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NOTE: Stipulation of Facts 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 and to the entry of findings. FINANCIAL
INDUSTRY REGULATORY AUTHORITY RRBDLAW.com
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Gary Mark Giblen (Principal) OS/2005001601001/August 2008 Giblen issued a public research report on a stock through his member firm with an “Accumulate” recommendation, an upgrade from his previous “Neutral” rating on the company. Without revising his recommendation and contrary to previous recommendations, Giblen purchased put options on the stock, reflecting his negative short-term view on the stock, which was inconsistent with his then-current recommendation of “Accumulate.” Gary Mark Giblen: No fine in light of financial status; Suspended 7 business days in all capacities |
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Linsco/Private Ledger Corp. nka LPL Financial Corporation and Phillip
Scott Eggers (Principal) AWC/E062004027401/August 2008 Eggers
The Firm firm failed to reasonably supervise Eggers in connection with the strategies he employed, his use of marketing materials and the appropriateness of the investments he recommended to the customers. Linsco/Private Ledger Corp. nka LPL Financial Corporation: Censured; Fined $125,000 (of which $25,000 jt/sev with Eggers) Phillip Scott Eggers (Principal): Fined $25,000 jt/sev with Firm; Suspended 15 business days in all capacities. |
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EKN Financial Services Inc. AWC/ELI2005000604/July 2008 The Firm failed to
The Firm maintained inaccurate balances in its general ledger and trial balance, and filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) reports. The Firm conducted a securities business while failing to maintain the required minimum net capital, and failed to timely file a FOCUS Part IIA report and an annual audit. The Firm failed to amend or file Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registry (Forms U5), and filed Forms U5 late. The Firm failed to report customer complaints, employee suspensions and an arbitration, and filed reports late or inaccurately pursuant to the NASD Rule 3070 reporting system. The Firm failed to maintain or preserve order tickets and confirmations in connection with equity, corporate debt, short sales and mutual fund transactions. The Firm failed to preserve and maintain time of order receipt, solicitation status, associated registered representative and/or customer name, and execution price on order tickets for municipal, government security or corporate debt transactions. Moreover, FINRA found that the firm failed to preserve and maintain, in an accessible place, written incoming and outgoing correspondence. The Firm indicated on confirmations that it was a market maker in a security when it was not. The Firm permitted $7,312.91 in excessive commissions to be charged in equity retail transactions, which the firm has since refunded to the affected customers. EKN Financial Services Inc.: Censured; Fined $80,000 |
| Bill Singer's Comment: All that for only $80,000? Looks like someone had one hell of a lawyer. |
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David Wu AWC/20060037540-02/June 2008 Wu purchased securities issued by companies he followed in his capacity as a research analyst 30 calendar days before, and ending five calendar days after, the publication of research reports concerning one or more of the companies. The suspension in any capacity was in effect fromMay 19, 2008, through June 2, 2008. David Wu: Fined $5,000; Suspended 10 business days |
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Paul S. Kuklinski AWC/20070083155-01/June 2008 Kuklinski executed purchases or sales of securities issued by companies he followed 30 calendar days before, and five calendar days after, the publication of a research report he authored concerning the relevant company. Kuklinski executed securities transactions in a manner inconsistent with his recommendations in the most recent published research report concerning the relevant company. He opened a personal securities account at a member firm although he was associated with another member firm, and failed to notify either firm in writing of his association or relationship with the other. Paul S. Kuklinski: Fined $200,000 (including $185,972.67 disgorged profits); Barred |
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Bill Singer's
Comment: A growing and troubling trend! I'm seeing and hearing about
more analysts who are trading against their published recommendations and
doing so from an undisclosed away account. There are few regulatory
issues that were more in the public eye and better publicized than the
reform of research practices. Paramount among the reforms were
restrictions and prohibitions on analysts' conflicts, particularly those
arising from trading against published recommendations and using a
non-disclosed away account for that purpose. Given the critical
import of these rules, I am noting the relevant portion of NASD Conduct
