Bad Brokers

According to FINRA, Daniel Pita was barred from association with any FINRA member firm in any capacity following an Office of Hearing Officers decision.

The sanction was based on findings that Pita failed to provide information and documents requested by FINRA during the course of its investigati...

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According to FINRA, Daniel Pita was barred from association with any FINRA member firm in any capacity following an Office of Hearing Officers decision.

The sanction was based on findings that Pita failed to provide information and documents requested by FINRA during the course of its investigation. The investigation originated from a regulatory tip that Pita had allegedly failed to disclose all of his outside business activities. Pita's failure to provide information and documents impeded FINRA's investigation and deprived it of material information as to whether he had engaged in undisclosed outside business activities in violation of FINRA rules.

Outside business activities (OBAs) are employment or business activities outside of a representative's relationship with their member firm. FINRA rules require representatives to provide written notice to their firm before engaging in any OBA. This requirement exists because OBAs can create conflicts of interest, consume time and attention that should be devoted to the securities business, or involve securities activities that should be conducted through the member firm.

When representatives fail to disclose OBAs, it prevents firms from supervising those activities and assessing potential conflicts of interest. In some cases, undisclosed OBAs involve securities transactions conducted outside the firm (called "selling away"), which can lead to fraud and significant customer losses. Even when OBAs do not involve securities, they can create problematic conflicts or consume so much time that the representative cannot adequately serve their securities customers.

FINRA's investigation would have sought to determine what outside business activities Pita was engaged in, whether he had properly disclosed them to his firm, whether they involved securities transactions, whether they created conflicts of interest, and whether customers were harmed. Pita's failure to provide information and documents prevented FINRA from answering these questions and determining whether rules were violated.

The fact that this case proceeded to a hearing before an Office of Hearing Officers (rather than being resolved through a settlement) and that the hearing officer found that Pita had failed to cooperate demonstrates that the evidence of his non-cooperation was substantial and that his conduct was sufficiently serious to warrant a bar.

For investors, this case highlights the importance of understanding your broker's outside business activities. If your broker recommends an investment or business opportunity outside of their firm, ask questions: Is this investment offered through your firm? Have you disclosed this activity to your firm? Why are we doing this outside your firm? Legitimate investments should generally be conducted through the representative's member firm, where they are subject to supervision and regulation.

The requirement to cooperate with FINRA investigations is fundamental to maintaining the integrity of the securities industry. Representatives who refuse to cooperate typically have something to hide, and the permanent bar protects investors by removing such individuals from the industry.

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According to FINRA, John Nicholas Terzis was barred from association with any FINRA member in all capacities for borrowing money from a customer without firm approval and making false statements on compliance questionnaires.

Pursuant to a ten-year written promissory note, Terzis borrowed $200,000...

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According to FINRA, John Nicholas Terzis was barred from association with any FINRA member in all capacities for borrowing money from a customer without firm approval and making false statements on compliance questionnaires.

Pursuant to a ten-year written promissory note, Terzis borrowed $200,000 from one of his customers, a 69-year-old senior who had health issues, without first notifying or obtaining approval from his member firm. To facilitate the borrowing, Terzis assisted the customer with transferring funds to her personal bank account. For almost two years, Terzis made monthly payments on the loan but ceased making payments thereafter. Given his financial circumstances at the time he borrowed the money, Terzis did not have a reasonable expectation of being able to repay the loan in full.

Additionally, Terzis falsely stated in response to a firm compliance questionnaire that he had not issued or participated in any promissory notes outside of the firm and had not solicited clients to lend funds.

FINRA rules strictly regulate loans between registered representatives and their customers because such arrangements create serious conflicts of interest and potential for exploitation of the broker-customer relationship. The rules generally prohibit such loans unless they fall within specific exceptions, such as when the customer is an immediate family member or a financial institution in the business of making loans. Even when an exception might apply, representatives must obtain their firm's approval before borrowing from a customer.

