Bad Brokers

According to FINRA, Bentley Edward Blackmon was fined $5,000 and suspended for three months on March 14, 2022, for participating in a private securities transaction without providing prior written notice to his member firm.

Blackmon introduced a firm customer to the issuer of a private placement ...

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According to FINRA, Bentley Edward Blackmon was fined $5,000 and suspended for three months on March 14, 2022, for participating in a private securities transaction without providing prior written notice to his member firm.

Blackmon introduced a firm customer to the issuer of a private placement offering and informed the customer he intended to invest in the offering himself. He participated in a telephone conference with the customer and issuer about the offering and coordinated a wire transfer of $195,000 from the customer's firm account to facilitate the customer's initial investment.

After making his own investment, Blackmon disclosed it to the firm. However, he did not disclose that he had also facilitated the customer's investment. Subsequently, Blackmon coordinated two additional wire transfers totaling approximately $250,000 for the customer's additional investments in the offering. Blackmon did not receive any commissions from the securities sales.

Private securities transactions must be disclosed to firms even when representatives receive no compensation. The requirement exists because firms need to supervise all securities-related activities to ensure suitability, conduct due diligence, and protect investors from fraud.

By failing to disclose his role in facilitating the customer's investments, Blackmon deprived his firm of the opportunity to evaluate whether the investment was suitable for the customer, conduct due diligence on the offering, and assess potential conflicts of interest arising from Blackmon's personal investment in the same offering.

This case illustrates that selling away" violations occur even without commission payments. The key issue is engaging in securities transactions outside firm supervision. When representatives personally invest in offerings they recommend to customers

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including suitability analysis and due diligence on offerings."

According to FINRA, Michael Campopiano was fined $2,500 and suspended for one month on March 15, 2022, for causing trade confirmations to show inaccurate representative codes.

Campopiano had an agreement to service certain customer accounts under a joint representative code shared with a retired ...

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According to FINRA, Michael Campopiano was fined $2,500 and suspended for one month on March 15, 2022, for causing trade confirmations to show inaccurate representative codes.

Campopiano had an agreement to service certain customer accounts under a joint representative code shared with a retired representative. The agreement specified commission percentages for each representative. However, Campopiano placed trades using different representative codes, changing them from the prepopulated joint code to codes under which he received higher commission percentages.

Campopiano mistakenly believed he was permitted to change the codes because his firm had transferred certain accounts subject to the agreement to other representatives not part of the agreement with the retired representative. However, his actions caused the firm to maintain inaccurate books and records. The firm subsequently reimbursed the retired representative.

Representative codes on trade confirmations serve critical functions including accurate commission allocation, proper supervisory review of trading activity, and regulatory compliance. When representatives modify these codes based on mistaken beliefs about their entitlements, it compromises the integrity of firm records.

The case illustrates that good faith misunderstandings do not excuse violations of recordkeeping requirements. Representatives who believe they are entitled to different commission arrangements must work through proper firm channels to document and implement such changes, not simply modify system codes on their own initiative.

The relatively modest sanctions reflect that Campopiano's conduct stemmed from a misunderstanding rather than intentional wrongdoing, and the firm was able to identify and correct the inaccuracies.

This case demonstrates the importance of following proper procedures for commission arrangements and account transfers. Representatives cannot unilaterally modify firm systems based on their interpretation of entitlements. Any questions about commission allocations should be resolved through compliance and operational channels before making system changes.

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According to FINRA, Steven Martin Barnett was fined $5,000 and suspended for 30 days on March 16, 2022, for mismarking mutual fund order tickets as unsolicited when he had actually solicited the trades.

Barnett marked order tickets as unsolicited when he had made investment recommendations in con...

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According to FINRA, Steven Martin Barnett was fined $5,000 and suspended for 30 days on March 16, 2022, for mismarking mutual fund order tickets as unsolicited when he had actually solicited the trades.

