Disciplinary and Other FINRA Actions Reported for July 2011

Disciplinary and

Other FINRA Actions

FINRA has taken disciplinary actions

against the following firms and

individuals for violations of FINRA

rules; federal securities laws, rules

and regulations; and the rules of

the Municipal Securities Rulemaking

Board (MSRB).

Reported for July 2011Firm Expelled, Individual Sanctioned

Prestige Financial Center, Inc. (CRD #30407, New York, New York) and

Lawrence Gary Kirshbaum (CRD #270856, Registered Principal, New York,

New York) submitted a Letter of Acceptance, Waiver and Consent in which

the firm was expelled from FINRA membership and Kirshbaum was barred

from association with any FINRA member in any capacity. Without admitting

or denying the findings, the firm and Kirshbaum consented to the described

sanctions and to the entry of findings that the firm, acting through Kirshbaum

and at least one other firm principal, were involved in a fraudulent trading

scheme through which the then-Chief Compliance Officer (CCO) and head

trader for the firm concealed improper markups and denied customers best

execution. The findings stated that as part of this scheme, the CCO falsified

order tickets and created inaccurate trade confirmations, and the hidden

profits were captured in a firm account Kirshbaum and another firm principal

controlled; some of the profits were then shared with the CCO and another

individual. The findings also stated that the trading scheme took advantage

of customers placing large orders to buy or sell equities. The findings also

included that rather than effecting the trades in the customers’ accounts, the

CCO placed the order in a firm proprietary account where he would increase

or decrease the price per share for the securities purchased or sold before

allocating the shares or proceeds to the customers’ accounts; this improper

price change was not disclosed to, or authorized by, the customers, and this

fraudulent trading scheme generated approximately $1.3 million in profits

for the firm’s proprietary accounts.

FINRA found that Kirshbaum was aware of and permitted the trading; a

firm account Kirshbaum and another firm principal controlled retained 47

percent of the profits from the scheme. FINRA also found that in furtherance

of the fraudulent trading scheme, the CCO entered false information on

the corresponding order tickets regarding the share price and the time the

customer order ticket was received, entered and executed; the corresponding

trade confirmations inaccurately reflected the price, markup and/or

commission charged and the order capacity. In addition, FINRA determined

that the firm, acting through Kirshbaum, entered into an agreement to

sell the personal, confidential and non-public information of thousands of

customers to an unaffiliated member firm in exchange for transaction-based

compensation from any future trading activity in those accounts. Moreover,

FINRA found that in connection with that agreement, Kirshbaum provided the

unaffiliated member firm with the name, account number, value and holdings

on spreadsheets via electronic mail. Furthermore, FINRA found that Kirshbaum

2 Disciplinary and Other FINRA Actions

July 2011

granted certain representatives of that firm live access to the firm’s computer systems,

including access to systems provided by the firm’s clearing firm, which provided access to

other non-public confidential customer information such as Social Security numbers, dates

of birth and home addresses.

The findings also stated that the firm and Kirshbaum did not provide any of the customers

with the required notice or opportunity to opt out of such disclosure before the firm

disclosed the information, as Securities and Exchange Commission (SEC) Regulation

S-P requires. The findings also included that the firm, acting through Kirshbaum, failed

to establish and maintain a supervisory system, and establish, maintain and enforce

written supervisory procedures to supervise each registered person’s activities that are

reasonably designed to achieve compliance with the applicable rules and regulations

regarding interpositioning, front-running, supervisory branch office inspections,

supervisory controls, annual compliance meeting, maintenance and periodic review of

electronic communications, NASD Rule 3012 annual report to senior management, review

and retention of electronic and other correspondence, SEC Regulation S-P, anti-money

laundering (AML), Uniform Application for Securities Industry Registration or Transfer

(Form U4) and Uniform Termination Notice for Securities Industry Registration (Form U5)

amendments, and NASD Rule 3070 reporting.

FINRA found that the firm failed to enforce its procedures requiring review of its registered

representatives’ written and electronic correspondence relating to the firm’s securities

business. In addition, FINRA determined that the firm failed to establish, maintain and

enforce a system of supervisory control policies and procedures that tested and verified

that its supervisory procedures were reasonably designed with respect to the activities of

the firm and its registered representatives and associated persons to achieve compliance

with applicable securities laws and regulations, and created additional or amended

supervisory procedures where testing and verification identified such a need. Moreover,

FINRA found that the firm failed to enforce the written supervisory control policies and

procedures it has with respect to review and supervision of the customer account activity

conducted by the firm’s branch office managers, review and monitoring of customer

changes of address and the validation of such changes, and review and monitoring

of customer changes of investment objectives and the validation of such changes.

Furthermore, FINRA found that the firm failed to establish written supervisory control

policies and procedures reasonably designed to provide heightened supervision over the

activities of each producing manager responsible for generating 20 percent or more of

the revenue of the business units supervised by that producing manager’s supervisor; as a

result, the firm did not determine whether it had any such producing managers and, to the

extent that it did, subject those managers to heightened supervision.

The findings also stated that the firm, acting through one of its designated principals,

falsely certified that it had the requisite processes in place and that those processes were

evidenced in a report review by its Chief Executive Officer (CEO), CCO and other officers,

Disciplinary and Other FINRA Actions 3

July 2011

and the firm failed to file an annual certification one year. The findings also included that

the firm failed to implement a reasonably designed AML compliance program (AMLCP).

FINRA found that although the firm had developed an AMLCP, it failed to implement

policies and procedures to detect and cause the reporting of suspicious activity and

transactions; implement policies, procedures and internal controls reasonably designed

to obtain and verify necessary customer information through its Customer Identification

Program (CIP); and provide relevant training for firm employees—the firm failed to conduct

independent tests of its AMLCP for several years. FINRA also found that the firm, acting

through Kirshbaum and another firm principal, failed to implement policies and procedures

reasonably designed to ensure compliance with the Bank Secrecy Act by failing to enforce

its procedures requiring the firm to review all Section 314(a) requests it received from

the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN);

as a result, the firm failed to review such requests. In addition, FINRA determined that

Kirshbaum and another principal were responsible for accessing the system to review

the FinCEN messages but failed to do so. Moreover, FINRA found that the firm permitted

certain registered representatives to use personal email accounts for business-related

communications, but failed to retain those messages. Furthermore, FINRA found that the

firm failed to maintain and preserve all of its business-related electronic communications

as required by Rule 17a-4 of the Securities Exchange Act of 1934, and failed to maintain

copies of all of its registered representatives’ written business communications. The

findings also stated that the firm failed to file summary and statistical information for

customer complaints by the 15th day of the month following the calendar quarter in which

the firm received them. The findings also included that the customer complaints were not

disclosed, or not timely disclosed, on the subject registered representative’s Form U4 or U5,

as applicable. FINRA found that the firm failed to provide some of the information FINRA

requested concerning trading and other matters. (FINRA Case #2009016405902)

Firms and Individuals Sanctioned

Garden State Securities, Inc. (CRD #10083, Red Bank, New Jersey) and Kevin John DeRosa

(CRD #2314895, Registered Principal, Toms River, New Jersey) submitted a Letter of

Acceptance, Waiver and Consent in which the firm was censured and ordered to pay

$300,000 in restitution, jointly and severally with DeRosa, to investors. FINRA did not

impose a fine against the firm after it considered, among other things, the firm’s revenues

and financial resources. DeRosa was fined $25,000, suspended from association with any

FINRA member in any capacity for 20 business days, and suspended from association with

any FINRA member in any principal capacity for two months.

Without admitting or denying the findings, the firm and DeRosa consented to the described

sanctions and to the entry of findings that the firm failed to ensure that it established,

maintained and enforced a supervisory system and written supervisory procedures (WSPs)

reasonably designed to achieve compliance with the rules and regulations concerning

4 Disciplinary and Other FINRA Actions

July 2011

private offering solicitations. The findings stated that the firm’s procedures were deficient

in that they failed to specify, among other things, who at the firm was responsible for

performing due diligence, what activities by firm personnel were required to satisfy the

due diligence requirement, how due diligence was to be documented, who at the firm

was responsible for reviewing and approving the due diligence that was performed and

authorizing the sale of the securities, and who was to perform ongoing supervision of the

private offerings once customer solicitations commenced. The findings also stated that

as a result of the firm’s deficient supervisory system and WSPs, the firm failed to conduct

adequate due diligence on private placement offerings. The findings also included that the

firm’s WSPs required due diligence to be conducted on every private placement it offered,

and required that such review had to be documented; the firm failed to enforce those

provisions with respect to an offering.

FINRA found that had the firm conducted adequate due diligence, it reasonably should

have known that the company had defaulted on its earlier notes offerings and that there

was a misrepresentation in the private placement memorandum (PPM) with respect to

principal and interest payments to investors in the earlier offerings. FINRA also found

that the firm failed to take reasonable steps to ensure that it timely learned of the missed

payments on the earlier notes offerings and disclosed them to prospective investors in

the notes. Moreover, FINRA found that due to the firm’s lack of due diligence, DeRosa

sold notes issued to customers, and in connection with those sales, the firm and DeRosa

mischaracterized and/or negligently omitted certain material facts provided to investors.

Furthermore, FINRA found that DeRosa sold $833,000 of the notes to customers and

generated approximately $37,485 in gross commissions from the sales of the notes. The

findings also stated that the firm, through DeRosa and another registered representative,

solicited customers to invest in another company’s stock but failed to conduct adequate

due diligence. The findings also included that the owner of an investment banking firm

represented that the customers’ funds would be wired to a client trust account at a bank

and then forwarded to an escrow account, which a third party would control, before being

invested; the firm did not take any steps to verify this claim before wiring the customer

funds to the account.

FINRA found that that no one at the firm verified the existence of the client trust and

escrow accounts, and, after the funds were wired, no one requested or received a bank

account statement to verify the receipt and location of the funds; the firm failed to

question why the wire instructions failed to reference the client trust account in the bank

account title section on the form, but instead referenced the investment banking firm.

FINRA also found that instead of directing the customers’ money into the escrow account,

the owner of the investment banking firm kept the funds in bank accounts he controlled

and used the funds for his own benefit.

In addition, FINRA determined that in connection with his sales of the company’s stock,

DeRosa disseminated to prospective investors a presentation he had received from the

owner of the investment banking company, which summarized the offering. Moreover,

Disciplinary and Other FINRA Actions 5

July 2011

FINRA determined that the presentation constituted sales literature but did not comply

with the content standards applicable to communications with the public and sales

literature. Furthermore, FINRA found that the presentation failed to provide a fair and

balanced treatment of risks and potential benefits, contained unwarranted or exaggerated

claims, contained predictions of performance and failed to prominently disclose the firm’s

name, failed to reflect any relationship between the firm and the non-FINRA member

entities involved in the offering, and failed to reflect which product or services the firm

was offering.

The suspension in any capacity was in effect from May 23, 2011, through June 20, 2011.

The suspension in any principal capacity is in effect from June 21, 2011, through August 20,

2011. (FINRA Case #2009018819201)

National Securities Corporation (CRD #7569, Seattle, Washington) and Matthew G. Portes

(CRD #4995542, Registered Principal, Chicago, Illinois) submitted a Letter of Acceptance,

Waiver and Consent in which the firm was censured and ordered to pay a total of $175,000

in restitution to investors. Portes was fined $10,000 and suspended from association

with any FINRA member in any principal capacity for six months. Without admitting or

denying the findings, the firm and Portes consented to the described sanctions and to the

entry of findings that the firm failed to have reasonable grounds to believe that certain

private placements offered pursuant to Regulation D were suitable for customers. The

findings stated that the firm, acting through Portes, as the firm’s Director of Alternative

Investments/Director of Syndications, failed to adequately enforce its supervisory

procedures to conduct adequate due diligence as it relates to an offering. The findings also

stated that Portes and the firm became aware of multiple red flags regarding an offering,

including liquidity concerns, missed interest payments and defaults, that should have

put them on notice of possible problems, but the firm continued to sell the offering to

customers. The findings also included that the firm, acting through Portes, failed to enforce

its supervisory procedures to conduct adequate due diligence relating to other offerings.

FINRA found that Portes reviewed the PPMs for these offerings and diligence reports others

prepared, but the review was cursory. FINRA also found that the due diligence reports

noted significant risks and specifically provided that its conclusions were conditioned upon

recommendations regarding guidelines, changes in the PPMs and heightened financial

disclosure of affiliated party advances, but the firm did not investigate, follow up on or

discuss any of these potential conflicts or risks with either the issuer or any third party.

In addition, FINRA determined that the firm, acting through Portes, failed to enforce

reasonable supervisory procedures to detect or address potential “red flags” as related to

these offerings; and the firm, acting through Portes, failed to maintain a supervisory system

reasonably designed to achieve compliance with applicable securities laws and regulations.

The suspension is in effect from June 20, 2011, through December 19, 2011. (FINRA Case

#2009019068201)

6 Disciplinary and Other FINRA Actions

July 2011

Firm Fined, Individual Sanctioned

Callaway Financial Services, Inc. (CRD #104003, Arlington, Texas) and Corey Neil Callaway

(CRD #1279194, Registered Principal, Arlington, Texas) submitted a Letter of Acceptance,

Waiver and Consent in which the firm was censured and fined $40,000. FINRA imposed

a lower fine after it considered, among other things, the firm’s revenues and financial

resources. Callaway was fined $10,000 and suspended from association with any FINRA

member in any principal capacity for two months. Without admitting or denying the

findings, the firm and Callaway consented to the described sanctions and to the entry

of findings that the firm, acting through Callaway, its principal, failed to establish and

implement an adequate AMLCP. The findings stated that the firm’s AML program required

it to monitor for potentially suspicious activity and AML red flags, investigate potentially

suspicious activity and report suspicious activity by filing a special activity report form

(SAR-SF), as appropriate. The findings also stated that the firm and Callaway failed to

adequately implement or enforce the firm’s AML program and to otherwise comply with

their AML obligations, as they did not document any identification or review of numerous

transactions to determine if they were, in fact, suspicious and were required to be reported

on a SAR-SF. The findings also included that the firm’s AML program required that it

either conduct automated monitoring with exception reports its clearing firm provided,

or manually monitor a sufficient amount of account activity to permit identification of

patterns of unusual size, volume, pattern or type of transactions, or any of the red flags

included in the written AML program; the firm and Callaway did neither.

FINRA found that the firm’s AML program provided that the AML Compliance Officer

be responsible for monitoring, documenting when and how it is carried out, and report

suspicious activities to the appropriate authorities; the firm and Callaway did not

document such review and did not report what were clearly suspicious activities. FINRA

also found that Callaway and the firm learned that a customer had a criminal record, yet

did not inquire into the nature of the crimes; this knowledge should have caused Callaway

and the firm to give heightened scrutiny to all future activity in the accounts. In addition,

FINRA determined that there was extensive activity involving penny stocks and low-priced

stocks where shares were delivered into the account, quickly sold, and the proceeds wired

to bank accounts belonging to the customer; the penny stock deposits and liquidations and

the extensive wire transfers of funds out of the customer’s accounts were red flags the firm

and Callaway failed to either detect or investigate. Moreover, FINRA found that the firm

and Callaway failed to inquire into the specifics of the customer’s business, even as they

were facilitating the removal of restricted legends from the shares purportedly given to the

customer for his work; notably, the firm did not ask for, and the customer did not provide,

an explanation of why the customer had accounts in the names of multiple corporate

entities that were receiving shares of the same restricted stocks.

The suspension is in effect from June 6, 2011, through August 5, 2011. (FINRA Case

#2009016264701)

Disciplinary and Other FINRA Actions 7

July 2011

Firms and Individuals Fined

Brookstone Securities, Inc. (CRD #13366, Lakeland, Florida) and David William Locy (CRD

#4682865, Registered Principal, Overland Park, Kansas) submitted a Letter of Acceptance,

Waiver and Consent in which the firm and Locy were censured and fined $25,000, jointly

and severally. Without admitting or denying the findings, the firm and Locy consented to

the described sanctions and to the entry of findings that the firm, acting through Locy,

did not have WSPs addressing due diligence requirements for third-party placements.

