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TAG | firm failed to report suspicious activity in brokerage

May/13

9

Three Firms Fined $900,000 by FINRA

Comments off · Posted by Securities Lawyer in FINRA

On May 8th., 2013, FINRA, the Financial Industry Regulatory Authority Inc. fined three financial companies $900,000 in total, for failing to stop money laundering and other suspicious transactions, and officials at the firms were fined a total of $100,000.

“Today’s actions reinforce FINRA’s continued focus on firms’ ability to identify and respond to potential misuse and abuse of the markets,” said Brad Bennett, FINRA executive vice president and chief of enforcement. “Firms must have adequate anti-money-laundering and supervisory systems in place to detect and report suspicious transactions.”

FINRA fined Atlas One Financial Group LLC $350,000 and its former chief compliance officer, Napoleon Arturo Aponte, $25,000 and suspended him for three months. Also, FINRA fined Firstrade Securities Inc. $300,000, and World Trade Financial Corp. $250,000. World Trade Financial, president and owner Rodney Michel was fined $35,000 and suspended for four months, and chief compliance officer Frank Brickell was fined $40,000 and suspended for nine months. Minority owner Jason Adams was fined $5,000 and suspended for three months.
The firms and officials settled with FINRA without admitting or denying the charges.

FINRA claimed that Atlas One failed to detect suspicious activities in several accounts between February 2007 and May 2011. The Justice Department had opened a money-laundering investigation in 2007 on six accounts controlled by one customer, according to FINRA. Atlas One did not look into any other accounts — with the same Costa Rican mailing address — that were not involved in the Justice review. FINRA claimed Firstrade failed to detect suspicious trading activity by Chinese issuers.

World Trade Financial and its executives were fined for not implementing and enforcing a supervisory system for a penny stock operation that generated more than $61 million between March 2009 and August 2011.

If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call Soreide Law Group for a free consultation on how to potentially recover your losses at 888-760-6552.

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Mar/12

6

Miami Brokerage Fined $125,000 by FINRA

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The following information was obtained on FINRA’s website’s ‘Disciplinary Actions, February 2012.”
 
Bulltick Securities, LLC (CRD #132092, Miami, Florida)
 
submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $125,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it made transaction-based payments to a non-registered foreign asset manager (foreign finder) whose activities required registration.
 
The findings stated that the firm’s sole business entailed executing securities transactions on behalf of Latin American customers foreign finders referred to the firm. The foreign finders were not registered with FINRA. In making referral payments, the firm relied on NASD Rule 1060, which allows member firms to pay transaction-based compensation to non-registered foreign finders (without requiring those entities/individuals to register) based upon the business of customers they direct to the firm provided that certain specified conditions are satisfied.
 
The findings also stated that a non-registered foreign finder referred customer accounts to the firm that generated gross commissions of approximately $600,000 through the unsolicited, short-term trading of collateralized mortgage obligations (CMOs). The firm paid the non-registered foreign finder approximately $400,000 in net commissions from this amount. The findings also included that the firm’s relationship with the non-registered foreign finder failed to satisfy the requirement of NASD Rule 1060. After the non-registered foreign finder referred the foreign customers to the firm, the securities trades in those accounts were managed by a non-registered affiliate of the foreign finder who was not a foreign asset manager.
 
FINRA found that the affiliate’s office manager or president would provide the firm with the daily trading instructions for the non-registered foreign finder’s referred account but never obtained evidence confirming that the affiliate was authorized to effect securities transactions in the referred accounts. Additionally, the firm paid the non-registered foreign finder approximately $82,000 for transactions in a United States citizen’s account.
 
FINRA also found that the firm did not evaluate whether the affiliate’s role in the transactions required the affiliate or the non-registered foreign finder to register in the United States as a broker-dealer. The firm’s confirmations for transactions in the referred accounts failed to state that it was paying a referral or finder’s fee. The CMO trading decision and strategy in the referred accounts were directed in part by the customer, who was purportedly a consultant with the affiliate.
 
