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.
October 2010
Douglas Joe Barker (Supervisor)
2007009520202/October 2010
Barker recommended and effected unsuitable short-term sales in customers’ accounts of closed-end funds less than six months after purchasing them at an initial public offering. Barker did not possess a reasonable basis to believe his recommendations and that the resulting transactions were suitable for his customers whose investment objectives were conservative to moderate. The findings also stated that the sales accounted for customer losses exceeding $350,000, for which he earned commissions totaling approximately $100,000.
Douglas Joe Barker (Supervisor): Fined $125,000; Suspended 6 months
Tags:  Suitability     |    In: Cases of Note : FINRA
Bill Singer's Comment

I'm not particularly thrilled with FINRA's write-up of this case.  If FINRA meant to imply that selling a closed-end fund purchased via an IPO after six months is, somehow, patently unsuitable -- well, that doesn't work for me.  There could me many explanations for the sale, not the least of which are cutting losses, profit taking, customer's need for funds, etc.  Further, FINRA seems to suggest that the fact that a customer lost $350,000 is also indicative of unsuitability if the customer's objectives were "conservative to moderate."  Again, that's too slick for me. It suggests that it's never appropriate to lose money for a client who seeks conservative or moderate objectives.

What I suspect FINRA meant to say was that it was troubled by an account where the broker generated $100,000 in commissions on sales that resulted in $350,000 in customer losses. Not sure that I would concur with the regulator that such a scenario is a "suitability" issue.  There may be other violations inherent in those facts -- excessive commissions, mark-up/down concerns, etc.  Clearly, this monthly explanation needed a bit more fleshing out to make sense.

September 2010
Clint Harley Keener
AWC/2007009431001/September 2010
Keener made unsuitable trade recommendations in a customer’s accounts by recommending purchases resulting in an overconcentration of non-investment grade bonds and other equities for a senior couple with no previous investment experience. Keener mismarked order tickets for purchases for these customers and other customers as “unsolicited” when they were “solicited.” Keener exercised discretion with verbal, but not written, authorization, in customers’ accounts, and although Keener frequently spoke to these customers, he did not speak to them every time he entered a transaction in their accounts. Keener did not have the customers’ or his member firm’s written authorization to engage in such discretionary trading.
Clint Harley Keener : Fined $7,500; Suspended 2 months
Tags:  Suitability        Discretion    Solicited     |    In: Cases of Note : FINRA
David John DeWald
AWC/2009019041601/September 2010

DeWald participated in private securities transactions without first giving his member firm written notice of his intentions and receiving approval.

DeWald made unsuitable recommendations to customers given his complete failure to perform a reasonable investigation concerning the product and that, while reviewing the product information on the company’s website, he took its representations for face value and failed to independently verify those representations.

DeWald made negligent misrepresentations of material fact in connection with the sale of installment plan contracts; he misrepresented to customers that they could take charitable tax deductions in connection with their investments, which was not true. DeWald provided customers with sales materials containing misleading and oversimplified descriptions of the contracts, and failed to obtain a firm principal’s approval prior to their use.

DeWald failed to respond to FINRA requests for documents.

David John DeWald : Ordered to pay $124,519.03, plus interest, in restitution; Barred
Tags:  Suitability    Website         |    In: Cases of Note : FINRA
Louis John Liberatore Sr.
AWC/2008013937902/September 2010

Liberatore engaged in trading in customers’ accounts and did not have a reasonable basis for believing that his recommendations to the customers were suitable, based on the facts the customers disclosed as to their investment objectives and financial needs. One account was an IRA that traded in speculative and low-priced penny stocks, and the other account was a joint account and traded in options and on margin.

Louis John Liberatore Sr.: No Fine in light of financial status; Suspended 3 months
Tags:  Suitability     |    In: Cases of Note : FINRA
Marshell Earl Miller
OS/2007009413701/September 2010
Miller was the registered representative for several burial associations for which the investment objectives were income and the risk factors were conservative, investment-grade or moderate. Miller engaged in unsuitable and excessive trading in the accounts, resulting in significant commissions for him and losses for the customers.
Marshell Earl Miller : No Fine in light of financial status; Suspended 6 months
Tags:  Suitability     |    In: Cases of Note : FINRA
Bill Singer's Comment

Okay, so let's see...

