Failure to Supervise

FINRA Bars Gevorg Daldumyan of Transamerica Over Allegations Concerning Condominium Cooperative Investments

December 16, 2013 | by Staff Attorney

Gevorg Daldumyan was recently barred from the financial industry by The Financial Industry Regulatory Authority (FINRA) over allegations that he failed to appear for testimony concerning condominium cooperative investments.

Daldumyan was registered with World Group Securities, Inc. (WGS) from 2002 through January 2012. Thereafter, Daldumyan was associated with Transamerica Financial Advisors, Inc. (Transamerica) or its predecessor. On June 19, 2012, Transamerica filed a Form U5 with FINRA stating that Daldumyan had voluntarily resigned on May 21, 2012, during an internal review by the firm arising from “information that the registered representative made investments in a condominium cooperative in Arnienia which appear not to have been disclosed to the firm.” Daldumyan is no longer associated with any FINRA member.

Due to the U5 Form filing, FINRA sent requests to Daldumyan for more information concerning the outside investments. By letter dated May 20, 2013, FlNRA staff requested that Daldumyan appear for on-the-record testimony. In response to the letter, Daldumyan stated that he would not appear for testimony at any time. Consequently, Daldumyan violated FINRA Rule 8210 by refusing to appear and provide testimony and was barred from association with any FINRA member firm.

Former Ryan Beck and Oppenheimer Financial Advisor William Bucci Barred From the Financial Industry

December 5, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred financial advisor William D. Bucci (Bucci) for allegedly accepting 19 personal loans totaling $635,000 from nine customers in violation of FINRA rules. Bucci also allegedly willfully failed to amend his Form U4 to disclose material facts relating to two judgments that were entered against him. In addition, customers have filed complaints alleging that Bucci sold illegal promissory notes.

Bucci has been licensed as registered securities representative since 1983. From April 27, 2002, until April 2007, Bucci was a registered representative with Ryan Beck & Co. (Ryan Beck). Thereafter, and until August 2011, Bucci was registered with Oppenheimer & Co. (Oppenheimer). Finally, from August 2011, until May 2012, Bucci was registered with Financial Network Investment Corp. (Financial Network). Bucci’s public disclosures list that he is involved in a number of companies and other business activities including Delaware Valley Financial Group, LLC, DVFG Advisors, LLC, Chestnut Hill College Board of Trustees, Gennaro Vuono & William Bucci, 3010 Ocean Ave, LLC, 510 Seacliff LLC, 210 Sea Spay LLC, and 216 Sea Spay LLC.

FINRA alleged that between May 2004 and December 2010, Bucci accepted 19 personal loans from nine brokerage customers totaling $635,000. FINRA found that all of the personal loans paid annual interest of at least 10 percent and had terms of up to five years. In one instance, Bucci was accused of borrowing $425,000 in ten loan transactions from an elderly retired couple who were customers of Bucci at Ryan Beck and Oppenheimer. FINRA alleged that none of the elderly couple’s loans have been repaid. Further, according to FINRA, the elderly couple loaned Bucci a portion of the $425,000 by withdrawing money from their brokerage accounts and securing a second mortgage on their home. FINRA found that Bucci’s conduct violated NASD Rules 2370 and 2110 and FINRA Rules 3240 and 2010.

Former LPL Financial Broker Stephen Brown Accused of Selling Private Real Estate Investments

December 3, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Stephen Michael Brown (Brown) for failing to comply with FINRA’s requests for information concerning allegations that Brown engaged in the unlawful sale of securities. Specifically, at least two customers had brought complaints against Brown alleging that Brown had solicited them to invest in private real estate investments in violation of industry rules.

Brown was formerly registered with FINRA firm LPL Financial Corporation (LPL Financial) from 1989 through May 2009. Thereafter, Brown became associated with Brewer Financial Services, LLC until November 2010. Finally, from November 2010, until May 2011, Brown was an associated person of Best Direct Securities, LLC (Best Direct) a currently inactive FINRA firm. Brown’s public disclosures list Brown as the owner of Steve Brown Ent., a company engaged in real estate business.

The accusations made against Brown are consistent with a “selling away” securities violation. Brokers are required to have their firms approve all securities transactions they participate in, even private financial transactions. Thus, when a broker fails to notify the firm of securities activities he or she “sells away” from the firm. Selling away is prohibited under FINRA Rule 3040, as well as other securities laws. The most common securities products solicited in selling away schemes are private placements and promissory note.

