Bad Brokers

According to FINRA, Suresh V. Kumar was barred from the securities industry in an Order Accepting Offer of Settlement based on extensive misconduct including operating an undisclosed outside business, making material misrepresentations, and providing false information to FINRA.

Kumar operated an ...

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According to FINRA, Suresh V. Kumar was barred from the securities industry in an Order Accepting Offer of Settlement based on extensive misconduct including operating an undisclosed outside business, making material misrepresentations, and providing false information to FINRA.

Kumar operated an undisclosed outside business activity where he directly received hundreds of thousands of dollars from proprietary traders. He promised to train participants to pass the Series 57 examination, teach them to trade securities as part of his purported team at his member firm, and double the value of their initial trading deposit. Participants had to make deposits into a contingency fund, with refund rights if they discontinued the program before passing the exam.

One participant requested return of his $48,000 contingency fund deposit after failing the exam and deciding not to continue. Kumar was obligated to repay this money but instead made material misrepresentations about why he couldn't. He falsely told the participant that his member firm held $100 million of his money and he couldn't repay the participant until the firm released his funds. In reality, Kumar had less than $2,500 with the firm and had already spent the participant's deposit on personal expenses and loan repayment.

Kumar's violations extended far beyond this single misrepresentation. He failed to disclose his outside business activity to his firm despite it predating and continuing through his FINRA registration. He failed to disclose that he effected about 100 private securities transactions in accounts participants held away from the firm. He submitted a false attestation to his firm stating he had not conducted outside business, engaged in unapproved electronic communications, or engaged in private securities transactions.

During his on-the-record testimony, Kumar refused to answer certain questions about deals he claimed impacted his ability to repay participants. He provided false, misleading, and incomplete written responses to FINRA about the number of agreements he entered, copies of those agreements, and his bank accounts. He failed to provide electronic communications FINRA requested and made false statements about those communications. He even deleted electronic communications FINRA had requested. Finally, Kumar failed to identify an overseas bank account until nine months after FINRA requested the information and didn't provide statements for that account until ten months after the original request.

For investors, this case demonstrates how multiple forms of misconduct often occur together. Kumar's operation of an undisclosed training program led to misappropriation of participant funds, false representations, obstruction of the regulatory investigation, and deletion of evidence. Investors should be extremely wary of financial professionals who offer training programs or other services outside their registered firm activities, particularly when those activities involve taking money directly from participants.

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According to FINRA, Tarik Nehmatullah was barred from the securities industry for refusing to provide documents and information during a regulatory investigation.

The investigation concerned an amended Form U5 filed by Nehmatullah's member firm. The Form U5 disclosed that after Nehmatullah resign...

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According to FINRA, Tarik Nehmatullah was barred from the securities industry for refusing to provide documents and information during a regulatory investigation.

The investigation concerned an amended Form U5 filed by Nehmatullah's member firm. The Form U5 disclosed that after Nehmatullah resigned, the firm was notified by its bank affiliate that, contrary to firm policy, Nehmatullah had accepted a $55,000 loan from a bank and investment client.

Accepting loans from clients is typically prohibited by firm policies and raises serious regulatory concerns. Such loans create conflicts of interest and can involve financial exploitation of clients. Representatives might pressure clients to provide loans, or clients might feel obligated to provide loans to maintain a relationship with their financial advisor. In some cases, undisclosed loans from clients are actually disguised conversions of client funds.

The fact that this loan violated firm policy and came from someone who was both a bank customer and investment client makes it particularly problematic. The dual relationship may have been leveraged to obtain the loan, and the representative's access to the client's financial information may have facilitated the transaction. Legitimate loans between clients and representatives are rare and, when they occur, should be fully disclosed to the firm and properly documented.

Rather than cooperating with FINRA's investigation into this loan, Nehmatullah refused to provide the requested documents and information. This refusal prevented FINRA from determining the circumstances of the loan, whether the client understood what they were agreeing to, whether there was any pressure or exploitation, and whether the loan was actually a disguised conversion of client funds.

The complete refusal to cooperate warranted a bar from the industry. Without information from Nehmatullah, FINRA could not determine what happened or whether the client or other clients were harmed. The bar prevents Nehmatullah from working in any capacity in the securities industry.

For investors, this case highlights the importance of understanding that loans between clients and financial professionals are generally prohibited and highly problematic. Investors should never feel pressured to loan money to their financial advisor. Any request for a personal loan should be immediately reported to the firm's compliance department and to FINRA. Investors should also check BrokerCheck to see if their financial professional has any history of improper financial relationships with clients.

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According to FINRA, Steven Kiyoto Hirata was barred from the securities industry for failing to provide information and documents during a regulatory investigation into whether he participated in an undisclosed private securities transaction.

