On June 29, 2018, the Securities and Exchange Commission announced that it had charged New York-based broker-dealer Alexander Capital L.P. and two of its managers for failing to supervise three brokers who made unsuitable recommendations to investors, “churned” accounts, and made unauthorized trades that resulted in substantial losses to the firm’s customers while generating large commissions for the brokers.
Their report found that Alexander Capital failed to reasonably supervise William C. Gennity, Rocco Roveccio, and Laurence M. Torres, brokers who were previously charged with fraud in September 2017. According to the order, Alexander Capital lacked reasonable supervisory policies and procedures and systems to implement them, and if these systems were in place, Alexander Capital likely would have prevented and detected the brokers’ wrongdoing.
In separate orders, the SEC found that supervisors Philip A. Noto II and Barry T. Eisenberg ignored red flags indicating excessive trading and failed to supervise brokers with a view to preventing and detecting their securities-law violations. The SEC’s order against Noto found that he failed to supervise two brokers and its order against Eisenberg finds that he failed to supervise one broker.
Alexander Capital agreed to be censured and pay $193,775 of allegedly ill-gotten gains, $23,437 in interest, and a $193,775 penalty, which will be placed in a Fair Fund to be returned to harmed retail customers. Alexander Capital also agreed to hire an independent consultant to review its policies and procedures and the systems to implement them. Noto agreed to a permanent supervisory bar and to pay a $20,000 penalty and Eisenberg agreed to a five-year supervisory bar and to pay a $15,000 penalty. These penalties will be paid to harmed retail customers. Alexander Capital, Noto and Eisenberg agreed to settle today’s charges without admitting or denying the findings in the SEC’s orders. If you believe that you have suffered losses as a result of Alexander Capital L.P.’s misconduct, you may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.
On June 22, 2018 Newport Coast Securities appealed a National Adjudicatory Council decision to the Securities and Exchange Commission. The firm was expelled from FINRA membership, fined $403,000 and ordered to pay $853,617.04, plus prejudgment interest, jointly and severally, in restitution to customers. Representatives Andre Vincent La Barbera and Douglas Anthony Leone were barred from association with any FINRA member in all capacities and ordered to pay full restitution to their customers. The sanctions were based on the findings that the firm, La Barbera and Leone excessively traded customers’ accounts. Specifically, the investigation found that La Barbera and Leone exercised de facto control of customers’ accounts and the firm is liable for the excessive trading and churning of its representatives. FINRA found that the firm ignored multiple red flags indicating that these representatives were excessively trading and churning certain customers’ accounts. FINRA noted that these representatives’ clients appeared repeatedly on the firm’s exception reports reflecting the high volume of trading, commission charges, or both. As a result of their conduct, the firm, La Barbera and Leone violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, NASD Rule 2120 and FINRA Rule 2020. The firm’s expulsion is in effect pending review. On June 25, 2018 the NAC decision became final with respect to La Barbera and Leone.
It was unclear from FINRA’s announcement whether customers had initiated FINRA arbitrations or any other type of securities arbitrations. If you believe that you have suffered losses as a result of misconduct, you may contact David A. Weintraub, P.A. 7805 SW 6th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.
On June 29, 2018, the Securities and Exchange Commission announced that Morgan Stanley Smith Barney (MSSB) had agreed to pay a $3.6 million penalty and to accept certain undertakings for its failure to protect against its personnel misusing or misappropriating funds from client accounts.
The SEC’s order found that MSSB failed to have reasonably designed policies and procedures in place to prevent its advisory representatives from misusing or misappropriating funds from client accounts. The order further found that although MSSB’s policies provided for certain reviews of disbursement requests, the reviews were not reasonably designed to detect or prevent such potential misconduct.
According to the SEC’s order, MSSB’s insufficient policies and procedures contributed to its failure to detect or prevent one of its advisory representatives, Barry F. Connell, from misusing or misappropriating approximately $7 million out of four advisory clients’ accounts in approximately 110 unauthorized transactions occurring over a period of nearly a year.
Without admitting or denying the findings, MSSB consented to the SEC’s order, which includes a $3.6 million penalty, a censure, a cease-and-desist order, and undertakings related to the firm’s policies and procedures. Morgan Stanley previously repaid the four advisory clients in full plus interest. If you believe that you have suffered losses as a result of Barry Connell’s misconduct, you may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.
On June 14, 2018,FINRA announced details of a multi-phased effort to overhaul its registration and disclosure programs, including the Central Registration Depository (CRD)—the central licensing and registration system that FINRA operates for the U.S. securities industry and its regulators and that provides the backbone of BrokerCheck. The first phase of the transformation—a new WebCRD interface that highlights important information or activities requiring immediate attention of firms, branches and individuals—goes into effect June 30.
The transformation aims to increase the utility and efficiency of the registration and disclosure process for firms, investors and regulators, as well as to reduce compliance costs for firms. FINRA’s Board of Governors has approved moving forward with the project, which FINRA expects to complete in 2021.
FINRA developed and operates several systems that support registration and disclosure requirements for the securities industry, and works closely with the SEC and NASAA on policy and program requirements for the systems. Securities firms use these systems to register and maintain the records of associated persons who operate within the securities industry, and investors use them—through BrokerCheck—to research the professional backgrounds of brokers and brokerage firms. These registration systems are essential to the operation of the securities industry, and experience consistently high usage volume.
The redeveloped registration systems will facilitate more efficient interaction for users and leverage information from other FINRA regulatory programs, resulting in a more accurate and complete set of information about registered individuals, branches and firms—enhancing firm compliance programs and reducing compliance costs. The transformation also allows FINRA to leverage the information security benefits of cloud-based technology, and architect systems that address dangers associated with current and anticipated cyber threats and risks.
The changes are being made in response to feedback FINRA has received through various channels during its ongoing organizational improvement initiative—FINRA360—including via recommendations from firms in response to FINRA’s 2017 Special Notice on Engagement. FINRA is working closely with member firms throughout the multi-year project, and will continue to solicit their input and feedback to ensure the enhanced systems are meeting the industry’s needs.
On June 4, 2018, Bradley E. Gardner accepted a Letter of Acceptance, Waiver and Consent in which he acknowledged that he was barred from association with any FINRA member in any capacity. According to FINRA, on June 2, 2017, Gardner accepted a personal check in the amount of $7,400 from one of his elderly customers. He allegedly told his client that she could pre-pay the fees associated with her advisory Firm accounts at a discount by writing a check payable to him, and that he would then “turn off” the fees associated with her accounts until March 2019. He then deposited the check into his personal bank account and used the funds to pay for his personal expenses. In the meantime, the firm continued to charge the client the fees associated with her advisory Firm accounts. Mr. Gardner’s misconduct was discovered in September 2017, at which time Mr. Gardner reimbursed the whole amount to his client.
By converting customer funds, Garner violated FINRA rules. Conversion is the intentional and unauthorized taking of an/or exercise of ownership over property by one who neither owns the property nor is entitled to possess it.
If you believe that you have suffered losses as a result of misconduct, you may contact David A. Weintraub, P.A. 7805 SW 6th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.