Category Archives: FINRA News

On August 6, 2013, FINRA issued a new investor alert called Cold Calls From Brokerage Firm Imposters—Beware of Old-Fashioned Phishing, to warn investors of cold calls from scammers falsely claiming to be representatives of at least one well-known brokerage firm. In this latest twist on phishing scams, fraudsters are cold calling investors claiming to offer information about certificates of deposit with yields well above the best rates in the market in an attempt to get potential victims to divulge their personal or financial account information. Armed with this information, the fraudsters may attempt to steal the person’s identity or money.

FINRA is reminding investors who receive unsolicited telephone calls never to provide personal information or authorize any transfer of funds to any unknown person.

“Cold Calls from Brokerage Firm Imposters” advises investors who feel they are victims of this scam to act quickly and contact their financial institution immediately to report a loss or theft of funds through an electronic funds transfer. Anyone who believes his or her identity has been stolen can follow the Federal Trade Commission’s Identity Theft action plan. FINRA also encourages investors to file a complaint using its online Complaint Center or send a tip to FINRA’s Office of the Whistleblower.

Any investor interested in speaking with a securities attorney may contact David A. Weintraub, P.A., 7805 SW 6 Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422

On August 5, 2013, FINRA announced that it had fined Oppenheimer and Co., Inc. $1,425,000 for the sale of unregistered penny stock shares and for failing to have an adequate anti-money laundering (AML) compliance program to detect and report suspicious penny stock transactions. Oppenheimer is also required to retain an independent consultant to conduct a comprehensive review of the adequacy of Oppenheimer’s penny stock and AML policies, systems and procedures. Oppenheimer agreed to the sanctions to resolve charges first brought against the firm in a FINRA complaint in May 2013.

FINRA’s findings stated that from Aug. 19, 2008, to Sept. 20, 2010, Oppenheimer, through branch offices located across the country, sold more than a billion shares of twenty low-priced, highly speculative securities (penny stocks) without registration or an applicable exemption. The customers deposited large blocks of penny stocks shortly after opening the accounts, and then liquidated the stock and transferred proceeds out of the accounts. Each of the sales presented additional “red flags” that should have prompted further review to determine whether the securities were registered. FINRA also found that the firm’s systems and procedures governing penny stock transactions were inadequate, and were unable to determine whether stocks were restricted or freely tradable. Oppenheimer also failed to conduct adequate supervisory reviews to determine whether the securities were registered.

FINRA also found that Oppenheimer’s AML program did not focus on securities transactions and therefore failed to monitor patterns of suspicious activity associated with the penny stock trades. In addition, Oppenheimer failed to conduct adequate due diligence on a correspondent account for a customer that was a broker-dealer in the Bahamas, and therefore a Foreign Financial Institution under the Bank Secrecy Act; the firm’s failure contributed to Oppenheimer’s failure to understand the nature of the customer’s business and the anticipated use of the account, which was to sell securities on behalf of parties not subject to Oppenheimer’s AML review. This is the second time Oppenheimer has been found to have violated its AML obligations.

In concluding this settlement, the firm neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

In July 2013, FINRA reported that Florida Registered Representative Alan Jay Davidofsky was fined $11,741.78, plus interest, which represents disgorgement, and barred from association with any FINRA member in any capacity. The sanctions were based on findings that Davidofsky effected unauthorized trades in a customer’s traditional Individual Retirement Account (IRA) at his member firm, had de facto control over the account, and excessively traded in the account, which was inconsistent with the customer’s financial circumstances and investment objectives.

The findings stated that Davidofsky excessively traded the accounts with scienter, and consequently, churned the customer’s account. The findings also stated that the firm had warned Davidofsky to get his numbers up, and he undertook the excessive trading in the customer’s account to solidify his tenuous employment position at the firm and generate additional commissions for himself.  It is unclear whether the customer initiated a FINRA arbitration proceeding, or any other type of securities arbitration.

In July 2013, LPL Financial LLC submitted a Letter of Acceptance, Waiver and Consent in which the firm agreed to be censured and fined $60,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it purchased municipal securities for its own account from customers and/or sold municipal securities for its own account to customers at an aggregate price (including any commission or service charge) that was not fair and reasonable, taking into consideration all relevant factors, including the best judgment of the broker, dealer or municipal securities dealer as to the fair market value of the securities at the time of the transaction and of any securities exchanged or traded in connection with the transaction; the expense involved in effecting the transaction; the fact that the broker, dealer, or municipal securities dealer is entitled to a profit; and the total dollar amount of the transaction.

