FINRA Broker Disciplinary Action Report April 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
Western International Securities, Inc. Pasadena, CA
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 supervisory system and WSPs reasonably designed to ensure that registered representatives’ recommendations regarding leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs) complied with applicable securities laws and regulations, and FINRA rules. The findings stated that the firm failed to reasonably supervise its solicitation of non-traditional ETF transactions in retail accounts. The firm did not have written policies or procedures in place that addressed the unique features and risks associated with non-traditional ETFs, although it provided education regarding these products during annual compliance meetings. In addition, the firm lacked any system that enabled supervisory personnel to adequately monitor the risks peculiar to non-traditional ETFs, most particularly the risk posed by the long-term holding of a product that resets daily. The firm had no exception reports or alerts specific to non-traditional ETFs, let alone any supervisory tool that could detect the divergence of a non-traditional ETF from its linked index, and had no automated method of calculating and monitoring holding periods. The findings also stated that the firm, through its representatives, failed to perform on an adequate basis suitability analysis of nontraditional ETFs to understand the risks and features associated with these products before offering them for sale to retail customers (or particularly, recommending these products as long-term investments to retail customers).
Francis Joseph Gendlek
East Brunswick, New Jersey
Without admitting or denying the findings, Gendlek consented to the sanction and to the entry of findings that he made material misrepresentations and omissions in connection with the sale of securities. The findings stated that Gendlek formed a company to solicit investors for real estate development projects. In August 2005, Gendlek solicited six investors, five of whom were customers of his member firm, to invest in promissory notes in a total amount of $543,000 to fund the purchase by his friends of a rental property in New Jersey.
Jimmy Oswald Moscoso
Boca Raton, Florida
Without admitting or denying the findings, Moscoso consented to the sanction and to the entry of findings that he converted an elderly customer’s funds. The findings stated that the elderly customer agreed to invest $20,000 in a purported real estate investment and gave Moscoso a check for $20,000 made payable to the name of a business owned by him. Moscoso endorsed the check, deposited it into a bank account he controlled and used the funds for his own personal use. After Moscoso’s member firm discovered his conduct, it fully reimbursed the customer and Moscoso reimbursed the firm.
Jeffrey Howard Palish
Woodcliff Lake, New Jersey
Without admitting or denying the findings, Palish consented to the sanction and to the entry of findings that over approximately three years, he converted more than $180,000 for his personal use from an elderly customer by accepting the money with no intent or ability to repay the customer.
Ian Blane Meierdiercks
Blue Bell Pennsylvania
Without admitting or denying the findings, Meierdiercks consented to the sanctions and to the entry of findings that while registered at his member firm, shares in 33 IPOs were purchased and sold in his personal brokerage account held at another firm. The findings stated that Meierdiercks opened the brokerage account and entrusted the handling of it entirely to a representative at the other firm. The IPOs were purchased and sold in Meierdiercks’ account based solely on the representative’s recommendations and as a result of the transactions, his account experienced gains of $19,540.09. Meierdiercks had fully disclosed the account to his firm; however, persons associated with a member are prohibited from purchasing new issue in any account in which such a person associated with a member has a beneficial interest.
Thomas Francis Niles
Saratoga Springs, New York
Without admitting or denying the findings, Niles consented to the sanctions and to the entry of findings that he engaged in an unsuitable pattern of short-term trading of UITs in customer accounts. The findings stated that Niles repeatedly recommended that the customers purchase UITs and then sell these products before their maturity dates. The majority of the UITs that Niles recommended had maturity dates of at least 24 months. Nevertheless, Niles repeatedly recommended that his customers sell their UIT positions less than a year after purchase. The average holding period for the UITs purchased in these accounts was 285 days. In addition, on hundreds of occasions, Niles recommended that his customers use the proceeds from the short-term sale of a UIT to purchase another UIT with similar or identical investment objectives. Niles’ recommendations caused the customers to incur unnecessary sales charges and were unsuitable in view of the frequency and cost of the transactions. Niles’ customers received reimbursement of these excess sales charges from his member firm.
Phillip Andrew Johnson
Without admitting or denying the findings, Johnson consented to the sanctions and to the entry of findings that he borrowed $528,000 from a customer, but failed to notify or obtain written approval of the loan in advance from his member firm. The findings stated that Johnson made an inaccurate statement on firm compliance questionnaires related to borrowing from a firm customer. The firm did not permit loans between registered persons and customers who were not close family members. Johnson and the customer are not family members.
For the full Disciplinary Action Report from FINRA, visit their website by clicking here.