• approved registered representatives’ participation away from the firm in raising capital for a company by selling its stock, but imposed conditions on their participation and required that the stock certificates not bear restrictive legends;
• failed to take reasonable steps to monitor or determine compliance with these conditions, including conducting an inquiry of “red flags” that suggested violations of federal securities laws; and
  
• Fischer failed to detect and prevent the representatives’ distribution of unregistered securities in their capacity as underwriters.
  

• monitor for potentially suspicious activity and AML red flags,
  
• investigate potentially suspicious activity and
  
• report suspicious activity by filing a Form SAR-SF with the U.S. Department of the Treasury’s Financial Crimes Network.
  

• failed to adequately implement or enforce its AML program and to otherwise comply with their AML obligations since they did not identify and analyze numerous transactions to determine if they were in fact suspicious, which would require them to be reported on a Form SAR-SF;
  
• permitted suspicious activities to occur undetected and unchecked; and
  
• failed to file SAR-SFs as appropriate.
  

• acted as the placement agent for contingency securities offerings and failed to establish escrow or separate bank accounts in connection with the offerings, and investors were directed to transmit their funds directly to the issuers prior to the contingency being satisfied;
  
• failed to satisfy the minimum contingency for one offering by the closing date, but the offering was not terminated, investor funds were not returned and the offering period was extended; and
  
• raised additional funds but failed to send written reconfirmation offers to subscribers disclosing the extension of the offering prior to the closing date, thereby willfully violating Section 10(b) of the Securities Exchange Act, Rule 10b-9 thereunder and NASD Rule 2110.
  

• prepare accurate net capital computations by erroneously treating a portion of a receivable as an allowable. As a result, the firm failed to file accurate Financial and Operational Combined Uniform Single (FOCUS) reports;
• treat an arbitration award as a liability. As a result, the Firm effected transactions in securities while failing to maintain its minimum net capital requirement; and
  
• prepare accurate net capital computations and filed an inaccurate FOCUS Part IIA Report.
  

• failed to provide, or offer to furnish upon request, available investment information supporting each recommendation;
• failed to disclose that
• Dunne’s firm was a market maker in the company;
• that the firm and/or its officers or partners had a financial interest in the company,
• the nature of the financial interest; and
• failed to provide a fair and balanced assessment, referring only to the company’s upside without any disclosure of the risks.
  

• advised a customer to open an account at another FINRA member firm to reduce his options trading transaction costs,
  
• accepted discretionary trading authority from the customer for the account, and
  
• executed transactions in the customer’s account at the other firm using the customer’s login and password.
  

• advise his member firm in writing that he had discretionary trading authority for the customer’s account at another member firm prior to placing an order in the account, and
  
• did not notify the firm where the account was opened that he was associated with another FINRA member firm.

• failed to maintain and preserve all of its business-related electronic communications;
  
• did not have a system, written procedures or policies relating to the retention of electronic communications in place and, as a result, failed to maintain and preserve electronic communications;
  
• increased the number of registered representatives associated with the firm and failed to file an application with FINRA and obtain FINRA’s approval for the material increase in sales personnel;
  
• conducted business at locations that constituted branch offices that were not registered with FINRA; and
  
• failed to establish and maintain a supervisory system, and failed to establish, maintain and enforce written supervisory procedures that were reasonably designed to achieve compliance with all applicable laws, rules and regulations regarding business-related electronic communications, material business expansions, proper registration of branch offices, a principal approval of advertisements prior to use, and maintaining records of the firm’s Web sites and advertisements.
  

• The firm shall, within 10 business days after the end of the 90-day prohibition, certify in writing to FINRA that it complied with the prohibition, and,
  
• within 90 days of the issuance of the AWC, the firm shall certify to FINRA in writing that the firm currently has systems and procedures in place that are reasonably designed to achieve compliance with laws, rules and regulations concerning the preservation of electronic mail communications.

• permitted an individual to act as an unregistered principal and permitted individuals to be registered as General Securities Representatives or Investment Company and Variable Contracts Products Representatives through the firm without being active in the firm’s securities business;
• sent written communications to customers and prospective customers containing language that failed to provide a sound basis for evaluating the claims within the communications, and that omitted material information and/or contained unwarranted statements;
• failed to record a general securities principal’s approval on mutual fund and variable annuity applications;
• completed and signed a materially inaccurate FINRA Information Request form; and
  
• provided inaccurate information to FINRA staff.

• establish and , maintain a supervisory system and written supervisory procedures reasonably designed to achieve compliance with applicable securities laws and regulations;
• conduct annual reviews of any of the business in which the firm engaged
  
• review registered representatives’ business-related email correspondence with customers;
  
• establish any written procedures providing for the review of its registered representatives’ electronic correspondence;
  
• designate and specifically identify at least one principal to FINRA who would establish, maintain and enforce a system of supervisory control policies and procedures, a
• establish, maintain and enforce written supervisory controlpolicies and procedures
• obtain required information on new account forms, and on mutual fund and variable annuity applications.

• maintained forms of various types that were blank except for customers’ signatures;
• filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) reports setting forth the firm’s net capital position that was accurate by failing to maintain accurate financial books and records; and
  
• did not file an application with FINRA for approval of an ownership change until after the ownership change took place.
  

• implement anti-money laundering compliance procedures, including independent testing and provide training;
  
• enforce the Customer Identification Procedures;
• retain electronic communications; and
  
• failed to provide written confirmations to customers at or before the completion of securities transactions acted as an unregisteredmunicipal securities broker-dealer.

• establish and maintain a system to supervise a registered representative who the firm employed;
  
• establish procedures addressing heightened supervision; and
  
• implement heightened supervision of the registered representative.
  

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 firm’s securities business;
• failed to establish,maintain and enforce a supervisory system, including written supervisory procedures with respect to supervision of registered representatives’ and other associated persons’ 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 firm’s 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 customer’s price to the firm’s 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).

The Firm 

• failed to promptly file documents and information relating to the shelf-offerings of issuers with FINRA’s Corporate Financing Department;
• sold shares in the public offerings of the stock of issuers without first obtaining a required no objections letter from FINRA;
• failed to engage a qualified independent underwriter to perform due diligence and recommend the offering price during its participation in public offerings in which the firmand its associated persons had sufficient holdings of the common equity of the issuers to constitute a presumptive conflict of interest.

The Firm

• failed to register individuals who acted in a supervisory capacity with respect to its investment banking or securities business in the appropriate registration category;
• failed to provide written notification disclosing to its customers either its correct capacity in transactions or that transactions were executed at an average price;
• made publicly available a report on its routing of non-directed orders in covered securities that contained incorrect information as to routing venues;
• made available a report on the covered orders in national market system securities that it received for execution from any person which included incorrect information;
• failed to report transactions in TRACE-eligible securities to TRACE within 15 minutes of the execution time, and incorrectly reported long sale transactions as short sale transactions to the NASDAQ Market Center.

Also, the Firm's supervisory procedures failed to include the date that each designated supervisory personnel assumed responsibility for each area of supervision, and its supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules concerning registration and TRACE.

Brake shared commissions with an unregistered person, a former employee of his member firm who asked him to submit variable annuity purchase applications on his behalf for execution through the firm. Without meeting or speaking with the prospective customer purchasers, Brake signed the applications, which caused them to reflect that he was the representative for the purchases, and then submitted the applications to the firm. Brake received commissions totaling approximately $9,000 for the purchases and paid approximately $7,850 of the commission to the unregistered person.

Isabella fraudulently induced customers, most of whom were retired or nearing retirement, to entrust him with their retirement savings and purchase securities from him by promising that he could achieve sustained annual rates of return of at least 10 percent each and every year, which would allow for consistent annual withdrawal, ranging from 7 percent to 13.5 percent fromtheir investment portfolios without depletion of principal. Many of the customers relied on Isabella’s fraudulent representations when determining to invest their retirement funds with him, and based their decision to retire sooner than they had otherwise planned, at least in part, upon the representation that they would receive enough monthly income from their retirement accounts to live on for the rest of their lives.

Isabella made unsuitable investment recommendations and effected transactions in customers’ accounts without having reasonable grounds for believing that the transactions were suitable for the customers in view of the over-concentration in equities, the related fees incurred, and in light of the customers’ financial situations, investment objectives and needs. Isabella’s promised returns and withdrawal rates proved to be unsustainable, resulting in the depletion of the customers’ retirement savings and forcing some to return to employment. Isabella falsified records maintained by his member firm concerning his customers’ financial situations and goals, and as a result, the customers did not receive the firm’s promised benefit of having an investment manager selected based on their individual needs and financial situations.

Isabella inappropriately obtained confidential contact and employment information about a company’s employees, without their knowledge, authorization or consent, from personnel in the company’s human resources and other departments, and rewarded the contacts for their assistance with gifts.

In addition, Isabella used a false professional designation on correspondence with customers.

Isabella provided false testimony during a FINRA on-the-record interview.

Johnson failed to observe standards of commercial honor and just and equitable principles of trade. Johnson opened a joint account for an elderly customer and Johnson’s acquaintance, funded entirely by the elderly customer’s assets. Johnson’s acquaintance, who served as the customer’s caretaker, withdrew over $14 million from their joint account. Johnson should have raised questions based on the irregularity of the transfer of funds between the accounts, including the size of the transactions and the manner in which the caretaker withdrew money from the joint account before redepositing it in accounts under his sole control.

