Broker/Dealer - Russell L. Forkey

Broker/Dealer Remote Office Supervision – South Florida FINRA Arbitration and Regulatory Attorney

Russell L. Forkey — Sat, 12 Mar 2022 17:04:31 GMT

Remote Office Supervision

This post is designed to provide a summary of various rules and regulations requiring the establishment and enforcement of supervisory responsibilities over remote activities of a firm’s business activities. It is being presented for educational purposes only and thus, is not designed to be complete in all material respects. If you have any questions, you should contact a qualified professional.

Introduction

The Securities and Exchange Commission has provided guidance relative to “Remote Office Supervision.” Sections 15(b)(4)(E)1 and 15(b)(6)(A) 2 of the Securities Exchange Act of 1934 (Exchange Act) authorize the Commission to impose sanctions on a firm or any person that fails to reasonably supervise a person subject to their supervision that commits a violation of the federal securities laws. Section 15(b)(4)(E) also provides an affirmative defense against a charge of failure to supervise where reasonable procedures and systems for applying the procedures have been established and effectively implemented without reason to believe such procedures and systems are not being complied with. The Commission’s policy regarding failure to supervise is well established. The Commission “has long emphasized that the responsibility of broker-dealers to supervise their employees is a critical component of the federal regulatory scheme. A broker-dealer must develop a system for implementing its procedures that could reasonably be expected to prevent and detect securities law violations. In addition, a broker-dealer must have an appropriate system of follow-up and review if red flags are detected. However, establishing policies and procedures alone is not sufficient to discharge supervisory responsibility. It is also necessary to implement measures to monitor compliance with those policies and procedures.

Some broker-dealer firms have geographically dispersed offices staffed by only a few people, and many are not subject to onsite supervision. Their distance from compliance and supervisory personnel can make it easier for registered representatives (representatives) and other employees in these offices to carry out and conceal violations of the securities laws. The supervision of small, remote offices, therefore, can be especially challenging. The Commission staff has examined branch offices and the Commission has brought numerous enforcement cases involving inadequate supervision of these small, remote offices. These cases address situations in remote offices where supervisory mechanisms failed to detect and prevent misconduct.

Policies and Procedures

Clearly articulated and vigorously enforced policies and procedures, with sufficient resources to implement them, are an essential part of a supervisory system for remote offices. Comprehensive policies and procedures address all aspects of a remote office’s operations. The following policies and procedures may form part of an effective supervisory system.

Inspections. Inspections are a vital component of a supervisory system. The Commission has determined that broker-dealers that conduct business through remote offices have not adequately discharged their supervisory obligations where there are no inspections of those offices. Effective inspections can detect misconduct in its infancy, deter future wrongdoing, and prevent or mitigate investor harm. An effective supervisory system employs a combination of onsite and offsite monitoring, including the use of unannounced inspections and mechanisms for verifying that deficiencies are corrected.

Routine or “For Cause” Inspections. Onsite inspections usually take one of two forms: routine or “for cause.” Routine inspections are conducted in the ordinary course of business, while “for cause” inspections are conducted upon learning about a specific event or potential violation. It is suggested that all inspections include at least: (1) a review of a sampling of customer files, including account opening documents and trading records; (2) a review of the signature guarantee log; (3) a review of correspondence, advertisements, and sales literature made available at the remote office; (4) a review of business records, including physical and computer files; (5) in-person questioning of the representative by the supervisor about business activities, including inquiry about any unusual activity; and (6) in-person interview by the supervisor of the representative’s assistant or support staff, if any, about the remote office’s business and any unusual activity. If during the course of the examinations deficiencies are identified, examiners should consider the need to conduct a more in-depth review.

Unannounced Inspections. Routine or “for cause” inspections may be either announced or unannounced. Unannounced inspections are conducted on a random, surprise basis. Firm’s are encouraged to use unannounced, onsite inspections of remote offices to enhance supervision. They can deter and detect misconduct because they diminish the opportunity for concealment, removal, or destruction of the evidence of misconduct.

In addition, a supervisor is more likely to uncover evidence of misconduct in customer files, such as fictitious account statements, during an unannounced inspection than in an announced inspection that gives the representative an opportunity to remove such documents from customer files. An unannounced inspection might also reveal marketing materials that describe unapproved products, local billboards with unapproved advertisements, or customer account statements showing purchases of unapproved securities.

Unannounced inspections could be employed at random, as well as when triggered by “red flags” warning of potential misconduct. When indications of impropriety reach the attention of those in authority, they must act decisively to detect and prevent violations of the federal securities laws. Red flags that could suggest the existence or occurrence of illegal activity and might prompt an unannounced inspection include: (1) customer complaints; (2) a large number of elderly customers; (3) a concentration in highly illiquid or risky investments; (4) an increase or change in the types of investments or trading concentration that a representative in a remote office is recommending or trading; (5) an unexpected improvement in a representative’s production, lifestyle, or wealth; (6) questionable or frequent transfers of cash or securities between customer accounts, or to or from the representative; (7) the disciplinary history of the representative; (8) substantial customer investments in one or a few securities or class of mutual fund shares that is inconsistent with firm policies related to such investments; (9) churning; (10) trading that is inconsistent with customer objectives; or (11) significant switching activity of mutual funds or variable products held for short time periods. It is equally important that representatives do not obtain advance notice about a particular focus of an inspection. Advance notice of the focus affords representatives an opportunity to “doctor” particular records.

Offsite Monitoring of Trading, Handling of Funds, and Use of Personal Computers. Centralized technology to monitor the trading and handling of funds in remote office accounts, as well as the use of personal computers, helps detect misappropriation of customer funds, selling away, and unauthorized trading, among other things. Thus, if firms permit communications with customers from employees’ home computers or personal computers not connected to the firm’s network, SRO rules require firms to employ systems to monitor those communications.

Designate supervisory responsibility. Explicit delineation of the supervisory hierarchy, including the designation of a direct supervisor for each representative and the assignment of specific supervisory responsibilities to the supervisor, is a necessary part of a firm’s supervisory structure. Consideration should be given to the independence of supervision when supervisory responsibility is designated. For example, one factor firms should consider is whether the supervisor stands to benefit from the representative’s sales activities. No individual can supervise themselves. As with all supervisory procedures, the Commission has stated that firms should provide a system of review and follow-up to ensure that supervision (by a branch manager or a producing manager) is diligently exercised. The Commission also encourage firms to review the number of representatives for whom a supervisor is responsible as well as the number, nature, and extent of remote offices that an office of supervisory jurisdiction oversees. The degree of supervisory effectiveness is likely to decrease if a supervisor does not have adequate resources to oversee all of the representatives for whom he or she is responsible.

