Sale of Unregistered Securities, Fraud and Failure to Supervise FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
Tradespot Markets Inc. (CRD #29683, Davie, Florida) and Mark Bedros Beloyan (CRD #1392748, Registered Principal, Davie, Florida) submitted an Offer of Settlement in which the firm was censured and fined $25,000, and Beloyan was suspended from association with any FINRA member in any capacity for one month and suspended from association with any FINRA member in any principal capacity for an additional month. In light of Beloyan’s financial status, FINRA did not impose any monetary sanctions upon him. Without admitting or denying the allegations, the firm and Beloyan consented to the described sanctions and to the entry of findings that the firm, through Beloyan, sold over one billion shares of a low-priced stock that was neither registered with the Securities and Exchange Commission (SEC) nor exempt from registration. The findings stated that the firm, through Beloyan, its Chief Compliance Officer, failed to establish and maintain a supervisory system, including written supervisory procedures (WSPs), reasonably designed to ensure compliance with Section 5 of the Securities Act of 1933, the applicable rules and regulations regarding the distribution of unregistered and non-exempt securities. The findings also stated that the firm, through Beloyan, the firm’s Anti-Money Laundering (AML) Compliance Officer (AMLCO), failed to implement or enforce the firm’s AML program by failing to identify suspicious activity, properly investigate it, and report it through Form SAR-SF, as appropriate. The findings also included that the suspicious activity consisted of deposits of billions of shares of the low-priced stock of issuers in certificate form into accounts controlled by a person with a regulatory and criminal history, liquidated those shares generally soon after their deposit, and wired of the sales proceeds out of the accounts soon after liquidation.
FINRA found that despite the suspicious nature of a company’s activity in a stock, the suspicious nature of the activity of the company’s sole owner’s non-qualified account and his regulatory and criminal history, the firm, through Beloyan, failed to conduct the necessary due diligence to determine whether they were participating in a scheme to evade registration requirements, and generally relied exclusively on the firm’s clearing firm to determine whether the subject shares of stock were registered or exempt, and did not acquire a copy of the relevant stock certificates or documents regarding the owner’s acquisition of the shares, thereby participating in the illicit distribution of more than 1 billion shares of unregistered and non-exempt stock. FINRA also found that despite the presence of risk indicators and the appearance of the activity at issue on exception reports, the firm, through Beloyan, either failed to identify or chose to ignore the suspicious activity, and thus failed to investigate and report the activity in contravention of federal laws, NASD/FINRA rules and the firm’s AML policies and procedures. In addition, FINRA determined that the firm, through Beloyan, should have detected the suspicious nature of the activity, investigated the activity and reported it through a Form SAR-SF. Moreover, the firm, through Beloyan, failed to establish and maintain a supervisory system, including WSPs, reasonably designed to ensure compliance with Section 5, and failed to establish and maintain procedures regarding the distribution of such securities in connection with its clearing firm’s acceptance of the delivery of shares of stock in certificate form and customers’ subsequent sale of the same; the firm’s WSPs did not require an inquiry into whether deposited shares of stock were registered with the SEC or exempt. The suspension in any capacity was in effect from September 6, 2011, through October 5, 2011. The suspension in any principal capacity is in effect from September 6, 2011, through November 5, 2011. (FINRA Case #2009017590801).