Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CONTINUING EDUCATION
2011
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.
December 2011
James Gregory Hogue
AWC/2009019276103
Hogue e improperly allowed the branch operations manager of his member firm to complete his Firm Element Continuing Education (CE) proficiency tests.
James Gregory Hogue: Fined $5,000; Suspended 30 days
Tags: Testing  
Jared Robert Lynch
AWC/2011029347801
Lynch improperly created an answer key for a state long term care (LTC) insurance CE examination and distributed the answer keys to an employee of the member firm. Lynch sent an email to a registered representative at the firm and attached the study guide for an eight-hour required course and exam, consisting of 50 multiple choice questions and a blank answer sheet; a third-party educational testing company appeared to have created all the materials. In the email, Lynch stated he would have the answers soon and later provided the registered representative with a copy of the blank answer sheet with the answers to the 50 questions circled by hand and the words ďmaster copyĒ written on the top of the page. 
Jared Robert Lynch: FIned $5,000; Suspended 60 days
Tags: Testing  Email  
November 2011
Christopher James Neri
AWC/2009021029624

Neri improperly created an answer key for a state insurance LTC CE examination when he sat with a registered representative taking the CE examination and provided the registered representative with his opinion as to the correct answers to certain questions, recorded the answers the registered representative selected on a piece of paper, retained the answer key for several months and then transferred the answer key to an email.

Neri improperly distributed that answer key to other employees of his member firm when he sent that email to other wholesalers of the firm; after a wholesaler emailed Neri to inquire whether he had answers for the CE test, Neri sent the email to other wholesalers of the firm. On multiple occasions, Neri improperly assisted registered representatives outside of the firm taking the LTC CE examination by referring to the answer key and providing them with some or all of the examination answers; either in person or over the phone, Neri provided the registered representatives with his opinion as to the correct answers to some or all of the examination questions without reference to the answer key while they were taking the exam. The findings also included that on multiple occasions, Neri took the LTC CE examination, in whole or part, for registered representatives outside of the firm by meeting with registered representatives in their offices, sitting at their computers and either answering all the questions himself without assistance from the representative, or the representative would provide some of the answers, which Neri would enter then into the computer.

Christopher James Neri : Fined $5,000; Suspended 90 days
Tags: Testing  
Bill Singer's Comment
As concise an explanation of these LTC CE answer key cases as I have seen. Explains the variations and the genesis. 
Steven Lenard Jessup Jr.
AWC/2009021029623

Jessup improperly requested and received an answer key to a state LTC CE exam and improperly distributed the answer key to a registered representative outside of his member firm. Jessup was an external wholesaler who marketed an insurance product to financial advisors at financial services firms. Certain states began requiring financial advisors to successfully complete a LTC CE course before selling LTC insurance products to retail customers. Jessupís firm authorized its wholesalers to give financial advisors vouchers from a company, which the financial advisors could use to take CE exams through the company without charge. Firm employees created and circulated answer keys to the companyís CE exam for various states.

The suspension was in effect from October 3, 2011, through November 2, 2011. (FINRA Case #)

Steven Lenard Jessup Jr. : Fined $5,000; Suspended 1 month
Tags: Testing  
Barausky improperly created an answer key for a state insurance long-term care (LTC) continuing education (CE) examination and improperly distributed the answer key to other registered representatives of the member firm. Barausky forwarded another answer key to wholesalers within the firm.
Virginia Bussard Barausky (Principal): Fined $5,000; Suspended 60 days
Tags: Testing  
October 2011
Camp was the operations manager for branch offices of his member firm and was responsible for supervising registered representativesí timely completion of the internal, computer-based Firm Element Continuing Education program. Camp completed the required Firm Element Continuing Education program proficiency tests for registered representatives and improperly assisted other registered representatives by providing them with answers. Camp offered to assist or take the proficiency tests for additional firm registered representatives but they rejected his offer.
Marcus Patrick Camp (Principal): FIned $10,000; Barred in Principal capacity only; Suspended 6 months in all capacities.
Tags: Testing  
Montgomery was employed as an insurance consultant at his member firm, and in that capacity, assisted financial advisors with selling insurance products, including long-term care (LTC) insurance to their clients. Certain states implemented new LTC continuing education (CE) requirements that obligated financial advisors to complete an LTC CE course and exam before selling LTC insurance products to customers who resided in those states. In order to assist financial advisors in obtaining this requirement, Montgomery requested and received an answer key to a state insurance LTC CE examination, and distributed it to financial advisors at his firm through emails.
Stephen Christopher Montgomery (Principal): Fined $5,000; Suspended 45 days in all capacities
Tags: Testing  
September 2011
Scott Roy Pierson
AWC/2009020572801

