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.
December 2011
Joseph Anthony McIntyre
AWC/2010024485401/December 2011
McIntyre sold equity indexed annuities (EIAs) without providing his member firm with prompt written notice of the business activity. The findings stated that the EIAs were insurance-issued and were not securities products. McIntyre effected, or participated in effecting, EIA sales totaling about $1,116,370 and received compensation totaling approximately $80,958 from the transactions. 

McIntyre falsely certified to the firm that he had not sold EIAs outside the scope of his employment.
Joseph Anthony McIntyre: Fined $5,000; Suspended 3 months
Tags:  EIA     |    In: Outside Business Activities
November 2011
Timothy Clarke Higgins
AWC/2010024338201/November 2011
Higgins sold equity indexed annuities (EIAs) to people outside the scope of his employment with his firm and without providing the firm prompt written notice of the business activity. Higginsí undisclosed EIA sales totaled about $127,000 and he received compensation totaling about $6,340 from the transactions.
Timothy Clarke Higgins: Fined $3,000; Suspended 30 business days.
Tags:  EIA     |    In: Cases of Note : FINRA
Bill Singer's Comment
In formulating Higgins' disciplinary sanctions, FINRA states that it considered the prior in-house action taken by his member firm in response to the same underlying conduct.
October 2011
Vikas Goel
AWC/2009020539701/October 2011

Goel placed a customerís signature on statements he prepared in connection with providing a rationale for his recommendations that the customer sell mutual funds and invest the proceeds in an equity-indexed annuity and a variable annuity, without the customerís knowledge, authorization or consent.

Unbeknownst to Goel, the firm did not require a customerís signature on the registered representativeís statement of rationale.

Vikas Goel : Fined $7,500; Suspended 1 month
Tags:  Annuities    EIA    Signature     |    In: Cases of Note : FINRA
Bill Singer's Comment
How ironic!  Didn't need to do it, did it, and gets fined/suspended.
September 2011
Richard Barry Holody
AWC/2010022152201/September 2011

 Holody sold equity-indexed annuities (EIAs) to individuals, through insurance companies, with investments totaling approximately $1,002,555, without providing prompt written notice to his member firm; none of these individuals were customers of his firm. Holody received commissions of approximately $79,594.34 from these sales.

The firm prohibited its representatives from selling EIAs not on the firmís approved product list; the annuities Holody sold were not on the approved product list and his acceptance of compensation for the sales constituted engaging in an outside business activity.

Holody recommended that a retired individual liquidate some variable annuity contracts and transfer the proceeds to purchase an EIA an insurance corporation issued. Holody processed all of the paperwork on the individualís behalf to effect the variable annuity contract liquidations to purchase the EIA contract, and the insurance corporation issued a nine-year term EIA contract in the approximate amount of $253,997.37. As a result of these transactions, the individual lost approximately $49,604 in enhanced guaranteed death benefits available under the variable annuity contracts that the individual could never recover. In addition,the insurance corporation EIA contract was also not beneficial to the individual since the variable annuity contracts offered the individual other more favorable features. Moreover, based on the individualís disclosed investment objectives of guaranteed returns on his retirement assets and to provide for his beneficiaries, and the individualís financial situation and needs, Holody lacked reasonable grounds to believe that liquidating the variable annuities to generate funds for the purchase of the EIA contract was suitable for the individual.

Richard Barry Holody: Fined $10,000; Suspended 4 months
Tags:  Variable Annuity    EIA     |    In: Cases of Note : FINRA
June 2011
NFP Securities, Inc.
AWC/2007011393902/June 2011

The Firm approved advertising materials a registered representative used in his retail equity-indexed annuity (EIA) business conducted at workshops for senior citizens that contained false, exaggerated, unwarranted or misleading statements. The firm failed to document, with a principalís signature or initial, its approval of a piece of advertising material the representative used and failed to maintain a record of its approval of a piece of the representativeís advertising material.

The firm did not supervise the representativeís workshops, in that it did not require him to produce a copy of the script for the workshops and did not attend any of the live workshops to confirm that the contents of the workshops complied with NASD rules and that only firm-approved materials were being used. If the firm had required the representative to submit a script and had attended his workshops, it would have discovered that he made statements, used materials and engaged in conduct that violated NASD Rules 2110 and 2210, and could have prevented further violations of these rules.

