Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2009
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.
December 2009
Brian John Fest and Traci Ann Thomason
AWC/2005002244303 and 2005002244302/December 2009
Fest and Thomason did not provide customers with complete written disclosure of material terms of transactions before they entered into them, including surrender charges paid, sales charges incurred on new investments and optional riders selected on annuities.

Festís and Thomasonís member firm required that registered representatives obtain a customerís signature on transaction documents after they were completed to evidence that the customer was aware of the disclosures in those documents. Fest had clients sign blank transaction documents, which he had Thomason complete later with inaccurate information, including inaccurate sales charges and incorrect rationale for transactions,and submitted the documents to his firm without the clientsí review.

Fest provided inaccurate and misleading information to FINRA staff during on-the-record testimony and attempted to persuade Thomason to corroborate his inaccurate testimony. Festís pattern of recommending short-term unit investment trust trading in his customerís accounts was unsuitable
Brian John Fest and Traci Ann Thomason: Barred
Tags:  Surrender Charges    UIT     |    In: Cases of Note : FINRA
November 2009
David Michael Isabella
OS/2006005132303/November 2009

Isabella fraudulently induced customers, most of whom were retired or nearing retirement, to entrust him with their retirement savings and purchase securities from him by promising that he could achieve sustained annual rates of return of at least 10 percent each and every year, which would allow for consistent annual withdrawal, ranging from 7 percent to 13.5 percent fromtheir investment portfolios without depletion of principal. Many of the customers relied on Isabellaís fraudulent representations when determining to invest their retirement funds with him, and based their decision to retire sooner than they had otherwise planned, at least in part, upon the representation that they would receive enough monthly income from their retirement accounts to live on for the rest of their lives.

Isabella made unsuitable investment recommendations and effected transactions in customersí accounts without having reasonable grounds for believing that the transactions were suitable for the customers in view of the over-concentration in equities, the related fees incurred, and in light of the customersí financial situations, investment objectives and needs. Isabellaís promised returns and withdrawal rates proved to be unsustainable, resulting in the depletion of the customersí retirement savings and forcing some to return to employment. Isabella falsified records maintained by his member firm concerning his customersí financial situations and goals, and as a result, the customers did not receive the firmís promised benefit of having an investment manager selected based on their individual needs and financial situations.

Isabella inappropriately obtained confidential contact and employment information about a companyís employees, without their knowledge, authorization or consent, from personnel in the companyís human resources and other departments, and rewarded the contacts for their assistance with gifts.

In addition, Isabella used a false professional designation on correspondence with customers.

Isabella provided false testimony during a FINRA on-the-record interview.

David Michael Isabella: Barred
Kimberly Sue Rutherford
AWC/2008012477401/November 2009

In connection with the sale of an annuity contract, Rutherford misrepresented to a customer that he would receive a higher return rate than what the terms of the policy offered. Rutherford provided the customer with falsified annual account statements and an altered annuity contract that reflected a higher return rate, when in fact the customer was receiving a lower rate of return. Rutherford falsified an annual account statement by increasing the account balance by over $5,000 in order to mislead the customer into believing that he received additional earnings as a result of the higher rate of return, and deposited over $5,000 of her own personal funds into the customerís account to compensate him for the disparity in return rates.

After agreeing to reimburse another customer for any early withdrawal penalties in connection with transferring money to his annuity, Rutherford falsified an annuity confirmation statement wherein the account balance was increased to cover a surrender charge that had not been credited after the customer complained that he was charged a penalty for early withdrawal.

Kimberly Sue Rutherford: Barred
Tags:  Annuity    Surrender Charge     |    In: Cases of Note : FINRA
Wadsworth Investment Co., Inc. and William Frederick Wadsworth (Principal)
OS/2006003806202/November 2009
The Firm and Wadsworth
  • permitted an individual to act as an unregistered principal and permitted individuals to be registered as General Securities Representatives or Investment Company and Variable Contracts Products Representatives through the firm without being active in the firmís securities business;
  • sent written communications to customers and prospective customers containing language that failed to provide a sound basis for evaluating the claims within the communications, and that omitted material information and/or contained unwarranted statements;
  • failed to record a general securities principalís approval on mutual fund and variable annuity applications;
  • completed and signed a materially inaccurate FINRA Information Request form; and
  • provided inaccurate information to FINRA staff.
Acting through Wadsworth, the Firm failed to
  • establish and , maintain a supervisory system and written supervisory procedures reasonably designed to achieve compliance with applicable securities laws and regulations;
  • conduct annual reviews of any of the business in which the firm engaged
  • review registered representativesí business-related email correspondence with customers;
  • establish any written procedures providing for the review of its registered representativesí electronic correspondence;
  • designate and specifically identify at least one principal to FINRA who would establish, maintain and enforce a system of supervisory control policies and procedures, a
  • establish, maintain and enforce written supervisory controlpolicies and procedures
  • obtain required information on new account forms, and on mutual fund and variable annuity applications.
Acting through Wadsworth, the Firm
  • maintained forms of various types that were blank except for customersí signatures;
  • filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) reports setting forth the firmís net capital position that was accurate by failing to maintain accurate financial books and records; and
  • did not file an application with FINRA for approval of an ownership change until after the ownership change took place.
The Firm failed to
  • implement anti-money laundering compliance procedures, including independent testing and provide training;
  • enforce the Customer Identification Procedures;
  • retain electronic communications; and
  • failed to provide written confirmations to customers at or before the completion of securities transactions acted as an unregisteredmunicipal securities broker-dealer.
The Firm executed municipal securities transactions without creating and retaining order tickets to properly recordthe transactions, and failed to report municipal securities trades to the MSRB.

Wadsworth Investment Co., Inc.: Censured; Fined $100,000 ($77,250 jt/sev with William Wadsworth); Required to hire an independent consultant to review its policies, systems, procedures (written and otherwise) and training related to its violations of federal securities laws, FINRA and MSRB rules, and implement the consultantís recommendations.

William Frederick Wadsworth: Fined
$77,250 jt/sev with the Firm; Suspended 1 month in all capacities; Suspended 1 year in Principal capacities only.
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