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.  

FINANCIAL INDUSTRY REGULATORY AUTHORITY
FINRA
2008
Research and Advertising

VISIT WALL STREET'S LEADING ONLINE COMMUNITY
BrokeAndBroker.com

RRBDLAW.com Hotline
SEC Opinion of FINRA Appeal Involving NASD Conduct Rule 2711: 
In the Matter of the Application of ROBERT E. STRONG
For Review of Disciplinary Action Taken by NASD
Securities Exchange Act 1934 Rel. No. 57426/Admin. Proc. File No. 3-12599/March 4, 2008
Chief Compliance Officer of member of registered securities association failed to supervise research analyst whose personal securities trading violated association rules. Chief Compliance Officer also allowed incomplete and inaccurate disclosures in research reports and failed to file timely attestation of procedures. Held, association's findings of violations and sanctions it imposed are sustained.

 

 
Wachovia Securities, LLC
AWC/2007010115401/December 2008

The Firm permitted an individual to manage its advisory services group without being properly licensed as a general securities principal (GP) and to supervise its equity research analysts without being properly licensed as a research principal (RP). The Firm failed to enforce its procedures requiring its associated persons who function as principals to be properly registered as such. 

Wachovia Securities, LLC: Censured; Fined $75,000

Sloan Securities Corp. and James Curtis Ackerman (Principal) 
AWC/E9B2005014202/November 2008

Acting through Ackerman, the Firm 

  • allowed a registered representative to act as an unregistered principal of a branch;
  • failed to establish, maintain and enforce a supervisory system and written procedures to supervise the activities of registered members to achieve compliance with applicable rules and regulations regarding 
    • markups/markdowns
    • commission charges
    • municipal securities and private securities transactions, 
    • outside business activities, 
    • Securities and Exchange Commission (SEC) Regulation SP
    • sale of private placements
    • free-riding and withholding
    • advertising and sales literature, and 
    • the Regulatory Element of the Continuing Education Requirement;
  • failed to enforce its supervisory system and written procedures regarding the securities activities of a branch office so that the firm failed to provide for supervision of that branch’s registered representatives, particularly with respect to suitability of unregistered securities;
  • in connection with its branch office inspections, failed to prepare a written inspection report that included the testing and verification of its policies and procedures regarding the safeguarding of customer funds and securities, validation of customer address changes, transmittal of funds and other areas;
  • failed to establish or enforce procedures for a registered principal to review business-related electronic correspondence in one of its branch offices;
  • failed to designate and specifically identify to FINRA one or more principals to establish, maintain and enforce a system of supervisory control policies and procedures and, therefore, failed to establish procedures providing for the review and supervision of customer account activity conducted by branch office managers, sales managers or other supervisory persons;
  • failed to establish procedures reasonably designed to provide heightened supervision over the activities of each producing manager responsible for generating 20 percent or more of the revenue of the business units supervised by the producing manager’s supervisor;
  • in connection with a transaction in which the firm received approximately $350,000 in customer funds to purchase shares of an unregistered stock, the firm failed to 
    • establish and maintain a Special Reserve Bank Account for the Exclusive Benefit of Customers, 
    • prepare computations to determine the amount of funds and/or qualified securities needed to be deposited in the reserve account, and 
    • make the required deposit of funds and/or qualified securities to the account. 
    • accurately post the receipt and payment of customer funds in its general ledger. 
  • in connection with a contingent private offering in which it was seeking to raise $60 million as a placement agent, caused the release of public customer funds from escrow before the satisfaction of the contingency, contrary to the terms of the offering. 
  • failed to maintain a Checks Received and Forwarded Blotter in a branch office, and that order tickets for equity, corporate bond and municipal securities transactions contained deficiencies;
  • failed to file summary and statistical information with FINRA for customer complaints

Sloan Securities Corp.: Censured; Fined $65,000

James Curtis Ackerman: Fined $35,000, Suspended 3 months in Principal capacity; Suspended 10 business days in all capacities (suspensions to run concurrently); Ordered to requalify by examination as a general securities principal by passing the Series 24 examination within 60 days of the end of the three-month suspension. If Ackerman fails to pass the examination, he may not perform any functions requiring principal registration until such time as he passes the required examination.

Bill Singer's Comment: First off, I've been working on Wall Street for more than a quarter of a century.  Frankly, I can't think of any case that I've read or been involved with where there was such a breathtaking panoramic scope of violations.  Sloan is absolutely impressive on that account alone.  