The facts of this case are particularly troubling. Terzis borrowed a substantial sum ($200,000) from an elderly customer with health issues, creating a situation where a vulnerable customer was exposed to significant financial risk. The fact that Terzis did not have a reasonable expectation of being able to repay the loan at the time he borrowed the money suggests that he knew or should have known that borrowing from the customer was inappropriate and likely to result in harm to her.

The cessation of loan payments after almost two years meant that the elderly customer suffered a significant loss. While she may have legal remedies to try to collect the debt, the practical reality is that if Terzis did not have the financial resources to make the loan payments, he likely does not have the resources to repay the principal either.

Terzis's false statements on the firm's compliance questionnaire compound the violation. These questionnaires are an important part of a firm's supervisory system, designed to identify potential problems before they escalate. By lying on the questionnaire, Terzis prevented his firm from discovering the loan and taking action to protect the customer.

For investors, this case offers critical lessons. Never lend money to your broker or financial advisor, regardless of the circumstances or promises made. Such arrangements are generally prohibited and create serious conflicts of interest. If your broker requests a loan, report it immediately to their firm and to FINRA. Be especially cautious if you are an older investor or have health issues that might make you more vulnerable to exploitation.

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According to FINRA, Sean C. Gordon was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for two months for engaging in an outside business activity without providing prior written notice to his member firm.

Gordon operated an insurance busi...

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According to FINRA, Sean C. Gordon was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for two months for engaging in an outside business activity without providing prior written notice to his member firm.

Gordon operated an insurance business wherein he serviced insurance policies on behalf of his customers and received compensation of approximately $33,000 from the business. Gordon also applied for and received a loan in connection with his insurance business. Gordon did not provide notice to the firm, written or otherwise, of his involvement in his outside business activity when he associated with the firm. Gordon later notified his manager that he was operating an insurance business, and the firm told him that he was not allowed to do so. Nonetheless, Gordon continued to operate his insurance business, including collecting compensation, until the firm terminated his employment.

The suspension was in effect from December 5, 2022, through February 4, 2023.

FINRA rules require registered representatives to provide written notice to their member firm before engaging in any outside business activity. This requirement allows firms to supervise these activities and assess whether they create conflicts of interest, consume excessive time, or otherwise interfere with the representative's duties to the firm and its customers.

Gordon's conduct was particularly problematic because he not only failed to provide prior written notice of his insurance business when he joined the firm, but he also continued operating the business after the firm explicitly told him he was not allowed to do so. This direct defiance of the firm's instruction demonstrates a lack of respect for the firm's supervisory authority and compliance requirements.

The fact that Gordon earned approximately $33,000 from the insurance business suggests it was not a minor side activity but rather a substantial business that likely required significant time and attention. When representatives divide their attention between their securities business and an outside business, it can result in decreased attention to customers' securities accounts and needs.

Insurance products, particularly when sold in conjunction with securities products, can create conflicts of interest. For example, a representative might recommend that a customer purchase an insurance product through the outside business rather than a securities product through the firm, not because it is best for the customer, but because the representative earns more compensation from the insurance sale. When the firm is unaware of the outside business, it cannot supervise for such conflicts.

For investors, this case illustrates the importance of knowing whether your financial advisor has outside business activities. Ask your advisor directly: Do you have any business activities outside this firm? Have you disclosed them to the firm? Such questions can help you identify potential conflicts of interest. If your advisor operates an insurance business or other outside activity, consider whether their recommendations might be influenced by the desire to generate revenue from those activities rather than by your best interests.

The two-month suspension and $5,000 fine reflect the seriousness of Gordon's conduct, particularly his continuation of the business after being told he could not do so. The permanent termination of his employment by the firm demonstrates that the firm took the violation seriously and acted to protect its customers.

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According to FINRA, Richard Lawrence Langer was fined $5,000 and suspended from association with any FINRA member in all capacities for 10 business days for authoring social media posts that did not comply with FINRA's rules regarding communications with the public.

Langer maintained a public soc...

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According to FINRA, Richard Lawrence Langer was fined $5,000 and suspended from association with any FINRA member in all capacities for 10 business days for authoring social media posts that did not comply with FINRA's rules regarding communications with the public.

