Dawson James Securities, Inc, Albert James Poliak (Principal) and Douglas Fulton Kaiser (Principal)
OS/2009016158501/ 2011
The Firm entered into
a de facto
commission recapture agreement with a firm customer without
meeting the
minimum required net capital of $250,000 and without filing an
application
for amendment of the firm’s FINRA membership agreement.
The Firm and a customer entered into a
consulting
agreement whereby the customer was to provide research and
advisory
services. However, the firm did not request, nor did the customer
provide,
research reports or advisory services or any of the other services
set forth in
the consulting agreement. Moreover, the Firm paid the customer a
total of
$1,215,000, which exceeded by $885,000 the payments due to the
customer
per the contractual requirements under the consulting agreement.
The
payments exceeded the contractual requirements of the consulting
agreement
because the agreement was a de facto commission recapture
arrangement
through which the customer was paid larger amounts based upon the
level of
security transactions the customer was executing in its brokerage
account at
the firm.
Dawson's CEO Poliak was responsible for the
creation of the
consulting agreement and approved each wire transfer payment to
the
customer, including the payments that were in excess of amounts
due to the
customer under the consulting agreement.
Kaiser (who acted at times as both the firm’s head of trading and the Financial and Operations Principal (FINOP)) was responsible for calculating the payments owed to the
customer
and he pulled research concerning the customer’s trades in an
effort to
document the consulting agreement, but the Firm was unable to
document
its use of the purported research or other financial benefit
arising from
the consulting agreement.
Poliak and Kaiser acted unethically in
that they
facilitated the improper commission recapture arrangement between
the firm
and customer, and caused the firm to fail to comply with the
requirement of
NASD Rule 1017.
Acting through Poliak and
Kaiser, the Firm violated the
Customer Protection Rule in several ways:
- in connection
with the commission
recapture agreement described above, the firm held, or was in
control of, customer funds
without establishing a special reserve bank account for the
exclusive benefit of the
customer in violation of Securities Exchange Act Rule 15c3-3, By
holding customer funds
and failing to forward the funds to its clearing firm, the firm
became a broker or dealer
that receives and holds funds for customers, which required it to
increase its net capital
and establish a reserve bank account for customer protection;
- after a commission
recapture agreement was ultimately established for the customer by
the firm’s clearing
firm, the firm deposited into its own checking account a check
from the clearing firm
which included at least $136,700 in commission rebates due to the
customer. Rather than
record a liability to the customer, the firm made a journal entry
to reduce the commission
receivable. The firm’s receipt of customer funds increased its
minimum net capital to
$250,000, a level that the firm did not meet;
- the firm held
and segregated security
positions in its proprietary account for the benefit of two
customers in order to satisfy the
obligation of promissory notes and a confidential private
placement memorandum (PPM);
- the firm acted in the capacity of a noteholder’s agent to
facilitate the repayment
to firm customers of $2,715,000 of principal plus interest on
defaulted notes and warrants
issued by an unaffiliated issuer. By doing so, the firm acted in a
carrying, transferring and
safekeeping capacity for customers, which required the firm to
maintain a minimum net
capital of at least $250,000. The firm’s net capital was below
that required minimum, and
as a result the Financial and Operational Combined Uniform Single
(FOCUS) reports it
filed, and its books and records, were inaccurate. The firm also
failed to timely file Securities
and Exchange Commission (SEC) Rule 17a-11 notices when notified by
its designated
examining authority that the broker-dealer’s net capital was, or
had been, below its
minimum requirement.
When acting in the capacity as the firm’s FINOP, Kaiser was
responsible for supervision
and/or performance of the firm’s compliance under all financial
responsibility rules
promulgated pursuant to provisions of the Securities Exchange Act
of 1934. Kaiser failed
to adequately perform his FINOP responsibilities in that he failed
to take adequate steps to
ensure the accuracy of the firm’s net capital calculations.
As Poliak participated
in the firm’s holding of customer funds in violation of Rule
15c3-3, Poliak caused the firm’s
net capital and books and records violations.
The firm’s compensation committee did
not document
the basis upon which a research analyst’s compensation was
established, thus failing
to establish a written record of whether specific factors required
by NASD Rule 2711
were properly considered, and whether research analyst
compensation was tied to
any investment banking activities.
FINRA found that a
senior officer at the
firm inaccurately represented in required attestations submitted
to FINRA that the
compensation committee documented the basis upon which each
research analyst’s
compensation was established. The senior officer should have known
that each attestation
submitted contained false information. Furthermore, the Firm sold securities for customer accounts that were not registered pursuant
to Section 5 of the
Securities Act of 1933, nor exempt from registration; the sales
constituted an unregistered
distribution by the firm.
Dawson James Securities, Inc: Censured; FIned $90,000
Albert James Poliak: Fined $30,000; Suspended 1 year
Douglas Fulton Kaiser: Fined $30,000; Suspended 1 year