Has Your Broker Been Sued by FINRA – Part 1

Boca Raton, Florida Securities Lawyer Russell Forkey

The Financial Industry Regulatory Authority (FINRA) is responsible for licensing and overseeing both broker/dealers and account executives to make sure that they comply with the federal securities laws and the rules and regulations adopted by FINRA. If FINRA determines that a broker/dealer or an account executive violates these statutes or regulations, FINRA can institute an “enforcement” action against them. In a small number of these types of actions, the settlement agreement or final decision will order that certain investors be reimbursed for some or all of their losses. However, in the majority of cases, the investor will only have an opportunity to recover his or her losses, if a FINRA arbitration is filed. Consequently, investors should read the information contained herein, which has been released and published by FINRA, to see if they suffered damages as a result of any of the activity described below. If so, immediately contact the law office of Russell Forkey for your initial free consultation.

We have just added a new feature to our site. The information on this page relates to completed FINRA actions. The new page that we have added, which can be seen by following the highlighted link, provided information concerning matters that have recently been filed, by FINRA. Please read the disclosure at the beginning of the linked page.

Jason Leekarl Beckett (CRD #3186927, Registered Representative, West Columbia, South Carolina, formerly licensed with Traderight Securities) 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 two months. The fine must be paid either immediately upon Beckett’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, Beckett consented to the described sanctions and to the findings that he submitted an advertisement to a local newspaper, which listed an entity he owned as offering certain investments, including certificates of deposit (CDs) and fixed annuities, and that he did not submit the advertisement to his member firm for review and approval; moreover, the advertisement content included misleading statements regarding the offered investments. The findings stated that Beckett maintained a website for an entity he owned, which was accessible to the investing public, and he failed to submit the website material to his firm for review until a later date. The findings also stated that Beckett failed to obtain his firm’s written approval of the website content prior to its use. The findings also included that Beckett completed an annual certification, which he provided to his firm and he answered “no” to the question asking whether he anticipated using any type of electronic communication systems such as the Internet for soliciting business. The suspension is in effect from January 18, 2011, through March 17, 2011. (FINRA Case #2009016600001)

Brian Thomas Beldyk (CRD #2035064, Registered Representative, Kennett Square, Pennsylvania, formerly licensed with LPL Financial Corporation) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Beldyk misappropriated over $462,000 from customers and converted the funds for his own use. The findings stated that either Beldyk or his member firm has fully compensated all of Beldyk’s customers for their losses. The findings also stated that Beldyk created and provided false account statements to a customer’s authorized representative to cover up his malfeasance, and failed to respond to FINRA requests for information. (FINRA Case #2009020090301)

Dennis O’Neal Blackstone (CRD #1517755, Registered Principal, Arlington, Texas formerly licensed with Merrill Lynch, Pierce, Fenner & Smith, Inc.) 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, Blackstone consented to the described sanction and to the entry of findings that, as the registered representative on the joint securities account of customers at his member firm, he created a false Letter of Authorization (LOA), without the customers’ knowledge or authorization, and forged their signatures to authorize a transfer of funds from their joint account at the firm to a bank account that Blackstone controlled. The findings stated that based on the forged LOA, the firm wired $28,320 from the customers’ joint account to the bank account Blackstone controlled and, after receiving the funds in his bank account, Blackstone used the funds for his personal expenses. (FINRA Case #2009020488001)

Peter Joseph Bonnell III (CRD #1213039, Registered Principal, Medina, Ohio, formerly licensed with Royal Alliance Associates, Inc.) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $35,000 and suspended from association with any FINRA member in any capacity for two years. The fine must be paid either immediately upon Bonnell’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, Bonnell consented to the described sanctions and to the entry of findings that he engaged in an outside business activity involving a company he owned and operated, which was a marketing and advertising business through which he sought to generate leads for registered representatives and insurance agents. The findings stated that the company’s primary form of marketing was mass mailings, usually employing postcards that contained false and misleading statements that Bonnell sent and caused to be sent to thousands of prospective customers. The findings also stated that Bonnell developed and directed the use of multiple false and misleading telephone operator scripts that were used in the company’s call center to respond to potential investors. The findings also included that, as a result of the misleading marketing practices involving his company, Bonnell became the subject of several state regulatory actions and willfully failed to timely amend his Form U4 to disclose these actions to FINRA as required.

