RRBDLAW.com

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 John Giuliano (Principal)
AWC/2009019382101/December 2011
An individual who subsequently became a trader with Giuliano's member firm provided $250,000 to the firmís parent company, without loan documentation or written agreement, either as funds to be traded in a firm proprietary account or be held as a security deposit to insure the brokerdealer against trading losses the individual might incur. Giuliano, an owner of at least a 40-percent stake in the parent company and the firmís chief financial officer (CFO) and FINOP, caused the funds to be deposited into the parent companyís checking account and used some or all of the funds, without the individualís consent or authorization, to pay various expenses and debts of the parent company and the firm, thereby misusing the funds.
Joseph John Giuliano (Principal): Barred
Tags:  Proprietary Traders    Loan    FINOP     |    In: Cases of Note : FINRA
October 2011
Felipe J. Lorie
2009019867201/October 2011

Lorie falsified Letters Of Authorization ("LOAs"), which caused his firmís books and records to be inaccurate, and used the LOAs to withdraw customer funds without the customerís authorization; these LOAs contained the purported signature of a customer and the customerís family members and authorized the transfer of checks totaling $21,290.60 to a mortgage company and another $15,000 check to a third-party account. The checks were issued as Lorie requested; neither the customer nor any of his family members authorized or signed the

Lorie failed to respond to FINRA requests for information.

Felipe J. Lorie : Barred
Tags:  LOA     |    In: Cases of Note : FINRA
Lonnie Lee Dusenberry
AWC/2010022516401/October 2011

Dusenberry borrowed $742,500 from his customers and, in several instances, Dusenberry used the proceeds of one loan to repay an earlier loan from a different customer. Dusenberry failed to repay a total of approximately $500,000 to his customers.

The firm prohibited borrowing money from customers unless the borrowing arrangement fell within certain enumerated exceptions, such as a loan from an immediately family member; regardless of the circumstances, however, employees were required to obtain the firmís written pre-approval for all loans, and Dusenberry neither requested nor received the firmís written pre-approval for any of his loans.

In order to effect one of the loans, Dusenberry signed the customerís name to a Letter of Authorization (LOA) and submitted it to the firm, which caused the firm to transfer $30,000 from the customerís account to another customerís account. In order to effect a loan from a different customer, Dusenberry signed that customerís name to an LOA without her knowledge, authorization or consent, and submitted it to the firm, which caused the firm to transfer $32,000 from the customerís account to another customerís account.

Lonnie Lee Dusenberry : Barred
Tags:  Borrowing    LOA    Signature     |    In: Cases of Note : FINRA
Bill Singer's Comment
Whoa, $500,000 in prohibited customer borrowing.  This guy wasn't kidding around.
September 2011
Matthew Crump
AWC/2011028107401/September 2011

Crump was the CCO at his member firm and utilized his position to convert approximately $14,000 from firm customersí brokerage accounts by using fictitious documents to effect unauthorized transfers of securities and cash from the customersí accounts to a trust account he established at his firm.

Crump transferred securities and cash worth approximately $4,000 from one customerís account by using a fictitious letter of authorization to effect the conversion. The findings also stated that two days before the transfer, Crump used the firmís systems to temporarily change the address on the customerís account to Crumpís attention at his work address, the effect of which was to have correspondence and other notices relating to the account sent to him at his firm.

Crump used a fictitious retirement account distribution form and a fictitious letter of authorization to effect the conversion of securities and cash worth approximately $10,000 from another customerís Individual Retirement Account (IRA) to the customerís cash account, and Crump transferred the securities and cash from the customerís cash account to the trust account he controlled. The customers did not know about or authorize the transfers.Crump used the unlawfully converted funds to pay for his personal and business expenses.

Matthew Crump: Barred
Tags:  LOA     |    In: Cases of Note : FINRA
July 2011
Jose Luis Vinas
2009017198901/July 2011

Vinas converted approximately $3.3 million from customers, mostly Mexico-based, while he was associated with member firms and served as the registered representative responsible for these customersí brokerage accounts.

Vinas asked customers to sign blank documents, including firm documents that were printed in English when none of the customers spoke or read English, but they complied with Vinasí request.

