Securities Lawyer Blog | Victim of Fraud?

TAG | WSPs

Nov/12

16

FINRA Enforcing Annuity Sales Rules

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The Financial Industry Regulatory Authority, also known as FINRA, has been enforcing all types of annuity transaction misdeeds nationwide according to recent enforcement reports from the agency, writes Elizabeth Festa in a recent article for LifeHealthPro.com.

FINRA recently censured a firm and fined it $40,000 to settle allegations that the firm failed to maintain required documentation about variable annuity transactions and it’s customers. Sampled transactions of the firm, Allied Beacon Partners, Inc., Richmond, Va., lacked certain customer information or documentation needed in order to make a reasonable suitability determination.

“A large portion of variable annuity transactions sampled revealed the firm’s failure to ensure that a designated principal adequately reviewed and approved the customer’s application prior to its transmission to the issuing insurance company,” FINRA wrote.

FINRA reported that the firm’s Written Supervisory Procedures (WSPs) for variable annuity transactions were deficient. The WSPs identified one individual as having the responsibility to supervise variable transactions, but another individual not identified in the WSPs was actually the primary person responsible for supervising VA transactions, FINRA uncovered.

FINRA’s findings also said that the WSPs did not address how the firm would monitor compliance with SEC Rule 15c2-8, which requires that a prospectus be delivered to customers. The firm was unable to provide any documentation that a prospectus was sent to any of the customers, FINRA alleged.

FINRA also settled a matter involving a registered representative who recommended unsuitable transactions, a mortgage and a variable annuity, to a customer, a 53-year-old widow who worked as an administrative assistant for a public school system. Her annual salary was approximately $55,000, she owned a home unencumbered by a mortgage and valued at approximately $500,000, and she had an investment portfolio valued at approximately $160,000 in retirement accounts and $100,000 in certificates of deposit.

In another recent case, FINRA found that the representative did not have a reasonable basis for recommending that the customer mortgage her primary residence to invest $300,000 in a variable annuity, given that the customer intended to retire in seven years, had limited income, expected an equally limited retirement income and would have an insufficient monthly income to make the mortgage payments.

FINRA concluded that the registered representative’s conduct violated rules of ethical standards and rules concerning recommendations to customers. FINRA fined the representative $5,000 and suspended him in all capacities for 10 business days.

In another FINRA case, a registered representative in Naples, Fla.,was fined $25,000 and suspended from association with any FINRA member in any capacity for three month. He consented to findings that he recommended and executed a variable annuity replacement contract for a member firm customer in a state in which he was not licensed to sell insurance products and included false information in the firm’s electronic books and records.

FINRA’s findings stated that he logged into his member firm’s Web-based system utilized by firm sales staff to complete transaction paperwork for annuity contract purchases reporting that the customer was a New York state resident. When the system rejected the replacement transaction because the deferred VA product was not offered to New York residents and because he did not hold the requisite state insurance license, he listed the customer’s state of residence as Florida.

The National Association of Insurance Commissioners (NAIC) revised its annuity sales model regulation in March, 2010, to provide annuity protections for consumers of any age, (such as the 53 year-old widow), requiring insurer reviews of every annuity transaction, and clarifying that insurers are responsible for compliance with annuity protection provisions — even when insurers contract with third parties.

A Florida regulatory-supported bill died in the Florida Banking & Insurance Committee back in March, 2012. Florida, which has one of the highest senior population rates in the country, would have become the 20th state to enact the revised model law on annuities.

If you or a family member have become alleged victims of annuity or insurance fraud, contact an attorney at Soreide Law Group for a free consultation on how to recover your investment losses. To speak with an attorney, call 888-760-6552, or visit http://www.securitieslawyer.com.
Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court, and before the Financial Industry Regulatory Authority (“FINRA”).