FINRA found that Bonnell associated with a FINRA registered member firm and acted in a registered capacity while he was subject to statutory disqualification. FINRA also found that Bonnell provided false information, failed to disclose material information, and misrepresented material information on the firm’s annual compliance questionnaires concerning his outside business activity and regulatory actions. In addition, FINRA determined that Bonnell failed to provide prompt and complete written notice to the firm of his outside business activities involving another insurance marketing firm he operated after closing the other company. Moreover, FINRA found that Bonnell failed to adequately supervise certain representatives to ensure they filed accurate and timely updates disclosing state regulatory actions and outside business activity. The suspension is in effect from January 18, 2011, through January 17, 2013. (FINRA Case #2007009073001)

Gregory James Buchholz (CRD #1864780, Registered Representative, Bridgewater, Connecticut, formerly associated with Raymond James Financial Services, Inc.) 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, Buchholz consented to the described sanction and to the entry of findings that he misappropriated approximately $1,350,000 from customers, a number of whom were retirees, by liquidating their variable annuities and/or mutual funds and then transferring the proceeds to his personal bank account, converting the proceeds for his own use and benefit. The findings stated that as part of this scheme, Buchholz falsely and fraudulently represented, at times by forging customer signatures on redemption documents, that certain customers had authorized the redemption of the securities in order to obtain the proceeds of the sale; fraudulently induced certain customers to authorize the redemption of securities, based on misrepresentations that the proceeds would be reinvested to the customers’ investment accounts; and caused checks to be drawn in the customers’ names and caused the checks to be sent directly either to his office or to the customers. The findings also stated that if the checks were sent directly to the customers, Buchholz convinced those clients to turn the checks over to him, making false and fraudulent representations that he would deposit the funds in their securities accounts to be reinvested; however, he did not reinvest the proceeds but instead deposited the checks into his personal bank accounts and used the proceeds for his own purpose. The findings also included that if the checks were sent directly to his office, Buchholz simply deposited the checks in his own bank accounts for his personal use and sometimes forged the customers’ signatures in order to cash the checks. (FINRA Case #2010023931401)

Cynthia Ann Bulinski (CRD #1851735, Registered Representative, Annapolis, Maryland, formerly licensed with J.W. Cole Financial, Inc.) 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, Bulinski consented to the described sanction and to the entry of findings that she made unsuitable recommendations to her elderly clients to purchase variable annuities. The findings stated that Bulinski repeatedly failed to tailor her recommendations to meet her customers’ individual investment needs, and instead recommended the same variable annuity to her customers, irrespective of age, investment experience, liquidity needs, financial situation and risk tolerance. The findings also stated that Bulinski recommended elderly customers to purchase the same variable annuity with an enhanced death benefit rider, but demonstrated that she did not have reasonable basis for her recommendation because some of the customers were too old to purchase the rider and the rest gained little, if any, benefit from the rider while paying a substantial cost for it. The findings also included that Bulinski recommended unsuitable variable annuities with a rider that was inconsistent with her customers’ investment objectives. FINRA found that in numerous instances, Bulinski demonstrated that she did not understand the variable annuity and inaccurately described the investment to a customer as a fixed annuity rather than a variable annuity, and with other customers, incorrectly stated the surrender period and surrender charges her customers would incur. FINRA also found that Bulinski was the subject of several written customer complaints about her lack of disclosure about surrender charges and other product details. (FINRA Case #2005002244704)

Derek Matthew Christenson (CRD #2285093, Registered Representative, Milford, Ohio, formerly licensed with Chase Investment Services, Corp.) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Christenson converted customer funds by transferring $66,000 in several transactions from a bank customer’s saving account into several of his personal checking accounts, without the customer’s knowledge. The findings stated that Christenson failed to respond to FINRA requests for information. ( FINRA Case #2009019406701)

Benjamin Harry Cohen (CRD #4349135, Registered Representative, St. Paul, Minnesota, formerly associated with Workman Securities Corporation) 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, Cohen consented to the described sanction and to the entry of findings that he violated FINRA’s suitability rule by failing to understand or convey to customers the cost of a rider to a variable annuity, pursuant to transactions he recommended to customers. The findings stated that Cohen incorrectly communicated the imposed fee. The findings also stated that Cohen did not understand the risks and rewards inherent in the variable annuity, with the rider feature, which he recommended to the customers. The findings also included that Cohen conducted a trade in a deceased customer’s account with a purchase of $4,662 of an entity Class A mutual fund share. FINRA found that Cohen had discussed with this customer purchasing the entity’s Class A shares prior to the customer’s passing, and he had prepared certain paperwork for the transaction prior to the customer’s death, but the purchase had not been made at the time of the customer’s death. FINRA also found that Cohen, at the time of the transaction, did not consult with any representative of the deceased customer’s estate and also did not notify the firm that the customer had passed away. In addition, FINRA determined that Cohen failed to appear for a FINRA on-the-record interview. (FINRA Case #2009017087301)

