Boppre was a member of his firm’s new product committee, which was responsible for conducting due diligence and approving new products at the firm. Boppre knew of an issuer’s failure to make payments to its investors and was also aware of other indications of the issuer’s problems but approved the offering as a product available for his firm’s brokers to sell to their customers. Also,  Boppre suspended the offering sales and then reopened the sales after further discussions with issuer executives.

Boppre allowed his firm’s brokers to continue selling the offering despite the issuer’s ongoing failure to make principal and interest payments, and despite other red flags concerning the issuer’s problems. Acting on his firm’s behalf, Boppre failed to conduct adequate due diligence of the offering before allowing firm brokers to sell this security; without adequate due diligence, the firm could not identify and understand the inherent risks of the offering and therefore could not have a reasonable basis to sell it. By not conducting adequate due diligence, Boppre failed to reasonably supervise firm brokers’ sales of the offering.

While associated with the firm, registered representatives made misrepresentations or omissions of material fact to purchasers of unsecured bridge notes and warrants to purchase common stock of a successor company.

The registered representatives:

• guaranteed customers that they would receive back their principal investment plus returns, failed to inform investors of any risks associated with the investments and did not discuss the risks outlined in the private placement memorandum (PPM) that could result in them losing their entire investment. The registered representatives had no reasonable basis for the guarantees given the description of the placement agent’s limited role in the PPM; and
• provided unwarranted price predictions to customers regarding the future price of common stock for which the warrants would be exchangeable and guaranteed the payment at maturity of promissory notes, which led customers to believe that funds raised by the sale of the anticipated private placement would be held in escrow for redemption of the promissory notes.

The Firm, acting through a registered representative, made misrepresentations and/or omissions of material fact to customers in connection with the sale of the private placement of firm units consisting of Class B common stock and warrants to purchase Class A common stock; the PPM stated that the investment was speculative, involving a high degree of risk and was only suitable for persons who could risk losing their entire investment. The representative represented to customers that he would invest their funds in another private placement and in direct contradiction, invested the funds in the firm private placement.

The Representative recommended and effected the sale of these securities without having a reasonable basis to believe that the transactions were suitable given the customers’ financial circumstances and conditions, and their investment objectives. The representative recommended customers use margin in their accounts, which was unsuitable given their risk tolerance and investment objectives, and he exercised discretion without prior written authorization in customers’ accounts.

Acting through Locy, its chief operating officer (COO) and president, the Firm failed to reasonably supervise the registered representative and failed to follow up on “red flags” that should have alerted him to the need to investigate the representative’s sales practices and determine whether trading restrictions, heightened supervision or discipline were warranted. Moreover, despite numerous red flags, the firm took no steps to contact customers or place the representative on heightened supervision, although it later placed limits only on the representative’s use of margin. The firm eventually suspended his trading authority after additional large margin calls, and Locy failed to ensure that the representative was making accurate representations and suitable recommendations.

Turbeville, the firm’s chief executive officer (CEO), and Locy delegated responsibility to Mercier, the firm’s chief compliance officer (CCO), to conduct due diligence on a company and were aware of red flags regarding its offering but did not take steps to investigate. 

Acting through Turbeville, Locy and Mercier, the Firm failed to establish, maintain and enforce supervisory procedures reasonably designed to prevent violations of NASD Rule 2310 regarding suitability; under the firm’s written supervisory procedures (WSPs), Mercier was responsible for ensuring the offering complied with due diligence requirements but performed only a superficial review and failed to complete the steps required by the WSPs; Locy never evaluated the company’s financial situation and was unsure if a certified public accountant (CPA) audited the financials, and no one visited the company’s facility. Neither Turbeville nor Locy took any steps to ensure Mercier had completed the due diligence process. Turbeville and Locy created the firm’s deficient supervisory system; the firm’s procedures were inadequate to prevent and detect unsuitable recommendations resulting from excessive trading, excessive use of margin and over-concentration; principals did not review trades or correspondence; and the firm’s new account application process was flawed because a reviewing principal was unable to obtain an accurate picture of customers’ financial status, investment objectives and investment history when reviewing a transaction for suitability. The firm’s procedures failed to identify specific reports that its compliance department was to review and did not provide guidance on the actions or analysis that should occur in response to the reports; Turbeville and Locy knew, or should have known, of the compliance department’s limited reviews, but neither of them took steps to address the inadequate system.

Brookstone Securities, Inc.: Censured; Fine $200,000

David William Locy (Principal): Fined $10,000; Suspended from 3 months in Principal capacity only

Mark Mather Mercier (Principal): Fined $5,000; Suspended from 3 months in Principal capacity only

Antony Lee Turbeville (Principal): Fined $10,000; Suspended from 3 months in Principal capacity only

As the AMLCO and president of his member firm,  Grossman failed to demonstrate that he implemented and followed sufficient AML procedures to adequately detect and investigate potentially suspicious activity. 

Grossman did not consider the AML procedures and rules to be applicable to the type of accounts held at the firm and therefore did not adequately utilize, monitor or review for red flags listed in the firm’s procedures. His daily review of trades executed at the firm and all outgoing cash journals and wires, Grossman did not identify any activity of unusual size, volume or pattern as an AML concern. The firm’s registered representatives, who were also assigned responsibility for monitoring their own accounts, failed to report any suspicious activity to Grossman. Until the SEC and/or FINRA alerted Grossman to red flags of suspicious conduct, Grossman did not file any SARs.

Grossman failed to implement adequate procedures reasonably designed to detect and cause the reporting of suspicious transactions and, even with those minimal procedures that he had in place at the firm, he still failed to adequately implement or enforce the firm’s own AML program. For example, accounts were opened at the firm within a short period of each other that engaged in similar activity in many of the same penny stocks, and several red flags existed in connection with these accounts that should have triggered Grossman’s obligations to undertake scrutiny of the accounts, as set out in the firm’s procedures, including possibly filing a SAR.  Additionally,individuals associated with the accounts had prior disciplinary histories, including securities fraud and/or money laundering. Because of Grossman’s failure to effectively identify and investigate suspicious activity,he often failed to identify transactions potentially meriting reporting through the filing of SARs. Moreover, Grossman failed to implement an adequate AML training program for appropriate personnel; the AML training conducted was not provided to all of the registered representatives at the firm. 

Furthermore, Grossman failed to establish and maintain a supervisory system at the firm to address the firm’s responsibilities for determining whether customer securities were properly registered or exempt from registration under Section 5 of the Securities Act of 1933 (Securities Act) and, as a result, Grossman failed to take steps, including conducting a searching inquiry, to ascertain whether these securities were freely tradeable or subject to an exemption from registration and not in contravention of Section 5 of the Securities Act. The firm did not have a system in place, written or unwritten, to determine whether customer securities were properly registered or exempt from registration under Section 5 of the Securities Act; Grossman relied solely upon the clearing firm, assuming that if the stocks were permitted to be sold by the clearing firm, then his firm was compliant with Section 5 of the Securities Act. 

Grossman failed to designate a principal to test and verify the reasonableness of the firm’s supervisory system, and failed to establish, maintain and enforce written supervisory control policies and procedures at the firm and failed to designate and specifically identify to FINRA at least one principal to test and verify that the firm’s supervisory system was reasonable to establish, maintain and enforce a system of supervisory control policies and procedures.

The firm created a report, which was deficient in several areas, including in its details of the firm’s system of supervisory controls, procedures for conducting tests and gaps analysis, and identities of responsible persons or departments for required tests and gaps analysis. Grossman made annual CEO certifications, 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 registrations; the certifications were deficient in that they failed to include certain information, including whether the firm has in place processes to establish, maintain and review policies and procedures designed to achieve compliance with applicable laws and regulations and whether the firm has in place processes to modify such policies and procedures as business, regulatory and legislative events dictate. 

Grossman failed to ensure that the firm’s heightened supervisory procedures placed on a registered representative were reasonably designed and implemented to address the conduct cited within SEC’s allegations; the additional supervisory steps imposed by Grossman to be taken for the registered representative were no different than ordinary supervisory requirements. Moreover, there was a conflict of interest between the registered representative and the principal assigned to monitor the registered representative’s actions at the firm;namely, the principal had a financial interest in not reprimanding or otherwise hindering the registered representative’s actions. Furthermore,Grossman was aware of this conflict, yet nonetheless assigned the principal to conduct heightened supervision over the registered representative. 

The heightened supervisory procedures Grossman implemented did not contain any explanation of how the supervision was to be evidenced, and the firm failed to provide any evidence that heightened supervision was being conducted on the registered representative. Also, Grossman entered into rebate arrangements with customers without maintaining the firm’s required minimum net capital. Similarly, he caused the firm to engage in a securities business when the firm’s net capital was below the required minimum and without establishing a reserve bank account or qualifying for an exemption. Grossman was required to perform monthly reserve computations and to make deposits into a special reserve bank account for the exclusive benefit of customers, but failed to do so.

Duarte borrowed $50,000 in the form of a promissory note from a customer to start a business buying up distressed properties, and in order to do this, he needed money to establish a credit line. hen Duarte received the loan, his member firm’s written procedures prohibited employees from accepting or soliciting loans from firm customers/ He has not fully repaid the loan.

Also, Duarte engaged in an outside business activity without providing his firm with written notice of the activity; Duarte failed to disclose or obtain his firm’s written permission of his outside business activity of purchasing distressed properties. Duarte made misrepresentations to his firm in an annual compliance certification that he had not accepted any loans from customers and was not engaged in any outside business activities when, in fact, he had already obtained a loan from the customer and was engaged in an outside business activity.

At Hauser’s request, firm customers borrowed a total of $202,000 from the cash value accumulated in whole life insurance policies that Hauser previously sold to them. Hauser then borrowed the funds from these customers, pursuant to secured (as to two of the loans) and unsecured (as to one of the loans) promissory notes providing for annual interest. Hauser has not made interest or principal payments on the notes.

