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
Legent Clearing LLC, dba Legent Clearing
AWC/2008013543501/November 2011

Legent cleared transactions in accounts a former FINRA member firm introduced, including a corporate account the former member firmís customer, an entity, maintained. The trading activity in the entityís account generated multiple margin calls. Through a course of conduct FINRA alleged involved improper agreements, misleading statements and omissions to disclose material information by the entity and the former member firm, the entity acquired control over assets in qualified and non-qualified accounts customers of another former FINRA member firm previously owned and controlled. Those assets, including assets previously held in qualified accounts, were transferred into the entityís account held at the firm, where they secured margin debits resulting from options trading and short-selling.

Legent firm provided material assistance to the former member firm and the entity in connection with their efforts to obtain additional assets in the entityís account in order to support continued trading on margin. Although there were relevant facts that the former member firm and the entity withheld from, or misrepresented to, the firm, the firm was, or should have been, aware of other facts and circumstances that should have caused it to decline to take, or to inquire further before taking, certain actions the former member firm and its customer requested. which facilitated the asset transfers and placed the other former member firm customers at risk of loss; more specifically, two senior managers of the firm, who are principals, had access to facts and circumstances that, at the very least, should have prompted them to inquire further regarding the nature of the assets being transferred. In addition, as a result of trading in the entityís account after it was transferred from the firm to another broker-dealer, some customer assets were liquidated to meet margin calls, assets that would not have been available for liquidation but for their improper transfer into the entityís account while it was held at the firm.

Legent Clearing LLC, dba Legent Clearing : Censured; Fined $200,000
Tags:  Margin     |    In: Cases of Note : FINRA
Steven Krasner aka Steven Zarkhin
AWC/2009019995901/November 2011

Krasner made unsuitable recommendations to a customer who was a retiree and inexperienced investor

Although the customer agreed to each of Krasnerís recommendations, Krasner employed a trading strategy that was not suitable for the customerís particular financial situation. The customer had indicated in account opening documents that he had an investment objective of capital preservation and a low risk tolerance. 

Krasner recommended the use of margin to execute trades in the customerís account and at times exposed the customer to inappropriate financial risk. Krasner never read the customerís account opening documents, though they were available to him, and was unaware of the customerís financial situation and risk tolerance, as stated in the account opening documents.

Krasnerís member firmís database and computer platform that he used to place trades, as well as the account statements that were mailed to the customer each month, inaccurately indicated that the investment objective was speculation.  In his conversations with the customer, Krasner never confirmed the accuracy of the investment objective. Krasner employed a short-term and speculative trading strategy of short selling stock and using margin. Since Krasner was not fully aware of the customerís stated financial condition, he based his recommendations on the erroneous view that the customer could absorb the high risks of these transactions. 

The customer frequently spoke with Krasner on the phone, gave Krasner express permission to execute the recommended trades and informed Krasner that he was willing to engage in some speculation. Furthermore, Krasner based his recommendations on his conversations with the customer and the firmís inaccurate database, not the accurate financial information that was contained in the account opening documents. 

Krasner executed solicited trades in the customerís account, while charging the account $51,790 in commissions and fees. Although several of the individual trades were profitable, including commissions, the customerís account lost $54,160 in net value, dropping from a net equity value of $162,571 to $108,410.

Steven Krasner aka Steven Zarkhin : Fiend $10,000; Ordered to disgorge to a customer $18,126.81 (payable as partial restitution); Suspended 2 months
Tags:  Suitability    Margin     |    In: Cases of Note : FINRA
Bill Singer's Comment
Ah, this answers a frequently asked question: What if the customer agrees to engage in "unsuitable" trading?  As I've often noted to my clients, suitability is suitability is suitability.  If a customer says it's okay to engage in reckless or inappropriate trading, then you probably should drop the account.  If you don't, you may well have transformed yourself and your brokerage firm into an insurance policy for the client:  If the trades are profitable, the client will keep the profits; however, if the trades are unprofitable, the client may sue you and you could be found to have recommended unsuitable trades and be forced to cough up the bucks.
June 2011
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
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
Randie Jill Sanford
AWC/2007011320901/February 2011

Sanford wrote personal checks against a number of her accounts maintained at her member firm while she knew, or should have known, that she had insufficient funds to cover payment on the checks. The checks were linked to her financial management account, addressed to herself and in response to or preceded by the firmís giving her notice that she had to deposit funds to cover checks on a margin call. In almost each instance, after receiving notice that she had to deposit funds into one of her accounts, Sanford responded by writing and depositing an insufficient funds check into that account, and then writing additional checks or effecting account transfers to prevent the first check from being dishonored. Sanford wrote checks from an account she knew, or should have known, had a negative balance, and deposited them into the same account resulting in an inflated account balance; the amount of the insufficient funds checks totaled an aggregate of approximately $109,000.

Sanford willfully failed to disclose material information on her Form U4.

Randie Jill Sanford : Fined $5,000; Suspended 8 months
Tags:  NSF    Margin     |    In: Cases of Note : FINRA
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