Carefully review FINRA Forms U-4 and U-5 when hiring representatives. Firms should be especially cautious about employing personnel with disciplinary histories. Where a representative with a disciplinary history is employed in a remote office, the Commission has repeatedly emphasized the need for heightened supervision of the representative. Where a representative has left a firm for cause or changed firms several times, the hiring firm should try to ascertain the reason for the changes and contact prior firms as necessary.

Closely monitor outside business activities and selling away. A firm should have adequate procedures for reviewing, analyzing, or following up on the information representatives provide concerning outside activities.46 In addition, a firm should be alert to and investigate “red flags” indicating possible undisclosed outside business activities and assess all outside business activities by a representative, whether or not related to the securities business. The Commission has recognized that there is a risk that representatives will use outside business activities to carry out or conceal securities law violations. A representative appearing to live more lavishly than his business income would allow might be a “red flag” indicating pursuit of improper or outside business activities. Additionally, it is suggested that firms be wary of a representative who owns a company with a name similar to the name of the firm. A customer may make a check payable to the firm that could be altered by a representative and deposited into a bank account in the name of the company he owns.

Implement procedures to detect financial misconduct. It is suggested that firms consider implementing procedures to prevent and detect the following improper activities: (1) the receipt of checks made payable to a representative or any outside business of a representative; (2) the opening of a bank account in the firm’s name or any name similar to the firm’s name by a representative; (3) the receipt of cash and securities by a representative; (4) frequent or questionable transfers of funds or securities between customer accounts; (5) use of a post office box or an address associated with the representative for customer accounts; and (6) the transfer of customer funds or securities to employee accounts without supervisory approval. Inspections and thorough investigations of customer complaints can help detect financial misconduct.

Education for representatives. It is incumbent on firms to provide representatives with training so that the representatives understand the responsibilities under the firm’s procedures, as well as under the securities laws and rules applicable to their business. As with all compliance and sales practice matters, firms are more likely to prevent misconduct if they provide training for representatives and periodically reinforce that training.

Monitor and verify customer address changes. SEC rules require firms to send notification of a change of address to a customer’s old address for each account with a natural person as a customer or owner. This verification enhances customer protection, and we encourage firms to send such verifications for all customer address changes. Moreover, a customer address change to a post office box or an address affiliated with a representative warrants additional steps to verify that the change is genuine.

Record use of the signature guarantee stamp. A firm should have procedures to deter misuse of the signature guarantee stamp to prevent forgeries. These procedures might include maintaining a log of all uses of the stamp and using a stamp with a counter that records each use of the stamp.

Maintain copies of and review incoming and outgoing correspondence. The Exchange Act and rules thereunder require firms to maintain copies of incoming and outgoing correspondence, while SRO rules require firms to review and retain such correspondence, including all documents, reports, profit and loss statements, e-mails, or other materials sent to customers by a representative or received from customers. Firms can enhance the effectiveness of their inspections by reviewing e-mails between representatives. One method of monitoring use of facsimile machines in remote offices is to program these machines to automatically send duplicate incoming and outgoing facsimiles to an office of supervisory jurisdiction.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Daniel Della Rosa Barred by FINRA – FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sat, 12 Mar 2022 14:55:47 GMT

Recently, the Financial Industry Regulatory Authority (FINRA) issued an Order Accepting Offer of Settlement in which Della Rosa was barred from association with any FINRA member in all capacities. Mr. Della Rosa’s last FINRA association was with Corinthian Partners, LLC. Without admitting or denying the allegations, Della Rosa consented to the sanction and to the entry of findings that he failed to provide information and documents and also failed to appear for on-the-record testimony requested by FINRA in connection with its investigation of his sales practices. FINRA requested that Della Rosa provide certain information and documents relating to, inter alia, his responsibilities at his member firm, his customer accounts and communications with customers. (FINRA Case 2020065714602)

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Negligent Misrepresentations and Omissions of Material Facts – South Florida FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sat, 26 Feb 2022 16:54:14 GMT

The below referenced FINRA Enforcement Action provides examples of what would constitute a negligent misrepresentations and omissions in any offering. In this particular circumstance, it related to the offering of notes of the parent company of WestPark Capital.

