Securities Lawyers Blog

FINRA Suspends Former NSM Securities Supervisor Irving Burstein

February 4, 2014 | by Staff Attorney

Supervisor Irving Burstein (Burstein) has settled charges brought by the Financial Industry Regulatory Authority (FINRA) by accepting a one-year bar from the securities industry. FINRA’s allegations concerned Burstein’s activities from March 2007, until July 2011, where Burstein, as Chief Compliance Officer at NSM Securities, Inc. (NSM) failed to supervise the activities of NSM’s registered representatives and also failed to implement and enforce the firm’s Written Supervisory Procedures.

Burstein first became associated with a member firm in 1988, when he joined Stuart, Coleman & Co. Thereafter, Burstein became licensed as a registered representative of at least 15 other brokerage firms including Aura Financial Services, Inc., Pointe Capital, LLC, Legend Securities, Inc., and R.M. Stark & Co., Inc.

According to FINRA, NSM’s business model is to solicit high net worth individuals of Indian descent and then engage in a highly active trading strategy in their accounts involving only a few securities. FINRA alleged that many NSM customer accounts were excessively traded in order to generate large fees for NSM registered representatives and the firm. FINRA found that Burstein, as a supervisor, failed to supervise the activities of the firm’s registered representatives and failed to implement and enforce the firm’s written supervisory procedures. FINRA alleged that NSM, through Burstein’s conduct, helped to create a “culture of noncompliance at NSM that resulted in the rampant churning of customer accounts, unsuitable recommendations, unauthorized trading, and significant customer harm.”

Benjamin Cox of Red River Securities Settles Charges Over Improper Sales Of Oil and Gas Private Placements

February 3, 2014 | by Staff Attorney

Broker Benjamin Cox (Cox) has settled charges brought by the Financial Industry Regulatory Authority (FINRA) concerning improper sales of oil and gas private placement offerings sold by Red River Securities LLC (Red River). Cox accepted a one-year bar from the securities industry and a fine of $5,000.

Cox entered the securities industry in 2010 when he joined Red River. Cox was employed at Red River until termination in March 2012. According to Cox’s BrokerCheck, in March 2012, Red River filed a termination notice stating that a potential client called Red River explaining that his suitability information was not accurate and was not the information that the client had provided to Cox.

FINRA alleged that from September 2011, through March 2012, Cox cold called potential investors for oil and gas offerings offered and sold by Red River. During the calls with potential investors, Cox was responsible for documenting suitability information from the potential investors to ensure that the investments were appropriate for those investors. FINRA found that Cox was supposed to verify the potential investor’s name, address, occupation, and obtain financial and investment experience information in order to evaluate the suitability of the oil and gas private placements for the customer.

Broker William Hogue Suspended Over Science Fitness Promissory Note Sales

January 31, 2014 | by Staff Attorney

Broker William Larry Hogue, Jr. (Hogue) has been suspended and fined by the Financial Industry Regulatory Authority (FINRA) concerning allegations that Hogue participated in an outside business activity without providing written notice to Cambridge Investment Research (Cambridge) his employing brokerage firm in violation of FINRA rules. Additionally, FINRA alleged that Hogue participated in private securities transactions by selling promissory notes totaling over $1 million to at least nine investors.

Hogue entered the securities industry in March 2001. In March 2005, Hogue became associated with Cambridge and with Investors Asset Management of Georgia, Inc. (Investors) as a registered investment advisor. In February 2012, Hogue was permitted to resign from Cambridge for receiving debt financing for outside business activities through the sale of promissory notes without firm approval.

FINRA alleged that Hogue and two other partners formed SFL, presumably SFL stands for Science Fitness LLC, on August 20, 2010, for the purpose of operating a health club. FINRA found that Hogue served as co-chief executive manager of SFL and was directly involved in the management of the health club. FINRA alleged that Hogue did not initially disclose this outside business activity to Cambridge but that Cambridge discovered Hogue’s involvement with SFL through a routine review of Hogue’s emails. Subsequently, Hogue disclosed the SFL to Cambridge on August 10, 2011. As a result of Houge’s failure to timely disclose his involvement in SFL FINRA found that Hogue violated FINRA Rules 3270 and 2010.