Hauser's firm’s WSPs prohibit associated persons from engaging in borrowing or loaning funds with a customer, unless the customer is an immediate family member and the firm provides prior written approval; none of the customers from whom Hauser borrowed funds were members of Hauser’s immediate family, and Hauser did not seek or receive prior approval for the loans.

Pedigo submitted a fixed annuity contract for his customer with an insurance company. The insurance company issued the annuity contract and sent it to Pedigo in accordance with its selling agreement. The insurance company never received the customer’s executed annuity contract confirmation (ACC); and, as a result, mailed letters to Pedigo numerous times requesting that he have the customer sign and return the ACC. 

Pedigo informed the insurance company that the customer was deceased and requested paperwork to submit a death claim.  According to the insurance company, it never received the death claim paperwork. After receiving a surrender request form that same day, the insurance company contacted Pedigo to inform him that a full surrender could not be processed because the customer was deceased. Amazingly, about a year after the customer had passed, Pedigo falsely informed the insurance company that the customer was still alive. Pedigo faxed the insurance company an ACC which the customer purportedly signed and dated almost 20 days after the customer had died.

The Firm failed to have reasonable grounds to believe that private placements offered by two entities pursuant to Regulation D were suitable for any customer.

The Firm began selling the offerings for one entity after its representatives visited the issuer’s offices to review records and meet with the issuers’ executives; the firm also received numerous third-party due diligence reports for these offerings but never obtained financial information about the entity and its offerings from independent sources, such as audited financial statements.

Despite the issuer’s assurances, the problems with its Regulation D offerings continued; the issuer repeatedly stated to the firm’s representatives that the interest and principal payments would occur within a few weeks, and the issuer made some interest payments but failed to pay substantial amounts of interest and principal owed to its investors, and these unfulfilled promises continued until the SEC filed its civil action and the issuer’s operations ceased.

In addition to ongoing delays in making payments to its investors, the firm received other red flags relating to the entity’s problems but continued to allow its brokers to sell the offering to their customers; in total, the firm’s brokers sold $11,759,798.01 of the offering to customers.

Despite the fact that the firm received numerous third-party due diligence reports for the other entities’ offering, it never obtained financial information about the issuer and its offerings from independent sources, such as audited financial statements, and although it received a specific fee related to due diligence purportedly performed in connection with each offering, the firm performed little due diligence beyond reviewing the private placement memoranda (PPM) for the issuer’s offerings. The firm’s representatives did not travel to the entity’s headquarters to conduct any due diligence for these offerings in person and did not see or request any financial information for the entity other than that contained in the PPM.

The Firm obtained a third-party due diligence report for one of the offerings after having sold these offerings for several months already; this report identified a number of red flags with respect to the offerings. Moreover, the firm should have been particularly careful to scrutinize each of the issuer’s offerings given the purported high rates of return but did not take the necessary steps, through obtaining financial information or otherwise, to ensure that these rates of return were legitimate, and not payable from the proceeds of later offerings, in the manner of a Ponzi scheme. Furthermore, the firm also did not follow up on the red flags documented in the third-party due diligence report; even with notice of these red flags, the firm continued to sell the offerings without conducting any meaningful due diligence.

The Firm failed to have reasonable grounds for approving the sale and allowing the continued sale of the offerings; even though the firm was aware of numerous red flags and negative information that should have alerted it to potential risks, the firm allowed its brokers to continue selling these private placements.The firm did not conduct meaningful due diligence for the offerings prior to approving them for sale to its customers; without adequate due diligence, the firm could not identify and understand the inherent risks of these offerings.The Firm failed to enforce reasonable supervisory procedures to detect or address potential red flags and negative information as it related to these private placements; the firm therefore failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations.

Budreau exercised time and price discretion beyond the day on which the customer granted such discretion and without the customers’ written authorization. Although the firm’s policies required all registered representatives to indicate in the order entry system when they use time and price discretion when ordering trades, Budreau failed to make that disclosure.

Budreau’s firm discovered his improper exercise of time and price discretion and issued a formal Letter of Education to Budreau reminding him of the rules regarding time and price discretion and instructing him to read compliance memoranda addressing discretionary trading and the recording of orders; Budreau signed the Letter of Education acknowledging his understanding the document’s terms and certifying that he read the relevant policies. Soon after receiving the Letter of Education, Budreau again exercised time and price discretion by purchasing shares of a different security in several customer accounts.

Although Budreau discussed the possibility of purchasing the security with his customers before entering purchase orders into the firm’s system, none of the actual purchases occurred on the days when he spoke to his customers, and some of the purchases occurred a week or two after the customers informed him they were willing to purchase the security.

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 firm’s written procedures prohibiting representatives from borrowing from customers without branch manager or other supervisor approval and the written approval of the firm’s compliance department. Head did not request or obtain permission from her firm to borrow money from the firm’s customer.

Head settled and/or offered to settle a customer complaint without her firm’s 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 customer’s assets totaled over $4 million in order to assist the customer in obtaining a mortgage loan; although the firm’s 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 customers’ accounts as unsolicited, causing her firm’s 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 firm’s policies forbidding the use of personal email accounts and mandating that business-related electronic communications with customers occur within the firm’s network.  Head’s use of her personal email account prevented the firm from reviewing her email and text messages, and delayed the discovery of her misconduct in customers’ 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.

Harte participated in the sale of unregistered securities, in violation of Section 5 of the Securities Act of 1933.

Harte and a registered representative at his member firm sold millions of shares of a thinly traded penny stock, resulting in proceeds exceeding $9.3 million for firm customers; the total commissions generated were $481,398.

Harte failed to conduct any due diligence prior to the stock sales; the circumstances surrounding the stock and the firm’s customers presented numerous red flags of a possible unlawful stock distribution.

Harte did not determine if a registration statement was in effect with respect to the shares or if there was an applicable exemption; Harte relied on transfer agents and clearing firms to determine the tradability of the stock. Harte failed to undertake adequate efforts to ensure that the registered representative ascertained the information necessary to determine whether the customers’ unregistered shares could be sold in compliance with Section 5 of the Securities Act of 1933.  Also, he did not consider the determination of the free-trading status of shares to be within his supervisory responsibilities.

Harte failed to follow up on red flags; he was on notice of the inconsistencies between customers’ trading experience and activity in their firm accounts but took no action.

In addition, Harte received customer emails which evidenced a greater level of market sophistication than reflected in their account forms but failed to investigate these discrepancies.

Sencan  failed to reasonably supervise the activities of member firm personnel engaged in the charging of excessive commissions, sharing commissions with a non-member and misusing funds on deposit with the firm.

Acting through its head trader, Sencan's firm improperly shared about $4 million in commissions with one of the firm’s hedge fund clients and charged excessive commissions totaling over $580,000 in transactions.

Sencan was the head trader’s direct supervisor and was aware that the firm had entered into a commission sharing arrangement with the hedge fund client, and he was responsible for reviewing that arrangement and the head trader’s trading activities. The firm’s procedures required the chief compliance officer (CCO) to periodically review emails firm personnel sent and received. Sencan failed to perform periodic reviews of the head trader’s electronic correspondence or otherwise take reasonable steps to supervise his activities.

Acting through its FINOP, the firm misused at least $61,000 in funds on deposit with the firm. 

Sencan was the FINOP’s direct supervisor but failed to monitor the firm’s financial records, perform periodic reviews of the FINOP’s electronic correspondence or otherwise take reasonable steps to supervise the FINOP’s activities.

Sencan became the firm’s AMLCO, and in this position, he was responsible for ensuring that the firm’s AML compliance procedures (AMLCP) were enforced but failed to do so. The CIP portion of the firm’s AMLCP required the firm, prior to opening an account, to obtain identifying information such as the customer’s passport number and country of origin; but acting through Sencan, the firm failed to obtain the identifying information the CIP required for some of its customers (a portion of whom were located outside of the United States). In addition, the firm’s AMLCP required the firm to maintain transmittal orders for wire transfers of more than $3,000, and those orders had to contain at least the name and address of the transmitter and recipient, the amount of the transmittal order, the identity of the recipient’s financial institution and the recipient’s account number; on numerous occasions, a firm customer account wired out funds in excess of $3,000. Sencan did not take steps to ensure that the firm retained information regarding those wires, including the recipient’s name, address and account number and the identity of the recipient’s financial information. Furthermore, acting through Sencan, the firm failed to provide AML training to its registered personnel.

Sencan was attempting to find transactional business for the firm in medium-term notes (MTNs).  As part of an effort to purchase MTNs for resale to its clients, the firm entered into an agreement with a Switzerland-based entity. Sencan signed the agreement on the firm’s behalf, and the agreement called for the entity to provide the firm with the opportunity to purchase $100 million (face value) in specified MTNs; however, the agreement included clauses containing material misrepresentations about the firm’s ability to purchase MTNs.

The first clause represented that the firm was the actual legal and beneficial owner of cash funds in excess of $100 million on deposit at a major bank. In addition, the second clause was a representation that these funds were free and clear of liens, had been legally earned and could immediately be utilized for the purchase of financial instruments; neither of these clauses was true, as the firm never had $100 million on deposit at any bank at any time.

Acting through Ayre, its CCO, Ayre Investments failed to establish and maintain a supervisory system and establish, maintain and enforce WSPs to supervise the activities of each registered person that were reasonably designed to achieve compliance with the applicable rules and regulations related to

• CRD pre-registration checks,
• exception report maintenance and review,
• supervisory branch office inspections,
• approval of transactions by a registered securities principal,
• annual compliance meeting,
• financial and operations principal (FINOP) review of checks received and disbursements blotter,
• NASD Rule 3012 annual report to senior management,
• review and retention of correspondence, Regulation S-P and outsourcing arrangements.

