AWC/2008011625301/ 2010
The Firm failed to maintain and preserve all of its business-related electronic communications for some of its registered representatives. The Firm’s registered representatives at some of its offices had non-firm email addresses to conduct non-securities business, and upon receiving emails from securities customers at their non-firm email addresses, several of the representatives, in certain instances, would reply using that same email address. The Firm’s email system did not capture the emails from the non-firm email addresses, and a registered representative erroneously believed that his non-firm emails were going to the firm’s server for retention, which did not occur.
AWC/2009016215601/ 2010
OS/2008011579401/ 2010
Acting through Sweat, the Firm failed to
- enforce its written supervisory procedures pertaining to its annual compliance meeting, branch office inspections, outside business activities, outside securities accounts, Regulation SP, hiring practices and the use of personal computers; and
- maintain records of its Firm Element Continuing Education Needs Analysis and Written Training Plan for multiple years, and
- maintain continuing education (CE) records to evidence that the firm’s representatives participated in the Firm Element CE program during one year.
Sweat and the firm failed to maintain copies of registered representatives’ incoming and outgoing correspondence with the public relating to its securities business, and failed to maintain evidence of review as NASD rules and firm procedures required.
The Firm failed to implement
- procedures concerning the capturing, preservation, maintenance and storage of all original and copied communications the firm received and sent;
- a written anti-money laundering (AML) compliance program reasonably designed to achieve the firm’s compliance with the laws, rules and regulations to which it was subject; and
- its AML procedures by failing to provide AML training in a manner specified in its written AML program, and did not properly update its AML compliance officer contact information as required.
Intermountain Financial Services, Inc.: Censured; Fined $12,750
Kent Duane Sweat: Fined $7,500; Suspended in Principal Capacity only for 5 business days
AWC/2008012444203/ 2010
Martin was supervisor of his member firm’s sales and trading operations and direct supervisor of a registered representative who effected pre-arranged and fictitious trades in collateralized mortgage obligations through the firm’s proprietary trading account.
The transactions appeared to terminate the firm’s ownership of the securities and to generate profits for the firm and the trader, but they were sham transactions because the firm remained the beneficial owner of the securities and the purported transaction profits concealed actual and substantial losses.
The registered representative was able to accomplish and maintain his scheme because Martin reviewed his activity on a daily basis rather than in a manner that would evidence trading patterns over time and expose the firm’s losses and risk. Martin was responsible for the firm’s overall compliance with applicable laws, rules and regulations and for implementing the firm’s supervisory policies, practices and procedures, and Martin failed to supervise the registered representative in a manner reasonably designed to achieve compliance with applicable laws, rules and regulations.
Martin failed to cause the firm to preserve electronic communications.
AWC/2008011683801/ 2010
AWC/2008011589801/ 2010
AWC/2007010580901/ 2010
Employees of the firm's securities lending department knowingly made false entries into the firm’s system indicating that finders had been used to locate securities or counterparties when in fact the finders had performed no legitimate services. The Firm made payments to those purported finders and the finders subsequently paid a portion of their ill-gotten payments directly to the firm employees who made the finder entries into the firm’s system. These employees were indicted for their activities and pled guilty to charges of conspiracy to commit wire fraud, and another firm employee also caused the firm to pay finders in transactions for which he knew or should have known that the finders performed no services, but he was not criminally charged.
The Firm’s written procedures and guidelines addressing the firm’s use of finders were inadequate and that, while the firm’s procedures required a supervisor to review securities lending transactions on a daily basis, the procedures did not provide guidance to supervisors who assumed that responsibility; the procedures did not instruct the stock loan supervisors as to what they were to look for in reviewing transaction reports, how to determine what stock loan activity, including rates, was to be flagged as suspicious, how they were to review documents, how to maintain documentation of the reviews, or how they were to follow up on any suspicious activity they discovered. The Firm kept insufficient documentary evidence to establish that a supervisor adequately reviewed the firm’s securities lending activities.
Also, the Firm had no written procedures requiring supervisory review of electronic communications or addressing how the supervisor of the securities lending department should review employees’ communications with other employees, counterparties or finders.
In addition, the Firm created and maintained books and records that inaccurately reflected that finders had participated in stock loan transactions and were paid for services rendered when, in certain instances, finders had not performed any function relating to the transactions and had not rendered services to justify the payments. Moreover, the Firm failed to retain, as required, email sent and received via its primary corporate email system and an additional email system and failed to retain, as required, electronic communications using an instant messaging system.
