Articles Tagged with outside business activities

shutterstock_170886347The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker David Blasik (Blasik) concerning allegations that Blasik engage in outside business activities. When the outside business activity also includes the recommendation of investments the activity is referred to in the industry as “selling away.”

FINRA Rule 8210 authorizes the regulator to require persons associated with a FINRA member to provide information with respect to any matter involved in the investigation. In December 2014, FINRA alleged that it pursued an investigation into allegations that Blasik engaged in undisclosed outside business activities. FINRA requested that Blasik provide documents and information to the agency. On December 30, 2014, FINRA stated that Blasik emailed the regulator and stated that he would not provide information or cooperate in the investigation.

According to Blasik’s brokercheck he has disclosed outside business activities including his tax preparation company. Blasik’s disclosures also reveal that he has been employed or involved with Commercial Metal Fabricators, Gateway Sports MGM, and DMH of Ohio, Inc. It is unclear at this time what organization Blasik was involved with that FINRA was investigating.

shutterstock_186772637The Financial Industry Regulatory Authority (FINRA) recently barred former Aegis Capital Corp. (Aegis) broker Malcom Segal (Segal) alleging that Segal may have engaged in unauthorized transfers of funds from customer accounts to an outside business activities (a/k/a “selling away”).

According to Segal’s BrokerCheck, Segal was registered with Cumberland Brokerage Corporation from 1989 until April 2011. Thereafter, Segal was a broker for Aegis until July 2014 where he was terminated on allegations of by the firm violations of the firm that Segal failed to cooperate with an internal investigation into a customer complaint he made unauthorized wire transfers from a customer’s account. Segal’s disclosures also reveal that he is listed as a partner of J & M Financial and President of National C.D. Sales.

Upon information and belief, it is in connection with National C.D. Sales that customer have filed complaints against Segal concerning. While details concerning Segal’s activities are still pending, the allegations against Cox are consistent with a “selling away” securities violation. Selling away occurs when a financial advisor solicits investments in companies or promissory notes that were not approved by the broker’s affiliated firm. In many cases the broker transfers funds or liquidates investments at his registered firm in order to make the investment in the outside business.

shutterstock_54642700According to broker Ismail Elmas’ (Elmas) Financial Industry Regulatory Authority (FINRA) BrokerCheck records the representative was recently discharged from CUSO Financial Services, LP (CUSO Financial) concerning allegations that the broker “converted client funds for personal use as well as participated in an unauthorized outside business activity involving investments without the firm approval…” Previously Elmas was associated with CUNA Brokerage Services, Inc.

Shortly thereafter, a customer filed a complaint against Elmas alleging that the broker took the client’s variable annuity contract, surrendered it, and sent the proceeds to a third-party – which the client says was unauthorized activity. In addition, since Elmas was terminated from CUSO Financial authorities have been unable to locate the broker. In articles, officials say that Elmas, 49, has been missing since July 29th and have warned that Elmas may be armed and should not be approached. According to reports Elmas was last seen leaving his home in his gray 2008 Toyota Prius.

The allegations against Elmas are consistent with a “selling away” securities violation. Selling away occurs when a financial advisor solicits investments in companies or promissory notes that were not approved by the broker’s affiliated firm. Under the FINRA rules, a brokerage firm owes a duty to properly monitor and supervise its employees. In order to properly supervise their brokers each firm is required to establish and maintain a system to supervise the activities of each registered representative to achieve compliance with the securities laws. Selling away often occurs in environments where the brokerage firms either fails to put in place a reasonable supervisory system or fails to actually implement that system and meet supervisory requirements.

shutterstock_114128113Back in Decmeber 2013, the law offices of Gana Weinstein LLP reported that “Former Ryan Beck and Oppenheimer Financial Advisor William Bucci Barred From the Financial Industry” where we reported that The Financial Industry Regulatory Authority (FINRA) barred Bucci for allegedly accepting 19 personal loans totaling $635,000 from nine customers in violation of FINRA rules. FINRA also alleged that Bucci willfully failed to amend his Form U4 to disclose material facts relating to two judgments that were entered against him. In addition to these claims, several customers filed complaints alleging that Bucci sold illegal promissory notes.

