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Category Archives: FINRA News

FINRA Bars Florida Broker for Unsuitable Recommendations and Unapproved Securities Transactions Involving 31 NFL Players

On March 7, 2013, FINRA announced that it had barred broker Jeffrey Rubin of Lighthouse Point, Florida, from the securities industry for making unsuitable recommendations to his customer, an NFL player. The recommendations related to a now-bankrupt casino in Alabama. As a result, the customer lost approximately $3 million. Based on Rubin’s referrals, 30 other NFL players also invested in the casino project and lost approximately $40 million. Rubin also failed to obtain the required approval from his employers to participate in the securities transactions involving the casino.

Rubin operated a Florida-based company, Pro Sports Financial, which provided financial-related “concierge” services to professional athletes for an annual fee. Between March 2006 and June 2008, while he was registered as a broker with Lincoln Financial Advisors Corporation and Alterna Capital Corporation, Rubin recommended that one of his NFL clients invest a total of $3.5 million, the majority of his liquid net worth, in four high-risk securities. Rubin recommended and facilitated the largest investment, $2 million, in the Alabama casino project without informing his employer member firm or receiving the firm’s approval of this activity.

Rubin referred other investors to the casino project while employed by Alterna Capital Corporation and International Assets Advisory, LLC without the firms’ knowledge or approval. FINRA found that from approximately January 2008 through March 2011, 30 additional clients of Rubin’s concierge firm, all NFL players, invested approximately $40 million in the casino project. Rubin received a 4 percent ownership stake and $500,000 from the project promoter for these referrals.

In settling this matter, Rubin neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

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

FINRA Disciplinary Proceeding against Todd Lloyd Goedeke

On November 7, 2012, FINRA’s Department of Enforcement initiated a Disciplinary Proceeding against Todd Lloyd Goedeke for allegedly misappropriating a customer’s funds and failing to respond to FINRA’s requests for information with respect to the referenced investigation.  Mr. Goedeke entered the securities industry in 1983 and joined Cantella & Co., Inc. in 2004.  He remained with Cantella until his termination on June 18, 2010.

According to the Complaint, on September 14, 2009, at Mr. Goedeke’s directions, one of his customers gave him a check in the amount of $4,800 payable to an entity controlled by Mr.  Goedeke.   Later the same day, Mr. Goedeke deposited the funds into one of his accounts.   In March 2011, the customer accepted a settlement with Cantella in the amount of $4,825.  FINRA Enforcement made several attempts to contact Mr. Goedeke for an explanation and requested information in reference to this investigation.  As of the date of this Complaint, Mr. Goedeke had not responded to FINRA Enforcement’s requests.

FINRA Disciplinary Proceeding against Annie O. Kim

On November 6, 2012, FINRA’s Department of Enforcement initiated a Disciplinary Proceeding against Annie O. Kim for alleged use of unauthorized discretion in a customer’s account, and for failing to appear for an on-the-record interview.  Ms. Kim entered the securities industry in 2004 and remained registered until April 2, 2010.  According to the Amended Complaint, from January 11, 2010 through January 26, 2010, while registered with Wells Fargo Advisors, LLC, Ms. Kim exercised discretion in at least eleven transactions in the securities account of one customer.  The transactions were effected at Ms. Kim’s discretion without written authorization.  According to FINRA, between May 3, 2011 and June 30, 2011, FINRA made several failed attempts to contact Ms. Kim for an on-the-record interview.  FINRA is seeking sanctions, including monetary sanctions.

FINRA Disciplinary Proceeding against Mark C. Hotton

On November 5, 2012, FINRA’s Department of Enforcement initiated a Disciplinary Proceeding against Mark C. Hotton for allegedly funneling over $5,932,000 from his clients for his personal use, or to pay other investors.   Mr. Hotton entered the securities industry in 1993 and joined Oppenheimer in 2005.  He left Oppenheimer in 2009.

According to the Complaint, since at least July 24, 2006, Mr. Hotton engaged in numerous, varied and interrelated schemes to steal his clients’ money.  He diverted funds to various entities he controlled, while his clients believed they were being invested in legitimate businesses.  In other instances, he convinced his clients to invest in securities that did not exist.  FINRA alleged that Mr. Hotton used numerous forged, fabricated and false documents, fictitious transactions, fictitious securities, false statements, and false and misleading account summaries to perpetuate his scheme.

The primary subject of FINRA’s Complaint is Mr. Hotton’s misappropriation of $5,932,000.  In addition, Mr. Hotton caused millions of dollars in clients’ losses resulting from churning and excessive trading, exercising discretion without authorization, and recommending unsuitable transactions.  Furthermore, Mr. Hotton also caused at least an additional $2,584,078 to be wired from his clients’ accounts at Oppenheimer, to his outside business activities and other entities and individuals with whom he was affiliated.