The trading in the customer’s account generated large capital gain liabilities for Johnson’s elderly customer. Johnson made false statements while under oath during his on-the-record (OTR) testimony about his awareness of expensive gifts the caretaker had given to his sales assistant, and attempted to convince his sales assistant to make false statements during her testimony.

Jordan, a former research analyst with Wells Fargo Securities, LLC ("Wells Fargo") was named in a three count FINRA Complaint alleging that three research reports Jordan authored on Cadence Design Systems, Inc. ("Cadence") did not disclose certain conflicts of interest and that she thereby violated NASD Conduct Rules 2711(h)(1)(A), 2711(h)(1)(C), 2210(d)(1)(A), and 2110.

The First Cause alleged that Jordan failed to disclose in the Cadence Research Report dated February 4, 2005, that she had applied for the position of Corporate Vice President of Investor Relations with Cadence and scheduled employment interviews with members of Cadence’s senior management team.

The Second Cause alleged that Jordan failed to disclose in the Cadence Research Report dated March 2, 2005, that she had interviewed with senior members of Cadence’s management team.

The Third Cause  alleged that Jordan failed to disclose in the Cadence Research Report dated April 28, 2005, that she had accepted Cadence’s employment offer to become its Vice President of Investor Relations; and that she failed to disclose the financial interest she acquired under the terms of the Cadence employment offer.

On appeal from an Office of Hearing Officers Decision (OHO), the National Adjudicatory Council (NAC) imposed the sanctions based on findings that Nouchi and Winters caused their member firms’ books and records to contain inaccurate information about customers selling Class B mutual fund shares by entering sales charge waivers for those customers that falsely represented that these customers were disabled.

Lisa Ann Tomiko Nouchi: Fined $10,000; Suspended 90 days

Marc Winters: Fined $19,882; Suspended 90 days

In connection with the sale of an annuity contract, Rutherford misrepresented to a customer that he would receive a higher return rate than what the terms of the policy offered. Rutherford provided the customer with falsified annual account statements and an altered annuity contract that reflected a higher return rate, when in fact the customer was receiving a lower rate of return. Rutherford falsified an annual account statement by increasing the account balance by over $5,000 in order to mislead the customer into believing that he received additional earnings as a result of the higher rate of return, and deposited over $5,000 of her own personal funds into the customer’s account to compensate him for the disparity in return rates.

After agreeing to reimburse another customer for any early withdrawal penalties in connection with transferring money to his annuity, Rutherford falsified an annuity confirmation statement wherein the account balance was increased to cover a surrender charge that had not been credited after the customer complained that he was charged a penalty for early withdrawal.

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 firm’s 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.

Tomasello misappropriated $5,716 from his member firm by submitting false and misleading invoices and expense reports to the firm and improperly seeking and receiving reimbursement for bogus charges by claiming them as legitimate business expenses (further causing his member firm to have false and inaccurate books and records).

Tomasello provided gifts in excess of $100 to registered representatives at another firm.

Tomasello provided false testimony and failed to provide requested documents to FINRA staff.

FINRA's National Adjudicatory Council (NAC) found that Registered Principal Vines approved the falsification of IRA adoption agreements, in violation of NASD Rule 2110. Essentially, an employee suggested that the firm copy customer signatures from outdated forms onto current versions, rather than contact customers and obtain original signatures. As a result, customers did not receive updated disclosures of their arbitration rights.

Although neither party appealed the May 30, 2008, Office of Hearing Officers (OHO) decision, the NAC called the matter for discretionary review to examine the sanctions imposed.

The OHO Decision fined Vines $10,000; suspended him for 30 days in all capacities; suspended him for 6 months in Principal capacities; and ordered him to attend an ethics training program.

The NAC’s August 25, 2009 Decision imposed higher sanctions than those imposed by the OHO Panel because the NAC concluded that Vines’misconduct was reckless and his decision to leave the falsified forms in the customers’ files was tantamount to concealment.

The Firm shared portfolio trading commissions with Fourcade in violation of Rule 2830(k)’s prohibition against sharing investment company portfolio trading commissions with sales personnel involved in the retail sale or distribution of investment company shares. Notwithstanding its awareness of the payments, the Firm failed to supervise the arrangement and the payments thereunder, and failed to ensure compliance with FINRA directed brokerage rules. 

Bear Stearns & Co., Inc., nka J.P. Morgan Securities, Inc.: Censured; Fined $225,000

Renee Michelle Fourcade: Censured; Fined $15,000

The Firm failed to

• establish and maintain adequate supervisory systems within its retail brokerage operation to supervise registered representatives’ sales of a hedge fund of funds to retail customers. 
• adequately supervise, approve and record private securities transactions a registered investment advisor engaged in on the firm’s behalf on its books and records.

The Firm's registered representatives used marketing materials that 

• contained hypothetical returns, 
• failed to make adequate disclosure of the risks involved,
• failed to provide a sound basis for investing in a hedge fund of funds, and 
• made exaggerated or unwarranted claims in its marketing materials.

The Firm 

• acted as the placement agent for a contingency offering of securities:
  • failed to satisfy the minimum contingency of the offering by the closing date, 
  • failed to terminate the offering and return investor funds,
  • extended the offering period; and raised additional funds, but failed to send written reconfirmation offers to investors regarding the extension and material updates prior to the closing date, and
  • failed to establish a proper escrow account in connection with the offering and directed a premature release of investor funds from the escrow account prior to satisfying the offering contingency requirement; 
• made improper payments to nonregistered foreign entities for referrals of customers: 
  • one customer was not a foreign entity domiciled abroad, 
  • the firm did not obtain written acknowledgment of the existence of the compensation arrangement, and 
  • the firm failed to provide a descriptive document disclosing what compensation was being paid to the nonregistered foreign entities;
• failed to implement its anti-money laundering (AML) compliance program, in that it failed to monitor transactions for red flags. 
• failed to preserve email correspondence relating to its securities business for at least three years. 
• failed to timely forward an investor’s check payment for an offering to the escrow account and, as a result, the firm held customer funds while conducting a securities business and became subject to a net capital requirement that it did not satisfy. 

King willfully failed to amend her Uniform Application for Securities Industry Registration or Transfer (Form U4) with material information, and failed to fully and timely respond to FINRA requests for information and documents. 

Impellizeri omitted material information regarding OTCBB securities. Impellizeri omitted from his disclosures to the customers the potentially lucrative benefits that could accrue to his member firm from his sale of the securities because of the firm’s potential consulting arrangements with the issuers and positions in their stock. 

NAC imposed sanctions:

The Respondent

• raised over $1.5 million from investors through offers and sales of limited partnership interests in a hedge fund, and made numerous misrepresentations in connection with the offers and sales that were inconsistent with the private placement memorandum (PPM); 
• used over $1.3 million of the funds raised to invest in promissory notes issued by private companies in which he had a controlling interest, and made misrepresentations regarding 
  • the fund’s investment strategy, 
  • the concentration of investment funds in particular investments; 
  • the use of funds, and 
  • the amount of management fees and other expenses charged to the fund 
• omitted to timely disclose material facts including that he exercised sole discretion over the fund’s operations;
• misused customer funds received in connection with the fund offering by obtaining debit cards linked to accounts and utilized the cards to pay for personal and non-business related expenses;
• caused funds from the various accounts to be transferred to his personal brokerage account and caused monthly payments for non-business related expenses to be drafted from one of the accounts; and
• failed to properly supervise the activities of a registered representative for whom he had supervisory responsibility, and failed to review the representative’s email correspondence. 

Through his member firm, Respondent conducted an unregistered offering of the securities of an entity for which there was no available exemption due primarily to the offering being conducted pursuant to a general solicitation, and failed to timely disclose to investors that the firm was under common control with the issuer, in that he owned both entities. 

Derby and Mullins verbally communicated a guarantee against loss to an institutional investor in connection with the sale of Collateralized Debt Obligation (CDO) securities. 

Dan Alexander Derby: Fined $10,000 (must be paid either immediately upon his reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier); Suspended 30 days in all capacities.

Jeffry Alan Mullins:Fined $10,000; Suspended 30 days in all capacities.

Bartley's and Donaldson's member firm entered into a “Selling Agreement” with a company to serve as a selling agent for the company’s offering and sold the unregistered offering pursuant to an exemption from SEC registration pursuant to Regulation D. Acting on the firm’s behalf, Bartley and Donaldson sold interests in the company’s offering to investors with whom neither they nor the firm had any pre-existing relationship prior to the time that they contacted them relating to a potential investment in the offering company, thus engaging in a general solicitation with respect to the offering. Bartley sent a document to prospective investors relating to the offering, which was not fair and balance, omitted material risks relating to the offering, and she failed to obtain approval from a firm principal prior to sending the document to prospective investors. 

