South Florida Arbitration & Litigation Lawyer Blog
Sale of Unregistered Securities FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
January, 2012:
Scottsdale Capital Advisors Corp (CRD #118786, Scottsdale, Arizona) and Justine Hurry (CRD #2765969, Registered Principal, Paradise Valley, Arizona) submitted an Offer of Settlement in which the firm was censured and fined $125,000, which includes the disgorgement of $18,000 in commissions earned in connection with violative sales of unregistered securities. Hurry was fined $7,500 and suspended from association with any FINRA member in any principal capacity, other than the capacity of Financial and Operations Principal (FINOP), for 40 business days. Without admitting or denying the allegations, the firm and Hurry consented to the described sanctions and to the entry of findings that the firm, acting through Hurry, failed to implement its anti-money laundering (AML) procedures, as it did not adequately monitor for and/or investigate facts and circumstances present in certain customer accounts that constituted “red flags” in its written AML compliance program. The findings stated that neither Hurry, nor anyone else at her firm, took steps to monitor for disciplinary background or multiple account red flags or for transactions triggering the journal transfer, penny stock or wire transfer red flags.
The findings also stated that the firm, acting through Hurry, failed to implement its written AML compliance program by failing to file SAR-SF forms to report suspicious activity. The findings also included that the firm failed to document red-flag investigations in accordance with its written AML compliance program and procedures because the firm’s chief compliance officer (CCO) failed to create, or cause Hurry to create, a record of questionable background reviews. FINRA found that the firm’s AML procedures pertaining to the disciplinarybackground red flag were not sufficiently specific to provide any meaningful guidance as to where and how the firm would look for customers with questionable backgrounds. FINRA also found that the firm utilized a means of interstate commerce in connection with its sales of unregistered stock, and the transactions were not exempt from registration.
In addition, FINRA determined that the firm, acting through Hurry, failed to designate and specifically identify to FINRA at least one principal to establish, maintain and enforce a system of supervisory control policies and procedures. The firm, acting through Hurry, also failed to establish, maintain and enforce written supervisory control policies and procedures concerning producing managers, designation of a principal to review their customer account activity, the limited size and resources exception, testing, updating and annual certification of firm written supervisory procedures (WSPs), and addressing the designated principal’s annual report to senior management. The firm, acting through Hurry, did not submit an annual report to firm management detailing the firm’s system of supervisory controls, the summary of test results and significant exceptions, and any additional or amended supervisory procedures in response to the test results. Hurry failed to establish a supervisory system and WSPs reasonably designed to achieve compliance with applicable securities laws and regulations, and failed to enforce its WSPs. In addition, Hurry failed to prepare a report pertaining to its home-office inspection.
FINRA also found that the firm and Hurry filed SARs that contained inaccurate or incomplete information, and filed SARs that failed to provide adequate information for determining that the reported activity was suspicious. The firm and Hurry failed to establish and implement policies and procedures reasonably expected to detect and cause the reporting of transactions required under 31 U.S.C. 5318(g) and the implementing regulations thereunder.
Furthermore, the firm did not complete its 3013 report as required under IM-3013 for two years. The findings also stated that the firm’s WSPs and records of branch- and home-office inspections were inadequate. The findings also included that the firm did not enforce its WSP’s pertaining to letters of authorization (LOA).
The suspension is in effect from December 5, 2011, through February 1, 2012. (FINRA Case #2008011593301).