Bad Brokers

According to FINRA, Franz Helmut Lambert was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for five months for engaging in excessive and quantitatively unsuitable trading in a senior customer's account.

Lambert recommended high-frequency...

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According to FINRA, Franz Helmut Lambert was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for five months for engaging in excessive and quantitatively unsuitable trading in a senior customer's account.

Lambert recommended high-frequency trading in the account, and the customer routinely followed his recommendations, giving Lambert de facto control over the account. His trading generated total trading costs of $308,983, including $289,660 in commissions, and caused $320,906 in realized losses for the customer. The excessive trading pattern demonstrates classic churning behavior, where a broker generates commissions through frequent transactions that serve the broker's interests rather than the customer's investment objectives.

Excessive trading, or churning, occurs when a broker with control over a customer's account engages in trading that is excessive in light of the customer's investment objectives, financial situation, and needs. Churning is particularly harmful because customers pay commissions on every transaction, and frequent trading can trigger short-term capital gains taxes and reduce returns through bid-ask spreads. For a senior customer, these losses can be especially devastating as they may have limited ability to recover from the financial harm.

The case resulted in arbitration proceedings where the customer brought and settled a claim against Lambert and won an arbitration award against his firm. This outcome confirms that the trading was inappropriate and caused compensable harm. The fact that both Lambert and his firm were held accountable through arbitration, in addition to FINRA's disciplinary action, demonstrates the multiple layers of accountability in the securities industry.

This case serves as an important warning about excessive trading, particularly in accounts of vulnerable senior investors. Investors should be alert to frequent trading in their accounts, high commission costs relative to account value, and trading that seems inconsistent with their investment goals. Senior investors and their families should regularly review account statements and question brokers about the necessity and rationale for frequent transactions.

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According to FINRA, Michael Hong Cho was fined $5,000 and suspended from association with any FINRA member in all capacities for 15 months for drafting, signing, and distributing comfort letters on his member firm's letterhead that contained material misrepresentations.

Cho created comfort letter...

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According to FINRA, Michael Hong Cho was fined $5,000 and suspended from association with any FINRA member in all capacities for 15 months for drafting, signing, and distributing comfort letters on his member firm's letterhead that contained material misrepresentations.

Cho created comfort letters, also known as proof of funds letters, for a customer's company that was listed as the buyer in contracts for COVID-related personal protective equipment. These letters falsely represented that the customer held sufficient assets in a corporate account at Cho's firm to cover contracts ranging in value from $2 billion to almost $10.45 billion. In reality, the customer's corporate account at the firm had been closed, and the only account Cho's firm held for the customer was a personal account containing just $100,000. This massive discrepancy between the represented and actual funds constitutes egregious fraud.

Cho compounded his misconduct by failing to follow firm procedures. He did not use the firm's approved comfort letter template and did not obtain prior firm approval before sending the letters. These procedures exist to prevent exactly this type of misrepresentation by ensuring supervisory review and accuracy verification.

Comfort letters are relied upon by counterparties in significant transactions to verify that a party has the financial capacity to complete a deal. False comfort letters can facilitate fraud, cause counterparties to enter into contracts they would otherwise avoid, and potentially enable the perpetration of much larger schemes. In the context of COVID-related contracts, false documentation of financial capacity could have disrupted critical supply chains for protective equipment during a public health emergency.

The 15-month suspension reflects the serious nature of the misrepresentations, the enormous dollar amounts involved, and the violation of firm procedures. This case highlights the importance of accurate financial representations and proper supervisory procedures. It also serves as a reminder that brokers who create false documentation face severe consequences. Investors and business partners should verify financial capacity claims independently and be wary of deals that seem inconsistent with a party's known financial situation.

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According to FINRA, James Daniel Kent Jr. was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for eight months for willfully failing to timely amend his Form U4 to disclose a felony charge and for failing to timely produce information and doc...

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According to FINRA, James Daniel Kent Jr. was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for eight months for willfully failing to timely amend his Form U4 to disclose a felony charge and for failing to timely produce information and documents requested by FINRA.

Two days after being charged with a felony driving under the influence (DUI), Kent updated his Form U4 to disclose a past felony battery charge, but he did not disclose the new felony DUI charge at that time or at any time thereafter. This omission was particularly egregious because Kent affirmatively updated his Form U4 just two days after receiving the charge but chose not to disclose the new felony. This demonstrates intentional concealment rather than mere oversight.

