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
Global Strategic Investments, LLC and Cesar Gabriel Hernandez (Principal)
AWC/2009016158801/December 2010

Acting through Hernandez, Global Strategic failed to:

  • adequately implement or enforce its anti-money laundering (AML) compliance program, and to otherwise comply with their AML obligations, by failing to identify and analyze numerous transactions to determine if they were, in fact, suspicious and were required to be reported on a Suspicious Activity Report (Form SAR-SF), and
  • establish and implement customer identification procedures (CIP) for verifying a customerís identity.

The Firm and Hernandez permitted foreign customers to deposit funds into their accounts and, within days and/or weeks, disburse funds from their accounts to first and third parties, and in certain instances in amounts slightly below $10,000; although one customer told Hernandez he did this to avoid questions from his bank, the firm and Hernandez permitted the activity to continue and did not file a Form SAR-SF until approximately one year after the activity occurred.

Global Strategic Investments, LLC: Censured; Fined $150,000 

Cesar Gabriel Hernandez: Fined $25,000; Suspended 3 months in Principal capacity only

Tags:  AML    SAR    CIP     |    In: Cases of Note : FINRA
Mark Edward Diemer (Principal)
AWC/2009016254302/December 2010

While acting as his member firmís Anti-Money Laundering Compliance Officer (AMLCO), Diemer failed to

  • implement policies and procedures reasonably designed to detect and cause the reporting of suspicious transactions, and
  • detect, investigate and/or file SARs as appropriate, on occasions when ďred flagsĒ of suspicious activity were present.

The Firm is an introducing firm that maintains ďpiggybackĒ arrangements with foreign broker-dealers and executes their transactions with a clearing firm. Many of these suspicious activities occurred in accounts of foreign broker-dealers with whom the firm had a piggyback relationship, and Diemer failed to conduct an adequate investigation into these activities and did not file as appropriate, any SARs.

Finally, Diemer failed to appear for a FINRA on-the-record interview.

Mark Edward Diemer (Principal): Barred
Tags:  SAR    AML     |    In: Cases of Note : FINRA
Bill Singer's Comment
You're going to get, maybe, a little leeway with some AML cases but when we're talking foreign broker-dealers that are piggybacking -- fuggedaboudit.  Hard to imagine a worst set of facts.
November 2010
York Securities, Inc.
AWC/2008011762701/November 2010

The Firm operated a deficient Anti-Money Laundering (AML) program and failed to detect, investigate and report suspicious activity in connection to a firm customerís participation in a fraudulent stock-lending scheme through the firmís accounts.

The findings Firm's clearing firm advised it of a ďnegative hitĒ (any criminal, regulatory or civil action history) for an individual involved with a corporation that completed an online application to open an account at the firm through its trading direct division; after learning of the criminal action against the individual, the firm did not directly confront the individual or anyone associated with the corporation but instead, sent an email to the individual asking only whether or not it was correct that the individual had had a material monetary problem with a government agency, and the individual responded, confirming and stating the issue was resolved and there was no debt owed. The Firm informed the individual that it would open an account for the corporation on a cash only basis (i.e., no margin privileges).

The Firm's knowledge regarding the individualís criminal record was a red flag that should have caused it to give heightened scrutiny to activity in the corporationís account, but during a five month period, there were shares of securities valued at more than $12 million delivered into the corporationís account, in some instances by deposit of physical certificates. These shares were then sold within days of being received into the account, and the proceeds were then wired to a domestic bank account in the name of the corporation; the firm did not investigate any of these transactions or deem them to be suspicious and did not speak with anyone at the corporation regarding the transactions. The day after a customer presented a share certificate, he sent the firm a letter of authorization requesting the firm transfer the shares from his account to the corporationís account at the firm, and one week after the shares were transferred, the corporation sold the shares in separate sales transactions and the proceeds were wired to the corporationís domestic bank account. In addition,  the sales of the stock, just a week after they were transferred from the customer to the corporation, were further red flags that should have caused the firm to ask additional questions concerning the transactions and consider filing suspicious activity reports (SARs).

