RRBDLAW.com 917-520-2836 : 2010 FINRA Enforcement Actions

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.

September 2010

John Allan Jones (Principal)
OS/2005001398602/September 2010

Acting with others, Jones participated in a fraudulent scheme to solicit investments in an unregistered hedge fund and its general partner. Jones engaged in a variety of fraudulent and deceptive sales practices and disregarded his duties and obligations of fair dealing to his customers. Jones knew, or was reckless in not knowing, that the hedge fund was engaging in a highly speculative trading strategy involving futures contracts and that information the hedge fund manager supplied, which Jones used, contained materially false and misleading statements and omissions, including a pending Commodity Futures Trading Commission (CFTC) fraud action against the hedge fund manager, the fund’s theoretical and unproven performance figures, the highly speculative nature of the hedge fund’s trading strategy, and the significant risks associated with an investment in the hedge fund and its general partner.

Jones ignored many “red flags,” including those in the hedge fund’s Private Placement Memorandum (PPM). Jones solicited his customers without conducting a reasonable investigation to determine whether the hedge fund and its general partner were suitable investments and without regard as to whether his customers were capable of evaluating and bearing the risks associated with such investments.

John Allan Jones (Principal): Fined $25,000; Suspended 4 months

Tags: Hedge Fund Unregistered Securities CFTC Futures Private Placement | In: Cases of Note : FINRA

July 2010

Allan J. Satterfield
OS/2005001398602/July 2010

Acting with others, Satterfield participated in a fraudulent scheme to solicit investments in an unregistered hedge fund and its general partner and, in doing so, engaged in a variety of fraudulent and deceptive sales practices, disregarding his duties and obligations of fair dealing to his customers. Satterfield knew, or was reckless in not knowing, that the hedge fund was engaging in a highly speculative trading strategy involving futures contracts, and that information the hedge fund manager supplied and used to solicit customers contained materially false and misleading statements and omissions. Satterfield ignored many red flags, including those in the hedge fund’s private placement memorandum. Satterfield solicited customers without conducting a reasonable investigation to determine whether the hedge fund and its general partner were suitable investments, and without regard as to whether his customers were capable of evaluating and bearing the risks associated with the investments.

Allan J. Satterfield : No Fine in light of financial status; Suspended 6 months

Tags: Hedge Fund | In: Cases of Note : FINRA

February 2010

Dennis Ray Thompson Sr. (Principal) and Dennis Ray Thompson Jr.
AWC/2005001398604/ #2005001398603/February 2010

The Thompsons offered and sold investments in an unregistered hedge fund and its general partner using representations and sales materials that contained materially misleading statements and omissions of fact. The information that was supplied by the hedge fund manager and used recklessly by the Thompsons to solicit investors contained materially false and misleading statements and omissions concerning, among other facts:

a pending Commodity Futures Trading Commission (CFTC) securities fraud action against the hedge fund manager,
the fund’s theoretical and unproven performance figures,
the speculative nature of the fund’s trading strategy, and
the significant risks associated with an investment in the hedge fund and its general partner.

The Thompsons solicited investors without conducting a reasonable investigation to determine whether the hedge fund and its general partner were suitable investments and without regard as to whether certain investors were capable of evaluating and bearing the risks associated with such investments. The Thompsons failed to disclose to their member firm that they were engaged in private securities transactions for compensation. Thompson Sr. failed to disclose to his firm, in writing, that he received override commissions from the hedge fund and general partner for sales that other firm salesmen made.

Dennis Ray Thompson Sr.: Barred

Dennis Ray Thompson Jr.: No Fine in light of financial status; Suspended 2 years

Tags: Hedge Fund | In: Cases of Note : FINRA

Bill Singer's Comment

You've heard me make similar complaints before and you're going to here yet another one, again. When I read this quote from FINRA's report, I can't help but shake my head:

[T]he Thompsons solicited investors without conducting a reasonable investigation to determine whether the hedge fund and its general partner were suitable investments and without regard as to whether certain investors were capable of evaluating and bearing the risks associated with such investments.

Look -- I get it, truly I do, and I fully concur with any regulatory finding that registered persons solicited investors without having previously performed reasonable due diligence of the product being sold and without undertaking the necessary suitability inquiry for the targeted investor. If you are a financial services professional being compensated by the investor for recommending a specific investment (and that's the nature of earning commissions), then the least that your client should expect is that you have vetted the investment in general and for your client, specifically. As such, I appreciate, understand, and applaud any regulator's action against such shortcoming.

But here is what I still don't get. Given the massive and still accumulating proof that many large FINRA member firms packaged toxic assets into securities and then knowingly sold that crap to unsuspecting consumers, how is it that the little guys -- such as the Thompsons -- are barred or hit with multi-year suspensions, but the big boys are never expelled or suspended from FINRA membership, and, worse, aren't even restricted from opening new branches or new customer accounts?

What is it that FINRA just doesn't get about this issue? Or is it that it does "get it," but is satisfied with this double-standard?

Enforcement Actions

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