Langer maintained a public social media page for an investment club he operated. Langer authored posts on the page regarding the performance, investment returns, industry standing, and purported successes of the investment club and a separate hedge fund at which he traded. These posts, in part, did not provide a sound basis for evaluating the claims Langer made about the investment club and hedge fund. The posts only made positive claims about the prospects and performance of these entities but did not explain any of the risks associated with investing with them.

Langer made some posts that were options-related, but his posts failed to reflect the risks attendant to options transactions and failed to include a warning that options are not suitable for all investors. Langer's posts went beyond general descriptions of the options being discussed by describing specific transactions or including performance prior to delivery of an options disclosure document. Additionally, Langer did not obtain approval in advance for any of his options-related posts from a registered options principal of his member firm. Nor did Langer submit the posts to FINRA's Advertising Regulation Department at least ten days prior to use.

The suspension was in effect from January 3, 2023, through January 17, 2023.

FINRA's rules regarding communications with the public are designed to ensure that promotional materials and communications are fair, balanced, and not misleading. These rules apply to all forms of communication, including social media posts. When registered representatives use social media to discuss investment opportunities, performance, or specific trading strategies, those communications must comply with the same standards that apply to traditional advertising.

Langer's posts were deficient in several critical ways. First, they presented only positive information about the investment club and hedge fund without disclosing risks. This one-sided presentation is inherently misleading because all investments involve risks, and investors need balanced information to make informed decisions. Second, the posts did not provide a sound basis for evaluating the claims made about performance and success. Performance claims must be based on documented, accurate data and must include appropriate context and disclosures.

The options-related violations are particularly serious because options are complex instruments that carry substantial risks. FINRA requires specific disclosures for options communications, including warnings that options are not suitable for all investors. These warnings are important because options can result in significant losses, including losses exceeding the initial investment in some cases. Additionally, any communication about options must be approved in advance by a registered options principal, ensuring that someone with expertise in options reviews the content for compliance before it is disseminated. Langer's failure to obtain this approval meant his posts were not subjected to the required supervisory review.

For investors, this case offers important reminders about social media communications from financial professionals. Be skeptical of social media posts that present only positive information about investments without discussing risks. Legitimate investment communications provide balanced information. Be particularly cautious about options-related posts or communications, as options are complex and risky. Any financial professional promoting options should provide comprehensive risk disclosures and ensure you understand the potential for losses.

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According to FINRA, Patrick A. Perugino was fined $5,000 and suspended from association with any FINRA member in all capacities for one month for exercising discretion in customer accounts without proper authorization.

Perugino exercised discretion in customer accounts to effect trades without pr...

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According to FINRA, Patrick A. Perugino was fined $5,000 and suspended from association with any FINRA member in all capacities for one month for exercising discretion in customer accounts without proper authorization.

Perugino exercised discretion in customer accounts to effect trades without prior written authorization from the customers and without his member firms having accepted the accounts as discretionary in writing. Although one of the firms permitted discretionary accounts, Perugino did not follow the firm's procedures to obtain written authorization from the customers or seek approval from the firm to maintain any discretionary accounts at the firm. Instead, Perugino failed to disclose the discretionary trading, incorrectly marking on firm annual attestations that he did not handle any customer accounts on a discretionary basis.

The suspension was in effect from January 3, 2023, through February 2, 2023.

Discretionary authority means the representative has the authority to decide which securities to buy or sell and the amount and timing of those transactions without obtaining the customer's prior approval for each trade. Because discretionary authority gives the representative significant control over the customer's account, FINRA rules require specific protections before a representative can exercise such authority.

First, the customer must provide written authorization granting discretionary authority to the representative. This ensures the customer understands and explicitly agrees to give the representative this level of control. Second, the firm must accept the account as discretionary in writing, which triggers heightened supervision of the account to detect any abuse of the discretionary authority. Third, a principal of the firm must review discretionary trades frequently to ensure they are appropriate for the customer.

