Ray solicited prospective investors to purchase promissory notes as a vehicle to fund the start up of a hedge fund and to pay the ongoing operations of the fund; investors purchased more than $675,000 in promissory notes from Ray. Ray represented he could pay above-U.S. market interest rates based in part on the fact he could obtain these rates by investing the funds in a foreign bank; Ray failed to invest the proceeds of the notes with the foreign bank, used some of the proceeds for personal expenses and used proceeds from later sales to pay interest and repay principal amounts due on notes earlier purchasers held.
Ray made materially misleading statements and omissions of fact, including misrepresenting the use of proceeds from the sale of the promissory notes, misrepresenting how and where the proceeds were to be invested, and failing to disclose he was using the proceeds from the sale of promissory notes to pay interest and principal amounts due to earlier note holders. Ray participated in private securities transactions through the sale of promissory notes without providing written notice to his firm describing in detail the proposed transaction, his role therein and stating whether he received, or would receive compensation, and without obtaining his firmís approval.
Finkin failed to comply with a FINRA request for a document.
Smith misappropriated approximately $231,000 from bank customers by completing credit line advance request forms seeking withdrawals from customer accounts without the customersí knowledge or consent, withdrew the money in cash and used it to pay personal expenses or deposited it into his personal bank accounts. When some of the customers questioned the withdrawals, Smith reimbursed their accounts by making some unauthorized withdrawals from other customer accounts.
Smith pleaded guilty to misapplication of bank funds in the U.S. District Court for the Western District of Louisiana for stealing approximately $231,000 that was entrusted to the bankís care and control.
Head conveyed false and exaggerated account values to customers verbally and with falsified documents; and borrowed $20,000 from a customer and has repaid only $1,000 to the customer, contrary to the firmís written procedures prohibiting representatives from borrowing from customers without branch manager or other supervisor approval and the written approval of the firmís compliance department. Head did not request or obtain permission from her firm to borrow money from the firmís customer.
Head settled and/or offered to settle a customer complaint without her firmís knowledge or authorization. Head sent an unapproved and materially false letter to a bank by preparing, signing and mailing a letter to a bank stating that a customerís assets totaled over $4 million in order to assist the customer in obtaining a mortgage loan; although the firmís procedures required that outgoing correspondence be reviewed and approved before mailing. Head neither sought nor obtained approval for the letter.
Head exercised discretion in customer accounts without written authorization; Head neither sought nor obtained authorization from customers or her firm to exercise discretion in their accounts.
Head mischaracterized solicited trades in customersí accounts as unsolicited, causing her firmís books and records to be inaccurate. In addition,
Head repeatedly sent emails and text messages to customers from her personal email accounts, which violated her firmís policies forbidding the use of personal email accounts and mandating that business-related electronic communications with customers occur within the firmís network. Headís use of her personal email account prevented the firm from reviewing her email and text messages, and delayed the discovery of her misconduct in customersí accounts.
Head submitted false and evasive information to FINRA in response to a written request for information; and subsequentlyfailed to appear or otherwise respond to FINRA requests for testimony.
Rodriguez converted and misappropriated $10,000 from the bank checking account of a customer of his member firm and the firmís bank affiliate.
While researching an investment for the customer, a bank employee discovered that Rodriguez had diverted a $10,000 check from the customerís bank checking account and made the check payable to a third party, who was also a bank customer and Rodriguezí close personal friend. The customer neither authorized Rodriguez to make the check payable to the third party nor divert the funds to the third partyís account at the bank. The third party made cash withdrawals totaling $10,000 from the bank account, and gave the money to Rodriguez, who used the funds for his personal benefit.
Ultimately, the bank re-deposited $10,000 into the customerís bank checking account, and as a result of the bankís inquiry, Rodriguez repaid approximately $5,000 to the bank.
Anand converted customer funds by wiring funds totaling $51,289 from the customerís account to outside bank accounts of which Anand was associated; the customer did not authorize and had no knowledge of any of the wire transfers Anand made. Anand attempted to wire additional funds totaling $24,000 from the customerís account but Anandís member firm did not complete the wires.
Anand 18 Disciplinarmisappropriated funds from a non-customer (the individual was an employee of a business Anandís relatives owned) by creating a false account, borrowing $49,500 in funds from her 401(k) account without her knowledge or authorization, depositing the money into a bogus account he created in the noncustomerís name at his firm, and then wiring funds out of the account for his benefit. The individual did not authorize Anand to open an account, did not complete or sign any new account opening documents and, in furtherance of the scheme,
Anand created false documents related to the opening of the account which he submitted to his firm, thereby causing his firm to maintain inaccurate books and records. Anand failed to respond to FINRA requests for information and to appear and testify at an on-the-record interview.
Cheviron wrongfully converted a total of $75,331.08 from customers by withdrawing funds from a customerís bank account and then took the funds to another branch of the bank, where he deposited the funds into his own personal account. Ultimately, he used the customerís funds to make home improvements to his personal residence.
