Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2012
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.
January 2012
Michael William Bozora (Principal)
AWC/2009018816501/January 2012
AWC/2009018816501/January 2012
As principal
of his member firm, Bozora failed to conduct adequate initial and/or
ongoing due diligence in
relation to an entity’s private placement offered and sold through
his firm.Bozora did not have a reasonable basis for believing
the recommendation of
the entity’s partners to be suitable for any of the firm’s
customers. Bozora failed to obtain
sufficient information from individuals solicited to invest in the
entity’s offering during the
relevant time period to ascertain whether a recommendation to
invest in the entity would
be suitable for them based upon their financial circumstances and
needs.
Acting through Bozora, his firm failed to maintain
subscription agreements
for investors in the entity’s private placement who invested
through the firm.
Bozora participated in the offer and sale of
limited partnership units of
an entity he co-founded. Among other things, Bozora provided
information about the entity
to other broker-dealers for the purpose of facilitating the offer
and sale of the entity by
those firms; and, in connection with this activity, he distributed,
or caused the distribution
of, a PPM that contained material misrepresentations and omitted
to disclose material
facts regarding the entity’s operations and financial condition.
The PPM failed to disclose
the foreclosure by a company, the company’s default on its
obligations to the entity and
the subsequent foreclosure by the entity on the properties that
secured those obligations.
Bozora knew, or should have known, that his entity was using new
investor proceeds in part
to pay the monthly interest obligations to the entity’s current
investors and preferred note
holders and not for new investments as represented in the entity’s
offering documents.
Bozora failed to disclose this material information to those who
invested in the entity.Bozora knew, or should have known, that his
entity lacked sufficient
revenue from operations to pay its monthly distributions to
existing investors, and was
funding such payments at least in part with capital raised from
new investors. Because new
investor funds were being applied to pay earlier investors, Bozora
did not have a reasonable
basis for believing that the recommendation to invest in the
entity’s preferred notes was
suitable for any customer.
In addition, Bozora failed to establish and
maintain a supervisory system, and to establish, maintain and
enforce WSPs reasonably
designed to cause the firm to conduct due diligence for new
offerings. Moreover,Bozora failed to supervise the activity of its registered
representatives selling his
entity’s preferred notes. Furthermore, Bozora failed to document
ongoing due diligence of
his entity and also failed to establish, maintain and enforce
procedures regarding the firm’s
due diligence review.
Michael William Bozora (Principal): Fined $50,000; Suspended 2 years
Valmark Securities, Inc. and Richard Michael Arceci (Principal)
OS/2009018817601/January 2012
OS/2009018817601/January 2012
Through Arceci, the Firm approved an offering for sale based exclusively on its review of the
issuer’s unverified and uncorroborated statements in the offering document.
Through Arceci, the Firm designated an individual to conduct the marketing review for the offering. The individual created a summary page by cutting and pasting language directly from the private placement memorandum (PPM), including a statement about the unblemished payment history of the offering’s affiliates. The individual then completed, signed and dated the requisite 18-question review checklist.
Through Arceci, the Firm designated an associated person of the firm to conduct the due-diligence review of the offering. The person had not heard of the issuer prior to receiving the PPM and the other individual’s summary report, so he used the summary report and the PPM to conduct the due diligence review, including his assessment of the risks of the offering, and completed, signed and dated the requisite 14-question due diligence review checklist. Acting through Arceci, the Firm approved the offering for sale based on the PPM, the checklists and the summary report.
Acting through Arceci, the Firm failed to adequately supervise its due-diligence review,in that it failed to obtain or review financial statements for the issuer which would have informed it in more detail of the liquidity issues of the offering’s affiliates; failed to research background information on the offering’s officers, which would have informed it that the chief executive officer (CEO) had been barred from the insurance industry by a state and later charged with fraud; and failed to use the services of third-party due-diligence providers that conducted due diligence research and drafted reports that would have identified material risks of the later offerings. The firm’s due diligence review, completed in less than three days, was based solely on the self-serving representations the issuer made in the PPM.
Acting through Arceci, the Firm ignored red flags and failed to adequately supervise the sale of the offering after learning about liquidity issues, and failed to suspend sales based on a PPM containing false statements.No one at the firm conducted an investigation or due diligence to determine whether customers who invested were in danger of incurring loss of principal and interest given that affiliates had delayed making payments to note holders.
Also the firm continued to leave its customers in the dark regarding the issuer’s financial problems and to sell the offering using a PPM that contained a material misrepresentation, without disclosing missed payments on securities, and failed to provide customers with copies of correspondence from the issuer describing problems with making payments on previously issued notes. The firm’s decision to continue selling the offering constitutes a failure to observe high standards of commercial honor and just and equitable principles of trade.
Valmark Securities, Inc.: Censured; Ordered to pay $350,000 in restitution to investors through a receiver the U.S. District Court for the Central District of California appointed.
Richard Michael Arceci: Fined $10,000; Suspended in Principal capacity only for 10 business days
Enforcement Actions
Tags
- AML
- Annual Compliance Meeting
- Borrowing
- Changes Of Address
- Checks
- Commissions
- Confidential Customer Information
- Due Diligence
- Elderly
- Electronic Communications
- Electronic Storage
- Embezzled
- Installment Plan Contracts
- Internet
- Life Settlement Contracts
- LOA
- Membership Agreement
- Money Laundering
- Mortgage
- OSJ
- Ponzi
- Private Placement
- Referral Fees
- Supervision
- Testing
- Unregistered Person
- Unregistered RRs
- Unregistered Securities
- Variable Annuity
- WSPs