Perugino's conduct violated these fundamental protections. By exercising discretion without obtaining written authorization from customers or firm approval, he deprived customers of the opportunity to explicitly consent to discretionary trading and deprived the firm of the ability to provide appropriate heightened supervision. His false statements on firm annual attestations that he did not handle any accounts on a discretionary basis compounded the violation by actively misleading the firm and preventing it from discovering and supervising the discretionary trading.

The dangers of unauthorized discretionary trading are significant. Without proper authorization and supervision, a representative might engage in excessive trading (churning) to generate commissions, make unsuitable investments, or otherwise abuse their control over the account. Even if no harm occurs, the lack of authorization and supervision creates an unacceptable risk to customers.

For investors, this case highlights the importance of understanding whether your account is discretionary. If you have not explicitly signed documentation granting your broker discretionary authority, your broker should be contacting you before each trade to obtain your approval. If trades are occurring in your account without your prior approval and you have not signed discretionary authorization documents, this is a serious red flag and should be reported immediately to the firm and to FINRA.

Even if you have granted discretionary authority, review your account statements carefully to ensure the trading activity is appropriate for your investment objectives and risk tolerance. Discretionary authority should not be granted lightly, and you should only grant it to representatives you trust completely and whose judgment you respect.

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According to FINRA, Michael Girard DeLuca was fined $5,000 and suspended from association with any FINRA member in any principal capacity for 15 business days for failing to reasonably supervise variable annuity exchanges and surrenders recommended by a registered representative.

DeLuca failed to...

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According to FINRA, Michael Girard DeLuca was fined $5,000 and suspended from association with any FINRA member in any principal capacity for 15 business days for failing to reasonably supervise variable annuity exchanges and surrenders recommended by a registered representative.

DeLuca failed to reasonably respond to red flags that many of the representative's exchange applications contained material misrepresentations. The applications contained information about the purchase date, surrender period, and amount of the exchange that contradicted the representative's claims that there would be no surrender charge. DeLuca was aware that during the surrender period, investors were permitted to withdraw only a specified percentage of the contract amount. However, in one case, the exchange application revealed that a customer was seeking to exchange 64 percent of the contract value during the surrender period when the free withdrawal percentage was capped at 10 percent of the contract value. DeLuca failed to question or investigate the representative's representation on the application that the customer would not incur a surrender charge.

DeLuca also failed to compare the information on the exchange documents with other available external information sources such as the original applications, the surrender fee schedules, or the customers' most recent account statements, and thereby failed to detect that the representative misrepresented that the customer would not have to pay a surrender charge. In total, these transactions caused customers to incur surrender charges totaling $71,386.94.

The suspension was in effect from January 3, 2023, through January 24, 2023.

Variable annuities are complex insurance products that often have substantial surrender charges during the early years of ownership. These surrender charges compensate the insurance company for upfront commissions paid to the representative and other costs. When customers exchange one variable annuity for another (a 1035 exchange), they may incur surrender charges on the old annuity if it is still within the surrender period.

Exchanges of variable annuities during the surrender period are often unsuitable because the customer incurs substantial surrender charges on the old annuity and typically starts a new surrender period on the new annuity. Such exchanges may primarily benefit the representative, who earns a new commission, rather than the customer. For this reason, firms must carefully review annuity exchanges to ensure they are suitable and that customers are fully informed about all costs, including surrender charges.

The red flags in this case were numerous and obvious. When an exchange application shows that a customer wants to exchange a percentage of the annuity value that exceeds the free withdrawal amount, and the representative has indicated there will be no surrender charge, these facts are contradictory. DeLuca, as the supervising principal, should have immediately recognized this contradiction and investigated.

His failure to compare the information on the exchange applications with the surrender fee schedules or original applications represents a fundamental supervisory failure. These comparisons are basic steps that should be part of any reasonable review of annuity exchanges. Had DeLuca taken these simple steps, he would have discovered the misrepresentations and prevented customers from incurring over $71,000 in unnecessary surrender charges.

For investors, this case underscores the importance of understanding surrender charges before purchasing or exchanging variable annuities. Always ask: What is the surrender period? What are the surrender charges if I need to access my money during that period? What is the free withdrawal amount? If exchanging an annuity, will I incur surrender charges on the old annuity? Never rely solely on the representative's verbal assurances—review the written contract and fee schedule yourself.

