Bad Brokers

According to FINRA, Dan Edward Droeg was barred from association with any FINRA member in all capacities on March 3, 2022, for converting trust assets.

Droeg served as trustee for a trust created by a senior, married couple with no familial relationship to him. Using his authority as trustee, Dro...

Read More

According to FINRA, Dan Edward Droeg was barred from association with any FINRA member in all capacities on March 3, 2022, for converting trust assets.

Droeg served as trustee for a trust created by a senior, married couple with no familial relationship to him. Using his authority as trustee, Droeg surrendered a variable annuity owned by the trust and transferred over $878,000 from the trust's bank account to his own bank accounts. He distributed a portion to the trust's beneficiaries but withdrew the remainder for personal use.

Under the trust documents, Droeg had authority to invest the trust's assets and control bank accounts in the trust's name. He abused this position of trust to enrich himself at the expense of the beneficiaries.

Conversion is the unauthorized taking of someone else's property for personal use. When a trustee converts trust assets, it represents a particularly egregious breach of fiduciary duty because trustees are held to the highest standards of loyalty and care in managing assets for beneficiaries.

This case illustrates the vulnerability of senior investors who place trust in financial professionals to manage their assets. The victims had no family relationship with Droeg, making them potentially more susceptible to exploitation by someone they viewed as a trusted advisor.

Investors should be extremely cautious about granting trustee authority to individuals who are not family members or who also serve as their financial advisor. This creates conflicts of interest and opportunities for abuse. When fiduciary authority is granted, robust oversight mechanisms should be established, such as requiring multiple trustees, regular accountings to beneficiaries, and independent reviews of trust activities. Warning signs include trustees who resist transparency or accountability regarding their management of trust assets.

Show Less

According to FINRA, Lauren Nicole Scheible was barred from association with any FINRA member in all capacities on March 3, 2022, for failing to comply with FINRA's requests for information and testimony during an investigation into alleged exam cheating.

FINRA initiated an investigation after rec...

Read More

According to FINRA, Lauren Nicole Scheible was barred from association with any FINRA member in all capacities on March 3, 2022, for failing to comply with FINRA's requests for information and testimony during an investigation into alleged exam cheating.

FINRA initiated an investigation after receiving two incident reports from a test administrator alleging that Scheible violated FINRA's Qualification Examinations Rules of Conduct. The reports alleged she removed scratch paper from the exam room and accessed unauthorized materials while taking the Securities Industry Essentials (SIE) examination.

FINRA requested information, documents, and on-the-record testimony from Scheible regarding the alleged cheating. The information and testimony sought were material to the investigation, but Scheible failed to comply with FINRA's requests. Her failure to cooperate impeded FINRA's investigation into potentially serious misconduct.

The duty to cooperate with FINRA investigations is a fundamental obligation of all persons associated with FINRA member firms. This obligation exists to enable FINRA to fulfill its regulatory mission of protecting investors and maintaining market integrity. When individuals refuse to cooperate, they prevent FINRA from investigating potential violations that could harm investors.

Exam cheating undermines the qualification system designed to ensure that registered representatives possess minimum competency levels before interacting with investors. The exams exist to protect investors by ensuring that financial professionals have basic knowledge of regulations, products, and ethical obligations.

This case demonstrates that refusing to cooperate with regulatory investigations will result in severe sanctions, including bars from the industry. The refusal to participate in an investigation is often viewed as seriously as the underlying alleged misconduct, because it obstructs the regulatory process itself.

Show Less

According to FINRA, Sevaag Matossian was barred from association with any FINRA member in all capacities on March 11, 2022, for converting $2,639.64 of his employer's funds.

While employed by his member firm's affiliate bank, Matossian and his wife used personal bank credit cards in his name to m...

Read More

According to FINRA, Sevaag Matossian was barred from association with any FINRA member in all capacities on March 11, 2022, for converting $2,639.64 of his employer's funds.

