FINRA Announces April 2013 Disciplinary Actions
FINRA Announces April 2013 Disciplinary Actions
By Robert H. Rex, Esq.
Here are some of the most significant actions for April 2013. Follow this link to the FINRA website for all of the March 2013 disciplinary actions as well as those for prior periods.
G1 Execution Services, LLC fka E*Trade Capital Markets LLC ( Chicago, Illinois)
was censured, fined $25,000 and ordered to pay $121.46, plus interest, in restitution to customers. The firm consented to the described sanctions and to the entry of findings that it executed numerous short sale transactions for which it failed to include the short sale modifier in the report of each of these transactions to the FNTRF or the OTCRF. The findings stated that the firm failed to execute, or failed to contemporaneously or partially execute, limit orders in NASDAQ securities after it traded each subject security for its own market-making account at a price that would have satisfied each customer’s limit order. (FINRA Case #2010022867501)
Global Hunter Securities, LLC ( New Orleans, Louisiana) the firm consented to the described sanctions and to the entry of findings that it failed to establish and maintain an adequate system for supervising written communications of associated persons conducted in a foreign language, because the firm lacked supervisory personnel with fluency in that language
when certain aspects of the firm’s research and investment-banking businesses involved written communications in that foreign language. As a result, the firm lacked the ability
to effectively monitor those communications. The findings stated that the firm failed to establish and maintain an adequate system for monitoring employee trading activity in
accounts held at other FINRA member firms. The firm failed to enforce its own procedures requiring newly hired personnel disclose their outside brokerage accounts, and failed to adequately monitor employee trading activity in such accounts. As a result of this failure, the firm failed to identify improper trading activity by a member of its research department in an account held at another FINRA member firm. The findings also stated that the firm did not have an information barrier program reasonably designed to detect and prevent employee misuse of material, nonpublic information. The firm did not adequately monitor employee trading activity in accounts held at other FINRA member firms for transactions involving securities listed on the restricted list. The findings also included that the firm issued equity security research reports that failed to comply
with FINRA disclosure requirements.
FINRA found that the firm failed to comply with restrictions with respect to relationships between its investment-banking and research departments. The firm permitted its chief
executive officer (CEO) to serve on the research analyst compensation committee, despite his substantial involvement in the firm’s investment-banking business. FINRA also found that at various times, the firm disseminated to prospective customers a promotional slide presentation regarding particular services the firm offered. The presentation was
not fair and balanced, lacked required risk disclosures and did not provide a sound basis for evaluating certain representations made in the presentation regarding the services discussed. In addition, FINRA determined that the firm failed to obtain FINRA approval prior to effecting a material change in its business operations. The firm increased its sales personnel by an amount of persons in excess of the limitations of the safe harbor provisions. (FINRA Case #2011025644101)
Grand Financial, Inc. ( Addison, Texas) the firm was censured and fined $25,000. Without admitting
or denying the findings, the firm consented to the described sanctions and to the entryof findings that it offered for sale private placements, which were unregistered pursuantto the exemption provided within Regulation D, Rule 506, within a few days of an initialtelephone call to the offeree. The findings stated that this conduct by the firm constituted
general solicitation in contravention of Section 5 of the Securities Act of 1933. The findingsalso stated that the firm failed to establish a supervisory system reasonably designed toachieve compliance with industry rules and regulations relating to general solicitation andtelemarketing. The findings also included that the firm sent advertising materials that
omitted material facts to individuals and, rather than sending the individuals the privateplacement memorandum (PPM) for an offering, which contained full disclosure of the risks
involved in the offering, the firm sent only an executive summary that did not contain fulldisclosure of the risks associated with the offering. None of the individuals invested in the offering. (FINRA Case #2011025614701)
Hartford Investment Financial Services, LLC (Radnor, Pennsylvania) the firms were censured and fined $100,000, jointly and severally. Without admitting or denying
the findings, the firms consented to the described sanctions and to the entry of findings that Hartford Life prepared and distributed numerous copies of a brochure that discussed
features of a mutual fund as an investment and was provided to downstream selling broker-dealers for use in the marketing and sale of the mutual fund to those firms’ customers. The brochure was approved by Hartford Investment, the Chief Investment Advisor to the mutual fund. The findings stated that the brochure made statements regarding the mutual fund that were unwarranted and misleading in light of changing
