FINRA Disciplinary Action Report July 2016

FINRA Broker Disciplinary Action Report July 2016

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. 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.

Equinox Securities, Inc. of Redlands, California and Stephen Michael Oliveira submitted an Offer of Settlement in which the firm was expelled from FINRA membership; and Oliveira was fined $25,000, barred from association with any FINRA member in any principal capacity and suspended from association with any FINRA member in any capacity for one year. Without admitting or denying the allegations, the firm and Oliveira consented to the sanctions and to the entry of findings that the firm, acting through a representative, excessively traded customer accounts.

Feltl & Company of Minneapolis, Minnesota submitted an AWC 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 it failed to identify and apply sales-charge discounts to certain customers’ eligible purchases of unit investment trusts (UITs), resulting in customers paying excessive sales charges of approximately $261,873. The firm has paid restitution to all affected customers. The findings stated that the firm failed to establish, maintain, and enforce a supervisory system and WSPs reasonably designed to ensure that customers received sales charge discounts to which they were entitled on UIT purchases. The firm did not have a system or procedure, whether written or informal, to spot UIT switches and identify applicable sales-charge discounts. The firm also failed to establish, maintain, and enforce a supervisory system and WSPs reasonably designed to prevent unsuitable short-term trading of UITs.

Kovack Securities Inc. of Ft. Lauderdale, Florida submitted an AWC in which the firm was censured, fined $125,000 and ordered to pay $119,319.27 in restitution to customers. The firm has paid full restitution and provided proof of payment to FINRA. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to identify and apply sales charge discounts to certain customers’ eligible purchases of UITs, which resulted in customers paying excessive sales charges of $119,319.27.

Alan Cashaw Jr. of Philadelphia, Pennsylvania was barred from association with any FINRA member in any capacity. The sanction was based on findings that Cashaw failed to timely respond to FINRA written requests for information and documents. The findings stated that Cashaw responded only after having been suspended pursuant to FINRA Rule 9552. Following Cashaw’s untimely response, FINRA renewed its investigation into, among other things, allegations that Cashaw had not properly made and preserved books, accounts, records, memoranda and correspondence.

Michael Jon DeBoer of Trinity, Florida submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, DeBoer consented to the sanction and to the entry of findings that he recommended that two customers collectively invest $200,000 in securities offered by a software development company. The findings stated that in return for the referrals, DeBoer received $32,000 in compensation from the company while the customers ultimately lost the entirety of their investments in the securities. The securities were not offered through DeBoer’s member firm. Prior to recommending that his customers invest in the securities, DeBoer did not disclose to his firm, in writing or otherwise, his involvement in recommending the securities or his receipt of compensation for referring the customers to the company. Furthermore, before making his recommendations, DeBoer failed to reasonably investigate the software company, its securities or its intended use of the proceeds generated through the sale of its securities, and therefore lacked a reasonable basis to believe the securities were suitable investments for at least some customers. The findings also stated that DeBoer marketed to his customers and other potential investors the services of an entity that provided separately managed futures trading accounts. DeBoer referred approximately 28 people to the entity, who collectively invested more than $1.8 million, and he received more than $70,000 in return for his referrals.

Terry Lee Haggerty of Glenview, Illinois submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Haggerty consented to the sanction and to the entry of findings that he engaged in manipulative trading activity in the shares of a penny stock traded in the OTC market, in willful violation of Section 10(b) of the Exchange Act and Rule 10b-5, and in violation of FINRA Rule 2020. The findings stated that through the use of his own accounts and those of his member firm customers, including his discretionary trading clients, Haggerty effected pre-arranged or matched trades in the penny stock, and marked the open or the close, in order to support or raise the price of the stock.

Miguel Angel Hernandez of El Paso, Texas submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Hernandez consented to the sanction and to the entry of findings that he obtained $25,000 in cash from an elderly customer under false pretenses and converted those funds for personal use. The findings stated that after this conduct was discovered, Hernandez repaid the customer the entire $25,000.

Jonothon Michael Lieberman of Woodbury, New York submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Lieberman consented to the sanction and to the entry of findings that he refused to provide documents and information, appear for on-the-record testimony, and cooperate with a FINRA investigation concerning various potential sales practice violations

David Michael Miller of Columbus, Ohio was barred from association with any FINRA member in any capacity, required to pay a total of $799,161.07, plus interest, in restitution to customers, and required to disgorge to FINRA a fine of $15,161.54, plus interest. The sanctions were based on findings that Miller failed to conduct reasonable diligence before recommending UITs to his customers, and thus failed to have reasonable grounds for believing his recommendations were suitable for them. The findings stated that Miller made unsuitable recommendations of UIT purchases totaling more than $5.3 million in customer accounts, but did not undertake reasonable diligence to ensure he adequately understood the features and risks of the UITs before recommending them, causing his customers to lose money.

James Parker Scullin of Miami, Florida submitted an AWC in which he was assessed a deferred fine of $15,000 and suspended from association with any FINRA member in any capacity for nine months. Without admitting or denying the findings, Scullin consented to the sanctions and to the entry of findings that he placed an unauthorized trade in a customer’s account. The findings stated that Scullin did not have discretionary authority for any of the customer’s accounts. Scullin placed the trade of over $5 million without informing the individuals with authority to place trades in the account or seeking their authorization. When one of the individual’s with authority over the account questioned the trading activity in the account, Scullin concealed the unauthorized trade. When Scullin’s member firm questioned him about the trade, he initially concealed the fact that it was unauthorized, but later admitted to the firm that the trade was not authorized. The firm later reversed the trade.

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