While employed by his member firm's affiliate bank, Matossian and his wife used personal bank credit cards in his name to make purchases at retailers and restaurants. Despite authorizing these transactions, Matossian falsely reported the charges as fraudulent to the bank. He claimed that certain cards were lost or not yet received and that other charges were not made by him or his wife. Through these false fraud claims, Matossian obtained $2,639.64 that he was not entitled to receive.

Although the dollar amount may seem relatively small, this conduct demonstrates dishonesty and a willingness to defraud his employer for personal gain. FINRA and member firms have zero tolerance for dishonest conduct because integrity is fundamental to maintaining trust in the financial services industry.

Conversion involves taking someone else's property for unauthorized use. When employees file false fraud claims to avoid paying legitimate debts, they are essentially stealing from their employer and undermining the systems designed to protect customers from actual fraud.

This case illustrates that even seemingly minor acts of dishonesty can result in career-ending sanctions in the securities industry. The securities industry maintains high ethical standards because registered representatives are entrusted with customer assets and confidential information.

For investors, this case underscores why FINRA maintains strict ethical requirements for registered representatives. Even small-scale dishonest conduct raises serious questions about an individual's trustworthiness to handle customer funds and provide honest advice. The bar imposed in this case protects investors from someone who demonstrated willingness to engage in fraudulent conduct for personal benefit.

Show Less

According to FINRA, Kajie McMullen was barred from association with any FINRA member in all capacities on March 11, 2022, for failing to provide a complete response to FINRA's requests for information and documents.

FINRA initiated an investigation into the circumstances of McMullen's termination...

Read More

According to FINRA, Kajie McMullen was barred from association with any FINRA member in all capacities on March 11, 2022, for failing to provide a complete response to FINRA's requests for information and documents.

FINRA initiated an investigation into the circumstances of McMullen's termination from her member firm. The firm had terminated her employment, and FINRA sought information to determine whether McMullen improperly applied for and used Small Business Administration grants and whether she failed to disclose outside business activities to her firm.

McMullen initially called FINRA and confirmed receipt of its request. She stated she did not have copies of some requested documents, including applications she submitted to the Small Business Administration. FINRA explained how she could obtain copies of those documents. Subsequently, McMullen provided a partial response through counsel but failed to provide the SBA applications, bank records, tax returns, or describe efforts to obtain the applications.

The requested information was necessary for FINRA to investigate potential misconduct involving improper use of government grants and undisclosed business activities. By failing to provide complete responses, McMullen obstructed FINRA's ability to investigate potentially serious violations.

The duty to cooperate fully with FINRA investigations is a cornerstone of the regulatory system. When individuals provide only partial responses or fail to make reasonable efforts to obtain requested documents, they undermine FINRA's ability to protect investors.

This case demonstrates that initial cooperation is not sufficient - individuals must provide complete responses to all requests and make reasonable efforts to obtain documents within their control. Partial compliance does not satisfy regulatory obligations.

For investors, FINRA's ability to investigate potential misconduct depends on obtaining complete and accurate information. When registered representatives obstruct investigations, they prevent regulators from uncovering violations that could harm investors.

Show Less

According to FINRA, Garrett Caplin was barred from association with any FINRA member in all capacities on March 15, 2022, for failing to produce information and documents requested by FINRA during an investigation.

FINRA initiated the investigation into circumstances that led to two Form U5 amend...

Read More

According to FINRA, Garrett Caplin was barred from association with any FINRA member in all capacities on March 15, 2022, for failing to produce information and documents requested by FINRA during an investigation.

FINRA initiated the investigation into circumstances that led to two Form U5 amendments filed by Caplin's former member firm. The first amendment disclosed that Caplin was under internal review concerning his due diligence efforts for opening a customer account. The second amendment indicated the review concluded and found that suspicious aspects of a note issuer were not escalated to the firm prior to bonds being transferred to it, and that Caplin's due diligence of the end customer was incomplete before account opening and receipt of bonds.

Despite FINRA's requests for information and documents related to these matters, Caplin failed to provide the requested materials. This prevented FINRA from fully investigating the circumstances surrounding the due diligence failures and potential red flags that were not properly escalated.