Wells Fargo Sanctioned by FINRA Over Allegations of Supervisory Failures

November 25, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Wells Fargo Advisors, LLC (Wells Fargo) and imposed a $150,000 fine over allegations that the firm failed to establish, maintain and enforce a supervisory system that was reasonably designed to adequately review and monitor the transmittal of funds from the accounts of customers to third party accounts in violation of NASD Rules 3010, 3012(a)(2)(B)(i) and FINRA Rule 2010.

Wells Fargo is a FINRA member and a full service broker-dealer with its principal offices located in St. Louis, Missouri. Wells Fargo employs over 20,000 registered individuals and maintains over 7,000 registered locations.

Under FINRA Rule 3010, a brokerage firm owes a duty to properly monitor and supervise its employees. The rule states that “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…”

Michael Blake Sanctioned Over Sales of Real Estate Securities

November 17, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned broker Michael James Blake (Blake) over allegations that Blake engaged in the unlawful sale of securities including, upon information and belief, securities linked to Longest Drive, LLC and Grace Communities, LLC. According to FINRA, Blake participated in private securities transactions involving the investment of more than $3.2 million by approximately 28 investors in 3 investment contracts without providing prior written notice to his firms of his proposed roles in the transactions. FINRA imposed a $10,000 fine and banned Blake from association with any broker-dealer for one year.

The allegations against Blake are consistent with a “selling away” violation. Selling away occurs when a securities broker solicits securities that were not approved by the broker’s affiliated firm. Selling away is a violation of FINRA Rule 3040. The most common securities sold away from brokerage firms involve private placements and promissory notes. Investors are often completed unaware that the broker’s sales activity is improper. In addition, the investor does not learn that the broker’s activities were wrongful until the investment scheme is publicized, the broker is sanctioned, or the broker stops returning client calls.

FINRA’s order states that between approximately February 2006 and June 2007, Blake recommended to customers to invest $3,200,000 in real estate properties being developed by entity “GC”, which is believed to stand for Grace Communities. The invested funds were provided by 28 investors. According to FINRA, 6 persons invested $250,000 in Development 1 between August and November 2006, 3 persons invested $200,000 in Development 2 in October and November 2006, and 23 persons invested approximately $2,755,000 in Development 3 between February 2006 and June 2008. According to FINRA, as of September 9, 2013, investors in Blake’s real estate investments have not received a return of their principal or any interest or other payments.

Merrimac Corporate Securities, Inc.’s President and CEO Suspended Over Failure to Supervise Allegations

November 11, 2013 | by Staff Attorney

Stephen Douglas Pizzuti (Puttuti) and David Walton Matthews, Jr. (Matthews) were recently suspended for three months by the Financial Industry Regulatory Authority (FINRA) over allegations that Pizzuti failed to adequately inquire into Richard’s Pizzuti (Richard) and Daniel Voccia’s (Voccia) outside business activities and involvement in private securities transactions despite his knowledge of their activities. To that end, Pizzuti failed to follow up on “red flags” regarding Richard’s and Voccia’s investment activities. In addition, FINRA also found that Matthews, Merrimac’s Chief Compliance Officer, also failed to supervise Richard and Voccia investment activities.

Pizzuti controls Merrimac Corporate Securities, Inc. (Merrimac) and was the firm’s Chef Executive Officer during the relevant period. Pizzuti, as the managing principal of Merrimac and the firm’s CEO, had overall responsibility for the Merrimac’s compliance policies. Matthews became President of Merrimac in early 2004. Matthews was also the Merrimac’s Chief Compliance Officer until mid-2008 but thereafter and remained the Merrimac’s President. Matthews reports directly to Pizzuti.

FINRA found that from at least 2006 to April 2009, Pizzuti failed to reasonably supervise the outside business activities and private securities transactions of Richard and Voccia. Both Richard and Voccia were registered representatives at Merrimac.

FINRA Arbitration Panel Awards BBVA Securities’ Investors $1.2 Million

November 8, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) Arbitration Panel has awarded damages to investors in the amount of $1.2 million in compensatory damages and cost of fees associated with the arbitration. The alleged claim was asserted against BBVA Securities of Puerto Rico, Inc. (BBVA Securities) and employees of the brokerage firm.

