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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
Premier Group, Inc.
AWC/2008011618101/December 2010

The Firm acted as the sole placement agent for contingent offerings and failed to ensure proper control of investors’ funds by sending them directly to the issuer, and also neglected to promptly transmit customers’ checks.

Further, the firm failed to

  • meet the minimum contingency by a contingent offering’s termination date,
  • break escrow for a contingent offering until after the termination date,
  • amend the offering and offer each investor rescission or reconfirmation to continue with the offering, thereby willfully violating SEC Rule 17a-3(a)(2) and NASD Rule 2110,
  • book liabilities associated with its expense sharing agreement,
  • enter into an adequate expense sharing agreement with its affiliate, and
  • properly accrue liabilities, so it operated in net capital deficiency.
Premier Group, Inc. : Censured; Fined $12,500
Tags:  Escrow    Contingency Offering     |    In: Cases of Note : FINRA
August 2010
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 felon’s 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 managers’ 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 person’s activities, and designate principals with actual authority to carry out the supervisory responsibilities over the firm’s 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.
Tags:  AML    SAR    Unregistered Securities    Unregistered Office    Telemarketing    Private Placement    Felony    Annual Compliance Meeting    Contingency Offering    Producing Manager     |    In: Cases of Note : FINRA
Bill Singer's Comment

Quite possibly the singlemost comprehensive clusterf&%k of a regulatory case that I have ever seen -- and that's some three decades of reading this crap.  It might have saved time if FINRA simply stated what the Firm had complied with.

June 2010
EDI Financial, Inc.
AWC/2009016266601/June 2010
EDI Financial acted as the sole placement agent for contingency offerings, and entered into agreements with an independent attorney to act as the independent administrator for the offerings rather than contracting directly with a bank to act as the firm’s escrow agent. The title of the first offering escrow account, which the attorney opened, did not change even after the offering had been closed and the new offering was instituted, and the firm never broke escrow before meeting the contingency for both offerings. The firm established a bank account to hold funds related to the offerings separately, and the account was administered by an independent party. The Firm failed to timely deposit customers’ check into the escrow account after receipt.
EDI Financial, Inc.: Censured; Fined $10,000
Tags:  Contingency Offering    Escrow     |    In: Cases of Note : FINRA
Bill Singer's Comment
As Wall Street appears to be recovering (somewhat), we will likely see a pick-up in contingency / Best Efforts offerings.  Given that it's been a long, dry-spell for many Compliance Officers in terms of monitoring their member firm's offerings, it might be a good idea to brush up on the requirements to maintain independent, bank-housed escrow accounts; and to timely disburse payments into those accounts.
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