OS/2009016158501/December 2011
- 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.
AWC/2009019382101/December 2011
AWC/2009020729101/November 2011
At the time of Cramer’s termination, she was in possession of another check payable to her in the amount of $65,679.88 written against the account of the parent company’s defined-benefit plan; this check was dated for a certain date before her termination, but Cramer did not present it for payment until a few days after her termination. Cramer sent an email to a representative of the firm’s clearing firm requesting that an inactivity fee be reversed; Cramer closed the email with her name, the firm’s name/the firm’s parent company’s name, and made no reference to the fact that she no longer had a position with either the firm or its parent company.
AWC/2009016323801/October 2011
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.
OS/2009016252601/September 2011
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
- CRD pre-registration checks,
- exception report maintenance and review,
- supervisory branch office inspections,
- approval of transactions by a registered securities principal,
- annual compliance meeting,
- financial and operations principal (FINOP) review of checks received and disbursements blotter,
- NASD Rule 3012 annual report to senior management,
- review and retention of correspondence, Regulation S-P and outsourcing arrangements.
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.
AWC/2009016198601/May 2011
AWC/2009017136101/March 2011
- Accredited Investor
- Affirmative Determination
- AML
- Annual Compliance Certification
- Annual Compliance Meeting
- Annuities
- Annuity
- Appeal
- ATM
- Away Accounts
- Bank
- Bankruptcy
- Banks
- Best Efforts Offering
- Blank Forms
- Borrowed
- Borrowing
- Broadcast
- Campaign Contributions
- CCO
- CDs
- Check
- Check Kiting
- Checks
- Churning
- CIP
- Clearing Agreement
- CMO
- Commissions
- Communications
- Computers
- Concentration
- Confidential Customer Information
- Contingency Offering
- Continuing Education
- Conversion
- Corporate Credit Card
- Correspondence
- Credit Cards
- Customer Protection Rule
- Debit Card
- Deceased
- Discretion
- Do Not Call
- Due Diligence
- EIA
- Elderly
- Electronic Communications
- Electronic Storage
- Embezzled
- Escrow
- Estate
- ETF
- Expenses
- Expulsion
- False Statements
- Felony
- Finder Fees
- FINOP
- FOCUS
- Foreign Language
- FOREX
- Forgery
- Form ADV
- Freely-Tradable
- Futures
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- Guaranteeing Against Losses
- Hedge Fund
- Heightened Supervision
- Impersonation
- Insider Trading
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- Instant Messaging
- Insurance
- Internet
- Investment Advisor
- IRA
- Joint Account
- Life Insurance
- LOA
- Loan
- Loaning
- Margin
- Mark-Up Mark-Down
- Material Change Of Business
- Membership Agreement
- Minimum Contingency
- Money Laundering
- Mortgage
- Mutual Funds
- NAC
- Net Capital
- NSF
- Options
- OSJ
- Outside Accounts
- Outside Business Activities
- Parking
- PIPE
- Ponzi
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- Producing Manager
- Production Quota
- Promissory Notes
- Proprietary Traders
- Public Appearances
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- Reg D
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- Regulation 60
- Regulation S-P
- REIT
- Research
- Reverse Mortgage
- RIA
- Rule 8210
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- Signature
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- Stock To Cash
- Suitability
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- Testing
- Third Party Vendor
- Time And Price Discretion
- Trading
- Trading Limits
- Trading Volume
- Trust Account
- Trustee
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- Unauthorized Transaction
- Universal Lease Programs
- Unregistered Person
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- Unregistered Supervisor
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- Viaticals
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- Willfully
- WSP
- WSPs