South Florida Arbitration & Litigation Lawyer Blog

Brian John Hussey, Jr. – Unsuitable Trade Recommendations and Unauthorized Discretion

Published on: August 12, 2018 | By Russell L. Forkey, P.A.

Brian John Hussey Jr. (CRD #4640067, Zephyrhills, Florida)

Recently, Brian John Hussey, Jr. entered into an Acceptance, Waiver and Consent with the Financial Industry Regulatory Authority, in which Hussey was suspended from association with any FINRA member in all capacities for seven months. Apparnelty, in light of Hussey’s financial status, no monetary sanction was imposed. Hussey, without admitting or denying the findings consented to the sanction and to the entry of findings that he made unsuitable recommendations to a customer that she sell 100 percent of the mutual fund positions in her individual retirement account (IRA) and invest the proceeds in penny stocks focused on the marijuana business. The findings stated that the thinly-traded penny stocks recommendation was inconsistent with the client’s investment objectives and financial situation. In addition, the transactions were solicited in violation of Hussey’s member firm’s policies prohibiting the solicitation of penny stocks. In order to effect the transactions, Hussey mismarked solicited trades as unsolicited in the customer’s accounts to avoid the firm’s policy preventing its representatives from soliciting the purchase of penny stocks. Moreover, the SEC issued an Order suspending all trading in one of the penny stocks. Hussey had already heavily invested the customer’s accounts in that penny stock. Three days after trading resumed in the penny stock, Hussey purchased an additional $22,679.50 in the account. Hussey eventually had 100 percent of the customer’s portfolio concentrated in the two penny stocks. After the firm made inquiries regarding the trading activity in the customer’s IRAs, and to avoid future compliance issues, Hussey’s recommended that the customer move her account to another FINRA member firm, where Hussey, with the customer’s permission, engaged in discretionary trading of her account using her login credentials. Hussey did not disclose his exercise of discretion or his discretionary authority in this third party account to his firm or to the executing member firm. The customer complained to Hussey’s firm, asserting $58,572 of market losses in her accounts with the firm and the third party firm account, in addition to damages from the lost opportunity to participate in market gains. Hussey’s firm settled for $67,019.24, which he is obligated to pay back to the firm. The findings also stated that as stated above, Hussey mismarked order tickets for trades as unsolicited when, in fact, he solicited the trades and therefore caused his firm to maintain false and inaccurate books and records. The suspension is in effect from June 18, 2018, through January 17, 2019. (FINRA Case #2017053342601).

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Direct or Derivative Claim- South Florida Commerical State and Federal Court Litigation Attorney

Published on: August 11, 2018 | By Russell L. Forkey, P.A.

As a Shareholder of a Corporation or Member of a Limited Liability Company, is Your Claim Direct or Derivative.

Recently, in Dinuro Investments, LLC v. Camacho, 141 So.3d 731 (Fla. 3d DCA 2014), the court conducted a detailed survaey of the law in this area in both Florida and throughout the country. The court noted that three tests routinely have been applied to resolve the direct versus derivative claim question.

1. Direct Harm Test

Frequently Asked Questions About Exempt Securities Offerings

Published on: August 11, 2018 | By Russell L. Forkey, P.A.

Do anti-fraud provisions apply?

All securities transactions, even exempt transactions, are subject to the antifraud provisions of the federal securities laws. This means that you and your company will be responsible for false or misleading statements that you or others on your behalf make regarding your company, the securities offered, or the offering. You and your company are responsible for any such statements, whether made by your company or on behalf of the company, and regardless of whether they are made orally or in writing.

The government enforces the federal securities laws through criminal, civil and administrative proceedings. Private parties also can bring actions under certain securities laws. Also, if all conditions of the exemptions are not met, purchasers may be able to return their securities and obtain a refund of their purchase price.

Capitol Securities Management, Inc. – Suitability of Short Term Trading of Unit Investment Trusts

Published on: August 8, 2018 | By Russell L. Forkey, P.A.

Capitol Securities Management, Inc. (CRD #14169, Glen Allen, Virginia)

FINRA recently announced that on or about May 25, 2018, Capitol Securities Management, Inc. executed an Acceptance, Waiver and Consent in which the firm was censured, fined $100,000 and ordered to pay $44,740.33, plus interest, in restitution to customers. 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 WSPs reasonably designed to detect and prevent unsuitable short-term trading in unit investment trusts (UITs). The findings stated that the firm had no procedures to specifically address the suitability concerns raised by short-term trading in UITs. While the firm instituted a policy requiring the submission of a UIT switch form to detect the premature sales of UITs, the policy was not enforced. In addition, the firm had no surveillance or exception reports designed to detect unsuitable short-term trading of UITs. At least three firm representatives recommended and effected short-term trades of UITs in their customers’ accounts. In addition, on several occasions, these representatives recommended that their customers use the proceeds from the short-term sale of a UIT to purchase another UIT with identical investment objectives. As a result of this trading, customers paid excess sales charges in the amount of approximately $44,740.33. The findings also stated that the firm failed to retain instant messages from employees, including its senior management and compliance staff. (FINRA Case #2017052215401).

