Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
U4, U5, RE-3, RULE 3070
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
Alan Stuart Pattee
AWC/2010023232101
Patel forged homeowner signatures on uniform mitigation verification inspection forms (UMVI forms) in connection with inspections performed by a qualified inspector regarding construction information; the form is submitted to the homeownerís insurance company in connection with insurance pricing.Pattee forged the signatures to accommodate his clients, who were either not at home at the time of the inspection or were his longtime clients

Pattee acted as an officer for a company formed to conduct inspections to determine homeowner policy premiums, for compensation, without providing prompt written notice to his member firm for this outside business activity

Pattee completed securities annual compliance online certifications for his firm representing that he had complied with the requirements of NASD Rule 3030 and for the certifications, certified that no changes were needed to his Form U4 or that he had requested appropriate changes to the Form U4 regarding outside business activities.
Alan Stuart Pattee: Barred
Brian Simone
OS/2008016024701
Simone willfully failed to disclose material information on his initial Form U4 with a member firm and willfully failed to amend his Form U4 with the firm to disclose the material fact. Simone provided false information on another member firmís employment application. Simone failed to disclose that he was unemployed for a period of time. With the second firm, Simone willfully disclosed false and misleading material information regarding his employment history on the initial Form U4 that he submitted or caused to be submitted, and willfully failed to amend his Form U4 to correct the false, material information. Simone submitted, or caused to be submitted, a false written statement to a stateís securities division through his firm that provided misleading information.
Brian Simone: Barred
David Kurt Kirby
AWC/2010023709201
Kirby willfully failed to amend his Form U4 to disclose material information.
David Kurt Kirby: No Fine in light of financial status; Suspended 90 days
Beardsley was a registered representativeís direct supervisor who was responsible for reviewing and approving the representativeís securities transactions, but failed to exercise reasonable supervision over the representativeís recommendations of exchange-traded funds (ETFs) in customersí accounts, thereby allowing the representative to conduct numerous unsuitable transactions. 

As the firmís chief compliance officer (CCO), Beardsley was responsible for ensuring that the firm filed all necessary Uniform Applications for Securities Industry Registration or Transfer (Forms U4), Uniform Termination Notices for Securities Industry Registration (Forms U5) and Rule 3070 reports. The Firm and Beardsley failed to timely amend Beardsleyís Form U4 to disclose the settlement of an arbitration against him, the firm and the registered representative; the firm failed to timely amend a registered representativeís Form U5 to disclose settlement of the arbitration; and the firm and Beardsley failed to timely report the settlement to FINRAís 3070 system

The Firm and Beardsley failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules as they pertain to private placements. The firm and Beardsley failed to conduct investigations of offerings for suitability but relied on information the registered representative who proposed selling the offering provided; never reviewed issuersí financials, nor attempted to obtain information about the issuers from any third parties; failed to maintain documentation of their investigations; allowed a registered representative to draft selling agreements with offerings which allowed the issuer to make direct payment to an entity the representative, not the firm, owned,; failed to implement supervisory procedures to ensure compliance with SEC Exchange Act Rule 15c2-4(b); and failed to implement supervisory procedures to prevent general solicitation of investments in connection with offerings made pursuant to Regulation D. 

The Firmís written procedures required Beardsley to obtain and review, on at least an annual basis, a written statement from each registered representative about his or her outside business activities; despite the fact that several registered representatives were actively engaged in outside business activities, Beardsley failed to obtain any such written statements. 

For almost a three-year period, Beardsley did not request any duplicate statements of outside securities accounts firm employees held; he neither requested nor obtained any written notifications from firm employees concerning their actual or anticipated outside securities activities. In addition, the Firm and Beardsley failed to implement an adequate system of supervisory control policies and procedures regarding testing supervisory procedures for compliance, erroneous criteria for identifying and supervising producing managers, including Beardsley, review and monitoring transmittal of funds or securities, customer changes of address, customer changes of investment objectives, and concomitant documentation for its limited size and resources exception in FINRA Rule 3012. Moreover,he firm and Beardsley completed an annual certification in which Beardsley certified that he had reviewed a report evidencing the firmís processes for establishing, maintaining and reviewing policies and procedures reasonably designed to achieve compliance with applicable FINRA rules, Municipal Securities and Rulemaking Board (MSRB) rules and federal securities laws and regulations; modifying such policies and procedures as business, regulatory and legislative changes and events dictate; and testing the effectiveness of such policies and procedures on a periodic basis, the timing and extent of which is reasonably designed to ensure continuing compliance with FINRA rules, MSRB rules and federal securities laws and regulations. In fact, the report did not evidence any processes for testing the effectiveness of such policies, and no such testing was done.

Furthermore, on the firmís behalf, Beardsley executed an engagement letter committing the firm to serve as a placement agent for an issuer of limited partnership units. The letter, which a registered representative of the firm drafted, falsely represented that the firm was not a registered broker-dealer. 

The Firm and Beardsley failed to enforce the firmís Customer Identification Program (CIP) in that they completely failed to verify four customersí identities. The Firm and Beardsley failed to conduct a test of the firmís anti-money laundering (AML) compliance program for a calendar year. FINRA found that the firm conducted a securities business while failing to maintain its required minimum net capital.

Internet Securities: Censured; Fined $12,500; Required to retain an outside consultant to review and prepare a report concerning the adequacy of the firmís supervisory, and compliance policies and procedures, and supervisory controls; the report shall make specific recommendations addressing any inadequacies the consultant identifies, and the firm shall act on those recommendations. FINRA imposed a lower fine after it considered the firmís size, including, among other things, the firmís revenues and financial resources. 

Michael Beardsley: No fine in light of financial status: Suspended 1 year in Principal capacity only
Pope willfully failed to timely disclose material facts on his Form U4. Pope failed to disclose the material facts in an annual compliance questionnaire for his member firm; and failed to timely respond to FINRA requests for information.
Johnnie Kelsey Pope (Principal): Fiend $5,000; Suspended 6 months
Joseph Peter Rivera
AWC/2009017372201
Rivera willfullyand non-willfully  failed to timely amend his Form U4 to disclose material facts.
Joseph Peter Rivera: No Fine in light of financial status; Suspended 60 days
Ronak C. Patel
2010024540401
Patel failed to respond to FINRA requests for information and to appear for testimony regarding loans from a firm customer. 

Patel failed to make appropriate disclosure of an outside securities account after he became associated with his member firm and failed to notify the firm that held his securities account that he had become associated with a firm.Patel made a false statement on an annual compliance certification to his firm that he completed after he signed and filed his initial Form U4 subjecting himself to FINRAís jurisdiction. Patel acknowledged receipt of and adherence to the firmís policies, including obligations to comply with the firmís policies and to adhere to the applicable federal, state and selfregulatory organization laws and rules. Patel falsely stated that he did not have a securities account when, in fact, he did.
Ronak C. Patel : Barred
Ronald John Garabed Sr.
AWC/2010024175501
Garabed borrowed $15,000 from his customer at his firm contrary to his firmís procedures, which did not permit loans between registered representatives and their customers under any circumstances. Garabed agreed to  repay the customer the principal loan amount plus an additional $5,000, he ultimately repaid a total of approximately $15,200. Garabed denied on a compliance questionnaire that he had ever solicited or accepted a loan from a client. 
Garabed willfully failed to update his Form U4 to disclose material information. 
Ronald John Garabed Sr.: Fined $10,000; Suspended 6 months
Ha willfully failed to disclose material information on his Form U4 and caused his Form U4 to contain misstatements. Ha was aware of his obligation to maintain an updated and accurate Form U4, and he agreed to update his Form U4 on a timely basis should any information change in the future.  
Seung Wan Ha a/k/a William Ha: Censured; Fined $5,000; Suspended 9 months
November 2011

Voccia was a brokerage partner with another registered representative, shared clients and commissions and collaborated on outside ventures, including a private company they formed. Voccia and his partner orally informed their member firm they were involved in an outside business activity relating to their company, and the firm gave oral approval with the understanding they would only solicit one firm customer; however, the two partners solicited other investors, including firm customers, without the firmís knowledge and approval.

