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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
James Carl Gaul (Principal)
AWC/2010021058402
Acting through Gaul and another firm principal, his firm negligently omitted material facts in connection with its sales of promissory notes. 

The notes were issued by an entity that a real estate developer controlled. Acting through Gaul and another firm principal,the firm negligently failed to disclose to investors that the entity had been experiencing cash flow problems and that the entity and other companies affiliated with the real estate developer failed to make required interest payments to investors.

Acting through Gaul and another firm principal, the firm  negligently failed to disclose that it was unlikely that the entity’s affiliated company would be able to make its scheduled principal payments totaling $10 million that were due to its note holders. 

Acting through Gaul, the firm failed to establish, maintain and enforce a system of supervisory control policies and procedures that tested and verified that its supervisory procedures were reasonably designed with respect to the activities of the firm, its registered representatives and associated persons to achieve compliance with applicable securities laws and regulations, and created additional or amended supervisory procedures where such testing and verification identified a need. The firm’s supervisory control policies and procedures failed to identify producing managers and assign qualified principals to supervise such managers. 

The firm also failed to notify FINRA electronically of its reliance on the limited size and resources exception. For a year-end, the firm, acting through Gaul, failed to prepare an annual certification from its CEO, or equivalent officer, that it had in place processes to establish, maintain, review, test and modify written compliance policies and WSPs reasonably designed to achieve compliance with applicable FINRA rules, MSRB rules and federal securities laws and regulations, and that the CEO had conducted one or more meetings with the firm’s CCO in the preceding 12 months to discuss such processes. For another year-end, the firm, acting through Gaul, filed an annual certification that did not fully comply with FINRA Rule 3130(c).

Acting through Gaul, the Firm failed to establish, maintain and/or enforce WSPs reasonably designed to achieve compliance with the laws and regulations applicable to its business in conducting private placement offerings (including training representatives regarding the risks for these offerings and establishing standards for determining the suitability of these offerings for investors), the review of electronic correspondence, and the review and approval of advertising materials.
James Carl Gaul (Principal): Fined $10,000; Suspended 30 business days in all capacities; Suspended 18 months in Principal capacity only
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Before my second career as a lawyer, I was the third generation of my family in the wine and liquor industry. In 1981, I started law school; and in 1982, I was hired as a law student in Smith Barney, Harris & Upham's Legal Department. After I graduated law school, I was a regulatory lawyer with the American Stock Exchange and then with the NASD (now... Read On
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