Has Your Broker Been Sued by FINRA - Part 3

Newbridge Securities Corporation (CRD #104065, Fort Lauderdale, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $600,000, and required to have its president and Chief Executive Officer (CEO) each register for eight hours of AML training within 60 days of issuance of the AWC, provide FINRA with evidence of registrations within 10 days of registration, have the individuals attend and complete the training within six months of issuance of the AWC and provide FINRA with evidence of completion of training within 10 days of completion. The firm is prohibited from effecting any purchase transactions in penny stocks for either proprietary or customer accounts, and shall not engage in market making of such stocks, for one year following acceptance of the AWC. The firm shall hire an independent consultant to review the firm's systems relating to timely and accurate filing of Uniform Applications for Securities Industry Registration or Transfer (Forms U4) and Uniform Termination Notices for Securities Industry Registration (Forms U5), disclosure events and customer complaints under NASD Rule 3070 and, within 60 days after delivery of a written report, adopt and implement the consultant's recommendations or propose alternative procedures in writing to the consultant and FINRA. Within 30 days after issuance of the consultant's final written report, the firm shall provide FINRA with a written implementation report certified by a firm officer. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it facilitated the manipulative trading of the stock of a company created as the result of a reverse merger; a group of control persons and promoters used accounts at the firm to execute pre-arranged in-house agency cross and wash transactions that were intended to generate volume and support or increase the price of the stock. The findings stated that the firm permitted control persons to sell unregistered securities through firm accounts, and the sales were not made in compliance with any applicable exemption from registration. The findings also stated that the firm failed to adequately supervise the registered representatives who participated in the sales of unregistered securities; failed to take adequate measures to ensure that the registered representatives assigned to the accounts did not engage in the sale of unregistered securities; failed to take steps to ensure that the registered representative ascertained whether the securities being sold were registered, how and from whom the customers had obtained their shares, whether and when the shares were paid for, and whether the transactions were subject to any exemption from registration; and failed to adequately supervise registered representatives who participated in the manipulative trading. The findings also included that the firm did not have adequate systems or controls to implement and enforce its policies, particularly adequate systems to detect improper cross, wash and other manipulative trading. FINRA found that the firm's AML procedures required the firm to investigate red flags indicating suspicious activity or trading, and to investigate and take appropriate steps, including limiting account activity, contacting a government agency or filing a SAR, but the firm failed to follow its AML program in regard to the manipulative trading, unregistered distributions and other suspicious activities. FINRA also found that the firm failed to report, or timely report, customer complaints reportable under NASD Rule 3070(c). In addition, FINRA determined that the firm failed to file Forms U4 or U5 to report disposable events and failed to timely amend a Form U4 to report a disclosable event. (FINRA Case #2007007151704)

Guy Steven Amico (CRD #1723157, Registered Principal currently licensed with Newbridge Securities Corporation, Wellington, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $100,000, suspended from association with any FINRA member in any principal capacity for four months and required to complete eight hours of AML training. Amico is to register for AML training within 60 days of issuance of the AWC and provide evidence to FINRA of the registration within 10 days of registration; attend such training within six months of issuance of this AWC and provide FINRA with evidence of completion of training within 10 days of completion of the training program. Without admitting or denying the findings, Amico consented to the described sanctions and to the entry of findings that as his member firm's president, he failed to adequately supervise the firm's chief compliance officers (CCOs) and AML compliance officers (AMLCOs). The findings stated that Amico knew, or should have known, of substantive violations of FINRA rules and the potential inadequacy of firm compliance personnel through FINRA exit conference reports that the firm failed to properly report customer complaints and other reportable matters, failed to make Form U4 or Form U5 amendments to report disclosable events, or failed to timely amend Forms U4 or U5. The findings also stated that Amico received FINRA exit conference reports regarding violations of the BSA and FINRA AML rules. The findings also included that Amico received SEC written findings identifying suspicious penny stock transactions, AML program issues and reporting deficiencies. FINRA found that as the president and owner of the firm, Amico was responsible for the firm's compliance with regulatory requirements imposed on the firm and knew, or should have known, that the firm's CCOs and AMLCOs were not performing the compliance functions designated to them. FINRA also found that Amico knew through FINRA exit conference reports and SEC written findings that the firm, through the CCOs and AMLCOs, was not in compliance with BSA requirements and NASD Rule 3011, was not making necessary filings under NASD Rule 3070 and Article V, Sections 2 and 3 of FINRA's By-Laws, and that one of the CCOs/AMLCOs had a disciplinary history but failed to take affirmative steps to ensure that they were performing the AML and reporting functions delegated to them. The suspension is in effect from September 20, 2010, through January 19, 2011. (FINRA Case #2007007151705)

