Articles Posted in FINRA Enforcement Actions 2011

FINRA Securities Arbitration Attorney, Russell L. Forkey, Esq.

June, 2011:

John Brady Benson Sr. (CRD #18588, Registered Representative, Minneapolis, Minnesota, formerly licensed with Morgan Stanley Smith Barney) 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 45 days. The fine must be paid either immediately upon Benson’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, Benson consented to the described sanctions and to the entry of findings that he engaged in outside business activity, outside the scope of his employment with his member firm, when he facilitated the sale of his relative’s company to an individual without providing prompt written notice to his firm of the dealings and, as compensation for facilitating the acquisition, accepted a finder’s fee in the form of 50,000 shares of stock in the newly formed corporation. The findings stated that Benson provided the individual with $11,000 to be used to pay expenses of the newly formed corporation, and in exchange, Benson acquired 1.1 million shares of stock in the corporation. The findings also stated that the shares of stock were securities, the transaction was conducted entirely apart from Benson’s employment with his firm, and Benson did not give his firm prior written notice of, and the firm did not give him prior written approval of, the transaction. 

FINRA Arbitration Lawyer, Russell L. Forkey, Esq.

June, 2011:

Shanoa Adrianne Rose Akins (CRD #4552640, Associated Person, Sunrise, 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, Akins consented to the described sanction and to the entry of findings that she misappropriated approximately $1.1 million from her member firm. The findings stated that Akins created false entries in the firm’s books and records, ranging in amounts of $250 to $50,000, which caused the firm to pay her money to which she was not entitled. (FINRA Case #2011027093001).

Florida FINRA Arbitration Attorney, Russell L. Forkey, Esq.

Recently, The Financial Industry Regulatory Authority Inc. (FINRA) created an online data base, which contains more information about its disciplinary actions.

The new Disciplinary Actions Online database, provides access to FINRA complaints against firms and individual brokers, settlement agreements (known as Letters of Acceptance Waivers and Consent, or AWCs), decisions by FINRA hearing panels and National Adjudicatory Council decisions.

FINRA Arbitration Lawyer, Russell L. Forkey, Esq.

June, 2011:

NFP Securities, Inc. (CRD #42046, Austin, Texas) 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 it approved advertising materials a registered representative used in his retail equity-indexed annuity (EIA) business conducted at workshops for senior citizens that contained false, exaggerated, unwarranted or misleading statements. The findings stated that the firm failed to document, with a principal’s signature or initial, its approval of a piece of advertising material the representative used and failed to maintain a record of its approval of a piece of the representative’s advertising material. The findings also stated that the firm did not supervise the representative’s workshops, in that it did not require him to produce a copy of the script for the workshops and did not attend any of the live workshops to confirm that the contents of the workshops complied with NASD rules and that only firm-approved materials were being used. The findings also included that if the firm had required the representative to submit a script and had attended his workshops, it would have discovered that he made statements, used materials and engaged in conduct that violated NASD Rules 2110 and 2210, and could have prevented further violations of these rules. (FINRA Case #2007011393902).

FINRA Arbitration Lawyer, Russell L. Forkey, Esq.

June, 2011:

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 $375,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that a former associated person and employee of the firm in its New York Position Services Group (NYPS) misappropriated approximately $2.5 million from the firm, institutional firm customers and a firm counterparty by entering, or causing to be entered, numerous false journal entries into the firm’s electronic system to transfer and credit money associated with corporate actions. The findings stated that the former employee entered, or caused to be entered, into the firm’s electronic system requests for checks to be issued to his shell corporation against the suspense and/or fee accounts that he was using to misappropriate funds. The findings also stated that the firm’s former employee entered some check requests himself, which NYPS employees that reported to him later approved. The findings also included that the former employee caused employees who reported to him to enter check requests, and he used the identification number and password of another NYPS employee who reported to him to enter the remaining check requests; he later approved all of the check requests.

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

August, 2011:

Morgan Stanley & Co. Incorporated nka Morgan Stanley & Co. LLC (CRD #8209, New York, New York) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $575,000. 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/or enforce adequate WSPs, and failed to adequately supervise total return swaps and off-shore stock loans. The findings stated that these transactions were designed to generate for certain off-shore clients a perceived tax advantage related to dividend income on U.S. equities. The findings also stated that the advantage was referred to as various terms, including “yield enhancement,” and represented the amount that would have been withheld in taxes on a dividend, but that the client obtained through a transaction with the firm and/or its affiliates; but in both types of transactions, the client did not hold the stock on the dividend record date but, instead, the firm structured the transaction as a swap or loan, and provided yield enhancement as part of a securities derivative or stock loan-related payment.

FINRA Unit Investment Trust Fraud and Misrepresentation Attorney, Russell L. Forkey, Esq.

July, 2011:

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 Arbitration Lawyer, Russell L. Forkey, Esq.