The Firm's WSPs were purchased from a third-party vendor and were intended to meet the needs of any broker-dealer, regardless of the firm’s size or business. Acting through Ayre, the Firm failed to tailor the template WSPs to address the firm’s particular business activities. With respect to the areas identified above, the firm’s WSPs failed to describe with reasonable specificity the identity of the person who would perform the relevant supervisory reviews and how and when those reviews would be conducted; and with respect to the maintenance of electronic communications, the firm completely failed to establish, maintain and enforce any supervisory system and/or WSPs reasonably designed to ensure that all business-related emails were retained.

Acting through Ayre, the Firm violated the terms of a Letter of Acceptance, Waiver and Consent (AWC) by failing to file a required written certification with FINRA regarding the firm’s WSPs within 90 days of the issuance of the AWC. Despite being given multiple reminders and opportunities by FINRA staff during a routine examination to file the certification, the firm and Ayre have yet to file the certification the AWC required.

The Firm only had one registered options principal (ROP) who was required to review and approve all of the firm’s option trades; for more than half a year, however, the ROP resided in another state and did not work in the firm’s main office. Furthermore, the firm’s WSPs did not address or explain how the ROP, given his remote location, was to accomplish and document the contemporaneous review and approval of all options trades firm customers placed; the firm executed approximately 450 options transactions, none of which the ROP approved.

The firm failed to maintain and preserve all of its business-related electronic communications, and therefore willfully violated Securities Exchange Act Rule 17a-4.

The Firm permitted its registered representatives to use email to conduct business when the firm did not have a system for email surveillance or archiving. Each firm representative maintained electronic communications on his or her personal computer or arranged for the retention of electronic communications in some other fashion, and the firm relied on representatives to forward or copy their businessrelated emails to the firm’s home office for retention. Not all of the representatives’ business-related emails were forwarded to the home office, and the firm did not retain the electronic communications that were not forwarded or copied to the firm’s home office; as a result, the firm failed to maintain and preserve at least 10,000 business-related electronic communications representatives sent to or received.

Ayre Investments, Inc.: Censured; Fined $10,000  (note: FINRA states that it imposed a lower fine against the firm after it considered, among other things, the firm’s revenues and financial resources); Undertakes to review its supervisory systems and WSPs for compliance with FINRA rules and federal securities laws and regulations, including those laws, regulations and rules concerning the preservation of electronic mail communications, and certify in writing to FINRA, within 90 days, that the firm has in place systems and procedures to achieve compliance with those rules, laws and regulations.

Timothy Tilton Ayre: Fined $10,000; Suspended 2 months in Principal capacity only.

Chase wrote fictitious fire insurance policies and fictitious life insurance policies while an insurance company employed him; these policies were written without the insureds’ knowledge and consent.

With regard to the fire insurance policies, in most cases, the billing notifications were sent either to the home of Chase’s relatives, Chase’s former insurance agency address or his residence; as a result, the purported insureds did not receive any communications from the insurance company concerning these policies. By writing these policies, Chase received compensation of approximately $2,725 and he qualified to remain on the insurance company’s career program.

Chase failed to respond to FINRA requests for information and documents.

Haeffele was appointed as a co-trustee for a trust and, wrongfully and without authorization, disbursed funds to himself from the trust’s mutual fund accounts and checking accounts.

Haeffele was appointed as a co-trustee for another trust, which owned life insurance policies for which Haeffele was the agent of record on, and Haeffele, wrongfully and without authorization, disbursed funds to himself from the life insurance policies held in the name of the trust. Haeffele used the funds from both trusts for his own benefit, thereby converting assets from the trusts. 

As trustee, Haeffele received account statements for the first trust from mutual fund issuers, but only provided the trust’s creators false and misleading account statements and related correspondence that he created on his computer for the trust. The fabricated account statements and correspondence grossly overstated the value of the trust’s assets.

Haeffele failed to provide written notice to his member firm that he had been serving as a trustee for the trusts, and had been receiving compensation for such activities. In addition, Haeffele completed a series of questionnaires submitted to the firm in which he failed to disclose that he was serving as a trustee and receiving compensation.

Pappas converted funds totaling $157,563.75 from customer accounts, without the customers’ knowledge or authorization, and attempted to convert an additional $14,260 from another customer account.

Pappas misappropriated the funds by activating the online bill payment feature in the clients’ accounts and then directed payments to his personal credit cards. Pappas placed an unauthorized trade totaling $6,893.43 in a deceased firm customer’s account.

Pappas refused to respond to FINRA requests for information and testimony.

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 Morrison’s 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 firm’s annual broker questionnaire. 

Richard Thomas Morrison (Principal): Barred

Kimberly Ann Morrison: Fined $10,000; Suspended 1 year

Aretz established an outside business activity and never made a written request to, or received permission from, his member firm to engage in the outside business activity.

In connection with the outside business, Aretz borrowed approximately $242,800 from firm customers without requesting or obtaining permission from his firm, and has yet to repay the loans. Aretz’ firm prohibited its registered representatives from borrowing funds from customers without the express written consent of the firm’s chief compliance officer or a member of the firm’s senior management. Aretz failed to disclose the loans on several annual firm compliance questionnaires and that he failed to respond to FINRA requests for information.

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 firm’s 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 representative’s 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 FINRA’s or Securities Investor Protection Corporation (SIPC)’s 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 FINRA’s 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 firm’s websites and the billboard did not prominently disclose the firm’s 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 representative’s 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 complainant’s 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 firm’s president and CEO, completed the Firm Element of Continuing Education (CE). The firm’s 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 firm’s 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 firm’s 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.

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 Gallagher’s heightened supervisory requirements from the states and FINRA were being followed, and failed to have a system to adequately monitor Gallagher’s 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

Cheviron wrongfully converted a total of $75,331.08 from customers by withdrawing funds from a customer’s 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 customer’s funds to make home improvements to his personal residence.

Cheviron’s 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 Cheviron’s 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 customers’ funds, Cheviron created false account statements, which he provided to one of the customers.

As his member firm’s president, CEO and registered principal, Paris had overall supervisory responsibilities for the firm, including reviewing and performing due diligence for private placements and for reviewing and approving new products, including the assignment of a new product to a business unit.

Paris signed a sales agreement for a private placement offering and failed to perform due diligence beyond reviewing the private placement memorandum (PPM), and while he had received third-party due diligence reports regarding earlier private placements, he did not seek or obtain a report for the latest offering and did not conduct any continuing due diligence or follow-up because of the limited time between offerings, the similarity of the deals and representations from the issuer that no additional due diligence was necessary. Unlike earlier offerings, there were serious red flags that Paris could not identify without adequate due diligence.

In his firm’s sale of several offerings by another issuer, Paris failed to perform due diligence even though his firm received a specific fee related to due diligence purportedly performed in connection with each offering. Paris did not travel to the issuer’s headquarters to conduct due diligence and did not seek or request any financial information other than what was contained in the PPM. Once he had concluded that his firm could sell the offerings, Paris did not conduct any continuing due diligence or follow-up, and due to limited time between the offerings, the similarity of the deals and representations from the issuer that no material changes had occurred, he concluded that no additional due diligence was necessary. In addition, Paris did not believe it necessary to pay for due diligence reports for the new offerings because they would say the same thing as previous reports but they did identify numerous red flags. Moreover, Paris should have scrutinized each of the offerings given the high rates of return to ensure they were legitimate and not payable from proceeds of later offerings, as in a Ponzi scheme.

Acting on his firm’s behalf, Paris failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations with respect to the offerings.

Camarillo entered into a contract with a company to sell its private placements, and sold approximately $370,000 of these private securities to his customers, receiving over $13,000 in commissions, without providing notice to, or receiving approval from, his member firm.

Camarillo’s firm’s written procedures, which he attested to reading and understanding, instructed employees to provide notice to the firm’s compliance department and to seek the firm’s written approval prior to engaging in any securities transactions not executed through the firm. The company provided Camarillo with sales literature, and without submitting the brochure to his firm for approval, he distributed the brochure to his customers; the brochure contained several unwarranted, exaggerated and misleading statements, omitted material facts and ignored risk while guaranteeing success.

Camarillo did not have a reasonable basis to recommend that his customers purchase the securities, had no experience selling these types of products and did not conduct proper due diligence. Camarillo did not sufficiently understand the products offered through the company or how the investments were managed; all of Camarillo’s customers who invested in the products informed Camarillo that they were seeking preservation of capital and viewed the investments as a retirement investment. Camarillo did not investigate the claims made in the sales literature that the returns were guaranteed, he had no basis to recommend the investment to customers seeking preservation of capital, and his recommendations to invest in the company were unsuitable.

Camarillo’s customers lost tens of thousands of dollars by relying on his recommendation, because even after partial reimbursement from the company’s court-ordered receivership, Camarillo’s customers only recouped 69 percent of their investment. Moreover, the products, as marketed, were securities, the sale of which required Camarillo to possess a Series 7 license; at the time he sold the securities, Camarillo held only a Series 6 license.

Christensen sold approximately $650,000 in a company’s promissory notes to customers without providing his member firm with written notice of the promissory note transactions and receiving the firm’s approval to engage in these transactions.

Based upon expected interest payments from the promissory notes, some of the customers also purchased life insurance policies from Christensen and another registered representative the firm employed. These customers expected to use the promissory note interest payments to pay for the life insurance premiums.

Christensen received direct commissions from the company related to the sale of the promissory notes to customers and received commissions from the sale of life insurance products to the customers, who intended to fund those policies with the interest payments from the promissory notes.

The company defaulted on its obligations and the customers lost their entire investment. The customers who also purchased life insurance based upon the expectation that they would receive interest payments from their investment relinquished their policies and the firm compensated them for the premiums paid, but the customers did not receive any reimbursement for the investments in the company that sold the promissory notes.

