Bad Brokers

According to FINRA, Thomas Alva Foster was fined $2,500 and suspended for one month on January 31, 2022, for causing trade confirmations to show inaccurate representative codes by changing codes for trades covered by a commission-sharing agreement.

Foster agreed to service certain customer accoun...

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According to FINRA, Thomas Alva Foster was fined $2,500 and suspended for one month on January 31, 2022, for causing trade confirmations to show inaccurate representative codes by changing codes for trades covered by a commission-sharing agreement.

Foster agreed to service certain customer accounts that he shared with a retired representative. Although his member firm's system correctly prepopulated trades with the applicable joint representative code, Foster changed the codes to his personal representative code.

Foster made these changes because he mistakenly believed his agreement with the retired representative did not apply to new assets added to accounts subject to the agreement. However, this misunderstanding did not excuse changing the codes. Foster's actions resulted in his receiving higher commissions than entitled under the agreement. He later reimbursed the firm $21,831 - the approximate amount of additional commissions he received from changing the codes.

Through this conduct, Foster caused his firm to maintain inaccurate trade confirmations that showed his personal representative code rather than the joint code that should have been used under the commission-sharing arrangement.

Accurate books and records are foundational to securities regulation. Trade confirmations must accurately reflect which registered representatives handled trades for supervisory, compliance, and regulatory purposes. When representatives change codes to reflect inaccurate information, it undermines the integrity of firms' records.

Even though Foster's conduct resulted from a misunderstanding about the scope of his commission-sharing agreement rather than intentional fraud, he was still responsible for ensuring the accuracy of trade records. Representatives who are unsure about how commission-sharing agreements apply should seek clarification before changing representative codes on trades.

Foster's reimbursement of $21,831 to the firm demonstrates that he ultimately took responsibility for receiving commissions to which he was not entitled. However, this repayment did not excuse the underlying recordkeeping violation or eliminate the need for regulatory sanctions.

For investors, accurate trade records are important because they identify which representative handled your transactions. While this case involved a commission-sharing dispute between representatives rather than direct customer harm, it illustrates how recordkeeping accuracy matters throughout the securities industry.

Investors who need to file complaints or have concerns about their accounts rely on accurate records to identify the responsible representatives. When records are inaccurate, it can complicate accountability and regulatory oversight.

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According to FINRA, Mark Giordano was fined $5,000 and suspended for two months on January 31, 2022, for engaging in compensated outside business activities without providing required prior written notice to his member firm.

Giordano served as part owner and vice president of a company involved i...

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According to FINRA, Mark Giordano was fined $5,000 and suspended for two months on January 31, 2022, for engaging in compensated outside business activities without providing required prior written notice to his member firm.

Giordano served as part owner and vice president of a company involved in horse racing and breeding, and as part owner of another company involved in horse racing. Additionally, he served as part owner and vice president of a real estate rental company, owned a real estate-flipping company, and engaged in a house-flipping venture to purchase, renovate, and sell residential properties.

Firm customers were involved in all but one of these outside business activities, and the activities were outside the scope of Giordano's relationship with his firm. Giordano never disclosed one of these ventures to the firm and did not timely disclose the others.

FINRA rules require registered representatives to provide prior written notice of outside business activities so firms can supervise these activities, identify potential conflicts of interest, and ensure representatives are devoting adequate attention to their securities business and customers. When representatives fail to disclose outside activities, firms cannot provide proper supervision or evaluate whether conflicts exist.

The involvement of firm customers in most of these outside business activities is particularly concerning. When representatives engage in business ventures with their securities customers, significant conflicts of interest can arise. For example, representatives might prioritize the success of the outside business over their customers' best interests in securities recommendations, or might use their position of trust as a financial advisor to solicit customer participation in business ventures that may not be suitable.

Giordano's multiple outside businesses - involving horse racing, breeding, real estate rentals, and house-flipping - represented substantial activities beyond his securities business. Such extensive outside activities raise questions about whether representatives are devoting sufficient time and attention to their securities customers.

