Each month and again on a quarterly basis, the agency that regulates the financial industry, FINRA (Financial Industry Regulatory Authority), produces a detailed report that runs down all disciplinary actions recently taken against brokerage firms and brokers. This long list of alleged wrongdoing and misconduct reads a lot like a police blotter. We strongly encourage any investor who suspects their broker and/or broker-dealer of having lost them money on dubious terms to at least skim this report to see if you recognize any names, schemes, products, or securities.
For our part, in addition to circulating the entire report to help get the word out about these alleged misdeeds, we like to pick out some of the highlights from each report. Specifically, we’re looking for schemes or abuses that might be more far-reaching than the individual cases brought through the FINRA arbitration process. In other words, we name names here because we hope to raise awareness out there about certain brokers and products that might otherwise go unnoticed except for the case appearing in the report.
HFP Capital Markets LLC (New York, New York) submitted a Letter of Acceptance, Waiver and Consent in which the firm was expelled from FINRA® membership and ordered to pay $2,980,000, plus interest, in restitution to customers. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it caused the fraudulent sale of approximately $3 million worth of senior secured zero-coupon notes. The findings stated that the HFP Capital Markets, LLC sold the private offering of the notes to firm customers. In offering and selling the notes, the firm knowingly misrepresented and omitted to disclose material facts about the offering. While a few customers received money back after lodging complaints with the firm through so-called replacement transactions, the remaining customers lost their entire investment of $2.98 million; and to date, they have not been repaid. The firm failed to conduct adequate due diligence on the offering or individuals involved, and failed to conduct any due diligence on third parties that were put forward as critical strategic partners for the business.
Wunderlich Securities, Inc. (Memphis, Tennessee) and Stephen Joseph Bonnema (Collierville, Tennessee) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $108,343, and required to pay $1,657, plus interest, in disgorgement of commissions. Bonnema was fined $5,000 and suspended from association with any FINRA member in any principal capacity for 10 business days. Without admitting or denying the findings, the firm and Bonnema consented to the sanctions and to the entry of findings that the firm sold, on behalf of customers, approximately 271 million unregistered shares of thinly traded low-priced--Stem Cell Innovations (stock symbol: SCLL) and Rx for Africa (stock symbol: RXAF) stocks without first confirming, through a sufficient independent inquiry, that the shares could be sold pursuant to an exemption from registration. The findings stated that because the shares were not covered by a registration statement, the firm could not sell those shares without having confirmed, through a reasonable inquiry, the availability of an exemption from registration. The findings also stated that the firm failed to establish, maintain and enforce a supervisory system, including written procedures, reasonably designed to ensure compliance with Section 5 of the Securities Act of 1933 and prevent illegal resales of restricted securities. The firm failed to provide adequate training to the designated supervisors on how to assess the availability of an exemption from registration.
Advanced Equities, Inc. “AEI” (Chicago, Illinois) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $250,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that while acting as a placement agent for an issuer, it failed to identify material information and correct omissions of material facts made by the issuer in connection with a private placement offering--FA, an American automobile maker that manufactures hybrid electric vehicles. The findings stated that the issuer obtained a “loan facility” in the approximate amount of $529 million, which was overseen by the United States Department of Energy (DOE). The private placement offering documentation used in connection with the offering of shares in the issuer disclosed that the issuer was receiving financial assistance from the DOE, pursuant to the loan facility agreement. The lead banker at the firm became aware that the issuer had decided not to access the loan facility with the DOE. Despite knowing that the issuer had decided not to access the DOE loan facility, the lead banker failed to inform any future investor of such material information, while the firm continued to offer the product for sale. Approximately 90 accredited individuals and/or entities invested approximately $9 million in a particular offering. The firm failed to identify that the loan facility with the DOE would no longer be accessed, pending discussions with the DOE, and failed to correct the omission of such information in the issuer’s offering documents.
Citadel Securities LLC (Chicago, Illinois) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined a total of $800,000, and required to revise its WSPs and risk-management controls. Of the $800,000 fine, $420,000 will be paid to NASDAQ, $160,000 to New York Stock Exchange (NYSE) Arca, Inc., $100,000 to BATS Exchange, Inc., (BZX), $70,000 to BATS Y-Exchange, Inc. (BYX) and $50,000 to FINRA. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to reasonably prevent the transmission of erroneous orders to NASDAQ, BZX, BYX and NYSE Arca (the exchanges). The findings also stated that the equity market-making desk erroneously sold short, on a proprietary basis, 2.75 million shares of a stock--PC Group, Inc. (stock symbol: PCGR), causing the share price to fall by 77 percent during an 11-minute period.
