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.

2005
Forms U4, U5, and RE-3 and Rule 3070 Reports

Also see the Statutory Disqualification Index

 

Trevis M. Wray (Principal)
AWC/2005001430601/December 2005

Wray willfully failed to disclose material facts on his Form U4. 

Fined $5,000; Suspended 3 months in all capacities

Sonny C. Uwadia
AWC/2005001143701/December 2005

Uwadia willfully failed to disclose a material fact on his Form U4 and failed to respond to NASD requests for information. 

Barred

John Barry Chambers
OS/CLI20040031/ELI2002045104/December 2005

Chambers 

  • induced public customers to submit $180,600 for investing purposes to his company or its agent and, without their knowledge, authorization or consent, he misused and/or converted the customers’ funds for his own use and benefit;
  • recommended securities transactions to public customers without reasonable grounds to believe the investments were suitable for them in light of their financial situations, investment objectives, needs and the risks associated with the investments;
  • engaged in private securities transactions and outside business activities without providing his member firm with prior written notice; and
  • willfully failed to amend and to timely submit an amendment to his Form U4 to disclose material information. 

Barred; Ordered to pay $73,750 in restitution

Gwendolyn Faye Cash
OS/C0720050044/ 2005000890102/December 2005

Cash willfully failed to disclose material facts on her Form U4. 

Fined $5,000; Suspended 9 months in all capacities.

Thomas George Carr 
AWC/20050003783-01/December 2005

Carr failed to amend his Form U4 to disclose a material fact. 

Fined $5,000; Suspended 3 months in all capacities

Sentra Securities Corporation
AWC/E3A2004007001/December 2005

The Firm

  • filed late, or did not file, amendments to the previously filed Forms U4 of persons registered with the firm and Forms U5 pertaining to persons formerly registered with the firm;
  • failed to report, or reported late, matters that required disclosure within 10 days as required by NASD;
  • reported late, did not report or inaccurately reported matters required to be included on quarterly statistical reports; and
  • paid transaction-related compensation to a person previously, but no longer, registered with the firm. 

Individuals of the firm who were required to participate in an annual compliance interview did not. Written supervisory procedures documenting the supervisory system did not assign a principal with the responsibilities for the review of the firm’s supervisory system and procedures and for making recommendations to the firm’s management for changes to them; and the firm did not consistently and systematically enforce some of its written supervisory procedures. In addition, the firm’s supervisory system and procedures for its municipal securities business did not include provisions for record retention, new municipal securities accounts, transaction reporting, suitability reviews and mark-up reviews. 

The firm’s supervisory system and procedures were not reasonably designed to 

  • achieve compliance with applicable rules;
  • oversee the activities of the firm’s geographically dispersed sales force;
  • assure that proper steps were taken to review the conduct of persons whose histories in the securities business indicated the propriety of heightened supervision;
  • assure that proper steps were taken to recover firm records and property from persons whose registrations were terminated; and 
  • timely report information required by NASD. 

Censured; Fined $122,500

Bill Singer's Comment:  Geez . . . all that for only a measly $122,500 in fines?  Either the NASD has engaged in a bit of overkill in describing the facts (not that they would ever do that) or Sentra was ably represented by a defense lawyer with backbone.  Nonetheless,  an interesting year-end case that truly ties up many of 2005's regulatory themes.  Again we see an emphasis on timely filing of U4s/U5s.  We also see the enhanced focus on WSPs and supervisory systems.  Noteworthy is the implicit warning about what I call scalability issues --- is your firm so "geographically dispersed" that you may not be adequately supervising?  Harkens back to one of the earliest cases of the year: Olsen  

I was also struck by what was a fairly new charge; namely, that the firm had failed to "recover firm records and property" from terminated registered reps.  Frankly, I wish NASD had explained this one in a bit more detail.  What exactly was the issue here --- that "confidential" records involving customer information had been taken?  

Pruco Securities, LLC.
AWCE9B2003004301/December 2005

Pruco failed to file certain amendments to Forms U4 and U5 in a timely manner, and filed Forms U5 for terminated registered representatives late. The firm’s supervisory system and procedures were not reasonably designed to achieve compliance with its reporting obligations. 

Censured; Fined $550,000; Required to conduct internal audits to evaluate the effectiveness of its system for ensuring compliance with the reporting obligations of the Uniform Applications for Securities Industry Registration or Transfer (Form U4) and the Uniform Termination Notice For Securities Industry Registration (Form U5); and an officer of the firm must certify that such audits have occurred, that recommendations from the audits have been implemented, and that the firm has established systems and procedures reasonably designed to achieve compliance with NASD reporting requirements.

Bill Singer's Comment:  Interesting case at year end --- sort of underscores NASD's ongoing message this year about the need to timely amend/file U4s and U5s.  Note the sanction imposed an internal audit obligation upon the firm to ensure that it is evaluating the "effectiveness" of its system.  Moreover, note that an officer of the firm must certify the occurrence of such audits and the implementation of recommendations. 
Charles Lee Williams
C3A050011/November 2005

Williams included false and misleading information on his Form U4 to avoid disclosure of material facts. Also, Williams failed to respond to NASD requests for information. 

Barred

Gregory Joseph Smith
AWC/E022002092201/November 2005

Smith willfully failed to disclose a material fact on his Form U4. 

No Fine in light of financial status; Suspended 90 days in all capacity

Jerritt Clark Simmers
C10050033/November 2005

Simmers willfully failed to disclose material facts on his Forms U4. 

Barred

Irving Bruce Mangurten
AWC/E8A2004073101/November 2005

Mangurten failed to timely amend his form U4 to disclose a material fact.

Fined $5,000; Suspended 6 months in all capacities

Kenneth Krygowski
AWC/E9A2004053701/November 2005

Krygowski willfully failed to disclose material information on his Form U4.

Barred

Dante Falco Calicchio,  Charles Philippe Celestin (Principal) and Marc Steven Kimmel 
CMS040094/November 2005

Respondents, by the use of means or instrumentalities of interstate commerce or of the mails, intentionally and recklessly affected transactions, and induced the purchase and the sale of securities by means of deceptive, manipulative and other fraudulent devices or contrivances. Calicchio and Kimmel failed to timely amend their Forms U4 to disclose a material fact. 

Barred

Michael Acosta
AWC/E0220040693-01/November 2005

Acosta failed to amend his Uniform Application for Securities Industry Registration and Transfer (Form U4) to disclose a material fact. 

Fined $5,000; Suspended 3 months in all capacities

Meyers Associates, L.P.
OS/CE2050003/November 2005

The Firm failed to comply with 

  • its discovery obligations by failing to produce, in a timely manner, documents in its possession or control that were requested by the claimant; and
  • orders issued by an arbitration panel requiring the firm to produce documents in its possession or control, or to submit an affidavit from its CEO providing specific information related to the production of documents. 

Censured; Fined $25,000; Required to revise its written supervisory procedures to notify all counsel representing the firm in arbitration proceedings of the firm’s policy to comply with discovery requirements as set out in the Code of Arbitration, and to comply with all orders of arbitration panels relating to discovery obligations

Bill Singer's Comment:  Even as jaded an industry pundit as I am sits up every once in a while when an odd case comes across my desk.  You rarely see NASD (regulation) get involved in allegations of discovery abuses in an NASD arbitration.
Northwestern Mutual Investment Services, LLC and Diane Barbara Horn (Principal)
C8A030071/November 2005

Respondents violated Rule 3070 by failing to timely report customer complaints to NASD as statistical and summary information. 

The Firm failed to 

  • properly train its registered representatives and other personnel with respect to the handling of customer complaints;
  • adequately maintain and enforce supervisory procedures; 
  • timely report customer settlements; and
  • failed to timely amend a former registered representative’s Uniform Termination Notice for Securities Industry Registration (Form U5). 

Northwestern Mutual Investment Services, LLC: Censured; Fined $110,000

Diane Barbara Horn: Censured; Fined $15,000

Bill Singer's Comment:  Without question the NASD has clamped down on 3070 reporting lapses this year.  Moreover, there is a clear focus on a firm's intake of customer complaints and timely processing of same.
Maria Adriana Cordova
SFC/NYSE Hearing Panel Decision 05-116/October 19, 2005 

Maria Adriana Cordova was found guilty of 

  • misdemeanor petty theft on or about November 2000, 
  • misdemeanor petty theft on or about September 2001, and 
  • felony petty theft on or about June 20, 2002. 

The June 20, 2002 petty theft resulted in a three-strikes felony conviction under California law. 

Under Sections 3(a)(39)(F) and 15(b)(4)(B) of the Securities Exchange Act of 1934 (the “1934 Act”), a person is subject to a statutory disqualification for a period of ten years upon conviction if such person has been convicted of, among other things, any felony.  

SEEKING EMPLOYMENT IN 2004

While seeking a position with Morgan Stanley DW, Inc. (the “Firm”), Cordova completed the Firm’s employment application on or about March 9, 2004. The Personal Data section of the employment application asked whether Cordova had ever been convicted of a crime. Question 5(a) of the Personal Data section asked, “Have you ever been arrested, charged with, convicted of or plead no contest to any FELONY?” In response to the question, Cordova falsely answered “NO.” Question 5(b)(i) of the Personal Data section asked, “Have you ever been arrested, charged with, convicted of or plead no contest to any MISDEMEANOR involving . . . theft . . . .” In response to the question, Cordova falsely answered “NO.” 

STATUTORILY DISQUALIFIED SINCE JUNE 2002

As Cordova’s June 20, 2002 conviction for petty theft in violation of California Penal Code § 666 constitutes a felony conviction, under Section 15(b)(4)(B) of the 1934 Act, Cordova was statutorily disqualified from employment with an Exchange member organization at the time that she applied for the position with the Firm. 

HIRED MARCH 2004

On or about March 31, 2004, Cordova began working at the Firm as a receptionist in the Firm’s Los Angeles, California branch office. 

SEPTEMBER 2004 DOJ REPORT

On or about September 1, 2004, the Firm received a United States Department of Justice, Federal Bureau of Investigation, Criminal Justice Information Services Division fingerprint report (“DOJ Report”) which reflected that Cordova had been arrested nine times from 1993 to 2004, though only four of those arrests resulted in charges. She was terminated shortly thereafter.

STATUTORY DISQUALIFICATION STATUS REMOVED OCTOBER 2004

In October 2004, Cordova’s felony conviction for petty theft was reduced to a misdemeanor; therefore, Cordova is no longer statutorily disqualified. 

NYSE found that Cordova violated Exchange Rule 476(a)(6) by engaging in conduct inconsistent with just and equitable principles of trade in that she failed to disclose her criminal history on her employment application submitted to her member firm employer, which, at the time, subjected her to a statutory disqualification. 

The NYSE considered the following in determining penalties:

  • In re Chaim Rieger, Decision 05-92 (Aug. 24, 2005) http://www.nyse.com/pdfs/05-092.pdf (the respondent was convicted of a misdemeanor and two felonies, all of which he failed to disclose on his employment application; he consented to a penalty of a censure and two year bar beyond the period of statutory disqualification);
  • In re Andrew Davis Mills, Decision 05-88 (Aug. 5, 2005)  http://www.nyse.com/pdfs/05-088.pdf (respondent failed to disclose a prior misdemeanor conviction; censure and one year bar); 
  • In re John R. Johnson, Decision 05-19 (Jan. 27, 2005) http://www.nyse.com/pdfs/05-019.pdf (the respondent consented to a penalty of a censure and three-year bar beyond the period of statutory disqualification for failing to disclose a felony conviction for which he was on probation at the time of the employment application, notwithstanding the fact that the official record pertaining to the case would be sealed if he successfully completed probation)

In Cordova's case, the Hearing Panel noted that she failed to disclose one felony and two misdemeanor convictions. The fact that the felony conviction consisted of a misdemeanor act that only became a felony because of the California three-strikes law and was converted back to a misdemeanor does not negate its serious nature. 

