Florida FINRA Securities and Private Placement Fraud and Mismanagement Attorney, Russell L. Forkey, Esq.
InterSecurities, Inc. nka Transamerica Financial Advisors, Inc. (CRD #16164, St. Petersburg, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was fined $50,000 and required to certify to FINRA that it has reviewed it policies, systems and procedures concerning how it determines whether new products are securities, and has determined that they are reasonably designed to achieve compliance with FINRA rules and federal securities laws, and at the same time it provides this certification, it shall provide a written description of the policies, systems and procedures that are the subject of the certification. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it allowed its registered representatives to recommend a “Stock to Cash” program, under which customers would pledge stock to obtain loans that were in some instances used to purchase other products, primarily fixed or indexed annuities, marketing it as a non-securities product, but did not monitor use of the Stock to Cash program or otherwise inquire into the program’s activities. The findings stated that at the time the Stock to Cash program first came to the firm’s attention, the firm erroneously concluded that the Stock to Cash program was not a securities product, and therefore did not need to be approved; the firm’s registered representatives utilized the Stock to Cash program with their clients, and some firm customers entered into Stock to Cash loans, pledging securities worth more than $4.3 million and borrowing more than $4.1 million. The findings also stated that none of the customers have been deprived of any profits to which they were entitled because almost all of the loans that have come due to date were secured by stocks that lost money during the loan period. The findings also included that neither representatives nor management at the firm conducted adequate due diligence into the Stock to Cash program prior to recommending that customers use it, and the representatives never ascertained how the pledge stock would be used and incorrectly concluded that customers would retain complete ownership interest over the stock or that the stock was held by an “investment-grade” third party with a right of recourse by the client if the holder went out of business.
FINRA found that the firm failed to undertake efforts to look into the lender’s financial condition, upon which customers were depending for the return of their securities or payment of their profits, and the firm never spoke with anyone associated with the lender, and never learned what the lender actually did with the stock. FINRA found that, as a result, the registered representatives did not understand the potential risk inherent in the Stock to Cash program, and conveyed inaccurate and misleading information to their customers. FINRA also found that the firm allowed its registered representatives to recommend the program to customers, but failed to supervise their activities in connection with the program. (FINRA Case #2007008935008).