FINRA Disciplinary Action Report January 2016

FINRA Broker Disciplinary Action Report January 2016

Each month, 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, 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.

FINRA Firms & Brokers, Fined & Sanctioned

1st Discount Brokerage, Inc. submitted an AWC in which the firm was censured, fined $50,000 and required to pay $39,060.18, 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 failed to establish, maintain, and enforce a reasonably-designed supervisory system and WSPs regarding the sales of leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs). The findings stated that the firm did not have WSPs addressing the suitability and supervision of nontraditional ETFs.

The findings also stated that the firm allowed representatives to recommend nontraditional ETFs without performing reasonable diligence to understand the risks and features associated with them, and that were unsuitable for certain customers based on their age, investment objectives and financial situation. The firm, through its registered representatives, failed to perform an adequate reasonable basis suitability analysis of non-traditional ETFs to understand the risks and features associated with non-traditional ETFs before offering them for sale to retail customers. The firm also failed to re-evaluate the suitability of these products, notwithstanding the risks of non-traditional ETFs such as the risks associated with a daily reset, leverage and compounding. In addition, the firm’s representatives solicited and effected non-traditional ETF purchases that were unsuitable for specific customers. Even though non-traditional ETFs are complex and speculative securities, certain representatives recommended these products to customers with conservative investment objectives, some of whom were elderly. Moreover, some of these customers held non-traditional ETF positions for extended periods of time. 

TIAA-CREF Individual & Institutional Services, LLC (CRD #20472 , New York, New York) submitted an AWC in which the firm was censured and fined $275,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that as a result of technological errors and in one case, an ambiguous clause in a vendor agreement, the firm did not make timely delivery of customer confirmations for certain types of transactions.

H.D. Vest Investment Services, Inc. (CRD #13686 , Irving, Texas) submitted an AWC in which the firm was censured and required to provide FINRA with a remediation plan to remediate eligible customers who qualified for, but did not receive, the applicable mutual fund sales charge waiver. As part of this settlement, the firm agrees to pay restitution to eligible customers, which is estimated to total $261,905 (the amount eligible customers were overcharged, inclusive of interest). Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge. The findings stated that these eligible customers were instead sold Class A shares with a front-end sales charge, or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. These sales disadvantaged eligible customers by causing such customers to pay higher fees than they were actually required to pay.

Individual Brokers Barred, Suspended, or Fined

Donald Andrew Bartelt (CRD #1377935 , Cave Creek, Arizona), Antonio Costanzo (CRD #2580765 , Chesapeake, Virginia) and David Michael Levy (CRD #2255938 , Wellington, Florida). Bartelt was fined $250,000, less any amounts that he can demonstrate he has paid in restitution; barred from association with any FINRA member in any capacity; and ordered to pay $200,330.66, plus interest, in restitution to customers. Costanzo was fined $150,000, less any amounts that he can demonstrate he has paid in restitution; barred from association with any FINRA member in any capacity; and ordered to pay $114,841.52, plus interest, in restitution to customers. Levy was fined $150,000, less any amounts that he can demonstrate he has paid in restitution; barred from association with any FINRA member in any capacity; and ordered to pay $125,651.51, plus interest, in restitution to customers. The sanctions were based on findings that Bartelt, Costanzo, and Levy recommended quantitatively unsuitable trading in customer accounts. The findings stated that the trading activity in all of the accounts at issue was excessive and inconsistent with the customers’ financial circumstances and investment objectives. The findings also stated that the benefits to Bartelt, Costanzo and Levy far outstripped any likely return to the customers from the trading, making it clear that Bartelt, Costanzo and Levy were trading for their own benefit without regard to the customers’ interests. Accordingly, Bartelt, Costanzo, and Levy acted in willful and reckless disregard of the customers’ interests and churned customer accounts in violation of Section 10(b) and Rule 10b-5 of the Exchange Act, NASD Rule 2120 and FINRA Rule 2020.

