FINRA Suspends/Fines Broker for Failure to Conduct Due Diligence/ Suitablity Review When Selling Private Placement

by Robert H. Rex, Esq.

The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities firms
doing business in the United States. FINRA’s chief role is to protect
investors by maintaining the fairness of the U.S. capital markets.

All
stockbrokers and broker dealers (brokerage firms) are required to be
licensed by and subject to the rules and regulations of FINRA. Each
month FINRA publishes disciplinary actions against brokers and broker
dealers. Discipline can range from monetary fines and suspensions, or in
extreme cases, revocation of licensing and a bar from the securities
industry.

See the FINRA website for current and historical disciplinary actions.

July 2013
Gary Mitchell Spitz (CRD #1828144, Registered Principal, Fairfield, Iowa) 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 principal capacity for one year. Without admitting or denying the findings, Spitz consented to the described sanctions and to
the entry of findings that as the firm’s principal, he failed to conduct adequate initial and ongoing due diligence of an entity, a Regulation D, Rule 506 private offering of up to
$2,000,000, as required by his member firm’s WSPs. The findings stated that as a result of Spitz’s deficient review, he failed to ensure that the offering memorandum contained
audited financials of the issuer, and did not ensure that audited financials were available to the non-accredited investors prior to the time of sale, which is a requirement of Regulation
D. The findings also stated that Spitz permitted some registered representatives, who associated with the firm in order to sell shares of the entity, to submit offering documents
executed by customers directly to the entity. As a result, Spitz neither received copies of those documents, nor conducted a suitability review of the transactions prior to their execution. Some customers invested in the entity before Spitz received the subscription documents from the representatives. Spitz failed to take steps to ensure that these representatives selling the entity’s shares made a reasonable effort to obtain information concerning the customers’ financial status, investment objectives and risk tolerance. The findings also included that Spitz failed to review or retain email correspondence for these representatives who associated with the firm to sell the entity’s shares. These representatives were also employees of a company, the manager of the entity. Spitz
permitted these representatives to use an email address of the company to communicate with prospects and customers, and the firm’s server did not capture these emails. There weren’t any procedures in place to ensure that the dually employed representatives forwarded email correspondence from outside email accounts to Spitz for review and retention. As a result, the representatives made exaggerated, unwarranted, and potentially misleading statements to customers and prospects.

The suspension is in effect from June 3, 2013, through June 2, 2014. (FINRA Case #2012030787301)

According to FINRA records, Spitz is  has been  registered with MidAmerica Financial Services since 1/19/2012. He was previously registered with the following firms:

Mt. Rushmore Securities
8/2004-1/2013

Capital Management Partners, Inc.
2/1999-9/2004

Anglo-American Investor Services Corp.
1/1998-2/1999


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