Form U4 disclosure requirements exist to provide firms, regulators, and investors with complete information about a broker's background, including criminal charges and convictions. Felony charges are material information that employers and customers have a right to know because they may reflect on a person's trustworthiness and judgment. The requirement to disclose within 30 days ensures that this information is available promptly for appropriate supervision and customer protection.

Kent also failed to timely produce information and documents requested by FINRA during its investigation of his failure to disclose. This additional violation obstructed FINRA's ability to investigate the matter efficiently and compounded the original disclosure violation.

The eight-month suspension and the finding that Kent's failure was willful reflect the serious view FINRA takes of intentional nondisclosure. The term "willful" in securities law means intentional, not necessarily with intent to violate the law. Kent's updating of his Form U4 for an old charge while omitting the recent charge demonstrates knowledge of the disclosure obligation and intentional failure to comply.

This case reminds investors of the importance of checking their brokers' backgrounds through FINRA's BrokerCheck system. Investors have a right to complete and accurate information about their brokers' disciplinary history, criminal charges, and other background information.

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According to FINRA, Richard A. Hogan was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in all capacities for 12 months for participating in private securities transactions in Asia-based funds without providing prior written notice to his member firm.

Hog...

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According to FINRA, Richard A. Hogan was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in all capacities for 12 months for participating in private securities transactions in Asia-based funds without providing prior written notice to his member firm.

Hogan participated in transactions where customers invested a total of $630,000 in Asia-based funds by soliciting the investments and directing his assistants to process the investment documentation. The firm did not offer these funds for investment by customers, and the customers' investments were not custodied with the firm. This meant the investments occurred completely outside the firm's supervision and compliance systems.

Making matters worse, Hogan made false representations to his firm. He disclosed on the firm's associate investment monitoring system that he had personally invested in a Hong Kong equity fund but falsely attested that he had not co-invested with customers or solicited others in connection with the investment. In fact, two customers had invested in the same fund based upon Hogan's recommendation prior to his disclosure. This false attestation prevented the firm from properly supervising the transactions and assessing potential conflicts of interest.

Private securities transactions, sometimes called "selling away," are prohibited unless the registered representative provides prior written notice to the firm and, if the representative will receive compensation, obtains firm approval. These rules exist because firms cannot supervise transactions they don't know about, and unsupervised transactions create risks for investors. Without firm supervision, there is no review of suitability, no verification of product legitimacy, no oversight of sales practices, and no firm liability if problems arise.

The 12-month suspension and $10,000 fine reflect the significant amount invested, the involvement of multiple customers, and Hogan's false attestation. This case illustrates the serious consequences of selling away and the importance of conducting all securities transactions through one's firm. Investors should be cautious about investments their brokers recommend that are not held at the broker's firm, as these may lack important regulatory protections.

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According to FINRA, Brian Harold Young 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 three felony charges and a felony guilty plea.

Young was indicted by a ...

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According to FINRA, Brian Harold Young 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 three felony charges and a felony guilty plea.

Young was indicted by a grand jury on three felonies: one count of aggravated assault and two counts of endangerment. He received written notice of the indictment but willfully failed to amend his Form U4 to disclose the felony charges within 30 days as required. Later, Young pled guilty to a felony charge, which rendered him statutorily disqualified from associating with a member firm. He was required to amend his Form U4 to disclose the felony guilty plea within 10 days but willfully failed to do so. Young finally amended his Form U4 to disclose the felony conviction and the previous three felony charges when he resigned from his firm, four days after the deadline for disclosing the conviction and over a year after the deadline for disclosing the charges.

Young's violations were aggravated by false statements on annual compliance questionnaires where he falsely stated that he had not been charged with any felonies. These questionnaires are critical compliance tools that firms rely upon to maintain accurate records and ensure proper supervision.

The felony charges and guilty plea were material facts that an employer or customer would want to know about a representative. Aggravated assault and endangerment charges raise serious concerns about a person's judgment, temperament, and trustworthiness. A felony conviction creates statutory disqualification, meaning Young could not legally work in the securities industry without special permission from FINRA, which his firm and FINRA were unable to address because Young concealed the conviction.

This case demonstrates the serious consequences of failing to disclose criminal charges and convictions. The willful nature of Young's failures and his false compliance certifications warranted significant sanctions. Investors can protect themselves by regularly checking their brokers' backgrounds through FINRA's BrokerCheck system, which should reflect all required disclosures including criminal matters.

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According to FINRA, Lance Everett Baraker was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 30 days for engaging in outside business activities without providing prior written notice to his member firm.

Baraker and other individuals ...

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According to FINRA, Lance Everett Baraker was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 30 days for engaging in outside business activities without providing prior written notice to his member firm.

