FINRA News Archives - David A. Weintraub

FINRA Fined Center Street Securities for GPB Capital Fund Sales

Valerie Escobar February 1, 2023February 6, 2023

On December 29, 2022, the Financial Industry Regulatory Authority fined Nashville based, Center Street Securities, Inc., for improperly selling GPB Capital Holding private placements. According to FINRA, Center Street Securities failed to inform nearly 20 investors that GPB had failed to submit its required filings with the SEC.

According to the Letter of Acceptance, Waiver and Consent, filed by FINRA, Center Street “negligently failed” to tell 20 investors in two offerings related to GPB Capital Holdings LLC, that the issuer failed to make timely required filings with the Securities and Exchange Commission. Per FINRA, in connection with these 20 sales, Center Street representatives did not inform the customers that the partnerships in question, Automotive Portfolio and Holdings II had not timely filed their audited financial statements with the SEC or the reasons for the delay. The delay in filing audited financial statements and the reasons for it was material information that should have been disclosed. Between May 4, 2018, and June 29, 2018, Center Street sold limited partnership interests. The principal value of those 20 sales, totaled $1,206,000. These transactions generated $98,727.50 in commissions. By negligent omitting material facts, Center Street violated FINRA rules.

In settling this matter, Center Street Securities neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. Center Street Securities, agreed to a public censure and to pay a $70,000 fine and partial restitution of $89,652.50.

If you have not hired an attorney and wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.

Morgan Stanley Smith Barney Fined and Order to Pay Restitution to Customers Affected by its Failure to Supervise

Valerie Escobar November 21, 2022February 22, 2023

On November 21, 2022 FINRA censured Morgan Stanley Smith Barney LLC for its failure to supervise nine registered representatives who recommended potentially high risk securities to their customers. The firm previously paid restitution to some of the customers who suffered losses as a result of its conduct. FINRA ordered Morgan Stanley to pay restitution to the remaining customers.

From January 2014 through December 2018, Morgan Stanley failed to reasonably supervise nine registered representatives who recommended potentially high-risk securities to their customers in violation of the firm’s Plan of Solicitation policy. Each of the nine representatives recommended that customers purchase securities in quantities that were subject to Morgan Stanley’s pre-approval requirement but did not complete a Plan of Solicitation. The investigation revealed that Morgan Stanley received alerts that some of its registered representatives had made hundreds of recommendations that violated the firm’s Plan of Solicitation policy. The firm’s procedures require that a supervisor at the firm review and approve the Plan of Solicitation prior to the representative recommending the security. Each of the representatives recommended that customers purchase securities in quantities that were subject to the firm’s pre-approval requirement but did not complete a Plan of Solicitation. Some of the recommended securities were high risk and inconsistent with certain of their customers’ moderate or conservative risk tolerances. The firm did not take appropriate action in response to alerts that its representatives had violated its own policies. In particular, the firm did not evaluate whether the recommendations were consistent with the customers’ investment profiles. These customers incurred realized losses as a result of many of the recommended trades. Subsequently, the firm improved its enforcement of the Plan of Solicitation policy, including by directing review of Plan of Solicitation alerts to a central review unit.

Without admitting or denying the findings, the firm consented to the entry of findings that it failed to reasonably supervise registered representatives who recommended potentially high-risk securities to their customers in violation of the firm’s Plan of Solicitation policy. Morgan Stanley was fined $200,000.00 and required to pay $497,897, plus interest in restitution to affected customers.

Harmed investors can call (800) 718-1422 or email [email protected] to discuss their legal options. All consultations are free and confidential. Most cases are handled on a contingency fee basis, meaning that clients are not obligated to pay attorney fees unless money is recovered on their behalf.

Registered Representative, Douglas F. Kaiser Fined, and Suspended in Relation to his Failure to Supervise US Treasury Securities Transactions

Valerie Escobar November 11, 2022February 22, 2023

On November 11, 2022, FINRA sanctioned Douglas Fulton Kaiser of Boca Raton, Florida. Kaiser, who is registered with Westpark Capital Inc., was fined $5,000.00 and suspended from association with any FINRA member in any principal capacity for three months. In addition, he is required to attend and satisfactorily complete twenty hours of continuing education concerning supervision. The sanctions stemmed from failing to supervise WestPark’s markups and markdowns for US Treasury securities.

