FINRA Disciplinary Report: June 2018
Every month and every quarter, securities industry watchdog, the Financial Industry Regulatory Authority (FINRA) releases its report of disciplinary actions against FINRA registered broker-dealers and brokers. The report offers insight into the inner workings of the securities industry, as well as into some of the latest scams and frauds perpetrated by financial professionals. Since the report is little known outside the brokerage industry, we re-broadcast some of its most interesting findings here in order to try to help investors who may not know their brokerage or broker has been negligent. It is also a useful way to portray some of the most common forms of fraud and broker misconduct, including the complex products which have flooded the market in recent years.
These are just the highlights. For the full report visit FINRA's website here.
Brokerages & Brokers Sanctioned, Fined, or Banned by FINRA
Park Avenue Securities LLC - New York, NY
The firm was censured, fined $300,000 and required to submit a written certification to FINRA that it has completed a review of its systems and procedures regarding the supervision of variable annuities and that, as of the date of the certification, the firm’s policies, systems and procedures (written and otherwise) are reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules, including the FINRA rules addressed in the AWC. 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 representatives’ recommendations concerning multi-share class variable annuities complied with applicable securities laws, regulations and rules. The findings stated that the firm’s sales of variable annuities included L-share contracts. Nevertheless, the firm’s WSPs failed to address suitability considerations for sales of different variable annuity share classes. 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 had no WSPs, and failed to provide guidance or training to registered representatives and principals regarding the sale of long-term income riders with multi-share class variable annuities, particularly the combination of L-share contracts with long-term income riders. The firm had no surveillance procedures to determine if any of its representatives had potentially inappropriate rates of variable annuity exchanges. The firm provided additional training to its registered representatives regarding multi-share class variable annuities, including L-share contracts. Subsequently, the firm’s representatives sold fewer L-share contracts, and it ceased selling L-share contracts.
Laura Ortega Shean (CRD #2628756, Medford, Oregon)
Without admitting or denying the findings, Shean consented to the sanction and to the entry of findings that she converted approximately $124,000 in customer funds. The findings stated that Shean made tax payments for her own benefit to the Internal Revenue Service (IRS) by improperly directing the IRS to debit the funds from a customer’s brokerage account. After the misconduct was discovered, the customer was reimbursed in full by having certain of the transfers reversed and by Shean making additional reimbursement.
William George Brunner (CRD #2610348, Huntington, New York)
Without admitting or denying the findings, Brunner consented to the sanction and to the entry of findings that he declined to appear for FINRA on-the-record testimony in connection with an ongoing examination into, among other things, possible excessive trading and use of discretion without written authorization in customers’ accounts while he was associated with a FINRA member firm.
Scott William Palmer (CRD #817586, Teaneck, New Jersey)
Without admitting or denying the findings, Palmer 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 potential suitability violations.
Kevin James Lee (CRD #2316331, Corvallis, Oregon)
Without admitting or denying the findings, Lee consented to the sanction and to the entry of findings that he refused to produce information and documents requested by FINRA in connection with an investigation regarding payments received from a customer of his member firm to determine whether Lee engaged in an undisclosed outside business activity or otherwise acted in violation of FINRA rules. (FINRA Case #2017056157801)
Tyler Harris (CRD #5860060, Elkins Park, Pennsylvania)
Without admitting or denying the findings, Harris consented to the sanction and to the entry of findings that he failed to produce to FINRA information and documents in connection with its investigation into allegations related to Harris’ conduct in his personal bank account, based upon a Uniform Termination Notice for Securities Industry Registration (Form U5) filed on his behalf by his former member firm.
Ron Jason Ison (CRD #2897782, Manalapan, New Jersey)
Without admitting or denying the findings, Ison consented to the sanction and to the entry of findings that he refused to appear for additional FINRA on-the-record testimony in connection with an investigation into potential unauthorized and unsuitable trading.
Vincent Santoro (CRD #3006826, Lake Mary, Florida)
Without admitting or denying the findings, Santoro consented to the sanction and to the entry of findings that that he refused to appear for FINRA on-the-record testimony in connection with an investigation into allegations regarding his involvement in private securities transactions and/or outside business activities.
