Articles Posted in FINRA Enforcement Actions 2011

Stock Broker Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

January, 2012:

Joseph James Sciarra Jr. (CRD #1576322, Registered Principal, Wellington, Florida) was barred from association with any FINRA member in any capacity and ordered to pay $393,935, plus interest, in restitution to a customer’s estate. The sanctions were based on findings that Sciarra converted a customer’s funds by not applying the funds for the customer’s intended purpose. The findings stated that the customer provided checks totaling $393,935 to Sciarra to invest in warrants. Sciarra neither deposited the checks into the customer’s firm account nor provided any warrants or other securities to the customer.  Sciarra cashed the checks or deposited them into a bank account. The findings also stated that the customer passed away and Sciarra has not reimbursed the customer’s estate. The findings also included that Sciarra failed to respond to FINRA requests for information.  (FINRA Case #2010022840501).

FINRA Arbitration Attorney Representing Foreign Investors against U.S. FINRA Licensed Brokerage Firms and Account Executives.

August, 2011:

Evely de Jesus Vivenes de Villalon (CRD #2957650, Foreign Associate, Caracas Mirowda, Venezuela) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Vivenes de Villalon failed to respond to FINRA requests for information and documentation regarding her sale of CDs. (FINRA Case #2010025127601).

FINRA Negligent Supervision and Unauthorized Outside Business Activity Attorney, Russell L. Forkey, Esq.

August, 2011:

Cheryl Ann Villani (CRD #4662140, Registered Representative, Brookline, New Hampshire) 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, Villani consented to the described sanction and to the entry of findings that she engaged in outside business activities without providing prompt written notice of those activities to her member firm. The findings stated that Villiani acted to conceal her outside business activities from the firm by claiming that she was not engaged in any such activities on firm outside business activity disclosure reports and, when the firm interviewed her, Villani denied the existence of a limited liability company she owned and managed, and insisted that she had not engaged in conduct that constituted outside business activities; these claims were false. (FINRA Case #2009017944301).

FINRA Arbitration Fraudulent Promissory Note and Negligent Supervision Attorney, Russell L. Forkey, Esq.

August, 2011:

Joseph Andrew Sugg II (CRD #5061692, Registered Representative, Flower Mound, Texas) 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, Sugg consented to the described sanction and to the entry of findings that he failed to respond to FINRA requests for information concerning his sale of certain promissory notes. The findings stated that despite partially complying with previous requests, Sugg failed to provide the requested information. (FINRA Case #2010025102401).

FINRA Arbitration Mutual Fund Switch and Fraud Arbitration Attorney, Russell L. Forkey, Esq.

August, 2011:

Shane Anthony Sterling (CRD #4640502, Registered Representative, Pleasant Hill, Iowa) 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, Sterling consented to the described sanction and to the entry of findings that he recommended and conducted a pattern of unsuitable mutual fund switches in the accounts of customers, some of whom were seniors, and several with limited investment experience and financial resources. The findings stated that Sterling recommended that each of these customers buy and sell class A mutual fund shares in their investment accounts at Sterling’s firm, which he serviced; these customers accepted the recommendation and purchased and sold class A mutual fund shares in their investment accounts. The findings also stated that for these transactions, Sterling recommended and purchased mutual funds outside of the fund family when he could have switched to other funds within the same fund family cost-free, or at a much lower cost to the customer; by switching outside of the fund family, the customers incurred another front-end sales load for each class A mutual fund buy transaction in their account, and this pattern of mutual fund switching in each of these customers’ accounts was unsuitable. The findings also included that Sterling represented on his firm’s documents that each of the transactions was unsolicited when, in fact, Sterling recommended and solicited the transactions. (FINRA Case #2010022525001);

FINRA Breach of Fiduciary Duty and Fraud Arbitration Attorney, Russell L. Forkey, Esq.

August, 2011:

Alan English Smith (CRD #2201854, Registered Principal, Los Altos, California) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Smith provided partial responses to FINRA requests for information and failed to provide requested documents. The findings stated that Smith engaged in outside business activity without providing prompt written notice to, and receiving written approval from, his member firm by serving as executor of a customer’s estate and as successor trustee to the customer’s trust. The findings also stated that Smith understood that he would receive compensation when he was required to perform the duties, and he did receive compensation for performing the duties of executor and trustee; his firm’s procedures required written notice of outside business activities, and the firm’s written approval, before a representative could engage in such activity. The findings also included that Smith never notified his firm that he had accepted the appointment to serve as the executor of the estate, and never received his firm’s written approval. FINRA found that the customer’s heirs filed a lawsuit against Smith, which resulted in a default judgment against him for $851,985.81; the judgment included compensation for various substantial diversions of funds from the customer’s accounts, her trust and her estate, including diversion of annuity funds from the customer’s grandchildren to Smith’s relatives by substituting his relatives as beneficiaries. (FINRA Case #2008014961701).