The findings stated that the firm, acting through Locy, failed to conduct an adequate due

diligence of a third-party private placement offering before Locy approved the offering

of shares to customers. The findings also stated that Locy’s due diligence efforts did not

include any investigation into an equity fund, despite acknowledging that he knew very

little about it or the third-party placement and could not get any solid information about

the fund, including pending litigation or financial statements. The findings also included

that Locy knew nothing about the fund that was not contained in a PPM the issuer

prepared, but accepted that the firm representatives forming the offering had conducted

due diligence and relied on their opinion of the fund. FINRA found that Locy acknowledged

the representatives had limited, if any, experience forming a private placement. FINRA also

found that firm representatives sold or participated in sales of shares to customers without

notifying Locy or anyone else at the firm, which caused those sales to not be recorded on

the firm’s books and records. (FINRA Case #2009019837303)

Searle & Co. (CRD #13035, Greenwich, Connecticut) and Robert Southworth Searle (CRD

#839312, Registered Principal, Greenwich, Connecticut) submitted a Letter of Acceptance,

Waiver and Consent in which the firm and Searle were censured and fined $10,000,

jointly and severally. The firm was fined an additional $5,000. Without admitting or

denying the findings, the firm and Searle consented to the described sanctions and to the

entry of findings that the firm, acting through Searle, shared approximately $326,000

worth of profits in the account of a customer of another FINRA member firm. The

findings stated that neither the firm nor Searle contributed financially to the customer’s

account; therefore, neither could share in the profits in direct proportion to their financial

contributions to the account. The findings also stated that the firm failed to establish,

maintain, and enforce adequate WSPs related to sharing in profits and losses in FINRA

member firms’ customer accounts. (FINRA Case #2010022352301)

Firms Fined

Automated Trading Desk Brokerage Services, LLC (CRD #36000, Mt. Pleasant, South

Carolina) submitted a Letter of Acceptance, Waiver and Consent in which the firm was

censured and fined $25,144.85, which includes disgorgement of unlawful profits of

$5,144.85. Without admitting or denying the findings, the firm consented to the described

sanctions and to the entry of findings that it executed short sales for its proprietary

8 Disciplinary and Other FINRA Actions

July 2011

accounts in securities covered by an SEC emergency order, which provided that all persons

were prohibited from short selling any publicly traded securities of any listed “included

financial firm,” and required each exchange to designate which of their listed securities

were subject to the short-selling ban. The findings stated that the firm executed the sales

through its proprietary trading platform and obtained $5,144.85 in trading profits upon the

short sales in securities the emergency order covered. (FINRA Case #2009017862001)

Banc of America Securities LLC (CRD #26091, New York, New York) submitted a Letter of

Acceptance, Waiver and Consent in which the firm was censured, fined $100,000 and

ordered to pay $17,808.12, plus interest, in restitution to investors. Without admitting or

denying the findings, the firm consented to the described sanctions and to the entry of

findings that it transmitted Route or Combined Order/Route Reports to the Order Audit

Trail System (OATS

) that the OATS system was unable to link to the related order routed

to NASDAQ due to inaccurate, incomplete or improperly formatted data, and transmitted

Route or Combined Order/Route Reports to OATS that the OATS system was unable to

link to the corresponding new order transmitted by the destination member firm due to

inaccurate, incomplete or improperly formatted data. The findings stated that the firm,

in transactions for or with a customer, 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. The

findings also stated that the firm effected transactions in securities while a trading halt

was in effect with respect to each of the securities. The findings also included that the

firm failed to accept or decline transactions in reportable securities in the NASD/NASDAQ

Trade Reporting Facility (NNTRF) within 20 minutes after execution. FINRA found that the

firm failed, within 90 seconds after execution, to transmit last sale reports of transactions

in designated securities to the FINRA/NASDAQ Trade Reporting Facility (FNTRF). FINRA

also found that the firm failed, within 90 seconds after execution, to transmit last sale

reports of transaction in OTC

equity securities to the Over-The-Counter Trade Reporting

Facility (OTCRF). In addition, FINRA determined that the firm failed to report information

regarding transactions effected in municipal securities to the Real Time Transaction

Reporting System (RTRS) within 15 minutes of the trade time to an RTRS Portal. (FINRA Case

#2007010367501)

BMO Capital Markets Corp. (CRD #16686, New York, New York) submitted a Letter of

Acceptance, Waiver and Consent in which the firm was censured, fined $57,500, and

required to revise its written supervisory procedures regarding sales pursuant to SEC Rule

144 or by prospectus, and SEC Rule 203(a). Without admitting or denying the findings, the

firm consented to the described sanctions and to the entry of findings that it knew, or had

reasonable grounds to believe, that the sale of an equity security was or would be effected

pursuant to an order marked long, and failed to deliver the security on the date delivery

was due. The findings stated that the firm effected short sale transactions for a customer

who was deemed to own the security pursuant to SEC Rule 200 of Regulation SHO and for

each transaction, the customer failed to make delivery within 35 days after the trade date,

Disciplinary and Other FINRA Actions 9

July 2011

and the firm failed to borrow the security or close out the short positions by purchasing

securities of like kind and quantity. The findings also stated that the firm had fail-to-

deliver positions at a registered clearing agency in threshold securities for 13 consecutive

settlement days and failed to immediately thereafter close out the fail-to-deliver position

by purchasing securities of like kind or quantity; the firm continued to have fail-to-

deliver positions in the securities in that it failed to close out at the registered clearing

agency as required for additional settlement days. The findings also included 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

minimum requirements for adequate written supervisory procedures in sales pursuant to

SEC Rule 144 or by prospectus and SEC Rule 203(a).

FINRA found that the firm failed, within 90 seconds after execution, to transmit last sale

reports of transactions in designated securities to the FNTRF. FINRA also found that the

firm failed to show the terms and conditions on brokerage order memoranda. In addition,

FINRA determined that the firm failed to report the correct contra-party’s identifier for

transactions in Trade Reporting and Compliance Engine

(TRACE

)-eligible securities

to TRACE. Moreover, FINRA found that the firm failed to prepare accurate customer

confirmations, in that it failed to disclose its correct capacity in the transaction, and

failed to disclose that the transaction was executed at an average price. Furthermore,

FINRA found that the firm failed to properly mark orders long or short. (FINRA Case

#2008013554202)

Brown Associates, Inc. (CRD #5049, Chattanooga, Tennessee) submitted a Letter of

Acceptance, Waiver and Consent in which the firm was censured, fined $50,000 and

required to certify to FINRA in writing within 90 days of issuance of the AWC that the

firm currently has in place systems and procedures reasonably designed to achieve

compliance with the laws, regulations and rules concerning the preservation of electronic

correspondence. Without admitting or denying the findings, the firm consented to the

described sanctions and to the entry of findings that it failed to properly archive its

business-related electronic communications for individual users in some of its Offices of

Supervisory Jurisdiction (OSJs). The findings stated that the firm stored these emails on

stand-alone servers or individual machines only, which theoretically permitted individual

users to delete incoming or outgoing emails, and thereby failed to properly preserve its

business-related electronic correspondence. The findings also stated that the firm failed to

review business-related electronic communications for the individuals and an additional

user. The findings also included that the firm failed to evidence its review of individuals’

business-related electronic communications as the firm’s WSPs required. FINRA found

that the firm failed to provide notification and third–party attestation to FINRA regarding

the use of electronic storage media 90 days prior to employing such media. (FINRA Case

#2009016207701)

10 Disciplinary and Other FINRA Actions

July 2011

DE Route aka Direct Edge ECN LLC (CRD #135981, Jersey City, New Jersey) submitted

a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined

$12,500. Without admitting or denying the findings, the firm consented to the described

sanctions and to the entry of findings that it submitted Execution Reports or Combined

Order/Execution Reports to OATS that contained inaccurate, incomplete or improperly

formatted data. The findings stated that during a review period, the firm transmitted all its

Execution Reports or Combined Order/Execution Reports to OATS for orders that had been

routed away from the firm for execution. (FINRA Case #2008014870001)

FMSbonds, Inc. (CRD #7793, Boca Raton, Florida) submitted a Letter of Acceptance, Waiver

and Consent in which the firm was censured and fined $100,000. Without admitting or

denying the findings, the firm consented to the described sanctions and to the entry of

findings that it failed to deliver official statements by the settlement date to numerous

customers who purchased new issue municipal securities during the primary offering

disclosure period; in all of these transactions, the firm was neither an underwriter nor part

of the underwriting syndicate but was required to deliver an official statement to each

customer by the settlement date. The findings stated that the firm failed to keep a record

of deliveries of official statements to purchasers of new issue municipal securities, as

Municipal Securities Rulemaking Board (MSRB) Rule G-8(a)(xiii) required. The findings also

stated that the firm failed to adopt, maintain and enforce adequate written supervisory

procedures pertaining to the firm’s official statement delivery requirements to customers

who purchased new issue municipal securities for secondary market transactions that

occurred during the primary offering disclosure period, including those transactions in

which the firm was not an underwriter nor part of the underwriting syndicate, as MSRB

Rule G-32required; and the firm’s requirements to maintain various records pertaining

to its obligations to deliver official statements to customers who purchased new

issue municipal securities, including those transactions in which the firm was not an

underwriter nor part of the underwriting syndicate, as MSRB Rule G-8 required. (FINRA Case

#2009019191401)

Grant Williams L.P. (CRD #45961, Philadelphia, Pennsylvania) submitted a Letter of

Acceptance, Waiver and Consent in which the firm was censured and fined $20,000.

Without admitting or denying the findings, the firm consented to the described sanctions

and to the entry of findings that it made material changes in its business operations

without first filing an application and obtaining FINRA approval. The findings stated that

the firm increased the number of its registered representatives, an increase of 80 percent

over the number of representatives provided for in its membership agreement, and

increased the number of its registered and non-registered branch offices, an increase of

113 percent over the number of branch offices provided for in the membership agreement.

(FINRA Case #2009016225201)

Disciplinary and Other FINRA Actions 11

July 2011

The GMS Group, LLC (CRD #8000, Livingston, New Jersey) submitted a Letter of Acceptance,

Waiver and Consent in which the firm was censured and fined $50,000. Without admitting

or denying the findings, the firm consented to the described sanctions and to the entry

of findings that at various times it failed to deliver official statements by settlement date

to numerous customers who had purchased new issue municipal securities during the

primary offering disclosure period. The findings stated that in all of these transactions,

the firm was neither an underwriter, nor part of the underwriting syndicate but was

required to deliver an official statement to each customer by the settlement date

because the obligation to deliver the official statement is not limited to the underwriters

of the municipal bond issue, but also to firms not participating in the offering that sell

the municipal securities during the primary offering period and to secondary market

transactions during that period. The findings also stated that the firm failed to enforce

its WSPs pertaining to its official statement delivery requirements to customers who

purchased new issue municipal securities for secondary market transactions that occurred

during the primary offering disclosure period, including those transactions in which the

firm was not an underwriter, nor part of the underwriting syndicate, as required by MSRB

Rule G-32. (FINRA Case #2009017280701)

Huckin Financial Group, Inc. (CRD #8593, Houston, Texas) submitted a Letter of Acceptance,

Waiver and Consent in which 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 it failed to establish and implement an adequate supervisory system, failed

to conduct independent testing of its AMLCP and improperly associated with a statutorily

disqualified person. The findings stated that the firm had inadequate procedures for

supervision of transmittal of customer funds or securities, supervision of customer changes

of address, supervision of customer changes of investment objectives and reliance on

the Limited Size and Resources exception. The findings also stated that the firm’s annual

reports to senior management and CEO Annual Certifications were inadequate; the annual

reports did not detail the firm’s supervisory controls, did not evidence testing of the

procedures and did not identify any weaknesses in the firm’s procedures. The findings also

included that the firm failed to submit its notification of its reliance on the Limited Size

and Resources exception for one year. FINRA found that the firm was on notice that it was

required to conduct an independent test annually, but it failed to conduct an independent

test of its AMLCP for two years. FINRA also found that the firm permitted a statutorily

disqualified person to be associated with and conduct activities on the firm’s behalf; the

individual was routinely on site at the firm, maintained an office inside firm premises, and

had regular contact with firm customers. (FINRA Case #2009016269501)

Janney Montgomery Scott LLC (CRD #463, Philadelphia, Pennsylvania) submitted a Letter

of Acceptance, Waiver and Consent in which the firm was censured and fined $75,000.

Without admitting or denying the findings, the firm consented to the described sanctions

and to the entry of findings that it failed to deliver official statements by the settlement

date to numerous customers who purchased new issue municipal securities during the

12 Disciplinary and Other FINRA Actions

July 2011

primary offering disclosure period; in each of these transactions, the firm was neither

an underwriter nor part of the underwriting syndicate. The findings stated that the firm

failed, among other things, to document the type of disclosure sent and the name of the

person sending the disclosure, each of which was required by MSRB Rule G-8(a)(xiii). The

findings also stated that the firm allowed a third-party service provider to deliver official

statements to firm customers. The findings also included that the firm failed to enforce

its WSPs pertaining to its official statement delivery requirements to customers and its

requirements to maintain various records pertaining to its obligation to deliver official

statements to customers who purchased new issue municipal securities. FINRA found that

the firm’s WSPs specifically required firm operational personnel to conduct periodic reviews

of the service provider to ensure that the official statements were timely delivered, but the

firm’s operational personnel failed to conduct a sufficiently thorough review of the service

provider, or an adequate number of reviews, and in certain instances, failed to verify timely

delivery of the official statements. (FINRA Case #2009018503501)

Kiley Partners, Inc. (CRD #37814, Palm Beach Gardens, Florida) submitted a Letter of

Acceptance, Waiver and Consent in which the firm was censured and fined $17,500.

Without admitting or denying the findings, the firm consented to the described sanctions

and to the entry of findings that it reported municipal securities transactions late to the

MSRB, and erroneously reported municipal transactions to the MSRB. The findings stated

that the erroneously reported trades consisted of, among other things, purchases reported

as sales, sales reported as purchases, incorrect trade volume reported and corrected trades

after cancellations were not reported to the MSRB. The findings also stated that the firm

reported corporate bond transactions late to TRACE. (FINRA Case #2010021125601)

Moors & Cabot, Inc. (CRD #594, Boston, Massachusetts) submitted a Letter of Acceptance,

Waiver and Consent in which the firm was censured and fined $10,000. Without admitting

or denying the findings, the firm consented to the described sanctions and to the entry of

findings that for several calendar quarters, it made publicly available reports on its routing

of non-directed orders in covered securities that were incomplete because they did not

include covered orders for a particular market participant identifier (MPID) of the firm.

(FINRA Case #2009020595301)

Morgan Stanley & Co. Incorporated (CRD #8209, New York, New York) submitted a Letter

of Acceptance, Waiver and Consent in which the firm was censured and fined $110,000.

Without admitting or denying the findings, the firm consented to the described sanctions

and to the entry of findings that it failed to report short interest positions in securities

to FINRA. 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 short interest position reporting. The findings

also stated that the firm failed to report to TRACE the correct contra-party’s identifier

for transactions in TRACE-eligible securities, transactions in TRACE-eligible securities

that it was required to report, the correct trade date for some transactions in TRACE-

Disciplinary and Other FINRA Actions 13

July 2011

eligible securities, and transactions in TRACE-eligible securities within 15 minutes of the

execution time. The findings also included that the firm failed to report transactions

effected in municipal securities to the RTRS within 15 minutes of trade time to an RTRS

Portal and failed to report the correct execution time to the RTRS for the transactions.

FINRA found that the firm failed to show the correct execution time in trade memoranda

of the transactions in municipal securities. FINRA also found that the firm failed to report

transactions in TRACE-eligible securities to TRACE that it was required to report. (FINRA

Case #2007011347201)

Morgan Stanley & Co. Incorporated (CRD #8209, New York, New York) submitted a Letter

of Acceptance, Waiver and Consent in which the firm was censured, fined $100,000 and

ordered to provide remediation to customers who purchased Unit Investment Trusts (UITs)

and qualified for but did not receive a larger breakpoint discount (i.e., a better price) based

on a unit calculation or a larger breakpoint discount (i.e., a better price) under the relevant

sponsors’ rules for aggregate purchases. The firm will submit to FINRA a proposed plan of

how it will identify and compensate customers who qualified for, but did not receive, the

applicable UIT sales charge discounts and complete the remediation within 180 days from

the date FINRA accepts the firm’s plan.

Without admitting or denying the findings, the firm consented to the described sanctions

and to the entry of findings that it failed to establish an effective supervisory system

and procedures reasonably designed to ensure that it applied appropriate sales charge

discounts for UIT purchases in certain instances. The findings stated that the firm’s systems

failed to identify and provide eligible customers with breakpoint discounts offered by one

sponsor’s UITs based on the number of units purchased rather than the dollar amount

invested, and failed to apply the greatest sales charge discount available when a client

was rolling over multiple UITs on the same business day or when making an additional

investment at the time a rollover was being effected. The findings also stated that one

sponsor, with whom the firm had significant sales, permitted breakpoint sales charge

discounts to be assessed based on a dollar amount or based on the number of units

purchased; while the firm’s system identified UIT purchases that qualified for breakpoint

discounts on a dollar basis this sponsor offered, it failed to apply a breakpoint discount on

a unit basis. The findings also included that this sponsor provided a breakpoint discount

that was generally greater than a rollover or exchange discount for purchases of more than

$250,000 or $500,000.