Private securities transactions, sometimes called "sel...

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According to FINRA, Steven Kiyoto Hirata was barred from the securities industry for failing to provide information and documents during a regulatory investigation into whether he participated in an undisclosed private securities transaction.

Private securities transactions, sometimes called "selling away," occur when registered representatives engage in securities transactions outside their registered firm's knowledge and supervision. These transactions violate FINRA rules because they prevent the firm from supervising the transaction to ensure it is suitable and appropriate for the customer. Representatives must provide written notice to their firms before participating in private securities transactions, and firms must approve or disapprove such participation.

Private securities transactions are often problematic for investors. They may involve fraudulent investments, Ponzi schemes, or other unsuitable investments that would not pass firm scrutiny. Because these transactions occur outside the firm's supervision, investors lose the protections that come with firm oversight, including the firm's obligation to supervise the representative and conduct due diligence on investments.

FINRA initiated an investigation to determine whether Hirata participated in an undisclosed private securities transaction. Rather than providing the requested information and documents, Hirata failed to respond. This failure prevented FINRA from determining whether a private securities transaction occurred, what type of investment was involved, whether investors were harmed, and whether Hirata received compensation for the transaction.

The failure to provide information is particularly concerning given the nature of the investigation. If Hirata had not participated in an undisclosed private securities transaction, providing information to clear up the matter would have been straightforward. The failure to respond suggests he may have been unwilling to provide information that would confirm the violation.

The sanction of a bar reflects how seriously FINRA treats failures to cooperate with investigations. Without cooperation, FINRA cannot investigate potential violations or protect investors. The bar prevents Hirata from working in any capacity in the securities industry.

For investors, this case emphasizes the importance of conducting all securities transactions through a registered representative's firm, not through separate arrangements. If a financial professional suggests investing in something outside their firm, investors should be extremely cautious and contact the firm's compliance department. Investors should also check BrokerCheck to see if their financial professional has any history of undisclosed private securities transactions or failures to cooperate with regulators.

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According to FINRA, Paul Steven Vavrinchik was barred from the securities industry for refusing to produce information during a regulatory investigation.

The investigation concerned a Form U5 filed by Vavrinchik's member firm. The Form U5 stated that Vavrinchik voluntarily resigned and disclosed ...

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According to FINRA, Paul Steven Vavrinchik was barred from the securities industry for refusing to produce information during a regulatory investigation.

The investigation concerned a Form U5 filed by Vavrinchik's member firm. The Form U5 stated that Vavrinchik voluntarily resigned and disclosed that the firm had reviewed a customer signed document for potential alteration, but that the result of the review was inconclusive. Document alteration is a serious form of fraud that can involve forging customer signatures, changing account forms without authorization, or altering trade confirmations or other records.

Even though the firm's internal review was inconclusive, the mere fact that the firm investigated a customer document for potential alteration is a significant red flag. Firms typically investigate such matters only when they have reason to believe alteration may have occurred. An inconclusive result doesn't mean alteration didn't happen, only that the firm couldn't definitively prove it.

FINRA's investigation sought to determine what happened with this document and whether Vavrinchik engaged in document alteration or other misconduct. Rather than cooperating with this investigation, Vavrinchik refused to produce the requested information. This refusal prevented FINRA from determining whether document alteration occurred, whether customers were harmed, and whether Vavrinchik engaged in fraud.

The timing of Vavrinchik's resignation during the firm's investigation is also concerning. Voluntary resignations during investigations often indicate that the individual knew they were facing serious allegations and chose to resign rather than face firm discipline or termination. Resigning doesn't eliminate regulatory obligations, and FINRA can still investigate and discipline individuals after they leave the industry.

The refusal to cooperate with FINRA's investigation, combined with the underlying allegations of potential document alteration, presents serious concerns about Vavrinchik's fitness for the securities industry. The bar prevents him from working in any capacity in the industry.

For investors, this case illustrates that document alteration is a serious form of fraud that can affect customer accounts. Investors should carefully review all documents they sign and keep copies for their records. If anything appears altered or different from what they signed, they should immediately contact firm compliance and FINRA. Investors should also check BrokerCheck for any history of document alteration allegations or investigations before working with a financial professional.

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According to FINRA, Richard Matthew Brendza was fined $5,000 and suspended for six months for causing his member firm's trade confirmations to show inaccurate representative codes by falsifying codes in the firm's order entry system.

Brendza entered into a commission-sharing agreement with a reti...

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According to FINRA, Richard Matthew Brendza was fined $5,000 and suspended for six months for causing his member firm's trade confirmations to show inaccurate representative codes by falsifying codes in the firm's order entry system.

