Bad Brokers

According to FINRA, Randell James Ogden was fined $7,500 and suspended for 15 business days for improperly directing the removal of non-public personal customer information from his member firm without the firm's or customers' knowledge or consent.

In anticipation of joining another FINRA member ...

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According to FINRA, Randell James Ogden was fined $7,500 and suspended for 15 business days for improperly directing the removal of non-public personal customer information from his member firm without the firm's or customers' knowledge or consent.

In anticipation of joining another FINRA member firm, Ogden directed a firm representative who reported to him to remove non-public personal customer information from the firm. The representative sent to his personal email address and to a drive external to the firm encrypted documents containing non-public information of over 200 firm customers. This information included dates of birth, driver's license numbers, and social security numbers. Ogden and the representative subsequently resigned from their firm and joined the new firm the same day. The non-public personal information was used to populate a separate customer information database for use at the new firm.

Prior to resigning, Ogden also directed the representative and another employee to obtain pre-filled new account packets to be sent to existing firm customers to transition them to the new firm. These packets also included customer non-public personal information. At Ogden's direction, the other representative saved these pre-filled forms on the drive external to the firm. Ogden then distributed the pre-filled forms to customers using email and physical mail once he registered with the new firm.

This case involves aggravating factors beyond simple unauthorized removal of customer information. Ogden directed subordinates to take the information, used it to populate systems at his new firm, and actually distributed the information to customers. The involvement of over 200 customers' sensitive personal information created substantial privacy and security risks. Registered representatives must follow proper procedures for customer transitions and cannot misappropriate firm property or customer information.

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According to FINRA, Johnathan Jasper Norton was suspended for 30 days for investing approximately $110,000 in private securities transactions without providing prior written notice to his member firm. No monetary sanction was imposed in light of Norton's financial status.

Norton personally invest...

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According to FINRA, Johnathan Jasper Norton was suspended for 30 days for investing approximately $110,000 in private securities transactions without providing prior written notice to his member firm. No monetary sanction was imposed in light of Norton's financial status.

Norton personally invested in investment contracts offered and sold by a purported invoice factoring company that provided cash to companies in exchange for their accounts receivable. Norton made his investments by entering into separate "Funding Partner" agreements pursuant to which he provided capital funding to the company in exchange for promises that it would acquire accounts receivable solely for his account and generate 15 to 20 percent returns on his investments.

Norton did not make these investments through his firm, nor were they securities offered by his firm, and thus they were outside the regular course or scope of his employment with the firm. FINRA rules require registered representatives to provide prior written notice to their firm before participating in private securities transactions, commonly referred to as "selling away," so that firms can evaluate potential conflicts of interest and supervisory concerns.

This case, like the similar case involving Larry Eugene Norton, demonstrates that the private securities transaction rule applies even when representatives are investing their own personal funds rather than soliciting customers. The promised returns of 15 to 20 percent should have raised red flags about the investment's risk profile. Firms need to know about their representatives' participation in private investments to assess whether the investments create conflicts of interest or suggest judgment issues.

Investors should understand that registered representatives who participate in high-risk private investments may have divided loyalties or financial pressures that could affect their judgment when making recommendations.

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According to FINRA, Todd Ray Anderson was fined $5,000, suspended for 45 days, and ordered to pay $20,867 in restitution to a customer for recommending that a senior customer purchase over $1 million in mutual funds across 31 fund families without considering the availability of fee discounts.

In...

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According to FINRA, Todd Ray Anderson was fined $5,000, suspended for 45 days, and ordered to pay $20,867 in restitution to a customer for recommending that a senior customer purchase over $1 million in mutual funds across 31 fund families without considering the availability of fee discounts.

In making recommendations to the customer, Anderson failed to consider that the customer could have received fee discounts by reaching higher breakpoint levels, including through rights of accumulation, had the customer purchased funds in fewer fund families. Mutual fund families offer reduced sales charges when investors reach certain dollar thresholds, known as breakpoints. Rights of accumulation allow investors to combine their total holdings within a fund family to reach higher breakpoint levels and qualify for lower sales charges.