FINRA found that the firm had a manual process in place to determine whether a single

rollover purchase would qualify for a greater breakpoint discount; on several occasions,

the firm failed to properly identify and price transactions in accordance with its process.

In addition, FINRA determined that the firm did not review same-day rollover aggregate

transactions to identify whether a rollover or breakpoint sales charge reduction was

best for the customer; certain other sponsors offered investors breakpoint sales charge

reductions based on aggregated eligible same-day purchases. Moreover, FINRA found that

14 Disciplinary and Other FINRA Actions

July 2011

the firm did not have a system in place to aggregate UIT rollover or exchange purchases to

determine if the transaction qualified for a higher breakpoint discount. Furthermore, FINRA

found that the firm failed to establish an effective supervisory system and procedures

reasonably designed to ensure that certain available sales charge discounts were applied

on eligible customer UIT purchases. The findings also stated that customers were adversely

impacted by the firm’s failure to monitor for and provide for these sales charge discounts,

and a review of transactions showed that customers were overcharged more than

$40,000 as a result of the firm’s failure to identify the sales charge discounts. (FINRA Case

#2008015700601)

Oppenheimer & Co. Inc. (CRD #249, New York, New York) submitted a Letter of Acceptance,

Waiver and Consent in which the firm was censured and fined $100,000. Without

admitting or denying the findings, the firm consented to the described sanctions and to

the entry of findings that it failed to deliver official statements by the settlement date to

numerous customers who purchased new issue municipal securities during the primary

offering disclosure period; in all of these transactions, the firm was neither an underwriter

nor part of the underwriting syndicate, but was required to deliver an official statement

to each customer by the settlement date. The findings stated that the firm failed to keep a

record of deliveries of official statements to purchasers of new issue municipal securities,

as MSRB Rule G-8(a)(xiii) required. The findings stated that the firm failed to enforce its

WSPs pertaining to the firm’s official statement delivery requirements to customers who

purchased new issue municipal securities for secondary market transactions that occurred

during the primary offering disclosure period, including those transactions in which

the firm was not an underwriter nor part of the underwriting syndicate, as MSRB Rule

G-32 required; and the firm’s requirements to maintain various records pertaining to its

obligations to deliver official statements to customers who purchased new issue municipal

securities, including those transactions in which the firm was not an underwriter nor part

of the underwriting syndicate, as MSRB Rule G-8 required. (FINRA Case #2009018400501)

Penson Financial Services, Inc. (CRD #25866, Dallas, Texas) submitted a Letter of

Acceptance, Waiver and Consent in which the firm was censured and fined $27,500.

Without admitting or denying the findings, the firm consented to the described sanctions

and to the entry of findings that it accepted short sale orders 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. The findings stated that the firm failed to properly adjust open

orders; the firm failed, prior to executing or permitting the orders to be executed, to reduce,

increase or adjust the price and/or number of shares of such orders by an amount equal to

the dividend, payment or distribution, on the day that the security was quoted ex-dividend,

ex-rights, ex-distribution or ex-interest. The findings also stated that the firm transmitted

Disciplinary and Other FINRA Actions 15

July 2011

reports to OATS that contained inaccurate, incomplete or improperly formatted data, in

that one report did not include the special handling code and other reports contained

inaccurate type and member-type codes. (FINRA Case #2009017011501)

Portfolio Advisors Alliance, Inc. (CRD #101680, New York, New York) submitted a Letter

of Acceptance, Waiver and Consent in which the firm was censured, fined $12,500

and required to revise its written supervisory procedures regarding OATS reporting

requirements. Without admitting or denying the findings, the firm consented to the

described sanctions and to the entry of findings that it failed to transmit all of its

Reportable Order Events (ROEs) to OATS on numerous business days. 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 requirements. (FINRA Case #2009018229701)

Smith, Moore & Co. (CRD #3441, Clayton, Missouri) submitted a Letter of Acceptance,

Waiver and Consent in which the firm was censured and fined $75,000. Without admitting

or denying the findings, the firm consented to the described sanctions and to the entry

of findings that, as a clearing firm, it cleared transactions for an introducing firm and

foreign and domestic broker-dealers with piggyback arrangements, although it did not

have contractual arrangements to provide clearing services with any broker-dealers other

than with the introducing firm. The findings stated that the firm provided notice to the

introducing firm that it was terminating the clearing agreement; but, at the introducing

firm’s request, the agreement was extended, several times, until the introducing firm filed

a Uniform Request for Broker-Dealer Withdrawal (Form BDW) and then the firm terminated

the clearing relationship. The findings also stated that the firm, acting in its capacity as

a clearing firm, failed to detect, investigate and/or file SARs as appropriate, on occasions

when red flags of suspicious activity were present, or document its rationale for not doing

so. The findings also included that the firm failed to implement policies and procedures,

for use in its clearing capacity, reasonably designed to detect and cause the reporting of

suspicious activities.

FINRA found that the firm failed to create or maintain AML policies or procedures that were

tailored to potential risks associated with its clearing relationship, but rather were tailored

to its retail securities business; this lack of adequate procedures with respect to its clearing

business resulted in its failure to detect, or conduct a reasonable investigation relating

to, certain suspicious activities. FINRA also found that many of these suspicious activities

occurred in accounts of the foreign broker-dealers for which the firm provided clearing

services; certain of the transactions involved foreign customers who had accounts at these

foreign broker-dealers. In addition, FINRA determined that the firm, acting in its capacity as

a clearing firm, failed to conduct a reasonable investigation regarding these transactions;

and also failed to file SARs and did not document its rationale for failing to file SARs. (FINRA

Case #2009018416701)

16 Disciplinary and Other FINRA Actions

July 2011

Ticonderoga Securities LLC (CRD #7671, New York, New York) submitted a Letter of

Acceptance, Waiver and Consent in which the firm was censured, fined $10,000 and

required to revise its written supervisory procedures regarding SEC Rule 15c2-11 and FINRA

Rule 6640. Without admitting or denying the findings, the firm consented to the described

sanctions and to the entry of findings that in instances where it published a quotation

for an OTC equity security or a non-exchange-listed security, or, directly or indirectly,

submitted such quotation for publication, in a quotation medium, that is, the Pink Sheets,

LLC, and did not have in its records the documentation and information required by SEC

Rule 15c2-11(a)(Paragraph (a) information), it did not have a reasonable basis under the

circumstances for believing that the Paragraph (a) information was accurate in all material

respects, and the sources of the Paragraph (a) information were reliable. The findings

stated that the quotations did not represent a customer’s indication of unsolicited interest.

The findings also stated that for each quotation, the firm failed to file a Form 211 with

FINRA at least three business days before the quotation was published or displayed in a

quotation medium. The findings also included the firm’s supervisory system did not provide

for supervision reasonably designed to achieve compliance with applicable securities laws,

regulations and FINRA rules concerning SEC Rule 15c2-11 and FINRA Rule 6640. (FINRA Case

#2009020783501)

UBS Securities LLC (CRD #7654, Stamford, Connecticut) submitted a Letter of Acceptance,

Waiver and Consent in which the firm was censured and fined $300,000. Without

admitting or denying the findings, the firm consented to the described sanctions and to the

entry of findings that it failed to update the company codes in the client-based database

after the individual responsible for that task left the firm. The findings stated that emails

indicating that the company codes had been added were not sent to the firm’s Client

Management Team (CMT) by another group at the firm, the Core Client Data Services

Group (CCDS). The findings also stated that the Client Data Strategist, a senior officer in

CMT who was in charge of producing a business object report that combined the research

and revenue information for each client to create required non-investment banking

disclosures in equity research reports continued to produce the report without confirming

that the company codes were updated. The findings also included that the Client Data

Strategist continued to produce the reports, so a file was created and uploaded in the firm’s

central disclosure database, even though it contained incomplete information.

FINRA found that since the reports were completed, email alerts were not triggered at the

end of the process, and as a result of the failures during the update process, equity research

reports the firm published failed to include one or more required non-investment banking

disclosures (non-investment banking compensation, non-investment banking securities-

related services and non-securities services). FINRA also found that as a result of certain

information contained in the firm’s central disclosure database not being updated due

to the update process failure, research analysts creating and sending information about

the impacted subject companies to media outlets in connection with public appearances

Disciplinary and Other FINRA Actions 17

July 2011

failed to disclose the firm’s non-investment banking related compensation and the types of

services (non-investment banking securities-related services and non-securities services) it

provided during the prior 12 months. In addition, FINRA determined that the firm failed to

adequately implement its supervisory procedures concerning compliance with NASD Rule

2711(h), and the firm failed to conduct follow-up and review to ensure that its employees

were performing their assigned responsibilities of collecting and updating data to generate

accurate disclosures, and to have a verification process to confirm that each group was

performing its task to ensure the flow of updated information at each stage had accurate

disclosures. Moreover, FINRA found that the firm failed to adequately implement its written

procedures that provided for step-by-step guidance for updating the required disclosures

in the relevant databases in order to reasonably ensure that they were disclosed in the

research reports and in public appearances. (FINRA Case #2009018057401)

Vision dba Vision Brokerage Services, LLC (CRD #47927, Stamford, Connecticut) submitted

a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined

$22,500. Without admitting or denying the findings, the firm consented to the described

sanctions and to the entry of findings that it failed to report its MPID as the executing

FINRA member for TRACE-eligible securities transactions with customers to TRACE. The

findings stated that the firm effected inter-dealer corporate bond transactions but did not

preserve records of original entry containing an itemized daily record of all purchases and

sales of the transactions for the first two years in an easily accessible place. The findings

also 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 TRACE reporting. The findings also included that the firm’s supervisory system

did not include WSPs providing for a statement of the supervisory steps to be taken to

compare the information reported on TRACE with the firm’s trading records to ensure that

all trade information, including, but not limited to the correct MPID information and inter-

dealer transaction information, was accurately and fully reported to TRACE. (FINRA Case

#2010021330501)

Wells Fargo Advisors, LLC (CRD #19616, St. Louis, Missouri) submitted a Letter of

Acceptance, Waiver and Consent in which the firm was censured, fined $23,000 and

ordered to pay $15,708.25, plus interest, in restitution to customers. 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. (FINRA Case #2006005324201)

18 Disciplinary and Other FINRA Actions

July 2011

Individuals Barred or Suspended

Michael Wilson Adams (CRD #808265, Registered Principal, Marengo, Ohio) submitted a

Letter of Acceptance, Waiver and Consent in which he was fined $5,000, suspended from

association with any FINRA member in any capacity for three months and ordered to pay

$85,000, plus interest, in restitution to a customer. The fine and restitution must be paid

either immediately upon Adams’ 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, Adams

consented to the described sanctions and to the entry of findings that he borrowed $85,000

from a customer of his member firm contrary to the firm’s compliance manual, which

generally prohibited representatives from borrowing money from a customer other than an

immediate family member, which the customer was not.

The suspension is in effect from May 16, 2011, through August 15, 2011. (FINRA Case

#2010023818301)

Catherine Laura Baker (CRD #2882339, Registered Representative, New Galilee,

Pennsylvania) submitted a Letter of Acceptance, Waiver and Consent in which she was

fined $5,000 and suspended from association with any FINRA member in any capacity for

one month. Without admitting or denying the findings, Baker consented to the described

sanctions and to the entry of findings that she requested, received and distributed

answer keys for long-term care (LTC) continuing education (CE) exams to member firm

representatives, and asked other firm representatives to distribute LTC CE answer keys

to outside financial advisors. The findings stated that certain states implemented an LTC

CE requirement that obligated financial advisors to complete an LTC CE course and exam

before selling LTC insurance products, including the product Baker sold, to customers who

resided in that state. The findings also stated that in order to help financial advisors obtain

the LTC CE requirement, Baker’s firm provided them with vouchers that allowed financial

advisors to take CE exams for free through a specific company. The findings also included

that in addition to providing financial advisors with the vouchers, certain firm employees

improperly created, requested, received and distributed answer keys for state LTC CE

exams.

The suspension is in effect from June 20, 2011, through July 19, 2011. (FINRA Case

#2009021029618)

David Harry Michael Baudo (CRD #3187137, Registered Representative, Sanford, Florida)

submitted a Letter of Acceptance, Waiver and Consent in which he was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Baudo consented to the described sanction and to the entry of findings that he

recommended that customers invest in a private securities transaction without providing

notice of his proposed role in the transaction to his member firm. The findings stated

that Baudo recommended that the customers invest approximately $167,000—all of the

Disciplinary and Other FINRA Actions 19

July 2011

funds in their account—in a start-up company that sought to operate an independent

branch of another broker-dealer; the recommended security was supposed to pay annual

interest of 7 percent on a quarterly basis over a fixed term. The findings also stated

that Baudo recommended that the customers invest in the company after he gathered

information about the company and investment from a former business colleague, who

was the company’s founder and sole principal. The findings also included that Baudo did

not have reasonable grounds to believe that the recommended investment was suitable

for the customers in light of their investment objectives, financial situation and needs; the

recommended investment was too risky for the customers, who were a retired couple of

limited means. FINRA found that the recommendation led to most of their investable assets

being over-concentrated in the security. FINRA also found that prior to its dissolution in

2010, the company made interest and principal payments totaling approximately $26,000

to the customers, who lost approximately $141,000 on their investment in the company.

In addition, FINRA determined that Baudo failed to completely respond to FINRA requests

for information and documents. (FINRA Case #2010024861801)

Michael Dennis Berger (CRD #1785162, Registered Principal, Millington, New Jersey)

submitted a Letter of Acceptance, Waiver and Consent in which he was fined $5,000,

suspended from association with any FINRA member in a financial and operations principal

(FINOP) capacity for 10 days, and ordered to requalify thereafter as a FINOP by examination

prior to reassociation with any FINRA member firm in that capacity. Without admitting

or denying the findings, Berger consented to the described sanctions and to the entry of

findings that he filed an inaccurate Financial and Operational Combined Uniform Single

(FOCUS

) Report that indicated his member firm’s net capital was above the firm’s

minimum net capital requirement, when it was not, and caused his firm to violate Section

17(a) of the Exchange Act and Rule 17a-5 thereunder. The findings stated that Berger’s

failure to account for accrued expenses in calculating the firm’s net capital caused the net

capital deficiency. The finding also stated that, at another time, the firm was net capital

deficient and Berger attributed the net capital deficiency to a trading error that resulted in

a loss and to certain aged commissions receivable. The findings also included that Berger,

on the firm’s behalf, reported to FINRA and the SEC that another net capital deficiency was

due to his error in including certain non-allowable assets in the firm’s capital computations.

FINRA found that Berger caused his firm to violate Section 15(c) of the Securities Exchange

Act of 1934 (Exchange Act) and Rule 15(c)3-1(c)2 thereunder by failing to maintain the

required minimum net capital. FINRA also found that Berger caused his firm to violate

SEC Rule 15c3-1 by conducting a securities business while not maintaining its required

net capital levels. In addition, FINRA determined that as FINOP, Berger failed to provide

prompt notification to the New York Stock Exchange (NYSE) that the firm did not maintain

the level of excess net capital as NYSE Rule 325(b)(1)1 required. Moreover, FINRA found

that Berger caused the firm to violate Section 17(a) of the Exchange Act and Rule 17a-3

thereunder and NASD Rule 3110 by failing to properly calculate the firm’s net capital levels,

and including this incorrect information on the firm’s books and records. Furthermore,

20 Disciplinary and Other FINRA Actions

July 2011

FINRA found that Berger overstated the firm’s excess net capital in its weekly net capital

computation submitted to FINRA. The findings also included that Berger erroneously

included commissions’ receivable for a period greater than 30 days as an allowable asset,

thereby causing the firm to maintain inaccurate books and records in violation of Section

17(a) of the Exchange Act, Rule 17a-3 thereunder, and NASD Rule 3110.

