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.
December 2010
Brandon Michael Kappes
AWC/2010022662401/December 2010
Associated Person Kappes created fictitious homeowners-, automobile- and renters-insurance policies in order to meet production goals with his member firmís affiliated insurance company. Kappes did so by forging customer signatures or otherwise falsifying insurance application forms and related documents. The firmís affiliated insurance company paid Kappes approximately $18,000 in commissions as a result of the fictitious policies.
Brandon Michael Kappes : Barred
Tags:  Forgery    Insurance    production quota     |    In: Cases of Note : FINRA
Bill Singer's Comment
Yes, I get it -- and I have no problem with the Bar.  However, we also need to recognize the pressure put upon folks to meet production quotas.  Sometimes the pressure is inappropriate and counterproductive.
Mark William Beggs
AWC/2009018374401/December 2010
Beggs engaged in outside business activities, in that he acted on behalf of an insurance company not affiliated with his firm and engaged in sales to customers of indexed deferred annuities involving a total principal investment of $112,000, for which he was compensated approximately $10,080 in commissions. Beggs accepted compensation from the insurance company for the sales without giving his firm prompt written notice.
Mark William Beggs : Fined $5,000; Suspended 20 business days
Tags:  Annuity    Insurance     |    In: Cases of Note : FINRA
Bill Singer's Comment
These outside business activity cases involving annuity sales seem to be increasing.  You might want to consider that FINRA is focused on these matters before you run to make the sale and pocket the bucks.
William Hanson Hauser
AWC/2010022661001/December 2010
Associated Person Hauser created fictitious homeowners insurance policies in order to meet production goals with his member firmís affiliated insurance company. Hauser did so by forging customer signatures or otherwise falsifying insurance application forms and related documents. The firmís affiliated insurance company paid Hauser approximately $4,000 in commissions as a result of the fictitious policies.
William Hanson Hauser : Barred
Tags:  Forgery    Insurance    production quota     |    In: Cases of Note : FINRA
November 2010
Ethelbert Pacis Gazmen
AWC/2009018322101/November 2010
Gazmen recommended that his member firmís customer use part of her available funds to purchase a variable universal life insurance (VUL) policy through him, and recommended that the customer open an account at another firm. Gazmen assisted the customer in opening a margin account with the other firm and was given trading authority over the account for which he made all of the investment decisions and entered the trades directly, but was not compensated in any way for managing the account. Gazmen was not licensed to recommend the sale of individual securities to a customer or to engage in the purchase or sale of individual securities on a customerís behalf, he did so in handling the customerís account at the other firm. Gazmen failed to give notice to his firm of his proposed role in handling the customerís account, as the firm and FINRA rules required.
Ethelbert Pacis Gazmen : Fined $10,000; Suspended 30 days
Tags:  Variable Insurance    Unregistered Person    Discretion     |    In: Cases of Note : FINRA
October 2010
Darryl Wayne Golter
AWC/2008015003201/October 2010
Golter failed to forward insurance premium payments of $102,635 made by customers to insurance companies as he was required to do, but instead deposited the funds into his personal account and used the money for his personal activities without the customersí or the insurance companiesí permission or authority. When a hurricane struck Texas, Golterís customers filed insurance claims and discovered they were not entitled to coverage; however, the insurance companies provided assistance with property losses and paid out approximately $713,000 in damage claims and refunded premiums. Golter failed to appear for a FINRA on-the-record interview.
Darryl Wayne Golter : Barred
Tags:  Insurance     |    In: Cases of Note : FINRA
David Alan Kossak
AWC/2008014690901/October 2010
While registered with a member firm, Kossak directed his assistant to sign a customerís name to a document related to a fixed insurance contract without the customerís knowledge or authorization. Kossak had sold the fixed insurance contract to the customer while at a previous member firm and the customer was not a customer of his present firm. The assistant, acting at Kossakís direction, forged and notarized required signatures on the document, which Kossak subsequently submitted as authentic. The customer complained of fraud and forgery to the insurance company, which notified Kossak of the complaint, but he failed to update his Form U4 within 30 days of learning of the complaint.
David Alan Kossak : Fined $15,000; Suspended 1 year
Tags:  Insurance    Forgery     |    In: Cases of Note : FINRA
September 2010
Michael Aaron Brady
AWC/2010022037401/September 2010
Brady converted a total of $194,424.81 from customers who entrusted him with money to invest and, instead, misappropriated the funds for his own personal use. One customer gave Brady over $90,000 to invest in an Individual Retirement Account (IRA) and in a Section 529 college tuition plan account but Brady used the money for personal purposes. In one instance, Brady created a fictitious account statement that falsely showed that the customerís account increased from about $37,000 to over $48,000 in one year; but, in fact, Brady never invested the customerís money and had converted over $56,000 of the customerís money to his personal use. In another instance, a customer surrendered a variable annuity and paid the proceeds to Brady to re-invest in another variable annuity; Brady did not do so and misappropriated the funds, which exceeded $41,000.
Michael Aaron Brady : Barred
Nathan Joel Brenowitz (Principal)
AWC/2008013450201/September 2010

