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.
INDUSTRY REGULATORY AUTHORITY
WALL STREET'S LEADING ONLINE COMMUNITY
Wachovia Securities, LLC
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
Acting through Ackerman, the Firm
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.
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
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)
Acting through Williams, the Firm
The firm’s AML program was deficient, in that
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.
Acting through Johnson, the Firm
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
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)
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.
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
Tradition Asiel Securities Inc.: Censured; Fined $65,000
Nordic Partners Inc.
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.
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.
Citigroup Global Markets, Inc.: Censured; Fined $650,000
Tejas Securities Group, Inc. and Michael Lee Cuckler (Principal)
Acting through Cuckler, the Firm
In addition, the Firm failed to
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."
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)
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)
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.
The Firm failed to
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.|
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
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
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:
(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:
(5) The prohibitions in paragraphs (g)(1) through (g)(3) do not apply to a purchase or sale of the securities of:
(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
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
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
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)
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
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
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
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)
The Firm permitted research analysts, including Robins, to execute
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
The Firm and Oppenheim
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)
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.|
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).
Stanford Group Company
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
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
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.