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Archive for May, 2018


Dennis Ernest Beeby (San Diego, California)

An AWC was issued in which Beeby was assessed a deferred fine of $10,000, suspended from association with any FINRA member in all capacities for eight months and ordered to pay deferred disgorgement of commissions received in the amount of $55,000, plus interest. Without admitting or denying the findings, Beeby consented to the sanctions and to the entry of findings that he never disclosed his participation in private securities transactions in writing or otherwise to his member firm and never received its approval to participate in the transactions. The findings stated that the firm’s relevant WSPs prohibited representatives from engaging in any private securities transaction without its prior express written permission. Beeby recommended the purchase of securities in the form of oil and gas working interests in the development of an oil and gas lease by a corporation to several of his customers. The working interest securities were not offered through Beeby’s firm. Four customers purchased a sum total of $700,000 in oil and gas working interests. Beeby handled all aspects of the sales, including recommending the investment, providing paperwork for investors to sign, signing some of the transaction documents and managing ongoing communications regarding the investment. Beeby also received a commission of $55,000 for the sales.

The suspension is in effect from April 2, 2018, through December 1, 2018. (FINRA Case #2016052305501)

LPL Financial LLC (Boston, Massachusetts)

An AWC was issued in which the firm was censured and fined $375,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to implement a supervisory system reasonably designed to ensure that its registered representatives were trained on all material risks and features of brokered certificates of deposit (CDs) and that it adequately disclosed all material risks and features of the brokered CDs to customers. The findings stated that in particular, the firm failed to take reasonable steps to ensure that its registered representatives or fixed income desk employees received or had meaningful access to issuer-prepared disclosure documents prior to their sales of these products. In response to FINRA Notice to Members 02-69, the firm prepared and delivered to customers who purchased brokered CDs a generic CD disclosure statement that described the general risks and characteristics of brokered CDs. The firm, however, did not consistently provide its customers, prior to or at the time of sale, with issuer-prepared disclosure documents, despite the firm’s obligation to do so under its selling agreements with the brokered CD issuers, and did not otherwise have a process to disclose fully all material risks and features of the brokered CDs to customers. Because of the firm’s deficient supervisory system, one of the firm’s registered representatives made material misrepresentations to elderly customers regarding the limitations on the ability, upon death, of their estates to redeem their 20-year brokered CDs at par value. The elderly customers or their estates suffered losses of approximately $75,000 because they were unable to fully redeem the brokered CDs and had to sell the brokered CDs on the secondary market. The firm subsequently remediated these customers’ losses. (FINRA Case #2015045703001)

FINRA takes new enforcement action against Charles Acheson Laverty

Laverty was named a respondent in a FINRA complaint alleging that that during consecutive associations with several member firms, he borrowed $1,350,000 from an elderly married couple in violation of each firm’s policies. The complaint alleges that three of the firms prohibited their representatives from borrowing money from their customers.

Although a firm permitted loans between representatives and customers under limited circumstances, any such loan required the written approval of the chief compliance officer. The firm’s chief compliance officer never provided any such approval to Laverty. The complaint also alleges that Laverty concealed the loans from his firms and falsely stated on annual compliance questionnaires and on a heightened supervision attestation that he had not borrowed money from customers. For an example, Laverty lied on a firm’s compliance questionnaires concerning soliciting or accepting a loan from or making a loan to a client and having a judgment against him. On a firm’s annual compliance questionnaire, Laverty’s answers were false because earlier he had borrowed $45,000 from the elderly couple. Moreover, the Superior Court of California, County of Riverside, entered a judgment against Laverty for $114,456.25 in a lawsuit by the Security Bank of California against him arising from his failure to repay a promissory note. Laverty was aware of this judgment.