conditions in the bank loan market. In particular, the brochure contained misleading statements that the mutual fund was appropriate for bond investors concerned about the price stability of their investments, provided the potential for greater price stability compared with other fixed income investments, and was appropriate for investors seeking some degree of capital preservation. Given the conditions in the bank loan market during the relevant period, these statements were not accurate. The findings also stated that between the time when Hartford Investment became aware of conditions that rendered the statements inaccurate, and the removal of the statements on a later date, it approved the brochure at least twice. Consequently, during this period, Hartford Life distributed approximately 2,450 copies of the brochure. The findings also included that although concerns regarding the bank loan market and the mutual fund were reported to the mutual fund’s board, none of Hartford Investment’s employees responsible for approving the mutual fund’s advertising materials participated in the meetings where
these concerns were discussed. Both firms’ WSPs also lacked any mechanism for ensuring that those responsible for drafting or reviewing advertising materials would be informed
of material facts concerning relevant conditions in the bank loan market or the mutual fund’s performance. As a consequence, Hartford Investment approved, and Hartford Life continued to distribute, thousands of copies of the brochure that contained unwarranted and misleading statements. (FINRA Case #2010024617701)
MetLife Securities Inc. (New York, New York) the firm was censured and fined $25,000. Without admitting or denying the findings, the firm consented to the described sanctions
and to the entry of findings that for over two years, it entered into separate settlement agreements with customers that contained language that was not permitted, in that the
settlement agreements purported to restrict the ability of the settling customers to provide information to FINRA. The findings stated that as set forth in Notices to Members 95-87
and 04-44, the inclusion of such language is inconsistent with FINRA Rule 2010. (FINRA Case #2010021801001)
Reef Securities, Inc. (Richardson, Texas) the firm was censured and fined $35,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it participated in multiple contingent offerings of securities and failed to have an adequate control location for customer funds held in escrow accounts. The
findings stated that the funds were held in escrow accounts at a bank that pursuant to the escrow agreement the funds were invested in a U.S. Treasury fund that invested between 61.8 percent and 69.3 percent of its assets in overnight repurchase agreements that are impermissible investments for escrowed funds. The findings also stated that although the escrowed funds were placed in impermissible investments, they remained intact, such that no investor money was lost, and all funds were ultimately released to the issuer. As a result of the firm’s failure to have an adequate control location of the investors’ funds, its minimum net capital requirement increased and caused it to be in noncompliance with its net capital requirement on a certain date. The findings also included that for almost two years, the firm received customer complaints that were required to be reported to FINRA by the 15th day of the month following the calendar quarter in which the customer complaints were received but failed to notify FINRA of certain customer complaints and reported one customer complaint to FINRA 140 days late. (FINRA Case #2011025620201)
Arthur Apostol (Registered Representative, Ashford, Connecticut) was fined $5,000 and suspended from association with any FINRA member in any capacity for three months. The fine must be paid either immediately upon Apostol’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, Apostol consented to the described sanctions and to the entry of findings that while he was in the process of transferring his customers’ accounts from his former member firm to a new member firm, he affixed customers’ signatures onto new account forms by cutting and pasting their signatures from documents they had executed earlier.
Apostol then submitted those forms to his firm. The findings stated that the customers had authorized the opening of the accounts, but Apostol did not have their authorization or consent to affix their signatures to the forms. The findings also stated that on other occasions, Apostol asked customers to sign blank forms for future use.
According to FINRA records Apostol was previously registered with LPL Finanical LLC, NewAlliance Investments, Inc. and Infinex Investments.
The suspension is in effect from February 19, 2013, through May 18, 2013. (FINRA Case #2012032570701)
John Michael Babiarz (Registered Principal, Peabody, Massachusetts) was fined a total of $20,000 and suspended from association with any FINRA member in any capacity for a total of 90 business days. The fines shall be due and payable when and if Babiarz seeks to re-enter the securities industry. The sanctions were based on findings that Babiarz settled customer complaints without his member firm’s knowledge or approval.
