AWC/2008015411501/ 2010
Registered Sales Assistant Himes violated her member firm’s policies and procedures when she facilitated day-to-day interactions between a registered representative’s customers and a non-FINRA regulated investment group outside of her firm that operated as a commodity pool. Himes failed to disclose these activities to her member firm even though firm policies and procedures required her to do so. Himes failed to use the firm’s email system on numerous occasions when communicating regarding the firm’s business and customers as her firm required to meet its requirements under Section 17(a) of the Securities Exchange Act of 1934 and SEC Rule 17a-4.
At another registered representative’s direction, Himes communicated with the commodity pool using non-firm email addresses and relayed messages from the representative that specifically advised customers not to use firm email addresses for communications regarding the commodity pool.
Himes engaged in this conduct to prevent the firm from detecting that she and the representative were involved with the commodity pool, causing the firm to fail to retain certain email communications relating to its business.
AWC/2008015411502/ 2010
Shaw violated his member firm’s policies and procedures when he recommended that certain customers invest in a non-FINRA regulated investment group outside of his firm that operated as a commodity pool, and facilitated the day-to-day interactions between certain customers and the commodity pool without providing his firm with written notice. Shaw used, and directed others in his office to use, unapproved email addresses that prevented the firm from reviewing communications regarding his activities.
The commodity pool was exposed as a Ponzi scheme and most of Shaw’s firm customers lost a total of approximately $660,000 of their investments. Shaw failed to use the firm’s email system on numerous occasions when communicating regarding firm business, and its customers and the firm relied on his compliance to meet its requirements under SEC Rule 17a-4. Shaw directed certain of his staff to communicate with the commodity pool using non-firm email addresses and advised customers not to use firm email addresses for communications regarding the commodity pool in order to prevent the firm from detecting his involvement in the commodity pool. In addition, Shaw caused his firm to fail to retain certain email communications related to its business.
Shaw failed to fully and completely respond to a FINRA request for documents and information.
AWC/2008015712501/ 2010
Sawyers recommended to certain customers whose accounts he serviced at his member firm that they open online brokerage accounts at another broker-dealer, not affiliated with his firm, and that they give Sawyers discretionary authority over those accounts. The firm’s customers opened online brokerage accounts, but they did not give Sawyers written authority to trade in the accounts.
Sawyers conducted transactions on his firm’s customers’ behalf in the online brokerage accounts without notifying his firm in writing or verbally that he intended to use discretionary authority in the online brokerage accounts, and did not notify the online broker-dealer, in writing, that he was associated with a member firm. Sawyers took steps to conceal these activities from his firm and from the online broker-dealer by not using his own name in connection with the accounts, using a computer that was not his firm’s computer and a non-firm email address to set up the online-brokerage accounts and maintaining an exclusive email account to communicate about trade confirmations and monthly account statements with customers.
Sawyers falsely attested in his firm’s compliance questionnaire that he had not maintained any outside brokerage accounts that the firm had not approved in writing, and that he had not participated in any outside business activities that the firm had not approved in writing. Sawyers failed to timely respond to FINRA requests for information and failed to timely appear for a FINRA on-the-record interview.
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
AWC/2008015341602/ 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/2007010684401/ 2010
Acting through Carroll, its president and registered principal, the Firm failed to adequately implement a supervisory system designed to achieve compliance with applicable securities laws and regulations; specifically, the firm and Carroll failed to implement an adequate system to supervise a branch office’s activities in light of deficiencies identified during branch audits, and failed to appoint a properly qualified principal to supervise the branch office’s activities.
The Firm allowed Carroll and Childs to accept, and they did accept, a gift and/or gratuity in excess of $100 from the president and general partner of an entity that offered an alternative investment product, and Childs sold almost $6 million of that product to customers at the firm’s branch office.
The Firm failed to properly maintain its email communications and, acting through Carroll, failed to have a procedure in place to ensure that his own email, which was designated as legal and confidential, was properly maintained and reviewed. The Firm failed to establish and maintain an adequate supervisory system in the areas of internal communications and correspondence.
The Firm charged both commissions and advisory fees on transactions in alternative investment products whose offering documents specifically prohibited such activity.
Childs
- charged customers commissions, in the amount of $434,589.03, and an annual percentage-based advisory fee on transactions in alternative investments; and
- made unsuitable recommendations to customers and had no reasonable basis for believing that his recommendations of nonliquid alternative investments were suitable for the customers in light of their age, financial needs, annual income, liquid net worth and risk tolerance.
Cambridge Legacy Securities, L.L.C.: Censured, Fined $50,000; Ordered to pay $21,864.74, plus interest, in restitution to customers; If the firm fails to provide proof of restitution within 15 days, it shall be immediately suspended from FINRA membership until proof has been provided
Oran Ben Carroll (Principal): Fined $25,000; Suspended 3 months in Principal only capacity
Russell Kent Childs (Principal): Fined $25,000; Ordered to pay $412,724.28, plus interest, in restitution to customers;Suspended 9 months in all capacities; If Childs fails to provide proof of restitution within 15 days, he shall be immediately suspended from association with any member in any capacity until proof has been provided
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/2007009471102/ 2010
E*Trade failed to adequately prepare for, and respond to, its acquisition of another member firm and, prior to the conversion, it identified approximately 88,000 converting customers whose login information was likely to be incompatible with the firm’s systems. The Firm communicated with those customers and provided them with temporary login IDs and instructions, but an additional number of conversion customers who the firm had not initially identified also had login information that was incompatible with the firm’s systems. The login problem led to higher-than-expected call volumes, which the firm was not equipped to handle, and the problem was not completely resolved for several months and the conversion customers continued to inquire about their passwords and access to their accounts. The Firm had over 17,000 unanswered emails from converting customers regarding conversion issues.
