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.
Kenya Reed AWC/2009017054201/December 2010
Associated Person Reed participated in a scheme that involved causing fraudulent checks to be issued and drawn from her member firmís bank account. In connection with the scheme, Reed prepared fraudulent check requests and disbursed numerous checks drawn on her firmís bank account in various amounts under $1,000 and totaling over $290,000. The checks were made payable to entities that did not provide services to her firm; this was done under the guise that the entities were firm-authorized transfer agents and the payments were for related fees.
Reedís coworker provided her with fictitious billing invoices from such entities and, in turn, Reed initiated check requests through the firmís computer system to pay the fictitious fees; the check requests were processed and approved, and the checks issued and delivered back to the securities processing area where she worked.
Upon receipt of the checks, Reed gave the checks to her coworker, who provided them to a third party not employed by the firm; in return for initiating and processing the fictitious check requests, Reed received periodic cash payments from her coworker, totaling an estimated $10,000, for her own personal use.
The firm became aware of this matter when the New York City Police Department contacted it regarding an individual (a non-firm employee) who was taken into custody in an unrelated matter; the individual was in possession of certain of the firm checks issued as a result of the scheme. In addition, the firm investigated the matter, including questioning Reed, who admitted that she engaged in the above-referenced conduct; the firm then terminated Reedís employment.
Kenya Reed : Barred; Agreed to cooperate with FINRA in an ongoing investigation relating to this matter.
Clinton James Lewis (Principal) AWC/2009016863001/November 2010
Lewis was responsible for supervising a registered representative of his member firm and for reviewing the firmís receipt and forwarding of customer funds, but he failed to properly supervise the registered representative, who converted funds from customers. The registered representative wrote checks from his outside business that were made payable to the firm to fund investments for one of his customers. Lewis reviewed these checks and failed to ask the registered representative why his business was providing the funds for the customerís investments. Lewis failed to contact the customer to determine whether the amount invested was correct, which could have been detected and would have prevented the registered representativeís conversion of customer funds.
Clinton James Lewis (Principal): Fined $5,000; Suspended 10 business days in Principal capacity only with the exception that he may continue to act as an Options Principal
Darla Lanette Williams AWC/2009019338301/November 2010
Williams opened several accounts, including checking accounts with lines of credit and installment loans, under the names of retail bank customers, without their knowledge and authorization. Williams accessed these accounts and made unauthorized withdrawals totaling approximately $40,500, which she used for her benefit and personal use. Williams failed to respond to FINRA requests for information.
Fredric Henry Gardner AWC/2009020196301/November 2010
Gardner engaged in outside business activities by serving as the chief financial officer of a start-up company, and failed to provide prompt written notice to his member firm of any outside business activities and to obtain a designated firm principalís prior permission before accepting any position as officer or director of another entity, contrary to his firmís written policies and procedures. While serving as the start-up companyís chief financial officer, Gardner converted the entityís funds for his personal use by writing fraudulent checks without the entityís knowledge or permission. Gardner solicited and accepted $15,000 from an individual as an investment in the entity but converted the funds for his personal use.
REDACTED funded new customer checking accounts with his own money in order to open them. Then, REDACTED made online bill payments from each of the new accounts to credit card accounts in his name in order to qualify for incentive benefits from his firm and to reimburse himself for the initial deposits he made to open the accounts. REDACTED failed to respond to FINRA requests for information.
Philip Rene Deroziere (Principal) AWC/2009016976701/November 2010
Deroziere converted $10,000 from his member firm by endorsing and depositing a check made payable to the firm into his personal bank account without the firmís knowledge or permission. Deroziere also converted $750 from a nonsecurities customer by endorsing and depositing checks made payable to the customer into his personal bank account without the customerís knowledge or permission. Deroziere failed to respond to FINRA requests for information.
Associated Person Hardy misappropriated $33,445.82 from her supervisorís personal checking account for her own personal use. Hardy misappropriated her supervisorís money by writing checks to herself as reimbursement for expenses her office never actually incurred. She misappropriated approximately $2,000 in cash a third party made to her supervisor. Hardy admitted to misappropriating the funds and paid $32,000 back to her supervisor in restitution, and the firm terminated her employment.
