Articles Tagged with FINRA Rule 2010

shutterstock_95643673On April 27, 2015, the Financial Industry Regulatory Authority (FINRA) published a Letter of Acceptance, Waiver, and Consent (AWC), whereby Larry M. Phillips of The Phillips Group, in Woodland Hills, California, was sanctioned for his misconduct related to Phillips’ unlawful overcharging of several of his customers.

In December 2009, Phillips became registered as a general securities representative through Purshe Kaplan Sterling Investments (“PKS”). From January 2010 through August 2010, while registered with PKS, Phillips overcharged several customers by charging both markups and investment advisory fees. First, Phillips purchased securities, including Steepener CDs, Floating Rate Notes, Principal Protected Notes, and Municipal Securities for several of his investment advisory clients. Next, Phillips allocated the marked-up products to those same clients’ investment advisory accounts. In doing so, Phillips charged advisory fees on the very same securities for which he had already charged a markup. FINRA found that by assessing both markups and investment advisory fees, Phillips’ was in violation of FINRA Rule 2010 and MSRB G-17.

As a consequence of Phillips’ misconduct, FINRA fined Phillips $7,500, suspended him from the securities industry for 45 days, and ordered him to pay over $3,000 in restitution to the customers that he took advantage of. This is not the first time that Phillips has been sanctioned. For example, in April 2005, Phillips executed an AWC with NASD, where he agreed to a ten-day suspension and $20,000 fine for failing to adequately disclose material facts regarding investment products and strategies in written communications that he disseminated. Then again, in October 2006, Phillips was sanctioned—this time by the State of Illinois based on these same improper communications discovered by the NASD. Illinois sanctioned Phillips by prohibiting from serving as a principal in Illinois for a period of two years in addition to requiring him to pay a $1,000 fine.

On July 15, 2014, FINRA suspended Frank N. Dettenrieder, a former financial adviser with First Allied, for twelve days and fined him $5,000 for effectuating discretionary transactions in the accounts of six customers without obtaining prior written authorization from the customers and without having the accounts accepted as discretionary accounts by First Allied in violation of FINRA Rule 2510(b).  FINRA Rule 2510(b) disallows registered representatives from exercising discretionary authority in customer accounts without prior written authority.

Under FINRA Rules, financial advisors can either have discretionary accounts – accounts in which the broker has discretion to make purchases without prior approval from the investor – and non-discretionary accounts – accounts in which the broker must obtain prior approval before purchasing securities. In any event, to create a discretionary account the broker must obtain the investors written consent.

FINRA also explained that Mr. Dettenrieder’s conduct violated FINRA Rule 2010. FINRA Rule 2010 requires that all registered representatives “observe high standards of commercial honor and just and equitable principles of trade.”

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…”

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.

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.

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.