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.
Karl Henry Rodriguez (Supervisor) AWC/2011026130701/October 2011
Rodriguez converted and misappropriated $10,000 from the bank checking account of a customer of his member firm and the firmís bank affiliate.
While researching an investment for the customer, a bank employee discovered that Rodriguez had diverted a $10,000 check from the customerís bank checking account and made the check payable to a third party, who was also a bank customer and Rodriguezí close personal friend. The customer neither authorized Rodriguez to make the check payable to the third party nor divert the funds to the third partyís account at the bank. The third party made cash withdrawals totaling $10,000 from the bank account, and gave the money to Rodriguez, who used the funds for his personal benefit.
Ultimately, the bank re-deposited $10,000 into the customerís bank checking account, and as a result of the bankís inquiry, Rodriguez repaid approximately $5,000 to the bank.
Marvin misused approximately $145,000 in funds obtained from investors in a limited partnership that he owned and controlled.
Marvin established the limited partnership as a general investment fund and referred to it as a hedge fund. The limited partnership had investors who were Marvinís long-standing friends/customers. Marvin maintained the limited partnershipís brokerage account at his member firm and made all of the investment decisions for the fund, which primarily involved stock transactions; Marvin was also the registered representative for the limited partnershipís account and received commissions from trades in the account.
The general partner of the limited partnership was another entity Marvin owned and controlled. Under the terms of the limited partnershipís offering memorandum, the limited partnership was required to pay an annual management fee of 1 percent to the other entity Marvin owned and controlled. There was approximately $1 million invested in the limited partnership; therefore, the other entity was only entitled to an annual management fee of approximately $10,000, but Marvin wired approximately $145,000 more from the limited partnershipís brokerage account to the other entityís bank account and used those funds to pay his salary and other expenses of the other entity. In addition, Marvin had no authority to withdraw the additional $145,000 from the limited partnershipís account; Marvin repaid the limited partnership for the excess funds he had withdrawn from its account.
Without authorization, Franz took possession of checks payable to the investment adviser firm where he was employed, deposited the checks, which totaled about $21,000, to a personal bank account, and converted a portion of the funds to his own use and benefit.
Franz was the broker of record for a money market mutual fund account that an investor owned, and while the investor was out of state and without his knowledge or authorization, Franz contacted the mutual fund company multiple times and instructed it to issue checks to the investor drawn against his money market account. The mutual fund company issued checks payable to the investor totaling about $271,250 and mailed them to the investorís residence in Ohio.
Franz obtained possession of the checks at the investorís residence and, without the investorís knowledge or authorization, Franz forged his signature on the checks, deposited the checks to a personal bank account and converted a portion of the funds to his own use and benefit and remitted the rest to the investor.
Demeo converted funds from a customerís account by withdrawing $9,417.11 from the customerís bank account without the customerís knowledge or authorization, deposited the funds into a bank account for his company and used them for his personal benefit. Demeo failed to appear for FINRA on-therecord testimony.
Douglas Daniel Ivan (Principal) AWC/2010022805201/May 2011
Ivan executed an agreement purportedly on the firmís behalf, in which a non-customer corporation agreed to pay the firm a $35,000 refundable deposit in exchange for the firm agreeing to act as an exclusive placement agent to assist the corporation in arranging for $8 million dollars in debt financing. Subject to the agreement, Ivan instructed the corporation to wire the $35,000 deposit to a personal brokerage account he controlled at another FINRA member firm. Instead of using the funds as he represented to the corporation and in accordance with the terms of the signed agreement, Ivan diverted the corporationís funds by wiring $25,000 of the deposit to another business entity that was supposedly going to assist the corporation with arranging the financing and used the remaining $10,000 for his personal benefit. The debt financing for the corporation never materialized, and the corporation did not receive the return of its $35,000 deposit.
Ivan made untruthful statements and provided false documents to FINRA when he untruthfully represented in his written response to FINRA that he had forwarded the $35,000 from the corporation to a business entity assisting with the financing, and that he did not receive any compensation or payments relating to his participation in arranging the financing. Ivan provided FINRA a document purporting to be an account statement for his outside brokerage account, which falsely reflected a wire transfer of $35,000 out of his account to a business entity assisting with the arrangement of financing, when in fact, the wire transfer amount had only been $25,000. That brokerage account statement had false entries for the figures representing the total amount of checks written and the total amount of checking, debit card and cash withdrawals.
Moreover, Ivan held a financial interest in a brokerage account maintained at another FINRA member firm without giving prompt written notification to the firm that he had such an account, and without notifying the other brokerage firm of his association with his member firm. Furthermore, Ivan falsely answered ďN/AĒ on the firmís outside brokerage account new hire certification form when requested to list every brokerage account over which he had full or partial ownership.
A customer of Associated Person Cope's member firmís bank affiliate instructed her to use the proceeds from a maturing certificate of deposit (CD) to purchase new CDs in the names of different people. Cope purchased one of the CDs, took the remaining proceeds of $9,878.89, converted them to a cashierís check payable to the person for whom the CD should have been purchased, and later cashed the cashierís check and kept the money for her personal use. Cope failed to respond to FINRA requests for information and documents.