Michael Wayne Claiborne (Principal) AWC/2009017323101/October 2010
Claiborne asked a customer if he could borrow approximately $600 to pay for his travel expenses and the customer agreed, using his credit card to pay for the expenses. Claiborne failed to notify his member firm of the loan, which he repaid in full, and was contrary to his firmís procedures prohibiting registered representatives from borrowing money from customers.
Claiborne received a $1,000 check with the payee line left blank from the customer to deposit into the customerís Roth Individual Retirement Account (IRA) with the firm; Claiborne made the check payable to himself and deposited it into his personal checking account and used the proceeds for his own use and benefit, thereby converting the funds. Claiborne admitted to his supervisor that he had deposited the check into his own account and subsequently returned the funds to the customer.
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.
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.
Associated Person Magouirk caused checks totaling $65,000 to be drawn on a customerís account without the customerís permission or authority, and used them for her own benefit. Magouirk forged the customerís signature on Letters of Authorization to obtain the $65,000 that she converted from the customerís account.
Davis converted $69,200 of customersí funds from his member firmís active assets accounts for his personal use. Davis wrote checks made payable to the order of ďcash,Ē enabling him to withdraw funds from customersí active assets accounts, and then deposited the withdrawn funds into his personal bank account. Davis forged the customersí signatures on the checks before negotiating them.
Kalkofen instructed customers to make checks payable to cash or in the name of a fictitious company, and deposited the checks into her personal checking account, using the funds to gamble and pay for personal expenses. Kalkofen pled no contest in the Circuit Court of Calhumet County in the State of Wisconsin to four felony counts of theft in a business setting in excess of $10,000, and two felony counts of issuing securities for improper purposes. Kalkofen failed to respond to FINRA requests for information.
Robert Martin Martinez AWC/2009018362902/July 2010
Martinez received checks totaling $20,000 from a non-customer, intended for investment, and improperly used the funds for his personal use. Martinez willfully failed to amend his Form U4 to disclose material information and failed to timely respond to FINRA requests for information and documents.
Budvitis misappropriated a total of $26,500 from a customerís account by completing Client Verbal Instructions Forms requesting that a check be issued to his family member, and funds transferred from the customerís account to his family memberís account without the customerís permission or authority. Budvitis misappropriated an additional $40,000 but later issued a stop payment on a check and deposited a cashierís check for the withdrawn funds back in the customerís account.
Budvitis failed to respond to FINRA requests for information and to testify at an on-the-record interview.
Opheim wrongfully converted funds totaling approximately $105,516.54 from customers, and attempted to wrongfully convert funds totaling approximately $60,000 from another customer. Opheim converted, or attempted to convert, the funds by endorsing the checks that customers provided him without permission or authority and depositing the funds into his own personal account for his use and benefit.
Without a bank customerís knowledge or authorization, Barrett
signed the customerís name on a check withdrawal form requesting a $25,000 check from the customerís account made payable to Barrettís friend, and the funds were later deposited into the friendís checking account; and
activated and linked an ATM card to the bank customerís savings account and used the card to withdraw $3,500 from the account for his own personal use and benefit.
Barrett failed to respond to FINRA requests for information and to appear and testify at an on-the-record interview.
Kevin Michael John OíConnor (Principal) AWC/2007011308803/June 2010
OíConnor failed to establish, maintain and enforce an adequate supervisory system and written supervisory procedures related to the issuance, receipt and transmittal of checks payable to customers. In addition, the written supervisory procedures and supervisory system were inadequate because they did not provide for managerial review or supervision of the process. OíConnor 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. OíConnor failed to adequately enforce his member firmís procedures concerning penny stock transactions.
