Bad Brokers

According to FINRA, Robert William Clayton Jr. was fined $5,000 and suspended for three months for causing his member firm to make and preserve inaccurate books and records by mismarking order tickets as unsolicited when he had solicited the trades.

FINRA rules require firms to maintain accurate ...

Read More

According to FINRA, Robert William Clayton Jr. was fined $5,000 and suspended for three months for causing his member firm to make and preserve inaccurate books and records by mismarking order tickets as unsolicited when he had solicited the trades.

FINRA rules require firms to maintain accurate records indicating whether trades were solicited or unsolicited. This distinction is important for several reasons: it helps firms supervise representatives' recommendations to ensure they are suitable, it affects suitability obligations, and it provides an accurate record of the nature of the customer relationship and trading activity.

By marking trades as unsolicited when he had actually solicited them, Clayton created false records that misrepresented his role in recommending the transactions. This could allow unsuitable recommendations to escape supervisory review, since firms typically apply different supervision to unsolicited trades versus recommended trades. The false records also make it difficult to reconstruct what actually occurred if questions arise later about whether recommendations were suitable.

Mismarking solicited trades as unsolicited can be an attempt to evade suitability requirements or to hide excessive trading activity from supervisory review. Even if Clayton did not have improper motives, the creation of inaccurate records undermines the firm's ability to supervise trading and protect customers.

Investors should understand that when their broker recommends a trade, the firm has heightened obligations to ensure the recommendation is suitable. By mismarking solicited trades as unsolicited, brokers can evade this scrutiny. Investors who receive frequent trade recommendations should verify that their account is being properly supervised and that all recommendations are documented accurately. If trades were actually recommended but marked as unsolicited, it may indicate an attempt to avoid suitability review.

Show Less

According to FINRA, Royal Gregory Fisher was fined $5,000 and suspended for two months for circumventing his member firm's policies when he acted in fiduciary capacities on behalf of, and accepted being named a beneficiary by, a firm customer to whom he was not related.

A customer granted Fisher ...

Read More

According to FINRA, Royal Gregory Fisher was fined $5,000 and suspended for two months for circumventing his member firm's policies when he acted in fiduciary capacities on behalf of, and accepted being named a beneficiary by, a firm customer to whom he was not related.

A customer granted Fisher power of attorney and named him the first successor trustee of the customer's revocable living trust. The customer also named Fisher as a 10 percent beneficiary of the trust, such that Fisher stood to inherit over $100,000. After the customer's death, Fisher became the primary trustee of the trust and the executor of the customer's estate. Fisher also signed annual compliance questionnaires certifying that he understood the firm's policies and had complied with them.

Firms prohibit registered representatives from acting as fiduciaries for unrelated customers and from being named as beneficiaries because these arrangements create serious conflicts of interest. When a broker stands to inherit from a customer or controls their assets through a power of attorney or trust, it creates incentives to prioritize the broker's interests over the customer's interests. There is also potential for undue influence, where the broker uses their position of trust to obtain financial benefits from the customer.

By accepting these fiduciary appointments and the beneficiary designation while certifying compliance with firm policies that prohibited such arrangements, Fisher violated his firm's rules designed to protect customers from conflicts of interest and potential exploitation.

Investors should be very cautious about naming their financial professional as a fiduciary (power of attorney, trustee, executor) or as a beneficiary unless the person is a family member. These arrangements create conflicts of interest and many firms prohibit them for good reason. Investors should also be aware that registered representatives who accept prohibited fiduciary roles or beneficiary designations may be more interested in their own financial gain than in the customer's best interests.

Show Less

According to FINRA, John Roddy Hughes was fined $2,500 and suspended for two months for failing to obtain written consent from his member firm to maintain an outside securities account.

Hughes did not disclose his association with his firm to the firm at which the outside account was held and did...

Read More

According to FINRA, John Roddy Hughes was fined $2,500 and suspended for two months for failing to obtain written consent from his member firm to maintain an outside securities account.

Hughes did not disclose his association with his firm to the firm at which the outside account was held and did not seek written consent from his firm before opening the account or at any other time, including on his annual compliance attestation. FINRA rules require registered persons to provide written notice to their employing firm before opening securities accounts at other firms and to ensure that the other firm is notified of their employment.