According to FINRA, the firm failed to use reasonable diligence to ascertain the best inter-dealer market, and failed to buy or sell in such market so that the resultant price to its customer was as favorable as possible under prevailing market conditions. The findings also stated that the firm submitted evidence that it made restitution to each of the affected customers.  Because of the evidence submitted by LPL, it is unlikely that the customers initiated FINRA arbitrations, or any other type of securities arbitration.

In July 2013, FINRA announced that StockCross Financial Services, Inc.  submitted a Letter of Acceptance, Waiver and Consent in which the firm agreed to be censured, fined $20,000 and required to pay $6,781.40, plus interest, in restitution to customers. Without admitting or denying the findings, the firm  consented to the described sanctions and to the entry of findings that it sold (bought) corporate bonds to (from) customers and failed to sell (buy) such bonds at a price that was fair, taking into consideration all relevant circumstances, including market conditions with respect to each bond at the time of the transaction, the expense involved and that the firm was entitled to a profit.  The markdowns at issue were below 4%, and the mark-ups at issue were between 2.26% and 5.26%.  It was unclear whether the customers initiated FINRA arbitrations, or any other type of securities arbitration.

In July 2013, FINRA reported that VSR Financial Services, Inc. and Donald Joseph Beary submitted a Letter of Acceptance,Waiver and Consent in which the firm agreed to be censured and fined $550,000. Beary was fined $10,000 and suspended from association with any FINRA member in any principal capacity for 45 days. Without admitting or denying the findings, the firm and Beary consented to the described sanctions and to the entry of findings that the firm failed to establish, maintain and enforce a reasonable supervisory system regarding the sale of non-conventional investments. The findings stated that the firm’s WSPs provided that no more than 40 percent to 50 percent of a client’s exclusive net worth could be invested cumulatively in alternative investments unless there was a substantial reason to exceed the guidelines and that justification was well documented. Supplemental to these procedures, the firm, through Beary, created additional procedures that applied a discount to certain non-conventional instruments, reducing the percentage of a customer’s liquid net worth invested. The findings also stated that as the direct participation principal, Beary had responsibility for the implementation and supervision of the discount program. The Securities and Exchange Commission (SEC) identified as a deficiency, in a letter to the firm, that it did not have adequate written procedures relating to the discount program.  The SEC made the same finding two years later regarding the lack of WSPs relating to the discount program. Despite these warnings from the SEC, Beary did not take reasonable steps to implement WSPs or to otherwise discontinue the use of the discount program.

The findings also included that in addition to the 40 percent to 50 percent concentration limit stated in the firm’s WSPs, the firm’s new account form asked each client to specify the percentage of liquid net worth that the client would be comfortable investing in various risk categories. Most alternative investment program sponsors identified their products involving, at a minimum, a high degree of risk. The firm also assigned a risk category to each alternative investment it sold. Rather than assign a risk category based upon the risk level identified by the sponsor in the alternative investment offering documents, the firm routinely assigned lower risk categories. In several instances, the firm lowered its internal risk rating subsequent to the firm’s acceptance of the product. In spite of the firm’s efforts to increase sales of alternative investments through the use of discounts and risk rating reductions, customer investments still exceeded the 40 percent concentration guideline, but the firm did not document the existence of a substantial reason to exceed the concentration guidelines as required by its WSPs.