Christensen completed a firm annual compliance questionnaire, in which he falsely stated that he had not been engaged in any capital raising activities for any person or entity; had not received fees for recommending or directing a client to other financial professionals; had not been personally involved in securities transactions, including promissory notes, that the firm had not approved; and had not assisted a client with an application for investments not available through the firm or contracted or otherwise acted as an intermediary between a client and a sponsor of such investments without the firm’s prior approval.

Finally, Christensen failed to respond to FINRA requests for documents and testimony.

Acting through Locy, Brookstone Securities did not have WSPs addressing due diligence requirements for third-party placements.

Acting through Locy, Brookstone failed to conduct an adequate due diligence of a third-party private placement offering before Locy approved the offering of shares to customers. Locy’s due diligence efforts did not include any investigation into an equity fund, despite acknowledging that he knew very little about it or the third-party placement and could not get any solid information about the fund, including pending litigation or financial statements. Locy knew nothing about the fund that was not contained in a PPM the issuer prepared, but accepted that the firm representatives forming the offering had conducted due diligence and relied on their opinion of the fund. Locy acknowledged the representatives had limited, if any, experience forming a private placement.

The firm's representatives sold or participated in sales of shares to customers without notifying Locy or anyone else at the firm, which caused those sales to not be recorded on the firm’s books and records.

Brookstone Securities, Inc. and David William Locy: Censured; Fined $25,000 jointly/severally

Henry added information to an earlier copy of a private placement investor questionnaire that had previously been signed by a customer. The questionnaire itself had been completed by the customer while Henry was registered with a prior member firm and was later replaced at that prior firm by a different version; Henry maintained a copy of the earlier signed copy.

In response to an inquiry made by Henry’s new firm’s CCO regarding the source of a particular stock in the customer’s account, Henry utilized the earlier copy of the previously signed questionnaire from the customer that Henry had in his files and made alterations to the document by adding on the updated requested information sought by the CCO. Henry presented that altered document to the CCO without disclosing that he had made the alterations and by making the alterations to the questionnaire, he caused the document and, consequently, the firm’s records to be inaccurate.

Gelb solicited individuals, including customers at his member firm, to invest in entities that were purportedly engaged in the export and import business with a manufacturer based in China.

Gelb raised approximately $1.8 million from investors and received approximately $79,500 from the entities as compensation derived from his solicitation of, and directing investors to, the entities.

Private Securities Transaction

Gelb was aware of his firm’s policies and procedures, which specifically prohibited its registered representatives from participating in any manner in the solicitation of any securities transaction outside the regular scope of their employment without approval. Gelb signed annual certifications attesting to this knowledge and failed to notify his firm about his solicitation of investors for the entities because he did not expect the firm’s approval of the product.

Due Diligence

Gelb failed to obtain adequate information about the investment and instead relied upon unfounded representations, including guarantees that the investors’ principal would be protected despite the fact that, at no time, had Gelb seen any financial documentation for the entities. The information available on the Internet about the entities was limited to the companies’ own website.

Risk Disclosures

FINRA determined that despite the highly risky nature of the investment, Gelb led the customers to believe that the investment he was recommending was a safe and secure investment and, in some cases, Gelb was aware that customers were taking out home equity lines of credit on their homes to fund their investments in the entities. Customers who invested in the entities Gelb recommended had low risk tolerances and had investment objectives of growth and/or income, and Gelb did not have a reasonable basis for recommending the entities to the customers.

Outside email

Gelb utilized an outside email account, without his firm’s knowledge or consent, to conduct securities business.Although the firm was aware of the outside email account, Gelb had not been approved to utilize that email address to conduct securitiesrelated business and by operating an outside email account for securities-related business without the firm’s knowledge and consent, Gelb prevented his firm from reviewing his emails pursuant to NASD Rule 3010(d).

Veile borrowed $800 from one of his customers at his member firm. The loan was not reduced to writing and had no repayment terms, and Veile did not disclose this loan to his firm and the firm had a policy prohibiting representatives from borrowing money from customers.

Veile paid back the customer after FINRA began its investigation. Veile completed an annual compliance statement for the firm in which he falsely stated that he had not engaged in any prohibited practices, including borrowing from or lending to a client.

The Firm failed to ensure that it established, maintained and enforced a supervisory system and written supervisory procedures (WSPs) reasonably designed to achieve compliance with the rules and regulations concerning private offering solicitations.

The firm’s procedures were deficient in that they failed to specify, among other things, who at the firm was responsible for performing due diligence, what activities by firm personnel were required to satisfy the due diligence requirement, how due diligence was to be documented, who at the firm was responsible for reviewing and approving the due diligence that was performed and authorizing the sale of the securities, and who was to perform ongoing supervision of the private offerings once customer solicitations commenced. As a result of the firm’s deficient supervisory system and WSPs, the firm failed to conduct adequate due diligence on private placement offerings. The Firm's WSPs required due diligence to be conducted on every private placement it offered, and required that such review had to be documented; the firm failed to enforce those provisions with respect to an offering. Had the firm conducted adequate due diligence, it reasonably should have known that the company had defaulted on its earlier notes offerings and that there was a misrepresentation in the private placement memorandum (PPM) with respect to principal and interest payments to investors in the earlier offerings. The Firm failed to take reasonable steps to ensure that it timely learned of the missed payments on the earlier notes offerings and disclosed them to prospective investors in the notes. Due to the firm’s lack of due diligence, DeRosa sold notes issued to customers, and in connection with those sales, the firm and DeRosa mischaracterized and/or negligently omitted certain material facts provided to investors. DeRosa sold $833,000 of the notes to customers and generated approximately $37,485 in gross commissions from the sales of the notes. Through DeRosa and another registered representative, the Firm solicited customers to invest in another company’s stock but failed to conduct adequate due diligence.

The owner of an investment banking firm represented that the customers’ funds would be wired to a client trust account at a bank and then forwarded to an escrow account, which a third party would control, before being invested; the firm did not take any steps to verify this claim before wiring the customer funds to the account. No one at the firm verified the existence of the client trust and escrow accounts, and, after the funds were wired, no one requested or received a bank account statement to verify the receipt and location of the funds; the firm failed to question why the wire instructions failed to reference the client trust account in the bank account title section on the form, but instead referenced the investment banking firm. Instead of directing the customers’ money into the escrow account, the owner of the investment banking firm kept the funds in bank accounts he controlled and used the funds for his own benefit.

In addition, in connection with his sales of the company’s stock, DeRosa disseminated to prospective investors a presentation he had received from the owner of the investment banking company, which summarized the offering. Moreover, the presentation constituted sales literature but did not comply with the content standards applicable to communications with the public and sales literature. Furthermore, the presentation failed to provide a fair and balanced treatment of risks and potential benefits, contained unwarranted or exaggerated claims, contained predictions of performance and failed to prominently disclose the firm’s name, failed to reflect any relationship between the firm and the non-FINRA member entities involved in the offering, and failed to reflect which product or services the firm was offering.

Garden State Securities, Inc.: Censured; Ordered to pay jointly and severally with DeRosa, $300,000 in restitution to investors. FINRA did not impose a fine against the firm after it considered, among other things, the firm’s revenues and financial resources

Kevin John DeRosa (Principal):  Fined $25,000; Ordered to pay jointly and severally with Garden State $300,000 in restitution to investors; Suspendedfrom association with any FINRA member in any capacity for 20 business days, and Suspended from association with any FINRA member in any Principal capacity only for 2 months.

Cyrus failed to supervise representatives at her member firm who made unsuitable recommendations to customers at their firm.

Cyrus was responsible for supervising the representatives but failed to take appropriate action to supervise the representatives that was reasonably designed to prevent their violations and achieve compliance with applicable rules. Cyrus failed to adequately review and follow up on the over-concentration of the customers’ liquid assets in preferred stocks and the risks associated with those securities.

Leon recommended that a couple invest $167,000 in a private securities transaction without providing notice of his proposed role in the transaction to his member firms.

Leon formed a company through which he sought to operate an independent branch of a broker-dealer and did not have reasonable grounds to believe that the recommended investment in the company was suitable for the couple in light of their investment objectives, financial situation and needs; the recommended investment was too risky for the customers, who were a retired couple of limited means. The recommendation led to most of their investable assets being overconcentrated in the security.

Prior to its dissolution, the company made interest and principal payments totaling approximately $26,000 to the couple, who lost approximately $141,000 on their investment in the company.

Leon failed to respond completely to FINRA requests for information and documents.

National Securities failed to have reasonable grounds to believe that certain private placements offered pursuant to Regulation D were suitable for customers. Acting through Portes, as the firm’s Director of Alternative Investments/Director of Syndications, National failed to adequately enforce its supervisory procedures to conduct adequate due diligence as it relates to an offering. Portes and the firm became aware of multiple red flags regarding an offering, including liquidity concerns, missed interest payments and defaults, that should have put them on notice of possible problems, but the firm continued to sell the offering to customers. Acting through Portes, the Firm failed to enforce its supervisory procedures to conduct adequate due diligence relating to other offerings.

Portes reviewed the PPMs for these offerings and diligence reports others prepared, but the review was cursory.The due diligence reports noted significant risks and specifically provided that its conclusions were conditioned upon recommendations regarding guidelines, changes in the PPMs and heightened financial disclosure of affiliated party advances, but the firm did not investigate, follow up on or discuss any of these potential conflicts or risks with either the issuer or any third party. In addition, acting through Portes, the Firm failed to enforce reasonable supervisory procedures to detect or address potential “red flags” as related to these offerings; and the firm, acting through Portes, failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations.

National Securities Corporation: Censured; Odered to pay a total of $175,000 in restitution to investors.

Matthew G. Portes  (Principal): Fned $10,000; Suspended from association with any FINRA member in any principal capacity only for 6 months.