Kevin Michael John OíConnor (Principal): Fined $17,500; Suspended 30 days in Principal capacity only
McEwen converted $32,528.56 from a customer by falsely informing her that a check McEwenís member firm sent to her pursuant to a consent order with the Missouri Securities Division for unsuitable variable annuity sales to the elderly was sent to her by mistake and actually represented commissions the firm owed him. McEwen instructed the customer to deposit the check into her bank account and then make a check payable to him in the same amount; after the customer followed these instructions, McEwen cashed the check and deposited the funds into his personal bank account. McEwen converted an additional $11,000 from the customer by depositing checks intended for investment into his personal bank account and failed to purchase investments on the customerís behalf.
McEwen failed to appear for FINRA on-the-record testimony.
Paul Arnold Nilssen (Principal) AWC/2007011308802/June 2010
Nilssen failed to reasonably supervise his member firmís operations staff in connection with the issuance and hand delivery of checks to customers. Nilssen was aware of deficiencies but took inadequate steps to address them. Nilssen failed to review the operations staffís practices or files to ensure that they always obtained forms that brokers completed to request that checks be issued from customer accounts, and receipts customers signed to acknowledge their receipt of hand-delivered checks.
Paul Arnold Nilssen (Principal): Fined $7,500; Suspended 10 business days
Ramsey served as a registered representative for an elderly customer who executed a power of attorney, giving Ramsey broad authority over her financial affairs. The customer asked Ramsey to invest $600,000 in a variable annuity, and then, without the customerís knowledge or authorization, Ramsey used the power of attorney to obtain approximately $482,000 in withdrawals from the annuity, which, after taxes were deducted, totaled approximately $373,750. Checks for $373,750 were issued in the customerís name and sent to Ramseyís office. Ramsey deposited some of the money into the customerís checking account, but converted some of the funds for his personal use without the customerís knowledge or authorization.
Separately, Ramsey borrowed $275,000 from the customer and, in total, owes the customer approximately $500,000.
From about February 2005 through March 2009, Ruby stole blank personal checks and stock certificates from customers and forged their signatures. Ruby filled in the blank checks, inserting dollar amounts that totaled approximately $128,275, forged the customersí signatures and then deposited the checks into an account under his control. Ruby sold the stock certificates and kept the proceeds. Ruby used the funds from the checks and stock certificates for personal expenses.
Daniel Glenn Carlen (Principal) AWC/2009016529101/May 2010
Carlen was associated with a member firm and was also employed as a supervisor of payroll for a non-registered third-party administration company related to the firm. Carlen systematically directed unauthorized payments from the administration companyís payroll to a business entity under his sole control and converted the funds to his personal use. When Carlen was confronted with actual falsified checks and tampered bank statements, he signed a written statement in which he confessed to embezzling $235,000 and misappropriating the funds for his personal use.
MacDonald converted $1,100 in customersí financial planning fees due and owing to his member firm by instructing customers to make their checks payable to him personally. Without permission or authority, MacDonald wrongfully cashed the checks and used the funds for his own uses and purposes.
Arthur Braden Diggs Jr. AWC/2008013992501/March 2010
Biggs misappropriated at least $255,000 in customersí insurance premiums by requesting that the customers submit their checks to him, and then depositing some of them into his personal bank account for his own use and benefit. In order to conceal his misappropriation, Diggs changed the addresses of record for the customers to a post office box he controlled, without their permission or knowledge, and periodically sent them altered insurance statements and told them that the policies were in good standing. Diggs misrepresented on firm compliance surveys that he did not receive funds directly from his customers.
Associated Person Curry misappropriated $42,600 from a registered representative of her member firm. Curry took checks from the desk of another employee, who maintained the registered representativeís checks, placed her name on the checks as payee, filled in amounts ranging from $200 to $3,500, forged the registered representativeís signature, and deposited the checks into her personal bank account.
Gina Marie Crawford Sims 2008012948801/February 2010
a customerís $928.78 automobile insurance policy check by depositing the check into her personal bank account instead of forwarding it to her member firm (later reimbursint the funds to the customer); and
$5,148.51 in variable life insurance premiums by depositing customersí checks into her personal bank account.
Sims failed to appear for FINRA on-the-record interviews.