Richard Albert Bush (CRD #2457963, Registered Principal lasted registered with Newbridge Securities Corporation, Coral Springs, Florida) 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 principal capacity for six months. The fine must be paid either immediately upon Bush's reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Bush consented to the described sanctions and to the entry of findings that, in his capacity as Director of Compliance in his member firm's trading department (DCTD), he failed to adequately supervise registered representatives who sold unregistered securities on certain clients' behalf in violation of Section 5 of the Securities Act of 1933. The findings stated that Bush failed to take adequate steps to ensure that the registered representatives ascertained whether the securities being sold were registered, how and from whom the customers obtained their shares, whether and when the shares were paid for, and whether the transactions were subject to any exemption from registration. The findings also stated that as his firm's Designated Securities Compliance Officer (DSCO), Bush was responsible for evaluating and supervising designated securities (penny stock) transactions to evaluate whether they were part of a “pump-and-dump” or other fraudulent scheme; evaluating and investigating suspicious transactions when numerous shares were deposited and immediately sold; conducting background checks on customers who were expected to engage in a significant amount of designated securities transactions to determine whether the customer had a criminal or securities disciplinary background, or had an affiliation with the issuer; meeting with customers to ensure his firm had the requisite knowledge about customers' background and trading intentions; and reporting to the firm's CCO and AMLCO any findings regarding issuers or customers and to certify monthly that he had reviewed, approved and monitored all accounts that conducted a significant amount of transactions in designated securities. The findings also included that Bush failed to take identifiable steps to ascertain relevant information regarding customers' disciplinary history and how they obtained the shares being deposited, and did not believe that customers' background or numerous transactions constituted red flags. The suspension is in effect from September 7, 2010, through March 6, 2011. (FINRA Case #2007007151702)

Robin Fran Bush (CRD #1994431, Registered Principal formerly registered with Newbridge Security, Coral Springs, Florida) submitted a Letter of Acceptance, Waiver and Consent in which she was fined $10,000, suspended from association with any FINRA member in any principal capacity for one year and required to complete eight hours of AML training prior to reassociation with a member firm or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Bush consented to the described sanctions and to the entry of findings that acting in her capacity as her member firm's AMLCO, she failed to implement policies and procedures reasonably designed to detect and cause the reporting of suspicious transactions under 31 USC 5318(g) and implementing regulations thereunder. The findings stated that Bush failed to ensure her firm's overall compliance with NASD Rule 3011 by detecting and investigating suspicious activities or other activities in which red flags of money laundering were present and, when appropriate, filing SARs. The findings also stated that as her firm's CCO, Bush failed to adequately supervise firm AMLCOs and ensure they were performing their functions pursuant to the firm's AML program and written procedures, and failed to ensure they were properly investigating suspicious activities, recommending and filing SARs or documenting the rationale for concluding that a SAR was unnecessary. The findings also included that Bush failed to adequately supervise the firm's DSCO to ensure he was taking adequate investigative steps to ascertain whether certain customer transactions were part of a manipulative or fraudulent scheme, conducting adequate criminal or securities disciplinary background checks, and conducting adequate due diligence to ascertain whether customers engaging in significant designated securities transactions had any affiliations with the issuers; in fact, many customers had criminal or securities disciplinary backgrounds or had close ties to issuers whose shares they were trading. FINRA found that as her firm's CCO, Bush failed to ensure her firm reported, and timely reported, customer complaints to FINRA. FINRA also found that Bush failed to ensure her firm filed, and timely filed, Forms U4 and U5 with FINRA to report disclosable events. The suspension is in effect from September 7, 2010, through September 6, 2011. (FINRA Case #2007007151701)