The complaint further alleges that Laverty concealed the loans from FINRA and provided false on-the-record (OTR) testimony during a previous FINRA investigation into his borrowing activity. During an OTR taken in that investigation, FINRA questioned Laverty about loans from five particular customers, and then asked, “Mr. Laverty, did you borrow from any other customers?” Laverty answered, “No” and insisted that he had only borrowed from these five customers. Laverty’s answers were false. Laverty had, in fact, also borrowed from the elderly couple. In addition, Laverty executed a $1.4 million promissory note for the loans that the elderly couple had extended to him and quickly breached the agreement by making none of the required monthly payments. The elderly couple filed a Statement of Claim against Laverty and the firms through which he registered. One of the firms filed a Form U5 Amendment disclosing the Statement of Claim and informing FINRA, for the first time, that Laverty had improperly solicited and accepted loans from the elderly couple. Neither of these elderly customers lived to see their claims resolved. Nevertheless, days before a scheduled arbitration, the elderly couple, through their successor in interest, settled their claim against Laverty. Soon thereafter, Laverty breached his obligations under the settlement by failing to make a required payment. FINRA suspended Laverty for failure to comply with the settlement. In addition, the complaint alleges that Laverty willfully failed to update his Form U4 to disclose an unsatisfied judgment entered in the Security Bank of California lawsuit and a federal tax lien.

FINRA Sanctions Fifth Third Securities, Inc., $6 Million

The Financial Industry Regulatory Authority (FINRA) announced today it has fined Fifth Third Securities, Inc., $4 million and required the firm to pay approximately $2 million in restitution to customers for failing to appropriately consider and accurately describe the costs and benefits of variable annuity (VA) exchanges, and for recommending exchanges without a reasonable basis to believe the exchanges were suitable. This is the second significant FINRA enforcement action against Fifth Third involving the firm’s sale of variable annuities.

Variable annuities are complex investments commonly marketed and sold to retirees or people saving for retirement. Exchanging one VA with another involves a comparison of the complex features of each security. Accordingly, VA exchanges are subject to regulatory requirements to ensure that brokers have a reasonable basis to recommend them, and their supervisors have a reasonable basis to approve the sales.

FINRA found that Fifth Third failed to ensure that its registered representatives obtained and assessed accurate information concerning the recommended VA exchanges. It also found that the firm’s registered representatives and principals were not adequately trained on how to conduct a comparative analysis of the material features of the VAs. As a result, the firm misstated the costs and benefits of exchanges, making the exchange appear more beneficial to the customer. By reviewing a sample of VA exchanges that the firm approved from 2013 through 2015, FINRA found that Fifth Third misstated or omitted at least one material fact relating to the costs or benefits of the VA exchange in approximately 77 percent of the sample. For example:

  •  Fifth Third overstated the total fees of the existing VA or misstated fees associated with various additional optional benefits, known as riders.
  • Fifth Third failed to disclose that the existing VA had an accrued living benefit value, or understated the living benefit value, which the customer would forfeit upon executing the proposed exchange.
  • Fifth Third represented that a proposed VA had a living benefit rider even though the proposed VA did not, in fact, include a living benefit rider.

FINRA found that the firm’s principals ultimately approved approximately 92 percent of VA exchange applications submitted to them for review. However, in light of the firm’s supervisory deficiencies, the firm did not have a reasonable basis to recommend and approve many of these transactions.

Susan Schroeder, FINRA’s Executive Vice President and Head of Enforcement, said, “FINRA remains vigilant in examining how member firms market variable annuities, which are complex products pitched to retirees and people saving for retirement. Returning $2 million in restitution to harmed investors is a key part of FINRA’s investor protection mission.”

In addition, FINRA found that Fifth Third failed to comply with a term of its 2009 settlement with FINRA. In the 2009 action, FINRA found that, from 2004 to 2006, Fifth Third effected 250 unsuitable VA exchanges and transactions and had inadequate systems and procedures governing its VA exchange business. For more than four years following the settlement, the firm failed to fully implement an independent consultant’s recommendation that it develop certain surveillance procedures to monitor VA exchanges by individual registered representatives.

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

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