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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
Alan David Goddard Jr.
AWC/2009016157802/December 2011
Goddard actively engaged in a member firm’s investment banking and securities business as a principal without proper registration. 

Goddard signed selling agreements and consulting agreements with issuers on the firm’s behalf as an officer of the firm and worked closely with the firm’s outside counsel to establish the terms of selling agreements and private placement offerings that the firm conducted. Unbeknownst to Goddard, the firm’s CCO amended the firm’s Application for Broker-Dealer Registration (Form BD) to list Goddard as the firm’s CEO. 

During Goddard’s entire association with the firm, he was only registered as a general securities representative; Goddard took the Series 24 examination but failed. Goddard erroneously believed that he could function in the capacities set forth above without a principal’s license. 
Alan David Goddard Jr.: Fined $10,000; Suspended 45 days
Alan Stuart Pattee
AWC/2010023232101/December 2011
Patel forged homeowner signatures on uniform mitigation verification inspection forms (UMVI forms) in connection with inspections performed by a qualified inspector regarding construction information; the form is submitted to the homeowner’s insurance company in connection with insurance pricing.Pattee forged the signatures to accommodate his clients, who were either not at home at the time of the inspection or were his longtime clients. 

Pattee acted as an officer for a company formed to conduct inspections to determine homeowner policy premiums, for compensation, without providing prompt written notice to his member firm for this outside business activity. 

Pattee completed securities annual compliance online certifications for his firm representing that he had complied with the requirements of NASD Rule 3030 and for the certifications, certified that no changes were needed to his Form U4 or that he had requested appropriate changes to the Form U4 regarding outside business activities.
Alan Stuart Pattee: Barred
Alfred Rodriguez
AWC/2010025449301/December 2011
Rodriguez misappropriated approximately $5,903 from a customer’s account by effecting withdrawals and either signing the customer’s name or writing “Per Customer Request” on the withdrawal ticket without the customer’s or the bank affiliate’s permission or authority to withdraw funds from the account. 

Rodriguez received illegitimate incentive compensation, totaling $3,750, by enrolling bank affiliate customers in online bill pay service without their authorization or consent; none of these transactions involved funds from an account held at a FINRA regulated entity.
Alfred Rodriguez: Barred
Alternative Wealth Strategies, Inc.
AWC/2010021058401/December 2011
The Firm negligently omitted material facts in connection with its sale of promissory notes, issued by an entity that a real estate developer controlled. 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 had failed to make required interest payments to investors. 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. 

The firm distributed a document called “Investor Letter” for a company; the Investor Letter constituted a research report, but it failed to disclose a firm representative’s ownership interest in the company and his receipt of compensation from the company. 

The firm permitted its registered persons to use presentations regarding the company to solicit potential investors at seminars; the presentations contained statements and projections that were without basis; were false, exaggerated, unwarranted and/or misleading; and failed to provide a balanced presentation by omitting material information regarding the significant risks associated with investing in the company. 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, and the firm failed to electronically notify FINRA of its reliance on the limited size and resources exception. 

In addition, F for one year-end, the firm 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 filed an annual certification that did not fully comply with FINRA Rule 3130(c). Moreover, 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. 
Alternative Wealth Strategies, Inc.: Censured; Fined $75,000 (includes $40,000 disgorgement of commissions)
Amir Aqeel
OS/2008012703401/December 2011
In completing life insurance policy applications, Aqeel placed fictitious electronic funds transfer account numbers on the accounts of customer applicants that he knew were incorrect and submitted the applications for further processing; the fictitious numbers were actually variations of Aqeel’s personal checking account number. Aqeel forged two customers’signatures on electronic signature authorization forms, bank authorization forms and/or acknowledgement forms, in completing their life insurance policy applications, without their knowledge or authorization.

Based on the submission of the applications, Aqeel received credit towards his compensation; the policies subsequently lapsed due to invalid account numbers. 

Aqeel created a credit guarantee document purporting to be a fully executed and authenticsurety bond for $12,500,000 by including fictitious information, and used the documentin an attempt to secure funding for the development, ownership and management of a hotel project by an entity, and Aqeel was paid approximately $155,000 as a finder’s fee. 

Aqeel failed to timely respond to FINRA requests to appear for on-the-record testimony
Amir Aqeel: Suspended 2 years
Brett Michael Plew
AWC/2009018269501/December 2011
By the time Plew discovered a trading error in a public customer’s account, the mutual fund shares had declined in value by approximately $50,000. Plew and the customer agreed to reallocate the securities holdings in the account and hope that the market would rebound to make up the loss. 

Plew sent the customer letters on his member firm’s letterhead promising to recoup her loss and later guaranteeing that the money would be replaced if his efforts to restore the value of the account were unsuccessful within a year. Plew did not consult with his supervisor or the firm’s compliance department prior to sending the letter with the guarantee. The customer decided she wanted a trade correction and faxed Plew’s letter to the firm’s compliance department, asking that the guarantee be honored. Plew’s firm reimbursed the customer for the error.
Brett Michael Plew: Fined $5,000; Suspended 20 business days
Brian Simone
OS/2008016024701/December 2011
Simone willfully failed to disclose material information on his initial Form U4 with a member firm and willfully failed to amend his Form U4 with the firm to disclose the material fact. Simone provided false information on another member firm’s employment application. Simone failed to disclose that he was unemployed for a period of time. With the second firm, Simone willfully disclosed false and misleading material information regarding his employment history on the initial Form U4 that he submitted or caused to be submitted, and willfully failed to amend his Form U4 to correct the false, material information. Simone submitted, or caused to be submitted, a false written statement to a state’s securities division through his firm that provided misleading information.
Brian Simone: Barred
Corinne A. Perrone
AWC/2010024718001/December 2011
Perrone instructed a bank teller under her supervision, while acting as a bank branch manager, to process a withdrawal of $2,500 from her personal savings account, knowing the account had insufficient funds to cover the withdrawal, but misrepresented to the teller that the account belonged to one of her customers. When the teller discovered that the account had a $5 balance, Perrone falsely claimed that the customer would be making a deposit into the account in the near future, and Perrone performed an override on the account. The teller processed the transaction and gave Perrone $2,500 in cash.

Perrone forged a relative’s name on a signature card, opened a checking account in her relative’s name at another bank branch, traveled to another bank branch and instructed a bank teller, whom she formerly supervised, to process a withdrawal of $6,500 from that account, without her relative’s knowledge or authorization. Perrone knew the account had insufficient funds to cover the withdrawal but misrepresented to the teller that the account belonged to one of her customers. When the teller discovered that the account had a $25 balance, Perrone falsely advised him that she had just completed a wire transfer deposit into the account for the customer and that it would take a few minutes to appear on the system. After the teller processed the $6,500 withdrawal, Perrone directed him to give her $2,500 in cash and to deposit the remaining $4,000 into a checking account her relative legitimately owned. 
Corinne A. Perrone: Barred
Danny Wayne Thomason
AWC/2010024090501/December 2011
Thomason forged customers’ signatures on insurance-related documents without their knowledge or authorization. 
Danny Wayne Thomason: Fined $5,000; Suspended 4 months
David Alan Schams
OS/2009018293201/December 2011
Schams accepted appointment as an alternative agent attorney-in-fact over a customer account, without his member firm’s express written consent. 
Schams was to receive approximately $90,000 from the customers’ estate. Schams accepted two $20,000 interest-free loans on the anticipated inheritance, without signing a promissory note evidencing the loan, contrary to the firm’s compliance policies that prohibited registered representatives from exercising or maintaining discretionary authority or power of attorney over customer accounts and borrowing money, accepting loans, issuing or transacting promissory notes or other similar forms of debt for customers without the express written consent of the firm’s compliance department. 

Schams made material misstatements to his firm in a compliance questionnaire regarding borrowing money or accepting a loan from a client, holding any securities, stock powers, money or property belonging to a client, accepting client checks made payable to him, or endorsed to him personally or in the name of an entity, and managing or handling, in any way, the affairs of any client account on a discretionary basis. 
David Alan Schams: Barred
David Kurt Kirby
AWC/2010023709201/December 2011
Kirby willfully failed to amend his Form U4 to disclose material information.
David Kurt Kirby: No Fine in light of financial status; Suspended 90 days
Dawson James Securities, Inc, Albert James Poliak (Principal) and Douglas Fulton Kaiser (Principal)
OS/2009016158501/December 2011
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
Edgemont Capital Partners, L.P.
AWC/2011025721201/December 2011
The Firm contracted with a third-party vendor for purposes of email retention, but did not implement an audit system regarding such email storage and was therefore not aware that the third-party vendor did not adequately retain certain emails, which resulted in the firm’s failure to maintain certain emails. 
Edgemont Capital Partners, L.P.: Censured; Fined $30,000
Eric Lawrence Bloom (Principal)
AWC/2009016157801/December 2011
Bloom made materialmisrepresentations and omissions of fact and unwarranted, exaggerated and misleadingstatements to investors in connection with the sale of private placement offerings. 

Bloom misrepresented in an offering’s subscription agreement thatthe use of proceeds for the offering was initial funding of the company’s ventures in technology risk management solutions and business development of services. The proceeds were actually used to purchase shares of a stock from an individual. Bloom did not disclose the stock purchasing agreement between the company and the individual that predated the offering and failed to disclose the conflicts of interest and control relationships that existed among the company and his member firm’s outside counsel. Bloom failed to disclose that the firm’s outside counsel, who prepared all the offering documents,had created the company to operate out of his residential address and that the outside counsel’s relatives actually owned and operated the company. 

In another offering, Bloom misrepresented the offering in the PPM as an investment in membership interests of a company but did not disclose to investors that there was a promissory note between his firm’s CEO and the company’s owner, and that $400,000 was due pursuant to the note. Bloom failed to disclose to investors that $400,000 of investors’funds had already been paid to satisfy the note and that $352,200 of investor funds from the offering had already been paid by check to pay back the promissory notes from the offering. Until a supplement to the offering memorandum, Bloom failed to disclose to investors the profit distribution from the offering and further failed to disclose the conflicts of interest and control relationships among the offering company, the company thatcontrolled the offering company, and the firm’s outside counsel and counsel’s family. 

For two other offerings, Bloom failed to disclose to investors in the subscription agreements of both companies the significant regulatory history ofthe controlling partners of the offerings who had been charged by FINRA in a market manipulation scheme in connection with alleges sales of over $3.5 million of stock to firm customers. 

Bloom’s firm’s counsel prepared the offering documents in consultation with Bloom. Bloom relied to his detriment on the counsel’s advice about which facts needed to be disclosed and which could be omitted in the offering documents. Bloom was the principal at the firm responsible for supervising all aspects of the firm’s business, including ensuring compliance with FINRA’s rules regarding communications with the public. Bloom’s firm acted as the sole placement agent for an additional private placement, and the offering memorandum was not fair and balanced regarding the potential investment returns of the partnership. The offering memorandumutilized past performance of the Average of Top 25 S&P 500 Fund as compared to the anticipated returns of investing in the offering. 

Bloom’s firm participated in best efforts, minimum-maximum offerings conducted by companies, andinstead of having investors deposit their funds into a bank escrow account as required by SEC Rule 15c2-4, the offering documents set forth that an escrow account with a transferagent would be established for investor funds during the contingency period, causing thefirm to violate Section 15(c) of the Securities Exchange Act of 1934 and SEC Rule 15c2-4.
Eric Lawrence Bloom (Principal): Barred
Evan Taber
2010021196801/December 2011
Taber intentionally converted or misappropriated customer funds. Taber discussed with a customer an investment that would yield a 15 percent rate of return and the customer gave Taber a check for $30,000 payable to the investment.Taber deposited the customer’s check into the investment checking account. The customer repeatedly called Taber to determine the status of his investment, and each time Taber reassured the customer that his funds had been invested. Taber failed to inform the customer that the investment checking account was actually Taber’s personal bank account.

Taber did not make any investment with the customer’s funds; instead, Taber used the customer’s funds for numerous business and personal expenses.Taber ultimately refunded the customer’s funds, but not until FINRA began its investigation into the customer’s complaint.
Evan Taber: Barred
Harry (Tito) Hernandez
AWC/2009020091201/December 2011
Hernandez engaged in unapproved outside business activities by referring bank customers, whose bank loan applications had been denied, to independent outside mortgage companies without providing prompt written notice to his firm. Hernandez received compensation from the mortgage companies in the amount of at least $61,280 for the referrals. 
Harry (Tito) Hernandez: Suspended $5,000; Suspended 60 days
Hernan Charry Jr. aka Herman Charry (Principal)
AWC/2010022715607/December 2011
Charry failed to enforce his firm’s WSPs regarding the handling of PPM, subscription documents and investor funds for private placement offerings his firm sold, and he failed to effectively supervise the associated persons’ handling of such documents. 
Charry did not prevent the associated persons from sending subscription documents directly to the private placement issuer, which precluded the firm from conducting adequate oversight or review of the transactions and from retaining transaction-related documents.   
Charry failed to review private placement transactions for suitability and typically did not review or approve private placement transactions effected by the associated persons he supervised. He failed to enforce the firm’s WSPs and failed to effectively supervise the associated persons’ use of non-firm email for securities business. Charry was aware of, and did not prevent, the associated persons from using personal email accounts to conduct securities business. The use of non-firm email accounts prevented the firm’s compliance staff from reviewing the associated persons’ customer communications, and the firm was unable to retain securities-related communications. 
When Charry resigned from the firm, he left the keys for the office and the key for filing cabinets containing firm customers’ non-public personal information with the office’s landlord, who was not affiliated with Charry’s firm. This failed to safeguard the customers’ non-public personal information and, in addition, made such information available to a non-affiliated third party without providing customers with the appropriate notice, thereby causing the firm to violate Rules 10 and 30 of SEC Regulation S-P. 
Hernan Charry Jr. aka Herman Charry (Principal): Fined $10,000; Suspended 20 business days
Howard Sang Lee
AWC/2009019154301/December 2011
Lee borrowed $20,000 from his customer and repaid the loan in full, plus interest. During the time of the loan transaction, the firm’s procedures specifically prohibited registered representatives from borrowing money from customers. 
Lee’s conduct was aggravated by the fact that he failed to disclose the loan when completing the firm’s annual compliance inspection forms for two years, when he answered “yes” to the question, “Do you understand and comply with the rule that you cannot loan money to, or borrow money from your clients?”  
Howard Sang Lee: Fined $5,000; Suspended 3 months
Institutional Capital Management, Inc. and Daniel Lee Ritz Jr.(Principal)
AWC/2010022679801/December 2011
The Firm permitted registered persons assigned to a branch office to utilize outside email accounts to conduct firm business, even though the firm did not have a system or procedure in place to capture, preserve and monitor those emails. As a result, the firm failed to preserve all firm-related email communications of registered persons assigned to that branch as required. 

The firm failed to perform any supervisory review of email communications of registered persons assigned to that branch, and that Ritz permitted a firm registered representative to engage in investment advisory activity through the representative’s state-registered investment advisor (RIA) and failed to supervise that activity. Ritz was the principal responsible for supervising the representative, but failed to supervise any facet of his investment advisory business and was generally unaware of what it entailed. As a result of Ritz’ lack of supervision, the representative was able to engage in extensive selling-away misconduct without the firm’s detection, raising more than $5 million from investors through sales of promissory notes without the firm’s knowledge. The firm failed to obtain all required information for some customers who purchased securities through the firm in private placement offerings. 

Institutional Capital Management, Inc.: Fined $65,000

Daniel Lee Ritz Jr.: In light of financial status, no fine; Suspended in Principal capacity only for 4 months
Internet Securities and Michael Wayne Beardsley (Principal)
AWC/2009020930302/December 2011
Beardsley was a registered representative’s direct supervisor who was responsible for reviewing and approving the representative’s securities transactions, but failed to exercise reasonable supervision over the representative’s recommendations of exchange-traded funds (ETFs) in customers’ accounts, thereby allowing the representative to conduct numerous unsuitable transactions. 

As the firm’s chief compliance officer (CCO), Beardsley was responsible for ensuring that the firm filed all necessary Uniform Applications for Securities Industry Registration or Transfer (Forms U4), Uniform Termination Notices for Securities Industry Registration (Forms U5) and Rule 3070 reports. The Firm and Beardsley failed to timely amend Beardsley’s Form U4 to disclose the settlement of an arbitration against him, the firm and the registered representative; the firm failed to timely amend a registered representative’s Form U5 to disclose settlement of the arbitration; and the firm and Beardsley failed to timely report the settlement to FINRA’s 3070 system. 

The Firm and Beardsley failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules as they pertain to private placements. The firm and Beardsley failed to conduct investigations of offerings for suitability but relied on information the registered representative who proposed selling the offering provided; never reviewed issuers’ financials, nor attempted to obtain information about the issuers from any third parties; failed to maintain documentation of their investigations; allowed a registered representative to draft selling agreements with offerings which allowed the issuer to make direct payment to an entity the representative, not the firm, owned,; failed to implement supervisory procedures to ensure compliance with SEC Exchange Act Rule 15c2-4(b); and failed to implement supervisory procedures to prevent general solicitation of investments in connection with offerings made pursuant to Regulation D. 

The Firm’s written procedures required Beardsley to obtain and review, on at least an annual basis, a written statement from each registered representative about his or her outside business activities; despite the fact that several registered representatives were actively engaged in outside business activities, Beardsley failed to obtain any such written statements. 

For almost a three-year period, Beardsley did not request any duplicate statements of outside securities accounts firm employees held; he neither requested nor obtained any written notifications from firm employees concerning their actual or anticipated outside securities activities. In addition, the Firm and Beardsley failed to implement an adequate system of supervisory control policies and procedures regarding testing supervisory procedures for compliance, erroneous criteria for identifying and supervising producing managers, including Beardsley, review and monitoring transmittal of funds or securities, customer changes of address, customer changes of investment objectives, and concomitant documentation for its limited size and resources exception in FINRA Rule 3012. Moreover,he firm and Beardsley completed an annual certification in which Beardsley certified that he had reviewed a report evidencing the firm’s processes for establishing, maintaining and reviewing policies and procedures reasonably designed to achieve compliance with applicable FINRA rules, Municipal Securities and Rulemaking Board (MSRB) rules and federal securities laws and regulations; modifying such policies and procedures as business, regulatory and legislative changes and events dictate; and testing the effectiveness of such policies and procedures on a periodic basis, the timing and extent of which is reasonably designed to ensure continuing compliance with FINRA rules, MSRB rules and federal securities laws and regulations. In fact, the report did not evidence any processes for testing the effectiveness of such policies, and no such testing was done.

Furthermore, on the firm’s behalf, Beardsley executed an engagement letter committing the firm to serve as a placement agent for an issuer of limited partnership units. The letter, which a registered representative of the firm drafted, falsely represented that the firm was not a registered broker-dealer. 

The Firm and Beardsley failed to enforce the firm’s Customer Identification Program (CIP) in that they completely failed to verify four customers’ identities. The Firm and Beardsley failed to conduct a test of the firm’s anti-money laundering (AML) compliance program for a calendar year. FINRA found that the firm conducted a securities business while failing to maintain its required minimum net capital.

Internet Securities: Censured; Fined $12,500; Required to retain an outside consultant to review and prepare a report concerning the adequacy of the firm’s supervisory, and compliance policies and procedures, and supervisory controls; the report shall make specific recommendations addressing any inadequacies the consultant identifies, and the firm shall act on those recommendations. FINRA imposed a lower fine after it considered the firm’s size, including, among other things, the firm’s revenues and financial resources. 

Michael Beardsley: No fine in light of financial status: Suspended 1 year in Principal capacity only
Isaiah Solomon
AWC/2009020265401/December 2011
Solomon participated in the sale of securities outside his employment at his member firm and failed to give written notice to his firm of his intention to engage in the transactions and obtain the firm’s authorization to engage in such activities.  

Solomon referred individuals, some of whom were his firm’s clients, to an individual and an entity so the customers could invest with the entity. The entity initially claimed to offer foreign exchange trading opportunities, but later claimed to offer investments in a hedge fund that would engage in various trading strategies; the customers invested approximately $750,000 with the individual and entity, and Solomon also invested with the individual and entity. Solomon introduced the customers to the individual, typically during a conference call where the individual promised guaranteed returns of 12 percent per year for two years; Solomon recommended the investment to most of the customers and received $8,600 from the entity for his efforts. Solomon engaged in discussions with the individual and the entity about possible employment with the entity. 
Isaiah Solomon : Fiend $15,000 (includes $8,600 disgorgement of financial benefit from sales); Suspended 18 months
James Carl Gaul (Principal)
AWC/2010021058402/December 2011
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
James Gregory Hogue
AWC/2009019276103/December 2011
Hogue e improperly allowed the branch operations manager of his member firm to complete his Firm Element Continuing Education (CE) proficiency tests.
James Gregory Hogue: Fined $5,000; Suspended 30 days
James Malcolm Reardon
AWC/2010021058404/December 2011
Reardon helped prepare a document called “Investor Letter” for a company,  which his member firm distributed sometime later. The Investor Letter constituted a research report, but it failed to disclose Reardon’s ownership interest in the company and his receipt of compensation from the company. Reardon helped prepare presentations regarding the company that the firm’s registered representatives used to solicit potential investors at seminars. The presentations contained statements and projections that were without basis and were false, exaggerated, unwarranted and/or misleading, and failed to provide a balanced presentation by omitting material information regarding the significant risks associated with an investment in the company. 

Reardon opened a personal securities account at another broker-dealer and failed to disclose to the executing broker-dealer that he was associated with a firm. The suspension is in effect from November 7, 2011, through December 19, 2011. (FINRA Case #)
James Malcolm Reardon: Fined $7,500; Suspended 30 business days
Jared Robert Lynch
AWC/2011029347801/December 2011
Lynch improperly created an answer key for a state long term care (LTC) insurance CE examination and distributed the answer keys to an employee of the member firm. Lynch sent an email to a registered representative at the firm and attached the study guide for an eight-hour required course and exam, consisting of 50 multiple choice questions and a blank answer sheet; a third-party educational testing company appeared to have created all the materials. In the email, Lynch stated he would have the answers soon and later provided the registered representative with a copy of the blank answer sheet with the answers to the 50 questions circled by hand and the words “master copy” written on the top of the page. 
Jared Robert Lynch: FIned $5,000; Suspended 60 days
Jason Sean Harrison
AWC/2009018648901/December 2011
Harrison engaged in private securities transactions without providing notice, written or otherwise, to his member firm. 
Harrison facilitated investments in bonded life contracts an entity issued to his firm’s customers by bringing the investment opportunity to the customers’ attention and referring them to the entity’s salesperson. The customers subsequently invested a combined total of $150,000 with the entity, and Harrison received fees in the amount of $18,000 from the entity for the referrals, which were paid in the form of checks made payable to Harrison’s relative. Prior to referring his firm’s customers to the entity, Harrison had been told that the firm had prohibited its registered representatives from offering and selling the entity’s products due to concerns that the firm had about the products. Harrison ignored the prohibition, made several customer referrals to the entity, and collected undisclosed referral fees. The entity’s investment subsequently defaulted and all of the customers’ funds were lost.

Harrison engaged in an outside business activity in that he received $2,500 in undisclosed compensation for a customer referral to a life settlement issuer business, without having provided notice to his firm.
Jason Sean Harrison : Fined $15,000; Suspended 1 year
Jeffrey Alan Smith (Principal)
AWC/2010022715605/December 2011
Smith  failed to enforce his member firm’s WSPs and failed to effectively supervise the activities of the firm’s associated persons over whom he had supervisory responsibility to ensure that they were complying with FINRA rules and federal securities laws and regulations. 

Smith failed to 
  • enforce the firm’s WSPs regarding the handling of PPM, subscription documents, and investor funds for private placement offerings sold by the firm; 
  • effectively supervise the associated persons’ handling of such documents so that he did not prevent the associated persons from sending subscription documents directly to the private placement issuer, precluding the firm from conducting adequate oversight or review of the transactions and from retaining transaction-related documents; 
  • review the firm’s private placement sales for suitability, and typically did not review or approve private placement transactions effected by the associated persons he supervised; and
  • enforce the firm’s WSPs and failed to effectively supervise their use of non-firm email for securities business. 
Smith was aware of, and did not prevent, the associated persons from using personal email accounts to conduct securities business. The use of non-firm email accounts prevented the firm’s compliance staff from reviewing the associated persons’ customer communications, and the firm was unable to retain securities-related communications.
Jeffrey Alan Smith (Principal): In light of financial status, no fine; Suspended in Principal capacity only for 20 business days
Jeffrey Rachlin (Principal)
AWC/2010021058403/December 2011
Acting through Rachlin and another firm principal, Rachlin's firm negligently omitted material facts in connection with its sales of promissory notes to investors. 

The notes were issued by an entity which was controlled by a real estate developer. The firm, acting through Rachlin and another firm principal, 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 had failed to make required interest payments to investors; and
  • 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. 
Rachlin helped prepare a document called “Investor Letter” for a company; the letter was later distributed by his firm. The Investor Letter constituted a research report, but it failed to disclose a firm representative’s ownership interest in the company and his receipt of compensation from the company. Rachlin helped prepare presentations regarding the company, which the firm’s registered representatives used to solicit potential investors at seminars. The presentations contained statements and projections that were without basis and were false, exaggerated, unwarranted and/or misleading, and failed to provide a balanced presentation by omitting material information regarding the significant risks associated with an investment in the company.
Jeffrey Rachlin (Principal): Fined $10,000; Suspended 30 business days in all capacities; Suspended 1 months in Principal capacity only
John Daniel Abbruzzese
AWC/2010021144501/December 2011
Abbruzzese recommended that a customer purchase a variable annuity with the proceeds of his relative’s Individual Retirement Account (IRA). The customer had executed the application for a qualified annuity and shortly thereafter it was determined that the customer could not use the funds to purchase a qualified annuity. 

Abbruzzese copied the customer’s signature, without his authorization, knowledge or consent, from an earlier letter, and pasted it on the variable annuity application to authorize the change from a qualified annuity to a non-qualified annuity. 

Abbruzzese recommended that another customer purchase a variable annuity. The customer had entered into a reverse mortgage on her home and was referred to Abbruzzese to invest some of the proceeds to generate income for her retirement. Abbruzzese completed the variable annuity application and represented that the source of the funds was the sale of real estate, rather than a reverse mortgage, because his member firm did not permit brokers to recommend reverse mortgages. By including inaccurate information on the customer’s variable annuity application, Abbruzzese prevented the firm from maintaining accurate books and records and from assessingthe suitability of his recommendations to the customers.

Abbruzzese failed to timely respond to FINRA requests for information and documents untilhe appeared for on-the-record testimony.
John Daniel Abbruzzese: FIned $15,000; Suspended 18 months
John Maraldi Grover III
AWC/2010022180101/December 2011
Grover borrowed $67,326.68 from a customer contrary to his member firm’s prohibition of registered persons from borrowing money from customers. Grover signed and dated a form acknowledging that the firm prohibited its representatives from borrowing money or securities from a client. In light of the fact that the customer was not a member of Grover’s immediate family and was not in the business of lending money, his Firm did not approve the loan. 
John Maraldi Grover III : Fined $5,000; Ordered to pay $67,326.68 plus interest as restitution to a customer; Suspended 90 days.
Johnnie Kelsey Pope (Principal)
AWC/2009019408802/December 2011
Pope willfully failed to timely disclose material facts on his Form U4. Pope failed to disclose the material facts in an annual compliance questionnaire for his member firm; and failed to timely respond to FINRA requests for information.
Johnnie Kelsey Pope (Principal): Fiend $5,000; Suspended 6 months
Joseph Anthony McIntyre
AWC/2010024485401/December 2011
McIntyre sold equity indexed annuities (EIAs) without providing his member firm with prompt written notice of the business activity. The findings stated that the EIAs were insurance-issued and were not securities products. McIntyre effected, or participated in effecting, EIA sales totaling about $1,116,370 and received compensation totaling approximately $80,958 from the transactions. 

McIntyre falsely certified to the firm that he had not sold EIAs outside the scope of his employment.
Joseph Anthony McIntyre: Fined $5,000; Suspended 3 months
Joseph John Giuliano (Principal)
AWC/2009019382101/December 2011
An individual who subsequently became a trader with Giuliano's member firm provided $250,000 to the firm’s parent company, without loan documentation or written agreement, either as funds to be traded in a firm proprietary account or be held as a security deposit to insure the brokerdealer against trading losses the individual might incur. Giuliano, an owner of at least a 40-percent stake in the parent company and the firm’s chief financial officer (CFO) and FINOP, caused the funds to be deposited into the parent company’s checking account and used some or all of the funds, without the individual’s consent or authorization, to pay various expenses and debts of the parent company and the firm, thereby misusing the funds.
Joseph John Giuliano (Principal): Barred
Joseph Peter Rivera
AWC/2009017372201/December 2011
Rivera willfullyand non-willfully  failed to timely amend his Form U4 to disclose material facts.
Joseph Peter Rivera: No Fine in light of financial status; Suspended 60 days
Kenneth William Gneuhs (Principal)
AWC/2010022715606/December 2011
Gneuhs failed to enforce his member firm’s WSPs and failed to effectively supervise the activities of firm associated persons over whom he had supervisory responsibility. 

Gneuhs failed to enforce the firm’s WSPs regarding the handling of PPM, subscription documents and investor funds for private placement offerings his firm sold, and failed to effectively supervise the associated persons’ handling of such documents. Gneuhs did not prevent the associated persons from sending subscription documents directly to the private placement issuer, which precluded the firm from conducting adequate oversight or review of the transactions and from retaining transaction-related documents. Gneuhs failed to review the firm’s private placement sales for suitability, and typically did not review or approve private placement transactions effected by the associated persons he supervised. 
Gneuhs failed to enforce the firm’s WSPs and failed to effectively supervise the associated persons’ use of non-firm email for securities business. Gneuhs was aware of, and did not prevent, the associated persons from using personal email accounts to conduct securities business. The use of non-firm email accounts prevented the firm’s compliance staff from reviewing the associated persons’ customer communications, and the firm was unable to retain securities-related communications. 
Kenneth William Gneuhs (Principal): In light of Gneuhs' financial status, no fine; Suspended in Principal capacity only for 20 business days.
Raymond Thomas Blunk
OS/2007008935009/December 2011
Blunk recommended that customers participate in a Stock-to-Cash program under which customers would pledge stock to obtain loans to purchase other products. Customers obtained non-recourse loans, totaling approximately $1.8 million, from a non-broker-dealer company and pledged stock to that entity as collateral for the loans; the pledged stock would be transferred to the loaning entity’s securities account, which was maintained at a clearing firm.

The loans were in amounts up to 90 percent of the value of the pledged stock and were typically for a short period of time, usually three years, with no payments required during the term of the loan; instead, customers were required to pay the full principal and interest due at the end of the loan term. Customers used some of the loan proceeds to purchase insurance products through Blunk. 

Documentation used by the loaning entity made it appear that the entity was retaining the securities customers pledged and might use those securities to enter into hedging transactions, but the customers actually conveyed full ownership of their stock to the entity conducting the program, which routinely sold the securities upon receipt and often moved the money into its own bank account. 

When the entity became unable to make complete payments to customers with profitable portfolios, it used the proceeds from the sale of securities new customers pledged to pay off its obligations to existing customers and diverted money to pay for expenses not related to its operation. Blunk did not undertake adequate efforts to find out what happened to the stock that was conveyed to the lender; he relied on information the persons marketing the program provided and assumed that the lender was a broker-dealer holding the stock for his customers in custodial accounts. Blunk did not undertake any steps to verify this mistaken assumption.

The intermediaries with whom Blunk dealt refused to provide more information when he tried to obtain information about the lender and nevertheless, continued to entrust his clients’ securities to the lender.
Raymond Thomas Blunk: Fined $15,000; Suspended 25 days
Richard Scott From aka Richard Scott Winther (Principal)
AWC/2010021116001/December 2011
From made misrepresentations in emails to individuals representing entities with whom he had done past investment banking business or hoped to conduct future investment banking business. At that time, From and his member firm were not actively engaged in any securities business due to the firm’s failure to maintain minimum required net capital. 

In emails, From stated that he was currently calling investors to recommend investments in some companies but, in fact, he never made any such calls. From merely claimed he was doing so in order to receive payment for his past investment banking business with one of the companies. 

In an email, From described the terms of a reverse merger that he claimed he had recently completed when, in fact, he did not participate in the reverse merger at all, but was instead describing a deal a different broker-dealer he knew conducted. From’s purpose in making the false claim was to generate future investment banking business with the company. 

In another email to an individual representing another company, From represented that he had already obtained indications of interest from potential investors for an offering of securities the company contemplated, although he had not spoken to any potential investors but merely claimed he had done so for the purpose of generating future investment banking business with the company. 
Richard Scott From aka Richard Scott Winther (Principal): Fined $5,000; Suspended 30 business days
Bill Singer's Comment
One of those oddball cases in which someone got into trouble not so much for what he did as for what he didn't do (but was claiming to have done).
Ronak C. Patel
2010024540401/December 2011
Patel failed to respond to FINRA requests for information and to appear for testimony regarding loans from a firm customer. 

Patel failed to make appropriate disclosure of an outside securities account after he became associated with his member firm and failed to notify the firm that held his securities account that he had become associated with a firm.Patel made a false statement on an annual compliance certification to his firm that he completed after he signed and filed his initial Form U4 subjecting himself to FINRA’s jurisdiction. Patel acknowledged receipt of and adherence to the firm’s policies, including obligations to comply with the firm’s policies and to adhere to the applicable federal, state and selfregulatory organization laws and rules. Patel falsely stated that he did not have a securities account when, in fact, he did.
Ronak C. Patel : Barred
Ronald John Garabed Sr.
AWC/2010024175501/December 2011
Garabed borrowed $15,000 from his customer at his firm contrary to his firm’s procedures, which did not permit loans between registered representatives and their customers under any circumstances. Garabed agreed to  repay the customer the principal loan amount plus an additional $5,000, he ultimately repaid a total of approximately $15,200. Garabed denied on a compliance questionnaire that he had ever solicited or accepted a loan from a client. 
Garabed willfully failed to update his Form U4 to disclose material information. 
Ronald John Garabed Sr.: Fined $10,000; Suspended 6 months
Ronald William Cheney
AWC/2010022535201/December 2011
Cheney borrowed $10,000 from his customers without his member firm’s written authorization.  Although his firm’s WSPs require review and written approval before a registered representative may borrow from a customer , Cheney did not request or receive the firm’s permission to borrow money from the customers.  Cheney incorporated this loan into another loan from the customers, for a total sum borrowed of $23,000.  Cheney completed his firm’s annual certification questionnaire in which he was asked if he had borrowed from, or loaned money to, any customers, and responded that he had not. 

While registered with another member firm, Cheney was paid $5,187 for work he performed on behalf of the beneficiaries of a trust account. That firm’s procedures required that a representative submit a written request for approval to the designated supervisory principal prior to engaging in any outside employment or business activity. ICheney submitted outside business activity forms and an internal questionnaire to the firm in which he responded that he had not engaged in any outside business activity without prior written approval. 

Ronald William Cheney : Fined$10,000; Suspended 60 business days.
Scott Andreu Roges
AWC/2010024280601/December 2011
Roges falsified a customer’s signature without the customer’s knowledge or consent in an attempt to correct the customer’s social security number and beneficiary’s birth date on an amendment to a fixed life insurance policy. The member firm’s WSPs specifically prohibited registered representatives from falsifying and/or forging customers’ signatures on transaction documents and/or other documents
Scott Andreu Roges: Fined $5,000; Suspended 30 days
Scott David McElhenny (Principal)
AWC/2009020124301/December 2011
McElhenny applied one investment model in numerous customers’ accounts by executing thousands of trades on a group basis in a variable annuity platform offered by one company and a mutual fund platform offered by another company. McElhenny could place one trade, which was not individualized for each of his customers, and that trade would be processed for all of his customers that were part of the trading group. The group trading executed by McElhenny in his customers’ accounts involved inverse and leveraged funds. 

McElhenny engaged in such trading without having reasonable grounds for believing that the recommendation was suitable for each of his customers in light of their individual investment objectives, financial situation and needs. As a result of McElhenny’s recommendations, the customers sustained a collective loss exceeding $1 million. McElhenny exercised discretion in the customers’ accounts without each customer’s written authorization and his member firm’s acceptance of the accounts as discretionary. McElhenny executed more than one hundred unauthorized securities transactions in one customer’s account. 
Scott David McElhenny (Principal): Barred
Seung Wan Ha a/k/a William Ha
AWC/2010021749301/December 2011
Ha willfully failed to disclose material information on his Form U4 and caused his Form U4 to contain misstatements. Ha was aware of his obligation to maintain an updated and accurate Form U4, and he agreed to update his Form U4 on a timely basis should any information change in the future.  
Seung Wan Ha a/k/a William Ha: Censured; Fined $5,000; Suspended 9 months
Stephen Michael Mazurek Jr.
AWC/2010021749202/December 2011
Mazurek and his relative agreed to act as co-trustees for their deceased relative’s trust. Mazurek began collecting the assets from the deceased’s estate and distributing them to the beneficiaries of the trust. After Mazurek had withdrawn his allotted share, he misappropriated approximately $60,854 from his late relative’s trust for his own use and benefit, without the knowledge or authorization of the trust’s beneficiaries, by writing checks made payable to “cash” in amounts ranging from $100 to $5,000, and used the funds for his own personal use and benefit. Mazurek attempted to conceal his misconduct by convincing another relative to sign an affidavit and promissory note after Mazurek had already misappropriated the funds. 
Stephen Michael Mazurek Jr. : Barred
Steven Gayne Winters (Principal)
OS/2009019911701/December 2011
Winters willfully failed to timely amend his Form U4 to disclose a material fact and he borrowed $20,000 from a customer contrary to his member firm’s written procedures that expressly prohibited firm employees from borrowing money from, or lending money to, firm customers. Winters neither sought nor obtained approval from the firm before receiving the loan from the customer, and his arrangement with the customer did not satisfy any of the conditions set forth in NASD Rule 2370(a)(2)(A)-(E). To date, a $5,500 balance remains unpaid by Winters on the principal of the loan. 
Steven Gayne Winters (Principal): FIned $10,000; Ordered to pay $5,500 restitution to a customer; Suspended 8 months
Steven Mark Peaslee (Principal)
OS/2009020134201/December 2011
Peaslee participated in private securities transactions by soliciting individuals to invest approximately $399,850 in an offering of a company he owned and controlled without providing written notice of his intent to participate in the sale of an offering to his member firm, and failed to obtain his firm’s written approval before engaging in such activities.Peaslee’s firm did not permit registered representatives to participate in the sale of private equity offerings. The offering’s purpose was to capitalize an entity through which Peaslee operated his securities business, which he wholly owned.The offering purported to be issued in compliance with Rule 506 of Regulation D of the Securities Act of 1933 (Reg. D), but Reg D documents were not filed with the SEC. 

Peaslee did not receive any written representation from any of the investors that they met the requirements to be an accredited investor. FINRA found that Peaslee negligently made untrue statements of material facts and/or omitted to state material facts in a PPM and subscription agreement for the offering. In reliance on Peaslee’s misrepresentations, the customers and the non-customer invested in the offering.

Peaslee failed to establish an escrow account in the name of the issuer, his business entity, and no investor funds from the offering were ever held in an escrow account; rather, Peaslee deposited investor funds into the entity’s operating account and immediately began making withdrawals. In addition, Peaslee distributed investor funds before the minimum contingency was satisfied, thereby rendering the representations in the offering documents false and misleading.
Steven Mark Peaslee (Principal): Barred
Thomas William Scanlon
AWC/2010024313001/December 2011
Scanlon impersonated customers and a registered representative in order to obtain confidential customer information from his former member firm. 

Scanlon made telephone calls to his former firm’s customer service line in order to obtain confidential customer information concerning certain of his former clients accounts still maintained at that firm. Scanlon was no longer the agent of record on the customer accounts and, therefore, was not entitled to access to this confidential information. Scanlon made a number of telephone calls to his former firm’s customer service line in which he impersonated the registered representative at that firm who had been assigned to a number of Scanlon’s former customer accounts. Scanlon sought the confidential customer information in order to facilitate discussion during his upcoming meetings with the customers about possibly transferring their accounts to his new employer member firm.
Thomas William Scanlon: Fined $7,500; Suspended 3 months
v
AWC/2010021236201/December 2011
Elevation commenced an options business, engaged in options transactions and designated an individual as its Registered Options Principal (ROP) until his resignation from the firm. The firm did not notify FINRA of his resignation but instead continued to engage in options business without registering a new ROP. The firm failed to establish, maintain and enforce an adequate supervisory system for its options activities, including written procedures, reasonably designed to achieve compliance with application securities regulations, and to supervise options transactions in which it engaged. Thefirm failed to comply with multiple requirements of FINRA Rule 2360, the options rule, by failing to comply with its registration and customer agreement requirements.
v: Censured; Fined $10,000
William Alexis Cronin Jr.(Principal)
AWC/2011025885801/December 2011
Cronin participated in private securities transactions without prior written notice to, and prior written approval from, his member firm. The findings stated that Cronin sold approximately $1,712,500 in notes and debentures to investors, most of whom were his firm’s customers at the time. The notes and debentures, which were securities, were sold through private placements. Cronin received approximately $171,000 in commissions from these investments. 

Cronin borrowed $10,000 from one of his customers at his firm. Cronin executed a promissory note stating that the loan was to be paid in full by a certain date, but failed to repay the loan according to the terms of the note. Cronin eventually repaid the loan with interest, but only after the customer filed an action against him. 

Cronin borrowed $5,000 from another customer through a loan that was not reduced to writing, and had no repayment terms; Cronin repaid the loan. 

Cronin did not disclose either of the loans to his firm, which prohibited loans from customers without prior firm approval. 
William Alexis Cronin Jr.(Principal): Fined $181,000 (included $171,000 disgorgement of commissions); Suspended 2 years
November 2011
Brian Wade Boppre (Principal)
AWC/2009019125904/November 2011

Boppre was a member of his firm’s new product committee, which was responsible for conducting due diligence and approving new products at the firm. Boppre knew of an issuer’s failure to make payments to its investors and was also aware of other indications of the issuer’s problems but approved the offering as a product available for his firm’s brokers to sell to their customers. Also,  Boppre suspended the offering sales and then reopened the sales after further discussions with issuer executives.

Boppre allowed his firm’s brokers to continue selling the offering despite the issuer’s ongoing failure to make principal and interest payments, and despite other red flags concerning the issuer’s problems. Acting on his firm’s behalf, Boppre failed to conduct adequate due diligence of the offering before allowing firm brokers to sell this security; without adequate due diligence, the firm could not identify and understand the inherent risks of the offering and therefore could not have a reasonable basis to sell it. By not conducting adequate due diligence, Boppre failed to reasonably supervise firm brokers’ sales of the offering.

Brian Wade Boppre (Principal): Fined $10,000; Suspended 6 months in Principal capacity only
Bill Singer's Comment
An interesting fact pattern -- read it carefully and make sure not to make the same mistakes.
Brookstone Securities, Inc.,David William Locy (Principal),Mark Mather Mercier (Principal), and Antony Lee Turbeville (Principal)
OS/2009017275301/November 2011

While associated with the firm, registered representatives made misrepresentations or omissions of material fact to purchasers of unsecured bridge notes and warrants to purchase common stock of a successor company.

The registered representatives:

  • guaranteed customers that they would receive back their principal investment plus returns, failed to inform investors of any risks associated with the investments and did not discuss the risks outlined in the private placement memorandum (PPM) that could result in them losing their entire investment. The registered representatives had no reasonable basis for the guarantees given the description of the placement agent’s limited role in the PPM; and
  • provided unwarranted price predictions to customers regarding the future price of common stock for which the warrants would be exchangeable and guaranteed the payment at maturity of promissory notes, which led customers to believe that funds raised by the sale of the anticipated private placement would be held in escrow for redemption of the promissory notes.

The Firm, acting through a registered representative, made misrepresentations and/or omissions of material fact to customers in connection with the sale of the private placement of firm units consisting of Class B common stock and warrants to purchase Class A common stock; the PPM stated that the investment was speculative, involving a high degree of risk and was only suitable for persons who could risk losing their entire investment. The representative represented to customers that he would invest their funds in another private placement and in direct contradiction, invested the funds in the firm private placement.

The Representative recommended and effected the sale of these securities without having a reasonable basis to believe that the transactions were suitable given the customers’ financial circumstances and conditions, and their investment objectives. The representative recommended customers use margin in their accounts, which was unsuitable given their risk tolerance and investment objectives, and he exercised discretion without prior written authorization in customers’ accounts.

Acting through Locy, its chief operating officer (COO) and president, the Firm failed to reasonably supervise the registered representative and failed to follow up on “red flags” that should have alerted him to the need to investigate the representative’s sales practices and determine whether trading restrictions, heightened supervision or discipline were warranted. Moreover, despite numerous red flags, the firm took no steps to contact customers or place the representative on heightened supervision, although it later placed limits only on the representative’s use of margin. The firm eventually suspended his trading authority after additional large margin calls, and Locy failed to ensure that the representative was making accurate representations and suitable recommendations.

Turbeville, the firm’s chief executive officer (CEO), and Locy delegated responsibility to Mercier, the firm’s chief compliance officer (CCO), to conduct due diligence on a company and were aware of red flags regarding its offering but did not take steps to investigate. 

Acting through Turbeville, Locy and Mercier, the Firm failed to establish, maintain and enforce supervisory procedures reasonably designed to prevent violations of NASD Rule 2310 regarding suitability; under the firm’s written supervisory procedures (WSPs), Mercier was responsible for ensuring the offering complied with due diligence requirements but performed only a superficial review and failed to complete the steps required by the WSPs; Locy never evaluated the company’s financial situation and was unsure if a certified public accountant (CPA) audited the financials, and no one visited the company’s facility. Neither Turbeville nor Locy took any steps to ensure Mercier had completed the due diligence process. Turbeville and Locy created the firm’s deficient supervisory system; the firm’s procedures were inadequate to prevent and detect unsuitable recommendations resulting from excessive trading, excessive use of margin and over-concentration; principals did not review trades or correspondence; and the firm’s new account application process was flawed because a reviewing principal was unable to obtain an accurate picture of customers’ financial status, investment objectives and investment history when reviewing a transaction for suitability. The firm’s procedures failed to identify specific reports that its compliance department was to review and did not provide guidance on the actions or analysis that should occur in response to the reports; Turbeville and Locy knew, or should have known, of the compliance department’s limited reviews, but neither of them took steps to address the inadequate system.

Brookstone Securities, Inc.: Censured; Fine $200,000

David William Locy (Principal): Fined $10,000; Suspended from 3 months in Principal capacity only

Mark Mather Mercier (Principal): Fined $5,000; Suspended from 3 months in Principal capacity only

Antony Lee Turbeville (Principal): Fined $10,000; Suspended from 3 months in Principal capacity only

Byron Edward Meyer
AWC/2011026619801/November 2011

Meyer verbally informed his supervisors of his outside business activities and his business plans, but failed to provide his firm with prompt written notice of his outside business activities, for which he accepted compensation. Without his relative’s knowledge, Meyer conducted subaccount transfers, or transactions, in an Individual Retirement Account (IRA) the relative held to his personal account, which held only a variable annuity contract.  The annuity sub-account transactions reduced the value of the variable annuity contract by $1,395.15 by the time the account was formally transferred to his relative.

Meyer transferred $1,800 from the relative’s IRA to his personal bank account. The firm immediately reversed the transaction as well as reimbursed Meyer’s relative $1,395.15 for the account’s reduction in value caused by Meyer’s transactions. Meyer has made full restitution to the firm.

Byron Edward Meyer: Fined $12,500; Suspended 25 business days
Cheryl Ann McMahon
AWC/2011027268801/November 2011
McMahon worked as an associate financial representative for registered representatives and assisted each of her assigned registered representatives with their daily brokerage tasks, which included ensuring that all incoming checks were properly deposited in the appropriate bank account. McMahon misappropriated $2,024.22 by forging a registered representative’s signature on commission checks from insurance product sponsors; McMahon made each of the checks payable to herself and deposited the forged checks into her personal bank account.
Cheryl Ann McMahon : Barred
Bill Singer's Comment
Can't we just call that a premature holiday bonus?
Christopher James Neri
AWC/2009021029624/November 2011

Neri improperly created an answer key for a state insurance LTC CE examination when he sat with a registered representative taking the CE examination and provided the registered representative with his opinion as to the correct answers to certain questions, recorded the answers the registered representative selected on a piece of paper, retained the answer key for several months and then transferred the answer key to an email.

Neri improperly distributed that answer key to other employees of his member firm when he sent that email to other wholesalers of the firm; after a wholesaler emailed Neri to inquire whether he had answers for the CE test, Neri sent the email to other wholesalers of the firm. On multiple occasions, Neri improperly assisted registered representatives outside of the firm taking the LTC CE examination by referring to the answer key and providing them with some or all of the examination answers; either in person or over the phone, Neri provided the registered representatives with his opinion as to the correct answers to some or all of the examination questions without reference to the answer key while they were taking the exam. The findings also included that on multiple occasions, Neri took the LTC CE examination, in whole or part, for registered representatives outside of the firm by meeting with registered representatives in their offices, sitting at their computers and either answering all the questions himself without assistance from the representative, or the representative would provide some of the answers, which Neri would enter then into the computer.

Christopher James Neri : Fined $5,000; Suspended 90 days
Bill Singer's Comment
As concise an explanation of these LTC CE answer key cases as I have seen. Explains the variations and the genesis. 
Corey Vernon Darling
AWC/2009020307101/November 2011
Darling  engaged in outside business activity without providing written notice to his member firms; Darling formed and operated, as the managing member, a limited liability company for the purpose of securing and managing a commercial office building. He borrowed a total of $218,484.28 from a few customers while he was associated with firms without receiving the required written pre-approval. In a firm compliance questionnaire that asked whether Darling had a debt obligation to a non-institutional lender or person, Darling falsely answered “no” to that question.
Corey Vernon Darling: No fine in light of financial status; Suspended 18 months
Daniel Joseph Voccia II (Principal)
AWC/2009017195203/November 2011

Voccia was a brokerage partner with another registered representative, shared clients and commissions and collaborated on outside ventures, including a private company they formed. Voccia and his partner orally informed their member firm they were involved in an outside business activity relating to their company, and the firm gave oral approval with the understanding they would only solicit one firm customer; however, the two partners solicited other investors, including firm customers, without the firm’s knowledge and approval.

Voccia made misrepresentations and omissions of material fact when he told prospective investors that the company and its related companies had good chances of success and would be able to sustain themselves even though he had insufficient knowledge of the companies’ finances, and his representations were misleading because he focused on the potential benefits of investing in the company without providing adequate disclosure about the risks. Voccia engaged in capital raising for his company and his related companies; individuals invested approximately $6 million dollars during a five-year period.

Voccia and his partner were able to sell investments without the firm’s knowledge because the investments were not held with their firm’s clearing firm but were held with firms that their firm allowed its brokers to use to maintain custody of illiquid investments such as their company.

Voccia did not provide the firm with written notice of any of the proposed offerings and did not inform the firm that he had received, or might receive, compensation for selling the offered securities. In addition, the firm did not approve the private securities transactions, did not record them on its books and records and did not supervise Voccia’s participation in the transactions. Moreover, Voccia failed to disclose numerous outside business activities unrelated to his company without prompt written notice to his firm. Furthermore, Voccia failed to amend his Form U4 to disclose material information and failed to respond to FINRA requests for information, documents and to timely appear for testimony.

Daniel Joseph Voccia II (Principal): Barred
Bill Singer's Comment
Okay, so, word to the wise:  If you're going to even allow private securities transactions, you might not want to permit transactions where the investments are not held at your firm's clearing firm.  Why?  Look at the mess here. Oh, and another thing, note that there waws $6 million at issue -- which is enough incentive for a host of angry claimants' lawyers to name the FINRA BD just for the hell of it.
Daniel Lee Puplava (Principal)
AWC/2007010991901/November 2011

Puplava’s non-registered assistant had access to his signature guarantee stamp, and without Puplava’s knowledge, permitted the member firm’s registered representatives to use the signature guarantee stamp to approve securities business-related transactions and paperwork that required a signature guarantee stamp. Puplava discovered this practice and instructed his non-registered assistant and the registered representatives involved to discontinue the practice, but Puplava did not take back his signature guarantee stamp or take steps to otherwise secure the stamp to prevent its misuse. Puplava had customers sign blank securities business-related forms, including non-brokerage change request forms, mutual fund transfer forms and securities account forms, and retained these forms in his customer files contrary to his member firm’s prohibition against this practice.

Daniel Lee Puplava (Principal): Fined $7,000; Suspended 3 months in all capacities; Suspended 20 business days in Principal/Supervisory capacities only
David Allen Peck
AWC/2009020645101/November 2011

Peck  engaged in a private securities transaction by participating in the sale of a $50,000 secured investment note from an entity to a current client of his firm. Peck failed to provide his firm with prior notice of his participation in this transaction.

Also, the SEC filed a complaint in the United States District Court for the Central District of California against the entity and related parties alleging that they were perpetrating an ongoing $216 million real estate investment fraud.

David Allen Peck: Fiend $5,000; Suspended 1 month
Dennis Lee Grossman (Principal)
OS/2008011672301/November 2011

As the AMLCO and president of his member firm,  Grossman failed to demonstrate that he implemented and followed sufficient AML procedures to adequately detect and investigate potentially suspicious activity. 

Grossman did not consider the AML procedures and rules to be applicable to the type of accounts held at the firm and therefore did not adequately utilize, monitor or review for red flags listed in the firm’s procedures. His daily review of trades executed at the firm and all outgoing cash journals and wires, Grossman did not identify any activity of unusual size, volume or pattern as an AML concern. The firm’s registered representatives, who were also assigned responsibility for monitoring their own accounts, failed to report any suspicious activity to Grossman. Until the SEC and/or FINRA alerted Grossman to red flags of suspicious conduct, Grossman did not file any SARs.

Grossman failed to implement adequate procedures reasonably designed to detect and cause the reporting of suspicious transactions and, even with those minimal procedures that he had in place at the firm, he still failed to adequately implement or enforce the firm’s own AML program. For example, accounts were opened at the firm within a short period of each other that engaged in similar activity in many of the same penny stocks, and several red flags existed in connection with these accounts that should have triggered Grossman’s obligations to undertake scrutiny of the accounts, as set out in the firm’s procedures, including possibly filing a SAR.  Additionally,individuals associated with the accounts had prior disciplinary histories, including securities fraud and/or money laundering. Because of Grossman’s failure to effectively identify and investigate suspicious activity,he often failed to identify transactions potentially meriting reporting through the filing of SARs. Moreover, Grossman failed to implement an adequate AML training program for appropriate personnel; the AML training conducted was not provided to all of the registered representatives at the firm. 

Furthermore, Grossman failed to establish and maintain a supervisory system at the firm to address the firm’s responsibilities for determining whether customer securities were properly registered or exempt from registration under Section 5 of the Securities Act of 1933 (Securities Act) and, as a result, Grossman failed to take steps, including conducting a searching inquiry, to ascertain whether these securities were freely tradeable or subject to an exemption from registration and not in contravention of Section 5 of the Securities Act. The firm did not have a system in place, written or unwritten, to determine whether customer securities were properly registered or exempt from registration under Section 5 of the Securities Act; Grossman relied solely upon the clearing firm, assuming that if the stocks were permitted to be sold by the clearing firm, then his firm was compliant with Section 5 of the Securities Act. 

Grossman failed to designate a principal to test and verify the reasonableness of the firm’s supervisory system, and failed to establish, maintain and enforce written supervisory control policies and procedures at the firm and failed to designate and specifically identify to FINRA at least one principal to test and verify that the firm’s supervisory system was reasonable to establish, maintain and enforce a system of supervisory control policies and procedures.

The firm created a report, which was deficient in several areas, including in its details of the firm’s system of supervisory controls, procedures for conducting tests and gaps analysis, and identities of responsible persons or departments for required tests and gaps analysis. Grossman made annual CEO certifications, certifying that the firm had in place processes to establish, maintain, review, test and modify written compliance policies and WSPs to comply with applicable securities rules and registrations; the certifications were deficient in that they failed to include certain information, including whether the firm has in place processes to establish, maintain and review policies and procedures designed to achieve compliance with applicable laws and regulations and whether the firm has in place processes to modify such policies and procedures as business, regulatory and legislative events dictate. 

Grossman failed to ensure that the firm’s heightened supervisory procedures placed on a registered representative were reasonably designed and implemented to address the conduct cited within SEC’s allegations; the additional supervisory steps imposed by Grossman to be taken for the registered representative were no different than ordinary supervisory requirements. Moreover, there was a conflict of interest between the registered representative and the principal assigned to monitor the registered representative’s actions at the firm;namely, the principal had a financial interest in not reprimanding or otherwise hindering the registered representative’s actions. Furthermore,Grossman was aware of this conflict, yet nonetheless assigned the principal to conduct heightened supervision over the registered representative. 

The heightened supervisory procedures Grossman implemented did not contain any explanation of how the supervision was to be evidenced, and the firm failed to provide any evidence that heightened supervision was being conducted on the registered representative. Also, Grossman entered into rebate arrangements with customers without maintaining the firm’s required minimum net capital. Similarly, he caused the firm to engage in a securities business when the firm’s net capital was below the required minimum and without establishing a reserve bank account or qualifying for an exemption. Grossman was required to perform monthly reserve computations and to make deposits into a special reserve bank account for the exclusive benefit of customers, but failed to do so.

Dennis Lee Grossman (Principal): Fined $75,000; Suspended 4 months in Principal capacity only
Bill Singer's Comment
A concise rendition by FINRA.  Assuming that the allegations are not over-blown, the sanctions here are fair and responsive to the cited misconduct.  With year-end upon us, it would be a worthwhile exercise for many of you to read this case and use it as a checklist -- how do you measure up?
Donald Anthony Duarte Jr.
2009018133802/November 2011

Duarte borrowed $50,000 in the form of a promissory note from a customer to start a business buying up distressed properties, and in order to do this, he needed money to establish a credit line. hen Duarte received the loan, his member firm’s written procedures prohibited employees from accepting or soliciting loans from firm customers/ He has not fully repaid the loan.

Also, Duarte engaged in an outside business activity without providing his firm with written notice of the activity; Duarte failed to disclose or obtain his firm’s written permission of his outside business activity of purchasing distressed properties. Duarte made misrepresentations to his firm in an annual compliance certification that he had not accepted any loans from customers and was not engaged in any outside business activities when, in fact, he had already obtained a loan from the customer and was engaged in an outside business activity.

Donald Anthony Duarte Jr.: Barred; Ordered to pay $25,000 plus interest in restitution to a customer
Edgar Rhodes Hauser Jr
AWC/2010023178101/November 2011

At Hauser’s request, firm customers borrowed a total of $202,000 from the cash value accumulated in whole life insurance policies that Hauser previously sold to them. Hauser then borrowed the funds from these customers, pursuant to secured (as to two of the loans) and unsecured (as to one of the loans) promissory notes providing for annual interest. Hauser has not made interest or principal payments on the notes.

Hauser's firm’s WSPs prohibit associated persons from engaging in borrowing or loaning funds with a customer, unless the customer is an immediate family member and the firm provides prior written approval; none of the customers from whom Hauser borrowed funds were members of Hauser’s immediate family, and Hauser did not seek or receive prior approval for the loans.

Edgar Rhodes Hauser Jr: Barred
Bill Singer's Comment
Something of a compound violation in that Hauser appears to have instigated his clients to borrow from their life insurance in order to lend Hauser money that he has not yet repaid in terms of principal or interest.  On top of that, he likely received some transactional compensation for the original whole life policies sales.
Eric Adam Axel
OS/2007010889202/November 2011

While associated with a member firm, Axel, through a company in which he held an ownership interest and co-managed, borrowed $200,000 from two customers in three transactions.

The first loan for $50,000, which Axel later repaid, was contrary to Axel’s firm’s written policy that prohibited individuals from borrowing money from firm customers, and Axel did not seek or receive his firm’s approval for the loan he received from the customer. Prior to receiving the loan, the firm’s CCO explicitly stated that Axel did not qualify to raise money with his customers.

Second Firm

Axel left the firm and became associated with another member firm; Axel, through his company, solicited another $50,000 from the first customer, who had now transferred his account to the firm where Axel remained his account representative. Axel did not repay the funds he borrowed in the second loan.

Finally, Axel, through his company, borrowed $100,000 from a second customer. The customer has received partial payment of the loan. Axel accepted these two loans contrary to his firm’s written policy that prohibited registered persons from borrowing money from a customer, Axel had not asked for, nor had received, the firm’s permission to borrow these funds.

Axel provided false information to his second member firm, when he responded that he never loaned money to, or borrowed money from, a customer, or arranged for a third party to loan or borrow from a customer on a compliance certification.

Eric Adam Axel: Fined $10,000; Suspended 1 year
Bill Singer's Comment
Frankly, Axel either had a superb lawyer or FINRA's getting soft.  For a three-time loser to get off with only $1,000 and a one-year suspension is a relatively light sanction given the dollars involved, the repeat offenses, and the involvement of two member firms.
Euro Pacific Capital, Inc.
AWC/2009016300801/November 2011

Euro Pacific failed to timely report quarterly statistical information concerning most of the customer complaints it received to FINRA’s then 3070 System.

The firm failed to maintain complete complaint files and did not enforce its WSPs pertaining to customer complaint reporting, and the Uniform Applications for Securities Industry Registration or Transfer (Forms U4) for those representatives who were the subject of the complaints were not timely updated.

The firm failed to enforce its written supervisory control policies and procedures that would test and verify that the firm’s supervisory procedures were reasonably designed with respect to the firm’s activities to achieve compliance with applicable securities laws, regulations and self-regulatory organization (SRO) rules; the firm’s annual NASD Rule 3012 report for one year did not comport with these procedures, and the firm failed to implement its supervisory control procedures to review its producing managers’ customer account activity.

The firm prepared a deficient NASD Rule 3013 certification as it did not document the firm’s processes for establishing, maintaining, reviewing, testing and modifying compliance policies reasonably designed to achieve compliance with applicable securities laws, regulations and SRO rules. The firm failed to timely file a Financial and Operational Combined Uniform Single (FOCUS) Report and Schedule I Reports.

The firm failed to preserve, in an easily accessible place, electronic emails for one of its representatives for almost a year.

The firm offered and sold precious metal-related products through an entity, but failed to develop, implement and enforce adequate AML procedures related to the business; the firm did not establish and implement policies and procedures reasonably designed to identify, monitor for and, where appropriate, file suspicious activity reports (SARs) for its business processed through its k(2)(i) account. Moreover, the firm failed to implement and enforce its AML procedures and policies related to its fully disclosed business through its then-clearing firm; aspects of its AML program that the firm failed to implement and enforce included monitoring accounts for suspicious activity, monitoring employee conduct and accounts, red flags and control/restricted securities. Furthermore, the firm’s procedures provided that monitoring would be conducted by means of exception reports for unusual size, volume, pattern or type of transactions; the firm did not consistently utilize exception reports made available by its then-clearing firm, and the firm did not evidence its review of the reports and did not note findings and appropriate follow-up actions, if any, that were taken. When notified by its clearing firm of possible suspect activity, on at least several occasions, the firm did not promptly and/or fully respond to the clearing firm’s inquiries. Such review was required by the procedures for employee accounts, but the firm did not maintain any evidence that such inquiries for employee accounts were conducted. The firm’s procedures contained a non-exclusive list of numerous possible red flags that could signal possible money laundering, but the firm did not take consistent steps to ensure the review of red flags in accounts.

The firm’s AML procedures reference that SAR-SF filings are required under the Bank Secrecy Act (BSA) for any account activity involving $5,000 or more when the firm knows, suspects, or has reason to suspect that the transaction involves illegal activity or is designed to evade BSA regulation requirements or involves the use of the firm to facilitate criminal activity; because the firm was not consistently reviewing exception reports or red flags, it could not consistently identify and evaluate circumstances that might warrant a SAR-SF filing.

The firm failed to establish and implement risk-based customer identification program (CIP) procedures appropriate to the firm’s size and type of business; and the firm failed to provide ongoing training to appropriate personnel regarding the use of its internal monitoring tools as AML program required.

In addition, certain pages of the firm’s website contained statements that did not comport with standards in NASD Rule 2210; FINRA previously identified these Web pages as being in violation of NASD Rule 2210, but the firm failed to remove such pages from its website.

Euro Pacific Capital, Inc.: Censured; Fined $150,000
Frank A. Gutta aka Fazel A. Gutta
AWC/2009017447501/November 2011
Gutta formed a corporation for the business purpose of pooling funds to be used to finance investments in various small businesses, and he operated the company for more than four years without notice to his member firm. Gutta offered and sold company promissory notes to individuals, including some firm customers, for proceeds of approximately $2.9 million; the firm did not sponsor or approve the promissory notes, and Gutta did not provide written notice to, seek or obtain approval from, his firm prior to engaging in the offer and sale of the notes. Gutta recommended the notes to a firm customer without having a reasonable basis to believe the investment was suitable for her; the customer invested a total of $235,000 in notes, which was inconsistent with her stated investment objective and risk tolerance.
Frank A. Gutta aka Fazel A. Gutta: No FIne in light of financial status; Suspended 2 years
Gavin Michael Wilson
AWC/2011027249601/November 2011
Wilson falsified a customer’s signature on an account transfer form.

A new registered representative joined Wilson’s member firm and sought to transfer her securities holdings at another broker-dealer to an account at the firm. In order to effectuate the transfer, the new registered representative signed an account transfer form authorizing the transfer in-kind of her securities holdings. 

Wilson was responsible for ensuring that the transfer was made consistent with the customer’s instructions, as reflected in the signed transfer form. Shortly after submitting the transfer form for processing, Wilson received notification from the broker-dealer holding the registered representative’s securities that her holdings could not be transferred in-kind. Rather than communicating this issue to the customer, Wilson transposed a copy of the registered representative’s signature onto a new transfer form requesting liquidation of her securities and submitted the falsified transfer for processing, causing liquidation of her securities, without her authorization or consent. 
Gavin Michael Wilson: Fined $5,000; Suspended 6 months
Harmik Sarian
AWC/2010022545001/November 2011

Sarian impersonated customers via telephone in order to effect transactions in their accounts. He signed a relative’s name on a brokerage account withdrawal form to effect a transaction in the account.

Harmik Sarian: Fined $6,000; suspended 90 days
J.P. Turner & Company, LLC and James Edward McGrath (Principal)
OS/2009016612701/November 2011

McGrath failed to reasonably supervise a registered representative who recommended and effected unsuitable and excessive trading in a customer’s account. McGrath had supervisory responsibility over the registered representative and was responsible for reviewing his securities recommendations to ensure compliance with member firm procedures and applicable securities rules. McGrath failed to reasonably supervise the registered representative by, among other things, failing to enforce firm account procedures and failing to respond to red flags regarding the registered representative’s trading activity in the customer’s account.

The firm’s supervisory procedures required McGrath to review account transactions, such as the registered representative’s recommended transactions in the customer’s account, on a daily and monthly basis for, among other things, general suitability, excessive trading and churning, in-and-out trading and excessive commissions and fees; the firm’s procedures also required that McGrath review all exception reports related to the individuals who he supervised and take appropriate measures as necessary. Through these required reviews, McGrath was aware of red flags of possible misconduct in the customer’s account, including frequent short-term trading, excessive commission and margin charges, high turnover and cost-to-equity ratios, and substantial trading losses, and the account frequently appeared on the firm’s exception reports; McGrath failed to reasonably respond to and address the red flags in the customer’s account.

McGrath never spoke with the customer despite the fact that the firm’s compliance department sent several emails to McGrath advising him that the customer’s account needed customer contact as required by the firm’s WSPs; McGrath never spoke with the customer directly to confirm that he was aware of the activity level in his account or that such activity was appropriate in light of his financial circumstances and investment objectives.

McGrath failed to ensure that an Active Account Suitability Supplement and Questionnaire was sent to the customer within the time frame the firm’s WSPs required. Moreover, months after the registered representative began trading in the customer’s account, McGrath instructed the registered representative to curtail the short-term trading in the account and hold positions for a longer period; that was the only time McGrath spoke to the registered representative about the customer’s account. Furthermore, McGrath reduced the registered representative’s commissions for purchases in the customer’s account, but this measure did not have the desired impact; the registered representative actually increased the number of purchases and frequency of short-term trading to offset the effects of the commission reduction until the customer closed the account after suffering losses of approximately $120,000.

McGrath failed to take any action against the registered representative based on his failure to comply with his instructions; among other things, McGrath never restricted the trading in the customer’s account, spoke to the customer, placed the registered representative on heightened supervision, recommended disciplinary measures against him to address these concerns, or spoke with the firm’s compliance department regarding the supervision of the registered representative. The firm allowed the registered representative to effect transactions in the customer’s account for months without obtaining a signed and completed new account form from the customer, and failed to enforce its review of active accounts as the WSPs required. The firm failed to send a required suitability questionnaire to the customer until almost a year after the account had been opened and suffered significant losses, failed to qualify his account as suitable for active trading and failed to perform a timely quarterly review of the account.

