Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2011
NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.
May 2011
Charles Hyman Brown (Principal)
AWC/2008011707003/May 2011

Brown failed to reasonably supervise a registered representative of his member firm who churned a customer trust account and recommended investments to the elderly beneficial owner of the trust account that were inconsistent with the customerís investment objectives, financial situation and needs.

Brown served as the assistant branch manager for his firmís branch office and, as such, was one of the individuals at the firm with supervisory responsibility over the registered representatives at the branch office. There were numerous red flags indicating that the registered representative was churning the trust account and recommending unsuitable investments to the customer:

  • the appearance of the account on numerous exception reports concerning active and aggressive trading;
  • the accountís relatively substantial fluctuations in value, including relatively significant declines in value in a certain year;
  • the customerís age;
  • the $2,500 monthly withdrawals that the customer was taking from the account; and
  • the prior customer complaints against the registered representative.

Despite these red flags, Brown failed to take adequate supervisory action reasonably designed to prevent the representativeís churning of the trust account and recommendations of unsuitable investments to the customer.

Charles Hyman Brown (Principal): $5,000 Fine; Suspended 30 days in Principal capacity only
Tags:  Churning    Elderly    Supervision     |    In: Cases of Note : FINRA
Bill Singer's Comment
Years ago, there was a time when this type of failure to supervise might not result in any fine, much less a suspension.  Times have changed. Clearly. If you're going to supervise, you better consider the warnings inherent in this case.
Lloyd Kramer (Principal)
AWC/2008011707004/May 2011

Kramer failed to reasonably supervise a registered representative of his member firm who churned a customer trust account and recommended unsuitable investments to the trust accountís elderly beneficial owner. Kramer served as a compliance officer for his firm, and as such, was one of the individuals at the firm with supervisory responsibility over the registered representatives at a branch office.

There were numerous red flags indicating that the registered representative was churning the trust account and recommending unsuitable investments to the customer. The red flags cited by FINRA were the:

  • appearance of the account on numerous exception reports concerning active and aggressive trading;
  • accountís relatively substantial fluctuations in value, including relatively significant declines in value in a certain year; 
  • customerís age;
  • $2,500 monthly withdrawals that the customer was taking from the account; and
  • prior customer complaints against the registered representative.

Despite these red flags, Kramer failed to take adequate supervisory action reasonably designed to prevent the representativeís churning of the trust account and recommendations of unsuitable investments to the customer.

Lloyd Kramer (Principal): Fined $5,000; Suspended 30 days in Principal capacity only
Tags:  Supervision    Elderly    Churning     |    In: Cases of Note : FINRA
Bill Singer's Comment
Now that's how to present a monthly enforcement case!  Maybe FINRA is finally starting to take the years and years of hints. Instead of the usual conclusory allegations of "failed to respond to red flags," FINRA offers us meaningful examples of what should have been spotted. 
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