Bad Brokers

According to FINRA, Luke Michael Johnson was fined $15,000, suspended from association with any FINRA member in all capacities for 18 months, and ordered to pay $21,797.30 in restitution to customers.

Johnson made unsuitable recommendations to purchase more than $2.35 million in illiquid alternat...

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According to FINRA, Luke Michael Johnson was fined $15,000, suspended from association with any FINRA member in all capacities for 18 months, and ordered to pay $21,797.30 in restitution to customers.

Johnson made unsuitable recommendations to purchase more than $2.35 million in illiquid alternative investments to his customers, earning more than $132,900 in commissions from these recommendations. The recommendations were unsuitable based on the customers' investment profiles, including their net worth, liquid net worth, annual income, investment objectives, risk tolerance, and for senior customers, their ages. Johnson's recommendations resulted in customers becoming overconcentrated in alternative investments.

Additionally, Johnson recommended limited partnership interests to customers who were not accredited investors, despite the investments requiring accredited investor status, and Johnson knew his customers did not meet this requirement. This meant the customers were investing in products for which they did not meet the eligibility criteria.

To circumvent his firm's concentration policy and supervisory oversight, Johnson falsified the firm's books and records. He dramatically inflated customers' net worth and liquid net worth on New Account Forms, Disclosure Forms, and subscription agreements, and dramatically understated the percentage of customers' assets invested in alternative investments.

The restitution amount being paid to customers equals the commissions Johnson received from the unsuitable investments, effectively eliminating his ill-gotten gains. This case demonstrates how commission-driven conflicts of interest can lead registered representatives to make unsuitable recommendations and falsify records to avoid supervisory scrutiny. For investors, this case highlights the importance of independently evaluating whether recommended investments align with your financial situation and investment objectives, regardless of how persuasive your advisor may be.

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According to FINRA, Brian C. Shevland was fined $10,000 and suspended from association with any FINRA member in all capacities for one year for making negligent misrepresentations about the performance of two private equity funds to investors.

Shevland caused the funds he managed to invest more t...

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According to FINRA, Brian C. Shevland was fined $10,000 and suspended from association with any FINRA member in all capacities for one year for making negligent misrepresentations about the performance of two private equity funds to investors.

Shevland caused the funds he managed to invest more than $20 million (including some of his own money) in a separate Master Fund managed by his former employer. The funds created documents containing materially inaccurate performance results that Shevland distributed to investors on a regular basis. These documents relied on information from the Master Fund, including unaudited financials claiming consistent positive monthly returns and an annual rate of return exceeding 80 percent during one year.

Despite learning of material discrepancies in the financial results reported by the Master Fund, Shevland failed to act with due care. Certain monthly reports did not accurately reflect the funds' investment, yet Shevland did not ask anyone at the Master Fund about these discrepancies or take steps to investigate. Instead, he negligently continued to direct others to use the Master Fund's claimed financial results to create documents distributed to investors, which materially overstated the funds' performance.

Subsequently, the Master Fund's manager was arrested and charged with securities fraud, and the Master Fund is now subject to a receivership with losses to investors yet to be ascertained. Shevland's failure to investigate obvious red flags contributed to investors receiving false performance information that likely influenced their investment decisions.

This case demonstrates the critical importance of due diligence and healthy skepticism when investment returns appear too good to be true. For investors, claims of consistent high returns should always be verified through independent sources, and financial professionals have an obligation to investigate discrepancies rather than simply accepting and distributing potentially fraudulent information.

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According to FINRA, Timothy William Leveroni was fined $7,500 and suspended from association with any FINRA member in all capacities for two months.

Leveroni permitted other registered representatives to electronically sign his name on account documents for customer accounts where he was the repr...

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According to FINRA, Timothy William Leveroni was fined $7,500 and suspended from association with any FINRA member in all capacities for two months.

Leveroni permitted other registered representatives to electronically sign his name on account documents for customer accounts where he was the representative of record. The representatives electronically signed Leveroni's name on documents using a shared email address that he and the other representatives had access to. The documents included required firm records such as new account applications and account update forms. None of the customers complained about this practice.