Rule 2711: Research Analysts and Research Reports below:
(g) Restrictions on Personal Trading by Research Analysts (1) No research analyst account may purchase or receive any securities before the issuer's initial public offering if the issuer is principally engaged in the same types of business as companies that the research analyst follows. (2) No research analyst account may purchase or sell any security issued by a company that the research analyst follows, or any option on or derivative of such security, for a period beginning 30 calendar days before and ending five calendar days after the publication of a research report concerning the company or a change in a rating or price target of the company's securities; provided that:
(3) No research analyst account may purchase or sell any security or any option on or derivative of such security in a manner inconsistent with the research analyst's recommendation as reflected in the most recent research report published by the member. (4) Legal or compliance personnel may authorize a transaction otherwise prohibited by paragraphs (g)(2) and (g)(3) based upon an unanticipated significant change in the personal financial circumstances of the beneficial owner of the research analyst account, provided that:
(5) The prohibitions in paragraphs (g)(1) through (g)(3) do not apply to a purchase or sale of the securities of:
(6) Legal or compliance personnel of the member shall pre-approve all transactions of persons who oversee research analysts to the extent such transactions involve equity securities of subject companies covered by the research analysts that they oversee. This pre-approval requirement shall apply to all persons, such as the director of research, supervisory analyst, or member of a committee, who have direct influence or control with respect to the preparation of the substance of research reports or establishing or changing a rating or price target of a subject company's equity securities.
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SG Americas Securities, LLC AWC/20070095217/May 2008 The Firm distributed research reports and research notes/updates to its U.S. institutional customers that its non-member foreign affiliates prepared and failed to determine whether disclosures were required. A qualified individual did not review any of the reports prior to their distribution to U.S. customers. By displaying the firm logo, the research reports inaccurately represented that the firm’s U.S. member affiliate had produced them. The Firm failed to detect and correct the inaccurate representation as to the source of the research reports in a timely manner, and failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with applicable NASD disclosure and communication rules. SG Americas Securities, LLC: Censured; Fined $175,000 |
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Global Crown Capital AWC/20060037540-01/May 2008 The Firm conducted a securities business, utilizing the means and instrumentalities of interstate commerce, while failing to maintain the minimum net capital required by SEC Rule 15c3-1. The Firm failed to adopt and implement written supervisory procedures reasonably designed to achieve compliance with NASD Rule 2711 as it pertains to
The Firm maintained a materially inaccurate Uniform Application for Broker-Dealer Registration (Form BD) in that it represented that a family trust established by a principal of the firm was a firm owner when the trust had no ownership interest. Global Crown Capital: Censured; Fined $20,000 ($2,500 of which is jt/sev with unnamed individual) |
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Newbridge Securities Corporation , Kenneth Brown
(Principal) and Eric Manuel Vallejo (Principal) AWC/E072003019507/May 2008 The Firm
Acting through Vallejo, the Firm failed to reasonably supervise the markups/markdowns charged in stock transactions to ensure that they were not excessive and failed to follow its written supervisory procedures regarding markups/markdowns Acting though Brown, the Firm
Newbridge Securities Corporation: Fined $177,500 ($10,000 of which was jointly and severally with Brown and $10,000 was jointly and severally with Vallejo); Ordered to pay $61,416.35, plus interest, in restitution to public customers; and Consented to a one-year pre-use filing requirement with FINRA for all customer advertisements and sales literature relating to seminars the firm and/or its representatives offer. Kenneth Brown (Principal): Suspended 15 days in Principal capacity only Eric Manuel Vallejo (Principal): Suspended 15 days in Principal capacity only |
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Stephen G. Rittenberg AWC/2006006533901/April 2008 Rittenberg prepared and distributed unapproved sales literature at seminars for active and retired educators. The sales literature failed to disclose Rittenberg’s member firm, and a principal at his firm did not review the sales literature and evidence its review in writing. Some of the customer information questionnaires Rittenberg prepared for distribution at the seminars were misleading because they claimed that any information provided would be held confidential when that was not the case. Stephen G. Rittenberg: Fined $5,000; Suspended 30 days |
