FINRA Broker Disciplinary Action Report January 2018
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
Success Trade Securities, Inc. (CRD® #46027, Washington, DC) and Fuad Ahmed (CRD #2404244, Washington, DC)
The firm was expelled from FINRA® membership and Ahmed was barred from association with any FINRA member in any capacity. The firm and Ahmed also were ordered to pay, jointly and severally, $13,684,105.19, plus prejudgment interest, in restitution to investors. The SEC sustained the sanctions following an appeal of a National Adjudicatory Council (NAC) decision. The sanctions were based on findings that the firm and Ahmed willfully violated Section 10(b) of the Securities Exchange Act of 1934, Securities Exchange Act of 1934 Rule 10b-5, and FINRA Rules 2020 and 2010 by making misrepresentations and omissions of material fact when they sold $19.4 million of their parent company’s promissory notes to investors.
Questar Capital Corporation (CRD #43100, Minneapolis, Minnesota)
An AWC was issued 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 $796,892 (the amount eligible customers were overcharged, including interest). Without admitting or denying the findings, the firm consented to the sanctions and to the
Bruce A. Lefavi Securities, Inc. (CRD #10684, Salt Lake City, Utah)
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that four retail communications prepared and disseminated by the firm to numerous customers containing content that pertained to Real Estate Investment Trusts (REITs) and/or Business Development Companies (BDCs) failed to completely identify the risks associated with investing in REITs/BDCs, failed to provide sufficient detail to allow customers to evaluate the investments and, in some instances omitted material information.
Hornor, Townsend & Kent, Inc. (CRD #4031, Horsham, Pennsylvania)
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to implement a supervisory system and procedures reasonably designed to ensure the suitability of multi-share class variable annuities sales, including L-share contracts. The findings stated that the firm did not provide training to registered representatives on the features of the various share classes and the associated fees and surrender charges, and did not provide them with adequate information to compare share classes to make suitability determinations. In addition, the firm failed to establish, maintain, and enforce WSPs or provide sufficient guidance or training to representatives and principals regarding the sale of long-term income riders with multishare class variable annuities, particularly the combination of L-share contracts with longterm income riders. The findings also stated that the firm failed to adequately supervise the private securities transactions of its representatives who were dually registered as investment advisors with third-party advisory firms.
Victor M. Dandridge III (CRD #5884409, Charlottesville, Virginia)
An AWC was issued in which Dandridge was barred from association with any FINRA member in all capacities. Without admitting or denying the findings, Dandridge consented to the sanction and to the entry of findings that he failed to provide documents and information requested by FINRA in connection with an investigation into allegations that he diverted customer funds from accounts held at his member firm to accounts and businesses that he controlled.
Jerry Lou Guttman (CRD #1078383, Scottsdale, Arizona) November 15, 2017
Without admitting or denying the findings, Guttman consented to the sanction and to the entry of findings that he sold more than $7,000,000 worth of membership interests in at least six different limited liability companies to 31 customers of his member firm, and seven non-customers, without first disclosing the sales to the firm. The findings stated that Guttman participated in the sales of these membership interests by soliciting the membership interests to investors; communicating with investors about their investments; drafting, distributing and collecting the investment agreements from each investor; collecting and depositing investors’ checks into the companies’ bank accounts; and managing the companies as one of only two managing members
Gopi Krishna Vungarala (CRD #4856193, Decatur, Texas)
Vungarala appealed an Office of Hearing Officers (OHO) decision to the National Adjudicatory Council (NAC). Vungarala was barred from association with any FINRA member in all capacities and ordered to pay $9,682,629, plus prejudgment interest, in disgorgement of commissions received. The sanctions were based on findings that Vungarala willfully violated Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010 by making materially false and misleading statements to conceal his commissions on investments made by a Native American tribe he was employed by to manage its investment portfolio. The findings stated that Vungarala persuaded the tribe to invest in REITs and business development companies through a broker-dealer firm where he told the tribe he “parked” his registration. As a result, he received over $9 million in commissions
Brian Frederick Gimelson (CRD #2262474, Lawrenceville, New Jersey)
An AWC was issued in which Gimelson was barred from association with any FINRA member in all capacities. Without admitting or denying the findings, Gimelson consented to the sanction and to the entry of findings that he refused to appear for FINRA on-the-record testimony during the course of an investigation into allegations that he engaged in an unapproved outside business activity
William Norris Jordan Jr. (CRD #1385105, Philadelphia, Pennsylvania)
An OHO decision became final in which Jordan was fined $7,000, suspended from association with any FINRA member in all capacities for one year, and ordered to disgorge $25,657, plus prejudgment interest. The sanctions were based on findings that, in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Jordan engaged in a fraudulent scheme when he willfully executed inter-positioning trades in municipal bond transactions.
Charles Matthew Anderson (CRD #1494859, Doylestown, Pennsylvania)
An AWC was issued in which Anderson was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for four months. Without admitting or denying the findings, Anderson consented to the sanctions and to the entry of findings that he engaged in an unsuitable pattern of short-term trading of Unit Investment Trusts (UITs) in customers’ accounts. The findings stated that Anderson repeatedly recommended that the customers purchase UITs and then sell these products well before their maturity dates. The majority of the UITs that Anderson recommended had maturity dates of at least 24 months and carried sales charges ranging from 1.95 percent to 3.95 percent. Nevertheless, Anderson repeatedly recommended that his customers sell their UIT positions less than a year after purchase. Indeed, the average holding period for the UITs purchased in these customers’ accounts was 202 days. In addition, Anderson recommended that his customers use the proceeds from the short-term sale of a UIT to purchase another UIT with identical investment objectives. Anderson’s recommendations caused the customers to incur unnecessary sales charges and were unsuitable in view of the frequency and cost of the transactions
For the full Disciplinary Action Report from FINRA, visit their website by clicking here.
PA & NJ FINRA Securities Litigation Attorneys
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 1-215-462-3330 or via our online contact form.