Failure to Supervise

H. Beck, LaSalle, and J.P. Turner Sanctioned for Inadequate Supervision of Consolidated Reports

May 12, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned three firms, H. Beck, Inc. (H. Beck), LaSalle St. Securities, LLC (LaSalle), and J.P. Turner & Company, LLC (JP Turner) – with fines of $425,000, $175,000 and $100,000, respectively concerning inadequate supervision of consolidated reports provided to customers.

As a background, a consolidated report is a single document that combines information regarding a customer’s financial holdings. Consolidated reports are used to supplement, but do not replace, official account statements disseminated by brokerage firms and market makers. FINRA released a regulatory notice reminding firms that consolidated reports must be clear, accurate and not misleading. Because these reports are not official reports FINRA is concerned that if consolidated report making is not rigorously supervised there is the potential for communications to be inaccurate, confusing, or misleading to customers. Consolidated reports can also be used for fraudulent or unethical purposes.

In the agency’s findings, FINRA determined that numerous registered representatives of the three firms prepared and disseminated consolidated reports to customers either without adequate review or any prior review by a principal. In particular, H. Beck and J.P. Turner did not have any written procedures specifically addressing the use and supervision of consolidated reports. In addition, while LaSalle had written procedures related to consolidated reports, it failed to enforce the procedures.

National Securities Broker Vito Balsamo Under FINRA Investigation Over V.W. Industries Sales

May 6, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has filed a complaint against broker Vito Balsamo (Balsamo) concerning allegations that Balsamo engaged in private securities transactions – also known as “selling away” – in ownership interests in a limited liability company called V.W. Industries, LLC (VWI) without first receiving written approval from his member firm. FINRA also alleged that Balsamo failed to provide testimony requested by FINRA staff.

According to the BrokerCheck records kept by FINRA Balsamo has been the subject of at least 4 customer complaints, 2 criminal matters, one regulatory action, and one judgment and lien over the course of his career. Customers have filed complaints against Balsamo alleging a litany of securities law violations including that the broker made unsuitable investments, unauthorized trades, breach of fiduciary duty, misrepresentations and false statements, and churning, among other claims. The claims involve different investment recommendations including claims involving equity securities among other speculative securities.

Balsamo entered the securities industry in 1991. From 1999 until May 2008, Balsamo was associated with Joseph Stevens & Company, Inc. Thereafter, from April 2008, until February 2012, Balsamo was associated with National Securities Corporation (National Securities).

Paul Godlewski Formerly of Allstate Financial Barred Over Outside Business Activities Investigation

May 5, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Paul Godlewski (Godlewski) concerning allegations Godlewski refused cooperate with requests made by FINRA in connection with an investigation into possible outside business activities. Such activities may, under certain circumstances also involve investment transactions referred to as “selling away” in the industry. According to FINRA BrokerCheck records Godlewski has disclosed outside business activities include Preferred Systems, Inc., PA Tags & Notary, and certain rental property real estate interests. It is unclear whether FINRA’s investigation concerns these particular outside business activities.

Godlewski entered the securities industry in 2004, when he became associated with Allstate Financial Services, LLC (Allstate). Godlewski held a Series 6 license which is for an Investment Company and Variable Contracts Products Representative. On January 12, 2015, Allstate filed a termination notice (known as a Form U5) with FINRA disclosing that Godlewski was discharged from the firm.

According to FINRA, in March 2015, the agency began investigating whether Godlewski had engaged in outside business activities and failure to follow Allstate’s procedures concerning televised public appearances. As part of its investigation, on March 12, 2015, FINRA sent a request to Godlewski for certain documents and information. According to FINRA, Godlewski stated on a call with FINRA staff on March 16, 2015, that he will not cooperate with the investigation. Consequently, Godlewski was barred by FINRA.

Ameriprise Broker Scott N. Smith Sanctioned Over Falsification of Firm Records

April 2, 2015 | by Staff Attorney

Please note: This article does NOT relate to Scott D. Smith – a current Ameriprise Advisor.

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Scott Smith (Smith) concerning allegations that between October 2009 and January 2013, Smith mismarked as unsolicited order tickets for thousands of trades that were actually solicited by the broker. By doing so, FINRA found that Smith caused Ameriprise Financial Services, Inc.’s (Ameriprise) books and records to be inaccurate.

Smith entered the securities industry in 1982. Since 2005, Smith has be associated with Ameriprise until his registration was terminated in February 2013. FINRA alleged that from October 2009 through January 2013, Smith executed 8,169 trades. According to FINRA, Smith marked the order tickets for 6,207 of those trades, or 76%, as being unsolicited. An unsolicited trade means that the broker did not make a recommendation to the client to purchase the particular security. By marking a trade as unsolicited, the broker typically is claiming that the investment opportunity was not brought to the client’s attention by the broker and instead the client instructed the broker to execute the trade on his or her behalf.

