NOTE: Stipulation of Facts 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 and to the entry of findings.  

2007
Research and Advertising

 

Jackie Gee-Kit To
AWC/#2005002832901/September 2007

To plagiarized the content of a research report another member firm issued and internally circulated the report, indicating that he was its author. The report was published by To's member firm as a research report written by the firm 's lead analyst and To. 

Jackie Gee-Kit To: Fined $7,500; Suspended 60 days; Required to requalify by exam as a Research Analyst Part II-Regulations Mode within 90 days of reassociation with a member firm . If To fails to requalify as a Research Analyst Part II-Regulations Mode within the 90 day period, he will be suspended from acting in such capacity until the examination is successfully completed. 

Bill Singer's Comment: Oh FINRA, FINRA, FINRA . . . you do have the ability to drive me nuts.  Let me see if I get this one.  To plagiarized a research report.  Okay, not a nice thing to do.  Now, would someone please pull out the FINRA rulebook and show me where it's a regulatory violation to plagiarize a research report?  I'm not saying this was a nice thing to do, and if the other report were copyrighted, well, it might certainly be an infringement of the copyright. However, is every single misconduct (including personal indiscretions and professional miscues) by a registered person a regulatory violation?  I mean, geez, where does this nonsense end?  Let's assume, for the moment, that Mr. To read this other report and agreed with its analysis, conclusions, and recommendation.  If he then issued the plagiarized report under his own signature, that subterfuge may well give rise to a lawsuit by the true author for copyright infringement, but I don't see how the "integrity" of the issued report is at issue -- my example was premised upon the fact that Mr. To agreed with all aspects of the prior report.  

Separately, and more to the point, I invite you to look at many of the other cases I have reported on this page for 2007 -- or even go back over the years of my website's content.  I want you to carefully consider the types of matters that result in lesser sanctions than that imposed upon Mr. To.  For example, look down two cases to the Solash matter.  There FINRA imposed a $7,500 fine and only a 45-day suspension on someone who effected unauthorized trades in an account related to a deceased customer.  Is it truly fair to suggest that sending out a plagiarized report is a worse violation than unauthorized trading?   Ultimately, you want to make Mr. To requalify, go ahead -- makes sense to me.  You want to fine him a few thousand dollars on top of that?  Okay, not much quibble from me on that too.  However, at some point enough is enough -- did he really need to be suspended for two months AND required to requalify?

Sidoti & Company, LLC 
AWC/#20060037743-01/September

The Firm sent draft research reports to approximately 200 subject companies prior to publication that contained analyses, estimates, projections and conclusions; and one of the research reports contained a price target and research rating.

Sidoti & Company, LLC : Censured; Fined $25,000

Janco Partners, Inc. 
AWC/2006003976301/August 2007

The Firm permitted associated persons to function as research analysts without being properly registered with NASD and issued research reports the unregistered analysts prepared. The Firm’s written supervisory procedures were not reasonably designed to achieve compliance with NASD Rule 2711 in that the procedures did not include steps to monitor and achieve compliance with the rule. 

The Firm failed to 

  • retain its emails in an easily accessible place;
  • implement its CIP in connection with new customer accounts as part of the firm’s compliance with the requirements of the Bank Secrecy Act, and the firm’s written supervisory procedures relating to the CIP did not accurately describe its AML program as implemented. (The Firm’s implementation of its independent testing was inadequate in that it failed to retain all documentation evidencing areas that had been reviewed and tested, and it failed to detect the deficiencies with its CIP. The Firm’s written procedures did not address how often its independent tests needed to be conducted and did not address how the firm would handle situations in which independent testing was conducted by a person who reported to a person whose activities he or she was testing).

Janco Partners, Inc. : Censured; Fined $60,000

Source Capital Group, Inc., John Philip Boesel III (Principal) and Joseph Ezekiel Blankenship II 
AWC/#2006003803601/August 2007

Acting through Blankenship, the Firm sent drafts of a research report prior to its issuance to the subject company that included the research summary, research rating and price target. Blankenship, as the author of the research report, was restricted from purchasing the company’s stock 30 days prior to the issuance of the report but acquired stock from the company prior to issuance. Inconsistent with his buy recommendation in the research report, Blankenship then sold his shares. Acting through Blankenship, the Firm issued the research report and failed to disclose Blankenship’s acquisition of the shares of stock from the company. 

