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 2010
Ryan Beck & Co. nka Stifel Nicolaus & Company, Incorporate
AWC/2008015700901/November 2010

The Firm failed to establish an effective supervisory system and written supervisory procedures reasonably designed to ensure that discounts were correctly applied on eligible UIT purchases. The Firm’s written supervisory procedures had limited information regarding UIT sales charge discounts, and omitted the fact that certain UIT sponsors permitted exchange discounts for purchases made with the proceeds from a UIT holding of another sponsor; this was particularly relevant because the firm’s UIT business was almost exclusively with UIT sponsors that provided this sales charge discount.

The Firm's procedures lacked substantive guidelines, instructions, policies or steps for brokers, trading personnel or supervisors to follow to determine if a customer’s UIT purchase qualified for, and received, a sales charge discount. The broker and firm compensation diminished when the customer received a sales charge discount and, because of this, the firm needed to be particularly diligent in providing guidance to brokers, supervisors and trading personnel on UIT sales charge discounts.

The Firm failed to provide eligible customers with appropriate discounts on both UIT rollover and breakpoint purchases. The firm failed to identify and appropriately apply sales charge discounts in certain top-selling UITs and, as a result, the firm overcharged customers in the sample approximately $20,000.

In addition, the Firm sold UITs that imposed a deferred sales charge that was generally charged upon redemption if a customer sold a UIT before the deferred sales charges were imposed. Moreover, the Firm failed to ensure that its customers’ UIT purchase confirmations included the required language stating that “on selling your shares, you may pay a sales charge. For the charge and other fees, see the prospectus.” The Firm misstated on certain UIT confirmations that a sales charge discount had been applied when, in fact, it had not.

Ryan Beck & Co. nka Stifel Nicolaus & Company, Incorporate: Censured; Fined $100,000; Agreed to provide remediation to customers who purchased unit investment trusts (UITs) and qualified for, but did not receive, the applicable sales charge discount, and will submit to FINRA a proposed plan of how it will identify and compensate customers and a schedule detailing the total dollar amount of restitution provided to each customer.
Tags:  Supervisory System    UIT     |    In: Cases of Note : FINRA
Bill Singer's Comment
A concise explanation from FINRA and a sanction that seems well-suited to the violations. Nice job!
September 2010
Cambridge Legacy Securities, L.L.C. Oran Ben Carroll (Principal), and Russell Kent Childs (Principal)
AWC/2007010684401/September 2010

Acting through Carroll, its president and registered principal, the Firm failed to adequately implement a supervisory system designed to achieve compliance with applicable securities laws and regulations; specifically, the firm and Carroll failed to implement an adequate system to supervise a branch office’s activities in light of deficiencies identified during branch audits, and failed to appoint a properly qualified principal to supervise the branch office’s activities.

The Firm allowed Carroll and Childs to accept, and they did accept, a gift and/or gratuity in excess of $100 from the president and general partner of an entity that offered an alternative investment product, and Childs sold almost $6 million of that product to customers at the firm’s branch office.

The Firm failed to properly maintain its email communications and, acting through Carroll, failed to have a procedure in place to ensure that his own email, which was designated as legal and confidential, was properly maintained and reviewed. The Firm failed to establish and maintain an adequate supervisory system in the areas of internal communications and correspondence.

The Firm charged both commissions and advisory fees on transactions in alternative investment products whose offering documents specifically prohibited such activity.


  • charged customers commissions, in the amount of $434,589.03, and an annual percentage-based advisory fee on transactions in alternative investments; and
  • made unsuitable recommendations to customers and had no reasonable basis for believing that his recommendations of nonliquid alternative investments were suitable for the customers in light of their age, financial needs, annual income, liquid net worth and risk tolerance.