Richard Lawrence Coskey (CRD #54880, Registered Principal, Bloomfield Hills, Michigan, formerly licensed with Bentley-Lawrence Securities, Inc.) 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, Coskey consented to the described sanction and to the entry of findings that notwithstanding his notice of potential ongoing violations of FINRA rules by a registered representative who worked under his direct supervision, Coskey failed to take any meaningful steps to increase his supervision of the registered representative, restrict his activities, or otherwise prevent his continued harmful mutual fund trading in firm customers’ accounts. The findings stated that as a result of Coskey’s failure to act, for several months, the registered representative placed trades to buy and sell mutual fund positions in customers’ accounts without their prior written authorization and affected mutual fund A-share transactions that generated more than $31,500 in commissions and losses totaling more than $67,000. (FINRA Case #2009016354001)

Bradley John Delp (CRD #1701698, Registered Representative, Rossfield, Ohio, formerly licensed with LPL Financial Corporation) 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 75 days. The fine must be paid either immediately upon Delp’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, Delp consented to the described sanctions and to the entry of findings that he recommended that customers participate in a Stock to Cash program under which customers pledged stock to obtain loans to purchase other products; Delp’s customers obtained loans totaling approximately $3.5 million. The findings stated that customers borrowed up to 90 percent of the value of the pledged stock for a short period of time. The findings also stated that the pledged stock would be transferred to the loaning entity’s securities account maintained at a clearing firm. The findings further stated that no payments were required during the term of the loan, but customers were required to pay the full principal and interest due at the end of the loan term. The findings included that documentation the loaning entity used made it appear it was retaining the securities pledged and might use them to enter into hedging transactions, but in reality, the customers conveyed full ownership to the entity, which routinely sold the securities upon receipt and often moved the money into its own bank account. The findings also included that the entity became unable to make complete payments to customers with profitable portfolios and used the proceeds from the sale of securities new customers pledged to pay off its obligations to existing customers, and money was also diverted to pay for expenses not related to its operation. FINRA found that Delp did not take adequate efforts to find out what happened to the stock conveyed to the lender and did not inquire into what would be done with the stock; failed to conduct due diligence into the lender’s financial condition but relied on unverified statements the promoter made, and told his clients they could receive their stock back at the end of the loan period. FINRA also found that by failing to verify information about how the stock was held or secured and whether the lender had the ability to fulfill its obligations, Delp did not have a reasonable basis for recommending the Stock to Cash program to his customers and potential customers. In addition, FINRA determined that some of the customers, at Delp’s recommendation and with his participation, initially used some or most of the proceeds to buy equity-based mutual funds along with other products in violation of Regulation U restrictions. The suspension is in effect from January 3, 2011, through March 18, 2011. (FINRA Case #2007008935005)

Joshua A. Ellis (CRD #5293249, Registered Representative, Philadelphia, Pennsylvania, formerly licensed with Lincoln Investment) submitted a Letter of Acceptance, Waiver and Consent in which he was censured, fined $7,500 and suspended from association with any FINRA member in any capacity for six months. The fine must be paid either immediately upon Ellis’ 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, Ellis consented to the described sanctions and to the entry of findings that he signed customers’ applications for fixed annuities, as a favor to another registered representative not authorized to sell products a company offered, without having met with or discussed the fixed annuity product or the points on each application with the customers, or ascertained the product’s suitability for each customer as required; thereby his attestations on the annuity applications submitted to his member firm and the insurer were false. The findings stated that the falsified applications were submitted to the firm under Ellis’ production number, and the insurer approved the applications and issued annuity contracts based on Ellis’ misrepresentations on the applications. The findings also stated that after the falsified annuity applications were discovered, Ellis’ firm offered to rescind the transactions for the customers or choose another investment at no cost. The findings also included that neither Ellis nor the other representative received any compensation for the transactions. The suspension is in effect from December 20, 2010, through June 19, 2011. (FINRA Case #2009016923602)