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According to FINRA, Mirsad A. Muharemovic was assessed a deferred fine of $5,000, suspended from association with any FINRA member in all capacities for nine months, and ordered to pay $211,643, plus interest, in deferred restitution to customers for engaging in excessive and unsuitable trading.

...

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According to FINRA, Mirsad A. Muharemovic was assessed a deferred fine of $5,000, suspended from association with any FINRA member in all capacities for nine months, and ordered to pay $211,643, plus interest, in deferred restitution to customers for engaging in excessive and unsuitable trading.

Muharemovic engaged in excessive and unsuitable trading in the accounts of senior customers. Muharemovic recommended that his customers place trades in their accounts, most of which were executed using margin, and the customers routinely accepted his recommendations. Muharemovic's recommendations resulted in annualized turnover rates ranging from 5.71 to 19.26 and annualized cost-to-equity ratios ranging from 30.12 percent to 74.25 percent. As a result of Muharemovic's unsuitable recommendations, his customers lost approximately $237,823 and paid approximately $211,643 in commissions, fees, and margin interest.

The suspension is in effect from December 19, 2022, through September 18, 2023.

Excessive trading, also known as churning, occurs when a broker executes trades in a customer's account primarily to generate commissions rather than to benefit the customer. To establish churning, three elements must be present: (1) control over the account, (2) excessive trading in light of the customer's investment objectives, and (3) scienter (intent to defraud or reckless disregard for the customer's interests).

The metrics in this case demonstrate extreme levels of excessive trading. Turnover rate measures how frequently the entire portfolio is replaced through trading. A turnover rate of 6 means the entire portfolio was turned over six times in a year. Muharemovic's customers had turnover rates as high as 19.26, meaning the entire portfolio was replaced over 19 times in a single year. This level of trading is almost never appropriate for retail customers and strongly suggests churning.

The cost-to-equity ratios are even more damning. This metric measures the percentage of the account value consumed by commissions, fees, and other trading costs. Muharemovic's customers had cost-to-equity ratios ranging up to 74.25 percent, meaning nearly three-quarters of the account value was consumed by trading costs in a single year. At such cost levels, the investments would need to achieve extraordinary returns just to break even, making profit for the customers nearly impossible.

The use of margin trading exacerbated the harm. Margin allows customers to borrow money from the brokerage to purchase securities, amplifying both potential gains and losses. However, margin also increases costs through interest charges. The combination of excessive trading and margin borrowing resulted in customers losing approximately $237,823 and paying approximately $211,643 in commissions, fees, and margin interest.

The fact that these were senior customers makes Muharemovic's conduct even more troubling. Seniors often have limited ability to recover from investment losses and may be more vulnerable to exploitation due to cognitive decline, social isolation, or other factors. Excessive trading of senior customer accounts represents not only a securities violation but also a form of elder financial exploitation.

For investors, particularly seniors, this case illustrates the importance of monitoring account activity and understanding the costs associated with trading. Red flags for potential churning include: frequent trading that seems inconsistent with your investment objectives, high commission and fee charges relative to your account value, use of margin when you have not explicitly agreed to it, and account statements showing turnover without corresponding improvements in account value.

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According to FINRA, Kellen Michael Ferris was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 18 months for taking a remote FINRA Series 7 examination while in possession of prohibited materials.

Before beginning the examination, Ferri...

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According to FINRA, Kellen Michael Ferris was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 18 months for taking a remote FINRA Series 7 examination while in possession of prohibited materials.

Before beginning the examination, Ferris attested that he read and would abide by the Rules of Conduct, which required candidates testing remotely to store all personal items, including study materials and electronic devices, outside of the room in which they were taking the examination prior to taking the test. However, during the examination, Ferris possessed personal items in his testing room, including study materials related to the examination and an electronic tablet. Staff for the third-party administrator of the exam, who used video to proctor the examination remotely, discovered the personal items after instructing Ferris to display his testing room by video using his computer's camera.

The suspension is in effect from December 19, 2022, through June 18, 2024.

