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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.

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.

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, 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 6^th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

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

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 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.

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