FINRA DECEMBER 2015 BROKER DISCIPLINARY ACTION REPORT
Each month and again on a quarterly basis, the agency that regulates the financial industry, FINRA (Financial Industry Regulatory Authority), produces a detailed report of disciplinary actions recently taken against brokerage firms and brokers. This 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 financial abuse against elderly clients and the misuse and lack of supervision of nontraditional or leveraged ETF investment products.
Brokerage Firms & Brokers
Success Trade Securities, Inc. and Fuad Ahmed. The firm was expelled from FINRA® membership. Ahmed was barred from association with any FINRA member in any capacity. The firm and Ahmed were ordered to pay, jointly and severally, $13.7 million, plus interest, in restitution to investors. The National Adjudicatory Council (NAC) imposed the sanctions following an appeal of an Office of Hearing Officers (OHO) decision. The sanctions were based on findings that the firm and Ahmed willfully engaged in securities fraud and sold unregistered securities that were not exempt from registration when they sold $19.4 million of their parent company’s unregistered promissory notes to investors.
Brookstone Securities, Inc., Christopher Dean Kline, David William Locy and Antony Lee Turbeville. The sanctions were based on findings that, in connection with the purchase or sale of collateralized mortgage obligations (CMOs), the firm, acting through Turbeville and Kline, fraudulently made material misrepresentations of fact and omitted material facts that misled senior and retired customers concerning the risks associated with CMOs.
The GMS Group, LLC and Carmine Claudio Capone was censured and fined $75,000. Capone was fined $10,000 and suspended from association with any FINRA member in any principal capacity for 30 business days. Without admitting or denying the findings, the firm and Capone consented to the sanctions and to the entry of findings that the firm, acting through Capone, failed to adequately supervise the sales practices of a registered representative who recommended and engaged in unsuitable trading in nontraditional exchange-traded funds (ETFs) in four customers’ accounts, and exercised discretion without having obtained prior written authorization in customers’ accounts. The findings stated that the firm assigned Capone to supervise the representative’s activities as a registered representative acting on the firm’s behalf. The firm failed to establish and maintain a supervisory system designed to achieve compliance with applicable NASD® and/or FINRA rules in connection with the sale of nontraditional ETFs. The firm allowed the representative to recommend and sell nontraditional ETFs, but did not adopt any supervisory controls to properly supervise those transactions. In addition, the firm did not provide any training to the representative regarding nontraditional ETFs. The firm and Capone allowed the representative to execute purchases of non-traditional ETFs, even though the representative did not have a reasonable basis to recommend the securities and they were unsuitable from a customer specific perspective. The findings also stated that the firm and Capone were on notice of numerous “red flags” that the representative had a propensity to engage in unsuitable trading on behalf of his customers. Despite the red flags, the firm, acting through Capone, failed to take adequate steps to supervise the representative’s sales activities. Capone only contacted one of the customers at issue, a retired and unsophisticated elderly investor with a moderate risk tolerance.
Capitol Securities Management, Inc.. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that through a registered representative, the firm recommended and effected unsuitable purchases of customized reverse-convertible notes (RCNs) totaling approximately $4 million for the accounts of customers. The findings stated that most of the customers were over the age of 60, and had modest or conservative investment objectives and risk profiles. All of the customers’ accounts were heavily concentrated in RCNs, with the amounts of these investments constituting a substantial portion of their net worth.
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Wunderlich Securities, Inc.. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce an adequate supervisory system and written procedures regarding the preparation and dissemination of consolidated reports. The findings stated that although the firm’s WSPs expressly permitted the preparation and dissemination of consolidated reports, they did not adequately address how the firm would supervise the use of consolidated reports. The findings also stated that the firm failed to establish, maintain, and enforce an adequate supervisory system and written procedures for the supervision of sales of nontraditional ETFs. Although the firm permitted its registered representatives to recommend nontraditional ETFs, the firm’s WSPs did not adequately address the particular characteristics and risks associated with nontraditional ETFs. In addition, the firm did not utilize an effective system or report to enable its supervisors to readily identify instances in which a customer might be holding a position in a nontraditional ETF for an extended period of time. The firm also failed to provide formal training to its registered representatives and supervisory personnel regarding the unique characteristics and risks of nontraditional ETFs.
Garrett Andrew Ahrens of Louisiana. Without admitting or denying the findings, Ahrens consented to the sanctions and to the entry of findings that he prepared consolidated reports for customers that inaccurately reflected the current value of investments and the performance of investments, including private placements and non-traded real estate investment trusts (REITs). The findings stated that the consolidated reports were false and misleading because the current values of the investments provided were shown at a significantly higher price than their actual values.
Kenneth Brian Dysart of Yardley, Pennsylvania. Without admitting or denying the findings, Dysart consented to the sanctions and to the entry of findings that he failed to provide written notice to his member firm prior to participating in private securities transactions. The findings stated that Dysart referred customers to a private securities offering and helped to facilitate the customers’ investments in the offering, which totaled $100,000.
Jason Lyn Figueroa of Florida. Without admitting or denying the findings, Figueroa consented to the sanction and to the entry of findings that he recommended and engaged in unsuitable trading in nontraditional ETFs in customer accounts. The findings stated that Figueroa recommended the nontraditional ETFs transactions without first conducting adequate due diligence concerning the unique features and specific risks of these products. Figueroa failed to account for the compounding of risk associated with holding nontraditional ETFs overnight, and the fact that they are designed to achieve their stated objectives within a single trading day. As a result of this misapprehension of the risks associated with holding nontraditional ETFs overnight, Figueroa routinely failed to sell these products on the same day he purchased them without conducting any analysis as to whether it was appropriate to hold the product for an extended period of time.
Conrad Richard Huss of New York. Without admitting or denying the allegations, Huss consented to the sanctions and to the entry of findings that he negligently misrepresented material facts in connection with the solicitation and sale of $1.4 million worth of promissory notes issued in a private offering to customers in contravention of Section 17(a)(2) of the Securities Act of 1933. The findings stated the notes were issued by a real estate development company that defaulted under the notes and failed to pay customers the principal due and owing under the promissory notes.
John Thomas Oates Jr. of Yardley, Pennsylvania. Without admitting or denying the findings, Oates consented to the sanctions and to the entry of findings that he engaged in an outside business activity for compensation without providing prior written notice to his member firm. The findings stated that Oates participated in the purchase of approximately $1.4 million in alternative investment products for individuals, including a customer of the firm, and received approximately $69,000 in compensation for his involvement in the transactions.
FINRA Securities Litigation Lawyers
If you or someone you know has been the victim of investment fraud or broker misconduct, please contact our experienced securities attorneys immediately for a free consultation toll-free at 1-855-462-3330 or by using our online contact form.