Associated Person Asencio, converted $335,250 from a customerís account by making withdrawals from the customerís variable annuity without his knowledge or consent. Asencio arranged to have the funds sent to a friend, who cashed the checks and forwarded the proceeds to Asencio, who then deposited the funds into her own bank account and used the money for personal expenses. Asencio failed to respond to FINRA requests for information.
Hilda Asencio: Ordered to pay $335,250, plus interest, in restitution to a customer; Barred
Stoever, Glass & Company, Inc. and Michael Francis Carrigg (Principal) AWC/2007007247301/February 2010
Acting through Carrigg, the Firm failed to track customer checks that were outstanding and uncashed for more than one year and, as a result, failed to make attempts to
recredit customer accounts,
contact the customers regarding unclaimed funds, and/or
comply with state laws concerning unclaimed property.
The Firm essentially had the benefit of the unclaimed funds in its account that was used for operating expenses. While the firmís bank balance remained positive, acting through Carrigg, the Firm failed to detect that the operating account was overdrawn, in that the firm did not have sufficient funds in the account to pay for all of the outstanding checks.
Acting through Carrigg, the Firm failed to prepare an accurate Reserve Formula computation and therefore failed to make required deposits to its Special Reserve Bank Account that it was required to maintain pursuant to Securities and Exchange Commission (SEC) Rule15c3-3. While the firmís operating account balance remained positive, acting through Carrigg, the Firm failed to account for the uncashed, outstanding checks.
Stoever, Glass & Company, Inc.: Censured; Fined $90,000 ($15,000 joint/several with Carrigg); and Required to retain an independent consultant to review the adequacy of its policies, systems, procedures (written and otherwise) and training relating to its financial and operations systems, and to ensure the proper disposition of outstanding, uncashed checks at the firm).
Michael Francis Carrigg: Fined $10,000; Fined $15,000 joint/several with Firm; Suspended in Principal capacity only for 6 months.
Willis Scudder Georgia III 2008014358201/February 2010
Georgia misappropriated funds totaling $7,500 from a charity for which he served as treasurer by writing and cashing checks made payable to himself. Georgia failed to respond to FINRA requeststo provide on-the-record testimony.
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.
Axel misappropriated at least $624,000 from customers of his member firm. Without the customersí knowledge, authorization or consent, Axel initiated the issuance of checks from the customersí accounts, obtaining the checks ostensibly so that he could deliver them to the customers, and then forged the customersí signatures and cashed the checks or deposited the checks into his personal bank account. Axel effected unauthorized transactions in customersí accounts without their knowledge, authorization or consent. He failed to appear for a FINRA on-the-record interview.
Registered Supervisor Newton used her position as an operations manager to misappropriate more than $10,000 from her member firm. Newton
entered false deposit amounts into her brokerage account at her firm, thereby creating artificial balances in the account,
transferred money from the brokerage account to her personal checking account, and
used the funds for personal purposes.
In an attempt to conceal the false deposits, Newton deposited checks into her brokerage account and made an online transfer knowing at the time that her checking account lacked funds to cover the checks, and used an ATM to intentionally enter an amount to be deposited that was greater than the check included with the deposit. By knowingly entering fictitious deposit amounts into her brokerage account at her firm, Newton created artificial balances in it and caused her firmís books and records to be false.
Nenoff wrote checks from his checking account totaling $660 even though he knew that he had inadequate funds in the account to clear the checks, deposited the checks into his savings account, and withdrew most of the funds by ATM. Nenoff admitted to FINRA in writing that he engaged in check kiting, but he failed to respond to FINRA requests for information.
Associated Person Santos completed and submitted a $7,000 credit advance request on a bank line of credit belonging to a firm customer without his knowledge or consent. The bank processed the request, issued a $7,000 check made payable to the customer which Santos retrieved, endorsed the check and deposited the funds into a separate bank account over which she had signature authority. Santos later covered the line of credit advance by initiating unauthorized securities sales in the customerís securities account.
There are those who defend FINRA's system of mandatory public and intra-industry arbitration. I am not one of those. It's time for FINRA to divest itself from anything and everything to do with public and intra-industry arbitration, and to refer the docket to an impartial, non-industry-influenced forum. A recent case involving elderly public customers d... Read On