NFP Securities, Inc. : Censured; Fined $50,000
Tags:  Scripts    EIA     |    In: Cases of Note : FINRA
Bill Singer's Comment

I largely concur with the allegations and sanctions; however, I don't agree that the Firm needs to attend all of its representatives' workshops to confirm that they are compliant.  To FINRA's credit, the allegations notes that the Firm did not have a supervisor "attend any of the live workshops," so the SRO did not suggest that "all" workshops needed to be supervised. Frankly, that could get a bit cost prohibitive and strikes me as a bit over the top in terms of a practical approach to compliance.  I'm not suggesting that having a firm representative attend all workshops isn't a good idea, but there are many "good ideas" that we could employ in all walks of life that are just financially prohibitive.  If random attendance by compliance staff is acceptable as a means of keeping employees honest, then I wholeheartedly support that approach. 

A takeaway from this case would be for Compliance Departments to set up a schedule whereby some supervisor is required to attend at least one out of every X workshops conducted with a standard period of months to ensure some reasonable random effort to verify compliance.

May 2011
Eric Langholtz
AWC/2009017282801/May 2011
Langholtz sold EIAs outside the scope of his employment relationship with his member firm and received approximately $74,498.65 in compensation. Langholtz did not provide prompt written notice to his firm of the outside business activity and on at least one occasion, represented on a firm outside business activity form that he was not engaged in outside business activity regarding non-variable insurance or annuities of other companies except through an approved firm agency selling agreement; that representation was false since he had received compensation from the outside sale of EIAs. Langholtz continued to engage in selling EIAs outside the firmís agency despite its specific prohibition against doing so in its WSPs.
Eric Langholtz: Fined $5,000; Suspended 5 months
Tags:  EIA     |    In: Cases of Note : FINRA
Gary Scot Cohen (Principal)
AWC/2009020792101/May 2011

Cohen sold equity indexed annuities (EIAs), issued by an insurance company that was not a FINRA member, outside the scope of his employment with a member firm, and without providing the firm prompt written notice of the business activity. Cohen effected undisclosed EIA sales totaling over $1.5 million and received compensation totaling about $176,000 from the transactions. Cohen effected the sales directly with the insurance company that issued the EIAs rather than through the insurance company affiliated with his firm.

Cohen completed an outside business activities questionnaire for the firm in which he falsely represented that he was not licensed as an insurance agent for the purpose of selling fixed insurance with any entity other then the insurance company affiliated with the firm and its approved programs, and that he had not engaged in any outside business activity.

Gary Scot Cohen (Principal): Fined $5,000; Suspended 4 months
Tags:  Annual Compliance Certification    EIA     |    In: Cases of Note : FINRA
John Godfried Croes Jr.
AWC/2009017291201/May 2011
Croes sold EIAs outside the scope of his employment relationship with his member firm and received approximately $84,917.14 in compensation. Croes did not provide prompt written notice to his firm of his outside business activity, and represented on annual certification statements and/or outside business activity forms that he was either not engaged in outside business activity or that he had previously disclosed such activity; these representations were false. Despite a specific verbal warning by his firm to discontinue selling EIAs outside the firmís agency, Croes continued to do so, despite the firmís specific prohibition against doing so in its WSPs.
John Godfried Croes Jr.: Fined $5,000; Suspended 8 months
Tags:  Annual Compliance Certification    EIA     |    In: Cases of Note : FINRA
Bill Singer's Comment

Not sure that I fully agree with the sanction. Frankly, it strikes me as a bit on the light end of thing -- given that Croes was pointedly told to cease and desist the outside EIA sales and he disregarded that warning.  It's a rare event when I'm complaining that a sanction is too light but this one doesn't sit well with me.