Through the investigation, FINRA learned that Kaiser was the supervisor of WestPark’s fixed-income trading desk while a representative, who was recommending an unsuitable investment strategy characterized by the active, short-term trading of U.S. Treasury securities and charging excessive markups on certain transactions involving U.S. Treasury securities was registered at the firm. In his role, Kaiser was responsible for reviewing markups and markdowns on fixed-income transactions. For eight customers who suffered losses due to the representative’s Treasury-trading strategy, the representative charged, and Kaiser approved, markups or markdowns more than the firm’s policies allowed. Kaiser failed to recognize and respond appropriately to the elevated markups and markdowns. Moreover, for five of the eight customers, Kaiser miscalculated the markdowns the representative charged for certain sales on one day. Those sales were part of a group of same-day sales followed by purchases the following day that collectively amounted to “proceeds” transactions.

Without admitting or denying the findings, Kaiser consented to the sanctions and to the entry of findings that he failed to supervise his member firm’s markups and markdowns for U.S. Treasury securities. The suspension is in effect from December 5, 2022, through March 4, 2023.

FINRA Fined Wedbush Securities Inc., Due to its Misrepresentation In Connection with Certain Corporate and Municipal Bonds Interest or Principal Payments

Valerie Escobar November 3, 2022February 22, 2023

On November 3, 2022, FINRA censured Wedbush Securities Inc., fined the firm $850,000, and required it to certify that the firm’s WSPs and supervisory system are reasonably designed to review the accuracy of account statements sent to customers and to achieve compliance with its obligation to deliver to customers annual privacy notices, margin disclosures, and order execution disclosures.

From January 2013 through December 2018, Wedbush negligently misrepresented on monthly account statements that it sent to approximately 610 customers that certain corporate and municipal bonds were making interest or principal payments when, in fact, the bonds were in default. The investigation stated that the firm failed to establish and maintain a supervisory system reasonably designed to review the accuracy of account statements it sent to customers. Although the firm received notice when bonds held by customers had defaulted, it did not have any system to verify that such information was reflected in the system the firm used to maintain information about securities held by customers. In addition, from January 2010 through August 2020, Wedbush failed to deliver to a total of approximately 14,900 customers three types of annual notices and disclosures required by FINRA and SEC rules. The notices were available on the firm’s website. FINRA found that the firm did not have a supervisory system reasonably designed to achieve compliance with its obligation to deliver annual privacy notices, order execution disclosures, and margin disclosures. The firm’s WSPs required the firm to deliver the privacy notices, order execution disclosures, and margin disclosures to customers on an annual basis. However, the firm did not have any system to verify that such notices were sent to customers who elected to receive materials from the firm via its online platform. Instead, the firm relied on its vendor to deliver these required annual notices and disclosures to customers, but the firm did not take any steps to verify that its vendor had appended the required notices and disclosures to the account statements sent electronically to customers. Ultimately, the firm identified that customers had not been receiving the required notices and disclosures, implemented changes in its delivery process, and self-reported the issue to FINRA. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it negligently misrepresented the default status of bonds on customer account statements.

FINRA Barred Former LPL Broker who Allegedly Misappropriated Funds from an Elderly Client

Valerie Escobar October 7, 2021October 29, 2021

On October 7, 2021 FINRA announced that it had barred Eric Shea Hollifield, a former LPL Broker, who allegedly converted a senior client’s funds, after he refused to cooperate with FINRA’s investigation into his conduct.

According to FINRA, an investigation was launched into Hollifield after an elderly client filed an arbitration alleging Hollifield misappropriated $1,240,000. Consequently, LPL fired Hollifield on September 10 for failure to disclose an outside business activity. On October 7, 2021, FINRA filed an Letter of Acceptance, Waiver and Consent where Hollifield agreed without admitting or denying the findings of the FINRA’s investigation, to be barred from the industry. The customer’s FINRA arbitration remains pending.

This case illustrates how easily vulnerable adults can be exploited by unscrupulous professionals. If you have elderly friends or relatives who may be vulnerable, please take whatever steps you can to protect them from this type of exploitation. If you wish to discuss any securities related questions, please contact David A. Weintraub, P.A. 7805SW 6^th Court, Plantation, FL 33324. By phone 954-693-7577 or 800-718-1422.