However (and, yes, there is always that qualifier), I still have a nagging feeling or fear that all is not what it seems.  Assuming that FINRA hasn't hyped the facts here (and we know that would never, ever happen), I did quite a double take when I saw that the firm was fined a mere $65,000.  I rubbed my eyes because I thought the fine was $650,000, which made sense to me given the enormity of the violations; but when I saw that there were only three zeroes after the "65" I was astonished.  Then I figured that Mr. Ackerman was going to be barred as a Principal or certainly sat down for a few years.  Gee, imagine my puzzled look when I saw he got three months with a requal for the Series 24 and a mere 10 business days in all capacities.

My research revealed that Sloan has been an NASD/FINRA member since 1987.  I truly do not understand how all of the above just materialized in 2008, out of the blue, to the apparent shock and mystification of regulatory staff.  Moreover, since Mr. Ackerman was apparently suspended in 2005 to 2006 by NASD for one-year as a Compliance Director, you would think that his activities and that of his firm would have been subjected to all the more scrutiny during examinations since then. 

Ultimately, Sloan is the single most illustrative case of all that I see wrong with how Wall Street is regulated. I find it hard to believe that the good old FINRA examiners just happened to stroll into Sloan one fine day and, voila, the firm was in total disarray.  A compliance meltdown of this magnitude does not occur all at once. So many things had to be wrong from day one, so many things had to take months to go wrong, that you have to wonder why FINRA just didn't catch any of this earlier.  And if the best that FINRA can do for our industry and the investing public is to read the toe tag on this corpse of a member firm, then we're not really talking so much about pre-emptive regulation as post-mortems. 

WFG Investments, Inc. and Wilson Henry Williams (Principal)
AWC/E062003014607/October 2008

Acting through Williams, the Firm

  • approved the publication of research reports that did not contain any disclosure regarding the risks associated with investing in the subject company; and
  • failed to establish written supervisory procedures reasonably designed to achieve and monitor compliance with the requirements of NASD Rule 2711. 

The Firm

  • failed to develop and implement an anti-money laundering (AML) program reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and implementing regulations. 

The firm’s AML program was deficient, in that 

  • senior management had not approved the AML program in writing
  • its AML written procedures did not provide for on-going training of appropriate personnel; 
  • its written procedures did not provide for independent testing
  • its written procedures did not identify a specific individual as an AML compliance officer
  • its AML written procedures did not address recordkeeping requirements; and 
  • the firm had inadequate internal controls to detect an attempt to open or maintain correspondent accounts for foreign banks, or regarding freezing accounts and prohibiting transactions with persons suspected of terrorist activities and for filing relevant reports. 

WFG Investments, Inc. and Wilson Henry Williams: Censured; Fined $30,000 (of which $25,000 jt/sev with Williams)

Johnson Rice & Company, L.L.C. and Edward Douglas Johnson Jr. (Principal)
AWC/2007007422001/October 2008

 

the Firm

  • issued equity research reports where the front page did not identify the specific page(s) on which required disclosures appeared and the required-disclosures section was not prominently titled;
  • failed to adopt and implement written supervisory procedures reasonably designed to ensure that the firm and its employees comply with the provisions of NASD Rule 2711(g)(6), which mandates the pre-approval of all transactions of persons who oversee research analysts to the extent such transactions involve equity securities of companies covered by the research analysts they oversee; 
  • failed to preserve all communications in compliance with Section 17(a) of the Securities Exchange Act and SEC Rule 17a-4; 
  • had a systemin place for preserving electronic communications, but the system was not effective at preserving all electronic communications; and
  • had no procedures requiring periodic retrospective reviews or “spot-checks” of the system to determine whether it was preserving communications in compliance with SEC Rule 17a-4. 

Acting through Johnson, the Firm

  • failed to adequately supervise two of its associated persons’ participation in hedge fund-related private securities transactions that the firm had authorized;
  • authorized the associated persons to each operate and manage his own hedge fund, but failed to adequately supervise their hedge-fund-related activities; and
  • failed to establish and implement written supervisory procedures relating to supervision of private securities transactions that the firm approved. 

Johnson Rice & Company, L.L.C. : Censured; Fined $65,000 ($5,000 jt/sev with Johnson)

Edward Douglas Johnson Jr.: Fined $5,000 jt/sev with Firm; Suspended 10  business days in Principal capacity only

Jason Lee Seale III
AWC.2006006101501/September 2008

Seale sent letters and pieces of sales literature to public customers that had not been reviewed and approved by his member firm prior to being sent by Seale. The letters and sales literature contained misleading information, unbalanced statements, lacked required disclosures, projected investment returns and failed to provide information necessary to make a sound evaluation of the proposed investments. 

