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.
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.
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, inrestitution 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
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
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
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
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.
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.
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
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.
Laidlaw & Company (UK) LTD.: censured, Fined $5,000 (jointly and severally with unidentified party); Fined an additional $60,000
FINRA arbitrations often involve the old "he-said-she-said." That's to be expected because at the core of many disputes are two very different versions of the same event. After the FINRA arbitration hearing concludes and the arbitrators pen their Award, we expect some explanation as to what was found and why -- and a brief explanation as to how a given ... Read On