures were inadequate in that they contained insufficient detail concerning how and when such reviews were to occur, and the firm had no written supervisory procedures addressing the review of outside brokerage accounts. Small failed to establish, maintain and enforce adequate written supervisory control procedures relating to
NASD Rule 3012(a)(2)(B) and its requirement that members establish, maintain and enforce procedures reasonably designed to review and monitor transmittals of funds or securities between customers and registered representatives, and
NASD Rule 3012(a)(2)(C) and its requirement of an analysis and determination of whether producing branch office managers should have been subjected to heightened supervision.
Eric Lowell Small (Principal): Fined $17,500; Suspended 10 business days in Principal capacity only
Rogelio A. Villa Jr. AWC/2009019029201/February 2010
Villa obtained a deceased customerís credit card number during the course of assisting the customerís widow with her banking needs and, without authorization, charged approximately $3,800 to the customerís credit card account. Pretending to be the deceased customer, Villa contacted the credit cardís customer service and requested that the address on the credit card be changed to his home address. Villa added himself as an authorized user on the credit card and requested that a new card be sent to his home address.
The Firm failed to have an adequate supervisory system, including written supervisory procedures and a supervisory control system, to properly and timely identify customer checks deposited at affiliated bank branches and ensure that all customer check deposits were duly credited to the appropriate customer accounts. The Firm escheated approximately $133,616.65 in funds to the Commonwealth of Kentucky when it was unable to identify the proper customer accounts. As a result of the unidentified customer check deposits, the firm failed to make and keep accurate daily records of all receipts and disbursements of cash and other debits and credits in its books and records, including entries to an Escheatment Account. The Firm understated its net capital charges and incorrectly calculated its Customer Reserve Formula. In addition, the Firm produced inaccurate month-end customer account statements, incorrectly liquidated certain customer fully paid securities, and failed to segregate some customersí fully paid securities, resulting in intra-day possession or control deficits. The Firm did not prepare required inter-company account reconciliations, failed to properly record certain aged unfavorable reconciliation differences and failed to conduct supervisory reviews of certain reconciliations and accounts.
The Firm ís supervisory procedures did not adequately ensure that its research analysts obtained the required approval for public appearances and provided proper disclosures during such public appearances. In addition, the Firm issued certain research reports that
contained indefinite ďmayĒ language regarding future investment banking services that the firm expected to provide,
did not include analyst certifications on the front page,
contained front pages that did not specify the page or pages in the research report on which the analyst certifications were to be found, and
incorrectly included the analyst certification information as part of the important disclosures.
J.J.B. Hilliard,W.L. Lyons, LLC: Censured, Fined $200,000; Required to place $133,817 into a segregated, interest-bearing account for a period of five years to reimburse customers who can reasonably demonstrate that they made deposits to their firm accounts at a bank branch and that the firm failed to properly credit the deposits to their accounts.
Jeffrey Paul Dungan AWC/2008015824001/January 2010
Dungan created and disseminated a false proof of insurance document and inserted a false policy number on the document in order to assist a customer, whose commercial insurance application was never filed or submitted due to an administrative error at Dunganís member firm. Dungan should have known that the customer and its bank would rely on the representations in the document.
Jeffrey Paul Dungan: Fined $5,000; Suspended 1 month
Registered Principal Airington consented to the described sanctions and to the entry of findings that he executed transactions in a public customerís account using time and price discretion that the customer had previously verbally granted him, without reconfirming with the customer his desire to execute the transactions. Airington executed the transactions without the customerís prior written authorization and without his member firm ís acceptance of the account as discretionary.
Jessie Everett Airington: Fined $5,000; Suspended 10 business days in all capacities
Kevin Patrick Brennan AWC/2007007358604/January 2010
Registered Principal Brennan failed to reasonably supervise and respond to warning signs that registered representatives were conducting and operating a securities business from an unregistered branch office without supervision. The representatives
improperly solicited potential customers by telephone in connection with the offer of securities,
made false representations, including unwarranted price predictions,
omitted material facts, and
used misleading telemarketing scripts that a registered principal had not approved.
Brennan failed to timely amend his Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose material information.
Kevin Patrick Brennan: Fined $15,000; Suspended 6 months in Principal capacity only; Undertakes to cooperate with any and all FINRA investigations
Michael Gerald Delano III AWC/2008013543001/January 2010
Delano was given the power of attorney over a deceased friendís estate by the deceasedís brother and was requested to handle the $50,000 in life insurance proceeds. Delano deposited the funds into his personal bank account and used the majority of the funds for his personal expenses without the brotherís consent. Delano represented to the brother that he had invested the life insurance proceeds into an annuity on the brotherís behalf.
The $2.6 Million Question In Goldman Sachs Suitability ArbitrationFINRA arbitration Decisions tend to be unanimous, but, with increasing frequency, we are seeing decisions by two of three arbitrators -- and ther...Read OnPublic Customer Wins Messy Private Placement ArbitrationIn a Financial Industry Regulatory Authority (ďFINRAĒ) Arbitration S... Read On