WestPark Capital, Inc. (CRD #39914, Los Angeles, California) and Richard Alyn Rappaport (CRD #1885122, Los Angeles, California) November 22, 2021 – An AWC was issued in which the firm was censured, fined $250,000, ordered to offer rescission to customers who invested in notes of the firm’s parent company and have not yet been repaid the full amount of their outstanding principal investment that totaled $1,777,316, required to review and revise, as necessary, its policies, procedures, processes, controls and systems concerning FINRA Rule 3170, and required to extend the time during which it will comply with the requirements of FINRA Rule 3170 for an additional six months. Rappaport was fined $30,000, suspended from associating with any FINRA member in all capacities for four months and suspended from associating with any FINRA in any principal capacity for 15 months. The suspensions are to run concurrently. Without admitting or denying the findings, the firm and Rappaport consented to the sanctions and to the entry of findings that they made negligent misrepresentations and omissions of material facts in offering documents provided to customers in connection with the sale of promissory notes issued by the firm’s parent company. The findings stated that the offering documents failed to disclose that the parent company had defaulted on a $1 million line of credit and had defaulted on successive forbearance agreements with a bank, or that the bank had sued the parent company and Rappaport. Similarly, the offering documents failed to disclose that the parent company had net operating losses each year from 2012 through 2016. In addition, the firm sent prospective investors a misleading historical analysis document, created by Rappaport, that claimed to show investors what they would have received as a return on the notes if the notes had been purchased in 2006 and held through 2010. In fact, the return displayed did not explain that the calculation was based upon hypothetical returns from distinct investments and not any actual return from the notes. The firm, through Rappaport and other firm representatives, also represented to prospective investors that they would be entitled to share in pro-rata distributions of equity and profits from the firm. In fact, the noteholders were entitled to share in pro-rata distributions of equity and profits from the parent company, not the firm, which at times had higher profits and greater equity producing opportunities than the parent company. Moreover, the firm, through Rappaport and other firm representatives, failed to disclose material conflicts of interest. The firm and Rappaport failed to disclose to prospective investors that Rappaport had sole discretion as to whether the parent company’s subsidiaries would make distributions to the parent. By virtue of the foregoing, the firm acted in contravention of Sections 17(a)(2) and (3) of the Securities Act of 1933. The findings also stated that the firm and Rappaport failed to supervise the parent company offerings. The firm, acting through Rappaport, failed to take reasonable steps to ensure that firm representatives who solicited investments in the notes understood the terms of the notes. The firm and Rappaport did not provide reasonable training to registered representatives about the notes and did not respond reasonably to questions from customers that raised red flags that customers lacked accurate information about the notes. The findings also included that the firm violated FINRA Rule 3170 (the “Taping Rule”). The firm’s recording system allowed representatives, at their discretion, to end recording at any time, including before a call was complete. The firm became aware that a representative who sold the parent company offerings terminated at least three recordings before the calls were completed, including a recording of a call with a noteholder, yet the firm did not take any action to ensure that the representative at issue, or other firm representatives, recorded future calls in their entirety. In addition, the firm’s special written procedures concerning the Taping Rule were not reasonably designed. The special written procedures for supervisory review of calls provided no meaningful guidance regarding the review process, frequency of review, or methods of escalating information identified during review. The firm also failed to enforce the provision in its special written procedures requiring the firm to test its taping system to ensure that recordings were properly made and retained. As a result, the firm failed to detect that recordings were deleted prematurely. The suspension in all capacities is in effect from December 20, 2021, through April19, 2022, and the suspension in any principal capacity is in effect from December 20, 2021, through March 19, 2023. (FINRA Case #2017054381603)

Broker/Dealer Requirements Relating to a Contingency or Best Efforts Offering – South Florida Securities Arbitration and Litigation Attorney

Russell L. Forkey — Sat, 26 Feb 2022 16:32:48 GMT

CONTINGENCY OR BEST EFFORTS OFFERING:

Securities and Exchange Act Rules 10-b9 and 15c2-4 contain requirements that must be satisfied in “Contingency” or “Best Efforts” offerings. FINRA (the Financial Industry Regulatory Authority) has provided guidance to broker/dealers regarding the requirements of these rules and to remind broker-dealers of their responsibility to have procedures reasonably designed to achieve compliance with these rules.

Broker-dealers that participate in best efforts public and private securities offerings that have a contingency (i.e., an underlying condition or qualification that must take place by a specified date prior to the issuer taking possession of the offering proceeds) must safeguard investors’ funds they receive until the contingency is satisfied. If the contingency is not met, broker-dealers must ensure that investors’ funds are promptly refunded. There are various contingencies that might need to be satisfied in addition to meeting a subscription amount.

Best Efforts Contingency Offerings

In a best efforts offering, a broker-dealer does not commit to purchase any securities from the issuer or guarantee that the issuer will receive any amount of money from the offering (This is in contrast to a firm commitment). Furthermore, a best efforts offering subject to satisfaction of an underlying condition is deemed to be a “contingency offering.” The most common contingency offerings reviewed by FINRA are either “all-or-none” or “part-or-none” offerings that require all or a certain amount of the securities to be sold for the offering to close. Under Securities Exchange Act Rule 10b-9, a best efforts offering subject to either an “all-or-none” or “part-or-none” contingency must provide for the prompt return of investor funds in the event the requisite contingency fails to be met by a specific date.

Broker-Dealer Responsibilities in a Best Efforts Contingency Offering.

As discussed in Regulatory Notice 10-22, a broker-dealer that participates in an offering and recommends a security must, among other requirements, conduct a reasonable investigation of the security and the issuer’s representations about it. If the security is offered as part of a contingency offering, the broker-dealer’s reasonable investigation must include a review of the terms of the contingency, including any agreement and disclosure by the issuer regarding the contingency.

III. Requirements Concerning Manner of Handling Investor Funds

Securities Exchange Act Rule 15c2-4 requires that upon receiving money or other consideration from an investor in a contingency offering, a broker-dealer must promptly:

deposit those funds into “a separate bank account” for which the broker-dealer is the account holder and is designated as agent or trustee “for the persons who have the beneficial interests therein”; or
transmit those funds to a bank that has agreed in writing to act as the escrow agent for the offering.

The manner in which a broker-dealer must handle investor funds generally will be determined by two factors. First, pursuant to SEA Rule 15c3-1, only a broker-dealer that maintains at least $250,000 in net capital is allowed to carry customer accounts and receive or hold funds or securities for those persons. Therefore, while not a requirement of SEA Rule 15c2-4, a broker-dealer that maintains less than 250,000 in net capital and deposits investors’ funds into a separate bank account rather than transmitting those funds to an independent bank escrow agent would violate SEA Rule 15c3-1. Second, when a participating broker-dealer is an affiliate of the issuer, investors’ funds must be transmitted to an independent bank escrow agent.

Escrow Agreements

In contingent offerings that require an escrow agent, the escrow agreement must be executed with a bank that is unaffiliated with the broker-dealer and the issuer. The escrow account should be established before the broker-dealer receives any investor funds. The escrow account may not be controlled by the issuer, the broker-dealer or an attorney. As a general matter, the escrow agent must be a financial institution that meets the definition of a “bank” under SEA Section 3(a)(6), although the SEC staff has provided no-action relief to permit certain other entities to act as escrow agents.

Prompt Transmittal of Funds

SEA Rule 15c2-4(b) requires that a broker-dealer promptly transmit funds to either an escrow agent or a separate bank account. SEC staff has interpreted “promptly” to mean by noon of the next business day. Failure to promptly transmit funds to either the escrow agent or a separate bank account has resulted in sanctions. However, in certain offerings, such as direct participation programs that require suitability determinations by the issuer, the SEC staff has provided procedural guidance under which a broker-dealer can still comply with the “promptly” component of SEA Rule 15c2-4 even if the funds are not transmitted by noon the next business day after they are received.