The findings stated that Babiarz deceived his firm by concealing the customer complaints which kept the firm from participating in or approving the settlements. Babiarz’s actions delayed the regulatory filings requiring the disclosure of complaints and settlements. The findings also stated that Babiarz caused solicited trading orders to be miscoded as
unsolicited and miscoded order tickets in customer accounts. Consequently, the firm’s trade confirmations sent to customers, generated from the order entry information,
falsely identified solicited orders as unsolicited. Due to Babiarz’s misconduct, the firm’s books and records, including the orders and trade confirmations, were inaccurate and
contained false information. The findings also included that Babiarz exercised discretion in customer accounts without written authorization. The customers gave Babiarz verbal
grants of discretion but none of them provided Babiarz with written authorization to exercise discretion. Babiarz’s firm never accepted the accounts as discretionary. During the
time Babiarz was employed by the firm, it prohibited its registered representatives from exercising discretion in customer accounts. Babiarz concealed the discretionary nature of his trading from his firm for almost four years.
FINRA records reflect that Babiarz previously was registered with Bishop, Rosen & Co., Capitol Securities Management, Inc. and Jesup & Lamont Securities Corp.
The suspensions are in effect from February 19, 2013, through June 26, 2013. (FINRA Case
Oran Ben Carroll (Registered Principal, Granbury, Texas) was fined $50,000 and suspended from association with any FINRA member in any capacity for nine months. The fine must be paid either immediately upon Carroll’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, Carroll consented to the described sanctions and to the entry of findings that, acting in his capacity as the president and a registered principal of the firm, he failed to conduct adequate due diligence of private placements offered by entities for which his firm sold $22,900,000 in interests in the entities’ offerings to its customers. Carroll was affiliated with the issuers.
The findings stated that Carroll failed to implement and enforce reasonable supervisory procedures for the firm relating to conducting due diligence on private placements from August 2005 through September 2010. The firm did not have any WSPs governing due diligence for private placements until January 2008, After January 2008, until at least September 2010, Carroll failed to enforce the firm’s WSPs that required it to conduct due diligence for all private placements the firm sold. There were not any exceptions for
offerings by issuers that were affiliated with Carroll. The findings also stated that Carroll failed to ensure that the firm created and maintained due diligence files and conducted
on-going due diligence, as required by its WSPs, so it did not create or maintain due diligence files or conduct on-going due diligence on the entities’ offerings. The findings also included that the firm sold interests in an entity’s offerings in contravention of the general solicitation prohibition contained in Regulation D. In particular, the firm sold the offerings
while details of the offerings were posted on the entity’s internet website. These website postings, which constituted a general solicitation, were publically accessible and contained
PPMs and term sheets for the offerings. Had Carroll or his firm conducted adequate ongoing due diligence, they would have discovered that detailed information about the Regulation D offerings was publicly available.
FINRA records indicate that Carroll previously was registered with Cambridge Legacy Securities, LLC, Rushmore Securities Corporation and Northstar Securities, Inc.
The suspension is in effect from March 4, 2013, through December 3, 2013. (FINRA Case #2010020844302)
Donald Wayne Hastings (Registered Representative, Lewisville, Texas) was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Hastings consented to the described sanction and the entry of findings that a customer provided Hastings with a check for $12,000 to open an IRA. The customer believed the funds would be invested on his behalf and that he would receive 5 percent interest on his investment. Hastings never created the IRA nor opened an account for the
customer. The customer was 73 years old and consequently an IRA could not be opened.
The findings stated that Hastings deposited the customer’s funds into a business account under his direction and control. Hastings paid interest to the customer using his own funds
at prevailing interest rates. The findings also stated that the customer was unaware the IRA was never created and his funds were never invested in any securities or investment
products. The findings also included that Hastings did not inform or seek approval from his supervisor, nor from anyone with his member firm, to commingle the customer’s funds in
an account under his personal control. When the customer inquired about his IRA account, the firm informed the customer that he did not have an IRA account with the firm. Hastings, who according to FINRA records previously worked for Allstate Financial Services, LLC, reimbursed the customer for the initial funds plus interest. (FINRA Case #2012033908301)
Forrest Nolan Jackson (Registered Representative, Austin, Texas) was barred from association with any FINRA member
in any capacity. Without admitting or denying the allegations, Jackson consented to the described sanction and to the entry of findings that, acting outside the course and scope of his employment with his member firm, he participated in private securities transactions from which he received selling compensation without providing prompt prior written notice to his firm of his proposed role in, or the selling compensation that he might receive from, the transactions. The findings stated that Jackson never received his firm’s written approval to participate in private securities transactions. Jackson, working with others through an entity he created, participated in the sale of at least $60 million of securities in the form of notes away from his firm. The entity generated at least $6 million in gross revenues from the sales and Jackson received at least $400,000 of those gross commission revenues. The findings also stated that in connection with the entity’s marketing and distribution of notes, Jackson attended several meetings at the offerer’s offices and attended sales training sessions that the offerer required for all individuals and other
entities involved in selling the notes. The findings also included that Jackson participated in the sales of the notes by investing $76,000 of his own funds in the notes and by referring family member to the offerer, who themselves invested a total of $100,000 in the notes.