| Bill Singer's Comment: Without question, FINRA has put the industry on notice that it is watching out for potential abuses in the seminar arena. The regulator has been steadily increasing its docket over the past few years with examples of misconduct in that arena, and as Rittenberg demonstrates, there is no let up. The confidentiality issue in this case is intriguing because it is clearly an area ripe for abuse and we haven't seen many FINRA actions involving such misconduct. |
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Gregory Orlan Dartez and Jerry Glenn Griggs AWC/20060066266-01/20060066266-02/April 2008 Dartez and Griggs wrote and disseminated press releases touting the securities of an oil and gas company that were not fair and balanced, and failed to provide a sound basis for evaluating the facts regarding the securities. The press releases omitted material facts, including the company’s recent revenues, causing the press releases to be misleading. Gregory Orlan Dartez: Barred Jerry Glenn Griggs: Barred |
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The Robins Group LLC and Marcus Whitney Robins (Principal) AWC2005001863901/April 2008 The Firm permitted research analysts, including Robins, to execute
The Firm authorized stock transactions that NASD Rule 2711(g)(3) prohibited, purportedly based on an unanticipated change in the personal financial circumstances of the beneficial owner of the research analyst account, and failed to maintain written records regarding the transactions and the justification for permitting them for three years after the dates when the transactions were approved. The Firm, acting through Robin, published research reports another analyst had written regarding a company, but the report did not disclose that the company had compensated the analyst within the past 12months. The Firm published research reports regarding a company and failed to disclose that the company had compensated a business entity affiliated with the firm within the past 12 months. Robins published magazine articles, which a research analyst considered to be public appearances, and failed to disclose to the publisher that he or a member of his household had a financial interest in the securities of the companies, and the firm failed to maintain records of the articles sufficient to demonstrate Robins’ compliance with the applicable disclosure requirements of NASD Rule 2711(h) for three years after the articles were published. In addition, the Firm failed to adopt or implement written supervisory procedures reasonably designed to ensure that it and its employees comply with NASD Rule 2711. Moreover, the Firm published on its web site an inaccurate list of its registered persons, including its research analysts, and the companies covered by their research, because some of the persons had terminated their association with the firm. The Robins Group LLC: Censured; Fined $25,000 ($5,000 of which jt/sev with Robins) Marcus Whitney Robins (Principal): Fined $5,000 jt/sev with Firm; Fined $31,458.59 (includes $16,458,59 disgorgement of benefits); Suspended 20 business days in all capacities |
| Bill Singer's Comment: Note that FINRA sanctioned the firm because its website disclosed the ongoing employment of terminated individuals. |
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E. Magnus Oppenheim & Co. Inc. and E. Magnus
Oppenheim (Principal) AWC/2006004863601/February 2008 The Firm and Oppenheim
E. Magnus Oppenheim (Principal): Censured; Fined $10,000; Must have completed six hours of continuing education relating to compliance with NASD rules and federal securities laws regarding advertising and/or use of the internet in connection with offerings of securities within 90 days. |
| Bill Singer's Comment: This case should serve as a very critical warning -- federal and state securities laws generally do not distinguish between "sales" "offerings" and "solicitations.". If one is not permitted, the others typically fall within that proscription. As such, please review your website to make sure that you are not offering investments -- or directly/indirectly soliciting the same -- without having the requisite offering documents or a lawyer's opinion that you are exempted from same. |
