AWC/2010022715607/December 2011
AWC/2010021058402/December 2011
AWC/2010022715605/December 2011
- enforce the firm’s WSPs regarding the handling of PPM, subscription documents, and investor funds for private placement offerings sold by the firm;
- effectively supervise the associated persons’ handling of such documents so that he did not prevent the associated persons from sending subscription documents directly to the private placement issuer, precluding the firm from conducting adequate oversight or review of the transactions and from retaining transaction-related documents;
- review the firm’s private placement sales for suitability, and typically did not review or approve private placement transactions effected by the associated persons he supervised; and
- enforce the firm’s WSPs and failed to effectively supervise their use of non-firm email for securities business.
AWC/2010022715606/December 2011
AWC/2008011724302/October 2011
Walker's member firm was issued a Letter of Caution following a FINRA examination, which advised of numerous deficiencies in the firm’s WSPs; these deficiencies included maintenance of the firm’s Form BD, prohibition of commission payments to non-registered entities, designation of an appropriately licensed principal for each of the firm’s product lines, maintenance of WSPs at each OSJ, investigation into the qualifications of new hires, obligations of the firm when handling accounts of associated persons employed at other FINRA-regulated broker-dealers, timely providing account records to customers, prompt notification to regulators of deficiencies in required net capital, and prohibition of the sale of unregistered securities beyond the private offering’s expiration dates. The Letter of Caution also indicated that the firm’s WSPs were deficient with respect to Regulation S-P.
Although issued only to the firm, the Letter of Caution was delivered to Walker in his capacity as president and chief compliance officer of the firm; thus, Walker had notice of the deficiencies but failed to update and amend the WSPs to correct the deficiencies. A later FINRA examination disclosed the same deficiencies outlined in the Letter of Caution, but Walker failed to update and amend the WSPs to correct the deficiencies. In addition, FINRA determined that Walker failed to establish, maintain and enforce WSPs and supervisory control procedures in the cited areas to ensure compliance with applicable securities laws and regulations, including Regulation S-P.
AWC/2008011640802/September 2011
The Firm failed to establish and maintain a supervisory system or WSPs reasonably designed to detect and prevent the charging of excessive commissions on mutual fund liquidation transactions.
The Firm failed to put in place any supervisory systems or procedures to ensure that customers were not inadvertently charged commissions, in addition to the various fees disclosed in the mutual fund prospectus, on their mutual fund liquidation transactions. The firm’s failure to take such action resulted in commissions being charged on transactions in customer accounts that generated approximately $64,110 in commissions for the firm.
The firm had inadequate supervisory systems and procedures to ensure that a firm principal reviewed, and the firm retained, all email correspondence for the requisite time period; the firm failed to review and retain securities-related email correspondence sent and received on at least one registered representative’s outside email account, and the firm did not have a system or procedures in place to prevent or detect non-compliance.
The firm failed to conduct an annual inspection of all of its Offices of Supervisory Jurisdiction (OSJ) branch offices.
The Firm failed to comply with various FINRA advertising provisions in connection with certain public communications, including websites, one billboard and one newsletter, in that a registered principal had not approved websites prior to use; websites did not contain a hyperlink to FINRA’s or Securities Investor Protection Corporation (SIPC)’s website; one website, the billboard and the newsletter failed to maintain a copy of the communication beginning on the first date of use; and sections of websites that concerned registered investment companies were either not filed, or timely filed, with FINRA’s Advertising Regulation Department. In addition, websites contained information that was not fair and balanced, did not provide a sound basis for evaluating the facts represented, or omitted material facts regarding equity indexed annuities, fixed annuities and variable annuities. Moreover, websites contained false, exaggerated, unwarranted or misleading statements concerning mutual B shares; the firm’s websites and the billboard did not prominently disclose the firm’s name, and a website, in connection with a discussion of mutual funds, failed to disclose standardized performance data, failed to disclose the maximum sales charge or maximum deferred sales charge and failed to identify the total annual fund operating expense ratio, and a website, in a comparison between exchange-traded funds (ETFs) and mutual funds failed to disclose all material differences between the two products.
Furthermore,the firm failed to report, or to timely report, certain customer complaints as required; the firm also failed to timely update a registered representative’s Uniform Termination Notice for Securities Industry Registration (Form U5) to disclose required information. The firm failed to create and maintain a record of a customer complaint and related records that included the complainant’s name, address, account number, date the complaint was received, name of each associated person identified in the complaint, description of the nature of the complaint, disposition of the complaint or, alternatively, failed to maintain a separate file that contained this information.
