Bad Brokers

According to FINRA, Boustead Securities, LLC was censured and fined $35,000 for failing to collect required customer and investment profile information for private placement participants and failing to file required corporate offering documents.

The firm's written supervisory procedures required ...

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According to FINRA, Boustead Securities, LLC was censured and fined $35,000 for failing to collect required customer and investment profile information for private placement participants and failing to file required corporate offering documents.

The firm's written supervisory procedures required use of new account forms to collect customer information, but the firm did not enforce this for private placement customers. Instead, the firm collected information through issuer-specific subscription agreements, affiliated crowdfunding portal registration processes, or accredited investor questionnaires. The procedures did not address crowdfunding portal information collection, provide guidance on subscription agreement or questionnaire content, or require specific customer information be solicited. In sampled transactions, the firm failed to collect at least one required component of customer and investment profile information.

Additionally, the firm's supervisory system was not reasonably designed to achieve Rule 5110 compliance. The procedures acknowledged the obligation but established no process to ensure timely filings or assign responsibility for compliance. Although the firm authorized outside counsel to make filings, it had no process to ensure counsel or others made filings in accordance with the rule. The firm failed to file, or timely file, documents required by Rule 5110.

Collecting complete customer information is fundamental to ensuring investment suitability and protecting investors from unsuitable recommendations. This case highlights that firms must have clear procedures for collecting all required information regardless of how customers participate in offerings, and must implement systems to ensure compliance with offering filing requirements.

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According to FINRA, Citigroup Global Markets Inc. was censured and fined $100,000 for publishing inaccurate Rule 606 reports on its routing of non-directed orders in National Market System securities.

Based on inaccurate information received from a vendor, the firm's publicly available reports ov...

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According to FINRA, Citigroup Global Markets Inc. was censured and fined $100,000 for publishing inaccurate Rule 606 reports on its routing of non-directed orders in National Market System securities.

Based on inaccurate information received from a vendor, the firm's publicly available reports over-reported the percentage of non-directed customer orders and non-directed customer orders routed to its alternative trading system. Additionally, the reports failed to include all venues requiring disclosure.

The firm's supervisory system was not reasonably designed to achieve Rule 606 compliance. While the firm relied on a third-party vendor for data and procedures required a designated person to review the data to ensure percentages and order counts appeared accurate, the procedures did not describe how reviews should be performed or require any review of underlying data accuracy.

Rule 606 reporting provides transparency to investors about how their broker routes orders, which can affect execution quality and prices. Accurate reporting enables investors to assess whether their broker is providing best execution and make informed decisions about where to direct their business.

After identifying these issues, the firm enhanced its written supervisory procedures to include specific steps for conducting accuracy reviews of Rule 606 data.

This case underscores that firms cannot simply rely on vendor-provided data for regulatory reporting without implementing adequate controls to verify accuracy. Investors rely on this transparency to evaluate their broker's order routing practices and ensure they are receiving fair treatment.

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According to FINRA, Barclays Capital Inc. was censured and fined $175,000 for overstating its advertised trading volume in thousands of instances by approximately 147 million shares.

The firm used a proprietary system to calculate trade volume and transmit information to a market data provider fo...

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According to FINRA, Barclays Capital Inc. was censured and fined $175,000 for overstating its advertised trading volume in thousands of instances by approximately 147 million shares.

The firm used a proprietary system to calculate trade volume and transmit information to a market data provider for advertisement. The system suffered from several technology flaws causing errors that inflated the firm's trade volume calculations. These flaws included counting trades that were subsequently canceled or corrected, counting transactions between the firm's affiliates as if they were with non-affiliated entities, and double-counting trades executed in the market when there was a subsequent transfer in a riskless principal transaction. The system automatically transmitted these inflated calculations directly to the market data provider for public advertisement.

The firm's supervisory system and written procedures were not reasonably designed to achieve Rule 5210 compliance. The procedures addressed neither how the firm should calculate trading volume nor how to monitor advertised trading volumes for accuracy.

Advertised trading volume influences market participants' perceptions of a firm's market presence and liquidity provision. Inflated volume figures can mislead investors and other market participants about a firm's actual trading activity and market share.

After discovering these issues, the firm corrected the technology flaws and implemented new written supervisory procedures addressing advertised trading volume calculation and monitoring.

This case illustrates the critical importance of accuracy in market data and the need for robust controls over automated systems that generate public reporting. Firms must implement supervisory procedures to verify the accuracy of advertised information that could influence market perceptions.

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According to FINRA, Morgan Stanley Smith Barney LLC was censured, fined $200,000, and ordered to pay $497,897 in restitution to customers for failing to reasonably supervise registered representatives who recommended potentially high-risk securities in violation of the firm's Plan of Solicitation po...

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According to FINRA, Morgan Stanley Smith Barney LLC was censured, fined $200,000, and ordered to pay $497,897 in restitution to customers for failing to reasonably supervise registered representatives who recommended potentially high-risk securities in violation of the firm's Plan of Solicitation policy.