Brendza entered into a commission-sharing agreement with a retiring representative and an active representative who was Brendza's immediate family member. The agreement specified what percentage of commissions each representative would earn on trades placed using a joint representative code. The parties later amended the agreement in writing to give Brendza and his family member higher commission percentages than in the original agreement.

However, Brendza placed trades in accounts covered by the amended agreement using a different representative code than required by that agreement. Although the firm's system correctly prepopulated trades with the applicable joint representative code, Brendza manually changed the code to a different joint representative code. The representative on Brendza's team also separately placed trades using an incorrect code.

These actions resulted in Brendza and his team member receiving higher commissions than they were entitled to receive under their agreement, effectively taking money from the retiring representative. Brendza did not ask the retiring representative whether he could change the code and did not indicate he was doing so. Brendza mistakenly believed the retiring representative had agreed to the changes, but in fact, no such agreement existed.

As a result of this conduct, Brendza's firm paid restitution to the retiring representative. Brendza and his team member reimbursed the firm approximately $275,000, representing the additional commissions they improperly received. By falsifying representative codes, Brendza also caused his firm to maintain inaccurate books and records, which is a separate violation.

While Brendza's conduct involved taking commissions from a colleague rather than directly from customers, it demonstrates dishonesty that could extend to customer dealings. The falsification of records and taking of money not rightfully his reflects poorly on his character and judgment.

For investors, this case illustrates that financial professionals' conduct toward their firms and colleagues can indicate their integrity in customer dealings. Commission theft or manipulation reflects dishonest character. The suspension is in effect from June 6, 2022, through December 5, 2022.

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According to FINRA, Jeremy Clay Burk was assessed a deferred fine of $5,000 and suspended for three months for engaging in outside business activities without providing written notice to his member firm.

Burk formed an insurance agency and served as its president and sole director. During this ti...

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According to FINRA, Jeremy Clay Burk was assessed a deferred fine of $5,000 and suspended for three months for engaging in outside business activities without providing written notice to his member firm.

Burk formed an insurance agency and served as its president and sole director. During this time, he opened at least one bank account and filed tax returns and corporate documents on behalf of the agency. He received compensation for these activities. Additionally, Burk worked as a loan officer and branch manager for two mortgage companies. He also leased office space in a building he owned to the mortgage companies and received wages and rent from them.

These outside business activities were outside the scope of Burk's relationship with his firm, yet he failed to provide prior notice, written or otherwise, to the firm about his involvement. The failure to disclose is particularly problematic because Burk also falsely attested in annual compliance questionnaires that he had not received compensation from any unapproved outside business activity.

Outside business activities must be disclosed to firms for several important reasons. First, they can create conflicts of interest. A representative operating an insurance agency or working for mortgage companies might be tempted to recommend products or services that benefit those businesses rather than what's best for clients. Second, outside activities can divide a representative's time and attention, potentially resulting in inadequate service to investment clients. Third, firms need to supervise outside activities to ensure they don't involve fraud or unsuitable recommendations.

The fact that Burk actively lied on compliance questionnaires makes this violation more serious than a simple oversight. False attestations indicate intentional concealment rather than an inadvertent failure to disclose. Compliance questionnaires are a key supervisory tool that firms use to monitor their representatives' activities. When representatives lie on these questionnaires, they undermine the entire supervisory system.

For investors, this case highlights the importance of asking financial professionals about their outside business activities. Representatives who operate insurance agencies, mortgage companies, or other businesses may have conflicts of interest in their investment recommendations. Investors should ask directly about outside activities and be cautious if a representative attempts to sell multiple financial products through different business entities. The suspension is in effect from May 16, 2022, through August 15, 2022.

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According to FINRA, Erin Bridget Settle was assessed a deferred fine of $5,000 and suspended for 18 months for possessing unauthorized materials while taking the Series 66 examination.

Prior to the examination, Settle attested that she had read and would abide by FINRA's Qualification Examination...

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According to FINRA, Erin Bridget Settle was assessed a deferred fine of $5,000 and suspended for 18 months for possessing unauthorized materials while taking the Series 66 examination.

Prior to the examination, Settle attested that she had read and would abide by FINRA's Qualification Examinations Rules of Conduct. These rules prohibit the use or attempted use of personal notes and study materials during examinations and require candidates to store all personal items in provided lockers before entering the test room.

During an unscheduled break, Settle went to the restroom where she had access to and possessed personal notes and study materials that she had placed there prior to starting the examination. These materials contained exam-related content. This conduct constitutes cheating on a professional qualification examination.