Also, FINRA determined that the customer opened an account in his name with the firm and shortly after he had voluntarily resigned from a FINRA member firm. The firm maintained the customer’s account along with the nonregistered foreign finder’s referred accounts of foreign customers (sharing the same account number prefix). The customer had a disciplinary history at the time he opened his firm account.
 
Moreover, FINRA found that the firm was aware of this and, in opening the customer’s account, the firm tasked a registered principal with providing heightened supervision over the customer’s account. Although the firm implemented monthly principal reviews by the principal of the activity in the customer’s account, this procedure was insufficient. The firm learned about the SEC action against the customer shortly after it was filed. Nevertheless, the customer’s account remained open and continued to trade.
 
Furthermore, FINRA found that the customer routinely engaged in cross-trades of CMOs with other non-registered foreign finder’s referred accounts. In many instances, the customer would purchase the CMOs for his account from another broker-dealer and re-sell the positions at substantially higher prices to other of the non-registered foreign finder customers. As a result of the differences in the prices of the cross-trades, the customer profited on the majority of the CMO transactions in the referred accounts. The customer’s account made a profit of approximately $1.83 million.
 
The findings also stated that the firm did not reject any trades in the customer’s account until it cancelled an order to sell a CMO position from the customer’s accounts to other non-registered foreign finder’s referred accounts because the execution prices for the purchases were different. The firm later terminated its relationship with the non-registered foreign finder but never conducted a review of the CMO transactions in the referred accounts to determine if there were other transactions with discrepancies.
 
The findings also included that the firm had a written anti-money laundering (AML)
compliance program (AMLCP) that covered, among other things, monitoring for, detecting and reporting of suspicious activities. The firm’s procedures specified that its designated principal (its AML compliance officer (AMLCO)) and others would determine whether a particular account or transaction must be reported based upon a lengthy list of red flags of possible misconduct. FINRA found that the firm failed to monitor for, detect and appropriately investigate suspicious transactions the customer conducted and, if appropriate, file a suspicious activity report (SAR), despite multiple red flags related to these transactions. The red flags, each of which corresponded to a red flag identified in the firm’s procedures, included, among other things the short-term trading activity of CMO securities conducted through the customer’s account, which was generally inconsistent with the long-term investment horizon associated with such investments; the customer’s disciplinary history with the SEC; the volume of cross-trades involving the customer and the non-registered foreign finder’s referred accounts, which appeared to have no business purpose other than to enrich the customer; the fact that the pricing of the customer’s cross-trades differed from the prices the firm received from its clearing firm for the same securities; the differences in prices on the cross-trades involving the customer’s account and the profits the customer obtained; and transactions involving disparate pricing in the customer’s cross-trade involving other of the non-registered foreign finder-referred accounts, which occurred over the course of one month. FINRA also found that the firm failed to develop and implement a reasonably designed AMLCP because its procedures did not address the AML risks presented by certain aspects of its foreign finder business and CMO trading.
 
FINRA also determined that the firm failed to establish and maintain a supervisory system, and establish, maintain and enforce WSPs, reasonably designed to achieve compliance with applicable rules and regulations relating to its foreign finder business and the CMO transactions and trading activity in the referred accounts. The firm principal responsible for supervising the securities activity in the non-registered foreign finder’s referred accounts did not have any experience prior to joining the firm regarding CMOs, which rendered his monthly review of the customer’s account and implementation of heightened supervision inadequate.
 