The firm received alerts that some representatives had made hundreds of recommendations violating the Plan of Solicitation policy, which required supervisor review and approval before representatives recommended securities. Each representative recommended customers purchase securities in quantities subject to pre-approval requirements but did not complete a Plan of Solicitation. Some recommended securities were high risk and inconsistent with customers' moderate or conservative risk tolerances.

The firm did not take appropriate action in response to alerts of policy violations. Specifically, the firm did not evaluate whether recommendations were consistent with customers' investment profiles. Customers incurred realized losses from many of the recommended trades.

The Plan of Solicitation requirement exists to ensure that when representatives concentrate recommendations in particular securities, those recommendations receive heightened supervisory scrutiny to protect investors from unsuitable or inappropriate investments.

Following these violations, the firm improved its enforcement of the Plan of Solicitation policy, including directing review of alerts to a central review unit for more consistent oversight.

This case demonstrates that supervisory systems must include not only policies and alerts but also meaningful follow-up when violations are detected. Firms cannot simply ignore alerts of policy violations without evaluating whether customers were harmed and taking corrective action to prevent future violations.

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According to FINRA, UBS Securities LLC was censured and fined $675,000 for multiple TRACE reporting violations including late reporting, misapplication of indicators, and submission of inaccurate reports.

The firm failed to timely report transactions to TRACE, with most late corporate debt report...

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According to FINRA, UBS Securities LLC was censured and fined $675,000 for multiple TRACE reporting violations including late reporting, misapplication of indicators, and submission of inaccurate reports.

The firm failed to timely report transactions to TRACE, with most late corporate debt reports resulting from the need to amend reports to correct trade information and manual processes for entering trades. The firm also reported securitized products trades late, generally due to the need to amend reports. Due to erroneous coding logic, the firm misapplied the No Remuneration indicator on approximately 108,000 corporate debt reports, representing 24 percent of its corporate debt reports for customer and affiliate trades.

Additional violations included submitting non-reportable transactions in corporate debt and Treasuries due to misclassifying an internal account during a system transition, overreporting factor bond transaction sizes due to a configuration error, and incorrectly identifying counterparties as customers instead of broker-dealers for 35 percent of inter-dealer securitized products trades due to a coding error.

The firm's supervisory system was not reasonably designed to achieve TRACE compliance. Despite recurring late reporting issues that were subject of a prior AWC, the firm did not develop a formal remediation plan until a year later and did not fully remediate until two years after beginning review. The supervisory system and procedures did not contain reasonable reviews for TRACE reporting accuracy.

Accurate and timely TRACE reporting is essential for market transparency, enabling investors and regulators to monitor fixed income markets. This case highlights the need for robust supervisory systems to ensure reporting accuracy, particularly when firms identify recurring compliance issues.

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According to FINRA, FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Woodbury Financial Services, Inc. were sanctioned for negligently failing to inform investors that an alternative asset management firm issuer had failed to timely file required SEC filing...

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According to FINRA, FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Woodbury Financial Services, Inc. were sanctioned for negligently failing to inform investors that an alternative asset management firm issuer had failed to timely file required SEC filings including audited financial statements.

FSC was fined $50,000 and ordered to pay $277,612.30 in partial restitution, Royal Alliance was fined $35,000 and ordered to pay $171,500, SagePoint was fined $60,000 and ordered to pay $325,475.66, and Woodbury was fined $55,000 and ordered to pay $300,224.98. The partial restitution amounts equal the commissions the firms received from these customers' investments.

While representatives at the firms received a letter from the alternative asset management firm notifying them of filing delays and its stated intention to complete a forensic audit, the firms continued to sell limited partnership interests. However, representatives did not inform customers that the issuer had not timely filed audited financial statements with the SEC or the reasons for delay. This was material information that should have been disclosed.

The SEC subsequently filed a complaint against the alternative asset management firm alleging securities fraud, and the Department of Justice brought criminal charges against the firm's founder, CEO, and two other executives for securities fraud, mail fraud, and wire fraud.

This case illustrates the critical importance of disclosure of material information to investors. Delays in filing audited financial statements are red flags that may indicate financial problems or misconduct. Investors have the right to know about such delays before making investment decisions, particularly in alternative investments that already carry heightened risks. Firms must ensure their representatives disclose all material information, not just information that favors the sale.

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According to FINRA, Yoon Sik Chung was barred from association with any FINRA member in all capacities for engaging in an unethical course of conduct involving facilitating money laundering.

Chung accepted approximately $14,000 at the direction of two individuals he met online but never met in pe...

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According to FINRA, Yoon Sik Chung was barred from association with any FINRA member in all capacities for engaging in an unethical course of conduct involving facilitating money laundering.

Chung accepted approximately $14,000 at the direction of two individuals he met online but never met in person or spoke to over the phone. He transferred those funds along with additional funds totaling approximately $3,000 that he previously accepted, despite believing the funds were proceeds of illicit activities and that he was facilitating money laundering. Chung engaged in this activity at least in part to obtain funds to pay for his personal expenses and business expenses at his member firm.