Recently, a combined investigation by the IRS and the FBI led to the filing of a federal complaint in the Eastern District Court of Pennsylvania against Bucci in connection with the foregoing activities. The complaint alleged that Bucci willfully made Individual Income Tax Return, Form 1040, for the calendar years 2007, 2008, 2009, and 2010 that falsely understated his income.

In addition, a second superseding indictment was filed against Bucci on July 22, 2014, by the United States Attorney’s Office for the Eastern District of Pennsylvania alleging that Bucci was running an investment fraud scheme that deceived investors into turning over more than $3.2 million. According to a press release issued by the office, Bucci told his victims he was starting a wine and high end olive oil import business to import the goods from Italy. The release stated that Bucci was a licensed stockbroker and a non-lawyer elector on the Pennsylvania Court of Judicial Discipline who never had an olive oil and wine business. The release also alleged that Bucci also solicited individuals to loan money for the purchase of real estate. According to the indictment, Bucci used the funds to supplement his income and to support his lifestyle as well as to make payments to earlier victims.

shutterstock_187532306The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm Safeguard Securities, Inc. (Safeguard Securities) and broker Peter Mooney (Mooney) concerning allegations that during a FINRA examination of the firm Safeguard Securities provided certain outside business activity (OBA) forms to FINRA that had been backdated. FINRA found that Mooney, who signed the backdated forms, knew or should have known that the forms had been backdated. In addition, FINRA identified many supervisory and recordkeeping failures relating to: the review and retention of electronic communications; outside business activities; private securities transactions; the supervision of producing managers; and branch registration and fingerprinting of personnel.

FINRA found that Mooney was the firm’s principal and supervisor responsible for establishing and implementing supervisory procedures. FINRA alleged that Safeguard Securities, through Mooney, failed to establish and/or implement adequate supervisory procedures in numerous respects. First, it was alleged that the firm failed to establish and implement an adequate supervisory system for the review and retention of electronic communications relating to the business of the firm. For example, between July 14, 2008, and November 4, 2012, it was alleged that Safeguard Securities failed to maintain any record to evidence its review of electronic communications. Further, FINRA alleged that the firm failed to take any steps to monitor registered representatives who used e-mail addresses at domains other than the firm’s e-mail system.

In another instance of supervisory failure, FINRA alleged that during 2012, Mooney knew that a broker by the initials “WM” was engaging in private securities transactions for compensation. Notwithstanding the fact that the firm prohibited such activity, FINRA found that Mooney failed to take any steps to stop the broker’s participation in those transactions. Under NASD Rule 3040, a duty is imposed on member firms to supervise the transaction as if the transaction were executed on behalf of the member.

shutterstock_133831631Our law office is investigating potential customer complaints against David Diehl in the wake of the findings and sanctions by the Financial Industry Regulatory Authority (FINRA) concerning allegations that Diehl engaged in private securities transactions, often referred to as “selling away”, and an outside business activity without disclosing these activities to his firm, First Liberties Financial. According to FINRA, Diehl was able to raise approximately $480,000 from seven investors for a business which owned and operated three hamburger restaurants in the St. Louis, Missouri area. FINRA found that most of the investors were his brokerage firm client. By virtue of this conduct, FINRA determined that Diehl violated NASD Rules 3030 and 3040 concerning outside business activities.

Diehl has been registered with seven firms since 2004. From July 2010, through March 2012, Diehl was registered with First Liberties Financial (First Liberties). Thereafter, Diehl joined Sunbelt Securities Inc. but left that firm on shortly in April 2012. Diehl was also registered with investment advisors and established an RIA firm, Diehl Wealth Management Group, LLC, in October 2010, and terminated registration in August 2011. Diehl has had three regulatory findings against him including AWC (2012031952301) issued in December 2012 where Diehl was suspended in all capacities for four months and fined $7,500 for indirectly borrowing money from a customer without his firm’s approval and for failing to timely amend his Form U4 to disclose a tax lien totaling $292,965. A broker’s inability to manage his own finances is a relevant disclosure for investors and brokerage firm’s to apply heightened scrutiny the broker’s actions.