Harry Colon Bennett (CRD #2395555 , New Boston, Michigan) submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Bennett consented to the sanction and to the entry of findings that he refused to appear for FINRA on-the-record testimony in connection with an investigation involving allegations that he may have engaged in sales practice violations by charging excessive commissions and recommending unsuitable transactions to his customers. The findings stated that Bennett’s refusal to appear for on-the-record testimony prevented FINRA from reaching a determination as to whether the alleged violations occurred.

Cynthia Robin Bolker (CRD #1182590 , Del Mar, California) submitted an AWC in which she was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Bolker consented to the sanction and to the entry of findings that she borrowed at least $745,800 from individuals, two of whom were customers at her member firm, to pay for her personal expenses. The findings stated that Bolker did not disclose to her firm that she borrowed from the customers, though she understood that the firm’s policies and procedures prohibited borrowing from customers. The findings also stated that Bolker’s firm began an internal investigation into her borrowing activity. During an interview with the firm, Bolker provided false and misleading information, including denying that she borrowed from any firm customers. Subsequently, on several occasions during the internal investigation, Bolker falsely denied that she had borrowed from any customers of the firm. Bolker knew these statements were false when she made them. The findings also included that Bolker provided a false, misleading, and incomplete response to FINRA’s request for documents and information as part of an investigation into her borrowing activity.

Stuart Graham Dickinson (CRD #1047824 , Highland Park, Texas) was barred from association with any FINRA member in any capacity and required to pay $924,000, plus interest, in restitution to customers. The sanctions were based on findings that Dickinson sold securities without reasonable grounds for believing that the investment was suitable for any investor. The findings stated that Dickinson sold more than $1 million of limited partnership interests in a company whose purported business was to acquire and operate automated teller machines (ATMs) to seven customers.

Mitchell Harris Fillet (CRD #207546 , Riverside, Connecticut) was fined $10,000 and suspended from association with any FINRA member in any capacity for 12 months. The SEC sustained the sanctions following an appeal of a NAC decision. The sanctions were based on findings that Fillet misrepresented and failed to disclose certain material facts in offering documents to an investor. The findings stated that in the offering document for a private placement of securities, Fillet misrepresented material facts and failed to disclose the criminal history of a person integral to the success of the offering.

Matthew Lee Geiser (CRD #4203782 , Grand Island, Nebraska) submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Geiser consented to the sanction and to the entry of findings that he refused to appear for FINRA on-the-record testimony in connection with an investigation into allegations of misconduct against Geiser, including allegations that he made unsuitable recommendations and misleading statements about variable annuities to several customers.

Jeffrey Alan Hill (CRD #2204945 , Bemidji, Minnesota) submitted an AWC in which he was fined $5,000, suspended from association with any FINRA member in any capacity for 15 months, and required to pay $45,000 in disgorgement of commissions received. Without admitting or denying the findings, Hill consented to the sanctions and to the entry of findings that he initiated hundreds of trades for two elderly customers without contacting them approximately half of the time, and recommended or engaged in dozens of transactions that were qualitatively or quantitatively unsuitable or lacked a reasonable basis, including short-term trading of corporate and municipal bonds. The findings stated that neither of those customers explicitly permitted Hill to use discretion in their accounts, nor did Hill’s member firm allow him to use discretion in any customer’s account.

John Stuart Hudnall (CRD #4200298 , Pacifica, California) 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, Hudnall consented to the sanction and to the entry of findings that he participated in an undisclosed and unapproved private securities transaction. The findings stated that Hudnall recommended and sold a REIT investment to an elderly customer, which he split into two simultaneous transactions of $40,000 and $360,000. To circumvent his member firm’s supervisory review of such a large transaction of this kind, Hudnall executed the $360,000 portion of the REIT investment for the customer directly with the REIT sponsor and without first providing it to the firm for the requisite prior preapproval and prior written notice. The $400,000 REIT investment exceeded the firm’s supervisory thresholds and, if fully disclosed to the firm, would have triggered additional supervisory review and likely would have not been approved. Hudnall generated a gross commission of $25,200 in connection with the $360,000 portion of the REIT investment.

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If you or someone you know has been a victim of investment fraud or broker misconduct, please contact our team of securities lawyers toll-free immediately for a free consultation at 1-888-462-3330 or via our online contact form.