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
Dante Thomas Garcia DeMiro
AWC/2008012498701/December 2010
DeMiro engaged in private securities transactions outside the scope of his employment with his firm when he sold $587,000 of promissory notes in a Regulation D offering of an entity to customers. DeMiro did not provide his firm with prior written notice of the sales and did not receive the firmís written approval or acknowledgement for these sales.
Dante Thomas Garcia DeMiro : Fined $5,000; Suspended 9 months
Fox Financial Management Corporation and James Edward Rooney Jr. (Principal)
OS/2008011592201/December 2010

Acting through Rooney, Fox Financial

  • sold zero-coupon bonds to customers and negligently omitted material facts concerning the fundís manager, who the State of Texas had charged with forgery of a financial instrument, and was sentenced to five years deferred adjudication and had been the subject of a Temporary Order of Prohibition for selling unregistered securities by the State of Illinois;
  • sold zero-coupon bonds to customers that were secured by interests in life insurance policies, and limited liability companies, which Rooney controlled and were affiliated with the firm, issued the bonds, and negligently omitted material facts to customers relevant to the criminal records of the bondsí manager and owning companies.
  • participated in private placement offerings of zero-coupon bonds limited liability companies issued, and each of the offerings claimed an exemption from registration under the Securities Act of 1933; however, the offerings were not separate and distinct, and were, therefore, subject to integration, and to the securities registration requirements of public offerings.
  • sold zero-coupon bonds, failed to establish a proper escrow account by using a limited liability company not chartered as a bank as the escrow agent, and falsely represented that customer funds would not be commingled.

Rooney failed to detect that customer funds had been commingled because he had neglected to obtain copies of the escrow account statements and to maintain such statements among the firmís records.

The firmís test of its system of supervisory controls was flawed because it failed to include a review of its private placement business, and Rooney stated in his annual certification of compliance that the firm had established and maintained policies and procedures reasonably designed to ensure compliance with FINRA rules. In addition,the firm failed to evidence its supervision over Rooney, in that Rooney was the only principal who had signed Subscription Agreements indicating approval of the customerís investment in an offering.

Fox Financial Management Corporation: Censured; Fined $40,000

James Edward Rooney Jr. (Principal): Fined $20,000; Suspended 15 business days in Principal capacity only

Tags:  escrow    zero coupon    private placement    forgery         |    In: Cases of Note : FINRA
Morris Noriaki Kunita (Principal)
AWC/2009019051902/December 2010
Kunita allowed a registered representative over whom he had supervisory authority to sell preferred stock through a private placement while not appropriately registered to sell that product. The registered representative knew that he was not appropriately registered to sell the product to the customer and asked Kunitaóhis supervisoróto sign the subscription agreement as the selling representative. Kunita agreed and signed the subscription agreement, and submitted the application, including the subscription agreement, to the member firm for processing. The firm approved the investment and executed the transaction. Kunita caused the firmís books and records to be inaccurate by signing the subscription agreement as the selling representative when, in fact, he was not the selling representative.
Morris Noriaki Kunita (Principal): Fined $7,500; Suspended 15 business days
Tags:  Unregistered Person    Private Placement     |    In: Cases of Note : FINRA
Raymond Wing Fai Lau
AWC/2009019051901/December 2010

Lau sold preferred stock through a private placement while not appropriately registered to sell that product.

Lau informed a customer about a private offering of preferred stock in a company, stating that he intended to invest in the company, and provided the customer with brochures, disclosure documents and an application, including a subscription agreement, to invest in the company. The customer completed the application for a $300,000 investment in the company and returned it to Lau. Because Lau knew that he was not appropriately registered to sell the product to the customer, he asked his supervisor to sign the subscription agreement as the selling representative.

The supervisor agreed and signed the subscription agreement, and submitted the application, including the subscription agreement, to the member firm for processing. The firm approved the investment and executed the transaction; and, as such, Lau caused the firmís books and records to be inaccurate by having his supervisor sign the subscription agreement as the selling representative.

Raymond Wing Fai Lau : Fined $7,500; Suspended 15 business days
Tags:  Private Placement     |    In: Cases of Note : FINRA
September 2010
John Allan Jones (Principal)
OS/2005001398602/September 2010

Acting with others, Jones participated in a fraudulent scheme to solicit investments in an unregistered hedge fund and its general partner. Jones engaged in a variety of fraudulent and deceptive sales practices and disregarded his duties and obligations of fair dealing to his customers. Jones knew, or was reckless in not knowing, that the hedge fund was engaging in a highly speculative trading strategy involving futures contracts and that information the hedge fund manager supplied, which Jones used, contained materially false and misleading statements and omissions, including a pending Commodity Futures Trading Commission (CFTC) fraud action against the hedge fund manager, the fundís theoretical and unproven performance figures, the highly speculative nature of the hedge fundís trading strategy, and the significant risks associated with an investment in the hedge fund and its general partner.