Knight Capital Americas, L.P. nka KCG Americas LLC (Jersey City, New Jersey) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $37,500. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it accepted and held customer market orders, traded for its own account at prices that would have satisfied the customer market orders, and failed to immediately thereafter execute the customer market orders at the same price, or up to the size and at the same price, at which it traded for its own account or at a better price. The findings stated that the firm failed to execute customer limit orders after it traded each subject security for its own market-making account at a price that would have satisfied each customer’s limit order. The firm failed to contemporaneously execute customer limit orders after it traded each subject security for its own market-making account, and failed to execute an order at a price that would have satisfied the customer’s limit order.
Brian Harris Brunhaver of LPL Financial, LLC was barred from association with any FINRA member in any capacity. The sanction was based on findings that Brunhaver, in violation of his member firm’s directive, used his personal email account for business purposes. The findings stated that by sending and receiving business-related email communications on his personal email account, Brunhaver frustrated his member firm’s efforts to fulfill its supervisory obligations and its obligation to maintain and preserve business-related communications. The findings also stated that Brunhaver sent email messages to a customer containing false statements about a real estate investment trust (REIT). Brunhaver falsely assured the customer that her invested principal was guaranteed, that the investment did not hold any risk and that she could not lose her money. Relying on Brunhaver’s representations, the customer invested $114,300 in the REIT. Brunhaver also sent a blast email to other customers containing similar false statements, emphasizing that the REIT guaranteed investors’ principal. The messages to these customers did not disclose the substantial risk of investing in the REIT. Brunhaver’s email representations to the customers met all of the elements of fraud. Brunhaver made the misrepresentations either knowing that they were false, or in reckless disregard of their falsity, in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The findings also included that Brunhaver met with customers about investing in the REIT. In those meetings, Brunhaver personally represented, as he had in the emails, that the company guaranteed investments, and that investors could not lose money. These representations were important factors in the customer’s decision to invest in the REIT; and like the representations Brunhaver made in the emails, they were knowingly false, material, and made to induce the customer to
invest in a security.
Sandra Lea Fexer of CM Securities, LLC was assessed a deferred fine of $20,000, suspended from association with any FINRA member in any capacity for 18 months and ordered to pay $539,748, plus interest, in restitution to customers. The sanctions were based on findings that Fexer made unsuitable recommendations to customers to purchase a REIT--Desert Capital REIT (symbol DCR). The findings stated that, despite the customers each having moderate risk tolerances, Fexer nonetheless recommended investments that resulted in the customers holding undue concentrations in a single speculative security that carried a high degree of risk. These concentrated positions exposed the customers to a risk of loss that was not consistent with their risk tolerance levels, lack of additional investable assets, and financial situation and needs. Each of the customers lost their entire investment, due in part to the REIT’s involuntary bankruptcy petition. The findings also stated that Fexer submitted subscription agreements for a customer’s purchases indicating they were unsolicited trades when in fact she had solicited the trades.
Harlan Phillip Kleiman of Shoreline Pacific LLC submitted a Letter of Acceptance, Waiver and Consent in which he was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in any principal capacity for two months. Without admitting or denying the findings, Kleiman consented to the sanctions and to the entry of findings that he executed an engagement agreement on his member firm’s behalf with an oil and gas program sponsor pursuant to which the firm agreed to act as placement agent for up to $2,250,000 in limited and convertible partnership interests in an entity--Amazon Gas Exploration, or Amazon 13-13. Kleiman did not supervise the offering or registered representative in a manner reasonably designed to achieve compliance with applicable rules. Kleiman did not adequately investigate certain red flags associated with the offering, including inadequate “use of proceeds” disclosures and the absence of past performance information related to the program sponsors.
Stephen Samuel Lard of QA3 Financial Corp. submitted an Offer of Settlement in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for 20 business days. Without admitting or denying the allegations, Lard consented to the sanctions and to the entry of findings that he solicited and recommended that customers invest in various speculative, high-risk and illiquid private-placement securities, which resulted in an unsuitable overconcentration of the customers’ financial assets. These securities included DBSI Kings Highway North Units LLC ("DBSI-Kings Highway"); IMH Secured Loan Fund, LLC ("IMH"); ATEL 12, LLC ("ATEL 12"); ATEL Growth Capital Fund IV, LLC ("ATEL Growth"); MountainV 2007-D Drilling Program, LP ("MountainV"); and DBSI 2007 Land Improvement & Development Fund ("DBSI LID Fund"). The findings stated that the customers’ concentrated positions were unsuitable and exposed them to a risk of loss that exceeded their risk tolerancenand investment objectives.
If you or anyone you know has been the victim of broker misconduct or investment fraud, please contact a Green Firm attorney immediately for a free consultation at firstname.lastname@example.org or call 1-855-462-3330.