Baraker and other individuals formed a company to pool their funds for investment purposes. Although Baraker did not contribute any funds to the company, he served as a director and treasurer, holding these positions through his personal LLC as the managing member. The company's shareholders, including Baraker, expected to receive returns from the company's investment activities.

Baraker played an active role in the company's operations. He attended a meeting where the shareholders agreed to wire $350,000 to an asset manager to invest. On behalf of the company, Baraker signed the Management and Deposit Agreement and an escrow agreement with the asset manager. He also conducted due diligence on the asset manager, opened the company's bank account, and facilitated the $350,000 wire transfer from the company to the asset manager's escrow agent. Unfortunately, the asset manager subsequently filed for bankruptcy, presumably resulting in a loss of the invested funds.

Despite his significant involvement in forming, directing, and operating this investment company, Baraker never provided prior written notice to his member firm about these outside business activities. FINRA rules require such notice to enable firms to supervise their representatives and identify potential conflicts of interest. Baraker's activities involved considerable time commitment, financial decision-making responsibility, and expectation of profit, all of which should have been disclosed to his firm.

The relatively short 30-day suspension reflects that the activities did not directly involve Baraker's firm customers. However, the case illustrates the breadth of activities that constitute outside business requiring disclosure. Even when representatives do not contribute funds or receive immediate compensation, their roles as directors or officers of investment entities require disclosure.

Investors should ask their financial advisors about outside business activities and other commitments that might create conflicts of interest or affect the advisor's ability to serve clients effectively.

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According to FINRA, Stephen Robert Green was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 30 days for engaging in an outside business activity without providing prior written notice to his member firm.

Green and other individuals fo...

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According to FINRA, Stephen Robert Green was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 30 days for engaging in an outside business activity without providing prior written notice to his member firm.

Green and other individuals formed a company to pool their funds for investment purposes. Although Green did not contribute any funds to the company, he served as its director and president. The company's shareholders, including Green, expected to receive returns from the company's investment activities.

Green was actively involved in the company's business. He attended a meeting where the shareholders agreed to wire $350,000 to an asset manager to invest. The company and the asset manager entered into a Management and Deposit Agreement, and Green conducted due diligence on the asset manager, opened the company's bank account, and facilitated the $350,000 wire transfer from the company to the asset manager's escrow agent. Unfortunately, the asset manager later filed for bankruptcy, likely resulting in a complete loss of the invested funds.

Despite serving in leadership roles and taking an active part in the company's formation, operation, and investment decisions, Green never provided prior written notice to his member firm about these outside business activities. FINRA rules require registered representatives to notify their firms of outside business activities so firms can supervise their representatives and identify potential conflicts of interest or time commitment issues.

Green's role as director and president, combined with his operational responsibilities and expectation of investment returns, clearly constituted an outside business activity requiring disclosure. The due diligence he conducted on the asset manager, his role in opening accounts, and his facilitation of a substantial wire transfer demonstrate significant business involvement beyond a passive investment.

The 30-day suspension reflects that the activities did not directly involve Green's firm customers. However, the case emphasizes that leadership positions in investment entities require disclosure to one's firm, even when the representative does not contribute capital. Investors should inquire about their advisors' outside activities to understand potential conflicts or competing time demands.

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According to FINRA, Robert Watson Vial was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 30 days for engaging in outside business activities without providing prior written notice to his member firm.

Vial and other individuals formed...

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According to FINRA, Robert Watson Vial was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 30 days for engaging in outside business activities without providing prior written notice to his member firm.

Vial and other individuals formed a company to pool their funds for investment purposes. Through his personally owned corporation, Vial signed the company's shareholder agreement and was a sole shareholder. He served as a director and the corporate secretary of the company. The company's shareholders, including Vial, expected to receive returns from the company's investment activities.

Vial actively participated in the company's operations. He attended a meeting where the shareholders agreed to wire $350,000 to an asset manager to invest, with Vial contributing a portion of that amount through his personally owned corporation. Vial also conducted due diligence on the asset manager. The company and the asset manager entered into a Management and Deposit Agreement, committing to provide funds to the asset manager's escrow agent for placement into asset enhancement transactions. The asset manager subsequently filed for bankruptcy, likely resulting in a loss of the invested funds.

Despite his roles as director and corporate secretary, his financial contribution through his corporation, his due diligence activities, and his participation in investment decisions, Vial never provided prior written notice to his member firm about these outside business activities. FINRA rules require such disclosure to enable firms to supervise their representatives, identify conflicts of interest, and assess time commitments.

