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.
Michael M. Reilly (Principal)
Reilly operated a securities business from an unregistered branch office, causing his member firm to violate the restriction on business expansion contained in its membership agreement with FINRA. Without requisite supervision, Reilly and others regularly used the branch office to cold-call prospective investors, open new customer accounts and/or cause securities transactions to be effected in customer accounts. Reilly was actively engaged in the management and operation of the branch and exercised control over the operations at the branch office. By actively engaging in the management and operations of the branch
office, Reilly acted in the capacity of a general securities principal
without being so registered at that time.
One individual, without requisite supervision, used the branch office to improperly solicit potential customers and made false representations, including unwarranted price predictions, omitted material facts and used misleading telemarketing scripts that a registered principal had never approved.
Reilly caused his firm to violate NASD Rule 1017(a)(5) and NASD Interpretative Material 1004.
Michael M. Reilly (Principal): Fined $12,500; Suspended 45 days; and Agreed to fully and promptly cooperate with FINRA in any and all investigations and/or disciplinary proceedings, of any person or entity, concerning conduct at and/or relating to his member firm during the time he was associated with the firm and, in connection with his cooperation, promptly produce information and documents FINRA requests and appear and testify completely and truthfully at any FINRA interview and/or disciplinary hearing.
Robert Wesley Stout
Registered Principal Stout failed to
- establish, maintain and enforce adequate written supervisory procedures to ensure compliance with FINRA rules and with SEC and Federal Reserve Board rules and regulations;
- ensure that firm customers fully paid for cash transactions within the time allotted by the Federal Reserve Board Regulation T, in that the firm failed to cancel the transactions, liquidate the transactions or freeze the accounts when customers failed to make full payment on purchase transactions in cash accounts within five full business days;
- review, initial and maintain daily purchase and sales blotters at the main office;
- make the determination to implement heightened supervision for individuals who met its written supervisory procedures requiring a determination;
- establish compliance procedures for setting commissions and markups;
- establish supervisory procedures to detect excessive commissions and markups.
- ensure that an individual actively engaged in managing the firmís securities business was registered as a principal or in any other capacity;
- maintain firm records in an easily accessible place and failed to promptly produce the records; and
- respond to FINRA requests to produce new account forms, customer confirmations and order memoranda because they were maintained at a branch office, thereby causing his firm to be in violation of SEC rules.
Robert Wesley Stout: Fined $20,000; Suspended 20 business days in Principal capacity only
Wadsworth Investment Co., Inc. and William Frederick Wadsworth (Principal)
The Firm and Wadsworth
- permitted an individual to act as an unregistered principal and permitted individuals to be registered as General Securities Representatives or Investment Company and Variable Contracts Products Representatives through the firm without being active in the firmís securities business;
- sent written communications to customers and prospective customers containing language that failed to provide a sound basis for evaluating the claims within the communications, and that omitted material information and/or contained unwarranted statements;
- failed to record a
general securities principalís approval on mutual fund and variable
- completed and signed a materially inaccurate FINRA
Information Request form; and
- provided inaccurate information to FINRA
Acting through Wadsworth, the Firm failed to
- establish and , maintain a supervisory system and written supervisory procedures reasonably designed to achieve compliance with applicable securities laws and regulations;
- conduct annual reviews of any of the business in which the firm engaged
- review registered representativesí business-related email correspondence with customers;
- establish any written procedures providing for the review of its registered representativesí electronic correspondence;
- designate and specifically identify at least one principal to FINRA who would establish, maintain and enforce a system of supervisory control policies and procedures, a
- establish, maintain and enforce written supervisory controlpolicies and procedures
required information on new account forms, and on mutual fund and
variable annuity applications.
Acting through Wadsworth, the Firm
- maintained forms of various types that were blank except for customersí
- filed inaccurate Financial
and Operational Combined Uniform Single (FOCUS) reports setting forth
the firmís net capital position that was accurate by failing
to maintain accurate financial books and records; and
- did not file an
application with FINRA for approval of an ownership change until after
the ownership change took place.
The Firm failed to
- implement anti-money laundering compliance procedures, including independent testing and provide training;
- enforce the Customer Identification Procedures;
- retain electronic communications; and
- failed to provide written confirmations to customers at or before the completion of securities transactions acted as an unregisteredmunicipal securities broker-dealer.
The Firm executed municipal securities transactions without creating and retaining order tickets to properly recordthe transactions, and failed to report municipal securities trades to the MSRB.Wadsworth Investment Co., Inc.: Censured; Fined $100,000 ($77,250 jt/sev with William Wadsworth); Required to hire an independent consultant to review its policies,
systems, procedures (written and otherwise) and training related to its
violations of federal securities laws, FINRA and MSRB rules, and
implement the consultantís recommendations.
William Frederick Wadsworth: Fined $77,250 jt/sev with the Firm; Suspended 1 month in all capacities; Suspended 1 year in Principal capacities only.