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.
November 2010
Eddie Wayne Sawyers
AWC/2008015712501/November 2010

Sawyers recommended to certain customers whose accounts he serviced at his member firm that they open online brokerage accounts at another broker-dealer, not affiliated with his firm, and that they give Sawyers discretionary authority over those accounts. The firmís customers opened online brokerage accounts, but they did not give Sawyers written authority to trade in the accounts.

Sawyers conducted transactions on his firmís customersí behalf in the online brokerage accounts without notifying his firm in writing or verbally that he intended to use discretionary authority in the online brokerage accounts, and did not notify the online broker-dealer, in writing, that he was associated with a member firm. Sawyers took steps to conceal these activities from his firm and from the online broker-dealer by not using his own name in connection with the accounts, using a computer that was not his firmís computer and a non-firm email address to set up the online-brokerage accounts and maintaining an exclusive email account to communicate about trade confirmations and monthly account statements with customers.

Sawyers falsely attested in his firmís compliance questionnaire that he had not maintained any outside brokerage accounts that the firm had not approved in writing, and that he had not participated in any outside business activities that the firm had not approved in writing. Sawyers failed to timely respond to FINRA requests for information and failed to timely appear for a FINRA on-the-record interview.

Eddie Wayne Sawyers : Barred
Tags:  Discretion    Email     |    In: Cases of Note : FINRA
Bill Singer's Comment
I mean, seriously, what part of this seemed like a good idea at the time?
Ethelbert Pacis Gazmen
AWC/2009018322101/November 2010
Gazmen recommended that his member firmís customer use part of her available funds to purchase a variable universal life insurance (VUL) policy through him, and recommended that the customer open an account at another firm. Gazmen assisted the customer in opening a margin account with the other firm and was given trading authority over the account for which he made all of the investment decisions and entered the trades directly, but was not compensated in any way for managing the account. Gazmen was not licensed to recommend the sale of individual securities to a customer or to engage in the purchase or sale of individual securities on a customerís behalf, he did so in handling the customerís account at the other firm. Gazmen failed to give notice to his firm of his proposed role in handling the customerís account, as the firm and FINRA rules required.
Ethelbert Pacis Gazmen : Fined $10,000; Suspended 30 days
Tags:  Variable Insurance    Unregistered Person    Discretion     |    In: Cases of Note : FINRA
September 2010
Clint Harley Keener
AWC/2007009431001/September 2010
Keener made unsuitable trade recommendations in a customerís accounts by recommending purchases resulting in an overconcentration of non-investment grade bonds and other equities for a senior couple with no previous investment experience. Keener mismarked order tickets for purchases for these customers and other customers as ďunsolicitedĒ when they were ďsolicited.Ē Keener exercised discretion with verbal, but not written, authorization, in customersí accounts, and although Keener frequently spoke to these customers, he did not speak to them every time he entered a transaction in their accounts. Keener did not have the customersí or his member firmís written authorization to engage in such discretionary trading.
Clint Harley Keener : Fined $7,500; Suspended 2 months
Tags:  Suitability        Discretion    Solicited     |    In: Cases of Note : FINRA
August 2010
Robert Norman Gest Jr. (Supervisor)
OS/2007011348301/August 2010

