South Florida Arbitration & Litigation Lawyer Blog
FINRA Arbitration Investment Fraud and Mismanagement Attorney, Russell L. Forkey, Esq.
February, 2011
Robert Charles Keane (CRD #4232583, Registered Principal, Cleveland, Ohio) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $10,000 and suspended from association with any FINRA member in any capacity for 30 days. Without admitting or denying the findings, Keane consented to the described sanctions and to the entry of findings that he participated in the marketing and implementation of a Stock to Cash program under which customers would pledge stock to obtain loans, the proceeds of which were, in many cases, used to purchase non-securities insurance products. The findings stated that the “pledged” stock would be transferred to the loaning entity’s securities account, which was maintained at a clearing firm, and Keane played an integral part in facilitating these loans; customers accepted his recommendations, taking out loans totaling more than $3.3 million. The findings also stated that Keane facilitated his customers’ pledging of the securities and recommended what stocks they should pledge and, in some cases, recommended that they sell specific securities and buy others to pledge to the lender, and affected those transactions. The findings also included that, despite making these recommendations, Keane made no effort to find out what happened to the stock conveyed to the lender, and did not inquire into what would be done with the stock; he understood that the lender took ownership of his customers’ securities but incorrectly assumed that the customers retained some interest in the pledged stock.
FINRA found that Keane did not conduct an inquiry into the lender’s financial condition and whether it had the ability to fulfill its obligations, and when he attempted to find out about the lender’s hedging strategy, he was told that it was proprietary and that he could not get that information, but nevertheless entrusted his clients’ securities to this lender. FINRA also found that because the Stock to Cash strategy involved in each case a pledge of stock, Keane’s advice to his clients constituted a recommendation of “the purchase, sale or exchange of any security”; and as a registered representative, Keane was obligated under NASD Rule 2310 to have a reasonable basis for recommending that his customers pledge their stock to this lender to participate in the Stock to Cash program. In addition, FINRA determined that Keane failed to conduct adequate due diligence concerning the program lender, failed to take sufficient action to determine whether his clients’ ownership interest in the pledged securities was adequately protected and, as a result, he did not understand the potential risks inherent in the strategy and did not have a reasonable basis for recommending the strategy to his current and potential customers.The suspension was in effect from January 3, 2011, through February 1, 2011. (FINRA Case #2007008935004).