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
Alternative Wealth Strategies, Inc.
AWC/2010021058401/December 2011
The Firm negligently omitted material facts in connection with its sale of promissory notes, issued by an entity that a real estate developer controlled. The firm negligently failed to disclose to investors that the entity had been experiencing cash flow problems and that the entity and other companies affiliated with the real estate developer had failed to make required interest payments to investors. The firm negligently failed to disclose that it was unlikely that the entityís affiliated company would be able to make its scheduled principal payments totaling $10 million that were due to its note-holders. 

The firm distributed a document called ďInvestor LetterĒ for a company; the Investor Letter constituted a research report, but it failed to disclose a firm representativeís ownership interest in the company and his receipt of compensation from the company

The firm permitted its registered persons to use presentations regarding the company to solicit potential investors at seminars; the presentations contained statements and projections that were without basis; were false, exaggerated, unwarranted and/or misleading; and failed to provide a balanced presentation by omitting material information regarding the significant risks associated with investing in the company. The firm failed to establish, maintain and enforce a system of supervisory control policies and procedures that tested and verified that its supervisory procedures were reasonably designed with respect to the activities of the firm, its registered representatives and associated persons to achieve compliance with applicable securities laws and regulations, and created additional or amended supervisory procedures where such testing and verification identified a need. The firmís supervisory control policies and procedures failed to identify producing managers and assign qualified principals to supervise such managers, and the firm failed to electronically notify FINRA of its reliance on the limited size and resources exception. 

In addition, F for one year-end, the firm failed to prepare an annual certification from its CEO or equivalent officer, that it had in place processes to establish, maintain, review, test and modify written compliance policies and WSPs reasonably designed to achieve compliance with applicable FINRA rules, MSRB rules and federal securities laws and regulations, and that the CEO had conducted one or more meetings with the firmís CCO in the preceding 12 months to discuss such processes. For another year-end, the firm filed an annual certification that did not fully comply with FINRA Rule 3130(c). Moreover, the firm failed to establish, maintain and/or enforce WSPs reasonably designed to achieve compliance with the laws and regulations applicable to its business in conducting private placement offerings (including training representatives regarding the risks for these offerings and establishing standards for determining the suitability of these offerings for investors), the review of electronic correspondence and the review and approval of advertising materials. 
Alternative Wealth Strategies, Inc.: Censured; Fined $75,000 (includes $40,000 disgorgement of commissions)
Institutional Capital Management, Inc. and Daniel Lee Ritz Jr.(Principal)
AWC/2010022679801/December 2011
The Firm permitted registered persons assigned to a branch office to utilize outside email accounts to conduct firm business, even though the firm did not have a system or procedure in place to capture, preserve and monitor those emails. As a result, the firm failed to preserve all firm-related email communications of registered persons assigned to that branch as required. 

The firm failed to perform any supervisory review of email communications of registered persons assigned to that branch, and that Ritz permitted a firm registered representative to engage in investment advisory activity through the representativeís state-registered investment advisor (RIA) and failed to supervise that activity. Ritz was the principal responsible for supervising the representative, but failed to supervise any facet of his investment advisory business and was generally unaware of what it entailed. As a result of Ritzí lack of supervision, the representative was able to engage in extensive selling-away misconduct without the firmís detection, raising more than $5 million from investors through sales of promissory notes without the firmís knowledge. The firm failed to obtain all required information for some customers who purchased securities through the firm in private placement offerings. 

Institutional Capital Management, Inc.: Fined $65,000

Daniel Lee Ritz Jr.: In light of financial status, no fine; Suspended in Principal capacity only for 4 months
Tags:  Private Placement    Email    Supervision    Promissory Notes     |    In: Cases of Note : FINRA
James Carl Gaul (Principal)
AWC/2010021058402/December 2011
Acting through Gaul and another firm principal, his firm negligently omitted material facts in connection with its sales of promissory notes. 

The notes were issued by an entity that a real estate developer controlled. Acting through Gaul and another firm principal,the firm negligently failed to disclose to investors that the entity had been experiencing cash flow problems and that the entity and other companies affiliated with the real estate developer failed to make required interest payments to investors.

Acting through Gaul and another firm principal, the firm  negligently failed to disclose that it was unlikely that the entityís affiliated company would be able to make its scheduled principal payments totaling $10 million that were due to its note holders. 

