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
Kevin Francis Garvey (Principal)
OS/2009018183501/November 2011
Garvey, as the supervisor of his member firmís securities lending desk, permitted a non-registered individual associated with a non-registered finder firm to act in a capacity that required the non-registered individual and/or his firm to be registered as a broker dealer and caused his firm to pay the non-registered individual transaction-based compensation through the non-registered finder firm.

Garvey regularly caused his firm to permit an unregistered natural person to negotiate, solicit and enter into stock borrow and loan transactions, which are duties customarily performed by a registered securities lending representative. Garvey performed the duties of a securities lending supervisor without being properly registered. Garvey consented and/or caused the continuation of the practice of paying finders on transactions with certain counterparties in which the finder had provided no service, and permitted individual traders to subjectively determine the cut-in transactions on which a finder was to be paid and the amount of the finderís compensation on those transactions even though the finder had not provided service on the transactions.

Garvey caused his firm to create and preserve inaccurate books and records on the stock loan activity on the securities lending desk, in that the firmís automated records of the cut-in transactions were inaccurate, in that they reflected that certain finders had participated in stock loan transactions when, in fact, they had not performed any function. In addition, these false entries were transferred to its accounting records, which inaccurately indicated that payments were made to finders on the basis of services rendered when, in fact, no services had been rendered to justify the payments on the transactions indicated.
Kevin Francis Garvey (Principal): Fined $35,000; Suspended 30 days.
August 2011
Timothy D. Camarillo
OS/2010023612301/August 2011

Camarillo entered into a contract with a company to sell its private placements, and sold approximately $370,000 of these private securities to his customers, receiving over $13,000 in commissions, without providing notice to, or receiving approval from, his member firm.

Camarilloís firmís written procedures, which he attested to reading and understanding, instructed employees to provide notice to the firmís compliance department and to seek the firmís written approval prior to engaging in any securities transactions not executed through the firm. The company provided Camarillo with sales literature, and without submitting the brochure to his firm for approval, he distributed the brochure to his customers; the brochure contained several unwarranted, exaggerated and misleading statements, omitted material facts and ignored risk while guaranteeing success.

Camarillo did not have a reasonable basis to recommend that his customers purchase the securities, had no experience selling these types of products and did not conduct proper due diligence. Camarillo did not sufficiently understand the products offered through the company or how the investments were managed; all of Camarilloís customers who invested in the products informed Camarillo that they were seeking preservation of capital and viewed the investments as a retirement investment. Camarillo did not investigate the claims made in the sales literature that the returns were guaranteed, he had no basis to recommend the investment to customers seeking preservation of capital, and his recommendations to invest in the company were unsuitable.

Camarilloís customers lost tens of thousands of dollars by relying on his recommendation, because even after partial reimbursement from the companyís court-ordered receivership, Camarilloís customers only recouped 69 percent of their investment. Moreover, the products, as marketed, were securities, the sale of which required Camarillo to possess a Series 7 license; at the time he sold the securities, Camarillo held only a Series 6 license.

Timothy D. Camarillo : Fined $10,000; Suspended 4 months; Ordered to pay $13,000 restitution to customer
Tags:  Private Placement    Due Diligence    Unregistered RRs     |    In: Cases of Note : FINRA
June 2011
Monex Securities, Inc.
AWC/2008014078801/June 2011

The Firm failed to properly supervise and properly register its foreign finders; and it had no written procedures concerning its use of foreign finders.

The Firm terminated the registrations of all its foreign associates and made them foreign finders; thereafter, the firm employed foreign finders and no foreign associates. Many of the firmís foreign finders were previously registered foreign associates at the firm who worked on the premises of the firmís affiliated broker-dealer. As registered sales representatives and foreign associates for the firm, they acted as general securities representatives engaging in securities activities for non-U.S. residents, citizens or nationals.

Whenthe firmís foreign associatesí registrations were terminated with FINRA and re-affiliated as foreign finders, their job functions were supposed to be limited to those of a foreign finder. As such, the firmís foreign findersí sole involvement with the firm should have been the initial referral of non-U.S. customers; however,all of the firmís foreign finders serviced customer accounts, processed new account documents and letters of authorization (LOAs) for customers containing confidential client information and serviced customer accounts -- these activities went well beyond the initial referral of non-U.S. customers to the firm.

Also, given the expanded roles of the firmís foreign finders, they should have been registered as foreign associates; however, the firm failed to register any of its foreign finders as foreign associates.

A concerned customer visited the firmís affiliateís branch office and explained that a foreign finder of the firm had provided him with an account statement that differed from the statement he recently received from the firmís clearing firm. In response,the Firm immediately instituted an internal investigation into all accounts the foreign finder had introduced to the firm. The firm discovered that unauthorized statements had been provided to customers by its rogue foreign finder.  Those unauthorized statements inflated market values and net worth. Further, the rogue foreign finder altered correspondence that he forwarded to customers by making the documents incorrectly appear as if the firm had authorized them.

The firm contacted and interviewed every customer the rogue foreign finder introduced to the firm, which revealed that some of the customers had received false statements; and that the false statements inflated customersí account values by over $2 million U.S. dollars. The investigation led to the rogue foreign finderís termination, foreign finders being discontinued, written supervisory procedures being added, the firmís supervisory system being enhanced and substantial compensation paid to affected customers. The Firm claimed that it inspected the offices of its foreign finders, including the rogue foreign finder, to ensure that they were properly supervised, but failed to document or memorialize the office inspections and other supervisory activities in any way.

Monex Securities, Inc. : Censured; Fined $25,000
Tags:  Finder Fees    Unregistered RRs     |    In: Cases of Note : FINRA
Bill Singer's Comment
Although the facts are certainly startling, this foreign finders scenario is not that uncommon -- and, worse, the fraud is far from unheard of.  A word to the wise!
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