Kim Edward Elverud (CRD #2139216, Registered Principal, Bloomington, Minnesota, formerly registered with Sumner Harrington, LTD.) 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, Elverud consented to the described sanction and to the entry of findings that he caused his member firm to use Internet advertisements, websites and other public communications that were misleading, did not supply fair and balanced presentations of risks and rewards, or failed to give a sound basis for evaluating information. The findings stated that Elverud failed to approve or maintain records of public communications his firm issued. The findings also stated that Elverud’s firm distributed a newsletter, which Elverud wrote, about a company whose securities the firm marketed; the letter was unduly and excessively positive, and failed to disclose material facts concerning the company’s financial difficulties, which caused the communication to be misleading. The findings also included that Elverud made misrepresentations to investors through letters written on firm letterhead, about the securities the company issued, and the letters misrepresented the individual offers being made as a general reinvestment option to keep the investors from redeeming their holdings in the company’s securities, and omitted material information regarding the company’s financial difficulties. FINRA found that Elverud caused his firm’s books and records identifying personnel holding supervisory and compliance responsibilities to be inaccurate. FINRA also found that Elverud caused his firm to conduct a securities business while it was in violation of its net capital requirements. (FINRA Case #2008013429301)

Dorothy Pauline Fisher (CRD #1521956, Registered Representative, Austin, Texas, formerly associated with Woodbury Financial Services, Inc.) submitted a Letter of Acceptance, Waiver and Consent in which she was fined $10,000 and suspended from association with any FINRA member in any capacity for one month. The fine must be paid either immediately upon Fisher’s reassociation with a FINRA member firm following her 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, Fisher consented to the described sanction and to the entry of findings that she made an unsuitable recommendation to a customer concerning a variable annuity exchange. The findings stated that Fisher recommended that the customer surrender an existing annuity valued at $509,193.78 and purchase another annuity. The findings also stated that Fisher handled all of the paperwork to move the funds from the first annuity to the second annuity, and, other than stating that the second annuity fund earned a greater interest rate, she did not discuss the advantages or disadvantages of moving the funds. The findings also included that Fisher did not review either the prospectus or the initial contract for the first annuity. FINRA found that Fisher was unaware that the transaction would result in a substantial surrender penalty to the customer, failed to perform adequate analysis on the first annuity, and as a result, the customer was charged surrender fees totaling $43,750. The suspension is in effect from January 18, 2011, through February 17, 2011. (FINRA Case #2008015937201)

Christopher Gregory Gibas (CRD #2263956, Registered Principal, Grand Island, New York, formerly associated with UBS Financial Services, Inc.) 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 supervisory or principal capacity for five months. Without admitting or denying the findings, Gibas consented to the described sanctions and to the entry of findings that he failed to reasonably supervise a registered representative at his member firm by approving variable annuity transactions the representative recommended and affected; in approving these transactions, Gibas did not adequately respond to red flags that should have alerted him that the transactions were unsuitable. The findings stated that Gibas’ firm placed the representative under heightened supervision, which was formalized by a written agreement the representative and Gibas signed, and under the agreement, Gibas was required, among of things, to preapprove all the representative’s annuity business and new accounts, to speak with each of the representative’s customers who were 65 or older, and to help the representative diversify her business. The findings also stated that with respect to the variable annuity transactions, they were unsuitable, in that the transactions’ costs outweighed the benefits, and in some of those transactions, the customers purchased a rider for which they were not eligible. The findings also included that at the time Gibas approved these transactions, there were numerous red flags regarding the representative’s variable annuity transactions, including transactions appearing on exception reports, that should have alerted him to the potential unsuitability of her transactions and required follow-up more comprehensive than Gibas otherwise took. FINRA found that Gibas did not adequately carry out his other responsibilities under the firm’s heightened supervision of the representative; although Gibas reviewed the representative’s transactions and contacted certain elderly customers before those transactions were affected, some of the conversations with the representative’s customers lasted only a few minutes, were conducted when the representative was present, before Gibas received any paperwork regarding the proposed transaction. FINRA also found that while Gibas met with the representative, as well as with other supervisory and compliance personnel at the firm, none of the steps taken proved effective in preventing the representative’s unsuitable sales. The suspension is in effect from December 20, 2010, through May 19, 2011. (FINRA Case #2005002244703)

