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.
October 2011
Yaman Huseyin Sencan (Principal)
AWC/2009016323801/October 2011

Sencan  failed to reasonably supervise the activities of member firm personnel engaged in the charging of excessive commissions, sharing commissions with a non-member and misusing funds on deposit with the firm.

Acting through its head trader, Sencan's firm improperly shared about $4 million in commissions with one of the firmís hedge fund clients and charged excessive commissions totaling over $580,000 in transactions.

Sencan was the head traderís direct supervisor and was aware that the firm had entered into a commission sharing arrangement with the hedge fund client, and he was responsible for reviewing that arrangement and the head traderís trading activities. The firmís procedures required the chief compliance officer (CCO) to periodically review emails firm personnel sent and received. Sencan failed to perform periodic reviews of the head traderís electronic correspondence or otherwise take reasonable steps to supervise his activities.

Acting through its FINOP, the firm misused at least $61,000 in funds on deposit with the firm. 

Sencan was the FINOPís direct supervisor but failed to monitor the firmís financial records, perform periodic reviews of the FINOPís electronic correspondence or otherwise take reasonable steps to supervise the FINOPís activities.

Sencan became the firmís AMLCO, and in this position, he was responsible for ensuring that the firmís AML compliance procedures (AMLCP) were enforced but failed to do so. The CIP portion of the firmís AMLCP required the firm, prior to opening an account, to obtain identifying information such as the customerís passport number and country of origin; but acting through Sencan, the firm failed to obtain the identifying information the CIP required for some of its customers (a portion of whom were located outside of the United States). In addition, the firmís AMLCP required the firm to maintain transmittal orders for wire transfers of more than $3,000, and those orders had to contain at least the name and address of the transmitter and recipient, the amount of the transmittal order, the identity of the recipientís financial institution and the recipientís account number; on numerous occasions, a firm customer account wired out funds in excess of $3,000. Sencan did not take steps to ensure that the firm retained information regarding those wires, including the recipientís name, address and account number and the identity of the recipientís financial information. Furthermore, acting through Sencan, the firm failed to provide AML training to its registered personnel.

Sencan was attempting to find transactional business for the firm in medium-term notes (MTNs).  As part of an effort to purchase MTNs for resale to its clients, the firm entered into an agreement with a Switzerland-based entity. Sencan signed the agreement on the firmís behalf, and the agreement called for the entity to provide the firm with the opportunity to purchase $100 million (face value) in specified MTNs; however, the agreement included clauses containing material misrepresentations about the firmís ability to purchase MTNs.

The first clause represented that the firm was the actual legal and beneficial owner of cash funds in excess of $100 million on deposit at a major bank. In addition, the second clause was a representation that these funds were free and clear of liens, had been legally earned and could immediately be utilized for the purchase of financial instruments; neither of these clauses was true, as the firm never had $100 million on deposit at any bank at any time.

Yaman Huseyin Sencan (Principal): Fined $20,000; Barred in Principal capacity only; Suspended 6 months in all capacities.
Tags:  Commissions    Correspondence    Trading    AML    CCO    CIP    FINOP     |    In: Cases of Note : FINRA
June 2011
Francis Paul Anton II
AWC/2009018062601/June 2011

Anton effected fictitious trades in securitized Small Business Administration (SBA) loans, totaling $82,652,497, in order to reduce his member firmís SBA deskís inventory levels.

Anton effected the fictitious trades to purported institutional buy-side customers and by doing so, Anton could gradually sell the SBA securities and eventually comply with the firmís prescribed inventory level. The fictitious trades created the false impression that Anton had purportedly sold SBA securities to certain of the firmís institutional customers and that the firmís SBA desk had decreased overall inventory levels by a total of $75 million. Anton purportedly sold each of the fictitious SBA securities to other broker-dealers instead of institutional customers; and by entering the fictitious sales of the SBA securities at a price above the mark-to-market price, Anton created the false impression that he had avoided selling the SBA securities at a loss.

Anton manipulated forward the settlement dates for the trades to afford him additional time to try to sell the SBA securities. In 30- day forward settlement intervals, Anton cancelled and corrected trades in the same pool of SBA securities at the same transaction quantity, which triggered the creation of a ďcancel & correctĒ ticket. In addition, a firm employee discovered a discrepancy in the SBA securitiesí reporting position and reported the observation to the firmís management, which investigated and noted the repeated pattern of cancellation and corrections relating to the SBA security trades in 30-day intervals.

Although Anton neither colluded with any other firm employees to enter the fictitious trades nor did he personally benefit from the fictitious trading, he misrepresented to certain non-supervisory firm staff that he had mistakenly effected the trades and that he would correct the errors. Furthermore,when Antonís managers confronted him, he admitted that he effected false trades and manipulated the corresponding settlement dates.

