An AWC was issued in which De Ruosi was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for six months. Without admitting or denying the findings, De Ruosi consented to the sanctions and to the entry of findings that she willfully failed to timely amend her Form U4 to disclose a felony charge in connection with a motor vehicle incident. The findings stated that this felony charge was reduced to a misdemeanor, to which she pled guilty. The findings also stated that De Ruosi provided a false answer on her member firm’s annual compliance questionnaire by denying that she had been arrested, charged and arraigned for any criminal offense since her last submission to the firm. The suspension is in effect from September 18, 2017, through March 17, 2018. (FINRA Case #2015046161601)
Archive for December, 2017
FINRA Fines Raymond James Financial Services, Inc. $2 Million for Failing to Reasonably Supervise Email Communications
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Raymond James Financial Services, Inc. $2 million for failing to maintain reasonably designed supervisory systems and procedures for reviewing email communications. In addition, Raymond James has agreed to conduct a risk-based retrospective review to detect potential violations evidenced in past emails.
FINRA found that during a nine-year review period, Raymond James’ email review system was flawed in significant respects, allowing millions of emails to evade meaningful review. This created the unreasonable risk that certain misconduct by firm personnel could go undetected by the firm. The combinations of words and phrases – otherwise known as the “lexicon” – used to flag emails for review were not reasonably designed to detect certain potential misconduct that Raymond James, in light of its size, structure, business model, and experience from prior disciplinary actions, knew or should have anticipated would recur from time to time. The firm also failed to devote adequate personnel and resources to the team that reviewed emails flagged by the system, even as the number of emails increased over time.
FINRA also found that Raymond James did not periodically test the configuration and effectiveness of its lexicon-based email surveillance system. The firm’s primary focus was reducing the number of “false positives” that would need to be reviewed rather than ensuring that the system was effectively identifying all potentially problematic categories of emails.
Susan Schroeder, FINRA Executive Vice President, Department of Enforcement, said, “Firms have a clear obligation to reasonably supervise electronic communications, which includes periodically re-evaluating the effectiveness of existing procedures. They should also assess whether their e-mail review and supervisory systems are reasonably designed in light of each firm’s business model.”
In addition, FINRA found that the firm unreasonably excluded from email surveillance certain firm personnel who serviced customer brokerage accounts. Raymond James also failed to apply its entire lexicon to the emails of approximately 1,300 registered representatives who worked in branches that hosted their own email servers.
FINRA previously issued Regulatory Notice 07-59 which provides guidance regarding the review and supervision of electronic communications.
In settling this matter, Raymond James neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
The Securities and Exchange Commission today announced charges and an asset freeze against a group of unregistered funds and their owner who allegedly bilked thousands of retail investors, many of them seniors, in a $1.2 billion Ponzi scheme.
SEC investigators filed this action to prevent further dissipation of investor assets after obtaining court orders in September and November in subpoena enforcement actions that forced the unregistered companies to open their books.
According to the SEC’s complaint, unsealed today in federal court in Miami, Florida, Robert H. Shapiro and a group of unregistered investment companies called the Woodbridge Group of Companies LLC formerly headquartered in Boca Raton, Florida, defrauded more than 8,400 investors in unregistered Woodbridge funds.
“We allege that through aggressive tactics, Woodbridge and Shapiro swindled seniors into a business model built on lies, which the SEC’s Miami Regional Office staff moved to halt,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.
“Our complaint alleges that Woodbridge’s business model was a sham,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”
“Our complaint further alleges that Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Shapiro used the scheme to line his pockets with millions of investor dollars.”
According to the SEC complaint, Woodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners paying Woodbridge 11-15% annual interest for “hard money,” short-term financing. In return, Woodbridge allegedly promised to pay investors 5-10 percent interest annually. Woodbridge and Shapiro allegedly sought to avoid investors cashing out at the end of their terms and boasted in marketing materials that “clients keep coming back to [Woodbridge] because time and experience have proven results. Over 90% national renewal rate!” While Woodbridge claimed it made high-interest loans to third parties, the SEC’s complaint alleges that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments on the loans.
The SEC complaint alleges that Shapiro and Woodbridge used investors’ money to pay other investors, and paid $64.5 million in commissions to sales agents who pitched the investments as “low risk” and “conservative.” Shapiro, of Sherman Oaks, California, is alleged to have diverted at least $21 million for his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry. According to the complaint, the scheme collapsed in typical Ponzi fashion in early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection.
