Securities Industry Commentator by Bill Singer Esq

Meyers Associates, L.P. and its principal, Bruce Meyers, sent, or caused to be sent, misleading and unbalanced advertising materials via email and failed to establish and enforce adequate supervisory procedures. Meyers Associates also failed to maintain accurate books and records. For these violations Meyers Associates is fined a total of $700,000 and Meyers is barred from acting in any supervisory or principal capacity and fined a total of $75,000. The charges against Imtiaz A. Khan are dismissed. 

Member used misleading communications with the public, maintained inaccurate books and records, failed to supervise preparation of books and records, failed to supervise electronic correspondence, failed to report customer complaint information, and did not have an adequate system of supervisory control procedures. Registered principal used misleading public communications and failed to supervise preparation of member's books and records. Held, findings affirmed and sanctions modified. 

Former member firm and its former principal appeal from FINRA disciplinary action finding that they used unbalanced and misleading communications with the public and failed to establish and maintain a reasonable supervisory system for the preparation of books and records. FINRA also found that the firm failed to maintain accurate books and records, to report customer complaint information, to establish and maintain a reasonable supervisory system for the review of electronic correspondence, and to establish and maintain a reasonable system of supervisory controls. Held, FINRA's findings of violations and imposition of sanctions are sustained.

This case stems from a complaint FINRA's Department of Enforcement filed against Applicants in 2014. After a six-day hearing, a FINRA Extended Hearing Panel (the "Hearing Panel") issued a decision finding violations and imposing sanctions.4 The Hearing Panel found that Applicants violated NASD Rule 2210(d) and FINRA Rule 2010 by using unbalanced and misleading communications with the public from January 2011 through June 2011. 5 The Hearing Panel found further that the Firm violated NASD Rule 3110(a), FINRA Rules 4511(a)  and 2010, and Section 17(a)(1) of the Securities Exchange Act of 1934 and Rules 17a-3, 17a-4, and 17a-5 thereunder by failing to maintain accurate books and records in 2011 and 2012; and NASD Rules 3070 and 2110 and FINRA Rule 2010 by failing to report customer complaint information from March 2007 through July 2010. The Hearing Panel also found three supervisory violations: (1) that Applicants failed to establish and maintain a reasonable supervisory system for the preparation of books and records; (2) that the Firm failed to establish and maintain a reasonable supervisory system for the review of electronic correspondence; and (3) that the Firm failed to establish and maintain a reasonable system of supervisory controls. 

The Hearing Panel dismissed three other allegations: (1) that Applicants violated FINRA Rule 2010 by engaging in an unregistered offering of securities without an exemption from the registration provisions of Section 5 of the Securities Act of 1933; (2) that Applicants violated FINRA Rule 2010 by falsifying, or causing to be falsified, federal tax forms; and (3) that Meyers was also liable for the Firm's recordkeeping violations. 

The Hearing Panel fined the Firm $50,000 for the unbalanced and misleading communications; $50,000 for the recordkeeping violations; $200,000 for the failure to report customer complaint information; $100,000 for the recordkeeping supervisory violations; $200,000 for the electronic correspondence supervisory violations; and $100,000 for the failure to establish and maintain a reasonable supervisory control system. It fined Meyers $25,000 for the unbalanced and misleading communications and $50,000 for the recordkeeping supervisory violations and barred Meyers from acting in a principal or supervisory capacity. Applicants appealed to FINRA's National Adjudicatory Council ("NAC"). 

The NAC affirmed the Hearing Panel's findings of liability but modified some of the fines because it took a different approach than the Hearing Panel in applying FINRA's Sanction Guidelines. The modifications resulted in the total fine for the Firm remaining at $700,000 but the total fine for Meyers increasing from $75,000 to $100,000. As to the unbalanced and misleading communications, the NAC increased the fine for the Firm from $50,000 to $200,000 and for Meyers from $25,000 to $50,000 by applying the higher guideline range for "intentional or reckless use of misleading communications"; the Hearing Panel had applied the range for "inadvertent use of misleading communications."  The NAC found that the use of misleading communications "resulted, at a minimum, from reckless misconduct." It stated that the "large number of misleading communications, the extended period over which they were sent, their wide dissemination, and the potential for the firm to gain monetarily lead us to conclude that Meyers Associates' misconduct was decidedly egregious and merits a significant fine." Similarly, the NAC stated that the "numerous pieces of unbalanced and misleading sales literature used, the extended period of their use, and the potential for Meyer's financial gain support a sanction at the high end of the Guidelines for advertising violations." 