J.P. Turner & Company, LLC: Censured; Fined $20,000

James Edward McGrath (Principal): Fined $5,000; Suspended 10 business days in Principal capacity only

Bill Singer's Comment

What really stopped me in my tracks was the allegation that McGrath cut the RR's commissions for purchases but this resulted in the RR's increasing buy orders and the frequency of short-term trades. Frankly, if a supervisor even thinks that it's necessary to cut commissions in order to promote better compliance practices by an RR, it might simply be a good time to fire the RR rather than keep your fingers' crossed -- particularly if you're not reaching out to the customers for insight. 

A very generous settlement offer from FINRA to McGrath given the widespread nature of the allegations.

Jason Pedigo
AWC/2010025512501/November 2011

Pedigo submitted a fixed annuity contract for his customer with an insurance company. The insurance company issued the annuity contract and sent it to Pedigo in accordance with its selling agreement. The insurance company never received the customer’s executed annuity contract confirmation (ACC); and, as a result, mailed letters to Pedigo numerous times requesting that he have the customer sign and return the ACC. 

Pedigo informed the insurance company that the customer was deceased and requested paperwork to submit a death claim.  According to the insurance company, it never received the death claim paperwork. After receiving a surrender request form that same day, the insurance company contacted Pedigo to inform him that a full surrender could not be processed because the customer was deceased. Amazingly, about a year after the customer had passed, Pedigo falsely informed the insurance company that the customer was still alive. Pedigo faxed the insurance company an ACC which the customer purportedly signed and dated almost 20 days after the customer had died.

Jason Pedigo: Barred
Bill Singer's Comment
One of my favorite cases!  READ:  Zombie Client Signed Annuity Document 20 Days After His Death (BrokeAndBroker.com)
Joanne Lynn Cramer (Principal)
AWC/2009020729101/November 2011
Cramer conducted transactions on behalf of the firm and its parent company after these entities terminated her as an employee and officer. After receiving the termination notice, Cramer sent a fax on firm letterhead instructing the firm’s bank to transfer $3,075 from the firm’s account to the firm’s parent company’s operating account. The bank processed the transaction as a journal entry according to Cramer’s instructions. Cramer sent the fax and signed it as president of the firm and its parent company although she never held the office of president of either the firm or its parent company. The journal entry was necessary to cover a $4,000 check payable to Cramer from the parent company’s operating account, which she wrote and presented for payment.

At the time of Cramer’s termination, she was in possession of another check payable to her in the amount of $65,679.88 written against the account of the parent company’s defined-benefit plan; this check was dated for a certain date before her termination, but Cramer did not present it for payment until a few days after her termination. Cramer sent an email to a representative of the firm’s clearing firm requesting that an inactivity fee be reversed; Cramer closed the email with her name, the firm’s name/the firm’s parent company’s name, and made no reference to the fact that she no longer had a position with either the firm or its parent company.
Joanne Lynn Cramer (Principal): Fined $5,000; Suspended 1 month in all capacities; Suspended 6 months in FINOP only capacities
John Patrick Arena
AWC/2009020619101/November 2011
Arena failed to timely update his Form U4 to disclose material information.
John Patrick Arena : Fiend $5,000; Suspended 30 days
John William Grant (Principal)
AWC/2011025940601/November 2011
Grant executed unauthorized transactions in an account belonging to trustees of a family trust. The principal value of these unauthorized trades was $1,088,561.12; the commissions amounted to $11,517.90. For 18 months prior to these unauthorized transactions, there was no activity in the account aside from interest and dividend credits and the ensuing automatic purchases of shares in a money market fund.
John William Grant (Principal): Barred
Kevin Francis Garvey (Principal)
OS/2009018183501/November 2011
Garvey, as the supervisor of his member firm’s securities lending desk, permitted a non-registered individual associated with a non-registered finder firm to act in a capacity that required the non-registered individual and/or his firm to be registered as a broker dealer and caused his firm to pay the non-registered individual transaction-based compensation through the non-registered finder firm.

Garvey regularly caused his firm to permit an unregistered natural person to negotiate, solicit and enter into stock borrow and loan transactions, which are duties customarily performed by a registered securities lending representative. Garvey performed the duties of a securities lending supervisor without being properly registered. Garvey consented and/or caused the continuation of the practice of paying finders on transactions with certain counterparties in which the finder had provided no service, and permitted individual traders to subjectively determine the cut-in transactions on which a finder was to be paid and the amount of the finder’s compensation on those transactions even though the finder had not provided service on the transactions.

Garvey caused his firm to create and preserve inaccurate books and records on the stock loan activity on the securities lending desk, in that the firm’s automated records of the cut-in transactions were inaccurate, in that they reflected that certain finders had participated in stock loan transactions when, in fact, they had not performed any function. In addition, these false entries were transferred to its accounting records, which inaccurately indicated that payments were made to finders on the basis of services rendered when, in fact, no services had been rendered to justify the payments on the transactions indicated.
Kevin Francis Garvey (Principal): Fined $35,000; Suspended 30 days.
Kristen Anne Jacques
AWC/2010024077701/November 2011
Associated Person created expense reports associated with personal expenses charged to her member firm-issued credit card, which she ultimately paid. Each expense report, Jacques labeled each expense as “personal” and attached a check to reimburse the firm for the personal expenses charged. Jacques signed her supervisor’s signature on a line on each expense report titled “authorized approval signature,” and stamped her supervisor’s printed name on a line with the instruction “print approver name.”Jacques submitted the expense reports to the firm; neither the firm nor Jacques’ supervisor gave her permission or authority to add her supervisor’s signature to the expense reports.
Kristen Anne Jacques: Censured; Fined $5,000; Suspended 1 year
Bill Singer's Comment
For a more detailed analysis of this case, read: http://www.brokeandbroker.com/1070/goldman-sachs-kristen-jacques-credit-card/
Krittibas Ray
AWC/2010023781701/November 2011

Ray solicited prospective investors to purchase promissory notes as a vehicle to fund the start up of a hedge fund and to pay the ongoing operations of the fund; investors purchased more than $675,000 in promissory notes from Ray. Ray represented he could pay above-U.S. market interest rates based in part on the fact he could obtain these rates by investing the funds in a foreign bank; Ray failed to invest the proceeds of the notes with the foreign bank, used some of the proceeds for personal expenses and used proceeds from later sales to pay interest and repay principal amounts due on notes earlier purchasers held.

Ray made materially misleading statements and omissions of fact, including misrepresenting the use of proceeds from the sale of the promissory notes, misrepresenting how and where the proceeds were to be invested, and failing to disclose he was using the proceeds from the sale of promissory notes to pay interest and principal amounts due to earlier note holders. Ray participated in private securities transactions through the sale of promissory notes without providing written notice to his firm describing in detail the proposed transaction, his role therein and stating whether he received, or would receive compensation, and without obtaining his firm’s approval.

Krittibas Ray : Barred
Bill Singer's Comment
Legent Clearing LLC, dba Legent Clearing
AWC/2008013543501/November 2011

Legent cleared transactions in accounts a former FINRA member firm introduced, including a corporate account the former member firm’s customer, an entity, maintained. The trading activity in the entity’s account generated multiple margin calls. Through a course of conduct FINRA alleged involved improper agreements, misleading statements and omissions to disclose material information by the entity and the former member firm, the entity acquired control over assets in qualified and non-qualified accounts customers of another former FINRA member firm previously owned and controlled. Those assets, including assets previously held in qualified accounts, were transferred into the entity’s account held at the firm, where they secured margin debits resulting from options trading and short-selling.

Legent firm provided material assistance to the former member firm and the entity in connection with their efforts to obtain additional assets in the entity’s account in order to support continued trading on margin. Although there were relevant facts that the former member firm and the entity withheld from, or misrepresented to, the firm, the firm was, or should have been, aware of other facts and circumstances that should have caused it to decline to take, or to inquire further before taking, certain actions the former member firm and its customer requested. which facilitated the asset transfers and placed the other former member firm customers at risk of loss; more specifically, two senior managers of the firm, who are principals, had access to facts and circumstances that, at the very least, should have prompted them to inquire further regarding the nature of the assets being transferred. In addition, as a result of trading in the entity’s account after it was transferred from the firm to another broker-dealer, some customer assets were liquidated to meet margin calls, assets that would not have been available for liquidation but for their improper transfer into the entity’s account while it was held at the firm.

Legent Clearing LLC, dba Legent Clearing : Censured; Fined $200,000
Michael Ray Howard (Principal)
OS/2008012282901/November 2011

Howard recommended that a customer have her trust purchase a $500,000 variable annuity that would make payments to her heirs. 

Purportedly, the purchase of the $500,000 annuity, issued by an insurance company, would provide the customer’s heirs with a monthly income until a certain age. The customer advised Howard that she owned rural real estate, which was held in the trust, and she believed that the property could be sold following her death realizing sale proceeds of approximately $600,000.

Howard arranged for the trust to borrow $500,000 from a bank using the real estate as collateral for the loan and using the proceeds to purchase the variable annuity. The trust had to encumber virtually all of its major assets to secure the loan, including the underlying variable annuity, because the market value of the property was only $375,000. Howard received $38,526.86 in commission for his sale of the variable annuity to the customer.

FINRA found that Howard knew, or should have known, that the cost of the annuity far exceeded the appraised market value of the real estate and the customer’s liquid assets, and that the customer could not pay for the variable annuity he recommended without borrowed funds secured in part by the annuity itself. Howard did not have a reasonable basis for believing that his recommendation was suitable for the customer in light of her financial circumstances and needs; Howard’s recommendation exceeded the customer’s financial capability and exposed her to material risk. In addition, Howard completed the account documents and paperwork for the customer’s purchase of the variable annuity, including the variable annuity questionnaire, with false information about the trust’s net worth and source of funds.  Further, he provided the completed questionnaire containing the false information about the trust’s financial situation to his member firm, and the firm retained the document in its records. Moreover, in reviewing and approving the annuity sale, Howard’s supervisor reviewed the variable annuity questionnaire; Howard thus caused the firm’s books and records to be inaccurate and impeded supervision of the annuity sale.

Michael Ray Howard (Principal): Fined $40,000; suspended 6 months
Bill Singer's Comment
I'm no fan of VAs -- if you think that I'm lying about that, look it up. I've written negatively about the over-sell of this product for some time.  That being said, although I fully get where FINRA was going, that still doesn't excuse a bit of poetic license in this case.  

I am NOT excusing the size of Howard's commission.  I am not agreeing that this VA should have been sold to this customer.  On the other hand, I'm not sure that the "cost of the annuity far exceeded the appraised market value of the real estate and the customer's liquid assets."  That "far exceeded" characterization is unnecessary as the data speak for themselves.

The market value of the realty was $375,000. I'm not sure that the additional $125,000 needed to purchase the VA "far exceeded" the real estate's valuation, much less the customer's additional liquid assets, which had to have been at least a few thousand additional dollars (if not quite a bit more).
Nathan Eugene Calhoun
AWC/2011026223401/November 2011

FINRA received investors’ complaints alleging that Calhoun had solicited them to invest in a foreign currency exchange trading (FOREX) program a foreign entity, which operated with Calhoun's assistance/ The digrunteled investors invested a total of $150,000 in the FOREX program. Ultimately, the entity’s FOREX scheme was the subject of federal actions by both the SEC and the Commodity Futures Trading Commission (CFTC).

Calhoun solicited the investors to invest in the entity while he was employed as a registered representative with his member firm. alhoun’s participation in the private securities transactions was outside the regular course or scope of his employment with his firm; and he failed to provide prior written notice of his role in the transactions to his firm and did not receive the firm’s written approval or acknowledgement concerning his participation in the private securities transactions. Finally, he failed to appear for a FINRA on-the-record interview.

Nathan Eugene Calhoun : Barred
Bill Singer's Comment
Yet another FOREX scam.
Nathaniel Aaron Finkin
AWC/2009020132901/November 2011
Finkin's customer submitted an application to the firm for a mortgage, term loan, and line of credit, and as part of the application process, the firm retained an outside law firm to engage in negotiations on the term of the loans with the customer’s counsel. Finkin sent fabricated emails to various individuals involved in the negotiations, including the customer’s counsel, and each of the emails instructed the recipients to contact Finkin with any questions or concerns; Finkin sent the emails from his personal email account in a way that made the messages appear to the recipient to be from a paralegal at the outside law firm, and not Finkin.
Finkin failed to comply with a FINRA request for a document.
Nathaniel Aaron Finkin: Barred
Paul Leon White II
OS/2009017798201/November 2011

White recommended that a customer invest in non-listed real estate investment trusts (REITs) and a tenants-in-common (TIC) interest in undeveloped rural real estate without a reasonable basis to believe that the recommendations were suitable for the customer based on the customer’s financial status and investment objectives, and the customer’s need for liquidity, preservation of capital, ready access to cash, and safety of principal. The customer instructed White to sell the REITs and White acknowledged receipt of the sell instructions and informed the customer to expect to receive a check for the sale proceeds within one to two weeks, but later refused to process the sell orders.White participated in the sale of TIC interests totaling $3,700,000, outside the course or scope of his employment with his firm and collected selling compensation of approximately $1,653,958 but failed to provide his firm with prior written notice describing the proposed transactions. 

Paul Leon White II: Barred
Ralph Howly Phillips (Principal)
AWC/2009017746801/November 2011

Phillips' customers gave him funds to invest in various securities; and he instructed his customers to make their checks payable to a consulting company that Phillips owned and controlled. Phillips deposited the customers’ funds into the consulting company’s bank account, which he controlled, often delayed making the investments, and then only invested a portion of the funds his customers gave him. Phillips misused the customers’ funds by using those funds to pay the consulting company’s expenses.

Phillips willfully filed a Form U4 with materially false information.

Ralph Howly Phillips (Principal): Barred
Richard Bert Howes
AWC/2011026308301/November 2011
Howes participated in a securities transaction without providing prior written notice to his member firm of the proposed transaction and his role therein. Howes referred a customer to a company to invest in a debenture, and based on his referral, the customer invested $50,000 in a debenture and lost his entire investment; Howes received $1,000 for the referral of the customer to the company.
Richard Bert Howes : Fined $6,000 (includes $1,00 disgorgement); Suspended 2 months
Richard Edwin Lenhardt Jr.
AWC/2009019388001/November 2011

Lenhardt directed an associate to use personal information of some of Lenhardt’s customers to establish online access to their accounts at another firm, and through that access, obtain value and performance information relating to whole life insurance policies that the customers held at that firm. Although the purpose for obtaining the information was to include it in personalized financial reports that were prepared for the customers, the access to their accounts and insurance policy information was obtained without the customers’ knowledge or consent.

Richard Edwin Lenhardt Jr.: Fined $5,000; Suspended 2 months
Richard Michael Large
AWC/2010024650801/November 2011
Large  failed to timely update his Form U4 to disclose material facts.
Richard Michael Large : Fined $5,000; Suspended 60 days
Scott Stafford McLean (Principal)
AWC/2010024607501/November 2011

McLean recommended to a customer that he transfer his existing mutual funds to McLean’s member firm, and told the customer that, if he became dissatisfied, he could liquidate the account at no expense.  Shortly thereafter, the customer accepted McLean’s recommendation and transferred the mutual funds. 

Thereafter, the customer had suffered losses in those mutual fund investments and wanted to liquidate his holdings. Accordingly, McLean reimbursed the customer $252 for the charges he incurred in selling the mutual funds, thereby improperly sharing in the customer’s losses. The firm’s written procedures expressly prohibited registered representatives from sharing in any benefits or losses with clients resulting from securities transactions.

Scott Stafford McLean (Principal): Fined $5,000; Suspended 1 business days
Steven Krasner aka Steven Zarkhin
AWC/2009019995901/November 2011

Krasner made unsuitable recommendations to a customer who was a retiree and inexperienced investor. 

Although the customer agreed to each of Krasner’s recommendations, Krasner employed a trading strategy that was not suitable for the customer’s particular financial situation. The customer had indicated in account opening documents that he had an investment objective of capital preservation and a low risk tolerance. 

Krasner recommended the use of margin to execute trades in the customer’s account and at times exposed the customer to inappropriate financial risk. Krasner never read the customer’s account opening documents, though they were available to him, and was unaware of the customer’s financial situation and risk tolerance, as stated in the account opening documents.

Krasner’s member firm’s database and computer platform that he used to place trades, as well as the account statements that were mailed to the customer each month, inaccurately indicated that the investment objective was speculation.  In his conversations with the customer, Krasner never confirmed the accuracy of the investment objective. Krasner employed a short-term and speculative trading strategy of short selling stock and using margin. Since Krasner was not fully aware of the customer’s stated financial condition, he based his recommendations on the erroneous view that the customer could absorb the high risks of these transactions. 

The customer frequently spoke with Krasner on the phone, gave Krasner express permission to execute the recommended trades and informed Krasner that he was willing to engage in some speculation. Furthermore, Krasner based his recommendations on his conversations with the customer and the firm’s inaccurate database, not the accurate financial information that was contained in the account opening documents. 

Krasner executed solicited trades in the customer’s account, while charging the account $51,790 in commissions and fees. Although several of the individual trades were profitable, including commissions, the customer’s account lost $54,160 in net value, dropping from a net equity value of $162,571 to $108,410.

Steven Krasner aka Steven Zarkhin : Fiend $10,000; Ordered to disgorge to a customer $18,126.81 (payable as partial restitution); Suspended 2 months
Bill Singer's Comment
Ah, this answers a frequently asked question: What if the customer agrees to engage in "unsuitable" trading?  As I've often noted to my clients, suitability is suitability is suitability.  If a customer says it's okay to engage in reckless or inappropriate trading, then you probably should drop the account.  If you don't, you may well have transformed yourself and your brokerage firm into an insurance policy for the client:  If the trades are profitable, the client will keep the profits; however, if the trades are unprofitable, the client may sue you and you could be found to have recommended unsuitable trades and be forced to cough up the bucks.
Steven Lenard Jessup Jr.
AWC/2009021029623/November 2011

Jessup improperly requested and received an answer key to a state LTC CE exam and improperly distributed the answer key to a registered representative outside of his member firm. Jessup was an external wholesaler who marketed an insurance product to financial advisors at financial services firms. Certain states began requiring financial advisors to successfully complete a LTC CE course before selling LTC insurance products to retail customers. Jessup’s firm authorized its wholesalers to give financial advisors vouchers from a company, which the financial advisors could use to take CE exams through the company without charge. Firm employees created and circulated answer keys to the company’s CE exam for various states.

The suspension was in effect from October 3, 2011, through November 2, 2011. (FINRA Case #)

Steven Lenard Jessup Jr. : Fined $5,000; Suspended 1 month
Steven Lloyd Cronin
AWC/2009020970901/November 2011
 Cronin  failed to amend his Form U4 to disclose information.
Steven Lloyd Cronin: Fiend $5,000; Suspended 60 days
Thomas Neil Razey
OS/2009019013201/November 2011
Razey failed to amend his Form U4 to disclose material facts.
Thomas Neil Razey: Fined $2,500; Suspended 30 business days
Timothy Clarke Higgins
AWC/2010024338201/November 2011
Higgins sold equity indexed annuities (EIAs) to people outside the scope of his employment with his firm and without providing the firm prompt written notice of the business activity. Higgins’ undisclosed EIA sales totaled about $127,000 and he received compensation totaling about $6,340 from the transactions.
Timothy Clarke Higgins: Fined $3,000; Suspended 30 business days.
Bill Singer's Comment
In formulating Higgins' disciplinary sanctions, FINRA states that it considered the prior in-house action taken by his member firm in response to the same underlying conduct.
Tracey McInchak
AWC/2010022690601/November 2011
Associated Person McInchak wrote numerous checks, totaling $461,013.14, from her member firm’s corporate checking account made payable to herself and to her personal credit card companies. McInchak cashed the checks and used them for her own benefit without the firm’s knowledge or permission.
Tracey McInchak: Barred
Bill Singer's Comment
How nice!  You just get some checks that are laying around, write them out to yourself, and, voila!!, nearly half a million dollars later you're a very happy camper.  I'd love to know what system of checks and balances were in place here.
Virginia Bussard Barausky (Principal)
AWC/2009021029622/November 2011
Barausky improperly created an answer key for a state insurance long-term care (LTC) continuing education (CE) examination and improperly distributed the answer key to other registered representatives of the member firm. Barausky forwarded another answer key to wholesalers within the firm.
Virginia Bussard Barausky (Principal): Fined $5,000; Suspended 60 days
October 2011
Aaron Joseph Coculo
AWC/2011026065501/October 2011
Coculo converted funds from bank customer accounts while employed with his member firm’s bank affiliate. Coculo ordered and intercepted automated teller machine (ATM) cards and withdrew funds from those accounts, which totaled approximately $5,500. Coculo improperly obtained ATM cards from relatives and effected unauthorized withdrawals totaling approximately $9,000; in total, Coculo misappropriated approximately $14,500 from the customer accounts without permission or authority from the customers or the bank. The transactions did not involve funds from an account held at a FINRA regulated entity.
Aaron Joseph Coculo : Barred
Alan Goings
AWC/2010024810401/October 2011
Goings willfully failed to amend his Form U4 to disclose material facts, which resulted in it containing inaccurate, false and materially misleading information. Goings knew, or should have known, that he was required to update his Form U4 to disclose the material information. Goings completed statements certifying that he would notify his member firm and promptly update his Form U4 if he were arrested or charged with any criminal offense; Goings also attended his firm’s quarterly compliance meeting where Form U4 disclosures were discussed. Goings stated in a compliance meeting that he did not disclose the information because he was concerned about losing his job.
Alan Goings: Fined $5,000; Suspended 6 months
Andrew Joseph Longoria
2009019969101/October 2011

A firm customer opened an account with a mutual fund company through Longoria and,acting on Longoria’s instructions, wrote a check to an entity Longoria owned for $12,000 to fund the account. However, Longoria never funded the account and did not return the $12,000 to the customer.

An individual, non-firm customer gave Longoria a check for $5,000 to invest in what Longoria had represented was an exchange traded mutual fund whose performance was tied to that of the Standard and Poor Index. Longoria instructed the individual to make the check payable to the entity he owned. The individual completed and signed forms to open an account, but no account was opened; the individual requested copies of the forms and evidence of the investment, but Longoria did not provide these documents to the individual. The individual repeatedly asked Longoria to return his $5,000; Longoria promised to do so, and eventually gave the individual a check for $5,820, but the check was returned for insufficient funds.

Longoria failed to respond to FINRA requests for information.

Andrew Joseph Longoria: Barred; Ordered to pay $5,000 plus interest restitution to a non-customer
Birkelbach Investment Securities, Inc. and Carl Max Birkelbach (Principal)
OS/2009016354101/October 2011

Acting through Birkelbach, the Firm failed to adequately supervise to ensure the timely reporting of customer settlements. Birkelbach relied on an unregistered outside consultant to process Rule 3070 filings and amendments to Applications for Broker-Dealer Registration (Forms BD) and Uniform Applications for Securities Industry Registration or Transfer (Forms U4), gave the consultant inadequate instructions and guidance, and did not otherwise ensure that timely and complete filings and amendments were made.

Birkelbach neglected to instruct the consultant to process disclosures or otherwise take action to correct the deficiencies until a later date, even after FINRA advised him of the deficiencies.

Birkelbach and the firm failed to ensure the timely reporting of settlements with customers on 3070 filings and the amendment of Forms BD and Forms U4 to disclose this information.

Birkelbach Investment Securities, Inc.: Censured; Fined $10,000, jointly and severally with Carl Birkelbach

Carl Max Birkelbach: Censured; Fined $10,000, jointly and severally with Birkelbach Invst.; Fined additional $15,000; Suspended 30 days in all capacities; Suspended 90 days in Principal capacity only; Required to requalify by examination as a principal.

Bill Singer's Comment
Okay, fine -- HOWEVER, why is it that when it's a smaller firm these failure to supervise cases also reference BOTH the FINRA member firm and the individual principal, but when it's a larger firm either only the member firm gets whacked, or, if FINRA also names a larger firm's principal that it's done in a separate decision?
Bradley Keith Vercnocke (Principal)
2008013101901/October 2011
Vercnocke willfully failed to disclose material information on his Form U4 and failed to respond to FINRA requests for information and testimony. Vercnocke failed to provide written notice to, or receive approval from, his member firm to engage in an outside business activity.
Bradley Keith Vercnocke (Principal): Barred
Brian Reuben Mitchell
OS/2009017279501/October 2011
Mitchell engaged in outside business activities, for compensation, while failing to provide prompt written notice to his member firm. Mitchell failed to respond to FINRA requests for information and documents until after a complaint was filed.
Brian Reuben Mitchell: No fine in light of financial status; Suspended 2 years
Brookstone Securities, Inc.
AWC/2009016158302/October 2011
The Firm failed to disclose and to timely disclose material information and an arbitration on Forms U4, and failed to timely disclose arbitrations on registered representatives’ Uniform Termination Notices for Securities Industry Registration (Forms U5). The firm received separate complaints against a registered representative and reported the statistical and summary information regarding the complaint to FINRA via an NASD Rule 3070 filing, but failed to disclose that the representative was the subject of both complaints.
Brookstone Securities, Inc.: Censured; Fined $15,000
Bryan Lee Addington
2010021774001/October 2011

A customer instructed Addington to purchase shares of a common stock in his account at Addington’s member firm. Addington placed an order to purchase the stock and instructed the customer to write a check in the amount of $34,019 made payable to an entity to pay for the purchase.  However, Addington did not credit the payment to the customer’s account.  As a result, Addington's brokerage firm liquidated the shares of the stock in the customer’s account for non-payment.

The customer did not promptly learn of the liquidating transaction and instructed Addington to sell the shares of the stock he believed was still in his account. The customer received a $35,500.98 check from Addington drawn on the entity’s account which Addington signed; however, when the customer deposited the check in his account, it was dishonored for insufficient funds.

After the customer called Addington and demanded that he repay him; Addington then paid the customer $35,000 in cash. In addition, Addington failed to respond to FINRA requests for information in connection with FINRA’s investigation of the allegations in the Form U5 his firm filed.

Bryan Lee Addington : Barred
Capital Financial Services, Inc.
AWC/2009019125903/October 2011

The Firm failed to have reasonable grounds to believe that private placements offered by two entities pursuant to Regulation D were suitable for any customer.

The Firm began selling the offerings for one entity after its representatives visited the issuer’s offices to review records and meet with the issuers’ executives; the firm also received numerous third-party due diligence reports for these offerings but never obtained financial information about the entity and its offerings from independent sources, such as audited financial statements.

Despite the issuer’s assurances, the problems with its Regulation D offerings continued; the issuer repeatedly stated to the firm’s representatives that the interest and principal payments would occur within a few weeks, and the issuer made some interest payments but failed to pay substantial amounts of interest and principal owed to its investors, and these unfulfilled promises continued until the SEC filed its civil action and the issuer’s operations ceased.

In addition to ongoing delays in making payments to its investors, the firm received other red flags relating to the entity’s problems but continued to allow its brokers to sell the offering to their customers; in total, the firm’s brokers sold $11,759,798.01 of the offering to customers.

Despite the fact that the firm received numerous third-party due diligence reports for the other entities’ offering, it never obtained financial information about the issuer and its offerings from independent sources, such as audited financial statements, and although it received a specific fee related to due diligence purportedly performed in connection with each offering, the firm performed little due diligence beyond reviewing the private placement memoranda (PPM) for the issuer’s offerings. The firm’s representatives did not travel to the entity’s headquarters to conduct any due diligence for these offerings in person and did not see or request any financial information for the entity other than that contained in the PPM.

The Firm obtained a third-party due diligence report for one of the offerings after having sold these offerings for several months already; this report identified a number of red flags with respect to the offerings. Moreover, the firm should have been particularly careful to scrutinize each of the issuer’s offerings given the purported high rates of return but did not take the necessary steps, through obtaining financial information or otherwise, to ensure that these rates of return were legitimate, and not payable from the proceeds of later offerings, in the manner of a Ponzi scheme. Furthermore, the firm also did not follow up on the red flags documented in the third-party due diligence report; even with notice of these red flags, the firm continued to sell the offerings without conducting any meaningful due diligence.

The Firm failed to have reasonable grounds for approving the sale and allowing the continued sale of the offerings; even though the firm was aware of numerous red flags and negative information that should have alerted it to potential risks, the firm allowed its brokers to continue selling these private placements.The firm did not conduct meaningful due diligence for the offerings prior to approving them for sale to its customers; without adequate due diligence, the firm could not identify and understand the inherent risks of these offerings.The Firm failed to enforce reasonable supervisory procedures to detect or address potential red flags and negative information as it related to these private placements; the firm therefore failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations.

Capital Financial Services, Inc.: Censured; Ordered to pay $200,000 restitution to investors
Bill Singer's Comment
Folks, if this case doesn't make it abundantly clear, if you're going to traffick in the sale of private placements, you gotta go to the car lot and kick the tires.  The days of pushing the paper and getting the non-refundable due dilly fee are over.
Carlos Francisco Otalvaro (Principal)
2008011725901/October 2011
Otalvaro willfully failed to disclose material information on his Form U4, willfully failed to update his Form U4 to disclose material information within the required time, and willfully filed amended Forms U4 that omitted material information.
Carlos Francisco Otalvaro (Principal): Fined $15,000; Barred in Prinicipal capacities only; Suspended 1 year in all capacities
CBG Financial Group, Inc.
AWC/2010021106701/October 2011

The Firm allowed a statutorily disqualified person to associate with the firm.

The individual acted in an associated capacity for the firm, with its knowledge and consent, by

  • keeping regular business hours at the firm,
  • maintaining a
    • desk at the firm’s office,
    • a telephone extension at the firm, and
    • a firm sponsored email account;
  • regularly communicating with customers in an effort to maintain their accounts at the firm and to preserve his relationships with them; and
  • handling administrative matters for the firm.

The firm initiated numerous telephone solicitations to persons whose numbers were in the national do-not call registry of the Federal Trade Commission (DNC Registry) at the time of the calls.

Tto achieve compliance with telemarketing rules and regulations, the firm used, and still uses, a system that blocks outbound phone calls to phone numbers in the DNC Registry. In order to call a phone number in the DNC Registry from a firm phone line, the firm must manually place the number on a list in the system (Allow List); calls to phone numbers on the Allow List bypass the screening system, irrespective of whether the number is in the DNC Registry. A firm principal added numerous phone numbers to the Allow List; the numbers came from leads that the firm had purchased. In addition, the firm maintained that it thought the leads consisted solely of business phone numbers that are not subject to certain do-not-call restrictions. Moreover, the firm placed calls to phone numbers that it had added to the Allow List; a substantial percentage were personal phone numbers that were in the DNC Registry when the firm initiated telephone solicitations to them.

CBG Financial Group, Inc.: Censured; Fined $50,000
Bill Singer's Comment
Interesting case that combines but SD and DNC issues, and is fairly well presented by FINRA.
Christopher P. Smith
AWC/2009019838802/October 2011

Smith misappropriated approximately $231,000 from bank customers by completing credit line advance request forms seeking withdrawals from customer accounts without the customers’ knowledge or consent, withdrew the money in cash and used it to pay personal expenses or deposited it into his personal bank accounts. When some of the customers questioned the withdrawals, Smith reimbursed their accounts by making some unauthorized withdrawals from other customer accounts.

Smith pleaded guilty to misapplication of bank funds in the U.S. District Court for the Western District of Louisiana for stealing approximately $231,000 that was entrusted to the bank’s care and control.

Christopher P. Smith: Barred
Curt Jeffrey High
AWC/2010022448601/October 2011
High consented to the described sanctions and to the entry of findings that he willfully failed to amend his Form U4 to disclose material information.
Curt Jeffrey High : Fined $5,000; Suspended 3 months
David Bruce Slagter (Principal)
AWC/2009018726502/October 2011

Slagter participated in private securities transactions without giving written notice to and receiving approval from his member firm before participating in the private securities transactions outside the regular scope of his employment with the firm.

Slagter introduced firm customers and another individual to a principal of a mortgage processing company and the individuals invested in what were purportedly high-yield corporate bonds issued by the company, which were not firm-approved investments; the individuals invested a total of $490,599 in the bonds and lost approximately $475,599. Slagter engaged in an unapproved business activity by working as a loan originator for the mortgage processing company without notifying or requesting approval from his firm.

Slagter trained mortgage representatives to use mortgage software that was owned by the company without requesting or receiving permission from his firm to engage in this outside business activity; Slagter earned $41,744 in compensation from the mortgage processing company while employed with his firm.

David Bruce Slagter (Principal): No fine in light of financial status; Suspended 4 months
David Do-Yong Lee
AWC/2010023019701/October 2011
Lee misappropriated $900 from his member firm by claiming and receiving reimbursement for personal expenses, which he claimed as business expenses, thus converting his firm’s funds to his own use. Lee caused his firm’s books and records to be inaccurate.
David Do-Yong Lee: Barred
Diana Y. Tao
AWC/2011027996201/October 2011
Associated Person Tao took the Series 6—Investment Company Products/Variable Contracts Limited Representative Qualifications Examination—and received a failing grade.Tao altered the Proctor’s Report to reflect that she had received a failing score higher than the failing score she actually received; Tao presented the altered report to her manager.
Diana Y. Tao : Fined $5,000; Suspended 2 months
Bill Singer's Comment
Truly, there's some stuff I just can't make up.  You fail the test and then you doctor the computer results to show your superior that you failed -- but just not by as much as you really did?  I mean, geez, what's the point? 
Edward Lee Pinney Jr.
AWC/2010024882501/October 2011
While registered with a member firm, Pinney borrowed an aggregate of approximately $205,000 from customers, who were his long-time friends; each loan was a personal loan Pinney used to meet his personal financial obligations. Pinney repaid the outstanding balance of $85,000 owed on one of the loans but has not repaid any of the $120,000 on the loan to the other customer, which is payable on demand. The findings also stated that the firm had written procedures forbidding registered representatives from borrowing funds from customers except under certain circumstances; Pinney’s loans did not fit within any of the exceptions in the firm’s procedures.
Edward Lee Pinney Jr.: Fined $5,000; Suspended 3 months; Ordered to repay $120,000 to customer
Felipe J. Lorie
2009019867201/October 2011

Lorie falsified Letters Of Authorization ("LOAs"), which caused his firm’s books and records to be inaccurate, and used the LOAs to withdraw customer funds without the customer’s authorization; these LOAs contained the purported signature of a customer and the customer’s family members and authorized the transfer of checks totaling $21,290.60 to a mortgage company and another $15,000 check to a third-party account. The checks were issued as Lorie requested; neither the customer nor any of his family members authorized or signed the

Lorie failed to respond to FINRA requests for information.

Felipe J. Lorie : Barred
Frank Bianculli
AWC/2009016911202/October 2011

Bianculli entered into an informal agreement with brokers at his member firm to share in commissions relating to undisclosed private securities transactions in an entity, which purported to advance cash to merchants in exchange for the merchants’ future credit card receivable; the entity promised returns of 4 percent or more per month, but it was a Ponzi scheme.

Bianculli helped brokers with servicing a customer’s investment but failed to provide his firm with written notice of his involvement in an unapproved private securities transaction. Bianculli provided false and misleading information to FINRA during sworn on-the-record testimony.

Also, Bianculli provided false and misleading statements to his firm in response to a compliance questionnaire distributed by the firm inquiring into the scheme. Bianculli denied meeting any of the owners or principals of the entity and failed to disclose his participation in the customer’s investment.

Frank Bianculli : Barred
Frank Porporino Jr.
AWC/2010022072601/October 2011

Porporino executed two unauthorized trades in a customer’s account without the customer’s prior knowledge, authorization or consent, which cost $474,000 and $444,000 respectively, resulted in approximately $37,000 in losses to the customer and netted Porporino approximately $16,200 in commissions.

Contrary to firm procedures that generally prohibited registered representatives from borrowing funds from customers unless they had the firm’s president’s prior written approval, Porporino borrowed $40,000 from a customer without disclosing the loan to his firm; he repaid the loan, including $8,000 in interest. The was unaware of and did not otherwise approve the loan.

Frank Porporino Jr. : Fined $5,000; Suspended 9 months; Ordered to pay $37,000 plus interest in restitution to a customer.
Frost Brokerage Services, Inc.
AWC/2008014620601/October 2011

The Firm did not retain internal emails firm registered representatives sent or received for three years, and did not retain emails in a non-erasable, non-rewritable format.

The Firm used an internally created email retention system that retained email between firm registered representatives and individuals outside the firm, but did not retain internal email; instead, the firm retained internal email through the use of backup tapes, which the firm archived for less than the required three year period.

The firm implemented a new email retention system an outside vendor created to retain registered representatives’ emails, and for an unknown number of emails, there was a difference in the time the firm registered representative sent or received the email and the timestamp on the email as saved in the archive of the new email retention system; in some instances, the difference was a matter of seconds, and as a result, the timestamps on an unknown number of emails in the archive of the new email retention system differed from the times firm registered representatives sent or received those emails.

While attempting to gather emails in response to a FINRA investigation, the firm discovered that, due to a problem with the new email retention system, certain emails were being held in a database of the new system and were not moving to the archive portion of the system.The Firm performed certain upgrades to the new email retention system in an attempt to move those emails from the database to the archiving portion of the system; prior to performing the upgrade, the firm did not copy the contents of the database where the emails were being held.  During the upgrade, a default configuration superseded the customized server configuration that the outside vendor had originally utilized for the system, which resulted in a loss of certain header information when those emails were moved from the database to the archiving portion of the system.

In addition, in a statement submitted to FINRA, the firm reported the problem that resulted in email being ingested in the new email retention system without certain header information. Moreover, the new system also malfunctioned during parts of a year, which led to gaps in its email retention and the loss of emails responsive to FINRA’s investigation; neither the firm nor the outside vendor was able to determine the cause of the malfunction or the total number of emails lost as a result of the malfunction.

Furthermore, the Firm did not retain or review emails firm registered representatives sent from firm-issued electronic devices to individuals outside the firm.

The Firm did not establish and maintain a supervisory system, including WSPs, reasonably designed to retain emails firm registered representatives sent or received for the required three-year period, to retain emails firm registered representatives sent from firm-issued electronic devices to individuals outside the firm, and to review electronic communications. The Firm did not establish a supervisory system, including WSPs, reasonably designed to detect and prevent malfunctions in the new email retention system.

Frost Brokerage Services, Inc.: Censured; Fined $200,000; Required to certify to FINRA in writing within 120 days of acceptance of the AWC that it currently has in place systems and procedures reasonably designed to achieve compliance with the requirements of Section 17(a) of the Securities Exchange Act of 1934, Rule 17a-4 thereunder and NASD Rule 3110 concerning the preservation of electronic communications.
Bill Singer's Comment
Ummm . . . and all this email stuff adds up to a whopping $200,000 in fines?  Sorry but a lot of these problems seem inadvertent miscues and similar to the problems that bedevil everyone online or using a computer.  Which is not to say that FINRA didn't have some valid points but, hey, here's a novel idea: How about having the firm use its funds to upgrade its systems rather than pay a fine to FINRA, which, come to think of it, just where does all that money go to anyway?
Gordon Michael Budreau
AWC/2010021222101/October 2011

Budreau exercised time and price discretion beyond the day on which the customer granted such discretion and without the customers’ written authorization. Although the firm’s policies required all registered representatives to indicate in the order entry system when they use time and price discretion when ordering trades, Budreau failed to make that disclosure.

Budreau’s firm discovered his improper exercise of time and price discretion and issued a formal Letter of Education to Budreau reminding him of the rules regarding time and price discretion and instructing him to read compliance memoranda addressing discretionary trading and the recording of orders; Budreau signed the Letter of Education acknowledging his understanding the document’s terms and certifying that he read the relevant policies. Soon after receiving the Letter of Education, Budreau again exercised time and price discretion by purchasing shares of a different security in several customer accounts.

Although Budreau discussed the possibility of purchasing the security with his customers before entering purchase orders into the firm’s system, none of the actual purchases occurred on the days when he spoke to his customers, and some of the purchases occurred a week or two after the customers informed him they were willing to purchase the security.

Gordon Michael Budreau : Fined $5,000; suspended 10 business days
Bill Singer's Comment
Bad enough that you get a Letter of Education and you sign it to indicate that you got the message; but to then go out and flaunt the very warning you got -- wow!
Jaime Campos Lopez
AWC/2009018640401/October 2011

After discussing with his member firm the possibility of him participating as an exhibitor during a dental convention by representing the firm at a booth in the exhibition hall and distributing literature, Lopez did not follow up and formally request permission, contrary to the firm’s written procedures. Despite the lack of the firm’s approval, Lopez arranged for and participated as an exhibitor representing the firm by staffing an exhibition booth at the convention and distributed, or had available for distribution, literature about the firm and himself. 

Lopez provided FINRA with inaccurate and misleading information.

Jaime Campos Lopez : Fined $5,000; Suspended 2 years
James Michael Lenzi
AWC/2009020835202/October 2011
Lenzi  engaged in outside business activities without providing prompt written notice to his member firm. The findings stated that the firm permitted its representatives to sell fixed annuities only if the transactions were placed through its GA platform; Lenzi sold fixed annuities to customers, several of whom were clients of the firm, and received compensation for these sales. Lenzi’s sales were placed through the issuer, not through the firm’s GA. On several occasions, Lenzi falsely certified to the firm that he had not engaged in any outside business activities for which he received compensation.
James Michael Lenzi : Fined $5,000; Suspended 5 months
Jeremy Nathan Swank (Principal)
AWC/2010021615501/October 2011

Swank's customer purchased $935,465.50 of an agency bond with Swank at a member firm, and approximately one week later, Swank received a complaint from the customer stating that he misunderstood the bond purchase. Swank sold the position for $933,595.14 and at the same time, the customer demanded $1,850 in realized losses on the transaction and $3,300 accrued interest. 

In lieu of the customer making a formal complaint to Swank’s firm, the customer and Swank entered into a verbal settlement agreement and Swank paid the customer approximately $5,150 in cash., which Swank failed to advise his firm, orally or in writing, about the customer’s complaint, the settlement or the $5,150 payment.

Jeremy Nathan Swank (Principal): Fiend $5,000; Suspended 10 business days.
Jerry William Burch (Principal)
2005000324301/October 2011
Burch failed to disclose to customers that a brokerage account his relative controlled was selling shares of a stock at the same time he was recommending that customers buy it. Burch caused his firm’s books and records to be inaccurate when he falsely represented to the firm that customer purchases of shares of stock were unsolicited. Burch failed to update his Form U4 with material information.
Jerry William Burch (Principal): Barred
Jo Ann Marie Head
2009017530101/October 2011

Head conveyed false and exaggerated account values to customers verbally and with falsified documents; and borrowed $20,000 from a customer and has repaid only $1,000 to the customer, contrary to the firm’s written procedures prohibiting representatives from borrowing from customers without branch manager or other supervisor approval and the written approval of the firm’s compliance department. Head did not request or obtain permission from her firm to borrow money from the firm’s customer.

Head settled and/or offered to settle a customer complaint without her firm’s knowledge or authorization. Head sent an unapproved and materially false letter to a bank by preparing, signing and mailing a letter to a bank stating that a customer’s assets totaled over $4 million in order to assist the customer in obtaining a mortgage loan; although the firm’s procedures required that outgoing correspondence be reviewed and approved before mailing. Head neither sought nor obtained approval for the letter.

Head exercised discretion in customer accounts without written authorization; Head neither sought nor obtained authorization from customers or her firm to exercise discretion in their accounts.

Head mischaracterized solicited trades in customers’ accounts as unsolicited, causing her firm’s books and records to be inaccurate. In addition,

Head repeatedly sent emails and text messages to customers from her personal email accounts, which violated her firm’s policies forbidding the use of personal email accounts and mandating that business-related electronic communications with customers occur within the firm’s network.  Head’s use of her personal email account prevented the firm from reviewing her email and text messages, and delayed the discovery of her misconduct in customers’ accounts.

Head submitted false and evasive information to FINRA in response to a written request for information; and subsequentlyfailed to appear or otherwise respond to FINRA requests for testimony.

Jo Ann Marie Head: Barred; Ordered tp pay $19,000 restitution
Bill Singer's Comment
Talk about a cascade effect of violations!
John Amador Blake-Zuniga aka John Anthony Blake (Principal)
AWC/2010024761201/October 2011

Blake-Zuniga formed a company before becoming associated with his member firm; once he became associated with his firm, he disclosed the company he formed as an outside business activity and described his role as a passive investor with no day-to-day employment or management responsibility.

While still associated with his firm, Blake-Zuniga became a director and the CEO of the company, which was a material change in the nature of Blake-Zuniga’s affiliation with his company and, therefore, a new outside business activity of which he was required to provide the firm with prompt written notice. Blake-Zuniga failed to provide the firm with the required notice.

John Amador Blake-Zuniga aka John Anthony Blake (Principal): Fined $5,000; Suspended 30 business days
Karl Henry Rodriguez (Supervisor)
AWC/2011026130701/October 2011

 Rodriguez converted and misappropriated $10,000 from the bank checking account of a customer of his member firm and the firm’s bank affiliate.

While researching an investment for the customer, a bank employee discovered that Rodriguez had diverted a $10,000 check from the customer’s bank checking account and made the check payable to a third party, who was also a bank customer and Rodriguez’ close personal friend. The customer neither authorized Rodriguez to make the check payable to the third party nor divert the funds to the third party’s account at the bank. The third party made cash withdrawals totaling $10,000 from the bank account, and gave the money to Rodriguez, who used the funds for his personal benefit.

Ultimately, the bank re-deposited $10,000 into the customer’s bank checking account, and as a result of the bank’s inquiry, Rodriguez repaid approximately $5,000 to the bank.

Karl Henry Rodriguez (Supervisor): Barred
Kathryn Ann Winter
AWC/2011026378701/October 2011

Winter participated in private securities transactions without providing prior written notice to her member firm describing in detail the proposed transactions and her proposed role, and stating whether she had received, or might receive, selling compensation in connection with the transactions.

Winter solicited investments from customers of her firm on an entity’s behalf; these customers subsequently invested $750,000 in the entity, which pooled money from investors in a common enterprise with the expectation of profit derived from others’ efforts. Winter failed to disclose these private securities transactions to her firm. Winter recommended to firm customers that they invest funds in the entity, without having reasonable grounds for believing that the recommendations were suitable for such customers, based upon the facts disclosed by such customers as to their securities holdings, and financial situation and needs.

Kathryn Ann Winter: Fined $12,500; Suspended 180 days
Kellyann Fortney
OS/2009020645901/October 2011
Associated Person Fortney misappropriated approximately $75,864.12 from the company by withdrawing funds using checks or other debits from the company business checking account (a money market account). The checks or other debits were made payable to Fortney or to third parties. Fortney engaged in unauthorized transactions using the company’s credit card account, and then paid for those transactions using the company’s checking account.
Kellyann Fortney : Barred
Lonnie Lee Dusenberry
AWC/2010022516401/October 2011

Dusenberry borrowed $742,500 from his customers and, in several instances, Dusenberry used the proceeds of one loan to repay an earlier loan from a different customer. Dusenberry failed to repay a total of approximately $500,000 to his customers.

The firm prohibited borrowing money from customers unless the borrowing arrangement fell within certain enumerated exceptions, such as a loan from an immediately family member; regardless of the circumstances, however, employees were required to obtain the firm’s written pre-approval for all loans, and Dusenberry neither requested nor received the firm’s written pre-approval for any of his loans.

In order to effect one of the loans, Dusenberry signed the customer’s name to a Letter of Authorization (LOA) and submitted it to the firm, which caused the firm to transfer $30,000 from the customer’s account to another customer’s account. In order to effect a loan from a different customer, Dusenberry signed that customer’s name to an LOA without her knowledge, authorization or consent, and submitted it to the firm, which caused the firm to transfer $32,000 from the customer’s account to another customer’s account.

Lonnie Lee Dusenberry : Barred
Bill Singer's Comment
Whoa, $500,000 in prohibited customer borrowing.  This guy wasn't kidding around.
Marcus Patrick Camp (Principal)
AWC/2009019276101/October 2011
Camp was the operations manager for branch offices of his member firm and was responsible for supervising registered representatives’ timely completion of the internal, computer-based Firm Element Continuing Education program. Camp completed the required Firm Element Continuing Education program proficiency tests for registered representatives and improperly assisted other registered representatives by providing them with answers. Camp offered to assist or take the proficiency tests for additional firm registered representatives but they rejected his offer.
Marcus Patrick Camp (Principal): FIned $10,000; Barred in Principal capacity only; Suspended 6 months in all capacities.
Markus Beat Pletscher
AWC/2009019969801/October 2011

Pletscher exercised discretion in customer accounts despite the fact that his member firm’s WSPs strictly prohibited discretionary trading in customer accounts, and he was aware of this prohibition.

The firm required that its registered representatives place trade orders immediately after receiving the customer’s authorization for trades, but at times Pletscher received oral authorization from customers to place trades in their accounts, yet he waited several weeks or months before placing the trades.

Pletscher requested to have variable annuity holdings for customers transferred into money market accounts without the customers’ authorization.  The customers requested the unauthorized transactions be reversed, causing his firm to incur reversal fees of $8,863.37.

Pletscher’s firm required its customers review and sign transaction related forms, but Pletscher instructed customers to provide transaction forms that contained only the customers’ signatures, which Pletscher later completed and submitted to the firm for processing, despite his firm prohibiting him from accepting incomplete forms from customers. Pletscher knew that by allowing his customers to pre-sign blank forms, he failed to ensure that customers had properly reviewed and understood the agreements they had signed. In addition, Pletscher caused the firm’s books and records to be false and misleading and to appear that the customers had agreed to the terms of each form on the date the forms were signed in blank.

Markus Beat Pletscher: Fined $15,000; Suspended 1 year
Martin Joel Erzinger (Supervisor)
AWC/2010023960401/October 2011
Erzinger failed to provide his member firm with the information necessary to amend his Form U4 on a timely basis to disclose material information.
Martin Joel Erzinger (Supervisor): Fiend $20,000; Suspended 30 days
Michael Peter Schwartz
OS/2010023974801/October 2011
Schwartz  failed to timely amend his Form U4, or cause his member firm to amend it, to disclose a material fact.
Michael Peter Schwartz : Fined $2,500; Suspended 30 days
Michelle Yvette Mangum
AWC/2009017685301/October 2011
After customers had informed Mangum that they might file a complaint against her firm for significant losses in their account, she instructed them to register a complaint with her member firm based on inaccurate information. Mangum instructed them to assert to the firm that the losses were her responsibility because she had failed and/or refused to purchase protective puts in their account after being instructed to do so. This advice was inaccurate since it was one of the customers, not Mangum, who had refused to sell any portion of their highly margined position, and Mangum had already advised the customers that they would not be able to purchase protective puts because their account lacked sufficient buying power.
Michelle Yvette Mangum : Fined $5,000; Suspended 1 month
Bill Singer's Comment
And the reason that Mangum's advice doesn't qualify as superlative Customer Service is what???
Miguel Alex Rosas
AWC/2010024396001/October 2011

 Rosas wrongfully converted a customer’s funds totaling $14,000 for his personal use by submitting withdrawal requests he forged to his member firm and an annuity company without the customer’s knowledge or consent. Rosas completed and forged other customers’ signatures on variable annuity withdrawal forms and submitted them to annuity companies, without the customers’ knowledge or consent, in an effort to convert funds totaling $45,000 from the customers’ variable annuity accounts for his personal use. 

As indicated on these forms, the funds were to be made payable to a limited liability company for which Rosas was the president and CEO. One of the annuity companies cancelled the withdrawal requests and the other annuity company placed stop payments on the checks that were issued.

Miguel Alex Rosas: Barred
NAME REDACTED
AWC/2010022728801/October 2011

NAME REDACTED executed mutual fund transactions in customers’ accounts without their knowledge or authorization.

In an effort to conceal his misconduct,  NAME REDACTED  falsified his member firm’s books and records. Also, he completed and submitted firm switch forms related to the unauthorized transactions he effected in the customers’ accounts and falsely represented that he had spoken to each of the customers and had obtained their authorization before executing the trades. NAME REDACTED provided false information relating to the reason why these customers authorized the transactions, and he knew at the time he made these written statements on firm documents that they were false.

NAME REDACTED altered the firm’s customer telephone call logs with respect to customers’ accounts to falsely show that he had spoken to each of the customers and obtained their authorization to effect the transactions.

Finally, NAME REDACTED accessed the firms’ internal system and changed the telephone number of some customers whose accounts he had effected the unauthorized transactions to incorrect telephone numbers.

NAME REDACTED: Barred
Bill Singer's Comment
NAME REDACTED at the sole discretion of RRBDlaw.com
Patrick Francis Harte Jr. (Principal)
2006004666601/October 2011

Harte participated in the sale of unregistered securities, in violation of Section 5 of the Securities Act of 1933.

Harte and a registered representative at his member firm sold millions of shares of a thinly traded penny stock, resulting in proceeds exceeding $9.3 million for firm customers; the total commissions generated were $481,398.

Harte failed to conduct any due diligence prior to the stock sales; the circumstances surrounding the stock and the firm’s customers presented numerous red flags of a possible unlawful stock distribution.

Harte did not determine if a registration statement was in effect with respect to the shares or if there was an applicable exemption; Harte relied on transfer agents and clearing firms to determine the tradability of the stock. Harte failed to undertake adequate efforts to ensure that the registered representative ascertained the information necessary to determine whether the customers’ unregistered shares could be sold in compliance with Section 5 of the Securities Act of 1933.  Also, he did not consider the determination of the free-trading status of shares to be within his supervisory responsibilities.

Harte failed to follow up on red flags; he was on notice of the inconsistencies between customers’ trading experience and activity in their firm accounts but took no action.

In addition, Harte received customer emails which evidenced a greater level of market sophistication than reflected in their account forms but failed to investigate these discrepancies.

Patrick Francis Harte Jr. (Principal): Barred
Bill Singer's Comment
The email comment is fascinating -- at what point are brokers supposed to initiate a spot quiz of their clients to determine who is pretending to be more sophisticated and who is pretending to be less sophisticated? 
Patrick Thomas Walker (Principal)
AWC/2008011724302/October 2011

Walker's member firm was issued a Letter of Caution following a FINRA examination, which advised of numerous deficiencies in the firm’s WSPs; these deficiencies included maintenance of the firm’s Form BD, prohibition of commission payments to non-registered entities, designation of an appropriately licensed principal for each of the firm’s product lines, maintenance of WSPs at each OSJ, investigation into the qualifications of new hires, obligations of the firm when handling accounts of associated persons employed at other FINRA-regulated broker-dealers, timely providing account records to customers, prompt notification to regulators of deficiencies in required net capital, and prohibition of the sale of unregistered securities beyond the private offering’s expiration dates. The Letter of Caution also indicated that the firm’s WSPs were deficient with respect to Regulation S-P. 

Although issued only to the firm, the Letter of Caution was delivered to Walker in his capacity as president and chief compliance officer of the firm; thus, Walker had notice of the deficiencies but failed to update and amend the WSPs to correct the deficiencies. A later FINRA examination disclosed the same deficiencies outlined in the Letter of Caution, but Walker failed to update and amend the WSPs to correct the deficiencies. In addition, FINRA determined that Walker failed to establish, maintain and enforce WSPs and supervisory control procedures in the cited areas to ensure compliance with applicable securities laws and regulations, including Regulation S-P.

Patrick Thomas Walker (Principal): Fined $5,000; Suspended in Supervisory/Principal capacities only for 10 business days.
Richard Mark Schmerman (Principal)
AWC/2010022046001/October 2011
Schmerman misused funds belonging to two individuals without their knowledge, consent or authorization. Schmerman failed to respond to FINRA requests for information and documents. Also, he failed to amend his Form U4 to disclose material facts and falsely completed his member firm’s annual compliance questionnaire regarding judgments or tax liens entered against him.
Richard Mark Schmerman (Principal): BArred
Ronald Marvin
AWC/2010021174501/October 2011

Marvin misused approximately $145,000 in funds obtained from investors in a limited partnership that he owned and controlled.

Marvin established the limited partnership as a general investment fund and referred to it as a hedge fund.  The limited partnership had investors who were Marvin’s long-standing friends/customers. Marvin maintained the limited partnership’s brokerage account at his member firm and made all of the investment decisions for the fund, which primarily involved stock transactions; Marvin was also the registered representative for the limited partnership’s account and received commissions from trades in the account.

The general partner of the limited partnership was another entity Marvin owned and controlled. Under the terms of the limited partnership’s offering memorandum, the limited partnership was required to pay an annual management fee of 1 percent to the other entity Marvin owned and controlled. There was approximately $1 million invested in the limited partnership; therefore, the other entity was only entitled to an annual management fee of approximately $10,000, but Marvin wired approximately $145,000 more from the limited partnership’s brokerage account to the other entity’s bank account and used those funds to pay his salary and other expenses of the other entity. In addition, Marvin had no authority to withdraw the additional $145,000 from the limited partnership’s account; Marvin repaid the limited partnership for the excess funds he had withdrawn from its account.

Ronald Marvin : Barred
Roseann Bunshaft
AWC/2010024803101/October 2011

At the request of a member firm customer, Bunshaft was directed to make direct payments from one of the customer’s brokerage accounts at the firm to pay some of the customer’s personal bills; instead, without the customer’s knowledge or authorization, Bunshaft initiated $23,471.25 in unauthorized transfers of funds from the customer’s brokerage account to pay her own personal credit card charges.

Bunshaft failed to respond to FINRA requests for information.

Roseann Bunshaft: Barred
Ruben Velez
AWC/2010025242801/October 2011
Velez converted funds from two of his member firm’s customers. In the first instance, Velez signed the customer’s name on a withdrawal ticket in order to withdraw funds from the account. In the second instance, Velez received a check from a customer intended to initially fund an IRA account; instead of using the check for its intended purpose, Velez cashed the check for his own personal use. In both instances, Velez did not have permission or authority from the customers or his firm to misappropriate the customer funds.  Also, the transactions did not involve funds from an account held at a FINRA
Ruben Velez: Barred
Ryan Christopher Gold
AWC/2009018050801/October 2011

Gold engaged in an outside business activity without providing prior written notice to his member firm. Prior to joining the firm, Gold entered into an agreement with a company that seeded hedge funds, to provide advisory services, and which permitted the company to publicly disclose that Gold was a member of the advisory board.

Upon his association with the firm, Gold disclosed his ownership interest in a hedge fund seeded by the company and another unaffiliated company, but failed to provide written notice concerning his ongoing affiliation with the company and continued providing it with advisory services. Because Gold terminated the agreement, he did not receive compensation from the company for his work while associated with his firm.

Ryan Christopher Gold : Fined $5,000; Suspended 45 days
Stephen Christopher Montgomery (Principal)
AWC/2009021029707/October 2011
Montgomery was employed as an insurance consultant at his member firm, and in that capacity, assisted financial advisors with selling insurance products, including long-term care (LTC) insurance to their clients. Certain states implemented new LTC continuing education (CE) requirements that obligated financial advisors to complete an LTC CE course and exam before selling LTC insurance products to customers who resided in those states. In order to assist financial advisors in obtaining this requirement, Montgomery requested and received an answer key to a state insurance LTC CE examination, and distributed it to financial advisors at his firm through emails.
Stephen Christopher Montgomery (Principal): Fined $5,000; Suspended 45 days in all capacities
Steve R. Caudle
AWC/2010022881701/October 2011
Caudle borrowed $55,000 from a customer at his member firm in order to purchase real estate without providing prior written notice to, or obtaining prior written approval from, his member firm. At the time Caudle borrowed the money, the firm’s written procedures prohibited borrowing money from customers under any circumstances. Caudle completed a firm questionnaire and falsely answered “no” to the question, “Have you, or any related person or entity, borrowed or loaned any money or securities from/to a client (including situations where the loan is still outstanding and occurred prior to the individual becoming a client)?”
Steve R. Caudle : Fined $5,000; Suspended 90 days
Thomas Lauren Salway
AWC/2010023439901/October 2011
Salway willfully failed to timely amend his Form U4 to disclose material information. Salway’s firm had previously disciplined him for failing to timely disclose material information to the firm and update his Form U4 accordingly.
Thomas Lauren Salway: Fined $5,000; Suspended 60 days
Vikas Goel
AWC/2009020539701/October 2011

Goel placed a customer’s signature on statements he prepared in connection with providing a rationale for his recommendations that the customer sell mutual funds and invest the proceeds in an equity-indexed annuity and a variable annuity, without the customer’s knowledge, authorization or consent.

Unbeknownst to Goel, the firm did not require a customer’s signature on the registered representative’s statement of rationale.

Vikas Goel : Fined $7,500; Suspended 1 month
Bill Singer's Comment
How ironic!  Didn't need to do it, did it, and gets fined/suspended.
William James Lasko (Principal)
OS/2009020174801/October 2011
Lasko borrowed $12,000 from his customer while associated with his member firm, and signed a promissory note in which he agreed to repay the $12,000, plus interest. Lasko did not notify his firm of this loan and did not attempt to receive the firm’s approval of this loan contrary to his firm’s procedures that did not allow its registered representatives to borrow money from their customers. Lasko did not repay the money he borrowed from the customer.
William James Lasko (Principal): Fined $5,000; Suspended 3 months
William John Blasko Jr.
AWC/2009020835201/October 2011

Blasko  engaged in outside business activities without providing prompt notice to his member firm. The firm permitted its representatives to sell fixed annuities only if the transactions were placed through the firm’s General Agency (GA) platform; however, Blasko sold fixed annuities to customers, at least two of whom were clients of the firm, and received compensation for these sales. Blasko’s sales were placed through the issuer, not through the firm’s GA.

On several occasions, Blasko falsely certified to the firm that he had not engaged in any outside business activities for which he received compensation.

William John Blasko Jr. : Fined $5,000; Suspended 5 months
Yaman Huseyin Sencan (Principal)
AWC/2009016323801/October 2011

Sencan  failed to reasonably supervise the activities of member firm personnel engaged in the charging of excessive commissions, sharing commissions with a non-member and misusing funds on deposit with the firm.

Acting through its head trader, Sencan's firm improperly shared about $4 million in commissions with one of the firm’s hedge fund clients and charged excessive commissions totaling over $580,000 in transactions.

Sencan was the head trader’s direct supervisor and was aware that the firm had entered into a commission sharing arrangement with the hedge fund client, and he was responsible for reviewing that arrangement and the head trader’s trading activities. The firm’s procedures required the chief compliance officer (CCO) to periodically review emails firm personnel sent and received. Sencan failed to perform periodic reviews of the head trader’s electronic correspondence or otherwise take reasonable steps to supervise his activities.

Acting through its FINOP, the firm misused at least $61,000 in funds on deposit with the firm. 

Sencan was the FINOP’s direct supervisor but failed to monitor the firm’s financial records, perform periodic reviews of the FINOP’s electronic correspondence or otherwise take reasonable steps to supervise the FINOP’s activities.

Sencan became the firm’s AMLCO, and in this position, he was responsible for ensuring that the firm’s AML compliance procedures (AMLCP) were enforced but failed to do so. The CIP portion of the firm’s AMLCP required the firm, prior to opening an account, to obtain identifying information such as the customer’s passport number and country of origin; but acting through Sencan, the firm failed to obtain the identifying information the CIP required for some of its customers (a portion of whom were located outside of the United States). In addition, the firm’s AMLCP required the firm to maintain transmittal orders for wire transfers of more than $3,000, and those orders had to contain at least the name and address of the transmitter and recipient, the amount of the transmittal order, the identity of the recipient’s financial institution and the recipient’s account number; on numerous occasions, a firm customer account wired out funds in excess of $3,000. Sencan did not take steps to ensure that the firm retained information regarding those wires, including the recipient’s name, address and account number and the identity of the recipient’s financial information. Furthermore, acting through Sencan, the firm failed to provide AML training to its registered personnel.

Sencan was attempting to find transactional business for the firm in medium-term notes (MTNs).  As part of an effort to purchase MTNs for resale to its clients, the firm entered into an agreement with a Switzerland-based entity. Sencan signed the agreement on the firm’s behalf, and the agreement called for the entity to provide the firm with the opportunity to purchase $100 million (face value) in specified MTNs; however, the agreement included clauses containing material misrepresentations about the firm’s ability to purchase MTNs.

The first clause represented that the firm was the actual legal and beneficial owner of cash funds in excess of $100 million on deposit at a major bank. In addition, the second clause was a representation that these funds were free and clear of liens, had been legally earned and could immediately be utilized for the purchase of financial instruments; neither of these clauses was true, as the firm never had $100 million on deposit at any bank at any time.

Yaman Huseyin Sencan (Principal): Fined $20,000; Barred in Principal capacity only; Suspended 6 months in all capacities.
September 2011
Andrew George Spotts
2009018661801/September 2011

Spotts wrongfully misappropriated approximately $197,860 from a coworker at his member firm by taking blank personal checks belonging to the coworker and forged the coworker’s name on the checks without the coworker’s knowledge or authorization. Spotts made some of the checks payable to himself and deposited the checks into his personal account, or made the checks payable to credit card companies and other creditors to pay his personal bills.

Spotts failed to appear and testify at an onthe- record interview.

Andrew George Spotts: Barred
Bill Singer's Comment
He probably went into the office refrigerator and stole his coworkers' lunches on occasion too. Watta jerk.
Audrey Dianne Cline
OS/2009017656901/September 2011
Cline participated in private securities transactions contrary to her member firm’s policies and procedures without providing her firm any prior notice, written or otherwise, and receiving the firm’s prior written approval of her recommendations of promissory notes to customers and a non-customer. Cline failed to inform her firm that she held an introductory meeting between a customer and the issuer of the promissory notes in her firm office.
Audrey Dianne Cline: Fined $5,000; Suspended 3 moinths
Ayre Investments, Inc. and Timothy Tilton Ayre (Principal)
OS/2009016252601/September 2011

Acting through Ayre, its CCO, Ayre Investments failed to establish and maintain a supervisory system and establish, maintain and enforce WSPs to supervise the activities of each registered person that were reasonably designed to achieve compliance with the applicable rules and regulations related to

  • CRD pre-registration checks,
  • exception report maintenance and review,
  • supervisory branch office inspections,
  • approval of transactions by a registered securities principal,
  • annual compliance meeting,
  • financial and operations principal (FINOP) review of checks received and disbursements blotter,
  • NASD Rule 3012 annual report to senior management,
  • review and retention of correspondence, Regulation S-P and outsourcing arrangements.

The Firm's WSPs were purchased from a third-party vendor and were intended to meet the needs of any broker-dealer, regardless of the firm’s size or business. Acting through Ayre, the Firm failed to tailor the template WSPs to address the firm’s particular business activities. With respect to the areas identified above, the firm’s WSPs failed to describe with reasonable specificity the identity of the person who would perform the relevant supervisory reviews and how and when those reviews would be conducted; and with respect to the maintenance of electronic communications, the firm completely failed to establish, maintain and enforce any supervisory system and/or WSPs reasonably designed to ensure that all business-related emails were retained.

Acting through Ayre, the Firm violated the terms of a Letter of Acceptance, Waiver and Consent (AWC) by failing to file a required written certification with FINRA regarding the firm’s WSPs within 90 days of the issuance of the AWC. Despite being given multiple reminders and opportunities by FINRA staff during a routine examination to file the certification, the firm and Ayre have yet to file the certification the AWC required.

The Firm only had one registered options principal (ROP) who was required to review and approve all of the firm’s option trades; for more than half a year, however, the ROP resided in another state and did not work in the firm’s main office. Furthermore, the firm’s WSPs did not address or explain how the ROP, given his remote location, was to accomplish and document the contemporaneous review and approval of all options trades firm customers placed; the firm executed approximately 450 options transactions, none of which the ROP approved.

The firm failed to maintain and preserve all of its business-related electronic communications, and therefore willfully violated Securities Exchange Act Rule 17a-4.

The Firm permitted its registered representatives to use email to conduct business when the firm did not have a system for email surveillance or archiving. Each firm representative maintained electronic communications on his or her personal computer or arranged for the retention of electronic communications in some other fashion, and the firm relied on representatives to forward or copy their businessrelated emails to the firm’s home office for retention. Not all of the representatives’ business-related emails were forwarded to the home office, and the firm did not retain the electronic communications that were not forwarded or copied to the firm’s home office; as a result, the firm failed to maintain and preserve at least 10,000 business-related electronic communications representatives sent to or received.

Ayre Investments, Inc.: Censured; Fined $10,000  (note: FINRA states that it imposed a lower fine against the firm after it considered, among other things, the firm’s revenues and financial resources); Undertakes to review its supervisory systems and WSPs for compliance with FINRA rules and federal securities laws and regulations, including those laws, regulations and rules concerning the preservation of electronic mail communications, and certify in writing to FINRA, within 90 days, that the firm has in place systems and procedures to achieve compliance with those rules, laws and regulations.