The firm failed to ensure that all covered persons, including the firm’s president and CEO, completed the Firm Element of Continuing Education (CE). The firm’s 3012 and 3013 reports were inadequate, in that the 3012 report for one year was inadequate because it failed to provide a rationale for the areas that would be tested, failed to detail the manner and method for testing and verifying that the firm’s system of supervisory policies and procedures were designed to achieve compliance with applicable rules and laws, did not provide a summary of the test results and gaps found, failed to detect repeat violations including failure to conduct annual OSJ branch office inspections, advertising violations, customer complaint reporting, and ensuring that all covered persons participated in the Firm Element of CE. FINRA also found that the firm’s 3013 report for that year did not document the processes for establishing, maintaining, reviewing, testing and modifying compliance policies to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws, and the manner and frequency with which the processes are administered. In addition, the firm also failed to enforce its 3013 procedures regarding notification from customers regarding address changes.
AWC/2009016405902/July 2011
Prestige, acting through Kirshbaum and at least one other firm principal, were involved in a fraudulent trading scheme through which the then-Chief Compliance Officer (CCO) and head trader for the firm concealed improper markups and denied customers best execution.
As part of this scheme, the CCO falsified order tickets and created inaccurate trade confirmations, and the hidden profits were captured in a firm account Kirshbaum and another firm principal controlled; some of the profits were then shared with the CCO and another individual.
The trading scheme took advantage of customers placing large orders to buy or sell equities. Rather than effecting the trades in the customers’ accounts, the CCO placed the order in a firm proprietary account where he would increase or decrease the price per share for the securities purchased or sold before allocating the shares or proceeds to the customers’ accounts; this improper price change was not disclosed to, or authorized by, the customers, and this fraudulent trading scheme generated approximately $1.3 million in profits for the firm’s proprietary accounts. Kirshbaum was aware of and permitted the trading. In an account that Kirshbaum and another firm principal controlled. 47 percent of the profits from the scheme were retained. In furtherance of the fraudulent trading scheme, the CCO entered false information on the corresponding order tickets regarding the share price and the time the customer order ticket was received, entered and executed; the corresponding trade confirmations inaccurately reflected the price, markup and/or commission charged and the order capacity.
In addition, acting through Kirshbaum, Prestige entered into an agreement to sell the personal, confidential and non-public information of thousands of customers to an unaffiliated member firm in exchange for transaction-based compensation from any future trading activity in those accounts. In connection with that agreement, Kirshbaum provided the unaffiliated member firm with the name, account number, value and holdings on spreadsheets via electronic mail. Furthermore, Kirshbaum granted certain representatives of that firm live access to the firm’s computer systems, including access to systems provided by the firm’s clearing firm, which provided access to other non-public confidential customer information such as Social Security numbers, dates of birth and home addresses. Prestige and Kirshbaum did not provide any of the customers with the required notice or opportunity to opt out of such disclosure before the firm disclosed the information, as Securities and Exchange Commission (SEC) Regulation S-P requires.
Acting through Kirshbaum, Prestige failed to establish and maintain a supervisory system, and establish, maintain and enforce written supervisory procedures to supervise each registered person’s activities that are reasonably designed to achieve compliance with the applicable rules and regulations regarding interpositioning, front-running, supervisory branch office inspections, supervisory controls, annual compliance meeting, maintenance and periodic review of electronic communications, NASD Rule 3012 annual report to senior management, review and retention of electronic and other correspondence, SEC Regulation S-P, anti-money laundering (AML), Uniform Application for Securities Industry Registration or Transfer (Form U4) and Uniform Termination Notice for Securities Industry Registration (Form U5) amendments, and NASD Rule 3070 reporting. FINRA found that the firm failed to enforce its procedures requiring review of its registered representatives’ written and electronic correspondence relating to the firm’s securities business. In addition, the firm failed to establish, maintain and enforce a system of supervisory control policies and procedures that tested and verified that its supervisory procedures were reasonably designed with respect to the activities of the firm and its registered representatives and associated persons to achieve compliance with applicable securities laws and regulations, and created additional or amended supervisory procedures where testing and verification identified such a need. Moreover, the firm failed to enforce the written supervisory control policies and procedures it has with respect to review and supervision of the customer account activity conducted by the firm’s branch office managers, review and monitoring of customer changes of address and the validation of such changes, and review and monitoring of customer changes of investment objectives and the validation of such changes. Furthermore, firm failed to establish written supervisory control policies and procedures reasonably designed to provide heightened supervision over the activities of each producing manager responsible for generating 20 percent or more of the revenue of the business units supervised by that producing manager’s supervisor; as a result, the firm did not determine whether it had any such producing managers and, to the extent that it did, subject those managers to heightened supervision.