The NAC decreased the fine for the Firm's remaining misconduct from $650,000 to $500,000 because, rather than assessing sanctions for each violation as the Hearing Panel did, it imposed a unitary sanction under the guideline for systematic supervisory failures. The NAC found this approach to be appropriate because the remaining misconduct "resulted fundamentally from the firm's persistent supervisory failures." For Meyers's supervisory violation, the NAC imposed the same sanctions as the Hearing Panel: a $50,000 fine and a bar from acting in a principal or supervisory capacity. The NAC further assessed costs. This appeal followed.

From at least April 2016 through January 2018, Cedeno conspired with others to defraud victims by pretending to be employees of the SEC, demanding money from victims and directing them to send it to members of the conspiracy, including Cedeno, who was then living in Ocoee, Fla. The conspirators who received the money generally withdrew it from bank accounts quickly, then forwarded much of it to individuals in the Dominican Republic. In one common version of the scam, victims received e-mails that used official-seeming documentation and the SEC seal to induce the victim to pay a fee in order to receive a portion of a legal settlement. In another version, victims received e-mails and official-seeming documents labeling the victim a defendant in a civil lawsuit, in which the victim owed tens of thousands of dollars in supposed disgorgement, penalties and fees. The documents gave the victim a choice of either appearing in court to contest the lawsuit or paying a smaller fee.

In August 2018, co-conspirator Leonel Alexis Valerio Santana, 30, of Boston, was sentenced to 63 months in prison, three years of supervised release, and ordered to pay restitution of $105,869 after pleading guilty to his role in the scheme.

sells or leases the office equipment directly to end-user customers or to authorized resellers, like Robert Fisher, a co-conspirator and owner of RBM Imaging, who then resell or lease the office equipment to end-user customers, like the four defendants. The office equipment requires toner and other products to operate. End-user customers order the toner for their printers from Xerox. Rather than pay Xerox upfront for the toner, however, the end-user customers pay Xerox based on the number of prints made with the toner. Until consumed by the end-user customers, the toner belongs to Xerox. At no time may the end-user customers sell the toner.

The Haynes' and Day set up a sham company, HDH Graphics, to obtain approximately 63 Xerox printers from Robert Fisher. Although HDH Graphics made few, if any, prints with the printers, the defendants fraudulently represented to Xerox that HDH Graphics was making prints, using much more toner than the industry average.   In executing the scheme, the defendants repeatedly misrepresented to Xerox that they were making millions of prints with the toner, even though they never took most of the printers out of their boxes. Their deception caused Xerox to ship approximately $25,000,000 worth of toner to HDH Graphics. The defendants then sold the fraudulently obtained toner for approximately $11,000,000 to an individual in Miami, Florida. The Haynes', Day and Fisher shared the profits from the fraudulent sale of the Xerox toner.

The Haynes' and Day also filed false personal income tax returns with the Internal Revenue Service for the years 2008 through 2013. Their personal tax returns failed to report net income HDH Graphics earned from the fraudulent sale of the Xerox toner. Because HDH Graphics was a partnership, all of its net income flowed through to the defendants' personal tax returns. Therefore, the underreporting of the net income on HDH Graphics' tax returns resulted in the underreporting of the income on the defendants personal tax returns. 

The Haynes' and Day underreported the net income earned by HDH Graphics by falsely claiming that they had personally paid and incurred travel and shipping expenses on behalf of HDH Graphics. They then had HDH Graphics reimburse them for the falsely claimed expenses and falsely reported such expenses as deductions on HDH Graphics' tax returns.  The falsely reported deductions on HDH Graphics' tax returns were approximately $265,154, resulting in approximately $265,154 less in net income being reported on the corporate returns. As a result, 25 percent of such income, that is, approximately $66,288.50, should have flowed through as income to the defendant's personal tax returns.

The defendants agreed to forfeiture of over $600,000 in cash in lieu of the forfeiture of several real properties that were purchased and funded with fraud proceeds.

• Securities Industry Commentator
• Bill Singer