Bad Brokers

According to FINRA, SprinkleBrokerage, Inc. and its AML compliance officer John Alexander Wallin were sanctioned for failing to develop and implement a reasonable anti-money laundering (AML) program. The firm was fined $15,000 and required to remediate its issues, while Wallin was fined $10,000 and ...

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According to FINRA, SprinkleBrokerage, Inc. and its AML compliance officer John Alexander Wallin were sanctioned for failing to develop and implement a reasonable anti-money laundering (AML) program. The firm was fined $15,000 and required to remediate its issues, while Wallin was fined $10,000 and suspended for five months.

The violations centered on inadequate AML procedures for conducting ongoing customer due diligence. The firm's procedures failed to specify which accounts required heightened due diligence or when such monitoring would be required. Wallin, as the AML compliance officer, failed to conduct ongoing customer due diligence as required. The firm's procedures were not tailored to the AML risks posed by its customer base, which consisted of pre-IPO funds that solicited investments from retail investors.

Additionally, Wallin failed to conduct AML investigations into suspicious activity even when the firm's clearing firms informed him of concerns. The firm also failed to update its Form BD when it ceased operations in New Jersey and began operating from Sweden, and later incorrectly listed its location before updating it to California.

Investors should understand that AML programs are critical safeguards designed to detect and prevent money laundering and other financial crimes. When firms fail to maintain adequate AML procedures, it can expose investors to fraud and other illicit activities. This case highlights the importance of firms having robust compliance systems and supervisory personnel who actively monitor for suspicious activity.

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According to FINRA, Goldman Sachs & Co. LLC was fined a total of $3,000,000 for erroneously marking and routing certain sell orders. The firm mismarked approximately 60 million short sell orders as long, of which nearly 27 million were sent to an alternative trading system.

The mismarked orders w...

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According to FINRA, Goldman Sachs & Co. LLC was fined a total of $3,000,000 for erroneously marking and routing certain sell orders. The firm mismarked approximately 60 million short sell orders as long, of which nearly 27 million were sent to an alternative trading system.

The mismarked orders were caused by a software implementation error. When upgrading automated trading software intended to hedge the firm's Synthetic Product Group's risk exposure, Goldman inadvertently failed to include a single line of code. This code was designed to copy the long or short mark from a parent sell order to instantaneously created child sell orders. While parent orders were accurately marked as short sales with proper locates obtained, the child orders did not receive the short sale order mark due to the missing code line.

Additionally, the firm misapplied order marking logic to sell orders routed by a foreign affiliate, resulting in certain orders being inaccurately marked short. The firm's supervisory system failed to adequately monitor order marking accuracy. Although Goldman had a surveillance report for order marks, it only reviewed parent orders and failed to confirm proper marking carried over to child orders. This deficiency resulted in the firm failing to detect these errors for approximately 29 months and led to over two million inaccurate trade reports and over seven million inaccurate order memoranda.

This case demonstrates how even sophisticated firms can experience significant compliance failures due to technological errors. Investors should be aware that proper order marking is essential for market transparency and preventing manipulative trading practices. The substantial fine reflects the seriousness of these violations and the importance of robust surveillance systems.

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According to FINRA, SpeedRoute LLC was fined $45,000 for improperly accepting market orders for purchases of shares of new issues before secondary market trading commenced. The firm also failed to establish adequate supervisory procedures to ensure compliance with FINRA Rule 5131(d)(4).

The firm'...

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According to FINRA, SpeedRoute LLC was fined $45,000 for improperly accepting market orders for purchases of shares of new issues before secondary market trading commenced. The firm also failed to establish adequate supervisory procedures to ensure compliance with FINRA Rule 5131(d)(4).

The firm's written procedures improperly placed the responsibility of compliance on its broker-dealer clients, stating that those customers should reject improper market orders. However, the firm failed to implement any process to surveil for instances where it accepted market orders for new issue purchases prior to secondary market trading. This supervisory gap allowed the rule violations to occur.

To address these issues, SpeedRoute implemented a system to automatically reject market orders in new issues prior to secondary market trading and updated its written supervisory procedures. The firm also added an exception report designed to detect instances where it received and rejected improper market orders. Subsequently, the firm enhanced its procedures by implementing a monthly manual review to ensure the automatic blocks were functioning properly.

This case illustrates the importance of firms having active surveillance systems rather than relying solely on their clients to maintain compliance. Market orders in new issues prior to secondary trading can contribute to excessive volatility and unfair pricing. Investors should understand that proper controls around new issue trading help ensure orderly markets and fair pricing for all participants.

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According to FINRA, RBC Capital Markets, LLC was fined $300,000, ordered to pay $128,643.17 in restitution to customers, and required to disgorge $653,312.83 for failing to establish adequate supervisory systems regarding suitability obligations for syndicate preferred stock trading.

The firm fai...

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According to FINRA, RBC Capital Markets, LLC was fined $300,000, ordered to pay $128,643.17 in restitution to customers, and required to disgorge $653,312.83 for failing to establish adequate supervisory systems regarding suitability obligations for syndicate preferred stock trading.