Brenowitz

  • falsified a clientís insurance policy application and related documents without the clientís knowledge, submitted the documents to his member firmís insurance company affiliate and subsequently denied to his firm that he had falsified signatures or submitted falsely signed documents;
  • falsified clientsí insurance policy-related supplement documents without the clientsí knowledge, submitted the documents to his firmís insurance affiliate and, although the clients later stated that they approved of his actions, the firmís insurance affiliate policy prohibited its insurance agents from signing another personís name, even if the clientsí authorized them;
  • falsely endorsed and deposited a check for $1,000 made payable to an insurance agent contracted to him into his personal bank account, and falsely claimed to his firm that the insurance agent authorized him to use the check to repay expenses;
  • took an online computer examination on his office managerís behalf that his firmís insurance company affiliate required, and Brenowitz falsely denied to his firm that he did so;
  • denied in writing to FINRA that he took any test posing as his office manager; and
  • denied  in sworn testimony to FINRA that he took any test posing as his office manager and claimed that the insurance agent contracted to him had authorized him to endorse and deposit the check and use the proceeds for expense reimbursement.
Nathan Joel Brenowitz (Principal): Barred
Tags:  insurance    Check        Testing     |    In: Cases of Note : FINRA
Traci Renae Faulks
2008012897501/September 2010

Faulks misappropriated customer insurance premium payments totaling over $9,600 from an insurance company by comingling her personal cash with cash premium payments and using the funds for her own purposes.Faulks paid earlier cash premiums with premium payments received at later dates, which was something the insurance company had cautioned her about in the past. The insurance company credited Faulksí customers for the insurance premium payments that Faulks failed to deposit on their behalf.

Faulks failed to respond to FINRA requests for information and to appear for testimony.

Traci Renae Faulks : Barred
Tags:  Insurance         |    In: Cases of Note : FINRA
Bill Singer's Comment
FINRA did not seek restitution because the insurance company credited the customers.
August 2010
Heidi Jo Baldridge
AWC/2009021005001/August 2010
An affiliated insurance company of Baldridge's member firm began an audit of her insurance files after receiving a customer complaint. The customer gave Baldridge a check as a payment for a premium for a new fire insurance policy and Baldridge admitted to auditors that she deposited the check into her personal checking account and used the money for her mortgage payment. As such, Baldridge converted the customer check for $1,340.  Baldridge repaid the insurance company $1,340 on the day of the audit.
Heidi Jo Baldridge : Barred
Tags:  Checks    Insurance    conversion     |    In: Cases of Note : FINRA
June 2010
Ronald Douglas Rogers
AWC/2008014061001/June 2010
Rogers made an unsuitable recommendation to customers to each purchase $1,000,000 variable life insurance policies, using $30,000 that they had intended to use as a down payment for a home.  Rogersí recommendation to the customers was unsuitable in light of their young age and lack of a need for $1,000,000 in life insurance coverage. Rogers received commissions totaling $6,841.22.
Ronald Douglas Rogers : Fined $15,000 (includes commissions disgorgement); Suspended 1 month
Tags:  Life Insurance    Variable Insurance     |    In: Cases of Note : FINRA
Bill Singer's Comment

Without indicating the age of the clients in the monthly squib report (FINRA merely provides us with the conclusory "young" age characterization in the monthly report -- clearly, since the age is a critical component of this case, FINRA should have published the ages in the monthly abstract), the regulator charges that purchasing a $1 million life insurance policy was a violation because 1. the funding came from $30,000 to be used to make a down payment on a home; and 2. the customers were "too young" to own such a policy; and 3. they had a lack of need for a $1 million life insurance policy.

While all of the reasons for brining the charges may well prove correct, I don't buy the case solely based upon the fact pattern in the online monthly disciplinary report. 

  • First off, did any one determine whether the customers were "too young" to be putting $30,000 into a home -- and what about the value of the purchased home, was that also "suitable" for this young couple? 
  • How does one determine whether a young couple with at least $30,000 in assets has or does not have a need for a $1 million life insurance policy?
  • Did FINRA determine that the couple had no need for any life insurance or a need for only up-to $500,000? 
  • Assuming that one of the customers was the sole breadwinner for the family (that is merely conjecture for the sake of making a point), if he/she dies next week, would the other party (and are there any children?) be better off with a $1 million life insurance policy or ownership of a home with only $30,000 paid-in equity?

Again, there are probably significant facts that justify FINRA's position but the regulator needs to detail those in its monthly report if the case and its sanctions are to be meaningful as a regulatory tool to educate the industry and investing public.

UPDATE: I obtained a copy of the AWC and discovered the following additional facts not disclosed in the monthly squib report. At the time of the sale, the couple were 25 and 26 years of age and were not then married. As of April 2007, the intended house purchase was to be made in 2009 or 2010 with the $30,000 as a deposit.  Rogers recommended that the couple each purchsae a $1 million variable life insurance policy. Rogers total commissions on both purchases was $6,841.22. FINRA apparently concluded that given the couples' age that the recommendation was unsuitable because they had earmarked the $30,000 for a future house purchase and the variable life policies exposed them to market risk and did not provide the couple with "liquidity" for the invested sums. FINRA also noted that if the couple decided to cash out their policies to puchase a home in 2009/2010, that there would be a surrender charge.  Moreover, FINRA seems to have concluded that a young couple in their 20s "given their particular financial situation " (not explained by FINRA) "did not have a financial need to each have a$1,000,000 in insurance coverage. " The couple subsequently married in November 2007. 

January 2010
Jeffrey Paul Dungan
AWC/2008015824001/January 2010
Dungan created and disseminated a false proof of insurance document and inserted a false policy number on the document in order to assist a customer, whose commercial insurance application was never filed or submitted due to an administrative error at Dunganís member firm. Dungan should have known that the customer and its bank would rely on the representations in the document.
Jeffrey Paul Dungan: Fined $5,000; Suspended 1 month
Tags:  False Proof of Insurance     |    In: Cases of Note : FINRA
Bill Singer's Comment
Frankly, the sanction is on the light side and Dungan either benefitted from superb lawyering or FINRA considered certain facts (not spelled out in the published squib) as mitigating. 
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