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.
Dwight John Schaefer AWC/2008012636401/December 2010
Despite knowledge of his member firmís change in policy regarding the sale of equity indexed annuities that all business be sold and processed through the firm and representatives were only to sell specific annuities offered by firm-approved annuity companies, Schaefer sold annuities to customers, including firm customers, and did not sell or process the transactions through his firm and did not provide written notice to the firm of his intention to engage in outside business activities. The sales totaled approximately $1,856,597, and Schaefer was compensated approximately $93,163. Schaefer completed an annual questionnaire in which he falsely answered that he did not offer or sell equity indexed annuities to his clients.
Dwight John Schaefer: Fined $5,000; Suspended 4 months
Mark William Beggs AWC/2009018374401/December 2010
Beggs engaged in outside business activities, in that he acted on behalf of an insurance company not affiliated with his firm and engaged in sales to customers of indexed deferred annuities involving a total principal investment of $112,000, for which he was compensated approximately $10,080 in commissions. Beggs accepted compensation from the insurance company for the sales without giving his firm prompt written notice.
Mark William Beggs : Fined $5,000; Suspended 20 business days
Derrick Ray Shields AWC/2008015144801/November 2010
Shields assisted a relative, an unregistered person at the time, with the sale of a fixed and variable annuity. Shields signed and submitted the customerís annuity application to his member firm and the annuity company after discussing the matter with firm principals; Shields also signed the firmís new account application as the customerís introducing agent, thereby facilitating his relativeís violation of registration rules.
Shields certified on the annuity application that he had explained the contract to the customer even though he knew he had not done so. Shieldsí relative became registered with the same firm and the day after he became registered, the annuity transaction settled. Shields later received a commission payment for the annuity sale from his firm for approximately $50,500, he shared the payment with his relative.Shields did not disclose to the firm that he shared the commission payment, and from the time his relative became registered with the firm until the termination of Shieldsí association with the firm, it was his relative, not Shields, who was the registered representative responsible for advising the customer on the annuity and for servicing the customerís account in which the annuity was held at the firm. In addition, Shields failed to take any steps to correctly disclose on the firmís books and records that his relative was the responsible representative, rendering the firmís records inaccurate.
Derrick Ray Shields: Fined $10,000; Suspended 3 months
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 Firmís 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 firmís 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 customerís 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 customersí UIT purchase confirmations included the required language stating that ďon selling your shares, you may pay a sales charge. For the charge and other fees, see the prospectus.Ē 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.
Thomas Michael Petracek AWC/2008015144802/November 2010
Petracek recommended the purchase of a fixed and variable annuity to a customer, and since he was not registered with any FINRA member firm, he was unable to sign the annuity application. Petracekís relative became associated with a member firm, signed the customerís annuity application and submitted it to his firm, and the annuity company listed the relative as the introducing agent after discussing the matter with principals of the firm. Petracek knew his relative was not present when the customer signed the annuity application or during any of his meetings with the customer at which the annuity was discussed, and he knew that his relative never met or spoke with the customer.
Petracek became registered at the same firm as his relative, and the annuity transaction settled the day after Petracek became registered. Petracekís relative later received a commission payment of approximately $50,500 for the annuity sale from the firm, which he shared with Petracek, and Petracek did not disclose to the firm that he shared in this commission payment.
During his employment at the firm, Petracek continuously served as the registered representative responsible for advising the customer on the annuity and for servicing the customerís account in which the annuity was held at the firm, although the relativeís name remained on the account as the responsible agent. In addition, Petracek failed to take any steps to correctly disclose on the firmís books and records that heónot his relativeówas the responsible representative, rendering the firmís records inaccurate.
Thomas Michael Petracek : Fined $10,000; Suspended 3 months
Douglas Joe Barker (Supervisor) 2007009520202/October 2010
Barker recommended and effected unsuitable short-term sales in customersí 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
determine the surrender fees related to variable annuity exchanges she recommended to a customer, and the customer agreed to the exchanges based on his understanding that there was no penalty associated with the exchanges;
perform adequate analysis on the variable annuities to determine their surrender periods and the customer was charged surrender fees totaling $26,286.84; and
ensure that the imposition of the surrender fees was accurately disclosed on her member firmís variable annuity switch form.
If the customer had held the variable annuities for two additional months, he would not have incurred the fees.
Renee Lynn Coil : No Fine in light of financial status; Suspended 1 month
Keener made unsuitable trade recommendations in a customerís 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 ďunsolicitedĒ when they were ďsolicited.Ē Keener exercised discretion with verbal, but not written, authorization, in customersí 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 customersí or his member firmís written authorization to engage in such discretionary trading.
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 companyís 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 principalís 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
Louis John Liberatore Sr. AWC/2008013937902/September 2010
Liberatore engaged in trading in customersí 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
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
Michael Aaron Brady AWC/2010022037401/September 2010
Brady converted a total of $194,424.81 from customers who entrusted him with money to invest and, instead, misappropriated the funds for his own personal use. One customer gave Brady over $90,000 to invest in an Individual Retirement Account (IRA) and in a Section 529 college tuition plan account but Brady used the money for personal purposes. In one instance, Brady created a fictitious account statement that falsely showed that the customerís account increased from about $37,000 to over $48,000 in one year; but, in fact, Brady never invested the customerís money and had converted over $56,000 of the customerís money to his personal use. In another instance, a customer surrendered a variable annuity and paid the proceeds to Brady to re-invest in another variable annuity; Brady did not do so and misappropriated the funds, which exceeded $41,000.