A variable credit line account was opened at Vinasí firm in the customersí name, and Vinas submitted or caused to be submitted applications requesting increases in the credit line that the firm approved, but the customers had not authorized the opening of the credit account or the subsequent credit increases, nor were they aware of the existence of the credit account. Vinas forged, or caused to be forged, customer signatures on Letters of Authorization (LOAs) and had a customer sign blank LOAs, which he submitted to his firm purportedly authorizing the transfer of customer funds without these customersí authorization or knowledge. Vinas submitted, or caused to be submitted, to another member firm fraudulent verbal LOAs without the customersí authorization or knowledge, which allowed him to wire funds from the customersí accounts. In addition, Vinas presented false account documents to the customers, which reflected fictitious account balances although he had closed the account after taking the last remaining funds from the account.

Vinas failed to respond to FINRA requests to appear and provide testimony.

Jose Luis Vinas : Barred
Tags:  Forgery    LOA     |    In: Cases of Note : FINRA
Bill Singer's Comment

$3.3 Million?  Breathtaking!  Of course, there's just one teeny-weenie issue that I have. If the customers' New Account Forms all reflected that they were Mexican residents, then why didn't the member firm provide documents in Spanish or obtain direct confirmation that the customers understood the English-only materials?  Apparently these were some relatively high-net worth individuals because several million dollars was pilfered from their accounts.

Perhaps a good compliance practice would be to send a letter to the customer in their native language confirming their authorization to use English-only documents and to confirm to them before initiating account activity that your brokerage firm has received the following inventory of executed documents authorizing the following account activity. And don't send that letter in English because it will defeat the whole purpose of communicating the issues to the customers.

June 2011
Carla Wendy Cooper
AWC/2010023825201/June 2011
Cooper forged a LOA for a customer by copying the customerís signature from another document and pasting it on the LOA. Cooper used the forged LOA to authorize the transfer of assets from the customerís account into another customerís account, which was a trust account Cooperís relativesí controlled. Based on the forged LOA, Cooperís member firm transferred securities valued at $19,632.35 from the customerís account into the other account without the customerís knowledge or authorization.
Carla Wendy Cooper : Barred
Tags:  Forgery    LOA     |    In: Cases of Note : FINRA
Robert Joseph Oftring (Principal)
AWC/2009019996501/June 2011

Oftring was responsible for supervising a former registered representative of his member firm and failed to take appropriate action to reasonably supervise her to detect and prevent her violations and achieve compliance with applicable rules in connection with a customerís account. Among other things, Oftring failed to take reasonable steps to follow up on certain indications of potential misconduct that should have alerted him to the representativeís violations.

The representative engaged in excessive, short-term trading in the customerís account, which resulted in losses of approximately $60,000; the account was subject to frequent margin calls and transfers from a third-party account to satisfy margin calls in the account, and once, the representative transferred funds back to the third-party account by forging the customerís signature on an LOA.

Oftring was aware of

  • the active trading in the customerís account and knew that the representative was effecting securities transactions in the account while it had a negative balance, but he never stopped the representative from trading and never contacted the customer to discuss the activity; and
  • and approved the transfer of funds between the customerís account and the third-party account, and accepted the representativeís explanation for the same without contacting the customers involved in the transfers.
Robert Joseph Oftring (Principal): FIned $5,000; Suspended 6 months in Principal capacity only
Tags:  Supervision    LOA    Margin    Forgery     |    In: Cases of Note : FINRA
Bill Singer's Comment
Although I'm not often a fan of these failure-to-supervise cases because they too frequently involve the luxury of hindsight, this one strikes me as having merit.  Frankly, given the red flags, I would have expected at least a call to the customers to confirm that everything's okay. While it may often be acceptable to ask the registered person for his/her explanation, sometimes you simply have to take that extra step and talk to the client.
April 2011
Hyon Chu Kang
AWC/2010022258701/April 2011

Kang made loans totaling at least $294,000 to a firm customer who was also a close personal friend. The loans were in the form of cash and checks to the customer and undertaken to assist the customer in meeting her business obligations.

Although the customer had signed promissory notes, she died and Kang has not been fully repaid. At the time she made the loans, Kang was aware that her member firm did not permit loans from or to customers unless they were immediate family members; however, Kang did not obtain pre-approval from her firm prior to lending monies to the customer, nor did she otherwise inform the firm of the loans.

Hyon Chu Kang : Fined $7,500; Suspended 60 days
Tags:  Borrowing    Loaning    Promissory Notes     |    In: Cases of Note : FINRA
Bill Singer's Comment

Okay, just to be clear, very, very clear, I absolutely detest and hate this case. A fairer resolution would have been to send Kang a sternly worded letter explaining why she should not do this and how it was necessary to obtain pre-approval from her firm.  Nontheless, under the totality of the circumstances, I find it absurd to impose a $7,500 fine upon the RR.  Moreover, I see no reason to sit her down for 60 days. 