Pierson administered an insurance companyís insurance CE instruction program for his member firm, and because of a heavy workload, he got behind in the administration of the program, resulting in expired courses being taught and the late filing of courses, instructor approval requests and attendance rosters with states. To cover up these problems, Pierson issued false CE completion certificates to course attendees and substituted on CE completion certificates the names of state-certified instructors for courses uncertified instructors taught.

CE courses require annual or biannual renewals in some states, and Pierson allowed courses to expire without renewal.  Pierson wasnít aware the courses had expired until after they had been taught. On one occasion Pierson issued certificates of completion for approved courses as opposed to the expired courses that were actually presented and did this over approximately a five-year period.

On one occasion Pierson issued CE completion certificates to course attendees for one hour of credit that had not been taught. In addition, Pierson substituted the names of state-certified instructors on CE completion certificates to conceal the fact that the instructors who actually taught the courses were not certified at the time the courses were taught.

Scott Roy Pierson : Fined $15,000; Suspended 1 year; Required to requalify as an investment company/variable contract products representative.
Bill Singer's Comment

Yeah, okay -- got it. I'm not defending Pierson and understand why FINRA was so upset. On the other hand, the whole CE crap and the cottage industry that it has prompted is also upsetting.  Ask virtually any individual who is required by any profession to take CE credits and you're likely going to hear the same complaints: it's too time consuming, it's too expensive, and the courses suck.  While the goal of CE is admirable, the reality is that little, if any, continuing education results from the forced attendance. 

Veritrust Financial, LLC
AWC/2008011640802

The Firm failed to establish and maintain a supervisory system or WSPs reasonably designed to detect and prevent the charging of excessive commissions on mutual fund liquidation transactions.

The Firm failed to put in place any supervisory systems or procedures to ensure that customers were not inadvertently charged commissions, in addition to the various fees disclosed in the mutual fund prospectus, on their mutual fund liquidation transactions. The firmís failure to take such action resulted in commissions being charged on transactions in customer accounts that generated approximately $64,110 in commissions for the firm.

The firm had inadequate supervisory systems and procedures to ensure that a firm principal reviewed, and the firm retained, all email correspondence for the requisite time period; the firm failed to review and retain securities-related email correspondence sent and received on at least one registered representativeís outside email account, and the firm did not have a system or procedures in place to prevent or detect non-compliance.

The firm failed to conduct an annual inspection of all of its Offices of Supervisory Jurisdiction (OSJ) branch offices.

The Firm failed to comply with various FINRA advertising provisions in connection with certain public communications, including websites, one billboard and one newsletter, in that a registered principal had not approved websites prior to use; websites did not contain a hyperlink to FINRAís or Securities Investor Protection Corporation (SIPC)ís website; one website, the billboard and the newsletter failed to maintain a copy of the communication beginning on the first date of use; and sections of websites that concerned registered investment companies were either not filed, or timely filed, with FINRAís Advertising Regulation Department. In addition, websites contained information that was not fair and balanced, did not provide a sound basis for evaluating the facts represented, or omitted material facts regarding equity indexed annuities, fixed annuities and variable annuities. Moreover, websites contained false, exaggerated, unwarranted or misleading statements concerning mutual B shares; the firmís websites and the billboard did not prominently disclose the firmís name, and a website, in connection with a discussion of mutual funds, failed to disclose standardized performance data, failed to disclose the maximum sales charge or maximum deferred sales charge and failed to identify the total annual fund operating expense ratio, and a website, in a comparison between exchange-traded funds (ETFs) and mutual funds failed to disclose all material differences between the two products.