Voccia made misrepresentations and omissions of material fact when he told prospective investors that the company and its related companies had good chances of success and would be able to sustain themselves even though he had insufficient knowledge of the companiesí finances, and his representations were misleading because he focused on the potential benefits of investing in the company without providing adequate disclosure about the risks. Voccia engaged in capital raising for his company and his related companies; individuals invested approximately $6 million dollars during a five-year period.

Voccia and his partner were able to sell investments without the firmís knowledge because the investments were not held with their firmís clearing firm but were held with firms that their firm allowed its brokers to use to maintain custody of illiquid investments such as their company.

Voccia did not provide the firm with written notice of any of the proposed offerings and did not inform the firm that he had received, or might receive, compensation for selling the offered securities. In addition, the firm did not approve the private securities transactions, did not record them on its books and records and did not supervise Vocciaís participation in the transactions. Moreover, Voccia failed to disclose numerous outside business activities unrelated to his company without prompt written notice to his firm. Furthermore, Voccia failed to amend his Form U4 to disclose material information and failed to respond to FINRA requests for information, documents and to timely appear for testimony.

Daniel Joseph Voccia II (Principal): Barred
Bill Singer's Comment
Okay, so, word to the wise:  If you're going to even allow private securities transactions, you might not want to permit transactions where the investments are not held at your firm's clearing firm.  Why?  Look at the mess here. Oh, and another thing, note that there waws $6 million at issue -- which is enough incentive for a host of angry claimants' lawyers to name the FINRA BD just for the hell of it.

Euro Pacific failed to timely report quarterly statistical information concerning most of the customer complaints it received to FINRAís then 3070 System.

The firm failed to maintain complete complaint files and did not enforce its WSPs pertaining to customer complaint reporting, and the Uniform Applications for Securities Industry Registration or Transfer (Forms U4) for those representatives who were the subject of the complaints were not timely updated.

The firm failed to enforce its written supervisory control policies and procedures that would test and verify that the firmís supervisory procedures were reasonably designed with respect to the firmís activities to achieve compliance with applicable securities laws, regulations and self-regulatory organization (SRO) rules; the firmís annual NASD Rule 3012 report for one year did not comport with these procedures, and the firm failed to implement its supervisory control procedures to review its producing managersí customer account activity.

The firm prepared a deficient NASD Rule 3013 certification as it did not document the firmís processes for establishing, maintaining, reviewing, testing and modifying compliance policies reasonably designed to achieve compliance with applicable securities laws, regulations and SRO rules. The firm failed to timely file a Financial and Operational Combined Uniform Single (FOCUS) Report and Schedule I Reports.

The firm failed to preserve, in an easily accessible place, electronic emails for one of its representatives for almost a year.

The firm offered and sold precious metal-related products through an entity, but failed to develop, implement and enforce adequate AML procedures related to the business; the firm did not establish and implement policies and procedures reasonably designed to identify, monitor for and, where appropriate, file suspicious activity reports (SARs) for its business processed through its k(2)(i) account. Moreover, the firm failed to implement and enforce its AML procedures and policies related to its fully disclosed business through its then-clearing firm; aspects of its AML program that the firm failed to implement and enforce included monitoring accounts for suspicious activity, monitoring employee conduct and accounts, red flags and control/restricted securities. Furthermore, the firmís procedures provided that monitoring would be conducted by means of exception reports for unusual size, volume, pattern or type of transactions; the firm did not consistently utilize exception reports made available by its then-clearing firm, and the firm did not evidence its review of the reports and did not note findings and appropriate follow-up actions, if any, that were taken. When notified by its clearing firm of possible suspect activity, on at least several occasions, the firm did not promptly and/or fully respond to the clearing firmís inquiries. Such review was required by the procedures for employee accounts, but the firm did not maintain any evidence that such inquiries for employee accounts were conducted. The firmís procedures contained a non-exclusive list of numerous possible red flags that could signal possible money laundering, but the firm did not take consistent steps to ensure the review of red flags in accounts.

The firmís AML procedures reference that SAR-SF filings are required under the Bank Secrecy Act (BSA) for any account activity involving $5,000 or more when the firm knows, suspects, or has reason to suspect that the transaction involves illegal activity or is designed to evade BSA regulation requirements or involves the use of the firm to facilitate criminal activity; because the firm was not consistently reviewing exception reports or red flags, it could not consistently identify and evaluate circumstances that might warrant a SAR-SF filing.

The firm failed to establish and implement risk-based customer identification program (CIP) procedures appropriate to the firmís size and type of business; and the firm failed to provide ongoing training to appropriate personnel regarding the use of its internal monitoring tools as AML program required.

In addition, certain pages of the firmís website contained statements that did not comport with standards in NASD Rule 2210; FINRA previously identified these Web pages as being in violation of NASD Rule 2210, but the firm failed to remove such pages from its website.

Euro Pacific Capital, Inc.: Censured; Fined $150,000
Tags: Producing Manager  FOCUS  Email  Futures  AML  CIP  SAR  
John Patrick Arena
AWC/2009020619101
Arena failed to timely update his Form U4 to disclose material information.
John Patrick Arena : Fiend $5,000; Suspended 30 days

Phillips' customers gave him funds to invest in various securities; and he instructed his customers to make their checks payable to a consulting company that Phillips owned and controlled. Phillips deposited the customersí funds into the consulting companyís bank account, which he controlled, often delayed making the investments, and then only invested a portion of the funds his customers gave him. Phillips misused the customersí funds by using those funds to pay the consulting companyís expenses.

Phillips willfully filed a Form U4 with materially false information.

Ralph Howly Phillips (Principal): Barred
Richard Michael Large
AWC/2010024650801
Large  failed to timely update his Form U4 to disclose material facts.
Richard Michael Large : Fined $5,000; Suspended 60 days
Steven Lloyd Cronin
AWC/2009020970901
 Cronin  failed to amend his Form U4 to disclose information.
Steven Lloyd Cronin: Fiend $5,000; Suspended 60 days
Thomas Neil Razey
OS/2009019013201
Razey failed to amend his Form U4 to disclose material facts.
Thomas Neil Razey: Fined $2,500; Suspended 30 business days
October 2011
Alan Goings
AWC/2010024810401
Goings willfully failed to amend his Form U4 to disclose material facts, which resulted in it containing inaccurate, false and materially misleading information. Goings knew, or should have known, that he was required to update his Form U4 to disclose the material information. Goings completed statements certifying that he would notify his member firm and promptly update his Form U4 if he were arrested or charged with any criminal offense; Goings also attended his firmís quarterly compliance meeting where Form U4 disclosures were discussed. Goings stated in a compliance meeting that he did not disclose the information because he was concerned about losing his job.
Alan Goings: Fined $5,000; Suspended 6 months

Acting through Birkelbach, the Firm failed to adequately supervise to ensure the timely reporting of customer settlements. Birkelbach relied on an unregistered outside consultant to process Rule 3070 filings and amendments to Applications for Broker-Dealer Registration (Forms BD) and Uniform Applications for Securities Industry Registration or Transfer (Forms U4), gave the consultant inadequate instructions and guidance, and did not otherwise ensure that timely and complete filings and amendments were made.