Acting through Boesel, the Firm failed to implement the firm’s written supervisory procedures to ensure that the firm and its employees complied with the provisions of NASD Rule 2711. 

Source Capital Group, Inc.: Censured; Fined $20,000 ($10,000 jt/sev with Boesel, and another $10,000 jt/sev with Blankenship) 

John Philip Boesel III: Censured; Fined $10,000 jt/sev with Firm

Joseph Ezekiel Blankenship II: Censured; Fined $10,000 jt/sev with Firm; Fined additional $5,000 

Flynn Lambert Andrew (Principal) 
AWC/#E0420040369-05/July 2007

In letters and emails sent to the public, he used the phrase “guarantee” or “guaranteed” regarding specified rates of return without making the necessary commensurate disclosures about the issuer’s claims-paying ability or that there might be holding periods to obtain the rates of return. Andrew’s communications compared variable annuities and mutual funds without the necessary disclosures that there are numerous mutual funds available and other costs and restrictions associated with variable annuities that might not apply to mutual funds. 

Flynn Lambert Andrew: Fined $10,000; Suspended 10 business days in all capacities

Pruco Securities, LLC and Prudential Investment Management Services LLC
AWC/#EAF0401420002/July 2007

The Firms committed numerous separate violations of NASD rules, including failures to

  • file advertisements and sales literature in a timely manner with NASD;
  • have a registered principal approve advertisements and sales literature prior to use with the public;
  • comply with their recordkeeping obligations for communications with the public;
  • establish, maintain and enforce supervisory systems and procedures reasonably designed to achieve compliance with NASD rules governing filing, approval and recordkeeping with respect to advertising and sales literature;
  • file pieces in a timely manner with NASD (and lacked adequate systems and procedures to monitor the timeliness of NASD filings);
  • take sufficient remedial actions in response to written warnings from NASD that its filings were not timely

The firms used advertisements with the investing public before a registered principal approved the sales literature for use that went largely undetected by the firms, as they had no systems or procedures to record when advertisements were first used with the public, and their systems and procedures to detect when advertisements were used prior to the requisite internal approval were not adequate. The Firms failed to create and maintain reliable records of when advertisements were approved by a principal, and a flaw in their computer system caused inaccurate approval date records to be created and maintained. Finally, the Firms failed to retain records of filings with NASD’s Advertising Department and filed inaccurate dates of principal approval with NASD.

Pruco Securities, LLC and Prudential Investment Management Services LLC: Censured; Fined $525,000 jt/sev; Required to conduct an audit and prepare written findings regarding their compliance with NASD rules relating to the filing, approval and recordkeeping requirements for advertisements and sales literature.

Joseph Gunnar & Co. LLC 
AWC/#E102005022102/July 2007

The Firm permitted an individual to maintain his registration as a general securities representative through his purported association with the firm, when in fact he was not actively involved in the firm’s securities or investment banking business, or otherwise functioning as a firm representative. 

Certain communications with the public contained several deficiencies in that: the firm failed to 

  • provide evidence that a registered principal approved its Web site prior to use
  • file communications that contained discussions of options, mutual funds and U.S. government securities; 
  • state the name and address of the person from whom current options disclosure documents could be obtained on pieces of the firm’s promotional materials that contained discussions of options;
  • supplying a sound basis for evaluating the statements made in some of the firm’s communications; and
  • meet the disclosure and content requirements in NASD Conduct Rule 2711(h) in research reports that it prepared and distributed.

Joseph Gunnar & Co. LLC : Censured; Fined $35,000

Griffin Securities, Inc.
AWC/#2006003689401/July 2007

The Firm held customer stock certificates in a safe on its premises, despite a provision in its membership agreement requiring that the firm not safe keep customer securities. As a result of the firm holding customer securities, it conducted a securities business while failing to maintain its minimum net capital requirement. The Firm caused draft research reports containing price targets and/or ratings to be sent to companies that were the subjects of the reports when they should not have been sent. 