Censure; 18 month Bar in all capacities

Raymond Burton
SFC/NYSE Hearing Panel Decision 05-115/October 19, 2005 

On March 18, 2004, Raymond Burton was arrested and charged with one felony count of “Possession Narcotic/Cocaine,” one misdemeanor count of “Possession of Marijuana,” and one count of misdemeanor “Operating Intoxicated/Impaired/ Controlled Substance.” 

THE HIRING PROCESS

On April 26, 2004, Burton completed an Application for Employment with Morgan Stanley DW Inc. (the “Firm”). Question 5(a) of the application asked, “Have you ever been arrested, charged with, convicted of or plead no contest to any FELONY?” After Question 5(a), Burton placed an “X” in the "No" box. 7. Burton was required to place an “X” in the Yes box in response to Question 5(a) based on his felony arrest and charge for cocaine possession. The footnote to Question 5 stated “[a]rrests or indictments are not considered by Morgan Stanley in any employment decisions but records of such are required, by regulatory bodies, to be maintained. Further, in your response to Question No. 5, please include any arrests, charges or convictions which have been dismissed or expunged.” 

On April 27, 2004, Burton completed a Background Information Authorization Form. Question 6 of the authorization form asked, “Have you ever been charged with or convicted of a: Felony? Misdemeanor?” After both questions, Burton falsely placed an “X” in the "No" box. Based on the felony drug possession, misdemeanor drug possession and the misdemeanor driving while impaired charges, Burton was required to answer Yes in response to Question 6. 

July 9, 2004, Burton completed the Form U-4. Question 14A asked, “Have you ever: … (b) been charged with any felony?” In response to Question 14A, Burton falsely checked the "No" box. Based upon his March 2004 felony cocaine possession charge, Burton was required to answer Yes to the question. 

The Firm hired Burton on June 28, 2004 as a Financial Adviser Trainee. The initial background search conducted on April 29, 2004 failed to disclose Burton’s criminal history. 

On July 15, 2004, the Firm received the results of a United States Department of Justice, Federal Bureau of Investigation, Criminal Justice Information Services Division fingerprint report (“DOJ report”), which disclosed that Burton had been arrested and charged with two dangerous drug charges and one traffic offense. After receiving the DOJ Report, the Firm ordered the relevant court documents and requested a written statement from Burton, which Burton supplied. The Firm ultimately terminated Burton’s employment on September 8, 2004 for failing to disclose his criminal history. 

THE PLEA

On December 2, 2004, Burton entered a plea agreement covering all three counts, whereby guilt was deferred pending the completion by Burton of probation and ninety days of incarceration

Sections 3(a)(39) and 15(b)(4)(B) of the Securities Exchange Act of 1934 provide that an individual is subject to a statutory disqualification for a period of ten years if convicted of any felony and certain specified misdemeanors. Burton became statutorily disqualified upon entering his deferred guilty plea, but the statutory disqualification did not go into effect until after Burton had already been terminated from the Firm. Burton will remain subject to a statutory disqualification until the successful completion of his probationary period. 

The NYSE found that Burton

I. Violated Exchange Rule 476(a)(6) by engaging in conduct inconsistent with just and equitable principles of trade in that he failed to disclose his criminal history on an employment application he submitted to his member firm employer;

II. Violated Exchange Rule 476(a)(10) by making one or more misstatements and/or omissions of fact on his application for registration filed with the Exchange; and

III. Caused a violation of Exchange Rule 345.12 by submitting a Form U-4 containing false information. 

The NYSE considered the following in determining penalties:

  • In re Andrew Davis Mills, Decision 05-88 (Aug. 5, 2005)  http://www.nyse.com/pdfs/05-088.pdf (respondent failed to disclose a prior misdemeanor conviction; censure and one year bar) (Note: “failure to disclose a conviction is more serious than failure to disclose a criminal charge"); 
  • In re Catherine McLelland, Decision 04-81 (May 19, 2004) http://www.nyse.com/pdfs/04-081.pdf (misstatement regarding the reason for termination from prior employment; censure and three month bar); 
  • In re Broderick N. Chapman, Decision 03-149 (July 29, 2003) http://www.nyse.com/pdfs/03-149.pdf  (failure to disclose a prior conviction which subjected the respondent to a statutory disqualification; censure and two year bar). 

In an interesting and commendable analysis, the Hearing Panel noted that Burton failed to disclose his arrest/charges for a felony and misdemeanors --- however, he did NOT fail to disclose any conviction (because his plea was entered AFTER he interviewed and was hired by the Firm).  Notwithstanding that he failed to disclosed the arrest/charge, Burton's subsequent conviction per guilty plea does not render him guilty of the potentially more serious charge of failing to disclose a conviction.  That he was subsequently convicted of those crimes through a guilty plea does not raise the initial misstatement to the level of a failure to disclose an actual conviction. 

Censure; 12 month Bar in all capacities beyond the period of statutory disqualification

Bill Singer's Comment: Kudos to this NYSE Hearing Panel.  A beautifully reasoned decision that avoided a number of pitfalls.  This Panel did not go for the cheap shot and made a point of noting that there is a difference (if only in degree) between failing to disclose an arrest/charge and failing to disclose a conviction. 
Daimon Lenier Wiley
AWC/E8A2004081501/October 2005

Wiley failed to disclose a material fact on his Form U4. 

Fined $5,000; Suspended 30 business days in all capacities

Edward Gordon Villesvik 
AWC/E3B2004012001/October 2005

Villesvik failed to report a material fact on his form U4. 

Fined $10,000; Suspended 6 months in all capacities

James Vincent Pardy (Principal)
AWC/ELI2004001101/October 2005

Pardy failed to reasonably supervise several registered representatives and failed to report customer complaints, pursuant to NASD Conduct Rule 3070. 

Fined $15,000; Suspended 30 days in all capacities

Terry James DiMartino 
AWC/E2005001599501/October 2005

DiMartino willfully failed to disclose a material fact on his Form U4. 

No monetary sanctions in light of financial status; Suspended 3 months in all capacities

Tanya Rochelle Davis
OS/NASD Complaint #E062004018404/NASD Offer #C0620050017/October 2005

Davis willfully failed to disclose a material fact on her Form U4. 

No monetary sanctions in light of financial status; Suspended 6 months in all capacities

Roberto Alford (Principal) 
AWC/E1020041090-01/October 2005

Alford failed to disclose a material fact on his Form U4 and failed to respond to NASD requests for information. 

Barred

Legacy Financial Services, Inc. 
AWC/E012004004501/October 2005

Firm failed to 

  • timely 
    • file disclosures for reportable events to NASD within 10 business days after learning of such events;
    • report complaints to NASD by the 15th day of the month following the calendar quarter in which the complaints were received; and 
  • promptly update Forms U4 and U5 for events that required regulatory disclosure. 

The Firm had inadequate written supervisory procedures relating to prompt reporting of events requiring regulatory disclosure filings. 

Fined $54,250

Presidential Brokerage, Inc., Anthony Joseph Campen (Principal) and Eric Joel Lempe (Principal)
 AWC/E3A2002001601/October 2005 

Acting through Campen, the Firm 

  • reported customer complaints with inaccurate information and failed to report, or reported late, matters that required disclosure within 10 days pursuant to NASD Rule 3070; 
  • reported late amendments to Forms U4 and U5 and did not disclose information required to be disclosed on a Form U5; 
  • failed to establish a supervisory system; and
  • failed to establish, maintain and enforce written supervisory procedures reasonably designed to achieve compliance with applicable NASD rules pertaining to Rule 3070, reporting the timely and accurate filing of Forms U4 and U5, and the suitability of mutual funds share class recommendations. 

Acting through Lempe, the Firm recommended the purchase of mutual fund “Class B” shares to customers for whom a recommendation of “Class A” shares would have been economically more beneficial. 

Acting through an employee, the Firm failed to supervise the activities of registered representatives who were employing trading strategies with customers located abroad in a manner reasonably designed to achieve compliance with NASD rules. 

Presidential Brokerage, Inc. Censured; Fined $70,000 jt/sev with Campen (includes $65,083 restitution); required to attest in writing that it complied with the requirements of NASD Rule 3070  Anthony Joseph Campen (Principal) Fined $70,000 jt/sev with Firm (includes $65,083 restitution); Suspended 15 business days in principal capacity  Eric Joel Lempe (Principal) Fined $224,618; Suspended 6 months in all capacities
James Robert Vura, Jr.
AWC/E8A20040925/September 2005

Vura failed to disclose material facts on his Form U4. 

Fined $5,000; Suspended 3 months

Francisco R. Torres
OS/C07050032/September 2005

Torres willfully failed to disclose a material fact on his Form U4.

Fined $5,000; Suspended 6 months in all capacities

Luwana J. Smith 
AWC/ELI2004024201/September 2005

Smith failed to disclose material facts on her Form U4. 

Fined $2,500; Suspended 30 days in all capacities

Michael George Robinson
AWC/2005000790201/September 2005

Robinson willfully failed to disclose material information on his Form U4. 

Fined $5,000; Suspended 3 months in all capacities

Ralph Guadalope Primo Jr. 
AWC/E0220040538-01/September 2005

Primo willfully failed to disclose a material fact on his Form U4. 

Barred

Chris Howard Pipkin
AWC/E042004015901/September 2005

Pipkin willfully failed to disclose material information on his Form U4. 

Fined $5,000; Suspended 2 years in all capacities

Brian Wallace Laing
AWC/E8A2004054201/September 2005

Laing failed to disclose material information on his Form U4. 

Fined $5,000; Suspended 30 days in all capacities.

Yoland Gonzalez 
AWC/E022004037401/September 2005

Gonzalez willfully failed to disclose material information on her Form U4 and failed to respond to NASD requests for information. 

Barred

Millennium Brokerage, LLC
AWC/E9B2003041708/September 2005

The Firm allowed 

  • allowed a representative to perform duties as a registered person while his registration with NASD was inactive due to his failure to complete the regulatory element of the continuing education program
  • permitted employees to function in a capacity that required fingerprinting under SEC Rule 171-2, but failed to submit fingerprint cards to NASD; 
  • failed to file Forms U5 for representatives in a timely manner, in contravention of Article V of NASD’s By-Laws;
  • failed to establish, implement and enforce policies, procedures and internal controls that were reasonably designed to achieve compliance with all requirements imposed by the Bank Secrecy Act and books and records retention requirements. 

Also, the firm’s supervisory system and procedures were not reasonably designed to ensure that the required written consent was obtained before pre-registration searches on Web CRD and that the firm retained the required documentation. The firm did not maintain and preserve all electronic instant messaging as required and failed to report trades within 90 seconds of execution.

Censured; Fined $125,000

Lincoln Financial Advisors 
AWC/C8A050067/September 2005

The firm received notice of events that were subject to the reporting requirements of NASD Rule 3070(a), but failed to 

  • report to NASD within 10 business days after it knew or should have known of the existence of the reportable events;
  • report customer grievances to NASD as statistical and summary information by the required deadline; and
  • prepare and maintain adequate written supervisory procedures to ensure compliance with NASD Rule 3070(a)

Censured; Fined $75,000

Interactive Planning Corp. and Lawrence St. John York (Principal) 
AWC/E052003037401/September 2005

Acting through York, the Firm 

  • entered into an account purchase contract with a public customer that contained restrictive language prohibiting the customer from disclosing any information regarding the contract to securities regulators; and
  • failed to maintain a record of the complaints filed by a customer, failed to file the customer’s complaint with NASD within 10 business days, and failed to amend York’s Form U4 as a securities representative to disclose a customer’s complaint. 