This egregious conduct demonstrates a complete disregard for basic ethical standards and anti-money laundering regulations. Financial professionals have an obligation to report suspected money laundering, not facilitate it. Chung's willingness to knowingly participate in potential money laundering to address his financial difficulties shows unfitness for the securities industry.

Money laundering facilitates serious crimes including drug trafficking, terrorism financing, and fraud. Financial professionals must maintain high ethical standards and refuse to participate in suspicious transactions regardless of personal financial pressures.

The permanent bar protects investors from an individual who demonstrated he cannot be trusted to uphold the integrity required of securities professionals. This case serves as a stern warning that engaging in or facilitating suspected criminal activity will result in permanent removal from the industry.

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According to FINRA, Bruce Lavar Davis was barred from association with any FINRA member in all capacities for refusing to provide documents and information requested during FINRA's investigation.

FINRA requested documents and information regarding Davis's personal finances and taxes, including ce...

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According to FINRA, Bruce Lavar Davis was barred from association with any FINRA member in all capacities for refusing to provide documents and information requested during FINRA's investigation.

FINRA requested documents and information regarding Davis's personal finances and taxes, including certain checks, in connection with its investigation of his alleged conversion of $206,000 of his member firm's funds. Davis's firm reported in a Form U5 that he was terminated because he failed to repay funds he received from the firm in error and did not respond to the firm's requests to return the funds.

When securities professionals refuse to cooperate with regulatory investigations, it obstructs FINRA's ability to protect investors and maintain market integrity. Full cooperation with investigations is a fundamental obligation of all registered persons. Refusal to provide requested information, particularly in an investigation involving alleged theft of firm funds, demonstrates unfitness for the securities industry.

The conversion allegation underlying the investigation is serious, involving a substantial sum that Davis allegedly failed to return despite the firm's requests. His refusal to provide information about his finances and the disposition of these funds prevented FINRA from fully investigating the matter and determining what happened to the money.

This case reinforces that cooperation with regulatory investigations is mandatory, not optional. Individuals who refuse to provide information face permanent bars from the industry. The permanent bar protects investors from individuals who will not submit to regulatory oversight and accountability.

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According to FINRA, Hans Patrick Kulicke Eveillard was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony requested during a FINRA investigation.

The investigation originated from a customer complaint filed with FINRA. Eveillard's re...

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According to FINRA, Hans Patrick Kulicke Eveillard was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony requested during a FINRA investigation.

The investigation originated from a customer complaint filed with FINRA. Eveillard's refusal to appear for testimony obstructed FINRA's ability to investigate the customer's allegations and determine whether misconduct occurred.

On-the-record testimony is a critical investigative tool that allows FINRA to gather facts, assess credibility, and determine appropriate action to protect investors. When registered persons refuse to provide testimony, they prevent regulators from fulfilling their investor protection mandate.

All FINRA-registered individuals must cooperate with investigations as a condition of their registration. This obligation exists regardless of the nature of the allegations and even if testimony might be adverse to the individual's interests. Those who refuse to cooperate demonstrate they are unwilling to submit to regulatory oversight and are unfit to remain in the securities industry.

The permanent bar protects investors from an individual who refused to be held accountable when questions were raised about his conduct. Without testimony, FINRA could not fully investigate the customer complaint or determine what corrective action might be needed.

This case serves as a clear warning that refusing to appear for testimony will result in permanent removal from the industry. Registered persons must cooperate fully with investigations to maintain the privilege of serving investors.

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According to FINRA, Trevor Michael Saliba was barred from association with any FINRA member in all capacities following a National Adjudicatory Council decision on remand from the SEC. The sanction has been appealed to the SEC and is in effect pending review.

While acting as a principal of his me...

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According to FINRA, Trevor Michael Saliba was barred from association with any FINRA member in all capacities following a National Adjudicatory Council decision on remand from the SEC. The sanction has been appealed to the SEC and is in effect pending review.

While acting as a principal of his member firm, Saliba caused the firm to violate interim restrictions placed on it pending disposition of a continuing membership application. Saliba violated the restrictions by, among other things, signing engagement agreements on behalf of the firm when such actions were prohibited.

Saliba also falsely testified during on-the-record testimony about his computer use and failed to produce all of his computers to FINRA. Additionally, he provided falsified memoranda to FINRA that purported to show he had received authorization to enter into engagement agreements while interim restrictions were in place. FINRA found that Saliba obtained backdated compliance records from firm-associated persons and provided those records to FINRA in an attempt to justify his violations of the interim restrictions.

Interim restrictions are imposed to protect investors while FINRA evaluates a firm's fitness to continue operating. Violating such restrictions demonstrates disregard for regulatory authority and investor protection. Providing false testimony and falsified documents to regulators is particularly egregious misconduct that strikes at the heart of the regulatory system.

The permanent bar, pending appeal, protects investors from a principal who demonstrated willingness to violate restrictions designed to protect them and then attempted to cover up the violations through false statements and falsified documents.

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