South Florida Arbitration & Litigation Lawyer BlogCommon and Preferred Stock Churning and Unsuitable Investment Strategy FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
December, 2011:
Joseph Alphonse Vitale (CRD #5223467, Registered Representative, Boca Raton, Florida)
Articles Posted in FINRA Enforcement Actions 2011
Evan Taber (CRD #1892751, Registered Representative, Plantation, Florida)
Unauthorized and Prohibited Borrowing of Money from Client, Theft and Negligent Supervision FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
December, 2011:
Evan Taber (CRD #1892751, Registered Representative, Plantation, Florida) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Taber intentionally converted or misappropriated customer funds. The findings stated that Taber discussed with a customer an investment that would yield a 15 percent rate of return and the customer gave Taber a check for $30,000 payable to the investment; Taber deposited the customer’s check into the investment checking account. The findings also stated that the customer repeatedly called Taber to determine the status of his investment, and each time Taber reassured the customer that his funds had been invested; Taber failed to inform the customer that the investment checking account was actually Taber’s personal bank account. The findings also included that Taber did not make any investment with the customer’s funds; instead, Taber used the customer’s funds for numerous business and personal expenses. FINRA found that Taber ultimately refunded the customer’s funds, but not until FINRA began its investigation into the customer’s complaint. (FINRA Case #2010021196801).
Isaiah Solomon (CRD #1112800, Registered Representative, Mitchellville, Maryland)
Outside Business and Selling Away Fraud, Misrepresentation and Negligent Supervision FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
December, 2011:
Isaiah Solomon (CRD #1112800, Registered Representative, Mitchellville, Maryland) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $15,000, which includes disgorgement of $8,600 representing the financial benefits he received from sales, and suspended from association with any FINRA member in any capacity for 18 months. The fine must be paid either immediately upon Solomon’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, Solomon consented to the described sanctions and to the entry of findings that he participated in the sale of securities outside his employment at his member firm and failed to give written notice to his firm of his intention to engage in the transactions and obtain the firm’s authorization to engage in such activities; Solomon referred individuals, some of whom were his firm’s clients, to an individual and an entity so the customers could invest with the entity. The findings stated that the entity initially claimed to offer foreign exchange trading opportunities, but later claimed to offer investments in a hedge fund that would engage in various trading strategies; the customers invested approximately $750,000 with the individual and entity, and Solomon also invested with the individual and entity. The findings also stated that Solomon introduced the customers to the individual, typically during a conference call where the individual promised guaranteed returns of 12 percent per year for two years; Solomon recommended the investment to most of the customers and received $8,600 from the entity for his efforts. The findings also included that Solomon engaged in discussions with the individual and the entity about possible employment with the entity. The suspension is in effect from October 17, 2011, through April 16, 2013. (FINRA Case #2009020265401).
Michael Daniel Shaw (CRD #1571907, Registered Representative, Baton Rouge, Louisiana)
Private Placement, Fraud, Misrepresentation and Unsuitable Recommendation FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.
December, 2011:
Michael Daniel Shaw (CRD #1571907, Registered Representative, Baton Rouge, Louisiana) 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, Shaw consented to the described sanction and to the entry of findings that acting on his member firm’s behalf, he recommended and effected the sale of high-risk private placements to customers without having a reasonable basis to believe the transactions were suitable given the the customers’ financial circumstances and conditions; Shaw earned a total of $56,733 in net commissions on the transactions. The findings stated that Shaw made material misrepresentations or omissions in connection with the purchases or sales in connection with the private placements; despite the description of each product as high risk or highly speculative in the offering documents, Shaw intentionally misinformed customers that the investments were safe and secure, and represented one product as a relatively low-risk investment. The findings also stated that Shaw falsified account documents for customers, increasing net worth and changing risk profiles. The findings also included that Shaw and his firm settled with one of the customers; the firm settled with another. (FINRA Case #2010022963601).
David Alan Schams (CRD #1587140, Registered Representative, Alma, Wisconsin)
Investment and Securities Fraud and Misrepresentation FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.