Moreover, the Firm never followed up with the corporation to learn about the nature of its business activities and never obtained additional information regarding the fact it identified itself as a "loan underwriter" in its new account documents. Furthermore, the Firm did not follow its written customer identification program (CIP) procedures for individual customers domiciled in the United States; instead, the firm submitted customer names to its clearing firm to perform searches, which did not fulfill the firmís CIP responsibilities. For customers who were individuals domiciled in the United States, there was no record maintained as to how verification occurred, and no records as to whether the firm utilized documentary or non-documentary means for verification existed or were retained. In light of the firmís failure to conduct non-documentary checks, and failure to maintain records of the information used to verify customer identification, its CIP with respect to accounts for individuals domiciled in the United States was inadequate and failed to meet the standards of Section 326 of the Patriot Act, resulting in a willful violation of MSRB Rule G-41.

York Securities, Inc.: Censured; Fined $65,000
Tags:  CIP    AML    SAR     |    In: Cases of Note : FINRA
Bill Singer's Comment
First problem, you just can't ask for confirmation of the accuracy of a "criminal event" from the subject individual.  Independent confirmation is what is required under these circumstances. Consider how absurd the Firm's defense now looks: Well we did ask him if he owed money to the government and he swore that it was all resolved.
October 2010
Kenneth Brown (Principal)
AWC/2007007151703/October 2010

Acting in his capacity as the AMLCO, Brown  failed to

  • implement policies and procedures reasonably designed to detect and cause the reporting of suspicious transactions under 31 USC 5318(g) and implementing regulations;
  • detect and investigate suspicious activities and/or other activities in which red flags of money laundering were present and filing a SAR, when appropriate; and
  • follow up on red flags indicating that a registered representative was selling unregistered shares of a stock on behalf of the CEO of the issuer, and did not follow up to ascertain what, if any, steps the representative took to inquire about the transactions.

Brown was notified by his member firmís clearing firm that it was closing the CEOís account and would allow only liquidating (sell) transactions, but although Brown responded to the clearing firm, he did not adequately follow up to ensure additional purchase transactions did not take placeówhich did occur. As his firmís CCO, Brown failed to supervise firm personnel who had been delegated responsibility for reporting, and timely reporting, customer complaints under NASD Rule 3070(c), and to make Forms U4 and U5 amendments with FINRA to report disclosable events.

Kenneth Brown (Principal): Fined $5,000; Suspended Principal capacity only 1 year; Required to complete eight hours of AML training. The fine must be paid either immediately upon Brownís reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier.
Tags:  AML    SAR    Unregistered Securities     |    In: U4, U5, RE-3, Rule 3070
Newbridge Securities Corporation
AWC/2007007151704/October 2010

Newbridge facilitated the manipulative trading of the stock of a company created as the result of a reverse merger.

A group of control persons and promoters used accounts at the firm to execute pre-arranged in-house agency cross and wash transactions that were intended to generate volume and support or increase the price of the stock. The firm permitted control persons to sell unregistered securities through firm accounts, and the sales were not made in compliance with any applicable exemption from registration. The firm failed to

  • adequately supervise the registered representatives who participated in the sales of unregistered securities; 
  • take adequate measures to ensure that the registered representatives assigned to the accounts did not engage in the sale of unregistered securities;
  • take steps to ensure that the registered representative ascertained 
    • whether the securities being sold were registered
    • how and from whom the customers had obtained their shares,
    • whether and when the shares were paid for, and
    • whether the transactions were subject to any exemption from registration.

Further, the Firm failed to adequately supervise registered representatives who participated in the manipulative trading.

The firm did not have adequate systems or controls to implement and enforce its policies, particularly adequate systems to detect improper cross, wash and other manipulative trading. The firmís AML procedures required the firm to investigate red flags indicating suspicious activity or trading, and to investigate and take appropriate steps, including limiting account activity, contacting a government agency or filing a SAR, but the firm failed to follow its AML program in regard to the manipulative trading, unregistered distributions and other suspicious activities.