FINRA Barred PFS Investment Broker, Jeffrey Dampf, for Defrauding Elderly Clients

Valerie Escobar October 1, 2021October 8, 2021

On October 1, 2021, FINRA announced that it barred former PFS Investments Inc. broker, Jeffrey Dampf, from the securities industry. As part of the settlement, Dampf consented to the sanction and to the entry of findings via a Letter of Acceptance, Waiver, and Consent, after FINRA alleged that Dampf refuse to cooperate with its investigation into allegations that he stole money from an elderly client. Dampf did not testify or turn over documents to FINRA in its investigation of the matter, according to the order.

According to the investigation, about a year ago, Dampf, 70, was charged with attempted theft, alleging that he, in his capacity as the power of attorney and accountant for two elderly siblings, was misappropriating funds entrusted to him for the care of the two elderly victims. “Dampf attempted to electronically transfer $500,000 to an investment account from the elderly victim’s bank account for his own personal benefit,” according to the Ocean County Prosecutor’s Office in New Jersey. “Basically, I’m going to fight this whole thing, not with FINRA but the courts,” Dampf said in an interview. “I haven’t taken a nickel.” “I was the power of attorney,” he said. “The caregivers were stealing left and right.”

This case illustrates how easily vulnerable adults can be exploited by unscrupulous professionals. If you have elderly friends or relatives who may be vulnerable, please take whatever steps you can to protect them from this type of exploitation. If you wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422

Merrill Lynch Sanctioned By FINRA

Valerie Escobar June 4, 2020June 9, 2020

On June 4, 2020, FINRA issued a press release detailing wrongdoing in the handling of mutual funds by Merrill Lynch, Pierce, Fenner & Smith Inc and the resulting settlement. FINRA found that Merrill Lynch did not have an adequate system for ensuring that customers received mutual fund sales charge waivers and fee rebates. Customers were entitled to these funds through rights of reinstatement offered by mutual fund companies. Mutual fund companies often offer customers waivers on up-front sales charges when they repurchase shares of either the same fund that they invested in before, or another fund in the same family. Merrill Lynch customers paid approximately $6 million in improper sales charges and fees between April 2011 and April 2017. The firm relied on a rudimentary alert system to determine whether or not a customer was owed waivers/rebates, but it was nowhere near adequate.

The up-front sales charges which Merrill Lynch customers were improperly charged for typically go to Merrill Lynch’s brokers, who have an incentive to charge customers as much as they can. In this instance, FINRA lauded Merrill Lynch for its openness in its investigation, but this does not always happen. As a result of its violations, Merrill Lynch agreed to a censure and approximately $7.25 million in restitution plus interest.

Stifel, Nicolaus & Co. to Pay Around $1.9 Million in Restitution to More than 1,700 Customers

Valerie Escobar May 28, 2020June 5, 2020

On May 28, 2020 FINRA announced that it has ordered Stifel, Nicolaus & Co., to pay approximately $1.9 million in restitution, plus interest, to more than 1,700 customers in connection with early rollovers of Unit Investment Trusts (UITs). FINRA also fined the firm $1.74 million for providing inaccurate information to customers related to rollover costs incurred, and for related supervisory violations. The Letter of Acceptance states that Stifel failed to establish and maintain a supervisory system and enforce written supervisory systems that were reasonably designed to achieve compliance with FINRA’s suitability rule regarding early rollovers of UITs.

A Unit Investment Trust (UIT) is an SEC-registered investment company that offers investors shares or units in a fixed portfolio of securities in a one-time public offering. A UIT’s maturity date is often 15 to 24 months at which point the underlying securities are sold and the resulting proceeds are paid to investors. UITs impose a variety of upfront sales charges. A registered representative who recommended the sale of a customer’s UIT before its maturity date and used the sale proceeds to purchase a new UIT would cause the customer to incur greater sales charges than if the customer had held the UIT until maturity. Because of the long-term nature of UITs, their structure, and their costs, short term trading of UITs may be unsuitable.

FINRA’s investigation found that from January 2012 through December 2016, Stifel executed approximately $10.9 billion in UIT transactions – $935.2 million of which were early rollovers. It was also uncovered that the firm’s supervisory system and procedures were not reasonably designed to supervise the suitability of those early rollovers. As a result, Stifel failed to identify that its representatives recommended potentially unsuitable early rollovers that, collectively, may have caused customers to incur approximately $1.9 million in sales charges that they would not have incurred had they held the UITs until their maturity date. Additionally, Stifel sent approximately 600 letters to customers that contained inaccurate information or were missing information about the costs incurred by customers in connection with early UIT rollovers or switches.