Acting through one of its designated principals, Prestige falsely certified that it had the requisite processes in place and that those processes were evidenced in a report review by its Chief Executive Officer (CEO), CCO and other officers,and the firm failed to file an annual certification one year. The findings also included that the firm failed to implement a reasonably designed AML compliance program (AMLCP). Although the firm had developed an AMLCP, it failed to implement policies and procedures to detect and cause the reporting of suspicious activity and transactions; implement policies, procedures and internal controls reasonably designed to obtain and verify necessary customer information through its Customer Identification Program (CIP); and provide relevant training for firm employees—the firm failed to conduct independent tests of its AMLCP for several years. Acting through Kirshbaum and another firm principal, the firm failed to implement policies and procedures reasonably designed to ensure compliance with the Bank Secrecy Act by failing to enforce its procedures requiring the firm to review all Section 314(a) requests it received from the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN); as a result, the firm failed to review such requests. In addition, Kirshbaum and another principal were responsible for accessing the system to review the FinCEN messages but failed to do so. Moreover, FINRA found that the firm permitted certain registered representatives to use personal email accounts for business-related communications, but failed to retain those messages.
Furthermore, the firm failed to maintain and preserve all of its business-related electronic communications as required by Rule 17a-4 of the Securities Exchange Act of 1934, and failed to maintain copies of all of its registered representatives’ written business communications. The firm failed to file summary and statistical information for customer complaints by the 15th day of the month following the calendar quarter in which the firm received them. The findings also included that the customer complaints were not disclosed, or not timely disclosed, on the subject registered representative’s Form U4 or U5, as applicable.The Firm failed to provide some of the information FINRA requested concerning trading and other matters.
Prestige Financial Center, Inc. : Expelled
Lawrence Gary Kirshbaum (Principal): Barred
AWC/2009016251601/June 2011
The Firm failed to adopt and implement WSPs reasonably designed to supervise its research analysts and ensure that its research reports complied with NASD Rule 2711. Although the firm maintained some relevant WSPs, those procedures did not provide any real guidance to its employees about the specific steps they needed to take to achieve compliance with Rule 2711. The WSPs required that all public appearances by firm analysts be approved by the research director, that the appropriate disclosures be made to the media outlet, that a record documenting the disclosures provided to the media be maintained, and that the firm’s marketing department receive a copy of such disclosure. The WSPs made the research analyst responsible for meeting these obligations but provided little or no guidance on how these tasks could be successfully carried out or supervised.
The WSPs contained provisions broadly describing what portions of draft research reports could and could not be provided to covered companies, but failed to provide specific guidance to firm employees regarding the manner in which these requirements were to be fulfilled.
The WSPs permitted the research department to send sections of a research report to a subject company before publication to verify the accuracy of information in those sections, provided that a complete draft of the research report was first provided to the compliance department.
The Firm sent research report excerpts to a subject company before its compliance department had received a complete draft of the report, and in one of those instances, the complete draft was not sent to the compliance department. Moreover, in connection with public appearances by its research analysts, the firm failed to retain records that were sufficient to demonstrate compliance by those analysts with the disclosure requirements of NASD Rule 2711(h).
AWC/2008011640801/June 2011
In his capacity as the vice president of compliance, McKee failed to supervise certain aspects of his member firm’s securities business.
Acting on his firm’s behalf, McKee failed to
- establish and maintain a supervisory system or written supervisory procedures reasonably designed to detect and prevent the firm from charging excessive commissions on mutual fund liquidation transactions;
- adequately supervise the firm’s communications with the public;
- adequately supervise the firm’s compliance with NASD Rule 3070 and Uniform Termination Notice for Securities Industry Registration (Form U5) reporting provisions and customer complaint recordkeeping requirements; and
- comply with NASD Rules 3012 and 3013, in that the Rule 3012 and 3013 reports that he prepared on his firm’s behalf were inadequate.
Thee firm’s 3012 report for one year was inadequate because it failed to provide a rationale for the areas that would be tested, failed to detail the manner and method for testing and verifying that the firm’s system of supervisory policies and procedures were designed to achieve compliance with applicable rules and laws, and did not provide a summary of the test results and gaps found. The 3012 report also failed to detect repeat violations including, the failure to conduct annual Office of Supervisory Jurisdiction (OSJ) branch office inspections, advertising violations, customer complaint reporting and ensuring that all covered persons participated in the Firm Element of Continuing Education.
The firm's 3013 report for one year did not document the processes for establishing, maintaining, reviewing, testing and modifying compliance policies to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws, and the manner and frequency with which the processes are administered. In addition, the firm failed to enforce its 3013 procedures regarding notification from customers regarding address changes.
