Articles Posted in FINRA Enforcement Actions 2012

Private Placement and Direct Investment Fraud, Mismanagement and Misrepresentation FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.

February, 2012:

Gregory Allen Baldwin (CRD #1856003, Registered Principal, Hendersonville, North Carolina) was barred from association with any FINRA member in any capacity and ordered to pay $273,656.29, plus interest, in restitution to a customer. The sanctions were based on findings that Baldwin engaged in private securities transactions without providing his member firm prior written notice, that he made improper use of a customer’s securities and funds, and that he failed to respond to FINRA requests for information and testimony.  The findings stated that Baldwin formed a limited partnership for which his adviser firm was the general partner and sold limited partnership interests to investors. The PPM for the fund and the subscription agreements reflected that Baldwin raised $2,940,000 through several private securities transactions for which he received selling compensation.  Baldwin and his adviser firm were reimbursed for various expenses, and he received management fees in his capacity as general partner of the limited partnership. The fund completed wire transfers to Baldwin’s personal bank account totaling $156,925.53. Baldwin received wire transfers, totaling $6,100, to another account in his name. The fund also wired $75,000 to Baldwin’s personal investment account at his firm, and money from the fund’s bank account was used to pay Baldwin’s personal credit card expenditures of $48,231.32. The findings also stated that Baldwin’s firm did not give him oral or written permission to engage in any business activity relating to the fund. In fact, Baldwin signed annual attestations acknowledging the requirement to notify the firm prior to engaging in any private securities transaction away from the firm and provide details of the offering or placement, yet he failed to do so. The findings also included that Baldwin misused customers’ securities and funds, when contrary to the customer’s specific instructions, he caused the customer’s shares of stock to be transferred into his fund accounts at his firm, without the customer’s knowledge or authorization. Baldwin’s customer had instructed him to liquidate all of his shares of stock for an entity and to send him a check for the proceeds of the sale, which he agreed to do. 

Broker-Dealer and Investment Advisor Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

Feburary 2012:

TradeStation Securities, Inc. (CRD #39473, Plantation, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $200,000.  Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to implement policies and procedures reasonably designed to detect and cause the reporting of suspicious activity in customer accounts as required by 31 U.S.C. 5318(g) and the implementing regulations thereunder. In particular, the firm failed to tailor its AMLCP to its business, which is to provide direct market access to equities, futures and foreign exchange market (forex) customers using a proprietary online trading platform. The findings also stated that the firm’s written AML procedures did not contain adequate provisions for the monitoring of trades to detect suspicious activity. In practice, the firm’s automated surveillance of trades was limited to two daily exception reports, a wash sales report and an odd/partial round lot report. Apart from these two exception reports, the firm did not utilize other automated surveillance modules to monitor trades for suspicious activity so that the firm may have failed to detect and report red flags concerning irregular patterns of trading activity, including evidence of market manipulation and other suspicious transactions. The findings also included that for monitoring flow of funds, the firm relied on a manual, transaction-by-transaction approach, conducted by the firm’s cashiers; each cashier was assigned a specific type of money movement to monitor (e.g., one would review outgoing wires and another would review incoming wires). The cashiers were instructed to notify the firm’s AMLCO by email when the flow of funds in an account looked suspicious. Additionally, the AMLCO selected one day a month at random and reviewed all wires for that particular day. The AMLCO recorded this information on a log, but did not begin recording this information until recently. The firm’s approach to monitoring flow of funds made it difficult to detect patterns of suspicious activity over time.

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

February, 2012:

Royal Alliance Associates, Inc. (CRD #23131, 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 permitted two former representatives to be associated with the firm while they were statutorily disqualified as a result of state regulatory actions brought against them. The firm reviewed certain filings made in connection with these actions but allowed them to continue to be associated with the firm until several months later. The findings stated that the firm failed to timely and accurately file required Form U4 updates for the individuals reflecting these state actions and failed to timely make the required NASD Rule 3070 filings with respect to the state regulatory actions. The findings also included that the firm failed to reasonably supervise the individuals to ensure that they made required disclosures regarding their outside business activities. The firm failed to determine whether any additional disclosures were necessary despite numerous indications that these individuals were engaged in the activities at their outside business.

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

February, 2012:

Merriman Capital, Inc. (CRD #18296, San Francisco, California) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $30,000.  Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it entered into an agreement with an unregistered individual to pay the individual 50 percent of gross fees it received in connection with sales of an issuer’s preferred stock. The firm paid the individual $1.5 million pursuant to the agreement, which constituted payment of a commission or fee to a non-member broker or dealer on terms and conditions the firm did not accord to the general public. The findings stated that the firm conducted deficient testing of its supervisory procedures because it did not include testing of its procedures pertaining to municipal securities, underwriting or market making, each of which constituted significant portions of the firm’s business, and did not test its procedures pertaining to changes of customer investment objectives or the supervision of producing managers. The findings also stated that with respect to each of the tests, the test identified a total failure in its procedures pertaining to branch office inspections but failed to make appropriate amendments in response to identified deficiencies in its supervisory procedures. The findings also included that the firm failed to ensure that a producing manager was appropriately supervised because it allowed its CEO’s customer account activity to be supervised by an individual who was not senior to or otherwise independent of him, and the firm never notified FINRA that it intended to rely on the Limited Size and Resources exception of NASD Rule 3012. FINRA found that the firm failed to timely update a registered representative’s Form U4 regarding an arbitration or settlement. FINRA also found that the firm received written complaints from customers and failed to timely report the customers’ complaints to FINRA. (FINRA Case #2009016162801).