Timothy Tilton Ayre: Fined $10,000; Suspended 2 months in Principal capacity only.

Bill Singer's Comment

A well-presented and well-documented FINRA report -- compliments on that!  The alleged violations clearly indicate lapses and the issue of the failed follow-up on the AWC is as inexcusable a compliance miscue as there is. 

The one quibble I have is with the WSP, and it's an old issue for me.  When a firm is admitted to FINRA membership, it must submit its proposed WSP for approval.  It absolutely drives me nuts when a specific WSP was approved as part of the firm's initial membership or a continued membership application and then, miraculously, a year or so later that same document is suddenly deemed to be non-compliant.  I would argue that it is incumbent upon FINRA to meaningful eyeball a member's WSP and to put the firm on prompt notice of any deficiencies -- in contrast to playing gotcha after no examiner cited any shortcomings during a prior review.  Whether these circumstance apply in this case, I do not know -- nonetheless, I will argue until my last breath that regulators need to play fair with this issue.

Brent Aaron Morita
OS/2010023830101/September 2011
Morita willfully failed to amend his Form U4 to disclose a felony charge and conviction.
Brent Aaron Morita : No monetary sanctions in light of financial status; Suspended 6 months
Brian Scott Brewer (Principal)
OS/2005002244102/September 2011

Brewer failed to adequately supervise a registered representative’s variable annuity sales activities.

Brewer personally reviewed and approved variable annuity switches of the registered representative’s customers despite the misstatements and omissions on the switch forms and numerous red flags revealing that the transactions were unsuitable. After becoming aware of the inaccurate information and omissions contained in the forms the registered representative submitted, Brewer did not require that all of the deficiencies be corrected on his member firm’s books and records and that customers be presented with forms that were completely accurate. At no time did Brewer take any action to reverse the transactions the registered representative had already effected, nor did he take any actions to prevent the registered representative from completing additional unsuitable switches.

Brewer was responsible for replying to the audit reports and implementing adequate systems and procedures relating to the supervision of variable annuities at his firm; although he was made aware of issues in the variable annuities sales review process cited by the firm’s Audit Division, he failed to take adequate steps to correct the identified failings. Brewer failed to maintain an adequate system of supervision and follow-up review, and failed to maintain and enforce written procedures reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules in connection with the sale of variable annuities.

Brian Scott Brewer (Principal): Fined $20,000; Suspended 12 months in Principal capacity only
Carmela Lina Moro Knieriem
AWC/2010024724901/September 2011
Knieriem was a registered customer service associate in a branch of her member firm, where she was assigned to assist branch financial advisors and other employees, including the branch manager, with administrative duties, including preparation of certain internal administrative forms in documenting and processing requests the branch manager or financial advisor received verbally from a customer. Knieriem prepared the forms for approval and signed the names of the relevant firm employee who received the verbal instruction without authorization to sign the forms and submitted them for processing.
Carmela Lina Moro Knieriem : Fined $5,000; Suspended 60 days
Bill Singer's Comment

I keep re-reading the charge here and, frankly, I find myself scratching my head because although I think that I understand, to a limited extent, what happened here, I'm not exactly sure I understand how this added up to both a $5,000 fine and a 60-day suspension. 

The customer service representative prepared an internal administrative form (that's worth repeating: it's an internal form that's used only for administrative purposes).  This form was used to document and process for branch managers and FAs,  requests received "verbally" from a customer.  FINRA charged this service rep for preparing the form that apparently accurately reflected the customer's verbal request but the service rep engaged in the apparently violative activity of signing the manager/FA's name on the internal administrative form. 

I'd like to know how many other service reps at this member firm had engaged in this same "signing" practice and for how long.  I'd also like to know whether it's FINRA's position that the managers and FAs involved were shocked, absolutely shocked, when they learned that all of these customer requests were processed without their signatures -- and then I'd like to know just how the hell those managers and FAs thought the requests were submitted on those forms if they hadn't signed them.

When I looked up the underlying AWC, I learned that FINRA charged Knieriem with having engaged in the misconduct between March and September 2010 (that's six months) and having submitted ten "forged" forms on behalf of three FAs and one manager.

As you can tell, I'm not exactly thrilled with what I view as the harsh nature of this sanction.  It may be justified but not solely based upon the facts presented by FINRA, as far as I'm concerned.

Charles Caputo Jr.
OS/2009016885101/September 2011

Caputo provided falsified account statements to a customer for a personal and a corporate account the customer held at Caputo’s member firm, with the intent of leading the customer to believe the all-but-worthless accounts held securities valued as high as $600,000; both accounts had incurred substantial losses. 

The accounts were held at Caputo’s firm, the customer received account statements through the firm’s clearing firms; however, the customer also received fabricated account statements Caputo provided him. The typical one-page fabricated account statement listed the account name and number, the statement period, a false market value, a false cash balance and a false option value. These fake statements were transmitted by facsimile from Caputo’s home-office fax number. The false statements the customer received from Caputo reported that the personal account was valued at $292,020.53 and that the corporate account was valued at $325,446.36; in reality the personal account was valued at less than $70 and the corporate account had been closed.

Apparently relying on the values shown on the false statements, the customer contacted Caputo and requested that he wire $120,000 from the corporate account; Caputo advised the customer that there was no money in either account.

Caputo failed to appear and testify in a FINRA on-the-record interview.

Charles Caputo Jr. : Barred
Bill Singer's Comment
A truly scary case.  Just shows how easy it easy to defraud the public -- about all that you need is a home fax machine.
Colleen Anne Averill
AWC/2009018941502/September 2011
Averill misappropriated funds from an elderly customer’s securities accounts over a period of three years, and was convicted of multiple felonies stemming from her conduct. Averill continued her thefts even after her member firm terminated her employment for lack of production.
Colleen Anne Averill : Barred
David John Klecka Jr. (Principal)
OS/2010021189601/September 2011

Klecka created a non-genuine email purporting to be from the Arizona Department of Insurance (AZ DOI) regarding the agency’s investigation into Klecka’s activities at his former firm, and then provided a copy of the email to the member firm with which he was associated.

Klecka’s firm commenced an internal investigation of Klecka concerning questionable business activities related to his sale of life insurance policies. During the course of the firm’s review, it was learned that Klecka was the subject of an investigation being conducted by the state regarding activities that occurred while Klecka was associated with another member firm.

Klecka forwarded an email from his personal email address to his managing director at the firm --the forwarded email was purportedly from the state insurance department, which contained a timeline documenting Klecka’s contact with the agency, and the email bore what appeared to be the typed signature of an investigator with the AZ DOI. However, Klecka subsequently admitted that he was not truthful on the dates and fabricated the email to lead his firm to believe that the state investigation was more recent than it actually was. The forged document provided an explanation for Klecka’s failure to disclose the investigation to the firm earlier than he did.

The firm subsequently terminated Klecka for, among other reasons, creating a non-genuine email purporting to be from the AZ DOI regarding its investigation into Klecka’s activities at his former firm. In addition, Klecka failed to appear for a FINRA on-the-record interview.

David John Klecka Jr. (Principal): Barred
David Matthew Chase
AWC/2010021866301/September 2011

Chase wrote fictitious fire insurance policies and fictitious life insurance policies while an insurance company employed him; these policies were written without the insureds’ knowledge and consent.

With regard to the fire insurance policies, in most cases, the billing notifications were sent either to the home of Chase’s relatives, Chase’s former insurance agency address or his residence; as a result, the purported insureds did not receive any communications from the insurance company concerning these policies. By writing these policies, Chase received compensation of approximately $2,725 and he qualified to remain on the insurance company’s career program.

Chase failed to respond to FINRA requests for information and documents.

David Matthew Chase: Barrred
Devin Raj Anand
2009017302001/September 2011

Anand converted customer funds by wiring funds totaling $51,289 from the customer’s account to outside bank accounts of which Anand was associated; the customer did not authorize and had no knowledge of any of the wire transfers Anand made. Anand attempted to wire additional funds totaling $24,000 from the customer’s account but Anand’s member firm did not complete the wires.

Anand 18 Disciplinarmisappropriated funds from a non-customer (the individual was an employee of a business Anand’s relatives owned) by creating a false account, borrowing $49,500 in funds from her 401(k) account without her knowledge or authorization, depositing the money into a bogus account he created in the noncustomer’s name at his firm, and then wiring funds out of the account for his benefit. The individual did not authorize Anand to open an account, did not complete or sign any new account opening documents and, in furtherance of the scheme,

Anand created false documents related to the opening of the account which he submitted to his firm, thereby causing his firm to maintain inaccurate books and records. Anand failed to respond to FINRA requests for information and to appear and testify at an on-the-record interview.

Devin Raj Anand : Barred
E1 Asset Management, Inc.
AWC/2010021038901/September 2011

While conducting a securities business, the Firm failed to maintain the required minimum net capital. The firm’s financial books and records, including the firm’s trial balances and net capital calculations, were inaccurate; the firm improperly netted payroll advances against its monthly payroll accrual, improperly included amounts held in a brokerage account as an allowable asset even though the firm did not have a Proprietary Accounts of Introducing Broker/Dealer (PAIB) agreement, failed to accrue some expenses and took a larger deduction for a fidelity bond deductible than it was permitted.

The Firm failed to report to FINRA statistical and summary information for complaints. NASD Rule 3070 reporting was inaccurate in that firm reports for these complaints included erroneous complaint dates, incorrect product codes, inaccurate problem codes and/or identified the wrong registered representative. In connection with some of its registered employees, the firm failed to amend or ensure the amendment of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) to disclose customer complaints and the resolution of those complaints, and the firm also filed late Forms U4 amendments.

The Firm failed to have an adequate system to preserve instant messages (IM) sent or received by registered representatives of the firm; the firm did not archive IMs in a non-erasable, non-rewritable format.

E1 Asset Management, Inc. : Censured; Fiend $75,000
Frank Patrick O’Lear Jr. (Supervisor)
AWC/2010022872001/September 2011

O’Lear failed to execute a customer’s sale of preferred stocks in her account as instructed, when the customer complained to his member firm, he provided her with a $6,866 check to settle her losses. The customer deposited O’Lear’s check but it was declined for insufficient funds. Next, O’Lear wrote a second check for $6,900, including the non-sufficient fund (NSF) charges, which the customer deposited and the check cleared.

O’Lear made this payment to the customer without his firm’s knowledge or authorization.

Frank Patrick O’Lear Jr. (Supervisor): Fined $10,000; Suspended 20 business days
Bill Singer's Comment
An NSF settlement check?  Never a good idea. Make a note of that.
H. Beck, Inc.
AWC/2009016150001/September 2011

H. Beck Inc. failed to maintain and preserve certain of its business-related electronic and written communications.

Most of the firm’s registered representatives are independent contractors operating from “one-man” branch office locations throughout the country; the firm’s representatives were allowed to maintain written correspondence at their branch offices; and the firm permitted representatives to send emails from their personal computers. The firm did not have an electronic system to capture emails, but instead required representatives to print and make copies of their emails, which along with their written correspondence were reviewed during annual branch inspections; representatives were required to send emails and written correspondence involving the solicitation of products to compliance for pre-approval. The firm did not have prior system or procedures in place to retain all other emails and written correspondence after the representatives terminated from the firm. and, as a result, the firm did not subsequently retain most of the emails and written correspondence for representatives who terminated from the firm.

Also, the firm did not establish and implement policies and procedures that could be reasonably expected to detect and cause the reporting of suspicious transactions. In addition, the firm’s WSPs relating to the reporting of suspicious activity failed to provide reasonable detail, such as the specific reports and documents to be reviewed, the timing and frequency of such reviews, the specific persons to conduct the reviews, and a description of how the reviews would be conducted and evidenced. Moreover, the firm’s supervisory procedures did not provide adequate guidelines regarding the reporting of suspicious activity, including when a suspicious activity report should be filed and what documentation should be maintained. Furthermore, although the firm had 140,000 active accounts, it used only a minimal number of exception reports, relying instead on its clearing firms to assist in the review of suspicious activity. The firm failed to conduct adequate independent tests of its AML compliance program (AMLCP), failed to sufficiently test topics and failed to adequately memorialize what was reviewed. The findings also included that with respect to a sample of corporate bond transactions and municipal securities transactions the firm executed, it failed to accurately disclose the receipt time on the majority of the order tickets.

H. Beck, Inc. : Censured; Fined $150,000; Firm's President required to certify to FINRA in writing within 30 days of the issuance of the AWC that the firm currently has in place systems and procedures reasonably designed to achieve compliance with the laws, regulations and rules concerning the preservation of electronic mail communications.
Harry Friedman (Principal)
2005000835801/September 2011
Friedman participated in private securities transactions for compensation without providing written notice to, or obtaining prior written approval from, his member firm.
Harry Friedman (Principal): Fined $77,500; Suspended 9 months
Bill Singer's Comment
The SEC sustained the sanctions following appeal of a NAC decision.
James Leo Carroll
AWC/2009016911201/September 2011
Carroll invested approximately $100,000 of his own money in a Ponzi scheme from which he made a $25,000 profit; Carroll did not invest any customer funds in the Ponzi scheme. Carroll failed to disclose his private securities transaction to his member firm until after the Ponzi scheme collapsed and his firm’s home office began investigating possible involvement of its registered representatives. Carroll engaged in outside business activities and failed to provide prompt written notice to his firm regarding his involvement.
James Leo Carroll : Fined $7,500; Suspended 30 days
Bill Singer's Comment
This one's a bit of an oddball.  Carroll loses money in a Ponzi scheme and gets whacked for both private securities transactins and outside business activity violations. Talk about adding insult to injury!
Jason Forsythe Jacobs
AWC/2010022262601/September 2011
Jacobs attempted to share, directly or indirectly, in the profits and/or losses of a customer account his member firm carried without his firm’s and the customer’s prior written authorization. Jacobs made trading errors in the customer’s account and in an attempt to correct the losses that resulted from the errors, he began engaging in short-term short sale activity that resulted in further losses. Rather than report his concerns to his firm, Jacobs attempted to avoid a customer complaint by depositing funds, totaling approximately $13,398.80, into the customer’s account.
Jason Forsythe Jacobs : FIned $10,000; Suspended 45 days
Jeffrey L. Larson
OS/2010021928801/September 2011

Larson represented to an elderly widow that she could earn a higher rate of return by investing her funds in a particular high-interest savings account; at the time, she was not his member firm’s customer. Based on Larson’s recommendation and direction, the elderly widow wrote checks totaling $51,600 payable to the “W.F.G. Fund,” and gave the checks to Larson who, in turn, promptly deposited the checks into a W.F.G. Fund account at a bank. Contrary to Larson’s representations, the W.F.G. Fund was not a high-interest savings account, had no relation to his firm’s affiliate bank, and was a basic checking account that Larson owned and controlled. Within two weeks of the receipt and deposit of the customer’s checks, Larson withdrew $6,000 and transferred $27,800 to his day-trading account (at another broker-dealer) and $17,500 to his credit union account, converting the funds for his own use and benefit without the customer’s knowledge, consent or authorization.

The customer complained to FINRA and others about Larson’s conduct; Larson then returned the funds to her. Larson failed to appear for FINRA on-the-record testimony.

Jeffrey L. Larson: Barred
Bill Singer's Comment
What a low-life.
John Benjamin Langsett
OS/2009018582501/September 2011
Associated Person Langsett submitted, or caused to be submitted, to FINRA a Form U4 that was materially false or inaccurate.
John Benjamin Langsett : Fined $5,000; Suspended 30 days
John Rolland Haeffele
AWC/2009019590501/September 2011

Haeffele was appointed as a co-trustee for a trust and, wrongfully and without authorization, disbursed funds to himself from the trust’s mutual fund accounts and checking accounts.

Haeffele was appointed as a co-trustee for another trust, which owned life insurance policies for which Haeffele was the agent of record on, and Haeffele, wrongfully and without authorization, disbursed funds to himself from the life insurance policies held in the name of the trust. Haeffele used the funds from both trusts for his own benefit, thereby converting assets from the trusts. 

As trustee, Haeffele received account statements for the first trust from mutual fund issuers, but only provided the trust’s creators false and misleading account statements and related correspondence that he created on his computer for the trust. The fabricated account statements and correspondence grossly overstated the value of the trust’s assets.

Haeffele failed to provide written notice to his member firm that he had been serving as a trustee for the trusts, and had been receiving compensation for such activities. In addition, Haeffele completed a series of questionnaires submitted to the firm in which he failed to disclose that he was serving as a trustee and receiving compensation.

John Rolland Haeffele: Barred
John Thomas Pappas
AWC/2010021962101/September 2011

Pappas converted funds totaling $157,563.75 from customer accounts, without the customers’ knowledge or authorization, and attempted to convert an additional $14,260 from another customer account.

Pappas misappropriated the funds by activating the online bill payment feature in the clients’ accounts and then directed payments to his personal credit cards. Pappas placed an unauthorized trade totaling $6,893.43 in a deceased firm customer’s account.

Pappas refused to respond to FINRA requests for information and testimony.

John Thomas Pappas: Barred
Bill Singer's Comment
You see -- and you thought Wall Street fraud required a lot of devious planning.  Not at all.  You just activate an online bill payment program and trade on behalf of a dead customer.  So simple. So easy,. So scary.
Julia Merritt Cameron
AWC/2010023339801/September 2011
Cameron borrowed $1,500 from one of her customers at her member firm, which was repaid but did not seek approval for the borrowing and did not otherwise obtain approval from the firm to borrow money from the customer. When the borrowing occurred, the firm required representatives, before borrowing money from a customer, to obtain a designated official’s written approval. Cameron did not disclose to the firm that she had borrowed money from a customer.
Julia Merritt Cameron : Fined $2,500; Suspended 10 business days
Bill Singer's Comment
I'm often asked by clients what FINRA's sanctions could be if they borrowed money from a client, repaid it, but, well, you know, just between you and me, sort of didn't tell the firm about it.  Allowing for the fact that there is no one-size-fits-all sanction and that all alleged violations have to be viewed on their own, it's still a fairly good indication that if you borrow and repay but did the borrowing in violation of your firm's policies, that you may likely be looking at a $2,500 fine plus 10 business days of downtime.  HOWEVER, as I said, that's not a sure thing.
Marilyn Geen Martindell
AWC/2009020518901/September 2011

Martindell forged the signatures of her immediate supervisor and of her branch manager at her member firm.

Martindell signed the name of her supervisor, a firm financial advisor, to firm documents titled “Advice of Trade” letters without the financial advisor’s authorization or consent and mailed the letters to the customers involved; each of these letters informed a firm customer of trades that had been effected in that customer’s account.

Martindell signed her branch manager’s name to an internal firm form authorizing the transfer of funds and securities from the account of a customer to a joint account held by the customer and the customer’s relative. Martindell signed the branch manager’s name on another internal firm form that memorialized the multiple names that another customer could use in signing documents related to his account.

Martindell completed an IRA distribution form for her own account in order to access funds held in that account and Martindell again signed her branch manager’s name on this form. In addition, Martindell signed the branch manager’s name on these forms without his authorization or consent, and submitted the forms for further processing.

Marilyn Geen Martindell : Fined $10,000; Suspended 6 months
Matthew Crump
AWC/2011028107401/September 2011

Crump was the CCO at his member firm and utilized his position to convert approximately $14,000 from firm customers’ brokerage accounts by using fictitious documents to effect unauthorized transfers of securities and cash from the customers’ accounts to a trust account he established at his firm.

Crump transferred securities and cash worth approximately $4,000 from one customer’s account by using a fictitious letter of authorization to effect the conversion. The findings also stated that two days before the transfer, Crump used the firm’s systems to temporarily change the address on the customer’s account to Crump’s attention at his work address, the effect of which was to have correspondence and other notices relating to the account sent to him at his firm.

Crump used a fictitious retirement account distribution form and a fictitious letter of authorization to effect the conversion of securities and cash worth approximately $10,000 from another customer’s Individual Retirement Account (IRA) to the customer’s cash account, and Crump transferred the securities and cash from the customer’s cash account to the trust account he controlled. The customers did not know about or authorize the transfers.Crump used the unlawfully converted funds to pay for his personal and business expenses.

Matthew Crump: Barred
Matthew Sunghoon Kim
AWC/2010023500401/September 2011
During the Series 7 test, Kim took unscheduled bathroom breaks lasting between three and eight minutes long, and during these breaks, he reviewed notes pertaining to the examination that he had previously concealed in one of the bathroom stalls.
Matthew Sunghoon Kim : Barred
Merrill Lynch, Pierce, Fenner & Smith, Incorporated
AWC/2009020383001/September 2011

Merrill Lynch failed to enforce its AMLCP and written procedures by accepting third-party checks for deposit into a customer’s account that, contrary to the procedures, did not identify that customer by name. As a result, one of its customers, a registered representative at another member firm, was able to move more than $9 million of misappropriated funds through his Merrill Lynch cash management brokerage account.

The registered representative deposited his customers’ checks for a purported investment into his personal account at the firm; the investor checks were non-personal checks made payable to the firm and, in most instances, the customer had written the registered representative’s account number on the check. The absence of the registered representative’s name on the checks gave no indication to those outside of the firm, including the registered representative’s investors, that the money was going to the registered representative’s personal account.

In accepting these deposits, the firm failed to follow its written procedures because these non-personal checks were accepted for deposit without containing the name of the firm client who owned the account; had the firm enforced its procedures, the registered representative would not have been able to move the proceeds of his misappropriation scheme through the firm. The Firm disregarded certain indications of the registered representative’s misconduct, such as the fact that he was depositing large amounts of money into, and then moving large amounts of funds out of, an account that had no market investment activity through the use of large dollar checks payable to himself or to cash; and depositing the funds of third parties with whom he had no apparent family or fiduciary relationship. In addition, the Firm did not have internal controls in place to ensure compliance with its deposit acceptance procedures regarding non-personal checks. Moreover, the firm did not have an adequate system to monitor deposit activity in accounts such as the registered representative’s that lacked securities activity and displayed indications of misconduct.

Merrill Lynch, Pierce, Fenner & Smith, Incorporated: Censured; Fined $400,000
Bill Singer's Comment
Interesting case and excellent explanation.
Michael Braden Golembiesky
AWC/2011026436301/September 2011

Golembiesky borrowed $30,000 from a customer without his member firm’s knowledge or approval. The firm prohibited registered representatives from borrowing money from customers unless that customer was a member of the registered representative’s immediate family and the registered representative had requested and received prior written permission from the firm. The customer was not a member of Golembiesky’s immediate family and the loan was thus prohibited under the firm’s written procedures.

By the time the firm became aware that Golembiesky had borrowed money from the customer, Golembiesky had repaid the customer $10,000 on the loan. The firm’s bank affiliate repaid the balance of the loan to the customer’s estate.

Golembiesky entered into an agreement whereby Golembiesky promised to pay the bank $22,275 plus any applicable interest; Golembiesky has reduced the outstanding balance to $10,000.

Michael Braden Golembiesky : Fined $5,000; Suspended 30 days
Bill Singer's Comment

In an earlier borrowing case this month, the broker borrowed from the client and fully repaid but failed to get the Firm's approval. That resulted in a $2,500 fine and 10 day suspension.  As such, it would appear that the cost of borrowing and not fully repaying but entering into an agreement to undertake full repayment is double the lesser fine and near three times the lesser suspension.  Again, that is NOT a hard and fast rule but merely an attempt to set up some staggered levels of sanctions for progressively worse violations of the same character.

Nanes, Delorme Capital Management LLC
AWC/2009016349601/September 2011

The Firm failed to preserve, for a period of not less than three years, the first two years in an easily accessible form, all email correspondence relating to the firm’s business.

The emails involving research and emails viewed by the firm as administrative or technical were deleted, emails were not indexed and were not easily located; consequently, the firm was not able to locate various emails sent or received in one year in response to FINRA requests. The firm failed to preserve all emails relating to the firm’s securities business exclusively in a non-rewritable, non-erasable format as required by SEC 13 September 2011 Rule 17a-4(f)(2)(ii)(A). Not only were individual emails users able to delete emails, in which case, they would not be stored, the medium that the firm used to back-up and store emails was rewritable and erasable. FINRA found that the electronic storage media the firm used did not automatically verify the quality and accuracy of the storage media process, and the firm did not have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved by electronic storage media. FINRA also found that the firm failed to engage at least one third party who has access to, and the ability to, download information from the firm’s electronic storage media to another acceptable medium, and who undertakes to promptly furnish to FINRA information necessary for downloading information from the firm’s electronic storage system and provide access to information contained on its storage system. In addition, FINRA determined that the firm failed to retain records evidencing supervisory review of email correspondence of registered representatives relating to the firm’s securities business. Moreover, FINRA found that the firm failed to report transactions in TRACE-eligible securities to TRACE that it was required to report, and failed to report the correct price for transactions in TRACE-eligible securities to TRACE. Furthermore, FINRA found that in connection with corporate bond transactions, the firm failed to prepare brokerage order memoranda, in that order memoranda did not show the account for which the order was entered, the time the order was received, the order entry time, the execution time and the identity of each associated person responsible for the account. (FINRA Case #)

Nanes, Delorme Capital Management LLC : Censured; Fined $15,000 (FINRA imposed a lower fine in this case after it considered, among other things, the firm’s revenues and financial resources)
Bill Singer's Comment
Two major no-no's.  One, you can't allow individuals to delete emails from the archival system.  Two, using rewritable/erasable formats defeats the purpose of a compliance-based protocol.
Nicholas C. Dito
AWC/2009020432101/September 2011

Dito obtained possession of a computer flash drive that contained non-public customer account information and mined out selected excerpts for his own use by emailing the information, on separate occasions, to his member firm email address. Among other things, the flash drive contained approximately 350 account statements of customers from a FINRA member firm -- each of the customer account statements contained in the flash drive displayed non-public financial information including customer names, addresses, account numbers, financial positions, broker identification numbers and account values. Subsequent to reviewing the contents of the flash drive, Dito copied customer account information from the non-public customer account information contained in the flash drive.

The first email he sent to his firm email address contained the names and addresses of approximately 300 customers, which Dito had copied directly from FINRA member firm customer account statements contained in the flash drive. Dito intended to use the customer account information contained on the first email to cold-call prospective customers.

The second email Dito sent to his firm email address consisted of a listing of financial positions on the flash drive that were for a FINRA member firm securities account a customer owned that showed the customer’s equity stock holdings and their total net value. 

Dito failed to fully cooperate with FINRA and answer all of FINRA’s questions at an on-the-record examination.

Nicholas C. Dito : Barred
Bill Singer's Comment
I'm sort of understanding this case but only to the extent that FINRA's alleging that Dito apparently intended to misuse confidential customer information.  As to the issue involving his copying of a customer's holdings and valuation, I'm not fully understanding the charge.  Based upon FINRA's monthly report, it appears that Dito simply copied the data on the flash drive and sent it to his email address.  I get that and understand the concerns inherent solely in that act; however, it seems a bit of a double-dip to additionally complain that not only did Dito copy all the data on a flash drive but that he also copied a specific sub-set (here, the customer's positions).
Nicholas Hupka
OS/2009018670101/September 2011
Associated Person Hupka willfully failed to disclose material information on a Form U4.
Nicholas Hupka : Fined $5,000; Suspended 6 months
OC Securities, Inc.
AWC/2010021779801/September 2011

The Firm failed to properly implement its AML procedures to detect potentially suspicious transactions.

The AML procedures were created using a template for small firms available on the FINRA website which provided examples of red flags that would alert employees to suspicious activity. The firm failed to monitor for at least one of the red flags listed in its AML procedures that would alert employees to suspicious activity, and the firm conducted no review of potentially suspicious transactions involving penny stocks. The firm’s procedures did not address red flags associated with the receipt and/or sale of physical certificates of penny stocks and restricted securities by the firm or the type of due diligence required to be performed if a stock certificate was received.

Since the firm did not examine the physical stock certificates and did not perform any due diligence on stock certificates presented for deposit, the firm’s procedures were deficient, and the firm failed to implement the minimal procedures it did have to detect potentially suspicious activity. The Firm improperly relied on its clearing firm to conduct due diligence inquiries with regard to stock certificates presented for deposit into the firm’s customer accounts. In addition, although the firm’s procedures listed the red flags that could indicate suspicious activity, many of which were raised by the transactions at issue, the firm failed to review the trading activity to detect these potential red flags and to analyze them to determine if they were suspicious and reportable under the Bank Secrecy Act. As a result, the firm accepted approximately 130 stock certificates representing 439,344,949 shares of 52 different stocks without taking any independent action to learn and/or verify the facts and circumstances to determine if the transactions were suspicious and reportable.

OC Securities, Inc. : Censured; Fiend $30,000 (FINRA imposed a lower fine after it considered, among other things, the firm’s revenues and financial resources).
Richard Barry Holody
AWC/2010022152201/September 2011

 Holody sold equity-indexed annuities (EIAs) to individuals, through insurance companies, with investments totaling approximately $1,002,555, without providing prompt written notice to his member firm; none of these individuals were customers of his firm. Holody received commissions of approximately $79,594.34 from these sales.

The firm prohibited its representatives from selling EIAs not on the firm’s approved product list; the annuities Holody sold were not on the approved product list and his acceptance of compensation for the sales constituted engaging in an outside business activity.

Holody recommended that a retired individual liquidate some variable annuity contracts and transfer the proceeds to purchase an EIA an insurance corporation issued. Holody processed all of the paperwork on the individual’s behalf to effect the variable annuity contract liquidations to purchase the EIA contract, and the insurance corporation issued a nine-year term EIA contract in the approximate amount of $253,997.37. As a result of these transactions, the individual lost approximately $49,604 in enhanced guaranteed death benefits available under the variable annuity contracts that the individual could never recover. In addition,the insurance corporation EIA contract was also not beneficial to the individual since the variable annuity contracts offered the individual other more favorable features. Moreover, based on the individual’s disclosed investment objectives of guaranteed returns on his retirement assets and to provide for his beneficiaries, and the individual’s financial situation and needs, Holody lacked reasonable grounds to believe that liquidating the variable annuities to generate funds for the purchase of the EIA contract was suitable for the individual.

Richard Barry Holody: Fined $10,000; Suspended 4 months
Richard Harold Byerly
OS/2009017492201/September 2011

Byerly engaged in unsuitable, excessive trading in elderly customers’ accounts.

The customers were retirees with conservative investment objectives living on fixed incomes who suffered collective losses of approximately $390,000 during the period of excessive trading. Byerly recommended and effected the transactions without having reasonable grounds for believing that such transactions were suitable for the customers in view of the size and frequency of the transactions, the transaction costs incurred, and in light of the customers’ financial situations, investment objectives and needs. Byerly exercised discretion in these accounts as well as in other customers’ accounts without the customers’ written authorization or his member firm’s written acceptance of the accounts as discretionary; his firm did not permit discretionary accounts.

Byerly continuously misrepresented to his firm on annual compliance questionnaires over a three-year period that he did not maintain any accounts in which he had exercised discretion. In response to a written FINRA request seeking information regarding a customer complaint, Byerly submitted a letter to FINRA in which he falsely misrepresented that he had received the customer’s prior approval for all trades in the customer’s account.

Richard Harold Byerly: No fine in light of financial statuts; Suspended 2 years; Ordered to pay $30,000 partial restitution to customers.
Bill Singer's Comment
Am I missing something here?  Elderly accounts. Unauthorized discretion. Lying to the employer firm. Lying to FINRA.  And all of that doesn't get you barred?  Wow ... either there's more to this story than FINRA has presented or this Respondent had a truly amazing lawyer.
Richard Thomas Morrison (Principal) and Kimberly Ann Morrison
2008013683902/September 2011

Kimberly and Richard Morrison engaged in outside business activities without providing their member firm with written notice of their outside business activities. For nearly three years, Richard Morrison was the agent for transactions in annuities, which his firm had not approved for sale, that he sold through an insurance agency. In connection with these transactions, Richard Morrison met with customers, recommended that the customers purchase the annuities, completed and signed transaction paperwork and earned approximately $425,000 in commissions.

Richard Morrison failed to disclose the outside activities to his firm on annual questionnaires and actively concealed his outside business activities from his firm.

Richard Morrison had employees of the insurance agency sign paperwork effecting the exchanges; in each of these instances, he signed and was identified as the agent of record on the application that was sent to the insurance company that issued the new policy that was purchased. The insurance agency employees signed the exchange request forms that were sent to Richard Morrison’s firm instructing it to surrender a policy and forward the proceeds for the purchase of a new policy; as a result, his firm did not see that he had recommended and was the agent for the transactions.

In addition, for nearly two years, Kimberly Morrison was listed as the agent for transactions in annuities that took place away from her firm. Moreover, in connection with these transactions, Kimberly Morrison telephoned customers to solicit them to meet with Richard Morrison and/or herself, accompanied Richard Morrison to some meetings with customers, and completed and signed transaction paperwork as the agent of record. Furthermore, the insurance agency paid Kimberly Morrison $7,483.53 in commissions on the transactions; she did not notify her firm of her involvement in any of the transactions, and did not disclose them in her firm’s annual broker questionnaire. 

Richard Thomas Morrison (Principal): Barred

Kimberly Ann Morrison: Fined $10,000; Suspended 1 year

Richard Thomas Morrison (Principal) Kiberly Ann Morrison
2008013683902/September 2011
(CRD #1194260, Registered Principal, Goffstown, New Hampshire) (CRD #4572682, Registered Representative, Goffstown, New Hampshire). Richard Morrison was barred from association with any FINRA member in any capacity. Kimberly Morrison was fined $10,000 and suspended from association with any FINRA member in any capacity for one year. Kimberly Morrison’s fine is due and payable if and when she re-enters the securities industries. The sanctions were based on findings that Kimberly and Richard Morrison engaged in outside business activities without providing their member firm with written notice of their outside business activities. The findings stated that for nearly three years, Richard Morrison was the agent for transactions in annuities, which his firm had not approved for sale, that he sold through an insurance agency. The findings also stated that in connection with these transactions, Richard Morrison met with customers, recommended that the customers purchase the annuities, completed and signed transaction paperwork and earned approximately $425,000 in commissions. The findings also included that Richard Morrison failed to disclose the outside activities to his firm on annual questionnaires and actively concealed his outside business activities from his firm. FINRA found that Richard Morrison had employees of the insurance agency sign paperwork effecting the exchanges; in each of these instances, he signed and was identified as the agent of record on the application that was sent to the insurance company that issued the new policy that was purchased. FINRA also found that the insurance agency employees signed the exchange request forms that were sent to Richard Morrison’s firm instructing it to surrender a policy and forward the proceeds for the purchase of a new policy; as a result, his firm did not see that he had recommended and was the agent for the transactions. In addition, FINRA determined that for nearly two years, Kimberly Morrison was listed as the agent for transactions in annuities that took place away from her firm. Moreover, FINRA found that in connection with these transactions, Kimberly Morrison telephoned customers to solicit them to meet with Richard Morrison and/or herself, accompanied Richard Morrison to some meetings with customers, and completed and signed transaction paperwork as the agent of record. Furthermore, FINRA found that the insurance agency paid Kimberly Morrison $7,483.53 in commissions on the transactions; she did not notify her firm of her involvement in any of the transactions, and did not disclose them in her firm’s annual broker questionnaire. The suspension is in effect from August 1, 2011, through July 31, 2012. (FINRA Case #)
Scott J. Baklenko
AWC/2009019500401/September 2011

Baklenko engaged in private securities transactions without prior written notice to, and approval from, his member firm, in that he participated in the sales to firm customers of limited partnership interests in an entity he and a business associate had formed for a total of $1,095,000.

Baklenko and the business associate opened an account with another member firm in their entity’s name; Baklenko failed to notify his member firm in writing that he had established the account with the other firm and he failed to notify the other firm, with which he opened the account, in writing that he was associated with a firm. Baklenko effected trades in his entity’s account at the other firm, which included securities purchases totaling approximately $176,575 and securities sales totaling approximately $57,109.

Scott J. Baklenko : Fined $20,000; Suspended 20 months
Scott Roy Pierson
AWC/2009020572801/September 2011

Pierson administered an insurance company’s insurance CE instruction program for his member firm, and because of a heavy workload, he got behind in the administration of the program, resulting in expired courses being taught and the late filing of courses, instructor approval requests and attendance rosters with states. To cover up these problems, Pierson issued false CE completion certificates to course attendees and substituted on CE completion certificates the names of state-certified instructors for courses uncertified instructors taught.

CE courses require annual or biannual renewals in some states, and Pierson allowed courses to expire without renewal.  Pierson wasn’t aware the courses had expired until after they had been taught. On one occasion Pierson issued certificates of completion for approved courses as opposed to the expired courses that were actually presented and did this over approximately a five-year period.

On one occasion Pierson issued CE completion certificates to course attendees for one hour of credit that had not been taught. In addition, Pierson substituted the names of state-certified instructors on CE completion certificates to conceal the fact that the instructors who actually taught the courses were not certified at the time the courses were taught.

Scott Roy Pierson : Fined $15,000; Suspended 1 year; Required to requalify as an investment company/variable contract products representative.
Bill Singer's Comment

Yeah, okay -- got it. I'm not defending Pierson and understand why FINRA was so upset. On the other hand, the whole CE crap and the cottage industry that it has prompted is also upsetting.  Ask virtually any individual who is required by any profession to take CE credits and you're likely going to hear the same complaints: it's too time consuming, it's too expensive, and the courses suck.  While the goal of CE is admirable, the reality is that little, if any, continuing education results from the forced attendance. 

Searle & Co. and Robert Southworth Searle (Principal)
AWC/2009016262101/September 2011

Although the Firm sought and received permission to conduct its private placement activity, it failed to timely amend its Application for Broker-Dealer Registration (Form BD), as it did not identify this business on its Form BD until years later.

Acting through Searle, the Firm’s president and CCO failed to establish, maintain and enforce an adequate system and written procedures reasonably designed to supervise its placement business; and failed to adequately supervise the placement business conducted by a former registered representative who conducted firm business at an unregistered office. The Firm failed to adequately ensure that its ledgers or other records accurately reflected all of the firm’s assets, liabilities, income and expenses. The Firm impermissibly “netted” the commission revenue it received, failing to reflect the gross amount of commission the firm received and the amount paid to the registered representative who placed the business, thus understating gross revenues and expenses. As a result, the Firm filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) Reports and inaccurate annual audits.

The Firm failed to establish, maintain and enforce adequate WSPs regarding the use of outside emails for firm business and the review and retention of emails; the firm permitted associated persons to use personal email accounts to send and receive emails related to the firm’s securities business without capturing, reviewing or retaining them.

In addition, the Firm paid fees and commissions totaling $21 million to non-registered limited liability company (LLC) entities of which the firm’s registered representatives were the sole members. Moreover, the Firm improperly paid the non-registered entities rather than paying the commissions and fees directly to the registered representatives who owned the non-registered entities. The suspension was in effect from August 15, 2011, through August 26, 2011. (FINRA Case #)

Searle & Co.: Censured; Fined $47,500 ($10,000 was jointly and severally with Searle)

Robert Southworth Searle: Fined $10,000 joint/several with Searle & Co.; Suspended 10 business days in Principal capacity

Bill Singer's Comment

Geez, another well written disciplinary action squib --  maybe things are truly changing for the better at FINRA?  Is that possible?  Wow!!

In any event, two key takeaways. One, make sure to update your Form BD to reflect all new business lines.  Two, don't pay transactional compensation to unregistered entities/persons.

If I have one quibble with the case, it's this:  If FINRA knew that this member firm had asked for and been granted approval to engage in a new business, then how come it took "years later" for the regulator to notice that the Form BD was not updated?  After all, assuming that FINRA (or NASD's) Staff was conducting an annual or at least a regulator examination fo the firm, didn't any examiner notice that the firm was engaged in a line of business for which it had been approved but for which it had not updated the Form BD.  I mean isn't that sort of regulatory examination 101?

Terry Tin Sing Tang (Principal)
AWC/2010021897401/September 2011

Tang opened an account at his member firm on customers’ behalf based upon the representations of a registered representative at another FINRA member firm, although Tang never met or spoke directly with the customers.  Instead, all of Tang’s communications with the customers were through the registered representative.

Tang caused a variable annuity, in the amount of $532,874.02, to be purchased in the customers’ account based upon an order from the registered representative, for which Tang received $28,775.20 in net commission for the transaction but his firm never granted him authority to place third-party orders in the customers’ account.

Tang failed to notify his firm that a third-party placed a variable annuity order and failed to obtain the firm’s approval to cause this third-party order to be executed in the customers’ account.

Terry Tin Sing Tang (Principal): Fined $33,775.20 (includes $28,775.20 disgorgement of commissions); Suspended 10 business days.
Thomas Michael Aretz
2009017764301/September 2011

Aretz established an outside business activity and never made a written request to, or received permission from, his member firm to engage in the outside business activity.

In connection with the outside business, Aretz borrowed approximately $242,800 from firm customers without requesting or obtaining permission from his firm, and has yet to repay the loans. Aretz’ firm prohibited its registered representatives from borrowing funds from customers without the express written consent of the firm’s chief compliance officer or a member of the firm’s senior management. Aretz failed to disclose the loans on several annual firm compliance questionnaires and that he failed to respond to FINRA requests for information.

Thomas Michael Aretz : Barred; Ordered to pay $251,907, plus interest, in restitution to customers.
Thomas William Hands (Principal)
OS/2009016158501/September 2011
Hands submitted inaccurate attestations to FINRA certifying that, among other things, his member firm’s compensation committee had reviewed and approved each research analyst’s compensation and documented the basis upon which the compensation was established. Hands understood the importance of an accurate attestation because he submitted an inaccurate one after he was aware that FINRA was investigating whether a firm research analyst’s activities violated
Thomas William Hands (Principal): Fined $10,000; Suspended 15 business days
Timothy Charles Cross
AWC/2010021640302/September 2011

Cross failed to supervise the activities of a registered representative of his member firm in a manner that was reasonably designed to achieve compliance with applicable securities laws and regulations. Cross was the registered representative’s designated supervisor. The registered representative, through her fraudulent scheme, converted to her own use and benefit at least $8 million from clients, including the firm’s customers.

The representative persuaded her clients to liquidate existing investments, for the purpose of purchasing other investments, and instructed the customers to make the checks payable to an entity Cross owned and with which she conducted business. Rather than use the clients’ funds to purchase the other investments, she diverted their funds to her own personal use.

In order to conceal her conversion of the clients’ funds, she prepared and sent to the clients’ false account statements, and she concealed from the firm the personal bank account where the clients’ funds were deposited. 

Approximately once a month Cross received from the representative a blotter that listed purchases and sales processed through direct applications to issuers. Also, Cross received reports from the firm’s insurance affiliate, which showed the representative’s insurance sales activity, except for the business she conducted with other insurers. Some of the representative’s outside insurance business was conducted through Cross’ insurance agency; Cross was therefore able to track all of the representative’s business except for a portion of her outside insurance business.

The representative’s income from her securities business and from insurance business conducted through the firm’s affiliate was not sufficient to pay her expenses; and that, although it was obvious that the representative had additional income, Cross did not attempt to determine the source of that income. In addition, the securities blotters Cross reviewed showed numerous sales of securities by the representative’s clients and did not show that they had purchased other products with the proceeds of those sales; but Cross did not take note of the liquidations shown on the blotters and make inquiries to determine what happened to the proceeds of those sales.

Moreover, Cross conducted an inspection of the representative’s office; and that the firm’s inspection checklist required him to complete a checking account review form for each doing business as (DBA) and outside business activity (OBA) accounts owned or controlled by the representative as well as any other accounts where commissions are deposited, including business accounts, DBA accounts and personal accounts. Furthermore, before the inspection of the representative’s office, Cross participated in the firm’s webcast training session regarding office inspections; a significant portion of the training was devoted to the review of checking accounts. As part of the inspection, Cross reviewed account statements for the registered representative’s business account; the representative told Cross that the business account was her only bank account.

There were several reasons why Cross should have known that the representative had another bank account and that some of her commissions were deposited into that account; Cross should have realized that the commissions deposited into the business account represented less than all of the registered representative’s income. Cross knew that the representative frequently sold an entity’s annuities and there was no evidence that the entity’s commissions were deposited into the business account; and that Cross could also see that the representative did not pay her personal expenses from the business account, a further indication that she had another account. Cross failed to note large deposits that were shown on the business account statements; that the statements showed 35 deposits of $2,000 or more from unidentified sources in a 12-month period, and that the total amount of those deposits was approximately $497,585.

In addition, pursuant to his firm’s directives, Cross should have requested documentation showing the sources of those payments; had he done so, Cross would have learned of the personal account where the registered representative had deposited clients’ funds, and thus would have discovered that the representative had received large payments from customers.

Timothy Charles Cross: Fined $1,000; Suspended 6 months in Principal capacity only; Required to requalify as a general securities principal by examination before association with any member firm in a principal or supervisory capacity.
Bill Singer's Comment
Now that's how to report a disciplinary case. FINRA makes a compelling case through an adequate recitation of the background and facts involved.  Moreover, by explaining what wasn't done and what should have been done, this case serves to educate industry participants as to what are acceptable supervisory standards and how to better detect misconduct. Excellent job!
Veritrust Financial, LLC
AWC/2008011640802/September 2011

The Firm failed to establish and maintain a supervisory system or WSPs reasonably designed to detect and prevent the charging of excessive commissions on mutual fund liquidation transactions.

The Firm failed to put in place any supervisory systems or procedures to ensure that customers were not inadvertently charged commissions, in addition to the various fees disclosed in the mutual fund prospectus, on their mutual fund liquidation transactions. The firm’s failure to take such action resulted in commissions being charged on transactions in customer accounts that generated approximately $64,110 in commissions for the firm.

The firm had inadequate supervisory systems and procedures to ensure that a firm principal reviewed, and the firm retained, all email correspondence for the requisite time period; the firm failed to review and retain securities-related email correspondence sent and received on at least one registered representative’s outside email account, and the firm did not have a system or procedures in place to prevent or detect non-compliance.

The firm failed to conduct an annual inspection of all of its Offices of Supervisory Jurisdiction (OSJ) branch offices.

The Firm failed to comply with various FINRA advertising provisions in connection with certain public communications, including websites, one billboard and one newsletter, in that a registered principal had not approved websites prior to use; websites did not contain a hyperlink to FINRA’s or Securities Investor Protection Corporation (SIPC)’s website; one website, the billboard and the newsletter failed to maintain a copy of the communication beginning on the first date of use; and sections of websites that concerned registered investment companies were either not filed, or timely filed, with FINRA’s Advertising Regulation Department. In addition, websites contained information that was not fair and balanced, did not provide a sound basis for evaluating the facts represented, or omitted material facts regarding equity indexed annuities, fixed annuities and variable annuities. Moreover, websites contained false, exaggerated, unwarranted or misleading statements concerning mutual B shares; the firm’s websites and the billboard did not prominently disclose the firm’s name, and a website, in connection with a discussion of mutual funds, failed to disclose standardized performance data, failed to disclose the maximum sales charge or maximum deferred sales charge and failed to identify the total annual fund operating expense ratio, and a website, in a comparison between exchange-traded funds (ETFs) and mutual funds failed to disclose all material differences between the two products.

Furthermore,the firm failed to report, or to timely report, certain customer complaints as required; the firm also failed to timely update a registered representative’s Uniform Termination Notice for Securities Industry Registration (Form U5) to disclose required information. The firm failed to create and maintain a record of a customer complaint and related records that included the complainant’s name, address, account number, date the complaint was received, name of each associated person identified in the complaint, description of the nature of the complaint, disposition of the complaint or, alternatively, failed to maintain a separate file that contained this information.

The firm failed to ensure that all covered persons, including the firm’s president and CEO, completed the Firm Element of Continuing Education (CE). The firm’s 3012 and 3013 reports were inadequate, in that the 3012 report for one year was inadequate because it failed to provide a rationale for the areas that would be tested, failed to detail the manner and method for testing and verifying that the firm’s system of supervisory policies and procedures were designed to achieve compliance with applicable rules and laws, did not provide a summary of the test results and gaps found, failed to detect repeat violations including failure to conduct annual OSJ branch office inspections, advertising violations, customer complaint reporting, and ensuring that all covered persons participated in the Firm Element of CE. FINRA also found that the firm’s 3013 report for that year did not document the processes for establishing, maintaining, reviewing, testing and modifying compliance policies to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws, and the manner and frequency with which the processes are administered. In addition, the firm also failed to enforce its 3013 procedures regarding notification from customers regarding address changes.

Veritrust Financial, LLC : Censured; Fined $90,000; Ordered pay $34,105.40, plus interest, in restitution to customers
Bill Singer's Comment
If this case were a pinball machine, I think it likely would have hit the all-time highest score.  The scope of these violations are impressive.
Vision Securities Inc. and Daniel James Gallagher
2008011701203/September 2011

Gallagher acted as a principal of his member firm without being registered as such and the firm allowed Gallagher to act in an unregistered capacity.

Gallagher failed to adhere to the heightened supervisory requirements FINRA imposed and the agreements he entered into with three states; because of his controlling role at the firm and the transitory nature of supervision at the firm, he was able to sidestep the heightened supervision requirements. The firm failed to ensure that Gallagher’s heightened supervisory requirements from the states and FINRA were being followed, and failed to have a system to adequately monitor Gallagher’s compliance.

Gallagher was responsible for the firm adhering to the requirements to establish, maintain and enforce written supervisory control policies and ensuring the completion of an annual certification certifying that the firm had in place processes to establish, maintain, review, test and modify written compliance policies and WSPs to comply with applicable securities rules and regulations. The firm failed to conduct the analysis required to determine whether, as a producing manager, Gallagher should have been subjected to the heightened supervision requirements.

The firm failed to establish, maintain and enforce written supervisory control policies and procedures and failed to identify at least one principal who would establish, maintain and enforce written supervisory control policies and procedures. In addition, through Gallagher, the firm, failed to ensure that an annual certification was complete, certifying it had in place processes to establish, maintain, review, test and modify written compliance policies and WSPs to comply with applicable securities rules and regulations.

Moreover, FINRA found that the firm failed to report customer complaints against Gallagher and one customer-initiated lawsuit in which he was listed as a defendant.

Furthermore, the firm failed to make the necessary and required updates to Forms U4 and U5 for representatives to reflect customer complaints, arbitrations and lawsuits within the required 30 days.

Thefirm failed to conduct and evidence an independent test of its AML program, and failed to conduct and evidence an annual training program of its CE program for its covered registered persons.

While testifying at a FINRA on-the-record interview, Gallagher failed to respond to questions.

Gallagher willfully failed to timely amend his Form U4 with material facts. Gallagher appealed the decision to the NAC and the sanction is not in effect pending the appeal.

Vision Securities Inc.: Censured; Fined $60,000

Daniel James Gallagher: Barred

Bill Singer's Comment

Gallagher willfully failed to timely amend his Form U4 with material facts. Gallagher appealed the decision to the NAC and the sanction is not in effect pending the appeal.

William Charles Davis
AWC/2009018726501/September 2011

Davis participated in private securities transactions by introducing customers of his member firm and another individual to a principal of a mortgage processing company without giving written notice to, and receiving approval from, his member firm before participating in the private securities transactions outside the regular scope of his employment with the firm.

Davis engaged in an unapproved outside business activity by working as a loan originator with the same mortgage processing company without notifying his firm or requesting its approval. Davis did not request or receive permission from his firm to engage in this outside business activity. Davis earned $12,500 in compensation from the company while employed at his firm.

William Charles Davis: Fined $10,000; Suspended 4 months
August 2011
Aaron Lee Boehm (Supervisor)
AWC/2010022029101/August 2011

Boehm entered into a handwritten agreement with a customer of his member firm wherein he agreed to provide financial advisory services to the customer in exchange for older vehicles, which the customer sold to him at a discounted price.

Boehm entered into the business agreement to provide financial advisory services, outside the scope of his relationship with his firm, and without first notifying the firm or obtaining the firm’s written approval of the arrangement. His firm's WSPs specifically prohibited registered representatives from entering into outside employment or business activities without obtaining the firm’s prior approval.

Aaron Lee Boehm (Supervisor): Fined $5,000; Suspended 30 days
Bill Singer's Comment
Oh for godsakes -- really?  This bit of silliness required a $5,000 fine and a 30-day suspension?  Sorry, not in my book.  Maybe . . . maybe I agree that this arrangement entered into between two consenting adult businesspersons falls with the ambit of the Outside Business Activity -- but it might also fall within the parameters of a used-car sale.  I truly hope that FINRA doesn't have far more important things to worry about -- yeah, right.
Alan English Smith (Principal)
2008014961701/August 2011

Smith provided partial responses to FINRA requests for information and failed to provide requested documents. Smith engaged in outside business activity without providing prompt written notice to, and receiving written approval from his member firm.

Smith served as executor of a customer’s estate and as successor trustee to the customer’s trust. Smith understood that he would receive compensation when he was required to perform the duties, and he did receive compensation for performing the duties of executor and trustee; his firm’s procedures required written notice of outside business activities, and the firm’s written approval, before a representative could engage in such activity.

Smith never notified his firm that he had accepted the appointment to serve as the executor of the estate, and never received his firm’s written approval. The customer’s heirs filed a lawsuit against Smith, which resulted in a default judgment against him for $851,985.81; the judgment included compensation for various substantial diversions of funds from the customer’s accounts, her trust and her estate, including diversion of annuity funds from the customer’s grandchildren to Smith’s relatives by substituting his relatives as beneficiaries.

Alan English Smith (Principal): Barred
Bill Singer's Comment
This isn't as uncommon an issue as many would think.
Cheryl Ann Villani
AWC/2009017944301/August 2011
Villani engaged in outside business activities without providing prompt written notice of those activities to her member firm. Villiani acted to conceal her outside business activities from the firm by claiming that she was not engaged in any such activities on firm outside business activity disclosure reports and, when the firm interviewed her, Villani denied the existence of a limited liability company she owned and managed, and insisted that she had not engaged in conduct that constituted outside business activities; these claims were false.
Cheryl Ann Villani : Barred
Colby R. Swartz
OS/2008016187201/August 2011

Swartz reported to his member firm that he passed the Series 7 examination when, in fact, he received a failing score.

Swartz submitted to his firm a document that he represented was a photocopy of his score report, which reflected a passing score. Swartz knew, or should have known, that the documents he submitted to his firm were neither the original nor a true copy of the score report as he received it from the testing center, and that they falsely represented that he had passed the examination when he had not.

Colby R. Swartz: Barred
Daniel Glenn Hatch (Principal)
AWC/2010021621301/August 2011
Hatch failed to timely amend his Form U4 with material information.
Daniel Glenn Hatch (Principal): Fined $5,000; Suspended 3 months
David Lee Cheviron (Principal)
AWC/2010022831701/August 2011

Cheviron wrongfully converted a total of $75,331.08 from customers by withdrawing funds from a customer’s bank account and then took the funds to another branch of the bank, where he deposited the funds into his own personal account.  Ultimately, he used the customer’s funds to make home improvements to his personal residence.

Cheviron’s member firm compensated the customer for the funds wrongfully taken from her account; Cheviron has not reimbursed his firm.

Cheviron caused other customers to sign distribution requests to an insurance company with instructions to mail checks to Cheviron’s attention at several banks and his personal residence. Upon receipt, Cheviron deposited these funds into his personal bank accounts and used the funds for his personal benefit. In an effort to conceal that he was the beneficiary of the customers’ funds, Cheviron created false account statements, which he provided to one of the customers.

David Lee Cheviron (Principal): Barred
Dennis Osborn Beadle
AWC/2009021029706/August 2011

Beadle used an answer key to complete a state insurance continuing education (CE) exam.

Certain states began requiring financial advisors to complete a long-term care (LTC) CE course and exam before selling LTC insurance products to customers who reside in those states. Beadle was advised that he would be required to complete the LTC CE exam for a particular state before he was able to complete the sale of a policy to a colleague’s relative. Beadle received an email from a wholesaler that included a copy of the state’s LTC CE exam questions, with the answers filled in by hand. Beadle used the answer key to complete the state’s LTC CE exam.

Dennis Osborn Beadle: Fined $5,000; Suspended 1 month
Deutsche Bank Securities Inc. and Adrienne Barrett Tubridy (Supervisor)
AWC/2008013864402/August 2011

Deutsche Bank held contractual agreements with third-party investment advisers who provided financial services to firm customers through the firm’s adviser select program for a fee the customers paid, and the firm customers granted discretionary trading authority to the third-party advisers. The  agreements contained a confidentiality clause prohibiting firm employees from using the third-party advisers’ portfolio recommendations for other clients.

The firm instituted a written policy and procedure manual distributed to firm employees, including Tubridy, that contained guidelines related to the adviser select account and prohibited shadowing adviser select accounts, but the firm did not implement any specific systems to detect and prevent shadowing; no exception reports were created to identify shadowing, no applicable training was conducted, and no supervisory systems were put in place to monitor accounts for possible shadowing. 

In one branch office while Tubridy was responsible for performing trade reviews, shadowing was egregious and continued for years. Although the firm did not implement exception reports to identify shadowing, shadowed trades were flagged for other reasons, which required Tubridy to follow up; she examined and approved shadowed trades on the exception reports, made notations on certain trades, which indicated an awareness of shadowing, but failed to follow up on the information and neglected to raise the issue with compliance or her supervisors.

Through shadowing, firm registered representatives circumvented the fee arrangement the firm had in place for the adviser select program and violated the provisions of confidentiality agreements prohibiting the use of the third-party investment advisers’ proprietary information. In addition, the firm and involved registered representatives failed to pay a combined total of over $200,000 to third-party investment advisers. Moreover,the firm failed to establish, maintain and enforce an adequate supervisory system to detect and prevent shadowing, and Tubridy failed to recognize and follow up on “red flags” of shadowing.

Once the firm learned that shadowing had occurred, with Tubridy’s assistance, it conducted an extensive and immediate internal investigation across all branch offices to identify and halt any other shadowing activity.

Deutsche Bank Securities Inc.: Censured; Fined $350,000.  In assessing the fine, FINRA took into account financial benefits the firm obtained, and the firm’s discovery, reporting, investigation and corrective measures are reflected in the sanctions.

Adrienne Barrett Tubridy: Fined $10,000; Suspended 10 days in Supervisory capacity only; Required to cooperate with FINRA in its prosecution of any other disciplinary action related to these events by, among other things, meeting with and being interviewed by FINRA staff without the need of staff to resort to FINRA Rule 8210, and testifying truthfully at any related hearing.

Bill Singer's Comment

Yeah, okay, I get it.  However, I'm not really sure that this is a "regulatory" issue for FINRA as much as it may be a bit of civil litigation for any aggrieved third-party advisors who believe that they were damaged  by the shadowing.  Ultimately, there are only so many hours in a regulator's day and only so many dollars to get the job done. Diverting attention to a contractual matter such as this may well have prevented FINRA from uncovering activity of a far more damaging manner that harmed unsophisticated individual investors.  I'm just not that concerned about "shadowing" in relationship to far more serious frauds being run on individual investors everyday.

Sometimes there's only one fire truck and two fires -- life presents difficult choices like that all the time.

Eric Allan Carr
AWC/2010022119701/August 2011
Carr failed to disclose a material fact on his Uniform Application for Securities Industry Registration or Transfer (Form U4).
Eric Allan Carr: Fined $5,000; Suspended 6 months
Indiana Merchant Banking and Brokerage Co., Inc.
AWC/2009016067901/August 2011

The Firm failed to evidence any review of incoming or outgoing written and electronic correspondence; failed to review the incoming and outgoing electronic correspondence of its CCO’s personal email account that he used to conduct securities related business, and the CCO had business cards with his personal email address included.

The firm failed to maintain its electronic correspondence (email) and electronic internal communications (email) for almost two years, and failed to maintain the incoming and outgoing electronic communications of an individual’s personal email account used to conduct business. The firm failed to notify FINRA prior to employing electronic storage media.

The Firm failed to file an attestation by at least one third party who has access and the ability to download information from its electronic storage media to an acceptable media for such records that are exclusively stored electronically. The firm’s electronic storage media failed to have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved, and inputting of any changes to every original and duplicate record maintained and preserved.

The firm failed to evidence the disclosure of its privacy notice upon account opening and annually thereafter; although the firm produced a privacy policy and procedures, it failed to provide initial, annual and revised privacy notices.

Indiana Merchant Banking and Brokerage Co., Inc. : Censured; Fined $20,000. FINRA imposed a lower fine after it considered, among other things, the firm’s size, revenues and financial resources.
Jacen Darrel Work (Principal)
AWC/2009021029621/August 2011

Work requested and received the answer key for a state’s LTC CE exam and distributed it to a financial advisor outside of his member firm.

Certain states began implementing a LTC CE requirement that obligated financial advisors to complete a LTC CE course and exam before selling LTC insurance products to customers who resided in that state. In order to help financial advisors obtain the LTC CE requirement, Work’s firm provided them with vouchers that allowed financial advisors to take the CE exams for free through a specific company. In addition to providing financial advisors with vouchers, certain firm employees improperly created, requested, received and distributed the answer keys for state LTC CE exams.

Jacen Darrel Work (Principal): Fined $5,000; Suspended 1 month
James Spottswood Gibson
AWC/2009019827801/August 2011
Gibson met with customers of his member firm to discuss their joint securities account, which had sustained losses. At the meeting, Gibson gave them a check for $10,000 drawn against a personal bank account Gibson owned. In issuing the check, which the customers negotiated, Gibson shared in losses the customers had sustained in their joint account at Gibson’s firm.
James Spottswood Gibson: Fined $5,000; Suspended 10 business days
Jared Austin Poe
AWC/2010021867401/August 2011

Poe borrowed a total of $125,000 from an elderly customer of his member firm without seeking or obtaining his firm’s approval for any of these loans.

Poe and the elderly customer memorialized the loans by executing a promissory note in which Poe promised to repay the $125,000 that he had borrowed; Poe has not repaid any portion of the loans.

Poe completed the firm’s annual sales questionnaire and falsely answered “no” in response to a question that asked whether he had received loans from any of his clients or family members who have accounts at the firm within the preceding 12 months. The Firm terminated Poe and, on a Uniform Termination Notice for Securities Industry Registration (Form U5), reported that Poe had been under internal review for violating firm policy by borrowing money from a client. 

Subsequently, Poe caused his Form U5 to be amended to include a comment addressing the internal review in which Poe stated, among other things, that the loan at issue was made by the elderly customer, who he had known since adolescence and served as a mentor and pseudo-grandfather. FINRA found that Poe had not known the customer since adolescence and had met the customer several years earlier when he had solicited him to become a client.

Jared Austin Poe : Fined $10,000; Suspended 18 months; Ordered to pay $125,000 plus interest in restitution
Bill Singer's Comment
Frankly, based upon FINRA's recitation of the facts, I would not have let Poe off with only an 18 month suspension.  He should count his lucky stars for such leniency.
John Edward Good Jr.
AWC/2010023094301/August 2011
Good borrowed approximately $1,500 from his customer at his member firm without disclosing the loan to his firm. The findings stated that the loan was not reduced to writing and had no repayment terms; Good paid back the customer. The firm had a policy prohibiting representatives from borrowing money from customers. Good completed a field inspection report in which he falsely stated to the firm that he had not borrowed money from any customers.
John Edward Good Jr.: Fined $5,000; Suspended 1 month
John Paul Mondello
AWC/2009019573901/August 2011

Mondello  misappropriated $585,376.20 from an elderly customer.

Mondello regularly instructed the customer to give him funds from her savings and checking accounts in the form of cash, personal checks and cashier’s checks made payable to him, which the customer believed were for investment purposes. ondello converted the funds to his own use, and diverted funds that the customer gave him to pay life insurance policy premiums to his own personal use.

John Paul Mondello: Barred
John Ross Cocozza
OS/2009020390701/August 2011

Cocozza engaged in outside business activities without providing written notice to his member firm. The firm’s policies and procedures prohibited its employees from engaging in outside employment or business ownership without prior written approval from a firm supervisor or the firm’s compliance department.

Cocozza failed to respond to FINRA requests for information, documents and to provide on-the-record testimony.

John Ross Cocozza : Barred
Joshua Albert Galiani
2009017619001/August 2011

Galiani engaged in an investment strategy that resulted in a principal loss of $662,108 in an elderly customer’s accounts and provided fictitious account documents to the customer to hide the substantial losses in the account.

Galiani made material false oral representations to the customer concerning the value of his investments and repeatedly told the customer to disregard the confirmations and statements sent to him by Galiani’s member firm. Galiani claimed that the majority of the customer’s money was held in a third account, which he described to the customer as an institutional account that was not reflected on documents sent by the firm.

The customer subsequently demanded that Galiani provide him with statements for the institutional account; Galiani created and provided the customer with fictitious firm account summaries that overstated the customer’s actual holdings at the firm by approximately $600,000. On the same date, Galiani created and provided the customer with a fictitious account statement for the institutional account reflecting a purported value of $682,861.55. The institutional account was a complete fabrication by Galiani; no such account existed and the account number listed on the institutional account statement was related to a closed account previously held by one of Gialani’s relatives.

Joshua Albert Galiani : Barred
Bill Singer's Comment
Truly scary and on so many levels.
Larry Richard Gregory
AWC/2011026406001/August 2011

Gregory served as vice president and board member of a purported charitable foundation he managed with other non-registered principals, and unbeknownst to his member firm, he effected the transfer of approximately $400,000 from member firm customers (most of whom are now deceased) to the foundation as supposed donations.  Of that $400,000 Gregory transferred nearly $184,000 to the foundation from the sole known surviving donor customer’s brokerage account. For almost seven years, Gregory, in conjunction with the other non-registered principals, collectively converted for their personal use a total of $79,444.70 from the foundation account they controlled, which was maintained at Gregory’s member firm. The money generally was used to fund the educations of the principals’ relatives; Gregory personally converted a total of $26,619.45 of that amount for his own personal use.

For more than a decade while associated with both the foundation and his member firm, Gregory failed to disclose to his firm his officer and director positions and role in a business activity outside the scope of his relationship with his firm; Gregory did not disclose his association with the foundations until after the firm undertook an internal review of his activities related to the foundation.

Gregory assisted an elderly customer in causing a bank to issue him a $40,061.48 check as a gift from the customer, contrary to his firm’s WSPs that required associated persons, including Gregory, to notify the firm of, and receive approval for any non-de minimis gifts received from customers, Moreover, the firm's procedures imposed an annual $100 cap on customer gifts. Gregory failed to disclose, and receive written approval for, the $40,061.48 gift, violating his firm’s WSPs.

As a result of his violations of the firm’s procedures, Gregory impeded his firm’s ability to effectively supervise over subjects of regulatory importance, including, but not limited to, issues relevant to customer protection.

Larry Richard Gregory: Barred
Leroy Henry Paris II (Principal)
AWC/2009019070102/August 2011

As his member firm’s president, CEO and registered principal, Paris had overall supervisory responsibilities for the firm, including reviewing and performing due diligence for private placements and for reviewing and approving new products, including the assignment of a new product to a business unit.

Paris signed a sales agreement for a private placement offering and failed to perform due diligence beyond reviewing the private placement memorandum (PPM), and while he had received third-party due diligence reports regarding earlier private placements, he did not seek or obtain a report for the latest offering and did not conduct any continuing due diligence or follow-up because of the limited time between offerings, the similarity of the deals and representations from the issuer that no additional due diligence was necessary. Unlike earlier offerings, there were serious red flags that Paris could not identify without adequate due diligence.

In his firm’s sale of several offerings by another issuer, Paris failed to perform due diligence even though his firm received a specific fee related to due diligence purportedly performed in connection with each offering. Paris did not travel to the issuer’s headquarters to conduct due diligence and did not seek or request any financial information other than what was contained in the PPM. Once he had concluded that his firm could sell the offerings, Paris did not conduct any continuing due diligence or follow-up, and due to limited time between the offerings, the similarity of the deals and representations from the issuer that no material changes had occurred, he concluded that no additional due diligence was necessary. In addition, Paris did not believe it necessary to pay for due diligence reports for the new offerings because they would say the same thing as previous reports but they did identify numerous red flags. Moreover, Paris should have scrutinized each of the offerings given the high rates of return to ensure they were legitimate and not payable from proceeds of later offerings, as in a Ponzi scheme.

Acting on his firm’s behalf, Paris failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations with respect to the offerings.

Leroy Henry Paris II (Principal): Fined $10,000; Suspended 6 months in Principal capacity only
LPL Financial LLC
AWC/2010021545201/August 2011

A firm representative submitted a written request to conduct a live call-in finance- and investment-related radio show to be broadcast in Farsi; the firm had various written procedures relating to the supervision of its representatives’ public appearances, which, among other things, required that the first three radio shows be submitted to the firm’s advertising compliance department as soon as they had aired and that the advertising compliance department would contact representatives quarterly to request copies of specific shows during a randomly chosen date range for review.