Jason Lee Seale III: Fined $7,500; Suspended 10 business days in all capacities

Charles Michael Ronson (Principal)
AWC/2007009451201/September 2008

Ronson executed purchases and/or sales of securities issued by companies that were followed in his member firm’s weekly research report in his personal securities account, during a period beginning 30 calendar days before and ending five calendar days after publication of the report. He was solely responsible for writing, reviewing, approving and distributing the research reports, and issued reports in which he failed to disclose that he held securities of the companies the reports covered. Ronson failed to adequately define the meaning of each rating used in the research reports and failed to further identify “the market.”

Charles Michael Ronson: Fined $25,000; Suspended 15 business days in all capacities; Suspended 30 business days as a Research Analyst

Bill Singer's Comment: Although I separately cover Research-related issues, we are seeing a dramatic increase, almost an explosion, in FINRA disciplinary cases pertaining to research practices and research analysts.  In Ronson you are reminded of two hallmarks of FINRA's scrutiny in this area: 1. Personal trading by analysts; and 2. Full disclosure of conflicts and rating criteria.
Tradition Asiel Securities Inc.
AWC/2008013615401/September 2008 

By failing to adopt, implement and enforce certain of its written supervisory procedures relating to its research analysts, the Firm failed to detect and prevent violations. 

The Firm ppermitted

  • a research analyst to execute purchase or sales of securities issued by companies that were followed in a research report in his personal account, during a period beginning 30 calendar days before and ending five calendar days after the publication of the report;
  • its research analyst to issue research reports in which the analyst failed to disclose that he held securities of the companies the report covered; and
  • its research analyst to issue research reports without adequately defining the meaning of each rating used in the report. 

Tradition Asiel Securities Inc.: Censured; Fined $65,000

Nordic Partners Inc.
AWC/2007007251501/September 2008 

The Firm permitted a person registered solely as a general securities principal who had not passed a qualification examination to supervise the conduct of the firm’s research analyst, including approving research reports the analyst prepared and the firm issued. The Firm failed to implement written supervisory procedures reasonably designed to achieve compliance with NASD Rules regarding the supervision of research activity, including the approval of research reports. A senior officer of the firm failed to annually attest to FINRA that the firm had adopted and implemented the procedures. 

Nordic Partners Inc.: Censured; Fined $10,000

Lehman Brothers Inc.
AWC/2005002206301/September 2008

The Firm published research reports with the names of research analysts appearing on the reports who did not have their research analyst registration and thus were not qualified. 

Lehman Brothers Inc.: Censured; Fined $75,000

Citigroup Global Markets, Inc.
AWC/2005002206101/September 2008 

The Firm 

  • permitted foreign-based research analysts associated with the firm to publish research without first obtaining required Series 86 and 87 qualifications or an exemption;
  • applied for and obtained a one-year grace period for each of its research analysts, including its non-U.S. research analysts, to take and pass the Series 86 and 87 examinations; however, the firm did not have its associated non-U.S. research analysts, with the exception of those residing in Mexico, take the examinations;
  • did not satisfy the conditions for a limited safe harbor in seven foreign jurisdictions because it failed to comply with disclosure requirements, yet permitted associated analysts in these jurisdictions to continue to publish research.

Citigroup Global Markets, Inc.: Censured; Fined $650,000

Tejas Securities Group, Inc. and Michael Lee Cuckler (Principal)
AWC/2006003679802/September 2008

Acting through Cuckler, the Firm

  • failed to disclose in research reports that the research analyst had a financial interest in the securities of the subject company and the nature of the financial interest, and 
  • failed to disclose in a research report that the firm and/or its officers had a financial interest in the subject company’s securities. 
  • failed to disclose the risks that might impede achievement of the stated price target in research reports, and 
  • failed to disclose in one research report that the firm had managed or co-managed a public offering of securities for the subject company in the past 12 months
  • permitted a research analyst account to purchase a security issued by a company that the research analyst had followed less than 30 days before the publication of a research report concerning the company, and 
  • permitted a research analyst account to sell a security in a manner inconsistent with his recommendation as reflected in the firm’s most recently published research report. 
  • failed to establish, maintain and/or enforce adequate supervisory systems and procedures 
    • regarding supervisory review and approval of research reports and personal trading activity by research analysts, and to ensure that required disclosures were made in research reports as required by the Securities and Exchange Commission (SEC) and FINRA;
    • ensuring order tickets were marked with all required information;
    • regarding reviewing and documenting reviews of electronic correspondence; and
    • regarding supervisory review and approval of private investment in public equity (PIPE) transactions. 
  • had inadequate written supervisory procedures regarding the prevention and detection of potential insider trading;
  • failed to ensure that a representative, who disclosed on an annual compliance audit that he was engaging in undisclosed private securities transactions, was properly supervised;
  • permitted individuals who did not hold the requisite securities licenses to author research reports and to act as supervisory analysts. 
  • failed to disclose the distribution of its ratings in an equity research report, 
  • failed to cover the entire period that the firm had assigned a rating to the subject company in the price chart contained in one research report, and 
  • failed to ensure that research reports contained the analyst certifications that SEC Regulation AC required. 