Anderson's recommendation that the customer invest in multiple fund families, without regard for available rights of accumulation and breakpoint discounts, caused the customer to incur $20,867 in unnecessary sales charges. By spreading the investments across 31 different fund families, each individual investment was smaller and did not qualify for the volume discounts that would have been available through consolidated purchases.

This case illustrates a suitability violation that harms customers while benefiting the registered representative through higher commissions. While diversification across fund families can sometimes be appropriate, in this case the excessive fragmentation served primarily to generate higher sales charges rather than serve the customer's investment interests. The customer was a senior investor, which should have heightened Anderson's obligation to ensure recommendations served the customer's best interests.

Investors should be aware of breakpoint discounts and rights of accumulation when making mutual fund investments, and should question recommendations that fragment investments across numerous fund families unnecessarily.

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According to FINRA, Drake Uplinger was assessed a deferred fine of $5,000 and suspended for three months for opening or continuing to maintain outside brokerage accounts in which securities transactions could be effected and in which he had a beneficial interest without timely obtaining his member f...

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According to FINRA, Drake Uplinger was assessed a deferred fine of $5,000 and suspended for three months for opening or continuing to maintain outside brokerage accounts in which securities transactions could be effected and in which he had a beneficial interest without timely obtaining his member firms' written consent.

Uplinger did not notify in writing the financial institutions at which he held those outside brokerage accounts of his association with his firms. He also failed to disclose the accounts despite certifying in one firm's Annual Compliance Questionnaire that he understood he must disclose all personal securities accounts. Additionally, Uplinger certified in another firm's annual compliance form that he disclosed all outside accounts, and he certified in his employment application with another firm that he would not maintain outside brokerage accounts unless it granted prior written approval.

FINRA rules require registered representatives to provide written notice to their employing firm of any brokerage accounts they maintain at other firms where securities transactions can be effected. Representatives must also provide written notice to the financial institution maintaining the account of their association with their firm. These requirements exist so that firms can supervise their representatives' trading activity, identify potential conflicts of interest, and detect improper conduct such as insider trading or market manipulation.

The multiple false certifications in compliance questionnaires and employment applications compound the violation by showing deliberate concealment rather than inadvertent oversight. This case demonstrates that registered representatives cannot maintain secret accounts for their personal trading. Investors should understand that proper disclosure and supervision of outside accounts helps protect the integrity of the securities markets and prevents registered persons from engaging in improper trading activity.

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According to FINRA, Matthew James Mangini was assessed a deferred fine of $10,000 and suspended for six months for participating in unapproved private securities transactions by recommending and facilitating investments in alternative investments through a registered investment advisory firm.

In ...

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According to FINRA, Matthew James Mangini was assessed a deferred fine of $10,000 and suspended for six months for participating in unapproved private securities transactions by recommending and facilitating investments in alternative investments through a registered investment advisory firm.

In his capacity as an investment advisor representative, Mangini recommended and facilitated investments in private securities offerings of alternative investments through a registered investment advisory firm. The transactions raised $644,000 from investors, all of whom were customers at his member firm. Mangini participated by recommending and facilitating the investments, including meeting with investors to solicit and discuss the investments, providing them with marketing materials, and assisting them with completing subscription agreements and other documentation.

Mangini's clients paid advisory fees to the registered investment advisory firm on the assets held in their advisory accounts, including the alternative investments that he recommended and facilitated. However, Mangini did not provide his firm with prior written notice of his participation in the sale of alternative investments through the registered investment advisory firm or obtain the firm's written approval to sell those investments.

This case demonstrates a common violation where registered representatives use their dual registration status with investment advisory firms to engage in securities transactions away from their broker-dealer firm without proper notice. Even though the transactions occurred through a registered investment advisory firm, FINRA rules require representatives to notify their broker-dealer firm of such activities, particularly when the customers are broker-dealer customers. This enables the firm to supervise for conflicts of interest and ensure the transactions are appropriate.

Investors should be aware when their financial professional is recommending investments through a separate advisory platform and should understand the fee structures and potential conflicts involved.

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According to FINRA, Spartan Capital Securities, LLC, John Dennis Lowry, and Kim Marie Monchik were sanctioned for failing to amend, or timely amend, Form U4s and Form U5s of registered representatives to disclose customer arbitrations, customer complaints, and reportable financial events. The firm w...

