[W]illiam Lamont Holder was the sole owner and operator of Safe Harbour Wine Storage, LLC ("Safe Harbour"). Through Safe Harbour, Holder stored and transported upscale wines for private collectors and commercial establishments. In return for a monthly fee, Holder would arrange for the transportation of a customer's wine to Safe Harbour's storage facility in Glen Burnie, Maryland, where it would be inventoried and stored. Holder did not possess a license to sell wine in the State of Maryland.From January 2013 through December 2017, Holder developed a scheme to obtain payments and wine from the customers of Safe Harbour for his own personal financial gain. Unbeknownst to his customers, he offered their wine for sale to wine retailers and brokers around the country, including in Napa, California, all the while continuing to collect the customers' monthly storage fees and accept additional wine for storage.Holder represented to potential third-party buyers that he was the lawful owner of the wine that he was offering to sell. By e-mail and facsimile, he sent them lists of bottles of wine stored in his warehouse with detailed descriptions of the winery, vintage, and asking price. After the buyers selected the bottles they wanted to purchase, Holder boxed and shipped the wine, and sent his bank account information. After inspecting the shipment of wine, the buyers would either wire the money directly into Holder's bank account or send a check. Holder kept the proceeds from the sales and spent it on personal expenses.
[B]etween December 2014 and April 2017, Bennett solicited individuals to invest money in her Internet clothing business, offering an annual interest rate of 15% via convertible or promissory notes. In order to entice individuals to invest, Bennett made false and misleading statements, including: the risks of investing in DJB Holdings; how investors' funds would be used; and that the loans were liquid and guaranteed by DJB Holdings' inventory and assets, and by Bennett herself. Witnesses testified that Bennett concealed the true financial condition of her companies from investors. Bennett convinced several investors to withdraw a significant portion of their retirement accounts to invest in, and loan money to, her companies. The evidence showed that Bennett misappropriated investor funds, using them to fund a lavish lifestyle, pay her personal legal expenses, and repay previous investors with funds she received from new investors. This is consistent with a Ponzi scheme--a fraudulent investment scheme where the operator of the scheme solicits investors by promising high rates of return with little risk. The scheme operator then funds payments to the earlier investors through funds obtained through new investors. Typically, the operator of the scheme will use investment funds for purposes other than what was conveyed to the investors.According to testimony at trial, over the course of the scheme, Bennett obtained more than $20 million from 46 investors, many of them retirees who knew of Bennett from a radio show she hosted. Some of those funds were used to pay earlier investors and the rest was used for her personal benefit, including: a luxury suite at a football stadium; to pay a website operator to arrange for priests in India to perform religious ceremonies to ward off federal investigators; to purchase astrological gems; and for cosmetic medical procedures.Evidence at trial showed that in May 2015, DJB Holdings, LLC also obtained a $750,000 line of credit, with Bennett as guarantor. According to witness testimony, in support of this line of credit, Bennett made false statements to the bank, including that she had a brokerage account with a net portfolio value of over $4 million. In reality, Bennett's net portfolio value for that same account was only $35. The loan proceeds were to be used solely for business operations, but Bennett used the funds to pay off investors and to pay her personal expenses. In February 2016, the lender declared the loan in default. Bennett told the lender that she was unaware of the default because she had been in China for the preceding eight months. According to trial evidence, there was not any international travel for Bennett during the time in which she claimed to be in China, and her personal American Express card showed numerous transactions during that time in the Chevy Chase, Maryland and Washington, D.C. area.
For willfully failing to timely update his Form U4 to disclose two tax liens and making false statements to his firm on annual compliance questionnaires, Respondent is suspended from associating with any FINRA member firm in any capacity for 30 business days and fined $10,000. His willful violation subjects him to statutory disqualification. Respondent is assessed the costs of the hearing.
The Hearing Panel concluded that Holeman's nondisclosures were merely negligent, and that his violations were serious but not egregious. We disagree. We conclude based on the number of aggravating factors and the absence of any real mitigation that Holeman's misconduct was egregious and necessitates a sanction more meaningful than that imposed by the Hearing Panel. FINRA rules obligate individuals to make truthful and accurate disclosures. Holeman's false certification on his firm's compliance questionnaire and his repeated failures to amend his Form U4 to disclose material information about his financial problems raise serious questions about his ability to comply with regulatory requirements and demonstrate that he is currently unable to meet the high standards required of those employed in the securities industry.Finally, we agree with Enforcement that a "chief compliance officer's false statements to his firm on a compliance questionnaire constitute a particularly serious violation." As David Lerner's CCO, Holeman is the steward of his firm's compliance culture. He is responsible for managing compliance issues at David Lerner, including ensuring that his firm is complying with its regulatory requirements and that its employees are complying with internal policies and procedures. We find it deeply troubling that Holeman was aware of FINRA's investigation into his failure to disclose his federal tax liens, yet he failed to timely amend his Form U4 and falsely certified to David Lerner that no such liens existed. Holeman has four decades of experience in the securities industry, specifically in the area of compliance. He cannot legitimately claim any lack of understanding as to the importance of answering truthfully on a compliance questionnaire or the Form U4.
Registered principal of FINRA member firm appeals from FINRA disciplinary action finding that he did not timely update his Form U4 to disclose tax liens, that he provided false information in his firm's Annual Compliance Certification, and that he is subject to a statutory disqualification because he acted willfully and because the information that he failed to disclose was material. Held, FINRA's findings of violations, finding of a statutory disqualification, and imposition of sanctions are sustained.