A broker-dealer’s responsibility does not end when it promptly transmits investor funds to an escrow agent or separate bank account. A broker-dealer must also promptly refund investors’ funds if the contingency is not met.

Disbursal to the Issuer

Broker-dealers must segregate investor funds they receive at least until the contingency is met.

It is important to keep in mind that the private security offerings that are not offered through a broker/dealer are subject to many of the core requirements discussed in this post.

Please keep in mind that the above summary is being provided for educational purposes only. It is not designed to be complete in all material respects. If you have any question relative to the contents of this post, you should contact a qualified professional.

Contingency or Best Efforts Offering – South Florida FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sat, 26 Feb 2022 16:25:34 GMT

The below FINRA Enforcement Action provides a summary of certain issues that broker/dealers must take into consideration when involved in a contingency or best efforts offering.

Newbridge Securities Corporation (CRD #104065, Boca Raton, Florida) and Bruce Howard Jordan (CRD #1223556, Boca Raton, Florida):

Recently, FINRA announced that a Letter of Acceptance, Waiver and Consent (AWC) was issued in which the Newbridge Securities Corporation was censured and fined $30,000 and Mr. Jordan was fined $5,000 and suspended from association with any FINRA member in any principal capacity for one month.

Without admitting or denying the findings, the firm and Jordan consented to the sanctions and to the entry of findings that the firm failed to comply with escrow requirements, the firm’s supervisory system was not reasonably designed and the firm and Jordan failed to enforce the firm’s written procedures governing contingency offerings. The findings stated that the firm acted as the placement agent for a contingency offering on behalf of an issuer. The firm’s written procedures specified that in contingency offerings, the firm would use a bank that had agreed in writing to hold all such funds in escrow and assigned specific responsibility to Jordan, the managing director of investment banking. However, for one offering, the firm and Jordan failed to deposit investor funds with a bank. Instead, the offering utilized a law firm as the escrow agent. Moreover, the firm and Jordan failed to use the standard escrow agreement required as specified in the firm’s procedures. The findings also stated that the firm improperly counted a non-bona fide investment toward the minimum contingency calculation, the firm’s supervisory system was not reasonably designed and the firm and Jordan failed to enforce relevant procedures. Without the non-bona fide investment, the minimum contingency would not have been met. The firm’s written procedures for contingency offerings specified that only bona fide investments should be counted toward an offering minimum but provided no guidance as to what constituted a bona fide investment. Jordan was assigned responsibility to determine whether an investment was bona fide. The firm, acting through Jordan, failed to review the investment to determine whether it should be considered a bona fide investment. Instead, after receiving the investment, the firm and Jordan declared the offering sold and released funds from escrow. As a result, the firm willfully violated Rule 10b-9 of the Securities Exchange Act and FINRA Rule 2010. The findings also included that the firm failed to return investor funds when minimum contingency was not met by the termination date in the offering documents, the firm’s supervisory system was not reasonably designed and the firm and Jordan failed to enforce the firm’s relevant procedures. In a second contingency offering, the issuer offering memorandum required a certain amount of the securities to be sold by a particular date for the offering to close. The offering memorandum also provided that if the minimum was not subscribed by the termination date, then all funds would be returned to investors and all subscription documents deemed rejected. The firm’s written procedures for contingency offerings specified that if the minimum contingency is not sold within the deadline specified by the offering documents, all funds should be promptly returned to investors. The firm’s written procedures failed to address circumstances where an issuer sought to extend the deadline for the minimum contingency through written confirmation by the investors, nor did it provide any guidance for the process of obtaining such written confirmation. The firm’s written procedures assigned specific responsibility for determining whether the minimum contingency had been met to Jordan. The minimum for the second offering was not met by the closing date, and the firm and the issuer agreed to extend the closing date. The firm and Jordan, however, did not send written reconfirmation offers to the investors disclosing the extension of the offering period prior to the original closing date. Instead, investors were provided with a supplement notifying them of the extension and instructing them to contact the firm if they did not wish to participate in the offering. No investor funds were returned, and no investors confirmed in writing their decision to continue their investments. The minimum was subsequently met by the extended closing date, and the firm, acting through Jordan, released the funds from escrow to the issuer of the second offering. Therefore, the firm willfully violated Rule 10b-9 of the Securities Exchange Act and FINRA Rule 2010. The suspension was in effect from December 6, 2021, through January 5, 2022. (FINRA Case #2019063371901).

Nathanial Ponn – South Florida Common and Preferred Stock Fraud and Misrepresentation Litigation and Arbitration Attorney

Russell L. Forkey — Mon, 04 Apr 2016 20:18:17 GMT

Nathanial Ponn – South Florida Common and Preferred Stock Fraud and Misrepresentation Litigation and Arbitration Attorney

Securities and Exchange Commission v. Nathanial D. Ponn, Civil Action No. 16-10624-GAO (D. Mass. filed March 31, 2016)

The Securities and Exchange Commission recently announced fraud charges against Massachusetts resident Nathanial D. Ponn for engaging in a scheme to defraud numerous broker-dealers over more than seven years.

According to the SEC complaint filed in federal court in Boston, Ponn defrauded numerous brokerage firms through bogus bank transfers to newly opened brokerage accounts. These bogus transfers created the false appearance that the brokerage accounts would have cash available upon the settlement of Ponn’s purchases of stocks and mutual fund shares. Ponn used temporary credits from the bogus transfers to purchase stock and mutual fund shares, which he repeatedly attempted to cash out or transfer to other financial institutions before the brokerages discovered that Ponn did not have actual money to fund the bank transfers.

In a parallel action, the U.S. Attorney’s Office for District of Massachusetts also announced criminal charges against Ponn.

The SEC’s complaint also alleges that:

Brokers commonly permit customers to begin purchasing securities immediately after the brokers receive notice of a transfer of funds, subject to later verification, which takes approximately two to three days.
Ponn exploited the two-to-three-day delay in the broker-dealers’ verification process by repeatedly making securities purchases based on bogus cash transfers from bank accounts with insufficient funds.
Beginning as early as 2007, but escalating in 2014 and continuing into at least April 2015, Ponn opened up approximately 600 brokerage accounts at various firms and purported to fund these brokerage accounts with bank transfers totalling at least $8.7 million from various bank accounts. All of the purported money transfers were from bank accounts that were underfunded or fake.
After Ponn made the false money transfers, but before the brokerage firms discovered Ponn’s activity, he purchased nearly $2.9 million worth of securities and attempted to withdraw cash from some of the accounts.
Once the brokerages discovered that Ponn’s initial deposits were fraudulent, they locked the associated brokerage accounts and sold the securities held within the accounts. The brokerage firms suffered losses of approximately $26,000 from Ponn’s scheme.