Linda Jo Bartley: Fined $15,000; Suspended 2 months in all capacities

William Arthur Donaldson: Fined $5,000; Suspended 1 month in all capacities

The firm failed to 

• establish and implement policies and procedures reasonably designed to detect and cause the reporting of suspicious customer activity; 
• detect, investigate and conduct due diligence when red flags associated with suspicious activity were present; 
• file Suspicious Activity Reports (SARS) when red flags associated with suspicious activity were present; 
• follow its written supervisory procedures, in that it failed to conduct appropriate risk-based due diligence for correspondent accounts of foreign financial institutions customers owned, and failed to implement adequate supervisory procedures to monitor the suspicious activity in those accounts;
• perform AML customer identification reviews for customers, as required by its procedures, which would have revealed that several accounts appeared to be shell vehicles for possible securities fraud; 
• file SARS on individuals possibly engaged in insider trading; and
• adequately test its AML compliance program and, during a two-year period, failed to conduct or document AML training. 

The Firm paid transaction-related compensation to non-registered foreign finders who did not meet the requirements for compensation; failed to provide documents to its customers that disclosed the compensation being paid to foreign finders, and the customers’ confirmation statements failed to indicate that a referral or finder’s fee was being paid. The foreign finder signed account documents and no one from the firm signed the documents accepting the accounts which contained discrepancies and were incomplete. Moreover, the Firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with rules relating to its foreign finders and foreign associates business.

The Firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with FINRA’s advertising rules resulting in firm violations with its Web site and advertisements. 

The Firm failed to conduct searches of firm records with respect to information requests from the Financial Crimes Enforcement Network. 

The Firm failed to 

• establish and implement policies, procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and implementing regulations thereunder, and
• make and keep adequate written reports of an annual inspection and review of its Office of Supervisory Jurisdiction. 

The Firm's AML compliance officer was responsible for implementing and monitoring the day-to-day operations and internal controls of the firm’s AML compliance program and, for about two years, failed to include internal controls reasonably designed to achieve compliance with implementing regulations of the Bank Secrecy Act. 

The Firm 

• acted as the placement agent for a contingency offering of securities:
  • failed to satisfy the minimum contingency of the offering by the closing date, 
  • failed to terminate the offering and return investor funds,
  • extended the offering period; and raised additional funds, but failed to send written reconfirmation offers to investors regarding the extension and material updates prior to the closing date, and
  • failed to establish a proper escrow account in connection with the offering and directed a premature release of investor funds from the escrow account prior to satisfying the offering contingency requirement; 
• made improper payments to nonregistered foreign entities for referrals of customers: 
  • one customer was not a foreign entity domiciled abroad, 
  • the firm did not obtain written acknowledgment of the existence of the compensation arrangement, and 
  • the firm failed to provide a descriptive document disclosing what compensation was being paid to the nonregistered foreign entities;
• failed to implement its anti-money laundering (AML) compliance program, in that it failed to monitor transactions for red flags. 
• failed to preserve email correspondence relating to its securities business for at least three years. 
• failed to timely forward an investor’s check payment for an offering to the escrow account and, as a result, the firm held customer funds while conducting a securities business and became subject to a net capital requirement that it did not satisfy. 

Williams provided a prospective client with a piece of sales literature for a variable annuity that he had falsified by altering it. 

• The original time periods for charges associated with fund withdrawal had been deleted and replaced with handwritten shorter time periods, falsely reflecting lower charges associated with withdrawal of funds from the variable annuity; 
• the information regarding the annual contract fee and investment portfolio expenses were crossed out, falsely suggesting that they would not be imposed; and 
• additional charges associated with optional features were deleted, falsely suggesting that there were no additional fees for the optional features. 

Williams also made verbal misrepresentations to the client about the variable annuity that were consistent with the false information in the falsified sales literature.

Washington assisted customers in opening fraudulent bank accounts and withdrawing money from the newly opened fraudulent accounts, and received approximately $4,700 in compensation for assisting in the scheme. Customers of Washington’s member firm opened the bank accounts with falsified identifying information and made initial deposits of money with counterfeit checks drawn on the accounts of the firm’s other customers. At the customers’ direction, Washington made branch and automatic teller machine (ATM) withdrawals for the customers, despite knowing that the customers deposited counterfeit checks and that fraud alerts were placed on the accounts. The bank lost a total of $43,093.81 from the scheme. 

NEWSLETTERS

• XXX distributed newsletters that a principal of his member firm had not approved for distribution, thereby preventing his firm from complying with NASD Rule 2210(C)(1) by providing the newsletters to FINRA’s Advertising Regulation Department for approval; 
• the newsletters failed to prominently disclose the firm’s name as the broker-dealer through which he conducted his securities business; and 
• one of the newsletters referenced an unregistered entity through which XXX engaged in business but did not disclose the relationship between his firm and the unregistered entity. 

SEMINARS

• XXX distributed invitations to seminars about financial matters, including investments, and a firm principal had not approved the content of the invitations;
• the invitations and XXX’ Web site misrepresented that he was the author of books; 
• the invitations contained misleading and exaggerated information and failed to identify his firm as the broker-dealer. 
• XXX conducted seminars at which he made publications available for review, and offered to distribute the publications that were purchased from a vendor of investment publications, which a principal of his firm had not approved, and thereby prevented his firm from complying with NASD Rule 2210(C)(1) by providing the newsletters to FINRA’s Advertising Regulation Department for approval;
• XXX offered to distribute the publications on his public Web site. The publications contained violations of the content standards in FINRA Rules 2210(d)(1) and (2) and included statements that were misleading, inaccurate or unwarranted; and
• XXX used a script in presenting material at the seminars that was outdated and misleading. 

Russo failed to provide written notice to his member firm that he was engaged in outside business activities for compensation. While associated with a member firm, Russo opened an account with another member firm and failed to notify either his member firm or the executing member firm, in writing, of his association with the other firm. 

Ligon paid Mongelli a $50,000 referral compensation fee when Mongelli referred brokerage customers to Ligon because he was not registered to do business in the states of residence for those referred customers, and Ligon subsequently served as the registered representative for the accounts. 

Jamik Jamar Ligon (Principal): Fined $7,500; Suspended 2 months

Rocco Anthony Mongelli: Fined $10,000; Suspended 3 months

Kent 

• participated in private securities transactions, received compensation for his participation, failed to provide his member firm with prior written notice, and failed to receive the firm’s prior written approval;
• engaged in outside business activities and failed to provide his firmwith prompt written notice. 
• negligently failed to advise investors and firm customers of material facts concerning a real estate venture and his involvement; specifically, that proceeds from the venture were to be applied towards defaulted bank loans for which he was personally liable.

At the end of the trading day, Heynen entered fictitious sell transactions for the total amount of her long positions. The next morning her back office realized that the transactions did not match those reported with the Street and, in response, Heynen cancelled the transactions.

Heynen entered the fictitious sell transactions into her member firm’s Phase 3 order entry system, which is a back-office service provider and allows users to book transactions into the firm’s books and records without actually executing the claimed transactions. Heynen entered the fictitious sell transactions and maintained long positions to circumvent the firm’s trading account limits per security and total trading limit for her proprietary trading account. 

As a result of entering the fictitious sell transactions, Heynen concealed a $76,810 unrealized trading loss from her firm. Heynen caused her firm’s books and records to reflect false and misleading information regarding securities transactions in her account and, by entering the fictitious sell transactions at prices that concealed her unrealized trading losses, she engaged in unethical business conduct. 

Dowling exercised discretion in a customer’s account, and effected transactions and electronic fund transfers primarily involving the purchase of small equity positions and the writing of covered calls against these positions. Although Dowling had a power of attorney from the customer, her member firm had 

• not accepted the customer’s account as discretionary; and 
• denied her trading authority over the customer’s account. 

Dowling failed to appear for an on-the-record sworn statement that FINRA requested. 

Crawford borrowed $25,000 from customers and obtained this loan notwithstanding the fact that his member firm had written procedures that prohibited borrowing from, or lending money to, customers. Crawford failed to update his Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose material information. Crawford failed to respond to FINRA requests to appear for on-the-record testimony. 

Abbott presented seminars to promote the sale of reverse mortgages and solicit various types of investments from senior citizens contrary to his member firm’s prohibition of engaging in any reverse mortgage business, including the promotion and sale of reverse mortgages. 

In connection with the seminars, Abbott 

• sent invitations that used exaggerated and unwarranted claims, and used a slide and handouts that projected unfounded claims of future performance;
• issued public communications containing unbalanced discussions of reverse mortgages and making claims regarding his expertise and status in the financial industry that were misleading, false, unwarranted or lacked a sound basis;
• distributed communications that provided incomplete and unbalanced discussions of investment products and omitted  material information;
• used communications in the seminars without a registered firm principal’s prior written and dated approval and failed to file slides used in his presentation with FINRA’s Advertising Regulation Department; 
• failed to disclose the broker-dealer’s name in the seminar invitations .

RBC Capital Markets Corp allowed associated persons to function as research analysts without having Series 86 or 87 research analyst registrations. The unregistered analysts published more than 3,500 research reports, and published more than 400 research reports after FINRA informed the firm that it had made a preliminary determination to recommend disciplinary action be initiated (one of the cited reports was published 7 months after the issuance of the Wells Notice) against the firm for its failure to appropriately register its research analysts (the Wells Notice). 

