Bad Brokers

According to FINRA, Robert Allen Koestler 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 an amended Form U5 filed by Koestler's member firm disclosing ...

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According to FINRA, Robert Allen Koestler 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 an amended Form U5 filed by Koestler's member firm disclosing that he was subject to internal review concerning his involvement with potential unauthorized trades and marking solicited trades as unsolicited. Both allegations raise serious concerns about customer protection and accurate recordkeeping.

Unauthorized trades are transactions executed without customer authorization. This is a fundamental violation that deprives customers of control over their accounts and can result in unsuitable or unwanted investments. Marking solicited trades as unsolicited is falsifying firm records to make it appear that customers initiated trades when they were actually recommended by the representative. This misrepresentation can help representatives avoid scrutiny of potentially unsuitable recommendations and can affect the firm's supervisory review.

FINRA's request for testimony was essential to understanding whether Koestler executed unauthorized trades, how many customers were affected, whether he falsified trade records, and whether customers suffered harm. Koestler's refusal to appear for testimony prevented FINRA from fully investigating these serious allegations.

All registered persons must cooperate with regulatory investigations. Those who refuse to testify about serious allegations like unauthorized trading and falsification of records demonstrate unfitness for the industry.

The permanent bar protects investors from an individual who was under internal review for potential unauthorized trading and record falsification and then refused to explain his conduct to regulators.

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According to FINRA, Christopher Alexander Polinaire was fined $7,500, suspended for eight months in all capacities, and ordered to pay $128,000 in restitution to customers for engaging in excessive and unsuitable trading.

Polinaire recommended trades in customer accounts, some executed using marg...

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According to FINRA, Christopher Alexander Polinaire was fined $7,500, suspended for eight months in all capacities, and ordered to pay $128,000 in restitution to customers for engaging in excessive and unsuitable trading.

Polinaire recommended trades in customer accounts, some executed using margin, which customers routinely accepted. His trading resulted in annual turnover rates ranging from 10.01 to 45.23, meaning some accounts were essentially turned over more than 45 times in a year. The annualized cost-to-equity ratios ranged from 35.65 percent to 152.56 percent, meaning some customers' accounts would have needed to gain over 152 percent annually just to break even after accounting for commissions and fees.

In total, the affected customers paid a combined $128,000 in commissions and fees based on Polinaire's recommendations. This excessive trading, also known as "churning," generated substantial commissions for Polinaire while devastating customer accounts with costs.

Excessive trading is unsuitable regardless of a customer's investment profile because the high costs make it virtually impossible for customers to achieve positive returns. Turnover rates above 6 and cost-to-equity ratios above 20 percent are generally considered excessive. Polinaire's activity far exceeded these thresholds.

This case illustrates the importance of investors monitoring their account statements for excessive activity. Warning signs include frequent trades, high commission charges, and account values that decline despite market gains. Investors should question representatives who recommend frequent trading and consider whether the strategy serves their interests or primarily generates commissions.

The eight-month suspension and restitution order hold Polinaire accountable for putting his financial interests ahead of his customers' wellbeing.

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According to FINRA, Joel Darren Plasco was assessed a deferred fine of $10,000 and suspended for six months in all capacities for participating in private securities transactions without notice to his firm, opening undisclosed outside brokerage accounts, and engaging in undisclosed outside business ...

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According to FINRA, Joel Darren Plasco was assessed a deferred fine of $10,000 and suspended for six months in all capacities for participating in private securities transactions without notice to his firm, opening undisclosed outside brokerage accounts, and engaging in undisclosed outside business activities.

Plasco loaned $200,000 to a company for one month expecting a 100 percent return at maturity. After the company defaulted, the parties entered into a settlement agreement where Plasco received shares of a thinly traded stock of a different company that he sold privately for $75,000. He did not provide written notice to or obtain written approval from his firm before participating in these private securities transactions.

Additionally, Plasco opened outside brokerage accounts at three firms without his firm's prior written consent. He also engaged in five outside business activities without providing prior written notice to his firm as required. Plasco served as a senior executive with and received compensation from six related businesses in the aviation industry but only disclosed one to his firm.