Douglas Christopher Green (CRD #1713027, Registered Principal, Lighthouse Point, Florida, formerly licensed with Crocker Securities, LLC) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Green affected trades in collateralized mortgage obligation (CMO) bonds in his member firm’s proprietary trading account to conceal inventory positions and create the false appearance of profitability through the use of fictitious and prearranged trades. The findings stated that in some cases, no contra-party had agreed to the transaction at the time Green submitted an order, and in other cases, Green had agreed to repurchase the security from the contra-party at an agreed-upon price that guaranteed a profit to the contra-party, causing the beneficial ownership to remain with Green. The findings also stated that Green devised a strategy that not only hedged and concealed the positions, but circumvented trading capital and inventory limits his firm set, and created the impression of profitable trading. The findings also included that Green did so by extending the settlement dates for certain bonds and coordinating fictitious transactions with other broker-dealers. FINRA found that Green received compensation based upon the overall profitability of the firm’s proprietary account, and because Green’s scheme created the appearance of profitability, he received compensation based upon the apparent profits; Green received $7,353,000, which resulted in an overstatement of the firm’s net capital and caused the firm to cease business. FINRA also found that Green caused the firm’s books and records to be inaccurate. In addition, FINRA determined that Green failed to respond to FINRA requests for documents and information, and to appear for on-the-record testimony. (FINRA Case #2008012444201)

Resource Horizons Group LLC (CRD #104368, Marietta, Georgia) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $15,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it approved advertising materials registered representatives used during several public seminars; the firm sent invitations to members of the public, and the seminar attendees received supplemental materials designed to introduce the firm and the financial services it offered. The findings stated that the invitations failed to provide a sound basis for evaluating the facts regarding the products or services offered. The findings also stated that the supplemental materials contained exaggerated and unwarranted language, and the seminar handout had unwarranted language. The findings also included that seminar presentations failed to explain a product or strategy, discussion of equity-indexed annuities (EIAs) failed to provide a balanced presentation and omitted information, discussion of variable annuities omitted material information, presentations failed to disclose that projections are hypothetical and are not guarantees, failed to disclose risks attendant with options transactions, failed to disclose risks and rewards of real estate investment trusts (REITs) in a balanced way, discussion of expenses pertaining to mutual funds and variable annuities was misleading; discussion of annuities in Individual Retirement Accounts (IRAs) was misleading, list of benefits and features of variable annuities failed to disclose potential restrictions and costs, discussion of 1031 exchanges failed to elaborate on Internal Revenue Code restrictions, discussion of variable annuities provided an incomplete, and oversimplified presentation and representation that safety and protection are provided by diversification market index certificates of deposit, puts, and living benefits profits provided by variable annuities was promissory and exaggerated. FINRA found that the firm failed to reasonably supervise its communications with the public and its supervision was not reasonably designed to meet the requirements of FINRA Rule 2210(b)(2). FINRA also found that the firm’s procedures required the supervisory principal to evidence approval by signing public communications submitted for approval and use, but the supervisory principal only initialed a coversheet that did not identify which communication was approved. In addition, FINRA determined that the firm failed to maintain records naming the registered principal who approved the public communication or the date approval was given, nor documentation establishing that a certified registered options principal approved options material or that the material had been properly submitted to FINRA’s Advertising Regulation Department for pre-approval. (FINRA Case#2009017637201).

InterSecurities, Inc. nka Transamerica Financial Advisors, Inc. (CRD #16164, St. Petersburg, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was fined $50,000 and required to certify to FINRA that it has reviewed it policies, systems and procedures concerning how it determines whether new products are securities, and has determined that they are reasonably designed to achieve compliance with FINRA rules and federal securities laws, and at the same time it provides this certification, it shall provide a written description of the policies, systems and procedures that are the subject of the certification. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it allowed its registered representatives to recommend a “Stock to Cash” program, under which customers would pledge stock to obtain loans that were in some instances used to purchase other products, primarily fixed or indexed annuities, marketing it as a non-securities product, but did not monitor use of the Stock to Cash program or otherwise inquire into the program’s activities. The findings stated that at the time the Stock to Cash program first came to the firm’s attention, the firm erroneously concluded that the Stock to Cash program was not a securities product, and therefore did not need to be approved; the firm’s registered representatives utilized the Stock to Cash program with their clients, and some firm customers entered into Stock to Cash loans, pledging securities worth more than $4.3 million and borrowing more than $4.1 million. The findings also stated that none of the customers have been deprived of any profits to which they were entitled because almost all of the loans that have come due to date were secured by stocks that lost money during the loan period. The findings also included that neither representatives nor management at the firm conducted adequate due diligence into the Stock to Cash program prior to recommending that customers use it, and the representatives never ascertained how the pledge stock would be used and incorrectly concluded that customers would retain complete ownership interest over the stock or that the stock was held by an “investmentgrade” third party with a right of recourse by the client if the holder went out of business. FINRA found that the firm failed to undertake efforts to look into the lender’s financial condition, upon which customers were depending for the return of their securities or payment of their profits, and the firm never spoke with anyone associated with the lender, and never learned what the lender actually did with the stock. FINRA found that, as a result, the registered representatives did not understand the potential risk inherent in the Stock to Cash program, and conveyed inaccurate and misleading information to their customers. FINRA also found that the firm allowed its registered representatives to recommend the program to customers, but failed to supervise their activities in connection with the program. (FINRA Case #2007008935008)