Weitz 

• provided a draft of a research report that contained a research summary, rating and price target to the company whose stock was featured as a stock pick, and did not provide a complete draft of the research report to his firm’s legal or compliance personnel prior to sending the report to the company;
• failed to disclose his ownership of securities that he profiled in research reports;
• purchased securities within 30 days prior to the security being featured as a stock pick and before his firm’s legal or compliance officers pre-approved the Stock Pick section of the research report. 
• failed to disclose valuation methods used to determine the price target and the risks to achieving price targets;
• failed to certify that the views in sections of research reports that he authored or contributed to were his own. 

Haggerty 

• did not have the required Series 86 or 87 (Research Analyst Qualification Exam) licenses required for research analysts when she was the principal author of or contributor to the Stock Pick sections of her member firm’s newsletter;
• failed to disclose her ownership of securities that she profiled as Stock Picks because she did not treat the section as a research report;
• purchased a security for her own account within 30 days prior to the security being featured as a Stock Pick, and before her firm’s legal or compliance officers pre-approved the Stock Pick section of the newsletter;
• failed to disclose valuation methods used to determine the price target in any Stock Pick section and the risks to achieving the price targets in her stock picks; and
• failed to certify that the views in the sections of the firm’s newsletter that she authored or contributed to were her own. 

REDACTED electronically affixed two customer names to three solicitor disclosure statements without their specific authority, and created an email that was purportedly received from the customer, which he forwarded along with the false disclosure statements to his member firm for processing. By creating a false disclosure statement,REDACTED caused his member firm to violate the requirements of the Investment Advisors Act of 1940 and, by creating the purported email, REDACTED caused his firm’s records to be inaccurate and thereby prevented it from meeting its obligation to preserve, for a period of not less than six years, the first two years in an accessible place, all records required pursuant to SEC Rule 17a-4(b)(4). 

Also, REDACTED engaged in outside business activities and private securities transactions without written notice to, or approval from, his member firm. REDACTED failed to respond to FINRA requests for documents and information. 

Nussbaum failed to respond to FINRA requests for documents and information; and failed to honor an Arbitration Settlement Agreement.

Brad Niel Nussbaum: 

• for failure to respond to FINRA requests for documents and information: Barred 
• for failing to honor an Arbitration Settlement Agreement: Fined $10,000; and he is Suspended until the Settlement Agreement is paid or otherwise satisfied in full plus 30 business days thereafter but if he fails to so satisfy within 24 months of the decision, then the suspension converts to a Bar

Josephson engaged in unauthorized transactions in a relative’s variable annuity account by submitting surrender or withdrawal requests through his member firm to the issuer of the variable annuity, which caused the liquidation of $48,716.81 from the account without the relative’s knowledge or consent, and in the absence of written or oral authorization to exercise discretion in connection with the variable annuity. 

In furtherance of the above scheme, Josephson

• received checks payable to his relative in the total amount of $45,230.15 as a result of the unauthorized partial liquidations;
• negotiated the checks and spent the funds; and
• without his relative’s knowledge and consent, affixed, or caused to be affixed, her signature to surrender or withdrawal request forms and as endorsements to checks payable to her. 

Josephson failed to appear for a FINRA on-the-record interview. 

Hill issued checks totaling $479,450 from customer accounts to corporate payees representing that he was purchasing race horses for the customers; but, instead, converted $350,000 to his own use by arranging for the corporate payees to issue checks made payable to him for the same dollar amounts, less a small administrative fee. Also, Hill settled a customer complaint for $12,000 and failed to inform his member firm about the complaint. 

Gruber permitted Helms to complete his member firm’s Firm Element Web-based courses and accompanying proficiency tests on his behalf, which Helms passed for Gruber. 

Joseph Benjamin Gruber (Principal): Fined $5,000; Suspended 3 months

Judy Dian Helms (Associated Person): Fined $5,000; Suspended 1 month

Without his member firm’s knowledge or permission, Conrod 

• used the firm's internal information, including some confidential and proprietary materials for a proposed hedge fund; 
• contacted potential investors, including some firm institutional investors, regarding possible interest in investing in the proposed hedge fund; and 
• used the firm’s name in the proposed hedge fund’s business plan in a manner which could be reasonably misinterpreted to indicate that the firm was aware of and/or approved of the proposed hedge fund. 

The materials Conrod created and utilized in communications with the public for the proposed hedge fund were not approved by a registered firm principal prior to use, were not fair and balanced, and contained statements that were exaggerated and/or unwarranted and contained promises of specific results, and/or predictions or projections of investment performance. The email correspondence Conrod utilized with the public contained false and/or misleading statements or claims. 

Contrary to his member firm’s policy and approval, Boeckel borrowed $5,000 from a relative, who was also a customer of the firm, and signed the relative’s name on numerous checks without authority.

Boardman borrowed $25,000 from the customer contrary to her member firm’s written procedures prohibiting a representative from borrowing from a customer unless the two are related. Boardman was not related to the customer and failed to repay the loan. Boardman signed questionnaires certifying that she was in compliance with the firm’s compliance manual. Boardman failed to respond to FINRA requests for information.

The Firm failed to 

• establish and maintain an adequate supervisory system, including written procedures, to supervise the firm’s trading and market making;
• reasonably supervise individuals to detect their manipulations of the price of a thinly traded common stock;
• establish and implement AML policies and procedures that could reasonably be expected to detect and cause the reporting of suspicious securities transactions, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder. 

The firm failed to 

• provide for appropriate procedures and controls and an appropriate system of follow-up and review with respect to its obligations to provide 
  • appropriate procedures for supervision of business operations on the NYSE Trading Floor;
  • adequate supervision of its sole branch office, review of options accounts by a delegated person; ensure that its operational and regulatory activities were supervised and that it had systems, procedures and staff to follow-up and review all areas of its business activities, including its anti-money laundering (AML) program, suspicious activity reporting and its branch office to ensure compliance with applicable securities regulations and NYSE rules;

• supervise the trading activity of its president and chairman; 
• ensure that electronic communications with the public were reviewed and retained; 
• establish an AML compliance program that detected and caused the reporting of certain transactions; 
• establish and implement policies, procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder; 
• provide for independent testing for compliance; and designate adequate and trained staff to ensure compliance with the Bank Secrecy Act;
• document error accounts trades that a floor broker made;
• deliver original or updated options disclosure document prior to newly approved customers or previously approved options accounts;
• properly record all revenue and expenses on an accrual basis; 
• maintain minimum net capital compliance; and
• implement adequate best execution procedures and conduct a formal analysis of best execution data. 

The Firm 

• employed independent contractors without adequately complying with NYSE regulations;
• handled options accounts activity in violation of NYSE regulations; and 
• failed to comply with the firm element of the continuing education rule. 

Schumacher failed to 

• reasonably discharge his supervisory duties as president and chairman; and 
• document error accounts trades that a floor brokermade.

The Firm failed to 

• promptly amend registered representatives’UniformApplications for Securities Industry Registration or Transfer (Forms U4) to report the settlement of a lawsuit, 
• timely submit an amended Uniform Termination Notice for Securities Industry Registration (Form U5) to report an investment-related written complaint against a representative; 
• timely file FINRA Rule 3070 reports to disclose various reportable events. 

The Firm failed to

• inclued the required analyst certification regarding the analyst’s compensation in a research report, and 
• include in a clear and prominent manner the certification that the view expressed in the report accurately reflected the analyst’s personal views about the subject company; and
• enforce and maintain a supervisory system, including policies and procedures, reasonably designed to ensure compliance with SEC Regulation AC and NASD Rules 2210 and 2211. 

Associated Person Wilkerson failed to disclose material information on her employment application with a member firm. 

Webb 

• effected the purchase of stocks for an account, for which he was directly or indirectly interested, when he knew that a hedge fund customer who had moments earlier withdrawn an order it placed with Webb for the same stock, intended to purchase the stock elsewhere;
• provided false information to his member firm that he had executed a trade for a customer order when, in fact, he did not possess a customer order;
• attempted to conceal his misconduct by requesting sales traders at an affiliate firm to locate a buyer for stocks he had already purchased for his firm’s facilitation account, and to locate an existing order ticket with a time stamp prior to his purchase of the stock in order to make it appear that the purchase for his firm’s facilitation account had been intended for a customer.

Weaver and Will participated in private securities transactions, for compensation, in the sale of securities issued by another firm and did not provide prior written notice to, or receive prior approval from, their member firm. They incorrectly answered “no”when asked on required annual compliance questionnaires whether they had ever been paid or received a referral or finder’s fee from anyone for referring securities clients and/or business. 

Randy Brian Weaver: No fine in light of financial status; Suspended 9 months

Richard Lance Will: No fine in light of financial status; Suspended 8 months

Toth willfully caused the filing of a Form U4 that contained a misrepresentation of material fact.

