FINRA Broker Disciplinary Action Report July 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.
Brokers & Brokerages Barred, Suspended, or Fined by FINRA
Cambridge Investment Research, Inc.
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 procedures regarding redemptions of variable annuities and leveraged, inverse and inverse-leveraged ETFs (non-traditional ETFs). The findings stated that on approximately 100 occasions, the firm’s customers redeemed variable annuities and transferred the proceeds to an advisory account. The firm’s associated persons were involved with and recommended some of those transactions. The firm did not systematically supervise or record those redemptions or have written procedures for doing so, nor did the firm ascertain which of those transactions were recommended by the firm’s associated persons and were thus subject to FINRA’s suitability requirements. The firm’s supervisory system and WSPs were not reasonably designed to comply with applicable supervision and recordkeeping requirements with respect to redemptions of variable annuities, and the firm did not record those transactions. The findings also stated that 84 firm registered representatives traded non-traditional ETFs in retail customer accounts. These registered representatives executed 4,773 transactions totaling approximately $127 million. The firm established WSPs for non-traditional ETFs that required registered representatives who wanted to trade non-traditional ETFs to complete a 45-minute training session and sign a “Leveraged/Inverse ETF Rep/Advisor Attestation Form.” The attestation form required representatives to make several representations before executing a nontraditional ETF transaction. The firm failed to enforce its WSPs regarding non-traditional ETFs in several respects
Capitol Securities Management, Inc.
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 detect and prevent unsuitable short-term trading in unit investment trusts or UITs.
Brian Joseph Panfil
An Office of Hearing Officers (OHO) decision became final in which Panfil was barred from association with any FINRA member in all capacities. The sanction was based on findings that Panfil made unsuitable recommendations for mutual fund switches, forged or caused to be forged customers’ signatures on mutual fund switch forms and exercised discretion without customers’ prior written authorization. The findings stated that Panfil effected 24 mutual fund switch transactions in four customer accounts with no reasonable basis to believe the transactions were suitable.
Douglas Anthony Leone
An OHO decision became final in which Leone was barred from association with any FINRA member in all capacities. The sanction was based on findings that Leone failed to appear for FINRA on-the-record testimony in connection with an investigation into Leone’s potential unsuitable recommendations and excessive trading in customer accounts.
James Larkin Powers
An OHO decision became final in which Powers was barred from association with any FINRA member in all capacities and ordered to pay $388,133, plus prejudgment interest, in disgorgement of ill-gotten profits. The decision had been appealed to the NAC, but the appeal was dismissed as abandoned. The sanctions were based on findings that Powers engaged in a fraudulent scheme involving the use of sham trades for his own profit. The findings stated that Powers engaged in the fraudulent scheme by executing fictitious trades through buying and selling securities to and from his member firm’s accounts that he controlled, at prices he set, for his own benefit, with no corresponding market executions in the securities involved. Powers fabricated the transactions with no corresponding executions with market counterparties to transfer more than $388,000 from his firm’s average price account to his personal account at the firm, and then to his personal account at a bank. The sham trades involved more than 53,000 shares in eight stocks and generated profits exceeding $388,000. As a result of his conduct, Powers willfully violated Section 10(b) of the Exchange Act and Rule 10b-5, and FINRA Rules 2010 and 2020.
Michael Terry Swingle
Without admitting or denying the findings, Swingle consented to the sanctions and to the entry of findings that as a result of deteriorating financial circumstances caused in part by gambling, he borrowed a total of $118,500 from five customers of his member firm, contrary to the firm’s policy. The findings stated that Swingle had a personal relationship with some of the customers and at least three of the five customers were elderly. Swingle borrowed $96,000 of the $118,500 from one elderly couple. Swingle continued to gamble after receiving the loan proceeds. Of the $118,500 borrowed by Swingle, $102,786 remains outstanding. Swingle obtained the loans without the firm’s knowledge or pre-approval. The firm’s written supervisory procedures during the relevant period prohibited representatives from borrowing money from customers in any circumstances, a policy that Swingle acknowledged on firm attestation forms. After Swingle self-reported the loans to the firm, he was terminated.
Kelly Marvin Barnett
Without admitting or denying the findings, Barnett consented to the sanctions and to the entry of findings that he used discretion in five customers’ accounts without written authorization or acceptance of the accounts as discretionary. The findings stated that a customer of Barnett’s died of a heart attack. Barnett was unaware of his customer’s death and two days after his customer’s death, Barnett placed three trades in the customer’s account for the sale of two ETFs and for the purchase of an ETF. Four days after his customer’s death, Barnett placed two additional trades in his customer’s account for the purchase of a UIT and for the sale of an ETF.
John Michael Krohn
Without admitting or denying the findings, Krohn consented to the sanctions and to the entry of findings that he engaged in outside business activities and made personal purchases totaling $7.9 million of private securities away from his member firm without notifying it about those activities or purchases.
Morey Herbert Goldberg (Gladwyne, Pennsylvania)
Without admitting or denying the findings, Goldberg consented to the sanctions and to the entry of findings that he failed to provide timely written notice to his member firm with respect to his outside business activity. The findings stated that Goldberg entered into an operating agreement with an individual to form a limited liability company. Goldberg’s activities with respect to the formation, management and investments of the company were all outside the scope of his relationship with his firm. The findings also stated that while registered with his firm, Goldberg distributed to potential customers a presentation regarding a private placement offering that was not fair and balanced and that failed to provide a sound basis for evaluating the investment referenced. The presentation failed to provide a balanced discussion of rewards with substantive risk disclosures of both the general risks associated with private offerings and the specific risks associated with the individual issuer. In addition, the presentation did not provide a sound basis for evaluating the facts related to the offering, include the supporting data for side-by-side comparisons of the private offering and other private equity investments to which it was compared and contained impermissible projections of investment performance in the
For the full Disciplinary Action Report from FINRA, visit their website by clicking here.