Vial's case is similar to those of his co-investors Lance Baraker and Stephen Robert Green, who received identical sanctions for their roles in the same investment company. Vial's violation was arguably more serious because he actually contributed funds through his corporation, demonstrating a greater financial stake in the venture.

The 30-day suspension reflects that the activities did not involve Vial's firm customers. However, this case demonstrates that forming and operating investment entities, particularly when contributing capital and serving as an officer, constitutes outside business activity requiring disclosure. Investors should ask their advisors about outside business involvements to understand potential conflicts.

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According to FINRA, Jorge Antonio Netto was fined $10,000, suspended from association with any FINRA member in all capacities for four months, and ordered to pay disgorgement of $75,000 plus prejudgment interest for engaging in two outside business activities without providing written notice to his ...

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According to FINRA, Jorge Antonio Netto was fined $10,000, suspended from association with any FINRA member in all capacities for four months, and ordered to pay disgorgement of $75,000 plus prejudgment interest for engaging in two outside business activities without providing written notice to his member firm.

An Office of Hearing Officers decision found that Netto had ownership and a beneficial interest in one company and was employed by and participated in the management of it through his corporate positions. Netto received compensation from this company and another company in the form of a $75,000 share of an advisory fee. This substantial compensation demonstrates that the outside activities were significant business ventures, not minor or passive involvements.

Netto compounded his violations by providing false and inaccurate answers on his firm's annual compliance certification. He failed to identify his 50 percent ownership interest and officer positions in one of the companies when asked about outside business activities. Annual compliance certifications are critical tools that firms use to monitor their representatives' activities and ensure compliance with rules and regulations. False certifications undermine firm supervision and prevent detection of potential conflicts of interest.

The requirement to disclose outside business activities exists to enable firms to supervise their representatives properly, identify conflicts of interest, ensure adequate time commitment to clients, and verify compliance with securities regulations. When representatives earn substantial income from undisclosed businesses, it creates potential conflicts because they may prioritize the outside business over their duties to securities clients.

The four-month suspension, $10,000 fine, and $75,000 disgorgement order reflect the serious nature of Netto's violations. The disgorgement of his advisory fee compensation removes his ill-gotten gains and serves as a deterrent to others. The false compliance certification aggravated the offense by demonstrating intentional concealment rather than mere oversight.

This case reminds investors to ask their financial advisors about all outside business activities and sources of compensation. Undisclosed businesses can create conflicts that affect the quality and objectivity of investment advice. Investors can verify their advisors' disciplinary history through FINRA's BrokerCheck system.

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According to FINRA, Wayne von Borstel was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 15 business days for causing his member firm's books and records to be inaccurate by failing to identify the intended beneficiaries on new account f...

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According to FINRA, Wayne von Borstel was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 15 business days for causing his member firm's books and records to be inaccurate by failing to identify the intended beneficiaries on new account forms for 529 plan accounts.

The violations occurred after von Borstel's firm implemented a new policy prohibiting the purchase of Class C shares in 529 plan accounts for young beneficiaries unless the firm granted an exception. This policy was designed to protect young beneficiaries from inappropriate share class selections. Class C shares typically have higher ongoing fees than other share classes and may be unsuitable for long-term investments like education savings for young children, where lower-cost share classes would accumulate greater value over time.

After the policy became effective, some of von Borstel's customers decided to close existing 529 plan Class C share accounts for young beneficiaries and open new 529 plan Class C share accounts. Rather than seeking firm approval under the new policy, von Borstel deliberately circumvented it. When completing the required forms to establish new 529 plan Class C share accounts, he identified adults related to the young beneficiaries, typically a parent, as each account's beneficiary instead of identifying the actual young beneficiaries.

By falsifying the beneficiary information, von Borstel enabled these accounts to bypass the firm's review under its new 529 plan policy and caused the firm's books and records to be inaccurate. This manipulation undermined the firm's supervision and potentially exposed young beneficiaries to unsuitable investments with higher costs than necessary.

Accurate books and records are fundamental to securities regulation. Firms and regulators rely on accurate records to supervise activities, detect violations, and protect investors. When representatives deliberately falsify records to circumvent firm policies, they undermine these protections and may expose customers to harm.

The 15-business-day suspension reflects that von Borstel deliberately circumvented a firm policy designed to protect young investors. This case reminds investors, particularly parents saving for children's education, to verify that 529 plan account documentation accurately reflects the intended beneficiaries and that share class selections are appropriate for long-term education savings goals.

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