Bad Brokers

According to FINRA, Joao Amorim Pinto was suspended for three months for willfully violating Regulation Best Interest and FINRA suitability rules by recommending a series of trades in a 68-year-old retiree's account that were excessive, unsuitable, and not in the customer's best interest.

Pinto r...

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According to FINRA, Joao Amorim Pinto was suspended for three months for willfully violating Regulation Best Interest and FINRA suitability rules by recommending a series of trades in a 68-year-old retiree's account that were excessive, unsuitable, and not in the customer's best interest.

Pinto recommended high frequency trading in the customer's account, and the customer routinely followed his recommendations. As a result, Pinto exercised de facto control over the customer's account. Pinto's trading in the customer's account generated total trading costs of $92,237, including $83,484 in commissions, and caused $141,051 in realized losses.

Excessive trading, also known as churning when a broker has control over an account, involves trading that is excessive in light of the customer's investment objectives and financial situation. The trading is designed to generate commissions for the broker rather than to benefit the customer. In this case, a 68-year-old retiree suffered over $141,000 in realized losses while Pinto earned over $83,000 in commissions - a clear example of the broker profiting while the customer lost money.

The high frequency of trading and the fact that Pinto exercised de facto control by making recommendations that the customer routinely followed without question indicates a pattern of churning. Retirees are particularly vulnerable to excessive trading because they typically cannot afford to lose principal and often trust their brokers without questioning recommendations.

Regulation Best Interest requires brokers to act in the customer's best interest when making recommendations, which includes considering whether the frequency of trading serves the customer's interests rather than just generating commissions. This case demonstrates a clear violation of that standard.

Investors, especially retirees, should be wary of frequent trading in their accounts and should pay attention to commission costs. If trading seems excessive or commissions are mounting while the account value declines, it may indicate churning and should be immediately questioned.

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According to FINRA, Scott William Norvell was fined $10,000 and suspended for two-and-one-half months for negligently misrepresenting death benefits available from variable annuity products, causing his firm to maintain inaccurate books and records by falsifying signatures, and falsely attesting on ...

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According to FINRA, Scott William Norvell was fined $10,000 and suspended for two-and-one-half months for negligently misrepresenting death benefits available from variable annuity products, causing his firm to maintain inaccurate books and records by falsifying signatures, and falsely attesting on a compliance questionnaire.

Norvell negligently misrepresented to customers that a new variable annuity product had a guaranteed death benefit that was equal to the greater of the account value or the customer's contributions, less adjusted withdrawals. However, the guaranteed death benefit was only available by selecting an optional rider on the application and paying an additional fee. Norvell did not select the rider on the applications or collect the additional fee, so customers did not receive a guaranteed death benefit. A majority of the transactions took place after Norvell's supervisor had notified him that he had failed to select the optional death benefit rider in connection with a separate transaction.

Norvell also caused his firm to maintain inaccurate books and records by falsifying signatures of senior customers by electronically signing documents on their behalf. Although Norvell had prior permission from the customers, the firm prohibited signing a customer's name or initials regardless of the customer's knowledge or consent. In addition, Norvell falsely attested in a compliance questionnaire that he had not signed or affixed another person's signature on a document.

The misrepresentation of death benefits is particularly serious because customers exchanged existing annuities based on incorrect information about a key feature of the new product. Death benefits are important protections, especially for seniors, and customers who thought they had guaranteed death benefits actually had no such protection.

The fact that Norvell continued making these misrepresentations after being notified of the error demonstrates negligence at best. The falsification of customer signatures and the false compliance certification compound the violations by showing a pattern of misconduct and dishonesty.

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According to FINRA, Troy Allen Orlando was suspended for 20 months and ordered to pay $58,082.50 in restitution for willfully violating Regulation Best Interest and FINRA suitability rules by recommending excessive trading in five customer accounts.

Orlando recommended high frequency trading in t...

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According to FINRA, Troy Allen Orlando was suspended for 20 months and ordered to pay $58,082.50 in restitution for willfully violating Regulation Best Interest and FINRA suitability rules by recommending excessive trading in five customer accounts.

Orlando recommended high frequency trading in the customers' accounts and the customers relied on Orlando's advice and routinely followed his recommendations. As a result, Orlando exercised de facto control over the customers' accounts. Orlando's trading in the customers' accounts, some of whom were seniors, resulted in total trading costs of $231,798, including $164,897 in commissions, and caused $198,450 in realized losses.