In settling this matter, Stifel neither admitted or denied the charges, but consented to the entry of FINRA’s findings.

FINRA Fines Robinhood Financial, LLC $1.25 Million for Best Execution Violations

David Weintraub December 19, 2019

FINRA announced today, that it has fined online broker, Robinhood Financial, LLC $1.25 million for violations relating to its best execution of customer equity orders and related supervisory failures. Robinhood Financial provides online trading for retail investors and offers customers commission-free trading when using the platform’s online mobile trading application or website to submit orders to trade in U.S. During the investigation period from October 1, 2016 through November 9, 2017, Robinhood allegedly, routed its customers’ non-directed equity orders to four broker-dealers for execution. Robinhood and the broker dealers engaged in an arrangement known as “payment for order flow.” This means that although Robinhood provided commission-free trading to its customers, it nonetheless received compensation for that trading through its payment for order flow model.

FINRA found that for more than a year, Robinhood failed to exercise reasonable diligence to ascertain whether these four broker-dealers provided the best market for the subject securities to ensure its customers received the best execution quality from these as compared to other execution venues. Additionally, Robinhood did not systematically review certain order types, and it failed to establish and maintain a supervisory system, including written supervisory procedures, reasonable designed to achieve compliance with its best execution obligations.

According to Jessica Hopper, Senior Vice President and Acting Head of FINRA’s Department of Enforcement, “Best execution of customer orders is a key investor protection requirement”, “FINRA member firms must exercise reasonable diligence in performing regular and rigorous reviews to achieve best execution for their customers.” Robinhood, which has been a FINRA member since Oct. 2013 and serves around 10 million people. In settling this matter, Robinhood neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. The company agreed to pay the fine and hire an independent consultant to conduct a comprehensive review of its systems and procedures.

FINRA Bans Two Registered Representatives for Churning Accounts of Elderly Client with Alzheimer’s.

David Weintraub October 21, 2019

On October 21, 2019, FINRA announced that it had barred Ami Forte and Charles Lawrence of Florida for their roles in churning accounts belonging to a 79-year-old customer who suffered from severe Alzheimer’s and dementia. According to the Complaint, Forte and Lawrence engaged in unsuitable and excessive trading, specifically in the 10 months preceding his death, the Forte group effected more than 2,800 trades in the victim’s accounts generating around $9 million in commissions. Over half of these transactions involved short-term trading in long-maturity bonds, including municipal bonds, intended for customers with long-term investment horizons.

The investigation revealed that Forte first met the customer (referred to as RS) in the late 90s when they began a romantic relationship. Forte, who was the broker of record in the accounts, and maintained near daily contact with the customer, used her position of trust and confidence to exploit RS and generate excessive commissions from his accounts. During the relevant period, RS held approximately $192 million in six accounts in Morgan Stanley. In 2001, Forte established the Forte Group at Morgan Stanley, which she headed as Senior Vice President. Lawrence joined the Forte Group at its inception, and by 2009, he was mainly entering the Forte Group’s day to day trades in the RS accounts. It’s worth noting, that RS accounts generated approximately 94 percent of Forte’s commission revenues. On the other hand, Lawrence did not received commissions from the trading activity in the RS Accounts. He was paid an annual salary plus bonuses.

According to the settlement, Forte and Lawrence met and spoke frequently with RS and knew he suffered severe cognitive impairment. It states that multiple treating physicians, some as early as 2008, determined that RS suffered from dementia or Alzheimer’s or both. During the investigation period, at least four separate physicians on approximately five occasions diagnosed RS with severe cognitive impairment. Forte and Lawrence exploited RS’s vulnerable mental and physical condition to unsuitability and excessive trade his accounts, it continued until shortly before RS’s death. For instance, on June 20, 2012, RS entered the hospital for the final time before his passing in August 2012. Despite being hospitalized and not in contact with anyone from the Forte Group, between June 20 and June 29, 2012, RS’s accounts had over $14 million in transactions. Forte and Lawrence never reported RS’s condition to Morgan Stanley. Instead, they increased their level of trading in RS’s accounts in the months after RS’s diagnosis.

In settling this matter, Forte and Lawrence neither admitted nor denied the charges, but consented to the entry of FINRA’s finding.

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