In addition, the Firm failed to 

  • adequately investigate “red flags” indicating possible suspicious activity in a group of related customer accounts; 
  • failed to enforce its AML procedures regarding suspicious account activity reviews and investigations of customer backgrounds; 
  • reflect all required information on order tickets for equity securities transactions; and 
  • failed to obtain information regarding certain PIPE customers’ financial status, investment objectives and tax status. 

Tejas Securities Group, Inc.:  Censured; Fined $175,000 ($15,000 jt/sev with Cuckler); Required to hire an independent consultant to review the adequacy of its supervisory systems and procedures (written and otherwise) and training relating to all aspects of its securities business, including but not limited to research reports, and adopt and implement the consultant’s recommendations.

Michael Lee Cuckler: I don't understand FINRA's sanctioning language here "in which the firm and Cuckler were censured and fined $175,000, of which $15,000 was jointly and severally with Cuckler."

Bill Singer's Comment: First the regulator suggests that Cuckler and the Firm were fined $175,000, but I can't tell if that's two separate $175,000 fines or just one. Then FINRA says that $15,000 was jt/sev. That either means that each respondent is supposed to pay $175,000 and $15,000 of the Firm's fine is joint and several with Cuckler; or, FINRA meant that the Firm was fined $175,000 of which $15,000 was jt/sev with Cuckler. 

As to the substantive aspect of this case, once again I'm puzzled by the enormous laundry list of alleged violations and the relatively puny sanctions.  This type of regulatory reporting does no one any good.  There is just too much of a disconnect between the enormity and severity of the underlying violations and the fairly modest fine--and the absence of any suspension.  Either FINRA is playing games and figured that if the member firm and principal were going to settle, then this was an opportunity to tag team the respondents and throw in the kitchen sink for appearances' sake; or, there were some significant issues of mitigation, and we readers should have been more fully informed of them. 

Gary Mark Giblen (Principal)
OS/2005001601001/August 2008

Giblen issued a public research report on a stock through his member firm with an “Accumulate” recommendation, an upgrade from his previous “Neutral” rating on the company. Without revising his recommendation and contrary to previous recommendations, Giblen purchased put options on the stock, reflecting his negative short-term view on the stock, which was inconsistent with his then-current recommendation of “Accumulate.” 

Gary Mark Giblen: No fine in light of financial status; Suspended 7 business days in all capacities

Linsco/Private Ledger Corp. nka LPL Financial Corporation and Phillip Scott Eggers (Principal) 
AWC/E062004027401/August 2008

Eggers 

  • recommended securities transactions to public customers without reasonable grounds for believing that his recommendations were suitable for the customers;
  • utilized discretion in the customers’ accounts without the customers’ written authorization to use discretion, and without his member firm’s approval of the accounts as discretionary;
  • distributed misleading sales literature to the customers regarding the growth rate of their accounts and the inflation rate. 

The Firm firm failed to reasonably supervise Eggers in connection with the strategies he employed, his use of marketing materials and the appropriateness of the investments he recommended to the customers. 

Linsco/Private Ledger Corp. nka LPL Financial Corporation: Censured; Fined $125,000 (of which $25,000 jt/sev with Eggers)

Phillip Scott Eggers (Principal): Fined $25,000 jt/sev with Firm; Suspended 15 business days in all capacities.

EKN Financial Services Inc. 
AWC/ELI2005000604/July 2008

The Firm failed to 

  • meet disclosure requirements for research reports
  • include the required disclosures on the front page of reports in a prominent, clear and comprehensive manner; 
  • provide a valuation method to determine the price target and a disclosure of risks that impeded achievement of price targets; 
  • maintain records of public appearances by research analysts
  • balance favorable discussions with disclosures of associated risks; 
  • enforce its procedures for reviewing duplicate account statements for the accounts of its brokers, including research analysts, to detect an analyst’s purchase of restricted stock; and 
  • conduct an annual attestation that the firm had adopted and implemented its research analyst rule procedures. 

The Firm maintained inaccurate balances in its general ledger and trial balance, and filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) reports. The Firm conducted a securities business while failing to maintain the required minimum net capital, and failed to timely file a FOCUS Part IIA report and an annual audit. The Firm failed to amend or file Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registry (Forms U5), and filed Forms U5 late. The Firm failed to report customer complaints, employee suspensions and an arbitration, and filed reports late or inaccurately pursuant to the NASD Rule 3070 reporting system. 

