FINRA Broker Disciplinary Action Report October 2017
Each month, the agency that regulates the financial industry, FINRA (Financial Industry Regulatory Authority), produces a detailed report that runs down all disciplinary actions recently taken against brokerage firms and brokers. We strongly encourage any investor who suspects their broker and/or broker-dealer of having lost them money on dubious terms to at least skim this report to see if you recognize any names, schemes, products, or securities.
For our part, we like to pick out some of the highlights from each report. Specifically, we’re looking for schemes or abuses that might be more far-reaching than the individual cases brought through the FINRA arbitration process.
FINRA Firms & Brokers, Fined & Sanctioned
FSC Securities Corporation
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it executed approximately 6,500 purchases of leveraged, or inverse, or both inverse and leveraged exchange-traded funds (non-traditional ETFs) in approximately 1,400 retail customer accounts without establishing and maintaining a supervisory system, including written procedures, reasonably designed to ensure that the firm’s offering of non-traditional ETFs complied with NASD® and FINRA rules. The findings stated that non-traditional ETFs have certain risks that are not associated with traditional ETFs or equities. The firm’s general supervisory system was not sufficiently tailored to address the unique features and risks involved with these products. Those purchases were worth approximately $92 million and generated approximately $603,000 in commissions. The findings also stated that the firm allowed registered representatives to recommend non-traditional ETFs without establishing a reasonable supervisory system or written supervisory procedures (WSPs) specifically addressing these products. While the firm prohibited the offering of certain kinds of non-traditional ETFs, it allowed the offering of other kinds of non-traditional ETFs to continue without implementing a reasonable system and written procedures to supervise those offerings.
Hennion & Walsh, Inc.
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it recommended and sold municipal bonds in transactions to retail customers in dollar amounts below the applicable minimum denomination.
City National Securities, Inc.
Without admitting or denying the findings, the firm consented to the sanctions and to
the entry of findings that it failed to supervise certain of its registered representatives to
ensure their compliance with FINRA rules relating to outside business activities, private
securities transactions and outside accounts.
FINRA found that although the firm was aware that a registered representative—who was employed by its affiliated registered investment advisor—was engaging in outside business activities, held outside brokerage accounts through those outside entities, and was engaging in private securities transactions through at least one of those outside entities (an investment fund), the firm did not ensure that he properly disclosed those outside business activities, private securities transactions or outside brokerage accounts. The firm failed to adequately review or evaluate this representative’s outside business activities, failed to supervise the activity in some of the outside brokerage accounts and the private securities transactions, failed to record the private securities transactions on the firm’s books and records, and failed to identify and follow up on items that should have warranted further scrutiny of the representative’s activities.
Consolidated Financial Investments, Inc.
Without admitting or denying the findings, the firm consented to the sanction and to the entry of findings that it knew that a registered person was engaging in an outside business activity that involved investments, but did not properly evaluate that activity.
Cetera Financial Specialists LLC
An AWC was issued in which the firm was censured and required to provide FINRA with a remediation plan to remediate eligible customers who qualified for, but did not receive, the applicable mutual fund sales-charge waiver. As part of this settlement, the firm agreed to pay restitution to eligible customers, which is estimated to total approximately $572,260 (the amount eligible customers were overcharged, inclusive of interest). The firm will also ensure that retirement and charitable waivers are appropriately applied to all future transactions. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it disadvantaged certain retirement plan and charitable organization customers who were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge. The findings stated that these eligible customers were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses.
First Allied Securities, Inc.
An AWC was issued in which the firm was censured and required to provide FINRA with a remediation plan to remediate eligible customers who qualified for, but did not receive, an applicable mutual fund sales-charge waiver. As part of this settlement, the firm agreed to pay restitution to eligible customers, which is estimated to total approximately $876,915 (the amount eligible customers were overcharged, inclusive of interest). The firm will also ensure that retirement and charitable waivers are appropriately applied to all future transactions. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge. The findings stated that these eligible customers were instead sold Class A shares with a front end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses.
Ralph Villanueva Villavicencio (CRD #4206187, Kirkland, Washington)
Without admitting or denying the findings, Villavicencio consented to the sanction and to the entry of findings that he refused to appear for FINRA on-the-record testimony in connection with its investigation regarding his acceptance of a gift from a customer at his member firm.
James Vincent Marino (CRD #6192459, Davie, Florida)
Without admitting or denying the findings, Marino consented to the sanction and to the entry of findings that he refused to appear for FINRA on-the-record testimony in connection with its investigation into allegations against Marino related to his acceptance of gifts totaling approximately $20,500 and use of a client’s credit card for his own benefit in the amount of approximately $6,700.
Bryan Christopher Lightsey (CRD #4472767, West Palm Beach, Florida)
Without admitting or denying the findings, Lightsey consented to the sanction and to the entry of findings that he failed to appear for FINRA on the-record testimony in connection with an inquiry into the circumstances surrounding his discharge from his member firm.
Shelley Steuer Freeman (CRD #1262649, Fort Lauderdale, Florida)
Without admitting or denying the findings, Freeman consented to the sanction and to the entry of findings that she failed to provide FINRA with requested documents and information.
Keith Dwayne McGregory (CRD #2217000, Chicago, Illinois)
Without admitting or denying the findings, McGregory consented to the sanction and to the entry of findings that he converted more than $27,000 of his member firm’s funds by utilizing the firm’s corporate card for personal expenses after his resignation from the firm. The findings stated that pursuant to a FINRA Dispute Resolution Award following a contested hearing, McGregory was ordered to pay damages to the firm for his personal charges on the firm’s corporate credit card.
For the full Disciplinary Action Report from FINRA, visit their website by clicking here.