Articles Posted in FINRA Enforcement Actions 2011

REIT and Tenants-in-Common Fraud and Negligent Supervision FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

November, 2011:

Paul Leon White II (CRD #4669396, Registered Representative, Huntington, New York) 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, White consented to the described sanction and to the entry of findings that he recommended that a customer invest in non-listed real estate investment trusts (REITs) and a tenants-in-common (TIC) interest in undeveloped rural real estate without a reasonable basis to believe that the recommendations were suitable for the customer based on the customer’s financial status and investment objectives, and the customer’s need for liquidity, preservation of capital, ready access to cash, and safety of principal. The findings stated that the customer instructed White to sell the REITs and White acknowledged receipt of the sell instructions and informed the customer to expect to receive a check for the sale proceeds within one to two weeks, but later refused to process the sell orders. The findings also stated that White participated in the sale of TIC interests totaling $3,700,000, outside the course or scope of his employment with his firm and collected selling compensation of approximately $1,653,958 but failed to provide his firm with prior written notice describing the proposed transactions. (FINRA Case #2009017798201).

Common and Preferred Stock and Annuity Fraud and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

November, 2011:

Dale David Twardowski (CRD #4056379, Registered Principal, Palm Harbor, Florida) 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, Twardowski consented to the described sanction and to the entry of findings that he failed to respond to FINRA requests for documents and information, and failed to appear for and provide testimony. (FINRA Case #2009020936801)

Promissory Note Fraud and Negligent Supervision FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.

November, 2011:

Krittibas Ray (CRD #3039388, Registered Representative, Albany, 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, Ray consented to the described sanction and to the entry of findings that he solicited prospective investors to purchase promissory notes as a vehicle to fund the start up of a hedge fund and to pay the ongoing operations of the fund; investors purchased more than $675,000 in promissory notes from Ray. The findings stated that Ray represented he could pay above-U.S. market interest rates based in part on the fact he could obtain these rates by investing the funds in a foreign bank; Ray failed to invest the proceeds of the notes with the foreign bank, used some of the proceeds for personal expenses and used proceeds from later sales to pay interest and repay principal amounts due on notes earlier purchasers held. The findings also stated that Ray made materially misleading statements and omissions of fact, including misrepresenting the use of proceeds from the sale of the promissory notes, misrepresenting how and where the proceeds were to be invested, and failing to disclose he was using the proceeds from the sale of promissory notes to pay interest and principal amounts due to earlier note holders. The findings also included that Ray participated in private securities transactions through the sale of promissory notes without providing written notice to his firm describing in detail the proposed transaction, his role therein and stating whether he received, or would receive compensation, and without obtaining his firm’s approval. (FINRA Case #2010023781701).

Theft and Misuse of Clients’ Funds FINRA Attorney and Litigation Attorney, Russell L. Forkey, Esq.

November, 2011:

Ralph Howly Phillips (CRD #2145356, Registered Principal, New Kensington, Pennsylvania)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, Phillips consented to the described sanction and to the entry of findings that his customers gave him funds to invest in various securities; Phillips instructed his customers to make their checks payable to a consulting company that Phillips owned and controlled. The findings stated that Phillips deposited the customers’ funds into the consulting company’s bank account, which he controlled, often delayed making the investments, and then only invested a portion of the funds his customers gave him. The findings also stated that Phillips misused the customers’ funds by using those funds to pay the consulting company’s expenses. The findings also included that Phillips willfully filed a Form U4 with materially false information. (FINRA Case #2009017746801).

Fixed and Variable Annuity Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

November, 2011:

Jason Pedigo (CRD #4952772, Registered Representative, Little Rock, Arkansas) 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, Pedigo consented to the described sanction and to the entry of findings that he submitted a fixed annuity contract for his customer with an insurance company; the insurance company issued the annuity contract and sent it to Pedigo in accordance with its selling agreement. The findings stated that the insurance company never received the customer’s executed annuity contract confirmation (ACC); as a result, it mailed letters to Pedigo numerous times requesting that he have the customer sign and return the ACC. The findings also stated that Pedigo informed the insurance company that the customer was deceased and requested paperwork to submit a death claim; according to the insurance company, it never received the death claim paperwork. The findings also included that after receiving a surrender request form that same day, the insurance company contacted Pedigo to inform him that a full surrender could not be processed because the customer was deceased. FINRA found that over a year after the customer had passed, Pedigo falsely informed the insurance company that the customer was still alive; Pedigo faxed the insurance company an ACC which the customer purportedly signed and dated almost 20 days after the customer had died. (FINRA Case #2010025512501).

