FINRA Broker Disciplinary Action Report February 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
Goldman Sachs & Co. LLC (CRD® #361, New York, New York)
A Letter of Acceptance, Waiver and Consent (AWC) was issued in which the firm was censured, fined $700,000 and required to submit a certification to FINRA® that its policies, systems, and procedures (including written procedures) and training, in connection with its prime services clearing business, are reasonably designed to achieve compliance with applicable rules in connection with delivery of exchange-traded funds (ETFs) prospectuses.
Legend Securities, Inc. (CRD #44952, New York, New York)
An Office of Hearing Officers (OHO) decision became final in which the firm was censured and fined $200,000. The sanctions were based on findings that the firm failed to supervise a registered representative who fraudulently churned the accounts of an elderly and blind customer, resulting in net losses exceeding $170,000.
Joseph Gunnar & Co. LLC (CRD #24795, New York, New York)
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish and maintain a supervisory system, including WSPs, reasonably designed to detect and prevent unsuitable trading in certain customer accounts of one of the firm’s top-producing registered representatives. The findings stated that the representative repeatedly recommended that an elderly customer purchase high-risk, speculative securities that were inconsistent with her investment profile. The representative’s recommendations often resulted in an undue concentration of the customer’s accounts, which represented substantially all of her liquid assets in speculative securities. Further, the representative often engaged in short-term in-and-out trading of the speculative investments in the customer’s accounts, causing losses of more than $150,000. The firm and the representative previously settled an arbitration in which the customer alleged that the representative made unsuitable recommendations.
Capital City Securities, LLC (CRD #146001, Columbus, Ohio)
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 reasonable supervisory system designed to ensure the review of its registered representatives’ sales of leveraged and inverse exchange-traded funds (non-traditional ETFs). The findings stated that the firm did not have written procedures reasonably tailored to address the unique features and risks associated with non-traditional ETFs. Further, the firm did not have any exception reports or surveillance tools to monitor holding periods for non-traditional ETFs. As a result, many of the firm’s customers held non-traditional ETFs for long periods of time despite the increased risk presented when holding these products over longer periods. (FINRA Case #2014039216101)
Kenneth Stewart Tyrrell (CRD #2457452, Vienna, Virginia)
Without admitting or denying the findings, Tyrrell consented to the sanction and to the entry of findings that he participated in undisclosed private securities transactions without providing prior written notice to his member firm. The findings stated that Tyrrell participated in private securities transactions totaling more than $13 million with a customer involving the customer’s investment in private equity and debt securities in companies in a variety of industries as part of the customer’s overall financial plan. Although Tyrrell was not compensated for these transactions, he participated in them by, among other things, referring investments to the customer, conducting due diligence and relaying his views on the transactions at the customer’s request, helping the customer establish certain holding companies to make the investments, and facilitating transfers of funds from the customer’s firm accounts to the companies
Charles Henry Frieda (CRD #5502319, Anaheim, California)
Without admitting or denying the findings, Frieda consented to the sanction and to the entry of findings that he recommended an investment strategy that was unsuitable for certain retail customers by recommending an over-concentration in energy-sector securities, some of which were speculative, resulting in significant customer losses. The findings stated that due to the speculative nature of the recommended securities, the volatility of the energy market and the high level of concentration, this strategy exposed customers to significant potential losses.
Charles Bernard Lynch Jr. (CRD #3004877, Corona, California)
Without admitting or denying the findings, Lynch consented to the sanction and to the entry of findings that he recommended an investment strategy that was unsuitable for certain retail customers by recommending Disciplinary and Other FINRA Actions 25 February 2018 an over-concentration in energy-sector securities, some of which were speculative, resulting in significant customer losses. The findings stated that due to the speculative nature of the recommended securities, the volatility of the energy market and the high level of concentration, this strategy exposed customers to significant potential losses
Leslie Rhodes Koonce (CRD #1131758, Menlo Park, California)
Without admitting or denying the findings, Koonce consented to the sanction and to the entry of findings that he participated in several private securities transactions without providing prior written notice to his member firm. The findings stated that among other things, Koonce solicited at least 30 prospective investors (including several firm customers) to invest in convertible promissory notes being offered by a private company, sent the prospective investors information about the private company from his firm email account, took part in arranging meetings where prospective investors could meet with representatives of the private company to obtain additional information, facilitated the movement of funds for three firm customers so they could make investments in the convertible promissory notes aggregating $175,000, and he ultimately invested $50,000 of his own money in the convertible promissory notes
Nicholas Victor Kayal (CRD #6664843, Bethlehem, Pennsylvania)
Without admitting or denying the findings, Kayal consented to the sanctions and to the entry of findings that he engaged in two outside business activities without providing prior written notice to his member firm. The findings stated that Kayal provided handicapping picks on a sports handicapping website for individuals who wager on sporting events, in exchange for $350 in compensation. In addition, Kayal worked for a start-up venture founded by former media-industry colleagues of his by writing articles for its website about sports and appearing on the website’s podcast. Although Kayal anticipated receiving compensation for this activity, the start-up venture did not ultimately compensate him.
For the full Disciplinary Action Report from FINRA, visit their website by clicking here.