The suspension was in effect from June 20, 2011, through June 29, 2011. (FINRA Case

#2009017749701)

Irving Vincent Boberski (CRD #2583066, Registered Representative, Charlottesville, Virginia)

was barred from association with any FINRA member in any capacity. The sanction was

based on findings that Boberski willfully failed to disclose material information on his Form

U4, and failed to respond to FINRA requests for information and documents. (FINRA Case

#2009018217301)

Renee Marie Brown (CRD #3221618, Registered Principal, Golden Valley, Minnesota)

submitted a Letter of Acceptance, Waiver and Consent in which she was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Brown consented to the described sanction and to the entry of findings that she

failed to completely respond to FINRA requests for information and failed to appear for a

FINRA on-the-record interview. (FINRA Case #2010022064001)

Kenneth Richard Campbell III (CRD #2056286, Registered Principal, Richmond, Virginia)

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

month. The fine must be paid either immediately upon Campbell’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, Campbell consented to the described sanctions and to

the entry of findings that he failed to enforce his member firm’s heightened supervisory

procedures with respect to one of its representatives. The findings stated that, according

to those procedures, Campbell was responsible for determining the scope of the

heightened supervision and ensuring that the representative’s supervisor was enforcing

the heightened supervision plan. The findings also stated that the firm required that the

plan be individualized based on the representative’s disciplinary history. The findings

also included that Campbell placed a representative on heightened supervision because

of his disciplinary history, and the plan Campbell prepared was deficient because it was

not tailored to that representative’s history of engaging in private securities transactions

and did not provide for any material additional supervision beyond the usual steps that

were taken to oversee other firm representatives. FINRA found that Campbell failed

to ensure that the plan was implemented and, as a result, a log was not created of the

representative’s trades, certifications were not made to the compliance department that

the heightened supervision plan was implemented, and an annual review of the plan did

not take place; the plan required all of these actions to have been taken.

Disciplinary and Other FINRA Actions 21

July 2011

The suspension was in effect from May 16, 2011, through June 15, 2011. (FINRA Case

#2010024997001)

Thomas Colby Cantrell (CRD #4545913, Registered Representative, Granville, Ohio)

submitted a Letter of Acceptance, Waiver and Consent in which he was suspended from

association with any FINRA member in any capacity for 12 months. In light of Cantrell’s

financial status, no monetary sanctions were imposed. Without admitting or denying

the findings, Cantrell consented to the described sanctions and to the entry of findings

that he participated in sales of universal lease programs (ULPs) totaling $763,888.82 to

members of the public, failed to provide his member firm with written notice about the

sales and failed to obtain the firm’s written approval. The findings stated that Cantrell

provided false information to his firm; he completed and submitted an outside business

activities questionnaire form in which he falsely stated he conducted no business using

a DBA (doing business as), falsely responded whether any other company or individual

employed him, falsely disclosed that he was not involved with outside business activities,

and answered “yes” that he was aware he could not engage in outside business activities

or private securities transactions, directly or indirectly, without prior written firm approval.

The findings also stated that Cantrell participated in a sale of a total of $210,547.05 worth

of ULPs to individuals at another member firm and failed to provide the firm with written

notice about the sales or obtain the firm’s written approval. The findings also included that

Cantrell received approximately $94,070 in commissions from his sale of the ULPs while

registered with both firms.

The suspension is in effect from June 20, 2011, through June 19, 2012. (FINRA Case

#2009016709021)

Bart Chad Christensen (CRD #2956167, Registered Representative, South Jordan, Utah)

submitted a Letter of Acceptance, Waiver and Consent in which he was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Christensen consented to the described sanction and to the entry of findings that

he sold approximately $650,000 in a company’s promissory notes to customers without

providing his member firm with written notice of the promissory note transactions

and receiving the firm’s approval to engage in these transactions. The findings stated

that based upon expected interest payments from the promissory notes, some of the

customers also purchased life insurance policies from Christensen and another registered

representative the firm employed. The findings also stated that these customers expected

to use the promissory note interest payments to pay for the life insurance premiums. The

findings also included that Christensen received direct commissions from the company

related to the sale of the promissory notes to customers and received commissions from

the sale of life insurance products to the customers, who intended to fund those policies

with the interest payments from the promissory notes.

22 Disciplinary and Other FINRA Actions

July 2011

FINRA found that the company defaulted on its obligations and the customers lost their

entire investment. FINRA also found that the customers who also purchased life insurance

based upon the expectation that they would receive interest payments from their

investment relinquished their policies and the firm compensated them for the premiums

paid, but the customers did not receive any reimbursement for the investments in the

company that sold the promissory notes. In addition, FINRA determined that Christensen

completed a firm annual compliance questionnaire, in which he falsely stated that he had

not been engaged in any capital raising activities for any person or entity; had not received

fees for recommending or directing a client to other financial professionals; had not been

personally involved in securities transactions, including promissory notes, that the firm

had not approved; and had not assisted a client with an application for investments not

available through the firm or contracted or otherwise acted as an intermediary between a

client and a sponsor of such investments without the firm’s prior approval. Moreover, FINRA

found that Christensen failed to respond to FINRA requests for documents and testimony.

(FINRA Case #2009018990002)

Kimberlie Munsie Clark (CRD #2897446, Registered Principal, Arlington, Vermont)

submitted a Letter of Acceptance, Waiver and Consent in which she was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Clark consented to the described sanction and to the entry of findings that she

misappropriated $8,333.33 from her member firm. The findings stated that Clark was her

firm’s Chief Financial Officer and co-Chief Operating Officer with authority to write checks

from its checking accounts, including checks for her own compensation. The findings also

stated that Clark was entitled to a payroll check in the amount of $8,333.33 and issued a

check to herself for that amount and, without the firm’s permission, issued herself another

$8,333.33 check. The findings also included that both payroll checks were deposited in

Clark’s personal banking account. (FINRA Case #2010025003701)

David Charles Clayton (CRD #1829070, Registered Representative, Castro Valley, California)

submitted a Letter of Acceptance, Waiver and Consent in which he was fined $5,000,

which includes disgorgement of financial benefits received of $2,199.13, suspended from

association with any FINRA member in any capacity for 20 business days and ordered to

pay $2,560.14, plus interest, in restitution to a customer. Without admitting or denying the

findings, Clayton consented to the described sanctions and to the entry of findings that he

executed a transaction for a customer without the customer’s authorization or consent.

The findings stated that the customer agreed to open an Individual Retirement Account

(IRA) with Clayton’s member firm, to transfer approximately $199,921 from an existing

IRA account and to invest the funds in a mutual fund. The findings also stated that the

customer executed a new account form, a request to change investments form and other

documents necessary to accomplish the transaction; Clayton was the broker responsible

for the customer’s account at the firm. The findings also included that the transfer of funds

from the customer’s existing IRA account had not yet been completed before Clayton

received an electronic mail message from the customer in which she requested that her

Disciplinary and Other FINRA Actions 23

July 2011

funds be placed in a money market account rather than in the mutual fund; the customer

thereby withdrew her authorization for the purchase of shares in the mutual fund. FINRA

found that despite Clayton’s knowledge that the customer no longer wished to purchase

shares in the mutual fund, he did not take any steps to cancel the customer’s order and

executed the purchase of the mutual fund shares.

The suspension was in effect from June 6, 2011, through July 1, 2011. (FINRA Case

#2008015620301)

Maritza Del Carmen Cruz (CRD #4708750, Registered Representative, Chino, California)

submitted a Letter of Acceptance, Waiver and Consent in which she 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 Cruz’ reassociation with a FINRA member

firm following her 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, Cruz consented to the described sanctions and to the entry of findings that she

participated in an outside business activity without providing her member firm with prior

written notice. The findings stated that an individual offered Cruz $3,000 in exchange for

referring firm clients and others with available credit on their personal credit cards who

would invest in his newly created business. The findings also stated that the individual

failed to pay those who invested in his business as promised. The findings also included

that Cruz misrepresented to her firm her involvement in the outside business activity on a

compliance her firm review conducted. FINRA found that upon admitting her involvement

in the outside business activity to her firm, the firm immediately suspended Cruz,

conducted an internal investigation and later terminated Cruz.

The suspension is in effect from June 6, 2011, through September 5, 2011. (FINRA Case

#2009019865801)

Lauren Tricia Cyrus (CRD #2937063, Registered Principal, West Orange, New Jersey)

submitted a Letter of Acceptance, Waiver and Consent in which she was fined $5,000 and

suspended from association with any FINRA member in any principal capacity for one

month. The fine shall be due and payable, pursuant to an installment plan, beginning

either immediately upon reassociation with a member firm following her suspension, or

prior to any application or request for relief from any statutory disqualification resulting

from this or any other event or proceeding, whichever is earlier. Without admitting or

denying the findings, Cyrus consented to the described sanctions and to the entry of

findings that she failed to supervise representatives at her member firm who made

unsuitable recommendations to customers at their firm. The findings stated that Cyrus

was responsible for supervising the representatives but failed to take appropriate action

to supervise the representatives that was reasonably designed to prevent their violations

and achieve compliance with applicable rules. The findings also stated that Cyrus failed to

adequately review and follow up on the over-concentration of the customers’ liquid assets

in preferred stocks and the risks associated with those securities.

24 Disciplinary and Other FINRA Actions

July 2011

The suspension was in effect from June 6, 2011, through July 5, 2011. (FINRA Case

#2009017399501)

Salvatore Demeo Jr. (CRD #2927685, Registered Representative, Phoenix, Arizona) was

barred from association with any FINRA member in any capacity. The sanction was based

on findings that Demeo converted funds from a customer’s account by withdrawing

$9,417.11 from the customer’s bank account without the customer’s knowledge or

authorization, deposited the funds into a bank account for his company and used them for

his personal benefit. The findings also stated that Demeo failed to appear for FINRA on-the-

record testimony. (FINRA Case #2009018139301)

Shaun Michael Donahue (CRD #5581483, Registered Representative, Ridley Park,

Pennsylvania) 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 capacity

for one month. Without admitting or denying the findings, Donahue consented to the

described sanctions and to the entry of findings that he requested, received and improperly

distributed the answer key for a state LTC CE examination to a financial advisor outside his

member firm. The findings stated that Donahue was an internal wholesaler at a firm who

supported the selling efforts of external wholesalers who marketed an insurance product

to financial advisors at financial service firms. The findings also stated certain states began

requiring financial advisors to successfully complete an LTC CE examination before selling

long-term care products to retail customers. The findings also included that the firm

authorized its wholesalers to give financial advisors vouchers from a company, which the

financial advisors could use to take the LTC CE examinations without charge. FINRA found

that firm employees, other than Donahue, created answer keys for the company’s LTC CE

examinations for various states, and distributed them to other firm employees.

The suspension is in effect from June 20, 2011, through July 19, 2011. (FINRA Case

#2009021029619)

Aaron Michael Ferguson (CRD #2676804, Registered Representative, Queens, New York)

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 capacity for three months. The

fine must be paid either immediately upon Ferguson’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, Ferguson consented to the described sanctions and to the entry of findings

that he participated in a private securities transaction without providing his member firm

with prior notice of the proposed transaction or his proposed role in it. The findings stated

that Ferguson did not receive any compensation in connection with the private securities

transaction.

The suspension is in effect from June 6, 2011, through September 5, 2011. (FINRA Case

#2009019298101)

Disciplinary and Other FINRA Actions 25

July 2011

Alfonso Fiero (CRD #4248781, Registered Principal, Queens Village, New York) was barred

from association with any FINRA member in any capacity. The sanction was based on

findings that while registered with a member firm, Fiero maintained a corporate brokerage

account which he controlled at another member firm (the executing firm) without

disclosing the existence of this account to his firm or his association with his firm to the

executing firm. The findings stated that Fiero failed to disclose the existence of any outside

securities account, including any accounts where he had control over the investments

on an annual certification form he submitted to his firm. The findings also stated that

Fiero failed to respond to FINRA requests for information and documents. (FINRA Case

#2008015329001)

Timothy Martin Foster (CRD #4497560, Registered Representative, Chillicothe, Ohio)

submitted a Letter of Acceptance, Waiver and Consent in which he was fined $10,000 and

suspended from association with any FINRA member in any capacity for 20 business days.

The fine must be paid either immediately upon Foster’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, Foster consented to the described sanctions and to the entry of findings that he

recommended to customers that they purchase UITs without having reasonable grounds

to believe the recommendations were suitable based on the customers’ risk tolerance,

investment experience, need for income, net worth, investable assets and annual income.

The findings stated that Foster’s member firm paid the customers a total of $23,199.25 in

restitution and compensated customers $124 for a missed breakpoint.

The suspension was in effect from May 16, 2011, through June 13, 2011. (FINRA Case

#2008015078602)

Andrew Joseph Franz (CRD #3122848, Registered Representative, Aurora, Ohio) submitted

a Letter of Acceptance, Waiver and Consent in which he was barred from association

with any FINRA member in any capacity. Without admitting or denying the findings,

Franz consented to the described sanction and to the entry of findings that without

authorization, he took possession of checks payable to the investment adviser firm where

he was employed, deposited the checks, which totaled about $21,000, to a personal bank

account, and converted a portion of the funds to his own use and benefit. The findings

stated that Franz was the broker of record for a money market mutual fund account that

an investor owned, and while the investor was out of state and without his knowledge or

authorization, Franz contacted the mutual fund company multiple times and instructed it

to issue checks to the investor drawn against his money market account. The findings also

stated that the mutual fund company issued checks payable to the investor totaling about

$271,250 and mailed them to the investor’s residence in Ohio. The findings also included

that Franz obtained possession of the checks at the investor’s residence and, without the

investor’s knowledge or authorization, Franz forged his signature on the checks, deposited

the checks to a personal bank account and converted a portion of the funds to his own use

and benefit and remitted the rest to the investor. (FINRA Case #2010025073601)

26 Disciplinary and Other FINRA Actions

July 2011

Edward Philip Gelb (CRD #1967796, Registered Principal, Melville, New York) submitted

a Letter of Acceptance, Waiver and Consent in which he was barred from association

with any FINRA member in any capacity. Without admitting or denying the findings,

Gelb consented to the described sanction and to the entry of findings that he solicited

individuals, including customers at his member firm, to invest in entities that were

purportedly engaged in the export and import business with a manufacturer based in

China. The findings stated that in total, Gelb raised approximately $1.8 million from

investors and received approximately $79,500 from the entities as compensation derived

from his solicitation of, and directing investors to, the entities. The findings also stated

that Gelb was aware of his firm’s policies and procedures, which specifically prohibited

its registered representatives from participating in any manner in the solicitation of any

securities transaction outside the regular scope of their employment without approval. The

findings also included that Gelb signed annual certifications attesting to this knowledge

and failed to notify his firm about his solicitation of investors for the entities because he

did not expect the firm’s approval of the product.

FINRA found that the firm customers who invested in the entities Gelb recommended had

low risk tolerances and had investment objectives of growth and/or income, and Gelb

did not have a reasonable basis for recommending the entities to the customers. FINRA

also found that Gelb failed to obtain adequate information about the investment and

instead relied upon unfounded representations, including guarantees that the investors’

principal would be protected despite the fact that, at no time, had Gelb seen any financial

documentation for the entities; the information available on the Internet about the

entities was limited to the companies’ own website. In addition, FINRA determined that

despite the highly risky nature of the investment, Gelb led the customers to believe that

the investment he was recommending was a safe and secure investment and, in some

cases, Gelb was aware that customers were taking out home equity lines of credit on their

homes to fund their investments in the entities. Moreover FINRA found that Gelb utilized

an outside email account, without his firm’s knowledge or consent, to conduct securities

business. Furthermore, FINRA found that although the firm was aware of the outside email

account, Gelb had not been approved to utilize that email address to conduct securities-

related business and by operating an outside email account for securities-related business

without the firm’s knowledge and consent, Gelb prevented his firm from reviewing his

emails pursuant to NASD Rule 3010(d). (FINRA Case #2009019466601)

Jason Scott Haney (CRD #4333126, Registered Supervisor, Winston, Georgia) submitted

a Letter of Acceptance, Waiver and Consent in which he was fined $10,000, which

includes disgorgement of $5,477.86 in commissions received, suspended from association

with any FINRA member in any capacity for two months and required to requalify by

exam as an investment company/variable contracts representative (Series 6) prior to

becoming reassociated with any FINRA member in any capacity. The fine must be paid

either immediately upon Haney’s reassociation with a FINRA member firm following his

Disciplinary and Other FINRA Actions 27

July 2011

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, Haney

consented to the described sanctions and to the entry of filings that he negligently

misrepresented a 6 percent guaranteed minimum income benefit with annual reset rider

to a variable annuity to an unsophisticated customer who believed she could exercise

the rider for a 6 percent income stream every year without annuitization, could receive

a 6 percent income stream every year and receive her entire initial principal back at the

end of the variable annuity’s four-year holding period, regardless of the stock market’s

performance and any withdrawals in the intervening years. The findings stated that the

customer understood, based on Haney’s misrepresentations, that the annuity had a four-

year holding period similar to a certificate of deposit (CD) term. The findings also stated

that the customer, based on Haney’s misrepresentations, invested $168,550.53 in the

variable annuity with the rider. The findings also included that Haney’s recommendation

was unsuitable because the customer was not a sophisticated investor and did not

understand how a variable annuity worked; the need for liquidity within two to four years

negated the rider’s primary benefit of provided guaranteed income after a minimum of 10

years. FINRA found that the investment of approximately a total of $218,000 involved an

over-concentration of approximately 77 percent of the customer’s liquid net worth.