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 customers’ 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 customers’ 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 firm’s 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 firm’s computer systems, including access to systems provided by the firm’s 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 person’s 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 representatives’ written and electronic correspondence relating to the firm’s 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 firm’s 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 manager’s 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 employees—the 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 Treasury’s 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 representatives’ 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 representative’s 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

Kirkpatrick sold millions of unregistered shares of stock for accounts opened at his member firm on his customers’ behalf, realizing approximately $9.3 million in proceeds for the customers without taking the necessary steps to determine whether his customers’ unregistered shares could be sold in compliance with Section 5 of the Securities Act of 1933.

Kirkpatrick signed new account forms for the customers, did not review them in depth, neither met nor spoke with the customers, and communicated with them solely via email and instant message. Kirkpatrick failed to conduct the necessary due diligence prior to the entity’s stock sales from the customers’ accounts; the circumstances surrounding the entity’s stock and the firm’s customers presented numerous red flags of a possible unlawful stock distribution.

The sales through one of the customers’ accounts at Kirkpatrick’s firm realized approximately $5.8 million in proceeds for the customer, and another customer realized approximately $3.5 million in proceeds; the total commissions generated for these sales were $481,398 of which Kirkpatrick received commissions totaling $91,466.

Kirkpatrick admitted that he did not determine if a registration statement was in effect with respect to the customers’ entity shares, or if there was an applicable exception; instead he relied on the issuer’s transfer agent to determine if the entity stock the customers deposited could be sold.

Kirkpatrick did not review the customers’ incoming stock questionnaires, nor did he request or review the stock certificates, which indicated information about how and from whom the shares were purchased, whether the customer was affiliated with the issuer and whether the stock was restricted. In addition, Kirkpatrick noticed that the accounts seemed to have the same trading pattern, yet he failed to investigate and failed to make any effort to determine the source of the customers’ shares.

Chakrabortti failed to ensure proper disclosure of his personal financial interests in the securities of companies that were subjects of his research reports and public appearances, although FINRA conceded that he informed his firm of his ownership interest in each security, gave advance notice of all transactions in these securities to the firm’s compliance department and provided the firm with a record of the transactions.

Certain of the research reports Chakrabortti co-authored included information reasonably sufficient upon which to base an investment decision in the companies in which he held shares, among other securities, but the reports did not disclose his personal financial position in some of the companies.

Chakrabortti made public appearances at which he mentioned one or more equity securities of individual companies but did not disclose his personal financial position in the securities in some of the companies. Because Chakrabortti’s disclosure of his personal financial holdings was incomplete in certain research reports and public appearances, these communications violated NASD Rule 2210(d)(1)(A), which requires sales material, including research reports, to provide a sound basis for evaluating the facts relating to the securities covered in the reports. Moreover, after disclosing all of his personal financial holding to his firm, Chakrabortti did not ensure that these holdings were subsequently disclosed in certain research reports, which caused his firm to publish incomplete research reports.

Also, Chakrabortti did not inform his firm of certain of his public appearances in a timely manner, and did not obtain the firm’s approval to discuss certain issuers during his public appearances, and these omissions caused the firm to have incomplete records of his public appearances.

Sheedy engaged in private securities transactions without providing written notice to, or obtaining written approval from, his member firm.

Sheedy facilitated two firm customers’ investments in securities issued by an entity in the form of investment agreements.Sccording to the investment agreements the entity issued, the company invested in and brokered life settlement contracts. Sheedy participated in the customers’ investments by reviewing the customers’ investment agreements, providing the customers with wiring instructions for the issuer, providing status updates to the customers regarding their investments and telling the customers to call him if they had any questions about their investments.

Sheedy utilized an unapproved personal email account to communicate with the customers.

The customers invested a total of $350,000, and pursuant to the terms of the customers’ investment agreements, the customers were to receive return of their principals plus a total of $42,000 within five days of the end of their investment period for which certain life settlement contracts were invested. Neither of the customers received the return of their investment principal or the promised investment returns. All of their funds were lost all of their funds were lost.

In his capacity as the vice president of compliance, McKee failed to supervise certain aspects of his member firm’s securities business. 

Acting on his firm’s 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 firm’s communications with the public;
• adequately supervise the firm’s 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 firm’s behalf were inadequate.

Thee firm’s 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 firm’s 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.

Lichtenstein intentionally provided false testimony during a FINRA on-the-record interview regarding his knowledge of, and participation in, private securities transactions involving solicitation and sale of private placements within the branch for which he was employed as the branch manager. 

Lichtenstein participated in the sale of private securities in the total amount of $234,303.68 to customers without his member firm’s prior written approval.

Lichtenstein failed to reasonably supervise a branch office for which he acted as a branch manager. In response to a request to sell private placements at the branch, which Lichtenstein’s firm had specifically denied, stating that no one at the branch had approval to sell any private placements and Lichtenstein was aware of this prohibition, he learned of other private placements being sold by a branch registered representative and failed to inform the firm’s compliance department of the sales.

Because Lichtenstein was responsible for the review of electronic mail at the branch, he knew, or should have known through email review, of red flags indicating the sale of additional private placements but did not conduct additional investigation and did not inform the firm’s compliance department of the red flags.

Roberts sent unapproved emails from his personal email address to his member firm’s customers and a potential investor that consisted of emails with attached documents containing misrepresentations and misleading statements that he created on his home computer that were written on his firm’s letterhead.

Roberts misrepresented that his firm would approve the issuance of a line of credit of up to $10 billion to a firm customer and a potential investor if certain conditions were met. Roberts attached another document concerning the issuance of a multi-billion dollar line of credit to additional emails he sent to a firm customer.

Roberts did not provide copies of the documents for review and approval to his firm. By attaching documents that contained misrepresentations and misleading statements to emails sent to a firm customer and a potential investor, Roberts exposed his firm to significant potential liability. Roberts sent an unapproved email from his personal email to another firm customer and attached a letter on firm letterhead with wire transfer instructions in connection with certificates of deposit. In addition, Roberts forwarded the unapproved correspondence from his home computer, thereby bypassing the firm’s surveillance systems and preventing the firm’s review and approval.

Acting through Erickson and Brewer, the Firm:

• sold the private placement offerings of a company formed exclusively to acquire and provide growth to its parent company and a limited liability company for which Brewer was a director, without disclosing to the investors material facts that:
• the parent company had defaulted on a $2.5 million loan,
• had reported an operating loss of $1,622,912 for one calendar year and an approximate operating loss of $4.5 million for another calendar year, and
• had defaulted on interest payments to note-holders.
• continued to sell the limited liability company’s private placement offering to new investors, knowing that it had defaulted on its interest payments to existing investors and without disclosing that material fact to new investors.

The firm sold the private placement offerings to non-accredited investors without providing them with the financial statements required under Securities and Exchange Commission (SEC) Rule 506, resulting in the loss of exemption from the registration requirements of Section 5 of the Securities Act of 1933. Because no registration statement was in effect for the offerings and the registration exemption was ineffective, the firm sold these securities in contravention of Section 5 of the Securities Act of 1933.

Acting through Erickson, the Firm conducted inadequate due diligence related to its sale of the offerings in that it failed to ensure the issuers had retained a custodian to handle certain investors’ qualified funds prior to accepting investment of Individual Retirement Account (IRA) funds into the offerings.

Ating through Erickson and Brewer, the Firm offered to sell and sold the company’s private placement offering by distributing to the public a private placement memorandum (PPM) containing unbalanced, unjustified, unwarranted or otherwise misleading statements; among other things, the PPM implied that the parent company was not experiencing financial difficulty and failed to disclose that it reported a significant loss one year. In addition, the investors in the company’s notes were not provided with financial statements for either the company or the parent company. Moreover, the PPM was misleading in that it failed to state clearly how offering proceeds would be used, lacked clarity regarding the relationship between the issuer and its affiliates, and failed to provide the basis for claims made regarding the performance expectations of the issuer or its affiliates.

Furthermore, the firm failed to establish adequate written supervisory procedures related to its sales of private placement offerings, in that the firm’s procedures failed to require that financial statements be provided to investors when private placement offerings are sold to non-accredited investors, pursuant to SEC Rule 506.

The Firm allowed Brewer to be actively engaged in managing the firm’s securities business without being registered as a principal and a representative although Brewer signed and submitted an attestation to FINRA stating he would not be actively engaged in the management of the firm’s securities business until he completed registration as a representative and principal. Among other things, Brewer reviewed and revised the firm’s recruitment brochure, approved offer letters to prospective firm registered representatives, dictated the structure of new representatives’ compensation, including the level of commissions and loan repayment terms, and instructed firm personnel to send private placement offering documents to prospective investors.

The firm maintained the registrations for individuals who were not active in the firm’s investment banking or securities business or were no longer functioning as registered representatives.

The Firm conducted a securities business on a number of days even though it had negative net capital on each of those dates. The firm’s net capital deficiencies were caused by its failure to classify contributions from the parent company as liabilities after the firm returned the contributions to the parent company within a one-year period of having received them, and improperly treating its assets as allowable even though all of its assets had been encumbered as security for a loan agreement the parent company executed. Moreover, the Firm had inaccurate general ledgers, trial balances and net capital computations, and filed inaccurate Financial and Operational Uniform Single

Brewer Financial Services, LLC: Expelled

Adam Gary Erickson (Principal) and Steven John Brewer: Barred

Genitrini advertised guaranteed returns on investments of up to 20 percent per year on a website belonging to a company he wholly owned. Genitrini claimed that his company was a full-service investment firm and would, among other claims, provide high-yield investment opportunities. The website declared that the company invested nationwide and all industries were considered, but did not disclose the nature of the investment product or the risks of investment.