Due diligence is a critical component of customer protection. Before opening accounts or accepting securities transfers, firms and their representatives must conduct appropriate background checks to prevent money laundering, fraud, and other misconduct. The allegations that Caplin failed to complete proper due diligence and did not escalate suspicious circumstances raise serious investor protection concerns.

The obligation to cooperate with FINRA investigations exists independently of whether underlying violations occurred. Even individuals who believe they did nothing wrong must comply with information requests to allow regulators to complete their investigations.

This case illustrates that failing to participate in regulatory investigations will result in severe sanctions. The bar prevents Caplin from working in the securities industry, protecting investors from someone who refused to submit to regulatory oversight.

Show Less

According to FINRA, Paul Ronald Koch was barred from association with any FINRA member in all capacities on March 16, 2022, for refusing to provide documents and information requested by FINRA.

FINRA's investigation stemmed from an amended Form U5 filed by Koch's member firm. The Form U5 disclose...

Read More

According to FINRA, Paul Ronald Koch was barred from association with any FINRA member in all capacities on March 16, 2022, for refusing to provide documents and information requested by FINRA.

FINRA's investigation stemmed from an amended Form U5 filed by Koch's member firm. The Form U5 disclosed allegations that Koch recommended risky and unsuitable investments in various outside business ventures where his wife was a partial owner, and that Koch and his wife diverted funds from the outside investments and accounts for their personal gain.

Although Koch initially cooperated with FINRA's investigation, he subsequently ceased cooperation and refused to provide requested documents and information. This prevented FINRA from fully investigating the serious allegations of unsuitable recommendations, conflicts of interest, and potential misappropriation of customer funds.

The allegations raise multiple red flags. Recommending investments in businesses where a spouse has an ownership interest creates obvious conflicts of interest that must be carefully managed and disclosed. The allegation that funds were diverted for personal gain suggests potential conversion or fraud.

Even individuals who initially cooperate with investigations must continue that cooperation until FINRA completes its work. Partial cooperation does not satisfy regulatory obligations.

This case illustrates particularly serious allegations that warranted full investigation - recommendations of investments in which the representative's spouse had a financial interest, combined with allegations of fund diversion. Koch's refusal to continue cooperating prevented FINRA from determining what actually occurred and whether investors were harmed.

For investors, this case highlights the importance of understanding conflicts of interest. When financial professionals recommend investments in businesses where they or their family members have financial interests, investors should exercise heightened scrutiny and ensure all conflicts are fully disclosed. Any reluctance by a financial professional to discuss such relationships should be treated as a warning sign.

Show Less

According to FINRA, Craig Stanton Norton was barred from association with any FINRA member in all capacities and ordered to pay disgorgement of $240,360 plus interest on March 21, 2022, for willfully violating securities laws through market manipulation.

Norton manipulated the price of an over-th...

Read More

According to FINRA, Craig Stanton Norton was barred from association with any FINRA member in all capacities and ordered to pay disgorgement of $240,360 plus interest on March 21, 2022, for willfully violating securities laws through market manipulation.

Norton manipulated the price of an over-the-counter microcap security by purchasing 250 shares for his firm's proprietary account at $5 per share, setting an artificially high closing price. This price helped release millions of shares held by Norton's customers from resale restrictions. Over the following months, during a paid stock promotion, Norton used his role as market maker to coordinate trading among his customers, creating the false appearance of active trading at steadily increasing prices. This enabled his customers to liquidate their holdings at artificially inflated prices.

As a result of the manipulative trading, firm customers sold approximately 13.2 million shares, generating about $8.5 million in net proceeds. Norton and the firm generated $400,600 in trading compensation, with Norton receiving about 60 percent of that revenue.

Despite being aware of numerous red flags - customers acquired shares on identical terms and prices under nearly identical agreements, deposited shares at the same time - Norton failed to raise concerns with his firm. Instead, he relied merely on customers' representations that they were not acting in concert.

Microcap securities manipulation schemes harm innocent investors who purchase shares at inflated prices based on false impressions of market activity. When the manipulation ends, prices typically collapse, leaving those investors with significant losses.

