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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.
November 2009
Legend Merchant Group, Inc
AWC/2007008692901/November 2009

The Firm

  • failed to record and maintain the time of receipt for customer orders on brokerage order memoranda, and mismarked trades as solicited or unsolicited;
  • did not preserve instant message communications in connection with the firmís securities business;
  • failed to establish,maintain and enforce a supervisory system, including written supervisory procedures with respect to supervision of registered representativesí and other associated personsí activities; trading, including order tickets, order entry, best execution and trade review; review and retention of instant messages; and branch office activities;
  • had a deficient supervisory system regarding trades passing through the firmís inventory account, and was unable to readily identify and match off setting transactions related to particular customer orders requiring multiple executions, and consequently, was unable to compare, and did not compare, the customerís price to the firmís costs to ensure than any markups or markdowns were fair and reasonable. (Since the firm did not capture and record when orders were received, it was unable to adequately review the quality of the executions of its customer orders, and failed to ensure that it accurately reported its trading capacity to the TRF).
Legend Merchant Group, Inc: Censured; Fined $150,000; Required to certify that it has reviewed the adequacy of its procedures regarding recording and maintaining required memoranda of customer orders, including, but not limited to, times of receipt of orders; ensuring that order memoranda are accurate, including, but not limited to, designations of orders as solicited or unsolicited; preservation and review of electronic correspondence; each area of the firmís business; ensuring, in connection with transactions passing through the firmís inventory account that sales charges are fair and reasonable based on the firmís contemporaneous costs, the quality of the executions of customer orders, including the timeliness of executions, and that the firm correctly reports its trading capacity to the TRF; clear delegation of supervisory responsibilities and reviews to ensure the supervisors are performing their assigned responsibilities, including, but not limited to, with respect to trading, including supervisory review of order tickets, order entry, and best execution, review of electronic correspondence, including, but not limited to, instant messages, and branch office and non-branch office activities; established systems and procedures reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules concerning the aforementioned activities.
Tags:  Orders    solicited    instant messaging    electronic communications    supervisory system    markups    markdowns     |    In: Cases of Note : FINRA
Robert Wesley Stout
OS/E062005003202/November 2009

Registered Principal Stout failed to

  • establish, maintain and enforce adequate written supervisory procedures to ensure compliance with FINRA rules and with SEC and Federal Reserve Board rules and regulations;
  • ensure that firm customers fully paid for cash transactions within the time allotted by the Federal Reserve Board Regulation T, in that the firm failed to cancel the transactions, liquidate the transactions or freeze the accounts when customers failed to make full payment on purchase transactions in cash accounts within five full business days;
  • review, initial and maintain daily purchase and sales blotters at the main office;
  • make the determination to implement heightened supervision for individuals who met its written supervisory procedures requiring a determination;
  • establish compliance procedures for setting commissions and markups;
  • establish supervisory procedures to detect excessive commissions and markups.
  • ensure that an individual actively engaged in managing the firmís securities business was registered as a principal or in any other capacity;
  • maintain firm records in an easily accessible place and failed to promptly produce the records; and
  • respond to FINRA requests to produce new account forms, customer confirmations and order memoranda because they were maintained at a branch office, thereby causing his firm to be in violation of SEC rules.
Robert Wesley Stout: Fined $20,000; Suspended 20 business days in Principal capacity only
Tags:  WSPs    Reg T    Heightened Supervision    Markups    Unregistered Principal         |    In: Cases of Note : FINRA
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