Genitrini’s ads appeared on other websites guaranteeing returns, and his company’s contemplated private placement documents provided no assurance that by following its current investment strategy, it would be successful or profitable, although the subscription agreement also stated that the investments the company carried might be volatile and present operational risks.

Genitrini’s Internet ads constituted communications with the public; were not based on principles of fair dealing and good faith; were not fair and balanced; did not disclose risks associated with the investment; guaranteed promising returns that were exaggerated, unwarranted or misleading; and the predictions of performance were also exaggerated or unwarranted.

Genitrini’s private offering of securities, which involved promissory notes his company issued according to the private placement memorandum, was not made pursuant to an effective registration statement filed with the SEC; the offering was intended to be made pursuant to the exemption from registration in Section 4(2) of Rule 506 of Regulation D of the Securities Act of 1933, which prohibits offers or sales of securities by any form of general solicitation or general advertising. Genitrini’s use of the Internet and his company’s website violated Section 5 of the Securities Act of 1933, and guaranteeing returns in the offer of securities over the Internet violated Section 17(a)(1) of the Securities Act of 1933.

In addition, Genitrini falsely described his work with his company on his member firm’s outside business activity disclosure form and also failed to disclose that he maintained a website for the company; Genitrini told his firm, in writing, that his business and website were for tax-planning services.

Eppler disclosed his outside business activities to his member firm as part of a branch office review and reported that he was engaged in the sale of new and renewal sales of a particular company’s insurance products that his firm did not approve for sale. In response to the disclosure, Eppler was informed, orally and in writing, that he should discontinue selling those products and he could only receive renewals on prior sales.

Eppler was sent an email reminding him of deficiencies found in the branch examination, which included his sale of the particular insurance products, and that he was to discontinue selling the insurance products. Eppler responded to the email by advising the firm that all of the deficiencies had been corrected, which was untrue because Eppler continued to sell the non-approved insurance products and received $967.79 as commissions from the sales.

Eppler’s branch office was again reviewed, and as part of that review, Eppler reported his outside business activities and reported that he was receiving commissions only for renewals of the non-approved insurance products, which was false, in that Eppler continued to sell new non-approved insurance policies, for which he received compensation. Eppler engaged in these activities without giving prompt written notice to his firm that he was continuing to sell new non-approved insurance policies.

Bartlett signed customers’ names to documents related to purchases of mutual funds and insurance products without authorization.  Although the customers authorized Bartlett to purchase the securities or insurance products for them, only one of the customers orally authorized Bartlett to sign his name.

Bartlett signed customers’ names to new account applications, client profiles, risk questionnaires, insurance applications and transaction confirmation forms. In one instance, Bartlett forged a customer’s name because he was concerned that he would lose a substantial commission if he went back to the customer to obtain her signature on a form.

Cohen sold equity indexed annuities (EIAs), issued by an insurance company that was not a FINRA member, outside the scope of his employment with a member firm, and without providing the firm prompt written notice of the business activity. Cohen effected undisclosed EIA sales totaling over $1.5 million and received compensation totaling about $176,000 from the transactions. Cohen effected the sales directly with the insurance company that issued the EIAs rather than through the insurance company affiliated with his firm.

Cohen completed an outside business activities questionnaire for the firm in which he falsely represented that he was not licensed as an insurance agent for the purpose of selling fixed insurance with any entity other then the insurance company affiliated with the firm and its approved programs, and that he had not engaged in any outside business activity.

The Firm failed to establish, maintain and enforce a supervisory system and written procedures relating to private offerings the firm sold to its customers. The firm’s supervisory system and written procedures for private offerings were deficient; they did not identify due diligence steps to be taken for private offerings. The firm approved for sale, and sold, various private offerings by an entity that raised approximately $2.2 billion from over 20,000 investors through several Regulation D offerings.

The entity made all interest and principal payments on these Regulation D offerings until it began experiencing liquidity problems and stopped making payments on some of its earlier offerings; nevertheless, the entity proceeded with another offering. The firm’s due diligence for the offering consisted merely of reviewing the PPM and investor subscription documents, without seeking or obtaining financial documents or information from the issuer regarding the offering, nor did the firm obtain any due diligence report for the offering or visit the issuer’s facilities or meet with its key personnel. The firm approved for sale, and sold, a total of $258,597.16 to its customers for interests in another entity’s private offering. In addition, the firm failed to conduct due diligence for these offerings; among other things, it did not obtain offering documentation beyond the investor subscription documents. Moreover, the firm sold additional unregistered offerings to its customers and failed to conduct adequate due diligence for each of these other offerings.

McRoberts effected private securities transactions without requesting and receiving her member firms’ permission. McRoberts sold $142,128 in promissory notes secured by pooled life settlements. Prior to engaging in these transactions, while associated with one of the firms, McRoberts had signed an Acknowledgement of Receipt and Review of Compliance Procedure Manual which stated that no private securities (or other investment or insurance) transaction may in any way be participated in by a representative unless the compliance director approves it in advance. Despite McRoberts’ acknowledgement of the firm’s procedures, she failed to give written notice of her intention to participate in the sale of the securities to, and failed to obtain written approval from, her firm prior to the transactions. McRoberts effected private securities transactions while registered with another member firm and also failed to give written notice of her intention to participate in the sale of the securities, and failed to obtain her firm’s written approval prior to the transaction. McRoberts received $9,600 in commissions from the transactions. In addition,

McRoberts failed to conduct adequate due diligence and thus had no reasonable basis to determine whether the investments were suitable for her clients.

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 representative’s correspondence on a daily basis, review of all of the representative’s transactions prior to execution, quarterly reviews with the representative of his business, and quarterly review of the representative’s 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 “premier” 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 fund’s 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 firm’s 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 manager’s Form U5 and knew that the PPM was silent about it. This omission was material because, as disclosed in the PPM, the fund’s trading decisions relied primarily on the fund manager’s 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 firm’s revenues and financial resources.)

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

As her member firm’s CCO, Bush was responsible for creating, maintaining and updating her firm’s Written Supervisory Procedures (WSPs) and for conducting due diligence for private offerings. Bush’s firm approved for sale, and sold, various private offerings, and for one offering, Bush’s due diligence consisted of reviewing the PPM and investor subscription documents, but she did not seek or obtain financial documents or information from the issuer regarding the offering, did not obtain any due diligence report, did not visit the issuer’s facilities or meet with its key personnel. Bush did not take steps to ensure, or otherwise verify, that other firm principals were conducting any due diligence of the offering’s issuer.

The firm and Bush obtained a third-party due diligence report after firm customers had already invested in the offering. In regards to a third private offering that her firm approved for sale and sold, Bush conducted due diligence after the product had been sold to customers -- and her due diligence consisted of obtaining investor subscription documents without obtaining PPMs for the offerings, did not obtain any due diligence report from an independent third party and did not meet with any executives to understand the nature of the offerings.

Bush’s firm sold additional, different unregistered offering to customers, and Bush, acting in her capacity as CCO and the designed principal for private offerings, failed to conduct due diligence for each of these other offerings.

Moreover, the firm’s supervisory system and the firm’s written procedures for private offerings Bush drafted and maintained were deficient because the procedures Bush drafted and maintained did not identify, in any detail, specific due diligence steps to be taken for private offerings or identify specific documents to be obtained for private offerings the firm was contemplating selling. Furthermore, the firm’s written procedures for private offering due diligence were conclusory, non-specific and lacking in the requisite minimum detail regarding steps to be taken and firm personnel responsible for such steps.

As her member firm’s CCO, Bush was responsible for creating, maintaining and updating her firm’s Written Supervisory Procedures (WSPs) and for conducting due diligence for private offerings. Bush’s firm approved for sale, and sold, various private offerings, and for one offering, Bush’s due diligence consisted of reviewing the PPM and investor subscription documents, but she did not seek or obtain financial documents or information from the issuer regarding the offering, did not obtain any due diligence report, did not visit the issuer’s facilities or meet with its key personnel. Bush did not take steps to ensure, or otherwise verify, that other firm principals were conducting any due diligence of the offering’s issuer.

The firm and Bush obtained a third-party due diligence report after firm customers had already invested in the offering. In regards to a third private offering that her firm approved for sale and sold, Bush conducted due diligence after the product had been sold to customers -- and her due diligence consisted of obtaining investor subscription documents without obtaining PPMs for the offerings, did not obtain any due diligence report from an independent third party and did not meet with any executives to understand the nature of the offerings.

Bush’s firm sold additional, different unregistered offering to customers, and Bush, acting in her capacity as CCO and the designed principal for private offerings, failed to conduct due diligence for each of these other offerings.

Moreover, the firm’s supervisory system and the firm’s written procedures for private offerings Bush drafted and maintained were deficient because the procedures Bush drafted and maintained did not identify, in any detail, specific due diligence steps to be taken for private offerings or identify specific documents to be obtained for private offerings the firm was contemplating selling. Furthermore, the firm’s written procedures for private offering due diligence were conclusory, non-specific and lacking in the requisite minimum detail regarding steps to be taken and firm personnel responsible for such steps.

The sanctions were based on findings that Alvin and Donna Gebhart engaged in private securities transactions without prior written notification to, or prior approval from, their member firm. The findings stated that Alvin and Donna Gebhart sold unregistered securities that were not exempt from registration, and recklessly made material misrepresentations and omissions in connection with the sale of securities. Donna Gebhart’s suspension is in effect from June 7, 2010, through June 6, 2011.

Alvin Waino Gebhart Jr.: Barred

Donna Traina Gebhart: Fined $15,000; Suspended 1 year; Must requalify by exam in all capacities.

In connection with the sale of investments in a film production company, Flowers made fraudulent misrepresentations and omitted to disclose material information. Flowers collected at least $92,000 from investors, falsely representing that he would use their funds to finance a film production business and promising exorbitant, guaranteed returns. Instead of investing the funds, Flowers misused $30,498 to repay other investors and pay for personal expenses without the investors’ knowledge, consent or authorization.