BBVA Securities is a brokerage firm in San Juan, Puerto Rico.

The Claimants asserted breach of fiduciary duty, unsuitable investments, churning and excessive trading, failure to supervise and gross negligence. These causes of actions related to allegedly unsuitable naked option trading strategy combined with the use of margin which caused losses in the investor’s accounts.

FINRA Bars Broker Mark Hotton Alleging Numerous Fraudulent Activities in Client Accounts

November 4, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has permanently barred broker Mark Christopher Hotton (Hotton) alleging that the broker engaged in numerous and repeated frauds including forgery, falsification of documents, conversion, misuse of funds, manipulating account records, churning, unauthorized trading, false testimony, and providing false information and documents to FINRA.

FINRA alleged that starting from at least 2006, Hotton engaged in numerous fraudulent investment schemes to steal at least $5,932,000 from his brokerage customers. FINRA admitted that due to the complexity of the fraud that it had not been able to track down Hotton’s entire use and receipt of ill-gotten funds. According to FINRA, Hotton converted funds from his customers by using his control over the bank accounts of various corporate entities to divert funds that his customers believed were being invested in legitimate businesses.

Fom November 2002 until November 2005, Hotton was associated with Ladenburg, Thalmann & Co., Inc., From November 2005 until February 2009, Hotton was associated with Oppenheimer & Co., Inc. (Oppenheimer). While at Oppenheimer, Hotton focused on clients with an average net worth of between $1,000,000 and $20,000,000. Thereafter, Hotton was a registered representative of American Capital Partners, LLC until August 2010. From September 2010 until March 2012, Hotton was associated with Alexander Capital, L.P. Finally, from February 2012 until May 2012, Hutton was associated with Obsidian Financial Group, LLC. Obsidian terminated Hotton’s registration on May 31, 2012.

Broker Jerry McGlothlin of Lincoln Financial Barred Over Selling Away Allegations

October 18, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred broker Jerry McGlothlin from associating with any member firm for engaging in outside business activities, engaging in private securities transactions, providing false responses on annual compliance questionnaires, and failing to respond to FINRA requests for information.

Between May 2003, and October 2012, McGlothlin was registered with FINRA through his association with Lincoln Financial Securities Corporation (“Lincoln Financial”) and its predecessor Jefferson Pilot Securities, Inc. On October 12, 2012, Lincoln Financial filed a Uniform Termination Notice (Form U5) terminating McGlothlin’s registration with the firm.

FINRA alleged that McGlothlin engaged in outside business activities without notifying Lincoln Financial, in violation of NASD Conduct Rules 3030 and 2110, and FINRA Conduct Rules 3270 and 2010. FINRA alleged that while McGlothlin was employed with Lincoln Financial he engaged in business activities with International Business Law Center, Inc. (IBLC), a/k/a Internet Business Law Services and IBLS Online Education, Inc. (IBLS Online). Both IBLC and IBLS Online provide internet legal services and learning programs.

FINRA Fines Brokerage Firm Over Misleading Variable Annuities Disclosures and Failure to Supervise

October 12, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) fined brokerage firm Financial West Investment Group, Inc. d/b/a Financial West Group (Financial West Group) over allegations between March 2009 and May 2010, the firm did not provide accurate variable annuity disclosures to customers concerning certain fees and charges. FINRA also alleged that Financial West Group failed to have an adequate written supervisory procedure to ensure that customers received accurate disclosures about these fees and charges. Finally, FINRA alleged that Financial West Group did not adequately enforce its policies for reviewing emails. In resolving these allegations Financial West Group paid a $35,000 fine.

Financial West Group’s main offices are in Westlake Village, California. The firm has approximately 116 registered branch offices and employs 290 registered brokers.

FINRA alleged that between March 2009, and May 2010, the Financial West Group used forms called variable annuity disclosure and investment form, request to switch investments form, and the product comparison worksheet to inform customers of various features of deferred variable annuities. The forms included information concerning the potential surrender period and surrender charge, potential tax penalty if customers sell or redeem deferred variable annuities before reaching the age of 59 1/2, mortality and expense fees, the potential charges for and features of riders, the investment options, death benefits, payment options, and risks disclosures. However, according to FINRA, Financial West Group did not provide accurate disclosures to customers in 28 out of 93 (30%) of the variable annuity transactions and exchanges reviewed by the regulator.