The integrity of FINRA's qualification examinations is fundamental to protecting investors. These examinations are designed to ensure that individuals working in the securities industry possess the knowledge and competence necessary to serve customers properly. The Series 7 exam, formally known as the General Securities Representative Examination, tests knowledge of a wide range of securities products, regulations, and concepts. Passing this exam is required for most individuals who will sell securities products.

When candidates cheat on qualification examinations by possessing prohibited materials, they undermine the entire licensing system. A person who passes an exam through cheating may not actually possess the knowledge tested by the exam, creating risk for the customers they will serve. Moreover, cheating demonstrates a lack of integrity and willingness to violate rules, which are serious concerns in an industry built on trust.

The remote testing environment, implemented in response to the COVID-19 pandemic, relies on candidates' honesty and adherence to the Rules of Conduct. While remote proctoring through video surveillance provides some oversight, it cannot monitor as comprehensively as in-person testing. Ferris's decision to possess study materials and an electronic tablet in his testing room, despite attesting that he would follow the rules, represents a deliberate violation of the testing rules.

The 18-month suspension is substantial and reflects the seriousness of exam-related misconduct. During this suspension, Ferris cannot work in any capacity at a FINRA-member firm. This suspension essentially derails his career in the securities industry for a year and a half and serves as a deterrent to others who might consider cheating on qualification exams.

For investors, this case serves as a reminder that not all licensed representatives have demonstrated genuine competence. While most representatives pass exams legitimately through studying and knowledge, cases like this reveal that some may have cheated. This underscores the importance of assessing your broker's knowledge and competence through your interactions, not just assuming that their licenses guarantee competence.

For individuals preparing to take FINRA exams, this case offers a clear message: cheating will be detected and will result in serious sanctions that can derail your career. The consequences of getting caught far outweigh any short-term benefit of potentially passing the exam through dishonest means. Study honestly, seek additional training if needed, and retake the exam if necessary—these are the appropriate responses to exam difficulty.

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According to FINRA, Christine Anne Warner was fined $5,000 and suspended from association with any FINRA member in any principal capacity for 40 business days for failing to reasonably supervise the sales practices of two registered representatives.

Contrary to the firm's Written Supervisory Proc...

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According to FINRA, Christine Anne Warner was fined $5,000 and suspended from association with any FINRA member in any principal capacity for 40 business days for failing to reasonably supervise the sales practices of two registered representatives.

Contrary to the firm's Written Supervisory Procedures, Warner failed to compare the information on a representative's exchange applications with disclosed surrender charges with other sources of information such as the original applications, the surrender fee schedules, or the customers' most recent account statements. As a result, Warner failed to detect that the representative had understated the customers' actual surrender charges on nearly all of the exchange applications that she reviewed and approved. In total, these transactions caused customers to incur surrender charges totaling $227,584.13. Moreover, Warner failed to conduct an analysis to determine whether the cost savings of the new share class exceeded the amount of the surrender charges and thereby failed to reasonably determine whether the recommended exchanges were suitable.

Additionally, Warner failed to reasonably investigate red flags of excessive variable annuity switching by one of the representatives. Warner was notified that a variable annuity issuer terminated their agency relationship with the representative because he had recommended the early liquidation of 23 variable annuity contracts, which resulted in the imposition of substantial surrender fees. Nonetheless, over the course of one year after receiving this notification, Warner approved new variable exchanges that the representative recommended to 11 of the same customers. These new exchanges also caused the customers to incur additional surrender fees.

Warner also failed to reasonably investigate red flags that another representative was conducting securities business through an unapproved email account. Warner was assigned supervisory responsibilities for the representative when he was placed on heightened supervision. Notwithstanding Warner's knowledge of the representative's use of an outside email account, she did not take reasonable steps to review and ensure the retention of these business-related emails. Even after being advised by FINRA that the representative and office staff were continuing to use the outside email account to conduct securities business with firm customers, Warner made no reasonable effort to review or ensure the retention of these emails.

The suspension is in effect from January 3, 2023, through March 1, 2023.