Barnett marked order tickets as unsolicited when he had made investment recommendations in connection with customers' reallocations of their mutual fund portfolios. His mismarking of the orders caused his member firm to maintain inaccurate books and records.

The distinction between solicited and unsolicited trades is significant for regulatory and supervisory purposes. Solicited trades require suitability determinations because the representative recommended the transaction. Unsolicited trades, where customers make their own investment decisions without recommendations, receive different supervisory treatment.

By marking solicited trades as unsolicited, Barnett caused his firm's records to incorrectly indicate that customers had independently decided to make these trades without his recommendations. This prevented proper suitability review and supervision of his recommendations.

Mismarking trades can also serve to evade supervisory scrutiny of trading patterns that might indicate unsuitable recommendations or excessive trading. When firms cannot accurately track which trades were recommended by representatives, they cannot effectively supervise representatives' recommendation practices.

Accurate order marking is a fundamental requirement that enables proper supervision and regulatory oversight. Representatives who make recommendations must ensure those trades are properly marked as solicited so they receive appropriate suitability review.

This case illustrates that even seemingly minor recordkeeping violations receive sanctions because accurate records are essential to the supervisory and regulatory framework protecting investors. Investors benefit when firms can properly supervise their representatives' recommendations, which requires accurate marking of solicited versus unsolicited trades.

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According to FINRA, Donovan Thomas Kelly was fined $10,000 and suspended for seven months on March 16, 2022, for participating in private securities transactions without providing prior written notice to his member firm.

Kelly recommended that investors purchase promissory notes in an oil and gas...

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According to FINRA, Donovan Thomas Kelly was fined $10,000 and suspended for seven months on March 16, 2022, for participating in private securities transactions without providing prior written notice to his member firm.

Kelly recommended that investors purchase promissory notes in an oil and gas drilling company, summarized the investment for investors, and arranged for some investors to fund purchases through sales and money transfers from their firm accounts. Collectively, these investors, including himself and other firm customers, invested $688,000 in the company. Kelly did not receive compensation for the investments.

When asked on annual firm attestation forms whether he had participated in private securities transactions, Kelly answered no, despite his active role in promoting and facilitating these investments.

Private securities transactions conducted outside firm supervision, known as selling away

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According to FINRA, Patrick Joseph O'Neill was fined $5,000 and suspended for three months on March 17, 2022, for willfully failing to timely amend his Form U4 to disclose felony charges.

O'Neill was charged with two counts of risk of injury to a child. At the time the charges were filed, O'Neill...

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According to FINRA, Patrick Joseph O'Neill was fined $5,000 and suspended for three months on March 17, 2022, for willfully failing to timely amend his Form U4 to disclose felony charges.

O'Neill was charged with two counts of risk of injury to a child. At the time the charges were filed, O'Neill was aware of them and was required to amend his Form U4 within 30 days to disclose the felony charges. However, O'Neill did not disclose the charges until over six months after being charged.

Form U4 disclosure requirements exist to ensure that investors, firms, and regulators have access to material information about registered representatives' backgrounds. Criminal charges, particularly felonies, are material information that investors have a right to know when deciding whether to work with a financial professional.

The requirement to disclose felony charges within 30 days is mandatory and applies regardless of whether the representative believes the charges have merit or will be resolved favorably. The disclosure obligation exists so that firms can evaluate whether representatives should continue serving customers while criminal matters are pending.

By waiting over six months to disclose the felony charges, O'Neill deprived his firm and customers of material information they needed to make informed decisions. During this period, O'Neill presumably continued working with customers who were unaware of the pending criminal charges.

The willful nature of the failure - meaning O'Neill knew about the charges and the disclosure requirement but failed to comply - makes the violation particularly serious. This was not an inadvertent oversight but a knowing failure to meet a clear regulatory obligation.

This case illustrates that registered representatives must promptly disclose criminal charges even when those charges may be embarrassing or harmful to their careers. Investors have a right to know about criminal charges pending against their financial professionals so they can make informed decisions about whether to continue the relationship.

