South Florida Arbitration & Litigation Lawyer Blog

Articles Posted in FINRA Enforcement Actions 2011

Bluechip Securities, Inc. Houston, Texas and Muhammad Akram

Published on: July 6, 2012 | By Russell L. Forkey, P.A.

FINRA Negligent Supervision and Churning Arbitration Attorney, Russell L. Forkey, Esq.

August, 2011:

Bluechip Securities, Inc. (CRD® #45726, Houston, Texas) and Muhammad Akram Khan, (CRD #1400089, Registered Principal, Houston, Texas) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $15,000. Khan was fined $385,000 and suspended from association with any FINRA® member in any capacity for 18 months. In assessing the fine, financial benefits Khan obtained were considered. The fine must be paid either immediately upon Khan’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, the firm and Khan consented to the described sanctions and to the entry of findings that Khan engaged in excessive trading in the accounts of his member firm’s customers; Khan effected transactions and generated approximately $380,296 in commission charges. The findings stated that the customers’ accounts incurred losses of approximately $399,000; the annualized commission-equity ratio for one customer’s account was approximately 22,131 percent and the commission-equity ratio for the other customer’s account was approximately 450 percent. The findings also stated that Khan executed, or caused the execution of, options transactions at prices that were unfair, in that the commissions charged on such transactions were excessive in light of all factors relevant to the transactions; the trades involved opening and closing transactions in listed index options traded on an options exchange, for which immediate execution was obtained through the firm’s clearing firm. The findings also included that Khan recommended opening options transactions to his firm’s customers without having reasonable grounds to believe that the recommended transactions were suitable for the customers; further, Khan did not have a reasonable basis for believing that the customers had such knowledge and experience in financial matters that they could reasonably be expected to be capable of evaluating the risks of the transactions, and that they were financially able to bear the risks of the recommended positions in the options contracts.

FINRA Enforcement Actions – August, 2011

Published on: July 6, 2012 | By Russell L. Forkey, P.A.

FINRA Arbitration and Litigation Fraud, Mismanagement, Negligent Supervision and Selling Away Attorney Attorney, Russell L. Forkey, Esq.

August, 2011:

Periodically, the Financial Industry Regulatory Authority, Inc. (FINRA) publically announces, on its website, enforcement actions that have either recently been settled by or commenced against broker/dealers and/or associated persons.

Jose Luis Vinas (CRD #4014454, Registered Representative, Houston, Texas)

Published on: July 6, 2012 | By Russell L. Forkey, P.A.

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

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).

Al Joseph Romani (CRD #5000071, Registered Principal, Apopka, Florida)

Published on: July 6, 2012 | By Russell L. Forkey, P.A.

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

July, 2011:

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.The suspension was in effect from May 16, 2011, through June 29, 2011. (FINRA Case #2008011684004).

Sammy Gail Page (CRD #1640203, Registered Representative, Spurger, Texas)

Published on: July 6, 2012 | By Russell L. Forkey, P.A.

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

July, 2011:

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 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).

David Allen Naefke, Registered Representative, Palm Beach Gardens, Florida

Published on: July 6, 2012 | By Russell L. Forkey, P.A.

FINRA Real Estate Investment and Private Placement Fraud Attorney, Russell L. Forkey, Esq.

July, 2011:

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 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)

John Francis Means (CRD #2263604, Registered Representative, Lutherville, Maryland)

Published on: July 6, 2012 | By Russell L. Forkey, P.A.

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

July, 2011:

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).

Ryan Jeffrey Kirkpatrick (CRD #4459488, Registered Representative, Granbury, Texas)

Published on: July 6, 2012 | By Russell L. Forkey, P.A.

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

July, 2011:

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).

Thomas Michael Kinser (CRD #1435579, Registered Representative, Southlake, Texas)

Published on: July 6, 2012 | By Russell L. Forkey, P.A.

FINRA Promissory Note and Theft Arbitration Attorney, Russell L. Forkey, Esq.

July, 2011:

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 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).

Patrick Shawn Kennedy (CRD #3005062, Registered Supervisor, Raleigh, North Carolina)

Published on: July 6, 2012 | By Russell L. Forkey, P.A.

FINRA Promissory Note and Variable Annuity Fraud and Mismanagement Attorney, Russell L. Forkey, Esq.

July, 2011:

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.