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. Sloneckerís 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 firmís 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. Sloneckerís false entries in the firmís 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 Ray Collins Jr AWC/2008013648001/September 2010
Collins forged customersí signatures on financial documents and submitted the documents to his member firm and failed to send a copy to the customers.
Collins failed to disclose a variable annuity service fee in his discussion with customers and, when the customers inquired about the fee, Collins told them that the fee was an error; and to avoid further inquiries he used his own funds to pay the fee without informing the firm or the customers. Collins accomplished his payment of the fees when he executed money orders on the customersí behalf, forged the customersí signatures on the money orders and submitted the money orders to the firm to pay the variable annuity fees that he had not disclosed to the customers.
Bingham gave a member firm customer $4,421 to compensate her for tax consequences incurred as a result of his recommendation that the customer liquidate a variable annuity and purchase mutual funds with the proceeds. Bingham acted without his firmís knowledge or authorization when sharing in the customerís loss, and his firmís procedures prohibited representatives from paying or offering to pay restitution to a customer. Bingham loaned customers approximately $1,050 because of delays in processing their withdrawal requests, which the firmís procedures prohibited.
Jarem Barry Bingham : Fined $10,000; Suspended 15 business days
Leo Timothy Buggy (Principal) OS/2008016455801/August 2010
Buggy misappropriated approximately $589,000 intended for investment by soliciting customers to withdraw funds from their existing firm variable annuity and/or brokerage accounts and invest the withdrawn amounts in what he represented to be safer, higher-yield investments with Buggyís member firmís affiliate. Buggy not only failed to invest the funds received from the customers in safer, higher-yield products with the affiliate, but failed to invest the funds at all.Buggy caused the funds to be deposited into an account he controlled and made improper use of the funds. Buggy failed to respond to FINRA requests for information and documents.
Mark Andrew Jamgochian AWC/2009018304601/August 2010
Jamgochian cut-and-pasted customersí signatures on account-related documents without the customersí authorization or consent. The documents were all variable annuity applications for transactions that the customers previously authorized.
Mark Andrew Jamgochian : Fiend $5,000; Suspended 3 months
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
Douglas Richard Smith (Principal) OS/2008012211601/April 2010
Smith effected, without the customerís knowledge, authorization and consent, the surrender and liquidation of a variable annuity in the customerís account, and used the proceeds to purchase a variable annuity issued by another insurance company for the customerís account. To effect the unauthorized transactions for the customer, Smith, without the customerís knowledge, authorization and consent, affixed, or caused to be affixed, the customerís signature and/or initials on five documents. Smith stamped a document with the firmís medallion signature guarantee stamp and placed his signature on the stamp signature line, which had the effect of guaranteeing the customerís signature as genuine.
Douglas Richard Smith (Principal): Fined $5,000; Suspended 18 months in all capacities
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 ďred flagsĒ indicating that unsuitable and excessive trading was occurring in customer accounts, Montes failed to take reasonable supervisory steps to respond to the ďred flagsĒ with a view toward preventing the unsuitable and excessive trading and did not adequately investigate the representativesí 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.
Registered Principal Kahn sold preferred stock shares of a company to investors, in the approximate amount of $127,000, without prior written notice to, and written approval from, his member firm. One investor was an elderly individual who invested $96,000 that she borrowed from a variable annuity that she had purchased through Kahn several years earlier. The company had paid her approximately $11,000 in annual interest when her Individual Retirement Account (IRA) custodian informed her that the companyís preferred shares had no value and were worthless. Kahn executed and submitted his firmís Private Securities Transactions Certification, in which he falsely certified that he had not participated in any manner in private securities transactions since his employment with the firm.
Registered Principal Jarkas recommended or, in the exercise of discretion, executed securities transactions in a customerís 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 customerís financial circumstances, needs, other security holdings and investment objectives. Jarkas caused the execution of approximately 2,400 transactions in the customerís account and received commissions of approximately $240,000.
Associated Person Asencio, converted $335,250 from a customerís account by making withdrawals from the customerís variable annuity without his knowledge or consent. Asencio arranged to have the funds sent to a friend, who cashed the checks and forwarded the proceeds to Asencio, who then deposited the funds into her own bank account and used the money for personal expenses. Asencio failed to respond to FINRA requests for information.
Hilda Asencio: Ordered to pay $335,250, plus interest, in restitution to a customer; Barred
Michael Thomas DiPuppo (Supervisor) and Robert Michael DiPuppo AWC/2008013742101/February 2010
The DiPuppos member firm had in place a supervisory system for the firmís variable annuity transactions specifying that variable annuity transactions that exceeded 50 percent of the lower end of the customerís net worth bracket required additional supervisory review concerning potential liquidity issues. The DiPuppos disagreed with the firmís policy and, to circumvent the system, they altered the net worth of customers to a higher bracket to avoid the 50 percent threshold that would have flagged them on a report and required additional review. By altering customer net worth information, the DiPuppos caused their firmís books and records to be false. Michael DiPuppo failed to carry out supervisory responsibilities to ensure that new account forms and annuity applications documents that Robert DiPuppo and other registered representatives in his branch submitted were accurate
Michael DiPuppo: Fined $15,000; Suspended 90 days in all capacities
Robert DiPuppo: Fined $10,000; Suspended 30 days in all capacities
By way of preamble, this blog is about Goldman, Sachs & Co. and the Financial Industry Regulatory Authority's ("FINRA") Board of Governors. This is about a multinational investment bank and financial services company. This is about Wall Street's largest self-regulatory-organization. This is about a sexual discrimination Class Action f... Read On