The SEC’s complaint alleges that Ponn violated Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and a civil penalty.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

Market Volatility – Margin Accounts – Margin Calls, Margin Abuse and Account Deficits Especially Relating to Option Transactions – Boca Raton, Florida Margin Deficit FINRA Arbitration Attorney

Russell L. Forkey — Tue, 25 Aug 2015 12:01:56 GMT

Market Volatility – Margin Accounts – Margin Calls, Margin Abuse and Account Deficits Especially Relating to Option Transactions – Boca Raton, Florida Margin Deficit FINRA Arbitration Attorney:

There is a substantial difference between the risks and rewards arising from the use of a margin account as opposed to a cash account. This is especially true when one is exposed to the type of volatility that the markets have recently experienced. It is not uncommon in these types of volatile and fast moving markets, especially when one is on the wrong side of a option position, that all of the account’s equity is lost but that an account deficit might result. In such a situation, it is important to immediately consult with an experienced attorney in such matters. This is especially true if your broker is demanding that the client payoff a deficit in the account.

For the notice investor, the below discussion generally describes the difference between a cash and margin account.

A “cash account” is a type of brokerage account in which the investor must pay the full amount for securities purchased. An investor using a cash account is not allowed to borrow funds from his or her broker-dealer in order to pay for transactions in the account. A “margin account” is a type of brokerage account in which the broker-dealer lends the investor cash, using the account as collateral, to purchase securities. Margin increases investors’ purchasing power, but also exposes investors to the potential for larger losses. Here’s what you need to know about margin.

Understand How Margin Works:

Let’s say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you’ll earn a 50 percent return on your investment. But if you bought the stock on margin-paying $25 in cash and borrowing $25 from your broker-after paying back the broker, you’ll earn a 100 percent return on the $25 you invested (minus any interest you owed the broker). The downside to using margin is that if the stock price decreases, substantial losses can mount quickly. For example, let’s say the stock you bought for $50 falls to $25. If you fully paid for the stock, you’ll lose 50 percent of your money. But if you bought on margin, you’ll lose 100 percent, and you still must come up with the interest you owe on the loan. Investors who put up an initial margin payment for a stock may, from time to time, be required to provide the broker with additional cash or securities if the price of the stock falls. Some investors have been shocked to find out that the brokerage firm has the right to sell their securities that were bought on margin-without any notification and potentially at a substantial loss to the investor. If your broker sells your stock after the price has plummeted, then you’ve lost out on the chance to recoup your losses if themarket bounces back.

Recognize the Risks:

Margin accounts can be very risky and they are not appropriate for everyone. Before opening a margin account, you should fully understand that:

•· You can lose more money than you have invested;

•· You may have to deposit additional cash or securities in your account on short notice to cover market losses;

•· You may be forced to sell some or all of your securities when falling stock prices reduce the value of your securities; and

•· Your brokerage firm may sell some or all of your securities without consulting you to pay off the loan it made to you.

You can protect yourself by:

•· Knowing how a margin account works and what happens if the price of the securities purchased on margin declines.

•· Understanding that your broker charges you interest for borrowing money and how that will affect the total return on your investments.

•· Being aware that not all securities can be purchased on margin.

•· Asking your broker whether trading on margin is appropriate for you in light of your financial resources, investment objectives and risk tolerance.

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Popular Securities, Inc. n/k/a Popular Securities, LLC – Boca Raton, Florida Puerto Rico Bond and Closed-End-Fund Over Concentration and Unsuitability FINRA Arbitration Attorney

Russell L. Forkey — Sun, 23 Aug 2015 12:55:22 GMT

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

February 2015 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Popular Securities, Inc. nka Popular Securities, LLC (CRD #8096, San Juan, Puerto Rico) submitted an AWC in which the firm was censured and fined $125,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce a supervisory system and procedures reasonably designed to identify and review concentrated securities purchases, including PR municipal bonds and PR closed-end funds. The findings stated that when the PR general obligation bond rating was downgraded, the firm’s customers continued purchasing concentrated positions of PR securities. The firm’s WSPs did not outline the steps that the firm should have taken to review its customers’ securities purchases for concentration, and apart from a procedure that required quarterly reviews of “elderly” customer accounts for concentration of one product in the client’s account, the firm did not establish, maintain, or enforce any systems or procedures that required supervisors to review for concentrated purchases (i.e., concentration in a single security, substantially similar securities, or securities of a single geographic region), including PR securities, or document their reviews.(FINRA Case #2013035309401).

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Oriental Financial Services Corp. – South Florida Unsuitable Puerto Rico Bond Investment FINRA Arbitration Attorney

Russell L. Forkey — Sun, 23 Aug 2015 01:20:44 GMT

February 2015 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Oriental Financial Services Corp. (CRD #29753, San Juan, Puerto Rico)submitted an AWC in which the firm was censured, fined $245,000 and undertakes to submit to FINRA a proposed methodology of how it will identify, review and remediate unsuitably concentrated Puerto Rico (PR) securities purchases. At a minimum, the methodology must include the firm’s review of customers’ concentrated PR securities purchases effected between December 14, 2012, and June 30, 2013, and a provision explaining how restitution, if any, will be calculated. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that the firm reported to FINRA on Form 4530 that it had not disclosed on customer confirmations the markups and markdowns for riskless principal transactions in PR closed-end funds (PR CEFs).