FINRA Oil and Gas Limited Partnership Suitability and Fraud Arbitration Attorney, Russell L. Forkey, Esq.

August, 2011:

Priscilla G. Sabado (CRD #4650234, Registered Representative, Irvine, 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, Sabado consented to the described sanction and to the entry of findings that she offered and sold entities’ oil and gas investments to several of her clients without her member firm’s knowledge or consent. The findings stated that the SEC filed a partially settled civil injunctive action alleging that the entities and an individual had fraudulently sold investments in Texas oil and gas projects, raising approximately $22 million from investors nationwide. The findings also stated that as a result of Sabado’s recommendations, some of her current firm clients made investments with the entities totaling $491,880. The findings also included that Sabado failed to provide her firm with prior notice of her participation in these securities transactions. (FINRA Case #2010022394901).

FINRA Securities Fraud and Mismanagement Arbitration Attorney, Russell L. Forkey, Esq.

August, 2011:

Jose Salvador Rubio (CRD #1854133, Registered Representative, Miami, Florida) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Rubio failed to respond to FINRA requests to appear for on-the-record testimony. (FINRA Case #2009018879801).

FINRA Arbitration Attorney, Russell L. Forkey, Esq., Helping Customers Seek to Recover Losses from Loans made to Account Executives.

August, 2011:

Jared Austin Poe (CRD #4884505, Registered Representative, Marina Del Rey, California) 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 18 months and ordered to pay restitution in the total amount of $125,000, plus interest. The fine and restitution must be paid either immediately upon Poe’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, Poe consented to the described sanctions and to the entry of findings that he borrowed a total of $125,000 from an elderly customer of his member firm without seeking or obtaining his firm’s approval for any of these loans. The findings stated that Poe and the elderly customer memorialized the loans by executing a promissory note in which Poe promised to repay the $125,000 that he had borrowed; Poe has not repaid any portion of the loans. The findings also stated that Poe completed the firm’s annual sales questionnaire and falsely answered “no” in response to a question that asked whether he had received loans from any of his clients or family members who have accounts at the firm within the preceding 12 months. The findings also included that the firm terminated Poe and, on a Uniform Termination Notice for Securities Industry Registration (Form U5), reported that Poe had been under internal review for violating firm policy by borrowing money from a client; thereafter, Poe caused his Form U5 to be amended to include a comment addressing the internal review in which Poe stated, among other things, that the loan at issue was made by the elderly customer, who he had known since adolescence and served as a mentor and pseudo-grandfather. FINRA found that Poe had not known the customer since adolescence and had met the customer several years earlier when he had solicited him to become a client.

FINRA Arbitration Attorney, Russell L. Forkey, Esq.  Failure of Firm to Perform and/or to Negligently Perform Due Diligence Regarding Private Placements Offered to Customers.

August, 2011:

Leroy Henry Paris II (CRD #1130854, Registered Principal, Jackson, Mississippi) 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 principal capacity for six months. Without admitting or denying the findings, Paris consented to the described sanctions and to the entry of findings that as his member firm’s president, CEO and registered principal, he had overall supervisory responsibilities for the firm, including reviewing and performing due diligence for private placements and for reviewing and approving new products, including the assignment of a new product to a business unit. The findings stated that Paris signed a sales agreement for a private placement offering and failed to perform due diligence beyond reviewing the private placement memorandum (PPM), and while he had received third-party due diligence reports regarding earlier private placements, he did not seek or obtain a report for the latest offering and did not conduct any continuing due diligence or follow-up because of the limited time between offerings, the similarity of the deals and representations from the issuer that no additional due diligence was necessary. The findings also stated that unlike earlier offerings, there were serious red flags that Paris could not identify without adequate due diligence. The findings also included that in his firm’s sale of several offerings by another issuer, Paris failed to perform due diligence even though his firm received a specific fee related to due diligence purportedly performed in  connection with each offering.  FINRA found that Paris did not travel to the issuer’s headquarters to conduct due diligence and did not seek or request any financial information other than what was contained in the PPM. FINRA also found that once he had concluded that his firm could sell the offerings, Paris did not conduct any continuing due diligence or follow-up, and due to limited time between the offerings, the similarity of the deals and representations from the issuer that no material changes had occurred, he concluded that no additional due diligence was necessary. In addition, FINRA determined that Paris did not believe it necessary to pay for due diligence reports for the new offerings because they would say the same thing as previous reports but they did identify numerous red flags. Moreover, FINRA found that Paris should have scrutinized each of the offerings given the high rates of return to ensure they were legitimate and not payable from proceeds of later offerings, as in a Ponzi scheme.  Furthermore, FINRA found that Paris, acting on his firm’s behalf, failed to maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations with respect to the offerings.