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.
Brandon Michael Kappes AWC/2010022662401/December 2010
Associated Person Kappes created fictitious homeowners-, automobile- and renters-insurance policies in order to meet production goals with his member firmís affiliated insurance company. Kappes did so by forging customer signatures or otherwise falsifying insurance application forms and related documents. The firmís affiliated insurance company paid Kappes approximately $18,000 in commissions as a result of the fictitious policies.
Fox Financial Management Corporation and James Edward Rooney Jr. (Principal) OS/2008011592201/December 2010
Acting through Rooney, Fox Financial
sold zero-coupon bonds to customers and negligently omitted material facts concerning the fundís manager, who the State of Texas had charged with forgery of a financial instrument, and was sentenced to five years deferred adjudication and had been the subject of a Temporary Order of Prohibition for selling unregistered securities by the State of Illinois;
sold zero-coupon bonds to customers that were secured by interests in life insurance policies, and limited liability companies, which Rooney controlled and were affiliated with the firm, issued the bonds, and negligently omitted material facts to customers relevant to the criminal records of the bondsí manager and owning companies.
participated in private placement offerings of zero-coupon bonds limited liability companies issued, and each of the offerings claimed an exemption from registration under the Securities Act of 1933; however, the offerings were not separate and distinct, and were, therefore, subject to integration, and to the securities registration requirements of public offerings.
sold zero-coupon bonds, failed to establish a proper escrow account by using a limited liability company not chartered as a bank as the escrow agent, and falsely represented that customer funds would not be commingled.
Rooney failed to detect that customer funds had been commingled because he had neglected to obtain copies of the escrow account statements and to maintain such statements among the firmís records.
The firmís test of its system of supervisory controls was flawed because it failed to include a review of its private placement business, and Rooney stated in his annual certification of compliance that the firm had established and maintained policies and procedures reasonably designed to ensure compliance with FINRA rules. In addition,the firm failed to evidence its supervision over Rooney, in that Rooney was the only principal who had signed Subscription Agreements indicating approval of the customerís investment in an offering.
Fox Financial Management Corporation: Censured; Fined $40,000
James Edward Rooney Jr. (Principal): Fined $20,000; Suspended 15 business days in Principal capacity only
William Hanson Hauser AWC/2010022661001/December 2010
Associated Person Hauser created fictitious homeowners insurance policies in order to meet production goals with his member firmís affiliated insurance company. Hauser did so by forging customer signatures or otherwise falsifying insurance application forms and related documents. The firmís affiliated insurance company paid Hauser approximately $4,000 in commissions as a result of the fictitious policies.
Geraldine Ann Wert (Principal) OS/2008015086401/November 2010
Wert converted approximately $18,610 from an expense account her supervisorsí owned to pay for personal expenses. Wert took approximately $12,000 in unauthorized personal loans from the expense account, which she repaid shortly after withdrawing the funds. She forged her supervisorsí signatures on customersí new account forms and advisory agreements without her supervisorsí authorization or knowledge. Wert failed to appear and provide testimony as FINRA required.
While registered with a member firm, Kossak directed his assistant to sign a customerís name to a document related to a fixed insurance contract without the customerís knowledge or authorization. Kossak had sold the fixed insurance contract to the customer while at a previous member firm and the customer was not a customer of his present firm. The assistant, acting at Kossakís direction, forged and notarized required signatures on the document, which Kossak subsequently submitted as authentic. The customer complained of fraud and forgery to the insurance company, which notified Kossak of the complaint, but he failed to update his Form U4 within 30 days of learning of the complaint.
David Alan Kossak : Fined $15,000; Suspended 1 year
William Ray Collins Jr AWC/2008013648001/September 2010
Collins forged customersí signatures on financial documents and submitted the documents to his member firm and failed to send a copy to the customers.
Collins failed to disclose a variable annuity service fee in his discussion with customers and, when the customers inquired about the fee, Collins told them that the fee was an error; and to avoid further inquiries he used his own funds to pay the fee without informing the firm or the customers. Collins accomplished his payment of the fees when he executed money orders on the customersí behalf, forged the customersí signatures on the money orders and submitted the money orders to the firm to pay the variable annuity fees that he had not disclosed to the customers.
Associated Person Magouirk caused checks totaling $65,000 to be drawn on a customerís account without the customerís permission or authority, and used them for her own benefit. Magouirk forged the customerís signature on Letters of Authorization to obtain the $65,000 that she converted from the customerís account.
Davis converted $69,200 of customersí funds from his member firmís active assets accounts for his personal use. Davis wrote checks made payable to the order of ďcash,Ē enabling him to withdraw funds from customersí active assets accounts, and then deposited the withdrawn funds into his personal bank account. Davis forged the customersí signatures on the checks before negotiating them.
Tick forged customer signatures on insurance forms and maintained a blank medical history questionnaire in a customer file that a customer had pre-signed, in violation of his member firmís policies. Instead of having a customer complete and sign a correct application form after the customer had completed and signed the wrong form, Tick ďcut and pastedĒ the customerís signature to the correct application form. Tick forged customersí signatures on policy delivery acknowledgment forms and a ďnot takenĒ form.