The findings stated that between 2000 and August 5, 2013, the firm effected approximately 2,800 riskless principal transactions involving PR closed-end funds (CEFs) in approximately 1,000 accounts and failed to disclose approximately $2.9 million in markups and markdowns on customer trade confirmations. The findings also stated that the firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with Securities Exchange Act of 1934 Rule 10b-10. The firm’s staff did not appropriately classify PR CEFs as equity securities and its supervisory staff were therefore unaware that the disclosure requirement for riskless principal transactions in equity securities applied to PR CEFs throughout the 13-year time period. The firm failed to have a system in place to ensure that it disclosed markups and markdowns on riskless principal transactions in PR CEFs because it failed to appropriately classify those products as equities that required disclosures. The findings also included that the firm failed to establish, maintain, and enforce a supervisory system and procedures reasonably designed to identify and review concentrated securities purchases, including PR municipal bonds and PR CEFs. The firm’s registered representatives continued soliciting concentrated purchases of PR securities even after a municipal bond rating downgrade of the general obligation rating of the Commonwealth of Puerto Rico. While the firm’s WSPs required that its registered representatives have reasonable grounds to believe that any purchase or sale recommendation was suitable for a particular customer, the WSPs did not outline the steps that the firm should have taken to review the transactions for concentration. Despite having implemented guidelines, the firm did not require that supervisors review for concentrated purchases (i.e., concentration in a single security, substantially similar securities, or securities of a single geographic region), including PR securities, or document their reviews. The firm engaged a consultant to perform a self-review through which it identified six potentially unsuitable purchases of PR securities. (FINRA Case#2013035308801).

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Citigroup Global Markets Inc. – South Florida Broker/Dealer and Account Executive Breach of Fiduciary Duty FINRA Arbitration Attorney

Russell L. Forkey — Sat, 22 Aug 2015 23:34:29 GMT

February 2015 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Citigroup Global Markets Inc. (CRD #7059, New York, New York) submitted an AWC in which the firm was censured and fined $3,000,000, to be paid jointly to FINRA and the New York Stock Exchange (NYSE). Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to deliver prospectuses in connection with sales of certain ETFs to customers. The findings stated that the firm failed to deliver prospectuses for approximately 255,000 customer purchases of approximately 160 ETFs during a three-month period for which the firm self-reported the ETF prospectus delivery failure. Consequently, from 2009 through April 2011, it is estimated that the firm may have failed to deliver prospectuses for over 1.5 million purchases of ETFs by its customers. The findings also stated that the firm failed to design and implement an adequate supervisory system to achieve compliance with the securities laws and regulations governing ETF prospectus delivery. The firm’s decentralized supervisory system was not reasonably designed to ensure compliance with its prospectus-delivery requirements, which contributed to the firm’s failure to identify deficiencies in its process, to timely identify the scope of the problem after the firm detected certain failures in 2009, and to timely remedy the inadequacies in its manual process. The firm did not appropriately respond to “red flags” indicating that it had experienced failures to deliver. Although the firm notes isolated ETF prospectus delivery failures in 2009, it did not determine the extent of the issue or fully recognize deficiencies in its supervision in these areas until 2010. (FINRA Case #2011026502901).

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Pangaea Trading Partners, LLC., Arjent LLC., Arjent Limited, Excalibur Asset Management, LLC – South Florida Brokerage Firm Fraud and Misrepresentation Litigation and Arbitration Attorney

Russell L. Forkey — Sat, 30 May 2015 16:21:47 GMT

Pangaea Trading Partners, LLC., Arjent LLC., Arjent Limited, Excalibur Asset Management, LLC – South Florida, including Boca Raton, Fort Lauderdale and West Palm Beach, Brokerage Firm Fraud and Misrepresentation Litigation and Arbitration Attorney

Securities and Exchange Commission v. Robert P. DePalo, Joshua B. Gladtke, Gregg A. Lerman, Pangaea Trading Partners LLC, Arjent LLC, Arjent Limited, Excalibur Asset Management LLC, Rosemarie DePalo (Relief Defendant), and Allied International Fund, Inc. (Relief Defendant),, Civil Action No. 15-CV-3877 (S.D.N.Y., filed May 20, 2015)

SEC Charges Brokerage Firm Co-Owners with Defrauding Investors

The Securities and Exchange Commission recently announced fraud charges against the co-owners of a Manhattan-based brokerage firm. The SEC alleges that as Arjent LLC and its UK-based affiliate Arjent Limited were approaching insolvency, chairman and CEO Robert P. DePalo attempted to keep the firms afloat and maintain his extravagant lifestyle by selling shares in a holding company called Pangaea Trading Partners. DePalo along with managing director and co-owner Joshua B. Gladtke allegedly misrepresented to investors the value of Pangaea’s assets and how their money would be used – transferring the first $2.3 million raised in the offering directly to his own bank accounts and using it for his personal benefit. DePalo also allegedly transferred investor funds to Gladtke, and sought to cover up their fraud by making misrepresentations to SEC examiners.

In a parallel action, the New York County District Attorney’s Office has announced criminal charges against DePalo and Gladtke.

The SEC’s complaint, filed on May 20, 2015 in federal court in Manhattan, charges DePalo and Gladtke with violating the antifraud and books and records provisions of the federal securities laws. Also charged in the SEC’s complaint are Pangaea, the Arjent entities, and another entity owned and controlled by DePalo called Excalibur Asset Management as well as another principal at Arjent LLC named Gregg A. Lerman, who agreed to settle the charges. Subject to court approval, Lerman is enjoined from future violations with any disgorgement and financial penalty amounts to be determined by the court at a later date.

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Argent, LLC and Arjent Limited – Brokerage Firm Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 20 May 2015 19:09:34 GMT

Argent, LLC and Arjent Limited – Brokerage Firm Fraud and Misrepresentation – South Florida, including Deerfield Beach, Lake Worth, Boca Raton and Delray Beach FINRA Arbitration and Litigation Attorney

SEC Charges Brokerage Firm Co-Owners With Defrauding Investors

The Securities and Exchange Commission recently announced fraud charges against the co-owners of a Manhattan-based brokerage firm.

The SEC alleges that as Arjent LLC and its UK-based affiliate Arjent Limited were approaching insolvency, chairman and CEO Robert P. DePalo attempted to keep the firms afloat and maintain his extravagant lifestyle by selling shares in a holding company called Pangaea Trading Partners. DePalo along with managing director and co-owner Joshua B. Gladtke allegedly misrepresented to investors the value of Pangaea’s assets and how their money would be used – transferring the first $2.3 million raised in the offering directly to his own bank accounts and using it for his personal benefit. DePalo also allegedly transferred investor funds to Gladtke, and sought to cover up their fraud by making misrepresentations to SEC examiners.