The firm failed to adequately monitor for short-term trading in preferred stock despite written procedures calling for supervisors to closely examine such activity. While the firm's surveillance system had alerts specifically monitoring for short-term trading in products like closed-end funds, it had no alerts that specifically monitored for short-term trading in preferred stock. The firm also lacked alerts to flag the purchase and sale within 180 days of syndicate preferred stock.

Representatives at RBC recommended that retail customers purchase syndicate preferred stocks and then sell the positions within 180 days, resulting in customer losses. The firm earned $653,313 in selling concessions from syndicate purchases and $128,643 in sales commissions from the subsequent sales. Despite conducting substantial syndicate preferred stock business, RBC did not maintain reasonable supervisory systems to monitor whether representatives were recommending unsuitable short-term trading for the purpose of capturing commissions.

This case demonstrates the importance of firms having surveillance systems tailored to all products they offer. Short-term trading in preferred stocks can be unsuitable for investors due to transaction costs and the income-oriented nature of these securities. Investors should be aware that recommendations to frequently trade preferred stocks may indicate a conflict of interest where the firm profits from commissions at the investor's expense.

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According to FINRA, Regal Securities, Inc was fined a total of $100,000 for failing to establish and maintain adequate supervisory systems for surveilling potentially manipulative trading. The firm improperly delegated supervisory responsibilities and failed to reasonably review surveillance alerts....

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According to FINRA, Regal Securities, Inc was fined a total of $100,000 for failing to establish and maintain adequate supervisory systems for surveilling potentially manipulative trading. The firm improperly delegated supervisory responsibilities and failed to reasonably review surveillance alerts.

The case involved a customer whose account opening was initially recommended against by the compliance department due to previous issues with margin calls and trading activity. Despite these red flags, a branch manager escalated the matter and the firm opened the account. The firm then delegated responsibility for supervising this customer's trading to the branch manager and another registered representative, both registered as General Securities Principals, without adequate oversight.

The customer's trading activity generated approximately 1,600 surveillance alerts indicating potential marking the close activity and approximately 40 alerts indicating potential wash trading. While the firm forwarded these alerts to the designated representatives, its written procedures did not describe how alerts should be reviewed or documented. The firm did not evidence that reviews were conducted to determine whether the activity was manipulative, except in a small number of instances. Neither representative escalated concerns to the compliance department, and the compliance department did not follow up after forwarding alerts.

This case highlights critical failures in supervisory systems. Marking the close and wash trading are serious forms of market manipulation that can create artificial pricing and mislead other investors. Firms must maintain active oversight of surveillance alerts rather than simply forwarding them to interested parties without proper follow-up or documentation requirements.

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According to FINRA, Barclays Capital Inc. was fined $2,500,000 for failing to report, or inaccurately reporting, over-the-counter options positions to the Large Options Positions Reporting (LOPR) system in approximately 4.3 million instances. These reporting violations stemmed from coding errors tha...

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According to FINRA, Barclays Capital Inc. was fined $2,500,000 for failing to report, or inaccurately reporting, over-the-counter options positions to the Large Options Positions Reporting (LOPR) system in approximately 4.3 million instances. These reporting violations stemmed from coding errors that persisted for four to eight years.

The firm's failures included multiple technical issues. Barclays applied aggregation logic that improperly failed to aggregate positions on the same side of the market covering the same underlying security or index if certain features like strike price or expiration date did not match. The firm also completely failed to report Exchange Traded Fund options positions due to inadvertently applying suppression logic meant for non-reportable positions. Additionally, coding errors caused positions booked or re-booked after the trade date to be reported with incorrect later trade dates, creating gaps in reporting. The firm also failed to accurately report quantities of certain OTC option positions due to systems logic issues following a platform transition.

The firm's supervisory system was inadequate to detect these problems. Barclays did not conduct reviews to determine whether it properly aggregated positions as required, only reviewed positions that were reported without checking if all reportable positions were actually submitted, and did not verify correct trade dates or accurate quantities. These supervisory failures allowed the flawed systems to operate undetected for over 10 years.

Accurate options position reporting is critical for market surveillance and systemic risk monitoring. This case demonstrates how technological failures combined with inadequate supervisory oversight can result in prolonged, widespread compliance violations affecting market transparency.

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According to FINRA, Gary Goldberg & Co., LLC (formerly Bruderman Brothers LLC) was ordered to pay $500,000 in partial restitution to customers for failing to adequately supervise the suitability of variable annuity sales to customers who held both brokerage and advisory accounts. The firm also condu...

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According to FINRA, Gary Goldberg & Co., LLC (formerly Bruderman Brothers LLC) was ordered to pay $500,000 in partial restitution to customers for failing to adequately supervise the suitability of variable annuity sales to customers who held both brokerage and advisory accounts. The firm also conducted securities business while failing to maintain required minimum net capital.