Furthermore,the firm failed to report, or to timely report, certain customer complaints as required; the firm also failed to timely update a registered representativeís Uniform Termination Notice for Securities Industry Registration (Form U5) to disclose required information. The firm failed to create and maintain a record of a customer complaint and related records that included the complainantís name, address, account number, date the complaint was received, name of each associated person identified in the complaint, description of the nature of the complaint, disposition of the complaint or, alternatively, failed to maintain a separate file that contained this information.

The firm failed to ensure that all covered persons, including the firmís president and CEO, completed the Firm Element of Continuing Education (CE). The firmís 3012 and 3013 reports were inadequate, in that the 3012 report for one year was inadequate because it failed to provide a rationale for the areas that would be tested, failed to detail the manner and method for testing and verifying that the firmís system of supervisory policies and procedures were designed to achieve compliance with applicable rules and laws, did not provide a summary of the test results and gaps found, failed to detect repeat violations including failure to conduct annual OSJ branch office inspections, advertising violations, customer complaint reporting, and ensuring that all covered persons participated in the Firm Element of CE. FINRA also found that the firmís 3013 report for that year did not document the processes for establishing, maintaining, reviewing, testing and modifying compliance policies to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws, and the manner and frequency with which the processes are administered. In addition, the firm also failed to enforce its 3013 procedures regarding notification from customers regarding address changes.

Veritrust Financial, LLC : Censured; Fined $90,000; Ordered pay $34,105.40, plus interest, in restitution to customers
Bill Singer's Comment
If this case were a pinball machine, I think it likely would have hit the all-time highest score.  The scope of these violations are impressive.

Gallagher acted as a principal of his member firm without being registered as such and the firm allowed Gallagher to act in an unregistered capacity.

Gallagher failed to adhere to the heightened supervisory requirements FINRA imposed and the agreements he entered into with three states; because of his controlling role at the firm and the transitory nature of supervision at the firm, he was able to sidestep the heightened supervision requirements. The firm failed to ensure that Gallagherís heightened supervisory requirements from the states and FINRA were being followed, and failed to have a system to adequately monitor Gallagherís compliance.

Gallagher was responsible for the firm adhering to the requirements to establish, maintain and enforce written supervisory control policies and ensuring the completion of an annual certification certifying that the firm had in place processes to establish, maintain, review, test and modify written compliance policies and WSPs to comply with applicable securities rules and regulations. The firm failed to conduct the analysis required to determine whether, as a producing manager, Gallagher should have been subjected to the heightened supervision requirements.

The firm failed to establish, maintain and enforce written supervisory control policies and procedures and failed to identify at least one principal who would establish, maintain and enforce written supervisory control policies and procedures. In addition, through Gallagher, the firm, failed to ensure that an annual certification was complete, certifying it had in place processes to establish, maintain, review, test and modify written compliance policies and WSPs to comply with applicable securities rules and regulations.

Moreover, FINRA found that the firm failed to report customer complaints against Gallagher and one customer-initiated lawsuit in which he was listed as a defendant.

Furthermore, the firm failed to make the necessary and required updates to Forms U4 and U5 for representatives to reflect customer complaints, arbitrations and lawsuits within the required 30 days.

Thefirm failed to conduct and evidence an independent test of its AML program, and failed to conduct and evidence an annual training program of its CE program for its covered registered persons.

While testifying at a FINRA on-the-record interview, Gallagher failed to respond to questions.

Gallagher willfully failed to timely amend his Form U4 with material facts. Gallagher appealed the decision to the NAC and the sanction is not in effect pending the appeal.

Vision Securities Inc.: Censured; Fined $60,000

Daniel James Gallagher: Barred

Bill Singer's Comment

Gallagher willfully failed to timely amend his Form U4 with material facts. Gallagher appealed the decision to the NAC and the sanction is not in effect pending the appeal.

August 2011
Dennis Osborn Beadle
AWC/2009021029706

Beadle used an answer key to complete a state insurance continuing education (CE) exam.

Certain states began requiring financial advisors to complete a long-term care (LTC) CE course and exam before selling LTC insurance products to customers who reside in those states. Beadle was advised that he would be required to complete the LTC CE exam for a particular state before he was able to complete the sale of a policy to a colleagueís relative. Beadle received an email from a wholesaler that included a copy of the stateís LTC CE exam questions, with the answers filled in by hand. Beadle used the answer key to complete the stateís LTC CE exam.