Brent Van Lott (CRD #1559744, Orem, Utah)
Without admitting or denying the allegations, Lott consented to the sanctions and to the entry of findings that he knowingly and substantially aided and abetted an individual in engaging in the recommendation and sale of securities at a time when the individual was not registered with FINRA, not associated with any FINRA member firm and not registered with the state of Utah, where both the individual and the customers resided. The findings stated that for three investors who were not yet Lott’s member firm’s customers, the individual submitted to an insurance company requests to exchange variable annuities for fixed indexed annuities issued by the company. The company rejected his request because he was not registered with FINRA at the time, which was necessary under Utah law to sell or make a recommendation to terminate a variable annuity contract. At the individual’s request, Lott agreed to serve as the registered representative of record for the variable annuities and to split with the individual the commissions paid by an insurance company, even though Lott knew that the individual was not registered. Instead of directly paying the individual his share of the commissions, Lott paid the individual’s wife, in an effort to conceal his activity. Lott repeatedly facilitated the individual’s efforts to continue acting as a securities broker, despite the individual’s unregistered status, by effecting variable annuity exchanges and mutual fund sales that the individual recommended to customers to fund fixed indexed annuity purchases. Lott’s scheme ended after the SEC charged the individual with operating a $4 million Ponzi scheme. The findings also stated that in order to effect the transactions, Lott falsely certified to his firm on suitability forms for different customers that he had discussed the benefits and costs of the transactions with the customers identified on the forms. By doing so, Lott caused his firm to maintain false books and records. The findings also included that Lott made false statements on forms he submitted to the insurance company. Lott made these false statements and submitted these false documents in order to conceal the individual’s role in the transactions.
David W. Ingle (CRD #6194469, Chandler, Arizona)
Without admitting or denying the findings, Ingle consented to the sanctions and to the entry of findings that he created and distributed two proof of funds letters that contained misleading statements. The findings stated that on behalf of a prospective client of his member firm and a client of the firm’s bank affiliate, Ingle drafted and issued a proof of funds letter on firm letterhead stating that a business linked to the prospective client had the financial capacity to consummate a $278 million real estate purchase with no financing. Although Ingle had reason to believe the prospective client had the financial capacity to consummate the real estate deal, the letter was misleading because the prospective client held no funds or securities at the firm at the time Ingle drafted the letter. The findings also stated that Ingle drafted and issued another proof of funds letter on firm letterhead stating that a firm client had in excess of $57 million in cash at the firm or its affiliate bank. Although Ingle was familiar with the client’s financial capacity and believed the client had the financial capacity to consummate the anticipated transaction, this letter was misleading because the client did not actually have the cash or securities at the firm or its affiliate bank at the time Ingle drafted the letter. Contrary to the firm’s policies, Ingle did not submit either letter for review prior to sending. In each case, the transaction contemplated by the proof of funds letter did not materialize.
Mina Alfred Mishrikey (CRD #4260170, Philadelphia, Pennsylvania)
Without admitting or denying the findings, Mishrikey consented to the sanctions and to the entry of findings that he engaged in an outside business activity with a medical marijuana company as a director of the company, even though his member firm denied his request to participate. The findings stated that Mishrikey acquired an equity interest in the company, and thus had a reasonable expectation of future compensation from the company’s anticipated business activities. When confronted by the firm, Mishrikey initially denied that he was still involved with the company.
Kenneth Joseph Mathieson (CRD #1730324, Franklin Lakes, New Jersey)
In a final NAC decision, Mathieson was fined $50,000 and suspended from association with any FINRA member in all capacities for six months. The NAC affirmed the OHO’s findings of violation and the $50,000 fine, but reduced his suspension from one year to six months. The sanctions were based on findings that Mathieson participated in private securities transactions and engaged in outside business activities without prior written notice to, and permission from, his member firm. The findings stated that after Mathieson disclosed his initial private securities investment, he made multiple subsequent purchases of the company’s stock without the required disclosures. Mathieson also participated in private placements of the company’s securities, as well as its reverse merger transaction, but Mathieson also failed to provide the requisite written notice of his outside business-related activities with the company to his firm prior to commencing his activities. Mathieson sought approval only after working with the company for several months, and after his request for permission to join the company’s board was denied, Mathieson disregarded his firm’s directive to discontinue all company-related activities and continued working with the company for more than a year thereafter. The findings also stated that on a firm compliance questionnaire, Mathieson falsely stated that he was not participating in any outside business activities. Shortly after questioning Mathieson about his involvement, he was suspended and then terminated from the firm.