The suspension is in effect from June 6, 2011, through August 5, 2011. (FINRA Case

#2009019512901)

Dane Raymond Henry (CRD #2446502, Registered Representative, Brooklyn, New York)

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 capacity for 30 business days.

Without admitting or denying the findings, Henry consented to the described sanctions

and to the entry of findings that he added information to an earlier copy of a private

placement investor questionnaire that had previously been signed by a customer. The

findings stated that the questionnaire itself had been completed by the customer while

Henry was registered with a prior member firm and was later replaced at that prior firm

by a different version; Henry maintained a copy of the earlier signed copy. The findings

also stated that in response to an inquiry made by Henry’s new firm’s CCO regarding the

source of a particular stock in the customer’s account, Henry utilized the earlier copy of the

previously signed questionnaire from the customer that Henry had in his files and made

alterations to the document by adding on the updated requested information sought by

the CCO. The findings also included that Henry presented that altered document to the

CCO without disclosing that he had made the alterations and by making the alterations

to the questionnaire, he caused the document and, consequently, the firm’s records to be

inaccurate.

The suspension is in effect from June 6, 2011, through July 18, 2011. (FINRA Case

#2009018021801)

28 Disciplinary and Other FINRA Actions

July 2011

Lien Thi Huynh (CRD #4751613, Registered Representative, Redwood City, California)

submitted a Letter of Acceptance, Waiver and Consent in which she was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Huynh consented to the described sanction and to the entry of findings that she

forged her supervisor’s signature on one of his personal banking account checks, made the

check payable to herself in the amount of $9,000, cashed the check without her supervisor’s

knowledge or authority, and deposited the funds into her relative’s checking account,

thereby misappropriating her supervisor’s funds and converting the funds for her personal

benefit and use. The findings stated that Huynh attempted to conceal her wrongdoing

by writing “compensation/bonus quarter 1 and quarter 2” on the check’s “re:” line. The

findings also included that the supervisor’s bank reimbursed him for the fraudulent

transaction. (FINRA Case #2009018467001)

Matthew John Iskric (CRD #601605, Registered Supervisor, Huntington, New York)

submitted a Letter of Acceptance, Waiver and Consent in which he was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Iskric consented to the described sanction and to the entry of findings that he

misused his member firm’s funds by using the firm’s corporate credit card for personal

purposes, including purchases of gift cards from various retailers. The findings stated that

the amount of unauthorized charges was in excess of $10,000. The findings also stated that

while registered with a different member firm, Iskric failed to timely update his Form U4

with material information. (FINRA Case #2009017857501)

Jeffrey Garland Kelly (CRD #2547707, Registered Representative, Hilliard, Ohio) submitted

a Letter of Acceptance, Waiver and Consent in which he was barred from association

with any FINRA member in any capacity. Without admitting or denying the findings, Kelly

consented to the described sanction and to the entry of findings that while registered at

member firms, he failed to provide written notice to each firm that he was employed by

or accepted compensation from other persons as a result of business activities that were

neither passive investments nor within the authorized scope of his relationship with

his firms. The findings stated that Kelly was primarily responsible for the operation of a

company, having handled its formation, negotiated its loan agreements and controlled

its finances, including investments and distributions and received direct and indirect

compensation. The findings also stated that Kelly formed additional entities, filed

registration documents, served as their registered agent and took out loans on their behalf,

which were business activities unrelated to his relationship with his member firms. The

findings also included that Kelly failed to disclose these companies to his member firms

and falsely represented on his qualifying questionnaire for his most recent firm that he did

not and would not engage in any outside business activities without prior notification to,

and written consent from, the firm. FINRA found that Kelly participated in private securities

transactions without prior written notice to his firms describing in detail the proposed

transactions, his proposed role therein, and stating whether he received, or might receive,

selling compensation. (FINRA Case #2010025192301)

Disciplinary and Other FINRA Actions 29

July 2011

Scott Edward Kelly (CRD #2306574, Registered Representative, New York, New York)

submitted a Letter of Acceptance, Waiver and Consent in which he was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Kelly consented to the described sanction and to the entry of findings that he

facilitated a customer’s investments in private placements totaling $775,000 without

providing his member firm with prior written notice of any of the investments or obtaining

the firm’s prior approval to facilitate any of the investments. The findings stated that

Kelly failed to respond to FINRA requests for information and documents. (FINRA Case

#2009018756701)

Patrick Shawn Kennedy (CRD #3005062, Registered Supervisor, Raleigh, North Carolina)

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 capacity for nine months. The

fine must be paid either immediately upon Kennedy’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, Kennedy consented to the described sanctions and to the entry of findings

that he continued recommending and effecting put options trading in a customer’s

account even though he knew that the trading was unsuitable because the customer

was unemployed and the risk was inconsistent with the customer’s financial resources,

investment objectives and risk tolerance. The findings stated that Kennedy recommended

that an elderly couple invest $50,000 in a put options trading strategy with approximately

$57,000 to be invested in mutual funds and bonds with none of the mutual funds to be

used for put options trading. The findings also stated that the customers’ account, which

had approximately $267,298.55, suffered realized and unrealized losses of $195,046.40

due to Kennedy’s put option trading strategy and the liquidation of mutual funds to cover

losses from the put options trading and to meet margin requirements of securities that

were purchased in the customers’ account due to the put options trading.

The suspension is in effect from May 16, 2011, through February 15, 2012. (FINRA Case

#2009018671501)

Thomas Michael Kinser (CRD #1435579, Registered Representative, Southlake, Texas)

was barred from association with any FINRA member in any capacity. The sanction was

based on findings that Kinser converted approximately $330,000 in customer’s funds.

The findings stated that Kinser called the mutual fund company through which he had

invested customer’s funds to change the address on the account from the customer’s

residential address to Kinser’s office address. The findings also stated that at Kinser’s

request, the mutual fund company sent redemption checks drawn on the customer’s

account to Kinser without the customer’s knowledge, consent or authorization, and Kinser

forged the customer’s signature on the checks, endorsed them to make them payable to

him and deposited the funds in his own account. The findings also included that to conceal

the conversions, Kinser fabricated account summaries and documents, including charts

30 Disciplinary and Other FINRA Actions

July 2011

and statements purporting to reflect the customer’s account balance, which he presented

to the customer in periodic meetings, misleading the customer into believing all of his

money was still invested in mutual funds and was still earning interest. FINRA found that

Kinser failed to respond to FINRA requests for information and documents. (FINRA Case

#2009017466201)

Ryan Jeffrey Kirkpatrick (CRD #4459488, Registered Representative, Granbury, Texas) was

fined $25,000, suspended from association with any FINRA member in any capacity for six

months, and ordered to disgorge $91,466, which represents the commissions earned on

the sales of unregistered securities. The fine and disgorgement shall be due and payable

upon Kirkpatrick’s return to the securities industry. The sanctions were based on findings

that Kirkpatrick sold millions of unregistered shares of stock for accounts opened at his

member firm on his customers’ behalf, realizing approximately $9.3 million in proceeds for

the customers without taking the necessary steps to determine whether his customers’

unregistered shares could be sold in compliance with Section 5 of the Securities Act of 1933.

The findings stated that Kirkpatrick signed new account forms for the customers, did not

review them in depth, neither met nor spoke with the customers, and communicated with

them solely via email and instant message. The findings also stated that Kirkpatrick failed

to conduct the necessary due diligence prior to the entity’s stock sales from the customers’

accounts; the circumstances surrounding the entity’s stock and the firm’s customers

presented numerous red flags of a possible unlawful stock distribution. The findings also

included that the sales through one of the customers’ accounts at Kirkpatrick’s firm realized

approximately $5.8 million in proceeds for the customer, and another customer realized

approximately $3.5 million in proceeds; the total commissions generated for these sales

were $481,398 of which Kirkpatrick received commissions totaling $91,466.

FINRA found that Kirkpatrick admitted that he did not determine if a registration statement

was in effect with respect to the customers’ entity shares, or if there was an applicable

exception; instead he relied on the issuer’s transfer agent to determine if the entity stock

the customers deposited could be sold. FINRA also found that Kirkpatrick did not review

the customers’ incoming stock questionnaires, nor did he request or review the stock

certificates, which indicated information about how and from whom the shares were

purchased, whether the customer was affiliated with the issuer and whether the stock was

restricted. In addition, FINRA determined that Kirkpatrick noticed that the accounts seemed

to have the same trading pattern, yet he failed to investigate and failed to make any effort

to determine the source of the customers’ shares.

The suspension is in effect from May 16, 2011, through November 15, 2011. (FINRA Case

#2006004666601)

Manuel Jose Leon Jr. (CRD #1058319, Registered Principal, Altamonte Springs, Florida)

submitted a Letter of Acceptance, Waiver and Consent in which he was barred from

association with any FINRA member in any capacity. Without admitting or denying the

Disciplinary and Other FINRA Actions 31

July 2011

findings, Leon consented to the described sanction and to the entry of findings that he

recommended that a couple invest $167,000 in a private securities transaction without

providing notice of his proposed role in the transaction to his member firms. The findings

stated that Leon formed a company through which he sought to operate an independent

branch of a broker-dealer and did not have reasonable grounds to believe that the

recommended investment in the company was suitable for the couple in light of their

investment objectives, financial situation and needs; the recommended investment was

too risky for the customers, who were a retired couple of limited means. The findings

also stated that the recommendation led to most of their investable assets being over-

concentrated in the security. In addition, FINRA determined that prior to its dissolution,

the company made interest and principal payments totaling approximately $26,000 to the

couple, who lost approximately $141,000 on their investment in the company. The findings

also included that Leon failed to respond completely to FINRA requests for information and

documents. (FINRA Case #2010024861802)

Dareth Amber Martin (CRD #4479899, Registered Representative, Charlotte, North

Carolina) submitted an Offer of Settlement in which she was barred from association with

any FINRA member in any capacity. Without admitting or denying the allegations, Martin

consented to the described sanction and to the entry of findings that she misappropriated

at least $81,670 from her employer and its owner through the use of credit cards and

checks for unauthorized purposes. The findings stated that Martin, without authorization,

used her employer’s personal credit cards and business credit account to purchase personal

items, totaling at least $34,516, and used her employer’s business checking account,

without authorization, to issue checks for personal items exceeding $1,603. The findings

also stated that Martin issued checks from the business account to herself and made cash

withdrawals for herself without authorization; these withdrawals exceeded the actual

business expenses by at least $23,385. The findings also included that Martin issued, or

caused to be issued, checks to herself for unauthorized bonus payments totaling at least

$22,166. FINRA found that Martin failed to appear for FINRA on-the-record testimony.

(FINRA Case #2009019349301)

Joseph Vincent Massaro (CRD #5195215, Registered Representative, Port Jefferson, New

York) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $7,500

and suspended from association with any FINRA member in any capacity for nine months.

The fine must be paid either immediately upon Massaro’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, Massaro consented to the described sanctions and to the entry

of findings that he signed a customer’s name to a variable annuity exchange form to

effectuate the customer’s order to purchase a new variable annuity, without the customer’s

authorization or consent. The findings stated that Massaro failed to respond timely to

FINRA requests for information.

32 Disciplinary and Other FINRA Actions

July 2011

The suspension is in effect from June 6, 2011, through March 5, 2012. (FINRA Case

#2010022427702)

Bryan C. McCabe (CRD #5024207, Registered Representative, Ashburn, Virginia) 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 capacity for 10 business days. Without

admitting or denying the findings, McCabe consented to the described sanctions and to

the entry of findings that he requested and received answer keys to state insurance LTC CE

examinations and distributed them to other employees at his member firm.

The suspension was in effect from June 6, 2011, through June 17, 2011. (FINRA Case

#2009021029617)

John Francis Means (CRD #2263604, Registered Representative, Lutherville, Maryland)

submitted a Letter of Acceptance, Waiver and Consent in which he was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Means consented to the described sanction and to the entry of findings that he

exercised discretionary power in customers’ accounts without obtaining the customers’

prior written authorization and his member firm’s written acceptance of the accounts

as discretionary at the time. The findings stated that Means engaged in excessive and

unsuitable trading in the accounts, which resulted in substantial losses. The findings also

stated that Means recommended and effected transactions pursuant to, and in furtherance

of, a strategy he recommended of engaging in high frequency trading to generate income.

The findings also included that Means did not have reasonable grounds for believing that

the recommended strategy, and the transactions he recommended in implementing it,

were suitable for the customers because the trading strategy involved high transaction

costs that over the entire period resulted in an annualized cost-equity ratio of about 35

percent; the trading was done using margin, which exacerbated the high transaction

costs; and he recommended that the customers use funds borrowed against their primary

residence and a vacation home they owned to engage in the trading activity. FINRA found

that in connection with his recommendations, Means failed to disclose to the customers

the risks associated with trading on margin and the risks associated with the strategy of

engaging in high frequency trading to generate income. (FINRA Case #2010021910201)

Kevin Todd Mehlman (CRD #2972511, Registered Representative, Woodland Hills,

California) submitted a Letter of Acceptance, Waiver and Consent in which he was barred

from association with any FINRA member in any capacity. Without admitting or denying

the findings, Mehlman consented to the described sanction and to the entry of findings

that he facilitated securities investments away from his member firm and received

compensation as a result of the sales. The findings stated that Mehlman, working with

others through an entity, distributed secured investment notes in a company to insurance

agents who in turn marketed the notes, which were securities. The findings also stated that

the entity sold approximately $60 million in the notes and generated more than $6 million

Disciplinary and Other FINRA Actions 33

July 2011

in gross commission revenues from which Mehlman received approximately $430,000

from the sales. The findings also included that the investments were not made through

Mehlman’s firm and Mehlman did not provide written notice to, or obtain approval from,

his firm prior to facilitating the investments. (FINRA Case #2009018297901)

Michael James Merendino Jr. (CRD #2664206, Registered Principal, Park Ridge, New

Jersey) submitted a Letter of Acceptance, Waiver and Consent in which he was barred

from association with any FINRA member in any capacity. Without admitting or denying

the findings, Merendino consented to the described sanction and to the entry of findings

that he failed to respond to FINRA requests for information and documents. (FINRA Case

#2010025700001)

Donna Marie Miller (CRD #2822229, Associated Person, Los Angeles, California) was barred

from association with any FINRA member in any capacity. The sanction was based on

findings that Miller converted $19,736.76 from her member firm. The findings stated that

in her capacity as assistant to the branch manager, Miller had authority to request that

checks be issued from the branch office general ledger account to pay for branch expenses.

The findings also stated that Miller caused checks to be issued off the branch office general

ledger to her boyfriend for construction work at the branch that was never performed. The

findings also included that each check was created in an amount equal to or less than $500

so that she could authorize the payments without the need for another firm manager’s

approval.