December, 2011:
David Alan Schams (CRD #1587140, Reg. Representative, Alma, Wisconsin) submitted an Offer of Settlement in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the allegations, Schams consented to the described sanction and to the entry of findings that he accepted appointment as an alternative agent attorney-in-fact over a customer account, without his member firm’s express written consent. Schams was to receive approximately $90,000 from the customers’ estate; Schams accepted two $20,000 interest-free loans on the anticipated inheritance, without signing a promissory note evidencing the loan, contrary to the firm’s compliance policies that prohibited registered representatives from exercising or maintaining discretionary authority or power of attorney over customer accounts and borrowing money, accepting loans, issuing or transacting promissory notes or other similar forms of debt for customers without the express written consent of the firm’s compliance department. The findings also stated that Schams made material misstatements to his firm in a compliance questionnaire regarding borrowing money or accepting a loan from a client, holding any securities, stock powers, money or property belonging to a client, accepting client checks made payable to him, or endorsed to him personally or in the name of an entity, and managing or handling, in any way, the affairs of any client account on a discretionary basis. (FINRA Case #2009018293201).
Guy Eugene Richardson (CRD #2926034, Registered Representative, Topeka, Kansas)
Mutual Fund, Variable and Fixed Annuity Fraud, Misrepresentation and Negligent Supervision FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.
December, 2011:
Guy Eugene Richardson (CRD #2926034, Reg. Representative, Topeka, Kansas) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Richardson failed to respond to FINRA requests for information. The findings stated that Richardson made similar misrepresentations to customers, all of whom wished to make conservative investments, about a certain corporate bond fund that he recommended to them. The fund did not provide a guaranteed dividend yield or rate of return; its objective, as stated in the fund’s prospectus, was to seek maximum current income through investment in a diversified portfolio of high-yield debt securities. In fact, the fund’s semi-annual report stated that the fund invested in junk bonds for which investors pay a premium because of the increased risk of loss, and that the bonds can be subject to greater price volatility than higher quality debt securities. Relying on Richardson’s recommendations, the customers invested approximately $317,000 in the fund. In addition, FINRA determined that Richardson made these misrepresentations without attempting to verify what he told the customers. Moreover, FINRA found that in an on-the-record interview with FINRA, Richardson testified that he believed at the time he made the misrepresentations that the fund did carry a guaranteed dividend yield, and that he recommended the fund to the customers because they wanted a higher return than was available in bank-sponsored products. Richardson admitted further that he did not review the fund’s prospectus or other documents available to him to verify his understanding of its dividend yield, and that he did not fully understand the product. (FINRA Case #2008016382401).
Thomas Heflin Redmond Jr. (CRD #4116004, Registered Representative, Carmel, Indiana)
Unsuitable Oil and Gas Limited Partnership FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
December, 2011:
Thomas Heflin Redmond Jr. (CRD #4116004, Reg. Representative, Carmel, Indiana) 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, Redmond consented to the described sanction and to the entry of findings that he made unsuitable investment recommendations to a customer. The findings stated that Redmond recommended that she invest 47.5 percent of her available funds in highrisk investments, including $100,000 in an oil and gas offering by an entity; the SEC later charged the entity, its affiliates and control persons with operating a $485 million offering fraud scheme. The findings also stated that Redmond knew the customer was an elderly widow with minimal investment experience, and was looking to preserve her assets and invest conservatively, so his recommendation was unsuitable. The findings also included that Redmond failed to follow the customer’s instructions in connection with the purchase of a variable annuity by failing to elect the minimum income benefit rider on the variable annuity. FINRA found that Redmond forged customers’ signatures on subscription agreements to purchase interests in an entity’s offering. Redmond signed the customers’ names without their express authorization or consent. FINRA also found that Redmond made misrepresentations to a customer while soliciting him to invest in an entity’s offering; Redmond falsely claimed that he had personally invested a third of his assets in the offering when he had not invested in the offering. (FINRA Case #2009020417501).
Steven Mark Peaslee (CRD #2285838, Registered Principal, Alexandria, Louisiana)
Private Placement (Reg. D) Fraud, Misrepresentation, Selling Away, Unauthorized Outside Business Activity and Unregistered Securities FINRA Arbitration and litigation Attorney, Russell L. Forkey, Esq.
