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.
Sean Patrick Britton AWC/2007011830002/November 2010
Britton used instrumentalities of interstate commerce and caused to be executed customer sales in, and facilitated the distribution of, more than 1.3 billion shares of unregistered securities in thinly traded low-priced stocks, and failed to establish that these securities or transactions were exempt from registration. No registration statements were in effect for the securities and no exemptions to the registration requirement were applicable. Despite the presence of multiple red flags, Britton failed to perform adequate due diligence and wrongfully relied on others to perform the inquiries.
Sean Patrick Britton : Fined $10,000 (includes $9,000 commission disgorgement); Suspended 4 months
Kenneth Brown (Principal) AWC/2007007151703/October 2010
Acting in his capacity as the AMLCO, Brown failed to
implement policies and procedures reasonably designed to detect and cause the reporting of suspicious transactions under 31 USC 5318(g) and implementing regulations;
detect and investigate suspicious activities and/or other activities in which red flags of money laundering were present and filing a SAR, when appropriate; and
follow up on red flags indicating that a registered representative was selling unregistered shares of a stock on behalf of the CEO of the issuer, and did not follow up to ascertain what, if any, steps the representative took to inquire about the transactions.
Brown was notified by his member firm’s clearing firm that it was closing the CEO’s account and would allow only liquidating (sell) transactions, but although Brown responded to the clearing firm, he did not adequately follow up to ensure additional purchase transactions did not take place—which did occur. As his firm’s CCO, Brown failed to supervise firm personnel who had been delegated responsibility for reporting, and timely reporting, customer complaints under NASD Rule 3070(c), and to make Forms U4 and U5 amendments with FINRA to report disclosable events.
Kenneth Brown (Principal): Fined $5,000; Suspended Principal capacity only 1 year; Required to complete eight hours of AML training. The fine must be paid either immediately upon Brown’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier.
Newbridge facilitated the manipulative trading of the stock of a company created as the result of a reverse merger.
A group of control persons and promoters used accounts at the firm to execute pre-arranged in-house agency cross and wash transactions that were intended to generate volume and support or increase the price of the stock. The firm permitted control persons to sell unregistered securities through firm accounts, and the sales were not made in compliance with any applicable exemption from registration. The firm failed to
adequately supervise the registered representatives who participated in the sales of unregistered securities;
take adequate measures to ensure that the registered representatives assigned to the accounts did not engage in the sale of unregistered securities;
take steps to ensure that the registered representative ascertained
whether the securities being sold were registered
how and from whom the customers had obtained their shares,
whether and when the shares were paid for, and
whether the transactions were subject to any exemption from registration.
Further, the Firm failed to adequately supervise registered representatives who participated in the manipulative trading.
The firm did not have adequate systems or controls to implement and enforce its policies, particularly adequate systems to detect improper cross, wash and other manipulative trading. The firm’s AML procedures required the firm to investigate red flags indicating suspicious activity or trading, and to investigate and take appropriate steps, including limiting account activity, contacting a government agency or filing a SAR, but the firm failed to follow its AML program in regard to the manipulative trading, unregistered distributions and other suspicious activities.
The firm failed to report, or timely report, customer complaints reportable under NASD Rule 3070(c). In addition, firm failed to file Forms U4 or U5 to report disclosable events and failed to timely amend a Form U4 to report a disclosable event.
Newbridge Securities Corporation : Censured; Fined $600,000;
Required to have its president and Chief Executive Officer (CEO) each register for eight hours of AML training within 60 days of issuance of the AWC, provide FINRA with evidence of registrations within 10 days of registration, have the individuals attend and complete the training within six months of issuance of the AWC and provide FINRA with evidence of completion of training within 10 days of completion.
The firm is prohibited from effecting any purchase transactions in penny stocks for either proprietary or customer accounts, and shall not engage in market making of such stocks, for one year following acceptance of the AWC.
The firm shall hire an independent consultant to review the firm’s systems relating to timely and accurate filing of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5), disclosure events and customer complaints under NASD Rule 3070 and, within 60 days after delivery of a written report, adopt and implement the consultant’s recommendations or propose alternative procedures in writing to the consultant and FINRA. Within 30 days after issuance of the consultant’s final written report, the firm shall provide FINRA with a written implementation report certified by a firm officer.