Foothill Securities Fined $210,000 Over Supervisory Failures

March 31, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned brokerage firm Foothill Securities, Inc. (Foothill) alleging between May 17, 2010, and September 16, 2012, Foothill did not have an adequate supervisory system and written procedures to monitor its securities business, failed to follow the supervisory system, and failed to establish and enforce policies reasonably designed to supervise the firm’s securities business. Also included in FIRNA’s complaint was Stephen Shipp, Jr. (Shipp), as CCO of Foothill, FINRA alleged that he was responsible for the firm’s supervisory system, its written procedures, and the enforcement of its supervisory system causing the violations.

Foothill is a dually registered broker-dealer and investment advisor firm and has been a member of FINRA since 1962. The firm has approximately 255 registered brokers operating from approximately 138 branch offices. The firm conducts a general securities business in the following products: equities, mutual funds, corporate and municipal debt, US government securities, oil and gas interests, options, private placements, direct participation programs, and variable contracts.

FINRA alleged that Foothill’s supervisory procedures were deficient in many ways. A small sample of FINRA’s findings include that between May 17, 2010 and September 16, 2012, Foothill acting through Shipp: (1) heavily relied upon a proprietary data system for the supervision of its brokers securities transactions but that the trading information captured by the proprietary system was not consistently accurate or complete; (2) allowed nine of its ”dual Office of Supervisory Jurisdiction branch offices to have two producing managers supervise each other’s activities, even though this supervisory structure is prohibited under the FINRA Rules; (3) had an inadequate supervisory system relating to the heightened supervision of its producing managers; (4) the firm’s procedures required all producing managers’ correspondence to be forwarded to the home office for review and approval by the CCO but that procedures failed to specify the details of what the CCO’s correspondence reviews would entail and how the reviews would be evidenced; (5) at least one producing manager never sent any of his correspondence to the CCO for review or approval which was not caught by the firm; (6) failed to adequately and accurately disclose the required details of certain outside business activities of its brokers in 34 of 87 sampled disclosures; (7) failed to timely update its registered representatives disclosures in at least 13 instances; (8) failed to timely file five customer complaints, and four other customer related disclosures with FINRA; (9) failed to evidence the daily review and approval of daily reports of approved private securities transactions for one of its registered representatives

World Equity Group Fined $225,000 Over Supervisory Failures Part I

March 17, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned brokerage firm World Equity Group, Inc. (World Equity) alleging that between 2009 through 2012, the firm failed to implement an adequate supervisory system reasonably designed to detect and prevent potential rule violations including: (1) failure to preserve emails; (2) failure to establish and maintain account records and obtain suitability information; (3) failure to implement a supervisory system to ensure suitability of transactions in non-traditional ETFs; (4) failure to properly document adequate due diligence in connection with private placements and non-traded REITs; (5) failure to establish an adequate supervisory system for the review of activity for options activity in unapproved accounts; (6) failure to have a reasonable supervisory system to ensure compliance with Section 5 of the Securities Act of 1933; and (7) failure to adequately enforce information barrier procedures.

World Equity is a full service broker dealer and has been a FINRA member since 1992. The firm is based in Illinois and has approximately 160 brokers operating out of 68 registered branch offices.

One of the offerings FINRA investigated at World Equity was Newport Digital Technologies, Inc. (NDT). In 2008, according to FINRA, World Equity hired a new syndicate manager by the initials MN to lead the business line out of the firm’s Spokane office. During MN’s tenure as syndicate manager, World Equity was involved in several private offerings including the NDT offering for which the firm acted as the placement agent. NDT had been registered with the SEC since 2000 and originally was known as Golden Choice Foods Corporation and then as International Food Products Group, Inc. (IFPG). These companies were in the consumer food business until December 2008.

FINRA Bars Broker David Blasik Concerning Allegations of Outside Business Activities

March 4, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker David Blasik (Blasik) concerning allegations that Blasik engage in outside business activities. When the outside business activity also includes the recommendation of investments the activity is referred to in the industry as “selling away.”

FINRA Rule 8210 authorizes the regulator to require persons associated with a FINRA member to provide information with respect to any matter involved in the investigation. In December 2014, FINRA alleged that it pursued an investigation into allegations that Blasik engaged in undisclosed outside business activities. FINRA requested that Blasik provide documents and information to the agency. On December 30, 2014, FINRA stated that Blasik emailed the regulator and stated that he would not provide information or cooperate in the investigation.