Dennis Osborn Beadle: Fined $5,000; Suspended 1 month

Work requested and received the answer key for a stateís LTC CE exam and distributed it to a financial advisor outside of his member firm.

Certain states began implementing a LTC CE requirement that obligated financial advisors to complete a LTC CE course and exam before selling LTC insurance products to customers who resided in that state. In order to help financial advisors obtain the LTC CE requirement, Workís firm provided them with vouchers that allowed financial advisors to take the CE exams for free through a specific company. In addition to providing financial advisors with vouchers, certain firm employees improperly created, requested, received and distributed the answer keys for state LTC CE exams.

Jacen Darrel Work (Principal): Fined $5,000; Suspended 1 month
July 2011
Bryan C. McCabe
AWC/2009021029617
McCabe requested and received answer keys to state insurance LTC CE examinations and distributed them to other employees at his member firm.
Bryan C. McCabe : Fined $5,000; Suspended 10 business days
Tags: Testing  
Catherine Laura Baker
AWC/2009021029618

Baker requested, received and distributed answer keys for long-term care (LTC) continuing education (CE) exams to member firm representatives, and asked other firm representatives to distribute LTC CE answer keys to outside financial advisors.

Certain states implemented an LTC CE requirement that obligated financial advisors to complete an LTC CE course and exam before selling LTC insurance products, including the product Baker sold, to customers who resided in that state. In order to help financial advisors obtain the LTC CE requirement, Bakerís firm provided them with vouchers that allowed financial advisors to take CE exams for free through a specific company. In addition to providing financial advisors with the vouchers, certain firm employees improperly created, requested, received and distributed answer keys for state LTC CE exams.

Catherine Laura Baker : Fiend $5,000; Suspended 1 month
Tags: Testing  
John Stultz Poland
AWC/2010023613401

Poland allowed a representative of a non-FINRA member insurance company to improperly assist him in completing a state insurance LTC CE exam.

The representative sat with Poland for half of the time it took him to complete the exam, and the two discussed the topics covered on the exam, and as a result, Poland received assistance on some of the answers on the exam. After completing the exam, Poland completed an exam certification form/declaration of compliance, and despite having received assistance on the exam, he signed the form and inaccurately certified that he completed the exam without assistance from any outside source.

John Stultz Poland : Fined $5,000; Suspended 1 month
Shaun Michael Donahue
AWC/2009021029619

Donahue requested, received and improperly distributed the answer key for a state LTC CE examination to a financial advisor outside his member firm.

Certain states began requiring financial advisors to successfully complete an LTC CE examination before selling long-term care products to retail customers. The firm authorized its wholesalers to give financial advisors vouchers from a company, which the financial advisors could use to take the LTC CE examinations without charge. Donahue was an internal wholesaler at a firm who supported the selling efforts of external wholesalers who marketed an insurance product to financial advisors at financial service firms. Firm employees, other than Donahue, created answer keys for the companyís LTC CE examinations for various states, and distributed them to other firm employees.

Shaun Michael Donahue : Fiend $5,000; Suspended 1 month
Tags: Testing  
June 2011

In his capacity as the vice president of compliance, McKee failed to supervise certain aspects of his member firmís securities business

Acting on his firmís behalf, McKee failed to

  • establish and maintain a supervisory system or written supervisory procedures reasonably designed to detect and prevent the firm from charging excessive commissions on mutual fund liquidation transactions;
  • adequately supervise the firmís communications with the public;
  • adequately supervise the firmís compliance with NASD Rule 3070 and Uniform Termination Notice for Securities Industry Registration (Form U5) reporting provisions and customer complaint recordkeeping requirements; and
  • comply with NASD Rules 3012 and 3013, in that the Rule 3012 and 3013 reports that he prepared on his firmís behalf were inadequate.