The Firm failed to maintain or preserve order tickets and confirmations in connection with equity, corporate debt, short sales and mutual fund transactions. The Firm failed to preserve and maintain time of order receipt, solicitation status, associated registered representative and/or customer name, and execution price on order tickets for municipal, government security or corporate debt transactions. Moreover, FINRA found that the firm failed to preserve and maintain, in an accessible place, written incoming and outgoing correspondence. The Firm indicated on confirmations that it was a market maker in a security when it was not. The Firm permitted $7,312.91 in excessive commissions to be charged in equity retail transactions, which the firm has since refunded to the affected customers. 

EKN Financial Services Inc.: Censured; Fined $80,000

Bill Singer's Comment: All that for only $80,000?  Looks like someone had one hell of a lawyer. 
David Wu 
AWC/20060037540-02/June 2008

Wu purchased securities issued by companies he followed in his capacity as a research analyst 30 calendar days before, and ending five calendar days after, the publication of research reports concerning one or more of the companies. The suspension in any capacity was in effect fromMay 19, 2008, through June 2, 2008. 

David Wu: Fined $5,000; Suspended 10 business days

Paul S. Kuklinski 
AWC/20070083155-01/June 2008

Kuklinski executed purchases or sales of securities issued by companies he followed 30 calendar days before, and five calendar days after, the publication of a research report he authored concerning the relevant company. Kuklinski executed securities transactions in a manner inconsistent with his recommendations in the most recent published research report concerning the relevant company.  He opened a personal securities account at a member firm although he was associated with another member firm, and failed to notify either firm in writing of his association or relationship with the other. 

Paul S. Kuklinski: Fined $200,000 (including $185,972.67 disgorged profits); Barred

Bill Singer's Comment: A growing and troubling trend!  I'm seeing and hearing about more analysts who are trading against their published recommendations and doing so from an undisclosed away account.  There are few regulatory issues that were more in the public eye and better publicized than the reform of research practices.  Paramount among the reforms were restrictions and prohibitions on analysts' conflicts, particularly those arising from trading against published recommendations and using a non-disclosed away account for that purpose.  Given the critical import of these rules, I am noting the relevant portion of NASD Conduct Rule 2711: Research Analysts and Research Reports below:

(g) Restrictions on Personal Trading by Research Analysts 

(1) No research analyst account may purchase or receive any securities before the issuer's initial public offering if the issuer is principally engaged in the same types of business as companies that the research analyst follows.

(2) No research analyst account may purchase or sell any security issued by a company that the research analyst follows, or any option on or derivative of such security, for a period beginning 30 calendar days before and ending five calendar days after the publication of a research report concerning the company or a change in a rating or price target of the company's securities; provided that:

(A) a member may permit a research analyst account to sell securities held by the account that are issued by a company that the research analyst follows, within 30 calendar days after the research analyst began following the company for the member;

(B) a member may permit a research analyst account to purchase or sell any security issued by a subject company within 30 calendar days before the publication of a research report or change in the rating or price target of the subject company's securities due to significant news or a significant event concerning the subject company, provided that legal or compliance personnel pre-approve the research report and any change in the rating or price target.

(3) No research analyst account may purchase or sell any security or any option on or derivative of such security in a manner inconsistent with the research analyst's recommendation as reflected in the most recent research report published by the member.

(4) Legal or compliance personnel may authorize a transaction otherwise prohibited by paragraphs (g)(2) and (g)(3) based upon an unanticipated significant change in the personal financial circumstances of the beneficial owner of the research analyst account, provided that:

(A) legal or compliance personnel authorize the transaction before it is entered;

(B) each exception is granted in compliance with policies and procedures adopted by the member that are reasonably designed to ensure that these transactions do not create a conflict of interest between the professional responsibilities of the research analyst and the personal trading activities of a research analyst account; and

(C) the member maintains written records concerning each transaction and the justification for permitting the transaction for three years following the date on which the transaction is approved.

(5) The prohibitions in paragraphs (g)(1) through (g)(3) do not apply to a purchase or sale of the securities of:

(A) any registered diversified investment company as defined under Section (5)(b)(1) of the Investment Company Act of 1940; or

(B) any other investment fund over which neither the research analyst nor a member of the research analyst's household has any investment discretion or control, provided that:

(i) the research analyst accounts collectively own interests representing no more than 1% of the assets of the fund;

(ii) the fund invests no more than 20% of its assets in securities of issuers principally engaged in the same types of business as companies that the research analyst follows; and

(iii) if the investment fund distributes securities in kind to the research analyst or household member before the issuer's initial public offering, the research analyst or household member must either divest those securities immediately or the research analyst must refrain from participating in the preparation of research reports concerning that issuer.

