Clayton executed a transaction for a customer without the customer’s authorization or consent.

The customer agreed to open an Individual Retirement Account (IRA) with Clayton’s member firm, to transfer approximately $199,921 from an existing IRA account and to invest the funds in a mutual fund. The customer executed a new account form, a request to change investments form and other documents necessary to accomplish the transaction; Clayton was the broker responsible for the customer’s account at the firm.

The transfer of funds from the customer’s existing IRA account had not yet been completed before Clayton received an electronic mail message from the customer in which she requested that her 23  funds be placed in a money market account rather than in the mutual fund; the customer thereby withdrew her authorization for the purchase of shares in the mutual fund. Despite Clayton’s knowledge that the customer no longer wished to purchase shares in the mutual fund, he did not take any steps to cancel the customer’s order and executed the purchase of the mutual fund shares.

Lane converted to his personal use a total of $4.93 million in checks from customers who Lane misled into believing they were investing in U.S. Treasury bonds and/or corporate bonds. 

Instead of investing the customers’ money, Lane deposited checks drawn on the customers’ accounts into his relative’s account to effectuate the conversion of the customers’ funds without their authorization. In furtherance of his scheme and in an effort to disguise his conversion, Lane made a total of more than $736,000 in payments to some of the affected customers by cash payments or by transferring funds from his relative’s account to a bank account bearing the name of the United States from which cashier’s checks were issued to the customers. Lane created and provided his customers with fictitious receipts and typed certifications purporting to confirm his customers’ non-existent investments in U.S. Treasury bonds and/or corporate bonds.

The Firm underwrote a “minimum-maximum” bond offering an entity conducted, according to the entity’s prospectus, the offering would raise a minimum of $99,000 and a maximum of $2,500,000. The findings prospectus stated that investor funds would be deposited in an interest-bearing escrow account with an escrow agent until the minimum offering amount was raised, and further stated that if the minimum offering amount was not raised during the offering period, all funds would be returned to investors. In connection with the offering, the Firm entered into an escrow agreement with a bank, which did business as the escrow agent, and among other provisions, the escrow agreement provided that the escrow agent should hold the escrow property in trust, commingled with similar funds of other issuers, in contravention of the requirements of SEC Rule 15c2-4. Upon receipt of funds from the offering, the escrow agent deposited the funds into an account at an unaffiliated third-party bank that was not a party to the escrow agreement, and investor funds from the offering were commingled with investment funds from several other unrelated offerings for which it served as escrow agent. FINRA 

The firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules, and the firm’s WSPs were deficient in that they did not have provisions regarding establishing and monitoring escrow accounts in connection with contingent securities offerings. In addition, in contravention of the terms of the prospectus, the firm accepted checks for the offering, totaling over $100,000, which were made payable to the firm instead of the escrow agent. Moreover, the firm was found to have willfully violated Section 15(c) of the Securities Exchange Act of 1934, SEC Rule 15c2-4 and NASD Rule 2110. (FINRA Case #)

Hulke engaged in outside business activities through his association with an insurance company, but failed to notify his firm of this relationship or submit the required outside business activity disclosure form. The firm uncovered Hulke’s association with the insurance company when it investigated Hulke’s reversal of a customer’s purchase of a fixed annuity entered through the firm. The firm discovered that Hulke had executed the same fixed annuity transaction for the same customer through the insurance company. Hulke received a commission for the purchase of the fixed annuity executed through the insurance company; the firm also discovered several other instances where Hulke sold annuity and life insurance policies to customers that resulted in additional commission payments to him outside of his firm.

Hulke failed to respond to FINRA requests for information and on-the-record testimony.

As his member firm’s CCO, Mercier shared responsibility with the firm’s president for conducting due diligence for private placements in which the firm acted as a selling agent only because the firm did not have WSPs addressing due diligence for private placements where the firm acted as the selling agent only. 

Mercier signed selling agreements for offerings and, consistent with the terms of the agreements, his firm received fees and/or commissions for soliciting investors, which included a specific fee related to due diligence purportedly performed in connection with each offering. Mercier did not perform any due diligence and did not seek or obtain due diligence reports for the offerings, which identified red flags with respect to the offerings. Mercier should have scrutinized each of the offerings given the high rates of return, but did not take the necessary steps to ensure that these rates of return were legitimate and not payable from proceeds of later offerings, in the manner of a Ponzi scheme. 

Mercier did not conduct meaningful due diligence for these offerings prior to approving them for sale to firm customers, and failed to have reasonable grounds for allowing firm representatives to continue selling the offerings despite the negative information and identified red flags. Acting on his firm’s behalf, Mercier failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations with respect to the offerings.

Cantrell participated in sales of universal lease programs (ULPs) totaling $763,888.82 to members of the public, failed to provide his member firm with written notice about the sales and failed to obtain the firm’s written approval.

Cantrell provided false information to his firm.  He completed and submitted an outside business activities questionnaire form in which he falsely stated he conducted no business using a DBA (doing business as), falsely responded whether any other company or individual employed him, falsely disclosed that he was not involved with outside business activities, and answered “yes” that he was aware he could not engage in outside business activities or private securities transactions, directly or indirectly, without prior written firm approval.

Cantrell participated in a sale of a total of $210,547.05 worth of ULPs to individuals at another member firm and failed to provide the firm with written notice about the sales or obtain the firm’s written approval. Cantrell received approximately $94,070 in commissions from his sale of the ULPs while registered with both firms.