Interactive Planning Corp. and Lawrence St. John York: Censured; Fined $10,000 joint/several

Bill Singer's Comment:  Compliance 101--you cannot prohibit a customer from cooperating with the regulators.  If you use such language in an agreement, you're going to get in trouble.  Similarly, September 2005 appears to be a watershed month for the NASD to focus on failures to properly intake and file customer complaints.
Great Eastern Securities, Inc. and Alphonse Mekalainas, Jr. (Principal)
AWC/ELI2002004801/September 2005

Acting through Mekalainas, Great Eastern Securities failed to timely report on registered representatives Forms U4 (Uniform Applications for Securities Industry Registration or Transfer) :

  • customer complaints that alleged one or more sales practice violations and contained a claim for compensatory damages of $5,000 or more; and
  • settlement of a customer complaint that alleged one or more sales practice violations and was settled for an amount of $10,000 or more. 

Also, the firm permitted excessive commissions to be charged in agency transactions. Additionally, the firm permitted its president to conduct a securities business while his securities registration was inactive due to his failure to satisfy the continuing education regulatory element in a timely manner. 

Great Eastern Securities, Inc.: Censured; Fined $15,000 (includes $5,000 joint and several with an unnamed individual and $5,000 joint/several with Mekalainas, Jr.)

Alphonse Mekalainas, Jr.: Fined $5,000 joint and several with Great Eastern Securities, Inc.; Suspended 5 days in Principal/Supervisory capacities

Bill Singer's Comment:  These types of violations drive me crazy.  I mean, it's one thing for a BD and its ownership to do a cost-benefits analysis and decide to engage in a massive fraud because they think you can make millions and if they get caught it's only a fine and suspension.  That's wrong, but at least you can sort of understand the mind-set involved.  However, when a firm and its principals get whacked for minor compliance failures, you simply have to wonder.  There are often a whole host of explanations and reasons for such miscues --- staffing problems, communication failures, etc.  Nonetheless, as I previously noted, the regulators are making a point of checking up on your timely reporting of customer complaints.   
Hennion & Walsh, Inc., William Walter Walsh (Principal) and Richard Hennion (Principal)
AWC/E9B02004201/September 2005

Hennion & Walsh, Inc. 

  • failed to report written grievances from public customers on quarterly reports and reported written grievances from customers in an untimely manner. 
  • solicited and received payment from public customers for the purchase of shares prior to the effective date in the underwritings of closed-end mutual funds in violation of Section 5(a) of the Securities Act of 1933; and
  • acting through Walsh and Hennion, 
    • failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to achieve compliance with applicable securities laws, regulations and NASD rules. 

Hennion & Walsh, Inc.: Fined $35,000 ($15,000 joint/several with Walsh and also with Hennion); Suspended as an underwriter or selling group member for any offering of closed-end mutual funds for 30 days; Required to retain an independent consultant to review and make recommendations concerning the adequacy of the firm’s current policies and procedures relating to past deficiencies, as well as the firm’s 3070 reporting, underwriting activities, and suitability of recommendations. 

William Walter Walsh: Fined $15,000 joint/several with Hennion & Walsh, Inc.; Suspended 10 business days in Principal capacity

Richard Hennion: Fined $15,000 joint/several with Hennion & Walsh, Inc.; Suspended 10 business days in Principal capacity

Bill Singer's Comment:  See April 2005 Hennion & Walsh case.
One of the more dramatic regulatory initiatives the NASD and NYSE appear to have undertaken in 2005 is a focus on the timely reporting of customer complaints --- frankly, an area where they seemed to have been a bit lax in years past.  Nonetheless, the regulators appear intent to make up for lost time.  Similarly, as if mutual funds haven't come under enough of an attack in recent years, now we see that some folks are gun-jumping sales of closed-end funds by seeking and obtaining payment prior to the effective date.  Clearly, NASD is sending a message with this case--the firm has been suspended as a closed-end mutual fund underwriter/selling group member for 30 days.  Looks like there's some bite in the once toothless tiger
Chaim Rieger
SFC/HPD 05-92/August 24, 2005

During November 1998, Rieger was convicted of a misdemeanor relating to disorderly conduct. In March 2001, he was convicted of a felony relating to the theft of property. In February 2001, he was convicted of a felony relating to aggravated criminal sexual abuse. 

NYSE Rule 346(f) prohibits a member organization from employing any person, without the permission of the Exchange, “who is known, or in the exercise of reasonable care should be known, to be subject to any ‘statutory disqualification.’” 

Sections 3(a)(39)(F) and 15(b)(4)(B) of the Securities Exchange Act of 1934, an individual is statutorily disqualified from employment in the securities industry if such person has been convicted of certain specified crimes or “any other felony within ten years of the date of the filing of an application for membership or participation in, or to become associated with a member of [a] self-regulatory organization.” 

On his February 21, 2004 application for employment with Credit Suisse First Boston, LLC (the “Firm”), Rieger answered “no” to:

  • “Have you ever been convicted of or pleaded guilty to a criminal charge?”  

As a result of Respondent’s most recent March 2001 felony conviction, he is subject to a ten-year statutory disqualification until March 19, 2011. He did not disclose his guilty plea or convictions to the Firm at the time of his application for employment, and as a result, the Firm hired Rieger as a non-registered employee on March 8, 2004. and he continued his employment at the Firm during a period in which he was subject to statutory disqualification. Subsequently, the Firm learned that Respondent had been convicted of two felonies (February 2001 and March 2001) and a misdemeanor (November 1998), and he was terminated. 

The NYSE found that Rieger engaged in conduct inconsistent with just and equitable principles of trade in that he failed to disclose on an employment application submitted to his member firm employer, his prior criminal convictions, which made him subject to statutory disqualification. 

The NYSE considered the following in determining penalties:

  • In the Matter of Gregory Leonard Williams, HPD 04-170 (November 9, 2004) (1 1/2 year add-on) http://www.nyse.com/pdfs/04-170.pdf
  • In the Matter of Vikki Lee Pope, HPD 03-184 (October 2, 2003) (3 ½ year add-on involved 5 arrests and 4 convictions and refusal to cooperate with the investigation) http://www.nyse.com/pdfs/03-184.pdf; and
  • In the Matter of Kenneth Rogers, HPD 04-25, (February 18, 2004) (2 1/2 year add-on) http://www.nyse.com/pdfs/04-025.pdf . In each of these cases the Respondents were subject to a statutory disqualification and were barred for an add-on period from 1 ½ to 3 ½ years beyond the statutory disqualification. 

Censure; 2 year bar in all capacities past the period of statutory disqualification

Andrew Davis Mills
SFC/NYSE Hearing Panel Decision 05-88/August 5, 2005 

On or about February 8, 1999, a criminal complaint was filed in the Superior Court of California, County of San Diego, charging Andrew Davis Mills with one count of Grand Theft and four counts of Embezzlement, all felonies. At that time, Mills was employed as a salesperson and as an Assistant Manager in the women’s shoe department at a Nordstorm retail outlet. As part of a fraudulent scheme, Mills and his colleagues purchased shoes with their credit cards to meet monthly sales quotas, and later returned the shoes and credited their credit card accounts the following month.  On or about March 8, 1999, Mills entered a plea of nolo contendere to Petty Theft, a misdemeanor. The remaining counts were dismissed. Mills was 3 placed on three-year summary probation. The terms and conditions of probation required Mills to serve one day in custody, pay fines and restitution totaling $400, complete a 15 day public service program, attend and complete a course, and agree to violate no other laws (excluding minor traffic offenses). 

On or about March 10, 2000, Mills completed an “Employment Application & Statutory Disqualification Disclosure & Certification” (the “Employment Application”) with H&R Block Financial Advisors, Inc. (the “Firm”). In the Employment Application, Mills was asked the following question: “Have you ever been convicted of a misdemeanor?” Mills indicated “No”, which was false and a material misstatement of fact. After the Firm submitted Mills’s fingerprints to the U.S. Department of Justice, it was disclosed that Mills had no arrest record. As noted in the NYSE decision, "The investigative record does not indicate why the DOJ report did not disclose his conviction. Mills’s criminal history should have appeared on his fingerprinting report. Mills was hired on April 3, 2000. "

On or about April 14, 2000, Mills completed and signed a Form U-4. 

  • Question 23B(1)(a) on the Form U-4 asked, in pertinent part, if Mills had ever “been convicted of or pled guilty or nolo contendere (‘no contest’) in a domestic, foreign or military court to a misdemeanor involving: investments or an investment related business or any fraud, false statement or omissions, wrongful taking of property….any of these offenses?” Mills answered “No,” which was not true.
  • Question 23A(1)(b) on the Form U-4 asked, in pertinent part, if Mills had ever been charged with any felony. Mills answered “No,” which was not true. 15. 

On or about January 21, 2003, Mills applied for a life insurance agent license with the California Department of Insurance (“Department of Insurance”). Mills received the license on May 5, 2003. On or about July 15, 2004, Mills’s life insurance license was permanently revoked by the Department of Insurance, when the Department of Insurance detected Mills’s conviction. On or about August 5, 2004, Mills notified the Firm that the Department of Insurance had permanently revoked his life insurance agent license for non-disclosure of his criminal record. 

The Firm terminated Mills’s employment on August 13, 2004. 

The NYSE found that Mills:

I. Failed to disclose a prior misdemeanor conviction on an employment application he submitted to his member organization employer;

II. Violated Exchange Rule 345.12 by submitting to his member organization employer a Form U-4 that contained false information; and 

III. Violated Exchange Rule 476(a)(10) by making a material misstatement and/or omission of fact on his application for registration filed with the Exchange.

In considering sanctions, the Panel noted the following precedent:

  • In the Matter of Broderick N. Chapman, HPD 03-149 (July 29, 2003) http://www.nyse.com/pdfs/03-149.pdf  ; 
    In the Matter of Kevin Walter Pyne, HPD 02-81 (Apr. 10, 2003) http://www.nyse.com/pdfs/02-081.pdf; and 
    In the Matter of Timothy Scott Heetland, HPD 02-26 (Jan. 30, 2002) http://www.nyse.com/pdfs/02-026.pdf
    • Chapman and Pyne involved statutory disqualifications based on a felony conviction and a misdemeanor conviction involving a false report, respectively. In both cases, the Hearing Panel imposed a penalty of a censure and two year bar after a hearing in which the facts in the Charge Memorandum were deemed admitted because respondents failed to submit an Answer. 
    • In Heetland, the respondent failed to disclose that he had been charged with (though not convicted of) a misdemeanor, as well as performed the duties of a registered representative without approval by the Exchange. After failing to submit an Answer or appear at the hearing, Heetland was found guilty and received a penalty of a censure and eight month bar

In the present case, Mills failed to disclose a prior misdemeanor which did not subject him to a statutory disqualification. Since failure to disclose a conviction is more serious than failure to disclose a criminal charge, a harsher penalty than that in Heetland is appropriate. Accordingly, the Hearing Panel imposes the penalty agreed upon by the parties. 

The NYSE imposed a Censure; Suspended 1 year in all capacities

Bill Singer's Comment: My hat is off to NYSE.  Well drafted decision. Concise explanations.  This is how all SROs should report their cases.  Moreover, it's about time that SRO decisions began to explain the rationale for the sanctions imposed and the reference to Chapman, Pyne, and Heetland provide much needed guidance to attorneys and their clients when confronted with similar cases.
Jeffrey Scott Woods
AWC/C06050018/August 2005

Woods failed to disclose a material fact on his Form U4.

Fined $3,500; Suspended 45 days in all capacities

Alfred Peter Montgomery
C05040088/August 2005

Montgomer failed to disclose material information on his Form U4.

Barred

Sandeep David Kitson (Principal) 
AWC/C04050028/August 2005

Kitson made unsuitable securities recommendations and executed unsuitable transactions for the accounts of public customers. Kitson willfully failed to disclose material facts on his Form U4

Fined $5,000; Suspended 2 years in all capacities

Garik Hakobyan
AWC/C02050044/August 2005

Hakobyan willfully failed to disclose material facts on his Form U4. 

Fined $10,000; Suspended 1 year in all capacities

Robert Eugene Donley, Jr.
C8A040112/August 2005

Donley willfully failed to disclose a material fact on his Form U4.

Fined $10,000; Suspended 1 year in all capacities.