  • FINRA had him dead to rights.
  • He had one foot in the grave.
  • He dug his own grave.
  • This was the last nail in the coffin.
  • He made a grave mistake.
  • [Write your own]
William Gregory Slonecker
2007009442501/September 2010

Slonecker recommended and executed unsuitable variable annuity contract replacements or switches involving customers without regard for their age or financial backgrounds, and received $85,000 in commissions. Slonecker’s customers received no significant benefit from the transactions but incurred substantial surrender charges, new extended surrender periods and, in some cases, paid additional fees.

Slonecker made numerous false entries in his member firm’s electronic order-entry system and on other firm records to obtain approval for the switches he recommended to the customers, causing his firm to create and maintain inaccurate books and records. Slonecker’s false entries in the firm’s electronic order-entry system and suitability questionnaires were material false representations he made to his firm.

Slonecker falsely represented to customers that surrender fees associated with the switches would be fully recovered by the bonuses they would receive from their purchases of new variable annuity contracts, when he knew or should have known that the bonuses did not offset the surrender fees and he failed to disclose and explain to the customers the surrender charges associated with switch transactions.

Slonecker failed to respond to FINRA requests for information.

William Gregory Slonecker: Barred
Tags:  Variable Annuity    Suitability    Surrender Charges     |    In: Cases of Note : FINRA
August 2010
Michael Frederick Siegel
C05020055/August 2010
Siegel recommended and effected sales of securities to customers without having reasonable grounds for believing that the recommendations and resultant sales were suitable for such customers, and participated in private securities transactions without prior written notice to, and approval from, his member firm.
Michael Frederick Siegel : Fined $30,000; Suspended for two consecutive 6 month terms
Tags:  Suitability    NAC    Federal Appeal     |    In: Private Securities Transactions
Bill Singer's Comment

The United States Court of Appeals for the DC Circuit imposed the sanctions following appeal of an SEC decision affirming a FINRA National Adjudicatory Council decision.

I commend the DC Circuit decision to your review because it states some of the most damning language that has yet to surface in a federal court's review of NASD/FINRA and SEC conduct.  Frankly, the language is startling in its pointed criticism.

Note this language in the DC Circuit Decision:

In his petition for review to this court, Siegel’s principal argument is that, because the SEC failed to properly assess the “cause” of the losses suffered by the Landrys and Downers, the agency’s decision to uphold NASD’s awards of restitution was an abuse of discretion. We agree. NASD General Principle No. 5, which the SEC purported to apply in this case, describes restitution as a “traditional remedy used to restore the status quo ante where a victim otherwise would unjustly suffer loss”; and it states that restitution may be ordered when a party “has suffered a quantifiable loss as a result of a respondent’s misconduct.” General Principle No. 5, FINRA Sanction Guidelines at 4 (“Principle 5”). The SEC completely failed to articulate any meaningful standards governing the level of causation required under Principle 5.

This case involves wealthy and sophisticated customers who were under no press of time to decide whether to invest; customers who invested specifically in furtherance of a desire to speculate; and a broker who did not profit from his wrongdoing and who has been fined and suspended for his violations. There is nothing in the SEC’s decision to indicate why, in these circumstances, awards of restitution are appropriate under Principle 5. Indeed, the SEC’s decision is incomprehensible insofar as it attempts to amplify any meaningful causal connection between Siegel’s putative bad acts and the Downers’ and Landrys’ losses. And the SEC has cited no precedent, and we have found none, supporting restitution in a case of this sort. The SEC’s judgment is fatally flawed for two reasons: First, the SEC’s judgment is not supported by reasoned decisionmaking. Second, the SEC cites to no controlling precedent that includes reasoned decisionmaking supporting restitution under Principle 5 in a case of this sort. We therefore vacate the restitution order.