FINRA found that Miller caused another check to be issued to herself from the branch office

general ledger. FINRA also found that Miller reported to branch management that she did

not receive her paychecks and obtained replacement checks totaling $1,035.80 from the

branch, with the understanding that she would return her paychecks to the branch if she

received them; when Miller received her paychecks, she deposited them into her personal

account without reimbursing her firm. Moreover, FINRA found that Miller failed to respond

to FINRA requests for information and documents. (FINRA Case #2010021623401)

David Allen Naefke (CRD #1349960, Registered Representative, Palm Beach

Gardens, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was

barred from association with any FINRA member in any capacity. Without admitting

or denying the findings, Naefke consented to the described sanction and to the entry

of findings that he circumvented his member firm’s guidelines regarding investing in

illiquid investments by submitting documents, including illiquid investment letters and

account information forms, that falsified and exaggerated customers’ net worth which in

turn permitted investments in amounts that the firm would have otherwise prohibited

and that were unsuitable for the affected customers. The findings stated that the firm

had internal guidelines that limited the amounts customers were permitted to invest

in illiquid investments; the internal policy further stated that illiquid investments for

older investors required additional review and consideration pertaining to their needs

34 Disciplinary and Other FINRA Actions

July 2011

for liquidity and income. The findings also stated that Naefke submitted documents

that knowingly falsified customers’ net worth, causing his firm’s books and record to be

inaccurate and customers to invest in illiquid investments in amounts that his firm would

have otherwise prohibited; and Naefke impeded his firm’s ability to adequately supervise

the suitability of his recommendations. The finding further stated that on three illiquid

investment letters, Naefke falsely stated that a 50-year-old customer’s adjusted net worth

was $2,000,000, when in fact it was about $150,000; on at least two account information

forms, Naefke falsely stated that an 87-year-old customer’s net worth was between

$1,000,000 and $2,999,999, when, in fact, it was approximately $250,000; and on four

illiquid investment letters, Naefke falsely stated that the 87-year-old customer’s adjusted

net worth was $1,000,100. The findings also included that Naefke recommended and sold

illiquid investment interests in publicly registered non-traded real estate investment trusts

(REITs), direct participation programs and a limited partnership to customers totaling about

$299,000. FINRA found that when Naefke made the recommendations and sales, he did

not have reasonable grounds for believing that the recommendations were suitable based

on each customer’s other security holdings, financial situation and needs. (FINRA Case

#2009016728501)

Tina Marie Newman (CRD #2547704, Registered Principal, Teaticket, Massachusetts) was

barred from association with any FINRA member in any capacity. The sanction was based

on findings that Newman converted $10,166.34 by using her member firm’s corporate

credit cards to pay for a personal vacation and misappropriating her firm’s credit card

rewards points for her personal use. The findings stated that Newman did not have the

firm’s permission or consent or the authority to charge her personal vacation to her firm-

issued credit cards or appropriate reward points for her own use. The findings also stated

that Newman did not inform anyone at her firm or memorialize or otherwise create a

record of these charges. The findings also included that Newman reimbursed her firm

for the charges but not for the credit card rewards points. FINRA found that Newman

intentionally created fictitious and false entries in the firm’s books to cover up her

conversion of firm funds for her personal benefit. (FINRA Case #2008011719501)

Stephen James Nicklas (CRD #5108815, Registered Representative, Roanoke, Virginia)

submitted a Letter of Acceptance, Waiver and Consent in which he was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Nicklas consented to the described sanction and to the entry of findings that he

misappropriated $4,329.52 from his member firm. The findings stated that Nicklas wrote

firm checks payable to himself, forged signatures on the checks and then deposited the

checks into his personal trading account. The findings also stated that Nicklas withdrew

firm funds, without authorization, from automatic teller machines (ATMs). (FINRA Case

#2010025194301)

Sammy Gail Page (CRD #1640203, Registered Representative, Spurger, Texas) submitted

a Letter of Acceptance, Waiver and Consent in which she was barred from association

with any FINRA member in any capacity. Without admitting or denying the findings, Page

Disciplinary and Other FINRA Actions 35

July 2011

consented to the described sanction and to the entry of findings that she converted a total

of $1,207,440.61 from retail customer brokerage accounts by arranging for transfers of

funds from the customers’ accounts, by way of one check and automated clearing house

(ACH) debits, for payment of a corporate credit card account held in her name, without

the customers’ authorization. The findings stated that Page provided false information

to a Certified Public Accountant (CPA) who was acting on one of her customer’s behalf

with respect to some of the ACH debits made from that customer’s brokerage account

totaling $286,330.72, each debit having been made payable to Page’s corporate credit

card account. The findings also stated that Page told the CPA that the debits were made to

fund an outside real estate investment in which she had placed a portion of the customer’s

investment portfolio. The findings also included that Page fabricated an account

statement purportedly demonstrating that the customer had an ownership interest in a

particular REIT when no such ownership existed, and faxed the fabricated statement to

the CPA. FINRA found that when the CPA sought further information about any dividends

arising from the REIT investment, Page falsely explained to the CPA that while dividends

were expected, they would not be forthcoming until the following tax year. FINRA also

found that by deliberately deceiving one of her customer’s appointed representatives

in such a fashion, Page, in the conduct of her securities business, failed to observe high

standards of commercial honor and just and equitable principles of trade. (FINRA Case

#2011027424501)

Nicole R. Palumbo (CRD #5416370, Registered Representative, New Windsor, New York)

submitted a Letter of Acceptance, Waiver and Consent in which she was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Palumbo consented to the described sanction and to the entry of findings that she

activated ATM cards, linked them to bank customer accounts and affected unauthorized

ATM withdrawals from the customers’ accounts, which totaled approximately $36,895.

The findings stated that Palumbo did not have permission or authority from the customers

or the bank to link the ATM cards to the customers’ accounts or withdraw funds from the

accounts. The findings also stated that Palumbo effected a $1,000 direct cash withdrawal

from another customer’s account without permission or authority from the customer or

bank. The findings also included that these transactions did not involve funds from an

account held at a FINRA-regulated entity. (FINRA Case #2010023810201)

Brian Daniel Parker (CRD #2161106, Registered Principal, Covington, Louisana) 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 capacity for 30 days. The fine must be paid

either immediately upon Parker’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, Parker

consented to the described sanctions and to the entry of findings that he failed to provide

written notice to his member firm prior to opening a brokerage account with another FINRA

member firm and, upon opening the account, failed to advise the executing member firm in

writing of his association with his firm. The findings stated that Parker engaged in outside

business activities without providing prompt written notice to his firm.

36 Disciplinary and Other FINRA Actions

July 2011

The suspension was in effect from May 16, 2011, through June 14, 2011. (FINRA Case

#2008015729701)

John Stultz Poland (CRD #4333268, Registered Representative, Fredericksburg, Virginia)

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 capacity for one month. The

fine must be paid either immediately upon Poland’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, Poland consented to the described sanctions and to the entry of findings that

he allowed a representative of a non-FINRA member insurance company to improperly

assist him in completing a state insurance LTC CE exam. The findings stated that the

representative sat with Poland for half of the time it took him to complete the exam. The

findings also stated that the representative and Poland discussed the topics covered on

the exam, and as a result, Poland received assistance on some of the answers on the exam.

The findings also included that after completing the exam, Poland completed an exam

certification form/declaration of compliance, and despite having received assistance on the

exam, he signed the form and inaccurately certified that he completed the exam without

assistance from any outside source.

The suspension was in effect from May 23, 2011, through June 22, 2011. (FINRA Case

#2010023613401)

Thomas Povinelli (CRD #1326492, Registered Principal, Greenwich, Connecticut) 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 capacity for one month. Without

admitting or denying the findings, Povinelli consented to the described sanctions and to

the entry of findings that he provided inaccurate information on customers’ replacement

annuity applications. The findings stated that the customers signed the applications in

New York, but Povinelli indicated on the applications that they had been signed in Florida.

The findings also stated that Povinelli inserted signing dates on the documents that were

inaccurate and submitted the applications to the insurance company issuing the annuities.

The findings also included that because Povinelli indicated on the applications that the

customers had signed the forms in Florida, the customers did not receive the benefit of

New York Regulation 60, which would have provided them with a right of rescission of the

replacement annuity and reinstatement of the surrendered annuity within 60 days.

The suspension was in effect from June 6, 2011, through July 5, 2011. (FINRA Case

#2009018168301)

Michael Keith Reynolds (CRD #3080149, Registered Principal, New York, New York)

submitted a Letter of Acceptance, Waiver and Consent in which he was fined $10,000 and

suspended from association with any FINRA member in any capacity for 60 days. Without

admitting or denying the findings, Reynolds consented to the described sanctions and to

Disciplinary and Other FINRA Actions 37

July 2011

the entry of findings that members of his member firm’s branch review group asked him

to provide annuity sub-account transfer forms (transfer forms), that another broker in the

branch had used, to process annuity sub-account allocation changes for a customer. The

findings stated that Reynolds provided transfer forms to a reviewer that appeared to have

been signed by the broker and by Reynolds (on the branch office manager line) in January

2009. The findings also stated that the transfer forms Reynolds provided had actually been

completed and signed by the broker, at Reynolds request, on or about May 20, 2009, and

had not been signed by the broker and Reynolds in January 2009. The findings also included

that in response to direct questions, Reynolds falsely told the reviewer that the transfer

forms had not been signed in May 2009.

The suspension is in effect from June 6, 2011, through August 4, 2011. (FINRA Case

#2009019001901)

Al Joseph Romani (CRD #5000071, Registered Principal, Apopka, Florida) submitted a

Letter of Acceptance, Waiver and Consent in which he was fined $10,000, suspended from

association with any FINRA member in any capacity for 45 days, required to requalify by

examination before acting in a FINOP capacity with any FINRA registered broker-dealer, and

agreed to continue to cooperate in any investigation or litigation in related matters. The

fine must be paid either immediately upon Romani’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, Romani consented to the described sanctions and to the entry of findings that

he allowed his member firm to conduct a securities business while failing to maintain its

required minimum net capital. The findings stated that Romani, as the firm’s FINOP, was

responsible for preparing the firm’s books and records, net capital calculations and FOCUS

reports, and that for almost an entire year, he failed to account for the trading losses in

the firm’s financial books and records, net capital calculations and FOCUS reports. The

findings also stated that Romani also had a responsibility to notify the SEC and FINRA

that the firm was not in net capital compliance, but Romani failed to do so. The findings

also included that one of Romani’s responsibilities as FINOP was to accrue for operating

liabilities and loss contingencies both in the firm’s financial books and records and to

include them in the net capital calculation; Romani failed to accrue for operating liabilities

and loss contingencies for one month, and as a result of Romani’s failure to accrue for these

liabilities, the firm’s net capital deficiency was further exacerbated.

FINRA found that Romani prepared incorrect FOCUS reports, net capital calculations, and

other books and records that did not reflect net capital deficiencies, including excess net

capital according to its FOCUS reports, the unsecured trading debit, the total amount

of unaccrued liabilities and the resulting net capital deficiencies. FINRA also found that

Romani was required to file an SEC Rule 17a-11 notification of all of these net capital

deficiencies on the firm’s behalf but failed to make the notifications.

38 Disciplinary and Other FINRA Actions

July 2011

The suspension was in effect from May 16, 2011, through June 29, 2011. (FINRA Case

#2008011684004)

Frank J. Scarcello III (CRD #5675353, Registered Representative, Camp Verde, Arizona)

was barred from association with any FINRA member in any capacity. Scarcello was not

ordered to pay restitution to the bank customers because FINRA did not request an order

of restitution. The sanction was based on findings that Scarcello effected an online wire

transfer of $8,024.54 from a bank customer’s account for his personal use and benefit

without the customer’s authorization or knowledge. The findings stated that Scarcello

obtained an ATM card linked to the customer’s account and used the card to make

withdrawals totaling over $12,000 from the account, using the funds for his personal

benefit without the customer’s authorization or knowledge. The findings also stated that

when the customer discovered the funds were missing and confronted Scarcello, Scarcello

executed an unauthorized wire transfer of $20,000 from the line of credit of another bank

customer’s account to the customer’s account, thereby converting approximately $32,000

from two bank customers’ funds for his personal benefit. The findings also included that

Scarcello failed to respond fully and completely to FINRA requests for information and to

appear for an on-the-record testimony. (FINRA Case #2010021368801)

Marie Rochelle Sidney (CRD #4600420, Foreign Associate, Mexico DF, Mexico) was barred

from association with any FINRA member in any capacity. The sanction was based on

findings that Sidney failed to respond to FINRA requests for information and documents.

(FINRA Case #2010025127501)

Max J. Silberman (CRD #423803, Registered Representative, Orange Village, Ohio)

submitted a Letter of Acceptance, Waiver and Consent in which he was barred from

association with any FINRA member in any capacity. Without admitting or denying the

findings, Silberman consented to the described sanction and to the entry of findings that

he failed to respond to FINRA requests for information and failed to appear for a FINRA

on-the-record interview. (FINRA Case #2008015360001)

Prakash Devendranath Simha (CRD #2970036, Registered Representative, Andover,

Massachusetts) submitted a Letter of Acceptance, Waiver and Consent in which he was

fined $7,500 and suspended from association with any FINRA member in any capacity

for 30 business days. Without admitting or denying the findings, Simha consented to the

described sanctions and to the entry of findings that he borrowed approximately $51,000

from customers at his member firm in order to complete renovations on his house. The

findings stated that the loans were not reduced to writing and had no repayment terms;

the customers had been Simha’s friends for many years, and one was his relative. The

findings also stated that the firm had a policy prohibiting representatives from borrowing

money from customers; one of the loans was repaid before Simha disclosed it to the firm

and the other loans have since been forgiven by the customers. The findings also included

that Simha sent an email to a former customer requesting a share of the profits that were

Disciplinary and Other FINRA Actions 39

July 2011

made in the customer’s account while the account was with the firm. FINRA found that in

that email, Simha represented that FINRA was auditing the customer’s account, but this

was not correct; the client never sent Simha the share of the profits he requested.

The suspension is in effect from June 6, 2011, through July 18, 2011. (FINRA Case

#2009020863401)

Casey W. Smith (CRD #5303440, Registered Representative, Deer Park, Texas) submitted a

Letter of Acceptance, Waiver and Consent in which he was fined $15,000 and suspended

from association with any FINRA member in any capacity for three months. The fine is

immediately due and payable upon Smith’s reapplication or association with a FINRA

member firm. Without admitting or denying the findings, Smith consented to the described

sanctions and to the entry of findings that he improperly accepted $15,300 in cash gifts

from a customer and her relative. The findings stated that the customer and her relative

gave Smith cash gifts when they visited their safe deposit boxes. The findings also stated

that Smith was given and accepted a cash gift during a visit to the customer’s home. The

findings also included that at the time Smith accepted the gifts, he was aware that the

bank’s code of conduct where he was employed prohibited employees from accepting gifts

from customers. FINRA found that the matter came to light when the customer offered

cash to another bank employee after assisting her with her safe deposit box; the employee

refused the gift and reported the matter to his supervisor. FINRA also found that when

Smith’s supervisor questioned him, Smith admitted to accepting gifts from the customer,

and his employment was terminated.

The suspension is in effect from June 6, 2011, through September 5, 2011. (FINRA Case

#2009018573101)

Wendy Rice Stern (CRD #5339410, Registered Representative, Jupiter, Florida) submitted

a Letter of Acceptance, Waiver and Consent in which she was barred from association

with any FINRA member in any capacity. Without admitting or denying the findings, Stern

consented to the described sanction and to the entry of findings that she charged personal

expenses on her corporate credit card totaling approximately $5,200. The findings stated

that Stern made approximately $2,700 in payments to the bank affiliate of her member

firm for the personal expense which she charged on her corporate credit card. The findings

also stated that the bank notified Stern on several occasions about a number of aged items

that were charged on the card for which no employee expense reports were submitted by

Stern; thereafter, the bank notified Stern that her card was two payments past due and it

was being suspended. The findings also included that Stern then admitted that she had

made the personal purchases on her corporate credit card. FINRA found that Stern also

made a $500 payment to the bank and thus reduced the outstanding amount owed due to

her personal use of the corporate card to $1,984. FINRA also found that Stern’s employment

at her firm and the bank were terminated for improper use of the corporate credit card.

(FINRA Case #2009018870401)

40 Disciplinary and Other FINRA Actions

July 2011

David Lewis Tieger (CRD #2049406, Registered Representative, San Diego, California)

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 capacity for 30 business days.

The fine must be paid either immediately upon Tieger’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, Tieger consented to the described sanctions and to the entry of findings that

he convinced his junior partner to call an annuity company and impersonate his relative

for the purpose of confirming a $275,000 withdrawal from one of the relative’s variable

annuity contracts. The findings stated that the relative attempted to make a distribution

from his variable annuity and after growing frustrated with the withdrawal process,

instructed Tieger to take care of it. The findings also stated that after multiple requests,

Tieger’s junior partner agreed to make the telephone call using the relative’s cellular phone,

spoke to the annuity company representative and, pretending to be Tieger’s relative, asked

the representative to process the contract withdrawal. The findings also included that the

junior partner answered the representative’s questions by reading from a script that Tieger

had prepared; Tieger watched the junior partner’s call from outside a glass conference

room. FINRA found that after Tieger left the office building, the junior partner called the

representative back to inform him that he was not the relative and that he had called

because someone standing next to him asked him to impersonate the relative.

The suspension was in effect from May 16, 2011, through June 27, 2011. (FINRA Case

#2009018325701)

Frederick Xavier Veile III (CRD #1111619, Registered Representative, Bethel, Connecticut)

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 capacity for one month. The

fine must be paid either immediately upon Veile’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, Veile consented to the described sanctions and to the entry of findings that

he borrowed $800 from one of his customers at his member firm. The findings stated

that the loan was not reduced to writing and had no repayment terms. The findings also

stated that Veile did not disclose this loan to his firm and the firm had a policy prohibiting

representatives from borrowing money from customers. The findings also included that

Veile paid back the customer after FINRA began its investigation. FINRA found that Veile

completed an annual compliance statement for the firm in which he falsely stated that

he had not engaged in any prohibited practices, including borrowing from or lending to a

client.

