Selling Away

FINRA Sanctions Larry Steven Werbel for Selling Away and Other FINRA Violations

June 4, 2014 | by Staff Attorney

On March 10, 2014, Larry Steven Werbel submitted a Letter of Acceptance, agreeing to accept the sanctions handed down by the Financial Industry Regulatory Authority (FINRA) for alleged violations relating to the sale of penny stocks during his tenure at LPL Financial, LLC.

Larry Werbel entered the securities industry in 1976 as a Series 1, Registered Representative at Cigna Financial Advisors, Inc., where he was employed for twenty years. Thereafter, in February 2009, after a thirteen-year stint at FSC Securities Corporation, Werbel began working for LPL Financial, until his termination in February 2011.

During a three-week period, spanning from on or about October 26, 2010 through on or about November 17, 2010, while registered with LPL Financial, Werbel allegedly solicited eight customers to invest in QLotus Holdings Inc. (“QLTS”), a low-priced security that Werbel himself had previously purchased. According to FINRA, Werbel’s firm, LPL Financial, prohibited the solicitation of low-priced securities, such as QLTS, and so Werbel coded the QLTS sales as unsolicited despite the fact that they were all solicited. Werbel’s improper coding caused LPL’s books and records to be inaccurate in violation of NASD Rule 3110(a).

Broker Jeffrey Schrader Barred Over Selling Away Allegations

May 27, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Jeffrey Schrader (Schrader) concerning allegations that the broker engaged in private securities transactions and failed to cooperate with FINRA’s investigation.

Schrader entered the industry in June 1998. From November 2005, until March 2009, Schrader was associated with Merrill Lynch, Pierce, Fenner & Smith Inc. In March 2009, Schrader became associated with Western International Securities, Inc. (Western). Schrader conducts securities transactions on through his own business, Schrader Wealth Management.

FINRA found that between 2009 and 2010 Schrader, while associated with Western, engaged in over $145,000 worth of private securities transactions with three investors without providing written notice or receiving approval from Western. FINRA alleged that two of the nine investors were customers of Western at the time that their investment was made away from the firm.

FSC Securities Broker Timothy Moran Barred From Industry Over Involvement in Hampton Capital Management

May 23, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred FSC Securities Corporation (FSC Securities) broker Timothy Moran (Moran) concerning allegations that the broker: (1) engaged in private securities transactions without providing his employer with prior written notice; (2) failed to respond to FINRA requests for information; (3) provided false information to FINRA; and (4) failed to disclose a tax lien on a Form U4. Moran was ordered to disgorge $200,000, in ill-gotten gains in addition to the bar.

Moran was first became employed in the securities industry in February 1993. From June 2008, through April 2010, Moran was associated with Cambridge Investment Research, Inc. Thereafter, from May 2010, until December 2011, Moran was registered through his association with FSC Securities. On December 9, 2011, FSC Securities filed a Uniform Termination Notice (Form U5) terminating Moran’s registration. FSC filed an amended Form U5 filing in which the firm disclosed that it had terminated Moran’s employment while he was under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct. FSC Securities also reported that Moran had referred clients to an unapproved investment fund.

FINRA alleged that Moran engaged in private securities transactions without providing FSC Securities with written notice in violation of NASD Conduct Rule 3040 and FINRA Conduct Rule 2010. During 2010, FINRA found that Moran subleased office space to Thomas Hampton. Hampton allegedly used the space to operate a private hedge fund, Hampton Capital Management (HCM). Moran was also found to have loaned Hampton money to help start HCM. HCM purportedly bought and sold exchange traded funds based on a proprietary trading strategy implemented by a computer program.

Marylin Meyers Formerly of Allstate Financial Services Suspended Over Selling Away Activities

April 11, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Marylin T. Meyers (Myers) $20,000 and barred her for two years concerning allegations between September 2009, and February 2011, she participated in a series of private securities transactions totaling approximately $1,000,000 without notifying her firm, Allstate Financial Services, LLC (Allstate) or obtaining the firm’s written approval. FINRA alleged that Meyers recommended that five investors invest in On The Edge and she helped facilitate their purchases of On the Edge Notes. On The Edge is a California based company formed to be a supplier of consumer goods such as tents, folding chairs, wagons, and promotional items related to retailers. To date, On The Edge has failed to repay the principal and interest due to the investors.