During FINRA’s investigation, Mr. Hotton is alleged to have repeatedly lied under oath, provided false written statements, and forged and fabricated documents.  Furthermore, Mr. Hotton willfully failed to disclose and/or misleadingly described a customer arbitration, settlements, and civil actions on his Uniform Application for Securities Industry Registration or Transfer (Form U-4).  Mr. Hotton’s registrations were terminated on May 31, 2012.  Mr. Hotton is currently not associated with any FINRA member firm.

FINRA Ordered David Lerner Associates To Pay Approximately $12 Million in Restitution to Customers

FINRA ordered David Lerner Associates, Inc. to pay approximately $12 million in restitution to customers who purchased shares in Apple REIT Ten and to customers who were charged excessive markups.  David Lerner Associates, Inc. (“DLA”) is a privately-held broker dealer that operates six branches in the New York tri-state area and Florida.  FINRA found that DLA solicited thousands of customers, targeting unsophisticated investors and the elderly, selling the illiquid REIT investment without performing adequate due diligence to determine that there was a reasonable basis to recommend the investment.  In addition to paying restitution to affected customers, DLA was fined $2.3 million for charging unfair prices on municipal bonds and collateralized mortgage obligations (CMOs) and for related supervisory violations.

According to FINRA’s investigation, between January 2011 and at least December 2011, DLA recommended and sold over $442 million of a $2 billion non-traded real estate investment trust (REIT) without performing adequate due diligence in violation of its suitability obligations.  In addition, DLA used misleading marketing materials that presented performance results for the REIT without disclosing to customers that the income portrayed was insufficient to support the distributions to unit owners.  FINRA found that many of DLA’s customers were senior and/or unsophisticated investors and a substantial number of them owned two or more of the Apple REITs.  DLA solicited customers by general means such as the internet, radio, cold calling, mailings, and open-invitation seminars at senior centers, restaurants and country clubs.  According to FINRA’s investigation, between 60% to 70% of DLA’s business came from Apple REIT sales.  DLA earned over $42 million in commissions and marketing allowances related to sales of Apple REIT Ten shares.

FINRA also fined David Lerner, DLA’s founder, President & CEO, and DLA’s Head Trader, William Mason.  David Lerner was fined $250,000 and suspended for one year from the securities industry, and for 2 years from acting as a principal.  The fine was imposed in connection with the false, misleading statements regarding the REIT.  David Lerner personally made false claims regarding the investment returns, market values and performance in at least four DLA seminars, held in New York and Florida, and in letters to customers.  William Mason was fined $200,000 and suspended for six months from the securities industry for his role in charging excessive muni and CMO markups.

In concluding this settlement, DLA and David Lerner neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.  Any investor interested in speaking with a securities attorney may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

 

FINRA Department of Enforcement v. Wade H. Bradley

Disciplinary Proceeding No. 2011025780101, October 19, 2012, Los Angeles, California

The FINRA Department of Enforcement filed a complaint against Wade H. Bradley related to the financing of the film, “Knights of Badassdom.”  Bradley, who was the President and Chief Compliance Officer of IndieVest Securities, sold membership units in Knights of Badassdom Production, LLC (KOB), and its successor, Knights of Badassdom Production 1, LLC (KOB1), which produced the film.  These offerings were made pursuant to Rule 506 and Regulation D.  The funds that were collected were supposed to be kept in escrow until a minimum of $4.5 million was raised, or if the minimum was not reached by a certain date, the funds would be returned to investors.  On July 2, 2010 Bradley signed a letter that purported to confirm that IndieVest had agreed to lend KOB1 $1.6 million.  However, there was no evidence of such a loan having been made.  The complaint alleged that Bradley knew that IndieVest never deposited the funds into the escrow account, the escrow account had less than $4.5 million when the escrow broke, and Bradley continued to sell the securities after escrow broke.  FINRA’s Department of Enforcement filed this complaint, alleging violations of Exchange Act section 10(b), Rule10b-9, and FINRA Rules 3010 and 2010.

FINRA Fines Merrill Lynch for Failure to File Required Reports

FINRA fined Merrill Lynch, Pierce, Fenner & Smith Inc. $500,000 for supervisory failures that caused deficiencies in filing hundreds of required reports.  FINRA alleged that Merrill Lynch failed to report approximately 1,200 required filings of customer complaints, certain arbitration proceedings, and related U-4 and U-5 filings.  FINRA found that Merrill Lynch failed to adequately train and supervise personnel responsible for customer complaint tracking and reporting.

Under FINRA rules, securities firms must ensure that information on a broker’s registration application (Form U-4) is updated and kept current on the Central Registration Depository (CRD) system.  In addition, firms are required to update that information whenever a reportable event occurs.  A reportable event includes any regulatory investigation against the broker, specific customer complaints, settlements involving the broker, and certain felony charges and convictions.  Reportable events must be filed within 30 days of the event.  A firm is also required to notify to FINRA within 30 days of the termination of a registered person’s association with a member firm by filing a notice known as Form U-5.  Furthermore, the firm must notify FINRA within 30 days if the firm learns that the information disclosed on a Form U-5 becomes inaccurate.

