Blog Topic

NUMBER OF BROKERAGE FIRMS IS SHRINKING
Posted by: Robert Rex
January 06, 2012

Recent statistics confirm that the number of brokerage firms in the country is shrinking. According to The Compliance Department Inc. , between May 2010 and May 2011, 336 broker-dealers notified FINRA that they were shutting down. Only 190 new firms were admitted by FINRA during that same time period. Projections suggest that this trend will continue for at least the next 3 years.

This comports with what we have seen in our representation of investors over the past year. Many of the companies we have pursued on behalf of our clients have chosen to withdraw from the industry rather than having an arbitration award they are unable to pay rendered against them.

Investors should be very wary of the brokerage firm they choose to entrust with their life savings. Contrary to popular notion, most firms do not have insurance and most small firms are so thinly capitalized that even a low six figure settlement  or award to an aggrieved investor is something they are not capable of satisfying.

When deciding whether to open an account with one of the lesser known brokerage firms, investors would be wise to do things:

• Obtain the CRD on the broker to determine if he or she has prior disciplinary problems or customer complaints. This may be obtained by visiting the Broker Check page on the FINRA website.
• Obtain a copy of the recent financials for the firm to assess their ability to be financially responsible.  This can be obtained by searching the SEC Edgar filing page for the name of the company, then finding the most recent SEC form X17A-5.

If you have questions about this or any other matter related to the handling of your brokerage account, call us at 561 391 1900 or email rhr@dmrslaw.com or visit our website www.dmrslaw.com .

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FINRA Fines Wells Fargo for Sales to the Elderly
Posted by: Robert Rex
December 27, 2011

Earlier this month, the Financial Industry Regulatory Authority (FINRA) announced today that it fined Wells Fargo Investments,  $2 million for unsuitable sales of unsuitable investments to elderly clients. These investments, reverse convertible securities, were deemed inappropriate for these customers.   In addition, Wells Fargo is required to pay restitution to customers who did not receive certain sales discounts.

FINRA also filed a complaint against the Wells Fargo broker who sold the investments, Alfred Chi Chen. Chen sold the unsuitable reverse convertibles, and also made unauthorized trades in several customer accounts, including accounts of deceased customers.

 FINRA found that Wells Fargo failed to review reverse convertible transactions to ensure they were suitable and also did not provide sales charge discounts to eligible customers purchasing unit investment trusts, both serious failings that harmed investors.  

FINRA also found that Wells Fargo  had insufficient systems and procedures in place to monitor the sales being made to elderly customers.  Between January 2006 and July 2008, Wells Fargo failed to provide certain eligible customers with these "breakpoint" and rollover and exchange discounts.    

DID YOU KNOW YOU CAN CHECK OUT YOUR BROKER'S DISCIPLINARY RECORD?              Investors can obtain information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. BrokerCheck IS available at no charge. Investors can access BrokerCheck online at www.finra.org/brokercheck. Alternatively, call our office and ask for Nan Thompson at 561 391 1900 and we will be happy to obtain the publicily available information on your broker for no charge.

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US Chamber of Commerce Criticizes FINRA
Posted by: Robert Rex
July 26, 2011

The US Chamber of Commerce, one of the country's largest advocacy groups, has released a report calling for greater accountability in the financial industry's Self-Regulatory Organizations (SROs).

The report, titled "U.S. Capital Markets Competitiveness: The Unfinished Agenda," specifically criticizes FINRA's lack of transparency. FINRA fulfills many functions generally reserved for government agencies and has a huge influence on the workings of the capital markets, but is a private corporation and is not subject to the checks and balances that traditionally regulate government agencies.

 FINRA's power grew even greater when it merged with the NYSE Regulation, Inc., the regulatory arm of the New York Stock Exchange, in 2007.  Today, instead of two separate regulatory bodies offering different perspectives, there is only one large non-governmental entity overseeing securities firms in conjunction with the SEC. The Chamber points out that FINRA is not subject to the Freedom of Information Act or the Administrative Procedures Act, and thus "transparency into [its] governance, compensation, and budgeting practices is extremely limited and superficial."

 To read the USCC's full report, click here: https://www.uschamber.com/sites/default/files/reports/1107_UnfinishedAgenda_WEB.pdf

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Selected FINRA Disciplinary Actions, January 2011
Posted by: Robert Rex
January 24, 2011

First American Capital and Trading Corporation (CRD #118812, Boca Raton, Florida) submitted a Letter of Acceptance, Waiver and Consent in whichthe firm was censured and fined $22,500. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to maintain its minimum net capital requirement when it erroneously carried short sales in U.S. Treasury bonds, totaling $100 million in its proprietary account instead of executing a long position of $50,000,000 and a short position of $50,000,000, which resulted in a net deficiency of $5,584,444. The findings stated that the firm failed to make, keep and preserve the order tickets for the bond transactions that led to the net capital deficiency. The findings also stated that the firm failed to establish, maintain or enforce written supervisory procedures reasonably designed to supervise and monitor the trading limits for its fixed income traders, which led to the undetected and uncorrected U.S. Treasury bond transactions that caused the firm?s net capital to be deficient. (FINRA Case #2007009194301)