Cambridge Legacy Securities, L.L.C.: Censured, Fined $50,000; Ordered to pay $21,864.74, plus interest, in restitution to customers; If the firm fails to provide proof of restitution within 15 days, it shall be immediately suspended from FINRA membership until proof has been provided

Oran Ben Carroll (Principal): Fined $25,000; Suspended 3 months in Principal only capacity

Russell Kent Childs (Principal): Fined $25,000; Ordered to pay $412,724.28, plus interest, in restitution to customers;Suspended 9 months in all capacities; If Childs fails to provide proof of restitution within 15 days, he shall be immediately suspended from association with any member in any capacity until proof has been provided

Tags:  Supervision    Supervisory System    Gifts        Email     |    In: Cases of Note : FINRA
June 2010
Kevin Michael John O’Connor (Principal)
AWC/2007011308803/June 2010
O’Connor failed to establish, maintain and enforce an adequate supervisory system and written supervisory procedures related to the issuance, receipt and transmittal of checks payable to customers. In addition, the written supervisory procedures and supervisory system were inadequate because they did not provide for managerial review or supervision of the process. O’Connor failed to establish, maintain and enforce adequate written supervisory control procedures relating to NASD Rule 3012(a)(2)(B) and its requirement that members establish, maintain and enforce procedures reasonably designed to review and monitor transmittals of funds or securities between customers and registered representatives. O’Connor failed to adequately enforce his member firm’s procedures concerning penny stock transactions.
Kevin Michael John O’Connor (Principal): Fined $17,500; Suspended 30 days in Principal capacity only
Tags:  Supervisory System    WSP    Check     |    In: Cases of Note : FINRA
February 2010
Eric Lowell Small (Principal)
AWC/2007007345601/February 2010
While associated with his former member firm as a registered principal but not registered as a research analyst or a research principal, Small supervised the conduct of the firm’s research analysts, including approving research reports they prepared and that his firm issued.

Small failed to establish and maintain adequate supervisory procedures concerning the review of
  • email correspondence,
  • incoming and outgoing hard copy correspondence at the firm’s branch offices that he was in charge of, and
  • outside investment activity of registered representatives at the firm.
The Firm's procedures indicated that a supervisory principal must review all correspondence, but these procedures were not reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules. The procedures were inadequate in that they contained insufficient detail concerning how and when such reviews were to occur, and the firm had no written supervisory procedures addressing the review of outside brokerage accounts. Small failed to establish, maintain and enforce adequate written supervisory control procedures relating to
  • NASD Rule 3012(a)(2)(B) and its requirement that members establish, maintain and enforce procedures reasonably designed to review and monitor transmittals of funds or securities between customers and registered representatives, and
  • NASD Rule 3012(a)(2)(C) and its requirement of an analysis and determination of whether producing branch office managers should have been subjected to heightened supervision.
Eric Lowell Small (Principal): Fined $17,500; Suspended 10 business days in Principal capacity only
Tags:  Unregistered Principal    Supervision    Supervisory System    Email    Correspondence    WSP    Producing Manager     |    In: Cases of Note : FINRA
Bill Singer's Comment
A well-presented case and a timely warning.  First off, many firms simply patched together a supervisory system because some veteran left or someone was supposed to implement more specific policies (or hire another Principal) and, well, you know how those things tend to dribble away and get forgotten.  Next thing you know, FINRA comes in and -- OMG!, we forgot to take care of this!!

I urge all my clients to pick at least an annual date when they give their policies and procedures a "cold review;" i.e., you take a rule and literally go line by line through your WSPs, memos, and other policies and confirm that what's written is what is in effect.  Concurrent with that run-through, you should also confirm that you are up-to-date with any new or amended rules.  Similarly, confirm that all folks who require a specific registration are duly registered (you would be surprised how often it's "assumed" that a registration application went through only to learn the FINRA shows no record of the filing -- or that someone was supposed to sit for an exam but postponed it and never satisfied the requirement.

All of which leads to another punchlist item:  If you have set forth policies and procedures in writing, are they being observed?  It's bad enough to run afoul of a FINRA rule, but to impose upon yourself a given task (which FINRA staff will note in your WSPs) and then to not properly implement that task is idiotic.  Similarly, as so many in-house Compliance folks love to spend hours on the computer drawing up all sorts of fancy organizational charts showing who reports to whom, it's probably a good idea to actually look at those charts once in a while and make sure that everyone so listed is still working at your firm and still supervising or reporting to those designated.
George Ernest Reilly (Principal)
2006006518904/February 2010
Reilly failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules for market making and for supervising market making activities and the activities of registered representatives.