The suspension was in effect from June 6, 2011, through July 5, 2011. (FINRA Case

#2009020153401)

Disciplinary and Other FINRA Actions 41

July 2011

Jose Luis Vinas (CRD #4014454, Registered Representative, Houston, Texas) was barred

from association with any FINRA member in any capacity. The sanction was based

on findings that Vinas converted approximately $3.3 million from customers, mostly

Mexico-based, while he was associated with member firms and served as the registered

representative responsible for these customers’ brokerage accounts. The findings stated

that Vinas asked customers to sign blank documents, including firm documents that

were printed in English when none of the customers spoke or read English, but they

complied with Vinas’ request. The findings also stated that a variable credit line account

was opened at Vinas’ firm in the customers’ name, and Vinas submitted or caused to be

submitted applications requesting increases in the credit line that the firm approved, but

the customers had not authorized the opening of the credit account or the subsequent

credit increases, nor were they aware of the existence of the credit account. The findings

also included that Vinas forged, or caused to be forged, customer signatures on Letters

of Authorization (LOAs) and had a customer sign blank LOAs, which he submitted to his

firm purportedly authorizing the transfer of customer funds without these customers’

authorization or knowledge. FINRA found that Vinas submitted, or caused to be submitted,

to another member firm fraudulent verbal LOAs without the customers’ authorization or

knowledge, which allowed him to wire funds from the customers’ accounts. In addition,

FINRA determined that Vinas presented false account documents to the customers, which

reflected fictitious account balances although he had closed the account after taking the

last remaining funds from the account. Moreover, FINRA found that Vinas failed to respond

to FINRA requests to appear and provide testimony. (FINRA Case #2009017198901)

Zulina Visram (CRD #4647327, Registered Principal, Toronto, Canada) submitted a Letter

of Acceptance, Waiver and Consent in which she was fined $20,000, of which $10,000

shall be paid jointly to FINRA and The NASDAQ Stock Market LLC, and suspended from

association with any FINRA member in any capacity for six months. The fine must be paid

either immediately upon Visram’s reassociation with a FINRA or NASDAQ member firm

following her 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, Visram consented to the described sanctions and to the entry of findings that,

even though she was designated the AML Compliance Officer with the responsibility to

monitor and investigate for suspicious activity and to file a SAR if appropriate, she failed

to review the trading activity at her member firm for AML purposes because she did not

adequately understand SARs or the type of activity that may be considered suspicious and

require the filing of SARs. The findings stated that Visram did not consider whether SARs

should be filed in her reviews, despite the presence of red flags described in the firm’s AML

program. The findings also stated that Visram was the designated principal responsible for

compliance with NASD Rule 3012, and despite the fact that the firm’s only business was

executing transactions on behalf of day traders located outside the United States, Visram

did not take any steps in connection with yearly reviews to test and verify that the firm’s

supervisory procedures were reasonably designed to detect and prevent manipulative and

42 Disciplinary and Other FINRA Actions

July 2011

fraudulent trading activity. The findings also included that for one particular year, Visram

limited the testing and verification process to test whether a single, existing procedure

regarding employees’ outside brokerage accounts was being complied with; and for

another year, Visram limited the testing and verification process to reviewing certain

deficiencies the firm’s Director of Finance identified with respect to financial controls and

record keeping. FINRA found that in both cases, the narrow scope of Visram’s testing and

verification process did not comply with the more comprehensive, tailored analysis required

by NASD Rule 3012. FINRA also found that for those years, Visram prepared a report for the

firm’s senior management pursuant to NASD Rule 3012; however, the report did not detail

the firm’s system of supervisory controls as required.

The suspension is in effect from June 6, 2011, through December 5, 2011. (FINRA Case

#2010021162201)

Decisions Issued

The Office of Hearing Officers (OHO) issued the following decisions, which have been

appealed to or called for review by the NAC as of May 31, 2011. The NAC may increase,

decrease, modify or reverse the findings and sanctions imposed the decisions. Initial

decisions where the time for appeal has not yet expired will be reported in future issues of

FINRA Disciplinary and Other Actions.

Meyers Associates, L.P. (CRD #34171, New York, New York) was fined $50,000. The sanction

was based on findings that the firm failed to respond to repeated FINRA requests for

information and documents.

The decision has been appealed to the National Adjudicatory Council (NAC) and the sanction

is not in effect pending consideration of the appeal. (FINRA Case #2009017775601)

Nolan Wayne Moore (CRD #3237722, Registered Representative, Beaumont, California)

was barred from association with any FINRA member in any capacity. The sanction was

based on findings that Moore failed to appear for a FINRA on-the-record interview. The

findings stated that Moore engaged in outside business activities with several of his

customers without notifying his member firm of these activities. The findings also stated

that Moore did not respond timely to FINRA requests for information and documents.

Moore has appealed the decision to the NAC and the sanction is not in effect pending the

appeal. (FINRA Case #2008015105601)

Steven Mark Spektor (CRD #4743058, Registered Representative, Las Vegas, Nevada) was

barred from association with any FINRA member in any capacity. The sanction was based

on findings that Spektor converted $2,296.34 of insurance premiums paid by customers

of his member firm’s affiliated insurance company for his personal benefit; Spektor was

an independent contractor with his firm and the affiliate. The findings stated that Spektor

failed to respond to FINRA requests for information and to provide testimony.

Spektor has appealed the decision to the NAC and the sanction is not in effect pending the

appeal. (FINRA Case #2009019225401)

Disciplinary and Other FINRA Actions 43

July 2011

Complaints Filed

FINRA issued the following complaints. Issuance of a disciplinary complaint represents

FINRA’s initiation of a formal proceeding in which findings as to the allegations in

the complaint have not been made and does not represent a decision as to any of the

allegations contained in the complaint. Because these complaints are unadjudicated, you

may wish to contact the respondents before drawing any conclusions regarding these

allegations in the complaint.

Harry Friedman (CRD #2548017, Registered Principal, Woodmere, New York) was named

as a respondent in a FINRA complaint alleging that he presided over a fraudulent trading

scheme through which his member firm’s then CCO and head trader concealed improper

markups and denied customers best execution. The complaint alleges that the trading

scheme was perpetrated in customer accounts that were serviced through the firm’s

OSJs, of which Friedman was responsible for their supervision. The complaint also alleges

that the trading scheme took advantage of large orders (generally 1,000 shares or more)

to buy or sell equities that were placed for the OSJs’ customers; rather than effecting the

trades in the customers’ account, the CCO placed the orders in firm principal accounts

where he would then increase or decrease the price before ultimately allocating the shares

or proceeds to the customers’ accounts. In addition, the complaint alleges that the firm

then charged a commission or markup/markdown, which was disclosed, in addition to

the undisclosed price adjustment per share and in furtherance of the fraudulent trading

scheme, and the CCO entered false information on the corresponding order tickets

regarding the share price and the time the customer order tickets were received, entered

and executed. Moreover, the complaint alleges that Friedman was required to review the

trading activity, scrutinize the order tickets, evaluate the transactions for best execution,

and monitor the firm’s principal accounts; such a review would have revealed these

fraudulent transactions and the fraudulent trading scheme. Furthermore, the complaint

alleges that Friedman received a 20 percent share of the profits generated through the

fraudulent trading scheme; Friedman was aware of the fraudulent transactions or was

reckless in disregarding the information he had about the transactions. The complaint

also alleges that Friedman permitted the CCO to continue the trading scheme for nearly

three years and generated approximately $1.3 million in profits for the firm’s proprietary

account; the profits were improperly taken from the customers’ brokerage accounts and

the firm’s customers did not receive the most favorable market price because Friedman

permitted the CCO to interject the firm’s proprietary account between the customer and

market.

The complaint further alleges that Friedman was responsible for ensuring that the head

trader accurately disclosed on the order tickets the time that the customer orders were

received and executed, the capacity in which the broker-dealer acted and the amount of

compensation the broker-dealer received from the transaction, but in furtherance of the

fraudulent trading scheme, the CCO entered false information on the order tickets and

44 Disciplinary and Other FINRA Actions

July 2011

Friedman knew or was reckless in not knowing that the order tickets were mismarked;

the order tickets were inaccurate in that they did not reflect that the firm had paid itself a

markup or include the proper commission, and contained inaccurate information related to

the share price, the time the customer order tickets were received, entered and executed,

and the order capacity. In addition, the complaint alleges that Friedman failed to enforce

WSPs to supervise the activities of each registered person that were reasonably designed

to achieve compliance with the applicable rules and regulations with respect to trading

activity of all registered representatives of its OSJs, and failed to perform the required

reconciliation of daily positions and trades in the firm’s principal accounts; according to

Friedman, his only form of supervisory review was to examine the previous day’s trade

blotter. Moreover, the complaint alleges that the firm, acting through Friedman, failed to

establish, maintain and enforce a system of supervisory control policies and procedures

that tested and verified that its supervisory procedures were reasonably designed with

respect to the activities of the firm and its registered representatives and associated

persons to achieve compliance with applicable securities laws and regulations; and created

additional or amended supervisory procedures where the need was identified by such

testing and verification.

Furthermore, the complaint also alleges that among other things, Friedman and another

designated principal failed to submit to the firm’s senior management reports that detailed

its system of supervisory controls, the summary of the test results and significant identified

exceptions, and any additional or amended supervisory procedures created in response to

the test results. The complaint also alleges that, in each of those years, Friedman falsely

certified that the firm had the requisite processes in place and that those processes were

evidenced in a report its CEO, CCO and other officers reviewed. The complaint further

alleges that the firm, acting through Friedman, failed to conduct a test of its supervisory

procedures for one year and although the firm conducted some limited testing in other

years, that testing was deficient in that the firm failed to evaluate, and Friedman failed

to enforce, several aspects of its written compliance policies and written supervisory

procedures. In addition, the complaint alleges that Friedman failed to establish written

supervisory control policies and procedures reasonably designed to provide heightened

supervision over the activities of each producing manager who was responsible for

generating 20 percent or more of the revenue of the business units supervised by the

producing manager’s supervisor and, as a result, the firm did not determine whether it had

any such producing managers and, to the extent that it did, subject those managers to

heightened supervision. (FINRA Case #2009016405903)

Disciplinary and Other FINRA Actions 45

July 2011

Michael Ray Howard (CRD #3113620, Registered Principal, Afton, Oklahoma) was named

as a respondent in a FINRA complaint alleging that he recommended to his customer the

purchase of a $500,000 variable annuity that was unsuitable because he knew that the

customer did not have sufficient financial resources to purchase the annuity without using

borrowed funds, and that all of the funds used to purchase the recommended annuity were

proceeds of a loan secured in part by the annuity itself. The complaint alleges that Howard

did not have a reasonable basis for believing that his recommendation to the customer was

suitable in light of her financial circumstances and needs, exceeded her financial capability

and exposed her to risks. The complaint also alleges that Howard received $38,526.86 in

commission for his sale of the variable annuity to the customer. The complaint further

alleges that Howard completed the account documents and paperwork for the customer’s

purchase of the variable annuity including the variable annuity questionnaire with false

information about the financial situation of the customer’s trust to his member firm,

and the firm retained the document in its records. In addition, the complaint alleges that

because of the falsified questionnaire, Howard caused the firm’s books and records to be

inaccurate and impeded supervision of the annuity sale. (FINRA Case #2008012282901)

Frederick William Shultz (CRD #5239977, Registered Representative, Newburg, Indiana)

was named as a respondent in a FINRA complaint alleging that he failed to give prompt

written notice to his member firm that he was being compensated for participating in the

management of a limited liability company. The complaint alleges that Shultz participated

in each sale of the company’s securities effected by representatives of his firm and made

the Regulation D filing with the SEC for its sale of securities, processed customer funds

received from the sale of securities and invested the funds; and kept, and in most cases

signed, the subscription agreements and other offering documents. The complaint also

alleges that Shultz failed to give written notice of his intention to participate in the sale

of the company’s securities to his firm. The complaint further alleges that Shultz failed

to ensure that the sales of shares in which he participated and totaled approximately

$600,311 were recorded on his firm’s books and records, thereby causing his firm’s books

and records to be inaccurate in contravention of FINRA Rule 3110 and SEC Exchange Act

Rule 17a-3. In addition, the complaint alleges that Shultz completed and signed a firm-

issued outside business interest schedule that requested an identification of all outside

business activities without disclosing his involvement with the limited liability company;

on a later schedule, Shultz falsely disclosed that the company was in the planning stages

when it was, in fact, an active, ongoing business. Moreover, the complaint alleges that

Shultz maintained the company’s checking account. Furthermore, the complaint alleges

that customers deposited a total of $374,500 into the checking account to be invested in a

fund and Shultz, without the customers’ knowledge or consent, misused the funds by not

investing them and by making “distributions of profits” totaling $147,000 to a company he

controlled with others. The complaint also alleges that Shultz failed to respond to FINRA

requests to appear for an on-the-record interview. (FINRA Case #2009019837302)

46 Disciplinary and Other FINRA Actions

July 2011

Firm Cancelled for Failure to Meet

Eligibility Standards Pursuant to FINRA

Rule 9555

Quantum Securities, Inc. (CRD #130224)

Boca Raton, Florida

(May 12, 2011)

Firm Suspended for Failure to Supply

Financial Information Pursuant to FINRA

Rule 9552

(The date the suspension began is listed

after the entry. If the suspension has been

lifted, the date follows the suspension

date.)

Doley Securities, LLC (CRD #7081)

New Orleans, Louisiana

(May 9, 2011 – June 23, 2011)

Firms Suspended for Failure to Pay

Arbitration Fees Pursuant to FINRA Rule

9553

(The date the suspension began is listed

after the entry. If the suspension has been

lifted, the date follows the suspension

date.)

Alternative Wealth Strategies, Inc.

(CRD #130933)

Cherry, Hill, New Jersey

(May 19, 2011)

FINRA Arbitration Cases #09-07084/10-

04661/10-05077/10-03879/10-04745

Morgan Wilshire Securities, Inc.

(CRD #44807)

Garden City, New York

(May 23, 2011 – May 24, 2011)

FINRA Arbitration Case 10-03241

Individuals Barred for Failure to Provide

Information or Keep Information Current

Pursuant to FINRA Rule 9552(h)

(If the bar has been vacated, the date

follows the bar date.)

Jeffrey Jon Anderson (CRD #4326656)

Eagle River, Wisconsin

(May 10, 2011)

FINRA Case #2010023004101

Janie Cabreja (CRD #5741403)

Monroe, New York

(May 11, 2011)

FINRA Case #2010022533501)

Norman Chen (CRD #5770952)

San Francisco, California

(May 26, 2011)

FINRA Case #2010024311701

Ray Gayland Crocker (CRD #1099643)

Monroe, North Carolina

(May 17, 2011)

FINRA Case #2010021451201

Daniel Todd Engel (CRD #2145822)

Dana Point, California

(May 6, 2011)

FINRA Case #2009020117601

Michele Eileen Fanner (CRD #4991783)

Altadena, California

(May 26, 2011)

FINRA Case #2010024740601

Natalie Dee Gastelum (CRD #4938959)

Valley Village, California

(May 26, 2011)

FINRA Case #2010023889601

Disciplinary and Other FINRA Actions 47

July 2011

Shamel Correen Gould (CRD #5799015)

Savannah, Georgia

(May 13, 2011)

FINRA Case #2010024194301

Mary A. Griswold (CRD #5731542)

Pawtucket, Rhode Island

(May 17, 2011)

FINRA Case #2010022511401

Christopher M. Harper (CRD#5102738)

Redondo Beach, California

(May 16, 2011)

FINRA Case #2010022263301

Randol Craig Key (CRD #4262407)

Houston, Texas

(May 31, 2011)

FINRA Case #2009020096001

Miriam L. Lopez (CRD #4560263)

Rio Rico, Arizona

(May 2, 2011)

FINRA Case #2010024009101

William E. Olivares (CRD #5052733)

Brooklyn, New York

(May 4, 2011)

FINRA Case #2009020698401

Corey Peterson (CRD #5289024)

Gilbert, Arizona

(May 4, 2011)

FINRA Case #2009018805301

Thomas Edward Smith Jr. (CRD #1943167)

Montgomery Center, Tennessee

(May 16, 2011)

FINRA Case #2010022044601

Mitchell A. Steitz (CRD #4928430)

Cashmere, Washington

(May 12, 2011)

FINRA Case #2010023415501

David Wayne Voteau (CRD #4335263)

Lafayette, Indiana

(May 26, 2011)

FINRA Case #2010025112701

Robert Lee Wagner (CRD #4118105)

Bloomington, Indiana

(May 26, 2011)

FINRA Case #2010022203401

William James Walker (CRD #1771777)

Summerville, South Carolina

(May 16, 2011)

FINRA Case #2010021442401

Edward Allen Watson (CRD #2700411)

Garland, Texas

(May 4, 2011)

FINRA Case #2010022906601

Individuals Revoked for Failure to Pay Fines

and/or Costs Pursuant to FINRA Rule 8320

(If the revocation has been rescinded, the

date follows the revocation date.)

