Misconduct within the Financial Industry
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 on money matters. 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 FINRA broker-dealer disciplinary 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. In this particular report, we noticed repeated alleged offenses of churning/excessive trading, inadequate supervision, financial abuse against elderly clients, and the misuse and lack of supervision of nontraditional or leveraged ETF investment products. For the full report, click here.
To search FINRA's disciplinary action reports for misconduct by your brokerage firm or financial advisor, search here:
Brokerage Firms Fined by FINRA
E1 Asset Management, Inc. (CRD #46872, Jersey City, New Jersey), Ron Yehuda Itin (CRD #2344151, Tenafly, New Jersey) and Ahsan R. Shaikh (CRD #2306482, Upper Brookville, New York) submitted an AWC in which the firm was censured and fined $25,000. A lower fine was imposed after considering, among other things, the firm’s revenue and financial resources. The firm, Itin, and Shaikh consented to the sanctions and to the entry of findings that the firm failed to establish and maintain a reasonable supervisory system. As the firm’s principals, Itin and Shaikh were responsible for establishing and maintaining the firm’s supervisory system. The findings stated that the firm and Shaikh implemented an inadequate system to review registered representatives’ electronic correspondence with the public and failed to implement suitability reviews of trading in new customer accounts.
Bolton Global Capital (CRD #15650, Bolton, Massachusetts) submitted an AWC in which the firm was censured and fined $35,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to provide prospectuses to customers who purchased ETFs, as required by Section 5(b)(2) of the Securities Act of 1933. The findings stated that the firm failed to establish, maintain and enforce an adequate supervisory system, including WSPs, reasonably designed to ensure the delivery of ETF prospectuses to customers.
Merrimac Corporate Securities, Inc. (CRD #35463, Altamonte Springs, Florida) stipulated to a $100,000 fine and the requirement to retain an independent consultant to review its policies, systems and procedures (written and otherwise), and training relating to outside business activities and private securities transactions, and adopt and implement the independent consultant’s recommendations. The NAC affirmed the sanctions following the firm’s appeal of an OHO decision, in which the firm argued that it lacked the ability to pay the stipulated fine. The sanctions were based on findings that the firm failed to establish, maintain and enforce reasonable WSPs, and failed to reasonably supervise the outside business activities and private securities transactions of two registered representatives who have since been barred from the industry. The findings stated that the representatives operated a company and sold investments away from the firm. The representatives solicited individuals to invest in their company and raised an aggregate amount of $4 million from those investors. The representatives arranged for investors, many of whom were firm customers, to hold investments in their company away from the firm’s clearing firm with non-broker-dealer custodians. One representative also solicited investments in a second outside business, of which he was an owner. The findings also stated that the firm failed to adequately implement its procedures regarding participation in outside businesses and private securities transactions, and failed to implement reasonable procedures regarding the use of outside custodians. The findings also included that the firm failed to follow up on “red flags” and adequately inquire into the representatives’ outside business activities and involvement in private securities transactions despite personal knowledge about both.
Stock Brokers Barred or Suspended from FINRA
Vito James Balsamo (CRD #2084901, Staten Island, New York) 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, Balsamo consented to the sanction and to the entry of findings that he participated in private securities transactions without first obtaining his member firm’s written approval. The findings stated that Balsamo solicited purchases of securities, consisting of ownership interests in a limited liability company (LLC), from three customers. Balsamo received an ownership interest in the LLC based on his ability to raise capital for it. The total amount of funds the customers invested in the LLC was approximately $475,000.
Gregory Howard Bray (CRD #2673259, St. Louis, Missouri) submitted an AWC in which he was fined $7,500 and suspended from association with any FINRA member in any principal capacity for six weeks. Without admitting or denying the findings, Bray consented to the sanctions and to the entry of findings that he failed to adequately supervise a registered principal, who was the member firm’s CEO and CCO, in connection with the principal’s sales of certain complex products and recommendations of Class A mutual fund shares. The findings stated that Bray failed to ensure that the principal understood the complex products he sold to customers. Bray himself was not familiar with the risks associated with some of the complex products.
Kai Chong Cheng (CRD #4987533, Tenafly, New Jersey) submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Cheng consented to the sanctions and to the entry of findings that he failed to appear for FINRA on-the-record testimony involving an investigation into his discharge from his member firm. The findings stated that Cheng was terminated for conduct including entering into personal financial transactions with a customer, using a personal email address to communicate with a customer, and unauthorized trading in a customer account.
John Cherry III (CRD #1891720, New York, New York) was barred from association with any FINRA member in any capacity and ordered to pay $138,235.38 in restitution and $300,000 in disgorgement, along with prejudgment interest on both amounts. The NAC imposed these sanctions following an appeal of an OHO decision. Cherry appealed this matter to the SEC but later withdrew his application. The sanctions are based on findings that Cherry converted $474,000 in customers’ funds to purchase a house without the customers’ knowledge or authorization. At Cherry’s direction, the customers transferred their funds to a company Cherry owned and controlled for the purpose of investing in securities. Rather than investing the funds in securities as the customers had directed, Cherry used the funds to purchase the house in which he and his wife were living. Cherry concealed his misconduct from his customers by making supposed interest payments, totaling $35,764.17, and by causing false documentation of their purported securities investment to be sent to them. When the interest payments stopped, Cherry lied to his customers, offering a number of false excuses for why their funds could not be returned.
Derek V. Chu (CRD #4683951, Pleasant Hill, California) submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Chu consented to the sanction and to the entry of findings that he failed to provide FINRA-requested documents and information involving an investigation into allegations that he exceeded the scope of his approved outside business activity by soliciting investments and/or promissory notes.
