FINRA Broker Disciplinary Action Report: March 2020
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, and/or Fined by FINRA
Wells Fargo Advisors, LLC nka Wells Fargo Clearing Services, LLC (CRD #19616, St. Louis, Missouri)
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to reasonably supervise a former registered representative who excessively traded equity positions in accounts belonging to an elderly customer. The findings stated that the customer was 88 years old when the trading commenced and that as a result of the excessive trading, she paid at least $300,000 in commissions and other fees. The firm’s computer program flagged the customer’s accounts for high velocity; however, the firm did not reasonably address these flags. Following its investigation, the firm discharged the representative responsible for the customer’s accounts. Ultimately, the firm paid $1 million in restitution to the customer in settlement of a complaint that she filed regarding the activity in her accounts
Paulson Investment Company LLC (CRD #5670, Lake Oswego, Oregon) January 31, 2020
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it sold private placement offerings claiming exemption from registration under Rule 506 of Regulation D of the Securities Act of 1933, but without having established pre-existing, substantive relationships with the offerees prior to participating in those offerings. The findings stated that as a result, each of those sales constituted an unregistered distribution of securities in contravention of Section 5 of the Securities Act. The firm solicited individuals to invest approximately $4.5 million in those offerings. While the firm eventually established a substantive relationship with each of the individuals who invested in the offerings prior to their purchases, that relationship did not exist prior to its participation in those offerings.
John Joseph Cahill (CRD #1240551, Mahwah, New Jersey) January 2, 2020
Without admitting or denying the findings, Cahill consented to the sanction and to the entry of findings that he refused to provide documents and information and to appear and provide on-the-record testimony requested by FINRA in connection with an investigation into allegations that he commingled and/or converted funds belonging to, and served as power-of-attorney for, an elderly individual who was his customer while he was associated with his former member firm.
Robert Russel Tweed (CRD #2339324, Glendale, California)
Tweed appealed a NAC decision to the SEC. Tweed was barred from association with any FINRA member in all capacities. The NAC affirmed the findings and modified the sanctions imposed by the OHO. The sanction was based on findings that Tweed violated Sections 17(a)(2) and (3) of the Securities Act of 1933 by misrepresenting and failing to disclose material facts in connection with the sale of interests in a private investment fund that he controlled and engaged in a course of conduct that operated as a fraud or deceit on the fund’s investors. The findings stated that Tweed negligently misrepresented or failed to disclose all of the fees and expenses associated with an investment in the private fund. In addition, Tweed negligently misrepresented or failed to disclose to investors anything about a change from his private fund’s master fund to a new master fund, including his personal involvement in the new fund. Tweed also failed to disclose a consulting agreement between his investment advisor and another investment advisor, under which his investment advisor was entitled to 45 percent of the compensation the other investment advisor received as a result of his private investment fund’s investment in the new master fund. Tweed’s failure to disclose was material because it likely would have been viewed, if disclosed, as something that could influence his decision to invest his investment fund’s money in the new master fund. The bar is in effect pending review.
Michael Leahy (CRD #1899498, Red Bank, New Jersey) January 22, 2020
Without admitting or denying the findings, Leahy consented to the sanctions and to the entry of findings that he failed to reasonably supervise a former registered representative who, while registered through Leahy’s member firm, engaged in a pattern of unauthorized trading, using margin without authorization, recommending excessive and otherwise unsuitable transactions, and charging excessive commissions in dozens of customer accounts. The findings stated that Leahy, the sole principal at the firm and the only individual responsible for supervising the representative, was aware of multiple red flags of the representative’s misconduct. The red flags included daily trade blotters that showed frequent in-and-out trading and commissions often exceeding five percent, numerous customer complaints alleging unauthorized trading, unauthorized use of margin, excessive commissions and notification from the firm’s clearing firm of potential unauthorized trading by the representative. Leahy did not investigate those red flags or otherwise take reasonable action to curtail the representative’s pattern of misconduct. As a result of Leahy’s failure to reasonably respond to those red flags, the representative’s misconduct continued unabated until the New Jersey Bureau of Securities summarily revoked the representative’s registration in the State of New Jersey.
For the full FINRA Disciplinary Report, please click here.