FINRA’s investigation found that from 2005 until August 2011, between 23% and 63% of customer complaints and related Form U-4 and U-5 filings were either untimely or not reported at all.  In addition, from 2007 until 2011, Merrill Lynch failed to file or timely file more than 650 required reports, including customer complaints and customer settlements.  Lastly, FINRA found that the firm failed to file or timely file approximately 300 non-NASD/FINRA arbitrations, criminal, and civil complaints that it received from on or about July 2007 through 2009.

FINRA found that the firm failed to establish and implement supervisory systems and procedures to adequately review, monitor and ensure compliance with its obligations to timely file required reports and timely acknowledge customer complaints.   Merrill Lynch’s failures may have concealed significant risks and potential investor harm.  The firm’s violations, which went undetected for several years, may have hampered investors’ ability to access the background of certain brokers via FINRA’s Broker’s Check, a public disclosed program.  Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, said, “Firms that fail to file important regulatory information on a timely manner can compromise the integrity of CRD and BrokerCheck.  In this instance, Merrill Lynch failed to report critical information that regulators and investors rely upon.  Without timely and accurate reporting by firms, investors only have part of the picture when researching and making decision about their brokers.”

 

FINRA Fines Rodman & Renshaw for Supervisory & Information Barrier Violations

FINRA fined Rodman & Renshaw LLC $315,000 for supervisory and other violations related to the interaction between the firm’s research and investment banking functions.  Rodman is a New York based broker-dealer that provides investment banking services to private and public companies, as well as research, sales, and trading services to institutional investors.  FINRA also sanctioned Rodman’s former COO, William A. Iommi, Sr., with a fine of $15,000 and a suspension from acting in a principal capacity for 90 days.  Two research analysts were fined $10,000 respectively, for participating in efforts to solicit investment banking business.

According to FINRA, from January 2008 through March 15, 2012, Rodman failed to establish, maintain, and enforce supervisory and compliance procedures to monitor potential conflicts of interest between research and investment banking.  As a result of these deficiencies, Rodman failed to prevent research analysts from engaging in the solicitation of investment banking business, and failed to prevent a member engaged in investment banking activities from having influence or control over research analysts’ evaluations or compensation.  Furthermore, FINRA found that a research analyst was compensated for his contribution to Rodman’s investment banking business.

FINRA stated, “The deficiencies in Rodman’s supervisory system created an environment in which the conflict of interest between research and investment banking was left unmanaged.  FINRA will continue to ensure that firms have adequate supervisory systems tailored to the firm’s business and we will continue to sanction firms that demonstrate a weak culture of compliance and internal controls.”

Without admitting or denying the allegations, Rodman, Iommi, and the two research analysts agreed to the sanctions and consented to the entry of FINRA’s findings.

FINRA Department of Enforcement v. Rodolfo Alvarez

Letter of Acceptance, Waiver and Consent, No. 2011026804401, August 17, 2012, Los Angeles, California

After FINRA opened an investigation into Mr. Alvarez’s alleged borrowing and/or misusing of client funds, he failed to respond to the FINRA staff’s letters requesting information or an on-the-record interview.  Mr. Alvarez responded to a later communication regarding another on-the-record hearing by email.  However, he stated that he no longer resided in the United States and did not plan on returning to provide testimony.  Mr. Alvarez agreed to a letter of acceptance, waiver, and consent, barring him from associating with any FINRA member as a result of his violations of FINRA Rules 8210 and 2010.

FINRA Fines Merrill Lynch $2.8 Million for Overcharging Customers

FINRA fined Merrill Lynch, Pierce, Fenner & Smith Inc. $2.8 million for supervisory failures that caused the firm to overcharge fees over $32 million to nearly 95,000 customers.  FINRA found that from April 2003 to December 2011, Merrill Lynch failed to have an adequate supervisory system to ensure that customers in certain investment advisory programs were billed in accordance with contract and disclosure documents.

FINRA found that from July 2006 to November 2010, Merrill Lynch failed to send approximately 10,647,187 trade confirmations for 232,356 customers due to incorrect system coding.  FINRA’s investigation also discovered other violations such as failure to include or state whether the firm acted as an agent or a principal on trade confirmations and account statements, failure to provide margin risk disclosure statements as well as business continuity plans, and failure to deliver proxy materials to customers or to their designated investment advisers.

FINRA said, “Investors must be able to trust that the fees charged by their securities firm are, in fact, correct.  When this is not the case, investor confidence is threatened.”  In a statement, Merrill Lynch said, “Following Bank of America’s acquisition of Merrill Lynch, we identified operational issues that affected certain investment advisory accounts.  These were primarily the results of improper coding of accounts.”  Merrill Lynch has reimbursed $32 million, plus interest, to the affected customers.  In settling in this matter, Merrill Lynch neither admitted nor denied the charges, but consented to the findings and the fine.

It is unclear at this time whether the FINRA Arbitration process will be appropriate for Merrill Lynch investors.  Any investor interested in speaking with a securities attorney may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.