Additionally, FINRA found that the firm failed to establish WSPs pertaining to CMOs. The firm’s WSPs did not address how it would obtain, monitor and conduct due diligence on pricing for these securities. Furthermore, FINRA found that the firm failed to establish a system or WSPs that addressed the payment of transaction-based compensation to foreign finders made pursuant to NASD Rule 1060 and related registration issues, and failed to ensure that its relationships with the foreign finders satisfied the criteria of NASD Rule 1060 for payment of transaction-based compensation to those entities. The findings also stated that the firm failed to enforce its WSPs requiring it to obtain trading authorization for third-party transactions.
(FINRA Case #2009015969501)
 
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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Oct/11

19

FINRA Fined and Censured Tradespot Markets Inc., and Mark Bedros Beloyan Suspended

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The following article was found on FINRA’s website:

Tradespot Markets Inc. (CRD #29683, Davie, Florida) and Mark Bedros Beloyan (CRD #1392748, Registered Principal, Davie, Florida)

submitted an Offer of Settlement in which the firm was censured and fined $25,000, and Beloyan was suspended from association with any FINRA member in any capacity for one month and suspended from association with any FINRA member in any principal capacity for an additional month. In light of Beloyan’s financial status, 2 Disciplinary and other FINRA Actions October 2011 FINRA did not impose any monetary sanctions upon him.

Without admitting or denying the allegations, the firm and Beloyan consented to the described sanctions and to the entry of findings that the firm, through Beloyan, sold over one billion shares of a low-priced stock that was neither registered with the Securities and Exchange Commission (SEC) nor exempt from registration. The findings stated that the firm, through Beloyan, its Chief Compliance Officer, failed to establish and maintain a supervisory system, including written supervisory procedures (WSPs), reasonably designed to ensure compliance with Section 5 of the Securities Act of 1933, the applicable rules and regulations regarding the distribution of unregistered and non-exempt securities.

These findings also stated that the firm, through Beloyan, the firm’s Anti-Money Laundering (AML) Compliance Officer (AMLCO), failed to implement or enforce the firm’s AML program by failing to identify suspicious activity, properly investigate it, and report it through Form SAR-SF, as appropriate. The findings also included that the suspicious activity consisted of deposits of billions of shares of the low-priced stock of issuers in certificate form into accounts controlled by a person with a regulatory and criminal history, liquidated those shares generally soon after their deposit, and wired of the sales proceeds out of the accounts soon after liquidation.

The article states that FINRA found that despite the suspicious nature of a company’s activity in a stock, the suspicious nature of the activity of the company’s sole owner’s non-qualified account and his regulatory and criminal history, the firm, through Beloyan, failed to conduct the necessary due diligence to determine whether they were participating in a scheme to evade registration requirements, and generally relied exclusively on the firm’s clearing firm to determine whether the subject shares of stock were registered or exempt, and did not acquire a copy of the relevant stock certificates or documents regarding the owner’s acquisition of the shares, thereby participating in the illicit distribution of more than 1 billion shares of unregistered and non-exempt stock. FINRA also found that despite the presence of risk indicators and the appearance of the activity at issue on exception reports, the firm, through Beloyan, either failed to identify or chose to ignore the suspicious activity, and thus failed to investigate and report the activity in contravention of federal laws, NASD/FINRA rules and the firm’s AML policies and procedures. In addition, FINRA determined that the firm, through Beloyan, should have detected the suspicious nature of the activity, investigated the activity and reported it through a Form SAR-SF. Moreover, the firm, through Beloyan, failed to establish and maintain a supervisory system, including WSPs, reasonably designed to ensure compliance with Section 5, and failed to establish and maintain procedures regarding the distribution of such securities in connection with its clearing firm’s acceptance of the delivery of shares of stock in certificate form and customers’ subsequent sale of the same; the firm’s WSPs did not require an inquiry into whether deposited shares of stock were registered with the SEC or exempt.

The suspension in any capacity was in effect from September 6, 2011, through October 5, 2011. The suspension in any principal capacity is in effect from September 6, 2011, through November 5, 2011. (FINRA Case #2009017590801)

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have experienced a loss through Tradespot Markets, Inc., and/or Mark Bedros Beloyan of Davie, FL, 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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