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

February, 2012:

J. P. Morgan Securities LLC (CRD #79, New York, New York) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $150,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it published a research report downgrading a company from neutral to underweight. The findings stated that one of the principal-stated reasons for the downgrade was that the company had released into income $1.1 billion in reserves based on the expectation that it would win certain lawsuits in which the company was the plaintiff. The firm’s analyst criticized that decision, pointing out that any potential recovery was uncertain and at least three years in the future. The report discussed lawsuits against the company without disclosing that the firm’s banking affiliate was a plaintiff in one of the lawsuits against the company. The findings also stated that after publication of the report, the company complained to the firm about the research report, including the firm’s failure to disclose its affiliate’s role in one of the pending lawsuits. In response to this complaint, the firm agreed to voluntarily re-post a revised report containing an additional disclosure. The findings also included that the firm issued a revised report that added information about the firm’s affiliate pending litigation, but it did not remove the original report, which continued to be available on its website for over a year, and did not redistribute the revised report to the approximately 900 people who received the original report so that the original research report was not fair and balanced, and did not provide a sound basis for readers to properly evaluate all relevant facts.

Broker/Dealer and Investment Advisor Fraud, Mismanagement and Misrepresentation FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.

February, 2012:

The Carson Medlin Company (CRD #28567, Tampa, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $20,000. FINRA imposed a lower fine after it considered, among other things, the firm’s revenues and financial resources. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to retain all business-related electronic communications and failed to establish, maintain and enforce a supervisory system and WSPs reasonably designed to ensure that all electronic communications relating to its business were retained. The findings stated that the storage of the firm’s emails was handled pursuant to a third-party contract with a consulting firm, which handled all of its technological functions. The firm did not provide notification to FINRA regarding its use of electronic storage media for its emails as required, and the emails were not maintained in a non-erasable format. There were large gaps in some of the email accounts of the firm’s representatives. Each associated person had the ability to permanently delete emails from the firm’s electronic storage server; backup tapes were reused after a short period of time so that emails associated persons deleted were retained only until the backup tapes were reused. As a result of the firm’s back-up process, FINRA was unable to review certain of the emails of former associated persons who had recently been terminated, and who had deleted their emails prior to leaving the firm, which impeded FINRA’s examination. 

Broker/Dealer and Investment Advisor Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

February, 2012:

Bulltick Securities, LLC (CRD #132092, Miami, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $125,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it made transaction-based payments to a non-registered foreign asset manager (foreign finder) whose activities required registration. The findings stated that the firm’s sole business entailed executing securities transactions on behalf of Latin American customers foreign finders referred to the firm. The foreign finders were not registered with FINRA. In making referral payments, the firm relied on NASD Rule 1060, which allows member firms to pay transaction-based compensation to non-registered foreign finders (without requiring those entities/individuals to register) based upon the business of customers they direct to the firm provided that certain specified conditions are satisfied. The findings also stated that a non-registered foreign finder referred customer accounts to the firm that generated gross commissions of approximately $600,000 through the unsolicited, short-term trading of collateralized mortgage obligations (CMOs). The firm paid the non-registered foreign finder approximately $400,000 in net commissions from this amount. The findings also included that the firm’s relationship with the non-registered foreign finder failed to satisfy the requirement of NASD Rule 1060. After the non-registered foreign finder referred the foreign customers to the firm, the securities trades in those accounts were managed by a non-registered affiliate of the foreign finder who was not a foreign asset manager. 

FINRA Arbitration Attorney, Russell L. Forkey, Esq. is available for a free consultation if you have suffered investment losses relative to any of the matters set forth below:

Periodically, the Financial Industry Regulatory Authority, Inc. (FINRA) publically announces, on its website, enforcement actions that have either recently been settled by or commenced against broker/dealers and/or associated persons.

We review these settlements and filed actions each month and provide a brief description of those matters which we believe will be of interest to investors.

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

January, 2012:

Lorenzo Fiol Jr. (CRD #2454926, Registered Principal, Morton Grove, 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, Fiol consented to the described sanction and to the entry of findings that he failed to respond to FINRA requests for information and documents regarding outside business activities. The findings stated that Fiol’s attorney informed FINRA that Fiol declined to respond. (FINRA Case #2010024383201),

Broker/Dealer Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

January, 2012:

Tyge Thomas Tuccillo (CRD #3075541, Registered Rep., Venice, 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, Tuccillo consented to the described sanction and to the entry of findings that FINRA requested him to appear for a scheduled on-the-record testimony in connection with a private-placement offering sales practice investigation. The findings stated that Tuccillo informed FINRA that he was no longer associated with a FINRA member firm and had no intention of ever doing so in the future. Tuccillo informed FINRA that he would not appear for scheduled testimony on any date in the future. (FINRA Case #2010021240401).