Gest

  • recommended risky and illiquid CMO positions to his customers, and intentionally and/or recklessly made misrepresentations of material facts and omitted to disclose material facts to customers in connection with their CMO investments;
  • failed to provide his customers with material information concerning the bonds as contained in prospectuses, prospectus supplements or any offering circulars relating to the particular CMO tranches purchased that document various applicable risk factors that an investor should consider before investing;
  • recommended CMO positions to customers without investigating and understanding the products and without reasonable grounds to believe that CMO investments were suitable, as he lacked an understanding of the material characteristics of, and risks associated with, the CMOs offered;
  • lacked reasonable grounds to believe the CMO program and CMO investments were suitable for his customers based upon their disclosed investment experience, investment objectives, financial situation and needs, and he did not have reasonable grounds to believe that the use of margin was suitable for customer CMO purchases;
  • exercised discretionary authority in customer accounts without his customersí prior written authorization and his member firmís prior written acceptance of the accounts as discretionary; and
  • willfully failed to timely update his Form U4 with material facts.
Robert Norman Gest Jr. (Supervisor): No Fine in light of financial status; Suspended 18 months
Tags:  CMO        Discretion     |    In: Cases of Note : FINRA
Stephen Alan Jaffe
AWC/2009018230901/August 2010
Jaffe was the broker of record for a customerís nondiscretionary account at his member firm and exercised discretion in the customerís account in multiple transactions without written authorization. Jaffe completed annual certifications for his firm, in which he attested that he had not exercised full or partial trading authorization over any client account without having obtained the required approvals.
Stephen Alan Jaffe : Fined $5,000; Suspended 1 month
Thomas George Fullerton (Supervisor)
AWC/2007011920701/2009018009501/August 2010
Fullerton intentionally or recklessly excessively traded customersí accounts and recommended the transactions without having reasonable belief that such transactions were suitable in view of the size and frequency of the transactions, the nature of the accounts, and the customersí financial situation, investment objectives and needs. Each of the customers was retired and elderly, and the accounts under Fullertonís control represented a substantial percentage of the customersí life savings and net worth, and each customer relied upon the account for income. Fullerton exercised discretionary power in each customer account without the customersí prior written authorization and without obtaining his member firmís written acceptance of the account as discretionary.
Thomas George Fullerton (Supervisor): Barred
Tags:  Elderly    Discretion     |    In: Cases of Note : FINRA
June 2010
Michael Phillip Dunham (Principal)
AWC/2008016130001/June 2010

Dunham exercised discretion in customersí account, without written authorization from the customers and his member firmís acceptance of the accounts as discretionary.

Dunham attempted to settle a customerís anticipated complaint without notifying the firm of the customerís concerns or the fact that he had paid her a total of $20,000 to settle, even though he did not have his firmís permission to settle customer complaints. The customer did not cash the checks Dunham gave her and subsequently filed a complaint with the firm regarding the margin balance in her account.

