Acting through Sweat, the Firm failed to
- enforce its written supervisory procedures pertaining to its annual compliance meeting, branch office inspections, outside business activities, outside securities accounts, Regulation SP, hiring practices and the use of personal computers; and
- maintain records of its Firm Element Continuing Education Needs Analysis and Written Training Plan for multiple years, and
- maintain continuing education (CE) records to evidence that the firmís representatives participated in the Firm Element CE program during one year.
Sweat and the firm failed to maintain copies of registered representativesí incoming and outgoing correspondence with the public relating to its securities business, and failed to maintain evidence of review as NASD rules and firm procedures required.
The Firm failed to implement
- procedures concerning the capturing, preservation, maintenance and storage of all original and copied communications the firm received and sent;
- a written anti-money laundering (AML) compliance program reasonably designed to achieve the firmís compliance with the laws, rules and regulations to which it was subject; and
- its AML procedures by failing to provide AML training in a manner specified in its written AML program, and did not properly update its AML compliance officer contact information as required.
Intermountain Financial Services, Inc.: Censured; Fined $12,750
Kent Duane Sweat: Fined $7,500; Suspended in Principal Capacity only for 5 business days
The Firm sold stock shares of issuers that were not registered with the SEC for which no exemption from registration applied, which generated, through the transactions, proceeds of approximately $790,000 for customers; and failed to conduct a ďsearching inquiryĒ to ensure that the sales did not violate Section 5 of the Securities Act. The Firm failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to ensure compliance with applicable rules and regulations regarding the distribution of unregistered and non-exempt securities, and, in particular, its acceptance of the delivery of stock shares in certificate form and its subsequent sales of the same. The Firm's written supervisory procedures did not require an inquiry to be conducted into whether deposited stock shares were registered with the SEC or exempt from registration.
The Firm failed to identify activity in corporate accounts as suspicious, investigate it and report it through Form SAR-SF filings and, therefore, failed to implement or enforce its AML program by failing to identify suspicious activity, properly investigate it and file a Form SAR-SF on such activity, as appropriate.
Acting through Baldwin, CMG Institutional Trading
- participated in securities related activities without employing a qualified municipal securities principal;
- failed to timely file quarterly lists of issuers with which it engaged in a municipal securities business;
- failed to adopt, maintain and enforce written supervisory procedures reasonably designed to ensure that the conduct of the broker and associated persons in municipal securities activities are in compliance with Municipal Securities and Rulemaking Board (MSRB) rules and that the procedures shall codify the brokerís supervisory system for ensuring compliance;
- had an inadequate Anti-Money Laundering (AML) compliance program, in that it failed to
- verify customer identification information,
- conduct independent testing of its AML program,
- designate a person to transmit contact information to FINRA and
- to provide AML training for two years;
- failed to timely create and maintain a business continuity plan and engaged in securities transactions without a qualified financial and operations principal (FINOP);
- conducted a securities business while its net capital was below the required minimum;
- failed to prepare an accurate general ledger, trial balances and books and records; and failed to file an annual audit report and a quarterly Financial and Operational Combined Uniform Single (FOCUS) report; and
- failed to file an application for approval of a material change in its business operations even though it participated in an offering as an underwriter on a firm commitment basis, and disseminated sales literature that contained numerous inaccuracies and misrepresentations.
Also, the firm permitted Baldwin to engage in its securities business even though his registration was inactive because he had failed to complete a continuing education course.
FINRA's National Adjudicatory Council (NAC) imposed these sanctions following appeal of an Office of Hearing Officers (OHO) decision:
CMG Institutional Trading, LLC: Expelled
Shawn Derrick Baldwin (Principal): Barred
- shared a draft of a section of a research report that contained a research summary, rating and price target with a subject company before it was published, and the draft was not provided to legal or compliance personnel at the firm;
- did not monitor or place restrictions on the trading of stock picks by research analysts, who placed trades in violation of the limits placed on analysts by NASD Rule 2711(g) and failed to retain records showing the dates that newsletters were published prior to 2005;
- failed to disclose the valuation methods it used to determine the price target and the risks to achieving the price target in the stock pick sections of its research report;
- failed to have a principal review, initial and date its published research reports before the earlier of its use or filing with FINRAís Advertising Regulation Department;
- failed to adopt and implement written supervisory procedures to
cover research reports distributed to the public and ignored red flags
regarding stock pick sections qualifying as research reports; and
- failed to establish, maintain and enforce written supervisory procedures for its newsletter, in that the firm had no written supervisory procedures that governed research reports distributed to the public.
The Firm and Register filed false attestations regarding compliance with NASD Rule 2711, and the Firm failed to make the certifications required by SEC Regulation AC for its stock pick sections that the views expressed accurately reflected the research analystsí personal views. Furthermore, Register failed to adequately discharge his supervisory responsibilities and never took effective action to ensure that his firm was meeting its obligation to comply with FINRA rules, in that he never monitored the trading or ownership of stock picks by the firmís research analysts, imposed no restrictions on whether the analysts could trade or own securities when they were profiled as stock picks, and allowed research analysts to publish research reports unsupervised.
