Category Archives: FINRA News

In January 2014, FINRA announced that Jonathan Samuel Perry, employed by MML Investors Services, LLC, submitted a Letter of Acceptance, Waiver and Consent in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for five business days.

Without admitting or denying the findings, Perry consented to the described sanctions and to the entry of findings that while registered with his member firm and in anticipation of his move to a new firm, he moved documents related to firm customers he serviced from his firm office to his home. The findings stated that the documents contained non-public personal information, as that term is defined under Regulation S-P of the Securities Exchange Act of 1934, and Perry moved them without authorization and in contravention of his firm’s policies. Among other things, the non-public personal information included customers’ asset and income information, health information, addresses, birthdates and employment information. By removing the customers’ files from his firm’s control and possession, Perry placed the customers’ non-public personal information at risk.

In January 2014, FINRA announced that Anil K. Chaturvedi, previously employed by Merrill Lynch, Pierce, Fenner & Smith Inc., submitted a Letter of Acceptance, Waiver and Consent in which he was fined $60,000 and suspended from association with any FINRA member in any capacity for 18 months.

Without admitting or denying the findings, Chaturvedi consented to the described sanctions and to the entry of findings that he established a trust fund for a customer with her nephew as the account’s beneficiary. The findings stated that several years after the customer’s death, Chaturvedi learned that the nephew had actually funded the account to shield his money from U.S. tax liability. Chaturvedi did not report this information to anyone until a later date because he was concerned the information would trigger an Internal Revenue Service (IRS) investigation of the nephew and himself. After the nephew filed a complaint with Chaturvedi’s firm, Chaturvedi reported the matter to the IRS but never reported the information to his firm.

The findings also stated that there were numerous suspicious transfers of money totaling approximately $8 million between unrelated accounts belonging to Chaturvedi’s clients and from the clients’ accounts to third parties. Chaturvedi was aware of the transfers and although the transfers raised “red flags” of potentially suspicious activity, he failed to inquire further or report the suspicious activities to his firm. Most of the transactions involved $100,000 or less, and some involved $50,000 or less.

The findings also included that Chaturvedi failed to implement his firm’s Anti-Money Laundering (AML) policies by failing to investigate red flags of potentially suspicious activity. Chaturvedi failed to conduct additional due diligence or raise concerns to his supervisor as mandated under the firm’s AML procedures. There were also suspicious, cryptic emails between Chaturvedi and his clients relating to some of the transfers. The wire transfers raised red flags that should have caused Chaturvedi to conduct an additional inquiry and report potentially suspicious activity to his firm. Many of the transfers were from a firm account belonging to one particular customer and were executed pursuant to Letters of Authorization (LOAs) the customer gave Chaturvedi signed in blank, and Chaturvedi filled in the terms of the transfers at the time of the transfer. FINRA found that this matter came to light following a complaint filed with his firm.

Chaturvedi’s firm also found signed but otherwise blank LOAs for another customer, and standing LOAs for transfers of funds where the signature had been cut out of another document and pasted in. The firm also discovered monthly account statements for a trust account and other customers’ accounts that had the liabilities sections covered over by a blank piece of paper. As a result, Chaturvedi created and submitted falsified documents to the firm, causing the firm to create and maintain inaccurate books and records in violation of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3.

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 Anil Chaturvedi’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.

In January 2014, FINRA announced that UBS Financial Services Inc. submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $260,000. The firm has paid a total of $131,534.81 in restitution to address the violations of MSRB Rules G-17 and G-30(a), NASD Rules 2110 and 2320, and FINRA Rule 2010.

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 markdown or markup) 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 transactions and of any securities exchanged or traded in connection with the transactions; the expense involved in effecting the transactions; the fact that the broker, dealer or municipal securities dealer is entitled to a profit; and the total dollar amount of the transactions.

The findings also stated that in transactions for or with customers, 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 customers was as favorable as possible under prevailing market conditions.

It was unclear from FINRA’s announcement whether customers had initiated FINRA arbitrations or any other type of securities arbitrations. Any customer who believes they have been a victim of excessive municipal markups or markdowns can contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.

In January 2014, FINRA announced that Donald Richard Dahn, previously employed by LPL Financial LLC, submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity.

Without admitting or denying the findings, Dahn consented to the described sanction and to the entry of findings that he borrowed a total of $27,100 from public customers without the ability to repay the loans that had been represented to be used for operating expenses for a company Dahn ran with his brother. The findings stated that Dahn failed to disclose the loans to his member firm. The firm’s Written Supervisory Procedures prohibited borrowing money from customers. Dahn has failed to repay either of the loans, one of which required payment within 90 days.

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 Donald Richard Dahn’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 January 9, 2014, FINRA announced that it had ordered two St. Louis-based broker-dealers – Stifel, Nicolaus & Company, Incorporated and Century Securities Associates, Inc. – to pay combined fines of $550,000 and a total of nearly $475,000 in restitution to 65 customers in connection with sales of leveraged and inverse exchange-traded funds (ETFs). Stifel and Century are affiliates and are both owned by Stifel Financial Corporation.

