NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.
Cheryl Ann McMahon AWC/2011027268801/November 2011
McMahon worked as an associate financial
representative for registered representatives and assisted each of her assigned
registered representatives with their daily brokerage tasks, which included
ensuring that all incoming checks were properly deposited in the appropriate
bank account. McMahon misappropriated $2,024.22 by
forging a registered representativeís signature on commission checks from
insurance product sponsors; McMahon made each of the checks payable to herself
and deposited the forged checks into her personal bank account.
Associated Person McInchak wrote
numerous checks, totaling $461,013.14, from her member firmís corporate
checking account made payable to herself and to her personal credit card
companies. McInchak cashed the checks and used them for
her own benefit without the firmís knowledge or permission.
A firm customer opened an account with a mutual fund company through Longoria and,acting on Longoriaís instructions, wrote a check to an entity Longoria owned for $12,000 to fund the account. However, Longoria never funded the account and did not return the $12,000 to the customer.
An individual, non-firm customer gave Longoria a check for $5,000 to invest in what Longoria had represented was an exchange traded mutual fund whose performance was tied to that of the Standard and Poor Index. Longoria instructed the individual to make the check payable to the entity he owned. The individual completed and signed forms to open an account, but no account was opened; the individual requested copies of the forms and evidence of the investment, but Longoria did not provide these documents to the individual. The individual repeatedly asked Longoria to return his $5,000; Longoria promised to do so, and eventually gave the individual a check for $5,820, but the check was returned for insufficient funds.
Longoria failed to respond to FINRA requests for information.
Andrew Joseph Longoria: Barred; Ordered to pay $5,000 plus interest restitution to a non-customer
A customer instructed Addington to purchase shares of a common stock in his account at Addingtonís member firm. Addington placed an order to purchase the stock and instructed the customer to write a check in the amount of $34,019 made payable to an entity to pay for the purchase. However, Addington did not credit the payment to the customerís account. As a result, Addington's brokerage firm liquidated the shares of the stock in the customerís account for non-payment.
The customer did not promptly learn of the liquidating transaction and instructed Addington to sell the shares of the stock he believed was still in his account. The customer received a $35,500.98 check from Addington drawn on the entityís account which Addington signed; however, when the customer deposited the check in his account, it was dishonored for insufficient funds.
After the customer called Addington and demanded that he repay him; Addington then paid the customer $35,000 in cash. In addition, Addington failed to respond to FINRA requests for information in connection with FINRAís investigation of the allegations in the Form U5 his firm filed.
Karl Henry Rodriguez (Supervisor) AWC/2011026130701/October 2011
Rodriguez converted and misappropriated $10,000 from the bank checking account of a customer of his member firm and the firmís bank affiliate.
While researching an investment for the customer, a bank employee discovered that Rodriguez had diverted a $10,000 check from the customerís bank checking account and made the check payable to a third party, who was also a bank customer and Rodriguezí close personal friend. The customer neither authorized Rodriguez to make the check payable to the third party nor divert the funds to the third partyís account at the bank. The third party made cash withdrawals totaling $10,000 from the bank account, and gave the money to Rodriguez, who used the funds for his personal benefit.
Ultimately, the bank re-deposited $10,000 into the customerís bank checking account, and as a result of the bankís inquiry, Rodriguez repaid approximately $5,000 to the bank.
Spotts wrongfully misappropriated approximately $197,860 from a coworker at his member firm by taking blank personal checks belonging to the coworker and forged the coworkerís name on the checks without the coworkerís knowledge or authorization. Spotts made some of the checks payable to himself and deposited the checks into his personal account, or made the checks payable to credit card companies and other creditors to pay his personal bills.
Spotts failed to appear and testify at an onthe- record interview.
Merrill Lynch failed to enforce its AMLCP and written procedures by accepting third-party checks for deposit into a customerís account that, contrary to the procedures, did not identify that customer by name. As a result, one of its customers, a registered representative at another member firm, was able to move more than $9 million of misappropriated funds through his Merrill Lynch cash management brokerage account.