Flowers made recommendations to a customer to invest in private placement offerings that were unsuitable in light of the customer’s financial situation, investment objective and financial needs.

Flowers attempted to settle away customers’ complaints without his member firm’s knowledge or consent.

Flowers signed an attestation form for a firm acknowledging that email communications with the public must be sent through the firm’s email address and copied to the compliance department, but Flowers communicated with customers via unapproved, outside email accounts without his member firms’ knowledge or consent, and as a result of his outside communications, his member firms were unable to review his emails to firm customers. In addition, Flowers engaged in private securities transactions without providing prior written notice to, and receiving prior written approval from, his member firms.

Chew engaged in a

• private securities transaction, by purchasing shares of stock via subscription agreement, outside the regular scope of his employment with his member firm and without providing prior written notice of this private securities transaction to the firm; and
• outside business activity, as the president and sole owner of an entity, without providing prompt written notice to his firm.

Chew made false statements and attestations to his firm when he completed compliance questionnaires and annual attestations on which he declared to the firm that he had not personally invested in any private security transaction outside of the firm, that he was not “engaged in any outside activity either as a proprietor, partner, officer, director, trustee, employee, agent or otherwise,” and that he did not participate in any outside business activities except for those previously disclosed to, and approved in writing by, the firm.

Karn allowed a customer to sign relatives’ names on life insurance applications, and before Karn submitted them for processing, she signed the insurance applications and certified that she had witnessed each of the proposed signatures on the insurance applications. Karn falsely certified on the Representative’s Information Supplement document for each insurance application that she had personally seen each proposed insured at the time the application was completed.

One of Karn’s clients completed an application to purchase a municipal bond fund by signing her name on an electronic signature pad, and later that same day, Karn signed the client’s name on the electronic signature pad and thereby affixed the client’s signature on an application without the client’s authorization, consent or knowledge. The application Karn’s member firm processed and sent to the client reflected the signature Karn had affixed rather than the client’s authentic signature. When the firm questioned Karn about the authenticity of the client’s signature, Karn initially stated it was the client’s original signature, but when questioned further, admitted she had signed the client’s name and in doing so, Karn misled her firm during its internal investigation into a customer complaint.

The Firm failed to:

• have reasonable grounds to believe that a private placement an entity offered pursuant to Regulation D was suitable for any customer, after it received red flags that the entity had financial issues and was not timely making interest payments, but continued to sell the offering to customers;
• enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, and NASD and FINRA rules in connection with the sale of private placements;
• conduct adequate due diligence of the private placements or confirm that its representatives were doing their own due diligence;
• conduct adequate due diligence of private placements other entities offered; and
• enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, and NASD and FINRA rules in connection with the sale of the private placements the entities offered pursuant to Regulation D.

The Firm reviewed cursory private placement memoranda (PPMs) for the offerings but failed to investigate red flags or analyze third-party sources of information or take affirmative steps to ensure the information in the offering documents was accurate.

The Firm failed to preserve electronic communications in a non-rewritable, non-erasable or “WORM” format that complied with books and records requirements, and the firm used third-party software for storing and retaining electronic communications that did not comply with the requirements of SEC Rule 17a-4(f). Although the Firm was informed that its electronic storage medium was non-compliant but did not take adequate remedial action to retain email properly.

Even though she was a licensed insurance producer, Ryerson signed her own name as the “producer” or “agent” on annuity application transfer and exchange forms when, in fact, she was not the producer or agent on those particular applications. Ryerson signed the documents for the benefit of a person who, as Ryerson knew, sought to conceal his identity from his member firm as the true agent on those documents. Ryerson misidentified herself as the “producer” or “agent” on annuity application transfer and exchange forms for other insurance agents as well under similar circumstances.

Ryerson failed to produce some of the information FINRA requested.

Schwarten made an unsuitable recommendation to a customer, in light of the customer’s financial situation and needs, for the purchase of a private placement offering. Schwarten recommended that the customer take equity out of her home through a refinanced mortgage and use $100,000 of the proceeds to purchase the private placement offering.

Schwarten failed to appear for a FINRA on-the-record interview.

In connection with customers’ purchases of a private placement offering, DiMaggio falsely represented to each of the customers that she had personally invested funds with the issuer. Based on DiMaggio’s representation and recommendation, each of the customers invested $60,000 in the offering.

DiMaggio settled and/or attempted to settle potential customer complaints regarding undisclosed fees, failing to add a living benefit rider to a variable annuity and making unsuitable investment recommendations, without her member firm’s knowledge or approval.

DiMaggio exchanged business-related emails with customers using an unapproved email account, thereby causing her firm to violate its recordkeeping requirements. (FINRA Case #)

Jefferies signed or traced customers’ signatures on applications to purchase life insurance or critical care insurance through an electronic application system available at his member firm, without the customers’ knowledge or consent and contrary to firm policy. Jefferies submitted life insurance applications for fictitious customers and, along with creating fictitious customer names and addresses, he created fictitious social security numbers, driver’s license numbers and other information about the purported customers. Jefferies submitted these applications for fictitious customers in order to give the appearance that he was meeting his required production for insurance policies sold. When Jefferies submitted each of the fictitious applications, he listed fictitious credit card numbers made up of all zeros for the initial premium payment, knowing that the credit card would be rejected with no payment being collected or the customers billed, while at the same time, his firm would give him immediate credit for submitting a new insurance policy.

When questioned by his manager about the applications, Jefferies initially denied having any knowledge of the practice and when later pressured by his manager, he then offered that newer agents may have been engaged in the activity. Only after his manager noted that almost all of the applications with zeros for credit card numbers were submitted from his office that Jefferies admitted to his misconduct, stating he did so because the applications would be credited to his production numbers more promptly that month. In addition, Jefferies also admitted that he had submitted applications using fictitious names and other information.

Riolo referred customers of his member firm to entities controlled by his relative, who was purportedly engaging in trading off-exchange foreign currency (forex) contracts, but in fact was running a fraudulent scheme. The customers invested more than $3.3 million with one entity, and for referring these customers, Riolo received more than $960,000 from his relative. Both entities were fraudulent schemes and Riolo’s relative was subsequently convicted and sentenced in court for his fraudulent activities.

Customers that Riolo referred lost a combined amount of over $120,000. In referring these customers to his cousin and receiving compensation, Riolo engaged in an outside business activity, but did not provide written notice or receive approval from his firm. Riolo falsely stated in signed monthly compliance questionnaires that he was not engaging in any outside business activity. In addition, Riolo failed to respond to FINRA requests for information and documents.

Joe and John Still  engaged in outside business activities for compensation without disclosing this to their member firm, in writing or otherwise. Joe and John Still referred or introduced prospective investors, including a customer of Joe Still’s member firm, to an individual and to the individual’s business, and failed to conduct any due diligence on the individual and his business prior to referring or introducing the prospective investors; the investors subsequently invested over $4.8 million with the individual’s business.

John Still received compensation totaling over $300,000 for the referrals and Joe Still received compensation totaling over $120,000 for the referrals and, with the exception of two checks, the referral fee checks were made payable to relatives who were not securities professionals and who had no role in referring customers to the business. John and Joe Still falsely represented on annual compliance questionnaires that they had disclosed all outside business activities.

Joe Evan Still: Fined $25,000; Suspended 18 months

John Richard Still: Barred

White borrowed $20,000 from a customer at his member firm, in order to purchase a house, without providing prior written notice to or obtaining prior written approval from, the firm. White borrowed the money, and the firm’s written procedures prohibited borrowing from customers unless the customer was either an immediate family member, or a person or entity regularly engaged in the business of lending money, and White’s customer was neither.

White completed an annual firm compliance survey and answered falsely that he had not borrowed money from clients.

The Firm entered into an agreement with an entity to sell a private placement for which the firm’s brokers sold $1,415,940 of the private placement interests to customers, and the firm failed to create and maintain a reasonable supervisory system to detect and prevent sales practice violations in these transactions. The firm did not collect financial and other relevant information for the customers who purchased the private placement, and did not review these transactions to determine if the recommendations for the purchases were suitable for these customers.

Also, the firm failed to implement a supervisory system reasonably designed to review and retain electronic correspondence. The firm did not establish an email retention system that captured all of its brokers’ emails. The firm’s brokers were allowed to use email addresses using external domains, and the firm did not have the capability to review, capture and retain these emails.

As his member firm’s Chief Compliance Officer, Bruno failed to ensure that his firm established, maintained and enforced a supervisory system and WSPs reasonably designed to achieve compliance with the rules and regulations in connection with private offering solicitations. Acting through Bruno, his firm maintained a deficient supervisory system and WSPs with respect to private offering solicitations in that those procedures did not specify who at the firm was responsible for performing due diligence, what activities firm personnel were required to satisfy the due diligence requirement, how due diligence was to be documented, who at the firm was responsible for reviewing and approving the due diligence that was performed and for authorizing the sale of the securities, and who was to perform ongoing supervision of the private offerings once customer solicitations commenced.

As a result of its deficient WSPs, the firm failed to conduct adequate due diligence on private placement offerings, and Bruno failed to take any other steps to otherwise ensure that it was conducted.

Cohen violated FINRA’s suitability rule by failing to understand or convey to customers the cost of a rider to a variable annuity, pursuant to transactions he recommended to customers. Cohen incorrectly communicated the imposed fee. Cohen did not understand the risks and rewards inherent in the variable annuity, with the rider feature, which he recommended to the customers.

Cohen conducted a trade in a deceased customer’s account with a purchase of $4,662 of an entity Class A mutual fund share. Cohen had discussed with this customer purchasing the entity’s Class A shares prior to the customer’s passing, and he had prepared certain paperwork for the transaction prior to the customer’s death, but the purchase had not been made at the time of the customer’s death. At the time of the transaction, Cohen did not consult with any representative of the deceased customer’s estate and also did not notify the firm that the customer had passed away.