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According to FINRA, Michael Joseph Muratore was fined $25,000 and suspended for two years on March 18, 2022, for forging customer signatures, falsifying documents, and circumventing firm procedures regarding beneficiary designations.

Muratore forged the signature and initials of a customer withou...

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According to FINRA, Michael Joseph Muratore was fined $25,000 and suspended for two years on March 18, 2022, for forging customer signatures, falsifying documents, and circumventing firm procedures regarding beneficiary designations.

Muratore forged the signature and initials of a customer without prior knowledge or authorization on documents for surrendering three annuities and purchasing a new variable annuity. He also falsified the customer's account record by changing a date on a document to make it appear signed one month later than it actually was. These actions caused his firm to maintain inaccurate books and records.

Additionally, Muratore circumvented firm procedures by becoming a 50 percent beneficiary of another customer's Transfer on Death account. The customer, who was not related to Muratore, named him as beneficiary of a new account for which Muratore was broker of record. Despite being aware of firm procedures and his designation as beneficiary, Muratore failed to disclose this to the firm. The customer subsequently changed the beneficiary to a relative and removed Muratore.

Furthermore, Muratore impersonated a customer during telephone calls with an insurance company to advance the process for surrendering an annuity to fund securities purchases at his firm.

This case involves multiple serious violations demonstrating a pattern of deceptive conduct. Forging customer signatures on financial documents is one of the most serious forms of misconduct because it involves creating false evidence of customer authorization. Falsifying dates compounds the deception.

Becoming a beneficiary of a customer's account creates obvious conflicts of interest, which is why firms have procedures governing such relationships. Muratore's concealment of the beneficiary designation prevented his firm from evaluating the appropriateness of this arrangement and implementing additional supervision.

The two-year suspension reflects the serious nature of the violations and the pattern of deceptive conduct. Investors must be able to trust that documents bearing their signatures are genuine and that their financial professionals will not secretly position themselves as beneficiaries of customer accounts.

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According to FINRA, Andrew Benjamin Edenbaum was fined $10,000 and suspended for three months on March 21, 2022, for participating in a private securities transaction without providing prior written notice to his member firm.

Edenbaum participated in the sale of a $150,000 variable annuity to an ...

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According to FINRA, Andrew Benjamin Edenbaum was fined $10,000 and suspended for three months on March 21, 2022, for participating in a private securities transaction without providing prior written notice to his member firm.

Edenbaum participated in the sale of a $150,000 variable annuity to an individual who was not a firm customer, after the individual was referred to him for investment advice. The transaction was conducted through another broker-dealer with which Edenbaum was not associated. During this period, Edenbaum did not have the insurance license required to sell variable annuities.

Despite lacking the proper license, Edenbaum participated by obtaining a variable annuity application from a registered representative of the other broker-dealer, helping the investor complete it, advising the investor about allocation among various indices, delivering the application to the other representative, providing wiring instructions, and identifying himself as the person to contact with questions. Edenbaum did not receive compensation for his participation.

This case illustrates multiple problems. First, Edenbaum engaged in a private securities transaction without firm approval, depriving his firm of the opportunity to supervise the transaction and ensure it was suitable for the investor. Second, he participated in selling a variable annuity without holding the required insurance license, which exists to ensure that individuals selling these complex products have appropriate knowledge and qualifications.

By involving himself extensively in the transaction - from completing applications to providing investment advice to serving as the investor's point of contact - Edenbaum effectively acted as the investor's representative for this transaction despite lacking proper licensing and firm authorization.

The absence of compensation does not excuse the violations. The requirement to disclose private securities transactions and obtain proper licensing protects investors regardless of whether representatives receive payment.

This case demonstrates that registered representatives cannot evade licensing requirements or firm supervision by working through other broker-dealers or claiming to provide assistance without compensation. Investors should verify that anyone providing investment advice holds appropriate licenses and that transactions are properly supervised.