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Jun/12

18

Port Richey, Florida, Rep Fined and Suspended by FINRA for Borrowing Money from Customer

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Alison Marie Janke (CRD #4409155, Registered Representative, Port Richey, Florida)

was fined $7,500 and suspended from association with any FINRA member in any capacity for six months. Without admitting or denying the findings, Janke consented to the described sanctions. According to FINRA’s findings, she borrowed $100,000 from a customer which was based upon a personal relationship. This is contrary to her member firm’s WSPs (Written Supervisory Procedures) that only allowed registered representatives to accept loans from customers under limited circumstances.

According to the firm’s WSP, a registered person must receive prior written firm approval before accepting a loan based on a personal relationship outside of the broker/customer relationship; Janke did not seek or obtain this approval.

These findings stated that when Janke became associated with another member firm, the customer transferred her account to this new firm. FINRA’s findings also stated that in compliance questionnaires, Janke’s new firm requested that she state whether she had ever borrowed money from a customer, and she falsely answered “no.”

Janke’s failure to timely repay the loan, and then they entered into a settlement agreement regarding the outstanding amount owed.

This suspension is in effect from May 7, 2012, through November 6, 2012.

This information appeared on FINRA’s website under “Disciplinary and Other Actions, June, 2012.”

(FINRA Case #2011027400401)

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you find yourself in this situation, or a similar situation with your broker or financial advisor, call for a free consultation with an attorney, 888-760-6552, or visit our website at: ww.securitieslawyer.com.

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Apr/12

24

E*Trade Capital Markets, LLC, Censured and Fined by FINRA

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

E*Trade Capital Markets LLC (CRD #111528, Chicago, Illinois) 

submitted a Letter of  Acceptance, Waiver and Consent in which the firm was censured, fined $45,000, required to pay $812.13, plus interest, in restitution to customers and to revise its WSPs regarding trade reporting. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that in transactions for or with a customer, it failed to use reasonable diligence to ascertain the best inter-dealer market and failed to buy or sell in such market so that the resultant price to its customer was as favorable as possible under prevailing market conditions.

These findings stated that the firm failed to submit the market on open special handling code to OATS, and in one instance also failed to submit a new order report to OATS; failed to submit OATS information for proprietary orders not related to the firm’s market-making activity; failed to submit route reports; and improperly submitted execution reports to OATS, and in one instance submitted an inaccurate cancellation time. The findings also stated that the firm’s supervisory system for its Dempsey Unit Trading Desk did not provide for supervision reasonably designed to achieve compliance with applicable laws, regulations and FINRA rules concerning trade reporting (reporting trades accurately and timely, and the proper use of trade modifiers). 

These findings also included that the firm failed to provide documentary evidence that on the trade dates reviewed, it performed the supervisory reviews for its market-making desk set forth in its WSPs concerning trading and/or quoting during a trading halt. FINRA found that the firm transmitted trade reports for odd-lot trades and failed to report the transactions with the required odd-lot modifier of .RO to the NASD®/NASDAQ Trade Reporting Facility (NNTRF).

(FINRA Case #2008013636701)

 

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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Mar/12

22

Spartan Securities Group, Clearwater, FL, Censured and Fined by FINRA

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The following information is from FINRA’s website under “Disciplinary Actions, March, 2012:
 
Spartan Securities Group, LTD (CRD #104478, Clearwater, Florida)
 
submitted a Letterof Acceptance, Waiver and Consent in which the firm was censured, fined $52,500 and required to revise its WSPs regarding its supervisory system, procedures and qualifications;order handling; best execution; anti-intimidation/coordination; trade reporting; short sale transactions; other trading rules; OATS; books and records; the Sub-Penny Rule; and review for compliance of incoming, outgoing and internal electronic communications.
 
Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it executed short sale transactions in reportable securities and failed to report each of the transactions to the FNTRF with the correct symbol indicating whether the transaction was a short sale or a short sale exempt transaction and reported some short sales as long to the FNTRF. The findings stated that the firm failed to report to the FNTRF the correct symbol indicating the capacity in which it executed transactions in reportable securities; incorrectly reported transactions to the FNTRF, failed to report a transaction to the FNTRF, reported transactions which it was not required to report to the FNTRF, incorrectly reported reports to the FNTRF, and failed to submit a cancellation for two reports to the FNTRF. The findings also stated that the firm transmitted reports to OATS that contained inaccurate, incomplete, or improperly formatted data.
 
The findings also included that the firm, on numerous occasions, accepted a short sale order in an equity security from another person, or effected a short sale in an equity security for its own account, without borrowing the security, or entering into a bona fide arrangement to borrow the security; or having reasonable grounds to believe that the security could be borrowed so that it could be delivered on the date delivery is due; and documenting compliance with SEC Rule 203(b)(1) of Regulation SHO. FINRA found that the firm failed to disclose the reported price, the markup/markdown or the correct markup/markdown,and/or the market maker status on customer confirmations.
 
FINRA also found that the firm failed to provide an order memorandum or a proprietary ledger, failed to provide a customer account statement, failed to provide a complete customer order memorandum, and in other instances failed to document the correct time of entry, time of execution, execution price, and/or terms and conditions on the customer order memorandum.
 
In addition, FINRA determined that the firm’s supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and/or FINRA rules addressing supervisory system, procedures and qualifications; order handling; anti-intimidation/coordination; trade reporting; short sale transactions; other trading rules; OATS; books and records; the Sub-Penny Rule; and review for compliance of incoming, outgoing and internal electronic communications.
 
Moreover, FINRA found that the firm failed to provide documentary evidence during one month that it performed the supervisory reviews set forth in its WSPs concerning supervisory system, procedures and qualifications; order handling; best execution; antiintimidation/coordination; trade reporting; other trading rules; OATS; and review for compliance of incoming, outgoing, and internal electronic communications.
(FINRA Case #2009017008302)
 
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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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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Mar/12

5

Boca Raton, FL, Brokerage Fined by FINRA

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The following information was obtained on FINRA’s website’s ‘Disciplinary Actions, February 2012.”
 
Revere Securities Corp. (CRD #14178, Boca Raton, Florida)
 
submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $15,000 and required to revise its WSPs (Written Supervisory Procedures)  regarding OATS (Order Audit Trail System) reporting.
 
Without admitting or denying these findings, the firm consented to the described sanctions and to the entry of findings that it failed to transmit numerous ROEs (Return On Equity) to OATS on numerous business days; these ROEs represented more than half of all ROEs that the firm was required to transmit during that period.
 
The findings stated that the firm’s supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules concerning OATS reporting.
(FINRA Case #2010021513501)
 
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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Nov/11

15

FINRA Takes Actions Against Brookstone Securities, Inc., of Lakeland FL and Three of It’s Representative

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Brookstone Securities, Inc. (CRD® #13366, Lakeland, Florida), David William Locy (CRD #4682865, Registered Principal, Overland Park, Kansas), Mark Mather Mercier (CRD #1884246, Registered Principal, Lutz, Florida) and Antony Lee Turbeville (CRD #1721014, Registered Principal, Lakeland, Florida)

submitted Offers of Settlement in which the firm was censured and fined $200,000; Locy was fined $10,000 and suspended from association with any FINRA member in any principal capacity for three months, Mercier was fined $5,000 and suspended from association with any FINRA member in any principal capacity for three months, and Turbeville was fined $10,000 and suspended from association with any FINRA member in any principal capacity for three months. Mercier’s fine must be paid either immediately upon his 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 allegations, the respondents consented to the described sanctions and to the entry of findings that registered representatives, while associated with the firm, made misrepresentations or omissions of material fact to purchasers of unsecured bridge notes and warrants to purchase common stock of a successor company.

 These findings stated that the registered representatives guaranteed customers that they would receive back their principal investment plus returns, failed to inform investors of any risks associated with the investments and did not discuss the risks outlined in the private placement memorandum (PPM) that could result in them losing their entire investment.