Thee firmís 3012 report for one year was inadequate because it failed to provide a rationale for the areas that would be tested, failed to detail the manner and method for testing and verifying that the firmís system of supervisory policies and procedures were designed to achieve compliance with applicable rules and laws, and did not provide a summary of the test results and gaps found. The 3012 report also failed to detect repeat violations including, the failure to conduct annual Office of Supervisory Jurisdiction (OSJ) branch office inspections, advertising violations, customer complaint reporting and ensuring that all covered persons participated in the Firm Element of Continuing Education.

The firm's 3013 report for one year did not document the processes for establishing, maintaining, reviewing, testing and modifying compliance policies to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws, and the manner and frequency with which the processes are administered. In addition, the firm failed to enforce its 3013 procedures regarding notification from customers regarding address changes.

David Elijah McKee (Principal): Fined $15,000; Suspended 30 business days in Principal/Supervisory capacities only
Bill Singer's Comment

These types of cases always strike me as "sloppy" because they largely have to do with failures to document actions that have usually been taken.  Pardon my cynicism but, hey, even the preparation of an insincere report is better than simply failing to prepare any report.

Mahler improperly created answer keys to state insurance continuing education (CE) exams a company administered.

The companyís president approached Mahler on different occasions and offered to provide him with answers to the companyís CE exams. The president provided Mahler with the answers to the CE exams over the phone or by handing copies of the answers to Mahler, and Mahler used these answers to create answer keys for the exams.

Mahler improperly distributed the answer keys to an employee at his member firm and to multiple registered representatives outside of his firm. On multiple occasions, while he was an external wholesaler, Mahler provided assistance to non-firm registered representatives while they were taking a state annuity examination for CE credit. Mahler was in the offices of some registered representatives while they were taking the annuity examination; some of these registered representatives asked Mahler to give them the answers to certain of the questions on the examination, which Mahler provided.

Mahler failed to supervise in that he gave one direct report answer keys to state insurance CE exams.

Philip Kenneth Mahler (Principal): Fiend $10,000; Suspended 4 months in all capacities; Suspended 6 months in Principal/Supervisory capacities only (to run concurrently)
April 2011
Thomas Jeffery Gregory
AWC/2009021029704
Gregory allowed an internal wholesaler at a firm to improperly assist him in completing a state-required long-term care continuing education (CE) examination. Gregory called an internal wholesaler and asked her if she could provide him with answers to questions on the long-term care CE examination for a state. The wholesaler provided him with answers to the examination over the phone while he was completing the examination online.
Thomas Jeffery Gregory : Fiend $5,000; Suspended 1 month
Tags: Testing  
March 2011
Kyle Egress
AWC/2009021029705

Certain states began requiring financial advisors to successfully complete a long-term care (LTC) continuing education (CE) course before selling LTC insurance products to retail customers. Egress allowed an individual to improperly complete an LTC CE exam for him in a state in which he had a prospect who was interested in an LTC product. The individual took the exam for Egress using identification information received from Egress, which included his social security number, insurance license number and expiration date, and address.

The prospect never purchased the insurance product through Egress.

Kyle Egress : Fined $5,000; Suspended 1 month
Tags: Testing  
Bill Singer's Comment
All that and the trade blew up. What a waste.
February 2011
Carson Jay Woods
AWC/2009021029616
Certain states implemented a LTC CE requirement that obligated financial advisors to complete a LTC CE course and exam before selling LTC insurance products.In order to assist financial advisors with the LTC CE requirement, Woods created an answer key for one state exam, distributed the answers for the exam to other firm representatives and distributed a portion of the answers for the exam to a non-firm employee.
Carson Jay Woods : Fiend $5,000; Suspended 60 days.
Tags: Testing  
January 2011
NAME REDACTED
AWC/2009021029703
Certain states began requiring financial advisors to successfully complete a long-term care (LTC) continuing education (CE) course before selling long-term insurance products to retail customers. NAME REDACTED had to successfully complete the LTC CE exam to sell an insurance product to a potential customer and had an individual come to his office and assist him in completing the exam by providing him with the answers. NAME REDACTED knew, or should have known, that the individual was improperly assisting him by giving him answers toward a CE requirement.
NAME REDACTED : Fined $5,000; Suspended 1 month
Tags: Testing  
Bill Singer's Comment
Name redacted at the sole discretion of RRBDLAW.com
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