The firm failed to report, or timely report, customer complaints reportable under NASD Rule 3070(c). In addition,  firm failed to file Forms U4 or U5 to report disclosable events and failed to timely amend a Form U4 to report a disclosable event.

Newbridge Securities Corporation : Censured; Fined $600,000; Required to have its president and Chief Executive Officer (CEO) each register for eight hours of AML training within 60 days of issuance of the AWC, provide FINRA with evidence of registrations within 10 days of registration, have the individuals attend and complete the training within six months of issuance of the AWC and provide FINRA with evidence of completion of training within 10 days of completion. The firm is prohibited from effecting any purchase transactions in penny stocks for either proprietary or customer accounts, and shall not engage in market making of such stocks, for one year following acceptance of the AWC. The firm shall hire an independent consultant to review the firmís systems relating to timely and accurate filing of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5), disclosure events and customer complaints under NASD Rule 3070 and, within 60 days after delivery of a written report, adopt and implement the consultantís recommendations or propose alternative procedures in writing to the consultant and FINRA. Within 30 days after issuance of the consultantís final written report, the firm shall provide FINRA with a written implementation report certified by a firm officer.
Tags:  Unregistered Securities    AML    SAR     |    In: Cases of Note : FINRA
Robin Fran Bush (Principal)
AWC/2007007151701/October 2010

Acting in her capacity as her member firmís AMLCO, Bush failed to implement policies and procedures reasonably designed to detect and cause the reporting of suspicious transactions under 31 USC 5318(g) and implementing regulations thereunder.Bush failed to ensure her firmís overall compliance with NASD Rule 3011 by detecting and investigating suspicious activities or other activities in which red flags of money laundering were present and, when appropriate, filing SARs. 

As her firmís CCO, Bush failed to adequately supervise firm AMLCOs and ensure they were performing their functions pursuant to the firmís AML program and written procedures, and failed to ensure they were properly investigating suspicious activities, recommending and filing SARs or documenting the rationale for concluding that a SAR was unnecessary.

Bush failed to adequately supervise the firmís DSCO to ensure he was taking adequate investigative steps to ascertain whether certain customer transactions were part of a manipulative or fraudulent scheme, conducting adequate criminal or securities disciplinary background checks, and conducting adequate due diligence to ascertain whether customers engaging in significant designated securities transactions had any affiliations with the issuers; in fact, many customers had criminal or securities disciplinary backgrounds or had close ties to issuers whose shares they were trading.

As her firmís CCO, Bush failed to ensure her firm reported, and timely reported, customer complaints to FINRA. FINRA also found that Bush failed to ensure her firm filed, and timely filed, Forms U4 and U5 with FINRA to report disclosable events.

Robin Fran Bush (Principal): Fined $10,000; Suspended 1 year in Principal capacity only; Required to complete eight hours of AML training prior to reassociation with a member firm or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier.
Tags:  SAR    AML     |    In: Cases of Note : FINRA
Seaboard Securities, Inc., Anthony Joseph DiGiovanni Sr.(Principal), Sonya Terez Still (Principal) and Anthony Joseph DiGiovanni Jr.
OS/2007008724801/October 2010

Acting through Anthony DiGiovanni Jr., Seaboard participated in the distribution of unregistered thinly traded securities for firm customers that resulted in proceeds over $3.8 million from the customers and approximately $400,000 in gross commissions for the firm, and failed to perform an adequate inquiry to determine the registration or exemption status of the shares, including failing to make any inquiries to determine the circumstances of how its customers received their shares of unregistered stock, the customersí relationships with the relevant issuers, or any other relevant facts or circumstances that could have revealed whether the shares were, in fact, exempt from registration. The firm accepted the self-serving statements of its customers and counsel that the shares were exempt and ignored ďred flagsĒ indicating the customers and the firm were participating in a scheme to evade registration requirements.