As a principal, Warner had heightened responsibilities to supervise the registered representatives under her authority. Principals serve as gatekeepers who must review transactions and activities to detect potential violations before they harm customers. Warner's failures represent a breakdown in this critical supervisory function.

The variable annuity exchange supervision failures are particularly serious because they were repeated across multiple representatives and customers, resulting in over $227,000 in unnecessary surrender charges. Warner's failure to follow the firm's own WSPs by not comparing exchange applications with surrender fee schedules is a fundamental supervisory lapse. These comparisons are basic steps that should be automatic in any review of annuity exchanges.

The red flags Warner ignored were numerous and obvious. When a variable annuity issuer terminates its relationship with a representative due to excessive early liquidations, this is an extremely serious warning sign that the representative is engaging in unsuitable switching to generate commissions. For Warner to continue approving exchanges recommended by this representative to the same customers who had previously been subjected to unsuitable switches demonstrates a complete failure to respond to red flags.

The email supervision failures compound the picture of inadequate supervision. When a representative is placed on heightened supervision due to concerns about their conduct, the supervising principal must be especially vigilant. Warner's failure to review or ensure retention of emails sent through an unapproved account, even after FINRA specifically alerted her to the continued use of the outside account, shows a lack of diligence and follow-through.

For investors, this case demonstrates that not all firm supervisors adequately fulfill their responsibilities. The supervisory failures allowed representatives to engage in unsuitable exchanges that cost customers over $227,000. When selecting a broker, consider not just the individual representative but also the quality of supervision at the firm.

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According to FINRA, Zachary Benjamin Simpson was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for three months for forging the signatures of customers and a colleague.

Simpson forged the signatures of customers of his member firm and a ...

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According to FINRA, Zachary Benjamin Simpson was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for three months for forging the signatures of customers and a colleague.

Simpson forged the signatures of customers of his member firm and a colleague on Transfer Report Service Responsibility Forms that established him as the assigned financial professional on their existing accounts, without receiving their prior permission or authority to sign their names on those forms.

The suspension is in effect from December 19, 2022, through March 18, 2023.

Forgery of customer signatures is one of the most serious violations in the securities industry because it involves creating false documentation that purports to reflect the customer's authorization or instructions. In this case, Simpson forged signatures on forms that transferred service responsibility for accounts to him, essentially assigning him as the financial professional for those accounts.

Transfer Report Service Responsibility Forms are used to document the transfer of account servicing from one representative to another. When customers sign such forms, they are authorizing the change in who will service their accounts. By forging these signatures, Simpson falsely created the appearance that customers had consented to having him service their accounts when they had not.

The motivations for such conduct can vary. Representatives may forge signatures on transfer forms to take credit for accounts and the associated revenue without actually having the customer's permission. This can occur when representatives are competing for accounts, when accounts are being reassigned due to a representative's departure, or when representatives are seeking to inflate their book of business.

Regardless of the motivation, forgery is always unacceptable. It creates false records, violates customer autonomy, and demonstrates a willingness to engage in dishonest conduct. The fact that Simpson also forged a colleague's signature suggests he was willing to engage in forgery not just of customer documents but also of internal firm documents.

The three-month suspension and $5,000 fine reflect the seriousness of forgery. While some might argue that signing a service transfer form is less serious than forging a signature on a trade authorization or withdrawal request, any forgery of customer signatures represents a fundamental breach of trust and violates the integrity of the documentation upon which the securities industry relies.

For investors, this case highlights the importance of carefully reviewing any documents you are asked to sign and ensuring that you have actually signed any documents that bear your signature. If you receive account statements or other communications indicating that a new representative is servicing your account and you did not authorize such a change, contact the firm immediately to investigate. Review account documents periodically to ensure all signatures are your own and that no transactions or changes have been made without your authorization.

The securities industry operates on documentation. When representatives forge signatures, they undermine the entire system of documented customer authorization and create the potential for unauthorized transactions and account changes. While Simpson's forgeries involved service transfer forms rather than trading authorizations, forgery of any customer signature demonstrates a character deficiency that should disqualify someone from working with customer accounts.

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