Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2012
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.
January 2012
Phillip Peter Borup (Principal)
OS/2008014385101/January 2012
Borup was designated as the OSJ branch manager for two of his member firm’s branches and responsible for supervising the business of the associated personnel located in those offices. Subsequently, Borup designated another principal of the firm as the OSJ manager for the branch offices but representatives at the branch offices continued to engage in violative practices adopted while Borup was the OSJ manager of which he was or should have been aware. 

When the new OSJ manager raised concerns about the private-placement business in the branch offices, Borup declined to take steps to address those concerns and conform the conduct of that business to all applicable laws, rules and regulations.As the firm’s chief executive, owner and the person who directed the firm’s business, Borup remained responsible for the private-placement business the representatives in the branch offices conducted on the firm’s behalf.

The branch offices participated in transactions involving the sale of several different private placements to investors who invested approximately $1,727,000. The representatives employed a general solicitation to obtain these investors.The firm received selling compensation for each of the private placement transactions. As the firm’s owner and CEO, Borup benefitted financially from the firm’s receipt of selling compensation. The general solicitation caused the transactions to be ineligible for the Rule 506 exemption and, therefore, the transactions constituted the sale of unregistered securities in contravention of Section 5 of theSecurities Act of 1933. Borup was the firm principal responsible for the offer and sale of the private-placement securities and by permitting these transactions to occur in contravention of the registration provisions of the Securities Act of 1933, he engaged in conduct that was inconsistent with high standards of commercial honor and just and equitable principlesof trade. In addition, 

Borup was responsible, directly or indirectly,for the supervision of firm personnel in the branch offices and the business activities in which they engaged on the firm’s behalf. Borup appointed another firm principal, as OSJ manager, although the principal did not have supervisory experience and was unfamiliar with the laws, rules and regulations applicable to the private-placement business; Borup did not undertake to provide the principal with opportunities to develop the knowledgeneeded to supervise the private-placement business effectively, nor did he revise, or instruct the principal to revise, the firm’s systems and procedures for supervising thatbusiness although he knew, or should have known, that they were inadequate. Moreover, Borup failed to supervise in a manner reasonably designed to prevent the sale of unregistered securities by firm registered representatives in the branch offices who offered and sold securities purportedly exempt from registration.

Borup was responsible, directly or indirectly, for the supervision of firm personnel in the branch offices and the business activities in which they engaged on the firm’s behalf, including the supervision of their use and distribution of sales literature on the firm’s behalf. The representatives provided potential investors with various written materials in addition to the issuers’ confidential PPMs. Borup was aware that the firm’s representatives were providing potential investors with these various written materials. With the exception of a brochure, the sales literature materials included projections for which neither the items of sales literature nor the PPM(s) provided a basis. The items of sales literature presented rates of return and investment performance in a manner that implied past performance would recur, failed to reflect the uncertainty of rates of return and yield, and allowed the rates of return and investment performance toconstitute predictions and/or projections of investment performance. The items of sales literature also included statements and claims that were incomplete and oversimplified,unwarranted or exaggerated. By permitting the branches to distribute sales literature, Borup did not establish and maintain a system to supervise the activities of the firm’s associated personnel that was reasonably designed to achievecompliance. In addition to the failure to supervise in a manner reasonably designed to achieve compliance with the content standards applicable to sales literature, Borup also failed to maintain a record of what was reviewed and/or approved for representatives to disseminate, and did not take steps to ensure that the registered representatives disseminated only sales literature the firm approved. 

Borup authorized and permitted registered representatives of the firm’s branch offices to provide cash compensation in the form of referral fee payments to non-registered individuals who provided information about persons to whom the representatives intended to offer and sell private placements. The firm’s registered representatives paid approximately $159,650 to non-registered individuals for these referrals.
Phillip Peter Borup (Principal): Fined $15,000; Suspended 18 months in Principal capacity only
Tags:  Unregistered Securities    OSJ    Private Placement    Referral Fees     |    In: Cases of Note : FINRA
Bill Singer's Comment
A particularly well written report that presents a compelling fact pattern.  The sanctions seem measured.  If you're going to solicit private placements, make sure to use the No-No's in this case as a checklist of compliance issues to fully address.
Puritan Securities, Inc. later known as First Union Securities, Inc
AWC/201002087520/January 2012
The Firmt failed to implement a reasonably compliant Anti-Money Laundering Compliance Program (AMLCP). 

The firm failed 
  • to ensure that its registered representatives received AML training,
  • to ensure that new account files contained evidence that the firm had verified clients’ identities,
  • to conduct an independent test of its AMLCP, and
  • to maintain its required minimum net capital while conducting a securities business. 
The findings also included that the firm’s procedures required its designated principal to conduct inspections of the firm’s Office of Supervisory Jurisdiction (OSJ) each year and of its branch locations every two years. The procedures also required annual compliance meetings with registered persons. For almost two years, the designated principal did not ensure that the firm held an annual compliance meeting and the principal did not perform any inspections of the firm’s OSJ or branch offices during that time period.
Puritan Securities, Inc. later known as First Union Securities, Inc: Censured; Fined $15,000
Tags:  AML    Annual Compliance Meeting    OSJ     |    In: Cases of Note : FINRA
Bill Singer's Comment
How do you not ensure that the annual compliance meeting is held for two years and, on top of that, you don't perform OSJ/Branch inspections for the same period?  That's one hell of an oversight, particularly when coupled with the AML lapses.
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