Fredericia Joyce Brant
AWC/C8A050059/August 2005

Brant failed to disclose material information on her Form U4

Fined $5,000; Suspended 3 months in all capacities

Carlos Aponte, Jr.
C07050006/August 2005

Aponte willfully failed to amend his Form U4 to disclose a material fact, and failed to respond to NASD requests for information. 

Barred

Zions Investment Securities, Inc. 
AWC/C3A050027/August 2005

The Firm

  • failed to report in a timely manner customer grievances required to be reported with quarterly statistical information or no more than 10 days following the firm’s discovery;
  • failed to amend Forms U4/U5
  • failed to ensure that registered representatives of the firm participated in a required annual compliance interview;
  • failed to ensure that registered representatives of the firm completed one or both of two components of the required firm element continuing education program;
  • settled a customer complaint by means of a settlement agreement that contained language implying that the customer could not voluntarily assist NASD or any self-regulatory organization with respect to the subject matter of the settlement;
  • utilized two forms of written supervisory procedures that evidenced two forms of supervisory systems, both of which were not reasonably designed to achieve compliance with the reporting obligations of NASD Rule 3070, requirements to amend Forms U4 and U5, requirements to monitor for compliance with variable annuity and mutual fund compensation rules, rules pertaining to retail transaction in fixed income securities and corporate bond trading, continuing education provisions, SEC Rule 15c2-12, and the requirements for office inspections in NASD Conduct Rule 3010; and
  • did not enforce its supervisory system and procedures relating to annual compliance interviews, firm element continuing education, office inspections, and advertising and sales literature reviews.

Censured; Fined $35,000

Paul Zdzieblowski
NAC Hearing/C8A030062/July 2005

Zdzieblowski willfully failed to disclose material information on his Form U4. 

Fined $5,000; Suspended 1 year in all capacities

Bill Singer's Comment: An interesting case on appeal.  The Hearing Officer Barred Zdzieblowski, but on appeal the NAC reduced the sanction to a $5,000 fine and a 1 year suspension.  Respondent had been found in default for not timely responding to NASD charges that he willfully failed to disclose a prior conviction.  The NAC sustained the Hearing panel's finding that Respondent was in default and failed to show good cause for same.  

On or about March 28, 1998, Michigan law enforcement charged Zdzieblowski with retail fraud, a misdemeanor. On July 29, 1998, Zdzieblowski pleaded guilty to the charge. The court placed him on probation for 12 months and ordered that he pay a fine and court costs. On or about December 30, 2001, Zdzieblowski submitted a Form U4 in connection with his registration as an investment company/variable contracts representative for USAllianz. On the Form U4, the Hearing Panel found that Zdzieblowski willfully failed to disclose that he had been charged with and convicted of a misdemeanor involving theft or wrongful taking of property.  The NAC did not believe the record supported a finding that he had been onvicted because the Court may not have "legally" accepted a guilty plea (but merely took  the plea under advisement for one year and then closed the case).  Nonetheless, the NAC was satisfied that the Respondent willfully failed to disclose the "charge" --- and that renders him statuorily disqualified in its own right.

Nathaniel Elliott Webb
C02040042/July 2005

Webb failed to disclose material information on his Form U4. 

Fined $5,000; Suspended 20 business days in all capacities

Gerard Magelli Russomagno (Principal)
AWC/C9B050034/July 2005 

Russomagno failed to disclose material information of his Form U4. 

Fined $5,000; Suspended 3 months all capacities

Lawrence Brice Ray
AWC/CLI050013/July 2005

Ray failed to amend his Form U4 to disclose material facts in a timely manner. 

Fined $3,000; Suspended 20 business days all capacities

John Francis Ranhofer
OS/C02040033/July 2005

Ranhofer participated in a private securities transactions without providing prior written notice to or receive approval from his member firm.  Ranhofer engaged in outside business transactions and failed to give prompt notice of these activities to his member firm. Ranhofer failed to disclose material facts on his Form U4. (NASD Case #)

Barred

William John Muenckler (Principal) 
OS/C10040076/July 2005

Muenckler willfully failed to disclose material facts on his Forms U4. Muenckler willfully caused his member firm to make an extension of credit to him in violation of Regulation T. 

Fined $12,500; Suspended 5 months all capacities.

Robert Kurtis Mauss
C06050010/July 2005 

Mauss engaged in private securities transactions without providing prior written notice to his member firm. He engaged in outside business activities and received compensation in connection with such activity without providing prompt written notice to his member firm. Mauss failed to disclose material facts on his Form U4. 

Barred.

Stacey Paul Hollins
C10040120/July 2005

Hollins failed to respond to NASD requests for information; and willfully failed to disclose material facts on his Form U4. 

Barred

Shaune Denise Dailey 
AWC/C02050040/July 2005

Dailey willfully failed to disclose material facts on her Form U4. 

Barred

Khalid Abul-Ghany
C9A040054/July 2005

Abul-Ghany willfully failed to disclose material facts on his Form U4.

Fined $5,000; Suspended 6 months in all capacities.

Grattan Financial Securities, Inc. and Georgene Marie Grattan (Principal) 
AWC/C02050039/July 2005

Acting through Grattan, the Firm 

  • permitted an individual, while he was statutorily disqualified, to become an associated person with the firm; and
  • failed to take timely or adequate supervisory action designed either to ensure that the firm complied with the requirements of Article III, Section 3(b) of NASD’s By-Laws or to ensure that a statutorily disqualified individual did not associate with the firm. 

Grattan Financial Securities, Inc.
Fined $20,000 jointly and severally with Grattan

Georgene Marie Grattan (Principal) 
Fined $20,000 jointly and severally with Grattan Financial; Suspended 45 days in principal capacity; Required to requalify as general securities principal

Bill Singer's Comment: Without question the hiring of statutorily disqualified individuals has become an enforcement priority, as evidenced by a number of recent cases involving national firms.  Moreover, the trend is to holdthe supervising Principal liable for lapses in this area.  A 45 day suspension is no laughing matter, particularly when coupled with a requalification.  This is a serious and significant sanction.  Be warned!
Berry-Shino Securities, Inc. and Ralph Matthew Shino (Principal)
AWC/C3A050020/July 2005

Acting through Shino, the Firm failed to 

  • report customer complaints and an arbitration award, and reported customer complaints late; and 
  • file and amend Forms U4 and U5 in a timely manner. 

Also, the Firm failed to maintain accurate financial records and filed inaccurate FOCUS reports. Also the Firm failed to maintain its required minimum net capital and accepted funds for investment in a private placement, but did not forward the funds to an account established in accordance with SEC Rule 15c2-4. The Firm executed transactions in long-term options for which customers were charged commissions that were excessive in light of relevant factors. The Firm’s supervisory system was not reasonably designed to achieve compliance with NASD conduct rules related to excessive options commissions.

Berry-Shino Securities, Inc.
Censured; Fined $45,050 (includes $7,550 disgorgement; $10,000 of the fine is joint and several with Shino, and $5,000 is joint and several with another individual) 

Ralph Matthew Shino (Principal)
Censured; Fined $10,000 joint and several with Berry-Shino Securities, Inc.

Daniel Seth Peterson
SFC/NYSE Hearing Panel Decision 05-77/June 16, 2005

On or about October 21, 2000, Peterson was arrested by the Northbrook, Illinois Police Department and was charged with misdemeanor theft for stealing property, which had a total value of $290. On or about December 22, 2000, Peterson was found guilty and convicted of misdemeanor theft. He was sentenced to a twelve-month conditional discharge and fined $150. 

On or about October 22, 2003, Peterson completed a Firm document entitled “A.G. Edwards Application for Employment” (the “Employment Application”). 9. Question 3 on the Employment Application asked, in pertinent part, if Peterson had ever been convicted of, or pleaded guilty or no contest to, any felony or any misdemeanor other than minor traffic offenses. In response to Question 3, he answered “No.” Question 5 on the Employment Application asked, in pertinent part, if Peterson had ever been arrested for, or charged with, a misdemeanor involving: dishonesty, the wrongful taking of any property or any manner of fraud. In response to Question 5, he answered “No.”  As part of the employment process, Peterson was fingerprinted. On or about November 25, 2003, the Firm received notification of a Department of Justice report disclosing his conviction based on a review of his fingerprints. The Firm terminated Peterson’s employment on December 30, 2003.  

NYSE found that Peterson engaged in conduct inconsistent with just and equitable principles of trade by failing to disclose a prior criminal conviction on an employment application submitted to his member firm employer

Censure; 4 year Bar in all capacities

Mercer Cook, III
SFC/NYSE Hearing Panel Decision 05-68/June 13, 2005

In July 2000, Cook, a registered representative with a Division of Citigroup Global Markets, Inc. (the “Firm”) was appointed as the acting head of the North American Institutional Sales Team ("Sales Team"), a group of approximately 14 institutional investment management sales people that primarily offered and sold investment advisory services to institutional customers. A relatively small portion of the Sales Team’s activities involved the offer and sale of securities, including institutional share classes of registered mutual funds. In January 2001, Cook was named Head of the Sales Team, and his primary duties involved supervising both the investment advisory activities and the occasional securities activities of the team. At the time that Cook was named acting head of the Sales Team, the Sales Team was under the direct supervision of the then Chief Operating Officer (“COO”) of the Firm’s Institutional Asset Management business who was also a Series 40 registered principal of the Firm. This person continued to have the ultimate supervision of the Sales Team after Cook was appointed its Head in 2001. 

In March 2002, the Firm requested that Cook take the Series 24 examination to assist the COO in the supervision of the occasional securities activities of the Sales Team. Immediately after June 28, 2002, he represented to the Firm that he had sat for and passed the Series 24 examination on June 28, 2002. As of that date, Cook reviewed and signed-off as registered principal on two pieces of institutional sales literature and on 11 pieces of correspondence that discussed institutional funds. After June 28, 2002, when asked several times by the Compliance department for the Division for evidence that he had passed the Series 24 exam, Cook informed them on several occasions that he had a copy of the certificate evidencing that he passed the Series 24 exam but that he had forgotten to bring it into the office. In early September 2003, Cook, through his assistant, contacted Compliance and requested that a Series 24 exam window be opened for him. He explained that he had decided to re-take the Series 24 exam since he was unable to find the certificate evidencing his passing the exam in June 2002. A few days earlier, Cook, on his own, ceased signing off as registered principal on some institutional fund sales literature. 

The Firm filed with the NYSE a Form RE-3 (“RE-3”) dated November 26, 2003, reporting that in September 2003, the Firm had reason to suspect that Cook had not taken or passed the Series 24 Examination despite assertions from Cook that he had. The Firm reported that the Division began an internal investigation which was completed on October 24, 2003. As a result, on October 28, 2003, the Division suspended Cook from all of his supervisory duties. The Firm further reported that effective November 18, 2003, the Division demoted Cook to a position that had no supervisory duties and required Cook to pay a fine in the amount of $50,000 as well as imposing on him a probationary status. Cook voluntarily resigned from the Division in February 2004 to take a job with the Firm’s Human Resource Department. Cook left the employ of the Firm’s Human Resource Department in on or about November 2004. 

NYSE found that Cook:

I. Caused his firm to violate Exchange Rule 345(a) in that he performed the duties of a supervisor without being properly qualified; and 

II. Engaged in a conduct inconsistent with just and equitable principles of trade in that he made a material misrepresentation to his member firm employer. 

Censured; 2 year Bar in all capacities

Paul Zdzieblowski
C8A030062/June 2005 (Decision by NAC following OHO Decision)

Zdzieblowski willfully failed to disclose a material fact on his Form U4. 

Fined $5,000; Suspended 1 year in all capacities

Keith Everett Stahl
AWC/C05050018/June 2005

Stahl willfully failed to disclose material facts on his Form U4. 

Barred

Vernon Grant Stewart
OS/C8A050001/June 2005

Stewart willfully failed to disclose a material fact on his Form U4. 