Richard Albert Bush (Principal) AWC/2007007151702/October 2010
In his capacity as Director of Compliance in his member firm’s trading department (DCTD), Bush failed to adequately supervise registered representatives who sold unregistered securities on certain clients’ behalf in violation of Section 5 of the Securities Act of 1933. He also failed to take adequate steps to ensure that the registered representatives ascertained whether the securities being sold were registered, how and from whom the customers obtained their shares, whether and when the shares were paid for, and whether the transactions were subject to any exemption from registration.
As his firm’s Designated Securities Compliance Officer (DSCO), Bush was responsible for evaluating and supervising designated securities (penny stock) transactions to evaluate whether they were part of a “pump-and-dump” or other fraudulent scheme; evaluating and investigating suspicious transactions when numerous shares were deposited and immediately sold; conducting background checks on customers who were expected to engage in a significant amount of designated securities transactions to determine whether the customer had a criminal or securities disciplinary background, or had an affiliation with the issuer; meeting with customers to ensure his firm had the requisite knowledge about customers’ background and trading intentions; and reporting to the firm’s CCO and AMLCO any findings regarding issuers or customers and to certify monthly that he had reviewed, approved and monitored all accounts that conducted a significant amount of transactions in designated securities.
Bush failed to take identifiable steps to ascertain relevant information regarding customers’ disciplinary history and how they obtained the shares being deposited, and did not believe that customers’ background or numerous transactions constituted red flags.
Richard Albert Bush (Principal): Fined $10,000; Suspended 6 months in Principal capacity only
Seaboard Securities, Inc., Anthony Joseph DiGiovanni Sr.(Principal), Sonya Terez Still (Principal) and Anthony Joseph DiGiovanni Jr. OS/2007008724801/October 2010
Acting through Anthony DiGiovanni Jr., Seaboard participated in the distribution of unregistered thinly traded securities for firm customers that resulted in proceeds over $3.8 million from the customers and approximately $400,000 in gross commissions for the firm, and failed to perform an adequate inquiry to determine the registration or exemption status of the shares, including failing to make any inquiries to determine the circumstances of how its customers received their shares of unregistered stock, the customers’ relationships with the relevant issuers, or any other relevant facts or circumstances that could have revealed whether the shares were, in fact, exempt from registration. The firm accepted the self-serving statements of its customers and counsel that the shares were exempt and ignored “red flags” indicating the customers and the firm were participating in a scheme to evade registration requirements.
Acting through DiGiovanni Sr., Seaboard failed to adequately supervise DiGiovanni Jr. in his participation in the sales of unregistered securities. DiGiovanni Sr. reviewed the firm’s trade blotters on a daily basis and was aware of the customers’ trading activity and also approved new account documents that raised red flags, but failed to take any action to investigate or prevent the firm’s or DiGiovanni Jr.’s participation in, and illegal sale of, unregistered securities.
Acting through Still, as compliance officer, Seaboard
failed to establish and maintain adequate policies and procedures, including written supervisory procedures, reasonably designed to achieve compliance with applicable laws, rules and regulations with respect to the sale of unregistered securities.
failed to develop and implement AML policies and procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act (BSA) and implementing regulations.
failed to identify or ignored red flags involving numerous instances of potentially suspicious activities, and thus failed to investigate and report these activities in accordance with the firm’s procedures and the requirements of the BSA and implementing regulations.
Moreover, FINRA found that the firm and Still should have detected the suspicious nature of the customers’ liquidation of their penny stocks, investigated the activity and made the appropriate Suspicious Activity Reports (SAR) filings.
