NOTE: Stipulations of Fact 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 & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.

Robert Charles Keane (Principal)
AWC/2007008935004

Keane particpated in the marketing and implementation of a Stock to Cash program under which customers would pledge stock to obtain loans, the proceeds of which were, in many cases, used to purchase non-securities insurance products. The “pledged” stock would be transferred to the loaning entity’s securities account, which was maintained at a clearing firm, and Keane played an integral part in facilitating these loans; customers accepted his recommendations, taking out loans totaling more than $3.3 million. Keane facilitated his customers’ pledging of the securities and recommended what stocks they should pledge and, in some cases, recommended that they sell specific securities and buy others to pledge to the lender, and affected those transactions. 

Despite making these recommendations, Keane made no effort to find out what happened to the stock conveyed to the lender, and did not inquire into what would be done with the stock; he understood that the lender took ownership of his customers’ securities but incorrectly assumed that the customers retained some interest in the pledged stock. Keane did not conduct an inquiry into the lender’s financial condition and whether it had the ability to fulfill its obligations, and when he attempted to find out about the lender’s hedging strategy, he was told that it was proprietary and that he could not get that information, but nevertheless entrusted his clients’ securities to this lender.

The Stock to Cash strategy involved in each case a pledge of stock, Keane’s advice to his clients constituted a recommendation of “the purchase, sale or exchange of any security”; and as a registered representative, Keane was obligated under NASD Rule 2310 to have a reasonable basis for recommending that his customers pledge their stock to this lender to participate in the Stock to Cash program.

Keane failed to conduct adequate due diligence concerning the program lender, failed to take sufficient action to determine whether his clients’ ownership interest in the pledged securities was adequately protected and, as a result, he did not understand the potential risks inherent in the strategy and did not have a reasonable basis for recommending the strategy to his current and potential customers.

Robert Charles Keane (Principal): Fined $10,000; Suspended 30 days

Tags: Stock to Cash