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TAG | Broker misusing customer funds

Oct/12

18

FINRA Report on Misappropriating Customers Funds

Comments off · Posted by Securities Lawyer in FINRA

FINRA publishes this quarterly review to provide firms with a sampling of recent disciplinary actions involving misconduct by registered representatives. This sample includes settled matters and decisions in litigated cases (National Adjudicatory Council (NAC) decisions and SEC decisions in FINRA cases). These summaries call attention to, and remind registered representatives and member firms of, specific conduct that violates FINRA rules and may result in disciplinary action.

The following was published on FINRA’s website, October, 2012

“Fraudulently Misappropriating Customer Funds”

FINRA settled a matter involving a registered representative who misled two
customers to convince them to transfer approximately $100,000, which the registered representative subsequently misappropriated. The registered representative fraudulently misrepresented to one customer that he would use the customer’s money to purchase corporate bonds.

In response, the customer transferred $47,000 from his brokerage account to the registered representative. This registered representative deposited the
funds into his personal bank account, used the money for personal expenses and never purchased the corporate bonds.

The registered representative indicated to a second customer that he would use the customer’s funds to purchase a certificate of deposit (CD). The customer transferred approximately $53,000 to the registered representative
for the purchase. The registered representative deposited the funds into his personal bank account and used the money to cover personal expenses. He did not purchase the CD.

FINRA found that the representative’s conduct violated Section 10(b) of the Exchange Act (fraud); Exchange Act Rule 10b-5 (fraud); NASD Rules 2120** (fraud), 2330(a)† (customers’ securities or funds) and 2110‡ (ethical standards), and FINRA Rules 2150(a) (improper use of customer funds) and 2010 (ethical standards).

Because of the registered representative’s violations, FINRA barred him from associating with any firm in any capacity.
(This ends the FINRA article.)

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, represents clients nationwide. For a free consultation on how to potentially recover your losses call: 888-760-6552, or you may visit our website and complete the online form at: http://www.securitieslawyer.com.

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May/12

16

Ft. Lauderdale Rep Barred by FINRA

Comments off · Posted by Securities Lawyer in FINRA

The following information is from FINRA’s website under, “Disciplinary and Other FINRA Actions, May, 2012.”

Sean Donald Premock (CRD #3175558, Registered Representative, Fort Lauderdale, 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, Premock consented to the described sanction and to the entry of findings that he facilitated private securities transactions away from his member firm.
 
These findings stated that Premock was paid commissions from the sales totaling $18,820 without providing written notice to, or obtaining approval from, his firm prior to facilitating any of the investments.
 
The findings also stated that Premock made a series of material misrepresentations and omissions of fact in connection with the offering and selling of investment notes, including promising a monthly minimum rate of return, claiming that the investors’ principal was safe and would be repaid in its entirety after a period ranging from nine to 12 months, and representing that investor funds would be pooled and invested in a fund for the purpose of executing a unique trading strategy that would protect investor  principal by employing a hedging strategy using reversible convertible notes (RCNs).
 
While Premock opened trading accounts in the name of the fund and conducted securities, futures and options trading with the fund’s investor money, investors were not paid a monthly rate of return, certain investors did not receive their principal at maturity, Premock did not purchase RCNs, and he used some of the investment funds for his personal benefit.
 
These findings also included that Premock prepared and issued monthly and quarterly fund statements that showed inflated account values. The statements uniformly showed steady account appreciation based on the accrual of fictitious monthly interest and cash bonuses.
 
FINRA found that Premock received a total of $32,000 from investors for investments in the fund and deposited these funds in the business checking account of a non-fund entity. None of the $32,000 from investors was transferred to any account belonging to the fund. Instead, Premock made several cash withdrawals, purchased several personal items, transferred funds to one family member, and transferred funds to his personal trading account.
 
FINRA also found that Premock received $20,000 from an investor for an investment in the fund and deposited this money in the fund’s checking account. Premock transferred $59,382.50 from one of the fund trading accounts to the fund’s checking account. That same day, a $79,422.45 transfer was made from the fund’s checking account to Premock’s business partner. The fund account balance was $39.95 and was closed soon thereafter. The investors were unaware of these uses of their money and did not authorize or consent to such uses.
 
In addition, FINRA determined that Premock failed to fully respond to FINRA requests for information and documents. Premock stated that he was unwilling to provide a response to all of the requested items and that he intended not to comply any further. (FINRA Case #2010024048601)
 

This ends the information from FINRA’s website.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide.
For a free consultation with an attorney, please call 888-760-6552, or visit our website at: www.securitieslawyer.com.

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Apr/12

26

Aventura, FL, Rep Fined by FINRA

Comments off · Posted by Securities Lawyer in FINRA

The following information is from FINRA’s website under “Disciplinary Actions, April, 2012:”
 

Glenn Loren Halpryn (CRD #1633028, Registered Principal, Aventura, Florida) 

submitted a Letter of Acceptance, Waiver and Consent in which he was censured and fined $10,000.

 

Without admitting or denying the findings, Halpryn consented to the described sanctions and to the entry of findings that he caused funds raised from a private placement offering to be used for due diligence on an unrelated prospective business venture.

Although Halpryn later repaid the funds to the company, he caused them to be used in a manner inconsistent with the terms of the offering.