Acting through Gaul, the firm failed to establish, maintain and enforce a system of supervisory control policies and procedures that tested and verified that its supervisory procedures were reasonably designed with respect to the activities of the firm, its registered representatives and associated persons to achieve compliance with applicable securities laws and regulations, and created additional or amended supervisory procedures where such testing and verification identified a need. The firmís supervisory control policies and procedures failed to identify producing managers and assign qualified principals to supervise such managers

The firm also failed to notify FINRA electronically of its reliance on the limited size and resources exception. For a year-end, the firm, acting through Gaul, failed to prepare an annual certification from its CEO, or equivalent officer, that it had in place processes to establish, maintain, review, test and modify written compliance policies and WSPs reasonably designed to achieve compliance with applicable FINRA rules, MSRB rules and federal securities laws and regulations, and that the CEO had conducted one or more meetings with the firmís CCO in the preceding 12 months to discuss such processes. For another year-end, the firm, acting through Gaul, filed an annual certification that did not fully comply with FINRA Rule 3130(c).

Acting through Gaul, the Firm failed to establish, maintain and/or enforce WSPs reasonably designed to achieve compliance with the laws and regulations applicable to its business in conducting private placement offerings (including training representatives regarding the risks for these offerings and establishing standards for determining the suitability of these offerings for investors), the review of electronic correspondence, and the review and approval of advertising materials.
James Carl Gaul (Principal): Fined $10,000; Suspended 30 business days in all capacities; Suspended 18 months in Principal capacity only
Jeffrey Rachlin (Principal)
AWC/2010021058403/December 2011
Acting through Rachlin and another firm principal, Rachlin's firm negligently omitted material facts in connection with its sales of promissory notes to investors. 

The notes were issued by an entity which was controlled by a real estate developer. The firm, acting through Rachlin and another firm principal, negligently failed to disclose:
  • to investors that the entity had been experiencing cash flow problems and that the entity and other companies affiliated with the real estate developer had failed to make required interest payments to investors; and
  • that it was unlikely that the entityís affiliated company would be able to make its scheduled principal payments totaling $10 million that were due to its note holders. 
Rachlin helped prepare a document called ďInvestor LetterĒ for a company; the letter was later distributed by his firm. The Investor Letter constituted a research report, but it failed to disclose a firm representativeís ownership interest in the company and his receipt of compensation from the company. Rachlin helped prepare presentations regarding the company, which the firmís registered representatives used to solicit potential investors at seminars. The presentations contained statements and projections that were without basis and were false, exaggerated, unwarranted and/or misleading, and failed to provide a balanced presentation by omitting material information regarding the significant risks associated with an investment in the company.
Jeffrey Rachlin (Principal): Fined $10,000; Suspended 30 business days in all capacities; Suspended 1 months in Principal capacity only
Tags:  Promissory Notes     |    In: Cases of Note : FINRA
Stephen Michael Mazurek Jr.
AWC/2010021749202/December 2011
Mazurek and his relative agreed to act as co-trustees for their deceased relativeís trust. Mazurek began collecting the assets from the deceasedís estate and distributing them to the beneficiaries of the trust. After Mazurek had withdrawn his allotted share, he misappropriated approximately $60,854 from his late relativeís trust for his own use and benefit, without the knowledge or authorization of the trustís beneficiaries, by writing checks made payable to ďcashĒ in amounts ranging from $100 to $5,000, and used the funds for his own personal use and benefit. Mazurek attempted to conceal his misconduct by convincing another relative to sign an affidavit and promissory note after Mazurek had already misappropriated the funds. 
Stephen Michael Mazurek Jr. : Barred
Tags:  Promissory Notes    Trust Account     |    In: Cases of Note : FINRA
William Alexis Cronin Jr.(Principal)
AWC/2011025885801/December 2011
Cronin participated in private securities transactions without prior written notice to, and prior written approval from, his member firm. The findings stated that Cronin sold approximately $1,712,500 in notes and debentures to investors, most of whom were his firmís customers at the time. The notes and debentures, which were securities, were sold through private placements. Cronin received approximately $171,000 in commissions from these investments. 

Cronin borrowed $10,000 from one of his customers at his firm. Cronin executed a promissory note stating that the loan was to be paid in full by a certain date, but failed to repay the loan according to the terms of the note. Cronin eventually repaid the loan with interest, but only after the customer filed an action against him. 

Cronin borrowed $5,000 from another customer through a loan that was not reduced to writing, and had no repayment terms; Cronin repaid the loan. 