Anthony Joseph DiGiovanni Jr.

(CRD #4787615)

East Hanover, New Jersey

(May 3, 2011)

FINRA Case #2007008724801

William Howard Irving (CRD #1541064)

(May 24, 2011)

Duxbury, Massachusetts

FINRA Case #2009017856601

Randall Walter Hess (CRD #1002380)

Omaha, Nebraska

(May 11, 2011)

FINRA Case #2007008310201

48 Disciplinary and Other FINRA Actions

July 2011

Individuals Suspended for Failure to

Provide Information or Keep Information

Current Pursuant to FINRA Rule 9552(d)

(The date the suspension began is listed

after the entry. If the suspension has been

lifted, the date follows the suspension

date.)

Dov Berr Appleman (CRD #3201421)

Oceanside, New York

(March 3, 2011 – May 13, 2011)

FINRA Case #2010023908001

Michael Glenn Baker (CRD #2215803)

Manchester, Missouri

(May 9, 2011)

FINRA Case #2009018224901

Alexandru Aureliu Calin (CRD #1263189)

Los Angeles, California

(May 20, 2011)

FINRA Case #2010023589001

Joseph Chan (CRD #5364607)

Miami, Florida

(May 2, 2011)

FINRA Case #2011026237701

John Michael Chapman (CRD #5443581)

Philadelphia, Pennsylvania

(March 10, 2011 – May 25, 2011)

FINRA Case #2010023968501

Rebekkah Warburton Ferrell

(CRD #5447027)

Roanoke, Virginia

(May 19, 2011)

FINRA Case #2010023472501

Lawrence Wayne Foster (CRD #2734837)

Henderson, Nevada

(May 19, 2011)

FINRA Case #2010021445101

Gabriel R. Fuller (CRD #5207638)

Frisco, Texas

(May 9, 2011)

FINRA Case #2010025091101

Mary Kathleen Goodall (CRD #4456106)

San Antonio, Texas

(May 16, 2011)

FINRA Case #2010022907701

Arthur Leroy Heffelfinger (CRD #2168013)

East Helena, Montana

(May 16, 2011)

FINRA Case #2009019862701

Tae J. Kim (CRD #5289242)

Palisades Park, New Jersey

(November 12, 2010 – May 25, 2011)

FINRA Case #2010023067601

James Ryan Lanier (CRD #4702771)

Tallahassee, Florida

(May 5, 2011)

FINRA Case #2010022652201

Paul Joseph Lumetta (CRD #5862603)

O’Fallon, Missouri

(May 23, 2011)

FINRA Case #2011026019401

Piotr Makuch (CRD #4916228)

Hempstead, New York

(May 31, 2011)

FINRA Case #2010023830901

Joseph Vincent Massaro (CRD #5195215)

Port Jefferson, New York

(January 24, 2011 – May 25, 2011)

FINRA Case #2010022427701

Cesar Mendivil (CRD #5104008)

Dallas, Texas

(May 20, 2011)

FINRA Case #2010025344301

Disciplinary and Other FINRA Actions 49

July 2011

James Gregory Shaw (CRD #2221056)

Glenelg, Maryland

(May 31, 2011)

FINRA Case #2009016774101

Quynh Thi Tran (CRD #3105373)

King of Prussia, Pennsylvania

(May 16, 2011)

FINRA Case #2009020620601

Individuals Suspended for Failure to

Comply with an Arbitration Award or

Settlement Agreement Pursuant to FINRA

Rule Series 9554

(The date the suspension began is

listed after the entry. If the suspension

has been lifted, the date follows the

suspension date.)

Walker Randolph Johnson (CRD #4405133)

Sherman Oaks, California

(May 18, 2011)

FINRA Arbitration Case #10-03033

Priscilla Ann Jones (CRD #4811548)

Griffin, Georgia

(May 18, 2011)

FINRA Arbitration Case #10-03979

Kenneth John Marchiol (CRD #1914305)

Aurora, Colorado

(May 18, 2011)

FINRA Arbitration Case #09-00830

Luis Emilio Morales Jr. (CRD #3262932)

San Francisco, California

(May 18, 2011)

FINRA Arbitration Case #10-04089

Lance Kelly Morque (CRD #1915939)

Minneapolis, Minnesota

(May 18, 2011)

FINRA Arbitration Case #09-01670

William Brown Park (CRD #2073037)

Houston, Texas

(May 18, 2011)

FINRA Arbitration Case #09-07231

Christopher Joseph Perrott (CRD #4188299)

St. Cloud, Florida

(May 18, 2011)

FINRA Arbitration Case #10-00260

Ralph Roberts Schneider (CRD #1837062)

Okoboji, Iowa

(May 18, 2011)

FINRA Arbitration Case #09-06559

Justin David Silberman (CRD #4244487)

Fairfax, Virginia

(May 18, 2011)

FINRA Arbitration Case #10-01184

Attila Gyula Toth (CRD #2565633)

Phoenix, Arizona

(May 18, 2011)

FINRA Arbitration Case #09-07065

50 Disciplinary and Other FINRA Actions

July 2011

FINRA Fines Wells Fargo Advisors $1 Million for Delays in Delivering

Prospectuses to More Than 900,000 Customers

Firm Also Delayed Reporting Required Information Regarding its Brokers

The Financial Industry Regulatory Authority (FINRA) has fined Wells Fargo Advisors, LLC of

St. Louis, $1 million for its failure to deliver prospectuses in a timely manner to customers

who purchased mutual funds in 2009, and for delays in reporting material information

about its current and former representatives, including arbitrations and complaints

involving its representatives.

FINRA found that Wells Fargo failed to deliver prospectuses within three business days of

the transaction, as required by federal securities laws, to approximately 934,000 customers

who purchased mutual funds in 2009. The customers received their prospectuses from

one to 153 days late. Wells Fargo had failed to take corrective measures to ensure timely

delivery of the prospectuses after its third-party service provider, which Wells Fargo

contracted with to mail prospectuses to customers, provided the firm with regular reports

indicating that a number of customers had not received the prospectuses on time.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Mutual fund

prospectuses contain key information about a fund’s performance, risks, strategies and

costs. Wells Fargo ignored reports alerting them to serious problems with its prospectus

delivery system and, as a result, its customers were deprived of valuable information

needed to make informed investment decisions.”

Wells Fargo contracted with a third-party service provider in 2009 to mail the prospectuses

to customers. However, after receiving quarterly reports showing that between

four percent and nine percent of the firm’s mutual fund customers failed to receive

required prospectuses on time and after being notified in daily reports that a number of

prospectuses still required delivery, Wells Fargo did not take adequate corrective measures

to ensure future delivery of the prospectuses in a timely manner.

FINRA also found that Wells Fargo did not promptly report required information to FINRA

regarding its current or former representatives. Under FINRA rules, a securities firm must

ensure that information on its representatives’ applications for registration (Forms U4)

is kept current in FINRA’s Central Registration Depository (CRD). A firm must also ensure

that it updates a representative’s termination notice (Form U5) after the representative

leaves the firm. These forms must be updated within 30 days of the firm learning that a

significant event has occurred—including notification of a formal investigation, customer

complaints or arbitrations filed against the representative. FINRA found that from July 1,

2008, to June 30, 2009, Wells Fargo failed to update 8.1 percent of their Forms U4 and 7.6

percent of the Forms U5 on time. In total, Wells Fargo filed nearly 190 late amendments to

Forms U4 and U5.

In settling this matter, Wells Fargo neither admitted nor denied the charges, but consented

to the entry of FINRA’s findings.

Disciplinary and Other FINRA Actions 51

July 2011

FINRA Fines Nuveen $3 Million for Use of Misleading Marketing Materials

Concerning Auction Rate Securities

Brochures Failed to Disclose Risks Arising From Events in Early 2008

The Financial Industry Regulatory Authority (FINRA) has fined Nuveen Investments, LLC, of

Chicago, $3 million for creating misleading marketing materials used in sales of auction

rate preferred securities (ARPS).

The Nuveen Funds’ ARPS were a form of auction rate securities, which are long-term

securities with interest rates or dividend yields that are reset periodically through an

auction process. In contrast to other types of auction rate securities, the Nuveen ARPS were

preferred shares issued by closed end mutual funds to raise money for the funds to use to

invest.

By early 2008, over $15 billion of Nuveen Funds’ ARPS had been sold to retail customers

by third-party broker-dealers. Nuveen did not sell the ARPS to customers, but in its role

as distributor for Nuveen Funds, it created marketing brochures that were used by the

broker-dealers who sold the ARPS to retail customers. The brochures were the primary sales

and marketing material Nuveen created for the auction rate preferred securities. FINRA

found that the brochures, also available on Nuveen’s website, failed to adequately disclose

liquidity risks for ARPS. Nuveen neglected to include the risks that auctions for the ARPS

could fail, investments could become illiquid and that customers might be unable to obtain

access to funds invested in the ARPS for a period of time should the auctions fail. Instead,

the brochures contained misleading statements which described the ARPS as safe and

liquid investments. Also, FINRA found that Nuveen failed to maintain adequate supervisory

procedures to ensure that the materials it used to market the auction rate preferred

securities accurately described the features and risks of the securities.

Nuveen failed to revise disclosures in their brochures after a lead auction manager

responsible for approximately $2.5 billion of the ARPS notified Nuveen in early January

2008 that it intended to stop managing Nuveen auctions. On January 22, 2008, the lead

manager did not submit support bids in an auction for a series of Nuveen auction rate

preferred stock and that auction failed. FINRA found that the auction failure and Nuveen’s

inability to find a replacement for the lead manager raised serious questions for Nuveen

about whether investors in Nuveen’s ARPS would be able to obtain liquidity for the

securities in future auctions. Despite this, Nuveen failed to revise its marketing brochures to

reflect these risks and, thus, the brochures were misleading. In February 2008, widespread

auction failures occurred throughout the auction rate securities market, including auctions

for Nuveen funds ARPS.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Nuveen

was aware of facts that raised significant red flags about the ability of investors to obtain

liquidity for their Nuveen auction rate securities yet failed to revise their marketing

brochures to disclose these risks. This failure deprived investors of important information.”

52 Disciplinary and Other FINRA Actions

July 2011

To date, the Nuveen funds have redeemed approximately $14.2 billion of the $15.4 billion

of the ARPS that were outstanding on February 12, 2008. As part of the settlement, Nuveen

agreed to use its best efforts to effect redemptions of any remaining outstanding Nuveen

funds ARPS.

Nuveen neither admitted nor denied the charges, but consented to the entry of FINRA’s

findings.

FINRA Fines Credit Suisse Securities $4.5 Million and Merrill Lynch $3 Million

for Misrepresentations Related to Subprime Securitizations

The Financial Industry Regulatory Authority (FINRA) has fined Credit Suisse Securities (USA)

LLC $4.5 million, and Merrill Lynch $3 million for misrepresenting delinquency data and

inadequate supervision in connection with the issuance of residential subprime mortgage

securitizations (RMBS).

Issuers of subprime RMBS are required to disclose historical performance information

for past securitizations that contain mortgage loans similar to those in the RMBS being

offered to investors. Historical delinquency rates are material to investors in assessing the

value of RMBS and in determining whether future returns may be disrupted by mortgage

holders’ failures to make loan payments. As there are different standards for calculating

delinquencies, issuers are required to disclose the specific method it used to calculate

delinquencies.

FINRA found that in 2006, Credit Suisse misrepresented the historical delinquency rates

for 21 subprime RMBS it underwrote and sold. Although Credit Suisse knew of these

inaccuracies, it did not sufficiently investigate the delinquency errors, inform clients who

invested in these securitizations of the specific reporting discrepancies or correct the

information on the website where the information was displayed. Credit Suisse also failed

to name or define the methodology used to calculate mortgage delinquencies in five other

subprime securitizations. Additionally, Credit Suisse failed to establish an adequate system

to supervise the maintenance and updating of relevant disclosure on its website.

For six of the 21 securitizations, the delinquency errors were significant enough to affect

an investor’s assessment of subsequent securitizations, as it was referenced in four

subsequent RMBS investments.

In a separate case, FINRA found that Merrill Lynch negligently misrepresented the historical

delinquency rates for 61 subprime RMBS it underwrote and sold. However, in June

2007, after learning of the delinquency errors, Merrill Lynch promptly recalculated the

information and posted the corrected historical delinquency rates on its website. Merrill

Lynch also failed to establish a reasonable system to supervise and review its reporting

of historical delinquency information. On January 1, 2009, Merrill Lynch was acquired by

Bank of America, but the firm continues to do brokerage business under its own individual

broker-dealer registration.

Disciplinary and Other FINRA Actions 53

July 2011

In eight instances, the delinquencies were significant enough to affect an investor’s

assessment of subsequent securitizations, as it was referenced in five subsequent RMBS

investments.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Firms must

provide accurate information about the products they offer so that their customers can

make informed investment decisions. Credit Suisse and Merrill Lynch failed to monitor and

supervise the reporting of historical delinquency rates, depriving investors of information

essential to assessing the profitability of mortgage-backed investments.”

In settling this matter, Credit Suisse and Merrill Lynch neither admitted nor denied the

charges, but both broker-dealers consented to the entry of FINRA’s findings.

FINRA Charges David Lerner & Associates With Soliciting Investors to

Purchase REITs Without Fully Investigating Suitability; Lerner Marketed

REITs on its Website With Misleading Returns

The Financial Industry Regulatory Authority (FINRA) announced that it has filed a complaint

against David Lerner & Associates, Inc. (DLA), of Syosset, NY, charging the firm with

soliciting investors to purchase shares in Apple REIT Ten, a non-traded $2 billion Real Estate

Investment Trust (REIT), without conducting a reasonable investigation to determine

whether it was suitable for investors, and with providing misleading information on its

website regarding Apple REIT Ten distributions. DLA has sold and continues to sell Apple

REIT Ten targeting unsophisticated and elderly customers with unsuitable sales of the

illiquid security.

Since January 2011, as sole underwriter for Apple REIT Ten, DLA has sold over $300 million

of an open $2 billion offering of the REIT’s shares. Apple REIT Ten invests in the same

extended stay hotel properties as a series of other Apple REITs closed to investors. Apple

REIT Ten and the closed Apple REITs were founded by the same individual, and are all

under common management. DLA has been the sole underwriter for Apple REITs since

1992, selling nearly $6.8 billion of the securities into approximately 122,600 DLA customer

accounts. DLA earns 10 percent of all offerings of Apple REIT securities as well as other fees.

Apple REIT sales have generated $600 million for DLA, accounting for 60 to 70 percent of

DLA’s business annually since 1996.

The complaint against DLA alleges that since at least 2004, the closed Apple REITs have

unreasonably valued their shares at a constant price of $11 notwithstanding market

fluctuations, performance declines and increased leverage, while maintaining outsized

distributions of 7 to 8 percent by leveraging the REITs through borrowings and returning

capital to investors. As sole distributor, DLA did not question the Apple REITs’ unchanging

valuations despite the economic downturn for commercial real estate.

54 Disciplinary and Other FINRA Actions

July 2011

FINRA alleges that DLA failed to sufficiently investigate the valuation and distribution

irregularities of the closed Apple REITs prior to selling Apple REIT Ten. As the sole

underwriter of all of the Apple REITs, DLA was aware of the Apple REITs’ valuation and

distribution practices. Rather than conduct due diligence into those valuations and

distribution irregularities to determine that they were reasonable and that the Apple REITs

were suitable, DLA accepted the valuations and continued to record them on customer

account statements.

In its solicitation of customers to purchase Apple REIT Ten, DLA’s website provided

distribution rates for all of the previous Apple REITs. These distribution figures were

misleading and omitted material information because they did not disclose recent

distribution rate reductions or that distributions far exceeded income from operations and

were funded by debt that further leveraged the REITs.

The issuance of a disciplinary complaint represents the initiation of a formal proceeding

by FINRA in which findings as to the allegations in the complaint have not been made, and

does not represent a decision as to any of the allegations contained in the complaint. Under

FINRA rules, a firm or individual named in a complaint can file a response and request

a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure,

suspension or bar from the securities industry, disgorgement of gains associated with the

violations and payment of restitution.