FINRA found that Jackson prepared and provided to his firm an outside business disclosure form disclosing the entity, which stated the nature of its business was wholesaling fixed
annuities. The form did not refer to the offerer, notes, securities or any investment products other than fixed annuities. FINRA records indicate Jackson previously was registered with Grant Williams, LP, Longview Financial Group and Ascher/Decision Services, Inc. (FINRA Case #2010023502901)
Azim Nakhooda (Registered Representative, Chagrin Falls, Ohio) was fined $50,000 and suspended from association with any FINRA member in any capacity for nine months. Without
admitting or denying the findings, Nakhooda consented to the described sanctions and to the entry of findings that he sent emails to member firm customers in connection with their purchases of units in a fund that was a limited liability company and promissory notes that contained false and misleading statements, including material misrepresentations
regarding the liquidity and safety of the fund and the safety of the notes. The findings stated that Nakhooda’s statements to customers relating to the fund’s liquidity directly contradicted the disclosures in the fund’s PPM about the illiquidity of the fund and the significant limitations on redemptions.
Nakhooda’s statements regarding the safety of the fund also directly contradicted the disclosures of significant risks in the fund’s PPM. The executive summary of the notes that Nakhooda emailed stated that the notes provided principal protection, which was directly contrary to disclosures in the note’s PPM about the potential risks to principal. Therefore, Nakhooda’s representations to the customers regarding the liquidity and safety of the fund and the principal protection afforded by the notes were false and misleading. The findings also stated that Nakhooda sent the fund’s executive summary to firm customers, who did not purchase the fund. The executive summary represented that the fund was completely liquid after 60 days or completely liquid after 90 days. These statements were false. Other statements in the fund’s executive summary exaggerated the safety of the fund in light of the risks presented by the fund’s PPM. Nakhooda’s representations to customers regarding the safety of the fund were, therefore, misleading. The findings also included that Nakhooda sent the note’s executive summary to firm customers, who did not purchase the notes. The note’s executive summary claimed that notes provided principal protection, which directly contradicted disclosures in the note’s PPM about the potential risks to principal. Other statements in the note’s executive summary exaggerated the safety of the notes in light of the risks presented by the note’s PPM. Nakhooda’s representations to customers regarding the
safety of the notes were, therefore, misleading. FINRA found that none of Nakhooda’s communications with any of the firm customers provided a balanced discussion of the fund and notes and instead addressed only positive attributes of the investments.
The communications omitted any discussion of the significant risks associated with an investment in the fund and the notes.
The suspension is in effect from March 18, 2013, through December 17, 2013. Nakhooda previously was registered with Securities America and Lincoln Financial Advisors (FINRA Case #2010022518103)
Sean Francis Sheridan (Registered Representative, Oakhurst, New Jersey) was barred from association with any FINRA member in any capacity. Without admitting or denying the allegations, Sheridan consented to the described sanction and to the entry of findings that he recommended and effected unsuitable mutual fund switches in customers’ accounts. The findings stated that Sheridan only recommended Class A mutual fund shares to the customers, resulting in them having to pay additional sales charges with each new purchase. Sheridan also engaged in the short-term trading of mutual fund positions in the customers’ accounts. The findings also stated that Sheridan recommended and effected the transactions in the customers’ accounts without having reasonable grounds for believing that such transactions were suitable for the customers in view of the size and frequency of the transactions, the transactions costs incurred, and in light of the customers’ financial situations, investment
objectives and needs. The customers lost a total of approximately $1,048,856 and Sheridan received commissions of approximately $267,000. The findings also included that Sheridan failed to disclose to the customers that they could avoid a sales charge for each new Class A mutual purchase through the use of a free exchange, which was material information. Because Sheridan failed to provide the customers with the option of utilizing free exchanges, the customers paid front-end sales loads of approximately 4 percent to 5 percent for each mutual fund investment. By virtue of this conduct, Sheridan willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. FINRA found that Sheridan provided false information to his member firm regarding the mutual fund transactions involving the customers. Sheridan solicited the mutual fund transactions, yet he falsely identified those transactions as unsolicited when placing the trades through the firm’s electronic order entry system, thereby causing the firm’s records to be inaccurate.