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Thomas Group Capital and Thomas Borbone (Principal) AWC/2005000323701/February 2008 The Firm and Borbone failed to supervise the sale of hedge fund interests by registered representatives to public customers. There was no review or endorsement by a registered principal of transactions in hedge fund interests; and sales of hedge fund interests were not subjected to principal review for suitability of recommendations. The due diligence reviews of hedge fund offering documents prior to sales by representatives were inadequate. Thomas Group Capital: Censured; Fined $50,000; Prohibited from offering hedge fund interests or opening new hedge fund accounts for six months, and thereafter suspended from offering hedge fund interests or opening new hedge fund accounts until the firm has submitted revised written supervisory procedures to FINRA that satisfactorily address the supervision of hedge fund offerings. Required to pre-file all customer advertisements and sales literature relating to hedge funds with FINRA for six months, beginning with the first use of such sales communications following the suspension from offering hedge fund interest and opening new hedge fund accounts. Thomas Borbone (Principal): No fined in light of financial status; Suspended in Principal capacity for 3 months |
| Bill Singer's Comment: Another powerful sanction from FINRA. Here the firm is prohibited from offering hedgie interests or opening hedgie accounts for six months, and cannot renew such activities until it submits satisfactory written supervisory procedures. Moreovoer, after that suspension is completed, there is further six month obligation to pre-file related ads and literature. |
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Adam Galeon SFC/NYSE Hearing Board Decision: 07-162 February 13 2008 On May 24, 2005,Credit Suisse Research Analyst Galeon obtained certain information from the CEO of XYZ relating to XYZ’s expected updated earnings guidance. That was the day before the official public release of the company’s updated earnings guidance. Galeon selectively disseminated emails to 17 Firm clients and 31 Firm sales personnel, conveying the information the CEO had disclosed to him. All but one email contained an admonition to keep the information confidential. Subsequently, Credit Suisse and two clients of Credit Suisse who received the information in Galeon’s email traded in shares of XYZ, prior to the public release of such information. By selectively disseminating the information he obtained from the CEO, Galeon engaged in conduct inconsistent with just and equitable principles of trade in violation of NYSE Rule 476(a)(6).
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Stanford Group Company AWC/2005002203701/January 2008 In connection with the offers and sales of certificates of deposit (CDs) a bank affiliate issued, it distributed sales literature that did not comply with FINRA advertising rules, in that it failed to disclose that the affiliation between the firm and the bank could create a conflict of interest in connection with its offers and sales of the bank-issued CDs. The brochures failed to present fair and balanced treatment of the risks and potential benefits of a CD investment, failed to contain the name of the firm using the materials and contained misleading, unfair and unbalanced information. Stanford Group Company: Censured; Fined $10,000 |
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Pritchard Capital Partners, LLC AWC/2006003800501/January 2008 The Firm issued research reports, one of which failed to disclose adequately the valuation methods used to determine the price targets or to disclose risks that may impede achievement of the price targets for the profiled stocks. Most of the research reports failed to present required disclosures on the first page or to refer to which page the disclosures were found; and some of the research reports contained language that was conditional or indefinite in regard to certain required disclosure. The Firm distributed research reports to institutional customers that other member firms produced without including the current applicable disclosures as they pertained to the Firm. Pritchard Capital Partners, LLC : Censured; Fined $10,000 |
| Bill Singer's Comment: FINRA raises an interesting point here, and you should make a note. Today, many firms forward to customers reports prepared by other firms ("first generation reports"). If you are going to "repackage" such first generation reports, you cannot simply rely upon the disclosures contained in those reports. Make sure that you review first generation reports to ensure that any conflicts or disclosures your firm is obligated to include in its own research reports are now noted in the materials you are using from others. |
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Loeb Partners Corporation AWC/#2006003769501/January 2008 The Firm
Loeb Partners Corporation: Censured; Fined $25,000; Suspended 30 business days from conducting any research analyst activities (including, but not limited to, issuing research reports); Must have one of the firm 's officers certify in writing to FINRA that it has i) reviewed its written supervisory procedures regarding supervision relating to research analysts and research reports, and Trade Reporting and Compliance Engine (TRACE) reporting, and ii) established systems and procedures reasonably designed to achieve compliance with the laws, regulations and rules concerning those matters within 60 days. |
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