The real estate ventures merit particular attention. House-flipping - buying, renovating, and quickly selling properties for profit - involves significant risks and requires substantial time commitment. Real estate rental businesses also demand ongoing attention for property management, tenant relations, and maintenance. When representatives are heavily involved in such businesses, their securities customers may not receive adequate service.

For investors, this case illustrates the importance of understanding your financial advisor's outside business activities. Advisors with extensive outside businesses may have divided attention and conflicts of interest. Ask your advisor about any outside business activities and consider whether these activities might affect the advice and service you receive.

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According to FINRA, William Nicholas Athas was named as respondent in a complaint filed on January 18, 2022, alleging that he willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and violated FINRA Rule 2020 by churning customer accounts.

The complaint alleges that Athas...

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According to FINRA, William Nicholas Athas was named as respondent in a complaint filed on January 18, 2022, alleging that he willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and violated FINRA Rule 2020 by churning customer accounts.

The complaint alleges that Athas controlled trading in customer accounts, including the volume and frequency of trading, which securities to buy and sell, the quantity of each transaction, and the timing of each transaction. Athas also determined the commission he would charge for each transaction. The customers routinely followed Athas' recommendations.

The complaint further alleges that Athas deliberately incurred unreasonably high trading costs in these accounts, making it virtually impossible for them to be profitable. Athas allegedly persisted in this trading activity even after being warned about the excessive trading and high costs on several occasions.

The complaint also alleges that Athas' trading was excessive and quantitatively unsuitable for each customer based on their investment profiles, as evidenced by high turnover rates and cost-to-equity ratios, the frequency of transactions, and transaction costs incurred. Athas' alleged churning and excessive trading caused customers to pay approximately $1.6 million in commissions and other trading costs and to suffer approximately $1.1 million in losses. Conversely, Athas allegedly generated commissions of approximately $1.5 million for himself and his member firms.

The complaint further alleges that Athas recommended customers engage in short-term, in-and-out trading, often on margin, without having a reasonable basis to recommend that trading strategy. The complaint alleges Athas failed to perform reasonable diligence to understand the cumulative costs of his trading, including commissions, other trading costs, and margin interest, and failed to understand the impact of these costs on customers' accounts or their ability to earn profits. Athas also allegedly failed to understand turnover rates and cost-to-equity ratios, and therefore failed to calculate and consider these metrics when recommending and executing his trading strategy.

It is important to note that this is a complaint containing allegations that have not been proven. Athas is accused of but has not been found in violation of these charges.

For investors, the allegations in this complaint illustrate warning signs of potential churning: extremely high trading costs relative to account size, frequent trading that generates substantial commissions, persistent losses despite high trading activity, and trading that continues even after warnings about excessive costs. Investors should carefully monitor account statements for these red flags and question advisors who recommend high-frequency trading strategies that generate large commission charges.

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According to FINRA, Credit Suisse Securities was fined $9 million for failing to comply with securities laws and rules designed to protect investors, including the SEC's Customer Protection Rule and FINRA research disclosure requirements.

FINRA found that Credit Suisse violated the Customer Prote...

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According to FINRA, Credit Suisse Securities was fined $9 million for failing to comply with securities laws and rules designed to protect investors, including the SEC's Customer Protection Rule and FINRA research disclosure requirements.

FINRA found that Credit Suisse violated the Customer Protection Rule in two ways. First, the firm failed to maintain possession or control of billions of dollars of fully paid and excess margin securities it carried for customers. Second, on numerous occasions, the firm failed to accurately calculate its required customer reserve - the amount of cash or securities the firm was required to maintain in a special reserve bank account.

The Customer Protection Rule is intended to protect customers' securities by prohibiting firms from using those securities for their own purposes and to ensure prompt return of customer securities in the event of broker-dealer insolvency. When firms fail to maintain possession or control of customer securities as required, it creates risks that customers cannot recover their assets if the firm fails.