Scott Howard Goldstein (CRD #1630008, Registered Principal currently registered with Newbridge Securities Corporation, Delray Beach, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $100,000, suspended from association with any FINRA member in any principal capacity for one year and required to complete eight hours of AML training. Goldstein must register within 60 days of issuance of the AWC for the AML training and provide FINRA with proof of evidence of registration within 10 days of registration, attend such training within six months of issuance of the AWC and provide FINRA with evidence of completion of training within 10 days of completion. Without admitting or denying the findings, Goldstein consented to the described sanctions and to the entry of findings that, as his member firm's CEO, he knew, or should have known of substantive violations of FINRA rules and the potential inadequacy of firm compliance personnel.The findings stated that the firm's AML compliance program, as its CCOs and AMLCOs administered, did not fully comply with the requirements of the BSA and regulations thereunder, and therefore violated NASD Rule 3011. The findings also stated that Goldstein knew through FINRA exit conference reports, firm responses to the reports and the SEC's written findings, that the firm, through its CCOs and AMLCOs, was not in compliance, and FINRA expressly identified firm customers who had problematic backgrounds and/or engaged in suspicious transactions but Goldstein did not take affirmative steps to ensure that the CCOs/AMLCOs were performing the AML functions delegated to them. The findings also included that Goldstein knew that one of the CCOs/AMLCOs had a FINRA disciplinary history and had engaged in supervisory deficiencies.FINRA found that the firm, through its CCOs/AMLCOs, failed to report numerous customer complaints reportable under NASD Rule 3070(c) and other reportable events under 3070(b), failed to make Forms U4 or U5 amendments to report disclosable events in numerous instances, and failed to timely amend a Form U4 or U5 in numerous other instances. FINRA also found that Goldstein knew through FINRA exit conference reports, firm responses to the reports and SEC written findings that the firm, through the CCOs/AMLCOs, was not making the necessary filings but did not take any affirmative steps to ensure that they were performing reporting functions. The suspension is in effect from September 20, 2010, through September 19, 2011. (FINRA Case #2007007151706)

George Peter Savickas (CRD #1015582, Registered Representative, Cape Coral, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for 30 business days. The fine must be paid either immediately upon Savickas' reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Savickas consented to the described sanctions and to the entry of findings that he received checks totaling $50,000 made payable to his insurance business from a customer and used the money to pay operating expenses for his insurance business, without his member firm's knowledge 30 Disciplinary and Other FINRA Actions and consent. The findings stated that the firm's written supervisory procedures require review and written approval of any loans between a registered representative and a customer before the loan is made. The findings also stated that Savickas did not disclose the loan to the firm nor receive the firm's approval of the loan.

Darren Joseph Dietrich (CRD #1814017, Registered Representative formerly registered with Brookstone Securities, Inc. and National Securities Corporation, Plant City, Florida)was named as a respondent in a FINRA complaint alleging that he effected trades in his member firm customer's account without the customer's prior knowledge, authorization or consent. The complaint alleges that Dietrich's unauthorized trades resulted in a total profit of $4,450 in the customer's account, and Dietrich earned a totaled of $933 in net commissions. The complaint also alleges that Dietrich failed to respond to FINRA requests to provide testimony. (FINRA Case #2009016660701)

