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
Lisa Renee Mello (Principal)
AWC/2008012444202/October 2010

Mello served as her member firmís FINOP and was responsible for monitoring the firmís financial condition to determine whether its net capital was sufficient to conduct a securities business. The firmís registered representatives effected trades in collateralized mortgage obligations (CMOs) through the firmís proprietary trading account. The transactions appeared to remove beneficial ownership of the CMOs from the firm, but they were sham transactions because the securities remained in the firmís inventory.

The registered representative was able to accomplish and maintain his scheme because Mello and others at the firm reviewed his activity on a daily basis rather than in a manner that would evidence trading patterns over time and expose the firmís losses and risk. As a result of the registered representativeís activity and the firmís method of monitoring it, the firm conducted a securities business on multiple days while failing to maintain its required minimum net capital and, because Mello failed to discern the true effect of the registered representativeís trading on the firmís net capital, she allowed the firm to conduct a securities business on multiple occasions while in violation of SEC Exchange Act Rule 15c3-1.

Lisa Renee Mello (Principal): Fined $8,000; Suspended as FINOP for 6 months
Tags:  CMO    Proprietary Traders    Net Capital    FINOP     |    In: Cases of Note : FINRA
Bill Singer's Comment

As I noted in the apparent companion case of Kevin Bradley Martin:

According to FINRA, Martin erred because:

The registered representative was able to accomplish and maintain his scheme because Martin reviewed his activity on a daily basis rather than in a manner that would evidence trading patterns over time and expose the firmís losses and risk.

I suspect that FINRA wanted to say -- meant to say -- something a bit different than how this came out.  If you take the statement as written, the Supervisor is being chastized for doing a daily review of his subordinate's trading.  And that's wrong, why?  If FINRA suggests that the daily review was improper, then the regulator owes its members a far more cogent explanation (if not warning), than to merely note that the the review should have been undertaken "in a manner that would evidence trading patterns over time and expose the firm's losses and risk."  Just exactly what is the regulator suggesting would have been preferable -- and not just for the sake of debate but for the pointed reason of eliminating Martin's liability for failing to review prop trading activity over a given period of time. Moreover, assuming that Martin was victimized by the fraud of the subject trader (which FINRA oddly doesn't note pro or con), is there any proof that a different frame of review would have elicited the patterns that, in hindsight, FINRA now concludes are so apparent?

January 2010
Jesup & Lamont Securities Corp.
OS/2007007255603/January 2010
Despite its addition of a business activity that required a higher minimum net capital requirement under SEC Rule 15c3-1, the Firm failed to file an application with FINRA for approval of a material change in its business operations. On a single date, the firm conducted a securities business while it maintained insufficient net capital, in that the firm failed to take an open contractual commitment charge for its participation in a firm commitment underwriting.
Jesup & Lamont Securities Corp.: Censured; Fined $17,500
Enforcement Actions
Tags
Email Bill Singer Connect with Bill Singer on Facebook Follow Bill Singer on Twitter Link up with Bill Singer on LinkedIn Join Bill Singer on Google+