Leveraged and inverse ETFs “reset” daily, meaning that they are designed to achieve their stated objectives on a daily basis so their performance can quickly diverge from the performance of the underlying index or benchmark. It is possible that investors could suffer significant losses even if the long-term performance of the index showed a gain. This effect can be magnified in volatile markets.

FINRA found that between January 2009 and June 2013, Stifel and Century made unsuitable recommendations of non-traditional ETFs to certain customers because some representatives did not fully understand the unique features and specific risks associated with leveraged and inverse ETFs; nonetheless, Stifel and Century allowed the representatives to recommend them to retail customers. Customers with conservative investment objectives who bought one or more non-traditional ETFs based on recommendations made by the firms’ representatives, and who held those investments for longer periods of time, experienced net losses.

FINRA also found that Stifel and Century did not have reasonable supervisory systems in place, including written procedures, for sales of leveraged and inverse ETFs. Stifel and Century generally supervised transactions in leveraged and inverse ETFs in the same manner that they supervised traditional ETFs, and neither firm created a procedure to address the risk associated with longer-term holding periods in the products. Further, both firms failed to ensure that their registered representatives and supervisory personnel obtained adequate formal training on the products before recommending them to customers.

Stifel agreed to pay a fine of $450,000 and to make restitution of nearly $340,000 to 59 customers. Century agreed to pay a fine of $100,000 and to make restitution of more than $136,000 to six customers.

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

It was unclear from FINRA’s announcement whether customers had initiated FINRA arbitrations or any other type of securities arbitrations. Any customer who believes they have been a victim can contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.

On December 26, 2013, FINRA announced that it fined Barclays Capital Inc. $3.75 million for systemic failures to preserve electronic records and certain emails and instant messages in the manner required for a period of at least 10 years.

Federal securities laws and FINRA rules require that business-related electronic records be kept in non-rewritable, non-erasable format (also referred to as “Write-Once, Read-Many” or “WORM” format) to prevent alteration. The Securities and Exchange Commission has stated that these requirements are an essential part of the investor protection function because a firm’s books and records are the primary means of monitoring compliance with applicable securities laws, including antifraud provisions and financial responsibility standards.

FINRA found that from at least 2002 to 2012, Barclays failed to preserve many of its required electronic books and records—including order and trade ticket data, trade confirmations, blotters, account records and other similar records—in WORM format. The issues were widespread and included all of the firm’s business areas. Barclays was unable to determine whether all of its electronic books and records were maintained in an unaltered condition.

FINRA also found that from May 2007 to May 2010, Barclays failed to properly retain certain attachments to Bloomberg emails, and additionally failed to properly retain approximately 3.3 million Bloomberg instant messages from October 2008 to May 2010. In addition to violating FINRA, SEC and NASD rules and regulations, this adversely impacted Barclay’s ability to respond to requests for electronic communications in regulatory and civil matters.

Finally, Barclays failed to establish and maintain an adequate system and written procedures reasonably designed to achieve compliance with SEC, NASD, and FINRA rules and regulations, as well as to timely detect and remedy deficiencies related to those requirements.

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

On December 19, 2013, FINRA announced that it had fined Deutsche Bank Securities, Inc. (DBSI) $6.5 million and censured the firm for serious financial and operational deficiencies primarily related to its enhanced lending program. The violations, which were originally identified during a 2009 examination, included lack of transparency in the firm’s financial records and inaccurate calculations resulting in overstated capitalization and inadequate customer reserves.

Under DBSI’s enhanced lending program, which involves mostly hedge fund customers, the firm arranges for its London affiliate, Deutsche Bank AG London (DBL), to lend cash and securities to DBSI’s customers. FINRA’s 2009 examination of the firm uncovered a number of serious problems in connection with this program. For example, the firm’s books reflected that it owed $9.4 billion to its affiliate, but neither the firm nor FINRA examiners could readily determine which portions of that debt were attributable to the customers’ enhanced lending activity, and which were attributable to DBL’s own proprietary trading. The lack of transparency in DBSI’s books and records meant the firm was unable to readily monitor the accounts originating out of the enhanced lending business.

FINRA also found that there were instances where DBSI made inaccurate calculations that resulted in the firm overstating its capital or failing to set aside enough funds in its customer reserve account to appropriately protect customer securities. For example, DBSI incorrectly classified certain enhanced lending stock loans; when it reclassified them in April 2010, DBL was obligated to pay a margin call of $3.1 billion. DBSI improperly computed its payable balance, thus reducing the firm’s reported liabilities and inaccurately overstating the firm’s net capital. Separately, in March 2010, the firm incorrectly computed its customer reserve formula. As a result, the firm’s customer reserve fund was deficient by $700 million to $1.6 billion during March 2010.

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

On December 9, 2013, FINRA announced that it had fined Oppenheimer & Co., Inc. $675,000 for charging unfair prices in municipal securities transactions and for failing to have an adequate supervisory system. FINRA also ordered Oppenheimer to pay more than $246,000 in restitution, plus interest, to customers who were charged unfair prices. In addition, FINRA fined Oppenheimer’s head municipal securities trader, David Sirianni, $100,000, and suspended him for 60 days.

