FINRA Disciplinary Actions

FINRA Disciplinary Actions

As members of Financial Industry Regulatory Authority (FINRA), brokerage firms and its financial advisors are required to submit themselves to binding arbitration as a way of resolving disputes with customers. The FINRA arbitration dispute resolution process is designed to protect investors from financial advisor misconduct which results in investment losses. Failure to comply with FINRA rules and regulations concerning sales practice rules and regulations can result in a securities arbitration claim for damages to recover investment losses.

FINRA awards, fines and sanctions are disciplinary actions taken against brokerage firms and its financial advisors for violating FINRA sales practice rules and regulations. Failure of member brokerage firms to supervise the activities of its financial advisors in compliance with the FINRA sales practice rules and regulations can result in awards, fines and sanctions.

FINRA awards, fines and sanctions are reported as a public record to help inform the investing public against similar sales practices in customer accounts. Customer complaints, arbitration awards, regulatory fines and sanctions against brokerage firms and financial advisor are included in FINRA records. You can learn more information about FINRA Broker Check.

September 2018

Source: FINRA, Financial Industry Regulatory Authority, Inc. 2015
Full Disciplinary Reports Available to the public at: www.finra.org

Financial Advisors

July 11, 2018 – An AWC was issued in which Yanow was barred from association with any FINRA member in all capacities. Without admitting or denying the findings, Yanow consented to the sanction and to the entry of findings that he converted at least $205,586 of an 87-year-old customer’s funds by writing checks drawn on the customer’s brokerage account at Yanow’s member firm without the customer’s knowledge or authorization. The findings stated that the customer gave Yanow blank checks drawn on the customer’s account so that Yanow could pay the customer’s caregivers in the event the customer was unable to do so. However, Yanow used the customer’s blank checks to convert at least $205,586 of the customer’s funds, which he used to pay for his own personal expenses, including his overdue homeowner’s association fees, his children’s summer camp fees and the purchase of a 1976 Chevrolet Corvette. (FINRA Case #2018058538001)

July 12, 2018 – An AWC was issued in which Soll was barred from association with any FINRA member in all capacities. Without admitting or denying the findings, Soll consented to the sanction and to the entry of findings that he refused to appear and provide on-the-record testimony to FINRA during the course of an ongoing examination involving potential trading abuses in an elderly customer’s account. The findings stated that the trading activities involved possible excessive trading, churning and unsuitable recommendations of penny stocks for the elderly customer’s trust account. (FINRA Case #2017054755202)

July 16, 2018 – An AWC was issued in which McGill was barred from association with any FINRA member in all capacities. Without admitting or denying the findings, McGill consented to the sanction and to the entry of findings that he refused to produce information requested by FINRA in connection with its investigation of his possible participation in the recommendation and sale of unsuitable investment products to customers. (FINRA Case #2018057843501)

July 17, 2018 – An AWC was issued in which Bloom was barred from association with any FINRA member in all capacities. Without admitting or denying the findings, Bloom consented to the sanction and to the entry of findings that he refused to appear for on-the-record testimony requested by FINRA in connection with an investigation into allegations that he engaged in an unsuitable pattern of trading in at least three customer accounts. (FINRA Case #2017056067501)

July 30, 2018 – An AWC was issued in which Korhut was fined $5,000 and suspended from association with any FINRA member in all capacities for one month. Without admitting or denying the findings, Korhut consented to the sanctions and to the entry of findings that he executed 10 unauthorized trades totaling $40,004 in the accounts of customers at his member firm. The findings stated that Korhut effected a $22,000 trade in Class C mutual fund shares in the account of a customer without obtaining the customer’s prior authorization. When the customer learned of the trade, he accepted $11,000 worth of the shares, but directed Korhut to sell the remaining shares ($11,000 worth) and invest the proceeds in a different security. Korhut also sold nine securities, two stocks and shares in seven mutual funds, for a total of $27,004, in the account of customers without obtaining their prior authorization. The suspension is in effect from August 20, 2018, through September 19, 2018. (FINRA Case #2016051348101)

July 30, 2018 – Tweed appealed an OHO decision to the NAC. Tweed was fined $50,000 and barred from association with any FINRA member in all capacities. The sanctions were based on findings that Tweed negligently made false and misleading statements to customers to induce them to invest in his hedge fund in violation of Sections 17(a)(2) and (3) of the Securities Act of 1933. The findings stated that Tweed obtained over $1.6 million from retail customers through a false and misleading private placement memorandum (PPM). Tweed used the PPM to offer and sell interests in the hedge fund, an investment fund that he created and controlled. Tweed was supposed to invest the fund’s money in a fund that would use a quantitative stock trading algorithm. When things did not go according to plan, Tweed placed the money in other investments that lost money, a fact that he concealed from investors. Tweed made negligent misrepresentations or omissions by failing to disclose to investors the total potential fees and costs of an investment in the hedge fund, which would reduce the return on investment. Tweed also failed to disclose that he had replaced the entity that would trade the hedge fund’s capital with another entity, controlled by another person who would manage and trade investors’ assets. In addition, Tweed failed to disclose that the new entity that would trade the hedge fund’s funds would pay him a share of the management fees it earned from his hedge fund, which would further reduce the return on investors’ money. The Hearing Panel did not find that Tweed had an obligation to disclose that a broker-dealer rejected the hedge fund account application to open a securities account for the fund because of the number of customer complaints and arbitrations against him. The sanctions are not in effect pending review. (FINRA Case #2015046631101)