Reba Rose Cope : FINRA did not seek restitution because a bank reimbursed the customer for the amount Cope converted, plus interest; Barred
Craig Michael Bettencourt AWC/2010023336301/March 2011
Without his clientís authorization, Bettencourt created a debit memorandum from his clientís account for $35,000 and directed that the debit memorandum be converted to a check payable to a bank where Bettencourt held a personal account. The findings stated that Bettencourt endorsed the check and deposited it into his personal account at the bank, converting the funds to his personal use and benefit. To disguise the conversion, Bettencourt created a false Certificate of Deposit (CD) in his clientís name for $35,000, created a false CD account in his clientís name and delivered a receipt to his client.
Scales was listed as a joint owner with a customer on a mutual fund account her member firm held, falsely maintaining that she and the customer were relatives because the firm allowed employeesĎ immediate family members to maintain joint accounts with them. The customer contacted the firm and reported funds missing from the mutual fund account and that Scales had improperly taken approximately $39,000 from the account and deposited the funds directly into her personal bank account, without the customerís knowledge or consent, for her own use and benefit.
LPL failed to establish, maintain and enforce a supervisory system, including written supervisory procedures reasonably designed to review and monitor all transmittals of funds and securities from customer accounts to third party accounts and to registered representativesí accounts.
The firmís supervisory control procedures for third-party transmittals included the use of an Office of Supervisory Jurisdiction Review Tool (ORT) to monitor third-party disbursements; ORT was designed to identify only transmittals of cash, e.g. in the form of checks, Automated Clearing House (ACH) transactions, or wire transfers to third parties. The firmís control procedures for review using ORT did not address journals between accounts and one of the firmís registered representatives exploited this failure and journaled $40,000 in cash as well as securities out of customersí accounts to his personal account, and converted the cash and proceeds from the sale of the journaled securities in the aggregate amount of over $1 million.
The firmís procedures required that any journal that results in assets being journaled into a registered representativeís personal account must be submitted to a supervisor for approval, and the firm failed to document any approvals of the subject journals or document that the requests were escalated to a supervisor for further review. While the firmís procedures required that the firm send a written confirmation to the customerís address of record in conjunction with all third-party journals, the firm failed to send written confirmations in conjunction with some third-party journals.
Gregory James Buchholz AWC/2010023931401/February 2011
Buchholz misappropriated approximately $1,350,000 from customers, a number of whom were retirees, by liquidating their variable annuities and/or mutual funds and then transferring the proceeds to his personal bank account, converting the proceeds for his own use and benefit. As part of this scheme, Buchholz falsely and fraudulently represented, at times by forging customer signatures on redemption documents, that certain customers had authorized the redemption of the securities in order to obtain the proceeds of the sale; fraudulently induced certain customers to authorize the redemption of securities, based on misrepresentations that the proceeds would be reinvested to the customersí investment accounts; and caused checks to be drawn in the customersí names and caused the checks to be sent directly either to his office or to the customers.
If the checks were sent directly
to the customers, Buchholz convinced those clients to turn the checks over to him, making false and fraudulent representations that he would deposit the funds in their securities accounts to be reinvested; however, he did not reinvest the proceeds but instead deposited the checks into his personal bank accounts and used the proceeds for his own purpose;
to his office, Buchholz simply deposited the checks in his own bank accounts for his personal use and sometimes forged the customersí signatures in order to cash the checks.
Laura Jane Leiker (Principal) AWC/2010022030901/February 2011
Leiker converted $1,001.31 from her member firmís parent company while serving as branch office manager with the signing authority for the officeís expense account. Leiker converted the funds by writing checks payable to herself from the branch officeís expense account. She signed the checks on the companyís behalf, cashed the checks, and used the proceeds to pay for personal expenses. The company did not authorize any of the disbursements, and none of the checks were used to pay for, or to reimburse Leiker for, any valid business expense.
Hoffmann converted funds totaling $900 from customersí checking accounts. Automated teller machine (ATM) cards were sent to Hoffmannís attention at the bank and he was photographed using the cards to make unauthorized withdrawals at ATM machines. Hoffmann signed customer names to signature cards to reactivate the inactive checking accounts without customersí or the bankís permission to do so. Hoffmann repeated this procedure when the customer accounts again became dormant because they were not used within 30 days of reactivation. Hoffmann failed to respond to FINRA requests for documents and information.
As her member firmís bookkeeper, Associated Person Givens, had access to the firmís checking account and forged the firmís treasurerís signature on checks totaling approximately $61,016.08 written against the firmís checking account. Givens committed conversion by making the checks payable to herself, cashing the checks and using the funds for purposes other than the firmís benefit. Because Givens reconciled the firmís checking account, she was able to conceal the conversion of funds from the firm. In a letter to FINRA, Givens admitted that she utilized the treasurerís name without authorization and took the firmís funds for her personal use.
As heralded and trumpeted in the "Episode Notes" in "Revolutionizing the Digital Experience: Form U4 and FINRA Gateway" (FINRA Unscripted / January 26, 2021)For the last couple of years, FINRA has been working to revolutionize the digital experience of firms, particularly when it comes to registration and disclosure. Now many of these changes have come ... Read On