Reilly failed to develop and implement an AML compliance program, as required by the Bank Secrecy Act, reasonably designed to detect suspicious money movements and trading activities in corporate customers’ account, investigate the activity and make the appropriate Suspicious Activity Report (SAR) filing. The firm’s AML program lacked procedures on monitoring and preventing money laundering and did not explain what follow-up would be required if a money laundering “red flag”was detected or when a SAR must be filed. Reilly failed to detect and investigate the suspicious nature of transactions in a representative’s corporate customer’s account.
George Ernest Reilly (Principal): Fined $50,000; Suspended 2 years in Principal capacity only.
Tags:  Supervisory System    Supervision    AML     |    In: Cases of Note : FINRA
Regal Securities, Inc.
AWC/2007007344801/February 2010
The Firm failed to
  • develop and implement an adequate supervisory system and written procedures for detecting and reporting suspicious activity;
  • provide adequate anti-money laundering (AML) training for its designated AML officers and firm employees; and
  • conduct adequate independent testing of its AML compliance program for two years.
Regal Securities, Inc.: Censured; Fined $50,000
Tags:  AML    Supervision    Supervisory System     |    In: Cases of Note : FINRA
January 2010
J.J.B. Hilliard,W.L. Lyons, LLC
AWC/2007009463801/January 2010

The Firm failed to have an adequate supervisory system, including written supervisory procedures and a supervisory control system, to properly and timely identify customer checks deposited at affiliated bank branches and ensure that all customer check deposits were duly credited to the appropriate customer accounts. The Firm escheated approximately $133,616.65 in funds to the Commonwealth of Kentucky when it was unable to identify the proper customer accounts. As a result of the unidentified customer check deposits, the firm failed to make and keep accurate daily records of all receipts and disbursements of cash and other debits and credits in its books and records, including entries to an Escheatment Account. The Firm understated its net capital charges and incorrectly calculated its Customer Reserve Formula. In addition, the Firm produced inaccurate month-end customer account statements, incorrectly liquidated certain customer fully paid securities, and failed to segregate some customers’ fully paid securities, resulting in intra-day possession or control deficits. The Firm did not prepare required inter-company account reconciliations, failed to properly record certain aged unfavorable reconciliation differences and failed to conduct supervisory reviews of certain reconciliations and accounts.

The Firm ’s supervisory procedures did not adequately ensure that its research analysts obtained the required approval for public appearances and provided proper disclosures during such public appearances. In addition, the Firm issued certain research reports that

  • contained indefinite “may” language regarding future investment banking services that the firm expected to provide,
  • did not include analyst certifications on the front page,
  • contained front pages that did not specify the page or pages in the research report on which the analyst certifications were to be found, and
  • incorrectly included the analyst certification information as part of the important disclosures.
J.J.B. Hilliard,W.L. Lyons, LLC: Censured, Fined $200,000; Required to place $133,817 into a segregated, interest-bearing account for a period of five years to reimburse customers who can reasonably demonstrate that they made deposits to their firm accounts at a bank branch and that the firm failed to properly credit the deposits to their accounts.
Tags:  WSP    Supervisory System    Check    Escheat    Public Appearances     |    In: Research and Advertising
Bill Singer's Comment
An interesting segregation plan -- well tailored to address the specific issue.  Smart move by FINRA.
John Michael Campbell
AWC/2008011565202/January 2010
As the Chief Compliance Officer of his member firm, Registered Principal Campbell failed to establish, maintain and enforce an adequate supervisory system and adequate written supervisory procedures (WSP) to detect and prevent excessive trading in customer accounts by the firm ’s registered representatives. The Firm's WSP required Campbell to conduct quarterly account reviews and determine the turnover ratios for the accounts, but Campbell failed to follow these procedures. The WSP were unreasonable because they failed to require the firm to take any specific action when a customer’s account exceeded a specified turnover ratio. Campbell failed to reasonably supervise registered representatives who excessively traded in customer accounts and failed to respond to red flags presented by their excessive trading, exposing customers to losses that occurred as a result of excessive and unsuitable trading, improper use of discretion or other sales practice violations.
John Michael Campbell: In light of Campbell's financial status, no Fine; Suspended 90 days in Principal capacity only
Tags:  Supervisory System    WSP    Turnover     |    In: Cases of Note : FINRA
Bill Singer's Comment