Birkelbach neglected to instruct the consultant to process disclosures or otherwise take action to correct the deficiencies until a later date, even after FINRA advised him of the deficiencies.

Birkelbach and the firm failed to ensure the timely reporting of settlements with customers on 3070 filings and the amendment of Forms BD and Forms U4 to disclose this information.

Birkelbach Investment Securities, Inc.: Censured; Fined $10,000, jointly and severally with Carl Birkelbach

Carl Max Birkelbach: Censured; Fined $10,000, jointly and severally with Birkelbach Invst.; Fined additional $15,000; Suspended 30 days in all capacities; Suspended 90 days in Principal capacity only; Required to requalify by examination as a principal.

Bill Singer's Comment
Okay, fine -- HOWEVER, why is it that when it's a smaller firm these failure to supervise cases also reference BOTH the FINRA member firm and the individual principal, but when it's a larger firm either only the member firm gets whacked, or, if FINRA also names a larger firm's principal that it's done in a separate decision?
Vercnocke willfully failed to disclose material information on his Form U4 and failed to respond to FINRA requests for information and testimony. Vercnocke failed to provide written notice to, or receive approval from, his member firm to engage in an outside business activity.
Bradley Keith Vercnocke (Principal): Barred
The Firm failed to disclose and to timely disclose material information and an arbitration on Forms U4, and failed to timely disclose arbitrations on registered representativesí Uniform Termination Notices for Securities Industry Registration (Forms U5). The firm received separate complaints against a registered representative and reported the statistical and summary information regarding the complaint to FINRA via an NASD Rule 3070 filing, but failed to disclose that the representative was the subject of both complaints.
Brookstone Securities, Inc.: Censured; Fined $15,000
Otalvaro willfully failed to disclose material information on his Form U4, willfully failed to update his Form U4 to disclose material information within the required time, and willfully filed amended Forms U4 that omitted material information.
Carlos Francisco Otalvaro (Principal): Fined $15,000; Barred in Prinicipal capacities only; Suspended 1 year in all capacities
Curt Jeffrey High
AWC/2010022448601
High consented to the described sanctions and to the entry of findings that he willfully failed to amend his Form U4 to disclose material information.
Curt Jeffrey High : Fined $5,000; Suspended 3 months
Burch failed to disclose to customers that a brokerage account his relative controlled was selling shares of a stock at the same time he was recommending that customers buy it. Burch caused his firmís books and records to be inaccurate when he falsely represented to the firm that customer purchases of shares of stock were unsolicited. Burch failed to update his Form U4 with material information.
Jerry William Burch (Principal): Barred
Erzinger failed to provide his member firm with the information necessary to amend his Form U4 on a timely basis to disclose material information.
Martin Joel Erzinger (Supervisor): Fiend $20,000; Suspended 30 days
Michael Peter Schwartz
OS/2010023974801
Schwartz  failed to timely amend his Form U4, or cause his member firm to amend it, to disclose a material fact.
Michael Peter Schwartz : Fined $2,500; Suspended 30 days
Schmerman misused funds belonging to two individuals without their knowledge, consent or authorization. Schmerman failed to respond to FINRA requests for information and documents. Also, he failed to amend his Form U4 to disclose material facts and falsely completed his member firmís annual compliance questionnaire regarding judgments or tax liens entered against him.
Richard Mark Schmerman (Principal): BArred
Thomas Lauren Salway
AWC/2010023439901
Salway willfully failed to timely amend his Form U4 to disclose material information. Salwayís firm had previously disciplined him for failing to timely disclose material information to the firm and update his Form U4 accordingly.
Thomas Lauren Salway: Fined $5,000; Suspended 60 days
September 2011
Brent Aaron Morita
OS/2010023830101
Morita willfully failed to amend his Form U4 to disclose a felony charge and conviction.
Brent Aaron Morita : No monetary sanctions in light of financial status; Suspended 6 months

While conducting a securities business, the Firm failed to maintain the required minimum net capital. The firmís financial books and records, including the firmís trial balances and net capital calculations, were inaccurate; the firm improperly netted payroll advances against its monthly payroll accrual, improperly included amounts held in a brokerage account as an allowable asset even though the firm did not have a Proprietary Accounts of Introducing Broker/Dealer (PAIB) agreement, failed to accrue some expenses and took a larger deduction for a fidelity bond deductible than it was permitted.

The Firm failed to report to FINRA statistical and summary information for complaints. NASD Rule 3070 reporting was inaccurate in that firm reports for these complaints included erroneous complaint dates, incorrect product codes, inaccurate problem codes and/or identified the wrong registered representative. In connection with some of its registered employees, the firm failed to amend or ensure the amendment of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) to disclose customer complaints and the resolution of those complaints, and the firm also filed late Forms U4 amendments.

The Firm failed to have an adequate system to preserve instant messages (IM) sent or received by registered representatives of the firm; the firm did not archive IMs in a non-erasable, non-rewritable format.

E1 Asset Management, Inc. : Censured; Fiend $75,000
John Benjamin Langsett
OS/2009018582501
Associated Person Langsett submitted, or caused to be submitted, to FINRA a Form U4 that was materially false or inaccurate.
John Benjamin Langsett : Fined $5,000; Suspended 30 days
Nicholas Hupka
OS/2009018670101
Associated Person Hupka willfully failed to disclose material information on a Form U4.
Nicholas Hupka : Fined $5,000; Suspended 6 months
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
Hatch failed to timely amend his Form U4 with material information.
Daniel Glenn Hatch (Principal): Fined $5,000; Suspended 3 months
Eric Allan Carr
AWC/2010022119701
Carr failed to disclose a material fact on his Uniform Application for Securities Industry Registration or Transfer (Form U4).
Eric Allan Carr: Fined $5,000; Suspended 6 months
Jared Austin Poe
AWC/2010021867401

Poe borrowed a total of $125,000 from an elderly customer of his member firm without seeking or obtaining his firmís approval for any of these loans.

Poe and the elderly customer memorialized the loans by executing a promissory note in which Poe promised to repay the $125,000 that he had borrowed; Poe has not repaid any portion of the loans.

Poe completed the firmís annual sales questionnaire and falsely answered ďnoĒ in response to a question that asked whether he had received loans from any of his clients or family members who have accounts at the firm within the preceding 12 months. The Firm terminated Poe and, on a Uniform Termination Notice for Securities Industry Registration (Form U5), reported that Poe had been under internal review for violating firm policy by borrowing money from a client. 