Bradley Claus (CRD #5127951, Castle Rock, Colorado) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Claus misrepresented material facts in connection with the sale of securities in emails he sent using an unapproved personal email account. The findings stated that Claus’ use of a personal email account to conduct his securities business enabled him to circumvent his member firm’s supervisory procedures. The findings also stated that Claus participated in securities transactions outside the scope of his employment with the firm without providing prior written notice to the firm.
Jeffrey David Daggett (CRD #843023, Temecula, California) submitted an AWC in which he was assessed a deferred fine of $20,000 and suspended from association with any FINRA member in any capacity for four months. Without admitting or denying the findings, Daggett consented to the sanctions and to the entry of findings that he recommended unsuitable transactions in an exchange-traded note (ETN), and leveraged and inverseleveraged ETFs (non-traditional ETFs) in the accounts of his customer. The findings stated that Daggett recommended the ETN and non-traditional ETFs without having reasonable grounds for believing that the securities were suitable for the customer in view of the customer’s financial situation, investment objectives and needs. The customer’s realized and unrealized losses from investing in the ETN and non-traditional leveraged ETFs were approximately $88,099.75.
Bradley Keith Drude (CRD #1401888, New Orleans, Louisiana) submitted an Offer of Settlement in which he was assessed a deferred fine of $25,000 and suspended from association with any FINRA member in any capacity for six months. Without admitting or denying the allegations, Drude consented to the sanctions and to the entry of findings that he failed to disclose, in contravention of his member firm’s WSPs, that a customer had named him as executor and beneficiary in her will and granted him general powerof-attorney. The findings stated that Drude typed a new will for the customer and named himself the executor and primary beneficiary of the customer’s estate, valued at approximately $3 million. Drude did not request the assistance of the customer’s attorney, but instead typed the will himself and drove the customer to a notarial office to have her signature notarized. When the customer requested that Drude prepare a change to the will, he prepared a codicil for the customer’s signature. However, Drude did not drive the customer to the notary’s office to have the codicil notarized, knowing that without notarization, the codicil was invalid. Following the customer’s death, the customer’s secondary beneficiaries and close friends contested the will naming Drude as executor and beneficiary, alleging that the will was the product of Drude’s undue influence over the customer who was 91 at the time Drude prepared the new will and had just suffered the loss of her brother and her home. The findings also stated that Drude failed to disclose his fiduciary appointments on his firm’s outside business activity questionnaires, and caused the firm’s books and records to be false.
Phillip Leonard Grasso Jr. (CRD #1164783, Wallkill, New York) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Grasso misused and converted customer funds by depositing $227,150 of customer money to his personal bank account for his own personal benefit. The findings stated that Grasso intentionally engaged in a pattern of deceiving unsophisticated, elderly customers in order to take their money. Grasso concealed his misconduct by presenting fabricated account statements, resulting in substantial harm to the customers. The findings also stated that Grasso engaged in securities fraud, in willful violation of Section 10(b) of the Exchange Act and Rule 10b-5. Grasso convinced his elderly customers to liquidate their assets and led the customers to believe that their liquidated assets would be invested in securities. Grasso intentionally directed the proceeds to his own bank and brokerage accounts, and used the money for himself. Thereafter, Grasso concealed his misconduct by presenting false account statements that showed that the funds were invested in stock.
Nathalo Ian Menendez (CRD #4882003, East Quogue, New York) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Menendez opened accounts for customers without authorization and made initial trades in them without authorization. The findings stated that in so doing, Menendez caused false and inaccurate information to be entered into his member firm’s books with respect to one of the customers. The findings also stated that Menendez engaged in excessive trading in two accounts held by separate customers. Menendez’s excessive trading was by definition unsuitable, and his pattern of doing business was to deceive potential and actual customers. In addition, Menendez advanced his own interests ahead of his customers’ interests and obtained monetary gains in the form of commissions at the expense of his customers.
Tyrel L. Sipe (CRD #6176289, New Wilmington, Pennsylvania) submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Sipe consented to the sanction and to the entry of findings that he refused to appear for FINRA on-the-record testimony related to the circumstances surrounding his discharge from his member firm.
Peter Michael Terlecky III (CRD #2301793, Grand Island, New York) submitted an Offer of Settlement in which he was fined $10,000, ordered to pay $2,470, plus interest, in restitution to customers, ordered to disgorge $19,000, plus interest, in commissions received and suspended from association with any FINRA member in any capacity for one year. Without admitting or denying the allegations, Terlecky consented to the sanctions and to the entry of findings that he circumvented his member firm’s supervisory and compliance procedures by concealing and failing to process variable annuity purchase transactions, totaling approximately $2.3 million, as annuity replacement trades, even though each purchase was funded by the sale of a fixed or variable annuity. The findings stated that Terlecky concealed the variable annuity replacements from the firm’s supervisory review by structuring them as separate trades through a two-step process, rather than through annuity exchanges. The findings also stated that Terlecky falsified records by preparing and submitting new account forms and annuity documents to his firm that contained numerous misrepresentations and items of false information that further disguised the true nature of the variable annuity replacement transactions. Terlecky earned greater commissions, avoided supervisory scrutiny, and caused his customers harm by circumventing firm procedures and concealing the annuity replacements.
FINRA Securities Litigation Law Firm
If you or someone you know has been the victim of broker misconduct or investment fraud, please contact our securities attorneys immediately for a free consultation at 1-855-462-3330 or by using our online contact form.