The registered representative deposited his customersí checks for a purported investment into his personal account at the firm; the investor checks were non-personal checks made payable to the firm and, in most instances, the customer had written the registered representativeís account number on the check. The absence of the registered representativeís name on the checks gave no indication to those outside of the firm, including the registered representativeís investors, that the money was going to the registered representativeís personal account.
In accepting these deposits, the firm failed to follow its written procedures because these non-personal checks were accepted for deposit without containing the name of the firm client who owned the account; had the firm enforced its procedures, the registered representative would not have been able to move the proceeds of his misappropriation scheme through the firm. The Firm disregarded certain indications of the registered representativeís misconduct, such as the fact that he was depositing large amounts of money into, and then moving large amounts of funds out of, an account that had no market investment activity through the use of large dollar checks payable to himself or to cash; and depositing the funds of third parties with whom he had no apparent family or fiduciary relationship. In addition, the Firm did not have internal controls in place to ensure compliance with its deposit acceptance procedures regarding non-personal checks. Moreover, the firm did not have an adequate system to monitor deposit activity in accounts such as the registered representativeís that lacked securities activity and displayed indications of misconduct.
David Lee Cheviron (Principal) AWC/2010022831701/August 2011
Cheviron wrongfully converted a total of $75,331.08 from customers by withdrawing funds from a customerís bank account and then took the funds to another branch of the bank, where he deposited the funds into his own personal account. Ultimately, he used the customerís funds to make home improvements to his personal residence.
Chevironís member firm compensated the customer for the funds wrongfully taken from her account; Cheviron has not reimbursed his firm.
Cheviron caused other customers to sign distribution requests to an insurance company with instructions to mail checks to Chevironís attention at several banks and his personal residence. Upon receipt, Cheviron deposited these funds into his personal bank accounts and used the funds for his personal benefit. In an effort to conceal that he was the beneficiary of the customersí funds, Cheviron created false account statements, which he provided to one of the customers.
Martin misappropriated at least $81,670 from her employer and its owner through the use of credit cards and checks for unauthorized purposes.
Without authorization, Martin used her employerís personal credit cards and business credit account to purchase personal items, totaling at least $34,516, and used her employerís business checking account, without authorization, to issue checks for personal items exceeding $1,603. The Martin issued checks from the business account to herself and made cash withdrawals for herself without authorization; these withdrawals exceeded the actual business expenses by at least $23,385. Martin issued, or caused to be issued, checks to herself for unauthorized bonus payments totaling at least $22,166.
Martin failed to appear for FINRA on-the-record testimony.
Associated Person Miller converted $19,736.76 from her member firm.
In her capacity as assistant to the branch manager, Miller had authority to request that checks be issued from the branch office general ledger account to pay for branch expenses. Miller caused checks to be issued off the branch office general ledger to her boyfriend for construction work at the branch that was never performed.Each check was created in an amount equal to or less than $500 so that she could authorize the payments without the need for another firm managerís approval.
Miller caused another check to be issued to herself from the branch office general ledger. Miller reported to branch management that she did not receive her paychecks and obtained replacement checks totaling $1,035.80 from the branch, with the understanding that she would return her paychecks to the branch if she received them; when Miller received her paychecks, she deposited them into her personal account without reimbursing her firm.
Miller failed to respond to FINRA requests for information and documents.
Kimberlie Munsie Clark (Principal) AWC/2010025003701/July 2011
Clark was her firmís Chief Financial Officer and co-Chief Operating Officer with authority to write checks from its checking accounts, including checks for her own compensation, and she misappropriated $8,333.33 from her member firm. Clark was entitled to a payroll check in the amount of $8,333.33 and issued a check to herself for that amount and, without the firmís permission, issued herself another $8,333.33 check. Both payroll checks were deposited in Clarkís personal banking account.