Subsequently, Poe caused his Form U5 to be amended to include a comment addressing the internal review in which Poe stated, among other things, that the loan at issue was made by the elderly customer, who he had known since adolescence and served as a mentor and pseudo-grandfather. FINRA found that Poe had not known the customer since adolescence and had met the customer several years earlier when he had solicited him to become a client.

Jared Austin Poe : Fined $10,000; Suspended 18 months; Ordered to pay $125,000 plus interest in restitution
Tags: Elderly  Borrowing  
Bill Singer's Comment
Frankly, based upon FINRA's recitation of the facts, I would not have let Poe off with only an 18 month suspension.  He should count his lucky stars for such leniency.
Michael James Dwyer
AWC/2009018215801
Dwyer willfully failed to timely disclose material information on his Form U4. Dwyer completed compliance questionnaires for his member firms in which he falsely stated he understood his obligation to notify the firm of any change to his Form U4, including any liens. One of Dwyerís firms received credit reports that showed the lien was still outstanding, and the firmís management and CCO specifically instructed him to disclose the lien on his Form U4, but he failed to do so at that time.
Michael James Dwyer: Fined $5,000; Suspended 3 months
McMillan willfully failed to disclose material information on his Form U4.
Robert Lawrence McMillan Jr.: Fined $5,000; Suspended 3 months
July 2011
Boberski willfully failed to disclose material information on his Form U4, and failed to respond to FINRA requests for information and documents.
Irving Vincent Boberski : Barred
Matthew John Iskric
AWC/2009017857501

Iskric misused his member firmís funds by using the firmís corporate credit card for personal purposes, including purchases of gift cards from various retailers. The amount of unauthorized charges was in excess of $10,000.

While registered with a different member firm, Iskric failed to timely update his Form U4 with material information.

Matthew John Iskric: Barred
Tags: Credit Cards  

Prestige, acting through Kirshbaum and at least one other firm principal, were involved in a fraudulent trading scheme through which the then-Chief Compliance Officer (CCO) and head trader for the firm concealed improper markups and denied customers best execution.

As part of this scheme, the CCO falsified order tickets and created inaccurate trade confirmations, and the hidden profits were captured in a firm account Kirshbaum and another firm principal controlled; some of the profits were then shared with the CCO and another individual.

The trading scheme took advantage of customers placing large orders to buy or sell equities. Rather than effecting the trades in the customersí accounts, the CCO placed the order in a firm proprietary account where he would increase or decrease the price per share for the securities purchased or sold before allocating the shares or proceeds to the customersí accounts; this improper price change was not disclosed to, or authorized by, the customers, and this fraudulent trading scheme generated approximately $1.3 million in profits for the firmís proprietary accounts. Kirshbaum was aware of and permitted the trading. In an account that Kirshbaum and another firm principal controlled. 47 percent of the profits from the scheme were retained. In furtherance of the fraudulent trading scheme, the CCO entered false information on the corresponding order tickets regarding the share price and the time the customer order ticket was received, entered and executed; the corresponding trade confirmations inaccurately reflected the price, markup and/or commission charged and the order capacity.

In addition, acting through Kirshbaum, Prestige entered into an agreement to sell the personal, confidential and non-public information of thousands of customers to an unaffiliated member firm in exchange for transaction-based compensation from any future trading activity in those accounts. In connection with that agreement, Kirshbaum provided the unaffiliated member firm with the name, account number, value and holdings on spreadsheets via electronic mail. Furthermore, Kirshbaum granted certain representatives of that firm live access to the firmís computer systems, including access to systems provided by the firmís clearing firm, which provided access to other non-public confidential customer information such as Social Security numbers, dates of birth and home addresses. Prestige and Kirshbaum did not provide any of the customers with the required notice or opportunity to opt out of such disclosure before the firm disclosed the information, as Securities and Exchange Commission (SEC) Regulation S-P requires.

Acting through Kirshbaum, Prestige failed to establish and maintain a supervisory system, and establish, maintain and enforce written supervisory procedures to supervise each registered personís activities that are reasonably designed to achieve compliance with the applicable rules and regulations regarding interpositioning, front-running, supervisory branch office inspections, supervisory controls, annual compliance meeting, maintenance and periodic review of electronic communications, NASD Rule 3012 annual report to senior management, review and retention of electronic and other correspondence, SEC Regulation S-P, anti-money laundering (AML), Uniform Application for Securities Industry Registration or Transfer (Form U4) and Uniform Termination Notice for Securities Industry Registration (Form U5) amendments, and NASD Rule 3070 reporting. FINRA found that the firm failed to enforce its procedures requiring review of its registered representativesí written and electronic correspondence relating to the firmís securities business. In addition, the firm failed to establish, maintain and enforce a system of supervisory control policies and procedures that tested and verified that its supervisory procedures were reasonably designed with respect to the activities of the firm and its registered representatives and associated persons to achieve compliance with applicable securities laws and regulations, and created additional or amended supervisory procedures where testing and verification identified such a need. Moreover, the firm failed to enforce the written supervisory control policies and procedures it has with respect to review and supervision of the customer account activity conducted by the firmís branch office managers, review and monitoring of customer changes of address and the validation of such changes, and review and monitoring of customer changes of investment objectives and the validation of such changes. Furthermore, firm failed to establish written supervisory control policies and procedures reasonably designed to provide heightened supervision over the activities of each producing manager responsible for generating 20 percent or more of the revenue of the business units supervised by that producing managerís supervisor; as a result, the firm did not determine whether it had any such producing managers and, to the extent that it did, subject those managers to heightened supervision.

Acting through one of its designated principals, Prestige falsely certified that it had the requisite processes in place and that those processes were evidenced in a report review by its Chief Executive Officer (CEO), CCO and other officers,and the firm failed to file an annual certification one year. The findings also included that the firm failed to implement a reasonably designed AML compliance program (AMLCP). Although the firm had developed an AMLCP, it failed to implement policies and procedures to detect and cause the reporting of suspicious activity and transactions; implement policies, procedures and internal controls reasonably designed to obtain and verify necessary customer information through its Customer Identification Program (CIP); and provide relevant training for firm employeesóthe firm failed to conduct independent tests of its AMLCP for several years. Acting through Kirshbaum and another firm principal, the firm failed to implement policies and procedures reasonably designed to ensure compliance with the Bank Secrecy Act by failing to enforce its procedures requiring the firm to review all Section 314(a) requests it received from the U.S. Department of the Treasuryís Financial Crimes Enforcement Network (FinCEN); as a result, the firm failed to review such requests. In addition, Kirshbaum and another principal were responsible for accessing the system to review the FinCEN messages but failed to do so. Moreover, FINRA found that the firm permitted certain registered representatives to use personal email accounts for business-related communications, but failed to retain those messages.

Furthermore, the firm failed to maintain and preserve all of its business-related electronic communications as required by Rule 17a-4 of the Securities Exchange Act of 1934, and failed to maintain copies of all of its registered representativesí written business communications. The  firm failed to file summary and statistical information for customer complaints by the 15th day of the month following the calendar quarter in which the firm received them. The findings also included that the customer complaints were not disclosed, or not timely disclosed, on the subject registered representativeís Form U4 or U5, as applicable.The Firm failed to provide some of the information FINRA requested concerning trading and other matters.