AWC/2009016159402/May 2011
As her member firm’s CCO, Bush was responsible for creating, maintaining and updating her firm’s Written Supervisory Procedures (WSPs) and for conducting due diligence for private offerings. Bush’s firm approved for sale, and sold, various private offerings, and for one offering, Bush’s due diligence consisted of reviewing the PPM and investor subscription documents, but she did not seek or obtain financial documents or information from the issuer regarding the offering, did not obtain any due diligence report, did not visit the issuer’s facilities or meet with its key personnel. Bush did not take steps to ensure, or otherwise verify, that other firm principals were conducting any due diligence of the offering’s issuer.
The firm and Bush obtained a third-party due diligence report after firm customers had already invested in the offering. In regards to a third private offering that her firm approved for sale and sold, Bush conducted due diligence after the product had been sold to customers -- and her due diligence consisted of obtaining investor subscription documents without obtaining PPMs for the offerings, did not obtain any due diligence report from an independent third party and did not meet with any executives to understand the nature of the offerings.
Bush’s firm sold additional, different unregistered offering to customers, and Bush, acting in her capacity as CCO and the designed principal for private offerings, failed to conduct due diligence for each of these other offerings.
Moreover, the firm’s supervisory system and the firm’s written procedures for private offerings Bush drafted and maintained were deficient because the procedures Bush drafted and maintained did not identify, in any detail, specific due diligence steps to be taken for private offerings or identify specific documents to be obtained for private offerings the firm was contemplating selling. Furthermore, the firm’s written procedures for private offering due diligence were conclusory, non-specific and lacking in the requisite minimum detail regarding steps to be taken and firm personnel responsible for such steps.
AWC/2009016159402/May 2011
As her member firm’s CCO, Bush was responsible for creating, maintaining and updating her firm’s Written Supervisory Procedures (WSPs) and for conducting due diligence for private offerings. Bush’s firm approved for sale, and sold, various private offerings, and for one offering, Bush’s due diligence consisted of reviewing the PPM and investor subscription documents, but she did not seek or obtain financial documents or information from the issuer regarding the offering, did not obtain any due diligence report, did not visit the issuer’s facilities or meet with its key personnel. Bush did not take steps to ensure, or otherwise verify, that other firm principals were conducting any due diligence of the offering’s issuer.
The firm and Bush obtained a third-party due diligence report after firm customers had already invested in the offering. In regards to a third private offering that her firm approved for sale and sold, Bush conducted due diligence after the product had been sold to customers -- and her due diligence consisted of obtaining investor subscription documents without obtaining PPMs for the offerings, did not obtain any due diligence report from an independent third party and did not meet with any executives to understand the nature of the offerings.
Bush’s firm sold additional, different unregistered offering to customers, and Bush, acting in her capacity as CCO and the designed principal for private offerings, failed to conduct due diligence for each of these other offerings.
Moreover, the firm’s supervisory system and the firm’s written procedures for private offerings Bush drafted and maintained were deficient because the procedures Bush drafted and maintained did not identify, in any detail, specific due diligence steps to be taken for private offerings or identify specific documents to be obtained for private offerings the firm was contemplating selling. Furthermore, the firm’s written procedures for private offering due diligence were conclusory, non-specific and lacking in the requisite minimum detail regarding steps to be taken and firm personnel responsible for such steps.
AWC/2009018771701/March 2011
As his member firm’s Chief Compliance Officer, Bruno failed to ensure that his firm established, maintained and enforced a supervisory system and WSPs reasonably designed to achieve compliance with the rules and regulations in connection with private offering solicitations. Acting through Bruno, his firm maintained a deficient supervisory system and WSPs with respect to private offering solicitations in that those procedures did not specify who at the firm was responsible for performing due diligence, what activities firm personnel were required to satisfy the due diligence requirement, how due diligence was to be documented, who at the firm was responsible for reviewing and approving the due diligence that was performed and for authorizing the sale of the securities, and who was to perform ongoing supervision of the private offerings once customer solicitations commenced.
As a result of its deficient WSPs, the firm failed to conduct adequate due diligence on private placement offerings, and Bruno failed to take any other steps to otherwise ensure that it was conducted.
- 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
- Gifts
- Guaranteeing Against Losses
- Hedge Fund
- Heightened Supervision
- Impersonation
- Insider Trading
- Inspections
- Installment Plan Contracts
- 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
- Power Of Attorney
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- Producing Manager
- Production Quota
- Promissory Notes
- Proprietary Traders
- Public Appearances
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- REIT
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- Reverse Mortgage
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- Scripts
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- Solicited
- Statutory Disqualification
- Stock To Cash
- Suitability
- Supervision
- Supervisory System
- Suspense Account
- Testing
- Third Party Vendor
- Time And Price Discretion
- Trading
- Trading Limits
- Trading Volume
- Trust Account
- Trustee
- U.S. Treasuries
- UIT
- Unauthorized Transaction
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- WSP
- WSPs