Tommasino 

• caused his member firm to 
  • maintain and preserve inaccurate books and records in violation of Section 17(a) of the Exchange Act and SEC Rules 17a-3 and 17a-4 thereunder, and NASD Rules 2110 and 3110; 
  • aid and abet a violation of Section 15(a)(1) of the Securities Exchange Act of 1934 by permitting a person not registered as a broker-dealer, who had been barred from the securities industry, to perform duties that required registration; and
  • to violate New York Stock Exchange (NYSE) Rule 345(a) by permitting a person who was not registered with, qualified by or acceptable to the Exchange, to regularly perform the duties customarily performed by a securities lending representative. 
• agreed to pay and caused transaction-based compensation to be transmitted to a non-registered person who had been barred from the securities industry, 
• failed to disclose to his firm that he had agreed to pay and caused transaction based compensation to be transmitted to a non-registered person who had been barred from the securities industry, and 
• failed to disclose to his member firm that he had agreed to pay and caused transaction-based compensation to be transmitted to a finder. 

Acting through Moore, his firm failed to 

• establish and maintain a system to supervise a registered representative’s activities and to adequately investigate the representative’s disciplinary background. The RR's' disciplinary history should have alerted the firm to the fact that the representative required heightened supervision, but the firm failed to establish procedures addressing heightened supervision and failed to implement the representative’s heightened supervision; and
• supervise the representative by failing to ensure that new account forms that he submitted contained the required information. 

Moore falsely represented to the Texas State Securities Board that the representative had not engaged in a securities business in Texas prior to the execution of an undertaking that his firm agreed to and that Moore signed for allowing the representative’s registration in Texas. Also, Moore unreasonably delegated some of his supervisory responsibilities to an inexperienced, untrained and unregistered subordinate, and failed to review firm records to learn about the extent of the representative’s activities in his customer’s accounts. 

While Effron was registered with a member firm, he engaged in outside business activities and failed to provide prompt written notice by completing and submitting an Outside Business Activity Notification Form. 

Effron placed variable annuity transactions through his member firm for customers of a representative from another member firm without discussing the transactions with the customers, and after receiving the completed and signed applications, he submitted them to his firm for processing. Effron received commissions from the transactions and forwarded most of the commissions to the representative without advising his firm of the arrangement. 

Dion failed to comply with the terms of a written settlement agreement he executed in connection with an arbitration case. 

Richard George Dion: Fined $5,000; Suspended until he fully satisfies the terms of a settlement agreement by paying a former member firm $75,000 and providing satisfactory proof thereof to FINRA, or entering into a superseding settlement agreement with the firm and providing satisfactory proof of the agreement to FINRA; Suspended from association with any FINRA member in any capacity an additional 30 business days upon FINRA’s receipt of satisfactory proof of his full satisfaction of the original or superseding settlement agreement

The Firm 

• failed to evidence approval of research reports and to properly disclose securities holdings in research reports; 
• failed to, enforce procedures to ensure compliance with FINRA rules requiring approval of research reports, establish and maintain a supervisory system reasonably designed to ensure that disclosure of securities ownership complied with FINRA rules, promulgate and enforce firm policies and procedures concerning review of employee electronic communications with the public that comported with the standards set forth in FINRA rules; 
• failed to request and receive duplicate statements for employee brokerage accounts in contravention of its policies and procedures;
• was unable to evidence requests or approvals of dual employment for employees as required by its policies and procedures;
• failed to evidence that it conducted annual branch inspections;
• failed to file an accurate Annual Compliance Report for one year;
• failed to report customer complaints;  
• unable to evidence that it timely filed Uniform Termination Notices for Securities Industry Registration (Forms U5) and that its Compliance Registered Options Principal regularly furnished the required options activity reports to the compliance officer and other senior management;
• failed to file an accurate annual attestation regarding NYSE Rule 472; and
• failed to make and keep accurate records of the computation of aggregate indebtedness.

Acting under Davis’ direction and control, the Firm participated in private placements of securities. The private placement memoranda for the offerings provided that the offerings were contingent upon receiving subscription agreements for established minimums, and the financing agreements provided that the escrow agent shall promptly return all escrowed funds to the investors should the contingencies not be met. The business bank accounts were established in the issuers’ names, into which the offering proceeds were deposited, and these business accounts failed to conform to the requirements of SEC Rule 15c2-4 for accounts holding investor funds pending satisfaction of an offering contingency. 

Paulson Investment Company, Inc. and Trent Donald Davis: Censured, Fined $10,000 jt/several; Required to provide certification that the firm has complied with SEC Rule 15c2-4 to FINRA within 10 business days of the closing of all contingent offerings conducted by the firm during the 12 months following acceptance of this AWC.

Windham and Constantin 

• refused to allow FINRA staff to enter the firm’s branch office to examine the firm’s books and records, and to otherwise conduct an on-site examination;
• failed to respond to FINRA requests for documents and information, and
• have not established the existence of the vast majority of the books and records that the firm is required to make and preserve.

Acting through Constantin, Windham failed to maintain and preserve numerous books and records required pursuant to Securities and Exchange Commission (SEC) Rules 17a-3 and 17a-4, and NASD Rule 3110.

Windham Securities, Inc.: Expelled

Joshua Constantin (Principal): Barred

Chief Compliance Officer Strong failed to supervise a research analyst who sold securities in his personal trading account contrary to the recommendations contained in various firm research reports, and allowed the trader to execute purchase transactions during the blackout periods. Strong failed to include, or included insufficient or inaccurate required disclosures in research reports, and failed to timely file an annual attestation of supervisory procedures for research analysts.

http://sec.gov/litigation/opinions/2008/34-57426.pdf

McKinney was assigned a corporate credit card by an affiliate of hismember firm and, without the knowledge, authorization or consent of the affiliate or the firm, 

• used the credit card to purchase merchandise for his personal benefit and purchased additional merchandise for his personal benefit which was billed directly by the vendors to the affiliate; and
• sold some of the merchandise that he obtained and retained the proceeds of the sales. 

McKinney failed to respond to FINRA requests for information. 

McCarthy 

• permitted an individual to perform functions requiring principal registration without being registered with FINRA in that capacity;
• failed to enforce his member firm’s written supervisory procedures requiring that a Watch/Restricted list be maintained while the firm participated in underwriting activities; and
• failed to file a Suspicious Activity Report (SAR) in connection with suspicious stock transactions and wire activity involving the sale of over one billion shares of a sub-penny stock from the account of one customer resulting in total proceeds of over $786,000. 

The exact wording of the relevant part of FINRA's report, is that Kuklensi :

misappropriated $200 in customer funds from his member firm by removing the funds from a cash drawer after regular business hours. 

NASD found that Associated Person Craig willfully failed to disclose four felony charges and one misdemeanor conviction on his Uniform Application for Securities Industry Registration ("Form U4") in violation of NASD Membership Rule IM-1000-1 and Conduct Rule 2110.The SEC imposed the sanction following appeal of a NAC decision. The sanction was based on findings that Craig willfully failed to disclose material information on his Form U4. 

SEC Decision: http://sec.gov/litigation/opinions/2008/34-59137.pdf 

The firm and Baldwin failed to respond completely and fully to FINRA requests for information. For a commentary on this interesting case, see The Cost of Telling a Regulator to Go To Hell (figuratively, that is) at http://www.brokeandbroker.com/index.php?a=blog&id=118  What makes this case particularly interesting -- if not edgy? For starters, consider this language from the SEC's decision:

Moreover, we find troubling the contradictory statements given by Enforcement's witnesses with respect to respondents' failure to respond to the final disposition letter.  The differing responses from Enforcement's witnesses, coupled with the confused nature of the FINRA examiner's testimony, raise considerable questions concerning the accuracy of Enforcement's general assessment that respondents did not respond completely to the requests...

Acting on a member firm’s behalf, Pellegrino failed to develop an adequate supervisory system reasonably designed to achieve compliance with applicable securities laws, regulations and NASD Rules, and ignored “red flags” that should have resulted in additional supervisory scrutiny. Pellegrino’s supervisory failures resulted in firm registered representatives making unsuitable recommendations and misleading customers as to the risks of proprietary products over an extended time. Pellegrino facilitated the representatives’ misconduct by promoting sales to firm customers rather than improving compliance. He failed to enforce the firm’s written supervisory procedures regarding suitability determinations, and failed to take reasonable steps to monitor and have the firm perform appropriate individual suitability determinations based on each investor’s personal financial needs as prescribed in the firm’s supervisory and compliance manuals rather than solely on suitability guidelines. 

READ SEC Decision

De Zoysa published research reports in which she made false, exaggerated, unwarranted or misleading statements, and published the reports, which she knew were false or misleading. De Zoysa was involved in a romantic relationship with an executive of a company within her coverage area and failed to disclose the relationship, which created an actual, material conflict of interest. In contravention of her firm’s directive, De Zoysa created and deleted documents on her laptop computer after commencement of the firm’s internal investigation. 

Dhulsini Hemani De Zoysa: Fined $10,000; Barred in any capacity requiring the Research Analyst Series 86 (Analysis) and/or Series 87 (Regulatory Administration and Best Practices); Suspended 12 months in all capacities.

Clarkson 

• submitted variable life insurance applications for customers to his member firm, signing customers’ names on various documents without the customers’ knowledge, authorization or consent; and
• created checks purporting to be from the customers (or purchased money orders with his own funds, signing the customers’ names to the money orders) and submitted them with the insurance applications to his member firm without the customers’ knowledge, authorization or consent. 

