Fox Financial Management Corporation and James Edward Rooney Jr. (Principal)
OS/2008011592201/ 2010
Acting through Rooney, Fox Financial
- sold zero-coupon bonds to customers and negligently omitted material facts concerning the fund’s manager, who the State of Texas had charged with forgery of a financial instrument, and was sentenced to five years deferred adjudication and had been the subject of a Temporary Order of Prohibition for selling unregistered securities by the State of Illinois;
- sold zero-coupon bonds to customers that were secured by interests in life insurance policies, and limited liability companies, which Rooney controlled and were affiliated with the firm, issued the bonds, and negligently omitted material facts to customers relevant to the criminal records of the bonds’ manager and owning companies.
- participated in private placement offerings of zero-coupon bonds limited liability companies issued, and each of the offerings claimed an exemption from registration under the Securities Act of 1933; however, the offerings were not separate and distinct, and were, therefore, subject to integration, and to the securities registration requirements of public offerings.
- sold zero-coupon bonds, failed to establish a proper escrow account by using a limited liability company not chartered as a bank as the escrow agent, and falsely represented that customer funds would not be commingled.
Rooney failed to detect that customer funds had been commingled because he had neglected to obtain copies of the escrow account statements and to maintain such statements among the firm’s records.
The firm’s test of its system of supervisory controls was flawed because it failed to include a review of its private placement business, and Rooney stated in his annual certification of compliance that the firm had established and maintained policies and procedures reasonably designed to ensure compliance with FINRA rules. In addition,the firm failed to evidence its supervision over Rooney, in that Rooney was the only principal who had signed Subscription Agreements indicating approval of the customer’s investment in an offering.
Fox Financial Management Corporation: Censured; Fined $40,000
James Edward Rooney Jr. (Principal): Fined $20,000; Suspended 15 business days in Principal capacity only