The firm approved the representative’s request and required the representative to provide a translated copy of the show upon a quarterly request, and an unaffiliated third-party translation company was to complete the translation. For five years, the representative, together with another representative, aired approximately 520 shows on a particular radio station; the format was typically a live call-in show, in Farsi, discussing financial issues and investments, but the firm failed to request or review copies or transcripts of the broadcasts.

LPL Financial LLC: Censured; Fined $25,000
Bill Singer's Comment
FINRA's on solid ground with this settlement. It's one thing to miss a few broadcasts or fail to obtain a few transcripts but there's little excuse when the sample of aired programs is 520 shows over five years and the Firm dropped the ball.  As always, if you're going to draft policies and procedures, you better expect that FINRA will not  be pleased if you don't follow your own rules.
Michael James Dwyer
AWC/2009018215801/August 2011
Dwyer willfully failed to timely disclose material information on his Form U4. Dwyer completed compliance questionnaires for his member firms in which he falsely stated he understood his obligation to notify the firm of any change to his Form U4, including any liens. One of Dwyer’s firms received credit reports that showed the lien was still outstanding, and the firm’s management and CCO specifically instructed him to disclose the lien on his Form U4, but he failed to do so at that time.
Michael James Dwyer: Fined $5,000; Suspended 3 months
Midtown Partners & Co., LLC
OS/2008012242901/August 2011

The Firm failed to have a supervisory system reasonably designed to detect and prevent the misuse of material, nonpublic information by employees through an information barriers system.

The Firm did not have WSPs addressing the creation or distribution of a watch list, which is a list of securities whose trading is subject to close scrutiny by a firm’s compliance or legal department, and the firm did not maintain any list of this nature. The firm maintained a restricted list but it was not maintained in the manner its own procedures required; securities were added to the list in a haphazard manner, often after the issuer had signed a private placement agent agreement with the firm. The list did not reflect when a security was added or deleted from the list, and did not identify the contact person.

The firm did not adequately monitor employee trading outside the firm for transactions in the restricted-list securities; the firm permitted employees to maintain securities accounts with other broker-dealers, requiring any employee to have duplicate confirmations and account statements sent to the firm. Firm employees were required to disclose their outside accounts to the firm upon hire and annually in an attestation form, but the firm failed to obtain annual attestations from some employees and did not ensure that it was receiving the required duplicate confirmations and account statements.

In addition, because the firm failed to maintain a watch list, to timely add securities to its restricted list, to record the required restricted list information, and to obtain confirmations and account statements for employee accounts, it could not reasonably monitor its employees’ trading for transactions in restricted or watch-list securities. Moreover,the firm did not have procedures to restrict the flow of material, nonpublic information and routinely shared restricted-list information with unregistered individuals who were firm owners, and occasionally shared with these unregistered individuals the details of investment banking contracts; consequently the firm’s procedures were not reasonably designed to prevent violation of securities rules prohibiting insider trading.

Midtown Partners & Co., LLC: Censured; FIned $30,000
Miguel Angel Murillo
OS/2008014728701/August 2011

Murillo recommended and effected excessive transactions in a customer’s account that were unsuitable in light of the customer’s financial situation, needs and investment objectives.

Murillo controlled and directed the trading in the customer’s account by recommending and executing all the transactions in the account. The customer was unable to evaluate Murillo’s recommendations, did not understand the meaning of “margin,” and was unable to exercise independent judgment concerning the transactions in the account due to his lack of investment knowledge and limited English skills; the customer trusted Murillo completely to make and execute recommendations in his account.

Murillo did not have a reasonable basis for believing that the volume of trading he recommended was suitable for the customer in light of information he knew about the customer’s financial circumstances and needs, and given the amount of commissions and fees the customer was charged; and as a result, the transactions Murillo recommended and executed were unsuitable, even if the investment objectives were speculative as reflected on the customer’s new account form. The customer told Murillo that he wanted a conservative retirement account set up because he was nearing retirement age and could not risk any losses with his funds; nevertheless, the new account forms listed the customer’s investment objective as speculation and his risk tolerance as aggressive.

The trades were excessive in number and resulted in excessive costs to the customer’s account, and the vast majority of the transactions in the customer’s account were effected through the use of margin and resulted in the customer incurring additional costs in the form of margin interest. In addition, Although the customer signed a pre-completed margin agreement, along with other pre-completed new account forms Murillo sent to him, the customer did not understand margin and did not realize that Murillo was effecting trades on his account on margin. Moreover, owing to the customer’s lack of investment knowledge and inability to decipher his monthly account statements, the customer was unaware that he had a margin balance and did not understand the risk of the margin exposure in his account; at one point, the customer’s account had a margin balance of approximately $106,818.52 while the account’s equity was approximately $67,479.98. The transactions on margin Murillo effected in the customer’s account were unsuitable for the customer in view of the size and nature of the account and the customer’s financial situation and needs.

Miguel Angel Murillo: No fine in light of financial status; Suspended 20 business days; Ordered to pay partial restitution of $35,000 to a customer
NAME REDACTED
OS/2009018050201/August 2011

While employed as a risk arbitrage research analyst with a member firm, REDACTED lied during conference calls convened for him to respond to questions FINRA posed regarding his involvement in Internet blogging activity.

Throughout his employment with the firm as a research analyst,REDACTED regularly posted responses to columns and articles published on Internet financial blog/media sites.REDACTED made his blog postings using different aliases and posted his comments on the blog sites during business hours using his firm computer.

NAME REDACTED: Fined $5,000; Suspended 6 months
Paul Tao Jan
AWC/2010021640701/August 2011

Jan attempted to arrange an outside third-party business loan for a prospective client without obtaining written authorization or otherwise notifying his member firm; if successful, Jan would have received a referral fee. The potential client agreed and Jan, using his personal email account on his home computer, sent the prospective client a detailed client information sheet from an outside lender; the document Jan sent required the prospective client to provide numerous pieces of information relating to the potential loan, including a passport number, business tax ID number and bank account information. Jan requested a copy of the potential client’s passport and a copy of a bank guarantee or standby letter of credit for review and acceptance. Although Jan used his personal email account, his signature block identified him as a financial consultant with his firm.

Jan engaged in business outside the scope of his relationship with his firm without providing prompt written notice to his firm, and Jan’s conduct was contrary to his firm’s written policies and procedures. Along with conducting outside business with a prospective client through his personal email account, Jan admitted to attempting to solicit business from an unspecified number of other customers using his personal email account. In addition, at times, Jan communicated with a customer who had firm accounts through his home email account about details relating to an asset that was to be deposited in one of the customer’s accounts. Moreover, Jan knew that his firm’s procedures required approval of his email and he thereby circumvented his firm’s supervisory procedures and compromised the firm’s ability to supervise and monitor his communications with the public.

Paul Tao Jan: FIned $5,000; Suspended 30 days
Priscilla G. Sabado
AWC/2010022394901/August 2011

Sabado offered and sold entities’ oil and gas investments to several of her clients without her member firm’s knowledge or consent.

The SEC filed a partially settled civil injunctive action alleging that the entities and an individual had fraudulently sold investments in Texas oil and gas projects, raising approximately $22 million from investors nationwide. As a result of Sabado’s recommendations, some of her current firm clients made investments with the entities totaling $491,880.

Sabado failed to provide her firm with prior notice of her participation in these securities transactions.

Priscilla G. Sabado : Barred
Richard A. Garaventa
OS/2009017072301/August 2011

While employed by his member firm’s New York Positions Services (NYPS) Group, Associated Person Garaventa was responsible for processing corporate actions. In that capacity, he

Garaventa entered, or caused to be entered, numerous false journal entries into the firm’s electronic system to transfer and credit at least $59,349 of unreconciled customer funds to other NYPS suspense accounts that Garaventa was using to misappropriate funds. Garaventa misappropriated customer funds from an SEC settlement fund by entering, or causing to be entered, numerous false journal entries into his firm’s electronic system to credit SEC checks totaling approximately $120,395 to the other NYPS suspense accounts he was using to misappropriate funds.

Garaventa entered, or caused to be entered, into the firm’s electronic system check requests against the suspense accounts that Garaventa was using to misappropriate funds; in this way, Garaventa misappropriated at least $179,744 of customer funds for his own benefit. Garaventa misappropriated funds from the firm by entering, or causing to be entered, numerous false journal entries into the firm’s electronic system to transfer and credit approximately $1,786,052 from different firm sources, including the firm’s Foreign Exchange accounts, leftover balances from corporate actions and accumulated American Depositary Receipt (ADR) fees, commingled with funds from other sources, to the NYPS suspense accounts; Garaventa then entered, or caused to be entered, into the firm’s electronic system check requests to be issued against those funds.

Garaventa misappropriated:

  • funds from a firm counterparty; the counterparty calculated a payment to the firm related to a corporate action based on an incorrect tax withholding rate, which resulted in a $1,000,000 overpayment by the counterparty, which was credited to an NYPS suspense subaccount;
  • approximately $320,422 of the $1,000,000 overpayment by entering numerous false journal entries into the firm’s electronic system, transferring the funds to other NYPS suspense accounts that he was using to misappropriate funds, and caused checks to be issued against those funds by having NYPS employees who reported to him enter check requests on his behalf, which Garaventa approved and used the identification number and password of another NYPS employee who reported to him to enter check requests; one of the checks contained funds from other firm sources; and
  • an additional $228,031 from other undetermined sources by entering numerous false journal entries into the firm’s electronic system to transfer those funds to other NYPS suspense accounts he was using to misappropriate funds, and caused checks to be issued against those funds, which had been commingled with funds from other sources.

FINRA also found that Garaventa issued, or caused to be issued, approximately 50 false check requests and entered, or caused to be entered, hundreds of false journal entries in the firm’s systems to foster his misappropriation of funds from the firm, its customers and a firm counterparty.

Garaventa failed to respond to FINRA requests for information.

Richard A. Garaventa : Barred
Bill Singer's Comment
Quite a prodigious undertaking for a mere associated person. What a waste of talent.
Robert Laurence Cochran
AWC/2009018883101/August 2011
Cochran  effected unauthorized transactions in the joint account of customers at his member firm. One of the customers complained to Cochran concerning the unauthorized activity in his account, and in an attempt to placate the customer, Cochran provided the customer with checks totaling $70,000; the checks were returned for insufficient funds. Cochran’s attempt to settle the customer’s claims was made without the firm’s knowledge or consent.
Robert Laurence Cochran : Fined $10,000; Suspended 1 year
Robert Lawrence McMillan Jr.
AWC/2008015141701/August 2011
McMillan willfully failed to disclose material information on his Form U4.
Robert Lawrence McMillan Jr.: Fined $5,000; Suspended 3 months
Ronald Dean Clark
AWC/2009018098601/August 2011
Clark participated in a private securities transaction, not for selling compensation, involving the purchase of approximately $88,000 worth of equity securities by customers and failed to provide written notice to his member firm prior to his participation in the securities transaction.
Ronald Dean Clark: Fined $5,000; Suspended 15 business days
Sammie Bernard Taylor
AWC/2009018240401/August 2011

Taylor received $11,000 from a customer purportedly for an investment in Taylor’s relative’s business; however, Taylor did not provide the customer with a written loan agreement, purchase agreement or any other documentation memorializing the transaction.

The customer gave Taylor a cashier’s check for $11,000, made payable to Taylor; Taylor negotiated the check and received $11,000 in cash from his financial institution. Only after his member firm confronted him did Taylor return the funds to the customer, thereby misusing the funds for several weeks.

Sammie Bernard Taylor: Fined $5,000; Suspended 6 months
Scott Thomas Brandt
AWC/2009017603801/August 2011

Brandt provided written notice to his firm that he was engaged in sales of secured real estate notes outside the regular course and scope of his employment with the firm; however, the firm failed to recognize that the notes were securities and allowed Brandt to continue selling them without further supervision. Brandt again disclosed his sales of the notes on his annual Outside Business Questionnaire (OBQ) form, following which the firm determined that the notes were actually securities and ordered him to stop selling the notes and remove any mention of note sales from his OBQ. Thereafter, Brandt submitted a new OBQ devoid of any mention of note sales.

Brandt sold a note to a customer and received a commission of $3,459.21 for the sale although he failed to obtain the firm’s prior written approval to sell the note. Brandt sold additional notes to other customers without receiving any compensation for those sales and obtaining the firm’s prior approval. The total value of the notes Brandt sold, after submitting the new OBQ devoid of any mention of note sales, was $637,293.21. In addition, Brandt recommended and sold notes totaling $805,000 to other customers who were referred to him without having reasonable grounds for believing that his recommendations were suitable for these customers.

Moreover, Brandt failed to obtain information about these customers’ investment objectives, risk tolerances, financial circumstances or other information upon which he could reasonably base a suitability determination. Furthermore, Brandt relied upon representations from the referring individuals that they had analyzed the customers’ profiles and determined the notes to be suitable for the customers. Brandt received at least $54,450.00 in commissions for these sales.

Scott Thomas Brandt : Fined $67,909.21 (includes a $57,909.21 disgorgement of commissions received); Suspended 18 months.
Timothy D. Camarillo
OS/2010023612301/August 2011

Camarillo entered into a contract with a company to sell its private placements, and sold approximately $370,000 of these private securities to his customers, receiving over $13,000 in commissions, without providing notice to, or receiving approval from, his member firm.

Camarillo’s firm’s written procedures, which he attested to reading and understanding, instructed employees to provide notice to the firm’s compliance department and to seek the firm’s written approval prior to engaging in any securities transactions not executed through the firm. The company provided Camarillo with sales literature, and without submitting the brochure to his firm for approval, he distributed the brochure to his customers; the brochure contained several unwarranted, exaggerated and misleading statements, omitted material facts and ignored risk while guaranteeing success.

Camarillo did not have a reasonable basis to recommend that his customers purchase the securities, had no experience selling these types of products and did not conduct proper due diligence. Camarillo did not sufficiently understand the products offered through the company or how the investments were managed; all of Camarillo’s customers who invested in the products informed Camarillo that they were seeking preservation of capital and viewed the investments as a retirement investment. Camarillo did not investigate the claims made in the sales literature that the returns were guaranteed, he had no basis to recommend the investment to customers seeking preservation of capital, and his recommendations to invest in the company were unsuitable.

Camarillo’s customers lost tens of thousands of dollars by relying on his recommendation, because even after partial reimbursement from the company’s court-ordered receivership, Camarillo’s customers only recouped 69 percent of their investment. Moreover, the products, as marketed, were securities, the sale of which required Camarillo to possess a Series 7 license; at the time he sold the securities, Camarillo held only a Series 6 license.

Timothy D. Camarillo : Fined $10,000; Suspended 4 months; Ordered to pay $13,000 restitution to customer
Trustmont Financial Group, Inc. and Peter Daniel Dochinez (Principal)
AWC/2009016311801/August 2011

The Firm failed to develop and enforce written procedures reasonably designed to achieve compliance with NASD® Rule 3010(d)(2) regarding the review of electronic correspondence. Although the firm had certain relevant procedures in place, it did not have a satisfactory system for providing designated principals with access to such correspondence for review; instead, the firm relied on registered representatives to forward any emails involving customers to a central email address, which was accessible to the firm’s president and chief compliance officer (CCO), for review.

The firm did not have effective procedures to monitor its representatives’ compliance with the email forwarding requirement; instead the firm relied on branch inspections to monitor compliance, but, because the firm’s branch offices were non-Office of Supervisory Jurisdiction’s (OSJs), they were inspected infrequently—once every three years.

During the infrequent branch office inspections, the firm generally failed to conduct adequate reviews of representatives’ personal computers to determine if they were complying with the email forwarding requirement; other than some very limited reviews during the inspections, the firm failed to provide for surveillance and follow-up to ensure that email correspondence review procedures were implemented and adhered to.

The firm failed to enforce its written procedures requiring a designated principal to conduct a daily review of business-related electronic correspondence and to evidence that review by initialing the correspondence.

Acting through Dochinez, the firm’s president, chief executive officer (CEO) and a firm principal, failed to establish, maintain and enforce an adequate 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 the need was identified by such testing and verification. In addition, The firm’s supervisory control policies and procedures failed to address the requirements of designating a principal responsible for the firm’s supervisory control policies and procedures; testing and verification to ensure reasonably-designed supervisory procedures; updating the firm’s written supervisory procedures (WSPs) to address deficiencies noted during testing; designating a principal responsible for the annual report to senior management on the firm’s system of supervisory controls procedures, summary of test results, significant identified exceptions, and any additional or amended procedures; identifying producing managers and assigning qualified principals to supervise such managers; using the “limited size and resources” exception for producing managers’ supervision, including documenting the factors relied on in determining that the exception is necessary; electronically notifying FINRA of its reliance on the limited size and resources exception; reviewing and monitoring all transmittals of customer funds and securities; reviewing, monitoring and validating customer changes of address and customer changes of investment objectives; and providing heightened supervision over each producing manager’s activities. Moreover,acting through Dochinez, the firm failed to conduct independent tests of its AMLCP.

Trustmont Financial Group, Inc.: Censured; Fined $10,000 joint/several; Fined additional $20,000

Peter Daniel Dochinez: Censured; Fined $10,000 joint/several

Bill Singer's Comment
A growing area of focus for FINRA is the diligence of a member's policies/procedures for reviewing electronic communications -- and if you're relying upon the honor system, the regulator is just not going to be happy. 
July 2011
Alfonso Fiero (Principal)
2008015329001/July 2011
While registered with a member firm, Fiero maintained a corporate brokerage account which he controlled at another member firm (the executing firm) without disclosing the existence of this account to his firm or his association with his firm to the executing firm. Fiero failed to disclose the existence of any outside securities account, including any accounts where he had control over the investments on an annual certification form he submitted to his firm. Fiero failed to respond to FINRA requests for information and documents.
Alfonso Fiero (Principal): Barred
Bill Singer's Comment
There's certainly been an increase in FINRA prosecutions for RRs using so-called "away accounts."  Typically, before you can open such an account (or continue such use), you need to notify your firm and the firm where you have the account.  Duplicate confirms are then sent to your employing FINRA member firm.
Andrew Joseph Franz
AWC/2010025073601/July 2011

Without authorization, Franz took possession of checks payable to the investment adviser firm where he was employed, deposited the checks, which totaled about $21,000, to a personal bank account, and converted a portion of the funds to his own use and benefit.

Franz was the broker of record for a money market mutual fund account that an investor owned, and while the investor was out of state and without his knowledge or authorization, Franz contacted the mutual fund company multiple times and instructed it to issue checks to the investor drawn against his money market account. The mutual fund company issued checks payable to the investor totaling about $271,250 and mailed them to the investor’s residence in Ohio.

Franz obtained possession of the checks at the investor’s residence and, without the investor’s knowledge or authorization, Franz forged his signature on the checks, deposited the checks to a personal bank account and converted a portion of the funds to his own use and benefit and remitted the rest to the investor.

Andrew Joseph Franz : Barred
Bill Singer's Comment

The frightening part of this is how easy it all was -- and how few meaningful safeguards appear to exist.  I mean, seriously, what could you reasonably do to prevent an RR from going to a customer's home, stealing his mail, forging his signature, and converting the proceeds?

Bart Chad Christensen
AWC/2009018990002/July 2011

Christensen sold approximately $650,000 in a company’s promissory notes to customers without providing his member firm with written notice of the promissory note transactions and receiving the firm’s approval to engage in these transactions.

Based upon expected interest payments from the promissory notes, some of the customers also purchased life insurance policies from Christensen and another registered representative the firm employed. These customers expected to use the promissory note interest payments to pay for the life insurance premiums.

Christensen received direct commissions from the company related to the sale of the promissory notes to customers and received commissions from the sale of life insurance products to the customers, who intended to fund those policies with the interest payments from the promissory notes.

The company defaulted on its obligations and the customers lost their entire investment. The customers who also purchased life insurance based upon the expectation that they would receive interest payments from their investment relinquished their policies and the firm compensated them for the premiums paid, but the customers did not receive any reimbursement for the investments in the company that sold the promissory notes.

Christensen completed a firm annual compliance questionnaire, in which he falsely stated that he had not been engaged in any capital raising activities for any person or entity; had not received fees for recommending or directing a client to other financial professionals; had not been personally involved in securities transactions, including promissory notes, that the firm had not approved; and had not assisted a client with an application for investments not available through the firm or contracted or otherwise acted as an intermediary between a client and a sponsor of such investments without the firm’s prior approval.

Finally, Christensen failed to respond to FINRA requests for documents and testimony.

Bart Chad Christensen : Barred
Bill Singer's Comment
A cascade of calamity.  Under the circumstances, I have no problem with the Bar.
Brian Daniel Parker (Principal)
AWC/2008015729701/July 2011
Parker failed to provide written notice to his member firm prior to opening a brokerage account with another FINRA member firm and, upon opening the account, failed to advise the executing member firm in writing of his association with his firm. Parker engaged in outside business activities without providing prompt written notice to his firm.
Brian Daniel Parker (Principal): Fined $5,000; Suspended 30 days
Brookstone Securities, Inc. and David William Locy (Principal)
AWC/2009019837303/July 2011

Acting through Locy, Brookstone Securities did not have WSPs addressing due diligence requirements for third-party placements.

Acting through Locy, Brookstone failed to conduct an adequate due diligence of a third-party private placement offering before Locy approved the offering of shares to customers. Locy’s due diligence efforts did not include any investigation into an equity fund, despite acknowledging that he knew very little about it or the third-party placement and could not get any solid information about the fund, including pending litigation or financial statements. Locy knew nothing about the fund that was not contained in a PPM the issuer prepared, but accepted that the firm representatives forming the offering had conducted due diligence and relied on their opinion of the fund. Locy acknowledged the representatives had limited, if any, experience forming a private placement.

The firm's representatives sold or participated in sales of shares to customers without notifying Locy or anyone else at the firm, which caused those sales to not be recorded on the firm’s books and records.

Brookstone Securities, Inc. and David William Locy: Censured; Fined $25,000 jointly/severally

Bill Singer's Comment
FINRA sort of spells it out for you: You are not discharging you due dilly obligations if you merely rely upon the PPM and/or accept one of your registered rep's opinion about the deal (which was an offering that the subject RR put together).
Brown Associates, Inc.
AWC/2009016207701/July 2011

The Firm failed to properly archive its business-related electronic communications for individual users in some of its Offices of Supervisory Jurisdiction (OSJs).

The Firm stored these emails on stand-alone servers or individual machines only, which theoretically permitted individual users to delete incoming or outgoing emails, and thereby failed to properly preserve its business-related electronic correspondence.

The firm failed to

  • review business-related electronic communications for the individuals and an additional user;
  • evidence its review of individuals’ business-related electronic communications as the firm’s WSPs required; and
  • provide notification and third–party attestation to FINRA regarding the use of electronic storage media 90 days prior to employing such media.
Brown Associates, Inc. : Censure; Fined $50,000; Required to certify to FINRA in writing within 90 days of issuance of the AWC that the firm currently has in place systems and procedures reasonably designed to achieve compliance with the laws, regulations and rules concerning the preservation of electronic correspondence.
Bill Singer's Comment

Nice tight case and well presented by FINRA.  Two separate issues that you should consider. 

First, email archiving is not accomplished in accordance with FINRA's rules if you simply store the data on a standalone server or on some PC/laptop in the office. That's not the back-up and retention contemplated by the rules. Such a protocol does little to deter or prevent someone from simply logging on to a given machine and wiping clean any troubling communications.

Second, you need to undertake prior notice when retaining a third-party storage system.

Bryan C. McCabe
AWC/2009021029617/July 2011
McCabe requested and received answer keys to state insurance LTC CE examinations and distributed them to other employees at his member firm.
Bryan C. McCabe : Fined $5,000; Suspended 10 business days
Casey W. Smith
AWC/2009018573101/July 2011

Smith improperly accepted $15,300 in cash gifts from a customer and her relative.

The customer and her relative gave Smith cash gifts when they visited their safe deposit boxes. Smith was given and accepted a cash gift during a visit to the customer’s home. At the time Smith accepted the gifts, he was aware that the bank’s code of conduct where he was employed prohibited employees from accepting gifts from customers.

This matter came to light when the customer offered cash to another bank employee after assisting her with her safe deposit box; the employee refused the gift and reported the matter to his supervisor. When Smith’s supervisor questioned him, Smith admitted to accepting gifts from the customer, and his employment was terminated.

Casey W. Smith: Fined $15,000; Suspended 3 months
Bill Singer's Comment
I wonder what the going rate was for opening the safe deposit boxes -- after all, $15,300 isn't chicken feed. Then there's the other issue.  Why the hell would customers want the IRS to learn that they're keeping wads of cash (apparently) in their safe deposit boxes?  This one makes me cringe on so many levels.
Catherine Laura Baker
AWC/2009021029618/July 2011

Baker requested, received and distributed answer keys for long-term care (LTC) continuing education (CE) exams to member firm representatives, and asked other firm representatives to distribute LTC CE answer keys to outside financial advisors.

Certain states implemented an LTC CE requirement that obligated financial advisors to complete an LTC CE course and exam before selling LTC insurance products, including the product Baker sold, to customers who resided in that state. In order to help financial advisors obtain the LTC CE requirement, Baker’s firm provided them with vouchers that allowed financial advisors to take CE exams for free through a specific company. In addition to providing financial advisors with the vouchers, certain firm employees improperly created, requested, received and distributed answer keys for state LTC CE exams.

Catherine Laura Baker : Fiend $5,000; Suspended 1 month
Dane Raymond Henry
AWC/2009018021801/July 2011

Henry added information to an earlier copy of a private placement investor questionnaire that had previously been signed by a customer. The questionnaire itself had been completed by the customer while Henry was registered with a prior member firm and was later replaced at that prior firm by a different version; Henry maintained a copy of the earlier signed copy.

In response to an inquiry made by Henry’s new firm’s CCO regarding the source of a particular stock in the customer’s account, Henry utilized the earlier copy of the previously signed questionnaire from the customer that Henry had in his files and made alterations to the document by adding on the updated requested information sought by the CCO. Henry presented that altered document to the CCO without disclosing that he had made the alterations and by making the alterations to the questionnaire, he caused the document and, consequently, the firm’s records to be inaccurate.

Dane Raymond Henry: Fined $5,000; Suspended 30 business days
Bill Singer's Comment
So wrong on so many levels -- Henry is a lucky fellow, the suspension could have been far worse.
Dareth Amber Martin
OS/2009019349301/July 2011

Martin misappropriated at least $81,670 from her employer and its owner through the use of credit cards and checks for unauthorized purposes.

Without authorization, Martin used her employer’s personal credit cards and business credit account to purchase personal items, totaling at least $34,516, and used her employer’s business checking account, without authorization, to issue checks for personal items exceeding $1,603. The Martin issued checks from the business account to herself and made cash withdrawals for herself without authorization; these withdrawals exceeded the actual business expenses by at least $23,385. Martin issued, or caused to be issued, checks to herself for unauthorized bonus payments totaling at least $22,166.

Martin failed to appear for FINRA on-the-record testimony.

Dareth Amber Martin: Barred
Bill Singer's Comment
Hey, it beats working for a living. I love the part about issuing bonus checks to herself.  How come I can't get a job like this?
David Allen Naefke
AWC/2009016728501/July 2011

Naefke circumvented his member firm’s guidelines regarding investing in illiquid investments by submitting documents, including illiquid investment letters and account information forms, that falsified and exaggerated customers’ net worth which in turn permitted investments in amounts that the firm would have otherwise prohibited and that were unsuitable for the affected customers.

The firm had internal guidelines that limited the amounts customers were permitted to invest in illiquid investments; the internal policy further stated that illiquid investments for older investors required additional review and consideration pertaining to their needs for liquidity and income. Naefke submitted documents that knowingly falsified customers’ net worth, causing his firm’s books and record to be inaccurate and customers to invest in illiquid investments in amounts that his firm would have otherwise prohibited; and Naefke impeded his firm’s ability to adequately supervise the suitability of his recommendations.

On three illiquid investment letters, Naefke falsely stated that a

  • 50-year-old customer’s adjusted net worth was $2,000,000, when in fact it was about $150,000;

O at least two account information forms, Naefke falsely stated that an

  • 87-year-old customer’s net worth was between $1,000,000 and $2,999,999, when, in fact, it was approximately $250,000; and

O four illiquid investment letters, Naefke falsely stated that the

  • 87-year-old customer’s adjusted net worth was $1,000,100.

Naefke recommended and sold illiquid investment interests in publicly registered non-traded real estate investment trusts (REITs), direct participation programs and a limited partnership to customers totaling about $299,000. When Naefke made the recommendations and sales, he did not have reasonable grounds for believing that the recommendations were suitable based on each customer’s other security holdings, financial situation and needs.

David Allen Naefke: Barred
David Lewis Tieger
AWC/2009018325701/July 2011

Tieger  convinced his junior partner to call an annuity company and impersonate his relative for the purpose of confirming a $275,000 withdrawal from one of the relative’s variable annuity contracts.

The relative attempted to make a distribution from his variable annuity and after growing frustrated with the withdrawal process, instructed Tieger to take care of it. After multiple requests, Tieger’s junior partner agreed to make the telephone call using the relative’s cellular phone, spoke to the annuity company representative and, pretending to be Tieger’s relative, asked the representative to process the contract withdrawal. The junior partner answered the representative’s questions by reading from a script that Tieger had prepared.  Tieger watched the junior partner’s call from outside a glass conference room.

After Tieger left the office building, the junior partner called the representative back to inform him that he was not the relative and that he had called because someone standing next to him asked him to impersonate the relative.

David Lewis Tieger : Fined $5,000; Suspended 30 business days
Bill Singer's Comment

Hmmmmmmmmmmmmm . . . this is an edgy one. Tieger was wrong -- no question about that; however, the circumstances are somewhat compelling.  The dalliances of many annuity companies are well known and getting a distribution may often be akin to pulling teeth.

Regardless, I don't condone Tieger's short-cut and fully appreciate the attendant regulatory concerns. Nonetheless, the $5,000 fine I get. The 30-day suspension? I dunno, that's seems a bit heavy handed given the unique facts. Still, I'm not going to lose sleep over the 30-days because it's not so over-the-top but if I were on a hearing panel and this one came before me (keep in mind that this was a settled, non-hearing matter), I might have been satisfied with five days or a straight 30 calendar days.

Donna Marie Miller
2010021623401/July 2011

Associated Person Miller converted $19,736.76 from her member firm.

In her capacity as assistant to the branch manager, Miller had authority to request that checks be issued from the branch office general ledger account to pay for branch expenses. Miller caused checks to be issued off the branch office general ledger to her boyfriend for construction work at the branch that was never performed. Each check was created in an amount equal to or less than $500 so that she could authorize the payments without the need for another firm manager’s approval.

Miller caused another check to be issued to herself from the branch office general ledger. Miller reported to branch management that she did not receive her paychecks and obtained replacement checks totaling $1,035.80 from the branch, with the understanding that she would return her paychecks to the branch if she received them; when Miller received her paychecks, she deposited them into her personal account without reimbursing her firm.

Miller failed to respond to FINRA requests for information and documents.

Donna Marie Miller : Barred
Bill Singer's Comment

Imagine all that talent gone to waste!  A mere associated person -- not even a stockbroker -- and she figured out a way to game the system for her boyfriend and herself.

And, oh, imagine that: she failed to respond to FINRA!

Edward Philip Gelb (Principal)
AWC/2009019466601/July 2011

Gelb solicited individuals, including customers at his member firm, to invest in entities that were purportedly engaged in the export and import business with a manufacturer based in China.

Gelb raised approximately $1.8 million from investors and received approximately $79,500 from the entities as compensation derived from his solicitation of, and directing investors to, the entities.

Private Securities Transaction

Gelb was aware of his firm’s policies and procedures, which specifically prohibited its registered representatives from participating in any manner in the solicitation of any securities transaction outside the regular scope of their employment without approval. Gelb signed annual certifications attesting to this knowledge and failed to notify his firm about his solicitation of investors for the entities because he did not expect the firm’s approval of the product.

Due Diligence

Gelb failed to obtain adequate information about the investment and instead relied upon unfounded representations, including guarantees that the investors’ principal would be protected despite the fact that, at no time, had Gelb seen any financial documentation for the entities. The information available on the Internet about the entities was limited to the companies’ own website.

Risk Disclosures

FINRA determined that despite the highly risky nature of the investment, Gelb led the customers to believe that the investment he was recommending was a safe and secure investment and, in some cases, Gelb was aware that customers were taking out home equity lines of credit on their homes to fund their investments in the entities. Customers who invested in the entities Gelb recommended had low risk tolerances and had investment objectives of growth and/or income, and Gelb did not have a reasonable basis for recommending the entities to the customers.

Outside email

Gelb utilized an outside email account, without his firm’s knowledge or consent, to conduct securities business.Although the firm was aware of the outside email account, Gelb had not been approved to utilize that email address to conduct securitiesrelated business and by operating an outside email account for securities-related business without the firm’s knowledge and consent, Gelb prevented his firm from reviewing his emails pursuant to NASD Rule 3010(d).

Edward Philip Gelb (Principal): Barred
Frank J. Scarcello III
2010021368801/July 2011

Without the customer's authorization or knowledge, Scarcello effected an online wire transfer of $8,024.54 from a bank customer’s account for his personal use and benefit.

Scarcello obtained an ATM card linked to the customer’s account and used the card to make withdrawals totaling over $12,000 from the account, using the funds for his personal benefit without the customer’s authorization or knowledge. When the customer discovered the funds were missing and confronted Scarcello, Scarcello executed an unauthorized wire transfer of $20,000 from the line of credit of another bank customer’s account to the customer’s account, thereby converting approximately $32,000 from two bank customers’ funds for his personal benefit. 

Scarcello failed to respond fully and completely to FINRA requests for information and to appear for an on-the-record testimony.

Frank J. Scarcello III : Not ordered to pay restitution to the bank customers because FINRA did not request an order of restitution; Barred
Bill Singer's Comment
Stealing from Peter to pay to Paul (from whom he previously stole)
Frederick Xavier Veile III
AWC/2009020153401/July 2011

Veile borrowed $800 from one of his customers at his member firm. The loan was not reduced to writing and had no repayment terms, and Veile did not disclose this loan to his firm and the firm had a policy prohibiting representatives from borrowing money from customers.

Veile paid back the customer after FINRA began its investigation. Veile completed an annual compliance statement for the firm in which he falsely stated that he had not engaged in any prohibited practices, including borrowing from or lending to a client.

Frederick Xavier Veile III : Fined $5,000; Suspended 1 month
Garden State Securities, Inc. and Kevin John DeRosa (Principal)
AWC/2009018819201/July 2011

The Firm failed to ensure that it established, maintained and enforced a supervisory system and written supervisory procedures (WSPs) reasonably designed to achieve compliance with the rules and regulations concerning private offering solicitations.

The firm’s procedures were deficient in that they failed to specify, among other things, who at the firm was responsible for performing due diligence, what activities by firm personnel were required to satisfy the due diligence requirement, how due diligence was to be documented, who at the firm was responsible for reviewing and approving the due diligence that was performed and authorizing the sale of the securities, and who was to perform ongoing supervision of the private offerings once customer solicitations commenced. As a result of the firm’s deficient supervisory system and WSPs, the firm failed to conduct adequate due diligence on private placement offerings. The Firm's WSPs required due diligence to be conducted on every private placement it offered, and required that such review had to be documented; the firm failed to enforce those provisions with respect to an offering. Had the firm conducted adequate due diligence, it reasonably should have known that the company had defaulted on its earlier notes offerings and that there was a misrepresentation in the private placement memorandum (PPM) with respect to principal and interest payments to investors in the earlier offerings. The Firm failed to take reasonable steps to ensure that it timely learned of the missed payments on the earlier notes offerings and disclosed them to prospective investors in the notes. Due to the firm’s lack of due diligence, DeRosa sold notes issued to customers, and in connection with those sales, the firm and DeRosa mischaracterized and/or negligently omitted certain material facts provided to investors. DeRosa sold $833,000 of the notes to customers and generated approximately $37,485 in gross commissions from the sales of the notes. Through DeRosa and another registered representative, the Firm solicited customers to invest in another company’s stock but failed to conduct adequate due diligence.

The owner of an investment banking firm represented that the customers’ funds would be wired to a client trust account at a bank and then forwarded to an escrow account, which a third party would control, before being invested; the firm did not take any steps to verify this claim before wiring the customer funds to the account. No one at the firm verified the existence of the client trust and escrow accounts, and, after the funds were wired, no one requested or received a bank account statement to verify the receipt and location of the funds; the firm failed to question why the wire instructions failed to reference the client trust account in the bank account title section on the form, but instead referenced the investment banking firm. Instead of directing the customers’ money into the escrow account, the owner of the investment banking firm kept the funds in bank accounts he controlled and used the funds for his own benefit.

In addition, in connection with his sales of the company’s stock, DeRosa disseminated to prospective investors a presentation he had received from the owner of the investment banking company, which summarized the offering. Moreover, the presentation constituted sales literature but did not comply with the content standards applicable to communications with the public and sales literature. Furthermore, the presentation failed to provide a fair and balanced treatment of risks and potential benefits, contained unwarranted or exaggerated claims, contained predictions of performance and failed to prominently disclose the firm’s name, failed to reflect any relationship between the firm and the non-FINRA member entities involved in the offering, and failed to reflect which product or services the firm was offering.

Garden State Securities, Inc.: Censured; Ordered to pay jointly and severally with DeRosa, $300,000 in restitution to investors. FINRA did not impose a fine against the firm after it considered, among other things, the firm’s revenues and financial resources

Kevin John DeRosa (Principal):  Fined $25,000; Ordered to pay jointly and severally with Garden State $300,000 in restitution to investors; Suspendedfrom association with any FINRA member in any capacity for 20 business days, and Suspended from association with any FINRA member in any Principal capacity only for 2 months.

Grant Williams L.P.
AWC/2009016225201/July 2011

The Firm made material changes in its business operations without first filing an application and obtaining FINRA approval.

The Firm increased the number of its registered representatives, an increase of 80 percent over the number of representatives provided for in its membership agreement, and increased the number of its registered and non-registered branch offices, an increase of 113 percent over the number of branch offices provided for in the membership agreement.

Grant Williams L.P. : Censured; Fined $20,000
Bill Singer's Comment
I understand and appreciate the violation. Not an issue. But what the hell warranted a whopping $20,000 fine?
Irving Vincent Boberski
2009018217301/July 2011
Boberski willfully failed to disclose material information on his Form U4, and failed to respond to FINRA requests for information and documents.
Irving Vincent Boberski : Barred
Jeffrey Garland Kelly
AWC/2010025192301/July 2011

While registered at member firms, Kelly failed to provide written notice to each firm that he was employed by or accepted compensation from other persons as a result of business activities that were neither passive investments nor within the authorized scope of his relationship with his firms.

Kelly was primarily responsible for the operation of a company, having handled its formation, negotiated its loan agreements and controlled its finances, including investments and distributions and received direct and indirect compensation. Kelly formed additional entities, filed registration documents, served as their registered agent and took out loans on their behalf, which were business activities unrelated to his relationship with his member firms.

Kelly failed to disclose these companies to his member firms and falsely represented on his qualifying questionnaire for his most recent firm that he did not and would not engage in any outside business activities without prior notification to, and written consent from, the firm.

Kelly participated in private securities transactions without prior written notice to his firms describing in detail the proposed transactions, his proposed role therein, and stating whether he received, or might receive, selling compensation.

Jeffrey Garland Kelly: Barred
John Stultz Poland
AWC/2010023613401/July 2011

Poland allowed a representative of a non-FINRA member insurance company to improperly assist him in completing a state insurance LTC CE exam.

The representative sat with Poland for half of the time it took him to complete the exam, and the two discussed the topics covered on the exam, and as a result, Poland received assistance on some of the answers on the exam. After completing the exam, Poland completed an exam certification form/declaration of compliance, and despite having received assistance on the exam, he signed the form and inaccurately certified that he completed the exam without assistance from any outside source.

John Stultz Poland : Fined $5,000; Suspended 1 month
Jose Luis Vinas
2009017198901/July 2011

Vinas converted approximately $3.3 million from customers, mostly Mexico-based, while he was associated with member firms and served as the registered representative responsible for these customers’ brokerage accounts.

Vinas asked customers to sign blank documents, including firm documents that were printed in English when none of the customers spoke or read English, but they complied with Vinas’ request.

A variable credit line account was opened at Vinas’ firm in the customers’ name, and Vinas submitted or caused to be submitted applications requesting increases in the credit line that the firm approved, but the customers had not authorized the opening of the credit account or the subsequent credit increases, nor were they aware of the existence of the credit account. Vinas forged, or caused to be forged, customer signatures on Letters of Authorization (LOAs) and had a customer sign blank LOAs, which he submitted to his firm purportedly authorizing the transfer of customer funds without these customers’ authorization or knowledge. Vinas submitted, or caused to be submitted, to another member firm fraudulent verbal LOAs without the customers’ authorization or knowledge, which allowed him to wire funds from the customers’ accounts. In addition, Vinas presented false account documents to the customers, which reflected fictitious account balances although he had closed the account after taking the last remaining funds from the account.

Vinas failed to respond to FINRA requests to appear and provide testimony.

Jose Luis Vinas : Barred
Bill Singer's Comment

$3.3 Million?  Breathtaking!  Of course, there's just one teeny-weenie issue that I have. If the customers' New Account Forms all reflected that they were Mexican residents, then why didn't the member firm provide documents in Spanish or obtain direct confirmation that the customers understood the English-only materials?  Apparently these were some relatively high-net worth individuals because several million dollars was pilfered from their accounts.

Perhaps a good compliance practice would be to send a letter to the customer in their native language confirming their authorization to use English-only documents and to confirm to them before initiating account activity that your brokerage firm has received the following inventory of executed documents authorizing the following account activity. And don't send that letter in English because it will defeat the whole purpose of communicating the issues to the customers.

Kenneth Richard Campbell III (Principal)
AWC/2010024997001/July 2011

Campbell failed to enforce his member firm’s heightened supervisory procedures with respect to one of its representatives. 

According to those procedures, Campbell was responsible for determining the scope of the heightened supervision and ensuring that the representative’s supervisor was enforcing the heightened supervision plan. The firm required that the plan be individualized based on the representative’s disciplinary history. Campbell placed a representative on heightened supervision because of his disciplinary history, and the plan Campbell prepared was deficient because it was not tailored to that representative’s history of engaging in private securities transactions and did not provide for any material additional supervision beyond the usual steps that were taken to oversee other firm representatives. Campbell failed to ensure that the plan was implemented and, as a result,the following actions that were required pursuant to the plan were not undertaken:

  • a log was not created of the representative’s trades,
  • certifications were not made to the compliance department that the heightened supervision plan was implemented, and
  • and an annual review of the plan did not take place.
Kenneth Richard Campbell III (Principal): Fined $5,000; Suspended 1 month in Principal capacity only.
Bill Singer's Comment
As we have often noted in RRBDlaw.com, it's bad enough not to undertake proper supervision; however, when you have pointedly prepared a supervisory plan (particularly one for heightened supervision), regulators take a particularly dim view when there is no meaningful implementation and the very steps, policies, and procedures that you drafted are not followed.
Kevin Todd Mehlman
AWC/2009018297901/July 2011

Mehlman  facilitated securities investments away from his member firm and received compensation as a result of the sales.

Workikng with others through an entity, Mehlman distributed secured investment notes in a company to insurance agents who in turn marketed the notes, which were securities. The entity sold approximately $60 million in the notes and generated more than $6 million in gross commission revenues from which Mehlman received approximately $430,000 from the sales. The investments were not made through Mehlman’s firm and Mehlman did not provide written notice to, or obtain approval from, his firm prior to facilitating the investments.

Kevin Todd Mehlman : Barred
Bill Singer's Comment
What a nice ring: $60 MILLION
Kimberlie Munsie Clark (Principal)
AWC/2010025003701/July 2011
Clark was her firm’s Chief Financial Officer and co-Chief Operating Officer with authority to write checks from its checking accounts, including checks for her own compensation, and she misappropriated $8,333.33 from her member firm. Clark was entitled to a payroll check in the amount of $8,333.33 and issued a check to herself for that amount and, without the firm’s permission, issued herself another $8,333.33 check. Both payroll checks were deposited in Clark’s personal banking account.
Kimberlie Munsie Clark (Principal): Barred
Bill Singer's Comment
How sad to destroy a career over something so relatively petty.
Lauren Tricia Cyrus (Principal)
AWC/2009017399501/July 2011

Cyrus failed to supervise representatives at her member firm who made unsuitable recommendations to customers at their firm.

Cyrus was responsible for supervising the representatives but failed to take appropriate action to supervise the representatives that was reasonably designed to prevent their violations and achieve compliance with applicable rules. Cyrus failed to adequately review and follow up on the over-concentration of the customers’ liquid assets in preferred stocks and the risks associated with those securities.

Lauren Tricia Cyrus (Principal): Fined $5,000; Suspended 1 month in Principal capacity only
Bill Singer's Comment
In 2011, FINRA has really increased its failure to supervise docket -- perhaps more so than in any prior year that I can recall.  A common thread in these cases seems to be that FINRA is showing little (if any) tolerance these days for supervisors who have written policies and procedures pertaining to individuals requiring enhanced supervision, or for aspects of the firm's business involving suitability issues.  In this matter, Cyrus is charged with failing to "adequately" review over-concentration indicia.  It's not that there was no review whatsoever but, rather, the review was not deemed to reasonably address the circumstances.
Lien Thi Huynh
AWC/2009018467001/July 2011
Huynh forged her supervisor’s signature on one of his personal banking account checks, made the check payable to herself in the amount of $9,000, cashed the check without her supervisor’s knowledge or authority, and deposited the funds into her relative’s checking account, thereby misappropriating her supervisor’s funds and converting the funds for her personal benefit and use. The Huynh attempted to conceal her wrongdoing by writing “compensation/bonus quarter 1 and quarter 2” on the check’s “re:” line. The supervisor’s bank reimbursed him for the fraudulent transaction.
Lien Thi Huynh: Barred
Bill Singer's Comment
Oh my, what a lovely colleague! 
Manuel Jose Leon Jr. (Principal)
AWC/2010024861802/July 2011

Leon recommended that a couple invest $167,000 in a private securities transaction without providing notice of his proposed role in the transaction to his member firms.

Leon formed a company through which he sought to operate an independent branch of a broker-dealer and did not have reasonable grounds to believe that the recommended investment in the company was suitable for the couple in light of their investment objectives, financial situation and needs; the recommended investment was too risky for the customers, who were a retired couple of limited means. The recommendation led to most of their investable assets being overconcentrated in the security.

Prior to its dissolution, the company made interest and principal payments totaling approximately $26,000 to the couple, who lost approximately $141,000 on their investment in the company.

Leon failed to respond completely to FINRA requests for information and documents.

Manuel Jose Leon Jr. (Principal): Barred
Bill Singer's Comment

Selling a retired couple an overconcentrated investment in your company that's intending to operate as an Indie Branch?  And the investors lose $141,000 of their $167,000 investment?

Soooo, how many things can you spot that's wrong with this picture: Take your time.

Maritza Del Carmen Cruz
AWC/2009019865801/July 2011

Cruz participated in an outside business activity without providing her member firm with prior written notice.

An individual offered Cruz $3,000 in exchange for referring firm clients and others with available credit on their personal credit cards who would invest in his newly created business. The individual failed to pay those who invested in his business as promised. Cruz misrepresented to her firm her involvement in the outside business activity on a compliance her firm review conducted. Upon admitting her involvement in the outside business activity to her firm, the firm immediately suspended Cruz, conducted an internal investigation and later terminated Cruz.

Maritza Del Carmen Cruz : Fined $5,000; Suspended 3 months
Bill Singer's Comment
Hmmmm -- frankly, that's a very modest sanction from FINRA.  Hopefully, Cruz appreciates how lucky she was to have avoided even more severe fines and suspension. 
Matthew John Iskric
AWC/2009017857501/July 2011

Iskric misused his member firm’s funds by using the firm’s corporate credit card for personal purposes, including purchases of gift cards from various retailers. The amount of unauthorized charges was in excess of $10,000.

While registered with a different member firm, Iskric failed to timely update his Form U4 with material information.

Matthew John Iskric: Barred
Michael Wilson Adams (Principal)
AWC/2010023818301/July 2011
Adams borrowed $85,000 from a customer of his member firm contrary to the firm’s compliance manual, which generally prohibited representatives from borrowing money from a customer other than an immediate family member, which the customer was not.
Michael Wilson Adams (Principal): Fined $5,000; Suspended 3 months in all capacities; Ordered to pay $85,000 plus interest in restitution to customer
National Securities Corporation and Matthew G. Portes (Principal)
AWC/2009019068201/July 2011

National Securities failed to have reasonable grounds to believe that certain private placements offered pursuant to Regulation D were suitable for customers. Acting through Portes, as the firm’s Director of Alternative Investments/Director of Syndications, National failed to adequately enforce its supervisory procedures to conduct adequate due diligence as it relates to an offering. Portes and the firm became aware of multiple red flags regarding an offering, including liquidity concerns, missed interest payments and defaults, that should have put them on notice of possible problems, but the firm continued to sell the offering to customers. Acting through Portes, the Firm failed to enforce its supervisory procedures to conduct adequate due diligence relating to other offerings.

Portes reviewed the PPMs for these offerings and diligence reports others prepared, but the review was cursory.The due diligence reports noted significant risks and specifically provided that its conclusions were conditioned upon recommendations regarding guidelines, changes in the PPMs and heightened financial disclosure of affiliated party advances, but the firm did not investigate, follow up on or discuss any of these potential conflicts or risks with either the issuer or any third party. In addition, acting through Portes, the Firm failed to enforce reasonable supervisory procedures to detect or address potential “red flags” as related to these offerings; and the firm, acting through Portes, failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations.

National Securities Corporation: Censured; Odered to pay a total of $175,000 in restitution to investors.

Matthew G. Portes  (Principal): Fned $10,000; Suspended from association with any FINRA member in any principal capacity only for 6 months.

Bill Singer's Comment
FINRA is starting to make a point about Due Diligence of private placements -- you need to inquire and if you're on notice of problems (potential or otherwise), you better start to inquire.  There's no more wiggle room when it comes to these red-flag situations.
Nicole R. Palumbo
AWC/2010023810201/July 2011

Palumbo activated ATM cards, linked them to bank customer accounts and affected unauthorized ATM withdrawals from the customers’ accounts, which totaled approximately $36,895.

Palumbo did not have permission or authority from the customers or the bank to link the ATM cards to the customers’ accounts or withdraw funds from the accounts. Palumbo effected a $1,000 direct cash withdrawal from another customer’s account without permission or authority from the customer or bank. These transactions did not involve funds from an account held at a FINRA-regulated entity.

Nicole R. Palumbo: Barred
Patrick Shawn Kennedy (Supervisor)
AWC/2009018671501/July 2011

Kennedy continued recommending and effecting put options trading in a customer’s account even though he knew that the trading was unsuitable because the customer was unemployed and the risk was inconsistent with the customer’s financial resources, investment objectives and risk tolerance.

Kennedy recommended that an elderly couple invest $50,000 in a put options trading strategy with approximately $57,000 to be invested in mutual funds and bonds with none of the mutual funds to be used for put options trading. The customers’ account, which had approximately $267,298.55, suffered realized and unrealized losses of $195,046.40 due to Kennedy’s put option trading strategy and the liquidation of mutual funds to cover losses from the put options trading and to meet margin requirements of securities that were purchased in the customers’ account due to the put options trading.

Patrick Shawn Kennedy (Supervisor): Fined $5,000; Suspended 9 months
Prakash Devendranath Simha
AWC/2009020863401/July 2011

Simha borrowed approximately $51,000 from customers at his member firm in order to complete renovations on his house.

The loans were not reduced to writing and had no repayment terms; the customers had been Simha’s friends for many years, and one was his relative. The firm had a policy prohibiting representatives from borrowing money from customers; one of the loans was repaid before Simha disclosed it to the firm and the other loans have since been forgiven by the customers.

Simha sent an email to a former customer requesting a share of the profits that were made in the customer’s account while the account was with the firm. In that email, Simha represented that FINRA was auditing the customer’s account, but this was not correct; the client never sent Simha the share of the profits he requested.

Prakash Devendranath Simha : Fined $7,500; Suspended 30 business days
Bill Singer's Comment

Note: if you're going to engage in something that might even remotely look shady, it's just not a great idea to tell the customer that FINRA (or any regulator) is auditing his/her account. 

It's sort of hard to imagine an easier way to piss off a regulator than misusing its name with the public.  Here, not only did Simha invoke the ire of FINRA but the client never shared in the profits -- so, all was for naught except that it cost $7,500 and 30 business days of downtime.

Prestige Financial Center, Inc. and Lawrence Gary Kirshbaum (Principal)
AWC/2009016405902/July 2011

Prestige, acting through Kirshbaum and at least one other firm principal, were involved in a fraudulent trading scheme through which the then-Chief Compliance Officer (CCO) and head trader for the firm concealed improper markups and denied customers best execution.

As part of this scheme, the CCO falsified order tickets and created inaccurate trade confirmations, and the hidden profits were captured in a firm account Kirshbaum and another firm principal controlled; some of the profits were then shared with the CCO and another individual.

The trading scheme took advantage of customers placing large orders to buy or sell equities. Rather than effecting the trades in the customers’ accounts, the CCO placed the order in a firm proprietary account where he would increase or decrease the price per share for the securities purchased or sold before allocating the shares or proceeds to the customers’ accounts; this improper price change was not disclosed to, or authorized by, the customers, and this fraudulent trading scheme generated approximately $1.3 million in profits for the firm’s proprietary accounts. Kirshbaum was aware of and permitted the trading. In an account that Kirshbaum and another firm principal controlled. 47 percent of the profits from the scheme were retained. In furtherance of the fraudulent trading scheme, the CCO entered false information on the corresponding order tickets regarding the share price and the time the customer order ticket was received, entered and executed; the corresponding trade confirmations inaccurately reflected the price, markup and/or commission charged and the order capacity.

In addition, acting through Kirshbaum, Prestige entered into an agreement to sell the personal, confidential and non-public information of thousands of customers to an unaffiliated member firm in exchange for transaction-based compensation from any future trading activity in those accounts. In connection with that agreement, Kirshbaum provided the unaffiliated member firm with the name, account number, value and holdings on spreadsheets via electronic mail. Furthermore, Kirshbaum granted certain representatives of that firm live access to the firm’s computer systems, including access to systems provided by the firm’s clearing firm, which provided access to other non-public confidential customer information such as Social Security numbers, dates of birth and home addresses. Prestige and Kirshbaum did not provide any of the customers with the required notice or opportunity to opt out of such disclosure before the firm disclosed the information, as Securities and Exchange Commission (SEC) Regulation S-P requires.

Acting through Kirshbaum, Prestige failed to establish and maintain a supervisory system, and establish, maintain and enforce written supervisory procedures to supervise each registered person’s activities that are reasonably designed to achieve compliance with the applicable rules and regulations regarding interpositioning, front-running, supervisory branch office inspections, supervisory controls, annual compliance meeting, maintenance and periodic review of electronic communications, NASD Rule 3012 annual report to senior management, review and retention of electronic and other correspondence, SEC Regulation S-P, anti-money laundering (AML), Uniform Application for Securities Industry Registration or Transfer (Form U4) and Uniform Termination Notice for Securities Industry Registration (Form U5) amendments, and NASD Rule 3070 reporting. FINRA found that the firm failed to enforce its procedures requiring review of its registered representatives’ written and electronic correspondence relating to the firm’s securities business. In addition, 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 and its registered representatives and associated persons to achieve compliance with applicable securities laws and regulations, and created additional or amended supervisory procedures where testing and verification identified such a need. Moreover, the firm failed to enforce the written supervisory control policies and procedures it has with respect to review and supervision of the customer account activity conducted by the firm’s branch office managers, review and monitoring of customer changes of address and the validation of such changes, and review and monitoring of customer changes of investment objectives and the validation of such changes. Furthermore, firm failed to establish written supervisory control policies and procedures reasonably designed to provide heightened supervision over the activities of each producing manager responsible for generating 20 percent or more of the revenue of the business units supervised by that producing manager’s supervisor; as a result, the firm did not determine whether it had any such producing managers and, to the extent that it did, subject those managers to heightened supervision.

Acting through one of its designated principals, Prestige falsely certified that it had the requisite processes in place and that those processes were evidenced in a report review by its Chief Executive Officer (CEO), CCO and other officers,and the firm failed to file an annual certification one year. The findings also included that the firm failed to implement a reasonably designed AML compliance program (AMLCP). Although the firm had developed an AMLCP, it failed to implement policies and procedures to detect and cause the reporting of suspicious activity and transactions; implement policies, procedures and internal controls reasonably designed to obtain and verify necessary customer information through its Customer Identification Program (CIP); and provide relevant training for firm employees—the firm failed to conduct independent tests of its AMLCP for several years. Acting through Kirshbaum and another firm principal, the firm failed to implement policies and procedures reasonably designed to ensure compliance with the Bank Secrecy Act by failing to enforce its procedures requiring the firm to review all Section 314(a) requests it received from the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN); as a result, the firm failed to review such requests. In addition, Kirshbaum and another principal were responsible for accessing the system to review the FinCEN messages but failed to do so. Moreover, FINRA found that the firm permitted certain registered representatives to use personal email accounts for business-related communications, but failed to retain those messages.

Furthermore, the firm failed to maintain and preserve all of its business-related electronic communications as required by Rule 17a-4 of the Securities Exchange Act of 1934, and failed to maintain copies of all of its registered representatives’ written business communications. The  firm failed to file summary and statistical information for customer complaints by the 15th day of the month following the calendar quarter in which the firm received them. The findings also included that the customer complaints were not disclosed, or not timely disclosed, on the subject registered representative’s Form U4 or U5, as applicable.The Firm failed to provide some of the information FINRA requested concerning trading and other matters.

Prestige Financial Center, Inc. : Expelled

Lawrence Gary Kirshbaum (Principal): Barred

Bill Singer's Comment

Whoa -- one of the all-time, most comprehensive FINRA disciplinary actions. Frankly, not much that could be done wrong wasn't, according to the terms of the settlement. One of the few times when a FINRA member firm is expelled. Also, one of the few times when a CCO is barred. A powerful case. Well written and presented.

Keep in mind that registered persons from this firm may trip your Taping Rule threshold.

Ryan Jeffrey Kirkpatrick
2006004666601/July 2011

Kirkpatrick sold millions of unregistered shares of stock for accounts opened at his member firm on his customers’ behalf, realizing approximately $9.3 million in proceeds for the customers without taking the necessary steps to determine whether his customers’ unregistered shares could be sold in compliance with Section 5 of the Securities Act of 1933.

Kirkpatrick signed new account forms for the customers, did not review them in depth, neither met nor spoke with the customers, and communicated with them solely via email and instant message. Kirkpatrick failed to conduct the necessary due diligence prior to the entity’s stock sales from the customers’ accounts; the circumstances surrounding the entity’s stock and the firm’s customers presented numerous red flags of a possible unlawful stock distribution.

The sales through one of the customers’ accounts at Kirkpatrick’s firm realized approximately $5.8 million in proceeds for the customer, and another customer realized approximately $3.5 million in proceeds; the total commissions generated for these sales were $481,398 of which Kirkpatrick received commissions totaling $91,466.

Kirkpatrick admitted that he did not determine if a registration statement was in effect with respect to the customers’ entity shares, or if there was an applicable exception; instead he relied on the issuer’s transfer agent to determine if the entity stock the customers deposited could be sold.

Kirkpatrick did not review the customers’ incoming stock questionnaires, nor did he request or review the stock certificates, which indicated information about how and from whom the shares were purchased, whether the customer was affiliated with the issuer and whether the stock was restricted. In addition, Kirkpatrick noticed that the accounts seemed to have the same trading pattern, yet he failed to investigate and failed to make any effort to determine the source of the customers’ shares.

Ryan Jeffrey Kirkpatrick: Fined $25,000; Suspended 6 months; Ordered to disgorge $91,466, which represents the commissions earned on the sales of unregistered securities
Salvatore Demeo Jr.
2009018139301/July 2011
Demeo converted funds from a customer’s account by withdrawing $9,417.11 from the customer’s bank account without the customer’s knowledge or authorization, deposited the funds into a bank account for his company and used them for his personal benefit. Demeo failed to appear for FINRA on-therecord testimony.
Salvatore Demeo Jr.: Barred
Sammy Gail Page
AWC/2011027424501/July 2011

Page converted a total of $1,207,440.61 from retail customer brokerage accounts by arranging for transfers of funds from the customers’ accounts, by way of one check and automated clearing house (ACH) debits, for payment of a corporate credit card account held in her name, without the customers’ authorization.

Page provided false information to a Certified Public Accountant (CPA) who was acting on one of her customer’s behalf with respect to some of the ACH debits made from that customer’s brokerage account totaling $286,330.72, each debit having been made payable to Page’s corporate credit card account.

Page told the CPA that the debits were made to fund an outside real estate investment in which she had placed a portion of the customer’s investment portfolio. Page fabricated an account statement purportedly demonstrating that the customer had an ownership interest in a particular REIT when no such ownership existed, and faxed the fabricated statement to the CPA. When the CPA sought further information about any dividends arising from the REIT investment, Page falsely explained to the CPA that while dividends were expected, they would not be forthcoming until the following tax year.

By deliberately deceiving one of her customer’s appointed representatives in such a fashion, Page, in the conduct of her securities business, failed to observe high standards of commercial honor and just and equitable principles of trade.

Sammy Gail Page: Barred
Bill Singer's Comment
Lemme see if I got this. Page stole $1.2 Million through nothing more complicated than ACH debits (oh, and yeah, one check). Wow!  All that talent wasted for a mere dalliance with the Dark Side.  Of course, I'm wondering what the hell were the charges on her corporate credit card that necessitated this theft.
Searle & Co. and Robert Southworth Searle (Principal)
AWC/2010022352301/July 2011

Acting through Searle, the Firm shared approximately $326,000 worth of profits in the account of a customer of another FINRA member firm. Neither the firm nor Searle contributed financially to the customer’s account; and, therefore, neither could share in the profits in direct proportion to their financial contributions to the account.

The Firm failed to establish, maintain, and enforce adequate WSPs related to sharing in profits and losses in FINRA member firms’ customer accounts.

Searle & Co.: Censured; Fined $10,000 jointly/severally with Searle; Fined Additional $5,000

Robert Southworth Searle: Censured; Fined $10,000 jointly/severally with Searle & Co.

Bill Singer's Comment

Haven't see too many "sharing in profits" cases lately -- maybe that's a good sign that there are profits to be shared?

Shaun Michael Donahue
AWC/2009021029619/July 2011

Donahue requested, received and improperly distributed the answer key for a state LTC CE examination to a financial advisor outside his member firm.

Certain states began requiring financial advisors to successfully complete an LTC CE examination before selling long-term care products to retail customers. The firm authorized its wholesalers to give financial advisors vouchers from a company, which the financial advisors could use to take the LTC CE examinations without charge. Donahue was an internal wholesaler at a firm who supported the selling efforts of external wholesalers who marketed an insurance product to financial advisors at financial service firms. Firm employees, other than Donahue, created answer keys for the company’s LTC CE examinations for various states, and distributed them to other firm employees.

Shaun Michael Donahue : Fiend $5,000; Suspended 1 month
Stephen James Nicklas
AWC/2010025194301/July 2011
Nicklas misappropriated $4,329.52 from his member firm. Nicklas wrote firm checks payable to himself, forged signatures on the checks and then deposited the checks into his personal trading account. Nicklas withdrew firm funds, without authorization, from automatic teller machines (ATMs)
Stephen James Nicklas: Barred
Thomas Michael Kinser
2009017466201/July 2011
Kinser converted approximately $330,000 in customer’s funds. Kinser called the mutual fund company through which he had invested customer’s funds to change the address on the account from the customer’s residential address to Kinser’s office address. At Kinser’s request, the mutual fund company sent redemption checks drawn on the customer’s account to Kinser without the customer’s knowledge, consent or authorization, and Kinser forged the customer’s signature on the checks, endorsed them to make them payable to him and deposited the funds in his own account. In order to conceal the conversions, Kinser fabricated account summaries and documents, including charts and statements purporting to reflect the customer’s account balance, which he presented to the customer in periodic meetings, misleading the customer into believing all of his money was still invested in mutual funds and was still earning interest. Kinser failed to respond to FINRA requests for information and documents.
Thomas Michael Kinser: Barred
Timothy Martin Foster
AWC/2008015078602/July 2011
Foster recommended to customers that they purchase UITs without having reasonable grounds to believe the recommendations were suitable based on the customers’ risk tolerance, investment experience, need for income, net worth, investable assets and annual income. Foster’s member firm paid the customers a total of $23,199.25 in restitution and compensated customers $124 for a missed breakpoint.
Timothy Martin Foster : Fined $10,000; Suspended 20 business days
Tina Marie Newman (Principal)
2008011719501/July 2011

Newman converted $10,166.34 by using her member firm’s corporate credit cards to pay for a personal vacation and misappropriating her firm’s credit card rewards points for her personal use.

Newman did not have the firm’s permission or consent or the authority to charge her personal vacation to her firm issued credit cards or appropriate reward points for her own use.Newman did not inform anyone at her firm or memorialize or otherwise create a record of these charges. She reimbursed the firm for the charges but not for the credit card rewards points. Newman intentionally created fictitious and false entries in the firm’s books to cover up her conversion of firm funds for her personal benefit.

Tina Marie Newman (Principal): Barred
UBS Securities LLC
AWC/2009018057401/July 2011

UBS failed to update the company codes in the client-based database after the individual responsible for that task left the firm.

The emails indicating that the company codes had been added were not sent to the firm’s Client Management Team (CMT) by another group at the firm, the Core Client Data Services Group (CCDS).

UBS employed Client Data Strategist (CDS), a senior officer in CMT. The CDS was in charge of producing a business object report that combined the research and revenue information for each client to create required non-investment banking disclosures in equity research reports. Unfortunately, the CDS continued to produce the business object report without confirming that the company codes were updated -- because the CDS continued to produce the reports, a file was created and uploaded in the firm’s central disclosure database, even though it contained incomplete information.

Since the reports were completed, email alerts were not triggered at the end of the process, and as a result of the failures during the update process, equity research reports the firm published failed to include one or more required non-investment banking disclosures (non-investment banking compensation, non-investment banking securitiesrelated services and non-securities services). As a result of certain information contained in the firm’s central disclosure database not being updated due to the update process failure, research analysts creating and sending information about the impacted subject companies to media outlets in connection with public appearances failed to disclose the firm’s non-investment banking related compensation and the types of services (non-investment banking securities-related services and non-securities services) it provided during the prior 12 months.

Moreover, the firm failed to adequately implement its supervisory procedures concerning compliance with NASD Rule 2711(h), and the firm failed to conduct follow-up and review to ensure that its employees were performing their assigned responsibilities of collecting and updating data to generate accurate disclosures, and to have a verification process to confirm that each group was performing its task to ensure the flow of updated information at each stage had accurate disclosures. The firm failed to adequately implement its written procedures that provided for step-by-step guidance for updating the required disclosures in the relevant databases in order to reasonably ensure that they were disclosed in the research reports and in public appearances.

UBS Securities LLC : Censured; Fined $300,000
Bill Singer's Comment

Ya wanna know why Wall Street can't regulate itself properly and why the three layers of self, state, and federal regulators are often ineffective? Okay, simple -- tell me what the hell all this nonsense means?

  • Client Management Team (CMT)
  • Core Client Data Services Group (CCDS)
  • Client Data Strategist (CDS)
  • Business Object Report
Wendy Rice Stern
AWC/2009018870401/July 2011

Stern charged personal expenses on her corporate credit card totaling approximately $5,200. Stern made approximately $2,700 in payments to the bank affiliate of her member firm for the personal expense which she charged on her corporate credit card.

The bank notified Stern on several occasions about a number of aged items that were charged on the card for which no employee expense reports were submitted by Stern. Subsequently, the bank notified Stern that her card was two payments past due and it was being suspended.

Stern then admitted that she had made the personal purchases on her corporate credit card. Stern also made a $500 payment to the bank and thus reduced the outstanding amount owed due to her personal use of the corporate card to $1,984.

Stern’s employment at her firm and the bank were terminated for improper use of the corporate credit card.

Wendy Rice Stern: Barred
Bill Singer's Comment
Frankly, this is a far too common scenario in the financial services community -- a form of "kiting" one's credit card purchases through mixed use of the card for business and personal expenses and than delaying reimbursement. Some companies permit the mixed use of the corporate card provided that the employee promptly notifies the employer of the personal purchases and undertakes prompt reimbursement.  The abuses of this "honor system" are legendary.
June 2011
Abhijit Chakrabortti
AWC/2009017892301/June 2011

Chakrabortti failed to ensure proper disclosure of his personal financial interests in the securities of companies that were subjects of his research reports and public appearances, although FINRA conceded that he informed his firm of his ownership interest in each security, gave advance notice of all transactions in these securities to the firm’s compliance department and provided the firm with a record of the transactions.