FINRA Files Complaint Against Jamie Diaz Concerning Soliciting Clients for Investments in Nuela Restaurant, Nordica Development, and Marca Restaurant

January 29, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has filed a complaint against broker Jamie Diaz (Diaz) concerning allegations that form December 2009, through November 2011, Diaz engaged in securities fraud through deceptive and manipulative devices to convert approximately $850,000 from four customers. FINRA alleges that Diaz also converted $50,000 from a registered representative who worked with Diaz’s at National Securities Corporation (“National Securities”).

According to FINRA, Diaz told customers that their funds would be used to invest in two new restaurants in New York City and told another customer that the funds would be invested in real estate in New York City and a resort in Bermuda. However, FINRA alleged that Diaz did not invest the funds as he had represented to his customers. Instead, FINRA alleges that Diaz converted the funds for his personal use including to paying expenses related to his branch office business and to pay earlier investors.

Diaz first became employed in the securities industry in November 2000. Thereafter, from 2003 through 2007, Diaz was registered with GunnAllen Financial, Inc. (“GunnAllen”). From July 2007 through December 2011, Diaz was associated with National Securities. According to Diaz’s BrokerCheck Diaz was also associated with or employed by Worldwide Asset Protection, an insurance and estate planning company, Worldwide Wealth Management, Worldwide Asset Management, The Water Initiative LLC, and Nuela Restaurant LLC.

New Jersey Files Complaint Against George Bussanich Over Fraudulent Note Scheme

January 28, 2014 | by Staff Attorney

The Division of Law of the New Jersey Bureau of Securities has filed suit and taken administrative action against George J. Bussanich, 55, of Park Ridge and his son, George Bussanich, 34, of Upper Saddle River alleging they engaged in securities fraud in connection with sales to 26 New Jersey of $3.5 million of unregistered notes. The Bussanichs allegedly used the investor funds for their own personal enrichment. New Jersey also alleged that George J. Bussanich also provided funds to various members of his family as well. New Jersey alleged that investor funds were used to purchase three homes and exotic vehicles including two Maseratis and a Ferrari.

According to New Jersey, investors were told that their money would be used for Metropolitan Ambulatory Surgical Center, LLC (Metro Ambulatory) and George J. Bussanich’s other companies. Contrary to its name, Metro Ambulatory is not a surgical center but rather a holding company controlled by George J. Bussanich. New Jersey stated that the notes sold to investors purchased carried a 6% to 8% annual rate of return.

Acting New Jersey Attorney General John J. Hoffman said “This was not a legitimate investment gone bad but a scam by the defendants to line their pockets and live the high life.” New Jersey filed an Order to Show Cause with the Court asking the Court to freeze the assets of the defendants, appoint a receiver to take title to and possession of defendants’ property, and review all financial books and records.

Ex- Stratton Oakmont Broker Accused of Churning

January 27, 2014 | by Staff Attorney

Christopher Veale, a broker who worked at Stratton Oakmont Inc., was accused by Massachusetts securities regulators of excessive trading in the account of an 81-year-old person from 2010 to 2012.

The regulators said today in a statement that they’re seeking to bar Veale from the securities business in Massachusetts, along with his former colleague, Ali Habib Mayar, and their firm Brookville Capital Partners LLC, the brokerage where they worked at the time.

Martin Scorsese depicted Stratton Oakmont, Inc. in the film The Wolf of Wall Street. Prosecutors said that Stratton Oakmont generated millions of dollars in illicit profits by aggressively selling penny stocks and manipulating their prices from its offices in Lake Success, New York, before being shut down by regulators in 1996.

Howard Allen, Joseph McGowan, and Peter Pak Settle FINRA Charges Concerning Allen Partners Promissory Notes

January 24, 2014 | by Staff Attorney

Brokers Howard Allen (Allen), Joseph McGowan (McGowan), and Peter Pak (Pak) have settled charges brought by the Financial Industry Regulatory Authority (FINRA) concerning allegations that the brokers, while employed by J.P. Turner & Company, L.L.C. (JP Turner) and Portfolio Advisors Alliance, Inc. (PAA), participated in 12 private securities transactions without providing prior written notice to their firms in violation of NASD Conduct Rules 3040 and 2110 and FINRA Rule 2010.

