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.
August 2011
OS/2009018050201/August 2011

While employed as a risk arbitrage research analyst with a member firm, REDACTED lied during conference calls convened for him to respond to questions FINRA posed regarding his involvement in Internet blogging activity.

Throughout his employment with the firm as a research analyst,REDACTED regularly posted responses to columns and articles published on Internet financial blog/media sites.REDACTED made his blog postings using different aliases and posted his comments on the blog sites during business hours using his firm computer.

NAME REDACTED: Fined $5,000; Suspended 6 months
Tags:  Internet    Website     |    In: Cases of Note : FINRA
May 2011
Christian Genitrini
AWC/2010022859701/May 2011

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.

Christian Genitrini : Fined $15, 000; Suspended 2 years; Required to requalify by exam for Series 7 and Series 63 before becoming re-associated with a member firm after the expiration of the suspension term. NOTE: The fine shall be paid in installments beginning 90 days after Genitrini’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier.
Tags:  Website    Internet    Private Placement     |    In: Cases of Note : FINRA
March 2011
Canaccord Genuity Inc. fka Canaccord Adams, Inc.
AWC/2008012243901/March 2011

As an active participant in the U.S. Private Investment in Private Equity (PIPE) market, Canaccord failed to have in place reasonable information barrier procedures with respect to its PIPE business. The firm failed to have a reasonable system in place to track employees who were brought “over the wall” on specific PIPE transactions, and while the firm had a procedure in place requiring the maintenance of a “wall-crossing log,” it did not maintain such a log. The firm stored information about over-the-wall employees in a computer file that was not readily accessible to persons with responsibilities to monitor trading and review emails of employees brought over the wall on investment banking matters.

The firm failed to maintain a specific log of employee transactions in securities on the firm’s grey list and/or restricted list, and the firm was unable to provide documentation evidencing that it had investigated employee trading in grey list securities to determine whether employees had misused material, non-public information.

The Firm failed to have a reasonable system in place to monitor the flow of information concerning PIPE transactions to potential investors, and while the firm’s procedures required sales persons to obtain verbal agreements from potential investors to keep information concerning PIPE transactions confidential and refrain from trading on such information, the firm did not reasonably ensure that the procedure was followed or document that such verbal agreements were obtained. The information that was maintained concerning the disclosure of information on PIPE transactions was not used for supervisory or compliance purposes.

In addition, the firm’s system for review of email correspondence was unreasonable; while the firm’s procedures required the review of a sample of email communications, the sample included mail boxes for users no longer employed at the firm and permitted Compliance Department employees, at their discretion, to mark emails as reviewed based solely on a review of the sender’s name, recipient’s name and subject line of an email; stated differently, the firm permitted “bulk review” of emails without any written guidelines informing compliance staff of the parameters for such review.

Moreover, the Firm also utilized an Internet chat room system that allowed members of its business units, including but not limited to, the investment banking and research departments, to communicate and/or review each other’s communications. Furthermore, the firm did not have in place any written procedures relevant to monitoring internal communications between its business units on the internal chat room system and could not document that it actively monitored such communication.

Canaccord Genuity Inc. fka Canaccord Adams, Inc. : Censured; Fined $40,000
Tags:  PIPE    Electronic Communications    Email    Internet     |    In: Cases of Note : FINRA
Bill Singer's Comment

An interesting case on a few levels.  First, my long antagonism to PIPEs is noted -- I tend to absolutely hate these transactions as among the most pernicious evils of Wall Street that are often little more than battering rams used against smaller issuers.

The bulk review aspect of this case warrants attention.  The apparent failure to age-out the database and to include within samples inactive mail accounts is a practice that compliance departments should now note is within FINRA's cross-hairs.  Similarly, if your firm provides an internal chat facility, make sure that you have documented procedures for monitoring that communication system.

February 2011
Kim Edward Elverud (Principal)
OS/2008013429301/February 2011

Elverud caused his member firm to use Internet advertisements, websites and other public communications that were misleading, did not supply fair and balanced presentations of risks and rewards, or failed to give a sound basis for evaluating information. Elverud failed to approve or maintain records of public communications his firm issued. Elverud’s firm distributed a newsletter, which Elverud wrote, about a company whose securities the firm marketed; the letter was unduly and excessively positive, and failed to disclose material facts concerning the company’s financial difficulties, which caused the communication to be misleading.

Elverud made misrepresentations to investors through letters written on firm letterhead, about the securities the company issued, and the letters misrepresented the individual offers being made as a general reinvestment option to keep the investors from redeeming their holdings in the company’s securities, and omitted material information regarding the company’s financial difficulties.

Elverud caused his firm’s books and records identifying personnel holding supervisory and compliance responsibilities to be inaccurate. Elverud caused his firm to conduct a securities business while it was in violation of its net capital requirements.

Kim Edward Elverud (Principal): Barred
Tags:  Website    Internet     |    In: Cases of Note : FINRA
January 2011
Jenny Quyen Ta (Principal)
AWC/2010021538701/January 2011

Ta engaged in outside business activities and failed to give prompt written notice to her member firm. Ta failed to disclose that she had financial interests and/or discretionary authority in multiple brokerage accounts at other broker-dealers and failed to give her firm prompt written notice of these accounts; on account applications, she falsely indicated that she was not affiliated with a securities firm. On a firm securities annual attestation form, Ta falsely stated that she did not have a personal securities account.

Ta created websites which included representations about her career accomplishments but never obtained a registered firm principal’s approval for those sites. One of the websites stated that Ta founded a full-service broker-dealer that was a FINRA member when, in fact, it was not; although that entity had a new member application pending with FINRA, it was not an actual broker-dealer and never became a FINRA member.

Ta failed to inform a registered firm principal that she had a Twitter account which, on occasion, she used to tout a particular stock. In addition, Ta’s “tweets” were unbalanced, overwhelmingly positive and frequently predicted an imminent price rise, and Ta did not disclose that she and her family members held a substantial position in the stock.

Jenny Quyen Ta (Principal): Fined $10,000; Suspended 1 year.
Tags:  Away Accounts    Website    Internet    Electronic Communications     |    In: Cases of Note : FINRA
Enforcement Actions