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
Patrick Francis Harte Jr. (Principal)
2006004666601/October 2011

Harte participated in the sale of unregistered securities, in violation of Section 5 of the Securities Act of 1933.

Harte and a registered representative at his member firm sold millions of shares of a thinly traded penny stock, resulting in proceeds exceeding $9.3 million for firm customers; the total commissions generated were $481,398.

Harte failed to conduct any due diligence prior to the stock sales; the circumstances surrounding the stock and the firmís customers presented numerous red flags of a possible unlawful stock distribution.

Harte did not determine if a registration statement was in effect with respect to the shares or if there was an applicable exemption; Harte relied on transfer agents and clearing firms to determine the tradability of the stock. Harte failed to undertake adequate efforts to ensure that the registered representative ascertained the information necessary to determine whether the customersí unregistered shares could be sold in compliance with Section 5 of the Securities Act of 1933.  Also, he did not consider the determination of the free-trading status of shares to be within his supervisory responsibilities.

Harte failed to follow up on red flags; he was on notice of the inconsistencies between customersí trading experience and activity in their firm accounts but took no action.

In addition, Harte received customer emails which evidenced a greater level of market sophistication than reflected in their account forms but failed to investigate these discrepancies.

Patrick Francis Harte Jr. (Principal): Barred
Tags:  Unregistered Securities    Due Diligence        Email     |    In: Cases of Note : FINRA
Bill Singer's Comment
The email comment is fascinating -- at what point are brokers supposed to initiate a spot quiz of their clients to determine who is pretending to be more sophisticated and who is pretending to be less sophisticated? 
July 2011
Ryan Jeffrey Kirkpatrick
2006004666601/July 2011

Kirkpatrick sold millions of unregistered shares of stock for accounts opened at his member firm on his customersí behalf, realizing approximately $9.3 million in proceeds for the customers without taking the necessary steps to determine whether his customersí unregistered shares could be sold in compliance with Section 5 of the Securities Act of 1933.

Kirkpatrick signed new account forms for the customers, did not review them in depth, neither met nor spoke with the customers, and communicated with them solely via email and instant message. Kirkpatrick failed to conduct the necessary due diligence prior to the entityís stock sales from the customersí accounts; the circumstances surrounding the entityís stock and the firmís customers presented numerous red flags of a possible unlawful stock distribution.

The sales through one of the customersí accounts at Kirkpatrickís firm realized approximately $5.8 million in proceeds for the customer, and another customer realized approximately $3.5 million in proceeds; the total commissions generated for these sales were $481,398 of which Kirkpatrick received commissions totaling $91,466.

Kirkpatrick admitted that he did not determine if a registration statement was in effect with respect to the customersí entity shares, or if there was an applicable exception; instead he relied on the issuerís transfer agent to determine if the entity stock the customers deposited could be sold.

Kirkpatrick did not review the customersí incoming stock questionnaires, nor did he request or review the stock certificates, which indicated information about how and from whom the shares were purchased, whether the customer was affiliated with the issuer and whether the stock was restricted. In addition, Kirkpatrick noticed that the accounts seemed to have the same trading pattern, yet he failed to investigate and failed to make any effort to determine the source of the customersí shares.

Ryan Jeffrey Kirkpatrick: Fined $25,000; Suspended 6 months; Ordered to disgorge $91,466, which represents the commissions earned on the sales of unregistered securities
Tags:  Due Diligence    Unregistered Securities     |    In: Cases of Note : FINRA
May 2011
Newbridge Securities Corporation
AWC/2009016159401/May 2011

The Firm failed to establish, maintain and enforce a supervisory system and written procedures relating to private offerings the firm sold to its customers. The firmís supervisory system and written procedures for private offerings were deficient; they did not identify due diligence steps to be taken for private offerings. The firm approved for sale, and sold, various private offerings by an entity that raised approximately $2.2 billion from over 20,000 investors through several Regulation D offerings.

The entity made all interest and principal payments on these Regulation D offerings until it began experiencing liquidity problems and stopped making payments on some of its earlier offerings; nevertheless, the entity proceeded with another offering. The firmís due diligence for the offering consisted merely of reviewing the PPM and investor subscription documents, without seeking or obtaining financial documents or information from the issuer regarding the offering, nor did the firm obtain any due diligence report for the offering or visit the issuerís facilities or meet with its key personnel. The firm approved for sale, and sold, a total of $258,597.16 to its customers for interests in another entityís private offering. In addition, the firm failed to conduct due diligence for these offerings; among other things, it did not obtain offering documentation beyond the investor subscription documents. Moreover, the firm sold additional unregistered offerings to its customers and failed to conduct adequate due diligence for each of these other offerings.

Newbridge Securities Corporation : Censured; Fined $25,000
Bill Singer's Comment
There's no more sleepwalking through Due Dilly.  You got to visit the car lot and kick the tires.
February 2011
Ronald George Spomer II
AWC/2009018497601/February 2011

Spomer engaged in an outside business activity without prior permission of his member firm by distributing unregistered securities through a non-FINRA regulated entity, and received in excess of $100,000 in compensation. Without his new member firmís knowledge or authorization, Spomer distributed correspondence to non-firm customers who had bought the unregistered securities because the State of Texas ceased the business operations of the issuer and placed the issuer into receivership. Spomerís letter used firm disclosure language at the bottom of the letter that gave the erroneous impression that the firm, with Spomer as agent, had issued the correspondence. Spomer failed to submit the letter to his member firmís principal for prior approval, and failed to provide a sound basis for evaluating the security by promoting the ďsimilar program,Ē and used improper promissory language to describe the product.

Spomer failed to respond to FINRA requests for information.

Ronald George Spomer II : Barred
Tags:  Unregistered Securities     |    In: Cases of Note : FINRA
January 2011
Vincent Michael McGuire
OS/2007008239001/January 2011

McGuire and his member firm sold more than 27 million unregistered shares of a thinly traded penny stock into the public markets on customersí behalf, resulting in proceeds of approximately $46,000 to the customers. McGuire acted as the registered representative for all of these sales.

McGuire and the firm failed to undertake adequate efforts to ascertain the information necessary to determine whether the customersí unregistered shares could be sold in compliance with Section 5 of the Securities Act, and McGuire failed to determine how their customers came to obtain the stock or whether there was an applicable exemption to registration.

Vincent Michael McGuire: Fined $15,000; Suspended 45 days.
Tags:  Unregistered Securities     |    In: Cases of Note : FINRA
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