FINRA Fines HSBC $375,000 for Unsuitable Sales of Inverse Floating Rate CMOs to Retail Customers and Related Supervisory Failures Firm Paid Customers Restitution of $320,000 : The Financial Industry Regulatory Authority (FINRA) has fined HSBC Securities (USA) Inc. $375,000 for recommending unsuitable sales of inverse floating rate Collateralized Mortgage Obligations (CMOs) to retail customers. HSBC failed to adequately supervise the suitability of the CMO sales and fully explain the risks of an inverse floating rate or other risky CMO investment to its customers. FINRA's investigation found that HSBC recommended the sale of CMOs, including inverse floating rate CMOs, to its retail customers. As a result of HSBC not implementing an adequate supervisory system and procedures relating to the sale of inverse floating rate CMOs to retail customers, six of its brokers made 43 unsuitable sales of inverse floaters to retail customers who were unsophisticated investors and not suited for high-risk investments. In addition, HSBC's procedures required a supervisor's pre-approval of any sale in excess of $100,000; FINRA found that 25 of the 43 CMO sales were in amounts exceeding $100,000 and that in five of these instances, customers lost money in their inverse floating rate CMO investments. HSBC has paid these customers full restitution totaling $320,000.”Firms must adequately train their brokers on all of the products that they are selling and must reasonably supervise them to ensure that every security recommended is suitable for the particular customer,” said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. “The losses incurred by HSBC's customers likely would have been avoided had the firm sufficiently trained its brokers on the suitability and risks of inverse floating rate CMOs and reasonably supervised their brokers to ensure that they were making suitable recommendations.”

A CMO is a fixed income security that pools mortgages and issues tranches with various characteristics and risks. CMOs make principal payments throughout the life of the security with the maturity date being the last date by which all of the principal must be returned. The timing of the return of principal payments can vary depending on interest rate changes. One of the more risky CMO tranches is the inverse floater, a type of tranche that pays an adjustable rate of interest that moves in the opposite direction from movements of an interest rate index, such as LIBOR. Since 1993, FINRA has advised firms that inverse floating rate CMOs “are only suitable for sophisticated investors with a high-risk profile.” FINRA found that HSBC did not provide its brokers with sufficient guidance and training regarding the risks and suitability of CMOs. In particular, the firm did not inform its registered representatives that inverse floaters were only suitable for sophisticated investors with a high-risk profile. In addition, the firm did not provide its registered representatives with information regarding the risks associated with the specific inverse floaters that were available to be sold. FINRA also found that HSBC failed to comply with a FINRA rule, adopted in November 2003, which requires firms to offer certain educational materials before the sale of a CMO to any person, other than an institutional investor. The educational materials must include, among other things, the characteristics and risks of CMOs, in general, and the specific characteristics and risks associated with the different tranches of a CMO. During the relevant time period, HSBC did not advise its registered persons that they were required to offer written educational material to their customers before they sold them CMOs. Although HSBC provided its brokers with a CMO brochure, the brokers did not offer the brochure to every CMO investor, nor did they know that they were required to give the materials to all potential CMO investors before selling them a CMO. Moreover, the brochures did not comply with FINRA's content standards. In particular, the brochure failed to discuss inverse floaters and failed to include a section on risks associated with purchasing CMOs. In concluding this settlement, HSBC neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

Diane Louise Luft Barriga (CRD #1022433, Registered Representative formerly registered with International Asset Advisory and Summit Brokerage Services, Inc, Parkland, Florida) submitted a Letter of Acceptance, Waiver and Consent in which she was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Barriga consented to the described sanction and to the entry of findings that she failed to respond to a FINRA request for information and documents. (FINRA Case #2009019349701)