Register Financial Associates, Inc.: Fined $50,000
George Robert Register (Principal): Fined $15,000; Suspended 30 days in Principal/Supervisory capacities only
Acting through Buchanan, Valores Finamex failed to produce evidence of Buchananís review of a registered representativeís correspondence. The Firmís written supervisory procedures failed to
- identify the registered representative as a producing manager,
- contain procedures reasonably designed to provide heightened supervision over the activities of each producing manager who is responsible for generating 20 percent or more of the revenue of the business units supervised by the producing managerís supervisor, and
- assign a qualified supervisor to supervise the registered representative.
The Firm permitted Buchanan to conduct a securities business while he was ďContinuing Education Inactive.Ē Also, the Firm failed to
- send an annual privacy notice to its customers;
- provide an explanation to its customers of their right to opt out of disclosure of nonpublic personal information to nonaffiliated third parties; and
- establish policies and procedures that address and review administrative, technical and physical safeguards for the protection of customer records and information involved in the outsourcing of compliance and operations functions to nonaffiliated third parties.
The Firm effected Trade Reporting and Compliance Engine-eligible securities trades and failed to report, or properly report, those transactions.
Valores Finamex International, Inc.: Censured; Fined $27,500 ($10,000 of which was jointly and severally with Buchanan).
Vincent Anthony Buchanan: Fined $10,000 jointly and severally with Valores Finamex; Suspended in Principal capacity only for 20 business days.
Small failed to establish and maintain adequate supervisory procedures concerning the review of
- email correspondence,
- incoming and outgoing hard copy correspondence at the firmís branch offices that he was in charge of, and
- outside investment activity of registered representatives at the firm.
- 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.
The Firm allowed its research analysts to use third-party email systems but did not reasonably enforce a system to audit or review their email correspondence.
The Firm permitted an individual registered as a General Securities Principal and General Securities Representative to supervise the conduct of its research analysts without passing either the Series 16 Supervisory Analyst or the Series 87 Research Analyst exams as FINRA rules required.
The Firm failed to develop and implement an AML program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and the implementing regulations thereunder; the firmís AML program had inadequate procedures governing the testing of its AML program; and the firmís testing of its AML procedures was inadequate and not independent one year, and not tested another year.
The Firm failed to timely report statistical and summary information regarding customer complaints and failed to amend, timely amend or ensure the amendment of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) or Uniform Termination Notices for Securities Industry Registration (Forms U5) to disclose customer complaints and their resolution.
The Firm failed to retain originals of certain incoming and outgoing written correspondence relating to its business, received by mail and by fax,or copies of such correspondence and failed to adequately enforce written supervisory procedures prohibiting firm personnel from using third-party, non-firm email accounts for firm business.
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 customersí 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 ís 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 ďmayĒ 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.
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.
- 529 College Savings Plan
- Abandoned Accounts
- Algorithmic Trading
- Altered Customer Phone Records
- Annual Compliance Certification
- Annual Compliance Meeting
- Asset Purchase Agreement
- Away Accounts
- Best Efforts Offering
- Changes Of Address
- Check Kiting
- Commodity Futures
- Commodity Pool
- Confidential Customer Information
- Contingency Offering
- Continuing Education
- Cooperation Agreement
- Credit Cards
- Day Trading
- Delivery Instructions
- Do Not Call
- Electronic Communications
- Electronic Storage
- False Proof Of Insurance
- False Statements
- Federal Appeal
- Finder Fees
- Finder\\\'s Fees
- Firm Committment Offering
- Guaranteeing Against Losses
- Hedge Fund
- Instant Messaging
- Investment Advisor
- Letter Of Credit
- Life Insurance
- Living Trust
- Log On IDs
- Mark-Up Mark-Down
- Material Change Of Business
- Membership Agreement
- Minimum Contingency
- Modification Of Sanctions
- Money Laundering
- Mutual Fund
- Mutual Funds
- Net Capital
- Notice Of Levy
- Operations Manager
- Outside Accounts
- Policy Lapse
- Power Of Attorney
- Pre-arranged Trading.
- Private Placement
- Private Securities Transaction
- Producing Manager
- Production Quota
- Promissory Notes
- Proprietary Traders
- Public Appearances
- Qualified Domestic Relations Order
- Regulation S-P
- Statutory Disqualification
- Supervisory System
- Surrender Charge
- Surrender Charges
- Suspense Account
- Taping Rule
- Term Life
- Third Party Vendor
- Time & Price Discretion
- Trading Limits
- Trading Volume
- Trust Account
- Two Party Consent
- U.S. Treasuries
- Unclaimed Funds
- Universal Lease Programs
- Unregistered Office
- Unregistered Person
- Unregistered Principal
- Unregistered RRs
- Unregistered Securities
- Unregistered Supervisor
- Variable Annuity
- Variable Insurance
- Zero Coupon