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.
February 2011
Jack Thomas Kennebeck (Principal)
AWC/2009019042001/February 2011

Kennebeck sold to four customers securities in the form of installment plan contracts offered by a Tennessee non-profit corporation without first providing written notice of his participation in these sales to his member firm or receiving its written approval; the Tennessee non-profit corporation promised a tax deduction and fixed deferred payments at an unspecified rate of return, in exchange for each customerís transfer of ownership of existing annuities to the non-profit corporation.

Kennebeckís customers exchanged existing annuities with a combined accumulated value of $1,078,428.10 for installment-plan contracts. Although the non-profit corporation applied for tax-exempt status, the Internal Revenue Service (IRS) never approved its application, and consequently, customers who purchased installment-plan contracts were unable to claim a tax deduction in connection with their investments.

Kennebeck obtained information from non-profit corporation personnel, which he accepted at face value and failed to independently verify, including the non-profit corporationís representation that it had been granted tax-exempt status as a charitable organization, and that investors could avail themselves of the touted tax deduction in connection with their investment. Kennebeck negligently misrepresented to his customers that they could take charitable tax deductions in connection with their respective investments, which was not true. In connection with his sale of the installment plan contracts, Kennebeck provided the customers with illustrations and other sales materials he received from the non-profit corporation that contained misleading and incomplete information without first presenting them for review and approval to a registered principal of his firm.

Jack Thomas Kennebeck (Principal): Fined $50,000; Suspended 10 months; Ordered to pay customers $12,709.59, plus interest, in restitution.
Bill Singer's Comment
The first rule is never, ever, ever give tax advice. The second rule is when promoting an investment that depends upon a specific tax status (in this case that of a non-profit/charitable organization), not only should you paper your file with getting the critical representations in writing from the organization but it might also be a great idea to get a legal opinion on legal letterhead from an independent, competent law firm.  Frankly, if the institution won't hand you that written opinion or pay to defer the costs of obtaining same, then you should consider walking away from the deal.
January 2011
Robert Charles Pollock
AWC/2009019042301/January 2011

Pollock sold to customers installment plan contracts offered by a non-profit corporation that represented itself to the public as a charitable organization, but Pollock lacked a reasonable basis to recommend the purchase of the contracts to his customers given his failure to perform a reasonable investigation concerning the product. Pollock reviewed information on the non-profit corporationís website and spoke to its personnel, he took their representations at face value and failed to independently verify those representations. Pollock did not contact the Internal Revenue Service (IRS) to confirm the tax-exempt status or the availability of a tax deduction to investors, and did not seek to understand how the non-profit corporation arrived at its figures regarding tax benefits; Pollock also misrepresented to his customers that they could take charitable tax deductions in connection with their respective investments, which was not true.

In connection with the solicitation of these installment plan contracts, Pollock provided his customers with illustrations and other sales materials that contained misleading and incomplete information. Pollock failed to provide his member firm with written notice of his participation in the above-referenced transactions or receive its written approval to participate in those transactions, and he did not present the flow chart and 1099 Statement for review to a registered principal of his firm prior to using them in connection with the sales of the installment plan contracts.

Robert Charles Pollock : Fined $94,650 including disgorgement of $34,650 in commissions; Ordered to pay $76,922, plus interest, in restitution to customers;Suspended 1 year
Bill Singer's Comment
If you're going to sell installment contracts -- especially from purported charitable institutions -- you have to do your due diligence.  If you don't, this is what could happen. Ouch.
Enforcement Actions
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