Griffin Securities, Inc.: Censured; Fined $20,000

First Citizens Financial Plus, Inc. and James Thomas Hopper (Principal) 
AWC/#2006003762801/July 2007

Acting through Hopper, the Firm issued sales literature to its public customers that omitted material facts and failed to file the newsletters, which discussed registered investment companies, with NASD’s Advertising Department 10 days prior to first use. 

First Citizens Financial Plus, Inc.and James Thomas Hopper (Principal): Censured; Fined $10,000 jt/sev.

Francis Bart Bertholic Jr. (Principal) 
AWC/#2006004272701/June 2007

Bertholic engaged in private securities transactions without prior notice to, or approval from, his member firm. TBertholic received $435,000 from public customers to purchase a promissory note from which the proceeds were to be invested in real property or to maintain and improve real property and, instead, Bertholic used the funds for his personal benefit. Bertholic published newspaper advertisements, a brochure and a flier, and developed a Web site that did not disclose his firm’s name and were not approved by a registered principal of the firm. The brochure and Web site did not provide a balanced discussion of the risks involved in real estate lending; did not disclose risks and contained false, exaggerated, unwarranted and/or misleading statements. The Web site presented testimonials from purported customers who, in fact, had never transacted any business with Bertholic. 

Francis Bart Bertholic Jr.: Barred

New York Global Securities, Inc.
AWC/#E1020050319-01/June 2007

The Firm prepared and issued research reports to public customers that violated NASD rules governing the content and disclosures required for equity research reports and rules governing content standards for communications with the public. The reports failed to disclose the firm’s actual, material conflicts of interest, the percentage of all securities rated by the firm to which is would assign a “buy,” “hold/neutral” or “sell” rating, the risks that may impede the achievement of cited price targets. The firm also failed to provide clear and comprehensive disclosures, used appropriately conditional and/or indefinite language in disclosures, and failed to provide readers with a sound basis from which to evaluate a potential investment. 

New York Global Securities, Inc: Censured: Fined $45,000; Suspended from issuing any research reports for six months

Coker & Palmer 
AWC/#2006003761701/June 2007

The Firm issued research reports that (i) did not contain any disclosures concerning the risks that might impede achievement of a price target; (ii) contained price target-risk disclosures, but such disclosures were not presented in the required form; and/or (iii) failed to disclose the percentage of all securities the firm rated to which it had assigned a buy, hold or sell rating, and the percentage of companies within each category for which the firm had provided investment banking services within the preceding twelve-month period. 

Coker & Palmer : Censured; Fined $10,000

Anderson & Strudwick, Incorporated and Bradley Allan Brown (Principal)
AWC/#2006003775301/June 2007

The Firm failed to timely report municipal securities transactions to the MSRB. In contravention of NASD Rule 2711(g)(3) trading restrictions in a “research analyst account,“ Brown effected securities transactions in accounts he owned, each of which involved securities issued by a company he followed as a research analyst (moreover, the transactions were inconsistent with his recommendations as reflected in his most recent research report his member firm published). The Firm and Brown issued research reports that did not include either price charts and price target disclosures or information required by Rule 2711(h)(6) and (7), or information directing readers in a clear manner where they could obtain applicable current disclosures in written or electronic format, and issued one firm research report that failed to include price charts and price target disclosures. The Firm failed to establish, maintain and enforce written supervisory procedures reasonably designed to achieve compliance with its trade reporting obligations and failed, in certain respects, to implement and adequately enforce its written supervisory procedures relating to NASD Rule 2711(h). 

Anderson & Strudwick, Incorporated: Censured; Fined $17,500 ($5,000 of which is jt/several with Brown) 

Bradley Allan Brown (Principal): Censured; Fined $10,000 ($5,000 of which is jt/several with Firm)

Donner Corporation International nka National Capital Securities, Inc., Jeffrey Lyle Baclet (Principal), Paul Alan Runyon 
#CAF20020048/June 2007 The United States Securities and Exchange Commission imposed sanctions on appeal of a National Adjudicatory Council Decision that imposed sanction following appeal from Office of Hearing Officers Decision

Acting through Baclet, the Firm issued research reports on companies whose stock traded below $5 per share that failed to disclose material information and contained misleading, exaggerated and false statements. The Firm and Baclet failed to disclose that the firm had received compensation for the preparation and issuance of research reports on the issuers’ behalf. Through Baclet, the Firm failed to obtain signed approval of research reports prior to their dissemination. The Firm and Baclet failed to establish, maintain and enforce adequate written supervisory procedures reasonably designed to achieve compliance with applicable securities laws and NASD rules concerning the preparation and issuance of research reports. Runyon issued research reports that contained material misstatements and omissions. 