We reject Siegel’s remaining challenges. Substantial evidence supports the SEC’s findings that Siegel violated NASD’s rules barring selling away and unsuitable recommendations. And the SEC did not abuse its discretion in imposing fines and consecutive six-month suspensions for Siegel’s separate violations of Rules 3040/2110 and Rules 2310/2110.

. . .

In failing to articulate a comprehensible principle governing the level of causation required by Principle 5, the SEC decision borders on whimsical or rests on notions of strict liability. In either event, the decision offers no reasonable construction of the causation requirement under Principle 5. This is far short of reasoned decisionmaking. As the Supreme Court has explained, the “evil of a decision” of this sort is that it “prevent[s] both consistent application of the law by subordinate agency personnel . . . and effective review of the law by the courts.” Allentown Mack, 522 U.S. at 375. The SEC’s decision in this case clearly fails for want of reasoned decisionmaking.

Principle 5 states, in relevant part (emphasis added):

Where appropriate to remediate misconduct, Adjudicators should order restitution and/or rescission. Restitution is a traditional remedy used to restore the status quo ante where a victim otherwise would unjustly suffer loss. Adjudicators may determine that restitution is an appropriate sanction where necessary to remediate misconduct. Adjudicators may order restitution when an identifiable person, member firm[,] or other party has suffered a quantifiable loss as a result of a respondent’s misconduct, particularly where a respondent has benefitted from the misconduct.

Adjudicators should calculate orders of restitution based on the actual amount of the loss sustained by a person . . . as demonstrated by the evidence. Orders of restitution may exceed the amount of the respondent’s ill-gotten gain. Restitution orders must include a description of the Adjudicator’s method of calculation.


http://www.sec.gov/litigation/opinions/2010/34-62324.pdf (SEC Order Setting Aside Restitution, June 18, 2010)

http://www.sec.gov/litigation/opinions/2008/34-58737_appeal.pdf (DC Circuit Opinion, January 12, 2010)

March 2010
George Albert Montes
AWC/2005000346105/March 2010
Registered representatives at Registered Principal Montes' member firm who used options strategies in their customer accounts, repeatedly became subject to active account surveillance and appeared on compliance department spreadsheets when their customer accounts sustained losses from voluminous stock and options transactions. Despite being made aware of “red flags” indicating that unsuitable and excessive trading was occurring in customer accounts, Montes failed to take reasonable supervisory steps to respond to the “red flags” with a view toward preventing the unsuitable and excessive trading and did not adequately investigate the representatives’ options trading.
George Albert Montes: Fined $15,000; Suspended 1 year in Principal capacity only; Required to requalify by examination before acting in any principal capacity with a FINRA member.
Tags:  Suitability    Supervision    Options     |    In: Cases of Note : FINRA
Bill Singer's Comment
Another in an ever increasing line of cases in which Supervisors/Principals are being held accountable for failing to reasonably supervise.
Rani Tarek Jarkas
OS/2005003052001/March 2010
Registered Principal Jarkas recommended or, in the exercise of discretion, executed securities transactions in a customer’s account at his member firm without having a reasonable basis for believing that the volume of trading he recommended was suitable for the customer in light of information he knew about the customer’s financial circumstances, needs, other security holdings and investment objectives. Jarkas caused the execution of approximately 2,400 transactions in the customer’s account and received commissions of approximately $240,000.
Rani Tarek Jarkas: Fined $25,000; Suspended 6 months
Tags:  Suitability     |    In: Cases of Note : FINRA
Bill Singer's Comment

Jarkas caused the execution of approximately 2,400 transactions in the customer’s account and received commissions of approximately $240,000. 

Wow!!! Is there some award that we could create to give the esteemed Mr. Jarkas?  Of course, what I'm trying to figure out is what exactly does it take these days to get yourself barred from the industry. Apparently, not $240,000 worth of commissions derived from some 2,400 allegedly unsuitable trades.

Enforcement Actions