FINRA Enforcement Actions 2011

Walter Louis Howerton (CRD #251564, Registered Principal, Modesto, California)

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

Unsuitable Naked Put Option Strategy FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

December, 2011:

Walter Louis Howerton (CRD #251564, Registered Principal, Modesto, California) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $12,500 and suspended from association with any FINRA member in any capacity for six months. The fine must be paid either immediately upon Howerton’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, Howerton consented to the described sanctions and to the entry of findings that he made unsuitable options recommendations in a customer’s account. The findings stated that Howerton began implementing a naked put selling strategy he recommended in the customer’s account in order to generate income. The findings also stated that over the next three years, Howerton recommended numerous naked put sale transactions in the customer’s account; the strategy was generally profitable until it began to result in losses and the customer was forced to close her positions at a substantial loss. The findings also included that Howerton did not have reasonable grounds to believe that the recommendations to sell naked puts were suitable for the customer based on her financial situation and needs; among other relevant considerations, the customer did not have the resources to withstand the magnitude of losses she risked, and ultimately incurred, by selling the naked put options.

Jason Sean Harrison (CRD #2628373, Registered Representative, Pearland, Texas)

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

Selling Away and Outside Business Activity Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

December, 2011:

Jason Sean Harrison (CRD #2628373, Registered Representative, Pearland, 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 one year. The fine must be paid either immediately upon Harrison’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, Harrison consented to the described sanctions and to the entry of findings that he engaged in private securities transactions without providing notice, written or otherwise, to his member firm. The findings stated that Harrison facilitated investments in bonded life contracts an entity issued to his firm’s customers by bringing the investment opportunity to the customers’ attention and referring them to the entity’s salesperson. The customers subsequently invested a combined total of $150,000 with the entity, and Harrison received fees in the amount of $18,000 from the entity for the referrals, which were paid in the form of checks made payable to Harrison’s relative. The findings also stated that prior to referring his firm’s customers to the entity, Harrison had been told that the firm had prohibited its registered representatives from offering and selling the entity’s products due to concerns that the firm had about the products. The findings also included that Harrison ignored the prohibition, made several customer referrals to the entity, and collected undisclosed referral fees. The entity’s investment subsequently defaulted and all of the customers’ funds were lost. FINRA found that Harrison engaged in an outside business activity in that he received $2,500 in undisclosed compensation for a customer referral to a life settlement issuer business, without having provided notice to his firm.

Alan David Goddard Jr. (CRD #3019681, Registered Representative, Boca Raton, Florida)

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

Variable and Fixed Annuity Fraud, Misrepresentation and Negligent Supervision FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.

December, 2011:

Alan David Goddard Jr. (CRD #3019681, Reg. Representative, Boca Raton, Florida) 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 45 days. The fine must be paid either immediately upon Goddard’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, Goddard consented to the described sanctions and to the entry of findings that he was actively engaged in a member firm’s investment banking and securities business as a principal without proper registration. The findings stated that Goddard signed selling agreements and consulting agreements with issuers on the firm’s behalf as an officer of the firm and worked closely with the firm’s outside counsel to establish the terms of selling agreements and private placement offerings that the firm conducted. Unbeknownst to Goddard, the firm’s CCO amended the firm’s Application for Broker-Dealer Registration (Form BD) to list Goddard as the firm’s CEO. The findings also stated that during Goddard’s entire association with the firm, he was only registered as a general securities representative; Goddard took the Series 24 examination but failed. Goddard erroneously believed that he could function in the capacities set forth above without a principal’s license.

Mike Givilancz Jr. (CRD #2141251, Registered Representative, Weslaco, Texas)

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

Securities and Investment Fraud, Misrepresentation and Negligent Supervision FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.

December, 2011:

Mike Givilancz Jr. (CRD #2141251, Registered Representative, Weslaco, 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, Givilancz consented to the described sanction and to the entry of findings that he failed to provide testimony FINRA requested in connection with an investigation of Givilancz’ possibly obtaining loans from customers. The findings stated that Givilancz, through his attorney, informed FINRA that he would not appear for scheduled testimony on the date scheduled or on any date in the future. (FINRA Case #2010024973901).