AWC/2008011737101/ 2010
Acting through Lim, the Firm failed to
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preserve emails in nonrewritable, non-erasable format;
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failed to provide FINRA with notifications of its use of electronic storage media;
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provide FINRA with a letter from a third party describing the third party’s undertakings regarding the firm's electronic storage media as specified by Securities and Exchange Commission (SEC) Rule 17a-4; and
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evidence the review of all incoming and outgoing email communications with customers.
- inspect branch offices even though it had been previously warned in a Letter of Caution that branch offices needed to be inspected on a regular basis.
The firm's written procedures failed to identify locations that regularly conducted the business of effecting securities transactions by soliciting new accounts as branch offices, and failed to address the firm's requirement to conduct internal inspections of these offices.
Investscape, Inc.: Censured, Fined $7,000; and Fined $17,500, jointly and severally with Lim
Richard Michael Lim: Fined $17,500, jointly and severally with Investscape and Suspended 1 year in Supervisory capacity only
AWC2009016078101/ 2010
Acting through Kadison, the Firm failed to
- maintain and preserve all business-related electronic communications;
- establish and maintain a supervisory system,
- establish, maintain and enforce written supervisory procedures, reasonably designed to achieve compliance with the rules and regulations applicable to the retention of electronic communications;
- implement a customer identification program in compliance with its written anti-money laundering (AML) compliance procedures for verifying customer identity for accounts opened with the firm.
Marsco Investment Corporation: Censured; Fined $25,000; Within 90 days of the issuance of the AWC, the firm’s Chief Executive Officer must certify in writing to FINRA that the firm has systems and procedures in place that are reasonably designed to achieve compliance with the laws, regulations and rules concerning the preservation of electronic mail communications.
Mark E. Kadison: Censured; Fined $10,000.
AWC/2008011702001/ 2010
AWC/2008012391401/ 2010
Through several of its employees at the branch office level and employees of an affiliate in the Office of General Counsel, the Firm made material misstatements to NYSE Regulation examiners relating to an on-site branch office examination relating to non-registered cold callers by
- providing the NYSE with inaccurate and deceptive information in response to various regulatory examination requests,
- instructing staff that an unapproved facsimile machine be hidden or removed, and
- by providing an inaccurate written statement in response to requests for information during an ongoing investigation.
Unlicensed Attorney
The Firm failed to properly supervise a registered person with the firm who held himself out as an attorney on firm stationery and business cards even though he was not licensed or admitted to practice before any state or federal bar.
Away Accounts
The Firm failed to
- provide letters from outside broker dealers, whose employees maintained accounts at the firm, confirming that they were aware of such accounts;
- receive and review duplicate confirmations and monthly account statements for accounts that employees maintained outside the firm;
- evidence the approval of such accounts; and
- send duplicate statement and confirmations to other firms whose employees had accounts at the firm.
Communications and Computers
The Firm failed to
- evidence review and supervision of incoming or outgoing written communications and facsimiles at certain branches;
- evidence the approval for certain employees to maintain computers and software; and
- review, supervise and/or evidence supervisory review of communications that employees sent and received with non-firm issued computers.
The Firm failed to place certain accounts on 90-day restrictions; evidence the review, approval and/or supervision of order errors and account designation changes; and date or properly date corrections for order errors and account designation changes. Also, the Firm failed to evidence the review, approval and/or supervision of certain personal computer forms that had been backdated at a branch; failed to approve and/or timely approve seminars that firm employees conducted, and maintain certain seminar-related materials; failed to review, approve and/or retain certain facsimiles, including Fax-2-Mail correspondence and/or evidence its review and approval; and failed to maintain its "control" fax machine in a secure location in one branch.
AWC/2008011737901/ 2010
AWC/2008011736102/ 2010
OS/09-ARCA-12/ 2010
Cutler Group L.P., an NYSE Arca Options trading permit holder, failed to
- preserve certain electronic communications in the required format;
- maintain a complete and accurate list of accounts in which its employees had a direct or indirect financial interest;
- obtain, maintain and review monthly account statements for accounts in which its employees had a direct or indirect financial interest;
- file a complete and accurate annual acknowledgment attestation with the exchange;
- appropriately conduct background checks of its associated persons; and
- establish, maintain, and/or enforce appropriate written policies and procedures for supervision and control, including a separate system of follow-up and review, with respect to certain of the foregoing areas.