From 2006 through 2017, Credit Suisse issued more than 20,000 research reports containing inaccurate disclosures about potential conflicts of interest. The firm also issued more than 6,000 research reports that omitted required disclosures. These disclosures were supposed to inform investors whether the company that was the subject of the research report had been a client of the firm during the prior 12 months, or whether the firm expected to receive investment banking compensation from the subject company within the next three months.

Research reports play an important role in securities markets by providing analysis to help investors make informed decisions. The value of research depends on investors understanding potential conflicts of interest that might bias the analysis. When research reports omit or inaccurately disclose investment banking relationships, investors cannot properly evaluate potential bias.

Additionally, FINRA found that Credit Suisse failed to preserve more than 18.6 billion records in a non-erasable and non-writable format as required. Proper recordkeeping is fundamental to regulatory oversight and investor protection.

As part of the settlement, FINRA required Credit Suisse to certify that it has implemented supervisory systems and procedures reasonably designed to comply with the Customer Protection Rule and other requirements.

This case demonstrates the importance of operational compliance at large financial institutions. Even sophisticated firms must maintain proper controls to protect customer assets, provide accurate disclosures, and preserve required records. When firms fail in these basic obligations, they put investors at risk.

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According to FINRA, Dakota Securities International, Inc. and Bruce Martin Zipper were sanctioned for severe violations of membership rules and recordkeeping requirements.

The case centered on Zipper's continued association with the firm while he was statutorily disqualified and suspended from as...

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According to FINRA, Dakota Securities International, Inc. and Bruce Martin Zipper were sanctioned for severe violations of membership rules and recordkeeping requirements.

The case centered on Zipper's continued association with the firm while he was statutorily disqualified and suspended from associating with any FINRA member. This represents a fundamental breach of industry regulations designed to protect investors from individuals who have been barred from the securities industry. The firm knowingly allowed this improper association to continue, undermining the regulatory framework.

In addition to the association violations, both the firm and Zipper created and maintained inaccurate books and records. The firm willfully violated Section 17(a) of the Securities Exchange Act of 1934 by misidentifying the representative of record for hundreds of transactions. This type of recordkeeping failure makes it difficult for regulators to track misconduct and protect investors.

The findings also revealed that the firm failed to maintain and enforce an adequate supervisory system, which is a critical safeguard in preventing violations and protecting customer interests.

Investors should understand that a firm's expulsion from FINRA membership is one of the most severe sanctions available. It means the firm can no longer operate as a broker-dealer. Similarly, a bar prevents an individual from working in any capacity in the securities industry. These sanctions reflect the seriousness of allowing a disqualified person to continue in the business and the deliberate falsification of records. When evaluating broker-dealers, investors should verify that firms and their representatives are properly registered and have clean disciplinary histories through FINRA BrokerCheck.

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According to FINRA, Fusion Analytics Securities LLC was expelled from FINRA membership for engaging in securities fraud in connection with bond offerings.

The firm sold bonds for a company while knowing that the SEC had previously found that an affiliate company and its promoter had misled invest...

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According to FINRA, Fusion Analytics Securities LLC was expelled from FINRA membership for engaging in securities fraud in connection with bond offerings.

The firm sold bonds for a company while knowing that the SEC had previously found that an affiliate company and its promoter had misled investors and diverted millions of dollars. Despite this disciplinary history, the firm agreed to sell bond offerings purportedly to raise money for building a power plant. However, the firm made material misrepresentations and omissions to potential investors.

For the first bond offering, the firm disseminated false and misleading statements that failed to disclose the SEC order and findings about the promoter's prior misconduct. The firm also made misleading statements about the risks and anticipated revenue of the project, as well as false statements regarding the progress of the offering. For the second bond offering, the firm similarly failed to disclose critical information, including that the issuer was in financial distress, late on interest payments, and in violation of debt covenants.