Joseph John Giuliano (CRD #1411255, Registered Principal, Boca Raton, Florida)

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

Securities and Investment Fraud, Misrepresentation and Negligent Supervision Lawyer, Russell L. Forkey, Esq.

December, 2011:

Joseph John Giuliano (CRD #1411255, Registered Principal, Boca Raton, 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, Giuliano consented to the described sanction and to the entry of findings that an individual who subsequently became a trader with his member firm provided $250,000 to the firm’s parent company, without loan documentation or written agreement, either as funds to be traded in a firm proprietary account or be held as a security deposit to insure the brokerdealer against trading losses the individual might incur. The findings stated that Giuliano, an owner of at least a 40-percent stake in the parent company and the firm’s chief financial officer (CFO) and FINOP, caused the funds to be deposited into the parent company’s checking account and used some or all of the funds, without the individual’s consent or authorization, to pay various expenses and debts of the parent company and the firm, thereby misusing the funds. (FINRA Case #2009019382101).

John Christopher Garner (CRD #2842338, Registered Representative, Charleston, West Virginia)

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

Theft, Unauthorized Fees and Commission Fraud, Misrepresentation and Negligent Supervision FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

December, 2011:

John Christopher Garner (CRD #2842338, Registered Representative, Charleston, West 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, Garner consented to the described sanction and to the entry of findings that when each of his customers invested in a mutual fund or annuity, he requested separate checks, one made out to the clearing firm and the other made payable to the bank at which Garner held a personal account. The first check represented the principal amount to be invested in the underlying product and was processed in the normal course through the member firm, and the other check purportedly represented Garner’s fee, which he endorsed and deposited into his personal account for personal use. The findings stated that when requesting and depositing the purported fee checks, Garner did not disclose to his member firm that he was collecting these payments from his customers, and the firm’s policies did not permit him to request or accept such payments. The findings also stated that Garner arranged for a customer to give him a check for approximately $15,000 and told the customer that he would invest the money on her behalf over time pursuant to a dollar cost averaging strategy, although the firm had a policy prohibiting registered representatives from personally holding customer funds for later investment. The findings also included that Garner never invested any of the approximately $15,000 for the customer’s benefit but converted the money for his own use.

David Leroy Carlson (CRD #1071647, Registered Representative, Simi Valley, California)

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

Selling Away and Unauthorized Outside Business Activity Fraud, Misrepresentation and Negligent Supervision FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

December, 2011:

David Leroy Carlson (CRD #1071647, Registered Representative, Simi Valley, 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, Carlson consented to the described sanction and to the entry of findings that he facilitated securities investments away from his member firm. The findings stated that Carlson facilitated investments titled Secured Investment Notes through a company which totaled approximately $1.7 million, and he earned approximately $77,000 on the sales. The findings also stated that Carlson neither provided written notice to, nor obtained approval from, his firm prior to facilitating the investments. The findings also included that the company through which the investments were made was ultimately determined to be a fraudulent scheme, although Carlson has not been implicated in the scheme. (FINRA Case #2009018215701).

William Alexis Cronin Jr. (CRD #872542, Registered Principal, Madison, Connecticut)

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

Unauthorized Outside Business Activity and Selling Away Fraud, Misrepresentation and Negligent Supervision FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

Debember, 2011:

William Alexis Cronin Jr. (CRD #872542, Registered Principal, Madison, Connecticut) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $181,000, which includes disgorgement of $171,000 in commissions, and suspended from association with any FINRA member in any capacity for two years. The fine must be paid either immediately upon Cronin’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, Cronin consented to the described sanctions and to the entry of findings that he participated in private securities transactions without prior written notice to, and prior written approval from, his member firm. The findings stated that Cronin sold approximately $1,712,500 in notes and debentures to investors, most of whom were his firm’s customers at the time. The notes and debentures, which were securities, were sold through private placements. Cronin received approximately $171,000 in commissions from these investments. The findings also stated that Cronin borrowed $10,000 from one of his customers at his firm. Cronin executed a promissory note stating that the loan was to be paid in full by a certain date, but failed to repay the loan according to the terms of the note. Cronin eventually repaid the loan with interest, but only after the customer filed an action against him. The findings also included that Cronin borrowed $5,000 from another customer through a loan that was not reduced to writing, and had no repayment terms; Cronin repaid the loan. FINRA found that Cronin did not disclose either of the loans to his firm, which prohibited loans from customers without prior firm approval.