Cronin did not disclose either of the loans to his firm, which prohibited loans from customers without prior firm approval. 
William Alexis Cronin Jr.(Principal): Fined $181,000 (included $171,000 disgorgement of commissions); Suspended 2 years
Tags:  Private Placement    Promissory Notes    Borrowed     |    In: Cases of Note : FINRA
November 2011
Donald Anthony Duarte Jr.
2009018133802/November 2011

Duarte borrowed $50,000 in the form of a promissory note from a customer to start a business buying up distressed properties, and in order to do this, he needed money to establish a credit line. hen Duarte received the loan, his member firmís written procedures prohibited employees from accepting or soliciting loans from firm customers/ He has not fully repaid the loan.

Also, Duarte engaged in an outside business activity without providing his firm with written notice of the activity; Duarte failed to disclose or obtain his firmís written permission of his outside business activity of purchasing distressed properties. Duarte made misrepresentations to his firm in an annual compliance certification that he had not accepted any loans from customers and was not engaged in any outside business activities when, in fact, he had already obtained a loan from the customer and was engaged in an outside business activity.

Donald Anthony Duarte Jr.: Barred; Ordered to pay $25,000 plus interest in restitution to a customer
Frank A. Gutta aka Fazel A. Gutta
AWC/2009017447501/November 2011
Gutta formed a corporation for the business purpose of pooling funds to be used to finance investments in various small businesses, and he operated the company for more than four years without notice to his member firm. Gutta offered and sold company promissory notes to individuals, including some firm customers, for proceeds of approximately $2.9 million; the firm did not sponsor or approve the promissory notes, and Gutta did not provide written notice to, seek or obtain approval from, his firm prior to engaging in the offer and sale of the notes. Gutta recommended the notes to a firm customer without having a reasonable basis to believe the investment was suitable for her; the customer invested a total of $235,000 in notes, which was inconsistent with her stated investment objective and risk tolerance.
Frank A. Gutta aka Fazel A. Gutta: No FIne in light of financial status; Suspended 2 years
Tags:  Promissory Notes     |    In: Cases of Note : FINRA
Krittibas Ray
AWC/2010023781701/November 2011

Ray solicited prospective investors to purchase promissory notes as a vehicle to fund the start up of a hedge fund and to pay the ongoing operations of the fund; investors purchased more than $675,000 in promissory notes from Ray. Ray represented he could pay above-U.S. market interest rates based in part on the fact he could obtain these rates by investing the funds in a foreign bank; Ray failed to invest the proceeds of the notes with the foreign bank, used some of the proceeds for personal expenses and used proceeds from later sales to pay interest and repay principal amounts due on notes earlier purchasers held.

Ray made materially misleading statements and omissions of fact, including misrepresenting the use of proceeds from the sale of the promissory notes, misrepresenting how and where the proceeds were to be invested, and failing to disclose he was using the proceeds from the sale of promissory notes to pay interest and principal amounts due to earlier note holders. Ray participated in private securities transactions through the sale of promissory notes without providing written notice to his firm describing in detail the proposed transaction, his role therein and stating whether he received, or would receive compensation, and without obtaining his firmís approval.

Krittibas Ray : Barred
Tags:  Banks    Promissory Notes    Hedge Fund     |    In: Cases of Note : FINRA
Bill Singer's Comment
September 2011
Audrey Dianne Cline
OS/2009017656901/September 2011
Cline participated in private securities transactions contrary to her member firmís policies and procedures without providing her firm any prior notice, written or otherwise, and receiving the firmís prior written approval of her recommendations of promissory notes to customers and a non-customer. Cline failed to inform her firm that she held an introductory meeting between a customer and the issuer of the promissory notes in her firm office.
Audrey Dianne Cline: Fined $5,000; Suspended 3 moinths
July 2011
Bart Chad Christensen
AWC/2009018990002/July 2011

Christensen sold approximately $650,000 in a companyís promissory notes to customers without providing his member firm with written notice of the promissory note transactions and receiving the firmís approval to engage in these transactions.

Based upon expected interest payments from the promissory notes, some of the customers also purchased life insurance policies from Christensen and another registered representative the firm employed. These customers expected to use the promissory note interest payments to pay for the life insurance premiums.

Christensen received direct commissions from the company related to the sale of the promissory notes to customers and received commissions from the sale of life insurance products to the customers, who intended to fund those policies with the interest payments from the promissory notes.