In a parallel action, the New York County District Attorney’s Office recently announced criminal charges against DePalo and Gladtke.

The SEC’s complaint filed in federal court in Manhattan charges DePalo and Gladtke with violating the antifraud and books-and-records provisions of the federal securities laws. Also charged in the SEC’s complaint are Pangaea, the Arjent entities, and another entity owned and controlled by DePalo called Excalibur Asset Management. The SEC also charged another principal at Arjent LLC named Gregg A. Lerman, who agreed to settle the charges. Subject to court approval, Lerman is enjoined from future violations with any disgorgement and financial penalty amounts to be determined by the court at a later date.

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South Florida Broker-Dealer and Investment Advisory Fraud and Misrepresentation Litigation and Arbitration Attorney

Russell L. Forkey — Fri, 10 Apr 2015 01:49:47 GMT

South Florida Broker-Dealer and Investment Advisory Firm Fraud and Misrepresentation Litigation and Arbitration Attorney

Securities and Exchange Commission v. Warren D. Nadel et al., Civil Action No. 11-cv-0215

SEC Obtains Summary Judgment Against Warren D. Nadel, His Broker-Dealer and His Investment Advisory Firm

The U.S. Securities and Exchange Commission recently announced that on April 2, 2015, the United States District Court for the Eastern District of New York granted the SEC’s motion for partial summary judgment against Defendants Warren D. Nadel, his broker-dealer, Warren D. Nadel & Co. (WDNC), and his investment advisory firm Registered Investment Advisors, LLC , while also denying the Defendants’ motion for summary judgment in its entirety. The Securities and Exchange Commission filed its civil action on January 13, 2011, alleging that the Defendants fraudulently induced clients to invest tens of millions of dollars in a purported investment program in order to receive over $8 million in commissions and fees from 2007 through 2009. The Complaint alleged, among other things, that the Defendants inflated the amount of assets they held under management, and repeatedly misrepresented to clients and prospective clients that they were executing open-market transactions on their behalf with other broker-dealer, when in fact, in the vast majority of transactions (numbering in the thousands), the trades consisted of cross trades between advisory client accounts, controlled by Defendants, or in principal transactions with his own firm, at prices determined by Nadel himself.

In its Order granting the Commission’s motion, and denying Defendants’ motion in its entirety, the Court held that the Commission was entitled to judgment as a matter of law on its claims that Defendants violated (1) Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, by deliberately inflating the amount of assets they had under management by a factor of 300% to 600%; (2) Section 206(3) of the Advisers Act, by conducting thousands of cross-trades among their clients, and principal transactions with client accounts, without notifying and obtaining consent from their clients in advance of each of those transactions that they were cross-trades or principal transactions; and (3) Rule 10b-10 of the Exchange Act, because Nadel and WDNC falsely disclosed to their clients the capacity under which WDNC was acting in their cross trades and principal transactions.

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Valuations of Unlisted Real Estate Investment Trusts and Direct Participation Programs – Boca Raton, Florida REIT and DPP FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Thu, 23 Oct 2014 21:29:42 GMT

SEC Order Approving FINRA Rule Change Relative to How Member Firms are Required to Calculate the Value of Unlisted Real Estate Investment Trusts and Direct-Participation Programs:

The Sec has approved FINRA’s plan to overhaul how member firms calculate the value of unlised real estate investment trusts (“REITs”) and direct-participation programs (“DPPs”). Under the new rules – specifically FINRA Rule 2310 – the firms will be required to include on customer account statements a per-share estimated value for any unlisted REIT and DPP securities that they have reason to believe is reliable.

Firms also will need to make new disclsoures about the nature of the investment, including that they are not traded on a public securities exchange and that the price that the investor receives may be less than the estimated per-shre value.

Please keep in mind that the above information is being provided for informational purposes only. Thus, it is not designed to be complete in all material respects. If you have any questions relative thereto, you should contact a qualified professional.

Boca Raton, Florida Misappropriation and Theft Litigation and Arbitration Attorney

Russell L. Forkey — Sun, 19 Oct 2014 02:00:09 GMT

Boca Raton, Florida Misappropriation and Theft Litigation and Arbitration Attorney:

Securities and Exchange Commission v. Dennis F. Wright, Civil Action No. 1:14-cv-01896-SHR (M.D. Pa)

Final Judgment and Administrative Order Entered Against Pennsylvania-Based Registered Representative Who Stole Funds from Customers

The Securities and Exchange Commission (the “Commission”) recently announced that the United States District Court for the Middle District of Pennsylvania entered a final judgment by consent in a previously filed enforcement action against defendant Dennis F. Wright, a former registered representative based in Lewistown, Pennsylvania. The final judgment permanently enjoins Wright from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Wright is also ordered to disgorge his ill-gotten gains of $1,533,416.33 and prejudgment interest thereon of $490,618.77, which will be deemed satisfied by the entry of an order of restitution in a parallel criminal case.

According to the Commission’s complaint filed on September 30, 2014, Wright misappropriated more than $1.5 million from at least 28 customers. Wright fraudulently induced his customers to redeem securities held in their securities accounts, including variable annuities and mutual funds, by falsely representing that he would invest the proceeds from the redemptions in a managed account that held other securities that yielded higher returns than their existing securities accounts. Instead, Wright deposited his customers’ funds in a bank account he controlled and from which he misappropriated the funds in order to pay his personal expenses as well as to fund customer withdrawals. Wright concealed his fraud by providing his customers with falsified account statements purportedly showing that they had purchased and owned interests in the non-existent managed accounts with appreciating balances.

On October 16, 2014, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b)(6) of the Securities and Exchange Act and Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (“”Order”) against Wright. The Order permanently bars Wright from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and also bars him from participating in any offering of a penny stock. Wright consented to the issuance of the Order.

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Bradley Thomas Badger – Boca Raton, Florida Account Executive Unapproved Outside Business Activity FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sun, 05 Oct 2014 14:45:49 GMT

Bradley Thomas Badger – Boca Raton, Florida Account Executive Unapproved Outside Business Activity FINRA Arbitration and Litigation Attorney

September 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Bradley Thomas Badger (CRD #5665584, Pleasanton, California) submitted a Letter of Acceptance, Waiver and Consent in which he was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in any capacity for 30 business days. Without admitting or denying the findings, Badger consented to the sanctions and to the entry of findings that he failed to provide prior written notice of his involvement in an outside business activity to his member firm. (FINRA Case #2012034456903).