Huynh forged her supervisorís signature on one of his personal banking account checks, made the check payable to herself in the amount of $9,000, cashed the check without her supervisorís knowledge or authority, and deposited the funds into her relativeís checking account, thereby misappropriating her supervisorís funds and converting the funds for her personal benefit and use. The Huynh attempted to conceal her wrongdoing by writing ďcompensation/bonus quarter 1 and quarter 2Ē on the checkís ďre:Ē line. The supervisorís bank reimbursed him for the fraudulent transaction.
Page converted a total of $1,207,440.61 from retail customer brokerage accounts by arranging for transfers of funds from the customersí accounts, by way of one check and automated clearing house (ACH) debits, for payment of a corporate credit card account held in her name, without the customersí authorization.
Page provided false information to a Certified Public Accountant (CPA) who was acting on one of her customerís behalf with respect to some of the ACH debits made from that customerís brokerage account totaling $286,330.72, each debit having been made payable to Pageís corporate credit card account.
Page told the CPA that the debits were made to fund an outside real estate investment in which she had placed a portion of the customerís investment portfolio. Page fabricated an account statement purportedly demonstrating that the customer had an ownership interest in a particular REIT when no such ownership existed, and faxed the fabricated statement to the CPA. When the CPA sought further information about any dividends arising from the REIT investment, Page falsely explained to the CPA that while dividends were expected, they would not be forthcoming until the following tax year.
By deliberately deceiving one of her customerís appointed representatives in such a fashion, Page, in the conduct of her securities business, failed to observe high standards of commercial honor and just and equitable principles of trade.
Nicklas misappropriated $4,329.52 from his member firm. Nicklas wrote firm checks payable to himself, forged signatures on the checks and then deposited the checks into his personal trading account. Nicklas withdrew firm funds, without authorization, from automatic teller machines (ATMs)
Gunnette took more than $925,000 from investment accounts owned by an elderly customer at her member firm and converted the funds to her personal use. Gunnette caused her personal residence to be reflected as the address of record for certain investment accounts of the elderly customer, and established an account for the customer at another member firm, using her personal residence address as the accountís address of record. Gunnette received checks drawn on the customerís accounts totaling approximately $925,513.28 and deposited the checks into bank accounts she owned or controlled. Gunnette failed to observe high standard of commercial honor and just and equitable principles of trade. Gunnette caused her firmís and another firmís records to be falsified by changing the customerís address of record with her firm to her personal residence address, and by designating her address as the customerís address of record on the other firmís account she opened for the customer.
Evans converted securities and funds in the joint brokerage account of customers, without their knowledge, authorization or consent, and deposited the funds into his personal checking account, converting an aggregate total of $60,000.
Evans forged a customerís signature on checks linked to the customersí bank account and made the checks payable to ďcashĒ or to himself. Evans forged the customerís signature on a cash withdrawal form linked to the customersí bank account. Without the customersí knowledge, authorization or consent, Evans sold securities totaling $30,000 from their brokerage account, transferred $10,000 to their bank deposit account and applied $10,000 to their brokerage account margin balance.
Evans failed to respond to FINRA requests for a signed, written statement regarding its investigation.
Michael Wayne Evans : No restitution sought by FINRA because Evan's former firm reimbursed full losses; Barred.
NOTE: Evans reimbursed his former firm approximately $47,000 of the $60,000 that he misappropriated from the customers and is in the process of earning the remaining $13,000.
Morgan Stanley & Co. Incorporated AWC/2009017072302/June 2011
A former associated person and employee of Morgan Stanley in its New York Position Services Group (NYPS) misappropriated approximately $2.5 million from the firm, institutional firm customers and a firm counterparty by entering, or causing to be entered, numerous false journal entries into the firmís electronic system to transfer and credit money associated with corporate actions.
The former employee entered, or caused to be entered, into the firmís electronic system requests for checks to be issued to his shell corporation against the suspense and/or fee accounts that he was using to misappropriate funds. The former employee entered some check requests himself, which NYPS employees that reported to him later approved. The former employee caused employees who reported to him to enter check requests, and he used the identification number and password of another NYPS employee who reported to him to enter the remaining check requests; he later approved all of the check requests.
