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
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
November 2010
Derrick Ray Shields
AWC/2008015144801/November 2010

Shields assisted a relative, an unregistered person at the time, with the sale of a fixed and variable annuity. Shields signed and submitted the customerís annuity application to his member firm and the annuity company after discussing the matter with firm principals; Shields also signed the firmís new account application as the customerís introducing agent, thereby facilitating his relativeís violation of registration rules.

Shields certified on the annuity application that he had explained the contract to the customer even though he knew he had not done so. Shieldsí relative became registered with the same firm and the day after he became registered, the annuity transaction settled. Shields later received a commission payment for the annuity sale from his firm for approximately $50,500, he shared the payment with his relative.Shields did not disclose to the firm that he shared the commission payment, and from the time his relative became registered with the firm until the termination of Shieldsí association with the firm, it was his relative, not Shields, who was the registered representative responsible for advising the customer on the annuity and for servicing the customerís account in which the annuity was held at the firm. In addition, Shields failed to take any steps to correctly disclose on the firmís books and records that his relative was the responsible representative, rendering the firmís records inaccurate.

Derrick Ray Shields: Fined $10,000; Suspended 3 months
Tags:  Annuity    Unregistered Person     |    In: Cases of Note : FINRA
Bill Singer's Comment
You know the old saying about never getting involved in any business deals with friends or family?  Hey, just goes to show you the wisdom of some of those old nuggets.
Ethelbert Pacis Gazmen
AWC/2009018322101/November 2010
Gazmen recommended that his member firmís customer use part of her available funds to purchase a variable universal life insurance (VUL) policy through him, and recommended that the customer open an account at another firm. Gazmen assisted the customer in opening a margin account with the other firm and was given trading authority over the account for which he made all of the investment decisions and entered the trades directly, but was not compensated in any way for managing the account. Gazmen was not licensed to recommend the sale of individual securities to a customer or to engage in the purchase or sale of individual securities on a customerís behalf, he did so in handling the customerís account at the other firm. Gazmen failed to give notice to his firm of his proposed role in handling the customerís account, as the firm and FINRA rules required.
Ethelbert Pacis Gazmen : Fined $10,000; Suspended 30 days
Tags:  Variable Insurance    Unregistered Person    Discretion     |    In: Cases of Note : FINRA
Mark Boyar & Company, Inc.
AWC/2008011794901/November 2010

The Firm 

  • issued research reports that the firm labeled ďAsset Analysis FocusĒ (AAF) on a paid subscription basis;
  • did not consider the AAF a research report;
  • did not have in place policies and procedures designed to ensure compliance with the various research related rules applicable to firms that issue research reports, such as those relating to research analyst and research principal registration, disclosures, conflicts, annual attestations and written supervisory procedures;
  • allowed registered representatives at the firm to collaborate in the preparation of AAFs without having passed a qualifying examination,
  • allowed an individual also to collaborate in the preparation of AAFs without being registered as a general securities representative or in any other capacity through the firm, and without having passed a qualifying examination.

A general securities principal supervised the preparation of AAFs without having passed the qualifying examination.

Certain AAFs the firm issued failed to disclose certain NASD Rule 2711 required information, including the financial interest in the issuer of the research analysts who prepared the reports, price charts for issuers where the firm has assigned a price target for at least one year, and the valuation methods used to determine price targets and the risks that may impede achievement of the price targets.

An individual who collaborated in the preparation of AAFs purchased securities of companies during the 30-day period before the publication of the research reports concerning those companies. In addition, The firm did not have the required research report-related written supervisory procedures in place, and the firm did not have a senior officer make the required annual attestation that the firm had adopted and implemented the required written supervisory procedures.

Moreover, the Firm did not make the required annual attestations for several years and filed inaccurate annual attestations for other years.

Mark Boyar & Company, Inc. : Censured; Fined $20,000
Bill Singer's Comment
Talk about a cascade effect!  First, the firm creates the AAFs but fails to discern that the materials are research reports -- which unleashes a number of violations arising from the failed recognition of the nature of the publication.  It's hard to come down too harshly on the Firm simply because if you don't spot the core research issue it's unlikely that you would have realized the need to follow Rule 2711.  All in all, a fairly appropriate sanction that seems to have taken into the consideration the points noted here.
Thomas Michael Petracek
AWC/2008015144802/November 2010

Petracek recommended the purchase of a fixed and variable annuity to a customer, and since he was not registered with any FINRA member firm, he was unable to sign the annuity application. Petracekís relative became associated with a member firm, signed the customerís annuity application and submitted it to his firm, and the annuity company listed the relative as the introducing agent after discussing the matter with principals of the firm. Petracek knew his relative was not present when the customer signed the annuity application or during any of his meetings with the customer at which the annuity was discussed, and he knew that his relative never met or spoke with the customer. 

Petracek became registered at the same firm as his relative, and the annuity transaction settled the day after Petracek became registered. Petracekís relative later received a commission payment of approximately $50,500 for the annuity sale from the firm, which he shared with Petracek, and Petracek did not disclose to the firm that he shared in this commission payment.

During his employment at the firm, Petracek continuously served as the registered representative responsible for advising the customer on the annuity and for servicing the customerís account in which the annuity was held at the firm, although the relativeís name remained on the account as the responsible agent. In addition, Petracek failed to take any steps to correctly disclose on the firmís books and records that heónot his relativeówas the responsible representative, rendering the firmís records inaccurate.

Thomas Michael Petracek : Fined $10,000; Suspended 3 months
Tags:  Annuity    Variable Annuity    Unregistered Person     |    In: Cases of Note : FINRA
October 2010
Richard Michael Barber (Supervisor)
OS/2008015310801/October 2010
Barber failed to reasonably supervise the activities of a registered representative who entered transactions at the direction of an unregistered individual. Barber facilitated this misconduct by giving the unregistered individual unfettered access to a branch office and supplying him with a work station, including a desk, phone and Internet access. Barber failed to enforce his member firmís written supervisory procedures regarding, among other things, delegation of duties, suitability reviews and reviews for concentrated positions.
Richard Michael Barber (Supervisor): Fined $5,000; Barred in Principal capacity only; Suspended 1 month in all capacities
Tags:  Supervision        Unregistered Person     |    In: Cases of Note : FINRA
March 2010
Michael D. Rhodes
AWC/2009018521601/March 2010

Rhodes failed to give notice to his member firm as required by the firm and FINRA rules that he was engaged in an outside business activity and was being compensated by an individual for providing financial services. The individual contacted Rhodes for financial advice on several businesses the individual owned and on a number of issues and Rhodes met with his firmís officers to develop a plan for working with the individual.

Rhodes firmís officers told him that he had to qualify and become registered as an investment adviser representative (Series 65) before he could provide the services the individual requested and be compensated for those services. Rhodes was paid $25,000 per month from one of the individualís businesses even though he was not registered as an investment adviser representative. The Firm learned about the compensation through other means.

Michael D. Rhodes : Fined $10,000; Suspended 30 days
Tags:  Investment Advisor    Unregistered Person     |    In: Cases of Note : FINRA
Bill Singer's Comment
I found this particularly interesting. He's getting paid $25,000 a month by a client for investment advice. Why the hell is he still working for a BD? He should just go into the consulting business because he's doing quite well!
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