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.
October 2010
Timothy John Imhof
AWC/2007010580902/October 2010
Imhof accepted $3,000 in cash a coworker handed to him on an outside stock loan finderís behalf, and failed to disclose his acceptance of this money to his supervisor or others at his member firm. In exchange for his receipt of the payment, Imhof provided the finder with favorable treatment by his firm that he otherwise would not have provided. Imhof gave the finder a ďfirst lookĒ at the firmís securities inventory available for lending and the firmís needs for securities to borrow; at times, Imhof entered into transactions favorable to the finder if the finder could match his competitorsí terms for specific securities lending transactions his firm executed. As consideration for the payment, Imhof occasionally offered the finder the opportunity to locate various securities that his firm wished to borrow or lend at particular rates before contacting competing finders to see if a better rate existed for his firm. Imhof arranged for his firm to pay finders in transactions for which he knew, or should have known, that the finders performed no services; the payments were unwarranted and improper. Imhof arranged for his firm to make payments to finders by noting on trade tickets and the firmís lending transaction reporting system that certain entities acted as finders or were owed finderís fees, causing his firmís books and records to be in violation of NASD Rule 3110, Section 17(a) of the Securities Exchange Act of 1934, and Rules 17a-3 and 17a-4 thereunder because the recipients of the funds deemed to be finderís fees did not provide any finder-related services.
Timothy John Imhof : Fined $10,000; Suspended 12 months
Tags:  Finder Fees     |    In: Cases of Note : FINRA
Bill Singer's Comment
An interesting case and not something that I've seen much of in the past.
September 2010
KDC Merger Arbitrage Fund, LP
AWC/2007010580901/September 2010

Employees of the firm's securities lending department knowingly made false entries into the firmís system indicating that finders had been used to locate securities or counterparties when in fact the finders had performed no legitimate services. The Firm made payments to those purported finders and the finders subsequently paid a portion of their ill-gotten payments directly to the firm employees who made the finder entries into the firmís system. These employees were indicted for their activities and pled guilty to charges of conspiracy to commit wire fraud, and another firm employee also caused the firm to pay finders in transactions for which he knew or should have known that the finders performed no services, but he was not criminally charged.

The Firmís written procedures and guidelines addressing the firmís use of finders were inadequate and that, while the firmís procedures required a supervisor to review securities lending transactions on a daily basis, the procedures did not provide guidance to supervisors who assumed that responsibility; the procedures did not instruct the stock loan supervisors as to what they were to look for in reviewing transaction reports, how to determine what stock loan activity, including rates, was to be flagged as suspicious, how they were to review documents, how to maintain documentation of the reviews, or how they were to follow up on any suspicious activity they discovered. The Firm kept insufficient documentary evidence to establish that a supervisor adequately reviewed the firmís securities lending activities.

Also, the Firm had no written procedures requiring supervisory review of electronic communications or addressing how the supervisor of the securities lending department should review employeesí communications with other employees, counterparties or finders.

In addition, the Firm created and maintained books and records that inaccurately reflected that finders had participated in stock loan transactions and were paid for services rendered when, in certain instances, finders had not performed any function relating to the transactions and had not rendered services to justify the payments. Moreover, the Firm failed to retain, as required, email sent and received via its primary corporate email system and an additional email system and failed to retain, as required, electronic communications using an instant messaging system.

KDC Merger Arbitrage Fund, LP : Censured; Fined $350,000
Tags:  Finder Fees        Electronic Communications    Email     |    In: Cases of Note : FINRA
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