Prestige Financial Center, Inc. : Expelled

Lawrence Gary Kirshbaum (Principal): Barred

Bill Singer's Comment

Whoa -- one of the all-time, most comprehensive FINRA disciplinary actions. Frankly, not much that could be done wrong wasn't, according to the terms of the settlement. One of the few times when a FINRA member firm is expelled. Also, one of the few times when a CCO is barred. A powerful case. Well written and presented.

Keep in mind that registered persons from this firm may trip your Taping Rule threshold.

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.

May 2011
Berliner failed to timely request amendment of his Form U4 to disclose material information, and even though he had previously orally disclosed the existence of the material information to another member firm, he failed to disclose its existence on his Form U4. Berliner ultimately disclosed the material information on his Form U4.
David Joshua Berliner (Principal): Fined $5,000; Suspended 30 business days
Devon Coulin McLean
AWC/2009016806001

McLean failed to provide written notice of his involvement in unapproved private securities transactions to his member firm and lied to his firm during monthly supervisory meetings. McLeanís member firm prohibited its registered representatives from engaging in any private securities transactions unless they were personal investments and only after obtaining the firmís prior written approval, but McLean referred a customer and another individual to someone who was raising monies for real estate projects. These individuals invested approximately $75,000 in promissory notes with entities controlled by the individual to whom McLean referred them, and McLean received $1,500 in cash for the referrals. Because of concerns stemming from items reported on McLeanís personal credit report, his firm placed him on heightened supervision and, among other things, McLean was required to meet with his supervisor monthly to discuss securities-related and outside business activities; but not once during these meetings did McLean disclose his involvement with the individual. On seven separate occasions, he signed statements affirming that he was not engaged in outside business activity beyond those already disclosed and that it was unnecessary to update his Form U4.

While employed by another member firm, McLean acted as an agent for an entity not affiliated with his firm and over which his firm had no control, without providing written notice to his firm or receiving his firmís approval to serve in this role. In addition, as an agent for the entity, McLean introduced individuals to an individual through whom they invested in a purported diamond mining operation. Moreover, these individuals entered into promissory notes, investing more than $40,000 with an entity the individual controlled. Furthermore, in addition to making referrals, as an agent for the entity, McLean was expected to provide financial and consulting advice to investors once their investments began earning profits, and in exchange, McLean stood to earn $2 million worth of shares in a company the individual controlled.

McLean failed to respond fully to FINRA requests for documents and information. 

Devon Coulin McLean : Barred

Acting through Lapkin, the Firm failed to enforce its heightened supervisory procedures for a representative placed on heightened supervision based on his prior disciplinary history. Lapkin was responsible for implementing the heightened supervision plan, which required review of the representativeís correspondence on a daily basis, review of all of the representativeís transactions prior to execution, quarterly reviews with the representative of his business, and quarterly review of the representativeís journal of all conversations that resulted in any business. Lapkin did not perform any of the required steps and the firm failed to take any steps to ensure that he followed the plan. The firm, acting through Lapkin, allowed a representative to continue using a website, which is deemed an advertisement pursuant to NASD Rule 2210, that promoted investments to be made through the firm, even though it violated the content standards of the rule. The website failed to provide a sound basis for evaluating the investment products being promoted, and contained exaggerated, incomplete and oversimplified statements comparing alternative investments to traditional investment products. Also,  the website further made unsubstantiated claims by identifying investments as ďpremierĒ alternative investments and stating that alternative investments can help dampen volatility and provide protection in down markets without providing a credible basis for these claims. In addition, the website also compared alternative investments to publicly traded investments, but failed to disclose all of the material differences between the investments, including the risks associated with the alternative investments.

Acting through Lapkin, the Firm allowed its representatives to sell shares of a fund through a flawed PPM that failed to disclose that the fundís manager had been terminated from his member firm because, according to his Uniform Termination Notice for Securities Industry Registration (Form U5), he had misreported, falsely input and reported late into the firmís internal booking systems for bond transactions, and that the fund manager had misreported numerous nondeliverable forward transactions, causing false profits on his profit and loss statements. Lapkin was aware of the content of the fund managerís Form U5 and knew that the PPM was silent about it. This omission was material because, as disclosed in the PPM, the fundís trading decisions relied primarily on the fund managerís knowledge, judgment and experience.

Puritan Securities, Inc. nka First Union Securities, Inc.: Censured, Fined $10,000 (A lower fine was imposed after considering, among other things, the firmís revenues and financial resources.)

Nathan Perry Lapkin: Fined $10,000; Suspended in Principal capacity only for 15 business days.

 

Bill Singer's Comment
Interesting and well-presented case. Shows how an individual has increased regulatory exposure when he/she is on "notice" of circumstances that otherwise might not be known.

The Firm and Hsu failed to preserve electronic communications related to the firmís business when Hsu and another registered representative of the firm sent and received electronic communications related to the firmís business using personal email accounts that were not linked to the firmís email preservation system; the firmís failure to preserve electronic communications was considered willful.

Hsu and the firm failed to comply with AML rules and regulations in that they failed to access the Financial Crimes Enforcement Network (FINCEN) and review records, failed to develop and implement a written AML program reasonably designed to achieve compliance with the BSA and implementing regulations, and failed to properly conduct annual independent tests of its AML program for several years. Hsu signed and submitted certifications to FINRA that contained inaccurate information regarding preservation of emails in compliance with SEC Rule 17a-4. Hsu willfully failed to amend his Form U4, to disclose material information.

Pyramid Financial Corp.: Fined $55,000 jointly and severally with Hsu

John Hsu a/k/a Juan Hsu (Principal): Fined $55,000 jointly and severally with Pyramid; Fined an additional $10,000; Suspended 45 business days in all capacities; Barred as a Principal only.

Bill Singer's Comment
Can't remember seeing a FINRA finding that the failure to preserve emails was "willful," so this must have struck the regulator as a particularly egregious case.
The Firm did not retain certain books and records that were required to be retained pursuant to SEC Rule 17a-4, including employment applications, signed original Uniform Applications for Securities Industry Registration or Transfer (Forms U4), articles of incorporation, records of internal inspections, and compliance, supervisory and procedures manuals, including updates, modifications and revisions. The firm failed to properly designate a registered FINOP, but continued to file FOCUS reports as required. The firm had at least one affiliated entity for which a website was established that referenced the firmís broker-dealer business, and he website was never filed with and approved by FINRAís Advertising Regulation Department within 10 days of first use or publication, and the firm did not evidence that the website had been approved by a registered principal by signature or initial. The firm failed to conduct AML testing and training, and failed to timely file a quarterly FOCUS report.
Weston International Capital Markets LLC : Censured; Fined $15,000
Tags: FINOP  AML  Website  
April 2011
Doering willfully failed to disclose material information on his Form U4. Doering completed annual certifications for his member firm in which he falsely answered ďnoĒ to whether he had been the subject of a Form U4 reportable event.
James Gabor Doering (Principal): Fined $5,000; Suspended 4 months
Jennifer J. Guelinas
AWC/2010025098101

Guelinas converted at least $500,000 from the brokerage accounts of senior citizen customers of her member firm by signing, without authorization, wire transfer requests which resulted in the conversion of the funds from the customersí accounts to outside bank accounts she controlled and to third parties; the customers did not authorize the transfers. Without authorization, Guelinas signed

  • wire transfer requests,
  • real estate purchase agreements and
  • a promissory note

on senior citizen customersí behalf.

