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Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2011
NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.
December 2011 - View all for this month
Dawson James Securities, Inc, Albert James Poliak (Principal) and Douglas Fulton Kaiser (Principal)
OS/2009016158501
The Firm entered into a de facto commission recapture agreement with a firm customer without meeting the minimum required net capital of $250,000 and without filing an application for amendment of the firm’s FINRA membership agreement. 

The Firm and a customer entered into a consulting agreement whereby the customer was to provide research and advisory services. However, the firm did not request, nor did the customer provide, research reports or advisory services or any of the other services set forth in the consulting agreement. Moreover, the Firm paid the customer a total of $1,215,000, which exceeded by $885,000 the payments due to the customer per the contractual requirements under the consulting agreement. The payments exceeded the contractual requirements of the consulting agreement because the agreement was a de facto commission recapture arrangement through which the customer was paid larger amounts based upon the level of security transactions the customer was executing in its brokerage account at the firm. 

Dawson's CEO Poliak was responsible for the creation of the consulting agreement and approved each wire transfer payment to the customer, including the payments that were in excess of amounts due to the customer under the consulting agreement. 

Kaiser (who acted at times as both the firm’s head of trading and the Financial and Operations Principal (FINOP)) was responsible for calculating the payments owed to the customer and he pulled research concerning the customer’s trades in an effort to document the consulting agreement, but the Firm was unable to document its use of the purported research or other financial benefit arising from the consulting agreement. 

Poliak and Kaiser acted unethically in that they facilitated the improper commission recapture arrangement between the firm and customer, and caused the firm to fail to comply with the requirement of NASD Rule 1017.

Acting through Poliak and Kaiser, the Firm violated the Customer Protection Rule in several ways:
  1. in connection with the commission recapture agreement described above, the firm held, or was in control of, customer funds without establishing a special reserve bank account for the exclusive benefit of the customer in violation of Securities Exchange Act Rule 15c3-3, By holding customer funds and failing to forward the funds to its clearing firm, the firm became a broker or dealer that receives and holds funds for customers, which required it to increase its net capital and establish a reserve bank account for customer protection;
  2. after a commission recapture agreement was ultimately established for the customer by the firm’s clearing firm, the firm deposited into its own checking account a check from the clearing firm which included at least $136,700 in commission rebates due to the customer. Rather than record a liability to the customer, the firm made a journal entry to reduce the commission receivable. The firm’s receipt of customer funds increased its minimum net capital to $250,000, a level that the firm did not meet;
  3. the firm held and segregated security positions in its proprietary account for the benefit of two customers in order to satisfy the obligation of promissory notes and a confidential private placement memorandum (PPM); 
  4. the firm acted in the capacity of a noteholder’s agent to facilitate the repayment to firm customers of $2,715,000 of principal plus interest on defaulted notes and warrants issued by an unaffiliated issuer. By doing so, the firm acted in a carrying, transferring and safekeeping capacity for customers, which required the firm to maintain a minimum net capital of at least $250,000. The firm’s net capital was below that required minimum, and as a result the Financial and Operational Combined Uniform Single (FOCUS) reports it filed, and its books and records, were inaccurate. The firm also failed to timely file Securities and Exchange Commission (SEC) Rule 17a-11 notices when notified by its designated examining authority that the broker-dealer’s net capital was, or had been, below its minimum requirement. 
When acting in the capacity as the firm’s FINOP, Kaiser was responsible for supervision and/or performance of the firm’s compliance under all financial responsibility rules promulgated pursuant to provisions of the Securities Exchange Act of 1934. Kaiser failed to adequately perform his FINOP responsibilities in that he failed to take adequate steps to ensure the accuracy of the firm’s net capital calculations. 

As Poliak participated in the firm’s holding of customer funds in violation of Rule 15c3-3, Poliak caused the firm’s net capital and books and records violations. The firm’s compensation committee did not document the basis upon which a research analyst’s compensation was established, thus failing to establish a written record of whether specific factors required by NASD Rule 2711 were properly considered, and whether research analyst compensation was tied to any investment banking activities. 

FINRA found that a senior officer at the firm inaccurately represented in required attestations submitted to FINRA that the compensation committee documented the basis upon which each research analyst’s compensation was established. The senior officer should have known that each attestation submitted contained false information. Furthermore, the Firm sold securities for customer accounts that were not registered pursuant to Section 5 of the Securities Act of 1933, nor exempt from registration; the sales constituted an unregistered distribution by the firm. 

Dawson James Securities, Inc: Censured; FIned $90,000
Albert James Poliak: Fined $30,000; Suspended 1 year
Douglas Fulton Kaiser: Fined $30,000; Suspended 1 year
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