These requirements exist to allow firms to supervise the trading activity of their registered representatives, even in accounts held elsewhere. When representatives maintain undisclosed outside accounts, firms cannot monitor for excessive trading, conflicts of interest, insider trading, or other misconduct. The rules help ensure that all trading by registered persons is subject to appropriate oversight.

The fact that Hughes failed to disclose the outside account on his annual compliance attestation indicates an ongoing effort to conceal the account rather than an inadvertent oversight. Annual compliance questionnaires specifically ask about outside securities accounts, providing multiple opportunities to correct any omission.

For investors, this case illustrates that registered representatives are subject to supervision even for their personal trading activity, and for good reason. When brokers maintain secret accounts, it can indicate they are trying to hide trading that would not be approved by their firm. While Hughes's undisclosed account involved his own trading rather than customer funds, the willingness to violate disclosure requirements and evade supervision is concerning and may indicate broader compliance problems.

Show Less

According to FINRA, Jilena Yuen-Han Mok was fined $10,000 and suspended for two months for effecting trades in a customer's non-discretionary account without authorization and exercising discretionary authority without proper authorization and firm acceptance.

Mok effected trades in a customer's ...

Read More

According to FINRA, Jilena Yuen-Han Mok was fined $10,000 and suspended for two months for effecting trades in a customer's non-discretionary account without authorization and exercising discretionary authority without proper authorization and firm acceptance.

Mok effected trades in a customer's account without the customer's authorization, knowledge, or consent. The firm later offered to reverse the trades, but the customer declined. Mok also exercised discretionary authority with respect to trades in customer accounts without obtaining prior written authorization from the customers and without having the accounts accepted as discretionary by the firm. In addition, Mok had not communicated with the customers prior to execution on the day of the trades.

Unauthorized trading is a serious violation because it means the broker is making investment decisions for customers without their permission, potentially exposing them to unwanted risk or inappropriate investments. When customers don't authorize trades, they may end up owning securities they never wanted or taking losses on positions they didn't know they had.

Discretionary authority allows a broker to make trading decisions without contacting the customer for each trade, but it requires prior written customer authorization and firm acceptance of the account as discretionary. These requirements exist to protect customers by ensuring they knowingly grant such authority and that the firm supervises discretionary trading appropriately. When brokers exercise discretion without proper authorization, they evade important customer protections and supervisory safeguards.

Investors should carefully review their account statements and confirmations to verify that all trades were authorized. If trades appear that were not specifically approved, investors should immediately contact their firm and report unauthorized trading. Investors should also understand that granting discretionary authority is a serious decision that should only be done with full understanding and appropriate documentation.

Show Less

According to FINRA, Robert Joseph DeHayes was fined $10,000 and suspended for six months for opening and maintaining an outside brokerage account without notifying or receiving prior written consent from his member firm and without notifying the firm at which the account was maintained of his associ...

Read More

According to FINRA, Robert Joseph DeHayes was fined $10,000 and suspended for six months for opening and maintaining an outside brokerage account without notifying or receiving prior written consent from his member firm and without notifying the firm at which the account was maintained of his association.

DeHayes's firm reduced the level of options trading permitted in the accounts he maintained for himself and his wife at the firm. On the same day, DeHayes opened an outside brokerage account at another firm in his wife's maiden name. Over the course of the next nine years, DeHayes traded securities in the outside account, including the types of options trading that his firm no longer permitted in his accounts and additional options investing that his firm prohibited.

This case reveals a deliberate scheme to evade firm supervision. When DeHayes's firm restricted his options trading authority due to concerns about the risk or appropriateness of his trading, he immediately opened a secret account at another firm to continue the prohibited trading. By using his wife's maiden name and failing to disclose his association with his firm, DeHayes ensured that neither his own firm nor the other firm would know about the account or supervise his trading.

The fact that this conduct continued for nine years demonstrates sustained and intentional evasion of supervisory controls. DeHayes's firm had determined that certain options strategies were too risky or otherwise inappropriate for him, yet he deliberately circumvented those restrictions by maintaining a secret account.

This case illustrates why firms restrict certain types of trading and why registered representatives must disclose all outside accounts. When brokers evade supervision by maintaining secret accounts, they can engage in risky or inappropriate trading without oversight. Investors should understand that if their broker is willing to evade their own firm's supervision, they may also be willing to violate rules meant to protect customers.

Show Less

According to FINRA, John Ginsburg was fined $5,000 and suspended for one month for adding information for customers to firm documents after obtaining the customers' signatures on blank or incomplete forms, causing the firm to maintain inaccurate books and records.