This case demonstrates how market makers can abuse their positions to facilitate manipulative schemes. Norton's coordination of trading to create artificial price increases represents precisely the type of market manipulation that securities laws prohibit.

Investors should be extremely cautious about thinly traded microcap stocks, particularly those subject to promotional campaigns. Warning signs include rapid price increases on unusually high volume, paid stock promotions, and coordinated buying activity.

Show Less

According to FINRA, Marc Augustus Reda was barred from association with any FINRA member in all capacities on March 21, 2022, for willfully violating securities laws by churning customer accounts that he exercised de facto control over.

Reda made trading decisions for customers' accounts, includi...

Read More

According to FINRA, Marc Augustus Reda was barred from association with any FINRA member in all capacities on March 21, 2022, for willfully violating securities laws by churning customer accounts that he exercised de facto control over.

Reda made trading decisions for customers' accounts, including which securities to trade, the volume, and timing. Customers relied on Reda's recommendations and consistently followed them. Reda also made unauthorized transactions in customer accounts. His trading was excessive and quantitatively unsuitable, generating costs of $264,734 and causing realized losses of $232,043 on accounts with an aggregate average monthly value of $262,234.

Reda recommended his costly active trading strategy without understanding its potential risks and rewards. He failed to consider the strategy's costs on customers' ability to generate profits and conducted no research on whether the strategy could be profitable given cumulative costs. Reda did not understand cost-to-equity ratios or turnover rates and failed to calculate these metrics when executing his trading strategy.

Additionally, Reda executed unauthorized transactions in non-discretionary accounts, charged excessive and unreasonable commissions without prior disclosure, and intentionally circumvented his firm's supervisory procedures to charge commissions exceeding five percent. Reda also willfully failed to timely disclose eight customer complaints alleging sales practice violations and failed to disclose an unsatisfied tax lien and warrant totaling $225,929.49 on his Form U4.

Churning occurs when a broker excessively trades a customer's account to generate commissions rather than benefit the customer. It represents one of the most serious forms of broker misconduct because it prioritizes the broker's financial interests over the customer's welfare.

Investors should monitor their accounts for signs of excessive trading, including frequent buying and selling, high commission charges relative to account value, and declining account balances despite market gains. Understanding basic metrics like cost-to-equity ratios can help identify churning.

Show Less

According to FINRA, David Michael Stevens was barred from association with any FINRA member in all capacities on March 21, 2022, for forging signatures without authorization.

Stevens submitted multiple life insurance applications for a customer worth $23,950,000 and applications for multiple loan...

Read More

According to FINRA, David Michael Stevens was barred from association with any FINRA member in all capacities on March 21, 2022, for forging signatures without authorization.

Stevens submitted multiple life insurance applications for a customer worth $23,950,000 and applications for multiple loans on the policies totaling approximately $1,000,000. When questioned by his firm about the policies and loans, Stevens submitted two letters - one purportedly from the customer's estate attorney and another purportedly from the customer's accountant. Neither letter was genuine. Stevens created and falsified both letters prior to submitting them to the firm.

Forgery represents one of the most serious forms of misconduct in the financial services industry because it demonstrates dishonesty and willingness to deceive firms and potentially customers. When a representative forges professional letters to deceive his employer, it raises serious questions about what other misconduct may have occurred.

The magnitude of the insurance policies ($23,950,000) and loans (approximately $1,000,000) suggests these were significant financial transactions. Stevens' forgery of letters from professionals to justify these transactions to his firm indicates he knew the firm would have concerns about the transactions and chose to deceive rather than provide legitimate explanations.

Forgery undermines the entire system of compliance and supervision that protects investors. Firms rely on documents and representations from their registered representatives to supervise their activities. When representatives forge documents, they defeat supervisory systems designed to prevent misconduct.

This case illustrates why honesty and integrity are fundamental requirements in the securities industry. The bar prevents Stevens from working with investors, protecting the public from someone who demonstrated willingness to forge professional documents to deceive his employer.

Investors should verify that documents purportedly from their attorneys or accountants are genuine and be alert to any requests for unusually large insurance policies or loans that may not align with their financial planning needs.

Show Less