The restitution imposed is equal to commissions paid by two customers. The other customers had previously obtained an arbitration award against Orlando's member firm related to his trading, so they were not included in the restitution order to avoid double recovery.

This case represents classic churning: a broker exercises control over customer accounts and recommends excessive trading that generates substantial commissions for the broker while causing significant losses for the customers. Orlando earned nearly $165,000 in commissions while his customers, including seniors, lost over $198,000 in realized losses and paid over $231,000 in total trading costs.

The fact that some customers pursued arbitration and obtained an award against the firm demonstrates that the trading caused real harm and that customers recognized they had been wronged. The lengthy 20-month suspension reflects the seriousness of the violations and the significant harm to multiple customers, including vulnerable seniors.

Excessive trading is one of the most common and damaging forms of broker misconduct. Investors should monitor their accounts for unusually high levels of trading activity and mounting commission costs. When commissions are high and account values are declining, it may indicate churning designed to benefit the broker at the customer's expense.

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According to FINRA, Michael MacLean was fined $5,000 and suspended for 45 days for causing his member firm to maintain inaccurate books and records by changing the representative code for trades in the firm's order entry system, causing trade confirmations to show an inaccurate representative code.
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According to FINRA, Michael MacLean was fined $5,000 and suspended for 45 days for causing his member firm to maintain inaccurate books and records by changing the representative code for trades in the firm's order entry system, causing trade confirmations to show an inaccurate representative code.

MacLean entered into an agreement with another representative and a retired representative to service certain customer accounts under a joint representative code, with agreed-upon commission splits. Although his firm's system prepopulated trades with the applicable joint representative code, MacLean changed the code to a different representative code that he shared only with the other active representative, excluding the retired representative.

MacLean changed the codes because he mistakenly believed that his agreement with the retired representative did not apply to new assets added to accounts subject to the agreement. His actions resulted in his receiving higher commissions from the trades than what he was entitled to receive pursuant to the agreement. The firm's trade confirmations inaccurately reflected the representative code that MacLean shared only with the other active representative. Subsequently, MacLean's firm reimbursed the retired representative.

While MacLean's conduct stemmed from a mistaken belief about the scope of his commission-sharing agreement rather than intentional theft, it nevertheless caused inaccurate books and records and resulted in the retired representative being deprived of commissions owed. The fact that MacLean manually changed prepopulated codes indicates he knew he was altering the default coding, even if he believed he was entitled to do so.

This case demonstrates the importance of maintaining accurate records of representative assignments and commission allocations. When records are inaccurate, it creates disputes about compensation and undermines the integrity of firm records. Investors may also be affected if confirmations show incorrect representative information.

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According to FINRA, Ronald Lewis Morse was fined $5,000 and suspended for 20 business days for creating an updated customer profile document that included inaccurate information about a senior customer and affixing the customer's signature without her permission.

The customer complained to Morse'...

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According to FINRA, Ronald Lewis Morse was fined $5,000 and suspended for 20 business days for creating an updated customer profile document that included inaccurate information about a senior customer and affixing the customer's signature without her permission.

The customer complained to Morse's member firm that information on her customer profile, including her investment objectives, risk tolerance, and liquid net worth, were inaccurate. Following communications with the customer, Morse created a revised customer profile document which contained some of the changes the customer requested but was inaccurate with respect to aspects of the customer's stated investment needs. After revising the customer profile document, Morse affixed the customer's signature without her permission.

By falsifying the customer's profile document and forging her signature, Morse caused his firm to maintain inaccurate books and records. Customer profile information is critical for determining suitability of investment recommendations. When profile information is inaccurate, it can result in unsuitable recommendations that don't align with the customer's actual objectives, risk tolerance, or financial situation.

The fact that this involved a senior customer who had complained about inaccuracies in her profile makes the violation more serious. Rather than working with the customer to ensure her profile accurately reflected her needs and obtaining her genuine signature on the corrected document, Morse created a document that was still partially inaccurate and forged her signature.

Investors should review their account profile information carefully to ensure it accurately reflects their investment objectives, risk tolerance, time horizon, and financial situation. If the information is inaccurate, insist that corrections be made and that you have the opportunity to review and sign updated documents. Never allow a broker to sign your name on profile documents or any other account paperwork.

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According to FINRA, Jacob Pae was fined $5,000 and suspended for 45 days for forging the electronic signatures of customers on documents.

Pae received Automated Clearing House (ACH) Authorization Agreements concerning brokerage accounts executed by customers that contained clerical errors and req...