Acting through DiGiovanni Sr., Seaboard failed to adequately supervise DiGiovanni Jr. in his participation in the sales of unregistered securities. DiGiovanni Sr. reviewed the firmís trade blotters on a daily basis and was aware of the customersí trading activity and also approved new account documents that raised red flags, but failed to take any action to investigate or prevent the firmís or DiGiovanni Jr.ís participation in, and illegal sale of, unregistered securities.

Acting through Still, as compliance officer, Seaboard

  • failed to establish and maintain adequate policies and procedures, including written supervisory procedures, reasonably designed to achieve compliance with applicable laws, rules and regulations with respect to the sale of unregistered securities.
  • failed to develop and implement AML policies and procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act (BSA) and implementing regulations.
  • failed to identify or ignored red flags involving numerous instances of potentially suspicious activities, and thus failed to investigate and report these activities in accordance with the firmís procedures and the requirements of the BSA and implementing regulations.

Moreover, FINRA found that the firm and Still should have detected the suspicious nature of the customersí liquidation of their penny stocks, investigated the activity and made the appropriate Suspicious Activity Reports (SAR) filings.

Seaboard Securities, Inc.: Fined $125,000, of which $10,000 was jointly and severally with DiGiovanni Sr. and $10,000 was jointly and severally with Still;
Ordered to retain, within 60 days of the date of the Order accepting the Offer of Settlement, an independent consultant to conduct a comprehensive review of the adequacy of the firmís AML program and its policies, systems and procedures (written and otherwise) and training relating to determining whether securities are freely tradable; the independent consultant is required to submit to FINRA a written report addressing these issues and making recommendations. The firm shall submit to FINRA a written implementation plan, certified by a firm officer, of its implementations of the consultantís final recommendations. Furthermore, until the firm provides FINRA with the written implementation report, the firm shall be prohibited from selling any securities deposited in certificate form or by Deposit Withdrawal At Custodian (DWAC) unless the stock has been held in an account at the firm for at least one year; and the firm retains an opinion from counsel retained by the firm opining that the stock may be sold in compliance with Section 5 of the Securities Act of 1933.

Anthony Joseph DiGiovanni Sr.: Fined $10,000 jt/sev with Seaboard; Suspend in Principal capacity only 45 days

Sonya Terez Still:  Fined $10,000 jt/sev with Seaboard; Suspend in Principal capacity only 30 days

Anthony Joseph DiGiovanni Jr.: Fined $35,000, which includes the disgorgement of $25,000 in financial benefits received; Suspended 45 days.

Tags:  Unregistered Securities    AML    SAR     |    In: Cases of Note : FINRA
Bill Singer's Comment
We continue to see FINRA cases involving unregistered securities, and this is but another example. Noteworthy here is the sanction that prohibits the firm from selling certain securities unless held at the firm for at least one year and subject to an opinion of counsel per Section 5 / 33 Act compliance.
September 2010
Murphy & Durieu
AWC/2008013233001/September 2010

The Firm sold stock shares of issuers that were not registered with the SEC for which no exemption from registration applied, which generated, through the transactions, proceeds of approximately $790,000 for customers; and failed to conduct a ďsearching inquiryĒ to ensure that the sales did not violate Section 5 of the Securities Act. The Firm failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to ensure compliance with applicable rules and regulations regarding the distribution of unregistered and non-exempt securities, and, in particular, its acceptance of the delivery of stock shares in certificate form and its subsequent sales of the same. The Firm's written supervisory procedures did not require an inquiry to be conducted into whether deposited stock shares were registered with the SEC or exempt from registration.

The Firm failed to identify activity in corporate accounts as suspicious, investigate it and report it through Form SAR-SF filings and, therefore, failed to implement or enforce its AML program by failing to identify suspicious activity, properly investigate it and file a Form SAR-SF on such activity, as appropriate.

Murphy & Durieu : Censured; Fined $75,000
Tags:  Unregistered Securities    WSP    SAR    AML     |    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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