NEXT Financial Group, Inc. (CRD #46214, Houston, Texas) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $400,000 and ordered to pay $103,179.84, plus interest, in restitution to customers. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it did not have a reasonable system for reviewing its registered representatives’ transactions for excessive trading. The findings stated that the firm relied upon its OSJ branch managers to review its registered representatives’ transactions and home office compliance personnel to review its OSJ branch managers’ transactions, but the firm failed to utilize exception reports or another system, and the supervisors and compliance personnel only reviewed transactions on weekly paper blotters or electronic blotters. The findings also stated that the monthly account statements and contingent deferred sales charge reports for mutual fund activity were also available for review and could be indicators of excessive trading, however, given the volume of trading certain principals reviewed, and in certain cases, the large number of representatives for which the principal was responsible, it was not reasonable to expect principals to be able to track excessive trading on a weekly sales blotter, let alone through monthly account statements or mutual fund sales charge reports. The findings also included that, due to the lack of a reasonable supervisory system, the firm failed to detect a registered representative’s excessive trading, which resulted in about $102,376 in unnecessary sales charges; the firm failed to identify or follow up on other transactions that suggested other registered representatives’ excessive trading in additional customer accounts. FINRA found that the firm did not have a reasonable system for ensuring that it obtained and documented principal review of its registered representatives’ transactions, including sales of complicated products such as variable annuities, and the firm should have been particularly attentive to maintaining books and records that established that the transactions had been properly reviewed. FINRA also found that the firm failed to provide reasonable supervision of municipal bond markups and markdowns to ensure that its registered representatives charged its customers reasonable markups and markdowns. In addition, FINRA determined that the firm’s branch office examination program was unreasonable because it was not designed to carry out its intended purpose of detecting and preventing violations of, and achieving compliance with, federal, state and FINRA securities regulations, as well as its own policies. The findings also stated that the firm failed to have a reasonable supervisory system to oversee implementation of its heightened supervision policies and procedures for its registered representatives as it failed to comply with the terms of its heightened supervision for its registered representatives regarding client complaints, regulatory actions or internal reviews, therefore it had a deficient implementation of heightened supervision policies and procedures. The findings also included that the firm failed to have a reasonable supervisory control system or to have in place Supervisory Control Procedures as required by FINRA Rule 3012, and it failed to perform adequate 3012 testing or prepare adequate 3012 reports. Moreover, FINRA found that the firm failed to have a reasonable system and procedures in place to review and approve investment advisors’ private securities transactions. Furthermore, FINRA determined that the firm filed inaccurate and late Rule 3070 reports relevant to customer complaints, and did not file or amend Form U4 and Uniform Termination Notice for Securities Industry Registration (Form U5) reports in a timely manner. FINRA found that the firm’s AML systems and procedures were unreasonable, as the firm failed to establish and implement an AML Compliance Program reasonably designed to achieve compliance with NASD Rule 3011. FINRA also found that although the firm utilized a money movement report, its supervisors did not detect red flags involving numerous instances of potentially suspicious activities relating to the trading of a company’s stock and the transfers of proceeds relating to the trading of a stock, and thus failed to investigate and report these activities in accordance with its own procedures and the requirements of the Bank Secrecy Act and the implementing regulations. In addition, FINRA determined that over 1.3 million shares of a company’s stock were traded in customer accounts a registered representative serviced; during a one-week period, the firm’s only AML exception report that monitored large money movement flagged the customer’s account, but the firm took no action and failed to file any SARs as appropriate. (FINRA Case #2009016272902)