Justice is not blind. Justice wears a blindfold. Every so often, Justice needs to lift the blindfold and take a peak.  The reality of this case is that a broker lent a large amount of money to a friend in order to help out with a business issue.  The broker did not borrow the funds from the client. Yes -- I know, the rule prohibits both borrowing and lending. And, yes, I respect why such a rule is in place and am not disputing its wisdom.  However, sometimes you just need to dilute the consequences when the underlying facts argue for some compassion and leniency. 

Sanjeev Jayant Shah
2009017788201/April 2011

Shah made unauthorized foreign currency trades in a customer bank account, resulting in margin calls being generated for the account and consequently the customerís other bank accounts were frozen, preventing the customer from transferring funds from those accounts. Shah made unauthorized money transfers from another customerís bank account to satisfy, in part, the margin calls for the first client and to be able to transfer funds at its request.

In order to effect the unauthorized fund transfers, Shah forged a signature and created falsified Letters of Authorization (LOAs) by cutting a bank directorís signature from an account opening document and pasting it on a fabricated LOA. Shah fabricated documents regarding another clientís obligation to meet capital calls and falsely created a memorandum representing that the capital calls had been met.

Shah falsely told the customerís beneficial owner that all outstanding calls had been met and to ignore notices he too was receiving. To make the memorandum appear authentic, Shah fabricated an internal email address for a fictitious employee and sent the memorandum to the beneficial owner to make him believe that the calls had been met.

Shah failed to respond to FINRA requests to provide on-the-record testimony and to provide a signed statement.

Sanjeev Jayant Shah : Barred
Tags:  FOREX    Forgery    LOA    Margin     |    In: Cases of Note : FINRA
Bill Singer's Comment
I gotta give this guy some kind of award. He sure tried to juggle as many balls in the air as possible.
February 2011
Dennis OíNeal Blackstone (Principal)
2009020488001/AWC/February 2011
As the registered representative on the joint securities account of customers at his member firm, Blackstone created a false Letter of Authorization (LOA), without the customersí knowledge or authorization, and forged their signatures to authorize a transfer of funds from their joint account at the firm to a bank account that Blackstone controlled. Based on the forged LOA, the firm wired $28,320 from the customersí joint account to the bank account Blackstone controlled and, after receiving the funds in his bank account, Blackstone used the funds for his personal expenses.
Dennis OíNeal Blackstone (Principal): Barred
Tags:  Joint Account    LOA    Forgery    Bank     |    In: Cases of Note : FINRA
January 2011
Antonio Herrero-Rovira (Principal)
2008013833601/January 2011

Herrero-Rovira converted approximately $203,000 in customer funds by forging customersí signatures on Letters of Authorization (LOAs) and firm checks issued pursuant to the LOAs, and depositing the checks into his personal bank account or othersí account without the customersí knowledge or authorization.

Herrero-Rovira converted an additional $16,000 from a customer by causing a check payable to the customer in that amount to be withdrawn from the customerís account without the customerís knowledge or authorization, and forging the customerís check endorsement.

Herrero-Rovira failed to respond to FINRA requests for information.

Antonio Herrero-Rovira (Principal): Barred
Tags:  Forgery    LOA    Checks     |    In: Cases of Note : FINRA
Lyndall Conway Medearis Jr. (Principal)
AWC/2008014825001/January 2011

Medearis became an additional credit card holder on a customerís credit card accounts which were revolving lines of credit. Medearis made charges to the cards totaling approximately $134,000, effectively borrowing this amount through the credit card transactions, and subsequently made payments to cover the charges.

Medearisí member firmís written procedures prohibited registered representatives from borrowing money from or loaning money to customers unless the customer was a member of the registered representativeís immediate family and the registered representative had requested and received prior written permission from the firm. Medearis borrowed an additional $132,000 from the customer in separate transactions, and Medearis never informed his firm.

Medearis loaned $6,420.33 to a customer who was a member of his immediate family but failed to obtain the firmís prior written permission before entering into the loan arrangement with the customer.

Lyndall Conway Medearis Jr. (Principal): Fined $10,000; Suspended 90 days
Tags:  Borrowing    Credit Cards    Loaning     |    In: Cases of Note : FINRA
Bill Singer's Comment
FINRA essentially has Medearis coming (borrowing) and going (loaning) money to customers.
Enforcement Actions
Tags


RRBDLAW.COM AND SECURITIES INDUSTRY COMMENTATORô COPYRIGHT © 2013 BILL SINGER