Ginsburg submitted the forms to ...

Read More

According to FINRA, John Ginsburg was fined $5,000 and suspended for one month for adding information for customers to firm documents after obtaining the customers' signatures on blank or incomplete forms, causing the firm to maintain inaccurate books and records.

Ginsburg submitted the forms to his member firm for processing after adding information following customer signatures. The missing information added by Ginsburg included material information regarding proposed investments and the costs and fees associated with those investments. This practice of having customers sign blank or incomplete forms and then filling in details afterward is prohibited because it creates risks of errors, misunderstandings, and potential abuse.

When customers sign blank forms, they don't know exactly what they're agreeing to, and there's no guarantee that the information filled in later accurately reflects what was discussed or agreed upon. Even if Ginsburg had good intentions and accurately reflected the customers' wishes, the practice undermines the purpose of customer signatures, which is to document that customers reviewed and agreed to specific information.

The fact that the missing information included material details about proposed investments and associated costs and fees makes this violation particularly concerning. Customers should have an opportunity to review and understand investment details and fees before signing forms, not trust that their broker will fill them in correctly after the fact.

By causing his firm to maintain inaccurate books and records - documents showing customer signatures on forms that were incomplete when signed - Ginsburg violated recordkeeping requirements designed to ensure the integrity of customer documentation.

Investors should never sign blank or incomplete forms, even if their broker assures them the missing information will be filled in correctly. Always insist on reviewing complete documents before signing, and retain copies of everything you sign. If a broker pressures you to sign incomplete forms, it's a serious red flag that should be reported to the firm and to FINRA.

Show Less

According to FINRA, Jeffrey Allen Russell was fined $5,000, suspended for six months, and ordered to pay $2,999 in disgorgement of commissions for effecting purchases without customer authorization in brokerage accounts of homeowners' associations.

Russell effected purchases of a money market mut...

Read More

According to FINRA, Jeffrey Allen Russell was fined $5,000, suspended for six months, and ordered to pay $2,999 in disgorgement of commissions for effecting purchases without customer authorization in brokerage accounts of homeowners' associations.

Russell effected purchases of a money market mutual fund in customer brokerage accounts without his customers' prior authorization or consent. These money market transactions did not generate commissions for Russell. Additionally, Russell effected purchases of a mutual fund that invested in mortgage-backed securities in customer brokerage accounts without prior authorization or consent. The MBS mutual fund transactions generated $2,999 in commissions for Russell, which he was ordered to disgorge.

Unauthorized trading violates one of the most fundamental principles of the broker-customer relationship: that customers control their own accounts and brokers cannot make investment decisions without authorization. When a broker executes trades without customer knowledge or permission, it exposes customers to unwanted risk and potentially unsuitable investments.

The fact that some of the unauthorized trades generated commissions for Russell makes the violation more serious, as it suggests a financial motive. Even though the money market trades didn't generate commissions, all of the unauthorized trading violated the customers' right to control their own accounts and make their own investment decisions.

The customers in this case were homeowners' associations, which are organizations that manage common areas and finances for residential communities. These entities often have specific investment policies and restrictions, making unauthorized trading particularly problematic as the trades may have violated the associations' governing documents or investment guidelines.

Investors should review account statements carefully to ensure all transactions were authorized. Any trades that appear without prior approval should be immediately questioned and reported. Unauthorized trading is never acceptable, regardless of whether the investments perform well or generate profits.

Show Less

According to FINRA, Sara Yasmin Qazi was fined $15,000 and suspended for three months for participating in a private securities transaction without providing written notice to or receiving approval from her member firm, and for distributing misleading materials about a private offering.

Qazi part...

Read More

According to FINRA, Sara Yasmin Qazi was fined $15,000 and suspended for three months for participating in a private securities transaction without providing written notice to or receiving approval from her member firm, and for distributing misleading materials about a private offering.

Qazi participated in a private securities transaction in which a customer purchased $250,000 of preferred stock in a healthcare company without providing written notice to or receiving approval from her firm. At the customer's request, Qazi conducted due diligence on the healthcare company, including reviewing its financial data and arranging and attending due diligence calls with its management and other investors. She also facilitated the customer's investment by assisting with execution of agreements related to the transaction and arranging the wire transfer of the customer's funds. Qazi did not earn any compensation from her participation.