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According to FINRA, Arkady Ginsburg was suspended for six months and ordered to pay $113,591 in partial restitution to customers on March 23, 2022, for engaging in excessive and unsuitable trading in customer accounts.

Ginsburg controlled the volume and frequency of trading in customer accounts a...

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According to FINRA, Arkady Ginsburg was suspended for six months and ordered to pay $113,591 in partial restitution to customers on March 23, 2022, for engaging in excessive and unsuitable trading in customer accounts.

Ginsburg controlled the volume and frequency of trading in customer accounts and exercised de facto control because he recommended trades and customers routinely followed his recommendations. His trading generated high cost-to-equity ratios and turnover rates, along with significant losses and trading costs. Customers suffered market losses totaling $686,640.39, while Ginsburg earned $113,591 in commissions.

In light of Ginsburg's financial status, no monetary fine or prejudgment interest was imposed, but he was required to pay partial restitution equal to his commissions from the excessive trading.

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 returns just to break even after paying transaction costs. High turnover rates indicate frequent buying and selling that serves the broker's financial interests more than the customer's investment goals.

The fact that customers suffered losses exceeding $686,000 while Ginsburg earned over $113,000 in commissions illustrates the harm caused by excessive trading. The trading activity generated substantial costs that eroded customer account values while enriching the broker.

De facto control exists when customers routinely follow their broker's recommendations without independent analysis. Even without formal discretionary authority, brokers who effectively control trading decisions through their recommendation practices are held accountable for excessive trading.

This case demonstrates that churning is one of the most harmful forms of broker misconduct because it prioritizes the broker's compensation over customer welfare. Investors should monitor their accounts for warning signs including frequent trading, high commission charges relative to account size, and declining balances despite overall market gains. Understanding cost-to-equity ratios and turnover rates can help identify excessive trading patterns.

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According to FINRA, Eric Edward Nicolassy was suspended for four months and ordered to pay $32,134.09 in partial restitution to customers on March 24, 2022, for excessively and unsuitably trading a senior customer's account and exercising unauthorized discretion.

In the senior customer's account ...

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According to FINRA, Eric Edward Nicolassy was suspended for four months and ordered to pay $32,134.09 in partial restitution to customers on March 24, 2022, for excessively and unsuitably trading a senior customer's account and exercising unauthorized discretion.

In the senior customer's account with an average month-end equity of $106,293, Nicolassy executed purchases totaling $5,138,740. The trades caused the customer to pay $71,409.09 in commissions and $10,410 in trade costs and margin interest, resulting in an annualized cost-to-equity ratio exceeding 76 percent. This means the customer's account would need to grow by more than 76 percent annually just to break even. The customer suffered more than $125,000 in losses.

Additionally, Nicolassy exercised discretion in customer accounts without having obtained prior written authorization from the customers.

In light of Nicolassy's financial status, no monetary fine was imposed, but he was ordered to pay partial restitution.

A 76 percent cost-to-equity ratio is extraordinarily high and demonstrates extreme excessive trading. For context, cost-to-equity ratios above 20 percent are generally considered excessive. A 76 percent ratio means the overwhelming majority of any investment returns went to paying trading costs rather than benefiting the customer.

The victim being a senior customer makes this violation particularly troubling. Senior investors often have limited ability to recover from financial losses and may be more vulnerable to broker exploitation. Excessive trading in a senior's account can devastate retirement security.

The fact that Nicolassy executed over $5 million in purchases in an account averaging about $106,000 demonstrates the extreme nature of the trading activity. This level of turnover serves no legitimate investment purpose and exists solely to generate commissions.

Exercising discretion without written authorization compounds the violation by giving Nicolassy control over trading decisions without proper documentation or supervisory oversight.

Investors, especially seniors, should carefully monitor trading activity and commission charges. A 76 percent cost-to-equity ratio represents trading activity so excessive that profitable outcomes become virtually impossible.

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