Bad Brokers

According to FINRA, David Robert McDonnell was barred from association with any FINRA member in all capacities on March 22, 2022, for refusing to provide documents and information requested by FINRA.

FINRA's investigation concerned the circumstances giving rise to McDonnell's termination from his...

Read More

According to FINRA, David Robert McDonnell was barred from association with any FINRA member in all capacities on March 22, 2022, for refusing to provide documents and information requested by FINRA.

FINRA's investigation concerned the circumstances giving rise to McDonnell's termination from his member firm. The firm filed a Form U5 stating it had terminated McDonnell's employment because he participated in a private securities transaction by issuing promissory notes and conducted an outside business activity by serving as trustee of a trust.

Private securities transactions conducted without firm knowledge and approval are known as selling away" and represent serious violations because they deprive firms of the ability to supervise these transactions and protect investors. When representatives issue promissory notes to investors without firm approval

Show Less

FINRA investigates to determine the full extent of any misconduct. Representatives who refuse to participate in such investigations face bars from the industry.

David Robert McDonnell

According to FINRA, Jeffrey Karakatsanis was barred from association with any FINRA member in all capacities on March 25, 2022, for engaging in conversion and improper use of funds.

Without authorization, Karakatsanis reversed fees totaling $2,663 charged to his own bank account and fees totaling...

Read More

According to FINRA, Jeffrey Karakatsanis was barred from association with any FINRA member in all capacities on March 25, 2022, for engaging in conversion and improper use of funds.

Without authorization, Karakatsanis reversed fees totaling $2,663 charged to his own bank account and fees totaling $170.24 charged to his friend's bank account, both held at his member firm's bank affiliate. The bank had already deducted the fees from the accounts. Karakatsanis used another bank employee's computer to reverse the fees without that employee's knowledge or consent.

By reversing the fees, Karakatsanis caused $2,663 of the bank's funds to be transferred to his own account and $170.24 to his friend's account. Neither Karakatsanis nor his friend owned or were entitled to possess these funds, and neither returned the funds to the bank.

This conduct demonstrates multiple violations of trust and ethics. Karakatsanis not only improperly reversed legitimate fees but also used another employee's computer without permission, compounding his misconduct. The use of another employee's computer suggests an attempt to conceal his actions.

While the dollar amounts may seem modest, the conduct reveals fundamental dishonesty and willingness to steal from his employer. Such behavior is incompatible with the high ethical standards required in the financial services industry, where representatives are entrusted with customer assets and confidential information.

Conversion involves the unauthorized taking of property belonging to another. When employees manipulate systems to transfer their employer's funds to themselves, it constitutes theft regardless of the amount involved.

This case illustrates FINRA's zero-tolerance approach to dishonest conduct. Even relatively small-scale theft results in permanent bars from the industry because integrity is fundamental to investor protection. Investors need confidence that their financial professionals are honest and trustworthy.

Show Less

According to FINRA, Jason Andrew Wilk was barred from association with any FINRA member in all capacities on March 31, 2022, for failing to appear for on-the-record testimony during an investigation.

FINRA's investigation concerned whether Wilk excessively traded a customer's account. Trading in ...

Read More

According to FINRA, Jason Andrew Wilk was barred from association with any FINRA member in all capacities on March 31, 2022, for failing to appear for on-the-record testimony during an investigation.

FINRA's investigation concerned whether Wilk excessively traded a customer's account. Trading in the account resulted in a high cost-to-equity ratio and turnover rate indicating excessive trading had occurred. The information sought by FINRA was material to its investigation and necessary to complete its mandate to fully investigate potential rule violations and protect the investing public.

Despite being requested to provide testimony, Wilk failed to appear. This prevented FINRA from obtaining his account of what occurred, understanding his trading rationale, and determining whether the trading was suitable for the customer or constituted churning.

Excessive trading or churning occurs when a broker trades a customer's account primarily to generate commissions rather than benefit the customer. High cost-to-equity ratios mean customers must achieve significant investment returns just to break even after paying trading costs. High turnover rates indicate frequent buying and selling that may serve the broker's interests more than the customer's.

The duty to appear for on-the-record testimony is a fundamental obligation that enables FINRA to investigate potential violations. When individuals refuse to appear, they obstruct investigations into conduct that may have harmed investors.

Wilk's refusal to testify prevented FINRA from fully understanding what happened and why, potentially leaving investor harm unaddressed. The bar protects future investors from someone who refused to submit to regulatory oversight.

This case demonstrates that cooperation with FINRA investigations is not optional. Failing to appear for testimony results in bars from the industry. For investors, FINRA's ability to investigate excessive trading depends on obtaining testimony from registered representatives about their trading practices and rationale.

Show Less

According to FINRA, Jayanth Hebbar was fined $10,000 and suspended for six months on March 1, 2022, for failing to obtain his firm's written consent before opening or maintaining outside brokerage accounts and for violating firm trading policies.