Jones ignored many ďred flags,Ē including those in the hedge fundís Private Placement Memorandum (PPM). Jones solicited his customers without conducting a reasonable investigation to determine whether the hedge fund and its general partner were suitable investments and without regard as to whether his customers were capable of evaluating and bearing the risks associated with such investments.

John Allan Jones (Principal): Fined $25,000; Suspended 4 months
Tags:  Hedge Fund        Unregistered Securities    CFTC    Futures    Private Placement     |    In: Cases of Note : FINRA
August 2010
Brookville Capital Partners LLC fka New Castle Financial Services LLC
AWC/2008011678303/August 2010

Acting through its chief compliance officer (CCO), the firm: 

  • failed to establish and implement an adequate AML program and related procedures; adequately identify, investigate and respond to red flags of suspicious activities;
  • timely file a Suspicious Activity Report (SAR); and
  • provide AML training for firm personnel for one year.

Acting through a registered representative, the firm

  • improperly facilitated the distribution of approximately 20 million shares of various unregistered securities;
  • operated an unregistered branch office, in violation of the restriction on business expansion contained in its membership agreement, and
  • engaged in improper telephone solicitations (from the unregistered office) by making materially false representations and omitting material facts in connection with the offer of securities and by using misleading telemarketing scripts that a registered principal had not approved.

Acting through the registered representative and CCO, the firm failed to perform adequate searching inquiries and take necessary steps to ensure that transactions did not involve distributions of unregistered and/or restricted securities.

Acting through a registered representative and firm principal, the firm sold securities to public investors using a private placement memorandum that omitted to disclose a convicted felonís association with the issuer, a material fact to any reasonable investor.

Acting through various FINOPs, the firm

  • failed to maintain accurate financial books and records,
  • filed inaccurate FOCUS reports and
  • operated a securities business while under minimum net capital requirements.

Acting through the CCO and other compliance officers, the firm

  • failed to forward customer funds it received in connection with contingency offerings to an escrow agent by noon of the next business days after receipt of such fund;
  • adequately review and approve customer correspondence;
  • timely and accurately report customer complaints;
  • timely update Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5);
  • comply with the Firm Element of the Continuing Education Requirement for a year;
  • conduct an annual compliance meeting; and
  • establish an adequate business continuity plan, which consequently led to the loss of access to certain customer records upon termination of its relationship with a particular clearing firm.

The firm had additional supervisory deficiencies, including that

  • its written supervisory procedures failed to establish adequate procedures for review of producing managersí customer account activities,
  • it failed to have written supervisory procedures for identifying producing managers that should be subject to heightened supervision, and
  • failed to place certain producing managers on heightened supervision, in that, acting through various individuals, the firm failed to clearly assign each registered person to an appropriately registered representative and/or principal responsible for supervising that personís activities, and designate principals with actual authority to carry out the supervisory responsibilities over the firmís business.

Acting through a supervising principal, the firm failed to reasonably supervise registered representatives working out of the unregistered branch office.

Acting through firm officers, the firm failed to establish and maintain a supervisory system reasonably designed to supervise the sales activities of firm personnel conducted outside of its registered offices, and failed to establish and maintain a supervisory system for determining whether customer securities were properly registered or exempt from registration.

Acting through its CCO, the firm failed to implement adequate procedures to ensure that the firm did not telephone persons who stated they did not wish to receive calls and/or who registered on the national do-not-call registry, and failed to adequately update and maintain a do-not-call list.

Acting through various supervisors, the firm failed to perform heightened supervision over numerous individuals.

Brookville Capital Partners LLC fka New Castle Financial Services LLC : Brookville Capital Partners LLC fka New Castle Financial Services LLC : Censured; FIned $200,00; Required to retain an independent consultant to conduct a review of the adequacy of its policies, systems, procedures and training regarding AML rules and regulations; compliance with Section 5 of the Securities Act of 1933; and rules and regulations relating to private placements, financial requirements, customer complaints and supervision. In addition, the firm was required to have its associated persons complete 16 hours of AML continuing education training and to fully and promptly cooperate with FINRA in any and all investigations.
Bill Singer's Comment

Quite possibly the singlemost comprehensive clusterf&%k of a regulatory case that I have ever seen -- and that's some three decades of reading this crap.  It might have saved time if FINRA simply stated what the Firm had complied with.

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