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According to FINRA, Jacob Pae was fined $5,000 and suspended for 45 days for forging the electronic signatures of customers on documents.

Pae received Automated Clearing House (ACH) Authorization Agreements concerning brokerage accounts executed by customers that contained clerical errors and required re-execution. Rather than sending the customers corrected agreements to re-execute, Pae copied the electronic signatures from the original agreements and pasted them to the corrected agreements without the customers' consent. Subsequently, Pae submitted the documents containing the forged customer signatures to his firm for review and approval.

By forging customer signatures, Pae caused his firm to preserve inaccurate records. The documents falsely indicated that customers had reviewed and signed the corrected agreements when in fact they had not.

While Pae's intent may have been to save time and avoid bothering customers to re-sign forms that only had clerical errors, the practice of copying and pasting signatures is forgery and creates serious risks. Customers are entitled to review documents before signing them, even corrected versions of previously signed documents. The corrections, even if only clerical, might be important or might inadvertently change the meaning of the agreement.

ACH Authorization Agreements govern how funds can be moved in and out of customer accounts through the automated clearing house system. These are important documents that authorize electronic transfers of customer funds, making it particularly problematic to forge signatures on them.

Investors should understand that their signatures on financial documents are not just a formality - they represent acknowledgment and agreement with the terms. Any broker who copies, pastes, or otherwise forges customer signatures is engaging in misconduct, even if the intent seems benign. Always insist on reviewing and personally signing all account documents.

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According to FINRA, Jake Louis Fruge was fined $10,000 and suspended for 24 months for engaging in an outside business activity as an owner and co-CEO of a company that engaged in e-commerce and lead generation without providing prior written notice to his member firm.

The OBA's customers - inclu...

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According to FINRA, Jake Louis Fruge was fined $10,000 and suspended for 24 months for engaging in an outside business activity as an owner and co-CEO of a company that engaged in e-commerce and lead generation without providing prior written notice to his member firm.

The OBA's customers - including certain firm customers and firm registered representatives - each paid an up-front fee of at least $40,000 per e-commerce storefront and $4,000 per digital real estate website, then received a percentage of any income those storefronts and websites generated. Fruge did not disclose any component of the OBA to the firm until after it was founded, when he orally disclosed only the e-commerce storefront component. The firm approved this component several months later, by which time customers had already paid substantial fees to the OBA.

The digital real estate component of the OBA was reported to the firm the following year, by which time customers had already purchased over 900 digital real estate websites and Fruge had earned a significant amount from his involvement. Following approval of the e-commerce component, the firm learned that the OBA had been marketed to other firm registered representatives, potentially creating a conflict of interest. The firm warned Fruge to stop this conduct and requested information about firm customers or representatives who had purchased e-commerce storefronts, but Fruge did not provide the requested information.

Fruge's failure to provide complete and prior written OBA disclosures - including late disclosure of the e-commerce component, late disclosure of the digital real estate component, and failure to provide the list of firm representatives and customers who were also OBA customers - undermined the firm's ability to evaluate the OBA and determine whether to restrict or prohibit Fruge's participation. Later, the firm directed Fruge to stop marketing the e-commerce component, but he continued to market products of the company. The firm ultimately made Fruge choose between his OBA and working for it, and he chose to continue with his OBA.

This case demonstrates the importance of complete and timely disclosure of outside business activities, particularly when they involve selling products or services to firm customers and representatives, which creates clear conflicts of interest.

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According to FINRA, Stephen J. LaGreca was fined $5,000 and suspended for 18 months for possessing unauthorized materials while taking the General Securities Representative Series 7 exam.

LaGreca took the exam from his home using a remote testing platform. Prior to beginning the exam, LaGreca att...

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According to FINRA, Stephen J. LaGreca was fined $5,000 and suspended for 18 months for possessing unauthorized materials while taking the General Securities Representative Series 7 exam.

LaGreca took the exam from his home using a remote testing platform. Prior to beginning the exam, LaGreca attested that he had reviewed and would abide by FINRA's Rules of Conduct, which require candidates to store all personal items outside the room where they take the exam and prohibit access to personal items, including cell phones, during the exam. Prior to beginning the exam, and again during the exam, LaGreca also informed the proctor that his cell phone was in another room. However, during the exam LaGreca possessed and accessed his cell phone.

The Series 7 exam is a critical qualification examination that tests knowledge necessary to function as a general securities representative. The integrity of the examination process is fundamental to ensuring that registered persons have demonstrated minimum competency. When candidates cheat on qualification exams, they may obtain registration without actually possessing the required knowledge, putting investors at risk.