According to Blasik’s brokercheck he has disclosed outside business activities including his tax preparation company. Blasik’s disclosures also reveal that he has been employed or involved with Commercial Metal Fabricators, Gateway Sports MGM, and DMH of Ohio, Inc. It is unclear at this time what organization Blasik was involved with that FINRA was investigating.

FINRA Brings Action Against Randor Research, William Scholander, and Talman Harris

February 4, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently brought a complaint against brokerage firm Randor Research & Trading Company (Randor) and registered representatives William Scholander (Scholander) and Talman Harris (Harris) alleging that between February 2011, through March 2013, Radnor displayed a pattern of disregard of its supervisory obligations concerning reporting, disclosure, and compliance responsibilities. FINRA alleged that this disregard included the firm’s failure to report customer complaints, failure to update a registered representative’s Form U4 and failure to ensure that material information was disclosed to customers, and to maintain and enforce adequate supervisory systems and written procedures.

Radnor has been a member of FINRA since 2004, is based in the Philadelphia area and had one branch office in New York. The firm has 17 registered persons working in the two branches. Scholander has been registered with 13 different firms since 1998. Harris has been registered with 16 different firms since 1998. Harris was the branch manager of the New York office during the period.

FINRA alleged that in late 2011, Radnor failed to report two customer complaints made against its brokers. One customer claimed that certain trades were unauthorized and made a demand for damages. According to FINRA, another potential customer claimed that a broker of the firm had participated in unethical or illegal behavior possibly market manipulation. Despite those claims, FINRA claimed that Radnor chose not to report the complaints as required by FINRA rules. FINRA also alleged that Radnor also chose not to report the unauthorized trade complaint on the Form U4 of Scholander and Scholander knowingly failed to ensure that his Form U4 was timely updated to reflect the complaint. As a result, FINRA alleged that both Radnor and Scholander willfully violated the FINRA rules.

FINRA Fines Sigma Financial Over Supervisory Failures Part II

January 27, 2015 | by Staff Attorney

This post continues our prior report on the Financial Industry Regulatory Authority’s (FINRA) recently sanctions against Sigma Financial Corporation (Sigma Financial) alleging from April 25, 2011, through June 24, 2012, supervisory deficiencies existed at Sigma including the firm’s supervision of registered representatives, the firm’s suitability processes and procedures, some of the firm’s implemented procedures relating to customer information, and also branch office registration for trade execution.

FINRA found that Sigma Financial permitted its representatives to create and use consolidated statements with their customers that reflected the customers’ holdings of investments away from the firm. However, FINRA found that Sigma Financial did not adequately supervise its representatives’ creation and use of such statements in that the firm neither centrally tracked the number or identity of representatives who were using consolidated statements nor the customers who received such statements. Instead, FINRA found that Sigma Financial relied upon the representatives themselves to submit only the initial template of the consolidated statements they created and intended to use with their customers and the firm did not actually receive or review the statements shared with the customers.

Another supervisory deficiency noted by FINRA was that Sigma Financial had four preferred vendors through which brokers could establish and maintain websites. But use of these vendors, was not required and FINRA found that 134 representatives maintained non-preferred vendor websites, or approximately 20% of all websites. FINRA found that non- preferred vendors failed to notify Sigma Financial if registered representatives made any changes to their websites. In this way FINRA found that Sigma Financial did not conduct adequate supervision of those non-preferred vendor websites.

FINRA Fines Sigma Financial Over Supervisory Failures Part I

January 26, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Sigma Financial Corporation (Sigma Financial) alleging from April 25, 2011, through June 24, 2012, supervisory deficiencies existed at Sigma in specific areas of Sigma’s supervisory systems and procedures including the firm’s supervision of registered representatives, the firm’s suitability processes and procedures, some of the firm’s implemented procedures relating to customer information, and also concerning branch office registration for trade execution.

Sigma Financial has been a FINRA member since 1983, and currently has a total of 685 registered representatives operating from 436 branch office locations. Sigma conducts a general securities business.

FINRA found that Sigma Financial’s supervisory and compliance functions were conducted by B/D OPS, LLC (BD OPS) from a central location in Ann Arbor, Michigan. FINRA found that BD OPS also provided supervisory and compliance services for Sigma Financial’s affiliated investment advisor and another broker-dealer. As a result, FINRA determined that a mere 35 supervisory personnel working for BD OPS were responsible for supervising a total of 1,274 registered representatives and 854 branch offices. FINRA found that Sigma Financial’s reliance upon BD OPS to remotely conduct all of the supervisory and compliance functions for Sigma Financial’s independent contractors and branch offices was not reasonable.