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According to FINRA, Spartan Capital Securities, LLC, John Dennis Lowry, and Kim Marie Monchik were sanctioned for failing to amend, or timely amend, Form U4s and Form U5s of registered representatives to disclose customer arbitrations, customer complaints, and reportable financial events. The firm was fined $600,000, Lowry was fined $40,000 and suspended for two years, and Monchik was fined $30,000 and suspended for two years. The respondents appealed the Office of Hearing Officers decision to the NAC.

The firm failed to disclose reportable events involving its registered representatives, including its executive officers Lowry and Monchik. The firm's failures to disclose reportable events involving its executive officers were willful because the firm knowingly and intentionally elected not to disclose customer arbitrations and dispositions of arbitrations by amending their Form U4s.

Lowry willfully failed to amend his Form U4 to disclose, or timely disclose, the filing and disposition of customer arbitrations in which he was a named respondent. The arbitrations resulted in 12 reportable awards and settlements totaling more than $1.6 million. Lowry was a party to all the settlements and awards, with the largest award being $330,000 and the largest settlement being $300,000, both of which he disclosed untimely. Lowry never disclosed eight of the awards and settlements and disclosed four untimely, between 164 and 578 days late.

Similarly, Monchik willfully failed to amend her Form U4 to disclose, or timely disclose, the filing and disposition of customer arbitrations in which she was a named respondent.

Form U4 and U5 disclosures are critical components of the regulatory system that enable investors to research registered representatives' disciplinary history through BrokerCheck. Willful failures to disclose customer complaints, arbitrations, and settlements deprive investors of essential information for evaluating financial professionals. This case involved systematic failures by the firm and its executives to maintain accurate disclosure records.

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According to FINRA, Centaurus Financial, Inc. was censured, fined $50,000, and ordered to pay $388,962.13 in restitution to customers jointly and severally with broker Donnie Eugene Ingram. Ingram was suspended for six months in all capacities and assessed a deferred fine of $15,000.

The violatio...

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According to FINRA, Centaurus Financial, Inc. was censured, fined $50,000, and ordered to pay $388,962.13 in restitution to customers jointly and severally with broker Donnie Eugene Ingram. Ingram was suspended for six months in all capacities and assessed a deferred fine of $15,000.

The violations centered on Ingram's unsuitable recommendations that lacked a reasonable basis. He recommended Unit Investment Trusts (UITs) in their standard version that charged higher transactional sales fees, when fee-based versions of the same UITs were available at lower cost to his customers. Despite knowing his customers would benefit from the fee-based versions, Ingram recommended the more expensive standard versions for his own financial gain.

Similarly, Ingram recommended alternative investments through Centaurus Financial that incurred selling commissions, when the same investments were available commission-free through his customers' existing investment advisory relationships with his advisory firm. These recommendations violated FINRA's suitability rules and principles of just and equitable trade.

FINRA also found that Centaurus Financial failed to reasonably supervise Ingram's activities. His supervisor did not conduct suitability reviews to determine whether the recommendations were appropriate given the availability of lower-cost alternatives. This supervisory failure continued even when Ingram was placed under heightened supervision.

This case illustrates the importance of broker suitability obligations. Financial professionals must have a reasonable basis for their recommendations and prioritize client interests over their own compensation. Investors should question investment recommendations when lower-cost alternatives exist, particularly when dealing with the same securities or investment products across different accounts or platforms.

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According to FINRA, Arque Capital, Ltd. was censured and fined $50,000, while broker Michael Cheng Ning was suspended for seven months in all capacities and assessed a deferred fine of $15,000.

The firm violated Section 15(c) of the Securities Exchange Act by conducting business while failing to ...

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According to FINRA, Arque Capital, Ltd. was censured and fined $50,000, while broker Michael Cheng Ning was suspended for seven months in all capacities and assessed a deferred fine of $15,000.

The firm violated Section 15(c) of the Securities Exchange Act by conducting business while failing to maintain required minimum net capital. Net capital deficiencies ranged from $24,726 to $46,582, occurring because the firm understated debt relating to commissions payable and overstated allowable assets from commissions receivable. The firm failed to timely notify FINRA and the SEC of these deficiencies for three periods, and provided one notification containing material inaccuracies.