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Integrated Trading and Investments, Inc. – Failure to Properly Maintain and Supervise Email Communications

Published on: August 8, 2018 | By Russell L. Forkey, P.A.

Integrated Trading and Investments, Inc. (CRD #47730, Huntington Beach, California)

FINRA recently announced that on or about May 21, 2018 Integrated Trading and Investments, Inc. executed an Acceptance, Waiver and Consent in which the firm was censured and fined $5,000. A lower fine was imposed after considering, among other things, the firm’s revenue and financial resources. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to maintain and preserve certain business-related emails in a non-erasable, non-rewritable format, also known as WORM (write once, read many) format. The findings stated that the firm allowed its registered representatives to use personal email accounts to conduct their securities business and preserved business-related emails using electronic storage media (ESM). Until July 2013, the firm’s representatives were required to forward their business-related emails from their personal email accounts to the personal email address of the firm’s President/Chief Compliance Officer (CCO) for storage. These emails, along with any other business-related emails sent from or received by the CCO’s personal email address were not stored in WORM format. Beginning in July 2013, the firm’s representatives were required to forward business-related emails conducted in their personal email accounts to firm email addresses for storage. The firm’s representatives did not always follow this requirement. As a result, certain of their business-related emails were not maintained and preserved in WORM format. The findings also stated that the firm did not use an automated system for the review and preservation of all business-related emails. Instead, it relied on an “honor system” for registered representatives to manually forward business-related emails, including those with customers, from their personal email accounts to the firm’s CCO (until July 2013) and to business email addresses assigned by the firm (beginning in July 2013). As a result, the firm’s compliance with its review and preservation obligations depended on its representatives’ compliance with this requirement. The firm, however, had no supervisory system or procedures to ensure that its representatives complied with this requirement. The findings also included that because of this deficiency in the firm’s system, business-related emails sent from or received by the personal email accounts of the firm’s representatives that were not forwarded escaped supervisory review. For example, business-related emails using personal email accounts were not forwarded by three registered representatives between April 2012 and July 2013, and by another representative between August 2013 and January 2014. The firm was unable to evidence any review of these emails. FINRA found that between January 2012 and July 2013, the firm did not require the review by another registered principal of emails sent or received by the firm’s CCO and did not otherwise establish a reasonable system for the review of his emails. As a result, the CCO’s emails were not reviewed by another registered principal. FINRA also found that the firm failed to implement and maintain a reasonably

designed system, including written supervisory procedures, for the maintenance and preservation of all business-related emails in WORM format. Based on the foregoing, the firm failed to establish, maintain and enforce a reasonable supervisory system and written supervisory procedures regarding the review and preservation of registered representatives’ business-related emails and failed to review certain business-related emails. (FINRA Case #2016047872901)

Cambridge Investment Research, Inc. – Leveraged, Inverse and Inverse-Leveraged ETFs

Published on: August 8, 2018 | By Russell L. Forkey, P.A.

Cambridge Investment Research, Inc. (CRD #39543, Fairfield, Iowa)

FINRA recently announced that on May 3, 2018 Cambridge Investment Research, Inc. executed an Acceptance, Waiver and Consent in which the firm was censured and fined $150,000. 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 reasonably-designed supervisory system and procedures regarding redemptions of variable annuities and leveraged, inverse and inverse-leveraged ETFs (non-traditional ETFs). The findings stated that on approximately 100 occasions, the firm’s customers redeemed variable annuities and transferred the proceeds to an advisory account. The firm’s associated persons were involved with and recommended some of those transactions. The firm did not systematically supervise or record those redemptions or have written procedures for doing so, nor did the firm ascertain which of those transactions were recommended by the firm’s associated persons and were thus subject to FINRA’s suitability requirements. The firm’s supervisory system and WSPs were not reasonably designed to comply with applicable supervision and recordkeeping requirements with respect to redemptions of variable annuities, and the firm did not record those transactions. The findings also stated that 84 firm registered representatives traded non-traditional ETFs in retail customer accounts. These registered representatives executed 4,773 transactions totaling approximately $127 million. The firm established WSPs for non-traditional ETFs that required registered representatives who wanted to trade non-traditional ETFs to complete a 45-minute training session and sign a “Leveraged/Inverse ETF Rep/Advisor Attestation Form.” The attestation form required representatives to make several representations before executing a nontraditional ETF transaction. The firm failed to enforce its WSPs regarding non-traditional ETFs in several respects. First, the firm allowed representatives to execute non-traditional ETF trades before signing the attestation form. All 84 representatives who executed nontraditional ETF transactions executed at least one such transaction before signing the attestation form. Second, the firm allowed customers to purchase non-traditional ETFs before submitting the required disclosure form. The findings also included that the firm did not establish an adequate supervisory system to effectively monitor holding periods for non-traditional ETFs. The firm’s procedures required the compliance department to review customer accounts that held non-traditional ETF positions and identify any accounts that were holding these positions for more than 10 days and, if necessary, follow up with the responsible registered representative. The firm, however, failed to enforce these procedures. The firm’s failure to adequately monitor customers’ non-traditional holding periods resulted in customers holding non-traditional ETF positions for lengthy periods of time. There were numerous non-traditional ETF positions that were sold by the firm’s customers that were held for longer than seven days. (FINRA Case #2016048934301)