Jupiter Distribution Partners, Inc. (CRD #130850, Greenacres, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $20,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to preserve and maintain electronic communication in a non-rewriteable and non-erasable format, and failed to preserve and maintain electronic communication received by and sent to a hand-held electronic device one of its registered representatives operated. The findings stated that the firm failed to have adequate procedures that addressed the retention of electronic communication arising from the use of a hand-held electronic device. The findings also stated that the firm failed to prepare accurate net capital computations by erroneously treating revenue received from a customer as being immediately earned, and as a consequence, the firm failed to file an accurate Financial Operational & Combined Uniform Single (FOCUSTM) Report. (FINRA Case #2009015972701)

Peraza Capital and Investment, LLC (CRD #117851, St. Petersburg, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $12,500. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to maintain its minimum net capital requirement while it conducted a securities business, which resulted from the firm?s failure to record expenses on its books and records, its failure to accrue commissions payable, its failure to classify securities and cash in a brokerage account the firm maintained as nonallowable assets, its failure to classify a debit balance in the brokerage account, maintained as non-allowable assets, as a liability, and/or its miscalculation of haircuts. The findings stated that the firm placed more than 10 proprietary trades in 2008, which raised its minimum net capital requirement. The findings also stated that the firm did not file, and did not timely file, the requisite notification of its net capital deficiencies, and the firm maintained inaccurate books and records. The findings also included that the firm filed inaccurate FOCUS reports. (FINRA Case #2008011713901)

David William Dube (CRD #3041983, Registered Principal, St. Petersburg, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Dube consented to the described sanction and to the entry of findings that while serving as president and AML compliance officer for his member firm, he failed to implement an AML Compliance Program reasonably designed to achieve and monitor compliance with the Bank Secrecy Act, which resulted in suspicious activity occurring at the firm without being detected and reported. The findings stated that Dube failed to implement his firm?s AML procedures, which required him to monitor customers? accounts and transactions for suspicious activity on a daily basis, to conduct investigations of suspicious activity upon detection of red flags, and to file a SAR-SF. The findings also stated that Dube served as the registered representative of record for the accounts in which red flags existed, and he did not identify any accounts as having suspicious activity. The findings also included that Dube failed to identify any red flags, did not conduct due diligence with respect to customers? account activities and failed to file any SAR-SFs.

Michael Anthony Nemcik (CRD #5405918, Registered Representative, Tampa, Florida) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Nemcik failed to respond to FINRA requests for information. The findings stated that Nemcik executed an unauthorized transaction in a customer?s account even though the customer had not granted him discretionary trading authority and did not authorize the purchase. (FINRA Case #2009017374501)

Robert Charles Pollock (CRD #4490116, Registered Representative, Palm Harbor, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $94,650, which includes disgorgement of $34,650 in commissions, suspended from association with any FINRA member in any capacity for one year, and ordered to pay $76,922, plus interest, in restitution to customers. The fine and restitution amounts must be paid either immediately upon Pollock?s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Pollock consented to the described sanctions and to the entry of findings that he sold to customers installment plan contracts offered by a non-profit corporation that represented itself to the public as a charitable organization, but Pollock lacked a reasonable basis to recommend the purchase of the contracts to his customers given his failure to perform a reasonable investigation concerning the product. The findings stated that while Pollock reviewed information on the non-profit corporation?s website and spoke to its personnel, he took their representations at face value and failed to independently verify those representations. The findings also stated that Pollock did not contact the Internal Revenue Service (IRS) to confirm the tax-exempt status or the availability of a tax deduction to investors, and did not seek to understand how the non-profit corporation arrived at its figures regarding tax benefits; Pollock also misrepresented to his customers that they could take charitable tax deductions in connection with their respective investments, which was not true. The findings also included that in connection with the solicitation of these installment plan contracts, Pollock provided his customers with illustrations and other sales materials that contained misleading and incomplete information. FINRA found that Pollock failed to provide his member firm with written notice of his participation in the above-referenced transactions or receive its written approval to participate in those transactions, and he did not present the flow chart and 1099 Statement for review to a registered principal of his firm prior to using them in connection with the sales of the installment plan contracts. The suspension is in effect from December 6, 2010, through December 5, 2011. (FINRA Case #2009019042301)

Andrew C. Powell (CRD #4826369, Registered Representative, Coral Springs, Florida) submitted an Offer of Settlement in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for six months. Without admitting or denying the allegations, Powell consented to the described sanctions and to the entry of findings that he failed to timely respond to FINRA requests for information. The suspension is in effect from December 6, 2010, through June 5, 2011. (FINRA Case #2009016221401)

Larrye Alfie Smith (CRD #1131839, Registered Principal, Miami, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was censured, fined $7,500 and suspended from association with any FINRA member in any capacity for six months. The fine must be paid either immediately upon Smith?s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Smith consented to the described sanctions and to the entry of findings that he engaged in business activities for compensation outside the scope of his business relationship with his member firm without providing the firm with prompt written notice. The findings stated that Smith sold EIAs valued at $148,850 without notifying the firm. The findings also stated that Smith used a business card the firm had not approved, distributed a seminar invitation the firm had not approved and conducted a seminar of which the firm was unaware. The suspension is in effect from December 6, 2010, through June 5, 2011. (FINRA Case #2009020119101)

 See more FINRA disciplinary actions here.