Luciano Andres Battioli – Boca Raton, Florida Account Executive Conversion and Theft FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sun, 05 Oct 2014 13:37:44 GMT

Luciano Andres Battioli – Boca Raton, Florida Account Executive Conversion and Theft FINRA Arbitration and Litigation Attorney

September 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Luciano Andres Battioli (CRD #6229734, Huntington Beach, California) submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Battioli consented to the sanction and to the entry of findings that he converted funds belonging to customers of his member firm’s affiliate bank, and forged and falsified bank documents. (FINRA Case #2013039521501)

Mutual Fund – Boca Raton, Florida Mutual Fund Unsuitability and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sat, 04 Oct 2014 23:36:12 GMT

Mutual Fund Unsuitability and Breach of Fiduciary Duty – Boca Raton, Florida FINRA Arbitration and Litigation Attorney.

A mutual fund is a fund operated by an investment company that raises money from shareholders and invests in bonds, options, currencies, money market securities, futures, or stocks. Mutual funds are offered by prospectus. The prospectus describes, among other things, the investment objectives of the mutual fund, the types of investments within the fund, the investment strategies utilized by the fund managers and the risks associated therewith.

Mutual funds offer investors the advantages of diversification and professional management. A management fee is charged for these services, typically between 0.5% and 2% of assets per year. Funds also levy other fees such as a 12B-1, exchange fees and other administrative charges. Funds that are sold through brokers are called load funds and those sold to investors directly from the fund companies are called no-load funds. Mutual fund shares are redeemable on demand at net asset value by shareholders.

Please keep in mind that the above information is being provided for informational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, please contact a qualified professional.

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South Florida Elder and Retirement Financial Abuse and Exploitation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Mon, 15 Sep 2014 21:54:01 GMT

Fort Lauderdale, Boca Raton, Delray Beach, Lantana, Lake Worth and West Palm Beach, Florida Elder Financial Abuse and Exploitation Litigation and FINRA Arbitration Attorney:

SEC Charges Virginia-Based Broker With Stealing Funds From Elderly Customers

The Securities and Exchange Commission recently charged a broker based in Roanoke, Va., with defrauding elderly customers, including some who are legally blind, by stealing their funds for her personal use and falsifying their account statements to cover up her fraud.

According to the SEC’s complaint filed in U.S. District Court for the Western District of Virginia, Donna Jessee Tucker siphoned $730,289 from elderly customers and used the money to pay for such personal expenses as vacations, vehicles, clothes, and a country club membership. Tucker ensured that the customers received their monthly account statements electronically, knowing that they were unable or unwilling to access their statements in that format. The SEC further alleges that Tucker engaged in unauthorized trading and other financial transactions while making misrepresentations to customers about their investment accounts and forging brokerage, banking, and other documents.

The SEC’s investigation resulted from a broker-dealer examination of the firm where Tucker worked that was conducted by the SEC’s Philadelphia Regional Office.

In a parallel action, the U.S. Attorney’s Office for the Western District of Virginia announced criminal charges against Tucker.

Tucker has agreed to settle the SEC’s charges and disgorge the $730,289 in ill-gotten gains either in the criminal case or the civil case. She consented to the entry of an order permanently enjoining her from violating Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The settlement is subject to court approval.

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John Thornes – South Florida Elder and Retirement Financial Abuse, Fraud and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Mon, 04 Aug 2014 19:07:39 GMT

Boca Raton, Boynton Beach, Lake Worth, Delray Beach and Deerfield Beach, Florida Elder and Retirement Financial Abuse, Fraud and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney:

Securities and Exchange Commission v. John Thornes, Defendant, and Christopher Burnell, Kyle Larick, and Doreen Thornes, Relief Defendants, Civil Action No. 14-cv-06088 (C.D. Cal.)

SEC Charges California-Based Broker with Stealing Money from Accounts

The Securities and Exchange Commission recently charged a California-based broker with stealing $4.4 million from two trust brokerage accounts at his firm and diverting it to a pair of friends for uses ranging from gambling to chartering a private jet.

The SEC alleges that John T. Thornes of Redlands, Calif., formerly the sole owner of Thornes & Associates, Inc., diverted funds out of a brokerage account for a trust established for the health and welfare of an 80-year-old dementia patient who has been living at home for several years with 24-hour nurse care. Thornes also siphoned money out of a brokerage account for a trust set up to fund college scholarships for local high school graduates.

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, Thornes stole money from the two accounts from November 2010 to April 2013 primarily to benefit two of his friends, Christopher Burnell of Highland, Calif., and Kyle Larick of Redlands, Calif. Thornes has tried to pass off the payouts as loans, however there were no loan documents, no stated interest, and no collateral for the funds given. None of the money was ever repaid.

The SEC alleges that Thornes deceived his own mother with respect to the educational trust. She served as trustee, and he periodically asked her to sign blank checks that he then used in his misappropriation scheme. Thornes never informed his mother about trades he made, and he converted the brokerage account to a margin account even though it was designated as a low or minimal-risk tolerance account. He used the margin debt in his scheme and later sold securities from those accounts to avoid the margin calls. Thornes did the same thing with the brokerage account for the elderly dementia patient.

According to the SEC’s complaint, after Thornes liberally transferred money from the brokerage accounts to his friends, they used it to charter a private jet, buy a luxury car, and purchase a vacation home. Burnell also used the funds to gamble at a nearby casino or pay gambling debts. Thornes paid his mother about $84,000 in excess trustee fees.

Thornes has agreed to settle the charges and consented to the entry of a final judgment ordering him to pay disgorgement of $4,366,790, prejudgment interest of $278,540, and a penalty of $4,366,790. Without admitting or denying the SEC’s allegations, he agreed to be permanently enjoined from future violations of Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Thornes also has agreed to consent to a collateral industry bar and a penny stock bar.

The SEC’s complaint also names Thornes’ friends Burnell and Larick as well as his mother Doreen Thornes as relief defendants for the purposes of recovering any illicit funds in their possession.

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