Meyers first became registered with FINRA in 1986 with Merrill Lynch, Pierce, Fenncr & Smith Incorporated. In 2001, Meyers became associated with Metlife Securities Inc. Thereafter, in July 2004, Meyers joined Allstate until her termination on May 17, 2012.

The allegations against Meyers are typical of a “selling away” violation. A broker sells away from their brokerage firm when they solicit securities that were not approved by the broker’s affiliated firm or recorded on the firm’s books and records. NASD Rule 3040 requires an associated person to provide written notice to the firm prior to participating in any private securities transaction. An associated person is prohibited from participating in any manner in the private securities transaction without the Firm’s approval. Under FINRA Rule 3010, brokerage firms are required to supervise their brokers and implement supervisory procedures reasonably designed to detect and prevent violations of NASD Rule 3040.

Former Newport Securities and Securities America Broker fined by FINRA for Selling Away

April 2, 2014 | by Staff Attorney

On December 11, 2013, the Financial Industry Regulatory Authority (FINRA) sanctioned broker Michael T. Ryan. Mr. Ryan was registered with FINRA brokerage firms from 1992 until November 1, 2013, including an eight-year stint with Securities America, Inc. (Securities America) and two years with Newport Coast Securities.

The basis for the underlying action brought against Mr. Ryan by FINRA, involved Ryan’s failure to accurately notify Securities America of his outside business activities. FINRA alleged that during a period spanning early 2009 through mid 2011, Ryan began working with an individual known as ZE, while Ryan was registered with Securities America. FINRA has alleged that Ryan began receiving compensation from and was an officer and board member of entities controlled by ZE, namely Kensington Leasing, Ltd, (Kensington) and a private entity known as WM were in direct violation of NASD Rule 3030 and FINRA Rule 3270. Throughout this time, FINRA alleged that Ryan did not submit proper notifications nor did he update the requisite information, in violation of NASD Rule 3030 and FINRA Rules 3270 and 2010.

Ryan also allegedly recommended that Securities America customers purchase restricted stock of two companies, Lenco Mobile, Inc. and Casablanca Mining Ltd. from ZE controlled entities. Ryan never notified Securities America of these private transactions in violation of NASD Rule 3040, which prohibits registered representatives from participating “in any manner in a private securities transaction,” unless the registered representative first notifies his or her member firm in writing.

Broker William Hogue Suspended Over Science Fitness Promissory Note Sales

January 31, 2014 | by Staff Attorney

Broker William Larry Hogue, Jr. (Hogue) has been suspended and fined by the Financial Industry Regulatory Authority (FINRA) concerning allegations that Hogue participated in an outside business activity without providing written notice to Cambridge Investment Research (Cambridge) his employing brokerage firm in violation of FINRA rules. Additionally, FINRA alleged that Hogue participated in private securities transactions by selling promissory notes totaling over $1 million to at least nine investors.

Hogue entered the securities industry in March 2001. In March 2005, Hogue became associated with Cambridge and with Investors Asset Management of Georgia, Inc. (Investors) as a registered investment advisor. In February 2012, Hogue was permitted to resign from Cambridge for receiving debt financing for outside business activities through the sale of promissory notes without firm approval.

FINRA alleged that Hogue and two other partners formed SFL, presumably SFL stands for Science Fitness LLC, on August 20, 2010, for the purpose of operating a health club. FINRA found that Hogue served as co-chief executive manager of SFL and was directly involved in the management of the health club. FINRA alleged that Hogue did not initially disclose this outside business activity to Cambridge but that Cambridge discovered Hogue’s involvement with SFL through a routine review of Hogue’s emails. Subsequently, Hogue disclosed the SFL to Cambridge on August 10, 2011. As a result of Houge’s failure to timely disclose his involvement in SFL FINRA found that Hogue violated FINRA Rules 3270 and 2010.

