FINRA

Registered Representatives Get FINRA Bar Following Securities Fraud Allegations

Published on: September 13, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Texas Registered Rep Under Investigation for Financial Fraud Declined to Turn in Supplementary Documents

Conrad Tambalo Bautista, a registered representative in Texas, is now barred from associating with any other Financial Industry Regulatory Authority member in any capacity. While not denying or admitting to the SRO’s findings, Bautista agreed to the described sanction as well as the entry of findings.

According to FINRA’s findings, Bautista would not respond to its requests for supplemental documents related to a customer complaint about him. The SRO had asked for certain financial data for an investigation into whether/not he took part in fraudulent financial scams, private securities transactions or external business activities, borrowed customers’ money, or failed to disclose an IRS tax lien.

Foremost Trading LLC Must Pay $400K to CFTC for Supervisory Violations

Published on: September 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Foremost Trading LLC has settled the securities charges filed against it by the US Commodity Futures Trading Commission. The regulator accused the introducing broker of failing to properly supervise the handling of specific trading accounts by employees, agents, and officers. To settle, Foremost Trading must pay a $400K civil penalty and cease and desist from future CFTC regulation violations.

According to the agency’s order, the accounts involved were held by clients who were referred to the introducing broker via three unregistered entities that sold futures trading systems. Foremost Trading and its staff are accused of disregarding warning signs that the Systems-Systems Providers were using fraudulent means and business practices to get these clients.

Clients complained to Foremost. However, contends the CFTC, the latter did not properly investigate claims or let other clients know about the allegations. Meantime, the introducing broker kept setting up accounts for clients referred to it by Systems Provider, even vouching for the latter’s track record when communicating with clients.

FINRA Fines Santander Investment Securities Inc. $350,000 For Not Supervising Foreign Fund Offerings

Published on: September 11, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining Santander Investment Securities Inc. $350,000 over allegations that the brokerage firm failed to adequately supervise foreign fund offerings. The SRO says that the broker-dealer did not have a system in place to properly oversee communications between brokers, a registered firm principal, non-registered employees, and investors about the purchase of non-US funds.

FINRA found that the principal had the job of determining interest from institutional investors in the US for funds overseen by a fund manager who was affiliated with the firm but was not regulated by SRO or based in the US. The principal and those mentioned above contacted investors about buying non-US funds in the future.

FINRA says that Santander Investment Securities should have had a registered individual supervising the registered personnel in relation to these communications. It also found that these interactions took place at presentations where sales materials were given out to prospective investors. However, notes the SRO, the brokerage firm did not appoint an individual registered with the firm to make sure procedures and policies were being enforced at these gatherings, nor did it apply these protocols with the public or look at and approve the fund presentations and other materials. Copies of the material that was distributed were not kept, as required. FINRA says that the materials included claims that were exaggerated.

NEXT Financial Group Gets $250,000 FINRA Fine Over E-Mail Violations

Published on: September 6, 2013 | by Shepherd Smith Edwards & Kantas, LLP

NEXT Financial Group, Inc. will pay a $250,000 fine and perform an audit to identify all non-company email accounts that were used by the firm’s registered persons to conduct communications that were securities-related. It will also identify whether the accounts were captured by its servers, reviewed during regular email surveillance, and retained according to federal securities laws and FINRA rules. NEXT Financial will then present a written statement to the SRO describing the audit results and any corrective action to make sure that emails are captured, retained, and reviewed in the future.

FINRA says that for four years, two of NEXT Financial’s registered representatives ran an outside business activity that was approved and, during certain times, they outside business email addresses to communicate with customers about out securities-related matters. The SRO says that firm’s written supervisory procedures let registered persons communicate with NEXT Financial customers via the non-firm email accounts as long as the external domain names were firm-hosted and approved and could be captured and reviewed on the company’s server.

However, says the SRO, during a yearly branch audit, NEXT Financial found that registered representatives’ outside emails were not being maintained or captured on the server and, as a result, no review was taking place. FINRA contends that even after discovering this, NEXT financial did not take corrective action.

NEXT Financial consented to the sanctions described by FINRA, as well as to the entry of findings but did not deny or admit to them.

FINRA E-mail Enforcement Actions
According to InvestmentNews, FINRA has been stepping up its e-mail enforcement actions as of late, with the number of e-mail related violations rising. The SRO imposed $6.5 million in fines over this matter last year—an 81% rise from the year prior—over 632 email cases.

FINRA and the Securities and Exchange Commission mandate that brokerage firms set up systems and written procedures to catch and hold all e-mail communications with members of the public for three years. The firms also must pre-approve or regularly examine at least some e-mail samplings sent to customers by brokers. Unfortunately, proper retention and review of emails is proving to be a struggle for some brokerage firms.

Finra going all out to control e-mail, InvestmentNews, May 26, 2013

FINRA

More Blog Posts:
LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

Next Financial Ordered to Pay One Million Dollars for Supervisory Deficiencies that Led to Texas Securities Fraud, Stockbroker Fraud Blog, August 4, 2009

FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board, Stockbroker Fraud Blog, August 21, 2013

FINRA Fines Expected to Drop 41% in 2013

Published on: September 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Even though the number of disciplinary actions from the Financial Industry Regulatory Authority has dropped just slightly this year, fines paid to the SRO are expected to be 41% lower from what was assessed in 2012.

