FINRA Announces February 2013 Disciplinary Actions
By Robert H. Rex, Esq.
Financial Industry Regulatory Authority (FINRA) issues a report on
disciplinary and other actions involving registered brokers, investment
advisers and brokerage firms every month.
Here are significant Florida related actions for February 2013. Follow this link to the FINRA website for all of the February 2013 disciplinary actions as well as for prior periods.
Gardnyr Michael Capital, Inc. (Mobile, Alabama) and James Michael Pietkiewicz -Winter Park, Florida was censured, fined $30,000 and was liable for paying $11,155.35, plus interest, in restitution to customers. Pietkiewicz was fined $10,000 and suspended from association with any FINRA member in any principal capacity for 45 days.
Pietkiewicz consented to the described sanctions and to the entry of findings that the firm permitted a registered
representative to use personal accounts he maintained or controlled as inventory accounts from which he could, through a firm account, sell and also buy municipal securities to and from customers. The firm and the representative did not disclose to their customers that one of the representative’s personal accounts had been interposed or otherwise involved
in the transactions, or that they had charged excessive markups on the transactions.
The findings stated that Pietkiewicz was responsible for reviewing the registered representative’s municipal securities transactions for, among other things, fair pricing violations, excessive markups and interpositioning. Contrary to the firm’s WSPs—which prohibited the firm from selling municipal securities from its own account to a customer except at an aggregate price that was fair and reasonable and would not exceed a 3 percent markdown/markup; and prohibited interpositioning—the firm, through Pietkiewicz, failed
to supervise the registered representative’s handling of municipal bond transactions, and failed to implement or enforce the policies regarding markups on municipal securities and interpositioning.
Pietkiewicz was responsible for the management of a branch office and was involved in the management, direction or
supervision of the firm’s underwriting of municipal securities deals, although he did not pass the municipal securities principal qualification examination until a later date and was
not properly registered or qualified to act in that capacity.
The suspension is in effect from January 22, 2013, through March 7, 2013.
EFG Capital International Corp. -Miami, Florida was censured and fined $12,500.
The firm consented to the described sanctions and to the entry of findings that it failed to report S1 transactions in TRACE-eligible corporate debt securities transactions to TRACE within 15 minutes of the execution time.
The firm also failed to report P1 transactions in TRACE-eligible securities to TRACE within T+1 of the execution time.
E.S. Financial Services, Inc. -Miami, Florida) was censured and fined $200,000.
The firm consented to the described sanctions and to the entry of findings that it served as a placement agent and solicited certain non-U.S. persons to invest in a commercial paper program offered by a firm affiliate located outside the United States. The commercial paper program was offered and sold exclusively to non-U.S. persons pursuant to Regulation S. At certain times, in connection with the firm’s sales of the investments, the firm provided a customized document to each of the customers and/or prospective customers, in which the firm included the program in the cash component of the customer’s portfolio alongside U.S. Treasuries and other commercial paper products; placed the program within investment options described as conservative; and that the main objective of investing in this category was to reduce global risk as well as to generate some income.
The findings stated that the firm recommended investing
in the program over U.S. Treasuries or other commercial paper if the customer wanted a higher-yielding option. Contrary to the contents of the investment proposals, the program was not a cash component, nor was it necessarily a conservative, low-risk investment.
These representations amounted to false, exaggerated or unwarranted statements in these materials. The findings also stated that the firm posted an information memorandum on a
password-protected website accessible to customers; the memorandum did not adequately detail certain risks associated with investing in the program. The firm failed to conduct adequate due diligence relating to its sales of the commercial paper program, and failed to adopt, maintain and enforce adequate WSPs pertaining to its sale of the investments until nearly four years after it began selling the investments. The findings also included that the
firm failed to adopt, maintain and enforce written due diligence procedures tailored to its sale of the investments. Although all of the investments were repaid on a timely basis at maturity and no customer lost money, the firm’s failure to implement written due diligence procedures nevertheless led it to fail to conduct a reasonable investigation concerning
various matter concerning the investments.
Tradewire Securities, LLC -Miami, Florida was censured and fined $125,000. The firm consented to the described sanctions and to the entry of findings that it failed to establish and implement adequate AML procedures and controls, including requiring due diligence to be performed on correspondent accounts for foreign financial institutions, monitoring new rules proposed under Section 311 of the
USA Patriot Act, evidencing its searches of its records as required by Section 314 of the USA Patriot Act, and freezing and prohibiting tra
nsactions by persons suspected of terrorist
activities under Executive Order #13224.
The findings stated that the firm’s AML procedures were inadequate in that it incorrectly identified the firm’s AML compliance officer (AMLCO), incorrectly stated the firm did not maintain customer accounts or maintain accounts for foreign correspondent banks when it did, and incorrectly stated it would not open or maintain private banking accounts or accounts on behalf of senior foreign political figures or public officials when it did.
