FINRA Enforcement Actions 2012

Toni Leynett Bowen (CRD #4021430, Registered Representative, Lubbock, Texas)

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

Stock Broker Misconduct, Borrowing of Money from Customer, FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

January, 2012:

Toni Leynett Bowen (CRD #4021430, Registered Representative, Lubbock, Texas) submitted a Letter of Acceptance, Waiver and Consent in which she was suspended from association with any FINRA member in any capacity for 10 business days. In light of Bowen’s financial status, no monetary sanctions have been imposed. Without admitting or denying the findings, Bowen consented to the described sanction and to the entry of findings that while registered with her member firm, Bowen’s company borrowed $25,000 from an individual who was not her firm’s customer. The findings stated that later on, the entire $25,000 due to the individual was rolled over into a new loan agreement, which was entered into after the individual became Bowen’s customer at her firm. The findings also stated that the firm’s WSPs do not allow a registered representative to borrow from a customer. The findings also included that Bowen’s company paid off the loan. The suspension was in effect from December 5, 2011, through December 16, 2011. (FINRA Case #2009017068501).

Phillip Peter Borup (CRD #4446376, Registered Principal, Cameron Park, California)

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

Private Placement and Direct Investments, Negligent Supervision of Account Executives FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

January, 2012:

Phillip Peter Borup (CRD #4446376, Registered Principal, Cameron Park, California) submitted an Offer of Settlement in which he was fined $15,000 and suspended from association with any FINRA member in any principal capacity for 18 months. The fine must be paid either immediately upon Borup’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 allegations, Borup consented to the described sanctions and to the entry of findings that he was designated as the OSJ branch manager for two of his member firm’s branches. As the OSJ manager, Borup was the principal of his firm responsible for supervising the business of the associated personnel located in those offices. The findings stated that later on, Borup designated another principal of the firm as the OSJ manager for the branch offices but representatives at the branch offices continued to engage in violative practices adopted while Borup was the OSJ manager of which he was or should have been aware. The findings also stated that when the new OSJ manager raised concerns about the private-placement business in the branch offices, Borup declined to take steps to address those concerns and conform the conduct of that business to all applicable laws, rules and regulations. The findings also included that as the firm’s chief executive, owner and the person who directed the firm’s business, Borup remained responsible for the private-placement business the representatives in the branch offices conducted on the firm’s behalf. These branch offices articipated in transactions involving the sale of several different private placements to investors who invested approximately $1,727,000. The representatives employed a general solicitation to obtain these investors. FINRA found that the firm received selling compensation for each of the private placement transactions. As the firm’s owner and CEO, Borup benefitted financially from the firm’s receipt of selling compensation. FINRA also found that the general solicitation caused the transactions to be ineligible for the Rule 506 exemption and, therefore, the transactions constituted the sale of unregistered securities in contravention of Section 5 of the Securities Act of 1933. Borup was the firm principal responsible for the offer and sale of the private-placement securities and by permitting these transactions to occur in contravention of the registration provisions of the Securities Act of 1933, he engaged in conduct that was inconsistent with high standards of commercial honor and just and equitable principles of trade. In addition, FINRA determined that Borup was responsible, directly or indirectly, for the supervision of firm personnel in the branch offices and the business activities in which they engaged on the firm’s behalf. Borup appointed another firm principal, as OSJ manager, although the principal did not have supervisory experience and was unfamiliar with the laws, rules and regulations applicable to the private-placement business; Borup did not undertake to provide the principal with opportunities to develop the knowledge needed to supervise the private-placement business effectively, nor did he revise, or instruct the principal to revise, the firm’s systems and procedures for supervising that business although he knew, or should have known, that they were inadequate.

Ricardo Blanco (CRD #1793188, Registered Representative, Key Biscayne, Florida)

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

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

January, 2012:

Ricardo Blanco (CRD #1793188, Registered Representative, Key Biscayne, 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, Blanco consented to the described sanction and to the entry of findings that he sent documents that contained false and inflated account values to a customer and also sent the customer a false account statement, which indicated that the account’s value was approximately $3 million when, in fact, it was worth less than a dollar. The findings stated that Blanco sent a false account statement with an inflated value to another customer; the false statement indicated that the value of the account was approximately $2 million when the account had, in fact, been closed. The findings also stated that Blanco failed to respond to FINRA requests to provide certain documents and access to other documents. (FINRA Case #2011027098601).