Francis Paul Anton II : Fined $10,000; Suspended 6 months
Tags:  SBA    Trading     |    In: Cases of Note : FINRA
Bill Singer's Comment

These fictitious trades appeared to have occured at Morgan Keegan in 2008 and 2009, when Anton served as a Head Trader.

Both the source AWC and the monthly squib are very well drafted and present this somewhat complex fact pattern in an intelligible fashion. Kudos to FINRA staff for a commendable effort.

If I have one reservation, it would be to ask what exactly do you have to do these days to get Barred?  I"m not understanding the apparent severity of the misconduct and the relative light suspension and fine.

Uzo Omar Chima (Principal)
AWC/2006007105101/June 2011

Chima engaged in a pattern of unsuitable short-term trading and switching of unit investment trusts (UITs), closed-end funds (CEFs) and mutual funds in retired and/or disabled customer accounts without having reasonable grounds for believing that such transactions were suitable for the customers in view of the nature, frequency and size of the recommended transactions and in light of their financial situations, investment objectives, circumstances and needs. Some of the transactions were effected through excessive use of margin and without ensuring that customers received the maximum sales charge discount. In furtherance of his short-term trading strategy, Chima engaged in discretionary trading without prior written authorization, falsified customer account update documents and mismarked trade tickets for each of the customersí accounts, stating that the orders were unsolicited when, in fact, they were solicited.

The transactions generated approximately $450,000 in commissions for Chima and his firm, and approximately $370,000 in losses to the customers; some customers also paid over $75,000 in margin interest. In numerous UIT purchases, none of which exceeded $250,000, Chima failed to apply the rollover discount to which each customer was entitled.

Chima caused his member firmís books and records to be false in material respects, in that he provided false information on customer update forms for customersí accounts, signed the forms certifying that they were accurate and submitted them to his firm.

Uzo Omar Chima (Principal): Fined $75,000; Suspended 2 years; Ordered to pay $12,443.73, plus interest, in restitution to customers.
Tags:  Mutual Funds    UIT    Trading    Suitability     |    In: Cases of Note : FINRA
Bill Singer's Comment
I'm puzzled -- what exactly did Chima need to do beyond the allegations in order to be Barred?
February 2011
Douglas Christopher Green (Principal)
2008012444201/February 2011

Green affected trades in collateralized mortgage obligation (CMO) bonds in his member firmís proprietary trading account to conceal inventory positions and create the false appearance of profitability through the use of fictitious and pre-arranged trades. In some cases, no contra-party had agreed to the transaction at the time Green submitted an order, and in other cases, Green had agreed to repurchase the security from the contra-party at an agreed-upon price that guaranteed a profit to the contra-party, causing the beneficial ownership to remain with Green.

Green devised a strategy that not only hedged and concealed the positions, but circumvented trading capital and inventory limits his firm set, and created the impression of profitable trading by extending the settlement dates for certain bonds and coordinating fictitious transactions with other broker-dealers.

Green received compensation based upon the overall profitability of the firmís proprietary account, and because Greenís scheme created the appearance of profitability, he received compensation based upon the apparent profits; Green received $7,353,000, which resulted in an overstatement of the firmís net capital and caused the firm to cease business. Green caused the firmís books and records to be inaccurate. In addition, he failed to respond to FINRA requests for documents and information, and to appear for on-the-record testimony.

Douglas Christopher Green (Principal): Barred
Tags:  Proprietary Traders    CMO    Trading Limits    Trading Volume     |    In: Cases of Note : FINRA
Bill Singer's Comment
$7.4 million in compensation for fictitious trades? How come I never seem to see ads for these jobs in the papers? Where can I sign up?
January 2011
Mahmood Hasan Usmani
AWC/2010022476001/January 2011

By purchasing an issuerís stock while in knowing possession of material, non-public information, directly or indirectly, by use of means or instrumentalities of interstate commerce, Associated Person Usmani intentionally or recklessly employed a device, scheme or artifice to defraud or engaged in an act, practice or course of business which operated, or would operate, as a fraud or deceit in connection with the purchase or sale of a security. 

Prior to the public announcement of the tender offer for a security and after a substantial step or steps to commence the tender offer had been taken, Usmani purchased the issuerís securities while in possession of material information relating to the offer, which he knew or had reason to know was non-public and had been acquired directly or indirectly from a person acting on the offering personís behalf; the issuer of the securities sought or to be sought by the tender offer; or an officer, director, partner, employee, or other person acting on the offering personís or such an issuerís behalf.

Usmani failed to notify his member firm, in writing, of the existence of his personal securities accounts, in which he had a financial interest and maintained at another FINRA member firm, and failed to notify the other member firm, in writing, of his association with his member firm.

Usmani failed to respond to FINRA requests for information and documents.

Mahmood Hasan Usmani: Barred; Ordered to disgorge $24,286.67 in unlawful profits.
Tags:  Away Accounts    Insider Trading     |    In: Cases of Note : FINRA
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