Seaboard Securities, Inc.:Fined $125,000, of which $10,000 was jointly and severally with DiGiovanni Sr. and $10,000 was jointly and severally with Still; Ordered to retain, within 60 days of the date of the Order accepting the Offer of Settlement, an independent consultant to conduct a comprehensive review of the adequacy of the firm’s AML program and its policies, systems and procedures (written and otherwise) and training relating to determining whether securities are freely tradable; the independent consultant is required to submit to FINRA a written report addressing these issues and making recommendations. The firm shall submit to FINRA a written implementation plan, certified by a firm officer, of its implementations of the consultant’s final recommendations. Furthermore, until the firm provides FINRA with the written implementation report, the firm shall be prohibited from selling any securities deposited in certificate form or by Deposit Withdrawal At Custodian (DWAC) unless the stock has been held in an account at the firm for at least one year; and the firm retains an opinion from counsel retained by the firm opining that the stock may be sold in compliance with Section 5 of the Securities Act of 1933.
Anthony Joseph DiGiovanni Sr.: Fined $10,000 jt/sev with Seaboard; Suspend in Principal capacity only 45 days
Sonya Terez Still: Fined $10,000 jt/sev with Seaboard; Suspend in Principal capacity only 30 days
Anthony Joseph DiGiovanni Jr.: Fined $35,000, which includes the disgorgement of $25,000 in financial benefits received; Suspended 45 days.
John Allan Jones (Principal) OS/2005001398602/September 2010
Acting with others, Jones participated in a fraudulent scheme to solicit investments in an unregistered hedge fund and its general partner. Jones engaged in a variety of fraudulent and deceptive sales practices and disregarded his duties and obligations of fair dealing to his customers. Jones knew, or was reckless in not knowing, that the hedge fund was engaging in a highly speculative trading strategy involving futures contracts and that information the hedge fund manager supplied, which Jones used, contained materially false and misleading statements and omissions, including a pending Commodity Futures Trading Commission (CFTC) fraud action against the hedge fund manager, the fund’s theoretical and unproven performance figures, the highly speculative nature of the hedge fund’s trading strategy, and the significant risks associated with an investment in the hedge fund and its general partner.
Jones ignored many “red flags,” including those in the hedge fund’s Private Placement Memorandum (PPM). Jones solicited his customers without conducting a reasonable investigation to determine whether the hedge fund and its general partner were suitable investments and without regard as to whether his customers were capable of evaluating and bearing the risks associated with such investments.
John Allan Jones (Principal): Fined $25,000; Suspended 4 months
The Firm sold stock shares of issuers that were not registered with the SEC for which no exemption from registration applied, which generated, through the transactions, proceeds of approximately $790,000 for customers; and failed to conduct a “searching inquiry” to ensure that the sales did not violate Section 5 of the Securities Act. The Firm failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to ensure compliance with applicable rules and regulations regarding the distribution of unregistered and non-exempt securities, and, in particular, its acceptance of the delivery of stock shares in certificate form and its subsequent sales of the same. The Firm's written supervisory procedures did not require an inquiry to be conducted into whether deposited stock shares were registered with the SEC or exempt from registration.
The Firm failed to identify activity in corporate accounts as suspicious, investigate it and report it through Form SAR-SF filings and, therefore, failed to implement or enforce its AML program by failing to identify suspicious activity, properly investigate it and file a Form SAR-SF on such activity, as appropriate.
Marcus sold unregistered shares of a thinly traded penny stock into the public markets on customers’ behalf, resulting in proceeds of almost $18,000 to the customers. Marcus acted as the registered representative for all of these sales and failed to perform adequate due diligence prior to executing these sales, notwithstanding his duty to do so and the red flags indicating potential violations of registration requirements of the Securities Act of 1933. Marcus failed to undertake adequate efforts to ascertain the information necessary to determine whether the customers’ unregistered shares could be sold in compliance with Section 5 of the Securities Act, and failed to determine how the customers came to obtain the stock or whether there was an applicable exemption to registration.
Alan David Marcus: Fined $10,000; Suspended 45 days
Brookville Capital Partners LLC fka New Castle Financial Services LLC AWC/2008011678303/August 2010
Acting through its chief compliance officer (CCO), the firm:
failed to establish and implement an adequate AML program and related procedures; adequately identify, investigate and respond to red flags of suspicious activities;
timely file a Suspicious Activity Report (SAR); and
provide AML training for firm personnel for one year.