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Legend Equities Corporation – Mutual Fund Abuse FINRA Arbitration Attorney

Published on: June 20, 2017 | By Russell L. Forkey, P.A.

Legend Equities Corporation (CRD #30999, Palm Beach Gardens, Florida) recently submitted an Acceptance, Waiver and Consent in which the firm was censured and required to provide FINRA with a plan to remediate eligible customers who qualified for, but did not receive, the applicable mutual fund sales-charge waiver. As part of this settlement, the firm agrees to pay restitution to eligible customers, which is estimated to total $2,300,188 (the amount eligible customers were overcharged, inclusive of interest). The firm will also ensure that retirement andcharitable waivers are appropriately applied to all future transactions. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it disadvantaged certain retirement plan and charitable organization customers thatwere eligible to purchase Class A shares in certain mutual funds without a front-end sales charge.

To review a complete copy of the Acceptance, Waiver and Consent.

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Mid Atlantic Capital Corporation – Private Securities Transactions – West Palm Beach, Florida FINRA Arbitration Attorney

Published on: June 18, 2017 | By Russell L. Forkey, P.A.

Mid Atlantic Capital Corporation – Private Securities Transactions – West Palm Beach, Florida FINRA Arbitration Attorney:

Mid Atlantic Capital Corporation (CRD #10674, Pittsburgh, Pennsylvania) recently submitted an AWC in which the firm was censured and fined $100,000 by FINRA. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to adequately supervise the private securities transactions of two registered representatives.

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Garden State Securities, Inc. – Traditional and Non-Traditional ETFs Suitability Issues

Published on: June 18, 2017 | By Russell L. Forkey, P.A.

Garden State Securities, Inc. – Traditional and Non-Traditional ETF Suitability Issues – South Florida FINRA Arbitration Attorney:

Garden State Securities, Inc. (CRD #10083, Red Bank, New Jersey) submitted an AWC in which the firm was censured and fined $25,000. 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 reasonably designed supervisory system and WSPs regarding the sales of leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs). The findings stated that the firm did not have WSPs that specifically addressed the suitability or supervision of non-traditional ETFs. In addition, the firm did not have a system that enabled its supervisory personnel to adequately review nontraditional ETF transactions to ensure their suitability. The firm relied on supervisory staff to conduct a manual blotter review to detect potentially unsuitable non-traditional ETF transactions. However, this manual blotter review was an inadequate means of reviewing non-traditional ETF trades. In fact, the firm’s blotter did not even differentiate between traditional and non-traditional ETFs. The firm also did not have any exception reports specific to non-traditional ETFs, and failed to implement any system to monitor nontraditional ETF holding periods and losses. The findings also stated that the firm executedshort sale orders in an equity security and failed to properly mark the orders as short.

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FSC Securities – Boca Raton, Florida Selling Away, Fraud and Misrepresentation FINRA Arbitration Attorney

Published on: June 18, 2017 | By Russell L. Forkey, P.A.

FSC Securities Corporation (CRD #7461, Atlanta, Georgia) submitted an AWC in which the firm was censured and fined $200,000. 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 that was reasonably designed to review and monitor third-party check requests from customer accounts. The findings stated that a registered representative associated with the firm sold memberships in an investment fund created by a former firm representative. Without the firm’s knowledge or approval, the representative sold memberships in the fund, which was not an approved product for sale, and the firm did not therefore supervise the representative’s sales. In connection with the representative’s sale of the fund memberships, the representative submitted to the firm Letters of Authorization (LOA) signed by each of the 15 firm customers, which authorized in aggregate approximately $1.6 million to be transferred from their firm brokerage accounts to a bank account the fund controlled. The findings also stated that the fund ultimately lost millions of dollars through speculative trading and other investments. To cover up the losses, the former firm representative created false account statements that fraudulently reflected fictitious assets and investment returns. The former representative made these false account statements available to the fund investors through its website. The firm’s customers who invested in the fund suffered significant losses.

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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.