From about February 2005 through March 2009, Ruby stole blank personal checks and stock certificates from customers and forged their signatures. Ruby filled in the blank checks, inserting dollar amounts that totaled approximately $128,275, forged the customersí signatures and then deposited the checks into an account under his control. Ruby sold the stock certificates and kept the proceeds. Ruby used the funds from the checks and stock certificates for personal expenses.
Victor Craig Campbell (Principal) AWC/2009019015201/April 2010
Campbell created fictitious life insurance policies and forged clientsí signatures on the applications for the policies. Campbell created the false policies to help qualify for an annual insurance sales conference and subsequently canceled the policies.
Davis failed to obtain a customerís signature on an investment account application form; instead of contacting the customer, Davis falsified the customerís signature on the application and submitted it to his member firm as authentic, causing the firmís books and records to be false and inaccurate. The customer filed a complaint with the firm concerning the fees charged in his managed account and the firm responded denying that any compensation was due to the customer. Davis acknowledged to the customer that he had falsified his signature on the application, and reimbursed the customer $7,772.31 for losses in his account without disclosing such payments to his firm. Davis failed to appear and testify as FINRA requested.
Associated Person Curry misappropriated $42,600 from a registered representative of her member firm. Curry took checks from the desk of another employee, who maintained the registered representativeís checks, placed her name on the checks as payee, filled in amounts ranging from $200 to $3,500, forged the registered representativeís signature, and deposited the checks into her personal bank account.
David Steven Forman OS/2007007989901/February 2010
Forman participated in the sale of a $5 million life insurance policy to a trust and took control of the policy. Forman informed the trustee that the trust might obtain more money by selling the policy than by redeeming it for its cash value after notification was received that the policy would lapse for failure to pay premiums. Forman participated in sending premium payments to avoid a lapse in the policy without the trusteeís knowledge or consent, facilitated the sale of the policy with forged and falsified documents, and retained the entire amount of the sale proceeds, approximately $942,000, for himself and another individual. No portion of the sale proceeds was paid to the customers or the trust.
Rivera failed to disclose to his member firm an outside brokerage account that he opened after his firm expressly told him that he could not maintain outside brokerage accounts that he opened prior to his employment with the firm . Rivera forged a letter that purported to be from an employee of his firm, instructing the firm where he maintained an outside brokerage account to lift trading restrictions on his newly opened, undisclosed account.
Sidaway accessed the systems of a bank affiliate of his member firm to obtain information regarding a customer and his retail bank account and, without the customerís knowledge or authorization, used the customerís personal account information to forge the customerís signature and complete withdrawals totaling $11,500 for his personal use, thereby converting the funds. Sidaway failed to respond to FINRA requests for information.
Axel misappropriated at least $624,000 from customers of his member firm. Without the customersí knowledge, authorization or consent, Axel initiated the issuance of checks from the customersí accounts, obtaining the checks ostensibly so that he could deliver them to the customers, and then forged the customersí signatures and cashed the checks or deposited the checks into his personal bank account. Axel effected unauthorized transactions in customersí accounts without their knowledge, authorization or consent. He failed to appear for a FINRA on-the-record interview.
Rene Francisco Palacios 2007011375301/January 2010
Palacios misused $62,750 in customerís funds by opening a new bank account in a customerís name, funding the new account with a deposit of $62,750 from the customerís brokerage account maintained at Palaciosímember firm , and forging the customerís signature on new account documents and checks drawn from the fraudulent account. Palacios admitted to his firm that he misused the customerís funds and forged the customerís signature. Palacios failed to appear for FINRA on-the-record interviews.
Baron converted approximately $8,530 from a relative. Baron forged the relativeís name on documents without her knowledge, permission or authorization in order to open a joint checking account and then signed her name on transfer forms without the relativeís permission or authorization and transferred approximately $8,530 from her Individual Retirement Account (IRA) to the joint account, using the funds for his personal use.
Registered Principal Tucker misappropriated approximately $847,188.87 from customersí accounts at her member firm and used the funds for her own use and benefit. To facilitate her improper use and misappropriation of customer funds, Tucker
caused international customersí accounts to be removed from an abandoned status,
caused the addresses for the accounts to be changed to addresses that she controlled,
effected unauthorized sales of securities in the customersí accounts,
forged Letters of Authorization (LOAs) and Wire Transfer Agreements (WTAs) to transfer funds out of the customersí accounts, and
approved and processed the fraudulent LOAs andWTAs.
Tuckerís conduct caused her firm to maintain inaccurate books and records. To make cash available, Tucker sold securities in several accounts without the customersí knowledge or authorization, then transferred the proceeds to herself through relatives by wire or check. Tucker failed to respond to FINRA requests for information and failed to appear for an on-the-record interview.
[In]Securities a Guest Blog by
Aegis J. Frumento, Partner, Stern Tannenbaum & Bell
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