In total, the firm raised approximately $1.8 million from customers through the bond offerings and generated $146,000 in commissions. The firm also failed to conduct reasonable due diligence despite numerous red flags, which is required before recommending investments to customers.

Compounding these violations, the firm provided false information to FINRA during its investigation, initially reporting only $80,000 in bond sales when it had actually sold at least $600,000, and later $950,000 in total.

Investors should recognize that due diligence is not optional—it is a regulatory requirement. Firms must investigate the offerings they sell, especially when red flags exist. The failure to disclose material adverse information, such as prior SEC enforcement actions and financial distress, is securities fraud. Investors should always research both the investment and the firm selling it, and be wary of private placements and pre-IPO offerings that promise high returns.

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According to FINRA, National Securities Corporation was censured, fined $300,000, and ordered to pay disgorgement of $363,447.67 in commissions for deceiving investors in a pre-IPO offering.

The firm misled customers into believing that a pre-IPO offering had acquired, or would be able to acquire...

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According to FINRA, National Securities Corporation was censured, fined $300,000, and ordered to pay disgorgement of $363,447.67 in commissions for deceiving investors in a pre-IPO offering.

The firm misled customers into believing that a pre-IPO offering had acquired, or would be able to acquire, shares of a company at a maximum price of $9.75 per share. However, the firm had done no due diligence to determine if shares were available at that price from any seller. Despite this, the firm twice approved the closing of escrow on investor funds, even though it had failed to locate any shares at the represented price.

The firm closed escrow knowing that doing so would result in it receiving placement fees and investors receiving welcome letters that falsely suggested they now had rights to shares at the represented price. When some investors inquired about their investments, the firm's representatives negligently misrepresented that shares had been purchased at $9.75, when they had not been. In reality, a seller of shares was not identified until more than ten months after the firm had approved disbursement of investor funds.

The firm failed to disclose the true status of the offering to investors. It did not make investors aware of the changes to their investments until the company's IPO was imminent, by which time investors had been misled for months about the status of their investment.

The findings also revealed supervisory failures. The firm failed to reasonably enforce its written procedures concerning pre-IPO share offerings and failed to supervise the head of its pre-IPO business. The firm approved the sale of interests without investigating whether shares could be acquired at the listed price.

Investors should understand that pre-IPO investments carry significant risks and require thorough due diligence. Firms must locate actual shares before taking investor money and closing escrow. When a firm cannot deliver what it promised, it must immediately disclose this to investors rather than collecting fees and issuing misleading communications. Always verify claims made about pre-IPO opportunities and be skeptical of deals that seem too good to be true.

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According to FINRA, First Horizon Advisors, Inc. was censured and fined $175,000 for failing to reasonably supervise a registered representative who operated an undisclosed outside business activity involving an investment club.

A representative at the firm controlled and operated an investment c...

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According to FINRA, First Horizon Advisors, Inc. was censured and fined $175,000 for failing to reasonably supervise a registered representative who operated an undisclosed outside business activity involving an investment club.

A representative at the firm controlled and operated an investment club formed as a limited liability company. He solicited individuals to invest in the club by claiming he had earned annual returns of between 15 and 20 percent. The representative used the funds to trade options in a brokerage account held away from the firm. Despite his promises, investors experienced significant losses.

The firm failed to investigate numerous red flags. When the representative ultimately disclosed the outside brokerage account, the firm did not question when the account was opened or why he had failed to disclose it in a timely manner. The firm failed to review statements for the period when the account was open but not disclosed. Although the representative claimed the account was funded by proceeds from land he had sold and held in the name of an LLC, the firm never asked about the nature of the LLC's ongoing business or the representative's activities in connection with it.

Additionally, the firm failed to identify or investigate red flags contained in emails sent to and from the representative's firm email address concerning his participation in the investment club. The firm's supervisory failures extended to its email review procedures. Contrary to its written procedures, the firm reviewed only three percent of emails that contained search terms requiring review, and that review was generally limited to the subject line rather than the body of the email.