The firm provided no training, procedures, or guidance regarding when it was appropriate to recommend purchasing a variable annuity in a brokerage account versus an advisory account, or regarding the availability of lower cost advisory-class products. The firm had no system to identify when representatives caused customers to pay both brokerage commissions and advisory fees for the same investment. Several representatives recommended that customers with advisory accounts purchase B-shares of variable annuities in their brokerage accounts even though advisory shares were available at lower cost and without surrender periods. The representatives then recommended transferring the B-shares to the advisory account, usually within one business day. As a result, customers paid annual advisory fees of 1.875 percent plus annual fees 0.95 percent higher than advisory shares, and were subject to seven-year surrender fees. Customers collectively paid approximately $966,000 in unnecessary fees.

Additionally, the firm guaranteed an $11 million loan for an affiliated entity but failed to include it when calculating aggregate indebtedness and net capital, causing inaccurate calculations and FOCUS reports for over seven years until a lender filed an action to enforce the guarantee.

This case demonstrates how inadequate supervision can lead to unsuitable recommendations that enrich the firm while harming customers through excessive fees and inappropriate product structures.

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According to FINRA, The Carney Group, Incorporated was sanctioned for failing to conduct independent testing of its anti-money laundering compliance program. The firm was required to remediate the issues and implement proper supervisory systems, though no monetary sanctions were imposed due to the f...

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According to FINRA, The Carney Group, Incorporated was sanctioned for failing to conduct independent testing of its anti-money laundering compliance program. The firm was required to remediate the issues and implement proper supervisory systems, though no monetary sanctions were imposed due to the firm's financial status.

The firm failed to conduct independent testing of its AML program despite receiving previous warnings from FINRA about this requirement. The firm's written AML procedures stated that one of its two registered representatives would conduct AML testing, even though neither individual qualified as independent. One representative was the firm's AML compliance officer, and the other reported to the AML compliance officer. Both were specifically prohibited from conducting independent testing under regulatory requirements.

Independent testing is a critical component of an effective AML compliance program. The requirement exists to ensure that AML procedures are evaluated objectively by someone without conflicts of interest or responsibility for the program being tested. When firms fail to conduct independent testing, vulnerabilities in their AML programs may go undetected, potentially allowing money laundering or other illicit financial activities to occur.

This case illustrates that even small firms with limited staff must comply with AML testing requirements. Firms cannot simply have their AML compliance officer or subordinates test their own programs. Investors should be aware that proper AML compliance helps protect the integrity of the financial system and reduces the risk of firms being used for illegal purposes.

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According to FINRA, William Forrest Winchester III was barred from association with any FINRA member in all capacities for borrowing more than $850,000 from customers without notifying his firms or obtaining prior written approval.

Winchester borrowed funds from multiple customers throughout his ...

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According to FINRA, William Forrest Winchester III was barred from association with any FINRA member in all capacities for borrowing more than $850,000 from customers without notifying his firms or obtaining prior written approval.

Winchester borrowed funds from multiple customers throughout his career without proper disclosure. He never disclosed these loans to one of his firms and falsely answered "no" on annual compliance questionnaires that specifically asked whether he had borrowed money from any customer. After one customer passed away, Winchester agreed to serve as co-executor of the estate and subsequently borrowed money from the estate. He signed a promissory note to the beneficiary of the estate, who was also his customer, to establish repayment terms. His employing firm during this period prohibited registered representatives from borrowing from customers. Winchester was in the process of repaying the beneficiary when he was terminated.

Winchester also engaged in undisclosed outside business activity by serving as co-executor, for which he received $45,000 in compensation. He failed to disclose this appointment to his employing firm and twice falsely represented on compliance questionnaires that he was not acting as an executor of any individual's estate. Additionally, Winchester entered into settlement agreements with customers without notifying his firm, including failing to disclose the promissory note and a settlement agreement relating to $380,000 he had borrowed from another customer.

This case demonstrates serious breaches of trust and regulatory requirements. Borrowing from customers creates inherent conflicts of interest and potential for exploitation. The multiple false statements on compliance questionnaires compound the violations and show deliberate concealment.

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According to FINRA, Rene Adolfo Bolivar was barred from association with any FINRA member in all capacities for refusing to produce documents and information and failing to appear for on-the-record testimony requested by FINRA.

The investigation concerned a disclosure made in his former member fi...

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According to FINRA, Rene Adolfo Bolivar was barred from association with any FINRA member in all capacities for refusing to produce documents and information and failing to appear for on-the-record testimony requested by FINRA.

The investigation concerned a disclosure made in his former member firm's amended Form U5 that disclosed a civil lawsuit filed against the firm and Bolivar by the relative of a former customer. When FINRA requested documents, information, and testimony to investigate the matter, Bolivar completely refused to cooperate.

FINRA's ability to conduct investigations is fundamental to its regulatory mission of protecting investors and maintaining market integrity. Registered representatives have an obligation to cooperate with FINRA investigations, including producing requested documents and appearing for testimony. Refusing to cooperate with an investigation is considered one of the most serious violations because it obstructs FINRA's ability to determine whether misconduct occurred and take appropriate action.

This case serves as a reminder that registration with FINRA comes with significant responsibilities, including the duty to cooperate with regulatory inquiries. Investors should be aware that when a registered person refuses to cooperate with an investigation, it raises serious concerns about what they may be attempting to hide. The bar imposed in this case reflects that obstruction of regulatory investigations will result in the most severe sanctions, effectively ending a person's career in the securities industry.

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