The company defaulted on its obligations and the customers lost their entire investment. The customers who also purchased life insurance based upon the expectation that they would receive interest payments from their investment relinquished their policies and the firm compensated them for the premiums paid, but the customers did not receive any reimbursement for the investments in the company that sold the promissory notes.

Christensen completed a firm annual compliance questionnaire, in which he falsely stated that he had not been engaged in any capital raising activities for any person or entity; had not received fees for recommending or directing a client to other financial professionals; had not been personally involved in securities transactions, including promissory notes, that the firm had not approved; and had not assisted a client with an application for investments not available through the firm or contracted or otherwise acted as an intermediary between a client and a sponsor of such investments without the firmís prior approval.

Finally, Christensen failed to respond to FINRA requests for documents and testimony.

Bart Chad Christensen : Barred
Bill Singer's Comment
A cascade of calamity.  Under the circumstances, I have no problem with the Bar.
June 2011
Edward R. Von Lumm IV
AWC/2010024607801/June 2011

Von Lumm borrowed $5,000 from one of his customers and executed a promissory note stating that the loan was to be paid in full by a certain date, with $1,000 interest. Von Lumm repaid approximately $2,100 to the customer but did not disclose the loan to his member firm, which prohibited its representatives from borrowing from customers.

The same customer gave Von Lumm $500 towards the purchase of auto and homeowners insurance, but Von Lumm failed to procure any insurance policies for the customer and did not immediately return the funds to the customer. Pursuant to the customerís request, Von Lumm wrote a note to the customer promising to return the $500 and has since returned the funds to the customer.

Von Lumm provided an incomplete response to FINRA requests for information and failed to appear for testimony.

Edward R. Von Lumm IV : Barred
Tags:  Borrowing    Promissory Notes     |    In: Cases of Note : FINRA
May 2011
Carl Henry Blanchard
AWC/2010021436501/May 2011

Blanchard participated in private securities transactions when a client of his accounting firm purchased promissory notes an individual issued. The findings stated that Blanchard failed to provide written notice to his firm describing in detail the proposed transactions with the individual issuing the promissory notes, his proposed role therein, and stating whether he had received or might receive selling compensation in connection with the transactions. Blanchard introduced the client to the individual, and the client invested a total of approximately $325,000 in the individualís promissory notes as a result of Blanchardís referrals.

The individual paid Blanchard about $16,434 in selling compensation for his referral. The customer lost approximately $290,000 as a result of the investment, and the firm made full restitution to Blanchardís client even though he was not a customer of the firm.

Carl Henry Blanchard : Fined $31,434 including disgorgement of $16,434 to be paid to the firm; Suspended 6 months
Bill Singer's Comment
See: Irving Louis Adler and Scott Jeffrey Adler for apparent companion pieces to this story
Devon Coulin McLean
AWC/2009016806001/May 2011

McLean failed to provide written notice of his involvement in unapproved private securities transactions to his member firm and lied to his firm during monthly supervisory meetings. McLeanís member firm prohibited its registered representatives from engaging in any private securities transactions unless they were personal investments and only after obtaining the firmís prior written approval, but McLean referred a customer and another individual to someone who was raising monies for real estate projects. These individuals invested approximately $75,000 in promissory notes with entities controlled by the individual to whom McLean referred them, and McLean received $1,500 in cash for the referrals. Because of concerns stemming from items reported on McLeanís personal credit report, his firm placed him on heightened supervision and, among other things, McLean was required to meet with his supervisor monthly to discuss securities-related and outside business activities; but not once during these meetings did McLean disclose his involvement with the individual. On seven separate occasions, he signed statements affirming that he was not engaged in outside business activity beyond those already disclosed and that it was unnecessary to update his Form U4.

While employed by another member firm, McLean acted as an agent for an entity not affiliated with his firm and over which his firm had no control, without providing written notice to his firm or receiving his firmís approval to serve in this role. In addition, as an agent for the entity, McLean introduced individuals to an individual through whom they invested in a purported diamond mining operation. Moreover, these individuals entered into promissory notes, investing more than $40,000 with an entity the individual controlled. Furthermore, in addition to making referrals, as an agent for the entity, McLean was expected to provide financial and consulting advice to investors once their investments began earning profits, and in exchange, McLean stood to earn $2 million worth of shares in a company the individual controlled.

McLean failed to respond fully to FINRA requests for documents and information. 