By engaging in this conduct, Clarkson received $41,667.98 in commissions from his firm, which subsequently reversed the commissions. 

National failed to establish, maintain and enforce an adequate supervisory system and written supervisory procedures to supervise its securities lending business and registered securities lending representatives to prevent and detect fraudulent activity. 

The Firm failed to

• include a description of 
  • what managers were to look for in reviewing Loanet reports, 
  • the steps to be taken if questionable activity was discovered, and 
  • how to document and maintain documentation of supervisors’ oversight activities;
• failed to take steps to detect and prevent a registered representative from participating in fraudulent stock loan transactions for his personal benefit;
• establish and maintain a separate system of follow-up and review to ensure that delegated supervisory authority and responsibility were being properly exercised. 

National permitted a stock loan supervisor to review his own transactions. 

EuroPacific failed to

• timely adopt a written Anti-Money Laundering (AML) program, provide AML training and respond to information requests from the Financial Crimes Enforcement Network of the U.S. Department of the Treasury;
• file an application to obtain FINRA’s approval for a material change in its business operations when its minimum net capital increased due to the receipt of customer checks; and
• establish and maintain a supervisory system and written procedures reasonably designed to ensure compliance with rules concerning best execution of customer foreign securities transactions. 

Also, the Firm's Website did not present balanced discussions of risks and contained misleading, exaggerated and unwarranted statements, and contained comparisons of services that failed to disclose all material differences. 

Acting through Kaplan, LF Financial failed to

• report, or timely report, disclosable settlements and disclosable regulatory orders; 
• timely file summary and statistical information for customer complaints that the firm received. 
• file a Uniform Application for Securities Industry Registration or Transfer (Form U4) amendment and failed to timely file amendments to Uniform Applications for Broker-Dealer Registration (Forms BD), Forms U4 or Uniform Termination Notices for Securities Industry Registration (Forms U5). 

LF Financial, LLC: Censured; Fined $15,000 jt/several with Kaplan

Jed Philip Kaplan (Principal) Censured; Fined $15,000 jt/several with LF Financial

Acting through Dash, Hallmark 

• filed a membership application that was incomplete or inaccurate so as to be misleading, and failed to correct the filing, and T
• failed to file a required application with FINRA for approval of change of ownership. 

Dash engaged in private securities transactions without providing prior written notice to his member firms or securing the firms’ written approval. 

Hallmark Investments, Inc.: Censured; Fined $15,000

Steven Gary Dash (Principal) No Fine in light of financial status; Suspended 2 months in all capacities

Acting through Itzen, Choice 

• approved a research report for a company that was issued to the firm’s customers, but did not contain a disclosure that the firm had received compensation for investment banking services from the company, and
• failed to ensure that the research reports contained such disclosure. 

Choice issued subsequent research reports that did not contain such disclosure. 

Choice Investments, Inc.: Censured; Fined $20,000 ($10,000 Jt/severl with Itzen)

Donald Arthur Itzen (Principal): Fined $10,000 jt/sev with Choice; Suspended 20 business days in Principal capacity only.

Sucoff and Mason engaged in outside business activities, for compensation, without providing prompt written notice to their member firm.

Cary William Sucoff (Principal) and Lewis Mason: Fined $10,000 each; Suspended 15 business days

Smith failed to

• enforce his member firm’s supervisory procedures concerning the review of outgoing written correspondence of registered representatives to ensure that communications with the public were not false or misleading; and
• ensure that his firm’s compliance department pre-approved correspondence sent to more than 10 individuals. 

Brochu and Schlesinger sold Class B units pursuant to a private placement memorandum containing inaccurate financial projections. Brochu and Schlesinger worked on the private placement memorandum, and Brochu supervised registered representatives who worked on the memorandum’s financial projections. Brochu discovered inaccuracies in the financial projections contained in the memorandum and reported them to firm managers, but incorrectly determined that the inaccuracies were not material and did not disclose them to customers who had purchased the securities. Schlesinger accepted the determination that the inaccuracies were not material and should not be disclosed. Brochu and Schlesinger continued to use the inaccurate private placement memorandum to sell additional units. Acting through Brochu, a member firm failed to establish, maintain and enforce a reasonably designed supervisory system and written procedures regarding its registered representatives’ private securities transactions. 

David Francis Brochu (Principal): Fined $20,000; Suspended 15  business days in all capacities

Jill Schlesinger (Principal): Censured; Fined $10,000

Legent failed to develop and implement a written AML program reasonably designed to achieve and monitor its compliance with Bank Secrecy Act requirements. The written AML program did not adequately consider the money laundering risks its introducing firms posed; some of which were conducting high risk AML activities. The AML training program was deficient, and that the firm failed to provide an adequate AML training program for new and existing employees. The Firm failed to file, and to timely file, Suspicious Activity Reports (SARs), and failed to document any internal discussions it might have had, or the reason for any decision that it might have made, not to file an SAR. The Firm effected improper trades by permitting customers to sell securities in cash accounts before making full cash payment, which was in violation of Regulation T, and failed to properly restrict accounts from trading subsequent to this activity. The Firm failed to ensure that, for each transaction in a cash account, full cash payment was made within two days of the settlement of each purchase, regardless of whether or when the security was sold, and the firm’s written supervisory systems and procedures did not adequately address the Regulation T provisions. The Firm failed to make accurate reserve computations. 

Legent Clearing LLC: Censured; Fined $350,000; Required to adopt and implement policies and procedures reasonably designed to ensure compliance with Parts 220.8(a) and 220.8(b) of Regulation T, and to have an officer of the firm certify to FINRA, in writing within 60 days, that the firm has adopted and implemented such policies and procedures.

Acting through Jahre, the Firm filed a misleading and inaccurate Uniform Termination Notice for Securities Industry Registration (Form U5) in connection with a registered representative’s termination. 

Hedge Fund Capital Partners, LLC: Censured; Fined $10,000

Howard Gordon Jahre: Fined $10,000; Suspended 10 business day in Principal Capacity

The Firm 

• prepared and maintained inaccurate customer reserve formula computations and failed to make required deposits to its Special Reserve Account as required by the Securities Exchange Act, and failed to notify FINRA of its failure to make the deposits;
• prepared and maintained an inaccurate net capital computation, trial balance and general ledger, and filed a materially inaccurate Financial and Operations Combined Uniform Single (FOCUS) report in which it overstated its net capital;
• failed to conduct an accurate box count (in that there were certificates in the box for positions that were not on the firm’s stock record, and the amount of shares in the box did not match the firm’s stock record); 
• failed to maintain an accurate securities position record, and did not take steps to obtain physical possession or control of securities failed-to-receive by initiating a buy-in procedure or otherwise in automated customer account transfers (ACATs) failures and customer-related fails; 
• failed to liquidate, or timely liquidate, unpaid-for customer securities positions in cash accounts as required by Regulation T, and permitted customers to purchase securities in accounts that were frozen pursuant to Regulation T without having cash on deposit for the purchases, and failed to liquidate customer positions in a timely manner in customer margin accounts that fell below FINRA’s maintenance margin requirements;
• permitted an individual to act as its operations manager and to perform functions requiring registration as a Financial and Operations Principal (FINOP) when she was not so registered, and also employed a chief compliance officer who was not registered with the firm as a general securities principal or registered in any capacity with the firm;
• had not recently conducted an independent test of its anti-money laundering (AML) compliance program, failed to provide prompt notification to FINRA of the change of its AML compliance officer, failed to conduct ongoing AML training for appropriate personnel, and its AML compliance program was inadequate in that it failed to establish policies and procedures that could reasonably be expected to detect and cause the reporting of suspicious transactions;
• failed to maintain all internal electronic correspondence on non-erasable, non-rewriteable media, and its supervisory system was deficient in that registered persons could delete emails at will, and its written procedures were deficient because they lacked details or explanation;
• failed to maintain a continuing and current firm element continuing education program;
• failed to establish and maintain a reasonable supervisory system for financial and credit risk management relating to its correspondent business;
• failed to reasonably supervise its operations system conversion and its operations activities to detect and/or prevent violations including, but not limited to, inaccurate box counts, position records, buy-in procedures, Regulation T and NASD Rule 2520,maintenance of electronic correspondence and customer account transfers;
• engaged in the practice of improperly liquidating customer money market fund positions and failing to sweep customer free credit balances into customer-designated money market funds or a bank deposit account to create cash flows to meet its daily settlement obligations;
• failed to maintain and provide account documentation to FINRA for accounts liquidated to meet its daily settlement requirements, and failed to comply with FINRA’s Uniform Practice Code in that it validated account transactions and transfers late; and
• failed to report to FINRA, for itself or for any of its correspondent firms, daily INSITE information regarding the number and type of transactions conducted each day, the dollar value of the transactions, the net liquidating equity in proprietary trading accounts, the dollar amount of unsecured customer debits, information about margin debits, and calls in customer accounts and short interest information.