FINRA found that the firm failed to develop and implement a written AML compliance program that was reasonably designed to achieve compliance with the BSA, regulations
promulgated thereunder, and applicable FINRA and NASD rules. FINRA also found that the firm failed to establish an adequate system of supervisory control procedures.
management, and certify its compliance and supervisory processes. The firm assigned two general securities representatives to review the firm’s email but they were not
registered firm principals, so the firm failed to comply with FINRA/NASD rules regarding review of correspondence by a registered firm principal. Moreover, FINRA found that the
firm failed to conduct annual inspections of one OSJ for three years and failed to conduct annual inspections of another OSJ for two years.
Joseph Edward Conti -was barred from association with any FINRA member in any principal capacity and suspended from association with any FINRA member in any capacity for three months. In light of Conti’s financial status, no monetary sanctions have been imposed.
Conti consented to the described sanctions and to the entry of findings that he negligently and repeatedly made false oral and written representations to FINRA that an individual was his member firm’s financial and operations principal (FINOP) when he was not acting in that capacity. The findings stated that Conti’s firm did not have a FINOP and no one performed the functionsusually performed by a FINOP. The findings also stated that by negligently and repeatedly providing false information to FINRA, Conti impeded FINRA’s examination. FINRA records indicate that Conti was last registered with Forge Financial.
The suspension is in effect from December 17, 2012, through March 16, 2013.
Donald Richard Dahn -Palm City, Florida-was suspended from association with any FINRA member in any capacity for six months. In light of Dahn’s financial status, no monetary sanction was imposed.
Dahn consented to the described sanction and to the entry of findings that he borrowed a total of $240,900 in business loans from customers, for operating expenses for a company Dahn and his brother ran, and failed to disclose the loans to his member firm.
Dahn co-signed promissory notes executed on behalf of the customers. The firm’s written supervisory procedures prohibited borrowing money from customers. Dahn failed to repay the loans to the customers, which his firm ultimately reimbursed.
FINRA records indicate Dahn was last registered with LPL Financial.
The suspension is in effect from December 17, 2012, through June 16, 2013.
Stephen Chrismore Hamblin Geneva, Florida- was fined $15,000 and suspended from association with any FINRA member in any capacity for five months.
Hamblin consented to the described sanctions
and to the entry of findings that while working as a banking associate at a bank that was affiliated with his member firm, Hamblin received a watch valued at approximately $2,000 as a gift from a bank client, which violated the bank’s policies.
Hamblin’s firm acquired another member firm and while registered with the acquired firm, Hamblin was interviewed by federal investigators in connection with a criminal investigation of three bank clients. During the interview, Hamblin stated that one of the bank’s clients being investigated bought a watch for him, and claimed that he
subsequently reimbursed the client for the watch. In fact, Hamblin had not reimbursed the bank client. The findings also stated that thereafter, Hamblin sent an email to the bank
investigator and a manager of the acquired firm, in which he repeated his false claim that he purchased the watch and attached a receipt for a bond that he claimed evidenced that
he purchased the watch. The receipt for the bond disclosed that one of the bank clients purchased the bond during the same time Hamblin had received the watch. The findings
also included that later, Hamblin met with counsel the firm hired in connection with its ongoing investigation. Hamblin again denied that the watch was a gift, and claimed that he paid $2,000 to a friend—but not one of the bank clients—who had purchased the watch online. Each of Hamblin’s statements that he purchased the watch was false.
FINRA records indicate Hamblin was last registered with JW Cole Financial
The suspension is in effect from January 22, 2013, through June 21, 2013.
Edward Daniel Hochard -Palm Bay, Florida-was fined $15,000 and suspended from association with any FINRA member in any capacity for six months.
Hochard consented to the described sanctions and to the entry of findings that he personally purchased 1,000 shares of a private company’s common stock for the total amount of $10,000, directly from the company in a private offering, when he did not provide prior written notice to his member firm of his intent to participate in the purchase of the company’s common stock in a private transaction, nor did he receive the firm’s approval to purchase the common stock.
Hochard opened and maintained a Roth independent retirement account (IRA) with another FINRA member
firm without providing notice to the FINRA member firm that he was employed by another FINRA member firm. Hochard further failed to disclose to his firm that he had opened a
securities account with another FINRA member firm. When Hochard completed the new account form to open the account he falsely answered “no” to the question regarding NASD
affiliation. The findings also stated that on separate occasions, Hochard completed annual attestations and representations reports and, on each occasion, he submitted the report to
his firm in which he made false and inaccurate representations for the question concerning the opening of an outside brokerage account for which the firm had not been notified.