The NYSE found the following violations:
- Section 17(a)(1) of Exchange Act, and Rules 17a-4(b)(4) and 17a-4(f) thereunder, and NYSE Arca Options Rule 11.16(a) by failing to preserve business-related e-mail and instant messages in non-rewriteable, non-erasable format, and by failing to preserve business-related fax communications
- NYSE Arca Options Rule 11.3—Commentary .03 by failing to maintain complete and accurate list of accounts in which employees had direct or indirect financial interest, and by failing to obtain, maintain and review monthly account statements for accounts in which employees had direct or indirect financial interest;
- NYSE Arca Options Rule 11.3(a) by failing to establish, maintain, or enforce adequate written policies and procedures reasonably designed to prevent misuse of material, non-public information by employees;
- Section 17(a)(1) of Exchange Act, and Rule 17a-3(a)(12) thereunder, and NYSE Arca Options Rule 11.16(a), by failing to appropriately conduct and document background checks of employees prior to employment, and by failing to properly retain and preserve manually signed Forms U-4;
- NYSE Arca Options Rule 11.18 by failing to establish, maintain, and/or enforce appropriate written policies and procedures for supervision and control, including separate system of follow-up and review, in following areas:
- (a) conducting and documenting background checks of employees prior to employment, including maintaining complete and accurate signed Forms U-4;
- (b) retention in proper format and review of business-related e-mails, instant messages and faxes sent or received by employees; and
- (c) prevention of misuse of material, non-public information by employees .
- 529 College Savings Plan
- Abandoned Accounts
- Algorithmic Trading
- Altered Customer Phone Records
- AML
- Annual Compliance Certification
- Annual Compliance Meeting
- Annuity
- Asset Purchase Agreement
- ATM
- Away Accounts
- Background
- Bank
- Banks
- Beneficiary
- Best Efforts Offering
- Blackjack
- Borrowed
- Borrowing
- Breakpoint
- Casino
- CE
- CFTC
- Changes Of Address
- Check
- Check Kiting
- Checks
- CIP
- CMO
- Commodity Futures
- Commodity Pool
- Communications
- Computers
- Confidential Customer Information
- Contingency Offering
- Continuing Education
- Conversion
- Conviction
- Cooperation Agreement
- Correspondence
- Credit Cards
- Currency
- Day Trading
- Deceased
- Delivery Instructions
- Discretion
- Do Not Call
- EIA
- Elderly
- Electronic Communications
- Electronic Storage
- Embezzled
- Escheat
- Escrow
- Estate
- Expenses
- False Proof Of Insurance
- False Statements
- Fax
- Federal Appeal
- Felony
- Finder Fees
- Finder\\\'s Fees
- Fingerprints
- FINOP
- Firm Committment Offering
- FOCUS
- FOREX
- Forgery
- Freely-Tradable
- Futures
- Gifts
- Guaranteeing Against Losses
- Hedge Fund
- Impersonation
- Inspections
- Instant Messaging
- Insurance
- Internet
- Investment Advisor
- Letter Of Credit
- Life Insurance
- Living Trust
- LOA
- Loan
- Log On IDs
- Margin
- Mark-Up Mark-Down
- Material Change Of Business
- Membership Agreement
- Minimum Contingency
- Modification Of Sanctions
- Money Laundering
- MSRB
- Mutual Fund
- Mutual Funds
- NAC
- Net Capital
- Notary
- Notice Of Levy
- NSF
- Operations Manager
- Options
- Orders
- OSJ
- Outside Accounts
- Passwords
- Payphones
- POA
- Policy Lapse
- Ponzi
- Power Of Attorney
- Pre-arranged Trading.
- Private Placement
- Private Securities Transaction
- Producing Manager
- Production Quota
- Promissory Notes
- Proprietary Traders
- Public Appearances
- Qualified Domestic Relations Order
- Radio
- Regulation S-P
- REIT
- Research
- Restitution
- SAR
- Scripts
- Signature
- Solicited
- Statutory Disqualification
- Suitability
- Supervision
- Supervisory System
- Surrender Charge
- Surrender Charges
- Suspense Account
- Taping Rule
- Telemarketing
- Television
- Term Life
- Testing
- Third Party Vendor
- Time & Price Discretion
- Trading Limits
- Trading Volume
- Trust Account
- Turnover
- Two Party Consent
- U.S. Treasuries
- UIT
- Unclaimed Funds
- Universal Lease Programs
- Unregistered Office
- Unregistered Person
- Unregistered Principal
- Unregistered RRs
- Unregistered Securities
- Unregistered Supervisor
- Variable Annuity
- Variable Insurance
- Website
- Willfully
- WSP
- Zero Coupon