The Honorable Judge Marcia G. Cooke granted the SEC’s request for a temporary asset freeze against Shapiro and a group of his unregistered investment companies, and ordered them to provide an accounting of all money received from investors.
The SEC’s complaint charges Shapiro, Woodbridge, and certain affiliated companies with fraud and violations of the securities and broker-dealer registration provisions of the federal securities laws. The SEC is seeking return of allegedly ill-gotten gains with interest and financial penalties. A court hearing has been scheduled for Dec. 29, 2017 on the SEC’s request to continue the asset freeze. The SEC’s motion for the appointment of a receiver over Woodbridge and the related companies is pending.
The SEC’s investigation, which is continuing, has been conducted by Scott A. Lowry, Linda S. Schmidt, Russell Koonin, Christine Nestor, and Mark Dee in the Miami Regional Office with assistance from Alistaire Bambach, David Baddley and Neal Jacobson. The case has been supervised by Jason R. Berkowitz and Fernando Torres, and the litigation will be led by Mr. Koonin, Ms. Nestor, and Mr. Lowry. The SEC appreciates the assistance of the Florida Office of Financial Regulation, California’s Department of Justice and Department of Business Oversight, the Colorado Division of Securities, and the Texas State Securities Board.
The Financial Industry Regulatory Authority (FINRA) announced that it has fined Merrill Lynch, Pierce, Fenner & Smith Incorporated $1.4 million for failing to establish a reasonable supervisory system and procedures to identify and evaluate extended settlement transactions, and for related rule violations.
Extended settlement transactions have a longer time between trade and settlement than routine securities transactions, and therefore involve an extension of credit and exposure to counterparty, credit and market risk. As a result of its supervisory deficiencies, Merrill failed to collect adequate margin to offset this risk, improperly extended credit to cash-account customers, and miscalculated its outstanding margin and net capital.
FINRA found that from at least April 2013 through June 2015, Merrill’s customers engaged in extended settlement transactions with notional values of hundreds of millions of dollars across numerous firm product lines. Despite the prevalence of these transactions, Merrill’s supervisory system, including written supervisory procedures, was not reasonably designed to identify and evaluate extended settlement transactions for compliance with margin and net capital rules. Consequently, Merrill’s computation of margin requirements and net capital deductions for tens of thousands of extended settlement transactions was inaccurate, resulting in margin rule and net capital violations, as well as inaccurate books and records and FOCUS Report filings.
FINRA also found that Merrill improperly extended hundreds of millions of dollars of margin credit in numerous retail customers’ cash accounts, in violation of Regulation T. These transactions should only have been permitted in margin accounts, not in customer cash accounts.
Merrill knew that its supervisory system was not reasonably designed to achieve compliance in connection with extended settlement transactions by April 2013. However, Merrill failed to implement any remedial measures until mid-2014. Moreover, Merrill failed to establish a firm-wide supervisory system and written procedures to address extended settlement transactions until mid-2015. FINRA found that Merrill’s failures to promptly address the deficiencies after it knew about them unreasonably delayed its compliance with applicable margin, net capital, and books and records rules, as well as Regulation T.
An AWC was issued in which Tazhibi was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in all capacities for two months. Without admitting or denying the findings, Tazhibi consented to the sanctions and to the entry of findings that he made an unsuitable recommendation to retail customers, a recently retired married couple, to invest approximately $135,000 in a non-investment grade, speculative-rated municipal bond intended by the issuer only for sale to institutional buyers. The findings stated that when Tazhibi recommended the bond to them, the customers had an investment profile that included an investment objective of income and growth and a conservative risk tolerance. In addition, although the bond was intended only for sale to approved institutional buyers, the customers were individual retail customers and did not qualify as approved institutional buyers. Tazhibi’s recommendation that the customers invest in the bond was inconsistent with their financial situation and objectives and the intended market for the bond. In light of these factors, Tazhibi lacked a reasonable basis to recommend the bond to the customers and failed to deal fairly with them. The bond was later canceled based on a restructuring agreement with the bondholders. Tazhibi’s member firm paid restitution to the customers to compensate them for their losses.
The suspension is in effect from September 18, 2017, through November 17, 2017. (FINRA Case #2016048911301)
The Securities and Exchange Commission (“Commission”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading in the securities of The Crypto Company (“CRCW”), of Malibu, California at 9:30 a.m. EST on December 19, 2017, and terminating at 11:59 p.m. EST on January 3, 2018.