Certain of the research reports Chakrabortti co-authored included information reasonably sufficient upon which to base an investment decision in the companies in which he held shares, among other securities, but the reports did not disclose his personal financial position in some of the companies.

Chakrabortti made public appearances at which he mentioned one or more equity securities of individual companies but did not disclose his personal financial position in the securities in some of the companies. Because Chakrabortti’s disclosure of his personal financial holdings was incomplete in certain research reports and public appearances, these communications violated NASD Rule 2210(d)(1)(A), which requires sales material, including research reports, to provide a sound basis for evaluating the facts relating to the securities covered in the reports. Moreover, after disclosing all of his personal financial holding to his firm, Chakrabortti did not ensure that these holdings were subsequently disclosed in certain research reports, which caused his firm to publish incomplete research reports.

Also, Chakrabortti did not inform his firm of certain of his public appearances in a timely manner, and did not obtain the firm’s approval to discuss certain issuers during his public appearances, and these omissions caused the firm to have incomplete records of his public appearances.

Abhijit Chakrabortti : Fined $15,000; Suspended 14 days; Required to re-qualify as a research analyst by such examination as required by FINRA, prior to participating in any capacity in any research reports and/or public appearances involving any FINRA member.
Bill Singer's Comment
FINRA records reveal that the subject disclosures occured in 2007 and 2008 when Chakrabortti was employed as an analyst at Morgan Stanley.  As to the subject securities holdings,

Chakrabortti received 4,874 shares of stock in JP Morgan ("JPM") as part of his compensation

while he was employed at JPM between March 2005 and November 2007. Chakrabortti also

purchased 1,500 shares of stock in Johnson & Johnson ("JNJ") on August 7, 2008 and 10,000

shares of stock in Nokia Corporation ("NOK") on October 21, 2008.

Ameriprise Financial Services, Inc.
AWC/2008013648002/June 2011

Ameriprise failed to establish, maintain and enforce a supervisory system reasonably designed to detect and prevent one of its broker’s misconduct. The broker who was registered with the firm forged customers’ signatures on various financial documents that he submitted to the firm for processing. The broker agreed to pay certain fees for customers without alerting the firm in order to avoid complaints from these customers. The broker agreed to a Bar.

An Ameriprise surveillance analyst became aware of potential forgeries by the broker and failed to follow up with a timely investigation, and the firm’s supervisory system did not ensure that a timely investigation was conducted.

The firm had implemented a new set of procedures for its surveillance department through which the firm discovered that the investigation of the broker had not been completed, and the firm promptly reassigned the matter to other surveillance personnel.  The firm completed its investigation of the broker nearly two and a half years after it first opened the investigation and found ample evidence of repeated forgeries by the broker, whose employment was then terminated.

Ameriprise Financial Services, Inc. : Censured; Fined $50,000
Bill Singer's Comment
You just can't take 2 1/2 years to investigate forgery allegations -- and then think that a termination of the broker is the end of it. A lousy $50,000 fine on a member firm such as Ameriprise is hardly calculated to underscore the seriousness of such a lackadaisacal compliance effort.
Brean Murray Carret & Co., LLC
AWC/2009016262303/June 2011
The Firm permitted individuals who were registered as general securities representatives (GSRs), and another individual who was registered as a GSR and a research analyst, to function as principals without being registered as general securities principals (GSPs). Each of the individuals was actively engaged in the management of the firm’s investment banking and/or securities business by, among other things, supervising persons associated with the firm. The firm did not establish and maintain a supervisory system reasonably designed to achieve compliance with the rules and regulations applicable to the registration of principals. The firm failed to adequately ensure that individuals had the requisite registrations to supervise employees and business areas to which they were assigned. Specifically, the firm failed to promptly identify all persons who needed principal registrations, and after identifying individuals who should become registered as principals, the firm permitted them to delay taking the required examinations, which, in turn, contributed to the registration violations.
Brean Murray Carret & Co., LLC : Censured; Fined $40,000; Required to review its supervisory system and procedures concerning compliance with applicable laws, regulations and rules regarding principal registration, and to determine whether individuals previously identified as requiring principal registration have become so registered. No later than 60 days after issuance of the AWC, the firm shall prepare a writtenreport detailing its review, findings and recommendations, and submit a copy of that report to FINRA. A firm officer must certify to FINRA in writing that it has completed its review and has established systems and procedures regarding principal registration.
Canaccord Genuity, Inc. fka Canaccord Adams, Inc.
AWC/2009016251601/June 2011

The Firm failed to adopt and implement WSPs reasonably designed to supervise its research analysts and ensure that its research reports complied with NASD Rule 2711. Although the firm maintained some relevant WSPs, those procedures did not provide any real guidance to its employees about the specific steps they needed to take to achieve compliance with Rule 2711. The WSPs required that all public appearances by firm analysts be approved by the research director, that the appropriate disclosures be made to the media outlet, that a record documenting the disclosures provided to the media be maintained, and that the firm’s marketing department receive a copy of such disclosure. The WSPs made the research analyst responsible for meeting these obligations but provided little or no guidance on how these tasks could be successfully carried out or supervised.

The WSPs contained provisions broadly describing what portions of draft research reports could and could not be provided to covered companies, but failed to provide specific guidance to firm employees regarding the manner in which these requirements were to be fulfilled.

The WSPs permitted the research department to send sections of a research report to a subject company before publication to verify the accuracy of information in those sections, provided that a complete draft of the research report was first provided to the compliance department.

The Firm sent research report excerpts to a subject company before its compliance department had received a complete draft of the report, and in one of those instances, the complete draft was not sent to the compliance department. Moreover, in connection with public appearances by its research analysts, the firm failed to retain records that were sufficient to demonstrate compliance by those analysts with the disclosure requirements of NASD Rule 2711(h).

Canaccord Genuity, Inc. fka Canaccord Adams, Inc. : Censured; Fined $22,500; Required to review its supervisory system and procedures concerning research reports and the supervision of research analysts for compliance with FINRA rules and federal securities laws and regulations, and to certify in writing within 90 days that the firm completed its review and that it currently has in place systems and procedures reasonably designed to achieve compliance with those rules, laws and regulations
Bill Singer's Comment
Time and time again, firms get lulled into a false security that merely having written prohibitions is sufficient oversight and supervision. As this settlement amply demonstrates, it's not enough to prohibit an activity -- you must specify what is prohibited, how notifications/approvals must be obtained, and your Compliance Department must be more than a mere repository for rubber stamps that say "Approved" or "Denied".
Carla Wendy Cooper
AWC/2010023825201/June 2011
Cooper forged a LOA for a customer by copying the customer’s signature from another document and pasting it on the LOA. Cooper used the forged LOA to authorize the transfer of assets from the customer’s account into another customer’s account, which was a trust account Cooper’s relatives’ controlled. Based on the forged LOA, Cooper’s member firm transferred securities valued at $19,632.35 from the customer’s account into the other account without the customer’s knowledge or authorization.
Carla Wendy Cooper : Barred
Charles Edward Severt Jr.
2010023062101/June 2011

While serving as a church treasurer, Severt took approximately $20,000 in funds from the church without the church’s authorization. Severt’s relative subsequently repaid the funds.

Severt failed to respond to FINRA requests for information.

Charles Edward Severt Jr.: FINRA is not seeking restitution because Severt’s relative repaid the funds to the church; Barred
Bill Singer's Comment
Talk about tempting fate and Karma.
Cholia Hicks
AWC/2010022212301/June 2011
Hicks used the debit card belonging to a customer of her member firm’s bank affiliate, in transactions for personal expenses without the customer’s knowledge, authorization or consent, and converted at least $1,100.43.
Cholia Hicks : Barred
Daniel Scott Sheedy
OS/2008015180901/June 2011

Sheedy engaged in private securities transactions without providing written notice to, or obtaining written approval from, his member firm.

Sheedy facilitated two firm customers’ investments in securities issued by an entity in the form of investment agreements.Sccording to the investment agreements the entity issued, the company invested in and brokered life settlement contracts. Sheedy participated in the customers’ investments by reviewing the customers’ investment agreements, providing the customers with wiring instructions for the issuer, providing status updates to the customers regarding their investments and telling the customers to call him if they had any questions about their investments.

Sheedy utilized an unapproved personal email account to communicate with the customers.

The customers invested a total of $350,000, and pursuant to the terms of the customers’ investment agreements, the customers were to receive return of their principals plus a total of $42,000 within five days of the end of their investment period for which certain life settlement contracts were invested. Neither of the customers received the return of their investment principal or the promised investment returns. All of their funds were lost all of their funds were lost.

Daniel Scott Sheedy: Fined $25,000; Suspended 2 years
David Alan Kepes
AWC/2009019009101/June 2011

Contrary to his member firm’s prohibition on accepting loans from customers, Kepes borrowed $50,000 from a customer in the form of a loan, not documented and not backed by collateral, was a “bridge loan” pending payment of the firm’s annual retention bonus, to assist Kepes with a number of immediate expenses.

Kepes held the loan for six months and 20 days, repaying $53,000 to the customer. Kepes encouraged the same customer to loan $30,000 to a realtor to assist in “flipping” (buying, repairing and then selling) a house. The customer advanced the funds as a favor to Kepes, without documentation or collateral, but the realtor never repaid the loan. Kepes’ firm paid the customer $30,000 to compensate her for the money the realtor failed to repay.

Kepes accepted a $1,000 check as a gift from the customer although firm policy prohibited accepting gifts in excess of $100.

Moreover, contrary to firm policy and without informing his firm, Kepes entered into an Advisory Board Agreement to serve as an independent contractor for a privately held business and was compensated by stock options with some of the shares being exercisable on the date the agreement was signed, in recognition of services already provided prior to signing the agreement. Furthermore, Kepes’ supervisor directly informed him that he could not join the company advisory board or engage in other activities called for by the agreement when compensated by stock options; nevertheless, Kepes signed the agreement and engaged in various activities called for by the agreement. Subsequently, Kepes requested approval to participate on the Advisory Board without informing his firm that, prior to his request, he signed the agreement and began service as an independent contractor to the company. After the request was denied, Kepes continued his service to the company as an independent contractor without informing his firm until the firm terminated him.

David Alan Kepes : Fined $20,000; Suspended 7 months
Bill Singer's Comment

I get everything except that charge about Kepes "encouraging" a client to lend money to a realtor. Be it a "favor" or not to Kepes, that's not lending money to the registered person and it doesn't even suggest an inappropriate outside business activity (unless he was compensated for his efforts or had some other role that we're not told about).I'm truly perplexed as to why that's even included in this AWC and what violation that represents -- if there are more pertinent facts to that situation, then FINRA needed to add them in the monthly report.

The FINRA AWC states that the $50,000 loan was from an "elderly widow client," which I think should have been noted in the more cursory monthly squib of this settlement.  During the relevant times, Kepes was registered with Merrill Lynch.

David Elijah McKee (Principal)
AWC/2008011640801/June 2011

In his capacity as the vice president of compliance, McKee failed to supervise certain aspects of his member firm’s securities business. 

Acting on his firm’s behalf, McKee failed to

  • establish and maintain a supervisory system or written supervisory procedures reasonably designed to detect and prevent the firm from charging excessive commissions on mutual fund liquidation transactions;
  • adequately supervise the firm’s communications with the public;
  • adequately supervise the firm’s compliance with NASD Rule 3070 and Uniform Termination Notice for Securities Industry Registration (Form U5) reporting provisions and customer complaint recordkeeping requirements; and
  • comply with NASD Rules 3012 and 3013, in that the Rule 3012 and 3013 reports that he prepared on his firm’s behalf were inadequate.

Thee firm’s 3012 report for one year was inadequate because it failed to provide a rationale for the areas that would be tested, failed to detail the manner and method for testing and verifying that the firm’s system of supervisory policies and procedures were designed to achieve compliance with applicable rules and laws, and did not provide a summary of the test results and gaps found. The 3012 report also failed to detect repeat violations including, the failure to conduct annual Office of Supervisory Jurisdiction (OSJ) branch office inspections, advertising violations, customer complaint reporting and ensuring that all covered persons participated in the Firm Element of Continuing Education.

The firm's 3013 report for one year did not document the processes for establishing, maintaining, reviewing, testing and modifying compliance policies to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws, and the manner and frequency with which the processes are administered. In addition, the firm failed to enforce its 3013 procedures regarding notification from customers regarding address changes.

David Elijah McKee (Principal): Fined $15,000; Suspended 30 business days in Principal/Supervisory capacities only
Bill Singer's Comment

These types of cases always strike me as "sloppy" because they largely have to do with failures to document actions that have usually been taken.  Pardon my cynicism but, hey, even the preparation of an insincere report is better than simply failing to prepare any report.

Dean Irwin Cronister (Principal)
AWC/2009016709019/June 2011

Cronister participated in the sales of a total of $266,302.51 in Universal Lease Programs (ULPs) to public customers and failed to provide his member firms with prior written notice and failed to obtain the firms’ prior written approval; Cronister received approximately $33,080 total in commissions.

Cronister engaged in outside business activities and accepted a total of $64,491.64 in checks from a ULP issuer made payable to a corporation he wholly owned; the checks were for sales of ULPs made by independent agents of his corporation. Cronister failed to provide prompt written notice of his outside business activities to his member firms. Cronister participated in a face-to-face interview with a compliance officer at one of his firms, acknowledged that all forms of outside business activities must be disclosed on an outside business activity form and must receive the firm’s written approval prior to engaging in any outside business activity but never provided oral or written notification that he was engaged in outside business activity and receiving overrides on the sale of ULPs by other individuals.

Dean Irwin Cronister (Principal): Fined $43,000 (includes disgorgement of commissions); Suspended 6 months
Edward R. Von Lumm IV
AWC/2010024607801/June 2011

Von Lumm borrowed $5,000 from one of his customers and executed a promissory note stating that the loan was to be paid in full by a certain date, with $1,000 interest. Von Lumm repaid approximately $2,100 to the customer but did not disclose the loan to his member firm, which prohibited its representatives from borrowing from customers.

The same customer gave Von Lumm $500 towards the purchase of auto and homeowners insurance, but Von Lumm failed to procure any insurance policies for the customer and did not immediately return the funds to the customer. Pursuant to the customer’s request, Von Lumm wrote a note to the customer promising to return the $500 and has since returned the funds to the customer.

Von Lumm provided an incomplete response to FINRA requests for information and failed to appear for testimony.

Edward R. Von Lumm IV : Barred
Eric Lichtenstein (Principal)
AWC/2009018339703/June 2011

Lichtenstein intentionally provided false testimony during a FINRA on-the-record interview regarding his knowledge of, and participation in, private securities transactions involving solicitation and sale of private placements within the branch for which he was employed as the branch manager. 

Lichtenstein participated in the sale of private securities in the total amount of $234,303.68 to customers without his member firm’s prior written approval.

Lichtenstein failed to reasonably supervise a branch office for which he acted as a branch manager. In response to a request to sell private placements at the branch, which Lichtenstein’s firm had specifically denied, stating that no one at the branch had approval to sell any private placements and Lichtenstein was aware of this prohibition, he learned of other private placements being sold by a branch registered representative and failed to inform the firm’s compliance department of the sales.

Because Lichtenstein was responsible for the review of electronic mail at the branch, he knew, or should have known through email review, of red flags indicating the sale of additional private placements but did not conduct additional investigation and did not inform the firm’s compliance department of the red flags.

Eric Lichtenstein (Principal): Barred
Francis Paul Anton II
AWC/2009018062601/June 2011

Anton effected fictitious trades in securitized Small Business Administration (SBA) loans, totaling $82,652,497, in order to reduce his member firm’s SBA desk’s inventory levels.

Anton effected the fictitious trades to purported institutional buy-side customers and by doing so, Anton could gradually sell the SBA securities and eventually comply with the firm’s prescribed inventory level. The fictitious trades created the false impression that Anton had purportedly sold SBA securities to certain of the firm’s institutional customers and that the firm’s SBA desk had decreased overall inventory levels by a total of $75 million. Anton purportedly sold each of the fictitious SBA securities to other broker-dealers instead of institutional customers; and by entering the fictitious sales of the SBA securities at a price above the mark-to-market price, Anton created the false impression that he had avoided selling the SBA securities at a loss.

Anton manipulated forward the settlement dates for the trades to afford him additional time to try to sell the SBA securities. In 30- day forward settlement intervals, Anton cancelled and corrected trades in the same pool of SBA securities at the same transaction quantity, which triggered the creation of a “cancel & correct” ticket. In addition, a firm employee discovered a discrepancy in the SBA securities’ reporting position and reported the observation to the firm’s management, which investigated and noted the repeated pattern of cancellation and corrections relating to the SBA security trades in 30-day intervals.

Although Anton neither colluded with any other firm employees to enter the fictitious trades nor did he personally benefit from the fictitious trading, he misrepresented to certain non-supervisory firm staff that he had mistakenly effected the trades and that he would correct the errors. Furthermore,when Anton’s managers confronted him, he admitted that he effected false trades and manipulated the corresponding settlement dates.

Francis Paul Anton II : Fined $10,000; Suspended 6 months
Bill Singer's Comment

These fictitious trades appeared to have occured at Morgan Keegan in 2008 and 2009, when Anton served as a Head Trader.

Both the source AWC and the monthly squib are very well drafted and present this somewhat complex fact pattern in an intelligible fashion. Kudos to FINRA staff for a commendable effort.

If I have one reservation, it would be to ask what exactly do you have to do these days to get Barred?  I"m not understanding the apparent severity of the misconduct and the relative light suspension and fine.

Freddy A. Medina
2009016551301/June 2011
Medina falsified an account application by copying a customer’s signature from a document she had previously signed and then cut-and-pasted the signature on to the account application without her knowledge, authorization or consent. Medina presented the falsified application to his member firm without disclosing that the customer had not actually signed it, thus causing his firm to retain and preserve a false and/or inaccurate record.
Freddy A. Medina : Censured; Fined $10,000
Bill Singer's Comment
No matter how often I report on these cut-and-pasted signature cases, I still shake my head and, okay, I admit it, chuckle.  I mean, geez, it's 2011 and with all the readily available scanners and computer software, folks are still cutting and pasting?
Geoffrey Richards Securities Corp.
AWC/2009015971101/June 2011

The Firm failed to preserve all of its business-related electronic communications. The Firm attempted to preserve such communications by burning them to a non-rewriteable, non-erasable disc on a monthly basis, but the process was deficient because it did not result in all such communications being saved to the disc. The Firm did not identify this deficiency in its audit of its electronic communications preservation system.

In contravention of its written supervisory procedures, permitted registered representatives to use outside or non-firm-sponsored email accounts to send and receive securities business-related emails. The firm’s preservation process did not capture these emails that were sent to or from those accounts; therefore, the firm did not retain and review them.

The firm relied exclusively on electronic storage media to preserve its business-related electronic communications but did not retain a third party who had the access or ability to download information from its electronic storage media.

Geoffrey Richards Securities Corp.: Censured; Fined $25,000
Bill Singer's Comment
While I appreciate FINRA's concern, $25,000 strikes me as a bit steep for a fine that involves a Firm attempting to archive emails but largely doing so in what turned out to be an incomplete manner.  It's not as if the Firm failed to undertake good-faith efforts here. The use of outside email accounts is an entirely different consideration and must be supervised in a more aggressive manner.
Holly Ann Gunnette
OS/2006004943101/June 2011
Gunnette took more than $925,000 from investment accounts owned by an elderly customer at her member firm and converted the funds to her personal use. Gunnette caused her personal residence to be reflected as the address of record for certain investment accounts of the elderly customer, and established an account for the customer at another member firm, using her personal residence address as the account’s address of record. Gunnette received checks drawn on the customer’s accounts totaling approximately $925,513.28 and deposited the checks into bank accounts she owned or controlled. Gunnette failed to observe high standard of commercial honor and just and equitable principles of trade. Gunnette caused her firm’s and another firm’s records to be falsified by changing the customer’s address of record with her firm to her personal residence address, and by designating her address as the customer’s address of record on the other firm’s account she opened for the customer.
Holly Ann Gunnette : Barred
Jeffrey Nicholas Lombardi (Principalo)
AWC/2010023537101/June 2011

Lombardi improperly transferred confidential and proprietary information outside of his member firm for purposes other than the firm’s business.

Lombardi sent to

  • a non-affiliated, third-party member firm internal compliance reports of his member firm that contained non-public personal information regarding customers;
  • his personal email address
    • internal documents of his firm that included non-public personal information of individuals derived from a request by Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury and the firm’s internal summary regarding certain registration requirements; and
    • documents with another firm customer’s non-public personal information.

In each of these instances, Lombardi acted without the firm’s authorization and knowledge, and contrary to its written policies and procedures. By sending a report with confidential, non-public personal customer information to a non-affiliated third party, Lombardi caused his firm to violate SEC Regulation S-P.

By transferring information from a FinCEN list to his personal email account, Lombardi acted for purposes other than those provided for under FinCEN regulations, and thereby caused his firm to violate FinCEN’s regulations.

Lombardi knew of his firm’s policies regarding the dissemination of confidential and/ or proprietary information, knew or should have known that SEC Regulation S-P prohibits financial institutions from disclosing non-public personal information about a customer to non-affiliated third parties unless certain notice is given to the customer and the customer has not elected to opt out of the proposed disclosure, and knew, or should have known, that information derived from a FinCEN request may not be used for any purpose other than in accordance with FinCEN regulations. In addition, Lombardi signed an affirmation and a certification that he had read and would comply with a Code of Business Conduct and Ethics applicable to firm employees and would comply with the firm’s written policy governing confidentiality of information and use of office equipment. Moreover, Lombardi signed a registered representative agreement in which he agreed that confidential and proprietary information about the firm and/or about existing and prospective firm customers may not be disseminated without requisite permission, and agreed to safeguard confidential and proprietary information from disclosure.

Jeffrey Nicholas Lombardi (Principalo): Fined $5,000; Suspended 15 business days
Jeremy Blake Shankster
2009016927501/June 2011

Shankster failed to respond to FINRA requests for information and documents.

Shankster participated in private securities transactions without providing prior written notice to his member firm.

Jeremy Blake Shankster: Barred
Jeremy Kenneth Kelter (Principal)
AWC/2009019380701/June 2011
Kelter sold fixed annuities to investors outside the scope of his employment with his member firm, for which he received compensation totaling approximately $69,000. Kelter never provided his firm with written notice of these sales.
Jeremy Kenneth Kelter (Principal): Fined $5,000; Suspended 3 months
John Brady Benson Sr.
AWC/2009019322201/June 2011

Benson engaged in outside business activity, outside the scope of his employment with his member firm, when he facilitated the sale of his relative’s company to an individual without providing prompt written notice to his firm of the dealings and, as compensation for facilitating the acquisition, accepted a finder’s fee in the form of 50,000 shares of stock in the newly formed corporation. 

Benson provided the individual with $11,000 to be used to pay expenses of the newly formed corporation, and in exchange, Benson acquired 1.1 million shares of stock in the corporation. The shares of stock were securities, the transaction was conducted entirely apart from Benson’s employment with his firm, and Benson did not give his firm prior written notice of, and the firm did not give him prior written approval of, the transaction.

John Brady Benson Sr.: Fined $5,000; Suspended 45 days
Jon Tadd Roberts
AWC/2009018509601/June 2011

Roberts sent unapproved emails from his personal email address to his member firm’s customers and a potential investor that consisted of emails with attached documents containing misrepresentations and misleading statements that he created on his home computer that were written on his firm’s letterhead.

Roberts misrepresented that his firm would approve the issuance of a line of credit of up to $10 billion to a firm customer and a potential investor if certain conditions were met. Roberts attached another document concerning the issuance of a multi-billion dollar line of credit to additional emails he sent to a firm customer.

Roberts did not provide copies of the documents for review and approval to his firm. By attaching documents that contained misrepresentations and misleading statements to emails sent to a firm customer and a potential investor, Roberts exposed his firm to significant potential liability. Roberts sent an unapproved email from his personal email to another firm customer and attached a letter on firm letterhead with wire transfer instructions in connection with certificates of deposit. In addition, Roberts forwarded the unapproved correspondence from his home computer, thereby bypassing the firm’s surveillance systems and preventing the firm’s review and approval.

Jon Tadd Roberts : Barred
Bill Singer's Comment
Hey, if you're going to get yourself barred from the industry for sending unapproved emails, you might as well go big time -- $10 Billion.  Wow, nice, large, round number.
Joseph Stephen Orendorff
2009016698303/June 2011

Orendorff failed to respond to FINRA requests to appear for an on-the-record interview.

Further, Orendorff, in an attempt to correct errors made on a customer’s signed asset transfer disclosure form that his firm had returned to him for correction and resubmission obtained the customer’s signature on a blank asset transfer disclosure form, affixed the customer’s signature from the blank form to revised forms and submitted the forms to his member firm instead of having the customer sign a corrected form. When the firm questioned Orendorff about the documents, he admitted to altering and submitting them. Thereafter, the firm terminated Orendorff’s employment because the firm prohibited its representatives from affixing signatures to documents and required original signatures on each form.

Joseph Stephen Orendorff : Barred
Bill Singer's Comment
An all too common story that underscores the maxim: The road to Hell is paved with good intentions. No matter how annoying or inconvenient, just get the customer's signature on the original.  If you engage in self help and get caught, it ain't gonna end pretty.
Kirk Kenneth Kepper
AWC/2009020594801/June 2011
Kepper engaged in outside business activities when he formed limited liability companies and failed to inform his member firm of the companies and of the position he held in the companies. Kepper failed to respond to a FINRA request to appear for an on-the record interview.
Kirk Kenneth Kepper : Barred
Matthew Mark Rairigh
AWC/2009018240001/June 2011
Rairigh submitted false life insurance applications to an insurance carrier in order to generate commissions and to inflate his production numbers. The proposed insureds had never agreed to apply for the policies and the policies were submitted without their knowledge or consent. The Rairigh completed the life insurance applications, falsified the customers’ signatures, listed his business address as the address to send the next quarterly premium notice and paid the initial premium. After the life insurance policy was issued, Rairigh would take the policy to the customer and seek to convince the customer to keep the policy by explaining that the customer merely had to continue to pay the quarterly premiums in order to keep it.
Matthew Mark Rairigh : Barred
Bill Singer's Comment

Talk about putting the carriage before the horse.  First you submit the policy for production credit and then you try to actually sell it to the client.  Okay, Fire, Aim, and Ready!

You think this is a rare case?  Read HERE: http://www.rrbdlaw.com/enforcement-actions/tags.php?term=Production

Michael Douglas Larsen
2009018143701/June 2011

Larsen convinced an elderly bank customer to surrender annuities totaling approximately $355,000, which he deposited into the customer’s bank checking account. Larsen debited the customer’s bank checking account approximately $94,000 and purchased a bank check in that amount payable to an entity and opened an account at that entity for the customer; Larsen then executed an internal form with the entity that effectively changed the name on the account to an entity that Larsen owned and controlled, thereby misappropriating the customer’s money, without the customer’s authorization.

Larsen, took approximately $261,000 from the customer’s bank checking account at his member firm kept $4,500 for his personal use, gave $1,250 to the customer and had a bank check issued for the remaining approximately $255,000 payable to the entity Larsen owned and controlled, and deposited the funds into a checking account at the bank in the entity’s name.

Larsen used a debit card associated with the checking account in the name of his entity to make purchases for his personal benefit totaling approximately $72,000, which was funded by proceeds from the customer’s bank checking account, without the customer’s authorization.

When the customer reviewed his bank statements and noted that some of his money was not in the bank account, he made inquiries to the bank and the bank sued Larsen to recover funds that he had transferred out of the customer’s bank account. The bank was able to recover approximately $183,000 from Larsen, which it used to repay the customer and paid the customer an additional $171,000 to make him whole.

Larsen failed to respond to FINRA requests for documents.

Michael Douglas Larsen : Barred
Michael Wayne Evans
OS/2009017222501/June 2011

Evans converted securities and funds in the joint brokerage account of customers, without their knowledge, authorization or consent, and deposited the funds into his personal checking account, converting an aggregate total of $60,000. 

Evans forged a customer’s signature on checks linked to the customers’ bank account and made the checks payable to “cash” or to himself. Evans forged the customer’s signature on a cash withdrawal form linked to the customers’ bank account. Without the customers’ knowledge, authorization or consent, Evans sold securities totaling $30,000 from their brokerage account, transferred $10,000 to their bank deposit account and applied $10,000 to their brokerage account margin balance.

Evans failed to respond to FINRA requests for a signed, written statement regarding its investigation.

Michael Wayne Evans : No restitution sought by FINRA because Evan's former firm reimbursed full losses; Barred. NOTE: Evans reimbursed his former firm approximately $47,000 of the $60,000 that he misappropriated from the customers and is in the process of earning the remaining $13,000.
Monex Securities, Inc.
AWC/2008014078801/June 2011

The Firm failed to properly supervise and properly register its foreign finders; and it had no written procedures concerning its use of foreign finders.

The Firm terminated the registrations of all its foreign associates and made them foreign finders; thereafter, the firm employed foreign finders and no foreign associates. Many of the firm’s foreign finders were previously registered foreign associates at the firm who worked on the premises of the firm’s affiliated broker-dealer. As registered sales representatives and foreign associates for the firm, they acted as general securities representatives engaging in securities activities for non-U.S. residents, citizens or nationals.

Whenthe firm’s foreign associates’ registrations were terminated with FINRA and re-affiliated as foreign finders, their job functions were supposed to be limited to those of a foreign finder. As such, the firm’s foreign finders’ sole involvement with the firm should have been the initial referral of non-U.S. customers; however,all of the firm’s foreign finders serviced customer accounts, processed new account documents and letters of authorization (LOAs) for customers containing confidential client information and serviced customer accounts -- these activities went well beyond the initial referral of non-U.S. customers to the firm.

Also, given the expanded roles of the firm’s foreign finders, they should have been registered as foreign associates; however, the firm failed to register any of its foreign finders as foreign associates.

A concerned customer visited the firm’s affiliate’s branch office and explained that a foreign finder of the firm had provided him with an account statement that differed from the statement he recently received from the firm’s clearing firm. In response,the Firm immediately instituted an internal investigation into all accounts the foreign finder had introduced to the firm. The firm discovered that unauthorized statements had been provided to customers by its rogue foreign finder.  Those unauthorized statements inflated market values and net worth. Further, the rogue foreign finder altered correspondence that he forwarded to customers by making the documents incorrectly appear as if the firm had authorized them.

The firm contacted and interviewed every customer the rogue foreign finder introduced to the firm, which revealed that some of the customers had received false statements; and that the false statements inflated customers’ account values by over $2 million U.S. dollars. The investigation led to the rogue foreign finder’s termination, foreign finders being discontinued, written supervisory procedures being added, the firm’s supervisory system being enhanced and substantial compensation paid to affected customers. The Firm claimed that it inspected the offices of its foreign finders, including the rogue foreign finder, to ensure that they were properly supervised, but failed to document or memorialize the office inspections and other supervisory activities in any way.

Monex Securities, Inc. : Censured; Fined $25,000
Bill Singer's Comment
Although the facts are certainly startling, this foreign finders scenario is not that uncommon -- and, worse, the fraud is far from unheard of.  A word to the wise!
Montford Sater Will (Principal)
AWC/2009018334601/June 2011
Will made a series of political campaign contributions to various candidates and parties, donating a total of approximately $121,000 to campaigns in his relatives’ names.These campaigns included local, county and municipal races, statewide races and state political parties. Will admitted that by making the political contributions in his relatives’ names, he violated Ohio Revised Code Section 3517.13(G)(2)(a), which prohibits a person from making a campaign contribution in another person’s name.
Montford Sater Will (Principal): Fined $10,000; Suspended 60 days. After consideration of the sanctions the State of Ohio previously imposed on Will, FINRA determined to give him credit for the amount he paid the state and the 45-day suspension he previously served. Accordingly, the $10,000 fine and 45 days of the suspension assessed were deemed to have been fulfilled.
Bill Singer's Comment
Practice pointer: Note that you can ask for credit for time served and/or dollars paid to one regulator when negotiating sanctions with another regulator concerning similar facts. Moreover, it may even be smart to try and "arbitrage" the fines/suspensions in the event that you might wish to serve your time sooner rather than later (i.e., you know that the second regulator may impose a suspension that would be served during a busy season).
Morgan Stanley & Co. Incorporated
AWC/2009017072302/June 2011

A former associated person and employee of Morgan Stanley in its New York Position Services Group (NYPS) misappropriated approximately $2.5 million from the firm, institutional firm customers and a firm counterparty by entering, or causing to be entered, numerous false journal entries into the firm’s electronic system to transfer and credit money associated with corporate actions.

The former employee entered, or caused to be entered, into the firm’s electronic system requests for checks to be issued to his shell corporation against the suspense and/or fee accounts that he was using to misappropriate funds. The former employee entered some check requests himself, which NYPS employees that reported to him later approved. The former employee caused employees who reported to him to enter check requests, and he used the identification number and password of another NYPS employee who reported to him to enter the remaining check requests; he later approved all of the check requests.

Failed Oversight/Review

Morgan Stanley failed to establish and implement an adequate system of follow-up and review of journal entries and adequate procedures for reviewing and approving check requests related to corporate actions.

No review procedures

The firm did not have any procedure to review the former associated person’s check requests and journal entries.

In addition, the firm failed to properly supervise the former associated person and failed to detect that he entered, or caused to be entered, false check requests and false journal entries related to corporate actions, which allowed him to misappropriate approximately $2.5 million from the firm, its institutional customers and a firm counterparty.

SOMJ

The firm introduced a new system, the Summary of Manual Journals (SOMJ), to replace the review of all journal entries and require the review and approval of journal entries that the firm determined to be high priority. Furthermore, these journal entries remained on the SOMJs until a supervisor reviewed and approved them, and the former associated person was assigned to review and approve all high-priority journal entries flagged on the SOMJs, including his own.

Security Flaw

The firm assigned some NYPS supervisors, all of whom reported directly to the former associated person, to review and approve journal entries flagged on SOMJs, but nobody was assigned to review high-priority journal entries entered by anyone not on one of those teams, including the former associated person. The firm failed to have a system to inform NYPS management if journal entries flagged on the SOMJs were not approved. The former associated person made numerous journal entries, some of which were flagged as high-priority; he approved several of them; many were not reviewed and were listed on the SOMJs pending approval at the time of his termination.

Check Requests

Check requests NYPS personnel entered were required to be approved by another NYPS employee, but the firm did not require the person approving the check to be a supervisor or have supervisory responsibility; as a result, NYPS associates approved check requests an NYPS supervisor entered, and entered check requests on a supervisor’s behalf, which the supervisor subsequently approved. In addition, FINRA determined that the firm did not require any review to determine if the check request was associated with a corporate action and the approver simply ensured that all the required information was included in the check request.

Morgan Stanley & Co. Incorporated : Censured; Fined $375,000
Bill Singer's Comment
That's quite a hole in Morgan Stanley's security protocol -- and lucky for them, they only got dinged for $2.5 million.  These "nested loop' types of failures are not uncommon and typically you have policies/procedures that have been amended and revised over time that inadvertently result in a given supervisor reviewing his/her own transactions without any secondary oversight.  At some point, Compliance Departments should consider bringing in a third-party to go through their written policies and procedures to see if a fresh set of eyes uncovers any supervisory dead-ends or conflicts.
NFP Securities, Inc.
AWC/2007011393902/June 2011

The Firm approved advertising materials a registered representative used in his retail equity-indexed annuity (EIA) business conducted at workshops for senior citizens that contained false, exaggerated, unwarranted or misleading statements. The firm failed to document, with a principal’s signature or initial, its approval of a piece of advertising material the representative used and failed to maintain a record of its approval of a piece of the representative’s advertising material.

The firm did not supervise the representative’s workshops, in that it did not require him to produce a copy of the script for the workshops and did not attend any of the live workshops to confirm that the contents of the workshops complied with NASD rules and that only firm-approved materials were being used. If the firm had required the representative to submit a script and had attended his workshops, it would have discovered that he made statements, used materials and engaged in conduct that violated NASD Rules 2110 and 2210, and could have prevented further violations of these rules.

NFP Securities, Inc. : Censured; Fined $50,000
Bill Singer's Comment

I largely concur with the allegations and sanctions; however, I don't agree that the Firm needs to attend all of its representatives' workshops to confirm that they are compliant.  To FINRA's credit, the allegations notes that the Firm did not have a supervisor "attend any of the live workshops," so the SRO did not suggest that "all" workshops needed to be supervised. Frankly, that could get a bit cost prohibitive and strikes me as a bit over the top in terms of a practical approach to compliance.  I'm not suggesting that having a firm representative attend all workshops isn't a good idea, but there are many "good ideas" that we could employ in all walks of life that are just financially prohibitive.  If random attendance by compliance staff is acceptable as a means of keeping employees honest, then I wholeheartedly support that approach. 

A takeaway from this case would be for Compliance Departments to set up a schedule whereby some supervisor is required to attend at least one out of every X workshops conducted with a standard period of months to ensure some reasonable random effort to verify compliance.

Oscar Tomas Ortiz III
2009019460001/June 2011

Ortiz took and failed the Series 63 examination several times, and shortly after becoming employed with his member firm, he told the firm that he had passed the Series 63 exam. When the firm questioned Ortiz about his claim to have passed the Series 63 exam, he provided the firm with a photocopy of a fabricated score report that purported to establish his passing grade on the Series 63 exam.

Also, Ortiz provided the firm with information and documents through which he falsely represented his college credentials.

Oscar Tomas Ortiz III : Barred
Bill Singer's Comment
You might think that this is an oddball case -- after all, what's the point of lying about passing an exam when you failed it and that failure is a matter of record?  Hey, look at this article I wrote in 2006 that sets out a number of similar and equally puzzling exam violations: http://registeredrep.com/mag/finance_cheaters_prosper/
Philip Kenneth Mahler (Principal)
AWC/2009017244601/June 2011

Mahler improperly created answer keys to state insurance continuing education (CE) exams a company administered.

The company’s president approached Mahler on different occasions and offered to provide him with answers to the company’s CE exams. The president provided Mahler with the answers to the CE exams over the phone or by handing copies of the answers to Mahler, and Mahler used these answers to create answer keys for the exams.

Mahler improperly distributed the answer keys to an employee at his member firm and to multiple registered representatives outside of his firm. On multiple occasions, while he was an external wholesaler, Mahler provided assistance to non-firm registered representatives while they were taking a state annuity examination for CE credit. Mahler was in the offices of some registered representatives while they were taking the annuity examination; some of these registered representatives asked Mahler to give them the answers to certain of the questions on the examination, which Mahler provided.

Mahler failed to supervise in that he gave one direct report answer keys to state insurance CE exams.

Philip Kenneth Mahler (Principal): Fiend $10,000; Suspended 4 months in all capacities; Suspended 6 months in Principal/Supervisory capacities only (to run concurrently)
Portfolio Advisors Alliance, Inc. and Marcelle Long (Principal)
OS/2008011640602/June 2011

Respondents failed to put any heightened supervisory measures in place for a branch manager or to follow up on “red flags.” Notwithstanding the branch manager’s remote location, prior disciplinary history, outside business disclosures or his disclosure that he was potentially under financial stress and unable to meet financial obligations, the Firm and Long failed to put any heightened supervisory measures in place or to follow up on the red flags after he disclosed information on a compliance questionnaire, for which the affirmative answer required that he attach a separate sheet providing complete details about the disclosed activities, which Long did not complete or enforce. Also, the firm’s and Long’s heightened supervision of the branch manager was inadequate in that it consisted only of inspecting his office annually and speaking on the phone on a fairly regular basis. Long inspected the branch manager’s branch office, and although she was aware that the manager was involved in certain outside business activities, based on the disclosures that he made on his Uniform Application for Securities Industry Registration or Transfer (Form U4), she admitted that she did not inspect any files or financial records associated with his disclosed outside business activities and did not detect any undisclosed outside business activities or private securities transactions.During a subsequent inspection, Long again did not review documentation regarding the branch manager’s disclosed outside business activities and did not detect any undisclosed outside business activities or private securities transactions.

Additionally, the branch manager had participated in private securities transactions wherein he had raised more than $1.5 million from investors, many of whom were firm customers.

In addition, the firm and Long failed to review or retain email communications on the branch manager’s outside email account, and Long did not review his outside email account during her inspections of his branch office. Moreover, FINRA found that the firm did not have any supervisory procedures regarding the review and retention of email communications on outside email accounts.

Portfolio Advisors Alliance, Inc.: Censured; Fined $35,000

Marcelle Long: Fined $7,500; Suspended in Principal/Supervisory capacity only for 30 days

Bill Singer's Comment

At first blush, the sanctions appear a bit harsh but after it all sinks in -- nah, FINRA seems to have had the punishment about right.  Given the history of the subject branch manager and the apparent supervisory lapses, the Principal is lucky that she got off with only a 30-day Principal/Supervisory suspension. The sanctions against her could have been far worse and, frankly, with some justification.

Either I'm getting mellow in my old age or FINRA is starting to get some things right.  Whoa -- did I really write that?

Robert Joseph Oftring (Principal)
AWC/2009019996501/June 2011

Oftring was responsible for supervising a former registered representative of his member firm and failed to take appropriate action to reasonably supervise her to detect and prevent her violations and achieve compliance with applicable rules in connection with a customer’s account. Among other things, Oftring failed to take reasonable steps to follow up on certain indications of potential misconduct that should have alerted him to the representative’s violations.

The representative engaged in excessive, short-term trading in the customer’s account, which resulted in losses of approximately $60,000; the account was subject to frequent margin calls and transfers from a third-party account to satisfy margin calls in the account, and once, the representative transferred funds back to the third-party account by forging the customer’s signature on an LOA.

Oftring was aware of

  • the active trading in the customer’s account and knew that the representative was effecting securities transactions in the account while it had a negative balance, but he never stopped the representative from trading and never contacted the customer to discuss the activity; and
  • and approved the transfer of funds between the customer’s account and the third-party account, and accepted the representative’s explanation for the same without contacting the customers involved in the transfers.
Robert Joseph Oftring (Principal): FIned $5,000; Suspended 6 months in Principal capacity only
Bill Singer's Comment
Although I'm not often a fan of these failure-to-supervise cases because they too frequently involve the luxury of hindsight, this one strikes me as having merit.  Frankly, given the red flags, I would have expected at least a call to the customers to confirm that everything's okay. While it may often be acceptable to ask the registered person for his/her explanation, sometimes you simply have to take that extra step and talk to the client.
Scott Davis Johnson (Princiipal)
AWC/2009018077101/June 2011
Johnson was employed with a state-registered investment adviser company and after learning that performance values being reported in monthly statements to investors were inconsistent with actual performance figures to investors, he continued to forward monthly statements to investors when requested to do so. After discovering that the gain/loss values reported in the monthly statements were inconsistent with actual performance of the funds, Johnson questioned the investment adviser company’s president, who falsely stated that the statements reflected personal monetary contributions he made to the funds in the form of waived management fees. Johnson continued to forward the statements to investors without informing the recipients that the performance values represented “adjusted” values, and without attempting to confirm whether the investment adviser company’s president was actually making monetary contributions.
Scott Davis Johnson (Princiipal): Fined $5,000; Suspended 4 months
Bill Singer's Comment

Solely based upon the explanation in FINRA's squib, I don't like the outcome here. It seems that Johnson "suspected" that something was wrong (in contradistinction to "knowing for certain") and asked the RIA's President for an explanation, which was given to him suggesting that there was a waived fee that had altered the reported numbers.  FINRA records note that Johnson had no role whatsoever in preparing the reports at issue.

FINRA records suggest During the period from September 2004 through October 2008, Johnson was employed by a Louisiana-registered investment adviser company, Greenwing Securities, Inc. ("GSF'), which served as the general manager of three hedge funds, and Johnson's job responsibility was to assist GSI's president (who made the misrepresentations at the heart of this matter) in managing the investment portfolio of one of the three hedge funds. In June 2007, Johnson became associated with NWT Financial Group, LLC ("NWT") and registered with FINRA as a General Securities Principal, a General Securities Representative, and a Registered Options Principal. With the approval of NWT, Johnson continued in his employment with GSI while associated with NWT.

Barring more, I'm not understanding how Johnson's query and subsequent conduct warrant a $5,000 fine and a four-month suspension.  If there is a stronger case here, and FINRA may well have one, then the regulator needs to spell out more specifics.

Scott William Coy
AWC/2009020923301/June 2011
Coy participated in private securities transactions without prior written notice to, or prior written approval from, his member firms. Coy sold limited liability company interests totaling approximately $5.5 million to investors, many of whom were customers of his firms, in private offerings. Theproceeds from those securities offerings were used to invest in entities that acquired and operated residential apartment complexes, and Coy received compensation of approximately $327,250 through the offerings.
Scott William Coy : Barred
Shanoa Adrianne Rose Akins
AWC/2011027093001/June 2011
Associated Person Akins misappropriated approximately $1.1 million from her member firm by creating false entries in the firm’s books and records, ranging in amounts of $250 to $50,000, which caused the firm to pay her money to which she was not entitled.
Shanoa Adrianne Rose Akins : Barred
Bill Singer's Comment

According to the AWC, this went on from September 2005 through March 2011. That's a long time to be essentially nickel and diming your way up to nearly $1.1 million.  The fact that Akins was employed as an accountant for the firm may explain how she was able to cover her tracks for so long.

Uzo Omar Chima (Principal)
AWC/2006007105101/June 2011

Chima engaged in a pattern of unsuitable short-term trading and switching of unit investment trusts (UITs), closed-end funds (CEFs) and mutual funds in retired and/or disabled customer accounts without having reasonable grounds for believing that such transactions were suitable for the customers in view of the nature, frequency and size of the recommended transactions and in light of their financial situations, investment objectives, circumstances and needs. Some of the transactions were effected through excessive use of margin and without ensuring that customers received the maximum sales charge discount. In furtherance of his short-term trading strategy, Chima engaged in discretionary trading without prior written authorization, falsified customer account update documents and mismarked trade tickets for each of the customers’ accounts, stating that the orders were unsolicited when, in fact, they were solicited.

The transactions generated approximately $450,000 in commissions for Chima and his firm, and approximately $370,000 in losses to the customers; some customers also paid over $75,000 in margin interest. In numerous UIT purchases, none of which exceeded $250,000, Chima failed to apply the rollover discount to which each customer was entitled.

Chima caused his member firm’s books and records to be false in material respects, in that he provided false information on customer update forms for customers’ accounts, signed the forms certifying that they were accurate and submitted them to his firm.

Uzo Omar Chima (Principal): Fined $75,000; Suspended 2 years; Ordered to pay $12,443.73, plus interest, in restitution to customers.
Bill Singer's Comment
I'm puzzled -- what exactly did Chima need to do beyond the allegations in order to be Barred?
May 2011
Brewer Financial Services, LLC , Adam Gary Erickson (Principal) and Steven John Brewer
AWC/2010023252701/May 2011

Acting through Erickson and Brewer, the Firm:

  • sold the private placement offerings of a company formed exclusively to acquire and provide growth to its parent company and a limited liability company for which Brewer was a director, without disclosing to the investors material facts that:
    • the parent company had defaulted on a $2.5 million loan,
    • had reported an operating loss of $1,622,912 for one calendar year and an approximate operating loss of $4.5 million for another calendar year, and
    • had defaulted on interest payments to note-holders.
  • continued to sell the limited liability company’s private placement offering to new investors, knowing that it had defaulted on its interest payments to existing investors and without disclosing that material fact to new investors.

The firm sold the private placement offerings to non-accredited investors without providing them with the financial statements required under Securities and Exchange Commission (SEC) Rule 506, resulting in the loss of exemption from the registration requirements of Section 5 of the Securities Act of 1933. Because no registration statement was in effect for the offerings and the registration exemption was ineffective, the firm sold these securities in contravention of Section 5 of the Securities Act of 1933.

Acting through Erickson, the Firm conducted inadequate due diligence related to its sale of the offerings in that it failed to ensure the issuers had retained a custodian to handle certain investors’ qualified funds prior to accepting investment of Individual Retirement Account (IRA) funds into the offerings.

Ating through Erickson and Brewer, the Firm offered to sell and sold the company’s private placement offering by distributing to the public a private placement memorandum (PPM) containing unbalanced, unjustified, unwarranted or otherwise misleading statements; among other things, the PPM implied that the parent company was not experiencing financial difficulty and failed to disclose that it reported a significant loss one year. In addition, the investors in the company’s notes were not provided with financial statements for either the company or the parent company. Moreover, the PPM was misleading in that it failed to state clearly how offering proceeds would be used, lacked clarity regarding the relationship between the issuer and its affiliates, and failed to provide the basis for claims made regarding the performance expectations of the issuer or its affiliates.

Furthermore, the firm failed to establish adequate written supervisory procedures related to its sales of private placement offerings, in that the firm’s procedures failed to require that financial statements be provided to investors when private placement offerings are sold to non-accredited investors, pursuant to SEC Rule 506.

The Firm allowed Brewer to be actively engaged in managing the firm’s securities business without being registered as a principal and a representative although Brewer signed and submitted an attestation to FINRA stating he would not be actively engaged in the management of the firm’s securities business until he completed registration as a representative and principal. Among other things, Brewer reviewed and revised the firm’s recruitment brochure, approved offer letters to prospective firm registered representatives, dictated the structure of new representatives’ compensation, including the level of commissions and loan repayment terms, and instructed firm personnel to send private placement offering documents to prospective investors.

The firm maintained the registrations for individuals who were not active in the firm’s investment banking or securities business or were no longer functioning as registered representatives.

The Firm conducted a securities business on a number of days even though it had negative net capital on each of those dates. The firm’s net capital deficiencies were caused by its failure to classify contributions from the parent company as liabilities after the firm returned the contributions to the parent company within a one-year period of having received them, and improperly treating its assets as allowable even though all of its assets had been encumbered as security for a loan agreement the parent company executed. Moreover, the Firm had inaccurate general ledgers, trial balances and net capital computations, and filed inaccurate Financial and Operational Uniform Single

Brewer Financial Services, LLC: Expelled

Adam Gary Erickson (Principal) and Steven John Brewer: Barred

Bulltick, LLC, Javier Guerra (Principal) and Victor Manuel Robles (Principal)
AWC/2006006958101/May 2011

The Firm made certain unsecured loans to its parent that exceeded the parameters set forth in SEC Rules 15c3-1(e)(1)(i) and (ii), thereby triggering its reporting obligation. Through its financial and operations principals (FINOPs), Guerra and Robles, the Firm provided notices to FINRA at the beginning of several months of loans that it anticipated making during the course of the month, but the notices did not comply with the requirements of SEC Rule 15c3-1(e)(1); the firm did not provide adequate advance notice of loans that exceeded the 30 percent threshold on numerous occasions and did not provide subsequent notice of unsecured loans that exceeded the 20 percent threshold on other occasions. Guerra and Robles, as FINOPS at the firm, were responsible for providing the required notices on the firm’s behalf but failed to do so.

The Firm had inadequate excess net capital for a year because it failed to include in its net capital calculation certain positions in Latin American and other debt securities held in firm accounts at its clearing firms, and did not report these positions as assets on its balance sheet or apply haircuts to these positions in its computation of net capital; deficiencies ranged from at least $900,000 to at least $13.7 million and all of the positions relevant to the net capital deficiency had later either paid down their principal or were sold by the firm.

The firm engaged in securities transactions in which commissions were split between the firm and a nonregistered foreign person with the person receiving most of the commissions and the firm getting the balance. In addition to making the initial referrals, the non-registered foreign person, along with the firm, among other things, negotiated the terms of the transactions, which the firm executed. The firm did not properly reflect the payment to the finder on its books and records, and also did not disclose the compensation arrangement as required.

Moreover, the Firm did not maintain adequate books and records concerning proprietary positions the firm held at separate clearing firms for over a year; this included failing to reflect the positions on any of the firm’s internal books and records, failing to maintain documents related to the processing of the transactions such as the electronic or paper order tickets and the trade confirmations, failing to maintain documents related to the supervision of the transactions, and failing to appropriately reflect its liabilities and assets on financial documentation the firm maintained. Furthermore, although FINRA staff advised the firm that its procedures related to SEC Rule 15c3-1(e) were not reasonably designed to achieve compliance with that rule and needed to be amended, the firm failed to amend its procedures to establish supervisory procedures reasonably designed to ensure compliance with the rule.

Guerra engaged in outside investment activities through a limited liability company that used his firm’s address, and he failed to provide prompt written notice of these business activities to his member firm.

Bulltick, LLC: Censured and Fined $300,000

Javier Guerra (Principal): Fined $20,000; Suspended 10 business days 

Victor Manuel Robles (Principal): Fined $10,000; Suspended 5 business days 

Carl Henry Blanchard
AWC/2010021436501/May 2011

Blanchard participated in private securities transactions when a client of his accounting firm purchased promissory notes an individual issued. The findings stated that Blanchard failed to provide written notice to his firm describing in detail the proposed transactions with the individual issuing the promissory notes, his proposed role therein, and stating whether he had received or might receive selling compensation in connection with the transactions. Blanchard introduced the client to the individual, and the client invested a total of approximately $325,000 in the individual’s promissory notes as a result of Blanchard’s referrals.

The individual paid Blanchard about $16,434 in selling compensation for his referral. The customer lost approximately $290,000 as a result of the investment, and the firm made full restitution to Blanchard’s client even though he was not a customer of the firm.

Carl Henry Blanchard : Fined $31,434 including disgorgement of $16,434 to be paid to the firm; Suspended 6 months
Bill Singer's Comment
See: Irving Louis Adler and Scott Jeffrey Adler for apparent companion pieces to this story
Cesar Madrigal
2009019322001/May 2011
Madrigal misappropriated $102,054.55 from customers’ bank accounts by using forged customer signatures on partial withdrawal general ledger tickets. Madrigal admitted to his member that he had engaged in this misconduct but then failed to respond to FINRA requests for information.
Cesar Madrigal: Barred
Charles Hyman Brown (Principal)
AWC/2008011707003/May 2011

Brown failed to reasonably supervise a registered representative of his member firm who churned a customer trust account and recommended investments to the elderly beneficial owner of the trust account that were inconsistent with the customer’s investment objectives, financial situation and needs.

Brown served as the assistant branch manager for his firm’s branch office and, as such, was one of the individuals at the firm with supervisory responsibility over the registered representatives at the branch office. There were numerous red flags indicating that the registered representative was churning the trust account and recommending unsuitable investments to the customer:

  • the appearance of the account on numerous exception reports concerning active and aggressive trading;
  • the account’s relatively substantial fluctuations in value, including relatively significant declines in value in a certain year;
  • the customer’s age;
  • the $2,500 monthly withdrawals that the customer was taking from the account; and
  • the prior customer complaints against the registered representative.

Despite these red flags, Brown failed to take adequate supervisory action reasonably designed to prevent the representative’s churning of the trust account and recommendations of unsuitable investments to the customer.

Charles Hyman Brown (Principal): $5,000 Fine; Suspended 30 days in Principal capacity only
Bill Singer's Comment
Years ago, there was a time when this type of failure to supervise might not result in any fine, much less a suspension.  Times have changed. Clearly. If you're going to supervise, you better consider the warnings inherent in this case.
Christian Genitrini
AWC/2010022859701/May 2011

Genitrini advertised guaranteed returns on investments of up to 20 percent per year on a website belonging to a company he wholly owned. Genitrini claimed that his company was a full-service investment firm and would, among other claims, provide high-yield investment opportunities. The website declared that the company invested nationwide and all industries were considered, but did not disclose the nature of the investment product or the risks of investment.

Genitrini’s ads appeared on other websites guaranteeing returns, and his company’s contemplated private placement documents provided no assurance that by following its current investment strategy, it would be successful or profitable, although the subscription agreement also stated that the investments the company carried might be volatile and present operational risks.

Genitrini’s Internet ads constituted communications with the public; were not based on principles of fair dealing and good faith; were not fair and balanced; did not disclose risks associated with the investment; guaranteed promising returns that were exaggerated, unwarranted or misleading; and the predictions of performance were also exaggerated or unwarranted.

Genitrini’s private offering of securities, which involved promissory notes his company issued according to the private placement memorandum, was not made pursuant to an effective registration statement filed with the SEC; the offering was intended to be made pursuant to the exemption from registration in Section 4(2) of Rule 506 of Regulation D of the Securities Act of 1933, which prohibits offers or sales of securities by any form of general solicitation or general advertising. Genitrini’s use of the Internet and his company’s website violated Section 5 of the Securities Act of 1933, and guaranteeing returns in the offer of securities over the Internet violated Section 17(a)(1) of the Securities Act of 1933.

In addition, Genitrini falsely described his work with his company on his member firm’s outside business activity disclosure form and also failed to disclose that he maintained a website for the company; Genitrini told his firm, in writing, that his business and website were for tax-planning services.

Christian Genitrini : Fined $15, 000; Suspended 2 years; Required to requalify by exam for Series 7 and Series 63 before becoming re-associated with a member firm after the expiration of the suspension term. NOTE: The fine shall be paid in installments beginning 90 days after Genitrini’s 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.
Dale Allen Eppler
AWC/2009018149601/May 2011

Eppler disclosed his outside business activities to his member firm as part of a branch office review and reported that he was engaged in the sale of new and renewal sales of a particular company’s insurance products that his firm did not approve for sale. In response to the disclosure, Eppler was informed, orally and in writing, that he should discontinue selling those products and he could only receive renewals on prior sales.

Eppler was sent an email reminding him of deficiencies found in the branch examination, which included his sale of the particular insurance products, and that he was to discontinue selling the insurance products. Eppler responded to the email by advising the firm that all of the deficiencies had been corrected, which was untrue because Eppler continued to sell the non-approved insurance products and received $967.79 as commissions from the sales.

Eppler’s branch office was again reviewed, and as part of that review, Eppler reported his outside business activities and reported that he was receiving commissions only for renewals of the non-approved insurance products, which was false, in that Eppler continued to sell new non-approved insurance policies, for which he received compensation. Eppler engaged in these activities without giving prompt written notice to his firm that he was continuing to sell new non-approved insurance policies.

Dale Allen Eppler : Fined $7,500; Suspended 6 months
Bill Singer's Comment

Okay, so Eppler gets some credit for initially disclosing his OBA involving the disfavored insurance products. And, yeah, the firm tells him to stop. So, at that point, maybe you could argue that Eppler sort of got off with a warning.

However, once the email goes out, he then seems to blow-off the firm with a false assurance of compliance and proceedst to sell non-approved product to the tune of nearly a thousand dollars of commissions. Of course, when he gets caught during the next branch review, he tries to fudge it by saying that the commissions were only for renewals and not new business. 

Putting the adequacy of the fine aside -- only a six-month suspension?  Wow. Must be some incredible lawyering or maybe FINRA has over-stated the seriousness of the evasive conduct.

David Joshua Berliner (Principal)
AWC/2008016127401/May 2011
Berliner failed to timely request amendment of his Form U4 to disclose material information, and even though he had previously orally disclosed the existence of the material information to another member firm, he failed to disclose its existence on his Form U4. Berliner ultimately disclosed the material information on his Form U4.
David Joshua Berliner (Principal): Fined $5,000; Suspended 30 business days
Denise Lynn Gizankis
AWC/2010021840402/May 2011
Gizankis failed to timely respond to FINRA requests for documents and information.
Denise Lynn Gizankis : Fined $5,000; Suspended 6 months
Bill Singer's Comment

As if FINRA's somewhat terse report even remotely sets forth the context of this case, which wound up before the SEC on appeal. Read this story in Forbes' Street Sweeper column for the details: UPDATE: The Wells Fargo Broker Who Would’nt Give In to FINRA Bar

Devon Coulin McLean
AWC/2009016806001/May 2011

McLean failed to provide written notice of his involvement in unapproved private securities transactions to his member firm and lied to his firm during monthly supervisory meetings. McLean’s member firm prohibited its registered representatives from engaging in any private securities transactions unless they were personal investments and only after obtaining the firm’s prior written approval, but McLean referred a customer and another individual to someone who was raising monies for real estate projects. These individuals invested approximately $75,000 in promissory notes with entities controlled by the individual to whom McLean referred them, and McLean received $1,500 in cash for the referrals. Because of concerns stemming from items reported on McLean’s personal credit report, his firm placed him on heightened supervision and, among other things, McLean was required to meet with his supervisor monthly to discuss securities-related and outside business activities; but not once during these meetings did McLean disclose his involvement with the individual. On seven separate occasions, he signed statements affirming that he was not engaged in outside business activity beyond those already disclosed and that it was unnecessary to update his Form U4.

While employed by another member firm, McLean acted as an agent for an entity not affiliated with his firm and over which his firm had no control, without providing written notice to his firm or receiving his firm’s approval to serve in this role. In addition, as an agent for the entity, McLean introduced individuals to an individual through whom they invested in a purported diamond mining operation. Moreover, these individuals entered into promissory notes, investing more than $40,000 with an entity the individual controlled. Furthermore, in addition to making referrals, as an agent for the entity, McLean was expected to provide financial and consulting advice to investors once their investments began earning profits, and in exchange, McLean stood to earn $2 million worth of shares in a company the individual controlled.

McLean failed to respond fully to FINRA requests for documents and information. 

Devon Coulin McLean : Barred
Dinesh Devraj Suchak Jr.
AWC/2010021600601/May 2011
Suchak borrowed $1,500 from one of his customers at his member firm without seeking approval for the borrowing and without obtaining the firm’s prior written approval to borrow money from the customer. The loan terms were not memorialized in writing and when the borrowing occurred, the firm required representatives, before borrowing money from a customer, to obtain a designated official’s written approval. Suchak did not disclose to the firm that he had borrowed money from a customer.
Dinesh Devraj Suchak Jr. : Fined $2,500; Suspended 10 business days
Douglas Daniel Ivan (Principal)
AWC/2010022805201/May 2011

Ivan executed an agreement purportedly on the firm’s behalf, in which a non-customer corporation agreed to pay the firm a $35,000 refundable deposit in exchange for the firm agreeing to act as an exclusive placement agent to assist the corporation in arranging for $8 million dollars in debt financing. Subject to the agreement, Ivan instructed the corporation to wire the $35,000 deposit to a personal brokerage account he controlled at another FINRA member firm. Instead of using the funds as he represented to the corporation and in accordance with the terms of the signed agreement, Ivan diverted the corporation’s funds by wiring $25,000 of the deposit to another business entity that was supposedly going to assist the corporation with arranging the financing and used the remaining $10,000 for his personal benefit. The debt financing for the corporation never materialized, and the corporation did not receive the return of its $35,000 deposit.

Ivan made untruthful statements and provided false documents to FINRA when he untruthfully represented in his written response to FINRA that he had forwarded the $35,000 from the corporation to a business entity assisting with the financing, and that he did not receive any compensation or payments relating to his participation in arranging the financing. Ivan provided FINRA a document purporting to be an account statement for his outside brokerage account, which falsely reflected a wire transfer of $35,000 out of his account to a business entity assisting with the arrangement of financing, when in fact, the wire transfer amount had only been $25,000. That brokerage account statement had false entries for the figures representing the total amount of checks written and the total amount of checking, debit card and cash withdrawals.

Moreover, Ivan held a financial interest in a brokerage account maintained at another FINRA member firm without giving prompt written notification to the firm that he had such an account, and without notifying the other brokerage firm of his association with his member firm. Furthermore, Ivan falsely answered “N/A” on the firm’s outside brokerage account new hire certification form when requested to list every brokerage account over which he had full or partial ownership.

Douglas Daniel Ivan (Principal): Barred
Edward Charles Bartlett III
AWC/2009019969201/May 2011

Bartlett signed customers’ names to documents related to purchases of mutual funds and insurance products without authorization.  Although the customers authorized Bartlett to purchase the securities or insurance products for them, only one of the customers orally authorized Bartlett to sign his name.

Bartlett signed customers’ names to new account applications, client profiles, risk questionnaires, insurance applications and transaction confirmation forms. In one instance, Bartlett forged a customer’s name because he was concerned that he would lose a substantial commission if he went back to the customer to obtain her signature on a form.

Edward Charles Bartlett III: Fined $5,000; Suspended 5 months
Eric Langholtz
AWC/2009017282801/May 2011
Langholtz sold EIAs outside the scope of his employment relationship with his member firm and received approximately $74,498.65 in compensation. Langholtz did not provide prompt written notice to his firm of the outside business activity and on at least one occasion, represented on a firm outside business activity form that he was not engaged in outside business activity regarding non-variable insurance or annuities of other companies except through an approved firm agency selling agreement; that representation was false since he had received compensation from the outside sale of EIAs. Langholtz continued to engage in selling EIAs outside the firm’s agency despite its specific prohibition against doing so in its WSPs.
Eric Langholtz: Fined $5,000; Suspended 5 months
Eric Renard Garrison (Principal)
AWC/2009020931201/May 2011
Garrison borrowed $3,000 from a relative who was a customer at his member firm. The firm’s procedures generally prohibited borrowing money from customers, except in limited circumstances; those procedures required registered representatives to make a written request and obtain written approval before entering into such loans. Garrison did not make a request and the firm did not give him approval to enter into that loan; and, he failed to repay the loan by the deadline and has repaid only $630.
Eric Renard Garrison (Principal): Fined $5,000; Ordered to pay $2,370, plus interest, in restitution to a customer;Suspended 3 months
First Dallas Securities Incorporated
AWC/2009016267801/May 2011

The Firm implemented a succession plan that resulted in the transfer of ownership from the firm’s chairman and majority shareholder to his relatives who were at that time minority shareholders, and the transfer represented 27.91 percent of the voting shares in the firm’s holding company. The failed to file for FINRA approval of a material change in ownership or control

  • at least 30 days prior to a 25 percent or greater indirect change in ownership or control; and
  • related to the transfer until several years after the transfer had taken place.
First Dallas Securities Incorporated : Censured; FIned $10,000
Bill Singer's Comment
Word to the wise. Make sure to review you FINRA Membership Agreement and to ensure that any contemplated transfers/sales of your firm's ownership comply with the Agreement and applicable FINRA membership rules.
Firstrade Securities Inc.
AWC/2009016640101/May 2011

The Firm did not have available, for examination by FINRA staff, facilities for immediate, easily readable projection or production of micrographic media or electronic storage media images and for producing easily readable images, as SEC Rule 17a-4(f)(3) (i) required. The firm maintained certain records in electronic formats but failed to notify its examining authority, FINRA, prior to employing electronic storage media. The firm did not have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved under SEC Rules 17a-3 and 17a-4 to electronic storage media. The firm was required to have the results of such an audit system available for examination by FINRA staff. The firm failed to provide the required access to allow a third-party vendor to download information from its electronic storage media and file the required undertakings with the proper authorities, including FINRA.

Firstrade Securities Inc. : Censured; Fined $20,000
Gary Scot Cohen (Principal)
AWC/2009020792101/May 2011

Cohen sold equity indexed annuities (EIAs), issued by an insurance company that was not a FINRA member, outside the scope of his employment with a member firm, and without providing the firm prompt written notice of the business activity. Cohen effected undisclosed EIA sales totaling over $1.5 million and received compensation totaling about $176,000 from the transactions. Cohen effected the sales directly with the insurance company that issued the EIAs rather than through the insurance company affiliated with his firm.

Cohen completed an outside business activities questionnaire for the firm in which he falsely represented that he was not licensed as an insurance agent for the purpose of selling fixed insurance with any entity other then the insurance company affiliated with the firm and its approved programs, and that he had not engaged in any outside business activity.

Gary Scot Cohen (Principal): Fined $5,000; Suspended 4 months
Grand Capital Corp. and Eliezer Gross Homnick (Principal)
AWC/2007008158203/May 2011

Acting through Homnick, the firm’s president, chief compliance officer (CCO) and AML compliance officer (AMLCO), the Firm failed to comply with AML requirements. The Firm’s AML compliance program, which Homnick implemented, did not fully comply with the requirements of the Bank Secrecy Act (BSA) or the regulations thereunder, and violated NASD® Rules 3011(a) and (b). The AML procedures in effect required the firm to make a preliminary risk assessment for each existing and potential customer of the firm, and the firm’s representatives were required to document any significant information they learned pursuant to such risk assessment, but the firm did not create or maintain written risk assessments for its customers.

The firm’s AML procedures required scrutiny of the activities of each firm customer organized as a limited liability company (LLC); specifically, for LLC customers, the firm and its registered representatives were to assess the correlation between their business activities and their formation documents and to conduct further investigations to determine the customer’s risk profile. These assessments and determinations of risk profiles were not conducted. Several accounts that were LLCs that engaged in suspicious transactions did not provide formation documents.

