Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2010
NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.
December 2010
Global Strategic Investments, LLC and Cesar Gabriel Hernandez (Principal)
AWC/2009016158801/December 2010

Acting through Hernandez, Global Strategic failed to:

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

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

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

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

Tags:  AML    SAR    CIP     |    In: Cases of Note : FINRA
November 2010
Gary Michael Laskowski
2006003916901/November 2010
Associated Person Laskowski engaged in activity as a principal at a member firm without being registered in that capacity. Laskowski continued to act as an unregistered principal even though he had been cited in a Letter of Caution for acting as an unregistered principal.
Gary Michael Laskowski : Fined $10,000; Suspended 1 year
Tags:  Unregistered Principal     |    In: Cases of Note : FINRA
Mark Boyar & Company, Inc.
AWC/2008011794901/November 2010

The Firm 

  • 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
Bill Singer's Comment
Talk about a cascade effect!  First, the firm creates the AAFs but fails to discern that the materials are research reports -- which unleashes a number of violations arising from the failed recognition of the nature of the publication.  It's hard to come down too harshly on the Firm simply because if you don't spot the core research issue it's unlikely that you would have realized the need to follow Rule 2711.  All in all, a fairly appropriate sanction that seems to have taken into the consideration the points noted here.
York Securities, Inc.
AWC/2008011762701/November 2010

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

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

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

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

York Securities, Inc.: Censured; Fined $65,000
Tags:  CIP    AML    SAR     |    In: Cases of Note : FINRA
Bill Singer's Comment
First problem, you just can't ask for confirmation of the accuracy of a "criminal event" from the subject individual.  Independent confirmation is what is required under these circumstances. Consider how absurd the Firm's defense now looks: Well we did ask him if he owed money to the government and he swore that it was all resolved.
August 2010
CMG Institutional Trading, LLC and Shawn Derrick Baldwin (Principal)
2006006890801/August 2010

Acting through Baldwin, CMG Institutional Trading

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

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

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

CMG Institutional Trading, LLC: Expelled

Shawn Derrick Baldwin (Principal): Barred

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

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

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

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

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

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

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

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

Richard Michael Bowers (Principal)
2006003916901/August 2010
As his firmís Chief Compliance Officer, Bowers permitted an individual, the agent of the firmís owner, to act as a firm principal without being registered to do so. Bowers failed to ensure the sufficiency of the firmís written supervisory procedures and failed to enforce the firmís requirement to document permission for outside business activities.
Richard Michael Bowers (Principal): Fined $5,000; Required to requalify in all principal capacities before resuming any principal activities; Suspended 2 months in Principal capacities only
Tags:  Unregistered Principal    WSP     |    In: Cases of Note : FINRA
July 2010
Baron Capital, Inc.
AWC/2009016315201/July 2010
Baron Capital, Inc.permitted an employee to actively engage in the management of its securities business, a function requiring principal registration, while the employee was not registered with FINRA in that capacity.
Baron Capital, Inc.: Censured, Fined $10,000 and Required to submit written certification and documentation that appropriate principal registrations have been obtained for all employees acting in a principal capacity.
Tags:  Unregistered Principal     |    In: Cases of Note : FINRA
June 2010
Joseph Arthur Bailey
AWC/2006004466102/June 2010
Associated Person Bailey acted as his member firmís chief compliance officer even though he was not qualified by examination in the required capacities of general securities representative, limited representative corporate securities or general securities principal.
Joseph Arthur Bailey: Censured; Fined $10,000; Suspended 10 business days
Tags:  Unregistered Principal     |    In: Cases of Note : FINRA
May 2010
Michael John Rukujzo (Principal)
AWC/2007009609202/May 2010

Rukujzo participated in the negotiation and consummation of an Asset Purchase Agreement transaction, involving

  • another FINRA member,
  • a non broker-dealer entity, and
  • an entity which was a customer of his member firm.

The transaction resulted in the transfer from the other FINRA member of multiple customer mutual fund positions for which Rukujzoís firm had become the dealer of record to the dominion and control of his firmís customer (the entity), which exposed customersí accounts to losses as a result of the entityís speculative margin trading. Rukujzoís firm facilitated the transfer of certain positions held directly at mutual fund companies to an omnibus margin account held and maintained at the firmís clearing firm in the name of the entity, for which the firm was the broker-dealer of record. The Firm advised its clearing firm that the customers had authorized the use of their mutual fund assets as collateral when in fact, the customers did not sign any margin authorization forms, and information sent to the customers did not mention a margin account, the use of margin in investment strategies, or the use of the customerís assets as collateral to support margin trading in the omnibus account.

Rukujzo allowed an unregistered person to function as a representative and the firmís principal without being registered. Under Rukujzoís direction and control, his firm engaged in the change of dealer of record designation without the customerís authorization, and allowed his firm to participate in a transaction that he knew, or should have known, required approval from FINRA, and that approval was neither requested nor obtained.

Michael John Rukujzo (Principal): In light of of Rukujzoís financial status, no fine imponsed; Barred in Principal capacity only
Bill Singer's Comment
An interesting case and fairly explained by FINRA. If you are contemplating buying or selling a FINRA firm, be aware of your regulatory obligations, many of which are set forth above.
March 2010
John Brian Busacca III
E072005017201/March 2010

Registered Principal Busacca failed to reasonably supervise the firm's operations and failed to diligently address numerous problems at the firm, including, but not limited to, inaccurate box counts, accurate securities position records, violations of section 220.8 of Regulation T of the Federal Reserve Board, failing to maintain margin requirements, failing to report data pursuant to NASD Rule 3150 and problems with transfers of customersí accounts. As the firmís President,  Busacca permitted a non-registered person to act in a principal capacity as the firmís chief compliance officer.