These violations are serious because they deprive firms of the ability to supervise registered persons' securities activities and outside interests for conflicts, suitability, and compliance. Private securities transactions conducted outside firm supervision can expose customers to unsuitable, fraudulent, or high-risk investments without firm oversight or recourse.

The promised 100 percent return in one month that Plasco pursued was an obvious red flag of an extremely high-risk or potentially fraudulent investment. His ultimate $125,000 loss on the transaction illustrates the dangers of such speculative ventures.

The six-month suspension holds Plasco accountable for conducting extensive activities outside his firm's knowledge and supervision.

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According to FINRA, Christopher John Shaw was fined $5,000 and suspended for 15 business days in all capacities for exercising discretion to execute trades in customer accounts without written authorization from customers or his firm's acceptance to trade the accounts on a discretionary basis.

Sh...

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According to FINRA, Christopher John Shaw was fined $5,000 and suspended for 15 business days in all capacities for exercising discretion to execute trades in customer accounts without written authorization from customers or his firm's acceptance to trade the accounts on a discretionary basis.

Shaw mistakenly believed he had discretionary authority for the accounts. However, his firm did not permit the use of discretion in its brokerage accounts, meaning no accounts at the firm could be traded on a discretionary basis regardless of customer authorization.

Discretionary authority allows a representative to make investment decisions for a customer without obtaining the customer's prior approval for each specific transaction. This authority requires written customer authorization and firm acceptance because it gives the representative significant control over the customer's account and assets.

Trading customer accounts without proper discretionary authorization violates customers' right to approve transactions in their accounts. Even when a representative believes they have authority and acts in good faith, executing unauthorized discretionary trades deprives customers of control over their investments and can result in unsuitable or unwanted transactions.

Investors should be aware that discretionary authority should only be granted carefully, with clear written agreements specifying the scope and limitations of the authority. They should regularly review account activity to ensure it aligns with their expectations and approved authority.

The 15-business-day suspension holds Shaw accountable for exercising discretion without proper authorization, while recognizing his mistaken belief that he had authority. This case reinforces that representatives must verify they have proper authorization before exercising any discretionary authority.

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According to FINRA, Christopher Thomas Eriksson was assessed a deferred fine of $10,000 and suspended for six months in all capacities for borrowing money from a customer without firm notice or approval and engaging in three undisclosed outside business activities.

Eriksson borrowed $350,000 from...

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According to FINRA, Christopher Thomas Eriksson was assessed a deferred fine of $10,000 and suspended for six months in all capacities for borrowing money from a customer without firm notice or approval and engaging in three undisclosed outside business activities.

Eriksson borrowed $350,000 from a customer at a fixed interest rate, documented by a promissory note drafted by one of the customer's co-trustees. He has since paid off the principal and interest in full. However, he did not provide notice to or obtain approval from his member firm before borrowing from the customer.

Additionally, Eriksson engaged in three undisclosed outside business activities. He also submitted questionnaire responses to his firm that failed to disclose all his outside business activities.

Borrowing money from customers is prohibited or restricted because it creates conflicts of interest and can lead to exploitation of the customer relationship. Representatives may pressure customers to make loans they would not otherwise make, and repayment disputes can damage the customer relationship. Firms need to know about such borrowing to assess conflicts and ensure proper supervision.

Outside business activities must be disclosed because they can create conflicts of interest, time commitment issues, or reputational risks. Firms cannot properly supervise registered persons or assess conflicts without knowing about all outside activities.

The six-month suspension holds Eriksson accountable for borrowing a substantial sum from a customer without firm approval and failing to fully disclose his outside business activities. While Eriksson repaid the loan, the violation lies in borrowing without firm knowledge and approval, which deprived the firm of the opportunity to assess the appropriateness of the arrangement.

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According to FINRA, Theodore M. Serure was fined $20,000 and suspended for four months in all capacities for borrowing approximately $7.3 million from customers without providing notice to and receiving pre-approval from his member firms.

