Selling Away

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.

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.

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.

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.

Diego Hernandez of AXA Advisors Accused of Misusing Customer Funds

September 30, 2013 | by Staff Attorney

Diego Fernando Hernandez (Hernandez) was recently barred from the financial industry by the Financial Industry Regulatory Authority (FINRA) concerning allegations that he failed to disclose outside business activities, a practice known in the industry as “selling away” and misused customer funds.

Hernandez entered the securities industry in May 1998. In August 2005, Hernandez became a registered representative of AllState Insurance Company until April 2012. In April 2012, Hernandez became a registered representative of AXA Advisors, LLC (AXA) until February 2013. On Hernandez’s public securities disclosures he is listed as the owner of H.D. Mile High Marketing a marketing, advertising, and banner company located in Lakewood, Colorado. In February 2013, AXA filed a termination notice for Hernandez disclosing that his employment was terminated by the firm for failure to comply with the firm’s policies and FINRA’s rules in connection with undisclosed outside business activity and the commingling and conversion of customer funds.

While Hernandez was associated with AXA, FINRA alleged that he engaged in at least three outside business activities that were not disclosed to or approved by the firm. In March 2012, Hernandez filed articles of organization, forming Wealth Management Partners LLC (Wealth Management Partners) where Hernandez serves as Wealth Management’s president and chief executive officer. In February 2010, Hernandez formed Team Cure Racing as a nonprofit corporation under the laws of Colorado. In November 2009, Hernandez formed DFHR Investments, Inc. (DFHR Investments) under the laws of Colorado. Hernandez is the president of DFHR Investments. Hernandez filed the Wealth Management Partners, Team Cure Racing, and DFHR Investments corporate formation documents before he joined AXA.

Conrad Bautista Barred From Financial Industry for Alleged Private Placements Sales

September 23, 2013 | by Staff Attorney

Conrad Tambalo Bautista (Bautista) resolved charges brought by the Financial Industry Regulatory Authority (FINRA) concerning the sale of private securities and possible involvement in a fraudulent investment scheme by accepting a bar from the securities industry.

Bautista has been associated with seven FINRA member firms including his most recent employer, CUSO Financial Services, L.P. (CUSO) from January 2010 to March 2013. Prior to CUSO, Bautista was associated with SWBC Investment Services, LLC, Financial Network Investment Corporation, and Wells Fargo Investments, LLC. Bautista obtained Series 6, 7, and 63 securities licenses.

Bautista’s public records do not disclose any businesses, other than CUSO, that Bautista was involved in. However, in February 2013, a customer allegedly filed a complaint against Bautista involving potential securities related misconduct. Subsequently, FINRA sent Bautista requests for information concerning the substance of the customer complaint. The FINRA letter sought information into whether Bautista may have engaged in fraudulent investment schemes. In addition, FINRA had information that suggested that Bautista may have been involved in undisclosed outside business activities and private securities transactions that may have involved borrowing money from customers.

Adam Gana is Quoted in the Wall Street Journal Reuters After having Received $2.8 Million Award

September 16, 2013 | by Staff Attorney

The Wall Street Journal and Reuters quoted managing partner, Adam J. Gana after he received a $2.8 Million award in Jacobs v. Van Zandt, FINRA Case No. 12-00156. Seven claimants alleged that Robert Van Zandt orchestrated a $35 million ponzi scheme leading to Mr. Van Zandt’s criminal indictment by the New York Attorney General. Mr. Gana was pleased with the victory and the outcome for the claimants. “These are hard working people from the Bronx who did not deserve to be defrauded by Mr. Van Zandt. This type of fraud is rampant in the securities industry and it is up to the regulators and the attorneys to weed it out and bring these people to justice.”

Centaurus Financial, Inc Broker Ralph Saviano Barred From Securities Industry

September 15, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has barred Ralph Saviano (Saviano) from the securities industry after the broker failed to respond to FINRA’s requests for information and an interview concerning unreported tax liens, a civil judgment, and a customer complaint involving the misuse of funds.

During a routine investigation of Centaurus, FINRA discovered information regarding certain undisclosed liens, judgments, and possible customer loans. Thereafter, in June 2012, Centaurus filed a regulatory tip disclosing that a customer had provided Saviano with a cashier’s check for approximately $66,000 that was made payable to Saviano. Saviano’s transactions with the customer concerned a possible misuse or conversion of funds.

Saviano has been associated with several brokerage firms in the past decade. Until 2004 Saviano was a registered representative of Royal Alliance Associates, Inc. From April 2004 until December 2006, Saviano was associated with USAllianz Securities, Inc. Thereafter, from December 2006 until July 2007, Saviano was a registered representative of Questar Capital Corporation. Finally, Saviano was registered with Centaurus Financial, Inc. (Centaurus) until his termination in June 2012. According to Saviano’s FINRA disclosure records he is also the president of Saviano Financial Group.