James Joseph Ahmann (CRD #2983399, Registered Representative, Bloomingdale, Illinois)

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

Outside Business and Selling Away FINRA Arbitration and Litigations Attorney, Russell L. Forkey, Esq.

January, 2012:

James Joseph Ahmann (CRD #2983399, Reg. Representative, Bloomingdale, Illinois) 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, Ahmann consented to the described sanction and to the entry of findings that he participated in private securities transactions and sold bonded life settlement securities to customers pursuant to those transactions after his member firm specifically denied him permission to do so. The findings stated that Ahmann’s customers invested $1,750,000 in seven bonded life settlements and in total, the bonded life settlement company paid approximately $120,475.90 in commissions related to Ahmann’s sales.

Park Avenue Securities LLC (CRD #46173, New York, New York)

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

Stock Broker Misconduct, Fraud, Misrepresentation and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

January, 2012:

Park Avenue Securities LLC (CRD #46173, New York, New York) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $175,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it conducted an inadequate investigation of its representatives’ involvement in a Ponzi scheme and of allegations two registered representatives made. The findings stated that the firm became aware that two of its registered representatives had participated in unapproved private securities transactions by facilitating investments in the Ponzi scheme for themselves and others, some of whom were firm customers, without notifying the firm or obtaining its permission. The firm initiated an investigation regarding their conduct and to determine whether any other registered representatives were involved in the Ponzi scheme. The findings also stated that the firm sent a questionnaire to its registered representatives in two states soliciting information about any involvement in the Ponzi scheme. Notwithstanding the allegation two registered representatives made that one of the firm’s insurance supervisors knew about their involvement with the Ponzi scheme, the firm permitted him to be one of the people collecting responses to the firm’s questionnaire. The findings also included that the firm failed to fully investigate the extent of the insurance supervisor’s involvement with the Ponzi scheme despite evidence discovered later that should have led the firm to conclude that he was involved. FINRA found that counsel for the two registered representatives informed the firm that a member of the firm’s supervisory staff had suggested that the registered representatives destroy documents and provide misleading information in connection with the firm’s internal investigation. Under the circumstances, the firm took inadequate steps to investigate these allegations. FINRA also found that the firm had an inadequate system for reviewing electronic communications. The firm’s computer system allowed compliance staff in branch offices, in certain circumstances, to review their own email as well as the email of their supervisors. (FINRA Case #2009016911203).

Darrell Eugene Fox (CRD #1360248, Registered Representative, Lima, Ohio)

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

Stock Broker Fraud, Mismanagement and Misrepresentation FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.

January, 2012:

Darrell Eugene Fox (CRD #1360248, Registered Representative, Lima, Ohio) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Fox failed to provide documents and information requested by FINRA. (FINRA Case #2009019551801).

Credit Suisse Securities (USA) LLC (CRD #816, New York, New York)

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

Hedge Fund Oversight and Lack of Due Diligence FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

January, 2012:

Credit Suisse Securities (USA) LLC (CRD #816, New York, New York) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $350,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it maintained a Private Banking USA unit (PBUSA) that offered and sold alternative investments, including hedge funds and funds of hedge funds, to customers. Funds of hedge funds are investment companies that may be registered closed-end funds or unregistered funds that contain largely unregistered hedge funds as underlying investments. The firm marketed these products primarily to high net-worth individuals and institutions that met the accredited investor standard as defined by the Securities Act of 1933 and/or the qualified purchaser standard under the Investment Company Act of 1940. The findings stated that PBUSA relationship managers used a marketing pitch book to market the firm’s alternative investment products, including hedge funds and funds of hedge funds, to customers and prospective customers. The pitch book’s purpose was to introduce qualified, high net-worth customers and prospective customers to, among other things, the various types of hedge funds and funds of hedge funds the firm offered. The pitch book described in general terms the benefits of the various product categories for PBUSA customers, contained a discussion of hedge funds as part of an overall investment portfolio, provided brief overview information about certain representative offerings, described the general due diligence process at the firm and contained a summary description of alternative investment offerings at the firm. PBUSA registered representatives often used the pitch book to guide their discussions at introductory presentations with prospective or existing customers, and to describe the firm’s offerings of and capabilities with respect to alternative investments. The findings also stated that the pitch book contained a number of statements regarding the firm’s due diligence efforts; it represented that the firm would conduct continuous and ongoing due diligence of the funds. The findings also included that the statements were not accurate because for certain funds, the firm performed little ongoing due diligence, and when it was performed, it was done on a sporadic and irregular basis. In the case of at least one fund, the firm did not perform any ongoing due diligence. FINRA found that the firm failed to have sufficient procedures and systems to ensure that the due diligence efforts it promised in the materials were occurring. In fact, the firm did not maintain any written procedures detailing specific steps and requirements for either initial or ongoing due diligence. (FINRA Case #2009016627501).