In recent years, FINOPs and CCOs are being named and sanctioned in FINRA enforcement actions. In this case, the CCO is whipsawed by a WSP deemed to have procedures that he did not follow and to have insufficient procedures that FINRA deemed to render the WSP unreasonable. 

Practice Pointer: If you are a new CCO, you might wish to retain an independent outside compliance consultant to give the firm's WSP the once over and revise or update any deficiencies.  Similarly, you should consider having the same consultant conduct an annual review of the document.  If nothing else, it will at least serve to document your good-faith in attempting to comply with the WSP rules.

Laidlaw & Company (UK) LTD.
AWC/2007007315501/January 2010

The Firm failed to retain email communications related to its business that were sent to and from non-firm email accounts that firm registered representatives working from one of its branch offices used, and failed to establish and maintain a system for supervisory review of those outside emails.

Acting through a registered principal, the Firm failed to develop a privacy policy or disseminate privacy notices required by SEC Regulation S-P to its customers. censured, fined $5,000, jointly and severally, and fined an additional $60,000

The Firm failed to maintain new account documents for some accounts and failed to maintain complete new account documents for other accounts that lacked customer information. The Firm failed to enforce its written supervisory procedures concerning the dissemination of a privacy policy and the collection and maintenance of complete new account forms.

Laidlaw & Company (UK) LTD.: censured, Fined $5,000 (jointly and severally with unidentified party); Fined an additional $60,000
Tags:  Email    Supervisory System    Regulation S-P    WSP     |    In: Cases of Note : FINRA
Bill Singer's Comment
We start of 2010 with yet another case involving emails transmitted from non-firm accounts. Note that old Reg S-P issues still bedevil the industry.
TIAA-CREF Individual & Institutional Services, LLC
AWC/2007011343301/January 2010

The Firm failed to

  • report quarterly statistical and summary information to FINRA regarding a substantial number of customer complaints;
  • establish,maintain and enforce a supervisory system reasonably designed to identify, capture, analyze and report customer complaints that are required to be reported pursuant to NASD Rule 3070(c);
  • put adequate systems and procedures in place to ensure that all customer complaints were identified and forwarded to the appropriate firm personnel,
  • adequately train all personnel who might potentially receive customer complaints regarding proper handling of complaints, and
  • ensure that sufficient guidance was given to personnel who were responsible for reviewing complaints to determine which complaints were reportable.
TIAA-CREF Individual & Institutional Services, LLC: Censured; Fined $100,000
Tags:  Supervisory System     |    In: Cases of Note : FINRA
Bill Singer's Comment

Gotta tell ya -- when I saw that this case was about TIAA-CREF that really caught my attention. I mean this isn't some sleazy, fly-by-night operation.

In 1918, Andrew Carnegie and his Carnegie Foundation established Teachers Insurance and Annuity Association (TIAA), a fully-funded system of pensions for professors. Funding was provided by a combination of grants from the foundation and Carnegie Corporation of New York, as well as ongoing contributions from participating institutions and individuals.  After World War II, in reaction to rising inflation and lengthening life expectancies, TIAA recognized the need for its participants to invest in equities in order to diversify their retirement funds. In 1952, TIAA created the College Retirement Equities Fund ("CREF") for that purpose.

TIAA-CREF is a Fortune 100 financial services company that is the leading retirement system for people who work in the academic, research, medical and cultural fields. TIAA-CREF serves 3.6 million active and retired employees participating in more than 27,000 retirement plans and has $363 billion in combined assets under management.


Enforcement Actions