Guelinas arranged and participated in real estate investments with senior citizen customers of her member firm and received compensation.

Also, Guelinas received compensation from a rental apartment she owned and failed to disclose the real estate investments, the compensation from the investments or the rental income to her member firm.

Finally, Guelinas failed to disclose material information on her Form U4.

Jennifer J. Guelinas : Barred
Tags: Elderly  
Bill Singer's Comment

Don't get me started on this one. Absolutely disgusting.

Kelli Jo Bauer
AWC/2009019541001

Bauer failed to disclose material information to her member firms and never completed a Form U4 amendment to answer relevant questions until after her firm terminated her.

Kelli Jo Bauer: FIned $5,000; Suspended 60 days

The Firm failed to file required amendments to Uniform Applications for Securities Industry Registration or Transfer (Forms U4), filed late Forms U4 amendments and filed inaccurate Forms U4. The Firm filed late amendments to Uniform Termination Notices for Securities Industry Registration (Forms U5), filed inaccurate Forms U5 and filed a Form U5 that failed to disclose a customer complaint against a registered representative.

The firm

  • failed to report statistical and summary information regarding a customer complaint,
  • failed to timely report statistical and summary information regarding customer complaints, and
  • filed inaccurate reports of statistical and summary information regarding complaints.
National Securities Corporation: Censured; Fined $22,500
Perry Mario Colletti
AWC/2009020957201

Colletti filed, or caused to be filed, an initial Form U4 with a member firm on which he willfully failed to disclose material information.

Perry Mario Colletti : Fined $5,000; Suspended 6 months
Scott Thomas McNiff
AWC/2010023138801
McNiff willfully failed to timely disclose material information to his member firm and never completed amending a Form U4.
Scott Thomas McNiff : Fined $5,000; Suspended 6 months
March 2011

The Livingstons willfully failed to disclose material information on their Forms U4 and failed to appear to give testimony in response to FINRA requests.

Brian William Livingston and Michael Andrew Livingston: Barred

Associated Person Davis willfully failed to disclose material information on her Uniform Application for Securities Industry Registration or Transfer (Form U4) and failed to respond to FINRA requests for information.
Dana Ann Davis aka Dana Pickens: Barred
Jeffrey Alan Lee
2008014233602
Lee willfully failed to disclose material information on his Form U4 and to amend his Form U4 to disclose material information.
Jeffrey Alan Lee: Fined $5,000; Suspended 1 year

Mattia authorized an email to be sent from him to his member firmís Office of General Counsel that contained statements concerning the resolution of a customer complaint against a firm registered representative that he knew, or should have known, were false and caused the firm to improperly report the resolution on the representativeís Form U4.

The client settlement had been improperly reported as withdrawn even though the clientís accounts had been credited with $9,198 and Mattia had personally agreed to settle the complaint. Even if Mattia believed the email might be accurate, he should have made a reasonable inquiry into the status of the complaint prior to authorizing the email to be sent, and he would have discovered that the complaint had not been withdrawn.

Joseph Jeffrey Mattia (Supervisor): Fined $5,000; Suspended 3 months
Bill Singer's Comment

It takes a bit to figure this one out. As best I can tell, a client complained. The client settled the matter upon being issued a $9,198 credit which Mattia "personally agreed to." It appears that Mattia was not the registered person servicing the account but that he was consenting to the settlement as that RR's registered supervisor.

You got me so far?

Okay, after all this settlement stuff is finished, Mattia then does something like email his firm's General Counsel's office with the advisory that the customer had withdrawn the complaint. FINRA seems to believe that either the complaint was not withdrawn but "settled," and should have been reported as such.

Hyde willfully failed to disclose material information on his Form U4 and failed to appear for a FINRA on-the-record interview.
Timothy Welland Hyde aka Joseph D. Bonanno (Principal): Barred
February 2011
Andrew Gregory McGrath
AWC/2009018123301
McGrath engaged in an outside business activity and failed to provide prompt written notice to his member firm; McGrath sold EIAs and earned approximately $104,000 in commissions. McGrath completed and signed a firm annual questionnaire, on which he failed to disclose his outside business activity, and failed to update his Form U4 to disclose the outside business activity, and at no time did he provide written notice to his firm.
Andrew Gregory McGrath: Fined $5,000; Suspended 3 months
Antonio Demetrious Mosby
OS/2009020767901
Mosby submitted, or caused to be submitted, a Form U4 that was materially false or inaccurate, thereby willfully failing to disclose material facts on his Form U4.
Antonio Demetrious Mosby: Barred
Tiche failed to timely disclose material information on his Form U4.
Bradley Darryl Tiche (Principal): Fined $4,250 (included credit for $1,500 fine imposed by member firm); Suspended 15 business days
Bill Singer's Comment
Note the FINRA credit for the internally imposed fine.
Harkins willfully failed to amend his Form U4 to disclose material information, and failed to timely respond to FINRA requests for information and documents.
Charles Donald Harkins (Principal): Fined $10,000; Suspended 9 months
Corey Michael King
AWC/2009020709101
King willfully failed to disclose material information on his Form U4.
Corey Michael King: Fined $5,000; Suspended 6 months
Seagraves willfully failed to amend his Form U4 with material information and to disclose the information on his member firmís annual compliance questionnaire. Seagraves failed to submit an invitation to his investment seminars for principal approval before sending it to the general public, and used unapproved slides at the seminars although he had previously submitted sales literature to his firm for advance approval and was therefore familiar with the requirement to do so. The seminar invitation and slides he used in connection with the seminars contained numerous exaggerated, misleading and promissory statements that contravened FINRA Rule 2210ís requirements for sales literature.
Dallas Ray Seagraves II (Principal): Fined $10,000; Suspended 9 months in all capacities; Barred in Principal capacity only
David Crook
AWC/2010021397401
Crook willfully failed to disclose material information on his Form U4.
David Crook : Fined $5,000; Suspended 18 months

Associated Person Dosenberg willfully failed to disclose material information on his Form U4 and failed to respond to FINRA requests for information.

Douglas G. Dosenberg : Barred
Peterson failed to disclose material information on his Form U4.
Gary Woodruff Peterson (Principal): Fined $5,000; Suspended 30 days

Schurr engaged in an outside business activity involving a company, which was a marketing and advertising business through which she sought to generate leads for registered representatives and insurance agents. The companyís primary form of marketing was mass mailings, usually employing postcards that contained false and misleading statements that Schurr sent and caused to be sent to thousands of prospective customers. Schurr developed and directed the use of multiple false and misleading telephone operator scripts that were used in the companyís call center to respond to potential investors.

As a result of the misleading marketing practices involving her company, Schurr became the subject of state regulatory actions and willfully failed to timely update and amend her Form U4 to disclose these actions to FINRA as required.

Schurr associated with a FINRA registered member firm and acted in a registered capacity while subject to statutory disqualification.

Schurr provided false information and failed to disclose material information to the firm on firm annual compliance and outside business activity questionnaires concerning her outside business activity and regulatory actions.

In addition, Schurr failed to provide prompt and complete written notice to the firm of her outside business activities involving another insurance marketing firm when the other company was closed.

Linda Mary Bakalis Schurr : Fined $35,000; Suspended 2 years
Bill Singer's Comment
Just out of curiousity, what does it take to get barred these days?

Bonnell engaged in an outside business activity involving a company he owned and operated, which was a marketing and advertising business through which he sought to generate leads for registered representatives and insurance agents. The companyís primary form of marketing was mass mailings, usually employing postcards that contained false and misleading statements that Bonnell sent and caused to be sent to thousands of prospective customers.

Bonnell developed and directed the use of multiple false and misleading telephone operator scripts that were used in the companyís call center to respond to potential investors. As a result of the misleading marketing practices involving his company, Bonnell became the subject of several state regulatory actions and willfully failed to timely amend his Form U4 to disclose these actions to FINRA as required.

Bonnell associated with a FINRA registered member firm and acted in a registered capacity while he was subject to statutory disqualification. Bonnell provided false information, failed to disclose material information, and misrepresented material information on the firmís annual compliance questionnaires concerning his outside business activity and regulatory actions.

In addition,Bonnell failed to provide prompt and complete written notice to the firm of his outside business activities involving another insurance marketing firm he operated after closing the other company. Moreover, Bonnell failed to adequately supervise certain representatives to ensure they filed accurate and timely updates disclosing state regulatory actions and outside business activity.

Peter Joseph Bonnell III (Principal): Fined $35,000; Suspended 2 years
Randie Jill Sanford
AWC/2007011320901

Sanford wrote personal checks against a number of her accounts maintained at her member firm while she knew, or should have known, that she had insufficient funds to cover payment on the checks. The checks were linked to her financial management account, addressed to herself and in response to or preceded by the firmís giving her notice that she had to deposit funds to cover checks on a margin call. In almost each instance, after receiving notice that she had to deposit funds into one of her accounts, Sanford responded by writing and depositing an insufficient funds check into that account, and then writing additional checks or effecting account transfers to prevent the first check from being dishonored. Sanford wrote checks from an account she knew, or should have known, had a negative balance, and deposited them into the same account resulting in an inflated account balance; the amount of the insufficient funds checks totaled an aggregate of approximately $109,000.

Sanford willfully failed to disclose material information on her Form U4.

Randie Jill Sanford : Fined $5,000; Suspended 8 months
Tags: NSF  Margin  
Todd Austin
2008014753601
Austin willfully filing misleading and inaccurate amendments to his Uniform Application for Securities Industry Registration or Transfer (Form U4). He informed his member firm of the information but materially misrepresented the nature of and factual circumstances surrounding the material information. Austin altered a document and submitted the false document to FINRA and his firm. 
Todd Austin: Barred
January 2011
George Abbott Berry
AWC/2009017596901

Berry serviced a brokerage account a relative held but did not have power of attorney or discretionary authorization over the account. Berry failed to report his relativeís death to his member firm, and after leaving the firm, he removed funds from the account totaling $70,000 by requesting checks be drawn on the account, sent to her listed address, which was the same as Berryís home CRD address, and deposited the checks in a joint checking account he shared with his relative. When Berry submitted a written withdrawal request to the firm for $10,000, the firm discovered that the signature did not match the signature on file for the customer and froze the brokerage account after Berry acknowledged his relativeís death with the firmís customer relations staff.

The Firm amended Berryís Form U5 to reflect an internal review of his withdrawals and his failure to advise the firm of his relativeís death.

George Abbott Berry: Barred
Bill Singer's Comment
The somewhat puzzling aspect of this case is whether there was a joint account at the brokerage firm -- since we are told that the bank account was joint.  If there was a Joint-Tenants-With-Right-of-Survivorship brokerage account, then you have to wonder why Berry went through all of the subterfuge; which sort of suggests that there wasn't a JTWROS in place for the brokerage account.
Kirk Alan Tessendorf
AWC/2009018272001
Tessendorf willfully failed to disclose material information on his Form U4. The findings stated that during firm inclusive producer interviews and on compliance surveys, Tessendorf falsely replied to questions when specifically asked whether he was subject to bankruptcies, liens, creditors, etc., despite acknowledging on the surveys that he had an obligation to keep his Form U4 current with regard to judgments and liens.
Kirk Alan Tessendorf: Fined $5,000; Suspended 9 months
Tags: Bankruptcy  

The NAC imposed the sanctions following appeal of an OHO decision.

The sanctions were based on findings that acting through Uselton, the Firm

  • made false statements to FINRA; and
  • failed to make and annotate affirmative determinations prior to effecting short sales.

The firm and Uselton

  • failed to maintain the required records necessary to rely upon the exemption in Exchange Act Rule 15c2-11(f)(2),
  • failed to maintain the firmís email records for at least three years, and
  • failed to establish, maintain, and enforce an adequate supervisory system and written supervisory procedures,

Uselton also provided false information and failed to provide testimony at a FINRA on-the-record interview, and he failed to timely update his Uniform Application for Securities Industry Registration or Transfer (Form U4) with material facts.

Legacy Trading Co., LLC: Expelled;  jointly and severally fined $907,035.01, plus interest.

Mark Alan Uselton: Barred; jointly and severally fined $907,035.01, plus interest.

NEXT Financial Group did not have a reasonable system for reviewing its registered representativesí transactions for excessive trading. The firm relied upon its OSJ branch managers to review its registered representativesí transactions and home office compliance personnel to review its OSJ branch managersí transactions, but the firm failed to utilize exception reports or another system, and the supervisors and compliance personnel only reviewed transactions on weekly paper blotters or electronic blotters.

The monthly account statements and contingent deferred sales charge reports for mutual fund activity were also available for review and could be indicators of excessive trading, however, given the volume of trading certain principals reviewed, and in certain cases, the large number of representatives for which the principal was responsible, it was not reasonable to expect principals to be able to track excessive trading on a weekly sales blotter, let alone through monthly account statements or mutual fund sales charge reports.

Due to the lack of a reasonable supervisory system, the firm failed to detect a registered representativeís excessive trading, which resulted in about $102,376 in unnecessary sales charges; the firm failed to identify or follow up on other transactions that suggested other registered representativesí excessive trading in additional customer accounts. 

The Firm did not have a reasonable system for ensuring that it obtained and documented principal review of its registered representativesí transactions, including sales of complicated products such as variable annuities, and the firm should have been particularly attentive to maintaining books and records that established that the transactions had been properly reviewed. The firm failed to provide reasonable supervision of municipal bond markups and markdowns to ensure that its registered representatives charged its customers reasonable markups and markdowns. In addition,  the firmís branch office examination program was unreasonable because it was not designed to carry out its intended purpose of detecting and preventing violations of, and achieving compliance with, federal, state and FINRA securities regulations, as well as its own policies.

The firm failed to have a reasonable supervisory system to oversee implementation of its heightened supervision policies and procedures for its registered representatives as it failed to comply with the terms of its heightened supervision for its registered representatives regarding client complaints, regulatory actions or internal reviews, therefore it had a deficient implementation of heightened supervision policies and procedures.

The firm failed to have a reasonable supervisory control system or to have in place Supervisory Control Procedures as required by FINRA Rule 3012, and it failed to perform adequate 3012 testing or prepare adequate 3012 reports. Moreover,the firm failed to have a reasonable system and procedures in place to review and approve investment advisorsí private securities transactions.

Furthermore, the firm filed inaccurate and late Rule 3070 reports relevant to customer complaints, and did not file or amend Form U4 and Uniform Termination Notice for Securities Industry Registration (Form U5) reports in a timely manner.