While no customers were harmed by this arrangement, allowing others to sign one's name on official account documents creates serious risks and undermines the integrity of firm recordkeeping. Account documents serve important regulatory and legal purposes, including establishing the representative of record, documenting customer information and investment objectives, and creating an audit trail for supervisory review. When representatives sign another person's name to these documents, it becomes unclear who actually reviewed and approved the account information, making it difficult to ensure accountability.

Leveroni's conduct caused his member firm to maintain inaccurate books and records, as the documents did not reflect who actually signed them. Accurate books and records are fundamental to regulatory compliance and investor protection, allowing FINRA and member firms to supervise registered representatives and investigate customer complaints.

For investors, this case highlights the importance of proper documentation and accountability in the securities industry. While this particular case did not result in customer harm, the practice of signing another person's name creates opportunities for errors and misconduct that could harm customers in other circumstances.

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According to FINRA, Salvatore Anthony LaRocca was fined $5,000 and suspended from association with any FINRA member in all capacities for one month.

LaRocca certified to the State of New York that he had personally completed 15 hours of continuing education required to renew his state insurance l...

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According to FINRA, Salvatore Anthony LaRocca was fined $5,000 and suspended from association with any FINRA member in all capacities for one month.

LaRocca certified to the State of New York that he had personally completed 15 hours of continuing education required to renew his state insurance license when, in fact, another person had completed that continuing education on his behalf. This false certification allowed him to renew his insurance license without actually meeting the educational requirements.

Continuing education requirements exist to ensure that licensed professionals maintain current knowledge of industry developments, regulatory changes, and best practices. These requirements protect consumers by helping ensure that financial professionals possess up-to-date knowledge necessary to provide appropriate advice and recommendations. When individuals have someone else complete their continuing education, they defeat the entire purpose of these requirements and may lack critical knowledge needed to properly serve their clients.

The false certification also demonstrates a troubling lack of integrity. Financial professionals occupy positions of trust, and clients rely on them to provide honest advice about important financial matters. A willingness to make false certifications to regulatory authorities raises questions about whether an individual can be trusted to act honestly in other aspects of their professional conduct.

For investors, this case serves as a reminder of the importance of professional licensing requirements and the need to choose advisors who demonstrate integrity in all aspects of their work. It also highlights FINRA's commitment to enforcing professional standards and taking action against those who attempt to circumvent licensing requirements through dishonest means.

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According to FINRA, Sarvendra Harkishun was fined $2,500 and suspended from association with any FINRA member in all capacities for four months.

Harkishun failed to obtain his member firms' written consent before opening or continuing to maintain outside brokerage accounts in which securities tra...

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According to FINRA, Sarvendra Harkishun was fined $2,500 and suspended from association with any FINRA member in all capacities for four months.

Harkishun failed to obtain his member firms' written consent before opening or continuing to maintain outside brokerage accounts in which securities transactions could be effected and in which he had a beneficial interest. He also certified in annual attestations to one firm that he had not opened any outside brokerage accounts for which the firm had not been notified, and certified to another firm that he had disclosed all accounts. Additionally, Harkishun failed to notify the financial institutions where he held the accounts of his associations with his firms.

The requirement that registered representatives disclose outside brokerage accounts to their firms serves several important purposes. It allows firms to monitor for potential conflicts of interest, insider trading, or other prohibited activities. It also enables firms to supervise representatives' personal trading to ensure they are not engaging in excessive trading, market manipulation, or other problematic conduct. Without knowledge of these accounts, firms cannot fulfill their supervisory obligations.

Harkishun's false certifications to his firms compounded the violation by affirmatively misleading the firms about his compliance with disclosure requirements. This dishonesty prevented the firms from even knowing they needed to seek additional information about undisclosed accounts.

For investors, this case illustrates the comprehensive supervisory framework that governs registered representatives, including monitoring of their personal trading activities. When representatives conceal their outside accounts and make false certifications, it raises questions about what they may be hiding and whether they can be trusted to act honestly with customer accounts.

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According to FINRA, Matt Ward was fined $5,000 and suspended from association with any FINRA member in all capacities for 15 business days.

Ward exercised discretion in customer accounts without prior written authorization from the customers and without his member firm having accepted the account...

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According to FINRA, Matt Ward was fined $5,000 and suspended from association with any FINRA member in all capacities for 15 business days.

