Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
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.
November 2011
Euro Pacific Capital, Inc.
AWC/2009016300801/November 2011

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

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

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

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

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

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

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

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

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

Euro Pacific Capital, Inc.: Censured; Fined $150,000
Tags:  Producing Manager    FOCUS    Email    Futures    AML    CIP    SAR     |    In: Cases of Note : FINRA
September 2011
Searle & Co. and Robert Southworth Searle (Principal)
AWC/2009016262101/September 2011

Although the Firm sought and received permission to conduct its private placement activity, it failed to timely amend its Application for Broker-Dealer Registration (Form BD), as it did not identify this business on its Form BD until years later.

Acting through Searle, the Firmís president and CCO failed to establish, maintain and enforce an adequate system and written procedures reasonably designed to supervise its placement business; and failed to adequately supervise the placement business conducted by a former registered representative who conducted firm business at an unregistered office. The Firm failed to adequately ensure that its ledgers or other records accurately reflected all of the firmís assets, liabilities, income and expenses. The Firm impermissibly ďnettedĒ the commission revenue it received, failing to reflect the gross amount of commission the firm received and the amount paid to the registered representative who placed the business, thus understating gross revenues and expenses. As a result, the Firm filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) Reports and inaccurate annual audits.

The Firm failed to establish, maintain and enforce adequate WSPs regarding the use of outside emails for firm business and the review and retention of emails; the firm permitted associated persons to use personal email accounts to send and receive emails related to the firmís securities business without capturing, reviewing or retaining them.

In addition, the Firm paid fees and commissions totaling $21 million to non-registered limited liability company (LLC) entities of which the firmís registered representatives were the sole members. Moreover, the Firm improperly paid the non-registered entities rather than paying the commissions and fees directly to the registered representatives who owned the non-registered entities. The suspension was in effect from August 15, 2011, through August 26, 2011. (FINRA Case #)

Searle & Co.: Censured; Fined $47,500 ($10,000 was jointly and severally with Searle)

Robert Southworth Searle: Fined $10,000 joint/several with Searle & Co.; Suspended 10 business days in Principal capacity

Tags:  Membership Agreement    Material Change Of Business    FOCUS    Email     |    In: Cases of Note : FINRA
Bill Singer's Comment

Geez, another well written disciplinary action squib --  maybe things are truly changing for the better at FINRA?  Is that possible?  Wow!!

In any event, two key takeaways. One, make sure to update your Form BD to reflect all new business lines.  Two, don't pay transactional compensation to unregistered entities/persons.

If I have one quibble with the case, it's this:  If FINRA knew that this member firm had asked for and been granted approval to engage in a new business, then how come it took "years later" for the regulator to notice that the Form BD was not updated?  After all, assuming that FINRA (or NASD's) Staff was conducting an annual or at least a regulator examination fo the firm, didn't any examiner notice that the firm was engaged in a line of business for which it had been approved but for which it had not updated the Form BD.  I mean isn't that sort of regulatory examination 101?

February 2011
Pinnacle Financial Group, LLC
AWC/2009015974501/February 2011

The Firm used an external server to preserve its business-related electronic communications but the server only preserved the firmís business-related electronic communications for a period of 30 days.

The Firm conducted a securities business while it failed to maintain its required minimum net capital. The net capital deficiencies stemmed from its failure to take security haircuts and undue concentration deductions, its improper classification of a note receivable as an allowable asset, its improper classification of fixed annuity commissions and private placement receivables as allowable assets and double-counting a commission receivable. The firm maintained inaccurate books and records, and also filed inaccurate FOCUS reports.

Pinnacle Financial Group, LLC: Censured; In light of firm's financial status it was Fined $15,000
Tags:  Electronic Communications    FOCUS    Net Capital     |    In: Cases of Note : FINRA
January 2011
Stuart Gregory Burchard (Principal)
OS/2008011656401/January 2011

Acting through Burchard, his Firm failed to

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

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

Stuart Gregory Burchard (Principal): Barred
Tags:  Net Capital    FOCUS    AML    CIP     |    In: Cases of Note : FINRA
Bill Singer's Comment
Impressive.  Note that the Principal was barred.
Enforcement Actions