(FINRA Case #2010025076001 )

 

The information from FINRA’s website has ended.
 
Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide.
For a free consultation with an attorney, please call 888-760-6552, or visit our website at: www.securitieslawyer.com.

 

 

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Dec/11

19

Timothy McGinn and David Smith Barred by FINRA

Comments off · Posted by Securities Lawyer in FINRA

Timothy Michael McGinn (CRD #813935, Registered Principal, Schenectady, New York) and David Lee Smith (CRD #427284, Registered Principal, Saratoga Springs, New York)

were barred from association with any FINRA member in any capacity. The sanctions were based on findings that Smith misused investor funds when he sold approximately $89 million in income notes issued by four limited liability companies he controlled.

David Smith told the investors that the Income Note LLCs would place their funds in a broad array of public and private investments. Contrary to Smith’s representations, he diverted most of the invested funds for the benefit of business entities that he and McGinn owned or in which they had a financial interest. Smith also loaned approximately $590,000 of funds directly to himself. The findings also stated that Smith made misrepresentations and omissions of material facts relating to the Income Note LLCs when he recommended to investors that they participate in the private offerings and purchase the income notes.

Additionly, to falsely representing that the Income Note LLCs would place their funds in private and public investments, Smith stated that the member firm would charge an annual 2 percent commission or fee. In actuality, the proceeds of the investments were diverted to entities McGinn and Smith owned, which were illiquid and in poor financial condition with little or no revenues, and the firm charged recurring annual commissions or fees amounting to approximately 8 percent of the investors’ purchases. Smith failed to inform investors that the Income Note LLCs would invest in, and make loans to, entities in which he and McGinn maintained a financial interest, and that the majority of the funds would be invested in illiquid, non-public companies.

These findings also included that Smith directed the sales efforts by which customers purchased the Income Note LLCs. The notes were not registered with the SEC and were not eligible for exemption from registration, but the offerings falsely claimed to be exempt from the registration requirement pursuant to Rule 506 of the Securities Act of 1933, Regulation D.

Also, FINRA found that Smith sent letters to income note investors containing material misrepresentations and omissions concerning their investments. One letter informed certain Income Note LLCs holders that their annual interest rates of return would bereduced because of market conditions, and Smith falsely represented that the firm would suspend further collection of fees from the Income Note LLCs but it continued to collect them, totaling approximately $6.7 million. Another letter informed all Income Note LLC holders that they would be unable to redeem notes on a particular day because of conditions in financial credit markets and the resultant liquidity crises. Smith also falsely represented that the firm would forfeit all annual fees and commissions in order to improve the liquidity of the Income Note LLCs, but it continued to charge fees and commissions.

Present in both letters, Smith failed to disclose to the note holders that the poor financial condition of the Income Note LLCs was caused in part by his decision to lend or invest most of the investors’ funds in illiquid entities that he and McGinn owned and controlled, had few or no revenues, and were in financial distress. FINRA also found that the firm, through Smith, failed to establish and maintain a supervisory system, and failed to establish, maintain and enforce WSPs reasonably designed to achieve compliance with the applicable FINRA rules and securities laws related to suitability, disclosure and verification of investor accreditation status.

FINRA reports that for approximately five years, the firm’s principal source of revenues was from private placements, including the Income Note LLCs. The subscription contracts potential investors submitted in income note offerings were inadequate because they did not contain information about the investors’ liquid net worth, but the firm relied on them to review and approve individual investments; many investor documents were incomplete, and many were altered after they were submitted by the investors to make it appear that the investors had a higher net worth and qualified as accredited investors.

The firm did not have, and Smith did not implement, procedures for reviewing customer documents reasonably designed to allow the firm to identify any potential alterations and to take appropriate action, and did not have a procedure for spot-checking customer documents and contacting customers directly to ascertain if the documents were accurate.

Despite the fact that the PPM for the income notes and subscription agreements provided that only accredited investors would be eligible to invest, Smith approved and accepted investments from approximately 250 non-accredited investors.

FINRA found that McGinn and Smith provided false documents to FINRA in response to requests for information relating to loans from certain business entities they controlled.

McGinn and Smith submitted copies of promissory notes relating to the loans, dated to appear that they had been previously signed; each note contained a certification attesting that it had been executed and delivered on the date specified. The certifications were false, as McGinn, Smith and a registered representative actually prepared, dated and signed the notes after the FINRA request for documents.

 (FINRA Case #2009017984501)

This article was obtained from FINRA’s website’s Disciplinary Actions of December 2011.

 

Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have experienced losses through Timothy Michael McGinn, David Lee Smith or Income Note LLC, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses. To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Nov/11

15

FINRA Complaint Filed Against Andrew Arno, West Melbourne FL

Comments off · Posted by Securities Lawyer in FINRA

Andrew Paul Arno (CRD #2643104, Registered Representative, West Melbourne, Florida) was named as a respondent in a FINRA complaint alleging that he misused customers’ funds by depositing them into a bank account that he controlled instead of investing them in IRAs as he had represented to the customers and their relatives. The complaint alleges that Arno failed to respond to a FINRA request for information and failed to appear for testimony. (FINRA Case #2010023480801)
 
This information was obtained from FINRA’s website, under ‘Disciplinary Actions.’

Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member sustained a loss through broker Andrew Arno, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses. To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com

Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

 

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