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.
November 2010
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.
August 2010
Portales Partners, LLC
AWC/2009016184701/August 2010

The Firm 

  • did not have a qualified individual to supervise the conduct of the firmís head of research, who was a senior research analystóbut instead permitted senior principals to supervise the analyst when they were not qualified to do so;
  • reviewed and approved its research reports prior to use, but did not evidence such approval; as a result, the firm issued research reports that were not approved by a registered principalís signature or initial;
  • failed to adopt or implement written supervisory procedures reasonably designed to achieve compliance with applicable rules regarding the supervision of research activity and the approval of research reports;
  • failed to attest annually (for two years) that it had adopted and implemented such procedures, and that the firm failed to make or obtain research analyst attestations in connection with their public appearances as Securities and Exchange Commission (SEC) Regulation AC required.
Portales Partners, LLC : Censured; Fined $25,000
Tags:  Research    Supervision     |    In: Cases of Note : FINRA
May 2010
Register Financial Associates, Inc.and George Robert Register (Principal)
OS/2007011496203/May 2010
The Firm allowed an individual to function as a research analyst without having the required licenses. The Firm
  • shared a draft of a section of a research report that contained a research summary, rating and price target with a subject company before it was published, and the draft was not provided to legal or compliance personnel at the firm;
  • did not monitor or place restrictions on the trading of stock picks by research analysts, who placed trades in violation of the limits placed on analysts by NASD Rule 2711(g) and failed to retain records showing the dates that newsletters were published prior to 2005;
  • failed to disclose the valuation methods it used to determine the price target and the risks to achieving the price target in the stock pick sections of its research report;
  • failed to have a principal review, initial and date its published research reports before the earlier of its use or filing with FINRAís Advertising Regulation Department;
  • failed to adopt and implement written supervisory procedures to cover research reports distributed to the public and ignored red flags regarding stock pick sections qualifying as research reports; and
  • failed to establish, maintain and enforce written supervisory procedures for its newsletter, in that the firm had no written supervisory procedures that governed research reports distributed to the public.
The Firm's research analysts failed to disclose their financial interests in stock picks and omitted material facts that rendered the stock pick section of research reports misleading.

The Firm and Register filed false attestations regarding compliance with NASD Rule 2711, and the Firm failed to make the certifications required by SEC Regulation AC for its stock pick sections that the views expressed accurately reflected the research analystsí personal views. Furthermore, Register failed to adequately discharge his supervisory responsibilities and never took effective action to ensure that his firm was meeting its obligation to comply with FINRA rules, in that he never monitored the trading or ownership of stock picks by the firmís research analysts, imposed no restrictions on whether the analysts could trade or own securities when they were profiled as stock picks, and allowed research analysts to publish research reports unsupervised.

Register Financial Associates, Inc.: Fined $50,000

George Robert Register (Principal): Fined $15,000; Suspended 30 days in Principal/Supervisory capacities only
Tags:  WSP    research         |    In: Research and Advertising
Bill Singer's Comment
This case ranks among the more noteworthy Research matters that I have seen in the past few years.  Frankly, this is a well written and present analysis that provides some cogent explanation for what was not properly handled by the firm and/or its principal.  Certainly, in this day and age, member firms must ensure that someone is monitoring the trading and conflicts of a firm's research analysts.  While I am sure that there is some hyperbole in FINRA's allegations, the findings suggest that there was little, if any, meaningful oversight.
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