Morgan Stanley failed to establish and implement an adequate system of follow-up and review of journal entries and adequate procedures for reviewing and approving check requests related to corporate actions.
No review procedures
The firm did not have any procedure to review the former associated personís check requests and journal entries.
In addition, the firm failed to properly supervise the former associated person and failed to detect that he entered, or caused to be entered, false check requests and false journal entries related to corporate actions, which allowed him to misappropriate approximately $2.5 million from the firm, its institutional customers and a firm counterparty.
The firm introduced a new system, the Summary of Manual Journals (SOMJ), to replace the review of all journal entries and require the review and approval of journal entries that the firm determined to be high priority. Furthermore, these journal entries remained on the SOMJs until a supervisor reviewed and approved them, and the former associated person was assigned to review and approve all high-priority journal entries flagged on the SOMJs, including his own.
The firm assigned some NYPS supervisors, all of whom reported directly to the former associated person, to review and approve journal entries flagged on SOMJs, but nobody was assigned to review high-priority journal entries entered by anyone not on one of those teams, including the former associated person. The firm failed to have a system to inform NYPS management if journal entries flagged on the SOMJs were not approved. The former associated person made numerous journal entries, some of which were flagged as high-priority; he approved several of them; many were not reviewed and were listed on the SOMJs pending approval at the time of his termination.
Check requests NYPS personnel entered were required to be approved by another NYPS employee, but the firm did not require the person approving the check to be a supervisor or have supervisory responsibility; as a result, NYPS associates approved check requests an NYPS supervisor entered, and entered check requests on a supervisorís behalf, which the supervisor subsequently approved. In addition, FINRA determined that the firm did not require any review to determine if the check request was associated with a corporate action and the approver simply ensured that all the required information was included in the check request.
Morgan Stanley & Co. Incorporated : Censured; Fined $375,000
A customer of Associated Person Cope's member firmís bank affiliate instructed her to use the proceeds from a maturing certificate of deposit (CD) to purchase new CDs in the names of different people. Cope purchased one of the CDs, took the remaining proceeds of $9,878.89, converted them to a cashierís check payable to the person for whom the CD should have been purchased, and later cashed the cashierís check and kept the money for her personal use. Cope failed to respond to FINRA requests for information and documents.
Reba Rose Cope : FINRA did not seek restitution because a bank reimbursed the customer for the amount Cope converted, plus interest; Barred
William Thomas Hernandez, AWC/2010025260501/May 2011
Hernandez converted a total of $98,559.12 from elderly customers for his own personal use and benefit. Hernandez received checks totaling $14,378.27 from a customer to be deposited into the customerís brokerage account at his member firm for investment purposes; however, he did not invest those funds -- instead, he deposited the checks into his personal checking account.
Without any authorization, Hernandez withdrew $60,220.85 from a checking account belonging to a customer of his firmís bank affiliate and then deposited those funds into his personal investment account, converting the proceeds for his own use and benefit. Similarly, he withdrew without any authorization, another $24,000 from that same customerís account and deposited the funds into his personal checking account.
Hernandez failed to respond to FINRA requests for information and documents.
Craig Michael Bettencourt AWC/2010023336301/March 2011
Without his clientís authorization, Bettencourt created a debit memorandum from his clientís account for $35,000 and directed that the debit memorandum be converted to a check payable to a bank where Bettencourt held a personal account. The findings stated that Bettencourt endorsed the check and deposited it into his personal account at the bank, converting the funds to his personal use and benefit. To disguise the conversion, Bettencourt created a false Certificate of Deposit (CD) in his clientís name for $35,000, created a false CD account in his clientís name and delivered a receipt to his client.
Brown received an $80,000 check from a customer of his member firm to deposit into the customerís account. Instead, Brown deposited $18,000 of the customerís funds into an unrelated clientís account without the customerís authorization or knowledge. Brown failed to appear for a FINRA on-the-record interview.