Devon Coulin McLean : Barred
Tags:  Referral Fees    Promissory Notes     |    In: Cases of Note : FINRA
Irving Louis Adler
AWC/2010021436801/May 2011

Adler participated in private securities transactions when customers of his accounting firm and customers of his member firm purchased promissory notes an individual issued. Adler failed to provide written notice to his firm describing in detail the proposed transactions with the individual issuing the promissory notes, his proposed role therein, and stating whether he had received or might receive selling compensation in connection with the transactions.

Adler introduced his clients to the individual and they invested a total of approximately $2.5 million in the individualís promissory notes as a result of Adlerís referrals. The individual paid Adler approximately $16,434 in selling compensation for his referral. The customers and the investors lost a total of approximately $2,103,375 and the firm made full restitution to Adlerís clients even though some were not customers of the firm.

Irving Louis Adler : Barred
Bill Singer's Comment

Note that the Firm made full restitution of the $2.1 million in losses to the victims "even though some were not customers of the firm." If nothing else, that should underscore how these private securities transactions can impose (or potentially impose) liability upon the member firm. All of which should explain why firms are entitled to comprehensive, prior written notice about such away activity.

See, Scott Jeffrey Adler and Carl Henry Blanchard as apparent companion pieces of this story

Jose Antonio Rivera
AWC/2010022031601/May 2011

Rivera borrowed a total of approximately $19,000 from a firm customer, signing promissory notes for the loans, contrary to firm policy that prohibited representatives from borrowing from a customer unless the customer was an immediate family member and the representative received the firmís prior written approval. The customer was not a family member and Rivera never informed the firm of the loan.

Rivera failed to repay the funds in full and his firm entered into a settlement with the customer, repaying the $17,700 still owed to the customer; Rivera did not make any contribution to the settlement.

Jose Antonio Rivera : Fined $5,000; Suspended 3 months
Tags:  Borrowing    Promissory Notes     |    In: Cases of Note : FINRA
Mark Andrew Sibert
AWC/2009016845001/May 2011

Sibert failed to provide written notice to, and receive written approval from, his member firm for his participation in private securities transactions, and lied to his firm about his activities in these transactions. Sibertís firm prohibited its registered representatives from participating in any manner in the sale of any security, registered or unregistered, not processed through the firm, without prior written approval, but Sibert solicited his firmís customers and potential customers to invest in his company, which was purportedly raising monies to invest in real estate developments and gold-mining operations. Some of these individuals invested over $1 million with Sibertís company and some invested over $800,000 in promissory notes.

Sibert signed an annual compliance questionnaire falsely stating that he was not engaging in private securities transactions.Sibert failed to fully respond to FINRA requests for information and documents, and failed to respond to a FINRA request to appear for testimony.

Mark Andrew Sibert: Barred
Penena Karpel McRoberts
AWC/2009017606101/May 2011

McRoberts effected private securities transactions without requesting and receiving her member firmsí permission. McRoberts sold $142,128 in promissory notes secured by pooled life settlements. Prior to engaging in these transactions, while associated with one of the firms, McRoberts had signed an Acknowledgement of Receipt and Review of Compliance Procedure Manual which stated that no private securities (or other investment or insurance) transaction may in any way be participated in by a representative unless the compliance director approves it in advance. Despite McRobertsí acknowledgement of the firmís procedures, she failed to give written notice of her intention to participate in the sale of the securities to, and failed to obtain written approval from, her firm prior to the transactions. McRoberts effected private securities transactions while registered with another member firm and also failed to give written notice of her intention to participate in the sale of the securities, and failed to obtain her firmís written approval prior to the transaction. McRoberts received $9,600 in commissions from the transactions. In addition,

McRoberts failed to conduct adequate due diligence and thus had no reasonable basis to determine whether the investments were suitable for her clients.

Penena Karpel McRoberts : Fined $20,000 including $9,600 in disgorged commissions; Suspended 1 year
Tags:  Due Diligence    Promissory Notes     |    In: Cases of Note : FINRA
Scott Jeffrey Adler
AWC/2010021436901/May 2011

Adler participated in private securities transactions when customers of his member firm and his accounting firm purchased promissory notes an individual issued. Adler failed to provide written notice to his firm describing in detail the proposed transactions with the individual issuing the promissory notes, his proposed role therein, and stating whether he had received or might receive selling compensation in connection with the transactions.

Adler introduced the customers to the individual and they invested a total of about $700,000 in the individualís promissory notes as a result of Adlerís referrals. The individual paid Adler approximately $16,434 in selling compensation for his referral. The customers lost approximately $630,000, and the firm made full restitution to Adlerís clients even though one was not a customer of the firm.