The AML procedures had a section that described the process firm employees were to use to report suspicious customer activities, but these procedures were not followed. In addition, registered representatives were required, upon detection of suspicious activity in customer accounts, to consult with one of the firm’s designated principals, one of whom was Homnick; no firm representative reported to, or consulted with, the firm principals about suspicious customer activities. Moreover, the firm’s procedures identified a form called the Preliminary Suspicious Activity Report (P-SAR); the purpose of the form was to identify, in writing, suspicious activities for Homnick’s internal review, but no P-SARs were completed or submitted. Furthermore,Homnick was assigned the responsibility for filing Suspicious Activity Reports (SARs) and was responsible for drafting, implementing and maintaining the AML program and procedures at the firm, but he did not file any SARs and did not consider filing any SARs. FINRA also found that numerous suspicious transactions were conducted by firm customers, and the firm, acting through Homnick, did not conduct a reasonable investigation, in that they failed to file a SAR, consider filing a SAR or document rationale for not filing a SAR.

Grand Capital Corp.: Censured; Fined $20,000 (In light of the firm’s revenues and financial resources, among other things, a lower fine was imposed.)

Eliezer Gross Homnick:  Fined $10,000, Suspended in Principal capacity only for 1 month;  and Required to complete eight hours of anti-money laundering (AML) training.

Irving Louis Adler
AWC/2010021436801/May 2011

Adler participated in private securities transactions when customers of his accounting firm and customers of his member firm purchased promissory notes an individual issued. Adler failed to provide written notice to his firm describing in detail the proposed transactions with the individual issuing the promissory notes, his proposed role therein, and stating whether he had received or might receive selling compensation in connection with the transactions.

Adler introduced his clients to the individual and they invested a total of approximately $2.5 million in the individual’s promissory notes as a result of Adler’s referrals. The individual paid Adler approximately $16,434 in selling compensation for his referral. The customers and the investors lost a total of approximately $2,103,375 and the firm made full restitution to Adler’s clients even though some were not customers of the firm.

Irving Louis Adler : Barred
Bill Singer's Comment

Note that the Firm made full restitution of the $2.1 million in losses to the victims "even though some were not customers of the firm." If nothing else, that should underscore how these private securities transactions can impose (or potentially impose) liability upon the member firm. All of which should explain why firms are entitled to comprehensive, prior written notice about such away activity.

See, Scott Jeffrey Adler and Carl Henry Blanchard as apparent companion pieces of this story

John Godfried Croes Jr.
AWC/2009017291201/May 2011
Croes sold EIAs outside the scope of his employment relationship with his member firm and received approximately $84,917.14 in compensation. Croes did not provide prompt written notice to his firm of his outside business activity, and represented on annual certification statements and/or outside business activity forms that he was either not engaged in outside business activity or that he had previously disclosed such activity; these representations were false. Despite a specific verbal warning by his firm to discontinue selling EIAs outside the firm’s agency, Croes continued to do so, despite the firm’s specific prohibition against doing so in its WSPs.
John Godfried Croes Jr.: Fined $5,000; Suspended 8 months
Bill Singer's Comment

Not sure that I fully agree with the sanction. Frankly, it strikes me as a bit on the light end of thing -- given that Croes was pointedly told to cease and desist the outside EIA sales and he disregarded that warning.  It's a rare event when I'm complaining that a sanction is too light but this one doesn't sit well with me.

Jon David Kurzmann
AWC/2009018783801/May 2011

Kurzmann borrowed $5,000 from one of his customers at his member firm. The loan terms were not memorialized in writing, and when the borrowing occurred, Kurzmann’s firm prohibited its representatives from borrowing money from customers. Kurzmann did not obtain the firm’s approval to borrow money from the customer and did not disclose to the firm that he had borrowed money from a customer; moreover, the borrowing arrangements did not otherwise meet the conditions set forth in NASD Rule 2370(a)(2).

Kurzmann served as the treasurer and as a board member of an incorporated scholarship fund. As the fund’s treasurer, he received monthly account statements for a securities account that the fund owned at a FINRA member firm; Kurzmann was the representative for that account. and he provided board members, orally and in writing, materially false information about the total value of the fund’s investments, in that he overstated the total value of the fund’s investments.

Jon David Kurzmann : Barred
Jose Antonio Rivera
AWC/2010022031601/May 2011

Rivera borrowed a total of approximately $19,000 from a firm customer, signing promissory notes for the loans, contrary to firm policy that prohibited representatives from borrowing from a customer unless the customer was an immediate family member and the representative received the firm’s prior written approval. The customer was not a family member and Rivera never informed the firm of the loan.

Rivera failed to repay the funds in full and his firm entered into a settlement with the customer, repaying the $17,700 still owed to the customer; Rivera did not make any contribution to the settlement.

Jose Antonio Rivera : Fined $5,000; Suspended 3 months
Joshua Daniel Gould
AWC/2010024945501/May 2011

Gould converted more than $1,315,000 from customers who had purchased annuities from him by, among other deceptive means and devices, convincing his customers to sign blank annuity withdrawal request forms, which he subsequently completed with instructions to the insurance companies to transfer his customers’ funds to a bank account held in the name of a company he owned and controlled. In some instances, the withdrawal request forms contained a medallion signature guarantee that he improperly obtained.

Gould converted funds from other annuity customers by using withdrawal request forms that contained customers’ signatures to direct insurance companies to transfer funds from the customers’ annuities to his bank account. Gould unlawfully converted customer funds from customers’ brokerage accounts by, among other deceptive means and devices, improperly transferring funds from their brokerage accounts to the bank account he owned and controlled. The customers either did not authorize or were not aware of the conversion resulting from the transfer of funds from their annuities and brokerage accounts to Gould’s bank account.

Gould used the unlawfully converted funds to pay for his own personal and business expenses; none of the customers were aware he was withdrawing funds for his personal use. On numerous occasions, Gould falsified documents to make it appear that customers had authorized the transfer of funds from their annuities and brokerage accounts to his bank account, and in some instances, effectuated these transfers by convincing customers to sign withdrawal request forms, some of which were blank.

Joshua Daniel Gould : Barred
Lloyd Kramer (Principal)
AWC/2008011707004/May 2011

Kramer failed to reasonably supervise a registered representative of his member firm who churned a customer trust account and recommended unsuitable investments to the trust account’s elderly beneficial owner. Kramer served as a compliance officer for his firm, and as such, was one of the individuals at the firm with supervisory responsibility over the registered representatives at a branch office.

There were numerous red flags indicating that the registered representative was churning the trust account and recommending unsuitable investments to the customer. The red flags cited by FINRA were the:

  • appearance of the account on numerous exception reports concerning active and aggressive trading;
  • account’s relatively substantial fluctuations in value, including relatively significant declines in value in a certain year; 
  • customer’s age;
  • $2,500 monthly withdrawals that the customer was taking from the account; and
  • prior customer complaints against the registered representative.

Despite these red flags, Kramer failed to take adequate supervisory action reasonably designed to prevent the representative’s churning of the trust account and recommendations of unsuitable investments to the customer.

Lloyd Kramer (Principal): Fined $5,000; Suspended 30 days in Principal capacity only
Bill Singer's Comment
Now that's how to present a monthly enforcement case!  Maybe FINRA is finally starting to take the years and years of hints. Instead of the usual conclusory allegations of "failed to respond to red flags," FINRA offers us meaningful examples of what should have been spotted. 
Mark Andrew Sibert
AWC/2009016845001/May 2011

Sibert failed to provide written notice to, and receive written approval from, his member firm for his participation in private securities transactions, and lied to his firm about his activities in these transactions. Sibert’s firm prohibited its registered representatives from participating in any manner in the sale of any security, registered or unregistered, not processed through the firm, without prior written approval, but Sibert solicited his firm’s customers and potential customers to invest in his company, which was purportedly raising monies to invest in real estate developments and gold-mining operations. Some of these individuals invested over $1 million with Sibert’s company and some invested over $800,000 in promissory notes.

Sibert signed an annual compliance questionnaire falsely stating that he was not engaging in private securities transactions.Sibert failed to fully respond to FINRA requests for information and documents, and failed to respond to a FINRA request to appear for testimony.

Mark Andrew Sibert: Barred
Mark Hermann Pollack
AWC/2009019904201/May 2011
Pollack borrowed $40,000 from a customer at his member firm contrary to his firm’s WSPs prohibiting its registered representatives from borrowing funds from customers. Pollack executed a contract whereby he agreed to repay the customer the funds within one year; but to date, Pollack had not paid back the funds.
Mark Hermann Pollack : Fined $5,000; Ordered to pay $40,000 plus interest as restitution to customer; Suspended 60 days
Michael Jon Davies
OS/2009020069601/May 2011
Davies engaged in a pattern of check-kiting, in which he wrote checks totaling $1,070 from his personal bank checking account, maintained at another bank and payable to himself, deposited the checks into another personal checking account of his that was maintained at his firm’s bank affiliate, even though he knew or should have known that he had insufficient funds in his account maintained at the other bank to cover the checks, and then immediately withdrew these funds via automatic teller machine (ATM) from that checking account at his firm’s bank. Each of the checks was subsequently returned for insufficient funds.
Michael Jon Davies : Fined $5,000; Suspended 6 months
Michael Paul Dickamore
2009017212301/May 2011
Dickamore used his member firm’s corporate credit card for personal expenses in the amount of $50,413.56 without the firm’s permission or authority, and submitted the charges as business expenses for the firm reimburse. During an interview with his firm, Dickamore admitted that he purchased personal items with his corporate credit card and falsely identified those items as business expenses. Dickamore reimbursed the firm in full. but failed to respond to FINRA requests for information and failed to appear for on-the-record testimony.
Michael Paul Dickamore : Barred
Michael Steven Jacobson
AWC/2009017282401/May 2011
Jacobson sold Equity Indexed Annuties ("EIA") outside the scope of his employment relationship with a member firm, and received approximately $488,266.41 in compensation. Jacobson failed to give prompt written notice to his firm of his outside business activity and represented on annual certification statements and/or outside business activity forms that he was either not engaged in outside business activity or had previously disclosed such activity; these representations were false. Despite a specific verbal warning from his firm to discontinue selling EIAs outside his firm’s agency, he continued to do so despite the firm’s specific prohibition against doing so in its WSPs.
Michael Steven Jacobson : Fined $5,000; Suspended 18 months
Bill Singer's Comment
These cases still mystify me. I mean, you know, I sort of understand that an RR might argue that he/she was unaware of the OBA Rule. Okay, as far as that goes. I also understand how some folks might figure that sales of an EIA were okay. Again, I'll give you that much. However, when you're told -- point blank -- to cut the crap out and despite that, you go ahead . . . well, that likely explains why Jacobson got walloped with an 18-month sit down.
Newbridge Securities Corporation
AWC/2009016159401/May 2011

The Firm failed to establish, maintain and enforce a supervisory system and written procedures relating to private offerings the firm sold to its customers. The firm’s supervisory system and written procedures for private offerings were deficient; they did not identify due diligence steps to be taken for private offerings. The firm approved for sale, and sold, various private offerings by an entity that raised approximately $2.2 billion from over 20,000 investors through several Regulation D offerings.

The entity made all interest and principal payments on these Regulation D offerings until it began experiencing liquidity problems and stopped making payments on some of its earlier offerings; nevertheless, the entity proceeded with another offering. The firm’s due diligence for the offering consisted merely of reviewing the PPM and investor subscription documents, without seeking or obtaining financial documents or information from the issuer regarding the offering, nor did the firm obtain any due diligence report for the offering or visit the issuer’s facilities or meet with its key personnel. The firm approved for sale, and sold, a total of $258,597.16 to its customers for interests in another entity’s private offering. In addition, the firm failed to conduct due diligence for these offerings; among other things, it did not obtain offering documentation beyond the investor subscription documents. Moreover, the firm sold additional unregistered offerings to its customers and failed to conduct adequate due diligence for each of these other offerings.

Newbridge Securities Corporation : Censured; Fined $25,000
Bill Singer's Comment
There's no more sleepwalking through Due Dilly.  You got to visit the car lot and kick the tires.
Paul Ricky Mata (Principal)
AWC/2009017465601/May 2011

Mata participated in private securities transactions without prior written notice to, and prior written approval or acknowledgment from, his firm for these activities. Mata participated in outside business activities and failed to provide prompt written notice to his firm regarding these activities, for which he received compensation totaling $21,417.44.

Mata participated in numerous sales seminars with customers in which he failed to obtain prior written approval from a firm principal for the sales literature used in his seminars; failed to file the sales literature used in his seminars, which included information on variable contracts, with FINRA’s Advertising Regulation Department; and used sales literature in his seminars that was not fair and balanced, contained exaggerated or unwarranted claims, and contained predictions of performance.

Paul Ricky Mata (Principal): Fined $10,000; Suspended 12 months
Penena Karpel McRoberts
AWC/2009017606101/May 2011

McRoberts effected private securities transactions without requesting and receiving her member firms’ permission. McRoberts sold $142,128 in promissory notes secured by pooled life settlements. Prior to engaging in these transactions, while associated with one of the firms, McRoberts had signed an Acknowledgement of Receipt and Review of Compliance Procedure Manual which stated that no private securities (or other investment or insurance) transaction may in any way be participated in by a representative unless the compliance director approves it in advance. Despite McRoberts’ acknowledgement of the firm’s procedures, she failed to give written notice of her intention to participate in the sale of the securities to, and failed to obtain written approval from, her firm prior to the transactions. McRoberts effected private securities transactions while registered with another member firm and also failed to give written notice of her intention to participate in the sale of the securities, and failed to obtain her firm’s written approval prior to the transaction. McRoberts received $9,600 in commissions from the transactions. In addition,

McRoberts failed to conduct adequate due diligence and thus had no reasonable basis to determine whether the investments were suitable for her clients.

Penena Karpel McRoberts : Fined $20,000 including $9,600 in disgorged commissions; Suspended 1 year
Puritan Securities, Inc. nka First Union Securities, Inc. and Nathan Perry Lapkin (Principal)
AWC/2009017339801/May 2011

Acting through Lapkin, the Firm failed to enforce its heightened supervisory procedures for a representative placed on heightened supervision based on his prior disciplinary history. Lapkin was responsible for implementing the heightened supervision plan, which required review of the representative’s correspondence on a daily basis, review of all of the representative’s transactions prior to execution, quarterly reviews with the representative of his business, and quarterly review of the representative’s journal of all conversations that resulted in any business. Lapkin did not perform any of the required steps and the firm failed to take any steps to ensure that he followed the plan. The firm, acting through Lapkin, allowed a representative to continue using a website, which is deemed an advertisement pursuant to NASD Rule 2210, that promoted investments to be made through the firm, even though it violated the content standards of the rule. The website failed to provide a sound basis for evaluating the investment products being promoted, and contained exaggerated, incomplete and oversimplified statements comparing alternative investments to traditional investment products. Also,  the website further made unsubstantiated claims by identifying investments as “premier” alternative investments and stating that alternative investments can help dampen volatility and provide protection in down markets without providing a credible basis for these claims. In addition, the website also compared alternative investments to publicly traded investments, but failed to disclose all of the material differences between the investments, including the risks associated with the alternative investments.

Acting through Lapkin, the Firm allowed its representatives to sell shares of a fund through a flawed PPM that failed to disclose that the fund’s manager had been terminated from his member firm because, according to his Uniform Termination Notice for Securities Industry Registration (Form U5), he had misreported, falsely input and reported late into the firm’s internal booking systems for bond transactions, and that the fund manager had misreported numerous nondeliverable forward transactions, causing false profits on his profit and loss statements. Lapkin was aware of the content of the fund manager’s Form U5 and knew that the PPM was silent about it. This omission was material because, as disclosed in the PPM, the fund’s trading decisions relied primarily on the fund manager’s knowledge, judgment and experience.

Puritan Securities, Inc. nka First Union Securities, Inc.: Censured, Fined $10,000 (A lower fine was imposed after considering, among other things, the firm’s revenues and financial resources.)

Nathan Perry Lapkin: Fined $10,000; Suspended in Principal capacity only for 15 business days.

 

Bill Singer's Comment
Interesting and well-presented case. Shows how an individual has increased regulatory exposure when he/she is on "notice" of circumstances that otherwise might not be known.
Pyramid Financial Corp. and John Hsu a/k/a Juan Hsu (Principal)
2008011600501/May 2011

The Firm and Hsu failed to preserve electronic communications related to the firm’s business when Hsu and another registered representative of the firm sent and received electronic communications related to the firm’s business using personal email accounts that were not linked to the firm’s email preservation system; the firm’s failure to preserve electronic communications was considered willful.

Hsu and the firm failed to comply with AML rules and regulations in that they failed to access the Financial Crimes Enforcement Network (FINCEN) and review records, failed to develop and implement a written AML program reasonably designed to achieve compliance with the BSA and implementing regulations, and failed to properly conduct annual independent tests of its AML program for several years. Hsu signed and submitted certifications to FINRA that contained inaccurate information regarding preservation of emails in compliance with SEC Rule 17a-4. Hsu willfully failed to amend his Form U4, to disclose material information.

Pyramid Financial Corp.: Fined $55,000 jointly and severally with Hsu

John Hsu a/k/a Juan Hsu (Principal): Fined $55,000 jointly and severally with Pyramid; Fined an additional $10,000; Suspended 45 business days in all capacities; Barred as a Principal only.

Bill Singer's Comment
Can't remember seeing a FINRA finding that the failure to preserve emails was "willful," so this must have struck the regulator as a particularly egregious case.
Reba Rose Cope
2009020243101/May 2011
A customer of Associated Person Cope's member firm’s bank affiliate instructed her to use the proceeds from a maturing certificate of deposit (CD) to purchase new CDs in the names of different people. Cope purchased one of the CDs, took the remaining proceeds of $9,878.89, converted them to a cashier’s check payable to the person for whom the CD should have been purchased, and later cashed the cashier’s check and kept the money for her personal use. Cope failed to respond to FINRA requests for information and documents.
Reba Rose Cope : FINRA did not seek restitution because a bank reimbursed the customer for the amount Cope converted, plus interest; Barred
Registered Rep
AWC/2010021348101/May 2011

RR falsely prepared a letter on the letterhead of one of his member firm’s institutional customers without the customer’s or firm’s knowledge or authorization. RR addressed the letter to the customer’s plan vendor, directing the plan vendor to change the commission split on the customer’s 457 plan to reflect that RR would receive a 100 percent commission; originally, the customer’s plan revenue reflected a commission split of 96 percent to RR and 4 percent to another registered representative.

RR’s member firm agreed to have commission revenues flow solely to him in the short term after the other registered representative resigned, but advised him that he needed to obtain a letter from the customer acknowledging his role as the sole broker of record due to the other registered representative’s resignation. The letter purportedly authorized RR to receive 100 percent of the commission from the plan revenue, and RR forged the signature of the customer’s plan controller without her knowledge or authorization. RR’s firm policy prohibits a registered representative from signing a customer’s signature to any paperwork, regardless of whether the customer has given permission to do so, and prohibits a registered representative from signing a client’s name on any form, with or without the client’s authorization.

Registered Rep: Fined $5,000; Suspended 5 months
Bill Singer's Comment
I mean, seriously -- really?  Boy, is this guy lucky that he's only sitting down for 5 months.
Robin Bruce Davidson (Principal)
OS/2008016063601/May 2011

Davidson recommended and participated in securities transactions outside the scope of his employment with his member firm when he recommended that clients, nearly all of whom were firm customers, participate in a managed foreign currency exchange-trading program; these clients invested $2,682,518.19, for which he received $3,894.64 in compensation for the referrals.

Davidson did not provide prior written notice, or any notice at all, to the firm of his involvement with the transactions, nor was the firm aware of Davidson’s recommendations and referrals until two months after his resignation when a customer complained about her losses. The clients Davidson referred to the securities transactions lost more than $2.4 million of the approximately $2.68 million they had invested in the managed foreign currency exchange-trading program.

Davidson signed a customer’s name to multiple account-related documents without her knowledge or consent.

Robin Bruce Davidson (Principal): Fined $10,000; Suspended 16 months
Bill Singer's Comment
Again, I must be getting quite ornery in my old age. This is the second case this month that the sanctions seem on the light side to me.  Davidson not only failed to disclose his outside FOREX activities but he managed to get his customers into a program that lost $2.4 million.  Lucky for him, I'm not doling out the dollars and months of suspensions.
Robin Fran Bush (Principal)
AWC/2009016159402/May 2011

As her member firm’s CCO, Bush was responsible for creating, maintaining and updating her firm’s Written Supervisory Procedures (WSPs) and for conducting due diligence for private offerings. Bush’s firm approved for sale, and sold, various private offerings, and for one offering, Bush’s due diligence consisted of reviewing the PPM and investor subscription documents, but she did not seek or obtain financial documents or information from the issuer regarding the offering, did not obtain any due diligence report, did not visit the issuer’s facilities or meet with its key personnel. Bush did not take steps to ensure, or otherwise verify, that other firm principals were conducting any due diligence of the offering’s issuer.

The firm and Bush obtained a third-party due diligence report after firm customers had already invested in the offering. In regards to a third private offering that her firm approved for sale and sold, Bush conducted due diligence after the product had been sold to customers -- and her due diligence consisted of obtaining investor subscription documents without obtaining PPMs for the offerings, did not obtain any due diligence report from an independent third party and did not meet with any executives to understand the nature of the offerings.

Bush’s firm sold additional, different unregistered offering to customers, and Bush, acting in her capacity as CCO and the designed principal for private offerings, failed to conduct due diligence for each of these other offerings.

Moreover, the firm’s supervisory system and the firm’s written procedures for private offerings Bush drafted and maintained were deficient because the procedures Bush drafted and maintained did not identify, in any detail, specific due diligence steps to be taken for private offerings or identify specific documents to be obtained for private offerings the firm was contemplating selling. Furthermore, the firm’s written procedures for private offering due diligence were conclusory, non-specific and lacking in the requisite minimum detail regarding steps to be taken and firm personnel responsible for such steps.

Robin Fran Bush (Principal): Fined $15,000; Suspended 6 months in Principal capacity only
Bill Singer's Comment

FINRA has certainly been on a tear when it comes to private placements, and has not been shy about going after supervisors for their lapses. Note FINRA's suggestion that you need to go and physically kick the tires on a deal.

Robin Fran Bush (Principal)
AWC/2009016159402/May 2011

As her member firm’s CCO, Bush was responsible for creating, maintaining and updating her firm’s Written Supervisory Procedures (WSPs) and for conducting due diligence for private offerings. Bush’s firm approved for sale, and sold, various private offerings, and for one offering, Bush’s due diligence consisted of reviewing the PPM and investor subscription documents, but she did not seek or obtain financial documents or information from the issuer regarding the offering, did not obtain any due diligence report, did not visit the issuer’s facilities or meet with its key personnel. Bush did not take steps to ensure, or otherwise verify, that other firm principals were conducting any due diligence of the offering’s issuer.

The firm and Bush obtained a third-party due diligence report after firm customers had already invested in the offering. In regards to a third private offering that her firm approved for sale and sold, Bush conducted due diligence after the product had been sold to customers -- and her due diligence consisted of obtaining investor subscription documents without obtaining PPMs for the offerings, did not obtain any due diligence report from an independent third party and did not meet with any executives to understand the nature of the offerings.

Bush’s firm sold additional, different unregistered offering to customers, and Bush, acting in her capacity as CCO and the designed principal for private offerings, failed to conduct due diligence for each of these other offerings.

Moreover, the firm’s supervisory system and the firm’s written procedures for private offerings Bush drafted and maintained were deficient because the procedures Bush drafted and maintained did not identify, in any detail, specific due diligence steps to be taken for private offerings or identify specific documents to be obtained for private offerings the firm was contemplating selling. Furthermore, the firm’s written procedures for private offering due diligence were conclusory, non-specific and lacking in the requisite minimum detail regarding steps to be taken and firm personnel responsible for such steps.

Robin Fran Bush (Principal): Fined $15,000; Suspended 6 months in Principal capacity only
Bill Singer's Comment

FINRA has certainly been on a tear when it comes to private placements, and has not been shy about going after supervisors for their lapses. Note FINRA's suggestion that you need to go and physically kick the tires on a deal.

Scott Jeffrey Adler
AWC/2010021436901/May 2011

Adler participated in private securities transactions when customers of his member firm and his accounting firm purchased promissory notes an individual issued. Adler failed to provide written notice to his firm describing in detail the proposed transactions with the individual issuing the promissory notes, his proposed role therein, and stating whether he had received or might receive selling compensation in connection with the transactions.

Adler introduced the customers to the individual and they invested a total of about $700,000 in the individual’s promissory notes as a result of Adler’s referrals. The individual paid Adler approximately $16,434 in selling compensation for his referral. The customers lost approximately $630,000, and the firm made full restitution to Adler’s clients even though one was not a customer of the firm.

Scott Jeffrey Adler : Fined $36,434 including $16,434 in disgorgement to be paid to the firm; Suspended 12 months
Bill Singer's Comment

Note that the Firm made full restitution of the $2.1 million in losses to the victims "even though some were not customers of the firm." If nothing else, that should underscore how these private securities transactions can impose (or potentially impose) liability upon the member firm. All of which should explain why firms are entitled to comprehensive, prior written notice about such away activity.

See, Irving Louis Adler  and Carl Henry Blanchard as apparent companion pieces of this story

Thomas W. McMahon
AWC/2010024706201/May 2011
McMahon sat for the Uniform Investment Advisor Law (Series 65) examination, during which he possessed unauthorized materials. McMahon electronically confirmed his agreement to abide by the rules of conduct and that he would immediately turn over any personal items such as notes, formulas, study materials or electronic devices to the testing center staff. While taking the examination, McMahon possessed a page of handwritten notes, containing material relevant to the examination, underneath scratch paper that was found on his desk during the examination.
Thomas W. McMahon : Fined $5,000; Suspended 2 years
TradeStation Securities, Inc.
AWC/2010023770401/May 2011

The Firm proceeded with new business operations prior to obtaining FINRA approval. The firm filed an Application for Approval of Change of Business Operations to move its futures business operations from fully-disclosed clearing to omnibus clearing operations, and while it requested expedited processing of its application, it did not wait for approval before commencing omnibus clearing.

FINRA notified the firm by letter that it had conducted an initial review of the application and requested additional information regarding the firm and the proposed change in business operations. The firm provided the requested information to FINRA by letter, in which it notified FINRA that it made the required net capital increases and went live with its omnibus arrangement although FINRA had neither concluded its review of the application nor granted the firm’s request for provisional approval to effect the change from fully disclosed to omnibus clearing operations.

At the time the firm was undergoing the approval process for its application, the firm was also contemplating a change in its business operations to prime brokerage. The firm informed FINRA that prior to conducting any full scale prime brokerage business, it intended to submit a separate Rule 1017 application. In addition, the firm submitted another Application for Approval of Change of Business Operations requesting approval to conduct prime brokerage business, which FINRA approved, although the firm had been engaging in unapproved prime brokerage activity prior to approval.

TradeStation Securities, Inc. : Censured; Fined $15,000
UVEST Financial Services Group, Inc.
AWC/2008012048601/May 2011
The Firm allowed registered representatives to operate registered investment advisory (RIA) programs not affiliated with the firm. These RIA programs were operated by firm registered representatives who were dually registered as representatives and RIAs. The RIA programs maintained accounts away from the firm and had assets under management of over $350 million. The dually registered representatives who operated these RIA programs participated in the execution of securities transactions, through broker-dealers other than the firm, involving mostly equity investments. Because the firm viewed these RIA programs as outside business activities, the firm did not comply with its obligations under NASD Rule 3040 with regard to the RIA programs, including complying with supervisory obligations and the obligation to record the transactions on the firm’s books and records. The firm failed to record the transactions executed away from the firm in its books and records as required by NASD Rule 3040; failed to supervise registered representative/investment adviser (RR/IA)s’ participation in the securities transactions executed through brokerdealers other than the firm; and failed to establish, maintain and enforce a supervisory system to supervise the RR/IA activities reasonably designed to provide an understanding of the nature of the services provided by its RR/IAs, the scope of each RR/IA’s authority, and the suitability of the transactions in which the RR/IA participated. In addition, the firm did not have WSPs to specifically address supervision of the securities activities of outside RIAs until a later date.
UVEST Financial Services Group, Inc. : Censured; Fined $75,000
Weston International Capital Markets LLC
AWC/2009016198601/May 2011
The Firm did not retain certain books and records that were required to be retained pursuant to SEC Rule 17a-4, including employment applications, signed original Uniform Applications for Securities Industry Registration or Transfer (Forms U4), articles of incorporation, records of internal inspections, and compliance, supervisory and procedures manuals, including updates, modifications and revisions. The firm failed to properly designate a registered FINOP, but continued to file FOCUS reports as required. The firm had at least one affiliated entity for which a website was established that referenced the firm’s broker-dealer business, and he website was never filed with and approved by FINRA’s Advertising Regulation Department within 10 days of first use or publication, and the firm did not evidence that the website had been approved by a registered principal by signature or initial. The firm failed to conduct AML testing and training, and failed to timely file a quarterly FOCUS report.
Weston International Capital Markets LLC : Censured; Fined $15,000
William Thomas Hernandez,
AWC/2010025260501/May 2011

Hernandez converted a total of $98,559.12 from elderly customers for his own personal use and benefit. Hernandez received checks totaling $14,378.27 from a customer to be deposited into the customer’s brokerage account at his member firm for investment purposes; however, he did not invest those funds -- instead, he deposited the checks into his personal checking account.

Without any authorization, Hernandez withdrew $60,220.85 from a checking account belonging to a customer of his firm’s bank affiliate and then deposited those funds into his personal investment account, converting the proceeds for his own use and benefit. Similarly, he withdrew without any authorization, another $24,000 from that same customer’s account and deposited the funds into his personal checking account.

Hernandez failed to respond to FINRA requests for information and documents.

William Thomas Hernandez,: Barred
April 2011
Alvin Waino Gebhart Jr. (Principal) and Donna Traina Gebhart (Principal)
C0220020057/April 2011

The sanctions were based on findings that Alvin and Donna Gebhart engaged in private securities transactions without prior written notification to, or prior approval from, their member firm. The findings stated that Alvin and Donna Gebhart sold unregistered securities that were not exempt from registration, and recklessly made material misrepresentations and omissions in connection with the sale of securities. Donna Gebhart’s suspension is in effect from June 7, 2010, through June 6, 2011.

Alvin Waino Gebhart Jr.: Barred

Donna Traina Gebhart: Fined $15,000; Suspended 1 year; Must requalify by exam in all capacities.

Bill Singer's Comment

The Weigh In

The 2004 NASD Hearing Decision

  • Alvin W. Gebhart, Jr. was suspended for 12 months in all capacities and fined $100,000.
  • Donna T. Gebhart was suspended for 7 months in her capacity as general securities representative and fined $7,500.
  • Both Respondents found jointly and severally liable for $5,141.21 in hearing costs.

The 2005 National Adjudicatory Council Decision

Round One: 2006 SEC Opinion

In 2006, the SEC reviewed the Gebharts' appeal of NASD findings and sanctions. In the 2006 SEC Opinion, the SEC held that the Gebharts, registered representatives of member firm of the NASD, had engaged in private securities transactions without giving prior written notification to, or obtaining prior approval from, member; sold unregistered securities; and made material misrepresentations and omissions in the sale of securities. The SEC sustained the NASD's findings of violation. The SEC also sustained NASD's sanctions:

  • Alvin Gebhart: Barred
  • Donna Gebhart: Fined $15,000 and suspended  for one year. NASD imposed two separate one-year suspensions on D. Gebhart (one year for private securities transactions and sales of unregistered securities and one year for violations of federal and NASD antifraud provisions) that were to be served concurrently.
  • NASD also assessed costs against the Gebharts, jointly and severally, in the amount of $5,141.21.

Round Two: 9th Circuit Remand on "scienter" issue

Following appeal to the Ninth Circuit Court of Appeals, that court affirmed the SEC's finding that registered representatives of member firm of registered securities association engaged in private securities transactions without giving prior written notification to, or obtaining prior approval from, member. However, the Circuit Court remanded for further findings on whether representatives violated antifraud provisions with the requisite scienter when they made material misrepresentations and omissions in the sale of securities.

Round Three: SEC's 2008 clarification

Upon remand, the SEC held in a 2008 Opinion that the representatives recklessly made material misrepresentations and omissions, and association's findings of liability. Accordingly the SEC sustained the sanctions imposed.  

Round Four: Case Closed

Thereafter, the Supreme Court of the United States denied a petition following the United States Court of Appeals for the Ninth Circuit’s denial of petition for review.

The Nitty Gritty: Scienter Is Not Mere Negligence

An interesting aspect of this case is the issue of whether "scienter" is satisfied by mere negligence or whether the state of mind requires something more. In responding to this issue, the SEC's 2008 Opinion provides an interesting commentary (pages 15 - 17 of the Opinion):

The Gebharts nevertheless argue that they should not be found liable for fraud because they acted in good faith, and therefore without the requisite state of mind. They contend that, as found by the NASD Hearing Panel, the Gebharts "truly believed that they had fulfilled their responsibilities to assure that MHP and CSG were appropriate investments . . . ." The Hearing Panel decision on this point was overturned by NASD's National Adjudicatory Council ("NAC"), which found that the Gebharts were reckless and concluded that the four factors identified by the Hearing Panel provided "scant reasons for the Gebharts to believe they had fulfilled their duty to investigate." The NAC decision is NASD's final action. 33/

The Court of Appeals in its remand opinion identified subjective and objective components in an analysis of recklessness, and we acknowledge the Gebharts' assertions that they believed they had done enough to confirm the truthfulness of their statements to clients. We consider evidence of good faith to be relevant to a determination of whether a respondent acted with the requisite state of mind. That evidence must be considered with all other evidence of knowledge or recklessness because the reasonableness and, therefore, the credibility of that claim of good faith must be evaluated in light of the circumstances of each case and in light of the conduct expected from a reasonable person.

The Court questioned whether the 2006 Opinion should be interpreted as holding that good faith cannot be a defense to a finding of scienter whenever the evidence indicates that the respondents lacked a "reasonable basis for recommending the [securities], because they failed to discharge [their] duty to investigate before making the recommendations." 34/ The Court seems concerned that our view is that a good faith belief founded on negligent actions satisfies the recklessness prong of scienter. We take this opportunity to reiterate our adherence to the recklessness standard as an extreme departure from the standards of ordinary care and our view that negligence does not qualify as scienter.

Thus, the evidence the Gebharts forward to demonstrate their good faith beliefs is and should be part of the complete mix of facts bearing on an evaluation of their state of mind, but, in the end, a respondent's belief that he acted in good faith must be tested by reference to objective criteria; i.e., the applicable standard of conduct is determined in accordance with the degree to which the respondent had acted extremely unreasonably. A respondent's asserted good faith belief is not plausible if he ignores facts that place him on notice of a risk of misleading clients. The Court in remanding this proceeding recognized this when it said: "When warranted, the SEC is entitled to infer from circumstantial evidence that a defendant must have been cognizant of an extreme and obvious risk and reject as implausible testimony to the contrary." 35/ The Sundstrand court also emphasized the need to refer to external standards when it originally defined recklessness, 36/ and other courts have similarly identified the ultimate importance of objective measures in securities fraud cases. 37/

Unlike the examples given by the Sundstrand court in which the subjective component would preclude liability for objectively reckless misconduct, the Gebharts do not claim that they "genuinely forgot" to disclose material information, i.e., that their statements had no basis in fact. Rather, their claim is that they were not reckless because, even though they knew their representations were based primarily on Archer's assertions and the silence of others, they nonetheless thought that they had done enough. The Gebharts similarly argue that they were truly and completely unaware of the fraud that the principals of MHP were perpetrating, that they were victims themselves of that fraud, and that they therefore lacked scienter. As the Gebharts assert, "It is simply implausible to suggest that the Gebharts knew or suspected that MHP would be unable to repay these loans while, at the same time, loaning it money."

These arguments are insufficient. As discussed above, the Gebharts made no meaningful attempts to confirm the validity of their assertions to clients that the Notes would be fully secured. They made these unsupported representations to clients despite not knowing whether they were true or false and despite having several and varied reasons to doubt the truth of their own statements. Our de novo review of the evidence in this case therefore leads us to conclude that, contrary to the Gebharts' assertions, they must have known when they made their misrepresentations that their actions presented an unacceptable danger of misleading their clients.

Moreover, accepting arguendo that the Gebharts were unaware of MHP's fraud, this does not alter our conclusion: the Gebharts face liability not because they knew of or failed to discover MHP's fraud, but because they made specific representations to clients about the security of the Notes without taking any basic steps to verify the truthfulness of those representations. Even if the Gebharts were unaware of MHP's actual fraud, we conclude that they still must have known of the risk of misleading their clients given their extreme departure from the standards of ordinary care. The Gebharts are legally bound as knowing that the representations were false. 38/

 

Anthony Edward Guaimano (Principal0
AWC/2008012444205/April 2011

Guaimano engaged in pre-arranged trading of CMO bonds in a proprietary trading account of his member firm. Guaimano effected CMO bond trades, consisting of paired purchases and sales, in the firm’s proprietary trading account with a registered principal and trader as the contra-party. Each pair of matched transactions was pre-arranged and directed by the registered principal. The registered principal and Guaimano traded the bonds at prices consistent with the current market for the securities; simultaneously, the registered principal agreed to repurchase them from Guaimano, at a specified time, at an agreed-upon price that usually provided Guaimano’s firm with a profit. Guaimano participated in pre-arranged transactions in which he did not take a profit, but as a result of the riskless principal CMO transactions in the proprietary account, Guaimano generated trading profits, markups and interest income for his firm of approximately $455,144.23.

Guaimano participated in the pre-arranged trading with the principal as an accommodation based upon Guaimano’s belief that the principal was “refreshing” his CMO bond inventory in order to maintain positions he wished to maintain and still be in technical compliance with inventory risk controls at his employer relative to the length of time positions that could be held in proprietary accounts. Guaimano knew, or should have known, that the pre-arranged nature of the trades, particularly the agreement that the principal would repurchase the securities in short order, caused beneficial ownership of the securities to remain with the principal’s employer.

Guaimano should have known that the principal’s effort to create the appearance of compliance with the inventory restrictions by liquidating positions could only succeed if the principal concealed from his employer the fact that he had committed to repurchase the bonds from Guaimano at the same or a higher price. Furthermore, Guaimano should have known that his participation in the pre-arranged transactions enabled the principal to deceive his employer as to its inventory positions and risk.

Anthony Edward Guaimano (Principal0: Fined $10,000; Suspneded 6 weeks
Bill Singer's Comment
Interesting facts and fair sanctions
Charles Joseph Fiorucci
AWC/2010022424201)/April 2011
Fiorucci relocated his business from a broker-dealer in one state to a broker-dealer in another state, and during the process of moving his customer accounts, Fiorucci falsified customer signatures on new account forms and change in broker-dealer forms. These customers consented to his signing these documents on their behalf, but others did not. The firm’s written supervisory procedures specifically prohibited registered representatives from falsifying and/or forging customers’ signatures on transaction documents and/or other documents.
Charles Joseph Fiorucci : Fined $5,000; Suspended 6 months
Bill Singer's Comment
My, what a surprise -- the firm's written supervisory procedures specifically prohibited its RRs from forgery.  I mean, seriously, does FINRA really need to get one last shot in against this guy?  Isn't it enough to note that he falsified documents and forged signatures? As if, what? those two factors wouldn't have constituted a violation but for the fact that they were also in violation of specific WSP prohibitions? Talk about gilding a lily!
Christopher Malchin
AWC/2010021389601/April 2011
Malchin utilized his business credit card for personal expenses and submitted false expense reports to his member firm, pursuant to which he was reimbursed approximately $1,806 for expenses that were not business-related.
Christopher Malchin : Fined $5,000; Suspended 6 months
Bill Singer's Comment
For a while there, this type of violation was popping up with some regularity but I haven't seen that same flood of credit card/expense cases during the past couple of years.  Guess, the trickle is beginning again.
Courtlandt Gerdes Miller (Principal)
OS/2008013183601/April 2011

Miller caused a research report to be published on a website that he had previously operated when he was the owner and president of a former FINRA member firm. Miller caused a press release to be issued by a public relations firm announcing the research report that was distributed to financial wire services. Miller did not inform or obtain approval from his member firm where he was registered regarding either the intention to publish the report on the former FINRA member firm’s website, or cause a press release to be issued announcing the research report. Neither the website nor the press release were approved by signature or initial and dated by a principal of firm where Miller was registered.

Miller’s firm filed an application with FINRA seeking approval for the firm to produce and distribute research reports. Miller was aware that the application had been filed and at the time the research report was published and the press release issued, the application was still pending and FINRA had not approved it. In addition, even though Miller knew that his firm had filed the application, he took no steps to ascertain whether or not the application had been approved. Moreover, he caused his firm to engage in the production and distribution of a research report at a time when it was not approved to do so. Furthermore, the research report and press release contained false information that stated it was prepared by a member firm although it had withdrawn its membership and was no longer a FINRA member firm.

Courtlandt Gerdes Miller (Principal): Fined $7,500; Suspended 10 business days
DaLean Annette Rials (Supervisor)
AWC/2009019405601/April 2011

Rials misappropriated approximated $70,000 from her member firm. Rials, as operations manager of her firm’s branch office, had authority to approve credits to customer accounts up to a specified dollar amount without additional approval. Rials used this authority to credit reimbursements totaling approximately $50,000 for non-existent fees and expenses in accounts belonging to her friends and family. Rials then withdrew the credited amounts from family accounts or received cash or checks from friends for the credited amounts.

Rials submitted expense reports for approximately $20,000 in personal expenses, falsely identifying them as legitimate business expenses. Rials improperly accessed her supervisor’s computer and approved some of her own expenses reports.

DaLean Annette Rials (Supervisor): Barred
Bill Singer's Comment
Frankly, wow.  Gotta giver Rials some credit. I mean, you know, as far as these things goes, this one was somewhat clever. $50,000 in bogus fees/expenses and another $20,000 for bogus expenses. And, to top it all off, she uses her supervisor's computer to clear the transactions.
Daniel A. Contreras (Principal)
AWC/2009018398701/April 2011

Contreras engaged in private securities transactions by recommending that customers invest in promissory notes, which were not approved investments of his member firm. Contreras failed to provide written notice to his firm describing in detail the proposed transactions and his proposed role therein, and stating whether he had received, or might receive, selling compensation in connection with the transactions.

The company that issued the promissory notes filed for Chapter 13 Bankruptcy, and all of Contreras’ customers lost their entire investment.

Contreras borrowed approximately $65,000 from his customers, contrary to his firm’s written procedures prohibiting registered representatives from borrowing money or securities from any prospects or customers, including non-firm prospects/customers, and Contreras failed to pay back any of the money he borrowed.

Contreras failed to respond to FINRA requests for information and testimony.

Daniel A. Contreras (Principal): Barred
Bill Singer's Comment
An all too typical scenario involving private securities transactions and borrowing from clients. A lot of folks are surprised when they learn how often those two factors go hand in hand.  Of course, an equally common factor is that an RR who fails to pay back customers from whom he borrowed money, also tends not to respond to FINRA requests for information and testimony.
Earnest Flowers III
OS/2009016956601/April 2011

In connection with the sale of investments in a film production company, Flowers made fraudulent misrepresentations and omitted to disclose material information. Flowers collected at least $92,000 from investors, falsely representing that he would use their funds to finance a film production business and promising exorbitant, guaranteed returns. Instead of investing the funds, Flowers misused $30,498 to repay other investors and pay for personal expenses without the investors’ knowledge, consent or authorization.

Flowers made recommendations to a customer to invest in private placement offerings that were unsuitable in light of the customer’s financial situation, investment objective and financial needs.

Flowers attempted to settle away customers’ complaints without his member firm’s knowledge or consent.

Flowers signed an attestation form for a firm acknowledging that email communications with the public must be sent through the firm’s email address and copied to the compliance department, but Flowers communicated with customers via unapproved, outside email accounts without his member firms’ knowledge or consent, and as a result of his outside communications, his member firms were unable to review his emails to firm customers. In addition, Flowers engaged in private securities transactions without providing prior written notice to, and receiving prior written approval from, his member firms.

Earnest Flowers III : Barred
Bill Singer's Comment
A succinct, well-presented case. Kudos to FINRA on this one.
Gary Chew
AWC/2008014479002/April 2011

Chew engaged in a

  • private securities transaction, by purchasing shares of stock via subscription agreement, outside the regular scope of his employment with his member firm and without providing prior written notice of this private securities transaction to the firm; and
  • outside business activity, as the president and sole owner of an entity, without providing prompt written notice to his firm.

Chew made false statements and attestations to his firm when he completed compliance questionnaires and annual attestations on which he declared to the firm that he had not personally invested in any private security transaction outside of the firm, that he was not “engaged in any outside activity either as a proprietor, partner, officer, director, trustee, employee, agent or otherwise,” and that he did not participate in any outside business activities except for those previously disclosed to, and approved in writing by, the firm.

Gary Chew: Fiend $10,000; Suspended 3 months
Gifford Keith Jordon
AWC/2010024417101/April 2011
Jordon participated in private securities transactions for which he received approximately $48,585 in commissions and failed to provide prior written notice to his member firm. Jordon concealed his participation because he did not believe his firm would approve the activity and completed the firm’s compliance questionnaires without disclosing the private securities transactions.
Gifford Keith Jordon: Barred
Bill Singer's Comment

I won't tell you because if I do, you probably won't approve it. Of course, if you find out about it, which you probably will because that's how this crap always winds up, then I'm going to lose my job and career. 

Lemme see, does that make any sense?

Hyon Chu Kang
AWC/2010022258701/April 2011

Kang made loans totaling at least $294,000 to a firm customer who was also a close personal friend. The loans were in the form of cash and checks to the customer and undertaken to assist the customer in meeting her business obligations.

Although the customer had signed promissory notes, she died and Kang has not been fully repaid. At the time she made the loans, Kang was aware that her member firm did not permit loans from or to customers unless they were immediate family members; however, Kang did not obtain pre-approval from her firm prior to lending monies to the customer, nor did she otherwise inform the firm of the loans.

Hyon Chu Kang : Fined $7,500; Suspended 60 days
Bill Singer's Comment

Okay, just to be clear, very, very clear, I absolutely detest and hate this case. A fairer resolution would have been to send Kang a sternly worded letter explaining why she should not do this and how it was necessary to obtain pre-approval from her firm.  Nontheless, under the totality of the circumstances, I find it absurd to impose a $7,500 fine upon the RR.  Moreover, I see no reason to sit her down for 60 days. 

Justice is not blind. Justice wears a blindfold. Every so often, Justice needs to lift the blindfold and take a peak.  The reality of this case is that a broker lent a large amount of money to a friend in order to help out with a business issue.  The broker did not borrow the funds from the client. Yes -- I know, the rule prohibits both borrowing and lending. And, yes, I respect why such a rule is in place and am not disputing its wisdom.  However, sometimes you just need to dilute the consequences when the underlying facts argue for some compassion and leniency. 

James Gabor Doering (Principal)
AWC/2009018661401/April 2011
Doering willfully failed to disclose material information on his Form U4. Doering completed annual certifications for his member firm in which he falsely answered “no” to whether he had been the subject of a Form U4 reportable event.
James Gabor Doering (Principal): Fined $5,000; Suspended 4 months
Janet A. McDermott (Supervisor)
AWC/2010022100601/April 2011

McDermott effected transactions, including checks, debits and automatic teller machine (ATM) withdrawals, in the aggregate amount of approximately $11,403 on her personal account at her member firm’s subsidiary, for which she did not have sufficient funds. McDermott opened a personal account at the subsidiary from where she began effecting transactions in amounts that she knew, or should have known, exceeded her available balance. This pattern continued, with McDermott causing transactions to occur on her account without sufficient funds until her account showed a month-ending deficit of $4,756, which included non-sufficient funds (NSF) charges of $2,130. The write-offs in the amount of $1,056 and a deposit of $3,700 reduced the deficit in her account to zero.

During a second period, McDermott again effected transactions on the account when she knew, or should have known, she had insufficient funds to cover the transactions. She failed to make a single deposit during this time to pay for the transactions, which caused her account to have a deficit of $7,049, which included NSF charges of $430.

McDermott's firm terminated her employment as a result of her conduct.

Janet A. McDermott (Supervisor): Barred
Bill Singer's Comment
I'm not defending McDermott's conduct but I am a bit puzzled as to how this becomes a FINRA regulatory issue.  I mean, seriously, at what point does a given number of bounced checks put you on notice that you will be barred from the securities industry?  Does that also apply to an employer member firm that pays you with a rubber check or starts to stiff its suppliers?  Assumiong that McDermott had opened her account at a third-party Bank -- not a subsidiary of her member firm -- would anyone at FINRA have cared about the NSF check situation?
Jennifer J. Guelinas
AWC/2010025098101/April 2011

Guelinas converted at least $500,000 from the brokerage accounts of senior citizen customers of her member firm by signing, without authorization, wire transfer requests which resulted in the conversion of the funds from the customers’ accounts to outside bank accounts she controlled and to third parties; the customers did not authorize the transfers. Without authorization, Guelinas signed

  • wire transfer requests,
  • real estate purchase agreements and
  • a promissory note

on senior citizen customers’ behalf.

Guelinas arranged and participated in real estate investments with senior citizen customers of her member firm and received compensation.

Also, Guelinas received compensation from a rental apartment she owned and failed to disclose the real estate investments, the compensation from the investments or the rental income to her member firm.

Finally, Guelinas failed to disclose material information on her Form U4.

Jennifer J. Guelinas : Barred
Bill Singer's Comment

Don't get me started on this one. Absolutely disgusting.

John Milton Rose
AWC/2010022089101/April 2011
In an attempt to keep customers from filing a complaint against him with his member firm, Rose made a $500 payment to the customers without his firm’s authorization or permission. Rose serviced the joint account of these customers who invested in private placements, and when the investments did not perform to their expectations, they sought reimbursement from Rose.
John Milton Rose : Fiend $5,000; Suspended 10 business days
Kelli Jo Bauer
AWC/2009019541001/April 2011

Bauer failed to disclose material information to her member firms and never completed a Form U4 amendment to answer relevant questions until after her firm terminated her.

Kelli Jo Bauer: FIned $5,000; Suspended 60 days
Kevin Leslie Moyer (Principal)
AWC/2009020137301/April 2011

Moyer effected discretionary transactions in a customer’s account without obtaining the customer’s or his member firm’s written authorization. The customer and her relative each had an account for which Moyer was the broker, and a company they owned together had an account for which Moyer was the broker as well. Moyer spoke regularly to the relative about transactions in all the accounts, but only received prior authorization for the transactions in the customer’s account from her for a minimum of the transactions, and the customer had not given her relative trading authority over her account.

Moyer’s firm had not permitted its registered representatives to exercise discretion in customer accounts during this time.

Kevin Leslie Moyer (Principal): Fined $5,000; Suspended 30 business days
Linda Louise Johnson
AWC/2010021494801/April 2011

Johnson affixed the signatures of members of the public on documents to open a joint account and transfer mutual fund shares into the account, without their knowledge and consent, and submitted the forms to her member firm for processing. Johnson had a registered sales assistant execute a “Signature Guarantee” for the customers’ signatures on the account transfer forms, based on Johnson’s representation to the assistant that she witnessed the customers sign the documents, which she knew was not true. During all relevant times, Johnson’s firm had a policy which prohibited representatives from signing documents or requesting anyone to sign documents on another person’s behalf, even if that person gave permission to do so. Johnson affixed one of the customer’s signature on a Letter of Instruction, which directed a member firm to sell $25,000 worth of the mutual fund that the customer owned, and forward the proceeds to Johnson. Although the customer authorized the transaction, Johnson affixed the customer’s signature to the document without the customer’s knowledge or consent, and bypassed her firm’s internal procedures requiring its operations department to review the document prior to submission to the mutual fund.

Johnson altered portions of an Individual Retirement Account (IRA) Distribution Request Form that another customer had completed by changing the date and dollar amount on the form; she then submitted the altered form for a distribution of funds. Although the customer authorized the distribution of funds, Johnson altered the form without the customer’s knowledge and consent.

Linda Louise Johnson : Fined $5,000; Suspended 6 months
Bill Singer's Comment
Time and time again we see the costs of these administrative short-cuts.  About the only saving grace in this case is that FINRA seems to have exercised commendable restraint and imposed a relatively modest fine and suspension.  But for the specific facts that spoke to the "well-intentioned" nature of the RR's conduct, this could have had a far worse outcome.
Michael William Keleher
OS/2008013229701/April 2011
Keleher falsified elderly customers’ account information forms and used those forms to open commission-based brokerage accounts the customers did not authorize. Keleher made unauthorized transactions in customer accounts and received $16,694.28 in commissions. Also, he paid $78,266 in commissions to an unregistered individual.
Michael William Keleher : Barred
Mission Securities Corporation and Craig Michael Biddick (Principal)
2006003738501/April 2011

The Securities and Exchange Commission (SEC) sustained the sanctions following appeal of a National Adjudicatory Council (NAC) decision. The sanctions were based on findings that the firm and Biddick converted and misused customer securities. The SEC affirmed the NAC’s findings that the firm and Biddick intentionally caused the transfer of securities from customers’ accounts to the firm’s account without any prior authorization from, or notification to, these customers. The findings also stated that the firm and Biddick then sold a portion of the converted shares and used some of the proceeds for the firm’s operating expenses.

Mission Securities Corporation: Expelled

Craig Michael Biddick: Barred

The Firm and Biddick were ordered to pay $38,946.06, plus interest, in disgorgement to firm customers.

Bill Singer's Comment

FINRA NAC Decision (Feb. 24,2010) affirming Hearing Panel’s finding that respondents violated NASD Rules 2330 and 2110 by converting and misusing customer securities. Accordingly, the NAC agreed to (a) expel Mission; (b) bar Biddick in all capacities;33 (c) order that Mission and Biddick pay, jointly and severally, $38,946.06 in the amounts and to the customers identified on Exhibit A attached to this decision, plus interest at the rate established for the underpayment of income taxes in Section 6621(a) of the Internal Revenue Code, 26 U.S.C. § 6621(a), from September 30, 2005, until paid; and (d) order that respondents pay, jointly and severally, hearing costs of $2,078.60.

See, SEC Decision (December 7, 2010)

National Securities Corporation
OS/2008011571801/April 2011

The Firm failed to file required amendments to Uniform Applications for Securities Industry Registration or Transfer (Forms U4), filed late Forms U4 amendments and filed inaccurate Forms U4. The Firm filed late amendments to Uniform Termination Notices for Securities Industry Registration (Forms U5), filed inaccurate Forms U5 and filed a Form U5 that failed to disclose a customer complaint against a registered representative.

The firm

  • failed to report statistical and summary information regarding a customer complaint,
  • failed to timely report statistical and summary information regarding customer complaints, and
  • filed inaccurate reports of statistical and summary information regarding complaints.
National Securities Corporation: Censured; Fined $22,500
Perry Mario Colletti
AWC/2009020957201/April 2011

Colletti filed, or caused to be filed, an initial Form U4 with a member firm on which he willfully failed to disclose material information.

Perry Mario Colletti : Fined $5,000; Suspended 6 months
Ray Joseph Starner
AWC/2010022383001/April 2011
Starner borrowed $50,000 from a customer at his member firm without informing his firm or otherwise having the loan approved. The firm had procedures which prohibited borrowing money from customers except under certain limited circumstances, which were not applicable in this case, and it did not know of or approve the loan. The loan had been repaid.
Ray Joseph Starner: Fined $10,000; Suspended 2 months
Richard Mark McKinnon
AWC//April 2011

McKinnon recommended the purchase of bonds, bond funds and annuities to an elderly customer who entrusted McKinnon with funds for their purchase. McKinnon deposited the funds into his personal bank account and made improper use of the funds, which included payment of personal expenses.

McKinnon accepted additional funds from the customer, which he used for personal expenses, and accepted additional funds from the customer in exchange for a promissory note he signed. McKinnon did not notify his member firm nor obtain its approval prior to entering into this arrangement with the customer. McKinnon provided false and misleading statements during FINRA testimony regarding the amount of funds he had accepted from the customer, the disposition of the funds and his purchases of securities for the customer in connection with the receipt of the funds.

Richard Mark McKinnon: Barred
Bill Singer's Comment
Good catch by FINRA.
Robert Lee Keys (Principal)
OS/2009017125101/April 2011

Keys made untrue statements and omissions in connection with the sale of a security; specifically, Keys recommended that a customer invest $1.1 million in a promissory note and represented to the customer that the promissory note was secured by $1.1 million in United States Treasury Bonds, when in fact, no such bonds existed. Keys provided wiring instructions to the customer in connection with the recommended purchase directing her to wire funds to the bank account of the issuing entity’s owner. Keys failed to investigate and discover that no treasury bonds existed, and instead relied on information he was given during a conference call initiated by the issuer’s owner to an unknown individual who claimed to be a representative of a well-known financial institution, the purported current custodian of the bonds; and Keys failed to investigate whether the unknown individual was in fact the financial institution’s employee.

At the time of Keys’ recommendation to the customer, he did not disclose the compensation, direct or indirect, that he expected to receive. The first time the customer discovered that any commission would be paid in connection with the sale of the note was when she received the note itself, delivered several weeks after she had wired the funds for the purchase; the note disclosed that a commission would be paid in connection with the note, but it erroneously stated that $50,000 would be paid to Keys’ member firm, and it did not disclose that Keys wholly owned the entity that received an additional $50,000. Keys was responsible for establishing, maintaining and enforcing his firm’s supervisory control policies and procedures, but failed to implement reasonable supervisory controls when he failed to ensure that an individual at the firm who was senior to or otherwise independent of himself supervised and reviewed his customer account activity.

Robert Lee Keys (Principal): Barred
Bill Singer's Comment
That's one hell of an "oops."  I wonder how much of the $1.1 million the customer recovered, if anything.
Sanjeev Jayant Shah
2009017788201/April 2011

Shah made unauthorized foreign currency trades in a customer bank account, resulting in margin calls being generated for the account and consequently the customer’s other bank accounts were frozen, preventing the customer from transferring funds from those accounts. Shah made unauthorized money transfers from another customer’s bank account to satisfy, in part, the margin calls for the first client and to be able to transfer funds at its request.

In order to effect the unauthorized fund transfers, Shah forged a signature and created falsified Letters of Authorization (LOAs) by cutting a bank director’s signature from an account opening document and pasting it on a fabricated LOA. Shah fabricated documents regarding another client’s obligation to meet capital calls and falsely created a memorandum representing that the capital calls had been met.

Shah falsely told the customer’s beneficial owner that all outstanding calls had been met and to ignore notices he too was receiving. To make the memorandum appear authentic, Shah fabricated an internal email address for a fictitious employee and sent the memorandum to the beneficial owner to make him believe that the calls had been met.

Shah failed to respond to FINRA requests to provide on-the-record testimony and to provide a signed statement.

Sanjeev Jayant Shah : Barred
Bill Singer's Comment
I gotta give this guy some kind of award. He sure tried to juggle as many balls in the air as possible.
Scott Thomas McNiff
AWC/2010023138801/April 2011
McNiff willfully failed to timely disclose material information to his member firm and never completed amending a Form U4.
Scott Thomas McNiff : Fined $5,000; Suspended 6 months
Susan Mae Karn
AWC/2010022067901/April 2011

Karn allowed a customer to sign relatives’ names on life insurance applications, and before Karn submitted them for processing, she signed the insurance applications and certified that she had witnessed each of the proposed signatures on the insurance applications. Karn falsely certified on the Representative’s Information Supplement document for each insurance application that she had personally seen each proposed insured at the time the application was completed.

One of Karn’s clients completed an application to purchase a municipal bond fund by signing her name on an electronic signature pad, and later that same day, Karn signed the client’s name on the electronic signature pad and thereby affixed the client’s signature on an application without the client’s authorization, consent or knowledge. The application Karn’s member firm processed and sent to the client reflected the signature Karn had affixed rather than the client’s authentic signature. When the firm questioned Karn about the authenticity of the client’s signature, Karn initially stated it was the client’s original signature, but when questioned further, admitted she had signed the client’s name and in doing so, Karn misled her firm during its internal investigation into a customer complaint.

Susan Mae Karn : Fined $5,000; Suspended 6 months
Bill Singer's Comment
Not exactly the clearest of explanations. FINRA says that the client completed an application "by signing her name on an electronic signature pad . . ." However, it then suggests that Karn did something wrong by signing the client's name on the electronic signature pad. I'm lost. Did the client electronically sign her name on the application to purchased the bond fund or not? What happened to the client's signature?  Although I can likely infer some of the answers, it would be preferable if this report took a bit more time to set out the salient facts.
Thomas Jeffery Gregory
AWC/2009021029704/April 2011
Gregory allowed an internal wholesaler at a firm to improperly assist him in completing a state-required long-term care continuing education (CE) examination. Gregory called an internal wholesaler and asked her if she could provide him with answers to questions on the long-term care CE examination for a state. The wholesaler provided him with answers to the examination over the phone while he was completing the examination online.
Thomas Jeffery Gregory : Fiend $5,000; Suspended 1 month
William Robert Whitehurst
AWC/2010021401001/April 2011

Whitehurst improperly borrowed funds from customers at his member firm. He borrowed a total of approximately $15,000 from a customer. The borrowings were unsecured and the loan terms were not memorialized in writing; to date, Whitehurst has only repaid $10,000 to the customer.

When these borrowings occurred, Whitehurst’s firm prohibited its representatives from borrowing from customers. Whitehurst did not obtain the firm’s approval to borrow money from the customer and did not disclose to his firm that he had borrowed money from her.

Whitehurst borrowed a total of approximately $10,000 from another customer and has repaid the loans.

When these borrowings occurred, the firm’s written policies prohibited borrowing from customers unless the firm approved an exception, but Whitehurst did not obtain his firm’s approval to borrow money from the customer, and did not disclose to it that he had borrowed money from her. In addition, With both customers, the borrowing arrangements did not otherwise meet the conditions set forth in NASD Rule 2370(a)(2). Moreover, FINRA found that Whitehurst provided FINRA with a false written response in regard to an investigation.

William Robert Whitehurst : Barred
Woodrock Securities, L.P.
AWC/2009016279401/April 2011

The Firm failed to ensure that investor funds from an offering were deposited into an escrow account during the offering’s contingency period. The firm participated in a best efforts, “minimum-maximum” offering an entity conducted, and the offering summary stated that if the minimum offering amount was not raised during the offering period, the funds held in the segregated account would be returned to the investors; but prior to the minimum offering amount being raised, the issuer withdrew and utilized funds from the bank account.

After only $600,000 had been raised, the issuer withdrew $199,000 and utilized the funds to make a down payment on a portfolio of defaulted auto loans so that the minimum offering amount was not obtained until a later date. The findings also included that the representation in the offering summary that investor funds would be placed in a segregated account until the minimum offering amount had been received was rendered false when the issuer utilized investor funds before the minimum offering amount was raised.

Woodrock Securities, L.P. : Censured; Fined $10,000
Bill Singer's Comment
An all-too familiar story when it comes to mini-maxes, contingencies, and escrow accounts. Frankly, a very fair resolution by FINRA and the sanctions are quite moderate.
Workman Securities Corporation
AWC/2009018818401/April 2011

The Firm failed to:

  • have reasonable grounds to believe that a private placement an entity offered pursuant to Regulation D was suitable for any customer, after it received red flags that the entity had financial issues and was not timely making interest payments, but continued to sell the offering to customers;
  • enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, and NASD and FINRA rules in connection with the sale of private placements;
  • conduct adequate due diligence of the private placements or confirm that its representatives were doing their own due diligence;
  • conduct adequate due diligence of private placements other entities offered; and
  • enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, and NASD and FINRA rules in connection with the sale of the private placements the entities offered pursuant to Regulation D.

The Firm reviewed cursory private placement memoranda (PPMs) for the offerings but failed to investigate red flags or analyze third-party sources of information or take affirmative steps to ensure the information in the offering documents was accurate.

The Firm failed to preserve electronic communications in a non-rewritable, non-erasable or “WORM” format that complied with books and records requirements, and the firm used third-party software for storing and retaining electronic communications that did not comply with the requirements of SEC Rule 17a-4(f). Although the Firm was informed that its electronic storage medium was non-compliant but did not take adequate remedial action to retain email properly.

Workman Securities Corporation : Censured; Ordered to pay $700,000 as partial restitution to investors; Ordered to certify in writing to FINRA that it has established and implemented a system and procedures reasonably designed to achieve compliance with recordkeeping requirements related to electronic communications, and provide a written report to FINRA describing the policies, procedures and controls it has established and implemented related to the integrity of the retention and retrieval process for electronic communications, and the supervisory system it has implemented to oversee the preservation of electronic communications.
Bill Singer's Comment
In 2011 we see a continuation of FINRA's enforcement focus on private placements, with an emphasis on members' responses to "red flags" and the sincerity of the firm's due diligence efforts.  The day's of taking a piece of a private placement and sleepwalking through your obligations to your clients is a vestige of the past.  There's no easy money in Reg D. You have to do your homework and put your money where your mouth is.
March 2011
Adam Howard Markowitz
AWC/2009018550901/March 2011
Markowitz facilitated investments away from his member firm and failed to provide written notice to, or obtain approval from, his firm prior to facilitating the investments. The findings stated that Markowitz facilitated investments titled “Secured Investment Notes,” totaling $1,025,000. Markowitz failed to respond to FINRA requests for information and documentation.
Adam Howard Markowitz : Barred
Brian William Livingston and Michael Andrew Livingston
AWC/2008015186001/March 2011

The Livingstons willfully failed to disclose material information on their Forms U4 and failed to appear to give testimony in response to FINRA requests.

Brian William Livingston and Michael Andrew Livingston: Barred

Canaccord Genuity Inc. fka Canaccord Adams, Inc.
AWC/2008012243901/March 2011

As an active participant in the U.S. Private Investment in Private Equity (PIPE) market, Canaccord failed to have in place reasonable information barrier procedures with respect to its PIPE business. The firm failed to have a reasonable system in place to track employees who were brought “over the wall” on specific PIPE transactions, and while the firm had a procedure in place requiring the maintenance of a “wall-crossing log,” it did not maintain such a log. The firm stored information about over-the-wall employees in a computer file that was not readily accessible to persons with responsibilities to monitor trading and review emails of employees brought over the wall on investment banking matters.

The firm failed to maintain a specific log of employee transactions in securities on the firm’s grey list and/or restricted list, and the firm was unable to provide documentation evidencing that it had investigated employee trading in grey list securities to determine whether employees had misused material, non-public information.

The Firm failed to have a reasonable system in place to monitor the flow of information concerning PIPE transactions to potential investors, and while the firm’s procedures required sales persons to obtain verbal agreements from potential investors to keep information concerning PIPE transactions confidential and refrain from trading on such information, the firm did not reasonably ensure that the procedure was followed or document that such verbal agreements were obtained. The information that was maintained concerning the disclosure of information on PIPE transactions was not used for supervisory or compliance purposes.

In addition, the firm’s system for review of email correspondence was unreasonable; while the firm’s procedures required the review of a sample of email communications, the sample included mail boxes for users no longer employed at the firm and permitted Compliance Department employees, at their discretion, to mark emails as reviewed based solely on a review of the sender’s name, recipient’s name and subject line of an email; stated differently, the firm permitted “bulk review” of emails without any written guidelines informing compliance staff of the parameters for such review.

Moreover, the Firm also utilized an Internet chat room system that allowed members of its business units, including but not limited to, the investment banking and research departments, to communicate and/or review each other’s communications. Furthermore, the firm did not have in place any written procedures relevant to monitoring internal communications between its business units on the internal chat room system and could not document that it actively monitored such communication.

Canaccord Genuity Inc. fka Canaccord Adams, Inc. : Censured; Fined $40,000
Bill Singer's Comment

An interesting case on a few levels.  First, my long antagonism to PIPEs is noted -- I tend to absolutely hate these transactions as among the most pernicious evils of Wall Street that are often little more than battering rams used against smaller issuers.

The bulk review aspect of this case warrants attention.  The apparent failure to age-out the database and to include within samples inactive mail accounts is a practice that compliance departments should now note is within FINRA's cross-hairs.  Similarly, if your firm provides an internal chat facility, make sure that you have documented procedures for monitoring that communication system.

Christina Marie Neumeyer
AWC/2009018415201/March 2011

Neumeyer affixed customer signatures and a registered representative’s name on documents without their knowledge or consent. During the course of routine review of account documents, Neumeyer’s member firm notified a registered representative whom Neumeyer assisted, that corrections were necessary on certain account documents, including obtaining customer signatures on forms for a number of accounts. Neumeyer sent by fax to her firm the documents with corrections that had been requested and upon review of the account documents that Neumeyer faxed, certain customer signatures were identified as appearing to have been cut and pasted on to the forms.

