Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) sanctioned broker Financial America Securities, Inc. (Financial America) and John Rukenbrod (Rukenbrod) concerning allegations that between August 2009, and May 2011, the firm, acting through Rukenbrod, failed to adequately supervise the business being conducted out of one of the firm’s branch offices. FINRA found that the firm: 1) failed to conduct any inspection of the branch office; 2) failed to review any incoming or outgoing e-mails of the three registered representatives operating out of the branch; 3) failed to adequately supervise private securities transactions engaged in by two of the registered representatives; 4) failed to ensure that all electronic communications were captured and retained; 5) failed to create and maintain a written report of inspections of the branch as required; and 6) failed to ensure that the firm’s securities business was supervised by a licensed securities principal.
Financial America has been a FINRA firm since 1970, employs 31 registered representatives, has two branches, and engages in a general securities business. Rukenbrod entered the securities industry in 1966 and cofounded Financial America in 1970.
FINRA alleged that two of Financial America’s representatives initialed “PC” and “CM” engaged in a securities business primarily in the sale of private placement offerings and Rukenbrod was the firm’s designated supervisor. In April 2010, FINRA found that Rukenbrod attended an investor presentation at PC and CM’s branch for a private placement offering. Rukenbrod turned down the offering and stated that the firm would not participate in the offering until certain due diligence procedures were agreed upon.
FINRA found that Rukenbrod failed to take any steps to ensure that PC and CM were not selling the offering anyway and, in fact, PC and CM sold $800,000 of the offering to three accredited investors.
Thereafter, in August 2010, PC and CM notified Rukenbrod of another private placement offering that they intended to sell. FINRA found that Rukenbrod was provided with copies of the offering Summary Memo and Confidential Information Memorandum. FINRA found that statements made in the memo put Rukenbrod on notice that PC and CM intended to solicit investors to raise capital on behalf of ASI. For instance, the memo stated that all inquiries regarding the offering should be directed to PC, CM, or a third broker. According to FINRA, PC and CM raised more than $1.9 million for the offering through 27 private securities transactions.
FINRA found that neither Rukenbrod nor anyone else at the firm either: (a) notified PC and CM in writing that they were not permitted to participate in the offering; or (b) took any steps to supervise PC and CM’s capital-raising activities as required. FINRA found that PC and CM’s private securities transactions were neither supervised by the firm nor recorded on the books and records.
In addition, FINRA found that neither Rukenbrod nor anyone else at the firm reviewed any of the incoming or outgoing electronic correspondence of PC, CM. Further, FINRA found that PC and CM operated out of the branch office since at least 2002 but that neither Rukenbrod nor anyone else at the firm had ever conducted a branch inspection of PC and CM’s branch office as required.
The attorneys at Gana Weinstein LLP are experienced in representing investors where brokerage firms fail to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.