NAME REDACTED (Supervisor) AWC/2008014144201/March 2011
REDACTED submitted requests to her member firm to make charitable sponsorship payments to a non-profit organization that she served as a vice president and a member of the board of directors, which was disclosed in writing to, and approved by, her firm. The firm approved REDACTEDís requests and made the sponsorship payments through checks.
The founder and executive director of the non-profit wrote checks totaling $20,275 to himself from the non-profitís account at REDACTEDís firm. REDACTED communicated with the founder about his personal use of the funds in a series of emails through her firm email account, which show that the founder used the funds for a move to a new place of residence, for rent and utilities and for cell phone bills, among other expenses; in one of his emails to REDACTED, the founder promised to pay the funds back.
In an email to the founder, REDACTED told him to use the money from the non-profitís account to help him get established at his new place of residence and that they would find a way to build the funds back up over time. Thereafter, REDACTED submitted the final request for a sponsorship payment of $5,000 to be made to the non-profit.
In addition, REDACTED was in possession of a checkbook belonging to the non-profit and, per the founderís oral authorization, REDACTED wrote checks and improperly signed the founderís name to those checks, but REDACTED did not have written authorization to sign the checks and did not place any notation on the checks indicating that she was signing the checks on the founderís behalf. The checks totaled approximately $7,723 and were made payable either to third parties or to ďcashĒ; of this total, approximately $3,415 was paid through checks written to ďcash,Ē thereby REDACTED improperly signed the name of an authorized signatory of a customer account on checks.
REDACTED failed to timely comply with a FINRA request that she provide testimony in connection with a FINRA investigation.
NAME REDACTED (Supervisor): Fined $10,000; Suspended 2 years
Carlos C. Sarmiento Jr. OS/2009019888601/February 2011
Sarmiento converted a total of approximately $82,350 through checks, which he took and forged from a joint brokerage account firm customers held. Sarmiento admitted to one of the customers that he had taken the checks belonging to the customersí joint brokerage account, admitted to stealing their money, indicated that he would return the money and asked that he not be reported.
Sarmientoís former member firm contacted his current firm regarding Sarmientoís conversion of customersí funds while at the former firm, and when questioned, Sarmiento admitted to having taken the customersí funds.
Sarmiento failed to respond to FINRA requests for information and documents.
Carlos C. Sarmiento Jr. : Barred; Ordered to pay $82,350, plus interest, in restitution to a member firm.
Gregory James Buchholz AWC/2010023931401/February 2011
Buchholz misappropriated approximately $1,350,000 from customers, a number of whom were retirees, by liquidating their variable annuities and/or mutual funds and then transferring the proceeds to his personal bank account, converting the proceeds for his own use and benefit. As part of this scheme, Buchholz falsely and fraudulently represented, at times by forging customer signatures on redemption documents, that certain customers had authorized the redemption of the securities in order to obtain the proceeds of the sale; fraudulently induced certain customers to authorize the redemption of securities, based on misrepresentations that the proceeds would be reinvested to the customersí investment accounts; and caused checks to be drawn in the customersí names and caused the checks to be sent directly either to his office or to the customers.
If the checks were sent directly
to the customers, Buchholz convinced those clients to turn the checks over to him, making false and fraudulent representations that he would deposit the funds in their securities accounts to be reinvested; however, he did not reinvest the proceeds but instead deposited the checks into his personal bank accounts and used the proceeds for his own purpose;
to his office, Buchholz simply deposited the checks in his own bank accounts for his personal use and sometimes forged the customersí signatures in order to cash the checks.
Hansel Clarence Cua Lee 2008015280701/February 2011
Lee sold approximately $500,000 worth of Treasury and municipal securities in a customerís firm account without the customerís permission or knowledge. Lee opened a checking account in the customerís name without the customerís knowledge or consent, placed the proceeds from the unauthorized sale in the checking account and then requested a $500,000 check to be drawn on the account made payable to a company under his control and ownership. When the check could not be processed because of irregularities, Lee requested checks for $280,000 and $220,000 be drawn on the account and made payable to another company he owned and controlled, endorsed both checks and deposited the proceeds into his own checking account, thereby converting the funds.