Additionally, Qazi distributed a written presentation prepared by the healthcare company to five individuals, including one firm customer, which included information regarding a private offering but did not disclose any of the risks associated with an investment in the offering. She also distributed a financial model prepared by the healthcare company to a firm customer, which contained financial forecasts but did not disclose any risks, limitations, or conditions that could impede achievement of such forecasts.

Private securities transactions - also known as "selling away" - must be disclosed to the representative's firm so the firm can evaluate whether the activity should be permitted and, if so, how it should be supervised. When representatives conduct such transactions without firm knowledge, the firm cannot supervise the activity or protect customers from unsuitable or fraudulent investments.

The distribution of materials about the private offering that highlighted potential returns without disclosing associated risks is particularly problematic because it presents a misleading picture that could induce unsuitable investments. Investors considering any investment need balanced information about both potential returns and risks.

Show Less

According to FINRA, David Ross Stuart was fined $7,500 and suspended for three months for sharing commissions with an unregistered person who referred customers to Stuart, and for falsely attesting on annual compliance questionnaires that he was not engaged in paying referral fees.

Stuart and an ...

Read More

According to FINRA, David Ross Stuart was fined $7,500 and suspended for three months for sharing commissions with an unregistered person who referred customers to Stuart, and for falsely attesting on annual compliance questionnaires that he was not engaged in paying referral fees.

Stuart and an unregistered person jointly met with at least one customer to discuss investments. Stuart paid approximately $148,265 to the unregistered person in connection with transactions he effectuated in the accounts of customers the unregistered person had referred. FINRA had previously barred the unregistered person from associating with any FINRA member in any capacity, and Stuart was aware that the individual was not registered.

Stuart also attested on annual compliance questionnaires that he understood he was prohibited from directly paying securities or investment advisory compensation to unregistered individuals and falsely attested that he was not engaged in paying referral fees to anyone outside of his member firm.

Paying commissions or referral fees to unregistered persons is prohibited because it allows people who are not subject to regulatory oversight or supervision to participate in securities activities and earn compensation from customer investments. This is particularly serious when the person receiving payments has been barred by FINRA, as it effectively allows someone kicked out of the industry for misconduct to continue profiting from securities activities.

The fact that Stuart paid nearly $150,000 to a barred individual over time while repeatedly certifying on compliance questionnaires that he was not paying such fees demonstrates deliberate and sustained misconduct. Stuart knew the person was barred, knew he was prohibited from paying them, yet continued the arrangement for years while lying about it.

Investors should be concerned if their broker is working with unregistered or barred individuals, as it may indicate the broker is willing to circumvent regulatory requirements and partner with people who have been kicked out of the industry for misconduct.

Show Less

According to FINRA, Frenise Ladawn Mann was fined $7,500 and suspended for six months for electronically signing customer names on forms without and with permission, recording a false customer address, photocopying and reusing customer signatures, and impersonating a customer.

Mann electronically...

Read More

According to FINRA, Frenise Ladawn Mann was fined $7,500 and suspended for six months for electronically signing customer names on forms without and with permission, recording a false customer address, photocopying and reusing customer signatures, and impersonating a customer.

Mann electronically signed the names of customers on forms without their prior permission, and electronically signed forms for other customers with their prior permission. She also inaccurately recorded her own address as that of a customer in a new account application, with permission of the customer and at that customer's request. Additionally, Mann photocopied and then reused the signatures of customers on insurance application forms, with their prior permission.

Even though customers authorized some of this conduct and none were harmed or complained, the conduct violated firm policies and FINRA rules. After receiving a letter of reprimand from her firm for signature irregularities, Mann continued some of this misconduct. Some of the forms involved securities products and were required books and records of the firm, so the false signatures caused the firm to maintain inaccurate books and records.

Most seriously, Mann called the firm and impersonated a customer in an effort to obtain information about the customer's account, without permission of the customer. The firm ended the call before providing any information about the account.

While customer permission mitigates some aspects of this case, registered representatives cannot sign customer names even with permission because it creates documents falsely indicating customers signed them. This undermines the integrity of firm records and creates potential for errors and disputes. The impersonation incident is particularly concerning as it involved attempting to access customer information without authorization.

Investors should never allow their broker to sign their name on documents, even if it seems convenient. All signatures should be authentic to ensure accurate records and prevent potential abuse. Any broker who asks to sign on a customer's behalf or who impersonates customers is engaging in serious misconduct.

Show Less