These registered representatives had no reasonable basis for the guarantees given the description of the placement agent’s limited role in the PPM. The findings further stated that the registered representatives provided unwarranted price predictions to customers regarding the future price of common stock for which the warrants would be exchangeable and guaranteed the payment at maturity of promissory notes, which led customers to believe that funds raised by the sale of the anticipated private placement would be held in escrow for redemption of the promissory notes. The findings also stated that the firm, acting through a registered representative, made misrepresentations and/or omissions of material fact to customers in connection with the sale of the private placement of firm units consisting of Class B common stock and warrants to purchase Class A common stock; the PPM stated that the investment was speculative, involving a high degree of risk and was only suitable for persons who could risk losing their entire investment.

These findings also included that the representative represented to customers that he would invest their funds in another private placement and in direct contradiction, invested the funds in the firm private placement.

2 Disciplinary and Other FINRA Actions
 
FINRA found that the representatives recommended and effected the sale of these securities without having a reasonable basis to believe that the transactions were suitable given the customers’ financial circumstances and conditions, and their investment objectives. FINRA also found that the representative recommended customers use margin in their accounts, which was unsuitable given their risk tolerance and investment objectives, and he exercised discretion without prior written authorization in customers’ accounts.
 
Additionally, FINRA determined that the firm, acting through Locy, its chief operating officer (COO) and president, failed to reasonably supervise the registered representative and failed to follow up on “red flags” that should have alerted him to the need to investigate the representative’s sales practices and determine whether trading restrictions, heightened supervision or discipline were warranted.  FINRA found that despite numerous red flags, the firm took no steps to contact customers or place the representative on heightened supervision, although it later placed limits only on the representative’s use of margin. The firm eventually suspended his trading authority after additional large margin calls, and Locy failed to ensure that the representative was making accurate representations and suitable recommendations.
 
Also, FINRA found that Turbeville, the firm’s chief executive officer (CEO), and Locy delegated responsibility to Mercier, the firm’s chief compliance officer (CCO), to conduct due diligence on a company and were aware of red flags regarding its offering but did not take steps to investigate. The findings also stated that the firm, acting through Turbeville, Locy and Mercier, failed to establish, maintain and enforce supervisory procedures reasonably designed to prevent violations of NASD Rule 2310 regarding suitability; under the firm’s written supervisory procedures (WSPs), Mercier was responsible for ensuring the offering complied with due diligence requirements but performed only a superficial review and failed to complete the steps required by the WSPs; Locy never evaluated the company’s financial situation and was unsure if a certified public accountant (CPA) audited the financials, and no one visited the company’s facility.
 
These findings also included that neither Turbeville nor Locy took any steps to ensure Mercier had completed the due diligence process.
FINRA found that Turbeville and Locy created the firm’s deficient supervisory system; the firm’s procedures were inadequate to prevent and detect unsuitable recommendations resulting from excessive trading, excessive use of margin and over-concentration; principals did not review trades or correspondence; and the firm’s new account application process was flawed because a reviewing principal was unable to obtain an accurate picture of customers’ financial status, investment objectives and investment history when reviewing a transaction for suitability. FINRA also found that the firm’s procedures failed to identify specific reports that its compliance department was to review and did not provide guidance on the actions or analysis that should occur in response to the reports; Turbeville and Locy knew, or should have known, of the compliance department’s limited reviews, but neither of them took steps to address the inadequate system.
 
Mercier’s suspension is in effect from October 3, 2011, through January 2, 2012. Locy’s and Turbeville’s suspensions are in effect from October 17, 2011, through January 16, 2012. (FINRA Case #2009017275301)

This information appeared on FINRA’s website under ‘Disciplinary Actions.’

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have experienced a loss through Brookstone Securities, Inc., David William Locy, Mark Mather Mercier, or Antony Lee Turbeville, 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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