Articles Posted in FINRA Enforcement Actions 2011

Conversion, Theft and Misappropriation FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.

September, 2011:

Lazaro E. Salado (CRD #2899323, Registered Representative, Miami, Florida) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Salado misappropriated $186,114.28 from customers by causing his member firm to issue checks drawn on customers’ bank accounts made payable to his bank loan account. The findings stated that the checks bore signatures purporting to be that of the customers; however, none of the customers authorized the withdrawals or signed the checks. The findings also stated that Salado failed to respond to FINRA requests for information. (FINRA Case #2009021081301).

Conversion and Theft FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.

September, 2011:

John Thomas Pappas (CRD #4240283, Registered Representative, Helena, Alabama)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, Pappas consented to the described sanction and to the entry of findings that he converted funds totaling $157,563.75 from customer accounts, without the customers’ knowledge or authorization, and attempted to convert an additional $14,260 from another customer account. The findings stated that in each instance, Pappas misappropriated the funds by activating the online bill payment feature in the clients’ accounts and then directed payments to his personal credit cards. The findings also stated that Pappas placed an unauthorized trade totaling $6,893.43 in a deceased firm customer’s account. FINRA found that Pappas refused to respond to FINRA requests for information and testimony.  (FINRA Case #2010021962101).

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

September, 2011:

Victoria Elizabeth McGee-Harris (CRD #1183259, Registered Representative, St. Louis, Missouri) 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, McGee-Harris consented to the described sanction and to the entry of findings that she engaged in a fraudulent scheme whereby she enticed numerous clients into paying her millions of dollars for various investment and insurance products that she never purchased. The findings stated that instead, McGee-Harris, without the customers’ knowledge or consent, diverted, deposited and commingled the funds into accounts she controlled at various banks for her personal use. (FINRA Case #2010021363601).

Fix and Variable Annuity Unsuitable and Unnecessary Switch (Exchange) FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

September, 2011:

Charles William Kromer Jr. (CRD #1068867, Registered Rep., Cincinnati, Ohio)

Variable and Fixed Annuity Unsuitable and Unnecessary Switch (Exchange) FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

September, 2011:

Jan David Henderson (CRD #2401845, Registered Rep., Midway, Utah) 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, Henderson consented to the described sanction and to the entry of findings that he engaged in a pattern of unsuitable variable annuity switch transactions in which he executed unsuitable variable annuity switches involving customers. The findings stated that Henderson would switch customers from their existing fixed and/or variable annuities into a specific variable annuity, thereby improperly earning additional commissions at the expense of customers who paid substantial surrender fees; for these switches, customers paid approximately $208,000 in surrender penalties and Henderson received approximately $380,235 in commissions. The findings also stated that Henderson executed these variable annuity replacement transactions without regard to the substantial surrender charges imposed or the extension of the surrender periods for his customers. The findings also included that Henderson utilized a “one-size-fits-all” investment strategy for the customers, which was not suitable for his diverse client base. FINRA found that Henderson failed to research and understand the salient features of the variable annuity, such as the other investment options and other riders available to his customers, and only selected and discussed with his customers the same single investment option and the same single rider for all customers; in fact, Henderson, before even selling the variable annuity to any of his customers, had already predetermined that he would sell his customers the same single investment option and the same single rider, based largely, if not exclusively, on representations a wholesaler made to him without conducting any of his own independent research or analysis. FINRA also found that Henderson marketed the variable annuity to his customers based on the rider’s purported benefits; however, Henderson failed to correctly and accurately complete the variable annuity paperwork, which resulted in some of his customers not receiving the promised protection of a rider that he recommended at the time of the sale, thereby causing his member firm’s books and records to be inaccurate. (FINRA Case #2009019513901).

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

September, 2011:

Larry Richard Gregory (CRD #2308559, Registered Representative, Norfolk, 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, Gregory consented to the described sanction and to the entry of findings that he served as vice president and board member of a purported charitable foundation he managed with other non-registered principals, and unbeknownst to his member firm, he effected the transfer of approximately $400,000 from member firm customers (most of whom are now deceased) to the foundation as supposed donations; Gregory transferred nearly $184,000 of that amount to the foundation from the sole known surviving donor customer’s brokerage account. The findings stated that for almost seven years, Gregory, in conjunction with the other non-registered principals, collectively converted for their personal use a total of $79,444.70 from the foundation account they controlled, which was maintained at Gregory’s member firm. The findings also stated that the money generally was used to fund the educations of the principals’ relatives; Gregory personally converted a total of $26,619.45 of that amount for his own personal use. The findings also included that for more than a decade while associated with both the foundation and his member firm, Gregory failed to disclose to his firm his officer and director positions and role in a business activity outside the scope of his relationship with his firm; Gregory did not disclose his association with the foundations until after the firm undertook an internal review of his activities related to the foundation. FINRA found that Gregory assisted an elderly customer in causing a bank to issue him a $40,061.48 check as a gift from the customer, contrary to his firm’s WSPs that required associated persons, including Gregory, to notify the firm of, and receive approval for any non-de minimis gifts received from customers; the procedures also placed an annual $100 cap on customer gifts. FINRA also found that Gregory failed to disclose, and receive written approval for, the $40,061.48 gift, violating his firm’s WSPs.  In addition, FINRA determined that as a result of his violations of the firm’s procedures, Gregory impeded his firm’s ability to effectively supervise over subjects of regulatory importance, including, but not limited to, issues relevant to customer protection. (FINRA Case #2011026406001).

Negligent Supervision and Unauthorized Trade FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

September, 2011:

 Bradford Keith Dent (CRD #1588966, Registered Principal, Cordova, Tennessee) was barred from association with any FINRA member in any capacity.  The sanction was based on findings that Dent suffered a series of losses from trading in his member firm’s error account, and in an apparent attempt to conceal the losses, he entered unauthorized trades in customer accounts, intending them to offset trades in the error account that would conceal the earlier, unrelated trading losses he had incurred from his firm. The findings stated that the customers had not provided Dent with discretionary authority and one customer incurred a total loss of $126,513.65, which was offset in the error account, reflecting a profit in it equal to the loss in the customer’s account. The findings also stated that Dent admitted to entering the trades in the firm’s error account and in the customers’ accounts when his firm’s Chief Executive Officer (CEO) confronted him. The findings also included that Dent failed to respond to FINRA requests for information and to appear for an on-the-record interview. (FINRA Case #2009016893101).

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

September, 2011:

Matthew Crump (CRD #1924664, Registered Principal, Houston, 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, Crump consented to the described sanction and to the entry of findings that he was the CCO at his member firm and utilized his position to convert approximately $14,000 from firm customers’ brokerage accounts by using fictitious documents to effect unauthorized transfers of securities and cash from the customers’ accounts to a trust account he established at his firm. The findings stated that Crump transferred securities and cash worth approximately $4,000 from one customer’s account by using a fictitious letter of authorization to effect the conversion. The findings also stated that two days before the transfer, Crump used the firm’s systems to temporarily change the address on the customer’s account to Crump’s attention at his work address, the effect of which was to have correspondence and other notices relating to the account sent to him at his firm.  The findings also included that Crump used a fictitious retirement account distribution form and a fictitious letter of authorization to effect the conversion of securities and cash worth approximately $10,000 from another customer’s Individual Retirement Account (IRA) to the customer’s cash account, and Crump transferred the securities and cash from the customer’s cash account to the trust account he controlled. FINRA found that the customers did not know about or authorize the transfers. FINRA also found that Crump used the unlawfully converted funds to pay for his personal and business expenses.  (FINRA Case #2011028107401).

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

September, 2011:

Timothy Charles Cross (CRD #1452750, Registered Principal, Washougal, Washington) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $10,000, suspended from association with any FINRA member in any principal or supervisory capacity for six months, and required to requalify as a general securities principal by examination before association with any member firm in a principal or supervisory capacity. Without admitting or denying the findings, Cross consented to the described sanctions and to the entry of findings that he failed to supervise the activities of a registered representative of his member firm in a manner that was reasonably designed to achieve compliance with applicable securities laws and regulations. The findings stated that Cross was the registered representative’s designated supervisor. The findings also stated that the registered representative, through her fraudulent scheme, converted to her own use and benefit at least $8 million from clients, including the firm’s customers. 

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

September, 2011:

Ronald Dean Clark (CRD #1086724, Registered Representative, Tampa, 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 capacity for 15 business days. Without admitting or denying the findings, Clark consented to the described sanctions and to the entry of findings that he participated in a private securities transaction, not for selling compensation, involving the purchase of approximately $88,000 worth of equity securities by customers and failed to provide written notice to his member firm prior to his participation in the securities transaction.  The suspension was in effect from August 1, 2011, through August 19, 2011. (FINRA Case #2009018098601).