Fined $2,500; Suspended 2 months in all capacities

Norair Allain Seferian
AWC/CLI050006/June 2005

Seferian failed to disclose a material fact on his Form U4

Fined $2,500; Suspended 30 business days in all capacities

Teron Jamal Porter
AWC/C05050013/June 2005

Porter willfully failed to disclose a material fact on his Form U4. Also, he failed to timely respond to NASD requests for information. 

Fined $10,000; Suspended 18 months in all capacities

Roger Angelo Kapsalis
AWC/C10050018/June 2005

Kapsalis willfully failed to disclose material facts on his Form U4. Also, he effected securities transactions away from his member firm and failed to provide written notification to his member firm. 

Fined $10,000; Suspended 9 months in all capacities

Scott Anthony Bartlett
C06040033/June 2005

Bartlett willfully failed to disclose a material fact on his Form U4 and failed to respond to NASD requests for information. 

Barred.

Fifth Third Securities, Inc.
AWC/C8A0500034/June 2005

Firm failed to 

  • ensure that Forms U5 were filed in a timely manner with NASD;
  • file MSRB Forms G36 for the primary offering of municipal underwritings within 10 business days after the final agreement to purchase, offer, or sell the securities, and for municipal underwritings within one business day after receipt of the official statement from the issuer; and
  • enforce its written supervisory procedures with respect to the timely submission of Forms U5 and MSRB Forms G-36 with NASD

Censured; Fined $79,750

Michael Allen Von Kanel
AWC/C05050009/May 2005

Von Kanel  

  • participated in private securities transactions without providing prior written notice to his member firm;
  • failed to disclose material information on his Form U4; and
  • falsified documents in order to obtain public customer funds for investment in private securities transaction by creating loan requests without the knowledge or authority of the customers. 

Barred; Required to pay $28,000 plus interest in restitution to a public customer in the event of he seeks relief from any statutory disqualification.

Raymona Katina Williams
AWC/C9A050011/May 2005

Williams willfully failed to disclose a material fact on her Form U4. 

Fined $5,000; Suspended 1 year

Mark Kevin Thomas
AWC/C02050021/May 2005

Thomas willfully misrepresented a material fact on his Form U4. (NASD Case #)

Barred

Sean Teamor
AWC/C02050025/May 2005

Teamor willfully failed to disclose material information on his Form U4. 

Fined $5,000; Suspended 1 year in all capacities.

Russell Forrest Shortt
AWC/C9A050012/May 2005

Shortt willfully failed to amend his Form U4 to disclose a material fact. 

Fined $5,000; Suspended 6 months in all capacities

Jesus Francisco Schettino
C02040043/May 2005

Schettino willfully failed to disclose material information on a Form U4. 

Barred

Anthony Lawrence Mascia
AWC/C10050014/May 2005

Mascia willfully failed to disclose a material fact on his Form U4. 

Fined $5,000; Suspended 60 days in all capacities

Ebony Chantel Hanson
AWC/C9A50013/May 2005

Hanson willfully failed to disclose a material fact on her Form U4; and failed to respond to NASD requests for information. 

Barred

Asad Farraj
AWC/C10050010/May 2005

Farraj failed to disclose a material fact on his Form U4 in a timely manner. 

Fined $7,500; Suspended 45 calendar days in all capacities

Alberto Paredes Butingan
AWC/C02050022/May 2005

Butingan willfully misrepresented material facts on his Form U4. 

Fined $5,000; Suspended 3 months in all capacities

Abigail Rubio Ancheta
OS/C02040040/May 2005

Ancheta willfully misrepresented material facts on her Form U4, and failed to respond to NASD requests for information. 

Barred

Sterling Financial Investment Group, Inc. and Bernard Lewis Golembe (Principal)
AWC/C07050024/May 2005

Acting through Golembe, Sterling Financial Investment Group failed to 

  • specify a cycle for the inspection of branch offices in its written supervisory procedures, 
  • conduct internal inspections of offices of supervisory jurisdiction and branch offices, 
  • conduct annual compliance meetings, and 
  • conduct a review of all of the businesses in which it engaged to assist in detecting and preventing violations of, and achieving compliance with, applicable securities laws, regulations, and NASD rules. 

The Firm utilized an offering memorandum that materially misrepresented the total compensation received or to be received by the firm in connection with a private placement offering; and the Firm failed to 

  • immediately display customer limit orders;
  • maintain the quote for other customer limit orders;
  • notify NASD prior to the employment of an electronic storage media for maintaining firm records;
  • determine the true beneficial owners of certain accounts carried by the firm (and failed to review the activity in those accounts);
  • file customer complaints in a timely manner;
  • make reports pursuant to NASD Rule 3070(a)(4) within 10 days of registered representatives being suspended; and 
  • failed to update or timely amend Forms U4 and U5 for its registered representatives.
Sterling Financial Investment Group, Inc. Censured; Fined $90,000 ($37,500 joint/several with Golembe)  Bernard Lewis Golembe Fined $90,000 ($37,500 joint/several with Sterling); Suspended 60 days in all capacities
Bill Singer's Comment: Summer is a perfect time of year to conduct those pesky firm inspections.  Make sure that you have promulgated a comprehensive schedule for inspections, check to see that the deadlines were met, and verify the documentation in your files.  Finally, do yourself a favor, re-read Rule 3070 and make sure you're not only complying with that rule but also understand the different requirements for Forms U4 and U5.
Christopher Joseph Preisero
AWC/C10050005/April 2005

Preisero  failed to disclose material facts on his Form U4.

Fined $5,000 and Suspended 35 days in all capacities.

Jody Charles Dobrinich 
AWC/C8A050015/April 2005

Dobrinich, an associated person, willfully failed to disclose a material fact on his Form U4. 

Fined $5,000; Suspended 1 year

Magellan Securities Inc. and Terry Michael Laymon (Principal) 
OS/C8A030081/April 2005

Magellan Securities permitted Laymon to 

  • be associated as its president and sole owner (capacities requiring him to act in a principal capacity) while he was subject to “disqualification” as defined in Article III, Section 4 of NASD Bylaws; and 
  • perform duties as a general securities principal while his registration status with NASD was inactive due to his failure to complete in a timely matter the Regulatory Element of NASD’s Continuing Education Requirement. 

Acting through Laymon, the Firm failed to 

  • qualify and register as a person associated with the firm, a financial and operations principal, or an introducing broker-dealer financial and operations principal; and  
  • to file 3070 reports disclosing reportable events and failed to amend Form BD and Form U4 to report these disciplinary actions.

Laymon intentionally, recklessly, or negligently created false account statements with incorrect or inflated valuations to induce a public customer to continue to maintain accounts with the firm. He also failed to respond completely and timely to NASD requests for information. 

Magellan Securities was Expelled

Terry MIchale Laymon was Barred

Nicholas Michael Clements
NYSE Hearing Panel Decision 05-39/April 11, 2005

Nicholas Michael Clements entered the securities industry in 2000 as a registered representative with non-member firm A.  He was employed with Firm B from 2001 through July 2003.  In July 2003, he was hired by Morgan Stanley DW (the "Firm") until his termination in September 2003.

  1. On or about June 27, 2001, in Phoenix, Arizona, Nicholas Michael Clements was arrested and charged with two counts of misdemeanor Driving Under the Influence and one count of Failing to Produce Proof of Financial Responsibility. On or about October 4, 2001, he pleaded guilty to the counts relating to Driving Under the Influence (the “Misdemeanor Convictions”) and the remaining count was dismissed without prejudice. 
  2. On or about June 28, 2001, in Scottsdale, Arizona, Clements was arrested and charged with misdemeanor Disorderly Conduct (the “Disorderly Conduct Charge”). he charge against him was dismissed on February 5, 2002, upon his successful completion of a court-monitored program. 
  3. On or about October 10, 2001, in Phoenix, Arizona, Clements was arrested and charged with two counts of misdemeanor Driving Under the Influence. By a complaint filed in Northeast Phoenix Justice Court on February 28, 2002, the charges were elevated to two class 4 felony counts of Aggravated Driving While Under the Influence of Intoxicating Liquor While Driver’s License or Privilege to Drive was Suspended and Aggravated Driving While there was an Alcohol Concentration of 0.08 or More (the “Felony Charges”). On or about February 7, 2003, he was notified by a representative of the Maricopa County Sheriff qualified to serve a subpoena, that the Felony Charges had been filed against him. 

On or about June 17, 2003, in the process of seeking employment with the Firm, Clements completed and signed a Background Information/Authorization Form (the “Background Information Form”). 

  • One question on the Background Information Form asked, “Have you ever been charged with or convicted of a felony or misdemeanor?” Clements answered “No,” which was not true. Clements failed to disclose his misdemeanor charges that resulted in the Misdemeanor Convictions, the Disorderly Conduct misdemeanor charge, and the pending Felony Charges. 
  • On or about June 23, 2003, he completed and signed an Application for Sales Employment (the “Employment Application”) with the Firm. One page of the Employment Application asked, “Have you or an organization over which you exercised management or policy control ever been charged with any felony . . .?” he answered “No,” which was not true. Clements failed to disclose on the Employment Application his pending Felony Charges. 

Clements commenced employment with the Firm on or about July 7, 2003. Thereafter, he completed a Uniform Application for Securities Registration and Transfer (Form U- 4), which the Firm submitted to the Exchange on or about July 9, 2003. 

  • On the Form U-4, Question 14A(1)(b) asked, “Have you ever been charged with any felony?” Clements answered “No,” which was not true. He failed to disclose on the Form U-4 his pending Felony Charges. 

On or about August 27, 2003, Clements was convicted of the Felony Charges after a jury trial (the “Felony Convictions”). By virtue of the Felony Convictions, Clements is a statutorily disqualified person under Sections 3(a)(39)(F) and 15(b)(4)(B) of the Securities Exchange Act of 1934. As a result of the Felony Convictions in August 2003, he is subject to a statutory disqualification until August 2013. 

Clements did not submit an Answer to the Charge Memorandum, and neither Clements nor any person on his behalf appeared at the hearing in this matter. At the hearing, the Division of Enforcement moved, pursuant to Exchange Rule 476, to have the facts alleged in the Charge Memorandum deemed admitted, since Clements did not submit an Answer. The motion was granted and the NYSE found that Clements:

I. Engaged in conduct inconsistent with just and equitable principles of trade in that he failed to disclose his prior criminal history on his employment application with a member-firm employer, including pending felony charges for which he was later convicted and made him subject to a statutory disqualification. 

II. Caused a violation of Exchange Rule 345.12 by submitting a Uniform Application for Securities Registration and Transfer (Form U-4) containing false information, including the omission of pending felony charges for which he was later convicted and made him subject to statutory disqualification. 

III. Violated Exchange Rule 476(a)(10) by making a misstatement and/or omission of fact on his application for registration filed with the Exchange, including the omission 2 of pending felony charges for which he was later convicted and made him subject to statutory disqualification. 

Censured and barred for 12 years in all capacities.

Jing Wang
NYSE Hearing Panel Decision 05-40/April 11, 2005

 Jing Wang, a former non-registered employee with Credit Suisse First Boston LLC (the “Firm”), was 

  1. arrested on January 21, 1993, for a hit and run violation, with resulting property damage. He was subsequently convicted, and received probation and a suspended sentence; 
  2. arrested on March 30, 1996, on charges of shoplifting (a misdemeanor), and violating California Penal Code Section 484(a) (Theft of Personal Property), which appears to be a misdemeanor. He was convicted of these violations, on or about April 25, 1996. He was sentenced to 180 days in jail, but this was suspended. He was also placed on two years summary probation.  

On February 24, 2003 Wang completed and signed an application for employment with the Firm (“Employment Application”). On the application, he was asked the question: Have you ever been convicted of or pleaded guilty to a criminal charge?” He checked off an adjacent box marked “No”. In addition, Respondent did not provide any written explanation of that negative response, even though space was provided. Shortly thereafter, he was hired by the Firm as a non-registered employee in the technology area. This was his first employment in the securities industry. Subsequently, the Firm submitted his fingerprints for DOJ review. The Firm received the results of this examination on or about May 7, 2003, and learned that he had a criminal record. He was terminated on or about May 14, 2003.