(6) Legal or compliance personnel of the member shall pre-approve all transactions of persons who oversee research analysts to the extent such transactions involve equity securities of subject companies covered by the research analysts that they oversee. This pre-approval requirement shall apply to all persons, such as the director of research, supervisory analyst, or member of a committee, who have direct influence or control with respect to the preparation of the substance of research reports or establishing or changing a rating or price target of a subject company's equity securities.

 

SG Americas Securities, LLC
AWC/20070095217/May 2008

The Firm distributed research reports and research notes/updates to its U.S. institutional customers that its non-member foreign affiliates prepared and failed to determine whether disclosures were required. A qualified individual did not review any of the reports prior to their distribution to U.S. customers. By displaying the firm logo, the research reports inaccurately represented that the firm’s U.S. member affiliate had produced them. The Firm failed to detect and correct the inaccurate representation as to the source of the research reports in a timely manner, and failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with applicable NASD disclosure and communication rules. 

SG Americas Securities, LLC: Censured; Fined $175,000

Global Crown Capital
AWC/20060037540-01/May 2008

The Firm conducted a securities business, utilizing the means and instrumentalities of interstate commerce, while failing to maintain the minimum net capital required by SEC Rule 15c3-1. The Firm failed to adopt and implement written supervisory procedures reasonably designed to achieve compliance with NASD Rule 2711 as it pertains to 

  • personal trading by research analysts
  • accurately identifying research publications as reports subject to that rule, 
  • disclosures in research reports; and 
  • the qualifications of persons who supervised research analysts and the preparation of research reports. 

The Firm maintained a materially inaccurate Uniform Application for Broker-Dealer Registration (Form BD) in that it represented that a family trust established by a principal of the firm was a firm owner when the trust had no ownership interest. 

Global Crown Capital: Censured; Fined $20,000 ($2,500 of which is jt/sev with unnamed individual)

Newbridge Securities Corporation , Kenneth Brown (Principal) and Eric Manuel Vallejo (Principal)
AWC/E072003019507/May 2008

The Firm 

  • charged excessive markups/markdowns totaling $66,019.48 on customer stock transactions,  supervisory procedures regarding markups/markdowns;
  • failed to develop and implement a written anti-money laundering (AML) program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and the regulations promulgated thereunder;
  • failed to timely report customer complaints within the time frame NASD Rule 3070 specified;
  • failed to enforce its written supervisory procedures with regard to internal disciplinary actions against registered representatives with patterns of Regulation T violations, restricted/watch list procedures, prospective registered representative screening procedures, procedures related to special supervision of registered representatives and enforcement of margin account restrictions placed on representatives;  
  • failed to file an application for approval of a material change in business activity;
  • failed to implement an adequate supervisory system to ensure compliance with NASD Rule 1017; and
  • failed to register one of its offices as a branch office

Acting through Vallejo, the Firm failed to reasonably supervise the markups/markdowns charged in stock transactions to ensure that they were not excessive and failed to follow its written supervisory procedures regarding markups/markdowns

Acting though Brown, the Firm 

  • approved the use of variable annuity seminar materials that contained misleading statements, material omissions and inadequate risk disclosures, and Brown failed to file the materials with FINRA. 
  • failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable rules and regulations in the following areas: 
    • markups/markdowns, 
    • AML requirements, 
    • customer sellouts and 
    • instant message correspondence;
  • failed to establish and maintain a supervisory system reasonably designed to ensure that the firm’s practice of paying trading credits to registered representatives as extra compensation in connection with the sales of certain stocks did not result in sales practice problems. 

Newbridge Securities Corporation: Fined $177,500 ($10,000 of which was jointly and severally with Brown and $10,000 was jointly and severally with Vallejo); Ordered to pay $61,416.35, plus interest, in restitution to public customers;  and Consented to a one-year pre-use filing requirement with FINRA for all customer advertisements and sales literature relating to seminars the firm and/or its representatives offer. 

Kenneth Brown (Principal): Suspended 15 days in Principal capacity only

Eric Manuel Vallejo (Principal): Suspended 15 days in Principal capacity only

Stephen G. Rittenberg 
AWC/2006006533901/April 2008

Rittenberg prepared and distributed unapproved sales literature at seminars for active and retired educators. The sales literature failed to disclose Rittenberg’s member firm, and a principal at his firm did not review the sales literature and evidence its review in writing. Some of the customer information questionnaires Rittenberg prepared for distribution at the seminars were misleading because they claimed that any information provided would be held confidential when that was not the case.