 FINRA found that from July 1, 2008, through June 30, 2009, Oppenheimer, through Sirianni, priced 89 customer transactions from 5.01 percent to 15.57 percent above the firm’s contemporaneous cost. In 54 of those transactions, the markups exceeded 9.4 percent. Sirianni purchased municipal securities from a broker-dealer on Oppenheimer’s behalf, held the bonds in inventory for at least overnight, and then made the bonds available for resale at unfair prices to the firm’s customers. Sirianni was responsible for determining the prices paid by customers in the 89 transactions.

Oppenheimer failed to detect the unfair prices charged. Oppenheimer’s supervisory system was deficient because supervisory personnel relied solely on a surveillance report that only captured intra-day transactions to review the fairness of markups/markdowns in municipal securities transactions. From at least 2005 through June 30, 2009, if an Oppenheimer trader purchased municipal securities and held those securities in inventory for a day or longer, the subsequent sales to customers would not populate the firm’s surveillance report or be subjected to a fair pricing review.

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

It was unclear from FINRA’s announcement whether customers had initiated FINRA arbitrations or any other type of securities arbitrations.  Any customer who believes they have been a victim of excessive municipal markups, markdowns, or securities fraud can contact David A. Weintraub, P.A., 7805 SW 6^th Court, Plantation, FL 33324.  By phone:  954.693.7577 or 800.718.1422.

On December 3, 2013, FINRA announced that it had barred brokers Fernando L. Arevalo and Jimmy E. Caballero from the securities industry for wrongfully converting approximately $300,000 from an elderly widow with diminished mental capacity, and for failing to fully cooperate with FINRA’s investigation. Arevalo and Caballero’s misconduct occurred while employed as brokers with JPMorgan Chase Securities, LLC. Although JPMorgan was not a party to this action, it reimbursed the elderly customer for the money Caballero and Arevalo converted.

FINRA’s investigation found that the elderly customer maintained accounts at JPMorgan and a related bank affiliate. Between April and July 2013, the customer deposited approximately $300,000 in proceeds from the sale of two annuities into a bank account Arevalo had opened for her. The funds were then withdrawn from the account via two cashier’s checks, and on the same day, Caballero deposited the money into a joint account he opened in his name and the customer’s name at a different bank. When the bank questioned the deposits and required further confirmation before clearing the deposits, Arevalo picked up and drove the customer to the bank to confirm the source of the funds. Funds from the account were then depleted through numerous checks payable to Arevalo, and Caballero and Arevalo used the account debit card for personal expenses including payments on a real estate loan, car loan and various retail purchases. The customer was unaware of any withdrawals or purchases against the joint account by Arevalo or Caballero, and did not authorize the transactions.

In addition, Arevalo failed to provide testimony to FINRA. Although Caballero initially provided testimony to FINRA, he subsequently refused to provide additional information that was relevant to the investigation.

In concluding these settlements, Caballero and Arevalo neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

On September 30, 2013, FINRA announced that it had filed for a Temporary Cease-and-Desist Order against John Carris Investments, LLC (JCI) and its CEO, George Carris, to immediately halt solicitations of its customers to purchase Fibrocell Science, Inc. stock without making proper disclosures. FINRA alleged that during May 2013, JCI fraudulently solicited its customers to buy Fibrocell stock, without disclosing that during the same time period, Carris and another firm principal were selling their shares.

FINRA also issued an amended complaint against JCI, Carris, and five other firm principals alleging additional fraudulent activity and securities violations. In the complaint, FINRA alleged that while JCI acted as a placement agent for Fibrocell, Carris and the firm artificially inflated the price of Fibrocell stock by engaging in pre-arranged trading and by making unauthorized purchases of Fibrocell stock in customers’ accounts.

According to FINRA’s announcement, Carris and JCI fraudulently sold stock and notes in its parent company, Invictus Capital, Inc., by not disclosing its poor financial condition. FINRA stated that JCI and Carris misled Invictus investors by paying dividends to Invictus’ early investors with funds that were, in fact, generated by new sales of Invictus securities. JCI and Carris did not have any reasonable grounds to expect economic gains for Invictus investors. As of March 2013, Invictus Capital had defaulted on $2 million of Invictus notes sold to earlier John Carris Investments customers, did not have funds to repay them, and has stated that it may be required to use proceeds from its ongoing offering to make repayments. JCI continues to solicit new investments in Invictus – an investment that FINRA alleged is wholly unsuitable.

In addition, JCI issued false documentation that failed to reflect the firm’s payments for Carris’ personal expenses, and failed to remit hundreds of thousands of dollars in employee payroll taxes to the United States Treasury.

It was unclear from FINRA’s announcement whether customers had initiated FINRA arbitrations or any other type of securities arbitrations.  Any customer who believes they may have been a victim of securities fraud can contact David A. Weintraub, P.A., 7805 SW 6^th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.