Donner Corporation International nka National Capital Securities, Inc: Expelled

Jeffrey Lyle Baclet:Barred

Paul Alan Runyon: Fined $20,000; Suspended 6 months in all capacities; Required to requalify as General Securities Representative and Principal  

Hibernia Southcoast Capital, Inc. nka Capital One Southcoast, Inc. (New Orleans, Louisiana)
AWC/#2006003763801/April 2007

The Firm failed to include conflict of interest disclosures in research reports as NASD Rule 2711(h) requires. 

Censured; Fined $10,000

Bill Singer's Comment: Just one comment--given that this firm was located in New Orleans and given the recent devastation of Hurricane Katrina, did the NASD so desperately need that $10,000?  You all couldn't let this one go with just the Censure?
Miller Johnson Steichen Kinnard, Inc.
AWC/#20050005619-01/March 2007 

The Firm issued research reports concerning stock issuers that were unbalanced, unfair and made unwarranted statements, in violation of NASD Rules 2210 and 2110. 

Miller Johnson Steichen Kinnard, Inc: Censured; Fined $15,000

Redwood Brokerage, LLC 
AWC/#E1020050359-02/February 2007

The Firm distributed research reports prepared by an entity affiliated with the firm that were deficient, and those reports failed to contain the required research analysts’ certifications attesting to the nature of the views contained in the reports and their compensation. 

Redwood Brokerage, LLC : Censured; Fined $15,000

Block Orders Execution, LLC 
AWC/#2006003890801/February 2007 

The Firm failed to 

  • implement a system that allowed the firm to adequately retain and retrieve instant messages that registered representatives sent and received;
  • apply for the research analyst designation for a registered representative and for a supervisory designation for any of the firm’s principals to supervise a registered representative’s activity in his capacity as a research analyst; and
  • adopt or implement written supervisory procedures reasonably designed to ensure compliance with research analyst rules. 

The Firm permitted an associated person to act in a capacity requiring registration as a general securities representative without being properly registered in that capacity. 

Block Orders Execution, LLC : Censured; Fined $11,000

Bill Singer's Comment: Only the second month of 2007 and we already have a number of E-communication and registration cases.  I'm sure that I've spotted two of the enforcement targets for this year.  Look at the prior Prudential Equity Group. case and you'll see that NASD is really getting serious about incoming/outgoing correspondence review --- here with instant messaging and in Pru's case with faxes.  Might be a good idea to check your policies and procedures.
Christopher Lee Jacke
AWC/#2005003161001/January 2007

Jacke distributed sales literature to members of the public that contained false, exaggerated, unwarranted or misleading statements and claims; failed to identify the financial product being promoted as well as its features, benefits, fees, charges, withdrawal restrictions and risks; failed to provide investors with a sound basis for evaluating the product; failed to disclose his member firm’s name; and failed to file sales literature concerning registered investment companies with NASD within 10 days of first use. 

Christopher Lee Jacke: Fined $10,000; Suspended 2 months in all capacities; Required to requalify as General Securities Representative; Subject to a "pre-use' filing requirement for all future advertisements for 2 years.

Bill Singer's Comment: A somewhat interesting sanction that imposes a 2-year filing obligation on an individual.  Perhaps I'm getting a bit cranky in my middle age, but, either the NASD has made this all seem far worse than it is (in which case the relatively light sanctions are a nod by the regulator that it over-stated the case for public relations purposes); or, if the facts were as severe as the disciplinary reports suggests, what else would you need to do in order to earn a long-term suspension or bar?  I'm just not getting the outcome of this one.

 

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