Eric Lawrence Bloom (CRD #1742255, Registered Principal, Boca Raton, Florida)

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

Private Placement, Fraud, Misrepresentation, and Negligent Supervision FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.

December, 2011:

Eric Lawrence Bloom (CRD #1742255, Registered Principal, Boca Raton, 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, Bloom consented to the described sanction and to the entry of findings that he made material misrepresentations and omissions of fact and unwarranted, exaggerated and misleading statements to investors in connection with the sale of private placement offerings. The findings stated that Bloom misrepresented in an offering’s subscription agreement that the use of proceeds for the offering was initial funding of the company’s ventures in technology risk management solutions and business development of services. The proceeds were actually used to purchase shares of a stock from an individual. Bloom did not disclose the stock purchasing agreement between the company and the individual that predated the offering and failed to disclose the conflicts of interest and control relationships that existed among the company and his member firm’s outside counsel. Bloom failed to disclose that the firm’s outside counsel, who prepared all the offering documents, had created the company to operate out of his residential address and that the outside counsel’s relatives actually owned and operated the company. The findings also stated that for another offering, Bloom misrepresented the offering in the PPM as an investment in membership interests of a company but did not disclose to investors that there was a promissory note between his firm’s CEO and the company’s owner, and that $400,000 was due pursuant to the note. Bloom failed to disclose to investors that $400,000 of investors’ funds had already been paid to satisfy the note and that $352,200 of investor funds from the offering had already been paid by check to pay back the promissory notes from the offering. Until a supplement to the offering memorandum, Bloom failed to disclose to investors the profit distribution from the offering and further failed to disclose the conflicts of interest and control relationships among the offering company, the company that controlled the offering company, and the firm’s outside counsel and counsel’s family. The findings also included that for two other offerings, Bloom failed to disclose to investors in the subscription agreements of both companies the significant regulatory history of the controlling partners of the offerings who had been charged by FINRA in a market manipulation scheme in connection with alleges sales of over $3.5 million of stock to firm customers. Bloom’s firm’s counsel prepared the offering documents in consultation with Bloom. Bloom relied to his detriment on the counsel’s advice about which facts needed to be disclosed and which could be omitted in the offering documents.

Carl Max Birkelbach (CRD #1177843, Registered Principal, Chicago, Illinois) and William James Murphy

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

Churning, Unsuitable Securities FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

December, 2011:

Carl Max Birkelbach (CRD #1177843, Registered Principal, Chicago, Illinois) and William James Murphy (CRD #1437087, Registered Principal, Midlothian, Illinois). Birkelbach was barred from association with any FINRA member in any capacity. Murphy was fined $585,174.67, as disgorgement of commissions, and barred from association with any FINRA member in any capacity. The National Adjudicatory Council (NAC) imposed the sanctions following appeal of an Office of Hearing Officers (OHO) decision. The sanctions were based on findings that Murphy exercised discretion in clients’ accounts without the customers’ or his member firm’s prior authorization. The findings stated that Murphy engaged in churning and excessive and unsuitable trading in customers’ accounts in light of their financial situation and investment objectives. The findings also stated that Murphy effected uncovered trades in a customer’s account beyond the levels the customer authorized or Murphy’s firm approved. The findings also included that Murphy created and distributed inaccurate, misleading and unbalanced written communications, including reports and sales literature, to a customer. FINRA found that Birkelbach failed to supervise Murphy’s handling of customer accounts at his member firm, and failed to properly review and prevent misleading documents from being sent from his firm. This decision has been appealed to the SEC. The sanctions, with exception of the bars, are not in effect pending consideration of the appeal. (FINRA Case #2005003610701).