Although Serure was never indebted for more than $2 millio...

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According to FINRA, Theodore M. Serure was fined $20,000 and suspended for four months in all capacities for borrowing approximately $7.3 million from customers without providing notice to and receiving pre-approval from his member firms.

Although Serure was never indebted for more than $2 million at any time because he used some loan proceeds to pay off earlier customer loans, the total borrowed over the relevant period was approximately $7.3 million. Serure repaid all customer loans, and none of the customers complained. All customers from whom Serure borrowed money were wealthy and financially sophisticated. Serure had been close friends with each customer for decades, some since childhood.

Despite these mitigating factors, borrowing from customers without firm notice and approval is a serious violation because it creates conflicts of interest and can lead to exploitation of customer relationships. Firms need to know about borrowing arrangements to assess appropriateness, monitor for conflicts, and ensure customers are not being pressured or taken advantage of.

Even when borrowing from wealthy, sophisticated friends who are also customers, registered persons must provide notice to their firm and obtain pre-approval. The fact that customers are wealthy and sophisticated does not eliminate conflicts of interest or the need for firm oversight. The personal relationships may actually heighten the need for firm supervision to ensure those relationships are not being exploited.

The four-month suspension and $20,000 fine hold Serure accountable for borrowing substantial sums from customers without firm approval, while recognizing mitigating factors including full repayment, sophisticated customers, long-standing friendships, and no customer complaints.

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According to FINRA, Ellen Gayle Reynard was fined $5,000 and suspended for five months in all capacities for falsifying forms submitted to her firm to effectuate money movements requested by customers.

Reynard directed customers to sign blank or incomplete forms, but neither she nor the customers...

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According to FINRA, Ellen Gayle Reynard was fined $5,000 and suspended for five months in all capacities for falsifying forms submitted to her firm to effectuate money movements requested by customers.

Reynard directed customers to sign blank or incomplete forms, but neither she nor the customers completed or submitted the forms at the time she obtained signatures. Instead, Reynard maintained the blank, signed forms, which she later photocopied, completed, and submitted to the firm at customers' requests.

By falsifying forms associated with money movements from customer accounts, Reynard caused the firm to maintain inaccurate books and records. The firm's records showed forms that appeared to be signed on the dates they were submitted, when in fact the signatures had been obtained earlier on blank forms.

This practice is problematic for multiple reasons. Blank signed forms can be misused to conduct unauthorized transactions. The forms may not accurately reflect customer instructions given at the time of the actual money movement request. The falsified dates create inaccurate firm records. Customers who sign blank forms may not remember what they authorized when the forms are later completed.

Even if Reynard had no fraudulent intent and believed she was simply streamlining the process for her customers' convenience, the practice created unacceptable risks and resulted in falsified documentation. Representatives must obtain customer signatures on complete forms that accurately reflect the requested transaction at the time the signature is obtained.

The five-month suspension holds Reynard accountable for falsifying customer forms and causing the firm to maintain inaccurate records, even if done for perceived customer convenience rather than fraudulent purposes.

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According to FINRA, Hinman Au was fined $20,000 and suspended for 45 days in all capacities and 18 months in any principal capacity for multiple failures as his firm's AML Compliance Officer.

As AMLCO, Au drafted the firm's AML procedures which stated he would detect market manipulation and creat...

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According to FINRA, Hinman Au was fined $20,000 and suspended for 45 days in all capacities and 18 months in any principal capacity for multiple failures as his firm's AML Compliance Officer.

As AMLCO, Au drafted the firm's AML procedures which stated he would detect market manipulation and create parameters for reviewing trades and wire transfers. However, Au never created such parameters or described how they should be set. Although procedures required exception reports to detect unusual transactions, Au did not identify specific reports, describe how supervisors should use them, or what activity should trigger action. Au relied almost exclusively on manual review of the daily trade blotter, which was unreasonable given the volume and complexity of customer trading and did not reflect patterns across accounts or days.