Michael Steven Jacobson
AWC/2009017282401/May 2011
Jacobson sold Equity Indexed Annuties ("EIA") outside the scope of his employment relationship with a member firm, and received approximately $488,266.41 in compensation. Jacobson failed to give prompt written notice to his firm of his outside business activity and represented on annual certification statements and/or outside business activity forms that he was either not engaged in outside business activity or had previously disclosed such activity; these representations were false. Despite a specific verbal warning from his firm to discontinue selling EIAs outside his firmís agency, he continued to do so despite the firmís specific prohibition against doing so in its WSPs.
Michael Steven Jacobson : Fined $5,000; Suspended 18 months
Tags:  Annual Compliance Certification    EIA     |    In: Cases of Note : FINRA
Bill Singer's Comment
These cases still mystify me. I mean, you know, I sort of understand that an RR might argue that he/she was unaware of the OBA Rule. Okay, as far as that goes. I also understand how some folks might figure that sales of an EIA were okay. Again, I'll give you that much. However, when you're told -- point blank -- to cut the crap out and despite that, you go ahead . . . well, that likely explains why Jacobson got walloped with an 18-month sit down.
February 2011
Andrew Gregory McGrath
AWC/2009018123301/February 2011
McGrath engaged in an outside business activity and failed to provide prompt written notice to his member firm; McGrath sold EIAs and earned approximately $104,000 in commissions. McGrath completed and signed a firm annual questionnaire, on which he failed to disclose his outside business activity, and failed to update his Form U4 to disclose the outside business activity, and at no time did he provide written notice to his firm.
Andrew Gregory McGrath: Fined $5,000; Suspended 3 months
Tags:  Annual Compliance Certification        EIA     |    In: Cases of Note : FINRA
Resource Horizons Group LLC
AWC/2009017637201/February 2011

The Firm approved advertising materials registered representatives used during several public seminars; the firm sent invitations to members of the public, and the seminar attendees received supplemental materials designed to introduce the firm and the financial services it offered. The invitations failed to provide a sound basis for evaluating the facts regarding the products or services offered. The supplemental materials contained exaggerated and unwarranted language, and the seminar handout had unwarranted language.

The seminar presentations failed to explain a product or strategy.  The discussion of equity-indexed annuities (EIAs) failed to provide a balanced presentation and omitted information.  The discussion of variable annuities omitted material information.

The presentations failed to disclose

  • that projections are hypothetical and are not guarantees,
  • risks attendant with options transactions, and
  • risks and rewards of real estate investment trusts (REITs) in a balanced way.

The discussion of expenses pertaining to mutual funds and variable annuities was misleading; discussion of annuities in Individual Retirement Accounts (IRAs) was misleading.

The list of benefits and features of variable annuities failed to disclose potential restrictions and costs, discussion of 1031 exchanges failed to elaborate on Internal Revenue Code restrictions. The discussion of variable annuities provided an incomplete, and oversimplified presentation and representation that safety and protection are provided by diversification market index certificates of deposit, puts, and living benefits profits provided by variable annuities was promissory and exaggerated.

The firm failed to reasonably supervise its communications with the public and its supervision was not reasonably designed to meet the requirements of FINRA Rule 2210(b)(2). The firmís procedures required the supervisory principal to evidence approval by signing public communications submitted for approval and use, but the supervisory principal only initialed a coversheet that did not identify which communication was approved. In addition, the firm failed to maintain records naming the registered principal who approved the public communication or the date approval was given, nor documentation establishing that a certified registered options principal approved options material or that the material had been properly submitted to FINRAís Advertising Regulation Department for pre-approval.

Resource Horizons Group LLC : Censured; Fined $15,000
Tags:  REIT    EIA    Variable Annuity     |    In: Research and Advertising
January 2011
Larrye Alfie Smith (Principal)
AWC/2009020119101/January 2011
Smith engaged in business activities for compensation outside the scope of his business relationship with his member firm without providing the firm with prompt written notice. Smith sold EIAs valued at $148,850 without notifying the firm.Smith used a business card the firm had not approved, distributed a seminar invitation the firm had not approved and conducted a seminar of which the firm was unaware.
Larrye Alfie Smith (Principal): Censured; Fined $7,500; Suspended 6 months
Tags:  EIA     |    In: Outside Business Activities
Leonard Raymond Connell
AWC/2009020402601/January 2011
Connell engaged in outside business activities without providing prompt written notice to his member firm. Connell sold equity-indexed annuities (EIAs) to investors, which included customers of his firm, through insurance companies, with investments totaling approximately $3,490,000, and Connell received commissions of approximately $91,030.00 from these sales. During the relevant period, the firm prohibited its representatives from selling EIAs as an outside business activity.
Leonard Raymond Connell: Fined $5,000; Suspended 3 months
Tags:  EIA     |    In: Outside Business Activities
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