Michael Phillip Dunham (Principal): Fined $10,000; suspended 20 business days
Tags:  Discretion     |    In: Cases of Note : FINRA
Bill Singer's Comment
A classic case of making a bad situation worse.  Make sure to read some of the "Undisclosed Settlement" cases I have covered over the years at http://www.rrbdlaw.com/enforcement-actions/index.php?cid=8
Ralph Charles Johnson (Principal)
AWC/2008013469901/June 2010
Johnson effected discretionary transactions in a customerís securities account. Johnson had a verbal agreement with the customer to exercise discretion in the account, but he did not obtain prior written authorization from the customer and his member firmís acceptance of the account as discretionary.
Ralph Charles Johnson (Principal): Fined $5,000; Suspended 10 business days
Tags:  Discretion     |    In: Cases of Note : FINRA
Bill Singer's Comment
The old "verbal" discretion trap. As I've noted so often over the years -- there is really no such thing as far as the regulators are concerned (with the limited exception of certain Time & Price Discretion situations).  If you're trading solely on the basis of verbal discretion, even if the customer will swear on a stack of Bibles that he or she agreed to let you exercise discretion, then you may likely wind up with a fine and a sit-down.  Get it in writing. Give it to your firm. Get their okay back in writing.
Stephen Paul Krauss
AWC/2009017313901/June 2010
Krauss effected discretionary transactions in a customerís securities account. Krauss had a verbal agreement with the customer to exercise discretion in the account, but he did not obtain prior written authorization from the customer and his member firmís acceptance of the account as discretionary.
Stephen Paul Krauss : Fined $10,000; Suspended 30 business days
Tags:  Discretion     |    In: Cases of Note : FINRA
Bill Singer's Comment
Someone want to visit http://www.rrbdlaw.com/enforcement-actions/tags.php?term=Discretion&year=2010 and take a look at the June 2010 "verbal discretion" case for Ralph Charles Johnson (Principal) /AWC/2008013469901/June 2010 and explain to me why Johnson got a $5,000 Fine and a 10 business day suspension but Kraus was fined twice as much and hit with a triple suspension?  There may well be an answer but you sure as hell can't glean it from FINRA's monthly report. Virtually the same allegations are posted online by FINRA in its June reports.  C'mon guys, you have to do better than that!
May 2010
Mark Francis Harper
2007011333401/May 2010
Harper engaged in a pattern of mutual fund switching in customersí accounts without having reasonable grounds for believing that the transactions were suitable for the customers. Harper placed buy and sell orders of mutual funds in customersí accounts without the customersí prior written authorization and his member firmís prior written acceptance of the accounts as discretionary. Harper failed to timely amend his Form U4 to disclose a settlement with a customer for $23,041.02 in connection with his mutual fund switching.
Mark Francis Harper: Barred
Tags:  Borrowing    Discretion     |    In: Cases of Note : FINRA
Bill Singer's Comment
Sometimes you just have to take your hat off to a prodigious violator -- and Harper certainly earned his Bar. Mutual Fund Switching, Suitability, Unauthorized Trading, Unauthorized Discretion, and Undisclosed Settlement.  Pretty impressive and, thankfully, he can now pursue some other line of work.
March 2010
Raymond James & Associates, Inc.
AWC/2008015756901/March 2010
The Firm did not cause the exercise of time and price discretion to be reflected on an order ticket for applicable orders entered into its electronic Order Management System (OMS), or another firmís OMS, causing the firm to violate FINRA recordkeeping provisions. The Firm implemented a change to its electronic OMS, satisfying the specificity requirements of NASD Rule 2510(d)(1), but did not implement a similar change to another OMS that its financial advisors used for larger orders. By not conducting adequate supervisory reviews of data relating to the exercise of time and price discretion, and by not having a system or procedure in place to produce certain order ticket data in connection with regulatory requests for order tickets, the firm failed to exercise reasonable supervisionby not having adequate systems or procedures in place to cause it to be in compliance with the order ticket
Raymond James & Associates, Inc. : Censured; Fined $100,000; Required to review its practices and procedures concerning its compliance with NASD Rule 2510(d)(1) to include a determination of * whether any order entry system the firm uses permits a registered representative or other associated person to exercise discretion as to the price at which or the time when an order given by a customer for the purchase or sale of a definite amount of a specified security shall be executed, and * whether it has systems and procedures in place that are reasonably designed to cause an exercise of time and price discretion in that security to be reflected on the order ticket. The firm shall develop written policies and procedures and cause changes to be made to its (or its agents) operational systems reasonably designed to cause the firm to be in compliance with NASD Rule 2510(d)(1).
Tags:  Time & Price Discretion     |    In: Cases of Note : FINRA
Bill Singer's Comment
Consider this Registered Rep. magazine article from my Street Legal Column: Ain't What It Used to Be, which discusses Time And Price Discretion issues. http://registeredrep.com/advisorland/compliance/finance_price_discretion_1101/

January 2010
Benjamin Gideon Geller
AWC/2007011920901/January 2010
Registered Supervisor Geller exercised discretion and effected numerous transactions in a customerís account without obtaining written authority. When Geller placed the trades, he designated them as ďunsolicitedĒ although the trades were ďsolicited,Ē causing his member firm ís books and records to be inaccurate.
Benjamin Gideon Geller: Fined $5,000; Suspended 90 days
Tags:  Discretion    Solicited     |    In: Cases of Note : FINRA
Jessie Everett Airington
AWC/2008015428301/January 2010
Registered Principal Airington consented to the described sanctions and to the entry of findings that he executed transactions in a public customerís account using time and price discretion that the customer had previously verbally granted him, without reconfirming with the customer his desire to execute the transactions. Airington executed the transactions without the customerís prior written authorization and without his member firm ís acceptance of the account as discretionary.
Jessie Everett Airington: Fined $5,000; Suspended 10 business days in all capacities
Tags:  Time & Price Discretion         |    In: Cases of Note : FINRA
Bill Singer's Comment

Notwithstanding the requirements of proposed FINRA Rule 3260(a), members may exercise:

  1. time or price discretion given by a customer during a normal trading session, provided that such discretion is only valid during that session; or
  2. time or price discretion given by a customer after the close of a normal trading session, provided that such discretion is only valid during the next normal trading session.

Such limited time or price discretionmay be given orally by a customer. The proposed change has no impact on the duration of good-Ďtil-canceled orders for institutional accounts (as set forth in current NASD Rule 2510(d)(1)).

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