Au failed to implement the firm's Customer Identification Program for retail and institutional customer accounts in foreign jurisdictions. He failed to reasonably supervise for potentially manipulative trading and did not detect potential market manipulation including matched orders. When FINRA and the clearing broker brought potential manipulation to his attention, Au unreasonably relied on unverified customer representations about future prevention steps.

Au also caused the firm to maintain incomplete books and records by using instant messaging to communicate about securities business with a firm-associated person and using personal email to communicate with another FINRA member regarding potential IPO investor referrals, without retaining copies for the firm to preserve.

The suspensions totaling over 19 months hold Au accountable for serious failures in his role as AMLCO and principal, which created significant risks of undetected suspicious activity and market manipulation.

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According to FINRA, Douglas Fulton Kaiser was fined $5,000, suspended for three months in any principal capacity, and required to complete twenty hours of continuing education concerning supervision for failing to supervise markups and markdowns for U.S. Treasury securities.

As supervisor of the ...

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According to FINRA, Douglas Fulton Kaiser was fined $5,000, suspended for three months in any principal capacity, and required to complete twenty hours of continuing education concerning supervision for failing to supervise markups and markdowns for U.S. Treasury securities.

As supervisor of the firm's fixed-income trading desk, Kaiser was responsible for reviewing markups and markdowns on fixed-income transactions. A representative under his supervision was recommending an unsuitable investment strategy characterized by active, short-term trading of U.S. Treasury securities and charging excessive markups on certain proceeds transactions involving U.S. Treasuries.

For eight customers who suffered losses from the representative's Treasury-trading strategy, the representative charged, and Kaiser approved, markups or markdowns exceeding the firm's policy. Kaiser failed to recognize and respond appropriately to the elevated markups and markdowns.

For five of the eight customers, Kaiser miscalculated the markdowns for certain sales that were part of proceeds transactions (same-day sales followed by purchases the next day). This miscalculation prevented him from identifying that the markdowns exceeded firm policy.

Markups and markdowns represent the firm's compensation for principal transactions and must be reasonable in relation to market prices. Excessive markups increase customer costs and reduce returns. Proper supervision of markups and markdowns is essential to ensure customers receive fair pricing.

The three-month principal suspension and mandatory continuing education hold Kaiser accountable for supervisory failures that allowed excessive markups to go undetected, contributing to customer losses from an unsuitable trading strategy.

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According to FINRA, Michael Joseph Lancaster was assessed a deferred fine of $10,000, suspended for four months in all capacities, and ordered to pay deferred disgorgement of $4,410 in commissions for recommending an unsuitable investment and making unauthorized settlement payments to the customer.
...

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According to FINRA, Michael Joseph Lancaster was assessed a deferred fine of $10,000, suspended for four months in all capacities, and ordered to pay deferred disgorgement of $4,410 in commissions for recommending an unsuitable investment and making unauthorized settlement payments to the customer.

Lancaster recommended that a 72-year-old customer invest $70,000 in a commercial equipment leasing and finance fund, an alternative investment, even though it was inconsistent with the customer's investment profile and financial situation. The required liquid net worth for the investment amount exceeded the customer's liquid net worth, and the high-risk illiquid nature was inconsistent with the customer's moderate risk tolerance. The customer used retirement account funds to make the investment based on Lancaster's recommendation to hold the investment even as it declined in value. The customer ultimately liquidated the investment nearly 10 years later at a loss and was compensated by Lancaster's firm.

After the customer complained about the performance, Lancaster made payments totaling $14,460.40 to attempt to settle the complaint without his firm's knowledge or approval. Lancaster then falsely certified on compliance questionnaires that he had not made any private settlement of claims or reimbursed customers for losses.

Making unauthorized settlement payments to customers is prohibited because it conceals complaints from the firm and prevents proper investigation and disclosure. The false compliance questionnaire responses compounded the violation by actively misleading the firm.

The four-month suspension and disgorgement of commissions hold Lancaster accountable for recommending an unsuitable investment to an elderly customer and then attempting to secretly settle the resulting complaint while falsely denying having done so.

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