According to FINRA records Sheridan was previously registered with Newbridge Securities, Ridgeway & Conger, Inc. and J.P. Turner & Company LLC (FINRA Case #2009019209204)
Roman Jerzy Sledziejowski (Registered Principal, Ossining, New York) was barred from association with any FINRA
member in any capacity. In light of Sledziejowski’s financial status, no monetary sanction has been imposed. Without admitting or denying the allegations, Sledziejowski consented
to the described sanction and to the entry of findings that as part of a fraudulent scheme, he converted and/or misused funds of his member firm’s customers and provided false
account statements to some of those customers in an attempt to conceal the misconduct.
The findings stated that during the course of Sledziejowski’s fraudulent scheme, a total of approximately $4.8 million was wired to a company that Sledziejowski owned from the
bank and brokerage accounts of firm customers. The findings also stated that Sledziejowski provided some of the customers with account statements and account snapshots that displayed account balances consistent with what the customers believed to be in their firm brokerage account. Based on the actual account statements provided by the firm’s clearing firms, the statements Sledziejowski provided were fabrications and the values and holdings in the customers’ firm brokerage accounts differed significantly from what Sledziejowski led them to believe were in their brokerage accounts. To date, Sledziejowski has only returned approximately $1.5 million of those funds to the customers. The findings also included that Sledziejowski failed to cooperate with FINRA’s investigation and failed to appear for an on-the-record interview.
According to FINRA records Sledziejowski was formerly registered with TWS FInancial, LLC, Wachovia Securities, LLC and Prudential Securities.(FINRA Case #2012033559602)
COMPLAINT FILED BY FINRA
Keilen Dimone Wiley (Registered Representative, Houston, Texas) was named a respondent in a FINRA complaint alleging that he collected approximately $6,500 in premium payments from insurance customers. The complaint alleges that Wiley did not deposit the insurance premium payments into the co-banking account as required, but deposited the premium payments into one of his undisclosed personal and business accounts he established and controlled at a bank and used the premium payments collected from insurance customers for his own use. The affiliate of Wiley’s member firm deposited his commission check in the amount of $8,079.04 into one of Wiley’s business accounts. Wiley used the money to repay the outstanding insurance premium amounts owed to the affiliate. Wiley wrote checks for $1,690.64 and $1,954.52 from one of his business accounts and deposited them into the co-banking account, and subsequently withdrew $2,250.94 in cash from the same business account and deposited that amount into the co-banking account the same day. The complaint also alleges that Wiley’s manager and an internal auditor from the affiliate came to Wiley’s office to investigate delayed deposits of customer insurance premiums into the co-banking account. During the audit, Wiley admitted that he had delayed depositing customer insurance premiums and had used those funds for personal and business expenses. Wiley also signed a written statement at the conclusion of the audit admitting, among other things, that he needed funds for his bank account and delayed depositing the insured customers’ cash collections into the company co-banking account by a month or more, and further explained that the customer collections did end up being used to pay for his personal and business expenses.
The complaint further alleges that in a written follow-up statement to his manager, Wiley again admitted that he used customer premiums to pay his mounting personal and
business expenses. Wiley also admitted that he started using customer payments and repaying the affiliate later, stating it was a risk he was willing to take because he had to
keep the business going. In addition, the complaint alleges that Wiley provided false and misleading testimony to FINRA by denying the use of customer insurance premiums for
personal and business use. FINRA records indicate Wiley was formerly registered with Farmers Financial Solutions, LLC. (FINRA Case #2011028061001)
If you have a question about your brokerage account or complaint about the way it is being handled, don't hesitate to contact us. We have been helping investors recover stock market losses for 25 years.
561 391 1900