Wang did not submit an Answer to the Charge Memorandum, and neither Wang nor any person on his behalf appeared at the hearing in this matter. At the hearing, the Division of Enforcement moved, pursuant to Exchange Rule 476, to have the facts alleged in the Charge Memorandum deemed admitted, since Wang did not submit an Answer. The motion was granted and the NYSE found that Wang:

I. Engaged in conduct inconsistent with just and equitable principles of trade in that on one or more occasions he failed to disclose on an employment application submitted to his member firm employer prior criminal convictions; and 

II. Violated Exchange Rule 477 by failing to comply with Exchange requests for information concerning matters that occurred prior to the termination of his employment with a member organization.

Censure and 5 year bar in all capacities.

Rizalina Dones Flores
NYSE Hearing Panel Decision 05-36/March 23, 2005 
  1. On January 16, 1998, Rizalina Dones Flores was arrested by the Alexandria, Virginia police department for purchasing merchandise with a payment stopped personal check in September 1997. On March 11, 1998, she pled guilty to and was convicted of a misdemeanor false pretenses charge in the Alexandria General District Criminal Court and was sentenced to a six-month jail sentence, five months of which were suspended, and ordered to pay restitution of $111.61. 
  2. In September 2001, she was charged with a second misdemeanor for writing a bad check in May 1998. This charge was later dropped
  3. In 2002, she was charged with misdemeanor theft under $500 by the Sheriff’s Department of Upper Marlboro, Maryland. A Probation Before Judgment with a stipulation was issued in which she agreed to pay restitution of $195 and serve two months probation. 

Under Sections 3(a)(39)(F) and 15(b)(4)(B)(i) and (iii) of the Securities Exchange Act of 1934, as a result of her theft conviction in March 1998, the Respondent is statutorily disqualified from employment with an Exchange member organization for ten years, that is, until March 2008. 

On October 9, 2003, the Respondent was hired by A. G. Edwards (the "Firm") as an unregistered Financial Assistant. On or about October 13, 2003, she completed an employment application and submitted her fingerprints to the Firm. On the employment application, she was asked if she had “ever been convicted of, or pleaded guilty or no contest to, any felony or any misdemeanor other than minor traffic offenses,” and if she had “ever been arrested for, or charged with, a misdemeanor involving dishonesty, the wrongful taking of property, or any matter of fraud.” She responded “no” to both of these questions, which is not true. 

On or about December 10, 2003, the Firm terminated the Respondent’s employment based on her statutory disqualification status and her failure to disclose her arrests and conviction on the Firm’s employment application. 

Flores did not submit an Answer to the Charge Memorandum, and neither Flores nor any person on her behalf appeared at the hearing in this matter. At the hearing, the Division of Enforcement moved, pursuant to Exchange Rule 476, to have the facts alleged in the Charge Memorandum deemed admitted, since Flores did not submit an Answer. The motion was granted and the NYSE found that Flores failed to disclose her criminal history on an employment application including a conviction which made her subject to a statutory disqualification

Censure and Barred in all capacities of 6 years

Arlen Jolfaie Sookias
SFC/NYSE Hearing Panel Decision 05-30/March 14, 2005 


On May 31, 1995, before the Municipal Court of the Pasadena Judicial District, in Los Angeles County, California, Sookias was charged with three felony offenses: “Injure/Destroy Insured Property” in violation of Section 548 of the California Penal Code (“Cal. P.C.”), “Present False/Fraud Claim Payment” in violation of Section 550(a)(1) of the Cal. P.C., and “Insurance-Written False Claim” in violation of Section 550(a)(5) of the Cal. P.C., in connection with his filing of a false insurance claim and improperly receiving payment of approximately $52,000. On April 15, 1996, Sookias pled nolo contendere and was convicted of the misdemeanor offense of “Injure/Destroy Insured Property.” The court suspended the imposition of the sentence and placed Sookias on summary probation for three years and required him to perform 200 hours of community service, pay restitution in the amount of $52,000, and obey all laws and orders of the court. On April 18, 1997, the court granted Sookias’ motion under Section 1203.4 of the Cal. P.C. and ordered that the plea, verdict, or finding of guilt be set aside and vacated, that a plea of not guilty be entered, and that the complaint be dismissed. 

On May 25, 1999, before the Superior Court of the Northeast Judicial District, in Los Angeles County, California, Sookias was charged with seven felony offenses: two counts of “Grand Theft of Credit Card” in violation of Section 484e(e) of the Cal. P.C., two counts of “Burglary” in violation of Section 459 of the Cal. P.C., one count of “Forged Name on Credit Card” in violation of Section 484f(b) of the Cal. P.C., one count of “Acqustn of Access Card-Defraud,” in violation of Section 484e(d) of the Cal. P.C., and one count of “Malicious Computer Credit System” in violation of Section 502(c) of the Cal. P.C., in connection with his falsely disputing a charge on his credit card and receiving funds credited to his account. On August 9, 1999, Sookias pled nolo contendere and was convicted of the misdemeanor of “Grand Theft of Credit Card.” On August 11, 2000, the court suspended the imposition of sentence, placed Sookias on summary probation for two years, required him to perform 150 hours of community service and pay restitution in the amount of $2,781.34, and prohibited him from possessing any credit cards not in his name. On September 13, 2002, the court granted Sookias’ motion under Section 1203.4 and ordered that the plea, verdict, or finding of guilt be set aside and vacated, that a plea of not guilty be entered, and that the complaint be dismissed.

On or about October 9, 1998, Sookias completed and signed an application for employment with Morgan Stanley DW (the "Firm"). Question 1, in the “Miscellaneous Data” section of the application, stated: “Have you ever been: convicted, or pleaded no contest to a felony of any kind, or of a misdemeanor involving embezzlement, theft, counterfeiting, forgery, fraud, false statements, misappropriation of funds, abuse or misuse of a fiduciary relationship, or a purchase or sale of any security arising out of the conduct of a broker dealer?” Sookias responded “No” to this question. Because on April 15, 1996, Sookias was convicted of a misdemeanor offense involving his filing of a false insurance claim and improperly receiving funds, this question required a “Yes” answer. 

Question 1, in the “Supplemental Information” section of the employment application stated: “Have you…ever been charged with any felony or charged with a misdemeanor specified in Miscellaneous Data, question 3?” Sookias responded “No” to this question. Because Sookias was charged with three felony offenses on May 31, 1995, this question required a “Yes” answer. 

Sookias was subject to a statutory disqualification for his April 15, 1996 and August 9, 1999 misdemeanor convictions, which involved the filing of a false report, theft, and/or the fraudulent conversion of funds. Sookias was subject to a statutory disqualification under the Exchange Act even though these convictions were subsequently set aside and vacated under California law.  Sections 3(a)(39) and 15(b)(4)(B) of the Securities Exchange Act of 1934 (“Exchange Act”) provide that an individual is subject to a statutory disqualification if he or she is “convicted” within the past ten years of any felony and certain specified misdemeanors, including misdemeanors “involving…the making of a false report…larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds, or securities, or substantially equivalent activity.”  Exchange Rule 351(a) requires member organizations to promptly report to the Exchange if an employee “is arrested, arraigned, indicted or convicted of, or pleads guilty to, pleads no contest to, any felony” or any misdemeanor specified in Section 15(b)(4)(B) of the Exchange Act or if an employee is subject to a statutory disqualification. Exchange Rule 351(b) requires an employee to promptly report the occurrence of those events to his or her member organization employer. Exchange Rule 346(f) prohibits member organizations from employing individuals who are known, or in the exercise of reasonable care should be known, to be subject to a statutory disqualification, unless approval is received from the Exchange. fter Sookias was employed at the Firm, he violated Exchange Rule 351(b) and caused a violation of Exchange Rules 351(a) and 346(f) by failing to report facts relating to his April 15, 1996 conviction to the Firm. 

The NYSE found that Sookias:

I. Engaged in conduct inconsistent with just and equitable principles of trade in violation of Exchange Rule 476(a)(6) by failing to disclose his criminal history, including a conviction that subjected him to a statutory disqualification, on an employment application submitted to his member organization employer. 

II. Violated Exchange Rule 351(b) by failing to promptly report his criminal history, including a conviction that subjected him to a statutory disqualification, to his member organization employer. 

III. Caused a violation of Exchange Rule 351(a) by failing to promptly report his criminal history, including a conviction that subjected him to a statutory disqualification, to his member organization employer. 

IV. Caused a violation of Exchange Rule 346(f) by failing to disclose his criminal history, including a conviction that subjected him to a statutory disqualification, to his member organization employer.

Censure and Barred for 8 years in all capacities

Susanne Olivia Sites
AWC/C02050007/March 2005

Sites failed to disclose a material fact on her Form U4. 

Sites was Fined $5,000; Suspended 6 months in all capacities.

Luke Herbert Scheibner
AWC/C9B050003/March 2005

Scheibner willfully failed to disclose material facts on his Form U4.

Scheibner was Fined $5,000; Suspended 30 business days in all capacities
Victor Rene Rogers, II
C3A040038/March 2005

Rogers willfully failed to disclose material information on his Form U4, and failed to respond to written requests for information. 

Rogers was Barred.

Paul Victor Roddy, Jr.
C9A040020/March 2005

Roddy willfully misrepresented material facts on his record on a Form U4. 

Roddy was Fined $10,000; Suspended 1 year in all capacities.

Ryan Nicholas Ourth
OS/C8A040090/March 2005

Ourth willfully failed to disclose a material fact on his Form U4. 

Ourth was Fined $5,000 and Suspended 45 days in all capacities.

Eric David Mistal 
AWC/C8A050006/March 2005

Mistal failed to disclose material information on his Form U4.

Mistal was Fined $2,500 and Suspended 4 months in all capacities

David J. Lanzatella
AWC/C9B050010/March 2005

Lanzatella willfully failed to amend his Form U4 to disclose a material fact. Lanzatella failed to respond to NASD requests for information regarding the non-disclosure. 

Lanzatella was Barred

Michael John Catanzaro 
AWC/CLI040037/March 2005

Catanzaro failed to disclose material facts on his Form U4. 

Catanzaro was Fined $2,500 and Suspended for 30 business days in all capacities.

Penny Rechelle Boston 
OS/C3B040026/March 2005

Boston willfully misrepresented material facts on her Form U4. 

Boston was Fined $10,000 and Suspended 2 years in all capacities.

Andre Anderson, Sr. 
C8A040055/March 2005

Willfully failed to disclose material information on his Form U4. 

Anderson was Barred.

GunnAllen Financial, Inc. and Stephen Irvin Saunders, IV (Principal)
AWC/C07050004/March 2005

The Firm failed to implement its anti-money laundering (“AML”) program in a manner that was reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and the implementing regulations promulgated thereunder by the Department of Treasury. Acting through Saunders and an unnamed other individual, the Firm permitted registered representatives to act in a capacity requiring registration when such persons were deemed inactive for failing to complete the Regulatory Element of Continuing Education. 

Acting through Saunders, the Firm failed to 

  • report in a timely manner information regarding customer complaints to NASD, 
  • file all information regarding customer complaints, and 
  • report, within 10 business days, information regarding settlements of claims for damages against the firm and Registered Representatives and the receipt of a customer complaint alleging forgery, and
  • ensure that all new account forms contained the signature of a partner, officer, or manager accepting the account on behalf of the firm

Acting through an unnamed individual, the Firm failed to update in a timely manner the Forms U4 and U5 of registered representatives to disclose customer complaints, settlements, and/or arbitrations, as well as the Form U4 of Registered Representatives. 

GunnAllen and Saunder Censured and Fined $11,250 (jointly/severally); GunnAllen additionally fined $18,750 (of which $8,750 was jointly/severally with an unnamed other individual)

 

Radek Vlach
AWC/C8A040115/February 2005

Vlach failed to make a proper disclosure of material information on his Form U4. 