Stephen G. Rittenberg: Fined $5,000; Suspended 30 days

Bill Singer's Comment: Without question, FINRA has put the industry on notice that it is watching out for potential abuses in the seminar arena.  The regulator has been steadily increasing its docket over the past few years with examples of misconduct in that arena, and as Rittenberg demonstrates, there is no let up.  The confidentiality issue in this case is intriguing because it is clearly an area ripe for abuse and we haven't seen many FINRA actions involving such misconduct. 
Gregory Orlan Dartez and Jerry Glenn Griggs
AWC/20060066266-01/20060066266-02/April 2008

Dartez and Griggs wrote and disseminated press releases touting the securities of an oil and gas company that were not fair and balanced, and failed to provide a sound basis for evaluating the facts regarding the securities. The press releases omitted material facts, including the company’s recent revenues, causing the press releases to be misleading. 

Gregory Orlan Dartez: Barred

Jerry Glenn Griggs: Barred

The Robins Group LLC and Marcus Whitney Robins (Principal)
AWC2005001863901/April 2008

The Firm permitted research analysts, including Robins, to execute

  • sales of securities in research analyst accounts in a manner inconsistent with their recommendations, as reflected in the most recent research reports the firm published; and
  • transactions of securities issued by companies that the research analysts followed in research analyst accounts 30 days before and five days after the publication of a research report concerning the companies. 

The Firm authorized stock transactions that NASD Rule 2711(g)(3) prohibited, purportedly based on an unanticipated change in the personal financial circumstances of the beneficial owner of the research analyst account, and failed to maintain written records regarding the transactions and the justification for permitting them for three years after the dates when the transactions were approved. 

The Firm, acting through Robin, published research reports another analyst had written regarding a company, but the report did not disclose that the company had compensated the analyst within the past 12months.  The Firm published research reports regarding a company and failed to disclose that the company had compensated a business entity affiliated with the firm within the past 12 months. Robins published magazine articles, which a research analyst considered to be public appearances, and failed to disclose to the publisher that he or a member of his household had a financial interest in the securities of the companies, and the firm failed to maintain records of the articles sufficient to demonstrate Robins’ compliance with the applicable disclosure requirements of NASD Rule 2711(h) for three years after the articles were published. In addition, the Firm failed to adopt or implement written supervisory procedures reasonably designed to ensure that it and its employees comply with NASD Rule 2711. Moreover, the Firm published on its web site an inaccurate list of its registered persons, including its research analysts, and the companies covered by their research, because some of the persons had terminated their association with the firm. 

The Robins Group LLC: Censured; Fined $25,000 ($5,000 of which jt/sev with Robins)

Marcus Whitney Robins (Principal): Fined $5,000 jt/sev with Firm; Fined $31,458.59 (includes $16,458,59 disgorgement of benefits); Suspended 20 business days in all capacities 

Bill Singer's Comment: Note that FINRA sanctioned the firm because its website disclosed the ongoing employment of terminated individuals.
E. Magnus Oppenheim & Co. Inc. and E. Magnus Oppenheim (Principal)
AWC/2006004863601/February 2008

The Firm and Oppenheim 

  • posted information regarding the benefits and advantages of investing in an unregistered private limited partnership on the firm 's Web site;
  • failed to register the fund with the SEC in violation of SEC Rule 506 of Regulation D;
    •  Although no sales of interest in the private limited partnership were made through the Web site, the material published on the firm 's Web site regarding the fund constituted a general solicitation of investors. 
  • published material on the firm 's Web site regarding the purported benefits and advantages of investing in the fund without providing a balanced disclosure of risks associated with the investment to provide a sound basis for evaluating the facts regarding an investment in the fund. 
E. Magnus Oppenheim & Co. Inc.: Censured; Fined $17,500; Required to file with FINRA within 60 days, all sales literature and advertisements, including but not limited to annual or semi-annual client letters, print ads, performance updates and Web site content that the firm currently uses. 

E. Magnus Oppenheim (Principal): Censured; Fined $10,000;  Must have completed six hours of continuing education relating to compliance with NASD rules and federal securities laws regarding advertising and/or use of the internet in connection with offerings of securities within 90 days. 

Bill Singer's Comment: This case should serve as a very critical warning -- federal and state securities laws generally do not distinguish between "sales" "offerings" and "solicitations.".  If one is not permitted, the others typically fall within that proscription.  As such, please review your website to make sure that you are not offering investments -- or directly/indirectly soliciting the same -- without having the requisite offering documents or a lawyer's opinion that you are exempted from same.
Thomas Group Capital and Thomas Borbone (Principal)
AWC/2005000323701/February 2008

The Firm and Borbone failed to supervise the sale of hedge fund interests by registered representatives to public customers. There was no review or endorsement by a registered principal of transactions in hedge fund interests; and sales of hedge fund interests were not subjected to principal review for suitability of recommendations. The due diligence reviews of hedge fund offering documents prior to sales by representatives were inadequate. 