Lee failed to respond to FINRA requests for information and to provide testimony.
Laura Jane Leiker (Principal) AWC/2010022030901/February 2011
Leiker converted $1,001.31 from her member firmís parent company while serving as branch office manager with the signing authority for the officeís expense account. Leiker converted the funds by writing checks payable to herself from the branch officeís expense account. She signed the checks on the companyís behalf, cashed the checks, and used the proceeds to pay for personal expenses. The company did not authorize any of the disbursements, and none of the checks were used to pay for, or to reimburse Leiker for, any valid business expense.
Rozenbaum misappropriated funds from a customer by depositing into his personal bank account a $5,000 check, which he endorsed, that the customer had sent for deposit into her Roth IRA account to fund a mutual fund purchase, and thereby converted the funds to his own use and benefit. The customer did not authorize Rozenbaum to deposit her funds into his bank account. The firm made the customer whole and Rozenbaum subsequently reimbursed the firm.
Antonio Herrero-Rovira (Principal) 2008013833601/January 2011
Herrero-Rovira converted approximately $203,000 in customer funds by forging customersí signatures on Letters of Authorization (LOAs) and firm checks issued pursuant to the LOAs, and depositing the checks into his personal bank account or othersí account without the customersí knowledge or authorization.
Herrero-Rovira converted an additional $16,000 from a customer by causing a check payable to the customer in that amount to be withdrawn from the customerís account without the customerís knowledge or authorization, and forging the customerís check endorsement.
Herrero-Rovira failed to respond to FINRA requests for information.
Chad R. Duncan (Principal) AWC/2009017755101/January 2011
Without permission or authority, Duncan used $100,000 drawn from an elderly personís bank account to pay his personal credit card expenses, which were related to costs associated with the construction of his home. When the executor of the deceased personís estate became concerned about the withdrawals totaling $100,000, Duncan created fictitious cashierís checks totaling $100,000 and payable to charities, falsely representing that the checks represented evidence of the payments made by the deceased and the beneficiaries of the payments. The withdrawals were earlier used to purchase cashierís checks payable to an international commercial bank to pay down Duncanís credit card expenses.
A bank compensated the customer for the wrongfully taken funds, and Duncan has reimbursed the bank approximately $91,484.75 and continues to make monthly payments to cover the amounts the bank paid to the customer.
Trolaro misappropriated approximately $1,533,000 from customers and, instead of reinvesting the funds on the customersí behalf, he deposited the checks into his personal bank account and used the funds for his personal benefit. Trolaro persuaded customers to make personal loans to him, totaling $310,000 contrary to his member firmís written procedures that specifically prohibited registered representatives from borrowing money from customers.
George Abbott Berry AWC/2009017596901/January 2011
Berry serviced a brokerage account a relative held but did not have power of attorney or discretionary authorization over the account. Berry failed to report his relativeís death to his member firm, and after leaving the firm, he removed funds from the account totaling $70,000 by requesting checks be drawn on the account, sent to her listed address, which was the same as Berryís home CRD address, and deposited the checks in a joint checking account he shared with his relative. When Berry submitted a written withdrawal request to the firm for $10,000, the firm discovered that the signature did not match the signature on file for the customer and froze the brokerage account after Berry acknowledged his relativeís death with the firmís customer relations staff.
The Firm amended Berryís Form U5 to reflect an internal review of his withdrawals and his failure to advise the firm of his relativeís death.
The SEC charged 15 broker-dealers with violating certain recordkeeping provisions of the Securities Exchange Act and with failing reasonably to supervise with a view to preventing and detecting those violations. Additionally, the SEC charged affiliated advisor DWS Investment Management Americas, Inc. with violating certain recordkeeping provisions... Read On