FINRA found that the firm failed to establish, maintain and enforce a reasonable supervisory system regarding the use of consolidated reports. The firm’s WSPs regarding consolidated statements were limited to a few memoranda issued to registered representatives prior to the issuance of FINRA Regulatory Notice 10-19. In practice, for six years, the firm’s registered representatives used a number of consolidated reporting systems. The firm did not require pre-approval of the consolidated reports to determine whether accurate pricing and disclosures were being used. The firm did not have a system for prompt review of the consolidated reports after the reports were sent to Disciplinary and Other FINRA Actions 3 customers. Given the fact that the firm allowed its registered representatives to enter valuations manually, the firm’s lack of supervision of the consolidated reports was unreasonable. FINRA also found that the firm, acting through a registered representative, recommended and effected the sale of high-risk private placements to customers. While these products may have been suitable for certain customers, they were not suitable for these customers given their financial circumstances and condition. The firm earned approximately $35,950 in commissions on the transactions. The firm, through another registered representative, made recommendations to customers that were not suitable given their moderate risk tolerance and specifications, and the firm earned commissions on the transactions of approximately $483,077.38. In addition, FINRA determined that the firm failed to reasonably supervise its representatives with respect to the unsuitable transactions. One of several firm principals reviewed and approved the transactions of one of these representatives, and each of the principals failed to detect or investigate “red flags” regarding the transactions. This representative falsified the account documentation for customers, but the firm did not detect or investigate any of the representatives’ falsification of documents or other red flags. Detection and investigation of any of these red flags might have prevented the representative’s unsuitable recommendations and the resulting loss of the customers’ funds. Moreover, FINRA found that the firm allowed its registered representatives to send consolidated statements to their customers but never reviewed the consolidated statements a representative sent to some customers to determine whether he was following the firm’s procedures regarding pricing. Because of the inaccurate pricing the representative used, and the firm’s lack of supervision, these customers received statements with erroneous pricing information. It was unclear whether the customers initiated FINRA arbitrations, or any other type of securities arbitration.

In July 2013, FINRA reported that JHS Capital Advisors, LLC submitted a Letter of Acceptance, Waiver and Consent in which the firm agreed to be censured and fined $75,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that, in connection with terminating its relationship with one clearing firm, it transferred accounts from the clearing firm to another clearing firm. The first clearing firm charged a fee of $50 to transfer a non-qualified account and $90 to transfer a qualified account to the second clearing firm.

The findings stated that in connection with this transfer of accounts, the firm sent letter(s) to customers, advising them that it would liquidate the securities in their accounts, send the account proceeds to them, and close their accounts, if they did not transfer their accounts to another firm within a certain period, typically 30 days. In accounts from which the firm did not receive a response to the letter(s), it liquidated the securities in the accounts, sent the account proceeds to the customers, and closed the accounts. The firm did not have the requisite oral or written authority to execute such sales in non-discretionary accounts.

In total, in connection with liquidating the accounts, JHS exercised discretion in 882 transactions in 843 non-discretionary accounts, including at least 33 qualified accounts.  It was unclear whether the customers initiated FINRA arbitrations, or any other type of securities arbitration.

In June 2013, FINRA reported that it had fined and suspended for twenty days Florida Registered Representative Robert Ronald Liggero.

During his association with Bull & Bear Brokerage Services, Inc., Mr. Liggero signed the names of two customers on documents related to the opening of IRA accounts without the customers’ knowledge or consent.  By signing their names on documents, he violated NASD Conduct Rule 2110.  Mr. Liggero consented to a 20 day suspension and a $5,000.00 fine.

In settling this matter Robert Ronald Liggero neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.  It was unclear whether the customer initiated a FINRA arbitration, or any other type of securities arbitration.

In June 2013, FINRA reported that it had fined and suspended for one month Florida Registered Representative Frederico Goldin.

During his association with ITA Financial Services, LLC, Mr. Goldin borrowed a total of $28,688.47 from customers.  When the loans were made, ITA did not have written procedures that allowed its representatives to borrow money from customers.  As a result of the foregoing, FINRA Rules 3240 and 2010 were violated.

In settling this matter Frederico Goldin neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.  Because the loans were repaid, it is unlikely that the customers initiated a FINRA arbitration, or any other type of securities arbitration.

In June 2013,  FINRA reported that it had fined and suspended for five months New York Registered Representative Sheila J. Justin.

During her association with Hazard & Siegel, Inc., Ms. Justin was listed as the broker of record on several accounts and variable annuity transactions, but allowed another individual to service the accounts and effect the transactions.  The findings state that she knew that the individual signed her name on at least 332 variable annuity applications, thus rendering these records and related books and records of her member firm inaccurate.  This conduct constitutes violations of FINRA’s rule prohibiting unethical conduct and recordkeeping.

In settling this matter, Sheila J. Justin neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.  It is unclear whether any of the 332 customers initiated FINRA arbitration proceedings, or any other type of securities arbitration.