The Firm's AML systems and procedures were unreasonable, as the firm failed to establish and implement an AML Compliance Program reasonably designed to achieve compliance with NASD Rule 3011. Although the firm utilized a money movement report, its supervisors did not detect red flags involving numerous instances of potentially suspicious activities relating to the trading of a companyís stock and the transfers of proceeds relating to the trading of a stock, and thus failed to investigate and report these activities in accordance with its own procedures and the requirements of the Bank Secrecy Act and the implementing regulations.

In addition, over 1.3 million shares of a companyís stock were traded in customer accounts a registered representative serviced; during a one-week period, the firmís only AML exception report that monitored large money movement flagged the customerís account, but the firm took no action and failed to file any SARs as appropriate.

NEXT Financial Group, Inc.: Censured; Fined $400,000; Ordered to pay $103,179.84, plus interest, in restitution to customers.
Stephen Lee Recker
AWC/2009017801501
Recker willfully failed to disclose material information on his Form U4 and on a compliance questionnaire for his member firm.
Stephen Lee Recker : Fined $10,000; Suspended 3 months

Acting through Burchard, his Firm failed to

  • prepare accurate general ledgers and trial balances;
  • prepare accurate computations of net capital under the aggregated indebtedness standard while conducting a securities business;
  • maintain or meet its minimum net capital requirement, failed to notify FINRA when its net capital declined below the minimum required under SEC Rule 15c3-1;
  • prepare and file FOCUS Reports Part IIA for several calendar quarters;
  • comply with the terms of its membership agreement when it acted as a dealer after executing more than 10 proprietary trades in its account during a calendar year, thereby increasing its minimum net capital requirement from $5,000 to $100,000;
  • file an application for approval of a material change in its business operations as originally provided in its membership agreement;
  • report customer complaints, which were discloseable events, within 10 business days and statistical and summary information of customer complaints the firm received on a quarterly basis;
  • timely amend Forms U4 to disclose settlements;
  • timely report settlements, arbitration awards and a default judgment that were required to be disclosed;
  • develop, establish and implement an adequate AML compliance program;
  • conduct and/or document adequate independent testing of its AML compliance program and procedures;
  • establish procedures to ensure the designation of an AML Compliance Officer to NASD;
  • NASD of any changes in contact information for its AML Compliance Officer in a reasonable amount of time and failed to implement and adequate AML training program;
  • establish and implement an adequate Customer Identification Program;
  • evidence that a due diligence review was performed to review the identities or beneficial owners of accounts of foreign financial institutions;
  • establish adequate procedures designed to monitor, detect and investigate suspicious activity despite the presence of red flags noted in the firmís procedures;
  • prepare and maintain exception reports produced to review for unusual activity in accounts; failed to evidence due diligence in opening accounts of foreign financial institutions;
  • monitor and respond to requests for information from FinCEN; and
  • establish and implement policies, procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act, including failure to implement policies and procedures designed to detect and report suspicious activity and to verify the identity of customers.

Burchard failed to reasonably supervise the activities of a registered representative and registered principal to ensure that she performed the supervisory responsibilities Burchard delegated to her.

Stuart Gregory Burchard (Principal): Barred
Tags: Net Capital  FOCUS  AML  CIP  
Bill Singer's Comment
Impressive.  Note that the Principal was barred.
McCrudden induced his firm to file a false Form U5. The NAC found that McCrudden used a variety of tactics, including harassment and a monetary payment, to coerce his firm to file a Form U5, which mischaracterized his firing as a voluntary termination.
Vincent Patrick McCrudden (Principal): Fined $50,000; Suspended 1 year
Tags: NAC  
Bill Singer's Comment

McCrudden became subject to statutory disqualification when the CFTC issued its order affirming the NFAís decision on December 28, 2006. He had no prior FINRA disciplinary history.

In reviewing his "voluntary" termination from a so-called hedge fund hotel, a FINRA examiner was troubled by the circumstances represented on the U5. The termination involved a dispute over purportedly unpaid commissions and disputed expenses.

In a particularly colorful portion of FINRA's OHO decision, we are told that:

Respondent responded to his termination with a string of profanity-laced, threatening communications. Sometime over the holiday weekend, he left a voice mail for Napolitani, saying substantially, "You mess with the wrong fucking guy, you fat bastard. You are a slimy scumbag. I have dealt with people like you before. You are not going to get away with this."

The threats and language from McCrudden may have been somewhat provoked by his former firm's conduct according to FINRA, but provoked or not, FINRA clearly deemed unjustified and unprofessional. Moreover, rather than an isolated incident, FINRA noted that such outbursts and threats ha a troubling history.  During an NFA investigation, the OHO Decision states that:

After a telephone call with the NFA official who denied the request, Respondent sent an e-mail to the official, saying:

I am coming out to Chicago and fucking getting you and your fucking prick friendsÖYou think you can fuck with whoever you want mother fucker? look over your shoulder one day fuckerÖyou mother fucking corrupt pieces of shitÖyou splash that corrupt, biased, fixed decision all over the internet so all of my friends and childrens friends can see? And you think I am going to let you, nastro and driscoll get away with it? think again..tell your buddies Iím comingÖyour not getting away with this shit.

In responding to FINRA staff investigating the U5 issue, we are told in the NAC decision that:

FINRA staff concluded its investigation of this matter in May 2007. At that time, the staff informed McCrudden that FINRA intended to initiate disciplinary proceedings against him. Upon learning the staffs recommendation, MeCrudden left voicemails for both the FINRA investigator and Enforcement attorney handling the matter:

Yeah . . . this is Vincent McCrudden . . . . Um, I just got off the phone with my attorney. You know you guys are flicking pieces of shit. You really are pieces of shit. Um, I want to know who you report to and obviously this is a set up. You know, I cooperated with the NASD and you guys are gonna fucking do this to me? You are fhclcing low life flicking scum bags. I want to know who you report to, Iím going to have you and [the investigator] flicking fired. Thereís no way you guys are getting away with this. Somebody has set this up. Thereís no way that you ban somebody and thereís no threat . . . . Give me your flicking superiorís number. And I want to know the guys who made this flicking decision. I want every flicking name, you got that? You scum bag.

Essentially, the OHO Decisions found that

[R]espondentís communications violated the high standards of commercial honor required by participants in the securities industry. Respondent used his abusive and threatening communications to bargain for the money he felt he was owed and to improve the terms of his termination. He achieved one of his most important objectives by getting HedgeCap to agree to file a Form U5 that falsely reported that he had voluntarily resigned.

The OHO imposed  the following sanction:

For making abusive, intimidating, and threatening communications to his former employer, in violation of Rule 2110, Respondent is suspended for 30 business days and fined $10,000. For inducing the filing of a misleading and inaccurate Form U5 by his former firm, in violation of Rule 2110, Respondent is suspended for an additional five business days and fined an additional $2,500.

The NAC increased the sanctions to a $50,000 fine and a one-year suspension.

Copy of the NAC's October 2010 Decision: http://www.finra.org/web/groups/industry/@ip/@enf/@adj/documents/nacdecisions/p122283.pdf

Copy of the OHO October 2009 Decision:

http://www.finra.org/web/groups/industry/@ip/@enf/@adj/documents/ohodecisions/p120797.pdf

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