Scott Jeffrey Adler : Fined $36,434 including $16,434 in disgorgement to be paid to the firm; Suspended 12 months
Bill Singer's Comment

Note that the Firm made full restitution of the $2.1 million in losses to the victims "even though some were not customers of the firm." If nothing else, that should underscore how these private securities transactions can impose (or potentially impose) liability upon the member firm. All of which should explain why firms are entitled to comprehensive, prior written notice about such away activity.

See, Irving Louis Adler  and Carl Henry Blanchard as apparent companion pieces of this story

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. 

Richard Mark McKinnon
AWC//April 2011

McKinnon recommended the purchase of bonds, bond funds and annuities to an elderly customer who entrusted McKinnon with funds for their purchase. McKinnon deposited the funds into his personal bank account and made improper use of the funds, which included payment of personal expenses.

McKinnon accepted additional funds from the customer, which he used for personal expenses, and accepted additional funds from the customer in exchange for a promissory note he signed. McKinnon did not notify his member firm nor obtain its approval prior to entering into this arrangement with the customer. McKinnon provided false and misleading statements during FINRA testimony regarding the amount of funds he had accepted from the customer, the disposition of the funds and his purchases of securities for the customer in connection with the receipt of the funds.

Richard Mark McKinnon: Barred
Tags:  Borrowing    Promissory Notes    False Statements     |    In: Cases of Note : FINRA
Bill Singer's Comment
Good catch by FINRA.
Robert Lee Keys (Principal)
OS/2009017125101/April 2011

Keys made untrue statements and omissions in connection with the sale of a security; specifically, Keys recommended that a customer invest $1.1 million in a promissory note and represented to the customer that the promissory note was secured by $1.1 million in United States Treasury Bonds, when in fact, no such bonds existed. Keys provided wiring instructions to the customer in connection with the recommended purchase directing her to wire funds to the bank account of the issuing entityís owner. Keys failed to investigate and discover that no treasury bonds existed, and instead relied on information he was given during a conference call initiated by the issuerís owner to an unknown individual who claimed to be a representative of a well-known financial institution, the purported current custodian of the bonds; and Keys failed to investigate whether the unknown individual was in fact the financial institutionís employee.

At the time of Keysí recommendation to the customer, he did not disclose the compensation, direct or indirect, that he expected to receive. The first time the customer discovered that any commission would be paid in connection with the sale of the note was when she received the note itself, delivered several weeks after she had wired the funds for the purchase; the note disclosed that a commission would be paid in connection with the note, but it erroneously stated that $50,000 would be paid to Keysí member firm, and it did not disclose that Keys wholly owned the entity that received an additional $50,000. Keys was responsible for establishing, maintaining and enforcing his firmís supervisory control policies and procedures, but failed to implement reasonable supervisory controls when he failed to ensure that an individual at the firm who was senior to or otherwise independent of himself supervised and reviewed his customer account activity.

Robert Lee Keys (Principal): Barred
Tags:  Promissory Notes    Supervision     |    In: Cases of Note : FINRA
Bill Singer's Comment
That's one hell of an "oops."  I wonder how much of the $1.1 million the customer recovered, if anything.
February 2011
Richard G. Mailloux Sr.
AWC/2009017337801/February 2011

Mailloux participated in private securities transactions without prior written notice to, or prior written approval from, his member firm. Mailloux referred customers to another registered representative of the firm, who executed promissory notes, called ďprivate investor agreements,Ē with the customers on a corporationís behalf. The findings also stated that the promissory notes, which were securities, indicated that the corporation promised to pay 10 percent and 12 percent annual interest, respectively, in return for the loans. The corporation subsequently defaulted on its payment obligations to Maillouxís customers, who incurred significant losses, and Mailloux did not inform his firm about his customersí investments.

Mailloux received a finderís fee of $500 from the firmís other registered representative for the investment one of the customers made.

Richard G. Mailloux Sr. : Fined $5,000; Ordered to disgorge ill-gotten gains and pay a partial restitution to a customer in the amount of $500, plus interest, Suspended 6 months
Tags:  Promissory Notes     |    In: Cases of Note : FINRA
Bill Singer's Comment
I'm still trying to understand the "Ordered to disgorge ill-gotten gains and pay a partial restitution to a customer in the amount of $500."  Is that $500 for both the ill-gotten gains and the partial restitution? Is "ill-gotten" now part of FINRA's formal lexicon of regulatory charges? 
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