Vlach was Fined $5,000 and Suspended for 30 days in all capacities.

Jerald Dale Simonian
AWC/C01040032/February 2005

Simonian failed to update his Form U4 to disclose a material fact. 

Simonian was Fined $5,000 and Suspended 10 business days in all capacities.

Max Dong Ho Lee
AWC/C02050001/February 2005

Lee willfully failed to disclose a material fact on his Form U4.

Lee was Barred.

George Victor Colon 
C9A040023/February 2005

Colon failed to respond to NASD requests for information, and willfully failed to disclose material information on his Form U4.

Colon was Barred

Larry Thomas Balentine
AWC/C01040033/February 2005 

Balentine willfully failed to disclose a material fact on his Form U4.

Balentine was Barred.

Gordon Mark Allen (Principal)
AWC/C04040061/February 2005 

Allen failed to disclose a material fact on his Form U4. 

Allen was Fined $2,500 and Suspended 60 days in all capacities.

NFB Investment Services Corp.
AWC/CLI040036/February 2005

NFB failed to amend Forms U4 and Forms U5 to disclose customer complaints in a timely manner, which may have 

  • impeded the investing public’s ability to assess the background of certain brokers through NASD’s public disclosure program (NASD BrokerCheck), 
  • denied member firms access to relevant information in making hiring determinations, 
  • enabled some brokers to transfer firms without having their application reviewed by the appropriate state securities regulator, and 
  • hindered NASD from promptly investigating certain disclosure items. 

NFB was Censured and Fined $20,000. 

Bill Singer's Comment: I'm not sure why NASD just this point in time and this case to spell out the four consequences of failing to timely amend Forms U4/U5.  More to the point, NASD has specified its concern about the timely disclosure of "customer complaints." Nothing wrong with doing so --- but I'm just wondering why now and here.  Perhaps Compliance Departments should heed the regulator's explanations as a warning of more scrutiny to come?

Benson York Group, Inc. 
AWC/CLI040038/February 2005

Benson York was not approved to conduct options transactions in its membership agreement although the firm’s customers were actively trading options. The firm completed a change in the equity ownership or partnership capital of the firm that resulted in a person or entity directly owning, indirectly owning, or controlling 25 percent or more of the equity or the partnership capital prior to the filing with NASD of an application for approval of change in ownership, control, or business operations at least 30 days prior to the change. The firm failed to report customer complaints through the Rule 3070 reporting system, and executed settlement agreements with its customers that contained language that restricted the customers from disclosing the settlement terms or underlying facts of the dispute to NASD. In addition,  while participating in a private placement, the firm made certain prohibited material misrepresentations in connection with the offering and failed to transmit properly, or maintain the payments received, in connection with the offering. 

Benson York Group was censured and fined $27,500.

Itradedirect.com Corp. and Eric David Arlt (Principal) 
AWC/C07040101/February 2005

Itradedirect.com and Arlt failed to establish, maintain, and enforce an adequate supervisory system reasonably designed to achieve compliance with industry rules and regulations regarding sales of private placements, Form U4 updates, and customer complaint reporting. They failed to supervise a representative of the firm by allowing him to conduct business without being properly registered in two states, failed to monitor reasonably the progress of a criminal case against the representative to ensure his Form U4 was properly amended and a Rule 3070 report was filed timely upon his guilty plea to fraud charges, and failed to ensure that the firm did not associate itself with a statutorily disqualified person.

Firm was Fined $20,000 ($7,500 jointly/severally with Arlt)
Arlt was Fined $7,500 jointly/severally with Itradedirect.com, and Suspended 30 business days in all principal capacities  (NASD Case #)

Bill Singer's Comment: I would urge you to consider that among the violations was one that requires member firms to "monitor reasonably the progress of a criminal case . . . to ensure his form U4 was properly amended and a Rule 3070 report filed timely upon his guilty plea . . ."  Compliance staff should review internal policies to ensure that registered and associated persons are providing you with timely updates on the progress of reportable criminal matters.  Moreover, it would seem from this and other recent cases that NASD is beginning to require member firms to undertake more affirmative steps to inform themselves of the developments in criminal proceedings.  
Harrison Securities, Inc., Frederick Clark Blumer (GSP), and Raymond Alan Leventhal (GSP)
AWC/CLI040039, CLI040040, CLI040042/February 2005

Acting through Blumer and Leventhal, Harrison Securities failed to 

  • establish and maintain a system to supervise the activities of each registered representative and associated person reasonably designed to achieve compliance with applicable securities laws, regulations, and NASD rules; 
  • develop an adequate supervisory system for review of customer accounts to detect and prevent excessive trading or churning;
  • respond to “red flags” indicating that excessive trading or churning was occurring in the customer accounts of certain registered representatives, including excessive account activity, excessive commissions earned, and customer complaints; 
  • timely amend Forms U4 (Uniform Applications for Securities Industry Registration or Transfer) or Forms U5 (Uniform Termination Notices for Securities Industry Registration) and the firm’s Form BD (Uniform Application for Broker-Dealer Registration) to disclose reportable events. 
  • register properly the firm’s office of supervisory jurisdiction (OSJ) with NASD; 
  • conduct an annual inspection of the firm’s businesses and supervisory systems, including a periodic examination of customer accounts to detect and prevent irregularities or abuses, an annual inspection of each OSJ, and the maintenance of a written record of each such review and inspection;
  • operate with a properly registered financial and operations principal (FINOP); 
  • establish and maintain an adequate antimoney laundering (AML) compliance program; 
  • file an application, pursuant to NASD Membership and Registration Rule 1017, for approval of a change in ownership, control, or business operations upon the direct or indirect acquisition of substantially all of the firm’s assets by another member firm; and 
  • make or keep current its arbitration, correspondence, and financial books and records, or to preserve such records, in a readily accessible place. 

Harrison Securities and Blumer: 

  • permitted advertisements and sales literature to be disseminated to the investing public that contained material misstatements and omissions and contravened NASD’s rules relating to communications with the public;
  • permitted individuals to maintain registrations with NASD through the firm while the individuals were not actively engaged, or to be engaged, in the investment banking business or securities business of the firm; and
  • failed to comply with SEC Rule 17a-5(a)(2)(iii), in that the firm failed to file its quarterly FOCUS report

Additionally, Blumer failed to respond to NASD requests for information and or documents. 

Harrison Securities and Leventhal permitted a registered representative to continue to conduct a securities business while his registration was inactive due to his failure to complete the Regulatory Element of the Continuing Education Requirement, and they failed:

  • enforce the firm’s written supervisory procedures (WSPs) related to options transactions by failing to conduct, and memorialize, periodic reviews of options activities in customer accounts;
  • report, and to report timely customer complaints in violation of NASD Conduct Rule 3070; 
  • enforce the firm’s WSPs related to compliance with NASD Conduct Rule 3050 dealing with transactions for or by associated persons; and 
  • establish and maintain adequate procedures to ensure compliance with NASD Rule 2711 dealing with research analyst and research reports. 

Harrison Securities, Inc. was expelled from NASD membership. 
Blumer was Barred
Leventhal was fined $40,000, Suspended 1 year in principal/supervisory capacities and Required to Requalify as a Registered Principal (Series 24)

Bill Singer's Comment: I'm into my third decade on Wall Street and, frankly, I'm not sure I can recall too many regulatory cases that presented a more panoramic range of violations.  To that extent, this decision is impressive.  
Cynthia Barnes Hall
NYSE Hearing Panel Decision 05-24/February 15, 2005 

On April 29, 1992, Cynthia Barnes Hall was arrested in Lafayette, Indiana and charged with the crime of theft of funds relating to a credit card, a class A misdemeanor. On April 11, 1994, Hall pled guilty to the charge and on May 9, 1994 was convicted of theft, a class A misdemeanor. Hall received a suspended one-year jail sentence, was placed on probation for a period of one year and was required to pay approximately $3,000 in restitution.  

Under Section 3(a)(39)(F) and Section 15(b)(4)(B) of the Securities and Exchange Act of 1934, a person is subject to a statutory disqualification if such person has been convicted, within the past ten years, of any felony and certain specified misdemeanors. Hall became subject to statutory disqualification until May 2004, as a result of her plea of guilty and conviction of theft on May 9, 1994. 

On June 19, 2003, Hall completed an employment application with Edward D. Jones & Co. (the “Firm”), for a position as an investment representative. In the application, despite being asked “have you ever been convicted, plead guilty or nolo contendere (“no contest”) or received deferred adjudication in a domestic, foreign or military court to any felony offense or misdemeanor”, Hall answered “no” denying her prior plea of guilty to a misdemeanor. As a part of the employment application, Hall also completed a Form U-4 that was submitted to the Exchange. Question 14B(1)(a) of the Form U-4 asked Hall if she had ever “been convicted of or plead guilty or nolo contendere (“no contest”) in a domestic, foreign or military court to a misdemeanor?” Hall answered “no” to this question. Likewise, question 14B(1)(b) of the Form U-4 asked Hall if she had ever “been charged with a misdemeanor?” Hall answered “no” to this question. 

Thereafter, the Firm received the Department of Justice fingerprint report disclosing Hall’s prior theft, class A misdemeanor conviction. The Firm discussed the incidents in the Department of Justice report with Hall and her employment was terminated on August 20, 2003. 

Hall did not submit an Answer to the Charge Memorandum, and neither Hall nor any person on her behalf appeared at the hearing in this matter. At the hearing, the Division of Enforcement moved, pursuant to Exchange Rule 476, to have the facts alleged in the Charge Memorandum deemed admitted, since Hall did not submit an Answer. The motion was granted and the NYSE found that Hall:

I. Violated Exchange Rule 345.12 by submitting a Form U-4 containing false information. 

II. Violated Exchange Rule 476(a)(10) by making a misstatement and /or omissions of fact on her application for registration with the Exchange. 

III. Engaged in conduct inconsistent with just and equitable principles of trade by failing to disclose, on an employment application submitted to her member firm employer, a prior misdemeanor conviction, which made her subject to statutory disqualification. 

Censured and Barred for four years

Linda F. Duncan
NYSE Hearing Panel Decision 05-21/January 27, 2005 

On or about October 4, 1978, Linda F. Duncan, a non-registered employee with H & R. Block Financial Advisors, Inc. (the “Firm”), pleaded guilty to one count of misdemeanor theft in the Criminal Court of Harris County, Texas. On the same day, she was sentenced to pay a fine of $25. 

On or about January 2, 1997, a criminal complaint was filed in the District Court of Johnson County, Kansas, charging Duncan with one count of Unauthorized Control Over Property, a felony, and one misdemeanor count of Unauthorized Control Over Property. On June 30, 1997, Duncan pleaded guilty and was convicted of one count of Unlawfully Transporting Liquor in an Open Container, a misdemeanor offense. She was sentenced to 30 days jail, that was later suspended and an order of payment of court costs was imposed. 

On January 3, 2003, Duncan completed an employment application with the Firm for a position as an operations specialist. In the application, she answered in the negative when asked about, among other things, prior pleas of guilty to misdemeanor charges. Duncan also completed the disclosure page of the Uniform Application for Securities Registration  (Form U4)(the “disclosure page”). Question 14(A)(1)(b) of the disclosure page asked if she had ever been charged with a felony. Duncan answered “no” to this question. Further, question 14(B)(1)(b) of the disclosure page asked if she had ever been charged with a misdemeanor involving, among other things, wrongful taking of property. Duncan also answered “no” to this question. Duncan was terminated from the Firm on April 10, 2003, after she failed to produce any documentation regarding the matters reported in her DOJ Report.

Duncan did not submit an Answer to the Charge Memorandum, and neither Duncan nor any person on her behalf appeared at the hearing in this matter. At the hearing, the Division of Enforcement moved, pursuant to Exchange Rule 476, to have the facts alleged in the Charge Memorandum deemed admitted, since Duncan did not submit an Answer. The motion was granted and the NYSE found that Duncan:

I. Engaged in conduct inconsistent with just and equitable principles of trade by failing to disclose, on an employment application submitted to her member firm employer, her prior criminal history. 