In its Disciplinary and Other FINRA Actions report for the first half of 2013, FINRA said there were $23 million of fines—compare that to the same time period last year when the SRO fined brokerage firms and associated individuals $39 million. The total in fines it would assess for 2012 would reach $78 million. This year’s total is estimated to reach $46 million.

One reason for the decline might be that FINRA had already brought its biggest cases related to the market collapse. A decrease in supersize fines of those over $1 million has also occurred during the year’s first six months. However, in July, the SRO reported fining a financial firm $7.5 million while another had to pay investor restitution of $1.5 million. Supersize fines were also imposed on other broker-dealers.

FINRA Enhances Its Arbitrator Vetting Policy

Published on: August 26, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is refining its new policy for looking into its arbitrators. The move is seen as even more essential in the wake of a court’s decision to dismiss an arbitration ruling that was decided on in part by someone who was indicted during a case against financial firm Goldman Sachs (GS).

Among the steps to be implemented is the use of Google to run searches on arbitrators right before they are appointed to a FINRA arbitration case. The SRO is also preparing to run annual background checks on its 6,500 arbitrators even after being checked when they applied for the arbitrator position.

The industry-funded watchdog’s actions are coming into effect at the same time as lawmakers are upping the pressure to put a stop to broker-dealers making investors arbitrate disputes-an agreement they consent to when they agree to work with the brokerage firm. This causes customers to forfeit their right to go to court over the disagreement. Meantime, consumer groups have been pressing the SEC to place restrictions on the arbitration agreement practice, and a new bill introduced by US Rep. Keith Ellison (D-MN) would modify the Dodd-Frank Wall Street Reform and Consumer Protection Act so that these mandatory agreements are banned.

FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board

Published on: August 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs Wants Third Circuit To Look at Vacated Arbitration Award

Goldman Sachs (GS) wants the U.S. Court of Appeals for the Third Circuit to look at a decision by a lower court to vacate a FINRA securities award issued by a panel member that included arbitrator Demetrio Timban, who was indicted on criminal matters and suspended. The securities case is Goldman Sachs & Co. v. Athena Venture Partners LP and involves an investor accusing the firm of making misrepresentations. The U.S. District Court for the Eastern District of Pennsylvania remanded the award, which favored the financial firm.

The district court said FINRA didn’t give the parties three arbitrators who were qualified and said the respondent’s rights were prejudiced. Judge J. Curtis Joyner said that therefore, a “final and definite award” was not issued. Following the scandal involving Timban, FINRA said it now would perform yearly background checks of arbitrators and other reviews before they are given a case.

Citigroup Must Pay $11M Claimant for Royal Bank of Scotland Investment Losses, Says FINRA Arbitration Panel

Published on: August 7, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A FINRA arbitration panel has decided that Citigroup (C) and Edward J. Mulcahy, one of the firm’s ex-branch managers, has to pay $11 million to investor John Fiorilla. Fiorilla is a legal adviser to the Holy See who went to Citigroup because he wanted to de-risk a $16 million stock position in Royal Bank of Scotland (RBS).

According to the claimant, he asked Citigroup to employ derivatives to assist in hedging his position against losses but the firm did not fulfill the request. When the market failed in 2008 his account suffered over $15 million in losses.

Fiorilla is claiming breach of contract, failure to control and supervise, breach of fiduciary duty, gross negligence, negligence, and other violations. His claim against Mulcahy is over an alleged failure to supervise.

Thornes & Associates Inc. Investment Securities’ Head Gets Industry Bar for “Lending” $4.2M of His Clients’ Assets to Friends

Published on: July 27, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that Thornes & Associates Inc. Investment Securities President John Thomas Thornes lent $4.2 million in client assets to two friends. Following the resolution of the FINRA arbitration case, the California broker is barred from the securities industry and his broker-dealer has been suspended, as well was expelled as a member of the SRO.

The friends who received the “loans”-over 50 transactions-allegedly spent the assets on cars, vacation homes, and plane and jet rentals. Over $262,000 is said to have been turned into cashier’s checks and used at an Indian casino.

Per FINRA’s complaint, however, calling the transfer of money a “loan” was not an accurate characterization, and not only were they unsecured and undocumented transactions but also they were never paid back.

FINRA Reports Losses After Squandering Profit From NYSE Payment

Published on: July 23, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Last month, the Financial Industry Regulatory Authority put out its yearly report for 2012. According to the results, the self-regulatory organization is hurting. Its operating losses are huge-nearing $90 million for the second year straight. Meantime, its staff has grown 13%, with benefits and compensation rising 41% in the last five years to hit $628.9 million last year. That’s a significant jump from 2007 when the SRO’s compensation and benefits was $446.1 million. Retirement and pension expenses have risen 89% in the last five years.

While observers say that FINRA’s operating losses are not an immediate danger, no one can say for sure. Some are even asking how could a regulator facing potential financial trouble do its job and protect investors? Unlike its last five yearly reports, FINRA’s 2012 report pointedly says that the will keep observing the changing economy and assessing any effect on the organization. If there were to be a huge market collapse, however, FINRA’s equity would take a beating.

The private SRO is the National Association of Securities Dealer’s successor. NASD’s merger with the New York Stock Exchange (NYSE) Regulatory Division is one reason for the increase in FINRA’s compensation. After its merger with the NYSE Regulatory Division, NASD soon changed its name to the Financial Industry Regulatory Authority (FINRA).