Securities Industry Commentator by Bill Singer Esq

TD Ameritrade Escapes $1.7 In Damages But An Advisor Gets Slammed by FINRA Arbitrators (BrokeAndBroker.com Blog)

FINRA Can't Wait Forever Even Though Morgan Stanley Wants It To (BrokeAndBroker.com Blog)

SEC Obtains Final Judgment Against Arizona Man for Defrauding Elderly Investors (SEC Release)

FINRA Censures and Fines Justly Markets LLC for Failure to Preserve Order Memoranda and WSPs

In the Matter of Justly Markets LLC, formerly known as DBOT ATS, LLC, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep For Willfully Failing to Amend U4 for Felony Charges and Plea

In the Matter of John Matthew Underation, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep For Excessive/Unsuitable Trading

In the Matter of Leonid Yurovsky, Respondent (FINRA AWC)

[C]oggeshall fraudulently raised $700,000 from elderly investors. According to the complaint, Coggeshall told investors they were investing in Business Owners Tax Relief, LLC ("BOTR"), a purportedly successful mergers and acquisitions firm based in New York, when he actually deposited investors' funds into brokerage and bank accounts for an Arizona company he owns with the same name and then used investor funds to trade securities, incurring significant losses, pay personal expenses, and make payments to investors which he falsely represented were interest payments.

The final judgment against Coggeshall permanently enjoins him from violating Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 (the "Securities Act"). It also orders him to pay a civil penalty of $385,536. The final judgment also found Coggeshall liable for disgorgement of $592,546, which represents net profits gained as a result of the conduct alleged in the complaint, plus $100,299.73 in prejudgment interest, but deemed the disgorgement and prejudgment interest satisfied by the judgment of default entered against Coggeshall and BOTR by the Arizona Corporation Commission in In the Matter of Conrad Coggeshall and Business Owners Tax Relief, LLC, Docket No. S-21103A-20-0095 (October 2, 2020). At the SEC's request, the court also dismissed with prejudice the SEC's claims against Relief Defendant BOTR.

The Court had previously entered judgments by consent against Coggeshall and BOTR, which: (i) permanently enjoined Coggeshall from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act; and (ii) ordered that Coggeshall and BOTR pay disgorgement and prejudgment interest, and that Coggeshall pay a civil penalty, in amounts to be determined by the Court upon motion of the SEC. Coggeshall and BOTR consented to these judgments without admitting or denying the allegations in the complaint.

From April 2017 to October 2019, the firm received over 95 million orders from its broker-dealer customers. The firm failed to preserve memoranda for all orders received prior to May 1, 2018. For orders received between May 1, 2018 and October 31, 2019, the firm used a third-party vendor to preserve order memoranda. When the firm changed third-party vendors in October 2019, the original vendor deleted the firm's order memoranda. The firm had not otherwise preserved the records. The firm closed its ATS in February 2020 and has since reorganized as a private placement agent. 

Therefore, Respondent violated, Section 17(a) of the Exchange Act, Exchange Act Rule 17a-4(b)(l), and FINRA Rules 4511 and 2010. 

. . .

From April 2017 to February 2020, the firm failed to establish and maintain a supervisory system to achieve compliance with certain books and records requirements. The firm had no policies or procedures, and did not conduct any supervisory reviews, to ensure that the firm made and kept current, reviewed the accuracy of, or preserved order memoranda. 

Therefore, Respondent violated FINRA Rules 3110(a) and 2010. 

On August 19, 2020, while associated with McDonald Partners, Underation was indicted by a grand jury for three felonies: aggravated vehicular assault, vehicular assault, and failure to stop after an accident. Underation received notice of the charges on October 1, 2020. Underation willfully failed to amend his Form U4 to disclose the felony charges against him within 30 days as required. On June 7, 2021, Underation pled guilty to a felony charge for attempted vehicular assault, which rendered him statutorily disqualified from associating with a member firm. Underation willfully failed to amend his Form U4 to disclose his felony guilty plea within ten days as required. Underation ultimately amended his Form U4 to disclose the three felony charges and one felony guilty plea on April 4, 2022, approximately ten months after the deadline for disclosing the felony guilty plea and well over a year after the deadline for disclosing the felony charges. 

Therefore, Underation violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010. 

Respondent understands that this settlement includes a finding that he willfully omitted to state a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this omission makes him subject to a statutory disqualification with respect to association with a member. 

During the relevant period, Yurovsky engaged in quantitatively unsuitable trading in two customers' accounts. First, Yurovsky recommended that Customer A, a farmer with limited investment experience, place 252 trades in his account between June 2016 and November 2019. During that period, Customer A's average monthly equity in his Joseph Stone account was approximately $158,600, yet Yurovsky's recommended trades resulted in the customer paying approximately $165,000 in commissions and other trade costs. Collectively, Yurovsky's recommendations resulted in an annualized cost-to-equity ratio of approximately 30 percent-meaning that Customer A's account would have had to grow by more than 30 percent annually just to break even. 

Second, Yurovsky recommended that Customer B, a senior investor, place 41 trades in his account between July and December 2016. In several instances, Yurovsky recommended that Customer B sell a security shortly after purchasing it, even though Yurovsky's recommendation to purchase the security had resulted in paying a substantial commission. For example, Yurovsky recommended that Customer B purchase 395 shares of a technology company on October 28, 2016 for $59.75 per share, only to sell 145 shares ten days later for $60.40 per share. These transactions required Customer B to pay almost $700 in commissions and trading fees to generate less than $95.00 in proceeds. Although Customer B's account had an average monthly equity of approximately $42,000, Yurovsky's recommended trades caused him to pay over $10,600 in commissions and other trade costs, and resulted in a cost-to-equity of ratio of approximately 25 percent.

Both Customers A and B relied on Yurovsky's advice and accepted his recommendations. Those recommended transactions, which collectively resulted in the customers paying approximately $175,600 in commissions and other charges, were excessive and unsuitable. Therefore, Yurovsky violated FINRA Rules 2111 and 2010. 

• Securities Industry Commentator
• Bill Singer