Here, FINRA found that Diehl was approached by a client who was a well-known sports figure who wanted to open local burger restaurants under the client’s name. FINRA found that during the latter half of 2010, Diehl participated in establishing the business, and the first of three restaurants opened in April 2011. The restaurants were managed by another individual brought into the business by Diehl. According to FINRA, the restaurant founders set up a corporate entity to own and operate the restaurants and two of Diehl’s close relatives were designated as corporate secretary and director. The address provided for the corporation was Diehl’s home address and the registration of a fictitious name for the restaurants identified Diehl’s office location as the address for the corporation.

shutterstock_188383739The Financial Industry Regulatory Authority (FINRA) recently sanctioned broker Ralph Lord (Lord) concerning allegations that the broker, from 2007 through 2013, engaged in three unapproved outside business activities in violation of NASD Rule 3030 and FINRA Rule 3270, participated in undisclosed private securities transactions, provided inaccurate information on compliance questionnaires, and failed to disclose an unsatisfied judgment.

Lord resides in Jackson, Mississippi and has been in the securities industry since 1988. From 2000 until June 2011, Lord worked at Sanders Morris Harris Inc. (f/k/a Harris Webb & Garrison, Inc.). Thereafter, Lord was associated with Abshier Webb Donnelly & Baker. Inc. from June 2011 until January 2012. Finally, from January 2012 until July 2013, Lord was associated with Saxony Securities. Inc (Saxony Securities). Lord was then terminated by Saxony Securities for violating the firm’s internal policies concerning disclosure of unpaid judgments. Previously Lord was the subject of an another FINRA disciplinary action in 1991 for exercising discretion without prior written authorization. According to Lord’s BrokerCheck, he has also been the subject of at least 15 customer complaints over his career.

FINRA alleged that Lord and two acquaintances created a called Canebrake Capital Management LLC (Cranebrake) in or about 2007 to make an investment in a spring water business. FINRA found that Lord and his acquaintances owned Canebrake and therefore a large position in the water company, were responsible for operating the water business, and that Lord personally invested at least $200,000 in Cranebrake. According to FINRA, in 2007, Lord created a private placement memorandum and a presentation to market partnership interests in Cranebrake to raise funds for the company. FINRA also alleged that Lord solicited several customers to invest in the water company but with the exception of one customer was largely unsuccessful.

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.

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm Cambridge Investment Research, Inc. concerning allegations that from January 2009, to July 2010, Cambridge failed to ensure that the firm preserved, maintained, and reviewed the business emails of two of its registered representatives.  FINRA found that during this time Cambridge was relying upon its representatives to forward copies of their emails but did not have effective procedures reasonably designed to ensure that the representatives actually forwarded emails in violation of FINRA supervision rules.

Cambridge has been a FINRA member since December 1995 and has 3,044 registered individuals in 1,530 branch offices.

The duty to supervise has been held to be a critical component of the securities regulatory scheme.  Supervisors have an obligation to employ systems and processes designed to ferret out wrongful behavior.  In addition, firms must respond vigorously to indications of irregularity, commonly referred to as “red flags” of misconduct.

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Bedminster Financial Group, Ltd. (BFG) and Robert M. Van Pelt (Van Pelt).  FINRA alleged that at least four representatives of BFG used non-BFG email accounts for securities related communications to the public, customers and prospective customers and that Van Pelt failed to retain and review these emails. FINRA also found that BFG, through its President and Chief Compliance Officer Van Pelt, failed to enforce its written supervisory procedures by failing to 1) preserve business related emails; 2) review of business related mail; 3) inspect of non-branch offices; and 4) review and approve website content.

BFG’s main office is located in Holicong, Pennsylvania.  BFG employs thirty-four registered persons, had six registered branch offices, and twenty-eight non-branch offices located across the country.  BFG’s primary business is the receipt of finder’s fees for private placements and Private Investment in Public Equity (PIPE) offerings.  Since 1996, Van Pelt has been registered with BFG and is the firm’s President, CCO, and majority owner.

The securities laws require firms to maintain and preserve for at least three years originals of all communications received and copies of all communications sent relating to the firm’s business.  BFG’s supervisory procedures required representatives to use the firm’s email account for business related communications and prohibited employees from communicating with customers or prospects through their personal email accounts unless the outside account was first approved by the firm and records of the email activity were provided to the firm. Despite BFG’s prohibition against using personal email addresses, FINRA found that at least four representatives used their unapproved personal email accounts for business-related communications without copying or forwarding these emails to the firm.

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