Brokerage Firms

July 26, 2018 – A Letter of Acceptance, Waiver and Consent (AWC) was issued in which the firm was censured and fined $100,000. Champney was fined $5,000, suspended from association with any FINRA member in any principal capacity for three months and ordered to requalify as a principal by passing the requisite examination or examinations before acting in any principal capacity with any FINRA member. Without admitting or denying the findings, the firm and Champney consented to the sanctions and to the entry of findings that the firm failed to establish and maintain a supervisory system, including WSPs, reasonably designed to identify and prevent unsuitable excessive trading and churning in customer accounts. The findings stated that although the firm’s WSPs acknowledged that frequent transactions in the same security could be unsuitable, they did not provide any guidance for detecting or preventing excessive trading or churning. The firm did not systemically track the turnover rates and cost-to-equity ratios in customer accounts.

The firm’s WSPs did not address its monthly activity report that identified accounts in which there were more than 40 trades in a particular month, or provide any guidance about how to use it. In addition, the report did not capture patterns of activity across multiple months.  Champney reviewed the firm’s monthly report and determined, in his discretion, whether the appearance of a customer account on the report warranted action. The firm’s WSPs did not provide any guidance about how to determine whether further action was warranted, and did not require that any action be taken when a customer’s account appeared on the activity report. In certain instances, Champney had the firm send customers a satisfaction letter when their accounts appeared on the report. However, this form letter did not contain any information about the level of trading in the  account or any losses or commissions associated with those transactions. Additionally, the firm’s WSPs did not provide guidance about whether or not any steps should be taken if a customer did not acknowledge a satisfaction letter, even though the letter requested that customers acknowledge receipt of the letter. The findings also stated that Champney failed to reasonably supervise a registered representative for whom he was the direct businessline supervisor. The representative effected more than 3,500 transactions in a 93-year-old retired customer’s accounts, which resulted in approximately $723,000 in trading losses and generated approximately $735,000 in commissions and markups for the representative and the firm. Champney observed numerous red flags indicating that the representative was engaging in misconduct in the customer’s accounts and did not reasonably respond to these red flags. Champney became aware of continued trading, losses and commissions in the customer’s accounts, observed that the  customer’s accounts appeared on the firm’s activity report 23 out of 30 months and that the customer experienced heavy losses and paid significant commissions. Champney knew that the customer called the representative nearly every day, often multiple times a day, and he knew that the customer relied on him for information about his accounts. Champney was also aware of an email that the customer’s son, who lived with the customer, sent to the representative, concerning his father’s accounts. Neither the representative nor Champney followed up with the customer in response to his son’s email. Ultimately, the firm and the  representative made a settlement payment totaling $470,000 to the guardian for the elderly customer’s accounts, and FINRA barred this representative from associating with any FINRA member in any capacity. The suspension is in effect from August 20, 2018, through November 19, 2018. (FINRA Case #2015045984002)

July 24, 2018 – An AWC was issued in which FSC Securities Corporations (FSC) was censured and fined $200,000. Royal Alliance Associates, Inc. (Royal Alliance) was censured and fined $350,000. SagePoint Financial, Inc. (SagePoint) was censured and fined $200,000. Woodbury Financial Services, Inc. (Woodbury) was censured and fined $250,000. The firms are also required to review and revise, as necessary, their systems, policies and procedures (written and otherwise) and trainings with respect to the areas described within the AWC. Without admitting or denying the findings, the firms consented to the sanctions and to the entry of findings that they each failed to establish, maintain and enforce a supervisory system and written procedures reasonably designed to supervise representatives’ sale of multi-share class variable annuities. The findings stated that the firms’ procedures did not specifically address the suitability issues related to the different surrender periods, fees and costs of the different variable annuity share classes. Similarly, the firms’ procedures did not specifically address the suitability concerns raised by the sale of an L-share contract when combined with a long-term income rider or to a customer with a long-term investment time horizon. The firms’ WSPs also failed to address when additional scrutiny may have been warranted during the required principal review and approval process because of suitability concerns about the variable annuity share class that was selected for the transaction. FSC, SagePoint and Royal Alliance’s procedures for principals only explained basic differences in the surrender period for variable annuity share classes and noted that reviewing principals should attempt to get a rationale addressing the customer’s decision to pay the increased annual fee for an L-share contract. Woodbury’s WSPs failed to address variable annuity share classes at all. In addition, the firms failed to provide sufficient training to their representatives and reviewing principals to ensure that they understood the material features of variable annuities. The findings also stated that Royal Alliance failed to establish and maintain a supervisory system and procedures reasonably designed to supervise variable annuity exchanges. Royal Alliance selected for review only a limited number of representatives based on ad hoc criteria unrelated to their volume of variable annuity recommendations, and its WSPs did not include any surveillance procedures designed to determine if representatives had problematic rates of variable annuity exchanges, as required.  (FINRA Case #2016047636601)

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