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Selected FINRA Disciplinary Actions, November 2010
Posted by: Robert Rex
December 08, 2010

Some recent disciplinary actions by FINRA from November 2010:

Kevin Lawrence Cohen (CRD #4527236, Registered Principal, Stuart, Florida), Dennis Stanley Kaminski (CRD #1013459, Registered Principal, Wellington, Florida), and Gari Craig Sanfilippo (CRD #4151931, Registered Principal, Wellington, Florida) were each suspended from association with any FINRA member in any capacity for 18 months and required to requalify before acting in any capacity requiring qualification. In addition, Kaminski was fined $50,000. The National Adjudicatory Council (NAC) imposed the sanctions following appeal and call for review of an Office of Hearing Officers (OHO) decision. The sanctions were based on findings that Kaminski failed to supervise his member firm?s timely review of variable annuity transactions and failed to address the breakdown of the compliance department?s Trade Review Team?s review of Red Flag Blotters. The findings stated that Cohen and Sanfilippo created and maintained inaccurate books and records relating to the firm?s variable annuity trading. Cohen?s and Sanfilippo?s suspensions are in effect from October 18, 2010, through April 19, 2012. Kaminski has appealed to the SEC, and the sanctions are not in effect pending consideration of the appeal. (FINRA Case #EAF0400630001)

Joshua Kohn (CRD #2419594, Registered Representative, Deerfield Beach, Florida) submitted an Offer of Settlement in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the allegations, Kohn consented to the described sanction and to the entry of findings that he failed to appear for a FINRA on-the-record interview and failed to contact FINRA to reschedule the interview. (FINRA Case #2009020974501)

The Office of Hearing Officers (OHO) issued the following decision, which has been appealed to or called for review by the NAC as of September 30, 2010. The NAC may increase, decrease, modify or reverse the findings and sanctions imposed in the decision. Initial decisions where the time for appeal has not yet expired will be reported in future issues of FINRA Disciplinary and Other Actions:

Tradespot Markets Inc. fka Beloyan Investment Securities, Inc. (CRD #29683, Davie, Florida) and Mark Bedros Beloyan (CRD #1392748, Registered Principal, Davie, Florida) were fined $13,500, jointly and severally. Beloyan was suspended from association with any FINRA member in any capacity for 10 business days. The sanctions were based on findings that Beloyan, acting on the firm?s behalf, drafted and distributed emails in which he recommended the purchase of securities, and those recommendations were unbalanced, misleading and omitted material facts. The findings stated Beloyan and the firm failed to conduct a review of one of the companies? current financial statements before recommending the purchase of its stock in emails. This decision has been appealed to the NAC and the sanction is not in effect pending consideration of the appeal. (FINRA Case #2005001988201)

Jason Michael Mutascio (CRD #4156832, Registered Representative, Aventura, Florida) was named as a respondent in a FINRA complaint alleging that he falsified multiple third-party wire request forms, submitted the falsified forms to his member firm, and obtained and exercised control over at least $52,500 in funds from a customer?s account without the customer?s knowledge or authorization. The complaint alleges that Mutascio?s submission of the falsified wire requests caused his firm?s books and records to be inaccurate. The complaint also alleges that Mutascio failed to appear and provide a FINRA on-the-record sworn statement. (FINRA Case #2009017814901)

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FINRA Proposes to Permanently Give Investors the Option of All-Public Arbitration Panels
Posted by: Robert Rex
September 29, 2010

"The Financial Industry Regulatory Authority (FINRA) will file a rule proposal next month that would allow all investors filing arbitration claims the option of having an all-public panel, greatly increasing investor choice in the FINRA arbitration program. The rule proposal, which will be filed for approval with the Securities and Exchange Commission (SEC), would expand to all investor claims a two-year-old FINRA pilot program that gives investors filing an arbitration claim against certain firms the option of choosing an all-public panel."

 This would be an interesting change to the FINRA arbitration process, it could go a long way toward increasing the perception of fairness and investor satisfaction.

 Robert H. Rex is a Boca Raton-based attorney with extensive experience in the securities arbitration process. If you need an attorney to represent you in arbitration, contact us today.

via businesswire: http://www.businesswire.com/news/home/20100928006442/en/FINRA-Proposes-Permanently-Give-Investors-Option-All-Public

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