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.
November 2011
Kevin Francis Garvey (Principal)
OS/2009018183501/November 2011
Garvey, as the supervisor of his member firmís securities lending desk, permitted a non-registered individual associated with a non-registered finder firm to act in a capacity that required the non-registered individual and/or his firm to be registered as a broker dealer and caused his firm to pay the non-registered individual transaction-based compensation through the non-registered finder firm.

Garvey regularly caused his firm to permit an unregistered natural person to negotiate, solicit and enter into stock borrow and loan transactions, which are duties customarily performed by a registered securities lending representative. Garvey performed the duties of a securities lending supervisor without being properly registered. Garvey consented and/or caused the continuation of the practice of paying finders on transactions with certain counterparties in which the finder had provided no service, and permitted individual traders to subjectively determine the cut-in transactions on which a finder was to be paid and the amount of the finderís compensation on those transactions even though the finder had not provided service on the transactions.

Garvey caused his firm to create and preserve inaccurate books and records on the stock loan activity on the securities lending desk, in that the firmís automated records of the cut-in transactions were inaccurate, in that they reflected that certain finders had participated in stock loan transactions when, in fact, they had not performed any function. In addition, these false entries were transferred to its accounting records, which inaccurately indicated that payments were made to finders on the basis of services rendered when, in fact, no services had been rendered to justify the payments on the transactions indicated.
Kevin Francis Garvey (Principal): Fined $35,000; Suspended 30 days.
June 2011
Monex Securities, Inc.
AWC/2008014078801/June 2011

The Firm failed to properly supervise and properly register its foreign finders; and it had no written procedures concerning its use of foreign finders.

The Firm terminated the registrations of all its foreign associates and made them foreign finders; thereafter, the firm employed foreign finders and no foreign associates. Many of the firmís foreign finders were previously registered foreign associates at the firm who worked on the premises of the firmís affiliated broker-dealer. As registered sales representatives and foreign associates for the firm, they acted as general securities representatives engaging in securities activities for non-U.S. residents, citizens or nationals.

Whenthe firmís foreign associatesí registrations were terminated with FINRA and re-affiliated as foreign finders, their job functions were supposed to be limited to those of a foreign finder. As such, the firmís foreign findersí sole involvement with the firm should have been the initial referral of non-U.S. customers; however,all of the firmís foreign finders serviced customer accounts, processed new account documents and letters of authorization (LOAs) for customers containing confidential client information and serviced customer accounts -- these activities went well beyond the initial referral of non-U.S. customers to the firm.

Also, given the expanded roles of the firmís foreign finders, they should have been registered as foreign associates; however, the firm failed to register any of its foreign finders as foreign associates.

A concerned customer visited the firmís affiliateís branch office and explained that a foreign finder of the firm had provided him with an account statement that differed from the statement he recently received from the firmís clearing firm. In response,the Firm immediately instituted an internal investigation into all accounts the foreign finder had introduced to the firm. The firm discovered that unauthorized statements had been provided to customers by its rogue foreign finder.  Those unauthorized statements inflated market values and net worth. Further, the rogue foreign finder altered correspondence that he forwarded to customers by making the documents incorrectly appear as if the firm had authorized them.

The firm contacted and interviewed every customer the rogue foreign finder introduced to the firm, which revealed that some of the customers had received false statements; and that the false statements inflated customersí account values by over $2 million U.S. dollars. The investigation led to the rogue foreign finderís termination, foreign finders being discontinued, written supervisory procedures being added, the firmís supervisory system being enhanced and substantial compensation paid to affected customers. The Firm claimed that it inspected the offices of its foreign finders, including the rogue foreign finder, to ensure that they were properly supervised, but failed to document or memorialize the office inspections and other supervisory activities in any way.

Monex Securities, Inc. : Censured; Fined $25,000
Tags:  Finder Fees    Unregistered RRs     |    In: Cases of Note : FINRA
Bill Singer's Comment
Although the facts are certainly startling, this foreign finders scenario is not that uncommon -- and, worse, the fraud is far from unheard of.  A word to the wise!
May 2011
Bulltick, LLC, Javier Guerra (Principal) and Victor Manuel Robles (Principal)
AWC/2006006958101/May 2011

The Firm made certain unsecured loans to its parent that exceeded the parameters set forth in SEC Rules 15c3-1(e)(1)(i) and (ii), thereby triggering its reporting obligation. Through its financial and operations principals (FINOPs), Guerra and Robles, the Firm provided notices to FINRA at the beginning of several months of loans that it anticipated making during the course of the month, but the notices did not comply with the requirements of SEC Rule 15c3-1(e)(1); the firm did not provide adequate advance notice of loans that exceeded the 30 percent threshold on numerous occasions and did not provide subsequent notice of unsecured loans that exceeded the 20 percent threshold on other occasions. Guerra and Robles, as FINOPS at the firm, were responsible for providing the required notices on the firmís behalf but failed to do so.

The Firm had inadequate excess net capital for a year because it failed to include in its net capital calculation certain positions in Latin American and other debt securities held in firm accounts at its clearing firms, and did not report these positions as assets on its balance sheet or apply haircuts to these positions in its computation of net capital; deficiencies ranged from at least $900,000 to at least $13.7 million and all of the positions relevant to the net capital deficiency had later either paid down their principal or were sold by the firm.

The firm engaged in securities transactions in which commissions were split between the firm and a nonregistered foreign person with the person receiving most of the commissions and the firm getting the balance. In addition to making the initial referrals, the non-registered foreign person, along with the firm, among other things, negotiated the terms of the transactions, which the firm executed. The firm did not properly reflect the payment to the finder on its books and records, and also did not disclose the compensation arrangement as required.

Moreover, the Firm did not maintain adequate books and records concerning proprietary positions the firm held at separate clearing firms for over a year; this included failing to reflect the positions on any of the firmís internal books and records, failing to maintain documents related to the processing of the transactions such as the electronic or paper order tickets and the trade confirmations, failing to maintain documents related to the supervision of the transactions, and failing to appropriately reflect its liabilities and assets on financial documentation the firm maintained. Furthermore, although FINRA staff advised the firm that its procedures related to SEC Rule 15c3-1(e) were not reasonably designed to achieve compliance with that rule and needed to be amended, the firm failed to amend its procedures to establish supervisory procedures reasonably designed to ensure compliance with the rule.

Guerra engaged in outside investment activities through a limited liability company that used his firmís address, and he failed to provide prompt written notice of these business activities to his member firm.

Bulltick, LLC: Censured and Fined $300,000

Javier Guerra (Principal): Fined $20,000; Suspended 10 business days 

Victor Manuel Robles (Principal): Fined $10,000; Suspended 5 business days 

Tags:  Net Capital    Unregistered Person    Finder Fees     |    In: Cases of Note : FINRA
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