Askar Corp. (CRD #7512, Bloomington, Minnesota)

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

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

January, 2012:

Askar Corp. (CRD #7512, Bloomington, Minnesota) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $12,500. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that although it had WSPs that were appropriate with respect to private securities transactions, it failed to enforce the procedures as written. The findings stated that this resulted in the firm’s failure to review and approve or disapprove the private securities transactions of some registered representatives who were associated with the firm. The firm’s failure to supervise these private securities transactions violated NASD Rule 3040, which requires members to give prior written approval or disapproval of any proposed private securities transaction by an associated person. The findings also stated that the firm failed to establish and enforce a supervisory system and WSPs to supervise private securities transactions some of its registered representatives executed, including failing to record the transactions on its books and records.(FINRA Case #2010021008701).

AOS, Inc. dba TradingBlock (CRD #128605, Chicago, Illinois)

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

Stock Broker Fraud, Breach of Fiduciary Duty, Misrepresentation and Negligent Supervision FINRA Arbitration and Litigation Lawyer Russell L. Forkey, Esq.

January, 2012:

AOS, Inc. dba TradingBlock (CRD #128605, Chicago, Illinois) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $15,000 and ordered to pay $41,593.23, plus interest, in restitution to affected customers. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it entered into a trading agreement with a foreign brokerdealer whose owner had his customers open fully disclosed accounts with the firm where the owner had discretionary trading authority, and negotiated a special compensation structure with the firm for option and equity transactions. The findings stated that approximately three months after the firm entered into the trading agreement with the owner, it terminated its relationship. The firm informed the customers that the owner would no longer be able to exercise discretion in their accounts, and the customers transferred their accounts to another firm. The findings also stated that the customers were not able to avail themselves of the full services they paid the firm upfront because their accounts were transferred to another firm before their positions expired. The findings also included that the firm’s service charges were greater than the amount warranted by market conditions, the cost of executing the transactions, the value of services the firm rendered and other pertinent factors; the total overcharges were $41,593.23.

Hantz Financial Services, Inc. (CRD #46047, Southfield, Michigan) and Bruce FrederickColeman (CRD #50684, Registered Principal, Ann Arbor, Michigan)

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

Stock Broker Fraud and Negligent Supervision FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

January, 2012:

Hantz Financial Services, Inc. (CRD #46047, Southfield, Michigan) and Bruce Frederick Coleman (CRD #50684, Registered Principal, Ann Arbor, Michigan) submitted a Letter of Acceptance, Waiver and Consent in which the firm and Coleman were censured and fined $10,000, jointly and severally. The firm was fined an additional $50,000. Without admitting or denying the findings, the firm and Coleman consented to the described sanctions and to the entry of findings that the firm failed to establish and maintain an adequate supervisory system and WSPs to ensure that it immediately recorded on the firm’s books and records checks its customers mailed to the firm. The findings stated that because the firm failed to enforce that particular WSP, these deficiencies were exploited by a registered representative who embezzled approximately $2.6 million from customers and contributed to the firm’s failure to detect his scheme; the representative exploited the firm’s check handling procedures by taking control of customer checks totaling approximately $850,000 and depositing the customer funds into his own bank accounts, without the checks being logged in the firm’s tracking system. The findings also stated that the firm, by and through Coleman, its CCO, failed to establish and maintain adequate WSPs addressing the circumstances under which it would contact and communicate with a customer following receipt of a complaint.