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.
Scott David McElhenny (Principal) AWC/2009020124301/December 2011
McElhenny applied one investment model in numerous customersí
accounts by executing
thousands of trades on a group basis in a variable annuity
platform offered by one
company and a mutual fund platform offered by another company.
McElhenny could place
one trade, which was not individualized for each of his customers,
and that trade would be
processed for all of his customers that were part of the trading
group. The group trading
executed by McElhenny in his customersí accounts involved inverse
and leveraged funds.
McElhenny engaged in such trading without
grounds for believing that the recommendation was suitable for
each of his customers in
light of their individual investment objectives, financial
situation and needs. As a result
of McElhennyís recommendations, the customers sustained a
collective loss exceeding $1
million. McElhenny exercised
discretion in the customersí
accounts without each customerís written authorization and his
member firmís acceptance
of the accounts as discretionary. McElhenny executed more
than one hundred unauthorized securities transactions in one
James Michael Lenzi AWC/2009020835202/October 2011
Lenzi engaged in outside business activities without providing prompt written notice to his member firm. The findings stated that the firm permitted its representatives to sell fixed annuities only if the transactions were placed through its GA platform; Lenzi sold fixed annuities to customers, several of whom were clients of the firm, and received compensation for these sales. Lenziís sales were placed through the issuer, not through the firmís GA. On several occasions, Lenzi falsely certified to the firm that he had not engaged in any outside business activities for which he received compensation.
James Michael Lenzi : Fined $5,000; Suspended 5 months
Markus Beat Pletscher AWC/2009019969801/October 2011
Pletscher exercised discretion in customer accounts despite the fact that his member firmís WSPs strictly prohibited discretionary trading in customer accounts, and he was aware of this prohibition.
The firm required that its registered representatives place trade orders immediately after receiving the customerís authorization for trades, but at times Pletscher received oral authorization from customers to place trades in their accounts, yet he waited several weeks or months before placing the trades.
Pletscher requested to have variable annuity holdings for customers transferred into money market accounts without the customersí authorization. The customers requested the unauthorized transactions be reversed, causing his firm to incur reversal fees of $8,863.37.
Pletscherís firm required its customers review and sign transaction related forms, but Pletscher instructed customers to provide transaction forms that contained only the customersí signatures, which Pletscher later completed and submitted to the firm for processing, despite his firm prohibiting him from accepting incomplete forms from customers. Pletscher knew that by allowing his customers to pre-sign blank forms, he failed to ensure that customers had properly reviewed and understood the agreements they had signed. In addition, Pletscher caused the firmís books and records to be false and misleading and to appear that the customers had agreed to the terms of each form on the date the forms were signed in blank.
Markus Beat Pletscher: Fined $15,000; Suspended 1 year
Goel placed a customerís signature on statements he prepared in connection with providing a rationale for his recommendations that the customer sell mutual funds and invest the proceeds in an equity-indexed annuity and a variable annuity, without the customerís knowledge, authorization or consent.
Unbeknownst to Goel, the firm did not require a customerís signature on the registered representativeís statement of rationale.
Richard Thomas Morrison (Principal) and Kimberly Ann Morrison 2008013683902/September 2011
Kimberly and Richard Morrison engaged in outside business activities without providing their member firm with written notice of their outside business activities. For nearly three years, Richard Morrison was the agent for transactions in annuities, which his firm had not approved for sale, that he sold through an insurance agency. In connection with these transactions, Richard Morrison met with customers, recommended that the customers purchase the annuities, completed and signed transaction paperwork and earned approximately $425,000 in commissions.
Richard Morrison failed to disclose the outside activities to his firm on annual questionnaires and actively concealed his outside business activities from his firm.
Richard Morrison had employees of the insurance agency sign paperwork effecting the exchanges; in each of these instances, he signed and was identified as the agent of record on the application that was sent to the insurance company that issued the new policy that was purchased. The insurance agency employees signed the exchange request forms that were sent to Richard Morrisonís firm instructing it to surrender a policy and forward the proceeds for the purchase of a new policy; as a result, his firm did not see that he had recommended and was the agent for the transactions.
In addition, for nearly two years, Kimberly Morrison was listed as the agent for transactions in annuities that took place away from her firm. Moreover, in connection with these transactions, Kimberly Morrison telephoned customers to solicit them to meet with Richard Morrison and/or herself, accompanied Richard Morrison to some meetings with customers, and completed and signed transaction paperwork as the agent of record. Furthermore, the insurance agency paid Kimberly Morrison $7,483.53 in commissions on the transactions; she did not notify her firm of her involvement in any of the transactions, and did not disclose them in her firmís annual broker questionnaire.
Richard Thomas Morrison (Principal): Barred
Kimberly Ann Morrison: Fined $10,000; Suspended 1 year
Jeremy Kenneth Kelter (Principal) AWC/2009019380701/June 2011
Kelter sold fixed annuities to investors outside the scope of his employment with his member firm, for which he received compensation totaling approximately $69,000. Kelter never provided his firm with written notice of these sales.
Jeremy Kenneth Kelter (Principal): Fined $5,000; Suspended 3 months
Philip Kenneth Mahler (Principal) AWC/2009017244601/June 2011
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)
Gould converted more than $1,315,000 from customers who had purchased annuities from him by, among other deceptive means and devices, convincing his customers to sign blank annuity withdrawal request forms, which he subsequently completed with instructions to the insurance companies to transfer his customersí funds to a bank account held in the name of a company he owned and controlled. In some instances, the withdrawal request forms contained a medallion signature guarantee that he improperly obtained.