Gossett made unsuitable investment recommendations to public customers, in that they were inconsistent with each customer’s financial situation, investment objective, circumstances and needs. In verbal and written communications with customers, Gossett made misleading or unwarranted claims about his investment strategy, particularly regarding investment risks, and made predictions or projections of the future performance of the strategy without providing a sound basis for evaluating his assertions. Gossett prepared and distributed to prospective customers sales literature about his investment strategy that failed to include risk disclosures and provided misleading information about past performance; provided incomplete and/or misleading information to customers about the performance of their investments and/or the account balance; and prepared an account statement for a customer in which he did not report all of the customer’s account holdings and thus reported an account balance that was greater than actual. 

Gossett exercised discretion in firm customer accounts without the customers’ prior written authorization and his member firm’s prior written acceptance. Gossett enlisted the service of a non-registered individual to solicit investors to open accounts with Gossett, promote Gossett’s investment strategy, assist customers with completing application forms and serve as Gossett’s primary point of contact. As compensation for the services, Gossett agreed to pay the individual half of the commissions he generated from trades in the customers’ accounts. 

In addition, Gossett opened a securities brokerage account with another FINRA member without providing written notice to his member firm and without advising the other firm of his association with a member firm; failed to disclose the account to his member firm after he opened the account; and failed to provide written notice to his member firm that he was engaged in an outside business activity. In response to a request for information, Gossett knowingly provided false and misleading information. 

permission from, her member firm.

Respondents allowed a subordinate client associate to complete the Firm Element training programs for them by completing the modules and taking the applicable proficiency tests using their user IDs and passwords. 

Troy Eric Brown: Fined $5,000; Suspended 10 business days in all capacities

Larry Michael Cole: Fined $5,000; Suspended 10 business days in all capacities

Jeffrey David Swanson: Fined $5,000; Suspended 30 business days in all capacities

Anderson misappropriated money from public customers’ pension plans. This is an interesting scheme, so let me set it out in order and some detail:

For starters: 

Anderson’s company was a third-party administrator for a number of pension plans.

And now the fun begins:

Nastiness #1

1. Anderson received monthly checks from one customer and deposited the funds into his company’s account;
2. However, Anderson failed to forward the funds to the company in which the customer’s pension plan was invested;
3. INSTEAD, Anderson used the funds, which totaled to $222,700, for his own benefit. 

Nastiness #2

4. Anderson removed $250,000 from another customer’s pension plan by using signed blank withdrawal/transfer forms to cover up the $222,700 he had misappropriated from his other customer and used the remaining funds for his own benefit;
5. Following the withdrawal, Anderson created and provided to the second customer falsified statements containing information that would have applied if the $250,000 had not been withdrawn;
6. Then, Anderson used the remaining blank forms to further withdraw funds totaling $62,288 from the customer’s account for his own benefit;
7. Because of the falsified statements, Anderson was able to prevent the customer from discovering the misappropriation in excess of $312,000 for about 14 years. 

Big Surprise!

In addition, Anderson failed to respond to a FINRA request for information and documents and to appear for an on-the-record interview.

The Firm

• failed to preserve business-related instant messages its associated persons sent or received; and 
• failed to establish and maintain a supervisory system reasonably designed to achieve compliance with securities laws, regulations and FINRA rules applicable to the preservation of business-related instant messages. 

The Firm’s membership agreement with FINRA precluded it from holding customer securities and, without filing an application for approval of a material change in business operations, the firm held customer securities on numerous dates within an eight-month period. The Firm conducted a securities business without maintaining its required net capital and maintained materially inaccurate computations of its excess net capital in its books and records for several months. 

The Firm failed to enforce written supervisory procedures, in that it failed 

• to maintain separation between its sales and investment banking departments to prevent communication of material, non-public information concerning investment activity to anyone outside the investment banking department without the prior approval of designated managers; 
• to establish “Grey List” procedures to be implemented when the firm is about to obtain, or has obtained, material, non-public information concerning a security; and 
• to establish a “Restricted List” procedure designed to prohibit insider trading violations and appearances of impropriety. 

The Firm failed to enforce written policies and procedures reasonably designed to prevent the misuse of material, non-public information by the firm or any person associated with it. 

David A. Noyes & Company: Censured; Fined $22,500; Required to revise its supervisory system regarding 

• the misuse of material, nonpublic information by the firm or any person associated with it; 
• maintaining separation between its sales and investment banking departments to prevent communication of material, non-public information; and
• establishing “Grey List” and “Restricted List” procedures.

The Firm 

• did not adequately retain and archive back-up tapes, 
• permitted representatives to change their desktop computer settings to stop outgoing emails from being retained automatically, and 
• did not prevent representatives from deleting emails or moving incoming emails to their desktops prior to daily backups so that emails would not be retained automatically. 
• utilized an email system that overwrote email back-up tapes that contained emails employees sent or received every three or four weeks. 
• permitted representatives to use, or failed to prevent them from being able to use, public instant messaging and other means of electronic communications without retaining the communications. 
• implemented a new email retention system, but the system malfunctioned and the firm did not have adequate systems and procedures in place to detect and prevent the malfunctions. 

"FINRA found that the deficiencies did not result in the firm’s failure to produce emails that were material to any regulatory investigation or legal proceeding."

Acting through Orr, the Firm participated in private placements that were contingent upon receiving a minimum and/or a maximum of investor funds and during the offering periods, the firm failed to transmit investor funds to a bank that had agreed, in writing, to hold such funds in escrow for the investors until the offering contingency was met but, instead, investor funds were held in an account over which Orr had control as escrow agent. As a result of the firm’s control over the funds held in connection with the private placements, it was deemed to be in control of customer funds, which resulted in an increase in its net capital requirement, but the firm was found to be deficient in its net capital while conducting a securities business. 

On the firm’s behalf, Orr failed to maintain a Cash/Checks Received and Forwarded Blotter, or an equivalent record to reflect the receipt and/or forwarding of funds as required by SEC Rule 17a-3. The Firm did not have an adequate email retention system and therefore failed to adequately preserve emails as required. The Firm failed to establish and maintain a supervisory system reasonably designed to ensure compliance with applicable laws, rules and regulations in connection with the private placements conducted by the firm, and the firm failed to retain a written record of the dates upon which reviews and branch office inspections were conducted. 

G.C. Andersen Partners Capital, LLC: Censured; Fined $65,000

Bruce Neal Orr (Principal): Censured: Fined $15,00

Acting through Chachkes, Edelman and others, the Firm sold securities short during the five business days before the pricing of public offerings and then engaged in covering transactions with shares from public offerings in violation of SEC Rule 105: Short selling in connection with a public offering. 

The Firm’s supervisory system 

• failed to provide for adequate and reasonable supervision of the individual representatives’ activities, and its supervisory system and written procedures did not provide for supervision reasonably designed to achieve compliance with and prevent violations of SEC Rule 105. 
• did not include written supervisory procedures providing for a statement of the steps to be taken by the responsible person in connection with SEC Rule 105 supervision. 

The Firm 

• provided inaccurate information in response to a FINRA inquiry, which was caused by its failure to have in place adequate supervisory procedures reasonably designed to ensure that the firm provided responsive information to regulatory inquiries;
• failed to make and preserve books and records, in conformity with SEC and FINRA rules; 
• order tickets did not reflect the correct price, lacked time stamps or contained inaccurate time stamps; and
• failed to preserve brokerage order memoranda for a period of not less than three years, the first two in an accessible place. 

First NewYork Securities, L.L.C.: Censured; Fined $170,000; Ordered to disgorge $171,504.44 in unlawful profits; Required to revise its written supervisory procedures to achieve compliance with, and prevent violations of, Securities and Exchange Commission (SEC) Rule 105, and to include the supervisory steps to be taken by the responsible person in connection with SEC Rule 105 supervision.

Larry Chachkes:Censured; Fined $30,000

Joseph Eric Edelman: Censured; Fined $50,000

Acting through Davenport and other individuals, the Firm 

• failed to obtain written consent to conduct Web CRD searches pertaining to individuals not seeking registration or assignment with the firm, and 
• falsely certified that written consent had been obtained fromthe individuals whose CRD records were searched.

The Firm failed to establish and maintain adequate written procedures to supervise the use of Web CRD, and failed to adequately train and supervise all of the employees who were permitted access to Web CRD to ensure that the requisite written consents were obtained prior to conducting all Web CRD searches. 

Fifth Third Securities, Inc.: Censured; Fined $20,000 ($5,000 jt/sev with Davenport)

Cynthia Lynn Davenport (Principal): Fined $5,000 jt/sev with Firm; Suspended 2 months in all capacities

Stebbins engaged in his member firm’s investment banking and securities business in capacities requiring registration as a representative and principal, but he was not registered in those capacities. Stebbins engaged in an outside business activity, for compensation, without prior written notice to his member firm. Stebbins had a beneficial interest in securities accounts maintained at other member firms and failed to disclose to the carrying broker-dealers that he was associated with FINRAmembers, and also failed to give his member firms written notification that he had a financial interest in securities accounts with the carrying broker-dealers. 

Stebbins knowingly provided false and/or misleading information in response to FINRA requests for information; and failed to respond to FINRA requests to appear for an on-the-record interview and to provide information and documents. 

NAC Decision

SEC Remand Decision

This matter was remanded from the SEC to redetermine the sanctions that should be imposed on Richard F. Kresge ("Kresge"), formerly the president of Yankee Financial Group, Inc. ("Yankee Financial" or "the Firm"), for supervision, reporting, and registration violations. Kresge's violations occurred during a period when new representatives of the Firm engaged in fraudulent sales practices and unsuitable recommendations that caused substantial harm to customers. 