Private Placement Fraud and Failure to Perform Reasonable Due Diligence FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

November, 2011:

Mark Mather Mercier (CRD #1884246, Registered Principal, Lutz, Florida) 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 principal capacity for three months. The fine must be paid either immediately upon Mercier’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, Mercier consented to the described sanctions and to the entry of findings that as his member firm’s CCO, he shared responsibility with the firm’s president for conducting due diligence for private placements in which the firm acted as a selling agent only because the firm did not have WSPs addressing due diligence for private placements where the firm acted as the selling agent only. The findings stated that Mercier signed selling agreements for offerings and, consistent with the terms of the agreements, his firm received fees and/or commissions for soliciting investors, which included a specific fee related to due diligence purportedly performed in connection with each offering. The findings also stated that Mercier did not perform any due diligence and did not seek or obtain due diligence reports for the offerings, which identified red flags with respect to the offerings. The findings also included that Mercier should have scrutinized each of the offerings given the high rates of return, but did not take the necessary steps to ensure that these rates of return were legitimate and not payable from proceeds of later offerings, in the manner of a Ponzi scheme. FINRA found that Mercier did not conduct meaningful due diligence for these offerings prior to approving them for sale to firm customers, and failed to have reasonable grounds for allowing firm representatives to continue selling the offerings despite the negative information an identified red flags. FINRA also found that Mercier, 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.

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

November, 2011:

Cheryl Ann McMahon (CRD #3009145, Registered Representative, Indianapolis, Indiana) 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, McMahon consented to the described sanction and to the entry of findings that she worked as an associate financial representative for registered representatives and assisted each of her assigned registered representatives with their daily brokerage tasks, which included ensuring that all incoming checks were properly deposited in the appropriate bank account. The findings stated that McMahon misappropriated $2,024.22 by forging a registered representative’s signature on commission checks from insurance product sponsors; McMahon made each of the checks payable to herself and deposited the forged checks into her personal bank account. (FINRA Case #2011027268801).

Private Placement Fraud and Selling Away FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

November, 2011:

John Michael Leonard (CRD #2254243, Registered Representative, Chicago, Illinois) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $25,000 and suspended from association with any FINRA member in any capacity for two years. The fine must be paid either immediately upon Leonard’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, Leonard consented to the described sanctions and to the entry of findings that he recommended and sold private placements to customers for whom such recommendations and transactions were unsuitable because the issuer’s product was inconsistent with their investment objectives, net worth or income. The findings stated that these recommendations were also unsuitable because the issuer’s product created an overconcentration of alternative investments in the customers’ investment accounts.

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

November, 2011:

Gary Harrison Lane (CRD #713745, Registered Representative, Reno, Nevada) 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, Lane consented to the described sanction and to the entry of findings that he converted to his personal use a total of $4.93 million in checks from customers who Lane misled into believing they were investing in U.S. Treasury bonds and/or corporate bonds. The findings stated that instead of investing the customers’ money, Lane deposited checks drawn on the customers’ accounts into his relative’s account to effectuate the conversion of the customers’ funds without their authorization. The findings also stated that Lane, in furtherance of his scheme and in an effort to disguise his conversion, made a total of more than $736,000 in payments to some of the affected customers by cash payments or by transferring funds from his relative’s account to a bank account bearing the name of the United States from which cashier’s checks were issued to the customers. The findings also included that Lane created and provided his customers with fictitious receipts and typed certifications purporting to confirm his customers’ non-existent investments in U.S. Treasury bonds and/or corporate bonds. (FINRA Case #2011027048601).

Unsuitable Recommendation and Negligent Supervision FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

November, 2011:

Steven Krasner aka Steven Zarkhin (CRD #4541263, Registered Representative, Copiague Harbor, New York) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $10,000, ordered to disgorge $18,126.81, payable as partial restitution, to a customer and suspended from association with any FINRA member in any capacity for two months. Without admitting or denying the findings, Krasner consented to the described sanctions and to the entry of findings that he made unsuitable recommendations to a customer who was a retiree and inexperienced investor. The findings stated that although the customer agreed to each of Krasner’s recommendations, Krasner employed a trading strategy that was not suitable for the customer’s particular financial situation; the customer indicated in account opening documents that he had an investment objective of capital preservation and a low risk tolerance. The findings also stated that Krasner recommended the use of margin to execute trades in the customer’s account and at times exposed the customer to inappropriate financial risk. The findings also included that Krasner never read the customer’s account opening documents, though they were available to him, and was unaware of the customer’s financial situation and risk tolerance, as stated in the account opening documents.