According to FINRA he was last registered with PFS Investments.
The suspension is in effect from January 7, 2013, through July 6, 2013.
Kelly Quinn Patrick – Clearwater, Florida was suspended from association with any FINRA member in any capacity for 30 days. In light of Patrick’s financial status, no monetary sanction has been imposed.
Patrick consented to the described sanction and to the entry of findings that he engaged in an outside business activity after his member firm denied his request to engage in such activity. The findings stated that Patrick requested approval to work as chief operating officer for his friend’s newly-founded business, an online securities information resource, which was also attempting to launch a hedge fund. The firm denied Patrick’s request, noting that the activity would be impossible to supervise and might constitute working for a competitor. The findings also stated that after his request was denied, Patrick engaged in activities related to the outside business. Patrick attended meetings with potential investors on the outside business’ behalf. During these meetings, Patrick held
himself out as an officer of the outside business. Patrick also provided editing assistance, research and news updates to the outside business.
FINRA reports that he was last registered with Fidelity Brokerage Services, LLC.
The suspension was in effect from January 7, 2013, through February 5, 2013.
Richard Alan Seligson -Boca Raton, Florida- was fined
$10,000, suspended from association with any FINRA member in any capacity for one year and ordered to pay $41,100, plus interest, in restitution to customers.
Seligson consented to the described sanctions and to the entry of findings that he borrowed $45,000 from close friends and relatives, all of whom were his firm’s customers. The findings stated that Seligson has repaid only $3,900 of the amount owed. Seligson did not seek to obtain his firm’s written approval to obtain loans from any of the customers.
Seligson completed compliance questionnaires in which he was asked if he had entered into loans with customers. On each questionnaire, Seligson falsely answered that he had
not taken such loans. The findings also stated that the firm’s WSPs generally prohibited representatives from taking loans from their customers, except under extremely rare and
extenuating circumstances. Under the firm’s procedures, these circumstances could include borrowing or lending arrangements with clients who were family members. The firm’s WSPs explicitly stated that requests to enter into borrowing or lending arrangements with family members had to be submitted for review and approval before engaging in lending activity.
Seligson was last registered with National Securities Corporation according to FINRA records.
The suspension is in effect from December 17, 2012, through December 16, 2013.
Delaney Equity Group, LLC -Palm Beach Gardens, Florida and David Cameron Delaney West Palm Beach, Florida named respondents in a FINRA complaint alleging that the firm, acting through Delaney, its president/CCO/AMLCO, failed to conduct adequate due diligence to determine whether
they were participating in a scheme to evade the registration requirements of Section 5 of the Securities Act of 1933 by selling shares of low-priced equity securities that were
unregistered and non-exempt. A firm customer had obtained almost $2.4 million through the sale of these securities, which ceased only when the firm’s clearing firm restricted
the customer’s accounts. The complaint alleges that the firm, acting through Delaney, relied on opinion letters by one counsel representing all of the issuers, who was later
found to have issued inaccurate correspondence to the OTC markets and failed to note the contradiction in the customer’s actions and representations. The firm, acting through
Delaney, sold almost a billion shares of common stock on the customer’s behalf that were not registered with the SEC, and no exemption from registration applied to such sales. The
complaint also alleges that the firm, acting through Delaney, failed to establish, maintain and enforce adequate policies and procedures, including WSPs, reasonably designed to
ensure compliance with Section 5 of the Securities Act to prevent the sale of unregistered securities not exempt from registration. The firm, acting through Delaney, failed to develop and implement AML policies, procedures and internal controls reasonably designed to achieve compliance with the BSA and implementing regulations. The complaint further alleges that the AML procedures failed to address the detection, monitoring, analyzing, investigating and reporting of suspicious activity in the context of its securities liquidation business. The firm and Delaney should have detected the suspicious nature of a customer’s liquidation of low-priced securities, investigated the activity and made suspicious activity report (SAR) filings as necessary but instead, permitted the customer’s suspicious trading
activity to occur and failed to report any activities through a SAR as necessary. In addition, the complaint alleges that the firm, acting through Delaney, either failed to identify or
ignored red flags involving numerous instances of potentially suspicious activities, and thus failed to sufficiently investigate and, if necessary, report these activities in accordance
with its WSPs, the requirements of the BSA, and implementing regulations. Moreover, the complaint alleges that when the firm became a FINRA member firm, it agreed, as part of its membership agreement, that a registered representative would be subjected to heightened supervision.
If you have suffered losses in your brokerage account due to negligent advice or fraud, you may be able to recover all or a part of those losses through FINRA arbitration. Most of our cases are done on a contingent fee basis, meaning you only pay fees if you recover.
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