Howard Allen, Joseph McGowan, and Peter Pak Settle FINRA Charges Concerning Allen Partners Promissory Notes

January 24, 2014 | by Staff Attorney

Brokers Howard Allen (Allen), Joseph McGowan (McGowan), and Peter Pak (Pak) have settled charges brought by the Financial Industry Regulatory Authority (FINRA) concerning allegations that the brokers, while employed by J.P. Turner & Company, L.L.C. (JP Turner) and Portfolio Advisors Alliance, Inc. (PAA), participated in 12 private securities transactions without providing prior written notice to their firms in violation of NASD Conduct Rules 3040 and 2110 and FINRA Rule 2010.

The brokers were associated with the same firms at approximately the same times. The brokers were associated with JP Turner from 2002 until 2008. Thereafter, the brokers were associated with Allen Partners from May 2008 until June 2009. Finally, since 2009 the brokers have been associated with PAA. Pak has not been registered since 2011. Both Allen and McGowan are currently registered with PAA.

According to FINRA the three brokers owned and controlled two companies – Allen Partners Capital, LLC (APC) and Allen Partners, LLC (AP). Allen was a managing member of both companies. While at JP Turner and PAA, Allen conducted his branch office operations through AP. FINRA found that while the brokers were associated with JP Turner and PAA they raised money for both APC and AP.

Securities Broker Christopher Orlando Suspended Over Sale of Diversified Lending Group Promissory Notes

January 8, 2014 | by Staff Attorney

Broker Christopher Orlando (Orlando) was suspended and fined by The Financial Industry Regulatory Authority (FINRA) over allegations that Orlando participated in the sale of approximately $7,000,000 in private securities transactions of promissory notes linked to Diversified Lending Group (DLG) that were not made through his member firm PlanMember Securities Corporation (PlanMember).

FINRA alleged that between March 2007, and July 2008 Orlando marketed Secured Investment Notes in DLG (DLG Notes). According to Orlando’s public disclosures, the DLG notes were supposed to invest funds in distressed real estate and mortgage lending. Investors who filed complaints against Orlando and the brokerage firms that employed him have alleged that in reality the DLG Notes were Ponzi scheme type fraud.

Orlando marketed the DLG Notes to insurance agents and financial advisors who in tum sold the DLG Notes to investors. FINRA alleged that Orlando met with his marketing agents and provided them with information and materials about DLG Notes. In addition, Orlando referred at least eight insurance agents to DLG for training so that they would sell DLG Notes to investors. According to FINRA, Orlando was also directly involved in marketing the DLG Notes to potential investors by speaking at seminars about them.

Broker Joseph Giordano of Capital Investment Group Sanctioned Over Empire Debenture Sales

December 19, 2013 | by Staff Attorney

Broker Joseph Anthony Giordano (Giordano) was recently barred from the financial industry by The Financial Industry Regulatory Authority (FINRA) over allegations that he participated in the distribution of unregistered debentures issued by Empire Corporation, a Maryland corporation (Empire Debentures) to customers of Capital Investment Group, Inc. (CIG). FINRA alleged that Giordano violated FINRA Rules by soliciting the sales of the Empire Debentures. In addition, FINRA found Giordano’s Empire Debentures sales to customers were without a reasonable basis for making such recommendation. Finally, FINRA found that Giordano engaged in securities fraud by making intentionally false and misleading statements in connection with the sales of the Empire Debentures to customers.

Giordano was registered with Capital Investment Group from September 1992 until his termination on June 20, 2012. Giordano’s U5 states that he was terminated for “selling away” and making false and misleading statements to the firm. On July 2, 2012, Giordano became registered with Meyers Associates, L.P. (Meyers) until his registration was terminated by Meyers on July 10, 2013. Giordano’s BrokerCheck states that he is the general manager of Giordano Asset Management LLC and treasurer of Giordano Holding Corporation.

FINRA found that Giordano sold approximately $3.1 million of the Empire Debentures to at least 45 customers of CIG. The Empire Debentures had varying maturities but the majority had a five-year maturity and promised interest at an annual compounded rate of ten percent paid at maturity. FINRA alleged that the Empire Debentures were speculative investments considering their high-yield, lack of credit analyses or an effective registration statement, and the complete absence of a secondary market. The sale of the Empire Debentures was in contravention of Section 5 of the Securities Act of 1933 requiring the registration of securities. The securities were also not registered with the State of Maryland. In addition, FINRA alleged that Giordano failed to conduct adequate due diligence regarding the registration status of the Empire Debentures prior to recommending and selling the debentures to customers.

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.