Gould converted funds from other annuity customers by using withdrawal request forms that contained customersí signatures to direct insurance companies to transfer funds from the customersí annuities to his bank account. Gould unlawfully converted customer funds from customersí brokerage accounts by, among other deceptive means and devices, improperly transferring funds from their brokerage accounts to the bank account he owned and controlled. The customers either did not authorize or were not aware of the conversion resulting from the transfer of funds from their annuities and brokerage accounts to Gouldís bank account.
Gould used the unlawfully converted funds to pay for his own personal and business expenses; none of the customers were aware he was withdrawing funds for his personal use. On numerous occasions, Gould falsified documents to make it appear that customers had authorized the transfer of funds from their annuities and brokerage accounts to his bank account, and in some instances, effectuated these transfers by convincing customers to sign withdrawal request forms, some of which were blank.
Cynthia Ann Bulinski AWC/2005002244704/February 2011
Bulinski made unsuitable recommendations to her elderly clients to purchase variable annuities. She repeatedly failed to tailor her recommendations to meet her customersí individual investment needs, and instead recommended the same variable annuity to her customers, irrespective of age, investment experience, liquidity needs, financial situation and risk tolerance.
Bulinski recommended that elderly customers purchase the same variable annuity with an enhanced death benefit rider, but demonstrated that she did not have reasonable basis for her recommendation because some of the customers were too old to purchase the rider and the rest gained little, if any, benefit from the rider while paying a substantial cost for it. Bulinski recommended unsuitable variable annuities with a rider that was inconsistent with her customersí investment objectives. In numerous instances, Bulinski demonstrated that she did not understand the variable annuity and inaccurately described the investment to a customer as a fixed annuity rather than a variable annuity, and with other customers, incorrectly stated the surrender period and surrender charges her customers would incur.
Bulinski was the subject of several written customer complaints about her lack of disclosure about surrender charges and other product details.
Gregory James Buchholz AWC/2010023931401/February 2011
Buchholz misappropriated approximately $1,350,000 from customers, a number of whom were retirees, by liquidating their variable annuities and/or mutual funds and then transferring the proceeds to his personal bank account, converting the proceeds for his own use and benefit. As part of this scheme, Buchholz falsely and fraudulently represented, at times by forging customer signatures on redemption documents, that certain customers had authorized the redemption of the securities in order to obtain the proceeds of the sale; fraudulently induced certain customers to authorize the redemption of securities, based on misrepresentations that the proceeds would be reinvested to the customersí investment accounts; and caused checks to be drawn in the customersí names and caused the checks to be sent directly either to his office or to the customers.
If the checks were sent directly
to the customers, Buchholz convinced those clients to turn the checks over to him, making false and fraudulent representations that he would deposit the funds in their securities accounts to be reinvested; however, he did not reinvest the proceeds but instead deposited the checks into his personal bank accounts and used the proceeds for his own purpose;
to his office, Buchholz simply deposited the checks in his own bank accounts for his personal use and sometimes forged the customersí signatures in order to cash the checks.
Jason Leekarl Beckett AWC/2009016600001/February 2011
Beckett submitted an advertisement to a local newspaper, which listed an entity he owned as offering certain investments, including certificates of deposit (CDs) and fixed annuities, and that he did not submit the advertisement to his member firm for review and approval; moreover, the advertisement content included misleading statements regarding the offered investments.
Beckett maintained a website for an entity he owned, which was accessible to the investing public, and he failed to submit the website material to his firm for review until a later date. Beckett failed to obtain his firmís written approval of the website content prior to its use.
Beckett completed an annual certification, which he provided to his firm and he answered ďnoĒ to the question asking whether he anticipated using any type of electronic communication systems such as the Internet for soliciting business.
Jason Leekarl Beckett : Fiend $10,000; Suspended 2 months
Ellis signed customersí applications for fixed annuities, as a favor to another registered representative not authorized to sell products a company offered, without having met with or discussed the fixed annuity product or the points on each application with the customers, or ascertained the productís suitability for each customer as required; thereby his attestations on the annuity applications submitted to his member firm and the insurer were false. The falsified applications were submitted to the firm under Ellisí production number, and the insurer approved the applications and issued annuity contracts based on Ellisí misrepresentations on the applications. After the falsified annuity applications were discovered, Ellisí firm offered to rescind the transactions for the customers or choose another investment at no cost. Neither Ellis nor the other representative received any compensation for the transactions.
Joshua A. Ellis: Censured; Fined $7,500; Suspended 6 months
Todd Randall Ware (Principal) AWC/2007008935007/February 2011
Ware introduced several customers to a Stock to Cash program under which customers would pledge stock to obtain loans to purchase other products. Ware recommended a customer participate in the program under which the customer obtained loans of approximately $388,000 and pledged securities in support of these loans, using the proceeds to purchase fixed annuities through Ware.
Ware failed to conduct adequate due diligence concerning the operations or financial stability of the Stock to Cash program lender and failed to take sufficient action to determine whether his clientsí ownership interest in the pledged securities was adequately protected. Ware did not understand the potential risks inherent in the program and therefore did not have a reasonable basis for his recommendations.
Todd Randall Ware (Principal): Fined $15,000; Suspended 15 business days
Everybody Knows (BrokeAndBroker.com Blog)http://www.brokeandbroker.com/5967/insecurities aegis-frumento-trading-plans/From 2006 to 2011, Aegis Frumento, Esq. headed the department at Smith Barney that administered Rule 10b5-1 plans for the firm's customers, and he still advises clients on trading plans today. On June 7, 2021, SEC Chair Gary Gensler anno... Read On