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.
November 2011
John William Grant (Principal)
AWC/2011025940601/November 2011
Grant executed unauthorized transactions in an account belonging to trustees of a family trust. The principal value of these unauthorized trades was $1,088,561.12; the commissions amounted to $11,517.90. For 18 months prior to these unauthorized transactions, there was no activity in the account aside from interest and dividend credits and the ensuing automatic purchases of shares in a money market fund.
John William Grant (Principal): Barred
Tags:  Trustee     |    In: Cases of Note : FINRA
September 2011
John Rolland Haeffele
AWC/2009019590501/September 2011

Haeffele was appointed as a co-trustee for a trust and, wrongfully and without authorization, disbursed funds to himself from the trustís mutual fund accounts and checking accounts.

Haeffele was appointed as a co-trustee for another trust, which owned life insurance policies for which Haeffele was the agent of record on, and Haeffele, wrongfully and without authorization, disbursed funds to himself from the life insurance policies held in the name of the trust. Haeffele used the funds from both trusts for his own benefit, thereby converting assets from the trusts. 

As trustee, Haeffele received account statements for the first trust from mutual fund issuers, but only provided the trustís creators false and misleading account statements and related correspondence that he created on his computer for the trust. The fabricated account statements and correspondence grossly overstated the value of the trustís assets.

Haeffele failed to provide written notice to his member firm that he had been serving as a trustee for the trusts, and had been receiving compensation for such activities. In addition, Haeffele completed a series of questionnaires submitted to the firm in which he failed to disclose that he was serving as a trustee and receiving compensation.

John Rolland Haeffele: Barred
Tags:  Trustee    Insurance     |    In: Cases of Note : FINRA
August 2011
Alan English Smith (Principal)
2008014961701/August 2011

Smith provided partial responses to FINRA requests for information and failed to provide requested documents. Smith engaged in outside business activity without providing prompt written notice to, and receiving written approval from his member firm.

Smith served as executor of a customerís estate and as successor trustee to the customerís trust. Smith understood that he would receive compensation when he was required to perform the duties, and he did receive compensation for performing the duties of executor and trustee; his firmís procedures required written notice of outside business activities, and the firmís written approval, before a representative could engage in such activity.

Smith never notified his firm that he had accepted the appointment to serve as the executor of the estate, and never received his firmís written approval. The customerís heirs filed a lawsuit against Smith, which resulted in a default judgment against him for $851,985.81; the judgment included compensation for various substantial diversions of funds from the customerís accounts, her trust and her estate, including diversion of annuity funds from the customerís grandchildren to Smithís relatives by substituting his relatives as beneficiaries.

Alan English Smith (Principal): Barred
Tags:  Trustee     |    In: Cases of Note : FINRA
Bill Singer's Comment
This isn't as uncommon an issue as many would think.
January 2011
Torrey Pines Securities, Inc. and NAME REDACTED (Principal)
AWC/2007011125103/January 2011

Acting on the firmís behalf, NAME REDACTED 

  • failed to ensure that a firm principal completed his annual certification as the firmís procedure required,
  • did not follow up on the principalís failure to provide information regarding both his outside business activities and the accounts for which he served as a custodian or trustee, and
  • conducted an inspection of a firm branch office, and that inspection did not comport with the firmís written procedures and did not reasonably review the activities of that office.

NAME REDACTED did not review the transmittal of funds between the principalís customers and a third party as the firmís written supervisory procedures required, and failed to obtain details regarding the principalís outside business activities.

The firm failed to

  • reasonably supervise the principal by failing to take steps to inquire into ďred flagsĒ  indicating his possible misconduct;
  • follow up on the principal's outside business activities and excessive absences from the firm;
  • timely investigate allegations that he was participating in private securities transactions away from the firm; and when the firm confirmed his selling away activities, it did not take any steps to place him on heightened supervision.

The Firm's written supervisory procedures were not reasonably designed to ensure principal review of wires from customers to third parties, so it was unaware the principalís customers were transferring large sums to a third party and that he was executing Letters of Authorization (LOAs) on behalf of multiple customers.

Torrey Pines Securities, Inc.: Censured; Fined $17,500

NAME REDACTED: No Fine in light of financial status; Suspended from association with any FINRA member in any principal capacity, other than the capacity of municipal securities principal, for 10 business days.

Bill Singer's Comment
Possibly the first time that I have seen a firm sanctioned for not noting "excessive absences, " but, under the attendant circumstances, that's a fair shot by FINRA and it would be appropriate for compliance/supervisory staff to note that such an attendance issue could indicate that some outside activity is imposing a strain upon a registered person.
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