When Neumeyer was questioned about the suspected falsified documents, she admitted to altering the documentation for a customer, by cutting and pasting the customer’s signature on separate forms without the customer’s knowledge or consent; the forms included disclosures about the nature of the customer’s investments.Neumeyer also signed the name of the registered representative whom she assisted on numerous different documents for a number of different customers. The forms on which Neumeyer signed the registered representative’s name were acknowledgments that the registered representative reviewed the customer account documents “for completeness, accuracy, suitability and proper disclosures” and acknowledgments that the registered representative had scrutinized the customer’s information in compliance with the Office of Foreign Asset Control (OFAC) and the customer identification program (CIP), relating to the firm’s compliance with AML rules.

Christina Marie Neumeyer : Fined $5,000; Suspended 30 days
Christine Mary Ryerson (Principal)
AWC/2009020567801/March 2011

Even though she was a licensed insurance producer, Ryerson signed her own name as the “producer” or “agent” on annuity application transfer and exchange forms when, in fact, she was not the producer or agent on those particular applications. Ryerson signed the documents for the benefit of a person who, as Ryerson knew, sought to conceal his identity from his member firm as the true agent on those documents. Ryerson misidentified herself as the “producer” or “agent” on annuity application transfer and exchange forms for other insurance agents as well under similar circumstances.

Ryerson failed to produce some of the information FINRA requested.

Christine Mary Ryerson (Principal): Barred
Craig Harold Schwarten
AWC/2008012927502/March 2011

Schwarten made an unsuitable recommendation to a customer, in light of the customer’s financial situation and needs, for the purchase of a private placement offering. Schwarten recommended that the customer take equity out of her home through a refinanced mortgage and use $100,000 of the proceeds to purchase the private placement offering.

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

Craig Harold Schwarten : Barred
Craig Michael Bettencourt
AWC/2010023336301/March 2011
Without his client’s authorization, Bettencourt created a debit memorandum from his client’s account for $35,000 and directed that the debit memorandum be converted to a check payable to a bank where Bettencourt held a personal account. The findings stated that Bettencourt endorsed the check and deposited it into his personal account at the bank, converting the funds to his personal use and benefit. To disguise the conversion, Bettencourt created a false Certificate of Deposit (CD) in his client’s name for $35,000, created a false CD account in his client’s name and delivered a receipt to his client.
Craig Michael Bettencourt: Barred
Dahlman Rose & Company, LLC
AWC/2009016138801/March 2011
The Firm permitted a person registered solely as a general securities principal who had not passed the necessary qualification examination to approve research reports a firm research analyst prepared, which the firm issued. The firm published a research report regarding a company, which did not disclose that the firm had co-managed an initial public offering of securities for the company during the past 12 months. The firm began making a market in a company’s securities, and on the same day the firm published a research report concerning the same company that did not disclose that it was making a market in the company’s securities. The firm published research reports containing disclosures NASD Rule 2711(h) required that were not presented on or referred to on the front page of such reports.
Dahlman Rose & Company, LLC : Censured; Fined $17,500
Bill Singer's Comment
Two of the more fundamental items on the "research" checklist for compliance departments. One, reports must disclose recent co-managed/managed IPOs.  Two, among the most basic of conflicts is issuing research on a company that your firm makes a market in.  Oops.
Dana Ann Davis aka Dana Pickens
2009017292801/March 2011
Associated Person Davis willfully failed to disclose material information on her Uniform Application for Securities Industry Registration or Transfer (Form U4) and failed to respond to FINRA requests for information.
Dana Ann Davis aka Dana Pickens: Barred
Dane Carl Sternecker
AWC/2009016781201/March 2011

Sternecker attempted to determine a customer’s total amount of investments without the customer’s knowledge or consent. Sternecker called a representative at another investment firm and inquired about the customer’s investments at that firm. Sternecker requested a firm office assistant to impersonate the customer and authorize the representative at the other firm to provide Sternecker with information about the customer over the phone. As part of the impersonation, the office assistant answered security questions about the customer from information the customer provided to Sternecker earlier; the security answers provided by the office assistant induced the other firm’s representative to provide Sternecker with the customer’s investment information.

The office assistant reported the impersonation to her manager, which led to an internal investigation and after Sternecker admitted to his misconduct, the firm terminated him.

Dane Carl Sternecker : Fined $5,000; Suspended 30 business days
Bill Singer's Comment
Ah, the old I though I could trust my sales assistant gambit. As you can see, that reliance is often misplaced. 
David Eric Niederkrome (Principal) and Stephen Rudolph Rodgers (Principal)
AWC/2008016403302/March 2011

Niederkrome authorized an associated person’s participation in private securities transactions primarily involving the sales of hedge fund interests to investors, but failed to supervise the sales for suitability, or to review and retain monthly performance statements that were sent to hedge fund investors as required by NASD Rule 3040.

Niederkrome and Rodgers, as principals responsible for the review and approval of all new account applications, approved the opening of the accounts for prospective hedge fund investors without inquiring into whether the intended investment was actually suitable for them.

David Eric Niederkrome: Fined $15,000; Suspended 6 months in Principal capacity only

Stephen Rudolph Rodgers: Fined $5,000; Suspended 60 days in Principal capacity only

David Michael Brown
AWC/2009016590801/March 2011
Brown received an $80,000 check from a customer of his member firm to deposit into the customer’s account. Instead, Brown deposited $18,000 of the customer’s funds into an unrelated client’s account without the customer’s authorization or knowledge. Brown failed to appear for a FINRA on-the-record interview.
David Michael Brown: Barred
David Wayne Bombard
AWC/2009019977001/March 2011
Bombard signed customer names to insurance disclosure forms and disclosure statements in order to avoid meeting with the customers in person, in violation of New York State Department of Insurance Regulation 60, which requires that when agents sell annuity products, they complete a Definition of a Replacement Form, a Disclosure Form and a Disclosure Statement with the applicant signing each one. The customers intended to purchase the annuity products from Bombard notwithstanding their failure to sign the required documents.
David Wayne Bombard : Censured; Fined $5,000; Suspended 6 months
Bill Singer's Comment
See this for prior commentary: http://www.rrbdlaw.com/2007/Regulation60.htm
Donna Marlene DiMaggio
AWC/2009018193801/March 2011

In connection with customers’ purchases of a private placement offering, DiMaggio falsely represented to each of the customers that she had personally invested funds with the issuer. Based on DiMaggio’s representation and recommendation, each of the customers invested $60,000 in the offering.

DiMaggio settled and/or attempted to settle potential customer complaints regarding undisclosed fees, failing to add a living benefit rider to a variable annuity and making unsuitable investment recommendations, without her member firm’s knowledge or approval.

DiMaggio exchanged business-related emails with customers using an unapproved email account, thereby causing her firm to violate its recordkeeping requirements. (FINRA Case #)

Donna Marlene DiMaggio : Barred
Dustin Kent Jefferies (Principal)
AWC/2009018919701/March 2011

Jefferies signed or traced customers’ signatures on applications to purchase life insurance or critical care insurance through an electronic application system available at his member firm, without the customers’ knowledge or consent and contrary to firm policy. Jefferies submitted life insurance applications for fictitious customers and, along with creating fictitious customer names and addresses, he created fictitious social security numbers, driver’s license numbers and other information about the purported customers. Jefferies submitted these applications for fictitious customers in order to give the appearance that he was meeting his required production for insurance policies sold. When Jefferies submitted each of the fictitious applications, he listed fictitious credit card numbers made up of all zeros for the initial premium payment, knowing that the credit card would be rejected with no payment being collected or the customers billed, while at the same time, his firm would give him immediate credit for submitting a new insurance policy.

When questioned by his manager about the applications, Jefferies initially denied having any knowledge of the practice and when later pressured by his manager, he then offered that newer agents may have been engaged in the activity. Only after his manager noted that almost all of the applications with zeros for credit card numbers were submitted from his office that Jefferies admitted to his misconduct, stating he did so because the applications would be credited to his production numbers more promptly that month. In addition, Jefferies also admitted that he had submitted applications using fictitious names and other information.

Dustin Kent Jefferies (Principal): Fined $10,000; Barred in Principal capacity only; Suspended 1 year in all capacities
Bill Singer's Comment
Seriously? Really? OMG, what was he thinking??
Edward Gerald Spinelli
AWC/2009018288301/March 2011
Spinelli improperly marked order tickets for transactions, which his member firm’s research did not cover, in accounts as “unsolicited” when, in fact, they were solicited, thereby causing the firm’s books and records to be inaccurate. Spinelli solicited the purchase of securities for which the firm did not have a research opinion for family members’ accounts even though he was aware that the firm prohibited its registered representatives from soliciting transactions in securities for which the firm’s research department did not have a research opinion without firm approval. Spinelli effected transactions on a discretionary basis for the accounts, when neither customer had provided Spinelli or the firm with written authorization to exercise discretion.
Edward Gerald Spinelli : Fined $5,000; Suspended 20 business days.
Bill Singer's Comment
A not-uncommon company policy, and a fairly benign sanction given the circumstances. Make sure to check out your firm's guidelines before marking a ticket "unsolicited."
Edward Howard Schrufer Jr. (Principal)
AWC/2008013198902/March 2011

Schrufer made unsuitable recommendations to customers to use the accumulated equity in their homes to generate cash to invest.Schrufer’s recommendations that the customers borrow the money against their homes to invest in securities were made without reasonable grounds for believing that the recommendations were suitable based upon the financial situations and needs the customers disclosed. The customers took “cash out” mortgages and invested hundreds of thousands of dollars in securities, for which Schrufer received advisory fees and commissions of approximately $15,300. The customers disclosed to Schrufer that they lacked the funds necessary to purchase the securities Schrufer recommended without liquefying their home equity, and that they had insufficient assets and income to cover the monthly mortgage payments without the uncertain returns from the investments Schrufer recommended.

Schrufer told the customers that the investments they would make using the proceeds of their cash-out mortgages would generate enough income to make their monthly mortgage payments, even though Schrufer knew that there was a risk that the investment returns might not be sufficient to pay the mortgages over time. Schrufer’s statements to the customers that their investments would generate sufficient income to make the additional mortgage payments were misleading.

Edward Howard Schrufer Jr. (Principal): Fined $30,600 (includes $15,300 commission/fees disgorgement); Suspended 1 year
Bill Singer's Comment
What can I say that hasn't already been said by so many consumer advocates, so many times before?  You really should think twice (and then keep thinking until you reach the "it's not a smart idea" thought) before you ever use the proceeds of re-mortgaging your home (or even those from a home equity loan) to invest in the stock market. Many proponents of this dubious strategy ultimately wind up living in their automobile, assuming that such was not repossessed.  
Eric Damien Kallies
AWC/2009016654401/March 2011

Kallies executed purchases of exchange-traded fund (ETFs) in a managed joint account of public customers without the customers’ knowledge or consent, and without having obtained the customers’ prior written authorization to exercise discretion and his firm’s prior written acceptance of the account as discretionary.

Kallies made a presentation consisting of several slides to the customers in connection with an investment strategy program he was recommending and was considered “sales literature.” Kallies made the presentation without first obtaining approval from the appropriate registered principal of the firm, and it was never filed with FINRA within 10 business days of its first use. The presentation generally failed to disclose the risks of investing in the securities that were discussed, failed to disclose the general risks associated with investing in mutual funds and ETFs, and failed to disclose the heightened risk of investing in inverse types of ETFs. The absence of certain disclosures resulted in the presentation not being fair and balanced and not providing the investor with a sound basis for evaluating facts in regard to a particular security or service, and the slides contained unwarranted and/or misleading information.

Charts in some slides failed to include the total annual fund operating expense ratio, a prospectus offer and standardized average annual total returns for one, five and ten years; rather, they included the annualized rates of return, which is considered non-standardized performance and must be accompanied by the standardized performance listed. In addition, the charts in some slides failed to include the performance disclosures required by SEC Rule 482(b)(3); these disclosures generally require that the sales material disclose that the performance data quoted represents past performance, that past performance does not guarantee future results and that performance may be lower or higher.

Eric Damien Kallies : Fined $15,000; Suspended 30 business days
First Clearing, LLC
AWC/2008012791101/March 2011

The Firm's anti-money laundering (AML) program was inadequate, in that the firm reviewed transactions covering only a limited amount of potentially suspicious activity. The firm generated many exception reports and alerts dealing with potentially suspicious securities transactions and money movements in customer accounts that were introduced by unaffiliated broker-dealers to the firm; however, these reports were tools that the firm provided to its correspondent brokers to satisfy the introducing brokers’ AML obligations. The firm did not consistently review reports for suspicious activity reporting, and the firm reviewed only a limited number and type of transaction for its own suspicious activity report (SAR) reporting obligation.

The firm failed to establish and implement an adequate AML compliance program for detecting, reviewing and reporting suspicious activity. The firm did not review or monitor suspicious activity in most of the exception reports that it prepared for, and distributed to, the introducing broker-dealers or otherwise conduct sufficient risk-based monitoring of activity in accounts its unaffiliated introducing broker-dealers introduced. The firm reviewed a limited amount of potentially suspicious money movements and penny stock activity and, as a result, it failed to establish and implement a transaction monitoring program reasonably designed to achieve compliance with the SAR reporting provisions of 31 U.S.C. 5318(g) and the implementing regulations as required by NASD Rule 3011(a).

First Clearing, LLC : Censured; Fined $400,000
Bill Singer's Comment
Essentially, what statisticians would call a "sampling error." If you're going to transactions, you need to utilize and wide enough and deep enough sample so as to give you a chance at uncovering something. Also, FINRA doesn't quite like the idea that the Firm was producing reports but not quite delving into them and, to some extent, passing the buck to unaffiliated BDs. 
First New York Securities L.L.C.
AWC/2006005271003/March 2011

The Firm failed to preserve for a period of not less than three years, the first two in an accessible place, copies of instant messages sent and received between several of the firm’s traders and an external party on certain days within a total of approximately 10 weeks, and the new account form and clearing agreement for one of the firm’s accounts at another broker-dealer. The firm’s supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules concerning retention and review of electronic communications.

In response to an NASD Rule 8210 request, a firm principal orally asked the associated person originally responsible for the firm’s reviews of such electronic communications to gather and deliver the evidence of such reviews but the associated person realized he had misplaced the file and was directed by his supervisor to duplicate past reviews. Instead of duplicating such reviews using the same parameters as were in effect during the review period, the associated person re-conducted such reviews using changed and expanded parameters, signed and hand-wrote in dates of when he estimated the reviews took place, and delivered them to the secretary of the firm principal who was responding to the inquiry on the firm’s behalf. Without conducting any review of the newly created reports, the firm’s principal submitted them to FINRA as evidence of the past reviews and the firm failed to take reasonable steps to confirm that the subject reports represented authentic and contemporaneous evidence of supervisory reviews that were actually conducted during the review period.

First New York Securities L.L.C. : Censured; Fined $65,000; Required to revise its written supervisory procedures concerning retention and review of electronic communications.
Bill Singer's Comment
FINRA advises that its sanctions in this case "reflect some mitigating factors."  U:nfortunately, those factors aren't actually spelled out in the monthly report.  As best I can infer, the mitigation is that the associated person likely thought that he/she was merely reconstructing missing documents rather than fabricating them. 
James Robert Riolo (Principal)
AWC/2010022499001/March 2011

Riolo referred customers of his member firm to entities controlled by his relative, who was purportedly engaging in trading off-exchange foreign currency (forex) contracts, but in fact was running a fraudulent scheme. The customers invested more than $3.3 million with one entity, and for referring these customers, Riolo received more than $960,000 from his relative. Both entities were fraudulent schemes and Riolo’s relative was subsequently convicted and sentenced in court for his fraudulent activities.

Customers that Riolo referred lost a combined amount of over $120,000. In referring these customers to his cousin and receiving compensation, Riolo engaged in an outside business activity, but did not provide written notice or receive approval from his firm. Riolo falsely stated in signed monthly compliance questionnaires that he was not engaging in any outside business activity. In addition, Riolo failed to respond to FINRA requests for information and documents.

James Robert Riolo (Principal): Barred
Jeffrey Alan Lee
2008014233602/March 2011
Lee willfully failed to disclose material information on his Form U4 and to amend his Form U4 to disclose material information.
Jeffrey Alan Lee: Fined $5,000; Suspended 1 year
Joe Evan Still and John Richard Still
OS/2008014358101/March 2011

Joe and John Still  engaged in outside business activities for compensation without disclosing this to their member firm, in writing or otherwise. Joe and John Still referred or introduced prospective investors, including a customer of Joe Still’s member firm, to an individual and to the individual’s business, and failed to conduct any due diligence on the individual and his business prior to referring or introducing the prospective investors; the investors subsequently invested over $4.8 million with the individual’s business.

John Still received compensation totaling over $300,000 for the referrals and Joe Still received compensation totaling over $120,000 for the referrals and, with the exception of two checks, the referral fee checks were made payable to relatives who were not securities professionals and who had no role in referring customers to the business. John and Joe Still falsely represented on annual compliance questionnaires that they had disclosed all outside business activities.

Joe Evan Still: Fined $25,000; Suspended 18 months

John Richard Still: Barred

John Leslie White
AWC/2009016876801/March 2011

White borrowed $20,000 from a customer at his member firm, in order to purchase a house, without providing prior written notice to or obtaining prior written approval from, the firm. White borrowed the money, and the firm’s written procedures prohibited borrowing from customers unless the customer was either an immediate family member, or a person or entity regularly engaged in the business of lending money, and White’s customer was neither.

White completed an annual firm compliance survey and answered falsely that he had not borrowed money from clients.

John Leslie White : Fined $5,000; Suspended 2 months
Jordan Anne Arnold
AWC/2009018327001/March 2011
Arnold  participated in a scheme to obtain confidential information and documentation regarding insurance policies by impersonating policy owners during calls with insurance companies. In connection with a review of certain customer life insurance policies, Arnold and another individual called insurance companies even though neither were agents of record on the policies or otherwise entitled to have access to that information. Arnold impersonated different insurance policy owners in order to obtain the information and documentation so that the other individual could perform a review analysis of the policies.
Jordan Anne Arnold : Barred
Bill Singer's Comment
Joseph Jeffrey Mattia (Supervisor)
OS/2008016120501/March 2011

Mattia authorized an email to be sent from him to his member firm’s Office of General Counsel that contained statements concerning the resolution of a customer complaint against a firm registered representative that he knew, or should have known, were false and caused the firm to improperly report the resolution on the representative’s Form U4.

The client settlement had been improperly reported as withdrawn even though the client’s accounts had been credited with $9,198 and Mattia had personally agreed to settle the complaint. Even if Mattia believed the email might be accurate, he should have made a reasonable inquiry into the status of the complaint prior to authorizing the email to be sent, and he would have discovered that the complaint had not been withdrawn.

Joseph Jeffrey Mattia (Supervisor): Fined $5,000; Suspended 3 months
Bill Singer's Comment

It takes a bit to figure this one out. As best I can tell, a client complained. The client settled the matter upon being issued a $9,198 credit which Mattia "personally agreed to." It appears that Mattia was not the registered person servicing the account but that he was consenting to the settlement as that RR's registered supervisor.

You got me so far?

Okay, after all this settlement stuff is finished, Mattia then does something like email his firm's General Counsel's office with the advisory that the customer had withdrawn the complaint. FINRA seems to believe that either the complaint was not withdrawn but "settled," and should have been reported as such.

Kyle Egress
AWC/2009021029705/March 2011

Certain states began requiring financial advisors to successfully complete a long-term care (LTC) continuing education (CE) course before selling LTC insurance products to retail customers. Egress allowed an individual to improperly complete an LTC CE exam for him in a state in which he had a prospect who was interested in an LTC product. The individual took the exam for Egress using identification information received from Egress, which included his social security number, insurance license number and expiration date, and address.

The prospect never purchased the insurance product through Egress.

Kyle Egress : Fined $5,000; Suspended 1 month
Bill Singer's Comment
All that and the trade blew up. What a waste.
Lillian S. Scales
AWC/2010023669001/March 2011
Scales was listed as a joint owner with a customer on a mutual fund account her member firm held, falsely maintaining that she and the customer were relatives because the firm allowed employees‘ immediate family members to maintain joint accounts with them. The customer contacted the firm and reported funds missing from the mutual fund account and that Scales had improperly taken approximately $39,000 from the account and deposited the funds directly into her personal bank account, without the customer’s knowledge or consent, for her own use and benefit.
Lillian S. Scales: Barred
LPL Financia Corporation nka LPL Financial LLC
AWC/2009016922702/March 2011

LPL failed to establish, maintain and enforce a supervisory system, including written supervisory procedures reasonably designed to review and monitor all transmittals of funds and securities from customer accounts to third party accounts and to registered representatives’ accounts.

The firm’s supervisory control procedures for third-party transmittals included the use of an Office of Supervisory Jurisdiction Review Tool (ORT) to monitor third-party disbursements; ORT was designed to identify only transmittals of cash, e.g. in the form of checks, Automated Clearing House (ACH) transactions, or wire transfers to third parties. The firm’s control procedures for review using ORT did not address journals between accounts and one of the firm’s registered representatives exploited this failure and journaled $40,000 in cash as well as securities out of customers’ accounts to his personal account, and converted the cash and proceeds from the sale of the journaled securities in the aggregate amount of over $1 million.

The firm’s procedures required that any journal that results in assets being journaled into a registered representative’s personal account must be submitted to a supervisor for approval, and the firm failed to document any approvals of the subject journals or document that the requests were escalated to a supervisor for further review. While the firm’s procedures required that the firm send a written confirmation to the customer’s address of record in conjunction with all third-party journals, the firm failed to send written confirmations in conjunction with some third-party journals.

LPL Financia Corporation nka LPL Financial LLC : Censured; Fined $100,000
Bill Singer's Comment
You sort of get the sense that someone was really asleep at the LPL switch. It's one thing to not have policies and procedures and to violate FINRA rules; however, when you have such protocols but then don't follow the supervisory procedures inherent in your own in-house policies -- geez, that's not gonna end well.
LPL Financial Corporation nka LPL Financial LLC
AWC/2009016570001/March 2011
LPL failed to enforce its supervisory system and written supervisory procedures relating to the review of electronic communications in certain branch locations. Approximately 3 million emails firm financial advisors transmitted and received from numerous bank branch locations related to one bank program were not processed through the Office of Supervisory Jurisdiction Review Tool (ORT) due to a technology problem concerning the interface between one bank program’s email system and the firm’s ORT; therefore, those emails were not subject to supervisory review by firm managers and principals. The firm’s ORT flagged for supervisory review emails financial advisors in a branch office transmitted and received, but a branch manager or principal never reviewed them.
LPL Financial Corporation nka LPL Financial LLC : Censured; Fined $100,000
Bill Singer's Comment
Wow!  Three million unprocessed emails. That's a load. On top of it, flagged emails were sent and received by the Firm's review program but inexplicably never reviewed by a manager/principal -- which sort of rendered the whole flagging thing sort of useless.
M. Paul De Vietien
2006007544401/March 2011
Following De Vietien’s appeal of an Office of Hearing Officers (OHO) decision that barred him for participating in private securities transactions and outside business activities in violation of FINRA rules.
M. Paul De Vietien : Fined $16,000; Suspended 1 year
Bill Singer's Comment
M. Paul De Vietien appeals the December 3, 2009, Hearing Panel decision, which found that he participated in private securities transactions and engaged in undisclosed outside business activities, in violation of FINRA’s rules. The Hearing Panel barred De Vietien for the violations. On review, the NAC affirmed the Hearing Panel’s fmdings, but eliminated the Bar, and imposed a 1 year suspension plus a fine of $16,000 for the private securities transactions and outside business activities.

Read the NAC 12/28/10 Decision at http://www.finra.org/web/groups/industry/@ip/@enf/@adj/documents/nacdecisions/p122867.pdf

Mark Steven Gutentag (Principal)
AWC/2009018550601/March 2011
Gutentag facilitated securities investments away from his member firm without providing written or other notice of those investments to, and without obtaining approval from, his firm prior to facilitating the investments. The investments, titled “Secured Investment Notes” totaled at least $7 million.
Mark Steven Gutentag (Principal): Barred
NAME REDACTED (Supervisor)
AWC/2008014144201/March 2011

REDACTED submitted requests to her member firm to make charitable sponsorship payments to a non-profit organization that she served as a vice president and a member of the board of directors, which was disclosed in writing to, and approved by, her firm. The firm approved REDACTED’s requests and made the sponsorship payments through checks.

The founder and executive director of the non-profit wrote checks totaling $20,275 to himself from the non-profit’s account at REDACTED’s firm. REDACTED communicated with the founder about his personal use of the funds in a series of emails through her firm email account, which show that the founder used the funds for a move to a new place of residence, for rent and utilities and for cell phone bills, among other expenses; in one of his emails to REDACTED, the founder promised to pay the funds back.

In an email to the founder, REDACTED told him to use the money from the non-profit’s account to help him get established at his new place of residence and that they would find a way to build the funds back up over time. Thereafter, REDACTED submitted the final request for a sponsorship payment of $5,000 to be made to the non-profit.

In addition, REDACTED was in possession of a checkbook belonging to the non-profit and, per the founder’s oral authorization, REDACTED wrote checks and improperly signed the founder’s name to those checks, but REDACTED did not have written authorization to sign the checks and did not place any notation on the checks indicating that she was signing the checks on the founder’s behalf. The checks totaled approximately $7,723 and were made payable either to third parties or to “cash”; of this total, approximately $3,415 was paid through checks written to “cash,” thereby REDACTED improperly signed the name of an authorized signatory of a customer account on checks.

REDACTED failed to timely comply with a FINRA request that she provide testimony in connection with a FINRA investigation.

NAME REDACTED (Supervisor): Fined $10,000; Suspended 2 years
Puritan Securities Inc. aka First Union Securities, Inc.
AWC/2008012927503/March 2011

The Firm entered into an agreement with an entity to sell a private placement for which the firm’s brokers sold $1,415,940 of the private placement interests to customers, and the firm failed to create and maintain a reasonable supervisory system to detect and prevent sales practice violations in these transactions. The firm did not collect financial and other relevant information for the customers who purchased the private placement, and did not review these transactions to determine if the recommendations for the purchases were suitable for these customers.

Also, the firm failed to implement a supervisory system reasonably designed to review and retain electronic correspondence. The firm did not establish an email retention system that captured all of its brokers’ emails. The firm’s brokers were allowed to use email addresses using external domains, and the firm did not have the capability to review, capture and retain these emails.

Puritan Securities Inc. aka First Union Securities, Inc.: Censured; Fined $10,000 (in light of the firm's revenues and financial resources, a "lower fine" was imposed)
Bill Singer's Comment
As I've noted over the years, permitting registered persons to use email addresses that are off the firm's platform poses significant supervisory issues.  Here, brokers were permitted to use external domains but the firm did not have the ability to review, capture, and retain the subject communications. That's going to be a problem for FINRA.
Robert John Griffin
AWC/2009020328201/March 2011
Griffin borrowed a total of $10,000 from a friend who was also a customer of his member firm through loans against the customer’s life insurance policy, contrary to his firm’s written supervisory procedures that required written approval from the firm before an employee could borrow money from any customer, including friends. Griffin supplied the customer with the necessary paperwork and asked the customer not to tell anyone at his firm about the loan. Griffin failed to obtain his firm’s pre-approval in writing of the loans before accepting the loans. Also, Griffin provided false responses during firm face-to-face annual compliance interviews and on questionnaires regarding borrowing or lending money to clients.
Robert John Griffin : Fined $7,500; Suspended 7 months
Bill Singer's Comment
Once you start asking a client not to notify your firm, then you're really asking for trouble. Which is what the RR in this case got.
Roger Craig Fulton (Principal)
AWC/2009018041101/March 2011

Fulton submitted a variable annuity application and other documents to his member firm knowing that they contained falsified customer signatures. Fulton recommended that a customer switch a variable annuity he owned for another variable annuity, which had advantageous riders. The customer agreed to the switch, but Fulton agreed to delay the switch until market conditions improved.

Fulton determined that market conditions were appropriate for the switch on a certain date, but the customer was out of town on an extended trip at that time. Fulton and the customer then agreed that the customer’s relative would sign the customer’s name to the variable annuity application and the other documents necessary to complete the switch transaction, which she did with Fulton’s knowledge. Fulton then submitted the annuity application and other documents the relative falsely signed to his firm as authentic, knowing that the customer’s signature on the documents was not authentic. In addition, Fulton’s submission of the falsified application and other documents to his firm caused the firm’s books and records to be inaccurate.

Roger Craig Fulton (Principal): No fine in light of financial status; Suspended 3 months
Bill Singer's Comment
I'm not going to defend the RR's conduct but, I'm sorry, this just does not warrant a 3-month suspension.  The key issue that distinguishes this fact pattern from so many other unauthorized signature case is that the client AUTHORIZED the affixation by the relative and the transaction.  Unquestionably, Fulton should have disclosed to his firm that the signature was not the client's original but one authorized in abstentia.  Nonetheless, this error in judgment warrants an admonition and not a formal regulatory sanction as far as I'm concerned. I'm confining that opinion to the very narrow set of facts in this case.
Stanley Jerome Keyes (Principal)
OS/2009017605101/March 2011

Keyes borrowed at least $214,000 from customers without disclosing such borrowings to his member firm, and used the loan proceeds to meet personal financial obligations. Each loan was an undocumented personal loan and functioned like a line of credit; Keyes would borrow an amount, repay a portion and then borrow additional funds. Keyes repaid the outstanding balances owed to each of the customers but did not fully repay two customers until after he was terminated from his member firm and FINRA began its investigation.

Keyes failed to disclose the existence of the initial loans or the subsequent borrowings from them to his firm contrary to firm policy forbidding registered representatives from borrowing funds from customers except under certain circumstances, none of which fit Keyes’ borrowing. Keyes was aware of the firm’s procedures, certified to the firm that he had received and read the firm’s policies and procedures, and understood that he was prohibited from borrowing money from customers. Keyes falsely certified to the firm that he had not received checks from customers made payable to him, and had not borrowed money from customers.

Stanley Jerome Keyes (Principal): Fined $5,000; Suspended 3 months
Bill Singer's Comment
Frankly, all in all, a fairly modest sanction given the non-payment aspect to the clients (until payment was apparently prompted by the FINRA investigation) and the false certification to the firm. This could have ended far worse.
Stuart Phillip Miller
AWC/2009018219101/March 2011

Miller and another individual were trainees in a member firm’s professional development program and formed a partnership through which they jointly solicited and handled customer accounts as well as splitting any production credits that either generated.

As part of their efforts to attract clients, Miller and the individual created a spreadsheet that set a model fund portfolio that they either presented to potential customers during meetings or sent by email or mail to prospective customers. Miller and the individual sent a version of their model fund portfolio that included a mix of conservative and risky securities along with a chart of history of returns the individual securities and overall portfolio earned; Miller and the individual, in some communications with potential customers, misrepresented that this was a portfolio that they managed and that the stated returns were their returns. Neither Miller nor the individual sought or received a firm supervisor’s prior approval for the use of the model fund portfolio or permission of its dissemination, nor was the model portfolio’s spreadsheet filed with FINRA’s Advertising Regulation Department, within 10 business days after first dissemination of the material as required.

The model fund portfolios did not include any information regarding the risks associated with the funds, and the chart did not include a sound basis for the performance evaluation for each of the securities included in the portfolio. The model portfolio failed to identify or to display in a prominent fashion Miller’s and the other individual’s association with their firm. In addition,

Miller had his assistant type up a stop transfer letter and he forged the customer’s signature on the letter meant to prevent the customer from transferring his account to another firm. Moreover,Miller admitted to his branch manager that he had forged the stop transfer request and the firm immediately terminated Miller’s employment.

Stuart Phillip Miller : Fined $10,000; Suspended 1 year
Teri Sue Shepherd (Principal)
AWC/2009017136101/March 2011
Acting through Shepherd, her member firm conducted a securities business while failing to maintain adequate net capital. Shepherd caused the firm’s net-capital violations by improperly treating a debt the firm’s parent company owned as an allowable asset for purposes of its net-capital calculations, and improperly treating as allowable the excess amount of concessions receivable for trails over the amount of corresponding commissions payable.
Teri Sue Shepherd (Principal): Fined $7,500; Suspended 45 days in Principal capacity only; Required to requalify by examination before acting in any FINOP capacity with any FINRA registered broker-dealer.
Bill Singer's Comment
The main interest in this case is the somewhat rare sanction upon a FINOP and the requirement to requalify in that capacity.
Timothy Welland Hyde aka Joseph D. Bonanno (Principal)
2008016179401/March 2011
Hyde willfully failed to disclose material information on his Form U4 and failed to appear for a FINRA on-the-record interview.
Timothy Welland Hyde aka Joseph D. Bonanno (Principal): Barred
Vincent Michael Bruno (Principal)
AWC/2009018771701/March 2011

As his member firm’s Chief Compliance Officer, Bruno failed to ensure that his firm established, maintained and enforced a supervisory system and WSPs reasonably designed to achieve compliance with the rules and regulations in connection with private offering solicitations. Acting through Bruno, his firm maintained a deficient supervisory system and WSPs with respect to private offering solicitations in that those procedures did not specify who at the firm was responsible for performing due diligence, what activities firm personnel were required to satisfy the due diligence requirement, how due diligence was to be documented, who at the firm was responsible for reviewing and approving the due diligence that was performed and for authorizing the sale of the securities, and who was to perform ongoing supervision of the private offerings once customer solicitations commenced.

As a result of its deficient WSPs, the firm failed to conduct adequate due diligence on private placement offerings, and Bruno failed to take any other steps to otherwise ensure that it was conducted.

Vincent Michael Bruno (Principal): Fined $10,000; Suspended 1 month in Principal capacity only.
Walter Wesley Watts
AWC/2008014930201/March 2011
Watts engaged in a private securities transaction outside the regular scope of his employment with his firm without providing prior written notice to the firm. Watts sold a joint venture agreement issued by an entity to a customer who invested $250,000 and, based upon the terms outlined in the joint venture agreement, expected to receive a guaranteed return on his investment of 3 percent per month. The entity ceased making payments to the customer.
Walter Wesley Watts : Fined $5,000; Suspended 4 months
William Echeverri
AWC/2009016948201/March 2011
Echeverri  failed to disclose to his member firms that he held an outside brokerage account at another member firm. While associated with one of the firms, Echeverri made written attestations to the firm that he did not have an outside brokerage account when, in fact, he did have one.
William Echeverri : Fined $7,500; Suspended 60 days
February 2011
Andrew Gregory McGrath
AWC/2009018123301/February 2011
McGrath engaged in an outside business activity and failed to provide prompt written notice to his member firm; McGrath sold EIAs and earned approximately $104,000 in commissions. McGrath completed and signed a firm annual questionnaire, on which he failed to disclose his outside business activity, and failed to update his Form U4 to disclose the outside business activity, and at no time did he provide written notice to his firm.
Andrew Gregory McGrath: Fined $5,000; Suspended 3 months
Andy Young Lee
AWC/2008015985601/February 2011
Lee opened a brokerage account at another member firm without providing written notice to his firm prior to opening the account, and placed hundreds of trades in the outside account without disclosing that trading activity to his firm. Lee failed to provide notice to the firm providing the account of his association with his firm. When Lee became associated with another member firm, he failed to disclose the fact to the member firms at which he maintained brokerage accounts.
Andy Young Lee : Fiend $10,000; Suspended 30 days
Antonio Demetrious Mosby
OS/2009020767901/February 2011
Mosby submitted, or caused to be submitted, a Form U4 that was materially false or inaccurate, thereby willfully failing to disclose material facts on his Form U4.
Antonio Demetrious Mosby: Barred
Benjamin Harry Cohen
AWC/2009017087301/February 2011

Cohen violated FINRA’s suitability rule by failing to understand or convey to customers the cost of a rider to a variable annuity, pursuant to transactions he recommended to customers. Cohen incorrectly communicated the imposed fee. Cohen did not understand the risks and rewards inherent in the variable annuity, with the rider feature, which he recommended to the customers.

Cohen conducted a trade in a deceased customer’s account with a purchase of $4,662 of an entity Class A mutual fund share. Cohen had discussed with this customer purchasing the entity’s Class A shares prior to the customer’s passing, and he had prepared certain paperwork for the transaction prior to the customer’s death, but the purchase had not been made at the time of the customer’s death. At the time of the transaction, Cohen did not consult with any representative of the deceased customer’s estate and also did not notify the firm that the customer had passed away.

In addition, Cohen failed to appear for a FINRA on-the-record interview.

Benjamin Harry Cohen: Barred
Bill Singer's Comment
A frequent issue for many brokers is how to best handle the portfolio of a deceased client. Should you enter the orders that the deceased gave you prior to his/her death? Should you sell the stock just hit with bad news? Should you close out the profitable option position as expiration date nears?  All legitimate concerns and, frankly, all could require different answers depending upon whether the deceased left an estate, whether there is an executor or administrator involved, whether there is a JTWROS, etc.  The best advice? First, talk to your firm's compliance/legal department. Second, if appropriate, get in touch with the individual legally empowered to handle the deceased's account.
Bobb Arthur Meckenstock (Principal)
OS/2008011612602/February 2011

Meckenstock failed to reasonably supervise a registered representative at his member firm in that the registered representative participated in sales of stock that were outside the course or scope of the registered representative’s employment with the firm. Meckenstock participated in certain sales of the stock himself, and failed to record the sales on the firm’s books and records as required by NASD Rule 3040(c).

Meckenstock failed to submit a written request to participate in the sale of stock, failed to receive written approval to participate in the transactions and failed to provide written approval to the registered representative to participate in the sales.

Meckenstock failed to conduct sufficient due diligence on the offering, failed to investigate the nature of the individual with the issuer, failed to investigate his relationship with the issuer, failed to question him about any additional sales he may have made to firm customers, and failed to investigate compensation that the registered representative was promised or received from the sale of the interests in the company.

Meckenstock failed to adequately supervise the resale of stock through a registered investment adviser (IA) the representative owned, and failed to review the IA’s books and records, which would have disclosed the representative’s sale of his shares of the stock to public customers.

Meckenstock reviewed a private placement memorandum and offering for his firm and approved it as a suitable investment, but failed to ensure that the issuer had established an escrow account, thereby failing to adequately supervise the sale of the offering and causing his firm to violate Securities Exchange Act Rule 15c2-4. In addition, Meckenstock failed to evidence his supervisory review and approval of customers’ purchases of interests in numerous offerings.

Bobb Arthur Meckenstock (Principal): Fined $10,000; Suspended 30 days in Principal capacity only
Bill Singer's Comment
A classic private placement cascade effect that flows into everything that it touches -- failure to supervise, due dilly, escrow, outside activities, and on and on.
Bradley Darryl Tiche (Principal)
AWC/2008015190201/February 2011
Tiche failed to timely disclose material information on his Form U4.
Bradley Darryl Tiche (Principal): Fined $4,250 (included credit for $1,500 fine imposed by member firm); Suspended 15 business days
Bill Singer's Comment
Note the FINRA credit for the internally imposed fine.
Bradley John Delp
AWC/2007008935005/February 2011

Delp recommended that customers participate in a Stock to Cash program under which customers pledged stock to obtain loans to purchase other products; Delp’s customers obtained loans totaling approximately $3.5 million. The customers borrowed up to 90 percent of the value of the pledged stock for a short period of time. The pledged stock would be transferred to the loaning entity’s securities account maintained at a clearing firm; and no payments were required during the term of the loan, but customers were required to pay the full principal and interest due at the end of the loan term. The documentation the loaning entity used made it appear it was retaining the securities pledged and might use them to enter into hedging transactions, but in reality, the customers conveyed full ownership to the entity, which routinely sold the securities upon receipt and often moved the money into its own bank account.

The entity became unable to make complete payments to customers with profitable portfolios and used the proceeds from the sale of securities new customers pledged to pay off its obligations to existing customers, and money was also diverted to pay for expenses not related to its operation. Delp did not take adequate efforts to find out what happened to the stock conveyed to the lender and did not inquire into what would be done with the stock; failed to conduct due diligence into the lender’s financial condition but relied on unverified statements the promoter made, and told his clients they could receive their stock back at the end of the loan period. By failing to verify information about how the stock was held or secured and whether the lender had the ability to fulfill its obligations, Delp did not have a reasonable basis for recommending the Stock to Cash program to his customers and potential customers. Some of the customers, at Delp’s recommendation and with his participation, initially used some or most of the proceeds to buy equity-based mutual funds along with other products in violation of Regulation U restrictions.

Bradley John Delp : Fined $25,000; Suspended 75 days
Buka Uzoma Nwigwe aka Chukwuebuka Nwigwe
#2009019332001/February 2011
Nwigwe misappropriated customer’s funds when he worked as a personal banker for his member firm’s affiliate bank. Nwigwe requested that a credit card for a customer be delivered to his attention at the branch, used the credit card to incur approximately $1,746 in unauthorized charges for his personal use and forged the customer’s signature on multiple occasions to complete purchases with the card. Nwigwe admitted to the firm’s internal investigators that he used the unauthorized credit card for his personal use.
Buka Uzoma Nwigwe aka Chukwuebuka Nwigwe: Barred; The Hearing Officer did not order restitution because the customer was not required to pay for the unauthorized charges on the credit card.
Carlos C. Sarmiento Jr.
OS/2009019888601/February 2011

Sarmiento converted a total of approximately $82,350 through checks, which he took and forged from a joint brokerage account firm customers held. Sarmiento admitted to one of the customers that he had taken the checks belonging to the customers’ joint brokerage account, admitted to stealing their money, indicated that he would return the money and asked that he not be reported.

Sarmiento’s former member firm contacted his current firm regarding Sarmiento’s conversion of customers’ funds while at the former firm, and when questioned, Sarmiento admitted to having taken the customers’ funds.

Sarmiento failed to respond to FINRA requests for information and documents.

Carlos C. Sarmiento Jr. : Barred; Ordered to pay $82,350, plus interest, in restitution to a member firm.
Carson Jay Woods
AWC/2009021029616/February 2011
Certain states implemented a LTC CE requirement that obligated financial advisors to complete a LTC CE course and exam before selling LTC insurance products.In order to assist financial advisors with the LTC CE requirement, Woods created an answer key for one state exam, distributed the answers for the exam to other firm representatives and distributed a portion of the answers for the exam to a non-firm employee.
Carson Jay Woods : Fiend $5,000; Suspended 60 days.
Chapin, Davis
AWC/2010021065701/February 2011

The Firm failed to develop and implement a reasonably designed anti-money laundering (AML) compliance program (AMLCP).

The firm’s written procedures, which contained information primarily relating to customer identification procedures (CIP),

  • offered little or no guidance on how to comply with most requirements of the Bank Secrecy Act;
  • contained no provisions on conducting customer due diligence and enhanced due diligence, and insufficient guidance on responding to, and properly documenting responses to, information requests the United States Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued pursuant to Section 314(a) of the U.S.A. PATRIOT Act; and
  • did not address how to monitor for and report suspicious activity, and the firm failed to conduct an adequate independent test of its AMLCP. FINRA found that the testing, which an independent auditor performed, was deficient by failing to test the firm’s implementation of a suspicious activity report (SAR) surveillance program, AML training program and Bank Secrecy Act requirements, including customer identification procedures.

FINRA also found that the firm failed to

  • establish, maintain and/ or enforce a supervisory system and written procedures reasonably designed to record and supervise private securities transactions, and failed to record such transactions; and
  • make and keep current all account forms in compliance with Securities Exchange Act Rule 17a-3(17), and NASD Rules 3110(a) and (c).
Chapin, Davis : Censured; Fined $50,000
Charles Donald Harkins (Principal)
AWC/2009019094002/February 2011
Harkins willfully failed to amend his Form U4 to disclose material information, and failed to timely respond to FINRA requests for information and documents.
Charles Donald Harkins (Principal): Fined $10,000; Suspended 9 months
Christopher Gregory Gibas (Principal)
AWC/2005002244703/February 2011

Gibas failed to reasonably supervise a registered representative at his member firm by approving variable annuity transactions the representative recommended and affected; in approving these transactions, Gibas did not adequately respond to red flags that should have alerted him that the transactions were unsuitable.

Gibas’ firm placed the representative under heightened supervision, which was formalized by a written agreement the representative and Gibas signed, and under the agreement, Gibas was required, among of things, to pre-approve all the representative’s annuity business and new accounts, to speak with each of the representative’s customers who were 65 or older, and to help the representative diversify her business.

With respect to the variable annuity transactions, they were unsuitable, in that the transactions’ costs outweighed the benefits, and in some of those transactions, the customers purchased a rider for which they were not eligible. At the time Gibas approved these transactions, there were numerous red flags regarding the representative’s variable annuity transactions, including transactions appearing on exception reports, that should have alerted him to the potential unsuitability of her transactions and required follow-up more comprehensive than Gibas otherwise took. Gibas did not adequately carry out his other responsibilities under the firm’s heightened supervision of the representative; although Gibas reviewed the representative’s transactions and contacted certain elderly customers before those transactions were affected, some of the conversations with the representative’s customers lasted only a few minutes, were conducted when the representative was present, or before Gibas received any paperwork regarding the proposed transaction. While Gibas met with the representative, as well as with other supervisory and compliance personnel at the firm, none of the steps taken proved effective in preventing the representative’s unsuitable sales.

Christopher Gregory Gibas (Principal): Fined $10,000; Suspended 5 months in Supervisory/Principal capacities only
Bill Singer's Comment
A well-presented and compelling FINRA disciplinary case.  I like that it not only sets forth what the Principal didn't do but also suggests, by inference, what he should have done.
Clark Alexander Reinhard
AWC/2010021577101/February 2011

Reinhard participated in private securities transactions without providing prior written notice to, and/or obtaining prior written approval from, his member firm. The findings stated that Reinhard sold at least $869,000 in stock and warrants to investors, including firm customers, and sold the securities, which a publicly traded company issued, as part of a private securities offering by hedge funds. Reinhard falsely represented on annual compliance questionnaires that he had not engaged in private securities transactions.

Reinhard failed to respond to FINRA requests for documents.

Clark Alexander Reinhard : Barred
Corey Michael King
AWC/2009020709101/February 2011
King willfully failed to disclose material information on his Form U4.
Corey Michael King: Fined $5,000; Suspended 6 months
Cynthia Ann Bulinski
AWC/2005002244704/February 2011

Bulinski made unsuitable recommendations to her elderly clients to purchase variable annuities. She repeatedly failed to tailor her recommendations to meet her customers’ individual investment needs, and instead recommended the same variable annuity to her customers, irrespective of age, investment experience, liquidity needs, financial situation and risk tolerance.

Bulinski recommended that elderly customers purchase the same variable annuity with an enhanced death benefit rider, but demonstrated that she did not have reasonable basis for her recommendation because some of the customers were too old to purchase the rider and the rest gained little, if any, benefit from the rider while paying a substantial cost for it. Bulinski recommended unsuitable variable annuities with a rider that was inconsistent with her customers’ investment objectives. In numerous instances, Bulinski demonstrated that she did not understand the variable annuity and inaccurately described the investment to a customer as a fixed annuity rather than a variable annuity, and with other customers, incorrectly stated the surrender period and surrender charges her customers would incur.

Bulinski was the subject of several written customer complaints about her lack of disclosure about surrender charges and other product details.

Cynthia Ann Bulinski: Barred
Dallas Ray Seagraves II (Principal)
2007009181101/February 2011
Seagraves willfully failed to amend his Form U4 with material information and to disclose the information on his member firm’s annual compliance questionnaire. Seagraves failed to submit an invitation to his investment seminars for principal approval before sending it to the general public, and used unapproved slides at the seminars although he had previously submitted sales literature to his firm for advance approval and was therefore familiar with the requirement to do so. The seminar invitation and slides he used in connection with the seminars contained numerous exaggerated, misleading and promissory statements that contravened FINRA Rule 2210’s requirements for sales literature.
Dallas Ray Seagraves II (Principal): Fined $10,000; Suspended 9 months in all capacities; Barred in Principal capacity only
Daniel Michael Doderer
AWC/2009020824101/February 2011
In connection with the opening of a new account for an existing institutional client, Doderer signed the names of officers for that client on sections of a Uniform Application for Investment Advisor Registration (Form ADV), without the signatories’ authorization or consent, and added false dates to sections of the Form ADV. Doderer submitted the Form ADV in connection with the opening of another account for the client, his member firm rejected it because it lacked a manual signature. Rather than obtain the signatures from the institutional client, Doderer signed the name of the client’s vice president next to the electronic signature on the domestic investment adviser execution page and state registered investment adviser execution page on the Form ADV, and inserted a false execution date on the execution page. Doderer signed the name of the client’s president and inserted a false execution date on the non-resident investment adviser execution page of the Form ADV. Doderer signed the officers’ names without their authorization or consent and submitted that Form ADV to the firm.
Daniel Michael Doderer: Fined $5,000; Suspended 1 month
David Crook
AWC/2010021397401/February 2011
Crook willfully failed to disclose material information on his Form U4.
David Crook : Fined $5,000; Suspended 18 months
David Scott Isolano (Principal)
OS/2007007253803/February 2011
Isolano's member firm willfully charged excessive and fraudulent markups to customers in connection with their purchase of penny stocks, and Isolano was personally responsible for failing to enforce the firm’s supervisory procedures and was directly liable for the firm’s fraudulent and excessive markups. Isolano engaged in a fraudulent markup scheme in connection with customers’ transactions with the purchase or sale of a security. As his member firm’s CEO, Isolano failed to reasonably enforce its supervisory procedures concerning markups and proprietary trading. Isolano knew a markup was assessed on customer transactions and failed to take steps to ensure the markup was fair and reasonable or in compliance with the firm’s supervisory procedures.
David Scott Isolano (Principal): Fined $40,000; Suspended 5 months in all capacities and thereafter for 1 month in Principal capacity only
Dennis O’Neal Blackstone (Principal)
2009020488001/AWC/February 2011
As the registered representative on the joint securities account of customers at his member firm, Blackstone created a false Letter of Authorization (LOA), without the customers’ knowledge or authorization, and forged their signatures to authorize a transfer of funds from their joint account at the firm to a bank account that Blackstone controlled. Based on the forged LOA, the firm wired $28,320 from the customers’ joint account to the bank account Blackstone controlled and, after receiving the funds in his bank account, Blackstone used the funds for his personal expenses.
Dennis O’Neal Blackstone (Principal): Barred
Derek Matthew Christenson
2009019406701/February 2011

Christenson converted customer funds by transferring $66,000 in several transactions from a bank customer’s saving account into several of his personal checking accounts, without the customer’s knowledge. Christenson failed to respond to FINRA requests for information.

Derek Matthew Christenson: Barred
Dorval Knight McLaughlin Jr.(Principal)
AWC/2008016319801/February 2011

McLaughlin checked several boxes on an Explanation of Transaction form and placed the customer’s initials next to the boxes, without the customer’s knowledge or authority; the customer had signed the signature page related to her annuity purchase but did not initial pages that explained the transaction and fees involved. McLaughlin signed a customer’s name to a Mutual Fund & Certificate Redemption Exchange and/or Transfer Form without the customer’s knowledge or authority.McLaughlin signed a customer’s name to a Transfer on Death Account Agreement/ Payment on Death Account Agreement without the customer’s knowledge or authority.

McLaughlin failed to respond completely to FINRA requests for information. (FINRA Case #)

Dorval Knight McLaughlin Jr.(Principal): Barred
Douglas Christopher Green (Principal)
2008012444201/February 2011

Green affected trades in collateralized mortgage obligation (CMO) bonds in his member firm’s proprietary trading account to conceal inventory positions and create the false appearance of profitability through the use of fictitious and pre-arranged trades. In some cases, no contra-party had agreed to the transaction at the time Green submitted an order, and in other cases, Green had agreed to repurchase the security from the contra-party at an agreed-upon price that guaranteed a profit to the contra-party, causing the beneficial ownership to remain with Green.

Green devised a strategy that not only hedged and concealed the positions, but circumvented trading capital and inventory limits his firm set, and created the impression of profitable trading by extending the settlement dates for certain bonds and coordinating fictitious transactions with other broker-dealers.

Green received compensation based upon the overall profitability of the firm’s proprietary account, and because Green’s scheme created the appearance of profitability, he received compensation based upon the apparent profits; Green received $7,353,000, which resulted in an overstatement of the firm’s net capital and caused the firm to cease business. Green caused the firm’s books and records to be inaccurate. In addition, he failed to respond to FINRA requests for documents and information, and to appear for on-the-record testimony.

Douglas Christopher Green (Principal): Barred
Bill Singer's Comment
$7.4 million in compensation for fictitious trades? How come I never seem to see ads for these jobs in the papers? Where can I sign up?
Douglas G. Dosenberg
2009017124601/February 2011

Associated Person Dosenberg willfully failed to disclose material information on his Form U4 and failed to respond to FINRA requests for information.

Douglas G. Dosenberg : Barred
Francis Thomas Duffy (Principal)
AWC/2008013287601/February 2011
Duffy failed to fully accrue a $325,000 settlement of a customer arbitration claim against the firm as a liability on his member firm’s ledgers and other records. Duffy only accrued as liabilities amounts when due under a payment schedule to the settlement agreement, and had not booked $125,000 of the settlement that had not been paid as a liability, which caused his firm’s records to be inaccurate. As a result of failing to properly and accurately track assets, liabilities and expenses, the firm, while conducting a securities business, and acting through Duffy, failed to maintain its minimum net capital requirement. The deficiencies were primarily attributable to Duffy incorrectly viewing funds from private placements deposited in an escrow account of a separate but related company, as good capital to his firm before the funds were actually legally and physically available to the firm; and while Duffy was aware of past delays in the firm’s ability to access funds deposited in escrow, he did not take into account the possibility of delays when estimating the firm’s net capital position, and during that time period, was only performing a month-end formal computation of new capital after requisite capital was actually infused.
Francis Thomas Duffy (Principal): Fined $10,000; Suspended 10 business days in FINOP capacity only
Gary Woodruff Peterson (Principal)
AWC/2008015729501/February 2011
Peterson failed to disclose material information on his Form U4.
Gary Woodruff Peterson (Principal): Fined $5,000; Suspended 30 days
Gregory James Buchholz
AWC/2010023931401/February 2011

Buchholz misappropriated approximately $1,350,000 from customers, a number of whom were retirees, by liquidating their variable annuities and/or mutual funds and then transferring the proceeds to his personal bank account, converting the proceeds for his own use and benefit. As part of this scheme, Buchholz falsely and fraudulently represented, at times by forging customer signatures on redemption documents, that certain customers had authorized the redemption of the securities in order to obtain the proceeds of the sale; fraudulently induced certain customers to authorize the redemption of securities, based on misrepresentations that the proceeds would be reinvested to the customers’ investment accounts; and caused checks to be drawn in the customers’ names and caused the checks to be sent directly either to his office or to the customers.

If the checks were sent directly

  • to the customers, Buchholz convinced those clients to turn the checks over to him, making false and fraudulent representations that he would deposit the funds in their securities accounts to be reinvested; however, he did not reinvest the proceeds but instead deposited the checks into his personal bank accounts and used the proceeds for his own purpose;
  • to his office, Buchholz simply deposited the checks in his own bank accounts for his personal use and sometimes forged the customers’ signatures in order to cash the checks.
Gregory James Buchholz: Barred
Bill Singer's Comment
Nearly $1.4 million converted from customers, many retirees, by little more than a forged signature and converted proceeds.  Makes you wonder whether it's just too easy to circumvent Wall Street's customer-protection systems.
Hansel Clarence Cua Lee
2008015280701/February 2011

Lee sold approximately $500,000 worth of Treasury and municipal securities in a customer’s firm account without the customer’s permission or knowledge. Lee opened a checking account in the customer’s name without the customer’s knowledge or consent, placed the proceeds from the unauthorized sale in the checking account and then requested a $500,000 check to be drawn on the account made payable to a company under his control and ownership. When the check could not be processed because of irregularities, Lee requested checks for $280,000 and $220,000 be drawn on the account and made payable to another company he owned and controlled, endorsed both checks and deposited the proceeds into his own checking account, thereby converting the funds.

Lee failed to respond to FINRA requests for information and to provide testimony.

Hansel Clarence Cua Lee: Barred
Jack Thomas Kennebeck (Principal)
AWC/2009019042001/February 2011

Kennebeck sold to four customers securities in the form of installment plan contracts offered by a Tennessee non-profit corporation without first providing written notice of his participation in these sales to his member firm or receiving its written approval; the Tennessee non-profit corporation promised a tax deduction and fixed deferred payments at an unspecified rate of return, in exchange for each customer’s transfer of ownership of existing annuities to the non-profit corporation.

Kennebeck’s customers exchanged existing annuities with a combined accumulated value of $1,078,428.10 for installment-plan contracts. Although the non-profit corporation applied for tax-exempt status, the Internal Revenue Service (IRS) never approved its application, and consequently, customers who purchased installment-plan contracts were unable to claim a tax deduction in connection with their investments.

Kennebeck obtained information from non-profit corporation personnel, which he accepted at face value and failed to independently verify, including the non-profit corporation’s representation that it had been granted tax-exempt status as a charitable organization, and that investors could avail themselves of the touted tax deduction in connection with their investment. Kennebeck negligently misrepresented to his customers that they could take charitable tax deductions in connection with their respective investments, which was not true. In connection with his sale of the installment plan contracts, Kennebeck provided the customers with illustrations and other sales materials he received from the non-profit corporation that contained misleading and incomplete information without first presenting them for review and approval to a registered principal of his firm.

Jack Thomas Kennebeck (Principal): Fined $50,000; Suspended 10 months; Ordered to pay customers $12,709.59, plus interest, in restitution.
Bill Singer's Comment
The first rule is never, ever, ever give tax advice. The second rule is when promoting an investment that depends upon a specific tax status (in this case that of a non-profit/charitable organization), not only should you paper your file with getting the critical representations in writing from the organization but it might also be a great idea to get a legal opinion on legal letterhead from an independent, competent law firm.  Frankly, if the institution won't hand you that written opinion or pay to defer the costs of obtaining same, then you should consider walking away from the deal.
Jarred A. Milliner
AWC/2010021764801/February 2011
 Milliner was an ATM custodian whom both his member firm and a bank suspected of misappropriating funds from an ATM, and both began an internal investigation of his actions. Milliner denied taking any funds from an ATM, but in response to specific questioning, he admitted that he had misappropriated $100 from his teller drawer several months earlier. In connection with the internal investigation, Milliner made full restitution of the $100 and voluntarily resigned his employment.
Jarred A. Milliner: Barred
Bill Singer's Comment

From a purely technical perspective, I don't like the presentation of the facts in this cases.  We are told that Milliner was "suspected" of misappropriating ATM funds but there is absolutely no suggestion or assertion that he was ever found guilty of that suspicion. What is irrefutable is his admission of stealing $100 from his teller drawer, for which he made full restitution. I'm really not sure what the allegations about the ATM have to do with anything in this case, at this point in time, and I don't feel that the inclusion of those suspicions are appropriate.  He's been barred. He has admitted to stealing $100. That's the case and those are the facts. Period.

Jason Leekarl Beckett
AWC/2009016600001/February 2011

Beckett submitted an advertisement to a local newspaper, which listed an entity he owned as offering certain investments, including certificates of deposit (CDs) and fixed annuities, and that he did not submit the advertisement to his member firm for review and approval; moreover, the advertisement content included misleading statements regarding the offered investments.

Beckett maintained a website for an entity he owned, which was accessible to the investing public, and he failed to submit the website material to his firm for review until a later date. Beckett failed to obtain his firm’s written approval of the website content prior to its use.

Beckett completed an annual certification, which he provided to his firm and he answered “no” to the question asking whether he anticipated using any type of electronic communication systems such as the Internet for soliciting business.

Jason Leekarl Beckett : Fiend $10,000; Suspended 2 months
Joshua A. Ellis
AWC/2009016923602/February 2011
Ellis signed customers’ applications for fixed annuities, as a favor to another registered representative not authorized to sell products a company offered, without having met with or discussed the fixed annuity product or the points on each application with the customers, or ascertained the product’s suitability for each customer as required; thereby his attestations on the annuity applications submitted to his member firm and the insurer were false. The falsified applications were submitted to the firm under Ellis’ production number, and the insurer approved the applications and issued annuity contracts based on Ellis’ misrepresentations on the applications. After the falsified annuity applications were discovered, Ellis’ firm offered to rescind the transactions for the customers or choose another investment at no cost. Neither Ellis nor the other representative received any compensation for the transactions.
Joshua A. Ellis: Censured; Fined $7,500; Suspended 6 months
Kim Edward Elverud (Principal)
OS/2008013429301/February 2011

Elverud caused his member firm to use Internet advertisements, websites and other public communications that were misleading, did not supply fair and balanced presentations of risks and rewards, or failed to give a sound basis for evaluating information. Elverud failed to approve or maintain records of public communications his firm issued. Elverud’s firm distributed a newsletter, which Elverud wrote, about a company whose securities the firm marketed; the letter was unduly and excessively positive, and failed to disclose material facts concerning the company’s financial difficulties, which caused the communication to be misleading.

Elverud made misrepresentations to investors through letters written on firm letterhead, about the securities the company issued, and the letters misrepresented the individual offers being made as a general reinvestment option to keep the investors from redeeming their holdings in the company’s securities, and omitted material information regarding the company’s financial difficulties.

Elverud caused his firm’s books and records identifying personnel holding supervisory and compliance responsibilities to be inaccurate. Elverud caused his firm to conduct a securities business while it was in violation of its net capital requirements.

Kim Edward Elverud (Principal): Barred
Laura Jane Leiker (Principal)
AWC/2010022030901/February 2011
Leiker converted $1,001.31 from her member firm’s parent company while serving as branch office manager with the signing authority for the office’s expense account. Leiker converted the funds by writing checks payable to herself from the branch office’s expense account. She signed the checks on the company’s behalf, cashed the checks, and used the proceeds to pay for personal expenses. The company did not authorize any of the disbursements, and none of the checks were used to pay for, or to reimburse Leiker for, any valid business expense.
Laura Jane Leiker (Principal): Barred
Linda Mary Bakalis Schurr
AWC/2007009073002/February 2011

Schurr engaged in an outside business activity involving a company, which was a marketing and advertising business through which she sought to generate leads for registered representatives and insurance agents. The company’s primary form of marketing was mass mailings, usually employing postcards that contained false and misleading statements that Schurr sent and caused to be sent to thousands of prospective customers. Schurr developed and directed the use of multiple false and misleading telephone operator scripts that were used in the company’s call center to respond to potential investors.

As a result of the misleading marketing practices involving her company, Schurr became the subject of state regulatory actions and willfully failed to timely update and amend her Form U4 to disclose these actions to FINRA as required.

Schurr associated with a FINRA registered member firm and acted in a registered capacity while subject to statutory disqualification.

Schurr provided false information and failed to disclose material information to the firm on firm annual compliance and outside business activity questionnaires concerning her outside business activity and regulatory actions.

In addition, Schurr failed to provide prompt and complete written notice to the firm of her outside business activities involving another insurance marketing firm when the other company was closed.

Linda Mary Bakalis Schurr : Fined $35,000; Suspended 2 years
Bill Singer's Comment
Just out of curiousity, what does it take to get barred these days?
Lochlainn Ohaimhirgin
AWC/2007008935006/February 2011

Ohaimhirgin recommended that customers participate in a Stock to Cash program under which customers would pledge stock to obtain loans, the proceeds of which were, in many cases, used to purchase non-securities insurance products; customers accepted his recommendation, taking out loans in the Stock to Cash program totaling more than $3.3 million.

Ohaimhirgin made no effort to find out what happened to the stock that was conveyed to the lender, and did not inquire into what would be done with the stock. He assumed that the lender held the stock as collateral for the entire loan term and did not attempt to obtain any information from the lender to whom the stock was assigned, or to verify any information provided by the promoter of the program with the lender.

Because the Stock to Cash strategy involved in each case a pledge of stock, Ohaimhirgin’s advice to his clients constituted a recommendation of “the purchase, sale or exchange of any security,” and as a registered representative, he was obligated under NASD Rule 2310 to have a reasonable basis for recommending that his customers pledge their stock to this lender to participate in the Stock to Cash program. Ohaimhirgin failed to obtain and verify information about how the stock was held or secured, and whether the lender had the ability to fulfill its obligations before recommending that his customers participate in the Stock to Cash program. As a result of failing to ascertain the facts necessary to understand the potential risks inherent in the program, Ohaimhirgin did not have a reasonable basis for his recommendations.

Lochlainn Ohaimhirgin : Fined $15,000; Suspended 60 days
Louis A. Wright (Principal}
AWC/2007010986202/February 2011

Wright engaged in private securities transactions when he participated in the sale of private placements related to telephone equipment and leasing agreements offered through various businesses connected to a company. Wright received no selling compensation, agreed to provide restitution of $1,617,485 to the customers by entering into purchase agreements with each customer and has commenced payment.

Wright’s member firm suspended him for 10 business days and placed him on heightened supervision for one year.

Louis A. Wright (Principal}: No Fine in light of financial status; Suspended 1 year
Mamoru Takeuchi aka Marr Takeuchi
AWC/2009017628301/February 2011

Takeuchi participated in private securities transactions by selling a viatical settlement company’s viaticals to outside investors while he was registered with his member firm. Takeuchi did not provide notice to, and receive approval from, the firm before participating in these private securities transactions; the firm also prohibited the sales of viaticals. Takeuchi earned approximately $4,400 as a result of his viatical sales and never gave the firm any notice, written or otherwise, that he had sold viaticals to outside investors.

Takeuchi repeatedly misrepresented and omitted material information to the firm concerning his sales of viaticals when he completed the firm’s annual compliance meeting questionnaires and checked “No,” implying that he had not engaged in any activity involving viatical contracts.Takeuchi made false attestation to the firm when he executed a firm document that he had not participated in the sale or solicitation of viaticals. Takeuchi knew that his written statements to the firm regarding his viatical sales were inaccurate or incomplete.

Mamoru Takeuchi aka Marr Takeuchi : Fined $10,000; Suspended 1 year
Mark Peter Erlich
AWC/2008012634701/February 2011

Erlich failed to disclose to his member firm that he personally possessed stock certificates belonging to prospective firm customers and details concerning such shares. By failing to disclose, Erlich prevented his firm from complying with SEC Rule 15c3-3 in that the firm, without knowing of the securities he possessed, failed to bring the securities under possession or control as required, and compute and maintain sufficient cash and/or qualified securities in its reserve bank account, as required; and prevented the firm from complying with books and records rules, which required that firms record the receipt of securities.

Erlich used a personal email account to send business-related correspondence. Although Erlich courtesy-copied his firm email address on a few of the emails he sent from his personal email account, he failed to copy or forward any of these emails to his firm managers. Erlich’s firm did not permit the use of non-firm email accounts for communications related to firm business, and that by using his personal email account for firm-related business and not copying or forwarding such emails to his firm, Erlich prevented his firm from discharging its supervisory obligations.

Mark Peter Erlich: Fined $15,000; Suspended 7 months
Martin Dean White Sr. (Principal)
AWC/2008012577601/February 2011

As President of his member firm, White permitted the creation and dissemination of misleading sales and advertising materials to various state securities regulators in an effort to draw scrutiny to a business established by former registered representatives who left the firm to start their own business selling oil and gas interests. White made it appear as if the documents had been generated by an entity the former registered representatives established. A firm employee drafted and assembled the mailings to create the appearance that an officer or employee of the former registered representatives’ new business had generated and authorized the mailings. The mailings contained a cover letter drafted to draw regulators’ interest to the former registered representatives’ entity.

The mailings appeared to be from the former registered representatives’ entity, listed the name of an officer or employee of the entity, contained a return address of the entity on the envelopes used in the mailings, included printouts from the entity’s website, provided an executive memorandum, and also provided a “Confidential Private Placement Memorandum” and “Subscription Agreement” which both listed the former registered representatives’ new business throughout the documentation.

Martin Dean White Sr. (Principal): Fined $5,000; Suspended 3 months
Bill Singer's Comment
Talk about getting hoisted on your own petard.  Frankly, a three-month suspension for this type of sabotage strikes me as far too light.  Competition is one thing. White's conduct went way, way over the line.
MBSC Securities Corporation, BNY Mellon Capital Markets LLC and BNY Mellon Securities LLC
AWC/2010021312001/February 2011

The Firms failed to ensure that emails were retained and timely reviewed.

The Firms, all subsidiaries of the same parent company, implemented a new, third party system for email archiving and review. In order for the emails to be archived consistent with the requirements of SEC Rule 17a-4 and NASD Rule 3110, the firms relied on their personnel to properly code new and existing email accounts to ensure that emails were journaled from users’ email accounts in the new system, and when email accounts were incorrectly coded, the affected users’ emails were not retained consistent with SEC and NASD rules. Instead, both sent and received emails were retained for 30 days, unless an individual employee double-deleted the email (in which case it would not have been retained at all); after 30 days, any emails remaining in an individual employee’s email inbox or outbox would be retained for an additional 30 days; and all emails would be deleted from the new system after 60 days (unless the auto-delete function was disabled), and additionally, would not have appeared in the new system for compliance department reviews, unless an email user whose account was properly coded sent or received the email message.