Investors should understand that registered representatives must disclose outside business activities to their firms, and firms must supervise these activities. Investment clubs that pool money and promise high returns without proper oversight can result in significant losses. The failure to supervise email communications is particularly concerning as it allows misconduct to go undetected. Always verify that your financial advisor is operating within the scope of their firm's oversight and be cautious of side investments or business ventures.

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According to FINRA, IBN Financial Services, Inc. was censured, fined $45,000, and ordered to pay $32,385 in partial restitution to customers for negligently omitting material information about private offerings.

The firm sold limited partnership interests in two private sector companies after rec...

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According to FINRA, IBN Financial Services, Inc. was censured, fined $45,000, and ordered to pay $32,385 in partial restitution to customers for negligently omitting material information about private offerings.

The firm sold limited partnership interests in two private sector companies after receiving notification that the companies had delayed filing audited financial statements with the SEC and that a forensic audit was being conducted. The principal value of these sales totaled $466,500 and the firm received $32,385 in commissions. However, the firm's representatives failed to inform customers about the delayed SEC filings or the reasons for the delay.

The delay in filing audited financial statements was material information that should have been disclosed to investors. This type of information can indicate serious problems with a company's financial condition or operations. Subsequently, the SEC filed a complaint against the alternative asset management firm alleging securities fraud. The Department of Justice also brought criminal charges against the firm's founder, CEO, and two other executives, charging securities fraud, mail fraud, and wire fraud.

Investors should understand that timely filing of financial statements is a basic regulatory requirement. When a company delays such filings, especially when accompanied by the need for a forensic audit, these are significant red flags. Broker-dealers have a duty to disclose material information to investors before selling securities. The failure to disclose such information, even if negligent rather than intentional, violates securities regulations.

This case demonstrates the importance of asking questions before investing in private placements or alternative investments. Investors should inquire about the issuer's regulatory compliance, including whether all required SEC filings are current. If a firm cannot or will not provide this basic information, it is a warning sign to avoid the investment. Additionally, investors should research both the issuer and the broker-dealer selling the securities through publicly available resources.

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According to FINRA, UBS Financial Services Inc. was censured and fined $350,000 for failing to timely report transactions to the Trade Reporting and Compliance Engine (TRACE) and for supervisory system deficiencies.

The firm failed to timely report transactions in TRACE-eligible corporate debt se...

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According to FINRA, UBS Financial Services Inc. was censured and fined $350,000 for failing to timely report transactions to the Trade Reporting and Compliance Engine (TRACE) and for supervisory system deficiencies.

The firm failed to timely report transactions in TRACE-eligible corporate debt securities, agency debt securities, and securitized products. The majority of the late reports were caused by latencies associated with manual handling of orders by traders and salespersons, including manual late entries or untimely amendments and corrections to transaction terms.

More significantly, the firm's supervisory system was not reasonably designed to achieve compliance with transaction reporting obligations. Although the firm performed reviews that identified late reports, it failed to have a process for addressing the issues that caused those reports to be filed late. The firm was aware of its late reporting issues but did not effectively remediate the problem. Additionally, the firm failed to reasonably train supervisors and staff regarding TRACE reporting requirements.

TRACE reporting is critical to market transparency in the fixed-income markets. Timely and accurate reporting allows regulators to monitor trading activity and helps ensure fair pricing for investors. When firms fail to report transactions on time, it undermines market integrity and can mask potential misconduct.

Investors should understand that while TRACE reporting violations may seem technical, they reflect broader supervisory and compliance failures. A firm that cannot manage basic regulatory reporting obligations may have other compliance deficiencies. The failure to remediate known issues is particularly concerning, as it suggests a lack of commitment to regulatory compliance.

For investors in corporate bonds, agency debt, and securitized products, TRACE provides important information about recent trades and pricing. Checking TRACE data can help investors determine if they are receiving fair prices. The integrity of this system depends on firms meeting their reporting obligations, which is why FINRA takes these violations seriously.

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