In addition, Cohen failed to appear for a FINRA on-the-record interview.

Meckenstock failed to reasonably supervise a registered representative at his member firm in that the registered representative participated in sales of stock that were outside the course or scope of the registered representative’s employment with the firm. Meckenstock participated in certain sales of the stock himself, and failed to record the sales on the firm’s books and records as required by NASD Rule 3040(c).

Meckenstock failed to submit a written request to participate in the sale of stock, failed to receive written approval to participate in the transactions and failed to provide written approval to the registered representative to participate in the sales.

Meckenstock failed to conduct sufficient due diligence on the offering, failed to investigate the nature of the individual with the issuer, failed to investigate his relationship with the issuer, failed to question him about any additional sales he may have made to firm customers, and failed to investigate compensation that the registered representative was promised or received from the sale of the interests in the company.

Meckenstock failed to adequately supervise the resale of stock through a registered investment adviser (IA) the representative owned, and failed to review the IA’s books and records, which would have disclosed the representative’s sale of his shares of the stock to public customers.

Meckenstock reviewed a private placement memorandum and offering for his firm and approved it as a suitable investment, but failed to ensure that the issuer had established an escrow account, thereby failing to adequately supervise the sale of the offering and causing his firm to violate Securities Exchange Act Rule 15c2-4. In addition, Meckenstock failed to evidence his supervisory review and approval of customers’ purchases of interests in numerous offerings.

Reinhard participated in private securities transactions without providing prior written notice to, and/or obtaining prior written approval from, his member firm. The findings stated that Reinhard sold at least $869,000 in stock and warrants to investors, including firm customers, and sold the securities, which a publicly traded company issued, as part of a private securities offering by hedge funds. Reinhard falsely represented on annual compliance questionnaires that he had not engaged in private securities transactions.

Reinhard failed to respond to FINRA requests for documents.

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 firm’s written approval of the website content prior to its use.

Beckett completed an annual certification, which he provided to his firm and he answered “no” to the question asking whether he anticipated using any type of electronic communication systems such as the Internet for soliciting business.

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 company’s 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 company’s 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.

Wright engaged in private securities transactions when he participated in the sale of private placements related to telephone equipment and leasing agreements offered through various businesses connected to a company. Wright received no selling compensation, agreed to provide restitution of $1,617,485 to the customers by entering into purchase agreements with each customer and has commenced payment.

Wright’s member firm suspended him for 10 business days and placed him on heightened supervision for one year.

Takeuchi participated in private securities transactions by selling a viatical settlement company’s viaticals to outside investors while he was registered with his member firm. Takeuchi did not provide notice to, and receive approval from, the firm before participating in these private securities transactions; the firm also prohibited the sales of viaticals. Takeuchi earned approximately $4,400 as a result of his viatical sales and never gave the firm any notice, written or otherwise, that he had sold viaticals to outside investors.

Takeuchi repeatedly misrepresented and omitted material information to the firm concerning his sales of viaticals when he completed the firm’s annual compliance meeting questionnaires and checked “No,” implying that he had not engaged in any activity involving viatical contracts.Takeuchi made false attestation to the firm when he executed a firm document that he had not participated in the sale or solicitation of viaticals. Takeuchi knew that his written statements to the firm regarding his viatical sales were inaccurate or incomplete.

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 company’s 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 company’s 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 firm’s 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.

Charles sold variable universal life insurance products to his member firm’s customers and after leaving the firm, Charles remained the assigned representative on the accounts and received modest annual “trailing commissions.” Charles’ former firm asked him to pay a “single appointment” fee of $100 to the firm or submit customer-signed “Telephone or Electronic Transaction Authorization” forms for him to continue to service the customers’ accounts. Charles chose to do neither, but when he realized the deadline was approaching, he signed the customers’ names on the authorization forms without the customers’ permission and sent them to the firm via facsimile.

One of the customers complained that Charles had not being authorized to sign her name on the authorization form; therefore, Charles’ former firm notified Charles and his present firm of the customer’s allegation and asked Charles for a written explanation. During Charles’ present firm’s investigation into the complaint, he made misstatements, verbally and in writing, to the firm, denying forging the signatures and fabricating a story to prevent the firm from discovering his misconduct. Also, Charles subsequently admitted to the firm that his alibi was false and that he signed the customers’ names without authorization.

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 clients’ 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.

Cambridge failed to have reasonable grounds to believe that a private placement offered pursuant to Regulation D was suitable for any customer.

Acting through Fincher, its Chief Compliance Officer and registered principal, the Firm failed to

• conduct adequate due diligence of the private placement offering before allowing its brokers to sell the security,
• maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, and
• enforce reasonable supervisory procedures to detect or address potential red flags as it related to the offering.

Fincher was the principal responsible for conducting due diligence on the offering and approved the security as a new product available for firm brokers to sell to their customers; he allowed the firm’s brokers to continue selling the security despite its ongoing failure to make overdue interest and principal payments. The Firm failed to have reasonable grounds for allowing the continued sale of the security even though the firm, through Fincher, was aware of numerous red flags concerning liquidity problems, delinquencies and defaults, but allowed its brokers to continue selling the security.

Cambridge Legacy Securities, L.L.C.:Censured; Ordered to pay $218,400 in restitution to customers. If the firm fails to provide FINRA with proof of restitution, it shall immediately be suspended from FINRA membership until such proof has been provided.

Tommy Edward Fincher: Fined $5,000; Suspended 6 months in Principal capacity only.

Reimers borrowed approximately $75,768 from one of his customers at his member firm despite the fact that the firm’s procedures prohibited representatives from borrowing money from a customer, unless the customer was a family member and written notice was provided to the firm. The customer was not a family member and Reimers did not inform the firm of the loan, which was repaid in full, together with interest totaling $11,259.

Reimers falsely represented on his firm’s annual compliance questionnaire that he had not borrowed money from a customer.

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 relative’s 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 Berry’s 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 relative’s death with the firm’s customer relations staff.

The Firm amended Berry’s Form U5 to reflect an internal review of his withdrawals and his failure to advise the firm of his relative’s death.

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 firm’s 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 customers’ identities by using credit and other database cross-references, and after the firm determined that the vendor’s 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 thefirm’s 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 employees’ 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 firm’s 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 representative’s radio broadcast. A branch office manager failed to maintain a log of a registered representative’s 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 representative’s 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 representative’s 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 employees’ 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 firm’s compliance registered options principal did not document weekly reviews of trading in discretionary options accounts.

Kirk engaged in outside business activities without providing prompt written notice to his member firm. Kirk had a contract with an insurance company to sell EIAs, which was approved, but the firm subsequently informed Kirk in writing that the approval to sell EIAs through the insurance company had been cancelled. Despite receiving this notice, Kirk sold EIAs through the insurance company without providing prompt written notice to his firm, and received commissions of approximately $14,500.

Kirk incorrectly answered on his firm’s required compliance questionnaire that he was not currently engaged in any outside business activities, when at the time, he maintained his contractual relationship with the same insurance company through which he sold the EIAs.

Kruse entered into a settlement agreement regarding a customer complaint without authorization from, and without notifying, his member firm.

Kruse sold a customer a variable life insurance policy which required payment of monthly premiums by automatic withdrawal from the customer’s bank account. Thereafter, the customer complained to Kruse that he had not been aware of the monthly withdrawals from his bank account and about the performance of the policy. The customer threatened to direct his complaint to the state insurance commissioner if Kruse did not resolve the situation to his satisfaction; Kruse then paid the customer $4,000 to settle the complaint.

Yamanaka participated in the sales of Universal Lease Programs (ULPs) totaling $408,273.39 to members of the public without providing her member firm with written notice about the sales, and failed to obtain her firm’s written approval. Yamanaka received approximately $43,760 in commissions from her sales of the ULPs.

Yamanaka submitted documentation related to the ULPs to her firm and was told that the ULPs were not approved for sale. Yamanaka signed declarations in which she confirmed she had discussed the firm’s regulatory requirements with her supervisory principal; in these declarations, Yamanaka stated she had not offered or sold securities except those her firm offered and approved, had not engaged in any outside business activity which involved private securities transactions or private placements of securities, unless the firm approved them in advance, and informed her firm of all outside business activities for which she directly or indirectly received compensation. FINRA found that all of these statements were false.

Acting on the firm’s behalf, NAME REDACTED 

• failed to ensure that a firm principal completed his annual certification as the firm’s procedure required,
• did not follow up on the principal’s failure to provide information regarding both his outside business activities and the accounts for which he served as a custodian or trustee, and
• conducted an inspection of a firm branch office, and that inspection did not comport with the firm’s written procedures and did not reasonably review the activities of that office.

NAME REDACTED did not review the transmittal of funds between the principal’s customers and a third party as the firm’s written supervisory procedures required, and failed to obtain details regarding the principal’s outside business activities.

The firm failed to

• reasonably supervise the principal by failing to take steps to inquire into “red flags”  indicating his possible misconduct;
• follow up on the principal's outside business activities and excessive absences from the firm;
• timely investigate allegations that he was participating in private securities transactions away from the firm; and when the firm confirmed his selling away activities, it did not take any steps to place him on heightened supervision.

The Firm's written supervisory procedures were not reasonably designed to ensure principal review of wires from customers to third parties, so it was unaware the principal’s customers were transferring large sums to a third party and that he was executing Letters of Authorization (LOAs) on behalf of multiple customers.

Torrey Pines Securities, Inc.: Censured; Fined $17,500

NAME REDACTED: No Fine in light of financial status; Suspended from association with any FINRA member in any principal capacity, other than the capacity of municipal securities principal, for 10 business days.