Chevironís member firm compensated the customer for the funds wrongfully taken from her account; Cheviron has not reimbursed his firm.
Cheviron caused other customers to sign distribution requests to an insurance company with instructions to mail checks to Chevironís attention at several banks and his personal residence. Upon receipt, Cheviron deposited these funds into his personal bank accounts and used the funds for his personal benefit. In an effort to conceal that he was the beneficiary of the customersí funds, Cheviron created false account statements, which he provided to one of the customers.
Smith improperly accepted $15,300 in cash gifts from a customer and her relative.
The customer and her relative gave Smith cash gifts when they visited their safe deposit boxes. Smith was given and accepted a cash gift during a visit to the customerís home. At the time Smith accepted the gifts, he was aware that the bankís code of conduct where he was employed prohibited employees from accepting gifts from customers.
This matter came to light when the customer offered cash to another bank employee after assisting her with her safe deposit box; the employee refused the gift and reported the matter to his supervisor. When Smithís supervisor questioned him, Smith admitted to accepting gifts from the customer, and his employment was terminated.
Stern charged personal expenses on her corporate credit card totaling approximately $5,200. Stern made approximately $2,700 in payments to the bank affiliate of her member firm for the personal expense which she charged on her corporate credit card.
The bank notified Stern on several occasions about a number of aged items that were charged on the card for which no employee expense reports were submitted by Stern. Subsequently, the bank notified Stern that her card was two payments past due and it was being suspended.
Stern then admitted that she had made the personal purchases on her corporate credit card. Stern also made a $500 payment to the bank and thus reduced the outstanding amount owed due to her personal use of the corporate card to $1,984.
Sternís employment at her firm and the bank were terminated for improper use of the corporate credit card.
Larsen convinced an elderly bank customer to surrender annuities totaling approximately $355,000, which he deposited into the customerís bank checking account. Larsen debited the customerís bank checking account approximately $94,000 and purchased a bank check in that amount payable to an entity and opened an account at that entity for the customer; Larsen then executed an internal form with the entity that effectively changed the name on the account to an entity that Larsen owned and controlled, thereby misappropriating the customerís money, without the customerís authorization.
Larsen, took approximately $261,000 from the customerís bank checking account at his member firm kept $4,500 for his personal use, gave $1,250 to the customer and had a bank check issued for the remaining approximately $255,000 payable to the entity Larsen owned and controlled, and deposited the funds into a checking account at the bank in the entityís name.
Larsen used a debit card associated with the checking account in the name of his entity to make purchases for his personal benefit totaling approximately $72,000, which was funded by proceeds from the customerís bank checking account, without the customerís authorization.
When the customer reviewed his bank statements and noted that some of his money was not in the bank account, he made inquiries to the bank and the bank sued Larsen to recover funds that he had transferred out of the customerís bank account. The bank was able to recover approximately $183,000 from Larsen, which it used to repay the customer and paid the customer an additional $171,000 to make him whole.
Larsen failed to respond to FINRA requests for documents.
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.
Hernandez converted a total of $98,559.12 from elderly customers for his own personal use and benefit. Hernandez received checks totaling $14,378.27 from a customer to be deposited into the customerís brokerage account at his member firm for investment purposes; however, he did not invest those funds -- instead, he deposited the checks into his personal checking account.
Without any authorization, Hernandez withdrew $60,220.85 from a checking account belonging to a customer of his firmís bank affiliate and then deposited those funds into his personal investment account, converting the proceeds for his own use and benefit. Similarly, he withdrew without any authorization, another $24,000 from that same customerís account and deposited the funds into his personal checking account.
Hernandez failed to respond to FINRA requests for information and documents.
Contreras engaged in private securities transactions by recommending that customers invest in promissory notes, which were not approved investments of his member firm. Contreras failed to provide written notice to his firm describing in detail the proposed transactions and his proposed role therein, and stating whether he had received, or might receive, selling compensation in connection with the transactions.
The company that issued the promissory notes filed for Chapter 13 Bankruptcy, and all of Contrerasí customers lost their entire investment.
Contreras borrowed approximately $65,000 from his customers, contrary to his firmís written procedures prohibiting registered representatives from borrowing money or securities from any prospects or customers, including non-firm prospects/customers, and Contreras failed to pay back any of the money he borrowed.
Contreras failed to respond to FINRA requests for information and testimony.
Christenson converted customer funds by transferring $66,000 in several transactions from a bank customerís saving account into several of his personal checking accounts, without the customerís knowledge. Christenson failed to respond to FINRA requests for information.
