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.
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:
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 #)
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 #)
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.
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.
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.
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.
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
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.
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.
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
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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
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.
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.
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
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
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.
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.
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.
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.
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
O at least two account information forms, Naefke falsely stated that an
O four illiquid investment letters, Naefke falsely stated that the
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
Lombardi improperly transferred confidential and proprietary information outside of his member firm for purposes other than the firm’s business.
Lombardi sent to
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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
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.
Acting through Erickson and Brewer, the Firm:
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
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
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.
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:
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Chew engaged in a
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.
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.
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.
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
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.
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.
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.
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.
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.
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
Colletti filed, or caused to be filed, an initial Form U4 with a member firm on which he willfully failed to disclose material information.
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.
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.
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.
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.
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.
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.
The Firm failed to:
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.
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
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.
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.
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.
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.
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.
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
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 #)
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.
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.
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.
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).
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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),
FINRA also found that the firm failed to
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.
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.
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.
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.
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 #)
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.
Associated Person Dosenberg willfully failed to disclose material information on his Form U4 and failed to respond to FINRA requests for information.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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
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.
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.
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.
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
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.
The Firm failed to
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.
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.
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.
The NAC imposed the sanctions following appeal of an OHO decision.
The sanctions were based on findings that acting through Uselton, the Firm
The firm and Uselton
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.
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.
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.
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.
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.
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.
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.
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.
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.
Acting through Burchard, his Firm failed to
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.
Acting on the firm’s behalf, NAME REDACTED
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
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.
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.
UBS Financial Service's registration tracking materials identified them as needing qualification examinations, but the firm did not
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.
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.
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.