The Firms did not properly code certain email accounts and did not have written guidance to ensure that all email accounts for associated persons of each firm were properly recorded, nor did the firms have evidence that they conducted any testing of the new system to ensure that email accounts were being set up properly to capture emails for compliance with SEC Rule 17a-4 and NASD Rule 3110. As a result of the failure to retain emails, the firms also failed to timely review emails of affected users. In addition, FINRA determined that the failure to properly archive and review emails was discovered after a MBSC Securities Corporation compliance department employee searched for an electronic copy of an email he knew to have existed, and failed to locate it; prior to that event, the firms did not know that they were failing to properly archive and review emails.

Moreover, following the discovery of the retention and review problem at the firms, the firms’ parent company retained an outside consultant to assess the scope of the retention failure, and the outside consultant determined that there were 725 affected users between the three firms, for whom emails were not retained consistent with SEC and NASD rules. Furthermore,  the outside consultant estimated that the three firms may have lost as many as 4 million emails through the failure to properly code email accounts for journaling to the new system. 

In determining the appropriate sanctions in this matter, FINRA took into consideration that the firms self-reported to FINRA their failure to review and retain certain emails and the steps the firms took to remedy those deficiencies.

MBSC Securities Corporation, BNY Mellon Capital Markets LLC and BNY Mellon Securities LLC: Censured; Fined $300,000 joint/several

Michael Douglas Hanke
AWC/2009016739701/February 2011
Hanke sent unapproved personal emails to customers guaranteeing them against future loss in their securities portfolio, although he later sent the customers an email withdrawing the guarantee.
Michael Douglas Hanke : Fined $2,500; Suspended 10 business days
Michael Rozenbaum
AWC/2009016742001/February 2011
Rozenbaum misappropriated funds from a customer by depositing into his personal bank account a $5,000 check, which he endorsed, that the customer had sent for deposit into her Roth IRA account to fund a mutual fund purchase, and thereby converted the funds to his own use and benefit. The customer did not authorize Rozenbaum to deposit her funds into his bank account. The firm made the customer whole and Rozenbaum subsequently reimbursed the firm.
Michael Rozenbaum : Barred
Patrick Cissne
AWC/2009021029615/February 2011
Certain states implemented a long-term care (LTC) continuing education (CE) requirement that obligated financial advisors to complete a LTC CE course and exam before selling LTC products to customers who resided in that state. To assist financial advisors with the LTC CE requirement, Cissne requested and received the answers for one state exam from member firm representatives, distributed the answers to the exam to other firm representatives and distributed the answers to outside financial advisors on several occassions. Cissne received and distributed the answers for another state exam to an outside financial advisor on one occasion.
Patrick Cissne: Fined $5,000; Suspended 1 month
Paul Michael Rodak (Principal)
AWC/2007008935003/February 2011

Rodak assisted customers in participating in a Stock to Cash program, under which customers would pledge stock to obtain loans, the proceeds of which were, in many cases, used to purchase non-securities insurance products. Customers that Rodak assisted took out stocks to cash loans totaling more than $7.8 million.

As part of the process of obtaining a loan through the Stock to Cash loan program, customers were required to provide documentation setting forth the intended use of proceeds in order to ensure compliance with Federal Reserve Board regulations restricting the extension of margin credit. In order to avoid violation of Regulation U, borrowers who pledge marginable securities must complete a Federal Reserve Form G-3, also referred to as a Purpose Statement, which requires them to certify whether they will be using the loan proceeds to buy margin securities and, if not, to describe the specific purpose of the credit; the Form G-3 includes a warning that the falsification of the purpose of the credit by a borrower on the form violates the margin rules.

Rodak completed the Purpose Statement for the customers, indicating that they would be using the proceeds for real estate, but at the time Rodak completed these forms, he did not know how the customers would be using the proceeds, or whether the customers had already decided to use the proceeds to buy insurance products; as a result, Rodak caused numerous Purpose Statements to be inaccurate, and a copy of the completed statement for each customer was subsequently provided to the promoter of the program.

Paul Michael Rodak (Principal): Fined $15,000; Suspended 60 days
Peter Joseph Bonnell III (Principal)
AWC/2007009073001/February 2011

Bonnell engaged in an outside business activity involving a company he owned and operated, which was a marketing and advertising business through which he sought to generate leads for registered representatives and insurance agents. The company’s primary form of marketing was mass mailings, usually employing postcards that contained false and misleading statements that Bonnell sent and caused to be sent to thousands of prospective customers.

Bonnell developed and directed the use of multiple false and misleading telephone operator scripts that were used in the company’s call center to respond to potential investors. As a result of the misleading marketing practices involving his company, Bonnell became the subject of several state regulatory actions and willfully failed to timely amend his Form U4 to disclose these actions to FINRA as required.

Bonnell associated with a FINRA registered member firm and acted in a registered capacity while he was subject to statutory disqualification. Bonnell provided false information, failed to disclose material information, and misrepresented material information on the firm’s annual compliance questionnaires concerning his outside business activity and regulatory actions.

In addition,Bonnell failed to provide prompt and complete written notice to the firm of his outside business activities involving another insurance marketing firm he operated after closing the other company. Moreover, Bonnell failed to adequately supervise certain representatives to ensure they filed accurate and timely updates disclosing state regulatory actions and outside business activity.

Peter Joseph Bonnell III (Principal): Fined $35,000; Suspended 2 years
Philip Michael O’Hearn (Principal)
AWC/2010022804601/February 2011
O’Hearn placed a phone call to an insurance company’s customer service call center asking for information about a customers’ policy and falsely identified himself as the representative assigned to the life insurance policy, providing the agent of record’s name and agent number. O’Hearn also provided the service agent with the customers’ updated mailing address, and requested that the agent send certain policy information to them.
Philip Michael O’Hearn (Principal): Fined $5,000; Suspended 10 business days
Pinnacle Financial Group, LLC
AWC/2009015974501/February 2011

The Firm used an external server to preserve its business-related electronic communications but the server only preserved the firm’s business-related electronic communications for a period of 30 days.

The Firm conducted a securities business while it failed to maintain its required minimum net capital. The net capital deficiencies stemmed from its failure to take security haircuts and undue concentration deductions, its improper classification of a note receivable as an allowable asset, its improper classification of fixed annuity commissions and private placement receivables as allowable assets and double-counting a commission receivable. The firm maintained inaccurate books and records, and also filed inaccurate FOCUS reports.

Pinnacle Financial Group, LLC: Censured; In light of firm's financial status it was Fined $15,000
Randall Edgar Robinson II
AWC/2010022635301/February 2011
While serving as a licensed insurance agent, Robinson created fictitious property and casualty insurance policies in order to meet production goals with his firm’s affiliated insurance company. Robinson did so by forging customer signatures or otherwise falsifying insurance application forms and related documents. Thefirm’s affiliated insurance company paid Robinson approximately $16,000 in commissions as a result of the fictitious policies.
Randall Edgar Robinson II : Barred
Randie Jill Sanford
AWC/2007011320901/February 2011

Sanford wrote personal checks against a number of her accounts maintained at her member firm while she knew, or should have known, that she had insufficient funds to cover payment on the checks. The checks were linked to her financial management account, addressed to herself and in response to or preceded by the firm’s giving her notice that she had to deposit funds to cover checks on a margin call. In almost each instance, after receiving notice that she had to deposit funds into one of her accounts, Sanford responded by writing and depositing an insufficient funds check into that account, and then writing additional checks or effecting account transfers to prevent the first check from being dishonored. Sanford wrote checks from an account she knew, or should have known, had a negative balance, and deposited them into the same account resulting in an inflated account balance; the amount of the insufficient funds checks totaled an aggregate of approximately $109,000.

Sanford willfully failed to disclose material information on her Form U4.

Randie Jill Sanford : Fined $5,000; Suspended 8 months
Resource Horizons Group LLC
AWC/2009017637201/February 2011

The Firm approved advertising materials registered representatives used during several public seminars; the firm sent invitations to members of the public, and the seminar attendees received supplemental materials designed to introduce the firm and the financial services it offered. The invitations failed to provide a sound basis for evaluating the facts regarding the products or services offered. The supplemental materials contained exaggerated and unwarranted language, and the seminar handout had unwarranted language.

The seminar presentations failed to explain a product or strategy.  The discussion of equity-indexed annuities (EIAs) failed to provide a balanced presentation and omitted information.  The discussion of variable annuities omitted material information.

The presentations failed to disclose

  • that projections are hypothetical and are not guarantees,
  • risks attendant with options transactions, and
  • risks and rewards of real estate investment trusts (REITs) in a balanced way.

The discussion of expenses pertaining to mutual funds and variable annuities was misleading; discussion of annuities in Individual Retirement Accounts (IRAs) was misleading.

The list of benefits and features of variable annuities failed to disclose potential restrictions and costs, discussion of 1031 exchanges failed to elaborate on Internal Revenue Code restrictions. The discussion of variable annuities provided an incomplete, and oversimplified presentation and representation that safety and protection are provided by diversification market index certificates of deposit, puts, and living benefits profits provided by variable annuities was promissory and exaggerated.

The firm failed to reasonably supervise its communications with the public and its supervision was not reasonably designed to meet the requirements of FINRA Rule 2210(b)(2). The firm’s procedures required the supervisory principal to evidence approval by signing public communications submitted for approval and use, but the supervisory principal only initialed a coversheet that did not identify which communication was approved. In addition, the firm failed to maintain records naming the registered principal who approved the public communication or the date approval was given, nor documentation establishing that a certified registered options principal approved options material or that the material had been properly submitted to FINRA’s Advertising Regulation Department for pre-approval.

Resource Horizons Group LLC : Censured; Fined $15,000
Richard G. Mailloux Sr.
AWC/2009017337801/February 2011

Mailloux participated in private securities transactions without prior written notice to, or prior written approval from, his member firm. Mailloux referred customers to another registered representative of the firm, who executed promissory notes, called “private investor agreements,” with the customers on a corporation’s behalf. The findings also stated that the promissory notes, which were securities, indicated that the corporation promised to pay 10 percent and 12 percent annual interest, respectively, in return for the loans. The corporation subsequently defaulted on its payment obligations to Mailloux’s customers, who incurred significant losses, and Mailloux did not inform his firm about his customers’ investments.

Mailloux received a finder’s fee of $500 from the firm’s other registered representative for the investment one of the customers made.

Richard G. Mailloux Sr. : Fined $5,000; Ordered to disgorge ill-gotten gains and pay a partial restitution to a customer in the amount of $500, plus interest, Suspended 6 months
Bill Singer's Comment
I'm still trying to understand the "Ordered to disgorge ill-gotten gains and pay a partial restitution to a customer in the amount of $500."  Is that $500 for both the ill-gotten gains and the partial restitution? Is "ill-gotten" now part of FINRA's formal lexicon of regulatory charges? 
Robert A. Hoffmann
2008014739501/February 2011
Hoffmann converted funds totaling $900 from customers’ checking accounts. Automated teller machine (ATM) cards were sent to Hoffmann’s attention at the bank and he was photographed using the cards to make unauthorized withdrawals at ATM machines. Hoffmann signed customer names to signature cards to reactivate the inactive checking accounts without customers’ or the bank’s permission to do so. Hoffmann repeated this procedure when the customer accounts again became dormant because they were not used within 30 days of reactivation. Hoffmann failed to respond to FINRA requests for documents and information.
Robert A. Hoffmann : Barred
Robert Anthony Yacovone (Principal)
AWC/2010021361001/February 2011
While employed at a bank affiliate of his member firm, Yacovone obtained a bank withdrawal slip that was blank and signed by a bank customer. Yacovone completed the withdrawal slip indicating the customer’s checking account number and a withdrawal of $40,000, and provided it to a teller at his branch with instructions to withdraw the funds from the customer’s bank checking account and transfer the funds to Yacovone’s relative’s bank account. Yacovone used the $40,000 to repay a short-term loan and existing debt that he owed on an approved outside business he owned with his relative. The customer’s assistant contacted Yacovone to advise him of the $40,000 unauthorized withdrawal from the customer’s bank checking account and, as a result of the inquiry, Yacovone repaid the customer $40,000 with funds he received from his relatives.
Robert Anthony Yacovone (Principal): Barred
Robert Charles Keane (Principal)
AWC/2007008935004/February 2011

Keane particpated in the marketing and implementation of a Stock to Cash program under which customers would pledge stock to obtain loans, the proceeds of which were, in many cases, used to purchase non-securities insurance products. The “pledged” stock would be transferred to the loaning entity’s securities account, which was maintained at a clearing firm, and Keane played an integral part in facilitating these loans; customers accepted his recommendations, taking out loans totaling more than $3.3 million. Keane facilitated his customers’ pledging of the securities and recommended what stocks they should pledge and, in some cases, recommended that they sell specific securities and buy others to pledge to the lender, and affected those transactions. 

Despite making these recommendations, Keane made no effort to find out what happened to the stock conveyed to the lender, and did not inquire into what would be done with the stock; he understood that the lender took ownership of his customers’ securities but incorrectly assumed that the customers retained some interest in the pledged stock. Keane did not conduct an inquiry into the lender’s financial condition and whether it had the ability to fulfill its obligations, and when he attempted to find out about the lender’s hedging strategy, he was told that it was proprietary and that he could not get that information, but nevertheless entrusted his clients’ securities to this lender.

The Stock to Cash strategy involved in each case a pledge of stock, Keane’s advice to his clients constituted a recommendation of “the purchase, sale or exchange of any security”; and as a registered representative, Keane was obligated under NASD Rule 2310 to have a reasonable basis for recommending that his customers pledge their stock to this lender to participate in the Stock to Cash program.

Keane failed to conduct adequate due diligence concerning the program lender, failed to take sufficient action to determine whether his clients’ ownership interest in the pledged securities was adequately protected and, as a result, he did not understand the potential risks inherent in the strategy and did not have a reasonable basis for recommending the strategy to his current and potential customers.

Robert Charles Keane (Principal): Fined $10,000; Suspended 30 days
Bill Singer's Comment
As I was reading this case, I was wondering how FINRA would connect the dots. Frankly, I sort of liked how the SRO concluded that since the Stock to Cash strategy involved pledging stock, that Keane "recommended" the purchase/sale/exchange of a security and, as such, could be caught in the net of NASD Rule 2310: Suitability. I tip my hat to FINRA's staff for that clever charging -- and I mean that sincerely.  This wasn't "cutesy" but well thought out.
Ronald George Spomer II
AWC/2009018497601/February 2011

Spomer engaged in an outside business activity without prior permission of his member firm by distributing unregistered securities through a non-FINRA regulated entity, and received in excess of $100,000 in compensation. Without his new member firm’s knowledge or authorization, Spomer distributed correspondence to non-firm customers who had bought the unregistered securities because the State of Texas ceased the business operations of the issuer and placed the issuer into receivership. Spomer’s letter used firm disclosure language at the bottom of the letter that gave the erroneous impression that the firm, with Spomer as agent, had issued the correspondence. Spomer failed to submit the letter to his member firm’s principal for prior approval, and failed to provide a sound basis for evaluating the security by promoting the “similar program,” and used improper promissory language to describe the product.

Spomer failed to respond to FINRA requests for information.

Ronald George Spomer II : Barred
Thomas Jones Charles Jr.
2008016036901/February 2011

Charles sold variable universal life insurance products to his member firm’s customers and after leaving the firm, Charles remained the assigned representative on the accounts and received modest annual “trailing commissions.” Charles’ former firm asked him to pay a “single appointment” fee of $100 to the firm or submit customer-signed “Telephone or Electronic Transaction Authorization” forms for him to continue to service the customers’ accounts. Charles chose to do neither, but when he realized the deadline was approaching, he signed the customers’ names on the authorization forms without the customers’ permission and sent them to the firm via facsimile.

One of the customers complained that Charles had not being authorized to sign her name on the authorization form; therefore, Charles’ former firm notified Charles and his present firm of the customer’s allegation and asked Charles for a written explanation. During Charles’ present firm’s investigation into the complaint, he made misstatements, verbally and in writing, to the firm, denying forging the signatures and fabricating a story to prevent the firm from discovering his misconduct. Also, Charles subsequently admitted to the firm that his alibi was false and that he signed the customers’ names without authorization.

Thomas Jones Charles Jr. : Fined $35,000; Suspended 1 year
Timothy Robert Mays
AWC/2009020791701/February 2011

Mays falsified firm records pertaining to client accounts.When customers omitted to sign documents necessary to effect authorized changes or actions with respect to their accounts, Mays placed the customers’ signatures on the documents himself, rather than returning the documents to the customers to sign. In each instance, the customer wanted and authorized the activity resulting from the submission of the falsified documents. While Mays was associated with another member firm, the firm learned from a customer that she had not signed a document purporting to bear her signature, and Mays initially told the firm that his falsification was limited to that one instance involving one client.

 It was not until his firm’s inspection of Mays’ office that he admitted to the firm that he had placed other customers’ signatures on documents when necessary to accomplish their objectives.

Mays misled his firm by delaying this admission about the extent of his past misconduct while registered through the first firm.

Timothy Robert Mays: Fined $5,000; Suspended 8 months
Bill Singer's Comment
Frankly, not much to disagree with here. A common enough violation that was exacerbated by a cover-up.  All in all, the punishment fits the violation.
Todd Austin
2008014753601/February 2011
Austin willfully filing misleading and inaccurate amendments to his Uniform Application for Securities Industry Registration or Transfer (Form U4). He informed his member firm of the information but materially misrepresented the nature of and factual circumstances surrounding the material information. Austin altered a document and submitted the false document to FINRA and his firm. 
Todd Austin: Barred
Todd Randall Ware (Principal)
AWC/2007008935007/February 2011

Ware introduced several customers to a Stock to Cash program under which customers would pledge stock to obtain loans to purchase other products. Ware recommended a customer participate in the program under which the customer obtained loans of approximately $388,000 and pledged securities in support of these loans, using the proceeds to purchase fixed annuities through Ware.

Ware failed to conduct adequate due diligence concerning the operations or financial stability of the Stock to Cash program lender and failed to take sufficient action to determine whether his clients’ ownership interest in the pledged securities was adequately protected. Ware did not understand the potential risks inherent in the program and therefore did not have a reasonable basis for his recommendations.

Todd Randall Ware (Principal): Fined $15,000; Suspended 15 business days
UBS Securities LLC
AWC/2010022093601/February 2011

UBS failed to reasonably supervise a junior trader on its Fixed Income Emerging Markets Latin American desk (the LatAm desk) who, by various means, made false and inaccurate entries into the firm’s trading systems for non-deliverable forward (NDF) transactions and bond transactions, which caused incorrect calculations of his risk positions and profit and loss (P&L), overstating his profits and understating his losses; in contrast to other traders on the LatAm desk, the firm gave the junior trader authority to enter NDF transactions directly into internal trading systems.

In each instance, the junior trader’s presumed goal was to conceal an unrealized loss associated with an actual transaction and/or create the appearance of a fictitious profit in connection with both actual and fictitious transactions, and by manipulating these trading systems, the junior trader was able to make undetected amended, late, mispriced and fictitious NDF transactions by which he concealed more than $28 million in trading losses.

The firm’s existing policies and procedures did not adequately address the junior trader’s ability to make entries directly into the trading systems; the firm’s electronic supervisory system did not capture NDF trade data, and the firm failed to establish supervisory systems or procedures to reasonably ensure that the junior trader’s entries were complete and accurate and that his trading system entries matched.

The firm likewise failed to establish policies and procedures providing for its creation and maintenance of required books and records of NDF transactions entered for its account, and failed to have written supervisory procedures, for the amending, settling and confirming of NDF transactions.

The junior trader concealed losses to the firm of approximately $700,000 through various false entries made in the firm’s Bloomberg system, and the firm’s electronic supervisory system did not capture his bond data.

The firm failed to provide the junior trader’s supervisor with reports concerning the junior trader’s trading in NDF and certain bonds that were necessary to supervise the junior trader’s activities, and it failed to make and keep current a memorandum of each NDF transaction the junior trader entered. Moreover, based on false, delayed and fictitious entries the junior trader made in connection to his NDF and certain bond transactions, the firm’s records of his and the LatAm Desk’s overall P&L and corresponding risk positions were not accurate. Furthermore, when the issues concerning the junior trader’s trading came to light, the firm conducted an internal investigation to identify the errant bond and NDF transactions and calculate the losses incurred in connection with them; thereafter, the firm instituted remedial measures to prevent a recurrence in the future.

UBS Securities LLC : Censured; Fined $600,000
January 2011
Andrew Thomas Wrigley
AWC/2009021029614/January 2011
Certain states implemented an LTC CE requirement that obligated financial advisors to complete an LTC CE course and exam before selling LTC insurance products. In order to assist financial advisors with the LTC CE requirement, Wrigley provided them with vouchers to take CE exams for free through a company. Wrigley requested, received and distributed an answer key for one of the state exams to an outside financial advisor, and asked another member firm representative to request, receive and distribute an answer key for the state exam to an outside financial advisor.
Andrew Thomas Wrigley: Fined $5,000; Suspended 1 month
Antonio Herrero-Rovira (Principal)
2008013833601/January 2011

Herrero-Rovira converted approximately $203,000 in customer funds by forging customers’ signatures on Letters of Authorization (LOAs) and firm checks issued pursuant to the LOAs, and depositing the checks into his personal bank account or others’ account without the customers’ knowledge or authorization.

Herrero-Rovira converted an additional $16,000 from a customer by causing a check payable to the customer in that amount to be withdrawn from the customer’s account without the customer’s knowledge or authorization, and forging the customer’s check endorsement.

Herrero-Rovira failed to respond to FINRA requests for information.

Antonio Herrero-Rovira (Principal): Barred
Brecek & Young Advisors, Inc.
AWC/2008011574401/January 2011
The Firm failed to have a supervisory system, including written supervisory procedures, reasonably designed to ensure that its registered representatives charged its customers reasonable markups or markdowns and commissions on equity securities transactions (Commission Policy). The Firm did not provide sufficient training or guidance to its registered representatives, its trading department or its Office of Supervisory Jurisdiction (OSJ) managers to detect violations of the firm’s Commission Policy, nor did it adequately provide for the use of exception reports to conduct a review of commission charges its registered representatives assessed. The Firm failed to establish adequate processes or have documented written supervisory procedures as to how it would handle a violation of the Commission Policy.
Brecek & Young Advisors, Inc. : Censured; Fined $25,000
Cambridge Legacy Securities, L.L.C. and Tommy Edward Fincher (Principal)
AWC/2009020319001/January 2011

Cambridge failed to have reasonable grounds to believe that a private placement offered pursuant to Regulation D was suitable for any customer.

Acting through Fincher, its Chief Compliance Officer and registered principal, the Firm failed to

  • conduct adequate due diligence of the private placement offering before allowing its brokers to sell the security,
  • maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, and
  • enforce reasonable supervisory procedures to detect or address potential red flags as it related to the offering.

Fincher was the principal responsible for conducting due diligence on the offering and approved the security as a new product available for firm brokers to sell to their customers; he allowed the firm’s brokers to continue selling the security despite its ongoing failure to make overdue interest and principal payments. The Firm failed to have reasonable grounds for allowing the continued sale of the security even though the firm, through Fincher, was aware of numerous red flags concerning liquidity problems, delinquencies and defaults, but allowed its brokers to continue selling the security.

Cambridge Legacy Securities, L.L.C.:Censured; Ordered to pay $218,400 in restitution to customers. If the firm fails to provide FINRA with proof of restitution, it shall immediately be suspended from FINRA membership until such proof has been provided.

Tommy Edward Fincher: Fined $5,000; Suspended 6 months in Principal capacity only.

Bill Singer's Comment
Among the notable warnings from FINRA to start off 2011 is its concern that supervisors may not be connecting the dots when confronted with so-called "red flags." In this case, we see a private placement that is emanating trouble in terms of failed payments and other indicia of potential problems. Clearly, if your firm is going to go down the Reg D road, you're goint to have to keep your eyes and ears open to a far greater extent than was required in years past.
Chad R. Duncan (Principal)
AWC/2009017755101/January 2011

Without permission or authority, Duncan used $100,000 drawn from an elderly person’s bank account to pay his personal credit card expenses, which were related to costs associated with the construction of his home. When the executor of the deceased person’s estate became concerned about the withdrawals totaling $100,000, Duncan created fictitious cashier’s checks totaling $100,000 and payable to charities, falsely representing that the checks represented evidence of the payments made by the deceased and the beneficiaries of the payments. The withdrawals were earlier used to purchase cashier’s checks payable to an international commercial bank to pay down Duncan’s credit card expenses. 

A bank compensated the customer for the wrongfully taken funds, and Duncan has reimbursed the bank approximately $91,484.75 and continues to make monthly payments to cover the amounts the bank paid to the customer.

Chad R. Duncan (Principal): Barred
CMG Institutional Trading LLC and Shawn Derrick Baldwin (Principal)
2008012026601/January 2011

CMG Institutional Trading LLC was expelled from FINRA membership and Baldwin was barred from association with any FINRA member in any capacity. The National Adjudicatory Council (NAC) imposed the sanctions following appeal of an Office of Hearing Officers (OHO) decision. The sanctions were based on findings that the firm, acting through Baldwin, failed to respond to FINRA requests for information and documents.

CMG Institutional Trading LLC: Expelled

Shawn Derrick Baldwin: Barred

Daniel J. Trolaro
AWC/2010021844401/January 2011
Trolaro misappropriated approximately $1,533,000 from customers and, instead of reinvesting the funds on the customers’ behalf, he deposited the checks into his personal bank account and used the funds for his personal benefit. Trolaro persuaded customers to make personal loans to him, totaling $310,000 contrary to his member firm’s written procedures that specifically prohibited registered representatives from borrowing money from customers.
Daniel J. Trolaro: Barred
David William Reimers (Principal)
AWC/2010022393501/January 2011

Reimers borrowed approximately $75,768 from one of his customers at his member firm despite the fact that the firm’s procedures prohibited representatives from borrowing money from a customer, unless the customer was a family member and written notice was provided to the firm. The customer was not a family member and Reimers did not inform the firm of the loan, which was repaid in full, together with interest totaling $11,259.

Reimers falsely represented on his firm’s annual compliance questionnaire that he had not borrowed money from a customer.

David William Reimers (Principal): Fined $5,000; Suspended 3 months
David William Trende
2007008935010/January 2011
Trende falsified Federal Reserve forms with respect to customers and caused his firm to maintain false books and records by providing false information on Purpose Statements and submitting them to the firm.
A Stock-to-Cash program was designed to help customers of insurance agents fund purchases of fixed annuity and fixed life insurance products; however, loan documents and federal regulations prohibited investment of the loan proceeds in margin securities and from  investing in variable annuities. As part of the Stock-to-Cash loan process, Trende was required to provide a Purpose Statement setting forth the intended use of proceeds, in order to ensure compliance with Federal Reserve Board regulations restricting the extension of margin credit. Trende had general discussions with the customers who agreed to borrow approximately $180,000 concerning the possible uses of the loan proceeds, but no decisions were made about how to use the funds until after the proceeds were received so real estate was written on the Purpose Statement as the specific purpose of the loan. 

The customers did not use the proceeds for the stated purpose of purchasing real estate; they used more than 50 percent of the proceeds of the Stock-to-Cash loan to purchase a variable annuity from an entity, with Trende as their broker, and used the remainder of the proceeds to purchase an equity-indexed annuity, again through Trende, and to pay some debts.

The firm received a commission from the annuity sales, and Trende received a payout from the firm. 

Another of Trende’s customers agreed to borrow approximately $100,000 through the Stock-to-Cash program. In connection with this customer’s loan, Trende completed a Purpose Statement for the customer’s signature, which stated that the credit was going to be used for real estate. When the customer signed the Purpose Statement, he had discussed several options for the use of the proceeds with Trende, but had not determined how he would ultimately use the loan proceeds but did not use the proceeds to purchase real estate. The customer signed an application to purchase a variable annuity, with Trende as the broker, with most of the proceeds from the Stock-to-Cash loan; the firm received a commission from the annuity sale, and Trende received a payout from the firm. FINRA found that both customers profited on their investments in the securities that they bought for participation in the Stock-to-Cash program and posted as collateral for their loans.

Trende was well aware that his customers had not decided how to use the money at the time the Purpose Statements were signed. Trende’s conduct was unethical and reflects negatively on his commitment to compliance with the securities industry’s regulatory requirements.
David William Trende : Fiend $10,000; Suspended 3 months.
Edmond Sloan Duvall
AWC/2008015702201/January 2011

Over a period of 10 years or longer, in face-to-face meetings with customers, Duvall had the customers supply account forms signed in blank, to support transactions the customers authorized. After obtaining information needed to complete the transactions, Duvall completed the forms and submitted them to his member firm for processing; but in some cases, he retained the blank, signed forms.

Duvall’s firm prohibited staff from obtaining or retaining documents the customers pre-signed, and Duvall was aware of the prohibition. Duvall caused his firm to violate NASD Rule 3110 in that he caused the firm’s books and records relating to customer accounts to be inaccurate.

Edmond Sloan Duvall: No fine in light of financial status; Suspended 12 months
Fidelity Brokerage Services LLC
AWC/2008015470101/January 2011
The Firm failed to determine in all municipal securities transactions whether the underlying credit rating of the issuer of an insured municipal security constituted material information that was required to be disclosed at or before the time of purchase. The Firm failed to disclose to customers in connection with municipal securities transactions, all material facts at or before the time of purchase, in that the firm failed to disclose to customers the underlying credit rating of insured municipal bonds at or prior to the time of purchase.
Fidelity Brokerage Services LLC: Censured; Fined $35,000
George Abbott Berry
AWC/2009017596901/January 2011

Berry serviced a brokerage account a relative held but did not have power of attorney or discretionary authorization over the account. Berry failed to report his relative’s death to his member firm, and after leaving the firm, he removed funds from the account totaling $70,000 by requesting checks be drawn on the account, sent to her listed address, which was the same as Berry’s home CRD address, and deposited the checks in a joint checking account he shared with his relative. When Berry submitted a written withdrawal request to the firm for $10,000, the firm discovered that the signature did not match the signature on file for the customer and froze the brokerage account after Berry acknowledged his relative’s death with the firm’s customer relations staff.

The Firm amended Berry’s Form U5 to reflect an internal review of his withdrawals and his failure to advise the firm of his relative’s death.

George Abbott Berry: Barred
Bill Singer's Comment
The somewhat puzzling aspect of this case is whether there was a joint account at the brokerage firm -- since we are told that the bank account was joint.  If there was a Joint-Tenants-With-Right-of-Survivorship brokerage account, then you have to wonder why Berry went through all of the subterfuge; which sort of suggests that there wasn't a JTWROS in place for the brokerage account.
Glendale Securities, Inc.
AWC/2009019747601/20060075263/January 2011

The Firm failed to adequately implement or enforce its anti-money laundering (AML) compliance program and otherwise comply with its AML obligations, as the firm did not identify and analyze numerous transactions to determine if they were suspicious and were required to be reported to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) on a Suspicious Activity Report-Securities/ Futures Form (Form SAR-SF).

The Firm permitted foreign corporate accounts, all of which were controlled by one individual, to deposit a total of approximately 279 million shares of low-priced securities and/or penny stocks into the accounts, and after the securities were deposited into the accounts, they were promptly sold and all proceeds from the transactions were disbursed by wires to first-party bank accounts maintained with a Scotland bank. The Firm permitted these suspicious activities to occur without conducting adequate AML reviews and failed to file Forms SAR-SF as appropriate.

The Firm had no written procedures

  • to detect and prevent participation in an unregistered distribution of securities, and
  • addressing the acceptance of securities in either certificate or electronic form and the corresponding sales of those securities.  

In fact, the Firm relied primarily on transfer agents to determine whether the securities were free trading.

Upon receipt of a large block of a low-priced stock (which was, in certain instances, unregistered), the firm’s due diligence was essentially limited to verifying that the security was electronically quoted and contacting the transfer agent to determine the number of outstanding shares and whether the shares were free trading. Notably, the Firm failed to inquire about the length of time the securities had been held; how, when, and under what circumstances the securities had been acquired; the relationship, if any, between the customer and the issuer; and/or how much stock was owned by or under the customer’s control.

Glendale Securities, Inc.: Censured; Fined $45,000
Bill Singer's Comment

I mean, really?  foreign corporate accounts controlled by one individual deposit 279 million shares of low-priced securities, sell them, and the proceeds are wired to first-paryt Scottish accounts?  C'mon, guys, you have to do better than that.

See this recent article involving a bank officer's bribery attempts and an SAR case: http://www.brokeandbroker.com/index.php?a=blog&id=730

Janney Montgomery Scott, LLC
AWC/2007009458001/January 2011

The Firm failed to

  • establish certain elements of an adequate AML program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and implementing regulations promulgated by the Department of Treasury;
  • establish policies and procedures reasonably expected to detect and cause the reporting of transactions required under 31 USC 5318(g) by failing to provide branch office managers with reports that contained adequate information to monitor for potential money-laundering and red flag activity; and for the firm’s compliance department to perform periodic reviews of wire transfer activity, require either branch managers or the AML compliance officers to document reviews of AML alerts in accordance with firm procedures, identify the beneficial owners and/or agents for service of process for some foreign correspondent banks accounts, and establish adequate written policies and procedures that provided guidelines for suspicious activity that would require the filing of a Form SAR-SF;
  • establish policies and procedures that required ongoing AML training of appropriate personnel related to margin issues, entering new account information, verifying physical securities and handling wire activity;
  • ensure that its third-party vendor verified new customers’ identities by using credit and other database cross-references, and after the firm determined that the vendor’s lapse was resolved, it failed to retroactively verify customer information not previously subjected to the verification process;
  • establish procedures reasonably expected to detect and cause the reporting of suspicious transactions required under 31 USC 5318(g), in that it failed to include in its AML review the activity in retail accounts institutional account registered representatives serviced;
  • review accounts that a producing branch office manager serviced under joint production numbers;
  • evidence in certain instances timely review of letters of authorization, correspondence, account designation changes, trade blotters, branch manager weekly review forms and branch manager monthly reviews; failed to follow procedures intended to prevent producing branch office managers from approving their own errors;
  • follow procedures intended to prevent a branch office operations manager from approving transactions in her own account and an assistant branch office manager from reviewing transactions in accounts he serviced;
  • establish procedures for the approval and supervision related to employee use of personal computers and, during one year, permitted certain employees to use personal computers the firm did not approve or supervise,
  • include a question on thefirm’s annual acknowledgement form for one year that required its registered representatives to disclose outside securities accounts and the firm could not determine how many remained unreported due to the supervisory lapse;
  • follow policies and procedures requiring the pre-approval and review of the content of employees’ radio broadcasts, television appearances, seminars and dinners, and materials distributed at the seminars and dinners; representatives conducted seminars that were not pre-approved by the firm’s advertising principal as required by its written procedures; the firm failed to maintain in a separate file all advertisements, sales literature and independently prepared reprints for three years from date of last use; and a branch office manager failed to review a registered representative’s radio broadcast. A branch office manager failed to maintain a log of a registered representative’s radio broadcasts and failed to tape and/or maintain a transcript of the broadcasts and there was no evidence a qualified principal reviewed or approved the registered representative’s statements. Branch office managers did not retain documents reflecting the nature of seminars, materials distributed to attendees or supervisory pre-approval of the seminars; retain transcripts of a representative’s local radio program and TV appearances or document supervisory review or approval of materials used; and retain documents reflecting the nature of a dinner or seminar conducted by representatives or materials distributed;

  • record the identity of the person who accepted each customer order because it failed to update its order ticket form to reflect the identity of the person who accepted the order; and

  • to review Bloomberg emails and some firm employees’ instant messages

The Firm distributed a document, Characteristics and Risks of Standardized Options, that was not current, and the firm lacked procedures for advising customers with respect to changes to the document and failed to document the date on which it was sent to certain customers who had recently opened options accounts. Also, the firm’s compliance registered options principal did not document weekly reviews of trading in discretionary options accounts.

Janney Montgomery Scott, LLC : Censured; Fined $175,000
Bill Singer's Comment
What can I say -- even I'm impressed!
Jenny Quyen Ta (Principal)
AWC/2010021538701/January 2011

Ta engaged in outside business activities and failed to give prompt written notice to her member firm. Ta failed to disclose that she had financial interests and/or discretionary authority in multiple brokerage accounts at other broker-dealers and failed to give her firm prompt written notice of these accounts; on account applications, she falsely indicated that she was not affiliated with a securities firm. On a firm securities annual attestation form, Ta falsely stated that she did not have a personal securities account.

Ta created websites which included representations about her career accomplishments but never obtained a registered firm principal’s approval for those sites. One of the websites stated that Ta founded a full-service broker-dealer that was a FINRA member when, in fact, it was not; although that entity had a new member application pending with FINRA, it was not an actual broker-dealer and never became a FINRA member.

Ta failed to inform a registered firm principal that she had a Twitter account which, on occasion, she used to tout a particular stock. In addition, Ta’s “tweets” were unbalanced, overwhelmingly positive and frequently predicted an imminent price rise, and Ta did not disclose that she and her family members held a substantial position in the stock.

Jenny Quyen Ta (Principal): Fined $10,000; Suspended 1 year.
Jesup & Lamont Securities Corp
2009020539501/January 2011
Jesup & Lamont Securities Corp was expelled from FINRA membership for failing to timely respond to FINRA requests for documents and information.
Jesup & Lamont Securities Corp : Expelled
Bill Singer's Comment
See this FINRA Arbitration case involving a former employee's defamation case.  http://www.brokeandbroker.com/index.php?a=blog&id=560 
Joe Michael Kirk
AWC/2009017797201/January 2011

Kirk engaged in outside business activities without providing prompt written notice to his member firm. Kirk had a contract with an insurance company to sell EIAs, which was approved, but the firm subsequently informed Kirk in writing that the approval to sell EIAs through the insurance company had been cancelled. Despite receiving this notice, Kirk sold EIAs through the insurance company without providing prompt written notice to his firm, and received commissions of approximately $14,500.

Kirk incorrectly answered on his firm’s required compliance questionnaire that he was not currently engaged in any outside business activities, when at the time, he maintained his contractual relationship with the same insurance company through which he sold the EIAs.

Joe Michael Kirk: Fined $5,000; Suspended 4 months
John Henry Fernandez
AWC/2009019405801/January 2011
Fernandez borrowed a total of $30,000 from an elderly customer contrary to his member firm’s policy, which prohibited borrowing from customers who are not immediate family members. Fernandez failed to disclose the loans to his member firm and did not repay them until the firm discovered the loans after the customer complained. Fernandez then repaid the entire loan with $2,105 in interest.
John Henry Fernandez : Censured; Fined $5,000; Suspended 45 days
Bill Singer's Comment
Wow, the sanction here strikes me a very lenient given the facts -- particularly since FINRA says that Fernandez did not repay the loans until the "firm discovered the loans after the customer complained."
Jupiter Distribution Partners, Inc.
AWC/2009015972701)/January 2011
The Firm failed to preserve and maintain electronic communication in a non-rewriteable and non-erasable format, and failed to preserve and maintain electronic communication received by and sent to a hand-held electronic device one of its registered representatives operated. The firm failed to have adequate procedures that addressed the retention of electronic communication arising from the use of a hand-held electronic device. The firm failed to prepare accurate net capital computations by erroneously treating revenue received from a customer as being immediately earned, and as a consequence, the firm failed to file an accurate Financial Operational & Combined Uniform Single (FOCUS) Report.
Jupiter Distribution Partners, Inc.: Censured; Fined $20,000
Bill Singer's Comment
Has it finally gotten so complicated that we can't state what type of device it is beyond "hand held"? Is it an iPad, a smartphone, a net book -- I mean, seriously, what the hell was it?
Kirk Alan Tessendorf
AWC/2009018272001/January 2011
Tessendorf willfully failed to disclose material information on his Form U4. The findings stated that during firm inclusive producer interviews and on compliance surveys, Tessendorf falsely replied to questions when specifically asked whether he was subject to bankruptcies, liens, creditors, etc., despite acknowledging on the surveys that he had an obligation to keep his Form U4 current with regard to judgments and liens.
Kirk Alan Tessendorf: Fined $5,000; Suspended 9 months
Larrye Alfie Smith (Principal)
AWC/2009020119101/January 2011
Smith engaged in business activities for compensation outside the scope of his business relationship with his member firm without providing the firm with prompt written notice. Smith sold EIAs valued at $148,850 without notifying the firm.Smith used a business card the firm had not approved, distributed a seminar invitation the firm had not approved and conducted a seminar of which the firm was unaware.
Larrye Alfie Smith (Principal): Censured; Fined $7,500; Suspended 6 months
Legacy Trading Co., LLC and Mark Alan Uselton (Principal)
2005000879302/January 2011

The NAC imposed the sanctions following appeal of an OHO decision.

The sanctions were based on findings that acting through Uselton, the Firm

  • made false statements to FINRA; and
  • failed to make and annotate affirmative determinations prior to effecting short sales.

The firm and Uselton

  • failed to maintain the required records necessary to rely upon the exemption in Exchange Act Rule 15c2-11(f)(2),
  • failed to maintain the firm’s email records for at least three years, and
  • failed to establish, maintain, and enforce an adequate supervisory system and written supervisory procedures,

Uselton also provided false information and failed to provide testimony at a FINRA on-the-record interview, and he failed to timely update his Uniform Application for Securities Industry Registration or Transfer (Form U4) with material facts.

Legacy Trading Co., LLC: Expelled;  jointly and severally fined $907,035.01, plus interest.

Mark Alan Uselton: Barred; jointly and severally fined $907,035.01, plus interest.

Leonard Raymond Connell
AWC/2009020402601/January 2011
Connell engaged in outside business activities without providing prompt written notice to his member firm. Connell sold equity-indexed annuities (EIAs) to investors, which included customers of his firm, through insurance companies, with investments totaling approximately $3,490,000, and Connell received commissions of approximately $91,030.00 from these sales. During the relevant period, the firm prohibited its representatives from selling EIAs as an outside business activity.
Leonard Raymond Connell: Fined $5,000; Suspended 3 months
Leslie David Kruse
AWC/2009020491201/January 2011

Kruse entered into a settlement agreement regarding a customer complaint without authorization from, and without notifying, his member firm.

Kruse sold a customer a variable life insurance policy which required payment of monthly premiums by automatic withdrawal from the customer’s bank account. Thereafter, the customer complained to Kruse that he had not been aware of the monthly withdrawals from his bank account and about the performance of the policy. The customer threatened to direct his complaint to the state insurance commissioner if Kruse did not resolve the situation to his satisfaction; Kruse then paid the customer $4,000 to settle the complaint.

Leslie David Kruse: Fined $5,000; Suspended 10 business days
Lynda Corean Paul
AWC/2009017978901/January 2011
Paul sold fixed annuities on an insurance company’s behalf totaling approximately $1 million to members of the public and received approximately $44,000 in commissions. Paul failed to give prompt written notice to her member firm that she was engaging in outside business activities.
Lynda Corean Paul : Fined $5,000; Suspended 2 months
Lyndall Conway Medearis Jr. (Principal)
AWC/2008014825001/January 2011

Medearis became an additional credit card holder on a customer’s credit card accounts which were revolving lines of credit. Medearis made charges to the cards totaling approximately $134,000, effectively borrowing this amount through the credit card transactions, and subsequently made payments to cover the charges.

Medearis’ member firm’s written procedures prohibited registered representatives from borrowing money from or loaning money to customers unless the customer was a member of the registered representative’s immediate family and the registered representative had requested and received prior written permission from the firm. Medearis borrowed an additional $132,000 from the customer in separate transactions, and Medearis never informed his firm.

Medearis loaned $6,420.33 to a customer who was a member of his immediate family but failed to obtain the firm’s prior written permission before entering into the loan arrangement with the customer.

Lyndall Conway Medearis Jr. (Principal): Fined $10,000; Suspended 90 days
Bill Singer's Comment
FINRA essentially has Medearis coming (borrowing) and going (loaning) money to customers.
Mahmood Hasan Usmani
AWC/2010022476001/January 2011

By purchasing an issuer’s stock while in knowing possession of material, non-public information, directly or indirectly, by use of means or instrumentalities of interstate commerce, Associated Person Usmani intentionally or recklessly employed a device, scheme or artifice to defraud or engaged in an act, practice or course of business which operated, or would operate, as a fraud or deceit in connection with the purchase or sale of a security. 

Prior to the public announcement of the tender offer for a security and after a substantial step or steps to commence the tender offer had been taken, Usmani purchased the issuer’s securities while in possession of material information relating to the offer, which he knew or had reason to know was non-public and had been acquired directly or indirectly from a person acting on the offering person’s behalf; the issuer of the securities sought or to be sought by the tender offer; or an officer, director, partner, employee, or other person acting on the offering person’s or such an issuer’s behalf.

Usmani failed to notify his member firm, in writing, of the existence of his personal securities accounts, in which he had a financial interest and maintained at another FINRA member firm, and failed to notify the other member firm, in writing, of his association with his member firm.

Usmani failed to respond to FINRA requests for information and documents.

Mahmood Hasan Usmani: Barred; Ordered to disgorge $24,286.67 in unlawful profits.
Marilyn Louise Yamanaka
AWC/2009016709018/January 2011

Yamanaka participated in the sales of Universal Lease Programs (ULPs) totaling $408,273.39 to members of the public without providing her member firm with written notice about the sales, and failed to obtain her firm’s written approval. Yamanaka received approximately $43,760 in commissions from her sales of the ULPs.

Yamanaka submitted documentation related to the ULPs to her firm and was told that the ULPs were not approved for sale. Yamanaka signed declarations in which she confirmed she had discussed the firm’s regulatory requirements with her supervisory principal; in these declarations, Yamanaka stated she had not offered or sold securities except those her firm offered and approved, had not engaged in any outside business activity which involved private securities transactions or private placements of securities, unless the firm approved them in advance, and informed her firm of all outside business activities for which she directly or indirectly received compensation. FINRA found that all of these statements were false.

Marilyn Louise Yamanaka: Fined $5,000 (apparently that number was derived from a consideration of Yamanaka's financial status and could be higher under other circumstances); Suspended 8 months.
NAME REDACTED
AWC/2009021029703/January 2011
Certain states began requiring financial advisors to successfully complete a long-term care (LTC) continuing education (CE) course before selling long-term insurance products to retail customers. NAME REDACTED had to successfully complete the LTC CE exam to sell an insurance product to a potential customer and had an individual come to his office and assist him in completing the exam by providing him with the answers. NAME REDACTED knew, or should have known, that the individual was improperly assisting him by giving him answers toward a CE requirement.
NAME REDACTED : Fined $5,000; Suspended 1 month
Bill Singer's Comment
Name redacted at the sole discretion of RRBDLAW.com
NEXT Financial Group, Inc.
AWC/2009016272902/January 2011

NEXT Financial Group did not have a reasonable system for reviewing its registered representatives’ transactions for excessive trading. The firm relied upon its OSJ branch managers to review its registered representatives’ transactions and home office compliance personnel to review its OSJ branch managers’ transactions, but the firm failed to utilize exception reports or another system, and the supervisors and compliance personnel only reviewed transactions on weekly paper blotters or electronic blotters.

The monthly account statements and contingent deferred sales charge reports for mutual fund activity were also available for review and could be indicators of excessive trading, however, given the volume of trading certain principals reviewed, and in certain cases, the large number of representatives for which the principal was responsible, it was not reasonable to expect principals to be able to track excessive trading on a weekly sales blotter, let alone through monthly account statements or mutual fund sales charge reports.

Due to the lack of a reasonable supervisory system, the firm failed to detect a registered representative’s excessive trading, which resulted in about $102,376 in unnecessary sales charges; the firm failed to identify or follow up on other transactions that suggested other registered representatives’ excessive trading in additional customer accounts. 

The Firm did not have a reasonable system for ensuring that it obtained and documented principal review of its registered representatives’ transactions, including sales of complicated products such as variable annuities, and the firm should have been particularly attentive to maintaining books and records that established that the transactions had been properly reviewed. The firm failed to provide reasonable supervision of municipal bond markups and markdowns to ensure that its registered representatives charged its customers reasonable markups and markdowns. In addition,  the firm’s branch office examination program was unreasonable because it was not designed to carry out its intended purpose of detecting and preventing violations of, and achieving compliance with, federal, state and FINRA securities regulations, as well as its own policies.

The firm failed to have a reasonable supervisory system to oversee implementation of its heightened supervision policies and procedures for its registered representatives as it failed to comply with the terms of its heightened supervision for its registered representatives regarding client complaints, regulatory actions or internal reviews, therefore it had a deficient implementation of heightened supervision policies and procedures.

The firm failed to have a reasonable supervisory control system or to have in place Supervisory Control Procedures as required by FINRA Rule 3012, and it failed to perform adequate 3012 testing or prepare adequate 3012 reports. Moreover,the firm failed to have a reasonable system and procedures in place to review and approve investment advisors’ private securities transactions.

Furthermore, the firm filed inaccurate and late Rule 3070 reports relevant to customer complaints, and did not file or amend Form U4 and Uniform Termination Notice for Securities Industry Registration (Form U5) reports in a timely manner.

The Firm's AML systems and procedures were unreasonable, as the firm failed to establish and implement an AML Compliance Program reasonably designed to achieve compliance with NASD Rule 3011. Although the firm utilized a money movement report, its supervisors did not detect red flags involving numerous instances of potentially suspicious activities relating to the trading of a company’s stock and the transfers of proceeds relating to the trading of a stock, and thus failed to investigate and report these activities in accordance with its own procedures and the requirements of the Bank Secrecy Act and the implementing regulations.

In addition, over 1.3 million shares of a company’s stock were traded in customer accounts a registered representative serviced; during a one-week period, the firm’s only AML exception report that monitored large money movement flagged the customer’s account, but the firm took no action and failed to file any SARs as appropriate.

NEXT Financial Group, Inc.: Censured; Fined $400,000; Ordered to pay $103,179.84, plus interest, in restitution to customers.
Novin Ghaffari Nikou
OS/2008015095101/January 2011
Nikou falsified a customer’s signature and initials on forms her member firm used related to the purchase of a fixed annuity. Nikou violated the firm’s policy that prohibits its registered representatives from signing customer names or initials, even if done with the client’s knowledge and/or consent.
Novin Ghaffari Nikou : No fine in light of financial status; Suspended 30 days
Bill Singer's Comment
Please note: "even if done with the client’s knowledge and/or consent"
Peter Joseph Brandstaetter
AWC/2008014880601/January 2011

Brandstaetter created and distributed illustrations that promoted an options trading strategy to members of the public that contained numerous false, exaggerated, unwarranted or misleading claims and statements. Brandstaetter sent the illustrations to one of the customers, she had not completed an options trading agreement with Brandstaetter’s member firm and she had not been furnished with an options disclosure document prior to (or contemporaneous with) the receipt of the illustrations. Brandstaetter did not seek or receive approval of the documents from his firm’s options principal prior to the dissemination of the materials.

Brandstaetter exercised discretion in a customer’s account without her written permission or the firm’s approval, although he was aware that his firm’s written supervisory procedures prohibit discretionary trading within customer accounts.

Peter Joseph Brandstaetter: Fined $20,000; Suspended 10 business days
Robert Charles Pollock
AWC/2009019042301/January 2011

Pollock sold to customers installment plan contracts offered by a non-profit corporation that represented itself to the public as a charitable organization, but Pollock lacked a reasonable basis to recommend the purchase of the contracts to his customers given his failure to perform a reasonable investigation concerning the product. Pollock reviewed information on the non-profit corporation’s website and spoke to its personnel, he took their representations at face value and failed to independently verify those representations. Pollock did not contact the Internal Revenue Service (IRS) to confirm the tax-exempt status or the availability of a tax deduction to investors, and did not seek to understand how the non-profit corporation arrived at its figures regarding tax benefits; Pollock also misrepresented to his customers that they could take charitable tax deductions in connection with their respective investments, which was not true.

In connection with the solicitation of these installment plan contracts, Pollock provided his customers with illustrations and other sales materials that contained misleading and incomplete information. Pollock failed to provide his member firm with written notice of his participation in the above-referenced transactions or receive its written approval to participate in those transactions, and he did not present the flow chart and 1099 Statement for review to a registered principal of his firm prior to using them in connection with the sales of the installment plan contracts.

Robert Charles Pollock : Fined $94,650 including disgorgement of $34,650 in commissions; Ordered to pay $76,922, plus interest, in restitution to customers;Suspended 1 year
Bill Singer's Comment
If you're going to sell installment contracts -- especially from purported charitable institutions -- you have to do your due diligence.  If you don't, this is what could happen. Ouch.
Robert John Zamecki (Principal)
AWC/2009016987401/January 2011

Zamecki was the registered principal at his member firm responsible for reviewing and approving the firm’s registered representatives’ private securities transactions and outside business activities. Zamecki failed to supervise a registered representative’s private securities transactions. The registered representative disclosed his outside business sales of secured real estate notes to the firm and discussed them with Zamecki, at which time the representative stated that attorneys for the note issuer had determined that the notes were not securities; in reality, the notes were securities. Zamecki allowed the registered representative to continue selling the notes without inquiring further into the matter and thereby failed to enforce the firm’s written supervisory procedures.

The representative made numerous sales of the notes to various investors, and Zamecki did not review, approve or otherwise supervise these sales. The representative completed an Outside Business Questionnaire in which he disclosed his sales of the notes; after reviewing the form, Zamecki questioned the representative in detail about the nature of the notes, determined that the notes could be securities and prohibited the representative from engaging in any further sales of the notes.

Robert John Zamecki (Principal): Fined $12,500; Suspended 30 business days in Principal capacity only.
Sharon Elsene Givens
2008014705101/January 2011
As her member firm’s bookkeeper, Associated Person Givens, had access to the firm’s checking account and forged the firm’s treasurer’s signature on checks totaling approximately $61,016.08 written against the firm’s checking account. Givens committed conversion by making the checks payable to herself, cashing the checks and using the funds for purposes other than the firm’s benefit. Because Givens reconciled the firm’s checking account, she was able to conceal the conversion of funds from the firm. In a letter to FINRA, Givens admitted that she utilized the treasurer’s name without authorization and took the firm’s funds for her personal use.
Sharon Elsene Givens: Barred
Stephen Lee Recker
AWC/2009017801501/January 2011
Recker willfully failed to disclose material information on his Form U4 and on a compliance questionnaire for his member firm.
Stephen Lee Recker : Fined $10,000; Suspended 3 months
Stephen Richard Ventura
AWC/2009018522001/January 2011
Ventura acquired customers’ signatures by having them sign a paper life insurance application, and that after receiving the paper executed life insurance applications, he placed the applications onto an electronic pad and physically traced the customers’ signatures from the paper life insurance policies to the electronic pad in order to process their life insurance policies, without any of the affected customers’ knowledge or consent .
Stephen Richard Ventura: Fined $10,000; Suspended 6 months
Bill Singer's Comment
Tracing onto an electronic pad!  Now there's someone who shows ingenuity.  Once upon a time you had to hold the paperwork up to a window.
Stuart Gregory Burchard (Principal)
OS/2008011656401/January 2011

Acting through Burchard, his Firm failed to

  • prepare accurate general ledgers and trial balances;
  • prepare accurate computations of net capital under the aggregated indebtedness standard while conducting a securities business;
  • maintain or meet its minimum net capital requirement, failed to notify FINRA when its net capital declined below the minimum required under SEC Rule 15c3-1;
  • prepare and file FOCUS Reports Part IIA for several calendar quarters;
  • comply with the terms of its membership agreement when it acted as a dealer after executing more than 10 proprietary trades in its account during a calendar year, thereby increasing its minimum net capital requirement from $5,000 to $100,000;
  • file an application for approval of a material change in its business operations as originally provided in its membership agreement;
  • report customer complaints, which were discloseable events, within 10 business days and statistical and summary information of customer complaints the firm received on a quarterly basis;
  • timely amend Forms U4 to disclose settlements;
  • timely report settlements, arbitration awards and a default judgment that were required to be disclosed;
  • develop, establish and implement an adequate AML compliance program;
  • conduct and/or document adequate independent testing of its AML compliance program and procedures;
  • establish procedures to ensure the designation of an AML Compliance Officer to NASD;
  • NASD of any changes in contact information for its AML Compliance Officer in a reasonable amount of time and failed to implement and adequate AML training program;
  • establish and implement an adequate Customer Identification Program;
  • evidence that a due diligence review was performed to review the identities or beneficial owners of accounts of foreign financial institutions;
  • establish adequate procedures designed to monitor, detect and investigate suspicious activity despite the presence of red flags noted in the firm’s procedures;
  • prepare and maintain exception reports produced to review for unusual activity in accounts; failed to evidence due diligence in opening accounts of foreign financial institutions;
  • monitor and respond to requests for information from FinCEN; and
  • establish and implement policies, procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act, including failure to implement policies and procedures designed to detect and report suspicious activity and to verify the identity of customers.

Burchard failed to reasonably supervise the activities of a registered representative and registered principal to ensure that she performed the supervisory responsibilities Burchard delegated to her.

Stuart Gregory Burchard (Principal): Barred
Bill Singer's Comment
Impressive.  Note that the Principal was barred.
Torrey Pines Securities, Inc. and NAME REDACTED (Principal)
AWC/2007011125103/January 2011

Acting on the firm’s behalf, NAME REDACTED 

  • failed to ensure that a firm principal completed his annual certification as the firm’s procedure required,
  • did not follow up on the principal’s failure to provide information regarding both his outside business activities and the accounts for which he served as a custodian or trustee, and
  • conducted an inspection of a firm branch office, and that inspection did not comport with the firm’s written procedures and did not reasonably review the activities of that office.

NAME REDACTED did not review the transmittal of funds between the principal’s customers and a third party as the firm’s written supervisory procedures required, and failed to obtain details regarding the principal’s outside business activities.

The firm failed to

  • reasonably supervise the principal by failing to take steps to inquire into “red flags”  indicating his possible misconduct;
  • follow up on the principal's outside business activities and excessive absences from the firm;
  • timely investigate allegations that he was participating in private securities transactions away from the firm; and when the firm confirmed his selling away activities, it did not take any steps to place him on heightened supervision.

The Firm's written supervisory procedures were not reasonably designed to ensure principal review of wires from customers to third parties, so it was unaware the principal’s customers were transferring large sums to a third party and that he was executing Letters of Authorization (LOAs) on behalf of multiple customers.

Torrey Pines Securities, Inc.: Censured; Fined $17,500

NAME REDACTED: No Fine in light of financial status; Suspended from association with any FINRA member in any principal capacity, other than the capacity of municipal securities principal, for 10 business days.

Bill Singer's Comment
Possibly the first time that I have seen a firm sanctioned for not noting "excessive absences, " but, under the attendant circumstances, that's a fair shot by FINRA and it would be appropriate for compliance/supervisory staff to note that such an attendance issue could indicate that some outside activity is imposing a strain upon a registered person.
U.S Financial Investments, Inc.
OS/2009016309701/January 2011

After the Firm became aware of deficiencies in its system for maintaining and preserving emails, and after approval of an AWC arising from the firm’s failure to maintain an adequate system for retaining emails, the firm’s response to correct the deficiencies was inadequate. The firm retained a vendor to provide services with respect to its email system, including, ostensibly, to provide email retention services; however, the firm never took steps, including after it executed the AWC, to test or ascertain whether or not the vendor had implemented a system to store email in a non-erasable, non-rewritable format. The firm did not store emails in a non-erasable, non-rewritable format; instead, the firm’s vendor merely established a “compliance folder” on the firm’s computer network where emails were automatically forwarded, and the vendor apparently maintained “spam” emails the firm received in a separate folder. This system permitted firm employees to delete emails from the “compliance folder.”

During the course of a cycle examination, the staff requested that the firm produce certain emails of a firm registered representative and, in response to the request, the firm was able to provide only “spam” emails the firm retained. The firm discovered its email retention deficiencies only after FINRA staff brought them to the firm’s attention. In addition, the firm intended to employ electronic storage media for its email retention but it failed to provide the required Member’s Notice to FINRA pursuant to SEC Rule 17a-4(f)(2)(i); failed to ensure that its third-party vendor provided the undertakings required by SEC Rule 17a-4(f)(3)(vii); and failed to file the required notice, and its third-party vendor did not provide an undertaking until FINRA staff brought the failures to the firm’s attention.

U.S Financial Investments, Inc.: Censured; Fined $25,000
Bill Singer's Comment
As I have noted in the past, your email retention system must be carved in stone.  If your reps can come in an simply delete an supposedly archived document, that's a major flaw.
UBS Financial Services Inc.
AWC/2009017976301/January 2011

UBS Financial Service's registration tracking materials identified them as needing qualification examinations, but the firm did not

  • did not take the necessary steps to have the employees obtain the requisite registrations and
  • establish, maintain and enforce a supervisory system and/or written supervisory procedures reasonably designed to achieve compliance with the rules and regulations applicable to the registration of principals and representatives.

The Firm's procedures did not clearly assign respective registration responsibilities between the firm’s compliance department and the business unit supervisors, which resulted in communication gaps between the departments. The firm’s compliance department was not consistent in notifying supervisors about registration issues and procedures did not provide reasonable guidance as to the specific steps needed to be taken when an individual was hired or given new responsibilities affecting their registration status.  The procedures did not require that employees be given specific deadlines for testing and other actions, or provide for reasonable follow-up and review to ensure compliance.The firm sometimes permitted representatives to delay taking required exams, contributing to registration violations.

UBS Financial Services Inc. : Censured; Fined $200,000; Required to undertake a comprehensive review and testing of its supervisory system and procedures concerning compliance with applicable laws, regulations and rules relating to registration of principals and representatives in its home office; prepare a written report within 120 days detailing its review, findings, testing and recommendations and provide a copy to FINRA; implement additional recommended systems and procedures within 90 days; and certify in writing to FINRA that it has completed its review and established systems and procedures reasonably designed to achieve compliance with applicable laws, regulations and rules addressing registration of principals and representatives.
Bill Singer's Comment
Given UBS's size and its recent legal/regulatory headaches, one would think that this basic aspect of compliance would have been under control.  Just goes to show you.
Vincent Michael McGuire
OS/2007008239001/January 2011

McGuire and his member firm sold more than 27 million unregistered shares of a thinly traded penny stock into the public markets on customers’ behalf, resulting in proceeds of approximately $46,000 to the customers. McGuire acted as the registered representative for all of these sales.

McGuire and the firm failed to undertake adequate efforts to ascertain the information necessary to determine whether the customers’ unregistered shares could be sold in compliance with Section 5 of the Securities Act, and McGuire failed to determine how their customers came to obtain the stock or whether there was an applicable exemption to registration.

Vincent Michael McGuire: Fined $15,000; Suspended 45 days.
Vincent Patrick McCrudden (Principal)
2007008358101/January 2011
McCrudden induced his firm to file a false Form U5. The NAC found that McCrudden used a variety of tactics, including harassment and a monetary payment, to coerce his firm to file a Form U5, which mischaracterized his firing as a voluntary termination.
Vincent Patrick McCrudden (Principal): Fined $50,000; Suspended 1 year
Bill Singer's Comment

McCrudden became subject to statutory disqualification when the CFTC issued its order affirming the NFA’s decision on December 28, 2006. He had no prior FINRA disciplinary history.

In reviewing his "voluntary" termination from a so-called hedge fund hotel, a FINRA examiner was troubled by the circumstances represented on the U5. The termination involved a dispute over purportedly unpaid commissions and disputed expenses.

In a particularly colorful portion of FINRA's OHO decision, we are told that:

Respondent responded to his termination with a string of profanity-laced, threatening communications. Sometime over the holiday weekend, he left a voice mail for Napolitani, saying substantially, "You mess with the wrong fucking guy, you fat bastard. You are a slimy scumbag. I have dealt with people like you before. You are not going to get away with this."

The threats and language from McCrudden may have been somewhat provoked by his former firm's conduct according to FINRA, but provoked or not, FINRA clearly deemed unjustified and unprofessional. Moreover, rather than an isolated incident, FINRA noted that such outbursts and threats ha a troubling history.  During an NFA investigation, the OHO Decision states that:

After a telephone call with the NFA official who denied the request, Respondent sent an e-mail to the official, saying:

I am coming out to Chicago and fucking getting you and your fucking prick friends…You think you can fuck with whoever you want mother fucker? look over your shoulder one day fucker…you mother fucking corrupt pieces of shit…you splash that corrupt, biased, fixed decision all over the internet so all of my friends and childrens friends can see? And you think I am going to let you, nastro and driscoll get away with it? think again..tell your buddies I’m coming…your not getting away with this shit.

In responding to FINRA staff investigating the U5 issue, we are told in the NAC decision that:

FINRA staff concluded its investigation of this matter in May 2007. At that time, the staff informed McCrudden that FINRA intended to initiate disciplinary proceedings against him. Upon learning the staffs recommendation, MeCrudden left voicemails for both the FINRA investigator and Enforcement attorney handling the matter:

Yeah . . . this is Vincent McCrudden . . . . Um, I just got off the phone with my attorney. You know you guys are flicking pieces of shit. You really are pieces of shit. Um, I want to know who you report to and obviously this is a set up. You know, I cooperated with the NASD and you guys are gonna fucking do this to me? You are fhclcing low life flicking scum bags. I want to know who you report to, I’m going to have you and [the investigator] flicking fired. There’s no way you guys are getting away with this. Somebody has set this up. There’s no way that you ban somebody and there’s no threat . . . . Give me your flicking superior’s number. And I want to know the guys who made this flicking decision. I want every flicking name, you got that? You scum bag.

Essentially, the OHO Decisions found that

[R]espondent’s communications violated the high standards of commercial honor required by participants in the securities industry. Respondent used his abusive and threatening communications to bargain for the money he felt he was owed and to improve the terms of his termination. He achieved one of his most important objectives by getting HedgeCap to agree to file a Form U5 that falsely reported that he had voluntarily resigned.

The OHO imposed  the following sanction:

For making abusive, intimidating, and threatening communications to his former employer, in violation of Rule 2110, Respondent is suspended for 30 business days and fined $10,000. For inducing the filing of a misleading and inaccurate Form U5 by his former firm, in violation of Rule 2110, Respondent is suspended for an additional five business days and fined an additional $2,500.

The NAC increased the sanctions to a $50,000 fine and a one-year suspension.

Copy of the NAC's October 2010 Decision: http://www.finra.org/web/groups/industry/@ip/@enf/@adj/documents/nacdecisions/p122283.pdf

Copy of the OHO October 2009 Decision:

http://www.finra.org/web/groups/industry/@ip/@enf/@adj/documents/ohodecisions/p120797.pdf

William James McCluskey (Principal)
AWC/2009016262301/January 2011
McCluskey acted in a principal capacity at his member firm without being properly registered as a principal. Although a large percentage of McCluskey’s time was devoted to business development, he was actively engaged in the management of his firm’s investment banking and securities business. Duirng that time period, McCluskey was the firm’s President and Chief Executive Officer, was responsible for all of the firm’s securities and investment banking operations, supervised various registered persons, including the firm’s Chief Financial Officer, a branch manager and managing directors, and was involved in the daily supervision of the firm’s investment banking business.
William James McCluskey (Principal): Fined $15,000; Suspended 10 business days
Bill Singer's Comment
Oooooookay -- umm, how the hell do you serve as a member firm's President and Chief Executive Officer without being a registered principal?
Winston John Cutter Jr.
OS/2009017532101/January 2011

Cutter borrowed a total of $55,000 from his customer in the absence of firm procedures allowing such borrowing; Cutter has repaid only $6,000.

Cutter made false statements to his firm concerning material facts relating to his borrowing or receiving of any money from the firm’s customer, particularly in the context of the firm’s attempts to discharge its supervisory functions. Cutter failed to provide information FINRA requested.

Winston John Cutter Jr.: Fined $12,500; Suspended 2 years
2011
Sammons Securities Company, LLC and Carl Monroe Mook (Principal)
AWC/2009017821401/ 2011
Before Mook terminated his registration with a former member firm, and became registered with Sammons, he accessed the former firm’s system and downloaded customers’ names, addresses, account numbers, account registrations and security products held in the accounts to a compact disk (CD). When Mook began employment with the firm, he turned the CD over to it; the firm then accessed the non-public personal customer information contained on the CD, and using that information, generated and mailed the former firm’s customers transition packets that contained, among other things, a change of broker-dealer form for each securities account. 

The  firm entered personal customer information on the change of broker-dealer forms that it obtained from Mook’s CD, including customer account numbers at the former firm and the securities products they held at the firm. Mook and the firm used the non-public personal customer information without determining whether they were acting in compliance with Regulation S-P. For instance, Mook and the firm failed to determine whether Mook’s former firm had given any of the customers whose information they used the opportunity to opt out of the disclosure of their personal information when Mook left the firm.

Sammons Securities Company, LLC: Censured; Fined $10,000

Carl Monroe Mook: Fined $5,000; Suspended 10 business days

Enforcement Actions
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It's All Over Now: My 42-year Wall Street Journey by Bill Singer, Esq.
January 30, 2024
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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