Acting through a registered representative, the firm
improperly facilitated the distribution of approximately 20 million shares of various unregistered securities;
operated an unregistered branch office, in violation of the restriction on business expansion contained in its membership agreement, and
engaged in improper telephone solicitations (from the unregistered office) by making materially false representations and omitting material facts in connection with the offer of securities and by using misleading telemarketing scripts that a registered principal had not approved.
Acting through the registered representative and CCO, the firm failed to perform adequate searching inquiries and take necessary steps to ensure that transactions did not involve distributions of unregistered and/or restricted securities.
Acting through a registered representative and firm principal, the firm sold securities to public investors using a private placement memorandum that omitted to disclose a convicted felon’s association with the issuer, a material fact to any reasonable investor.
Acting through various FINOPs, the firm
failed to maintain accurate financial books and records,
filed inaccurate FOCUS reports and
operated a securities business while under minimum net capital requirements.
Acting through the CCO and other compliance officers, the firm
failed to forward customer funds it received in connection with contingency offerings to an escrow agent by noon of the next business days after receipt of such fund;
adequately review and approve customer correspondence;
timely and accurately report customer complaints;
timely update Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5);
comply with the Firm Element of the Continuing Education Requirement for a year;
conduct an annual compliance meeting; and
establish an adequate business continuity plan, which consequently led to the loss of access to certain customer records upon termination of its relationship with a particular clearing firm.
The firm had additional supervisory deficiencies, including that
its written supervisory procedures failed to establish adequate procedures for review of producing managers’ customer account activities,
it failed to have written supervisory procedures for identifying producing managers that should be subject to heightened supervision, and
failed to place certain producing managers on heightened supervision, in that, acting through various individuals, the firm failed to clearly assign each registered person to an appropriately registered representative and/or principal responsible for supervising that person’s activities, and designate principals with actual authority to carry out the supervisory responsibilities over the firm’s business.
Acting through a supervising principal, the firm failed to reasonably supervise registered representatives working out of the unregistered branch office.
Acting through firm officers, the firm failed to establish and maintain a supervisory system reasonably designed to supervise the sales activities of firm personnel conducted outside of its registered offices, and failed to establish and maintain a supervisory system for determining whether customer securities were properly registered or exempt from registration.
Acting through its CCO, the firm failed to implement adequate procedures to ensure that the firm did not telephone persons who stated they did not wish to receive calls and/or who registered on the national do-not-call registry, and failed to adequately update and maintain a do-not-call list.
Acting through various supervisors, the firm failed to perform heightened supervision over numerous individuals.
Brookville Capital Partners LLC fka New Castle Financial Services LLC : Brookville Capital Partners LLC fka New Castle Financial Services LLC : Censured; FIned $200,00; Required to retain an independent consultant to conduct a review of the adequacy of its policies, systems, procedures and training regarding AML rules and regulations; compliance with Section 5 of the Securities Act of 1933; and rules and regulations relating to private placements, financial requirements, customer complaints and supervision. In addition, the firm was required to have its associated persons complete 16 hours of AML continuing education training and to fully and promptly cooperate with FINRA in any and all investigations.
Carrig participated in the sale of unregistered shares of a thinly traded penny stock into the public markets on customers’ behalf, resulting in proceeds of $106,320.89 to the customers. Carrig failed to
perform adequate due diligence prior to executing these sales, notwithstanding his duty to do so and the “red flags” indicating potential violation of the registration requirements of the Securities Act of 1933;
undertake adequate efforts to ascertain the information necessary to determine whether the customers’ unregistered shares could be sold in compliance with Section 5 of the Securities Act; and
determine how the customers came to obtain the stock or whether there was an applicable exemption to registration.
Donald Jay Carrig : FIned $15,000; Suspended 30 days
Robert Michael Marcus AWC/2007008239003/August 2010
Marcus participated in the sale of unregistered shares of a thinly traded penny stock into the public markets on customers’ behalf, which resulted in proceeds of almost $18,000 to the customers. Marcus was not the designated registered representative on customer accounts but he assumed certain responsibilities for the accounts, including determining whether securities sold from the accounts were freely tradable. Marcus failed to perform adequate due diligence prior to executing these sales, notwithstanding his duty to do so and the red flags indicating potential violation of registration requirements of the Securities Act of 1933. Marcus failed to undertake adequate efforts to ascertain the information necessary to determine whether the customers’ unregistered shares could be sold in compliance with Section 5 of the Securities Act, and failed to determine how the customers came to obtain the stock or whether there was an applicable exemption to registration.