Renee Lynn Coil (CRD #3044399, Registered Representative, Tierra Verde, Florida) submitted a Letter of Acceptance, Waiver and Consent in which she was suspended from association with any FINRA member in any capacity for one month. In light of Coil's financial status, no monetary sanctions were imposed. Without admitting or denying the findings, Coil consented to the described sanction and to the entry of findings that she failed to determine the surrender fees related to variable annuity exchanges she recommended to a customer, and the customer agreed to the exchanges based on his understanding that there was no penalty associated with the exchanges. The findings stated that Coil failed to perform adequate analysis on the variable annuities to determine their surrender periods and the customer was charged surrender fees totaling $26,286.84. The findings also stated that if the customer had held the variable annuities for two additional months, he would not have incurred the fees. The findings also included that Coil failed to ensure that the imposition of the surrender fees was accurately disclosed on her member firm's variable annuity switch form. The suspension is in effect from August 16, 2010, through September 15, 2010. (FINRA Case #2008014756401)

John Allan Jones (CRD #2558599, Registered Principal formerly licensed with Cambridge Legacy Securities and Wellstone Securities, Roswell, Georgia) submitted an Offer of Settlement in which he was fined $25,000 and suspended from association with any FINRA member in any capacity for four months. The fine must be paid either immediately upon Jones' reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. In light of Jones' financial status, a $25,000 fine was imposed. Without admitting or denying the allegations, Jones consented to the described sanctions and to the entry of findings that, acting with others, he participated in a fraudulent scheme to solicit investments in an unregistered hedge fund and its general partner. The findings stated that Jones engaged in a variety of fraudulent and deceptive sales practices and disregarded his duties and obligations of fair dealing to his customers. The findings also stated that Jones knew, or was reckless in not knowing, that the hedge fund was engaging in a highly speculative trading strategy involving futures contracts and that information the hedge fund manager supplied, which Jones used, contained materially false and misleading statements and omissions, including a pending Commodity Futures Trading Commission (CFTC) fraud action against the hedge fund manager, the fund's theoretical and unproven performance figures, the highly speculative nature of the hedge fund's trading strategy, and the significant risks associated with an investment in the hedge fund and its general partner. The findings also included that Jones ignored many “red flags,” including those in the hedge fund's Private Placement Memorandum (PPM). FINRA found that Jones solicited his customers without conducting a reasonable investigation to determine whether the hedge fund and its general partner were suitable investments and without regard as to whether his customers were capable of evaluating and bearing the risks associated with such investments. The suspension is in effect from August 2, 2010, through December 1, 2010. (FINRA Case #2005001398602)

Stephen Alan Jaffe (CRD #1340770, Registered Representative currently licensed with Oppenheimer & Co., formerly licensed with Wells Fargo Advisors, North Miami Beach, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for one month. The fine must be paid either immediately upon Jaffe's reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Jaffe consented to the described sanctions and to the entry of findings that he was the broker of record for a customer's nondiscretionary account at his member firm and exercised discretion in the customer's account in multiple transactions without written authorization. The findings stated that Jaffe completed annual certifications for his firm, in which he attested that he had not exercised full or partial trading authorization over any client account without having obtained the required approvals. The suspension was in effect from July 6, 2010, through August 5, 2010. (FINRA Case #2009018230901)

Jeffrey Scott Levine (CRD #5448799, Registered Representative formerly licensed with Suntrust Investment Services and Wachovia Securities, Jacksonville Beach, Florida) 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, Levine consented to the described sanction and to the entry of findings that he withdrew a total of $6,000 from customer accounts and misappropriated the funds for his own use. The findings stated that the customers did not authorize Levine to make the withdrawals. The findings also stated that Levine failed to respond to FINRA requests for information. (FINRA Case #2009019348201)

Jose Luis Luna (CRD #4566784, Registered Representative formerly licensed with Latam Investment Services, Aventura, Florida) 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, Luna consented to the described sanction and to the entry of findings that he failed to provide further investigative testimony to FINRA. (FINRA Case #2010022784701)

A Financial Industry Regulatory Authority (FINRA) hearing panel has fined Mutual Service Corporation (MSC) of West Palm Beach, FL, more than $1.5 million for failing to conduct timely reviews of variable annuity transactions, falsifying various books and records of the firm to make it appear that the variable annuity transactions were reviewed in a timely manner, and providing false and misleading information to FINRA during its investigation. The hearing panel sanctioned six current and former MSC personnel for their roles in the wrongdoing.