The Commission temporarily suspended trading in the securities of The Crypto Company because of concerns regarding the accuracy and adequacy of information in the marketplace about, among other things, the compensation paid for promotion of the company, and statements in Commission filings about the plans of the company’s insiders to sell their shares of The Crypto Company’s common stock. Questions have also arisen concerning potentially manipulative transactions in the company’s stock in November 2017. This order was entered pursuant to Section 12(k) of the Exchange Act.
An AWC was issued in which Smith was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for three months. Without admitting or denying the findings, Smith consented to the sanctions and to the entry of findings that he maintained and used pre-signed and altered forms which caused his member firm to have inaccurate books and records. The findings stated that Smith had customers sign blank forms and made additional photocopies of some of the blank-signed forms so that he could reuse the customers’ signatures. Smith utilized these blank-signed forms to effect transactions authorized by the clients. In addition, Smith, with a client’s authorization, submitted an altered, pre-signed form upon which correction fluid had been used to white-out and correct an inaccurate bank account number. The suspension is in effect from September 5, 2017, through December 4, 2017. (FINRA Case #2012033566202)
An AWC was issued in which McMurray was barred from association with any FINRA member in all capacities. Without admitting or denying the findings, McMurray consented to the sanction and to the entry of findings that he failed to provide FINRA-requested documents and information related to an investigation into the circumstances surrounding his termination from his member firm. The findings stated that McMurray’s firm submitted a Form U5 disclosing an internal review of him relating to “private securities transactions/selling away.” (FINRA Case #2016051351801)
Aidikoff, Uhl & Bakhtiari is investigating Mark Heiden, a Wedbush Securities broker. Heiden is accused of using sales practices that were related to the overconcentration of energy related stocks investments in customer accounts. These investments included
Energy XXI Bermuda Ltd.(EXXI):
Energy XXI was an independent oil and natural gas development and production company whose growth strategy emphasized acquisitions and organic drilling programs. The company’s properties are located in the U.S. Gulf of Mexico waters and the Gulf Coast onshore. Unfortunately, the security lost over 95% of its value in an approximate six month period and is now valued at less than 10 cents a share.
Clearbridge American Energy MLP (CBA):
This is a natural gas master limited partnership. The Fund concentrated its investments in energy related MLPs which subjected it to the risks of MLPs and the energy sector, including the risks of declines in energy and commodity prices, decreases in energy demand and adverse weather conditions. it invested in securities like Enterprise Product Partners, Enbridge Energy Partners, Targa Resources Corp. and Energy Transfer Partners.
Goldman Sach MLP Energy:
This investment concentrated its holdings in a basket of energy related master limited partnerships.
(ARCH) is a natural resource company. The company produces metallurgical and thermal coal, used to manufacture steel and generate electricity.
Seadrill is a offshore drilling contractor headquartered in London.
Morgan Stanley MT Note
Mark Heiden is being investigated as to whether he disclosed all material risks of said investments to clients, and whether he implemented an appropriate risk management strategy while recommending the investments. These investments, especially those in oil and gas and energy, can be extremely risky and unsuitable investments for many investors. A broker must take into account a client’s age, net worth, investment savvy and investment objectives before recommending or selling a security. If he does not, his brokerage firm may be liable for losses for lack of supervision.
Mark Heiden was also accused of executing unsuitable trades, making unauthorized transactions, falsifying documents and misrepresenting and omitting material facts related to an investment. He was also accused of failing to execute a limited sell order. All of these are against securities rules and regulations.
Mark Heiden was registered with Crowell, Weedon & Co. in Los Angeles, California from June 1997 until September 2000, Sutro & Co. in San Francisco, California from September 2000 until March 2002, RBC Dain Rauscher in Newport Beach, California from March 2002 until April 2007, and Morgan Stanley in Newport Beach from April 2007 until August 2013. He is currently registered with Wedbush Securities in Newport Beach and has been since August 2013.
An AWC was issued in which Sias was barred from association with any FINRA member in all capacities. Without admitting or denying the findings, Sias consented to the sanction and to the entry of findings that she failed to respond to FINRA requests for documents and information in connection with an investigation of her alleged receipt of funds from a customer at her member firm. (FINRA Case #2017053136102)
The Importance of Selection of Counsel
The retention of an attorney is an important decision made with great care. Please review our web site and examine our experience and credentials.