December, 2011:
Steven Mark Peaslee (CRD #2285838, Registered Principal, Alexandria, Louisiana) submitted an Offer of Settlement in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the allegations, Peaslee consented to the described sanction and to the entry of findings that he participated in private securities transactions by soliciting individuals to invest approximately $399,850 in an offering of a company he owned and controlled without providing written notice of his intent to participate in the sale of an offering to his member firm, and failed to obtain his firm’s written approval before engaging in such activities. The findings stated that Peaslee’s firm did not permit registered representatives to participate in the sale of private equity offerings. The offering’s purpose was to capitalize an entity through which Peaslee operated his securities business, which he wholly owned. The findings also stated that the offering purported to be issued in compliance with Rule 506 of Regulation D of the Securities Act of 1933 (Reg. D), but Reg D documents were not filed with the SEC. The findings also included that Peaslee did not receive any written representation from any of the investors that they met the requirements to be an accredited investor. FINRA found that Peaslee negligently made untrue statements of material facts and/or omitted to state material facts in a PPM and subscription agreement for the offering. In reliance on Peaslee’s misrepresentations, the customers and the non-customer invested in the offering. FINRA also found that Peaslee failed to establish an escrow account in the name of the issuer, his business entity, and no investor funds from the offering were ever held in an escrow account; rather, Peaslee deposited investor funds into the entity’s operating account and immediately began making withdrawals. In addition, FINRA determined that Peaslee distributed investor funds before the minimum contingency was satisfied, thereby rendering the representations in the offering documents false and misleading. (FINRA Case #2009020134201).
Alan Stuart Pattee (CRD #3002976, Registered Representative, Lake Worth, Florida)
Securities and Investment Fraud, Misrepresentation and Negligent Supervision Lawyer, Russell L. Forkey, Esq.
December, 2011:
Alan Stuart Pattee (CRD #3002976, Registered Representative, Lake Worth, Florida) submitted a Letter of Acceptance, Waiver and Consent in which was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Pattee consented to the described sanction and to the entry of findings that he forged homeowner signatures on uniform mitigation verification inspection forms (UMVI forms) in connection with inspections performed by a qualified inspector regarding construction information; the form is submitted to the homeowner’s insurance company in connection with insurance pricing. The findings stated that Pattee forged the signatures to accommodate his clients, who were either not at home at the time of the inspection or were his longtime clients. The findings also stated that Pattee acted as an officer for a company formed to conduct inspections to determine homeowner policy premiums, for compensation, without providing prompt written notice to his member firm for this outside business activity. The findings also included that Pattee completed securities annual compliance online certifications for his firm representing that he had complied with the requirements of NASD Rule 3030 and for the certifications, certified that no changes were needed to his Form U4 or that he had requested appropriate changes to the Form U4 regarding outside business activities. (FINRA Case #2010023232101).
Timothy Michael McGinn (CRD #813935, Registered Principal, Schenectady, New York) and David Lee Smith (CRD #427284, Registered Principal, Saratoga Springs, New York)
Income Note LLC. Fraud, Misrepresentation and Negligent Supervision FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
December, 2011:
Timothy Michael McGinn (CRD #813935, Registered Principal, Schenectady, New York) and David Lee Smith (CRD #427284, Registered Principal, Saratoga Springs, New York) were barred from association with any FINRA member in any capacity. The sanctions were based on findings that Smith misused investor funds when he sold approximately $89 million in income notes issued by four limited liability companies (Income Note LLCs) he controlled. Smith told the investors that the Income Note LLCs would place their funds in a broad array of public and private investments. Contrary to Smith’s representations, he diverted most of the invested funds for the benefit of business entities that he and McGinn owned or in which they had a financial interest. Smith also loaned approximately $590,000 of funds directly to himself. The findings also stated that Smith made misrepresentations and omissions of material facts relating to the Income Note LLCs when he recommended to investors that they participate in the private offerings and purchase the income notes. In addition to falsely representing that the Income Note LLCs would place their funds in private and public investments, Smith stated that the member firm would charge an annual 2 percent commission or fee. In actuality, the proceeds of the investments were diverted to entities McGinn and Smith owned, which were illiquid and in poor financial condition with little or no revenues, and the firm charged recurring annual commissions or fees amounting to approximately 8 percent of the investors’ purchases. Smith failed to inform investors that the Income Note LLCs would invest in, and make loans to, entities in which he and McGinn maintained a financial interest, and that the majority of the funds would be invested in illiquid, non-public companies. The findings also included that Smith directed the sales efforts by which customers purchased the Income Note LLCs. The notes were not registered with the SEC and were not eligible for exemption from registration, but the offerings falsely claimed to be exempt from the registration requirement pursuant to Rule 506 of the Securities Act of 1933, Regulation D.