II. Violated Exchange Rule 477 in that she failed to comply with the Exchange’s written requests for a written statement relating to her conduct while employed by a member firm employer. 

Censure and Barred for 4 years in all capacities.

Latanya A. Smith
NYSE Exchange Hearing Panel Decision 05-20/January 27, 2005

On December 5, 1993, Latanya A. Smith was arrested in Overland Park, Kansas and charged with Felony Theft. On November 7, 1994, Smith pleaded guilty to and was convicted of one count of Felony Theft. She was sentenced to 24-months probation. Under Section 3(a)(39)(F) and Section 15(b)(4)(B) of the Securities and Exchange Act of 1934 (the “Exchange Act”), a person is subject to a statutory disqualification for a period of ten years upon conviction of, among other things, any felony; and Smith’s felony conviction subjected her to statutory disqualification until November 7, 2004. 

As part of her employment with H & R Block Financial Advisors, Inc. (the “Firm”), on or about November 14, 2002, Smith completed an employment application for a non-registered position that contained the disclosure page of the Uniform Application for Securities Industries Registration or Transfer  (Form U4) (the “disclosure page”). The employment application asked Smith whether she had ever been convicted of or pleaded guilty to a felony. Smith answered “no” to this question. Question 14(A)(1)(a) of the disclosure page asked Smith if she had ever been convicted of or pled guilty to any felony. Smith answered “no” to this question. Likewise, question 14(A)(1)(b) of the disclosure page asked Smith if she had ever been charged with any felony. Smith denied ever being charged with a felony. On December 2, 2002, Smith began employment with the Firm. On June 13, 2003, the Firm received a DOJ Report for Smith, which disclosed her criminal history. The Firm discussed the incidents in the report with Smith and her employment was terminated on June 17, 2003.

By denying her prior plea of guilty on her employment application, Smith failed to disclose to the Firm her conviction for the felony of Felony Theft that subjected her to statutory disqualification.  

Smith did not submit an Answer to the Charge Memorandum, and neither Smith nor any person on her behalf appeared at the hearing in this matter. At the hearing, the Division of Enforcement moved, pursuant to Exchange Rule 476, to have the facts alleged in the Charge Memorandum deemed admitted, and the motion was granted.

NYSE found that Smith:

I. Engaged in conduct inconsistent with just and equitable principles of trade by failing to disclose, on an employment application submitted to her member firm employer, her prior criminal history which subjected her to statutory disqualification. 

II. Violated Exchange Rule 477 in that she failed to comply with the Exchange’s written requests for a written statement relating to her conduct while employed by a member organization. 

Censured and a 4 year bar in all capacities.

John R. Johnson
NYSE Hearing Panel Decision 05-19/January 27, 2005

On May 28, 2001, a criminal complaint of Unlawful Use of a Weapon and Domestic Assault in the Second Degree was filed against John R. Johnson in the Circuit Court of Jackson County, Missouri. On February 4, 2002, Johnson pleaded guilty and was convicted of Domestic Assault in the Second Degree, a felony. The imposition of Johnson’s sentence was later suspended and he was placed on supervised probation for three years. If Johnson successfully completes the probation, the guilty plea may be withdrawn and the official record pertaining to the case sealed. Under Sections 3(a)(39)(F) and 15(b)(4)(B) of the Securities Exchange Act of 1934, an individual is subject to a statutory disqualification for a period of ten years upon conviction of, among other things, any felony. As such, Johnson became subject to statutory disqualification as a result of his plea of guilty and conviction of a felony on February 4, 2002.

On January 20, 2003, Johnson completed an employment application with the Firm for a non-registered position as an operations specialist. In the application, despite being asked have you ever “been convicted of (or pleaded guilty or nolo contendre to) a felony”, Johnson answered “no,” denying his prior plea of guilty to a felony

As part of the employment application, Johnson also completed the disclosure page of the Uniform Application for Securities Industries Registration or Transfer  (Form U4)(the “disclosure page”). Question 14(A)(1)(a) of the disclosure page asked if he had ever been convicted or pled guilty to any felony. Johnson answered “no” to this question. Likewise, question 14(A)(1)(b) of the disclosure page asked Johnson if he had ever been charged with any felony. Johnson answered “no” to this question. The Firm received notification of a Department of Justice fingerprint report disclosing Johnson’s prior felony conviction. 

Mr. Johnson did not submit an Answer to the Charge Memorandum, and neither Mr. Johnson nor any person on his behalf appeared at the hearing in this matter. At the hearing, the Division of Enforcement moved, pursuant to Exchange Rule 476, to have the facts alleged in the Charge Memorandum deemed admitted, since Mr. Johnson did not submit an Answer. The motion was granted and the NYSE found that Johnson engaged in conduct inconsistent with just and equitable principles of trade by failing to disclose, on an employment application submitted to his member firm employer, a prior felony conviction that made him subject to statutory disqualification. 

Censured and 3 year Bar following the period of statutory disqualification

Jonathan Henry
NYSE Hearing Panel Decision 05-15/January 25, 2005

During the period of 1995 through 1999, Henry was arrested and charged on four occasions with violations (not felonies or misdemeanors) of local municipal ordinances.  However, on November 16, 2003, Henry was arrested by the Miami Beach police department and, the following day, was charged with 

  • burglary (3rd degree – felony), 
  • cocaine possession (3rd degree – felony), 
  • possession of controlled substance ( 3rd degree – felony), 
  • battery (misdemeanor) and 
  • probation violation. 

Henry was convicted of the above charges on or about May 20, 2004 and sentenced to one year probation. Under the Florida Rules of Criminal Procedures 3.702 (d)(2): “Conviction means a determination of guilt resulting from a plea or trial, regardless of whether adjudication was withheld or whether imposition of sentence was suspended”). 

On the Form U-4 dated February 9, 2004, that Henry completed with respect to his employment at H & R Block Financial Advisors (the “Firm”), Henry answered “no” to question 14A(1)(b) that asked if Henry had ever been charged with any felony. As of that date, Henry knew or should have known that his November 16, 2003 arrest resulted in felony charges of burglary, cocaine possession and controlled substance possession. In answering “no” to the above noted question, Henry made a misstatement and/or omission of fact on his registration application and caused his member firm employer to submit to the Exchange a Form U-4 containing false information. 

Under Sections 3(a)(39)(F) and 15(b)(4)(B) of the Securities Exchange Act of 1934 (the “Exchange Act”) an individual is subject to a statutory disqualification for a period of ten years upon conviction for any felony or for certain specified types of misdemeanors. As a result of Henry’s conviction of felony charges on or about May 20, 2004, he became statutorily disqualified at that time, after his employment with the Firm had already been terminated. 

Henry did not submit an Answer to the NYSE's Division of Enforcement's Charge Memorandum, and no appearance was filed on his behalf at the scheduled Hearing.  An Exchange Hearing Panel conducted a hearing on charges brought by the Exchange’s Division of Enforcement against Jonathan Henry, a former registered representative with . Mr. Henry was charged with having:  Pursuant to NYSE Rule 476,the Panel deemed the allegations as admitted and found that Henry had

I. Engaged in conduct inconsistent with just and equitable principles of trade in that he failed to disclose his criminal record on a Form U-4 submitted to his member firm employer. 

II. Violated Exchange Rule 476(a)(10) in that he made a misstatement and/or omission of fact on a Form U-4 that was filed with the Exchange. 

III. Caused a violation of Exchange Rule 345.12 in that he submitted a Form U-4 to the Exchange that contained false information. 

IV. Violated Exchange Rule 477 in that he failed to comply with written requests by the Exchange for information with respect to activities that occurred while he was an employee of a member organization. 

Censured and Barred for 5 years following the period of statutory disqualification.

Kevin Paul Schwendemann 
AWC/CLI040030/January 2005

Schwendemann  failed to disclose a material fact on his Form U4. 

Fined $2,500 and suspended 45 days in all capacities

Gary Lee Myers 
AWC/C9A040052/January 2005

Myers willfully failed to amend his Form U4 to disclose material information. 

Fined $5,000 and suspended 6 months in all capacities.

Craig Robert McCasland
AWC/C8A040110/January 2005

McCasland failed to submit timely an amended Form U4 disclosing material information and failed to respond in a timely manner to an NASD request for information. 

Fined $5,000 and suspended 30 business days and three months in all capacities.

Bill Singer's Comment: That's what it says: 30 business days and three months.  

Elliot J. Kozak
OS/C10040097/January 2005

Kozak willfully failed to disclose material information on his Form U4.

Fined $7,500 and suspended 7 months in all capacities

Frank A. Katona
OS/CAF040020/January 2005

Katona substantially participated in the sale of unregistered securities by entering into an arrangement with the principals of a private company to help raise money by selling “to be issued” shares to public customers and failed to tell them that 25 percent of the money they invested was compensation to him. He also failed to amend his Form U4 to disclose material information. 

No fine in light of financial status; Suspended 1 year in all capacities; Required to requalify by exam

Bill Singer's Comment:  Sometimes a broker has a cup of coffee with friends, they talk about life, then they talk about work, then someone discusses a deal they're working on, and then the RR "helps" out . . . and then winds up in a mess of trouble.  Step One:  always, always, always verify that any security you are selling is either registered or subject to a proven exemption.  Step Two: Fully disclose your participation in the deal to your BD and get their written approval.  Step Three:  Fully disclose your compensation basis to anyone you're soliciting.
Antoine J. Hutcheson
AWC/C8A040101/January 2005

Hutcheson failed to disclose material facts on his Form U4. 

Fined $5,000 and suspended 1 month all capacities

Fred Granik 
C9B040050/January 2005

Granik was authorized to use a corporate credit card by the card’s holder to charge airfare and hotel expenses for a business trip, but without authorization Granik also charged an additional $727.35 for personal expenses to the card and failed to pay the individual for the total amount of $3,304.07 he charged to the credit card. Also, Granik willfully failed to disclose material facts on his Form U4. 

Barred

Bill Singer's Comment:  We're seeing more of these types of "personal" matters coming under regulatory scrutiny.  Brokers would be well advised to recognize that even matters not necessarily involved with a securities transaction may be deemed regulatory in nature. 

Taurese L. Edge
AWC/C8A040102/January 2005

Edge willfully failed to disclose material facts on his Form U4. 

Fined $5,000 and suspended 1 year in all capacities. 

Joseph M. DeMercede 
OS/C8A040053/January 2005

DeMercede willfully failed to disclose material facts on his Form U4. 

Fined $5,000 and suspended 3 months all capacities

Roger Martin Dail 
C10040038/January 2005

Dail willfully failed to disclose a material fact on his Form U4. 

Barred

Michael Klee Clark 
AWC/C02040047/January 2005

Clark willfully failed to amend his Form U4 to disclose a material fact. 

Fined $5,000 and suspended 1 year in all capacities 

Terry Alan Coursey 
OS/C04040035/January 2005

Coursey willfully failed to disclose material facts on his Form U4. 

Fined $2,500 and suspended 60 days in all capacities

Emmett A. Larkin & Co., and Melvin Lee Peterson (GSP)
AWC/C01040027/January 2005

Acting through Peterson, the firm failed to file timely disclosures for reportable events to NASD within 10 days and to update promptly Forms U4 (Uniform Application for Securities Industry Registration or Transfer) and U5 (Uniform Termination Notice for Securities Industry Registration) for events requiring regulatory disclosure. Firm had inadequate written procedures for the firm’s supervision relating to the prompt reporting of events requiring regulatory disclosure filings. 

Firm fined $37,000 of which $32,000 was joint and several with Peterson.
Bill Singer's Comment:  NASD has recently been on a tear about untimely reporting --- Rule 3070, U4 amendments, U5s, and statutory disqualification events.  Note that in this matter not only was the firm sanctioned but also a Principal.  



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