Thomas Group Capital: Censured; Fined $50,000; Prohibited from offering hedge fund interests or opening new hedge fund accounts for six months, and thereafter suspended from offering hedge fund interests or opening new hedge fund accounts until the firm has submitted revised written supervisory procedures to FINRA that satisfactorily address the supervision of hedge fund offerings. Required to pre-file all customer advertisements and sales literature relating to hedge funds with FINRA for six months, beginning with the first use of such sales communications following the suspension from offering hedge fund interest and opening new hedge fund accounts. 

Thomas Borbone (Principal): No fined in light of financial status; Suspended in Principal capacity for 3 months

Bill Singer's Comment:  Another powerful sanction from FINRA.  Here the firm is prohibited from offering hedgie interests or opening hedgie accounts for six months, and cannot renew such activities until it submits satisfactory written supervisory procedures.  Moreovoer, after that suspension is completed, there is further six month obligation to pre-file related ads and literature.
Adam Galeon
SFC/NYSE Hearing Board Decision: 07-162 February 13 2008

On May 24, 2005,Credit Suisse Research Analyst Galeon obtained certain information from the CEO of XYZ relating to XYZ’s expected updated earnings guidance. That was the day before the official public release of the company’s updated earnings guidance. Galeon selectively disseminated emails to 17 Firm clients and 31 Firm sales personnel, conveying the information the CEO had disclosed to him. All but one email contained an admonition to keep the information confidential. Subsequently, Credit Suisse and two clients of Credit Suisse who received the information in Galeon’s email traded in shares of XYZ, prior to the public release of such information. By selectively disseminating the information he obtained from the CEO, Galeon engaged in conduct inconsistent with just and equitable principles of trade in violation of NYSE Rule 476(a)(6).


Adam Galeon: Censure; $50,000 fine; 4 month Bar

Stanford Group Company 
AWC/2005002203701/January 2008

In connection with the offers and sales of certificates of deposit (CDs) a bank affiliate issued, it distributed sales literature that did not comply with FINRA advertising rules, in that it failed to disclose that the affiliation between the firm and the bank could create a conflict of interest in connection with its offers and sales of the bank-issued CDs. The brochures failed to present fair and balanced treatment of the risks and potential benefits of a CD investment, failed to contain the name of the firm using the materials and contained misleading, unfair and unbalanced information. 

Stanford Group Company: Censured; Fined $10,000

Pritchard Capital Partners, LLC 
AWC/2006003800501/January 2008

The Firm issued research reports, one of which failed to disclose adequately the valuation methods used to determine the price targets or to disclose risks that may impede achievement of the price targets for the profiled stocks. Most of the research reports failed to present required disclosures on the first page or to refer to which page the disclosures were found; and some of the research reports contained language that was conditional or indefinite in regard to certain required disclosure. The Firm distributed research reports to institutional customers that other member firms produced without including the current applicable disclosures as they pertained to the Firm.  

Pritchard Capital Partners, LLC : Censured; Fined $10,000

Bill Singer's Comment: FINRA raises an interesting point here, and you should make a note. Today, many firms forward to customers reports prepared by other firms ("first generation reports").  If you are going to "repackage" such first generation reports, you cannot simply rely upon the disclosures contained in those reports. Make sure that you review first generation reports to ensure that any conflicts or disclosures your firm is obligated to include in its own research reports are now noted in the materials you are using from others.
Loeb Partners Corporation
AWC/#2006003769501/January 2008 

The Firm 

  • permitted an unqualified principal to supervise the conduct of the firm's research analyst;
  • issued research reports that were not approved by a registered principal's signature or initial as NASD rules required;
  • failed to adopt or implement written supervisory procedures reasonably designed to achieve compliance with NASD rules regarding the supervision of research activity and the approval of research reports;
  • engaged in a pattern and practice of reporting fixed income transactions late and over-reporting certain inter-dealer transactions to TRACE (supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable TRACE rules).

Loeb Partners Corporation: Censured; Fined $25,000; Suspended 30 business days from conducting any research analyst activities (including, but not limited to, issuing research reports); Must have one of the firm 's officers certify in writing to FINRA that it has i) reviewed its written supervisory procedures regarding supervision relating to research analysts and research reports, and Trade Reporting and Compliance Engine (TRACE) reporting, and ii) established systems and procedures reasonably designed to achieve compliance with the laws, regulations and rules concerning those matters within 60 days.

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