FINRA

FINRA Bars Global Arena Capital Brokers for Cockroaching, Churning, and Other Securities Violations

Published on: September 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred seven brokers accused of committing violations and repeatedly transferring from one brokerage firm to another from the securities industry. The brokers worked at the brokerage firm Global Arena Capital Corp. Also barred is the broker-dealer’s president, Barbara L. Desiderio. She is accused of letting the brokers engage in stockbroker fraud and deceiving the regulator.

The other brokers are David Awad, Alex Wildermuth, Peter Snetzko, James Torres, and Michael Tannen. Global Arena branch managers Kevin Hagan and Richard Bohak have been barred from serving in a principal role. Brokers Andrew Marzec and Niaz Elmazi were barred for not cooperating with the regulator’s probe.

According to FINRA, while at the firm, the brokers used sales pitches that were misleading, churned accounts, and committed other abusive acts. Seven of the brokers who were barred had been placed on heightened supervision by the self-regulatory organization when they exited HFP Capital Markets to go work at Global Arena. HFP Capital Markets has since been expelled from the industry by FINRA.
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FINRA Fines Charles Schwab $2M for Supervisory Failures, Capital Deficiencies

Published on: September 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining Charles Schwab & Co. (SCHW) $2 million. The self-regulatory organization said that between 5/15/14 and 7/1/14, Schwab was capital deficient by up to $775M because of cash inflows that went beyond what it could invest with existing facilities on three occasions. Because of this, said FINRA, the firm moved $1 billion to its parent company for overnight investment. Under a revolving loan agreement, Schwab’s Treasury group approved the funds as an unsecured loan.

The SRO claims that Schwab lacked the procedures that would have mandated that its Treasury group consult with the company’s regulatory reporting group. It also contends that the firm’s supervisory systems were not designed in a manner reasonable enough to stop the Treasury group from going into unsecured transfers with affiliates that could lead to a net capital deficiency.

Schwab is not denying or admitting to the FINRA alelagtions. A firm representative did issue a statement expressing regret over the failure to note the overnight cash transfers.

FSC Securities to Be Held Accountable for $1.2M FINRA Arbitration Award Issued to Victims of Ponzi Scammer Who Faked His Death

Published on: August 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority Inc. panel said that FSC Securities Corp. is responsible for a $1.2 million arbitration award for compensatory damages to investors that were bilked by Aubrey Lee Price, the infamous Ponzi scammer from Georgia who tried to fake his death to in 2012. FSC Securities is a broker-dealer with AIG Advisor Group (AIG).

The eight claimants contend that the brokerage firm did not supervise a number of brokers who sold them fraudulent securities that were part of Price’s $40 million Ponzi scam. According to their securities lawyer, Price and two other ex-FSC brokers persuaded clients to invest in the PFG fund, an unregistered investment fund, which was the main product of the scheme.

When the trading account sustained huge losses Price prepared account statements for investors that noted fake asset amounts and investment returns. The claimants believe that FSC failed to properly supervise its brokers and had numerous chances to detect that Price and the other brokers were selling away into the PFG fund while claiming “preposterous” return rates.

Price was an FSC broker from 2006 to 2008. Prior to that he worked at Citigroup Global Markets (C) and Banc of America Investment Services (BAC). Last year, a federal judge sentenced him to 30 years behind bars for bank fraud.
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Ex-Caldwell Broker is Barred by FINRA for Churning Accounts

Published on: August 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has permanently barred ex-Caldwell International Securities Corp. broker Richard Adams from the industry. Adams is accused of churning customer accounts.

 According to FINRA, from July 2013 to June 2014, Adams engaged in excessive trading and churned the accounts of two customers, making close to $57,000 in commissions. The customers lost over $37,000 as a result.

Adams is also accused of not reporting numerous unsatisfied judgments and liens on his U4 Registration Form, which he is required to do under FINRA rules. By settling the civil case against him, Adams is not denying or admitting to the charges.

Churning
This type of illegal activity typically involves a broker engaging in the excessive selling or buying of securities in a customer account for the purpose of earning commissions. Signs of possible churning may include frequent in-and-out purchase and securities sales that appear unrelated to the customer’s investment goals.
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StockCross Financial Services to Pay $800K for Regulation SHO Violations

Published on: August 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

FINRA says that StockCross Financial Services, Inc. will pay an $800,000 fine for violating Regulation SHO, as well as supervisory violations that went on for over three years. By settling, the firm is not denying or admitting to the charges. It has, however, consented to the entry of the self-regulatory organization’s findings.

FINRA said that from 11/09 to 5/13, StockCross’s system for tracking and monitoring close-out obligations was flawed because the firm had not thought that it was supposed to net flat/long in a security and after shares had been purchased to satisfy its close-out obligation.

The SRO said that after transactions for purchase were made, the firm failed to put restrictions or limits on the rest of the trading activity in that security for the day and its flawed system compelled StockCross to experience delivery failure for several statement days in a row on about 1,826 occasions. Also, StockCross purportedly made more than 4,100 short sales when there were outstanding close-out obligations for these securities.