The brokers were associated with the same firms at approximately the same times. The brokers were associated with JP Turner from 2002 until 2008. Thereafter, the brokers were associated with Allen Partners from May 2008 until June 2009. Finally, since 2009 the brokers have been associated with PAA. Pak has not been registered since 2011. Both Allen and McGowan are currently registered with PAA.

According to FINRA the three brokers owned and controlled two companies – Allen Partners Capital, LLC (APC) and Allen Partners, LLC (AP). Allen was a managing member of both companies. While at JP Turner and PAA, Allen conducted his branch office operations through AP. FINRA found that while the brokers were associated with JP Turner and PAA they raised money for both APC and AP.

FINRA Addresses Conflicts of Interest In the Sales of Securities

January 23, 2014 | by Staff Attorney

In the securities industry conflicts of interest can arise where a duty of care or trust exists between two or more parties. While the existence of a conflict does not always mean that one party will be harmed by the other party’s interest, brokerage firms have been involved in many situations where they did not effectively and fairly manage conflicts of interest.

The Financial Industry Regulatory Authority (FINRA) recently issued a “Report on Conflicts of Interest” that focused on enterprise-level frameworks to identify and manage conflicts of interest; approaches to handling conflicts of interest distributing new financial products; and approaches to compensating their associated persons.

Part of FINRA’s focus on conflicts on interests focused on the introduction of new financial products. FINRA recommended a number of effective practices to address conflicts in the issuance of new securities. First, firms can use a new product review process that includes identifying and mitigating conflicts that a product may present. Second, firms should disclose those conflicts in plain English to ensure that customers comprehend the conflicts that a firm or registered representative have in recommending a product. FINRA reminded firms that conflicts may be particularly acute where complex financial products are sold to less knowledgeable investors, including retail investors.

Rive, Leavell & Co. Sanctioned Over Misleading Communications In the Sale of Church Bonds

January 22, 2014 | by Staff Attorney

Brokerage firm Rives, Leavell & Co. (Rives) was recently sanctioned by the the Financial Industry Regulatory Authority (FINRA) over allegations that the firm disseminated to the investing public 29 advertisements including newspapers, brochures, offering documents, and pastor letters related to church bond investments that failed to comply with FINRA’s advertising rules. FINRA determined that these communications generally failed to adequately explain or highlight the risks associated with the investments, contained misleading language, or failed to explain investment terms sufficiently.

Rives is a broker-dealer based in Jackson. Mississippi, employs twelve registered brokers and has no branch office locations. NASD Conduct Rule 2210(d)(1) establishes content standards for public communications. All member communications with the public are to be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or service. Further, FINRA prohibits members from omitting any material fact. In addition, NASD Rule 2210(d)(1)(B) prohibits claims that are false, exaggerated, unwarranted or misleading. FINRA has reminded firms that members must consider the nature of the audience to which the communications will be directed and that different levels of explanation or detail may be necessary depending on the audience to which a communication is directed.

During the first review period FINRA examined, the agency found that Rives disseminated two newspaper advertisements, five brochures, one pastor letter, one mailed advertisement, and two offering documents that contained improper content. For example, FINRA found that a number of the communications promoted the bonds’ high interest rates but failed to disclose various risks associated with the investment including that the bonds were unrated by a rating agency, were potentially illiquid and might result in a loss of principal. The communications also failed to explain and contrast the difference between different interest options on the bonds.

The Problem of Senior Investor Abuse – A Securities Attorney’s Perspective

January 21, 2014 | by Staff Attorney

The financial abuse of seniors continues to be a significant problem in the United States. Nearly 40 million people are age 65 and older and the number is expected to grow to 89 million by 2050. However, even though seniors comprise of a large portion of the population they make up the vast majority of clients that seek our firm’s assistance as securities attorneys.

Securities regulators have taken increased interest in recent years to stress to brokerage firms the need to implement increased supervision and devise specific policies to address issue facing senior investors. FINRA recently published its 2014 Business Conduct Priorities where the regulator stated that its examiners will continue to focus on how firms engage with senior investors with a focus on suitability determinations as well as disclosures and communications. FINRA has also stated that firms must develop policies and procedures to identify and address situations where issues of diminished capacity may be present.

In a 2010 article published by the SEC, the regulator summarized practices that financial services firms and brokers must adhere to in order to properly service the accounts of senior investors in areas including: