Bad Brokers

According to FINRA, Robin Bailey Liebes was fined $5,000 and suspended for 45 days after causing her member firm to maintain inaccurate books and records by changing representative codes on trades, which resulted in trade confirmations showing incorrect representative codes.

Liebes entered into a...

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According to FINRA, Robin Bailey Liebes was fined $5,000 and suspended for 45 days after causing her member firm to maintain inaccurate books and records by changing representative codes on trades, which resulted in trade confirmations showing incorrect representative codes.

Liebes entered into an agreement to service certain customer accounts under a joint representative code she shared with a retired representative, with specified commission splits. She subsequently entered into a different agreement with another representative on her team. The firm's system correctly pre-populated trades with the applicable joint code for the first agreement, but Liebes entered certain transactions using the joint representative code from the second agreement instead. She negligently failed to verify whether the trades were in accounts subject to the first agreement.

As a result, the firm's trade confirmations reflected an inaccurate representative code, and Liebes received higher commissions than she was entitled to under the first agreement. While the violation was characterized as negligent rather than intentional, it nonetheless caused the firm to maintain inaccurate records—a serious regulatory concern. The firm subsequently reimbursed the retired representative for the commission shortage.

Accurate books and records are fundamental to securities regulation. Trade confirmations must accurately reflect who handled each transaction, as this information is essential for supervision, commission accounting, customer inquiries, regulatory examinations, and investigations. When representative codes are inaccurate, it compromises the integrity of the firm's records and can obscure patterns of conduct that might warrant supervisory attention.

FINRA Rule 4511 requires firms to maintain accurate books and records. When registered representatives cause firms to maintain inaccurate records, even through negligence rather than intentional misconduct, they violate this fundamental requirement. The relatively modest sanctions—a $5,000 fine and 45-day suspension—reflect that this was a negligent violation rather than intentional fraud, that the amounts involved were limited, and that restitution was made.

For investors, this case demonstrates the importance of accurate record-keeping in the securities industry. While this particular violation involved commission splits between representatives rather than customer harm, inaccurate books and records can have broader implications. Accurate records ensure proper supervision, enable regulatory oversight, and provide reliable documentation if disputes arise. The case serves as a reminder that even seemingly administrative errors in record-keeping can result in regulatory sanctions when they compromise the accuracy of firm records.

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According to FINRA, Patrick Keith Sloan was fined $10,000 and suspended for three months after falsifying customer signatures on documents and exercising unauthorized discretion in customer accounts.

Sloan electronically signed documents on behalf of customers—two of whom were seniors—with their ...

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According to FINRA, Patrick Keith Sloan was fined $10,000 and suspended for three months after falsifying customer signatures on documents and exercising unauthorized discretion in customer accounts.

Sloan electronically signed documents on behalf of customers—two of whom were seniors—with their prior permission. However, the firm's policies and procedures explicitly prohibited signing a customer's name or initials regardless of the customer's knowledge or consent. Sloan also falsely attested in a compliance questionnaire that he had not signed or affixed another person's signature on a document, demonstrating a lack of honesty about his conduct.

Additionally, Sloan exercised discretion in customer accounts without prior written authority from the customers or approval from his firm. While he made the trades pursuant to an investment strategy the customers agreed to, and no customers complained about the trades, this does not excuse the lack of proper authorization. Compounding this violation, Sloan falsely stated in compliance questionnaires that he had not exercised discretionary authority over any brokerage accounts.

These violations are serious even though customers gave permission and did not suffer harm. Firms have policies prohibiting representatives from signing customer names for important reasons—to prevent forgery, ensure customers actually authorize transactions, and maintain clear documentation. Even with customer permission, allowing representatives to sign on behalf of customers creates opportunities for abuse and makes it difficult to determine whether the customer truly authorized specific actions.

Similarly, exercising discretion without written authorization and firm approval violates fundamental customer protection rules. Discretionary authority allows representatives to make investment decisions without consulting customers first. FINRA rules require written authorization from both the customer and the firm before exercising discretion to ensure customers understand they are granting this authority and firms can properly supervise discretionary trading.

The false attestations in compliance questionnaires are particularly concerning, as they demonstrate Sloan knew his conduct violated firm policies and chose to hide it rather than correct it. Honesty in compliance certifications is essential to effective supervision.

For investors, this case illustrates important protections around account authorization and discretion. Never allow your representative to sign documents on your behalf, even for convenience. If you want to grant discretionary authority, ensure it is properly documented in writing with firm approval. Be wary of representatives who suggest shortcuts around firm policies, as these policies exist to protect you. The three-month suspension reflects the seriousness of document falsification and false attestations, even when no customer harm resulted.

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According to FINRA, Lon Charles Faccini Jr. was fined $5,000, suspended for six months, and ordered to pay $18,770 plus interest in restitution to a customer after engaging in excessive and unsuitable trading using margin in customer accounts. Faccini separately settled an arbitration claim with ano...

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According to FINRA, Lon Charles Faccini Jr. was fined $5,000, suspended for six months, and ordered to pay $18,770 plus interest in restitution to a customer after engaging in excessive and unsuitable trading using margin in customer accounts. Faccini separately settled an arbitration claim with another customer agreeing to pay restitution for his unsuitable recommendations.

For one customer, Faccini recommended trades that resulted in purchases totaling approximately $2,410,300 in an account with average equity of only $116,900 over 19 months. This generated an annualized turnover rate just over 13, meaning the entire account value was turned over 13 times in a year. The customer suffered losses of approximately $36,700 and paid approximately $55,389 in commissions and fees plus $12,997 in margin interest—totaling $68,385 in costs.

For another customer, Faccini recommended purchases totaling approximately $522,438 in an account with average equity of approximately $26,856 over 16 months, resulting in an annualized turnover rate of 14.59. This customer lost approximately $17,395 and paid approximately $16,074 in commissions and fees plus $2,696 in margin interest—totaling $18,770 in costs.

Both customers routinely accepted Faccini's recommendations, and all of the second customer's trades were executed using margin, as were most of the first customer's trades. Excessive trading, also known as churning, occurs when a representative exercises control over customer accounts and trades excessively to generate commissions rather than to serve customers' investment objectives. The extraordinarily high turnover rates—meaning the accounts were completely turned over 13 to 14 times annually—are strong evidence of excessive trading.

Using margin compounds the harm from excessive trading. Margin allows customers to borrow money to purchase securities, but incurs interest charges and amplifies both gains and losses. When representatives excessively trade accounts using margin, customers pay both excessive commissions and margin interest, while taking on elevated risk.

Suitability rules require that representatives have a reasonable basis to believe their recommendations are suitable for customers based on their financial situation, investment objectives, and risk tolerance. Excessive trading that generates substantial commissions and losses while subjecting customers to unreasonable risk is inherently unsuitable.

For investors, this case demonstrates the dangers of excessive trading and margin. Turnover rates above 6 are generally considered excessive, and rates of 13-14 are extraordinarily high. The fact that both customers combined lost over $54,000 while paying over $87,000 in commissions and margin interest illustrates how excessive trading enriches the representative while harming customers. Investors should monitor account turnover and question any representative who recommends frequent trading, especially using margin. The six-month suspension and restitution order reflect the serious harm Faccini caused to customers through his unsuitable trading strategy.

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According to FINRA, Jeremy David Jefferson was fined $5,000 and suspended for three months after engaging in an outside business activity without notifying or obtaining approval from his member firm.

Jefferson worked as a tax preparer outside of his employment at his firm but failed to disclose t...

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According to FINRA, Jeremy David Jefferson was fined $5,000 and suspended for three months after engaging in an outside business activity without notifying or obtaining approval from his member firm.

Jefferson worked as a tax preparer outside of his employment at his firm but failed to disclose this tax preparation work to the firm. Additionally, Jefferson submitted inaccurate responses to the firm's annual compliance questionnaires, indicating that he was not engaged in any outside business activity when in fact he was working as a tax preparer.

Outside business activities (OBAs) must be disclosed to member firms so they can evaluate potential conflicts of interest, time commitments, and other issues that might affect the representative's ability to serve customers or comply with securities regulations. FINRA Rule 3270 requires registered persons to provide written notice to their firm before engaging in any business activity outside the scope of their relationship with the firm.

Tax preparation services can create various concerns for securities firms. Representatives might use access to customers' tax information to identify investment opportunities and make recommendations, potentially creating conflicts between their role as tax preparer and investment adviser. The time commitment for tax preparation, especially during tax season, might interfere with customer service and supervision. There could also be liability concerns if tax advice intersects with investment recommendations.

The false statements on annual compliance questionnaires compound the violation. Firms rely on accurate responses to compliance questionnaires to supervise representatives and identify potential issues. When representatives falsely attest they have no outside business activities, they prevent the firm from evaluating and supervising those activities appropriately. This lack of honesty undermines the entire supervisory framework.

While three months may seem like a substantial suspension for failing to disclose outside tax preparation work, the sanction reflects both the failure to disclose and the false attestations in compliance questionnaires. The false statements demonstrate a pattern of intentionally concealing the activity rather than a one-time oversight.

For investors, this case illustrates the importance of disclosure requirements for registered representatives. If your financial professional offers services beyond investment advice—such as tax preparation, insurance sales, or other business activities—these should be disclosed to their firm. Undisclosed outside activities raise concerns about conflicts of interest and divided attention. Investors can check FINRA BrokerCheck to see disclosed outside business activities for their representatives. The fact that Jefferson chose to hide his tax preparation work rather than disclose it suggests there may have been issues with the activity that warranted the firm's knowledge and supervision.

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According to FINRA, Thomas Michael O'Keefe was fined $5,000 and suspended for 18 months after possessing unauthorized materials while taking the FINRA Securities Industry Essentials (SIE) examination.

O'Keefe took the SIE exam at his home using a remote delivery platform. Prior to beginning the e...

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According to FINRA, Thomas Michael O'Keefe was fined $5,000 and suspended for 18 months after possessing unauthorized materials while taking the FINRA Securities Industry Essentials (SIE) examination.

O'Keefe took the SIE exam at his home using a remote delivery platform. Prior to beginning the exam, he attested that he had read and would abide by the Rules of Conduct, which prohibit using or attempting to use any electronic device or phone during the exam. The SIE Rules of Conduct also require candidates taking online exams to store all personal items outside the room in which they take the exam. Despite these clear rules and his attestation to follow them, O'Keefe possessed and accessed his cellular phone during the exam in violation of the Rules of Conduct.

The SIE exam is the foundational qualification examination for prospective securities industry professionals. It tests knowledge of basic securities industry products, structure, regulations, and practices. The integrity of qualification examinations is fundamental to ensuring that only knowledgeable and qualified individuals are registered to work with investors.

Exam misconduct is treated extremely seriously because it undermines the entire licensing system. When candidates cheat on qualification exams by accessing unauthorized materials, they may obtain registration despite lacking the required knowledge. This puts investors at risk by allowing unqualified individuals to handle their investments and provide advice.

The 18-month suspension is substantial, reflecting the severity of exam misconduct. During this period, O'Keefe cannot work in any capacity with a FINRA member firm, significantly delaying his career in the securities industry. The lengthy suspension sends a clear message that FINRA has zero tolerance for cheating on qualification examinations.

The fact that O'Keefe violated testing rules he explicitly attested to follow is particularly concerning. It demonstrates dishonesty and a willingness to gain unfair advantage through rule violations. These character traits are incompatible with the trust and integrity required in the securities industry, where professionals handle other people's money and must be honest in all dealings.

For investors, this case highlights the importance of qualification examinations in protecting the public. The securities industry's licensing system exists to ensure that representatives have demonstrated competence in their areas of practice. When individuals cheat on these exams, they may lack the knowledge needed to properly serve and protect investors. The substantial suspension imposed on O'Keefe reinforces that the industry takes examination integrity seriously and will not tolerate misconduct that undermines the qualification system designed to protect investors.

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According to FINRA, Roger Lee Arnold was named in a complaint alleging that he failed to provide information and documents requested by FINRA in connection with its investigation into circumstances surrounding his resignation from his member firm.

The complaint indicates that Arnold's firm filed ...

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According to FINRA, Roger Lee Arnold was named in a complaint alleging that he failed to provide information and documents requested by FINRA in connection with its investigation into circumstances surrounding his resignation from his member firm.

The complaint indicates that Arnold's firm filed a Form U5 disclosing that it terminated its association with him because he admitted to redeeming money from his wife's account with the firm and transferring it to a joint bank account without his wife's permission. Arnold resigned while still under review by the firm regarding this matter. When FINRA sought to investigate these serious allegations, Arnold allegedly failed to provide the requested information and documents.

Taking money from a customer account without authorization is one of the most serious violations in the securities industry. The allegation that Arnold redeemed money from his wife's account without her permission, if proven, would constitute unauthorized trading and potential conversion of customer funds. Even though the customer was his wife, he had no right to redeem her account without her authorization. This conduct violates fundamental principles of handling customer assets and represents a breach of trust.

The fact that Arnold resigned while under firm review is significant. Representatives often resign when facing internal investigations to avoid formal termination and potentially more detailed disclosures on their Form U5. However, resignation does not end regulatory obligations, and FINRA continues to have jurisdiction to investigate and bring cases against former registered persons.

FINRA Rule 8210 requires current and former associated persons to provide information and testimony in FINRA investigations. Failure to respond to such requests is itself a serious violation that typically results in a bar from the industry. The allegations in this complaint, if proven, would likely result in Arnold being permanently barred from association with any FINRA member.

It is important to note that this is a complaint, not a final finding. The allegations have not been proven, and Arnold has the right to defend against them in a hearing. However, the dual nature of the allegations—both the underlying conduct involving unauthorized account redemptions and the failure to cooperate with the investigation—creates serious concerns.

For investors, this case illustrates that even family relationships do not excuse unauthorized account activity. Each customer's account must be handled according to their authorization, regardless of personal relationships. The case also demonstrates that regulatory investigations continue even after representatives leave firms, and failure to cooperate with such investigations results in severe consequences. Investors can check FINRA BrokerCheck to review Arnold's regulatory history and the status of this proceeding.

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According to FINRA, Michael Ciro Colletti was named in a complaint alleging that he placed unauthorized trades totaling approximately $157,231 in an elderly customer's account and engaged in unsuitable and excessive trading that caused the customer to incur high cumulative costs.

The complaint al...

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According to FINRA, Michael Ciro Colletti was named in a complaint alleging that he placed unauthorized trades totaling approximately $157,231 in an elderly customer's account and engaged in unsuitable and excessive trading that caused the customer to incur high cumulative costs.

The complaint alleges that the customer was an unsophisticated investor who, outside of Colletti's trading, mainly bought and held mutual funds and stocks of well-established companies. Colletti allegedly placed trades with total principal value of approximately $157,231 without the customer's prior authorization, resulting in realized losses of $5,417.17. The complaint characterizes Colletti as exercising de facto control over the account by placing trades without first obtaining authorization.

Beyond the unauthorized trading, the complaint alleges that Colletti unsuitably and excessively traded the account by frequently purchasing and selling various equity positions. This trading allegedly generated $4,981 in commissions and $256 in other trading costs, resulted in a turnover rate of 10.28 (annualized to 12.33), and produced a cost-to-equity ratio of 72.14 percent (annualized to 86.57 percent). These metrics suggest potential churning, where a representative trades excessively to generate commissions rather than to serve the customer's investment objectives.

Unauthorized trading is one of the most serious violations in the securities industry. Customers have the absolute right to control their own accounts and must authorize transactions. When representatives trade without authorization, they violate this fundamental principle and potentially subject customers to unwanted risks and losses. The fact that the customer was elderly and unsophisticated makes the alleged conduct particularly egregious, as these customers are often more vulnerable to exploitation.

The alleged excessive trading compounds the harm. A turnover rate above 6 is generally considered excessive, and the alleged rate of 12.33 (annualized) is more than double that threshold. The cost-to-equity ratio of 86.57 percent annualized means that nearly the entire account value would be consumed by costs annually—an extraordinarily high rate that makes it nearly impossible for the customer to profit. The contrast between the customer's buy-and-hold investment style for his other holdings and the frequent trading Colletti allegedly conducted suggests the trading served Colletti's interest in generating commissions rather than the customer's investment objectives.

It is important to emphasize that these are allegations in a complaint, not findings of fact. Colletti has the right to defend against these charges in a hearing. However, if proven, the conduct alleged would represent serious violations warranting significant sanctions.

For investors, this case highlights the vulnerability of elderly and unsophisticated investors to unauthorized and excessive trading. Investors should carefully review all trade confirmations and account statements to ensure all transactions were authorized and consistent with their investment strategy. Unexplained frequent trading, especially by representatives who exercise control over accounts, is a major red flag for potential churning.

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According to FINRA, Worden Capital Management LLC was expelled from FINRA membership and ordered to pay disgorgement of $609,500 plus prejudgment interest for fraudulent practices in private placement offerings.

The firm violated federal securities laws by failing to disclose a secret compensatio...

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According to FINRA, Worden Capital Management LLC was expelled from FINRA membership and ordered to pay disgorgement of $609,500 plus prejudgment interest for fraudulent practices in private placement offerings.

The firm violated federal securities laws by failing to disclose a secret compensation agreement with the issuer of private placement offerings. While investors believed the firm was receiving a 10 percent placement fee, the CEO had secretly agreed to receive an additional 8 percent commission, bringing the total compensation to 18 percent. This undisclosed arrangement meant the firm collected $609,500 in hidden commissions on top of the $1.052 million in disclosed fees. Even the firm's own brokers were unaware of this secret agreement and could not disclose it to customers.

The violations extended beyond fraudulent omissions. FINRA found that the firm failed to fulfill its supervisory responsibilities by conducting incomplete due diligence reviews that did not comply with the firm's own procedures. As a result, the firm solicited $10 million in investments without understanding how the offerings operated, confirming the authenticity of shares sold, or obtaining knowledge of the issuer's finances. The firm also failed to establish a reasonable basis for believing the securities were suitable for any investor and neglected to submit offering documents to FINRA as required.

This case highlights the critical importance of transparency in investment transactions. Investors should always ask about all compensation arrangements and understand that broker-dealers have a duty to conduct thorough due diligence before recommending investments. Hidden compensation creates conflicts of interest that can undermine investment recommendations. When firms fail to properly investigate investment products, they expose investors to unknown risks. Investors should be wary of private placements offered by firms that cannot provide complete information about their compensation and due diligence processes.

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According to FINRA, BofA Securities, Inc. was censured and fined $325,000 for publishing inaccurate monthly reports of order executions required under Rule 605 of Regulation National Market System.

The violations stemmed from multiple reporting errors. First, the firm improperly combined statisti...

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According to FINRA, BofA Securities, Inc. was censured and fined $325,000 for publishing inaccurate monthly reports of order executions required under Rule 605 of Regulation National Market System.

The violations stemmed from multiple reporting errors. First, the firm improperly combined statistical information for its broker-dealer and alternative trading system (ATS) market centers in a single report rather than publishing separate reports for each. This led to misclassification of certain mid-point peg immediate or cancel orders and immediate or cancel orders into incorrect order type categories. The firm later implemented a separate stand-alone report for its ATS market center to prevent these issues from recurring.

Additionally, various technological problems caused further inaccuracies in the firm's broker-dealer market center reports. The firm misclassified orders based on incorrect order quantities that didn't reflect prior executions, failed to properly attribute executions to canceled-and-replaced orders, used incorrect quotations, misclassified some inside-the-quote orders as at-the-quote orders, and excluded certain reportable executions entirely. Coding errors in the new ATS report also caused the firm to omit certain executed orders.

FINRA also found that the firm's supervisory system was inadequately designed to ensure compliance with Rule 605. The firm had no system to check report accuracy initially, and it took over six months to implement a system that checks for a broader set of inconsistencies and missing information.

This case demonstrates the importance of accurate order execution reporting, which provides transparency to investors about how their orders are handled. Rule 605 reports help investors evaluate broker performance and make informed decisions about order routing. Firms must maintain robust systems to ensure data accuracy and have proper supervisory procedures to detect and correct errors promptly.

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According to FINRA, Wilson-Davis & Co., Inc. was censured and fined $100,000 for failing to accurately calculate customer and proprietary account broker reserves and maintain proper control over customer securities.

The firm had multiple deficiencies in its customer reserve account. Initial defic...

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According to FINRA, Wilson-Davis & Co., Inc. was censured and fined $100,000 for failing to accurately calculate customer and proprietary account broker reserves and maintain proper control over customer securities.

The firm had multiple deficiencies in its customer reserve account. Initial deficiencies ranged from $101,468 to $245,837 because the firm improperly debited customer prepayments and fees without proper authorization. Later, the firm had deficiencies ranging from $571,958 to $693,703 resulting from a concentrated margin position in a single customer account holding one stock. The firm also failed to establish and maintain a required PAB account when it reentered the correspondent clearing business, resulting in hindsight deficiencies in PAB reserves after an introducing firm provided a $100,000 clearing deposit.

Additionally, the firm failed to maintain customer securities in good control location because its agreement with the custodian for its money market sweep account did not properly provide that securities were held for the exclusive benefit of customers and free from liens or encumbrances. The amounts at issue ranged from $10,000 to approximately $43 million. Importantly, none of these deficiencies caused the firm to violate net capital requirements.

FINRA found the firm's supervisory system was not reasonably designed to achieve compliance with the Customer Protection Rule, particularly regarding PAB account calculations. The firm initially had no written supervisory procedures addressing correspondent clearing or PAB reserve obligations and later procedures remained inadequate for detecting calculation errors.

This case illustrates the critical importance of proper customer fund segregation and reserve calculations. While these violations were technical and didn't result in customer losses, they represent significant regulatory compliance failures. Investors should understand that these rules exist to protect customer assets and ensure they remain separate from firm assets. The firm has since corrected its procedures and deposited additional funds to eliminate deficiencies.

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