The FINRA Hearing Panel (OHO) suspended Busacca for six months in all principal capacities and fined him $25,000 for failing to reasonably supervise the operations of North American Clearing, Inc., f/k/a Advantage Trading Group, Inc. (hereinafler, ďNorth AmericanĒ or the ďFirmĒ), in violation ofNASD Rules 3010 and 2110. The OHO Panel also fined Busacca $5,000 for permitting North American, as its president, to employ an unregistered chief compliance officer, in violation of NASD Rules 1022 and 2110. On appeal, FINRA's National Adjudicatory Council (NAC) sustained the OHO's findings and sanctions. 

This decision has been appealed to the SEC and the sanctions are not in effect pending consideration of the appeal.

John Brian Busacca III : Fined $30,000; Suspended 6 months in Principal Capacity only
Tags:  Supervision    Unregistered Principal     |    In: Cases of Note : FINRA
Bill Singer's Comment

FINRAís Department of Enforcement filed a 17-cause complaint against North American Clearing, Inc.  and Busacca on August 13, 2007. Busacca was charged in only two of the 17 causes of action, causes 13 and 17.

  • Cause 13 alleged that Busacca and North American failed to reasonably supervise the Firmís operations system conversion and its operations activities to detect and prevent certain violations, during the period from April 2003 through February 2005, in violation of NASD Rules 3010 and 2110.
  • Cause 17 alleged that Busacca and North American employed and designated an unregistered principal as the Firmís chief compliance officer from July 2004 until February 2005, in violation ofNASD Rules 1022(a) and 2110.

Busacca and North American filed answers denying Enforcementís allegations.

In May 2008, the Securities and Exchange Commission (SEC) filed suit against North American and some of its managers (including Goble) seeking the appointment of a receiver for the Firm. A federal court subsequently appointed a receiver for North American, the receiver assumed control of the Firm, and the Firm went out of business. At the request of the Securities Investor Protection Corporation, the court later appointed a trustee to oversee North Americanís liquidation pursuant to the Securities Investor Protection Act of 1970.

In this case, Enforcement reached a settlement of the complaint against North American with the receiver and trustee pursuant to which FINRA expelled North American from FINRA membership. Enforcement filed a motion to sever the allegations against North American from those against Busacca pursuant to NASD Rule 9214. The Hearing Officer granted Enforcementís request to sever over Busaccaís objection.

The OHO Panel conducted a hearing with respect to the two counts of the complaint for which Busacca was charged on November 10, 2008. Enforcement called five witnesses: two FINRA staff members, Sandra Fan (North Americanís former operations manager), Goble, and Busacca. Busacca testified on his own behalf.

The NAC sustained the OHO's findings and sanctions.

The NAC Decision: http://www.finra.org/web/groups/industry/@ip/@enf/@adj/documents/nacdecisions/p120606.pdf

The OHO Decision:
http://www.finra.org/web/groups/industry/@ip/@enf/@adj/documents/ohodecisions/p118160.pdf

February 2010
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
  • email correspondence,
  • 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
Tags:  Unregistered Principal    Supervision    Supervisory System    Email    Correspondence    WSP    Producing Manager     |    In: Cases of Note : FINRA
Bill Singer's Comment
A well-presented case and a timely warning.  First off, many firms simply patched together a supervisory system because some veteran left or someone was supposed to implement more specific policies (or hire another Principal) and, well, you know how those things tend to dribble away and get forgotten.  Next thing you know, FINRA comes in and -- OMG!, we forgot to take care of this!!

I urge all my clients to pick at least an annual date when they give their policies and procedures a "cold review;" i.e., you take a rule and literally go line by line through your WSPs, memos, and other policies and confirm that what's written is what is in effect.  Concurrent with that run-through, you should also confirm that you are up-to-date with any new or amended rules.  Similarly, confirm that all folks who require a specific registration are duly registered (you would be surprised how often it's "assumed" that a registration application went through only to learn the FINRA shows no record of the filing -- or that someone was supposed to sit for an exam but postponed it and never satisfied the requirement.

All of which leads to another punchlist item:  If you have set forth policies and procedures in writing, are they being observed?  It's bad enough to run afoul of a FINRA rule, but to impose upon yourself a given task (which FINRA staff will note in your WSPs) and then to not properly implement that task is idiotic.  Similarly, as so many in-house Compliance folks love to spend hours on the computer drawing up all sorts of fancy organizational charts showing who reports to whom, it's probably a good idea to actually look at those charts once in a while and make sure that everyone so listed is still working at your firm and still supervising or reporting to those designated.
January 2010
Ralph Matthew Shino
E3A2005003702/January 2010
Registered Principal Shino failed to file, or timely file, NASD Rule 3070 reports and amendments to Forms U4 and U5. Shino permitted a branch office with more than three representatives to transact an options business without having a registered options principal or limited principalĖgeneral securities sales supervisor as the principal office supervisor.
Ralph Matthew Shino: Suspended 9 months in Principal capacity only for late filing and failing to file NASD Rule 3070 reports and amendments to Forms U4 and Uniform Termination Notices for Securities Industry Registration (Forms U5); Suspended an additional suspension 3 months in Principal capacity only for permitting a branch office to operate without a principal. Suspensions to run consecutively.
Tags:  Unregistered Principal         |    In: Cases of Note : FINRA
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