The Firm failed to
- establish certain elements of an adequate AML program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and implementing regulations promulgated by the Department of Treasury;
- establish policies and procedures reasonably expected to detect and cause the reporting of transactions required under 31 USC 5318(g) by failing to provide branch office managers with reports that contained adequate information to monitor for potential money-laundering and red flag activity; and for the firmís compliance department to perform periodic reviews of wire transfer activity, require either branch managers or the AML compliance officers to document reviews of AML alerts in accordance with firm procedures, identify the beneficial owners and/or agents for service of process for some foreign correspondent banks accounts, and establish adequate written policies and procedures that provided guidelines for suspicious activity that would require the filing of a Form SAR-SF;
- establish policies and procedures that required ongoing AML training of appropriate personnel related to margin issues, entering new account information, verifying physical securities and handling wire activity;
- ensure that its third-party vendor verified new customersí identities by using credit and other database cross-references, and after the firm determined that the vendorís lapse was resolved, it failed to retroactively verify customer information not previously subjected to the verification process;
- establish procedures reasonably expected to detect and cause the reporting of suspicious transactions required under 31 USC 5318(g), in that it failed to include in its AML review the activity in retail accounts institutional account registered representatives serviced;
- review accounts that a producing branch office manager serviced under joint production numbers;
- evidence in certain instances timely review of letters of authorization, correspondence, account designation changes, trade blotters, branch manager weekly review forms and branch manager monthly reviews; failed to follow procedures intended to prevent producing branch office managers from approving their own errors;
- follow procedures intended to prevent a branch office operations manager from approving transactions in her own account and an assistant branch office manager from reviewing transactions in accounts he serviced;
- establish procedures for the approval and supervision related to employee use of personal computers and, during one year, permitted certain employees to use personal computers the firm did not approve or supervise,
- include a question on thefirmís annual acknowledgement form for one year that required its registered representatives to disclose outside securities accounts and the firm could not determine how many remained unreported due to the supervisory lapse;
- follow policies and procedures requiring the pre-approval and review of the content of employeesí radio broadcasts, television appearances, seminars and dinners, and materials distributed at the seminars and dinners; representatives conducted seminars that were not pre-approved by the firmís advertising principal as required by its written procedures; the firm failed to maintain in a separate file all advertisements, sales literature and independently prepared reprints for three years from date of last use; and a branch office manager failed to review a registered representativeís radio broadcast. A branch office manager failed to maintain a log of a registered representativeís radio broadcasts and failed to tape and/or maintain a transcript of the broadcasts and there was no evidence a qualified principal reviewed or approved the registered representativeís statements. Branch office managers did not retain documents reflecting the nature of seminars, materials distributed to attendees or supervisory pre-approval of the seminars; retain transcripts of a representativeís local radio program and TV appearances or document supervisory review or approval of materials used; and retain documents reflecting the nature of a dinner or seminar conducted by representatives or materials distributed;
record the identity of the person who accepted each customer order because it failed to update its order ticket form to reflect the identity of the person who accepted the order; and
to review Bloomberg emails and some firm employeesí instant messages
The Firm distributed a document, Characteristics and Risks of Standardized Options, that was not current, and the firm lacked procedures for advising customers with respect to changes to the document and failed to document the date on which it was sent to certain customers who had recently opened options accounts. Also, the firmís compliance registered options principal did not document weekly reviews of trading in discretionary options accounts.
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.
- Accredited Investor
- Affirmative Determination
- Annual Compliance Certification
- Annual Compliance Meeting
- Away Accounts
- Best Efforts Offering
- Blank Forms
- Campaign Contributions
- Check Kiting
- Clearing Agreement
- Confidential Customer Information
- Contingency Offering
- Continuing Education
- Corporate Credit Card
- Credit Cards
- Customer Protection Rule
- Debit Card
- Do Not Call
- Due Diligence
- Electronic Communications
- Electronic Storage
- False Statements
- Finder Fees
- Foreign Language
- Form ADV
- Guaranteeing Against Losses
- Hedge Fund
- Heightened Supervision
- Insider Trading
- Installment Plan Contracts
- Instant Messaging
- Investment Advisor
- Joint Account
- Life Insurance
- Mark-Up Mark-Down
- Material Change Of Business
- Membership Agreement
- Minimum Contingency
- Money Laundering
- Mutual Funds
- Net Capital
- Outside Accounts
- Outside Business Activities
- Power Of Attorney
- Private Placement
- Private Securities Transaction
- Producing Manager
- Production Quota
- Promissory Notes
- Proprietary Traders
- Public Appearances
- Referral Fees
- Reg D
- Reg U
- Regulation 60
- Regulation S-P
- Reverse Mortgage
- Rule 8210
- Sharing Profits
- Statutory Disqualification
- Stock To Cash
- Supervisory System
- Suspense Account
- Third Party Vendor
- Time And Price Discretion
- Trading Limits
- Trading Volume
- Trust Account
- U.S. Treasuries
- Unauthorized Transaction
- Universal Lease Programs
- Unregistered Person
- Unregistered Principal
- Unregistered RRs
- Unregistered Securities
- Unregistered Supervisor
- Variable Annuity
- Variable Insurance