Bad Brokers

According to FINRA, David Michael Brendza was fined $5,000 and suspended from association with any FINRA member in all capacities for six months for causing his member firm to maintain inaccurate books and records by falsifying the representative code for trades.

Brendza entered into an agreement...

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According to FINRA, David Michael Brendza was fined $5,000 and suspended from association with any FINRA member in all capacities for six months for causing his member firm to maintain inaccurate books and records by falsifying the representative code for trades.

Brendza entered into an agreement through which he agreed to service certain customer accounts, including executing trades for those accounts, under a joint representative code that he shared with a representative who was planning on retiring in several years and an active representative who was part of Brendza's team and who is an immediate family member. The agreement set forth what percentages of the commissions each representative would earn on trades placed using the applicable joint representative code. The parties later amended the agreement to provide Brendza and his immediate family member with higher percentages of commissions than what was set forth in the original agreement.

Although the firm's system correctly prepopulated the trades with the applicable joint representative code, Brendza changed the code for the trades to a different joint representative code that he only shared with his immediate family member. As a result, Brendza and his immediate family member received higher commissions than what they were entitled to receive pursuant to the amended agreement. Brendza did not ask the retiring representative whether he could change the code on the trades at issue and did not otherwise indicate to him that he was doing so.

Brendza mistakenly believed that the retiring representative had agreed that he could change the representative code so that Brendza and his immediate family member would receive higher percentages of commissions than what was set forth in the amended agreement. The firm has since paid restitution to the retiring representative. Brendza, together with his immediate family member, reimbursed the firm a total of approximately $275,000, which is the approximate amount of additional commissions that they received from the trades.

The suspension is in effect from January 3, 2023, through July 2, 2023.

Representative codes are critical to the accurate tracking of trading activity and commission allocation in brokerage firms. These codes identify which representative executed each trade and determine how commissions are allocated among representatives in joint representative arrangements. Accurate representative codes are essential for proper supervision, compliance monitoring, and compensation.

By changing the representative code on trades from the joint code that included the retiring representative to a code that included only Brendza and his immediate family member, Brendza caused the firm's books and records to inaccurately reflect who was responsible for the trades. This inaccuracy affected both compliance functions and commission allocation.

The $275,000 in additional commissions that Brendza and his family member received as a result of the falsified codes represents a substantial amount of money that should have been paid to the retiring representative according to the agreement. While Brendza claims he mistakenly believed the retiring representative had agreed to the change, the fact that he did not confirm this belief or document any such agreement, and that he made the changes without informing the retiring representative, suggests he knew or should have known that the conduct was improper.

The six-month suspension and requirement to repay approximately $275,000 reflect the seriousness of falsifying books and records, even when the motivation is to reallocate commissions among representatives rather than to harm customers. The falsification undermined the integrity of the firm's records and deprived a colleague of commissions to which he was entitled.

For investors, while this case primarily involved internal commission allocation rather than customer harm, it is still relevant. Accurate books and records are fundamental to proper supervision and compliance in the securities industry. When representatives falsify records for any reason, it demonstrates a willingness to engage in dishonest conduct and undermines the reliability of the firm's systems. Additionally, disputes among representatives about commissions can distract from customer service and indicate dysfunction within the firm.

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According to FINRA, Michael Samuel Hakim was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for two months for opening an outside brokerage account without firm approval and making false statements on the account application.

Without obta...

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According to FINRA, Michael Samuel Hakim was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for two months for opening an outside brokerage account without firm approval and making false statements on the account application.

Without obtaining his member firm's prior written consent, Hakim opened a personal outside brokerage account at another firm. On the new account form, Hakim stated that he was unemployed, listed "none" for employer name, and answered "no" to the question of whether he was employed by a registered broker dealer. These statements were inaccurate as Hakim was still employed by the firm. Hakim did not disclose the account prior to the firm's discovery of its existence the following year.

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

FINRA rules require registered representatives to obtain written consent from their member firm before opening securities accounts at other firms. This requirement serves several important purposes. First, it allows the firm to supervise the representative's personal trading to detect potential conflicts of interest, insider trading, or other problematic conduct. Second, it allows the firm to monitor for potential violations such as selling away (conducting securities transactions outside the firm) or trading ahead of customer orders.

When representatives open outside accounts, the employing firm typically directs the other firm to send duplicate confirmations and statements so the employing firm can monitor the account activity. This oversight is an important component of the supervisory system.

Hakim's conduct involved not just failing to obtain consent to open the account but also affirmatively lying on the account application by stating he was unemployed and not employed by a broker-dealer. These false statements prevented the other firm from notifying Hakim's employing firm about the account, as would typically be required when an account is opened by an employee of another broker-dealer.

The false statements on the account application compound the violation. While simply failing to disclose an outside account would be a violation, actively lying to conceal employment in the securities industry demonstrates a higher level of deceptiveness. Hakim knew he should disclose his account to his firm but instead took steps to hide its existence by lying on the account application.

The failure to disclose the account for over a year further demonstrates that this was not an inadvertent oversight but rather a sustained deception. During that entire year, Hakim's firm was unable to supervise his personal trading activity, creating an unmonitored period during which problematic conduct could have occurred undetected.

For investors, this case illustrates that representatives' personal trading can create conflicts of interest and compliance issues. While Hakim's violation involved his own personal account rather than customer accounts, the willingness to lie and conceal information is concerning. Representatives who would deceive their own firm and another firm about their employment status may be willing to engage in other forms of deception.

The requirement for representatives to disclose personal securities accounts and obtain firm consent exists to protect both customers and the integrity of the markets. When representatives evade this oversight, they create blind spots in the supervisory system that can allow problematic conduct to go undetected. The two-month suspension reflects the seriousness of both the failure to disclose and the false statements made to conceal the account.

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According to FINRA, Ahmed Ghassan Gheith was fined $7,500 and suspended from association with any FINRA member in all capacities for one month for soliciting prospective investors to purchase private placement offerings without having established pre-existing substantive relationships.

Gheith sol...

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According to FINRA, Ahmed Ghassan Gheith was fined $7,500 and suspended from association with any FINRA member in all capacities for one month for soliciting prospective investors to purchase private placement offerings without having established pre-existing substantive relationships.

Gheith solicited prospective investors to purchase private placement offerings claiming exemption from registration under Rule 506 of Regulation D of the Securities Act of 1933 but without having established pre-existing, substantive relationships with any of the investors. Gheith's member firm began participating in two different private placement offerings before he created a substantive relationship with any of the prospective investors. None of the prospective investors had previously invested in securities offered by the firm, nor did Gheith obtain investor questionnaires from the prospective investors prior to the time they agreed to invest in an offering.

In total, investors solicited by Gheith invested $175,000 in one of the private placement offerings. Gheith solicited all prospective investors before having a substantive relationship with any of them. The offers and resulting sales of the private placement offerings therefore did not qualify for an exemption from registration under Rule 506(b).

The suspension is in effect from January 17, 2023, through February 16, 2023.

Private placements are securities offerings that are exempt from registration with the SEC under certain conditions. Rule 506(b) of Regulation D provides an exemption that allows issuers to raise unlimited amounts of capital from accredited investors and up to 35 non-accredited investors, provided the offering is not publicly advertised or generally solicited.

When securities are sold through general solicitation (broadly advertising the offering to people with whom the seller does not have a pre-existing relationship), the offering must comply with different requirements under Rule 506(c), which requires all purchasers to be accredited investors and requires the issuer to take reasonable steps to verify that they are accredited.

FINRA has interpreted Rule 506(b)'s prohibition on general solicitation to require that, when a member firm participates in a 506(b) offering, the firm and its representatives must have a pre-existing, substantive relationship with prospective investors. This requirement ensures that the offering is truly private rather than a public solicitation.

A substantive relationship generally means the representative has sufficient information to evaluate, and does evaluate, the prospective investor's financial circumstances and sophistication in light of the investment. This typically requires the prospective investor to have previously invested with the firm or the representative to have obtained detailed financial information through investor questionnaires or similar means before discussing the specific investment opportunity.

Gheith's violation was that he solicited investors to purchase the private placement offerings before establishing any substantive relationship with them. The prospective investors had not previously invested with the firm, and Gheith had not obtained investor questionnaires before they agreed to invest. This meant Gheith was essentially making a general solicitation—offering the investments to people he did not know and whose financial circumstances he had not evaluated.

By soliciting investors without pre-existing substantive relationships, Gheith caused the offerings to lose their exemption from registration under Rule 506(b). This created potential liability for the issuer and the firm and undermined the regulatory framework that distinguishes private offerings from public offerings.

For investors, this case illustrates important distinctions in how private placements can be sold. If you are contacted by a broker you have never worked with before about a private placement investment opportunity, ask questions about the offering's exemption from registration and whether the solicitation complies with securities laws. Legitimate 506(b) offerings should generally be offered only to investors with whom the representative has a pre-existing relationship.

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According to FINRA, Chuanbing Rong was fined $5,000 and suspended from association with any FINRA member in all capacities for two months for participating in an outside business activity without providing prior written notice to his member firm.

Rong and his wife formed a company for the purpose...

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According to FINRA, Chuanbing Rong was fined $5,000 and suspended from association with any FINRA member in all capacities for two months for participating in an outside business activity without providing prior written notice to his member firm.

Rong and his wife formed a company for the purpose of selling insurance and fixed annuities. Rong earned compensation totaling approximately $168,000 from his activities with the company, including an annual salary and distributions of commission payments. Rong failed to provide prior written notice to the firm of his activities with the company and did not disclose this outside business activity to the firm until after receiving a written inquiry from FINRA regarding his activities with the company.

The suspension is in effect from January 17, 2023, through March 16, 2023.

FINRA's outside business activity rules require registered representatives to provide written notice to their member firm before engaging in any business activity outside their relationship with the firm. This notification requirement applies even to activities that do not involve securities, such as selling insurance and fixed annuities.

The requirement serves several purposes. First, it allows the firm to assess whether the outside activity creates conflicts of interest with the representative's securities business. For example, a representative who sells insurance products through an outside business might recommend that customers purchase insurance rather than securities products, not because insurance is better for the customer, but because the representative earns more compensation from the insurance sale. Second, the notification allows the firm to determine whether the outside activity will interfere with the representative's ability to serve the firm's customers. Third, it allows the firm to provide appropriate supervision if the activity involves products or services related to the securities business.

Rong's outside business activity involved selling insurance and fixed annuities, which are products closely related to securities products. Insurance and annuities are often sold by registered representatives alongside securities, and customers may not always understand the distinctions between these product types. The potential for conflicts of interest is significant—Rong might recommend that customers purchase insurance or fixed annuities through his outside company rather than securities or variable annuities through his member firm, influenced by the desire to generate revenue for his outside business.

The substantial compensation Rong received from his outside business—approximately $168,000—indicates this was not a minor sideline but rather a significant business activity. The magnitude of compensation suggests the business likely required substantial time and attention, potentially interfering with Rong's ability to serve his securities customers.

Rong's failure to disclose the outside business activity until after receiving a written inquiry from FINRA demonstrates that this was not an inadvertent oversight. For the entire period of his involvement with the insurance company, his firm was unaware of the activity and unable to supervise it or assess potential conflicts of interest.

The two-month suspension and $5,000 fine reflect the seriousness of the violation, considering both the failure to provide notice and the substantial nature of the undisclosed activity. The sanction serves to deter other representatives from engaging in significant outside business activities without firm notification.

For investors, this case highlights the importance of understanding whether your financial advisor has outside business activities and whether those activities might create conflicts of interest. If your advisor recommends insurance products or annuities, ask whether they are selling those products through your advisory firm or through an outside business. If through an outside business, ask whether they earn different compensation on those products and whether that might influence their recommendations.

You can also check your advisor's Form U4 on FINRA BrokerCheck, which should disclose approved outside business activities. If your advisor is recommending products or services that are not disclosed on their Form U4, this may indicate an undisclosed outside business activity that you should report to their firm and FINRA.

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According to FINRA, Kimberly Elizabeth Nuessmann was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 30 days for impersonating a customer who was her deceased relative.

Nuessmann submitted a distribution request to the firm to transfer...

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According to FINRA, Kimberly Elizabeth Nuessmann was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 30 days for impersonating a customer who was her deceased relative.

Nuessmann submitted a distribution request to the firm to transfer the proceeds of her deceased relative's individual retirement account to an account controlled by two of her other relatives. The firm did not know the customer was deceased. Several days later, a firm employee called the customer to verify the distribution request. Nuessmann answered, impersonated the deceased customer, and verified the request. The employee discovered that the customer was reported deceased and called the registered representative for the customer's account for further verification. Nuessmann, who worked with the representative, spoke with the employee and indicated that the customer was not deceased. Ultimately, the firm determined that the customer was deceased and canceled the distribution.

The suspension was in effect from January 3, 2023, through February 1, 2023.

Impersonating a customer is an extraordinarily serious violation of securities regulations and fundamental ethical standards. In this case, the violation is compounded by the fact that Nuessmann impersonated a deceased relative to authorize a distribution from the relative's IRA account.

When a customer dies, their accounts become part of their estate and must be handled according to estate administration procedures, including following the instructions in the customer's will or trust, or if there is no will, according to state intestacy laws. The proper beneficiaries or estate representatives must be identified, appropriate documentation must be obtained, and distributions must be made in accordance with legal requirements.

By submitting a distribution request and then impersonating the deceased customer to verify it, Nuessmann attempted to circumvent these proper estate administration procedures. While the distribution would have gone to accounts controlled by other relatives (rather than to Nuessmann herself), this does not make the conduct acceptable. The distribution might not have been consistent with the deceased customer's estate plan, and even if the intended recipients were appropriate beneficiaries, the proper procedure requires documentation such as death certificates, letters testamentary, or beneficiary designation forms, not impersonation.

Nuessmann's conduct involved not just a single act of impersonation but multiple deceptive acts. First, she submitted the distribution request without informing the firm that the customer was deceased. Second, when the firm called to verify the distribution, she answered and impersonated the deceased customer. Third, when an employee followed up with additional questions, Nuessmann affirmatively stated that the customer was not deceased, which was a direct lie.

The firm's procedures worked as intended—the verification call and follow-up inquiry ultimately led to the discovery that the customer was deceased and prevented the improper distribution. However, Nuessmann's repeated attempts to deceive the firm demonstrate a concerning willingness to engage in fraudulent conduct.

The fact that Nuessmann was related to the deceased customer does not excuse or mitigate the conduct. Family relationships often give rise to opportunities for financial elder abuse and estate manipulation. The securities industry's rules and procedures for handling deceased customer accounts apply regardless of family relationships precisely because family members may have conflicts of interest regarding estate assets.

For investors, this case illustrates the importance of proper estate planning and the procedures that firms follow when customers die. Ensure that your beneficiary designations on retirement accounts and other investment accounts are current and reflect your wishes. These beneficiary designations generally control who receives the account proceeds upon your death, superseding instructions in a will.

For family members of deceased investors, understand that proper procedures must be followed, including notifying the firm of the death and providing appropriate documentation. Attempting to access a deceased person's accounts through impersonation or deception is not only a violation of securities regulations but may also be criminal fraud or identity theft.

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According to FINRA, Yuvraj Chauhan was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in all capacities for two years for creating fictitious documents and emails.

Chauhan created fictitious documents and emails to create the misimpression that he had obt...

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According to FINRA, Yuvraj Chauhan was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in all capacities for two years for creating fictitious documents and emails.

Chauhan created fictitious documents and emails to create the misimpression that he had obtained written confirmations and approvals for numerous transactions and account changes from customers and supervisors of his member firm. To create these documents, Chauhan often modified actual emails and documents that the firm's supervisors and customers had previously authored or sent. Chauhan then submitted these fictitious documents and emails to the firm's operational staff to process the transactions and account changes, which included, among other things, wire transfers, transfers of stock positions, and changes to customers' investment objectives.

The suspension is in effect from January 3, 2023, through January 2, 2025.

The creation of fictitious documents and emails is one of the most serious forms of fraud in the securities industry. Firms rely on documentation to verify that transactions and account changes are authorized by customers and approved by supervisors. By creating fake documents purporting to show such authorization and approval, Chauhan undermined the entire system of documentation and controls that protects customers and ensures compliance.

The scope of Chauhan's misconduct is particularly troubling. He created fictitious documents for "numerous" transactions and account changes, including wire transfers, stock position transfers, and changes to investment objectives. Each of these types of transactions carries significant risk to customers if not properly authorized.

Wire transfers involve moving cash out of customer accounts and, if unauthorized, can result in theft of customer funds. Stock position transfers move securities between accounts or to other firms and, if unauthorized, can facilitate theft or improper manipulation of account holdings. Changes to investment objectives can be used to justify unsuitable investments—for example, a representative might falsely document that a customer changed their objective from "conservative" to "aggressive growth" to justify risky recommendations that were actually unsuitable for the customer.

The fact that Chauhan modified actual emails and documents previously authored by supervisors and customers to create his forgeries demonstrates sophistication and premeditation. Rather than simply creating entirely fabricated documents, he took authentic communications and altered them to falsely show authorization or approval for different transactions. This approach made his forgeries more difficult to detect because they appeared to come from legitimate email addresses or document formats that the firm recognized.

By submitting the fictitious documents to operational staff, Chauhan caused those staff members to process transactions and account changes that they believed were properly authorized and approved. The operational staff, relying on what they thought was legitimate documentation, processed the requests without knowing they were based on forgeries.

The two-year suspension is among the lengthier suspensions short of a permanent bar and reflects the seriousness and scope of the forgery. Creating fictitious documents to obtain unauthorized approvals for customer account transactions represents a fundamental breach of the trust upon which the securities industry is built.

For investors, this case demonstrates the importance of reviewing all account statements and confirmations carefully. If you did not authorize a transaction or account change, report it immediately to the firm. Do not assume that all transactions reflected on your statement were authorized simply because the firm processed them—as this case shows, representatives can sometimes use forged documents to cause unauthorized transactions to be processed.

Also be cautious about requests from your broker to provide written authorizations or confirmations, particularly for wire transfers or account changes. While legitimate requests for written authorization are normal, if a broker seems overly insistent on obtaining written documentation for routine matters, or if you are asked to sign documents that do not accurately reflect your understanding or instructions, these could be warning signs of potential documentation abuse.

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According to FINRA, John Matthew Underation was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for six months for willfully failing to timely amend his Form U4 to disclose felony charges and a guilty plea.

Underation was indicted by a gra...

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According to FINRA, John Matthew Underation was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for six months for willfully failing to timely amend his Form U4 to disclose felony charges and a guilty plea.

Underation was indicted by a grand jury for aggravated vehicular assault, vehicular assault, and failure to stop after an accident. Further, Underation pled guilty to a felony charge for attempted vehicular assault, which rendered him statutorily disqualified from associating with a member firm. Underation ultimately amended his Form U4 to disclose the felony charges and felony guilty plea approximately 10 months after the deadline for disclosing the felony guilty plea and well over a year after the deadline for disclosing the felony charges.

The suspension is in effect from January 3, 2023, through July 2, 2023.

Form U4 is the Uniform Application for Securities Industry Registration that all registered representatives must file and maintain. The form requires disclosure of various background information, including criminal charges and convictions. Representatives have an ongoing obligation to amend their Form U4 within 30 days when information on the form becomes inaccurate or incomplete.

The disclosure requirements for criminal matters are strict and serve important investor protection purposes. The securities industry is built on trust, and customers entrust their financial assets to representatives and firms. Information about criminal conduct, particularly felonies, is material to a customer's decision about whether to work with a representative and to a firm's decision about whether to employ or continue employing a representative.

The charges against Underation were serious: aggravated vehicular assault, vehicular assault, and failure to stop after an accident. These charges suggest conduct involving a vehicle accident that caused injury and then leaving the scene. His guilty plea to attempted vehicular assault confirms criminal wrongdoing.

A felony conviction creates a statutory disqualification, meaning the individual is disqualified from associating with a member firm unless they obtain approval from FINRA through a process that involves demonstrating they do not pose an unreasonable risk to investors. Underation's failure to disclose the felony charges and guilty plea meant he continued working in the securities industry while statutorily disqualified and without obtaining the required approval.

The delays in disclosure were substantial: approximately 10 months after the deadline for disclosing the guilty plea and over a year after the deadline for disclosing the charges. This was not a brief oversight but rather an extended period during which Underation's Form U4 was inaccurate, his firm was unaware of the criminal charges and conviction, and customers had no access to this material information.

The characterization of the failure as "willful" is significant. In securities regulation, willfulness does not require proof of evil intent—it simply means the representative knew what he was doing. Here, Underation was charged with felonies, went through criminal proceedings, and pled guilty to a felony. He certainly knew about these events but chose not to disclose them on his Form U4 as required.

The six-month suspension and $5,000 fine reflect the seriousness of the willful failure to disclose statutory disqualification events. During the period Underation failed to disclose, he was working in the securities industry in violation of the statutory disqualification provisions, and customers and his firm were unaware of his criminal conviction.

For investors, this case underscores the importance of checking your broker's background using FINRA's BrokerCheck system, which compiles information from Forms U4. BrokerCheck discloses criminal charges, convictions, customer complaints, regulatory actions, and employment history. However, BrokerCheck can only disclose information that representatives have accurately reported on their Forms U4. When representatives fail to disclose required information, as Underation did, investors are deprived of material information they need to make informed decisions.

Always review your broker's BrokerCheck report and be alert to any criminal disclosures, particularly felonies. While not all criminal conduct is necessarily disqualifying, serious charges like vehicular assault raise questions about judgment and character that are relevant to trustworthiness in handling customer investments.

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According to FINRA, Leonid Yurovsky was suspended from association with any FINRA member in all capacities for five months and ordered to pay $10,648.61 in restitution to a senior customer. In light of Yurovsky's financial status, no monetary fine or prejudgment interest has been imposed.

Yurovsk...

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According to FINRA, Leonid Yurovsky was suspended from association with any FINRA member in all capacities for five months and ordered to pay $10,648.61 in restitution to a senior customer. In light of Yurovsky's financial status, no monetary fine or prejudgment interest has been imposed.

Yurovsky excessively and unsuitably traded customer accounts. Yurovsky recommended that one customer, a farmer with limited investment experience, place trades in his account that resulted in an annualized cost-to-equity ratio of approximately 30 percent. The customer's average monthly equity in his account was approximately $158,600, yet Yurovsky's recommended trades resulted in the customer paying approximately $165,000 in commissions and other trade costs.

Additionally, Yurovsky recommended that a senior customer place trades in his account that resulted in a cost-to-equity ratio of approximately 25 percent. In several instances, Yurovsky recommended that the senior customer sell a security shortly after purchasing it, even though his recommendation to purchase the security had resulted in paying a substantial commission. Although the senior customer's account had an average monthly equity of approximately $42,000, Yurovsky's recommended trades caused him to pay over $10,600 in commissions and other trade costs. Both customers relied on Yurovsky's advice and accepted his recommendations.

Yurovsky is only required to pay restitution to the senior customer since his member firm has paid as restitution the commissions and other trading costs charged to the other customer.

The suspension is in effect from January 17, 2023, through June 16, 2023.

Excessive trading, also known as churning, occurs when a broker engages in trading that is excessive in frequency or amount in light of the customer's investment objectives and financial situation, with the intent to generate commissions. The harm to customers from churning is twofold: the trading costs erode the account value, and the frequent trading may not align with the customer's investment goals.

The cost-to-equity ratios in Yurovsky's customers' accounts were extraordinarily high. A 30 percent cost-to-equity ratio means that 30 percent of the account's average value was consumed by commissions and other trading costs in a single year. At this cost level, the investments would need to appreciate by more than 30 percent just to break even, which is an unrealistic expectation for most investment strategies.

The first customer, a farmer with limited investment experience, had average account equity of approximately $158,600 but paid approximately $165,000 in commissions and trading costs. This means the customer paid more in costs than the average account value—the account would need more than 100 percent appreciation just to recover the costs, which is virtually impossible. This level of trading costs is never appropriate and clearly constitutes churning.

The senior customer's account had a 25 percent cost-to-equity ratio, with average equity of about $42,000 but over $10,600 in trading costs. Again, this level of costs is excessive and unsuitable. The fact that Yurovsky recommended the senior customer sell securities shortly after purchasing them, despite the substantial commissions paid on the purchase, is a classic sign of churning. Such rapid-fire trading generates commissions on both the buy and sell sides but provides no reasonable investment benefit to the customer.

Both customers relied on Yurovsky's advice and accepted his recommendations, which establishes the control element necessary to prove churning. The customers were not independently deciding to engage in frequent trading; rather, they were following Yurovsky's recommendations.

The fact that one customer was a farmer with limited investment experience makes the churning particularly problematic. Such a customer would likely have conservative investment needs and limited sophistication to recognize excessive trading. The fact that the other victim was a senior customer is also aggravating, as seniors are often targeted for financial exploitation and have limited ability to recover from investment losses.

The five-month suspension and restitution requirement reflect the seriousness of the churning, though the absence of a fine due to financial status suggests Yurovsky may not have substantial assets. The firm's payment of restitution to one customer demonstrates that the firm recognized the impropriety of the trading and took responsibility for allowing it to occur.

For investors, this case illustrates the critical importance of monitoring trading frequency and costs in your account. Review your account statements monthly and calculate what percentage of your account value is being consumed by commissions and fees. If commissions are more than a few percent of your account value annually, question whether the trading is appropriate.

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According to FINRA, Clarence Leo Smith was fined $5,000 and suspended from association with any FINRA member in all capacities for 15 business days for impersonating a customer in a telephone call to a FINRA member firm.

While associated with his member firm, Smith, who also provided tax services...

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According to FINRA, Clarence Leo Smith was fined $5,000 and suspended from association with any FINRA member in all capacities for 15 business days for impersonating a customer in a telephone call to a FINRA member firm.

While associated with his member firm, Smith, who also provided tax services to individuals, called a FINRA member firm at which one of his tax clients had an account. During the call, Smith impersonated the customer, answered verifying questions, and successfully requested that a distribution of $2,600 to the customer be sent to the customer's address of record. Although the customer had authorized the distribution, he did not authorize Smith to impersonate him. The customer did not suffer any loss and did not complain.

The suspension was in effect from January 17, 2023, through February 6, 2023.

Impersonating a customer, even with the customer's authorization for the underlying transaction, is a serious violation of securities industry rules and ethical standards. Firms use verification procedures—such as asking security questions and confirming account details—to ensure that the person requesting a transaction is actually the account owner. These procedures protect customers from unauthorized access to their accounts and help prevent fraud and identity theft.

When Smith impersonated his tax client and answered the verification questions, he defeated the purpose of these security measures. Even though the customer had authorized the distribution itself, the customer had not authorized Smith to impersonate him. The distinction is important: a customer might authorize someone to facilitate a transaction on their behalf through proper procedures (such as granting power of attorney or using the firm's authorized representative procedures), but impersonation is never an appropriate method for facilitating transactions.

The fact that Smith was also the customer's tax preparer creates additional concerns. Tax preparers have access to substantial personal and financial information about their clients, which could be used to answer security verification questions. The relationship of trust that exists in the tax preparer-client relationship makes it particularly troubling when tax preparers abuse that access to information by impersonating clients.

While this case notes that the customer did not suffer any loss and did not complain, the absence of harm does not make the conduct acceptable. Impersonation creates the potential for significant harm, and the violation lies in the conduct itself, not merely in any resulting harm. If Smith was willing to impersonate a customer to facilitate an authorized transaction, there is concern he might do so again in situations where the transaction might not be authorized or might not be in the customer's best interests.

The relatively short 15-business-day suspension and $5,000 fine likely reflect the mitigating factor that the customer had authorized the underlying distribution and did not complain. Had the impersonation been used to facilitate an unauthorized transaction or had it resulted in customer harm, the sanction would likely have been much more severe.

For investors, this case illustrates the importance of protecting your personal information and being cautious about who has access to details that might be used to answer security verification questions. Tax preparers, accountants, and other professionals have access to information such as Social Security numbers, dates of birth, addresses, and financial details that are commonly used in security verification.

If you work with a financial professional who also provides tax services or who refers you to a tax preparer, be aware of the potential for information sharing and ensure that your personal information is protected. Never authorize anyone to impersonate you when dealing with financial institutions, even if you want them to facilitate a legitimate transaction. Instead, use proper procedures such as authorizing them as a representative on the account, granting limited power of attorney if appropriate, or participating in a three-way call where you can verify your identity and then authorize the other person to discuss your account.

Financial institutions' verification procedures exist to protect you. While they may sometimes seem inconvenient, they are an important safeguard against fraud and unauthorized access. When these procedures are defeated through impersonation, even for seemingly innocent purposes, it undermines the security system that protects all customers.

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According to FINRA, Joel Christopher Riedel was assessed a deferred fine of $10,000, suspended from association with any FINRA member in all capacities for four months, and ordered to pay deferred disgorgement of financial benefits received in the amount of $2,094.

Riedel caused his member firm t...

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According to FINRA, Joel Christopher Riedel was assessed a deferred fine of $10,000, suspended from association with any FINRA member in all capacities for four months, and ordered to pay deferred disgorgement of financial benefits received in the amount of $2,094.

Riedel caused his member firm to maintain inaccurate books and records by causing solicited Unit Investment Trust transactions in accounts to be marked by the firm's trade desk as unsolicited. Riedel's conduct continued despite being warned by the firm that solicited transactions in UITs were not permitted. Riedel also sold a UIT and purchased a different UIT in a customer's account without first getting authorization from the customer. Riedel earned sales charges of $2,094 on the transactions. The customer complained to the firm, and it settled with the customer. Later, the firm disciplined Riedel by issuing him a severe reprimand.

The suspension is in effect from January 3, 2023, through May 2, 2023.

The distinction between solicited and unsolicited transactions is fundamental in the securities industry. A solicited transaction is one where the representative recommends the security to the customer, while an unsolicited transaction is initiated by the customer without a recommendation from the representative. This distinction is important for several reasons.

First, when a representative solicits a transaction, they have a duty to ensure the recommendation is suitable for the customer. The suitability obligation does not apply to unsolicited transactions because the representative is not making a recommendation. Second, many firms have restrictions on which securities representatives can recommend. Some firms prohibit representatives from soliciting certain products, such as UITs, but allow them to accept unsolicited customer orders for those products. Third, order tickets and trade records must accurately reflect whether transactions were solicited or unsolicited for compliance and supervisory purposes.

Unit Investment Trusts are a type of investment company that holds a fixed portfolio of securities and has a defined termination date. UITs typically pay representatives substantial upfront sales charges, creating an incentive for representatives to recommend them. Because of the high sales charges and other characteristics of UITs, some firms restrict or prohibit representatives from soliciting UIT transactions.

Riedel's firm apparently had a policy prohibiting solicited UIT transactions but allowing unsolicited UIT transactions. Riedel circumvented this policy by recommending UITs to customers (solicited transactions) but then causing the transactions to be marked as unsolicited on the order tickets. This created false records that made it appear customers had initiated the UIT purchases themselves when in fact Riedel had recommended them.

The fact that Riedel continued this conduct despite being warned by the firm that solicited transactions in UITs were not permitted is particularly aggravating. The warning made clear that Riedel knew the firm's policy and chose to violate it. This demonstrates willfulness and disregard for firm policies and compliance requirements.

The unauthorized trading adds another dimension to the violations. Riedel sold one UIT and purchased a different UIT in a customer's account without first obtaining the customer's authorization. This violated the fundamental principle that representatives must obtain customer authorization before executing transactions. The fact that Riedel earned $2,094 in sales charges on these unauthorized transactions suggests a financial motivation for the misconduct.

The customer's complaint and the firm's settlement indicate that the customer was harmed and that the firm recognized liability. The firm's discipline of Riedel through a severe reprimand shows that the firm took the violations seriously.

The four-month suspension, $10,000 fine, and disgorgement of $2,094 in ill-gotten sales charges reflect the multiple violations: falsifying order records, continuing the conduct after being warned, and executing unauthorized transactions.

For investors, this case illustrates the importance of understanding whether your broker is recommending investments or simply executing your unsolicited orders. If your broker recommends a UIT or any other investment, that is a solicited transaction, and the broker has a duty to ensure the recommendation is suitable for you. You can and should ask your broker directly: "Are you recommending this investment to me, or am I asking you to buy something you have not recommended?" The answer to this question affects your broker's obligations and your firm's supervisory responsibilities.

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