LaGreca's conduct was particularly egregious because he not only violated the rules by having his cell phone accessible during the exam, but he also lied about it multiple times - attesting to the rules of conduct before the exam and telling the proctor during the exam that his phone was in another room when it was actually with him. This demonstrates dishonesty in addition to the exam violation.

The 18-month suspension reflects the seriousness of cheating on a qualification exam and the dishonesty involved. Investors should understand that qualification exams exist to ensure their financial professionals have minimum competency, and anyone who cheats on these exams is circumventing an important investor protection.

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According to FINRA, Ian James Prukner was fined $10,000 and suspended for 24 months for engaging in an outside business activity as an owner and co-CEO of a company that engaged in e-commerce and lead generation without providing prior written notice to his member firm.

The OBA's customers - incl...

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According to FINRA, Ian James Prukner was fined $10,000 and suspended for 24 months for engaging in an outside business activity as an owner and co-CEO of a company that engaged in e-commerce and lead generation without providing prior written notice to his member firm.

The OBA's customers - including certain firm customers and registered representatives - each paid an up-front fee of at least $40,000 per e-commerce storefront and $4,000 per digital real estate website. Prukner orally discussed the e-commerce storefront component of the OBA with senior compliance personnel at the firm's parent company. The firm then approved the e-commerce storefront component, by which time more than 33 customers had already paid substantial fees to the OBA.

Approximately six months later, the digital real estate component was reported to the firm. By this time, over 200 OBA customers had already purchased over 900 digital real estate websites, and Prukner had earned substantial income from his involvement. Following approval of the e-commerce component, the firm learned that the OBA had been marketed to other firm registered representatives, potentially creating a conflict of interest. The firm warned Prukner to stop this conduct and requested information about firm customers or representatives who had purchased e-commerce storefronts, but Prukner did not provide the requested information.

Failure to provide complete and prior written OBA disclosures undermined the firm's ability to evaluate the OBA and determine whether to restrict or prohibit Prukner's participation. The firm later directed Prukner to stop marketing the e-commerce component, but he continued to market products of the company. Ultimately, the firm made Prukner choose between his OBA and working for it. Prukner chose to continue with his OBA and left the firm after winding down his firm business.

This case, along with related cases against other principals of the same OBA, demonstrates a coordinated failure to properly disclose outside business activities that involved selling expensive products to firm customers and representatives, creating serious conflicts of interest.

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According to FINRA, Melton Weaver III was fined $10,000 and suspended for 24 months for engaging in an outside business activity as an owner and CFO of a company that engaged in e-commerce and lead generation without providing prior written notice to his member firm.

The OBA's customers - includi...

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According to FINRA, Melton Weaver III was fined $10,000 and suspended for 24 months for engaging in an outside business activity as an owner and CFO of a company that engaged in e-commerce and lead generation without providing prior written notice to his member firm.

The OBA's customers - including certain firm customers and registered representatives - each paid an up-front fee of at least $40,000 per e-commerce storefront and $4,000 per digital real estate website. Another owner associated with the firm orally disclosed the e-commerce storefront component to the firm and informed it that Weaver was involved. Even though Weaver never disclosed any component of his OBA to the firm himself, it approved the e-commerce component. By this time, more than 33 customers had already paid substantial fees to the OBA.

Later, the digital real estate component was reported to the firm. By this time, over 200 OBA customers had already purchased over 900 digital real estate websites, and Weaver had earned a significant amount from his involvement. Following approval of the e-commerce component, the firm learned that the OBA had been marketed to other firm registered representatives, potentially creating a conflict of interest. The firm warned Weaver to stop allowing his OBA to market its products this way and requested information about firm customers or representatives who had purchased e-commerce storefronts, but Weaver did not provide the requested information.

Weaver's failure to provide complete and prior written OBA disclosures undermined the firm's ability to evaluate the OBA and determine whether to restrict or prohibit his participation. Subsequently, the firm directed Weaver to stop allowing his OBA to market the e-commerce component, but Weaver continued to allow his OBA to market products of the company. Later, the firm instructed Weaver to choose between his OBA and working for the firm. Weaver continued with his OBA but did not voluntarily resign, so the firm ultimately discharged him.

This case is part of a pattern involving multiple principals of the same OBA who all failed to properly disclose their outside business activities, which involved selling expensive products to firm customers and representatives.

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