Before joining his firm, Hebbar had established ni...

Read More

According to FINRA, Jayanth Hebbar was fined $10,000 and suspended for six months on March 1, 2022, for failing to obtain his firm's written consent before opening or maintaining outside brokerage accounts and for violating firm trading policies.

Before joining his firm, Hebbar had established nine outside brokerage accounts. He disclosed only one on his New Hire Compliance Questionnaire and never obtained written consent to maintain the other eight accounts. He also opened three additional outside accounts after joining the firm without obtaining prior written consent. For one account, Hebbar misrepresented his employer and occupation on opening forms and failed to disclose his association with the firm.

Hebbar failed to notify in writing the financial institutions where he held 10 of the 11 undisclosed accounts that he was associated with a FINRA member firm. He also executed trades in securities on his firm's Expanded Watch List and Restricted List in violation of firm policies, failed to pre-clear transactions in the undisclosed accounts, and did not adhere to required holding periods.

Additionally, Hebbar signed compliance questionnaires falsely attesting that he had disclosed all outside employee and employee-related accounts.

The requirement to disclose outside brokerage accounts enables firms to monitor their representatives for conflicts of interest, insider trading, and other violations. When representatives maintain secret accounts, they can engage in trading that would be prohibited if the firm knew about it.

Trading in securities on watch lists and restricted lists violates policies designed to prevent insider trading and conflicts of interest. By maintaining undisclosed accounts, Hebbar evaded these important investor protection controls.

This case illustrates that registered representatives cannot avoid firm supervision by simply failing to disclose outside accounts. Such conduct prevents firms from monitoring for violations that could harm investors or markets. Investors should understand that their financial professionals are subject to trading restrictions designed to prevent conflicts of interest and ensure they prioritize client interests.

Show Less

According to FINRA, Michael Walter Mandel was fined $5,000, suspended for seven months, and ordered to pay disgorgement of $5,635.35 plus interest on March 2, 2022, for participating in private securities transactions without providing prior written notice to or receiving approval from his member fi...

Read More

According to FINRA, Michael Walter Mandel was fined $5,000, suspended for seven months, and ordered to pay disgorgement of $5,635.35 plus interest on March 2, 2022, for participating in private securities transactions without providing prior written notice to or receiving approval from his member firms.

Mandel solicited investors, including some firm customers, to invest approximately $815,000 in a tequila production company. He invited investors to promotional events, introduced them to the company's founder, and provided investment documents. Mandel received $5,635.35 from the tequila company and expected to receive a portion of the founder's equity. He falsely stated on a firm compliance questionnaire that he had not participated in private securities transactions outside the firm.

Subsequently, the tequila company's founder pled guilty to making false and misleading statements to investors and misusing investor funds. The SEC filed a complaint alleging the founder made material misrepresentations and misappropriated investors' funds for personal use, resulting in a judgment and injunction against further violations.

Private securities transactions conducted without firm approval, known as selling away

Show Less

According to FINRA, Jazmin Gabriela Carpenter was fined $2,500 and suspended for 10 business days on March 7, 2022, for causing her member firm to maintain inaccurate books and records by changing representative codes on trades.

Carpenter had an agreement to service certain customer accounts unde...

Read More

According to FINRA, Jazmin Gabriela Carpenter was fined $2,500 and suspended for 10 business days on March 7, 2022, for causing her member firm to maintain inaccurate books and records by changing representative codes on trades.

Carpenter had an agreement to service certain customer accounts under joint representative codes shared with a retired representative who was a close personal friend. Prior to changing the codes on trades, Carpenter discussed this with the retired representative, who agreed she could do so. However, her actions resulted in trade confirmations showing inaccurate representative codes.

By changing the codes, Carpenter received higher commissions than she was entitled to receive under the agreement. The firm subsequently reimbursed the retired representative for the improperly diverted commissions.

While this case involves an agreement between Carpenter and the retired representative, the improper changing of representative codes caused the firm's books and records to be inaccurate. Accurate books and records are essential for regulatory compliance, supervision, and transparency.

Representative codes on trades serve important purposes including proper commission allocation, supervision of trading activity, and regulatory reporting. When representatives manipulate these codes, even with informal permission from affected parties, it undermines the integrity of firm records.

The relatively modest sanctions (10-day suspension and $2,500 fine) reflect that Carpenter had discussed the changes with the retired representative and the firm was able to identify and correct the issue. However, the case illustrates that even conduct involving mutual agreement can violate rules when it results in inaccurate records.

This case demonstrates that registered representatives must follow proper procedures for commission arrangements and cannot simply modify firm records based on informal agreements. Any changes to commission allocations should be documented through proper channels and reflected accurately in firm systems from the outset.

Show Less