NASD barred Kresge in all capacities, ordered restitution to the customers at issue in the amount of $3,866,426, plus interest, and assessed costs of $9,519.61. NASD stated, “[W]e aggregate respondents’ misconduct for purposes of imposing sanctions because such misconduct emanated from a single, underlying problem: respondents’ addition of, and failure to monitor, the Brooklyn office.” 

The SEC sustained NASD’s findings that Kresge violated Conduct Rules 2110, 3010, and 3070(c) and Membership and Registration Rules 1021(a), 1031(a), IM-1000-1, and IM-1000-3. However, the SEC set aside NASD’s findings that Kresge was liable for violations by certain registered representatives of Yankee Financial of Exchange Act Section 10(b), Exchange Act Rule 10b-5, and Conduct Rules 2120, 2310, and IM-2310-2. The SEC set aside FINRA's earlier findings that Kresge had secondary liability for such fraudulent and unsuitable recommendations. Accordingly, the SEC remanded this proceeding to NASD for a redetermination of the sanctions to be imposed upon Kresge. 

Kresge failed to 

• establish or maintain a system of supervision reasonably designed to achieve compliance with applicable securities laws;
• register an individual, either as a principal or a representative, who was actively engaged in the management of the firm’s securities business as either a principal or representative of his member firm; and
• report customer complaints to FINRA.

The NAC considered Kresge’s violations as a whole and imposed the sanction of a bar in response to the totality of the misconduct. The NAC weighed each violation, in addition to Kresge’s “highly troubling” disciplinary history, and found a bar necessary “to protect investors.” 

Jordan failed to 

• establish, maintain and enforce an adequate supervisory system and written supervisory procedures with respect to the business conducted in a branch office; 
• establish, maintain and enforce written supervisory procedures reasonably designed to achieve compliance with the recordkeeping requirements of SEC Rule 17a-4 as it pertains to preserving electronic communications; 
• develop and implement adequate AML procedures to achieve and monitor its obligations under the Bank Secrecy Act and related U.S. Treasury regulations; and 
• report customer complaints to FINRA. 

The Firm failed to comply with the Taping Rule, in that it 

• provided certain representatives with access to unrecorded telephone lines;
• allowed representatives to accept customer orders on unrecorded telephone lines when the representatives were out of the office; and 
• failed to catalog tape recordings that registered persons had made. 

During a later period, the Firm installed a new system that recorded telephone calls to the hard drives of the computers on representatives’ desks, which was not password protected and was backed up by the firm only once a year, and which allowed representatives access to erase recorded telephone calls. 

Carlton Capital, Inc.: Censured; Fined $40,000; Required to Comply with the NASD Rule 3010(b)(2) (the Taping Rule) for an additional three years until February 17, 2012 and to Retain an independent consultant to conduct a comprehensive review of the adequacy of its policies, systems and procedures (written and otherwise) and training related to compliance with the Taping Rule, and adopt and implement the consultant’s recommendations

The Firm permitted Marshall 

• and another individual to execute trades in covered securities during a period beginning 30 calendar days prior to and ending five calendar days after publishing research reports concerning the subject companies; 
• to trade in a manner that was inconsistent with his recommendation, as reflected in the most recent research report the firm published. 

The Firm and Marshall provided a subject company with a draft copy of a research report that contained prohibited information before the report was published. 

Acting through Marshall, the Firm issued research reports that failed to disclose that Marshall and/or a member of his household had a financial interest in the securities of the subject company and the nature of the financial interest. 

The Firm failed to 

• affirmatively disclose in one research report that an affiliate owned more than one percent of a subject company’s common equity securities, and failed to disclose in research reports the risks that may have impeded achievement of the price target stated in each report;
• develop and implement adequate written supervisory procedures reasonably designed to ensure that the firm and its employees complied with the provisions of NASD Rule 2711; 
• provide an attestation to FINRA for a year that it had adopted and implemented procedures regarding compliance with NASD Rule 2711, and failed to develop and implement any written supervisory procedures concerning watch or restriction lists; and
• develop and implement a Firm Element Continuing Education program, specifically, to develop a written training plan for its covered registered persons. 

The Firm's research reports did not include clear, comprehensive and prominent disclosures regarding whether it or any of its affiliates, officers or employees held interests in the subject companies’ securities.

First Dallas Securities: Censured and fined $50,000 ($10,000 of which was jointly and severally with Marshall)

Eric Jay Marshall: Fined $10,000 jt/sev with Firm and an additional $5,428.07 (includes $428.07 in disgorged trading profits; Suspended 15 days as a research analyst

Acting through Associated Person Cotto, the Firm 

• permitted Cotto to manage and control its securities business and otherwise engage in activities and functions that required registration with FINRA as a general securities principal, even though he was not registered with FINRA, and while he was suspended by FINRA for six months in any capacity;
• failed to respond fully and completely to additional FINRA requests for information; and
• willfully filed false or inaccurate amendments to its Uniform Application for Broker-Dealer Registration (Form BD)

Cotto failed to produce certain documents at a FINRA on-the-record interview, and willfully failed to amend his Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose material information.

Harvest Capital Investments, LLC: Expelled

Dennis Cotto: Barred

Between January 2003 and March 2004 (the “relevant period”), while employed at Baseline Securities Inc. and LaBranche Financial Services, Inc. (“LFSI”), institutional sales representative Cronin engaged in an undisclosed outside business and profit- sharing arrangement with a third party, whereby Cronin would refer customers to the third party for NASDAQ trading in exchange for 50 percent of the after expense profits. During the relevant period, Cronin received monthly payments of between $60,000 and $100,000. Cronin never made a written request or received the prior written approval of LSFI to engage in this profit-sharing arrangement. When the profit-sharing arrangement ended, Cronin received a payment of $950,000 as compensation for lost profits. Subsequently, in connection with an NYSE Enforcement investigation, Cronin was asked to provide testimony concerning his outside business activities. Cronin made material misstatements in testimony to NYSE Enforcement about the profit-sharing arrangement and about the $950,000 he received. Further, in October 2004 Cronin made misstatements to his member firm employer, LFSI, on a questionnaire concerning his business relationship with another individual. 

Violated NYSE Rule 

• 346(b) by engaging in outside business activity by entering into profit-sharing arrangement with third party without making written request and receiving prior written consent of member organization employer; 
• 476(a)(4) by making material misstatements to NYSE; 
• 476(a)(6) by engaging in outside business without approval of member organization employer, making material misstatements to Exchange and making material misstatements to member organization employer about business relationship. 

On Appeal, Individual Disciplined for Sales Practice Violations Gregory W. Gray, Jr. Hearing Board Decision: 08-003 07 Jan 2009

Gregory W. Gray, Jr. (“Respondent”), a former registered representative with Quick & Reilly, Inc. (“Quick & Reilly”) and H&R Block Financial Advisors (“H&R Block”), both member organizations, was charged with having: 

I. Violated NYSE Rule 476(a)(6) by engaging in conduct inconsistent with just and equitable principles of trade, in that he effected unauthorized trades in the accounts of one or more customers. 

II. Violated NYSE Rule 476(a)(7) by engaging in acts detrimental to the interest or welfare of the Exchange in that he threatened and/or harassed one or more complaining customers and/or their family members. 

The Charge Memorandum specifically identified two instances in which Respondent was alleged to have executed trades in the accounts of Customers A and B without the prior authorization of those customers. In his Answer, and at the hearing, Respondent admitted to having executed the unauthorized trade in Customer B’s account. Respondent testified that he purchased $150,000 in shares of XYZ for Customer B’s account so that he could “park” the shares until they could be transferred into the account of the customer for whom they were originally intended. Respondent stated that he was not able to purchase the shares for that customer directly because the customer’s account was restricted and Respondent’s supervisor had refused to authorize the trade, but he he believed his supervisor would later change his mind and approve the trade. The Hearing Panel accepted Respondent’s admission regarding the unauthorized trade in Customer B’s account. 

Respondent denied that the trade in Customer A’s account was unauthorized. He testified that Customer A authorized the purchase of $100,000 in shares of ABC for her son’s custodian account, but later changed her mind when she learned that her father, on whom she relied for investment advice, disapproved of the purchase. When Customer A complained, he immediately sold the shares without charging Customer A a commission. Given Customer A’s history of trading inactivity, lack of sophistication regarding securities issues and conservative investment objectives, the Panel did not credit Respondent’s testimony that Customer A had agreed to such a large purchase of shares in a closed end fund that she did not understand. 

The Panel took Respondent's admission of parking in Customer B's account and its finding of unauthorized trading in Customer A's account, and found Count I sustained.

Count II alleged that Customers A, C and D made complaints about Respondent to Quick & Reilly and H&R Block, Respondent called those customers and their family members and made threatening and harassing remarks in an effort to cause them to withdraw their complaints. Testimony from  Customer A, Customer D’s son and Respondent’s former supervisor at H&R Block was presented at the hearing. The Panel found Respondent guilty on Count II.

The Board affirmed the Hearing Panel's sanctions.