Aegis Capital Fined $950K by FINRA Over Penny Stock Scheme

Published on: August 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Aegis Capital Corp. must pay $950,000 to resolve allegations that it engaged in the improper sales of billions of shares of unregistered penny stock. The securities case was brought by the Financial Industry Regulatory Authority last August. According to the self-regulatory organization, the New York-based brokerage firm facilitated a penny stock scheme that resulted in $24.5 million in customer profits and $1.1 million in commissions. Aegis is also accused of supervisory lapses related to anti-money laundering.

The SRO said that from April 2009 to June 2011 the brokerage firm liquidated about 3.9 billion shares of five penny stocks that were unregistered even though they should have been registered with the Securities and Exchange Commission. Also, FINRA contends, Aegis and compliance officers disregarded red flags related to the transactions.

For example, an ex-securities broker who was barred from the industry was the one who referred the customers involved to Aegis. This broker controlled the activity in a number of accounts at the firm. Without looking further into this questionable scenario, Aegis sold the unregistered shares.
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FINRA Orders Morgan Stanley to Pay $2.4M Over Ex-Broker’s Trades, Bars Former Merrill Lynch Trader from the Industry

Published on: July 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel arbitration panel says that Morgan Stanley (MS) must pay at least $2.4M to settle the latest client claims accusing its former broker, Steven Mark Wyatt, of mishandling their investments. The brokerage firm fired Wyatt in 2012.

According to a group of doctors and their loved ones, Wyatt, who was their broker, made unauthorized and excessive trades in the stock market that cost them during and after the 2008 financial crisis. Wyatt bought thinly-traded stocks for the investors and placed speculative bets on exchange-traded funds and other securities in their portfolios.

This is the latest batch of claims against Wyatt, Morgan Stanley, and managers at the Mississippi branch where he worked. The claimants believe that Morgan Stanley failed to detect warning signs of Wyatt’s purported wrongdoing. Other employees named in this securities case are adviser Hilary Zimmerman, currently a Morgan Stanley senior vice president, and branch manager Fred Eugene Brister III. The claimants contend that Brister failed to properly supervise Zimmerman and Wyatt. They say that their accounts were mismanaged and suspect trading occurred.

Royal Alliance Must Pay $1.4M To Retirees for Non-traded REIT, Variable Annuities Sales

Published on: July 21, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority Inc. panel says that AIG Advisor Group (AIG) subsidiary Royal Alliance Associates Inc. must pay $1.4 million to three retirees who claim that the brokerage firm was negligent when supervising the sales of variable annuities and nontraded real estate investment trusts.

The investors, who were former AT & T Inc. employees, claim that ex-broker Kathleen Tarr recommended that they take a lump-sum buyout from the communications company instead of a lifetime annuity. The money was then put into non-traded REIT company Inland Real Estate, as well as different variable annuities.

Tarr’s BrokerCheck record shows that she has been named in about forty customer disputes and complaints. She was let go from Royal Alliance in 2010.

The claimants, who are low-wealth, low-income seniors, believe that they should not have been encouraged to take a lump sum and place their funds into non-traded REITs and variable annuities involving an IRA. Even though they did not sustain out-of-pocket losses from the investment recommendations, the retirees purportedly lost out on earnings they would have made if only they had invested their money more reasonably or opted for the lifetime annuity. With the latter, an investor would have given over a lump sum figure in return for a guaranteed payout for the duration of his/her life.
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FINRA Orders BNP Paribas Securities to Pay Retired Couple $16.6M for Unsuitable Investment Sale

Published on: July 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that BNP Paribas Securities Corp. has to pay retirees James and Margaret Eringer $16.6 million for selling them a leveraged derivative call option, which was not a suitable investment for them. This securities claim, which was brought in 2010, is the longest running case that FINRA has presided over. The arbitration panel finally issued a ruling after over 90 days of hearings.

The Eringers made their money when they sold a bakery business that belonged to one of their parents. The British couple spent about 60% of their investible assets on the investment in 2007.

According to their securities attorney, they made the purchase through Ontonimo Limited, which is a corporate entity that BNP Paribas mandated they create since the firm could not directly sell this kind of security to retail investors. This type of investment product is usually sold to institutional clients and hedge funds.

The Eringers paid BNP over $2 million for costs and fees. The firm also purportedly made James Eringer sign an agreement indicating that he was an investment adviser himself even though he had no professional financial experience nor did he have a securities license. Within 18 months, the Eringers’ contend, their investment became “worthless.”
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Morgan Stanley and Scottrade to Pay FINRA $950K FINRA for Inadequate Supervision of Third Party, Customer Account Transfers

Published on: June 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority said that Morgan Stanley Smith Barney, LLC (MS) and Scottrade, Inc. will pay fines of $650K and $300K, respectively. The firms are settling claims accusing them of not putting into place supervisory systems that could reasonably monitor customer funds transmitted to third-party accounts. The self-regulatory organization cited both financial firms for having weak supervisory systems a few years back, but they purportedly did not take the necessary steps to remedy the deficiencies.

The SRO contends that from 10/08 to 6/13, three Morgan Stanley-registered representatives in two of the firm’s branch offices converted $494,000 from thirteen customers by setting up fraudulent wire transfer orders and branch checks from the clients’ accounts to third-party accounts. One example of such an instance involves representatives transferring funds from several customer accounts into their own bank accounts.

FINRA said that Morgan Stanley should have put into place systems and procedures that would have allowed it to review and monitor such transmissions. The regulator said that instead, the supervisory failures let the conversions occur without detection.