Ward exercised discretion in customer accounts without prior written authorization from the customers and without his member firm having accepted the accounts as discretionary. He effected trades in customer accounts without first speaking to the customers prior to execution on the date of the transactions. Although Ward's customers knew he was exercising discretion in their accounts, he had not obtained the required written authorization.

Discretionary authority allows a financial professional to make investment decisions on behalf of a customer without obtaining the customer's approval for each specific transaction. Because of the significant trust and responsibility involved, FINRA rules require written authorization from the customer and acceptance by the firm before discretionary authority can be exercised. These requirements create a clear record of the scope of authority granted and ensure that firms can properly supervise discretionary trading.

When registered representatives exercise discretion without proper authorization, it creates several risks. Customers may not fully understand that their representative has been given authority to trade without their approval. Firms cannot properly supervise discretionary trading if they are unaware that discretion is being exercised. The lack of proper documentation also makes it difficult to resolve disputes about whether specific transactions were authorized.

While Ward's customers apparently understood and accepted the discretionary arrangement, his failure to obtain written authorization and firm acceptance violated important procedural safeguards. For investors, this case underscores the importance of understanding what authority you have granted to your financial advisor and ensuring that any discretionary arrangements are properly documented.

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According to FINRA, Grant Douglas Johnson was fined $15,000 and suspended from association with any FINRA member in all capacities for six months.

Johnson participated in private securities transactions totaling $610,000 without disclosing his participation or receiving written approval from his ...

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According to FINRA, Grant Douglas Johnson was fined $15,000 and suspended from association with any FINRA member in all capacities for six months.

Johnson participated in private securities transactions totaling $610,000 without disclosing his participation or receiving written approval from his member firm. He was a 4.9 percent owner of an entity that managed special purpose vehicles facilitating investments in portfolio entities through private offerings. Johnson personally invested $210,000 and had conversations with other potential investors regarding the offerings, who ultimately invested $400,000. He provided these investors with updates about the status of their investments after the offerings closed. The management entity was entitled to collect carried interest as selling compensation after investments reached certain performance benchmarks, and Johnson was entitled to a share of this carried interest.

FINRA's rules require registered representatives to provide written notice to their firms before participating in private securities transactions and to receive written approval. These selling away" rules protect investors by ensuring that firms are aware of all securities activities conducted by their representatives and can supervise those activities. Private securities transactions conducted outside firm supervision create significant risks for investors

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his personal investment alongside customers

this case demonstrates why FINRA prohibits "selling away" and requires firm supervision of all securities activities. Investments made outside firm supervision lack important investor protections and may involve undisclosed conflicts of interest."

According to FINRA, Jeffrey Wayne Davidson was fined $15,000 and suspended from association with any FINRA member in all capacities for 21 months.

Davidson participated in a private offering of securities that raised $10.21 million for a company he founded and co-owned without providing prior wri...

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According to FINRA, Jeffrey Wayne Davidson was fined $15,000 and suspended from association with any FINRA member in all capacities for 21 months.

Davidson participated in a private offering of securities that raised $10.21 million for a company he founded and co-owned without providing prior written notice to his member firm or receiving written approval. While Davidson had disclosed his ownership interest in the company to the firm as an outside business activity (which the firm approved), he did not disclose that the company engaged in a private offering of ownership units, which were securities sold pursuant to Regulation D.

In connection with the offering, Davidson hired a placement agent, approved a private placement memorandum for distribution to prospective investors, presented a business plan to prospective investors, and negotiated transaction terms with investors. Some investors, including two of Davidson's customers at the firm, invested in the company through a limited partnership. Although Davidson did not earn commissions from the offering, he and his co-owner received approximately $2.4 million by selling a portion of their ownership interest.

The distinction between an outside business activity and a private securities transaction is critical. While outside business activities may be approved with appropriate disclosure, private securities transactions require written firm approval before participation. Davidson's failure to recognize that the capital raise constituted a securities transaction—or his decision not to disclose it as such—deprived his firm of the opportunity to supervise the offering, evaluate conflicts of interest, and protect the customers who invested.

The fact that two of Davidson's firm customers invested in the offering makes the violation particularly serious, as these customers invested in a security offered by their financial advisor without the firm's knowledge or supervision. For investors, this case illustrates the risks of investing in offerings made by your financial advisor outside firm supervision, even when the advisor has disclosed related business activities.

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