The Firm disclosed that a technological problem had prevented it from transmitting customer orders to various market centers on a particular day and, as a result, the firm’s customers were unable to enter orders online or log on to the firm’s website. The Firm's website experienced sporadic slowness and continued delays because requests had accumulated in excess of what the systems were normally able to process. In addition, the Firm failed to establish a system reasonably designed to supervise, and written procedures reasonably designed to ensure, customers’ ability to log in to their accounts and contact customer service for assistance, ensure customers’ ability to enter orders online on one particular day and to timely enter orders online.
AWC/2008011737101/ 2010
Acting through Lim, the Firm failed to
-
preserve emails in nonrewritable, non-erasable format;
-
failed to provide FINRA with notifications of its use of electronic storage media;
-
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
-
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
2007009436401/ 2010
AWC/2009016763601/ 2010
2008015360301/ 2010
Salerno exercised discretion in a customer’s account without the customer’s written authorization and his member firm’s acceptance of the account as discretionary.
Salerno sent electronic mail to a firm customer from a personal, unapproved email address and failed to seek or obtain his firm’s permission prior to doing so. Salerno’s private email account, his firm was unable to review his emails to the customer and Salerno was able to shield his discretionary trading activity from his firm.
Salerno failed to appear to provide testimony at FINRA on-the-record interviews.
AWC/2008011725601/ 2010
AWC/2008011629602/ 2010
AWC/2007010580701/ 2010
AWC/2007010398801/ 2010
Condos and Roberts had knowledge that a sales assistant and possibly others replaced customer email addresses with the sales assistant’s firm email address to facilitate the opening of online accounts and to lessen the amount of communications the customers received; therefore, trade confirmations were sent to the sales assistant rather than the customers, although the customers continued to receive their monthly account statements, prospectuses and 1099 federal tax forms by mail.
Roberts’ relative opened several accounts at his member firm; Roberts serviced those accounts but failed to disclose to the firm that the individual who owned the accounts was a relative. Had Roberts made such disclosure, the account numbers assigned to the accounts would contain a prefix identifying them as being employee-related.
Stephen George Condos: Censured; Fined $15,000; Suspended 3 weeks in all capacities
Chuck A. Roberts: Censured; Fined $40,000 and Suspended 4 weeks in all capacities
AWC/2008011660901/ 2010
The firm’s employees utilized their personal email accounts to conduct business contrary to firm policy, but the firm did not have a system in place to review the emails.
AWC/2008011737901/ 2010
AWC/2009016131601/ 2010
AWC/2007007345601/ 2010
Small failed to establish and maintain adequate supervisory procedures concerning the review of
- email correspondence,
- incoming and outgoing hard copy correspondence at the firm’s branch offices that he was in charge of, and
- outside investment activity of registered representatives at the firm.
- NASD Rule 3012(a)(2)(B) and its requirement that members establish, maintain and enforce procedures reasonably designed to review and monitor transmittals of funds or securities between customers and registered representatives, and
- NASD Rule 3012(a)(2)(C) and its requirement of an analysis and determination of whether producing branch office managers should have been subjected to heightened supervision.
AWC/2009016117101/ 2010
AWC/2007008162201/ 2010
The Firm allowed its research analysts to use third-party email systems but did not reasonably enforce a system to audit or review their email correspondence.
The Firm permitted an individual registered as a General Securities Principal and General Securities Representative to supervise the conduct of its research analysts without passing either the Series 16 Supervisory Analyst or the Series 87 Research Analyst exams as FINRA rules required.
The Firm failed to develop and implement an AML program reasonably designed to achieve and monitor its compliance with the requirements of the Bank Secrecy Act and the implementing regulations thereunder; the firm’s AML program had inadequate procedures governing the testing of its AML program; and the firm’s testing of its AML procedures was inadequate and not independent one year, and not tested another year.
The Firm failed to timely report statistical and summary information regarding customer complaints and failed to amend, timely amend or ensure the amendment of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) or Uniform Termination Notices for Securities Industry Registration (Forms U5) to disclose customer complaints and their resolution.
The Firm failed to retain originals of certain incoming and outgoing written correspondence relating to its business, received by mail and by fax,or copies of such correspondence and failed to adequately enforce written supervisory procedures prohibiting firm personnel from using third-party, non-firm email accounts for firm business.
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 .
AWC/2007007315501/ 2010
The Firm failed to retain email communications related to its business that were sent to and from non-firm email accounts that firm registered representatives working from one of its branch offices used, and failed to establish and maintain a system for supervisory review of those outside emails.
Acting through a registered principal, the Firm failed to develop a privacy policy or disseminate privacy notices required by SEC Regulation S-P to its customers. censured, fined $5,000, jointly and severally, and fined an additional $60,000
The Firm failed to maintain new account documents for some accounts and failed to maintain complete new account documents for other accounts that lacked customer information. The Firm failed to enforce its written supervisory procedures concerning the dissemination of a privacy policy and the collection and maintenance of complete new account forms.
- 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