Robert Michael Marcus: Fined $10,000; Suspended 1 year
Garden State Securities, Inc. AWC/2008011696501/June 2010
offered and sold unregistered securities that were not exempt from registration to customers;
made commission payments to representatives in branch offices through nonregistered entities; and
failed to make proper use of the Federal Trade Commission’s national do-not-call registry, permitting its registered representatives to cold-call persons on that list;
Acting through a registered principal, the Firm prepared and used a telemarketing script and issued research reports in the form of newsletters that contained exaggerated, misleading or unwarranted statements and failed to disclose required information. The script contained statements regarding the purported aggregate performance of the firm’s individual stock recommendations, but failed to include past years’ performance information and a description of the risks associated with an investment in stock, including the risk of loss, and the script touted the successful performance of one of its stock recommendations and suggested that similar opportunities would be available in the future.
The Firm’s newsletters constituted research reports, which, among other things, made oversimplified, exaggerated, unwarranted and misleading statements regarding its stock recommendations. In addition, The research reports contained or referenced performance charts that provided oversimplified and incomplete presentations of the firm’s performance track record. Moreover, the research reports did not adequately disclose any ownership interests and material conflicts of interest concerning its recommendations, and did not adequately disclose the meaning of the firm’s “buy,” “hold” and “sell” ratings. Furthermore, the research reports contained ratings and price targets for securities without including a line graph of the securities’ daily closing prices for the required period and without disclosing the risks that could impede achievement of the price targets.
Garden State Securities, Inc.: Censured; Fined $55,000
Scott Anthony Harwell (Supervisor) AWC/2008014617801/June 2010
Harwell engaged in private securities transactions without prior written notice to, or prior written approval from, his member firm. Harwell offered for sale and sold unregistered shares of stock to individuals for which he collected funds totaling approximately $130,950.
Harwell failed to respond to FINRA requests for information.
Minksy sold, on an unsolicited basis, unregistered stock that was not exempt from registration on a customer’s behalf. The sales netted the customer approximately $6 million, which he wired to offshore accounts. Minsky failed to conduct a reasonable inquiry or due diligence to determine, among other things, if the shares being sold were in fact exempt from registration.
Harold Sheldon Minsky: Fined $10,000; Suspended 30 days
William Edward Herlihy (Principal) AWC/2008013490901/May 2010
Herlihy participated in the sale of unregistered securities by a control person of the issuer. Herlihy ignored red flags and failed to conduct an adequate inquiry and follow-up on suspicious trading activity by customers who engaged in numerous pre-arranged cross and wash transactions for purposes of manipulating a company’s stock.
William Edward Herlihy (Principal) : Censured; Fined $30,000; Suspended 90 days
Duff caused customer orders to be executed in, and facilitated the distribution of, approximately 20 million shares of unregistered securities in stocks, and failed to perform thorough searching inquiries to ensure that the securities or transactions were exempt from registration, freely-tradable and unrestricted.
Charles Jesse Duff: Fined $50,000 including partial disgorgement of $25,000 in commission; Suspended 30 business days
Registered Principal Purcell participated in the distribution of unregistered shares by offering and selling, through the means of interstate commerce, over 14 billion unregistered shares without an exemption in violation of Section 5 of the Securities Act of 1933. Purcell failed to ensure that each IB Equity Form he obtained from corporate customers was complete when he submitted them to the clearing firm, and should have performed a more thorough due diligence inquiry to ascertain whether the shares of a security were registered or exempt from registration, particularly since most of the trades occurred after the grant of summary judgment to the SEC was made public.
Gary Ira Purcell: Censured; Fined $2,500; Suspended 20 business days
There are those who defend FINRA's system of mandatory public and intra-industry arbitration. I am not one of those. It's time for FINRA to divest itself from anything and everything to do with public and intra-industry arbitration, and to refer the docket to an impartial, non-industry-influenced forum. A recent case involving elderly public customers d... Read On