FINRA found the firm maintained inaccurate books and records, including balance sheets, trial balances, general ledgers, and net capital computations. The firm also filed inaccurate and untimely FOCUS reports that misstated financial information including liabilities, expenses, ownership equity, revenue, assets, net capital, and minimum net capital requirements.

Additionally, Ning willfully failed to timely amend his Form U4 to disclose two IRS tax liens totaling over $298,000. The firm and Ning also failed to remit approximately $125,000 in withheld employee payroll taxes to the U.S. Treasury, using those funds instead for other business expenses, though these have since been paid.

This case demonstrates the critical importance of accurate financial recordkeeping and regulatory compliance for broker-dealers. Net capital requirements exist to protect investors by ensuring firms maintain adequate financial resources. Investors should verify their broker-dealer's financial stability and regulatory compliance through FINRA BrokerCheck.

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According to FINRA, Madison Avenue Securities, LLC was censured, fined $50,000, and ordered to pay $63,296 plus interest in restitution to customers who missed sales charge discounts on mutual fund purchases.

The firm failed to establish and maintain a supervisory system reasonably designed to en...

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According to FINRA, Madison Avenue Securities, LLC was censured, fined $50,000, and ordered to pay $63,296 plus interest in restitution to customers who missed sales charge discounts on mutual fund purchases.

The firm failed to establish and maintain a supervisory system reasonably designed to ensure customers received available sales charge discounts when purchasing mutual funds. The violations involved customers who purchased mutual funds in multiple different fund families, either simultaneously or sequentially, when purchasing all funds within a single fund family would have qualified them for lower sales charges.

The firm used a T-plus-1 review process and electronic trade monitoring for surveillance alerts. However, neither process adequately reviewed whether customers could achieve sales charge discounts through breakpoint eligibility or rights of accumulation by consolidating purchases within one fund family. The review also failed to consider mutual funds held away from the firm that could have been used to achieve discounts.

Thirteen firm customer households were affected, paying higher sales charges than necessary. The restitution amount represents the difference between what customers actually paid and what they would have paid with proper fund family consolidation.

This case highlights the importance of supervisory systems designed to protect customer interests in complex product areas like mutual funds. Sales charge discounts and breakpoint eligibility can significantly impact investment returns over time. Investors should understand mutual fund share classes, breakpoints, and rights of accumulation, and should question their advisors about opportunities to reduce sales charges through consolidation within fund families or by considering holdings across all accounts.

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According to FINRA, Merrill Lynch, Pierce, Fenner & Smith Incorporated was censured and fined $700,000 for failing to establish and maintain a supervisory system reasonably designed to prevent trainees from placing unsolicited telemarketing calls to individuals on the national do-not-call registry a...

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According to FINRA, Merrill Lynch, Pierce, Fenner & Smith Incorporated was censured and fined $700,000 for failing to establish and maintain a supervisory system reasonably designed to prevent trainees from placing unsolicited telemarketing calls to individuals on the national do-not-call registry and the firm's internal do-not-call list.

The firm's monthly review process was inadequate because it only examined calls made by randomly selected trainees to numbers designated in the firm's contact management system as prospective clients. If a trainee failed to enter a phone number into this system, the firm would not review calls to that number for telemarketing compliance, even if the number appeared on do-not-call lists.

As a result, the firm's monitoring program failed to detect thousands of outbound calls its trainees placed to telephone numbers listed on the national do-not-call registry or the firm's internal list. The firm did not review these calls for compliance with telemarketing rules and did not determine whether any exceptions applied under FINRA Rule 3230.

After being alerted to the issue by a former employee, the firm conducted an internal review and self-reported its findings to FINRA. The firm subsequently implemented enhanced call screening and supervisory review technology, adopted enhanced procedures, conducted additional training, and began monitoring all outgoing trainee calls for compliance with telemarketing rules.

This case demonstrates that even large, established firms can have significant gaps in their compliance systems. Investors have a right to privacy and can register their phone numbers on the national do-not-call registry to limit unwanted solicitations. The case also shows the value of self-reporting and remediation when firms discover compliance failures.

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