Pages 17 - 18 of the SEC OpinionHoleman acted with extreme recklessness despite his contention that he did not disclose the liens because he thought liens against property did not have to be disclosed. To the extent Holeman found Question 14M to be ambiguous, it was his "duty to determine whether disclosure was required." Indeed, Holeman testified at the hearing that had he known about the liens "it would have been my position at that time to report them or certainly check with counsel about reporting them." Holeman confirmed in response to a question from a hearing panelist that he "would have checked with counsel" even if the lien stated that it attached to property. But the record establishes that Holeman knew about the liens.To the extent Holeman claims that he did not see the liens until February 2015, that does not mean he was unaware of them before that time. Holeman stated repeatedly before the hearing that he knew about the liens but did not disclose them because he did not think they were against him, and the hearing panel did not credit his contrary testimony at the hearing. Yet Holeman did not consult counsel to determine if the liens needed to be disclosed. Although he attempts to rely on the email from David Lerner's general counsel and the Wexler letter, those communications occurred after FINRA began its investigation. Holeman cannot rely on these communications to justify his failure to disclose the liens until that time. Holeman's failure to take any steps to probe the liens or resolve his apparent confusion about whether the liens needed to be disclosed in response to a question asking whether he had any unsatisfied liens against him was such an extreme departure from the standards of ordinary care that the danger of misleading investors by not disclosing the liens was so obvious that he must have been aware of it.
Holeman willfully failed to disclose three tax liens totaling over $116,000 on his Form U4 and provided false information about them in his firm's Annual Compliance Certification. The liens were material to the ability of regulators, his employers, and their customers to assess Holeman's capability to function as an associated person of a FINRA member firm.55 Holeman did not disclose the April 2009 federal tax lien while it remained unsatisfied and later deleted the disclosure he made. He did not disclose the October 2009 federal tax lien for nearly six years despite the fact that it remained unsatisfied during that time, and he did not disclose the May 2011 federal tax lien for nearly four years despite the fact that it remained unsatisfied during that time. Holeman's disclosures were made only after FINRA began investigating the liens, and even then he waited six months to make the disclosures. We agree with the NAC that it is "deeply troubling that Holeman was aware of FINRA's investigation into his failure to disclose his federal tax liens, yet he failed to timely amend his Form U4." Indeed, we cannot understand how Holeman can maintain that he did not know about the liens until February 2015 when FINRA asked Holeman about all three liens specifically in November 2014.Holeman has worked in the securities industry as a registered person and principal for forty years. As a result, he must have been aware of the importance of accurate, current disclosures on Form U4 not only to his employer but also to firm customers and to the investing public.56 We have noted that "a representative's truthfulness in answering the financial disclosure questions on the Form U4 is a particularly critical measure of fitness for the industry because a commitment to accurate, complete, and non-misleading financial disclosure is central to any securities professional's responsibilities" and, therefore, "untruthful answers call into question an associated person's ability to comply with regulatory requirements."The Guidelines instructed FINRA to consider as a potential mitigating factor whether a lien that was not timely disclosed had been satisfied. Although the April 2009 federal tax lien was ultimately satisfied in April 2013, Holeman failed to disclose that lien on six different Oppenheimer Form U4 amendments filed when it was unsatisfied. And both the October 2009 and May 2011 federal tax liens still remained unsatisfied at the time of the complaint in June 2016. The October 2009 federal tax lien has since been satisfied, but the record does not indicate that the May 2011 federal tax lien has been satisfied. We therefore find the fact that Holeman eventually satisfied the April and October 2009 federal tax liens warrants no mitigation of the sanctions.
Respondent is fined $10,000, suspended from associating with any FINRA member in any capacity for three months, and required to requalify as a registered representative, for: (1) failing to disclose to his employer firm six outside brokerage accounts; (2) improperly purchasing shares in an equity IPO; and (3) giving a false answer on a Client Affirmation Form of Eligibility for Initial Public Offerings
Respondent failed to disclose to his employer brokerage accounts held at another broker-dealer, improperly purchased equity initial public offering shares in an account held at that broker-dealer, and provided inaccurate information to that broker-dealer in order to purchase those shares. Held, findings and sanctions modified.
We find there are several applicable mitigating factors. McNamara accepted responsibility for and acknowledged his misconduct prior to detection and intervention by AAM and FINRA and he made no attempt to conceal it. As soon as McNamara realized the equity IPO transaction was violative, he contacted AAM's CEO and disclosed it. McNamara voluntarily and reasonably attempted to remedy his misconduct. Although we realize McNamara did so at the request of AAM's chief compliance officer, we believe he is entitled to some credit for immediately selling the equity IPO shares and disgorging his profit before FINRA intervened. McNamara's misconduct under causes two and three was an isolated event that occurred over a period of a few days in November 2010, and he engaged in only a single violative transaction. We also give some mitigative value to AAM's termination of McNamara immediately following the issuance of the Hearing Panel's decision because we believe it materially reduces the likelihood of misconduct in the future.
[(1)] McNamara failed to disclose to AAM accounts held at Merrill Lynch in which he had a financial interest, and therefore violated NASD Rule 3050 and FINRA Rule 2010; (2) McNamara purchased shares in an equity IPO while associated with AAM, and therefore violated FINRA Rules 5130 and 2010; and (3) McNamara provided inaccurate information to Merrill Lynch about his status as an associated person to facilitate the IPO transaction, in violation of FINRA Rule 2010. Accordingly, under cause one, we fine McNamara $5,000 and order him to requalify by examination as a general securities representative before reentering the securities industry in any capacity requiring registration. Under causes two and three (unitary sanction), we fine McNamara $5,000, order him to requalify as a general securities representative before reentering the securities industry in any capacity requiring registration, and suspend him in all capacities for 30 business days. Satisfaction of the requalification requirement under cause one will satisfy the requalification requirement under causes two and three. McNamara is ordered to pay hearing costs in the amount of $3,804.29.