June, 2011:

Monex Securities, Inc. (CRD #30362, 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 properly supervise and properly register its foreign finders; and it had no written procedures concerning its use of foreign finders. The findings stated that the firm terminated the registrations of all its foreign associates and made them foreign finders; thereafter, the firm employed foreign finders and no foreign associates. The findings also stated that many of the firm’s foreign finders were previously registered foreign associates at the firm who worked on the premises of the firm’s affiliated broker-dealer. The findings also included that as registered sales representatives and foreign associates for the firm, they acted as general securities representatives engaging in securities activities for non-U.S. residents, citizens or nationals. FINRA found that when the firm’s foreign associates’ registrations were terminated with FINRA and re-affiliated as foreign finders, their job functions were supposed to be limited to those of a foreign finder; the firm’s foreign finders’ sole involvement with the firm should have been the initial referral of non-U.S. customers. FINRA also found that all of the firm’s foreign finders serviced customer accounts, processed new account documents and letters of authorization (LOAs) for customers containing confidential client information and serviced customer accounts; these activities went well beyond the initial referral of non-U.S. customers to the firm. In addition, FINRA determined that given the expanded roles of the firm’s foreign finders, they should have been registered as foreign associates; however, the firm failed to register any of its foreign finders as foreign associates. Moreover, FINRA found that a concerned customer visited the firm’s affiliate’s branch office and explained that a foreign finder of the firm had provided him with an account statement that differed from the statement he recently received from the firm’s clearing firm; the firm immediately instituted an internal investigation into all accounts the foreign finder had introduced to the firm. Furthermore, FINRA found that the firm discovered that unauthorized statements had been provided to customers by its rogue foreign finder; the unauthorized statements inflated market values and net worth; and its rogue foreign finder altered correspondence that he forwarded to customers by making the documents incorrectly appear as if the firm had authorized them. The findings also stated that the firm contacted and interviewed every customer the rogue foreign finder introduced to the firm, which revealed that some of the customers had received false statements; and that the false statements inflated customers’ account values by over $2 million U.S. dollars. The findings also included that the investigation led to the rogue foreign finder’s termination, foreign finders being discontinued, written supervisory procedures being added, the firm’s supervisory system being enhanced and substantial compensation paid to affected customers. FINRA found that the firm claimed that it inspected the offices of its foreign finders, including the rogue foreign finder, to ensure that they were properly supervised, but failed to document or memorialize the office inspections and other supervisory activities in any way. (FINRA Case #2008014078801).

FINRA Arbitration Attorney, Russell L. Forkey, Esq.

June, 2011:

Geoffrey Richards Securities Corp. (CRD #120007, Hypoluxo, Florida) 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 preserve all of its business-related electronic communications. The findings stated that the firm attempted to preserve such communications by burning them to a non-rewriteable, non-erasable disc on a monthly basis, but the process was deficient because it did not result in all such communications being saved to the disc. The findings also stated that the firm did not identify this deficiency in its audit of its electronic communications preservation system. The findings also included that the firm, in contravention of its written supervisory procedures, permitted registered representatives to use outside or non-firm-sponsored email accounts to send and receive securities business-related emails. FINRA found that the firm’s preservation process did not capture these emails that were sent to or from those accounts; therefore, the firm did not retain and review them. FINRA also found that the firm relied exclusively on electronic storage media to preserve its business-related electronic communications but did not retain a third party who had the access or ability to download information from its electronic storage media. (FINRA Case #2009015971101).

FINRA Arbitration Attorney, Russell L. Forkey, Esq.

June, 2011:

Canaccord Genuity, Inc. fka Canaccord Adams, Inc. (CRD #1020, Boston, Massachusetts) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $22,500, required to review its supervisory system and procedures concerning research reports and the supervision of research analysts for compliance with FINRA rules and federal securities laws and regulations, and to certify in writing within 90 days that the firm completed its review and that it currently has in place systems and procedures reasonably designed to achieve compliance with those rules, laws and regulations. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to adopt and implement WSPs reasonably designed to supervise its research analysts and ensure that its research reports complied with NASD Rule 2711. The findings stated that although the firm maintained some relevant WSPs, those procedures did not provide any real guidance to its employees about the specific steps they needed to take to achieve compliance with Rule 2711. The findings also stated that the WSPs required that all public appearances by firm analysts be approved by the research director, that the appropriate disclosures be made to the media outlet, that a record documenting the disclosures provided to the media be maintained, and that the firm’s marketing department receive a copy of such disclosure. The findings also included that the WSPs made the research analyst responsible for meeting these obligations but provided little or no guidance on how these tasks could be successfully carried out or supervised.  FINRA found that the WSPs contained provisions broadly describing what portions of draft research reports could and could not be provided to covered companies, but failed to provide specific guidance to firm employees regarding the manner in which these requirements were to be fulfilled. FINRA also found that the firm’s WSPs permitted the research department to send sections of a research report to a subject company before publication to verify the accuracy of information in those sections, provided that a complete draft of the research report was first provided to the compliance department. In addition, FINRA determined that the firm sent research report excerpts to a subject company before its compliance department had received a complete draft of the report, and in one of those instances, the complete draft was not sent to the compliance department. Moreover, FINRA found that in connection with public appearances by its research analysts, the firm failed to retain records that were sufficient to demonstrate compliance by those analysts with the disclosure requirements of NASD Rule 2711(h). (FINRA Case #2009016251601)