Three current or former employees – Denise Roth, a manager in MSC's operations department; Gari Sanfilippo, a former senior compliance examiner; and Kevin Cohen, a former compliance examiner – were permanently barred from the securities industry for falsifying the books and records of the firm. MSC's former Chief Administrative Officer and Executive Vice President, Dennis S. Kaminski; its Director of Operations, Susan Coates; and its former Chief Compliance Officer and Vice President, Michael Poston each were sanctioned for their supervisory failures. Kaminski and Coates each were fined $50,000 and suspended for six months from associating with any securities firm in a principal capacity. Poston was fined $20,000 and suspended from serving in a principal capacity for seven months.

Cohen and Sanfilippo have appealed the ruling to FINRA's National Adjudicatory Council (NAC), while the NAC unilaterally has called Kaminski's case for review of the sanctions. Sanctions against all three have been stayed pending a ruling from the NAC.

The hearing panel found that MSC has a history of failing to supervise sales and exchanges of variable annuities adequately. As part of a settlement with FINRA in 2001, MSC agreed to implement procedures to provide dedicated, heightened oversight of variable annuities transactions. Specifically, the firm created a “trade review team” (TRT) to review variable annuity exchange transactions that appeared on the firm's “red flag” blotter exception report, which captured exchange transactions that required further scrutiny.

According to the hearing panel, between March and June 2004, there was a “complete meltdown of MSC's supervisory system for the review of variable annuity transactions.” During those months, Kaminski and Poston directed MSC compliance personnel to stop reviewing transactions that appeared on the firm's red flag blotter. Despite having oversight responsibility for all variable transactions and being aware of the supervisory failures, Coates failed to act decisively to correct the situation.

While the backlog of transaction reviews was developing, Kaminski, Poston and other MSC managers met in May 2004 with FINRA staff regarding the firm's review of variable annuity transactions. The hearing panel found that the MSC representatives misled FINRA about the firm's supervisory efforts relating to the red flag blotters and failed to mention that MSC had suspended review of the blotters. The hearing panel also found that the MSC representatives misled FINRA about the use of a prototype exception report that had not actually yet been utilized.

During the time that the review of the red flag blotter was suspended, 597 transactions that appeared on the red flag blotter between March 15 and June 1, 2004, were not reviewed by TRT in a timely fashion. Those transactions were not reviewed until August to October 2004.

To make it appear that these TRT reviews had been done in a timely manner, Roth, Sanfilippo and Cohen ensured that the trade review forms and the red flag blotters for the transactions were backdated to within one or two days of the transaction. In addition, the hearing panel found that Cohen created 49 fake letters in October 2004 and placed them in the firm's files to make it appear that a newly developed variable annuity exception report had been in use since January 2004. In actuality, this exception report was not used by the firm until October 2004. The hearing panel found that MSC, Roth, Sanfilippo and Cohen intentionally falsified MSC's records to deceive FINRA staff and termed those violations “egregious.”

During the course of FINRA's investigation, after FINRA staff learned of MSC's failure to timely review the red flag blotters, FINRA requested documents and information relating to the backlogged transactions. The hearing panel found “incontrovertible evidence that MSC did not respond completely and truthfully to the request for information.” Instead, MSC produced documents that had been changed to eliminate the backdating.

In determining MSC's sanction, the hearing panel cited several aggravating factors. It considered first the firm's disciplinary history of deficient supervision of variable annuity transactions, but found more disturbing the fact that MSC deceived FINRA staff regarding the status of its supervisory system and procedures. The hearing panel found that MSC's supervisory and record keeping violations were “egregious.”

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