Securities industry examinations exist to ensure that registered representatives have the knowledge and competence necessary to serve investors properly. When individuals cheat on these examinations, they undermine the entire licensing system and may ultimately serve customers without the required knowledge. Someone who doesn't actually possess the knowledge tested by the Series 66 examination may give incorrect advice about securities laws, investment recommendations, or ethical obligations.

The Series 66 examination tests knowledge of state securities regulations, ethical practices, and investment advisor requirements. This knowledge is fundamental to serving investors properly and complying with securities laws. A representative who cheats on this exam and doesn't actually possess this knowledge poses risks to investors.

The fact that Settle placed study materials in the restroom before the examination began indicates premeditation. This was not an impulsive decision or momentary lapse in judgment, but rather a planned scheme to cheat on the examination. The premeditation makes the violation more serious.

For investors, this case raises concerns about exam integrity and whether registered representatives truly possess the knowledge their licenses supposedly demonstrate. While most representatives honestly pass their examinations, this case shows that some may obtain licenses through cheating. Investors should be aware that professional licenses, while important, don't guarantee competence or integrity. The suspension is in effect from May 16, 2022, through November 15, 2023.

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According to FINRA, Ian Phillip Lowrey was assessed a deferred fine of $5,000, suspended for three months, and ordered to pay $48,116 plus interest in deferred restitution to customers for excessively trading two customer accounts.

Lowrey recommended high frequency trading in the customers' accou...

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According to FINRA, Ian Phillip Lowrey was assessed a deferred fine of $5,000, suspended for three months, and ordered to pay $48,116 plus interest in deferred restitution to customers for excessively trading two customer accounts.

Lowrey recommended high frequency trading in the customers' accounts. The customers routinely followed his recommendations, giving Lowrey de facto control over their accounts. His trading resulted in high turnover rates and cost-to-equity ratios as well as significant losses. The trading was excessive and unsuitable given the customers' investment profiles.

As a result of Lowrey's excessive trading, the customers suffered collective realized losses of $103,253 while paying total trading costs of $55,036, including commissions of $48,116. This means that more than half of the customers' losses went directly to commissions, demonstrating how excessive trading can enrich the representative while devastating customer accounts.

Excessive trading, also known as churning, occurs when a representative trades a customer's account excessively to generate commissions rather than to benefit the customer. High turnover rates indicate that securities are held for short periods before being sold and replaced with other securities. High cost-to-equity ratios indicate that the account must generate substantial returns just to break even after paying trading costs.

In this case, the customers' investment profiles evidently did not call for the high-frequency trading strategy Lowrey employed. Representatives have an obligation to make recommendations suitable for each customer based on their individual circumstances, investment objectives, risk tolerance, and financial situation. Trading that might be appropriate for a sophisticated trader seeking short-term gains is unsuitable for investors with different profiles.

The de facto control Lowrey exercised over the accounts is particularly concerning. While the accounts may not have been formally discretionary, Lowrey's customers followed his recommendations so routinely that he effectively controlled trading decisions. This created a duty to trade the accounts prudently and appropriately, which he violated through his excessive trading.

For investors, this case illustrates the importance of monitoring account activity and questioning frequent trading. High levels of trading activity, particularly in accounts meant for long-term growth or conservative investors, should raise red flags. Investors should review their account statements carefully and question why securities are being frequently bought and sold. The suspension is in effect from May 16, 2022, through August 15, 2022.

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According to FINRA, Patrick Richard Daley was fined $5,000 and suspended for 30 days for engaging in outside business activities without providing prior written notice to his member firm.

Daley became an owner and board member of a meat processing company. He orally informed his firm that he had ...

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According to FINRA, Patrick Richard Daley was fined $5,000 and suspended for 30 days for engaging in outside business activities without providing prior written notice to his member firm.

Daley became an owner and board member of a meat processing company. He orally informed his firm that he had invested in the company but did not disclose that he served on the company's board and made strategic business decisions with the other owners in areas such as hiring and equipment purchasing. Similarly, Daley became an owner of a real estate investment company in partnership with other owners. He orally informed the firm of his investment but did not disclose that he engaged in management activity, including participating in strategic business decisions.

Daley did not provide any written notice to the firm of these management and board activities until after the firm received inquiries from FINRA. This pattern of partial oral disclosure while omitting material details is particularly problematic. Daley disclosed his financial investments in these companies but concealed his active management roles.

Outside business activities must be disclosed in writing so firms can evaluate potential conflicts of interest, time commitment issues, and supervisory concerns. Serving on a corporate board and making strategic business decisions requires significant time and attention. These activities could have interfered with Daley's ability to serve his investment clients properly. Additionally, his roles in these businesses could have created conflicts of interest if any of his investment clients had interests related to meat processing or real estate.

The failure to disclose active management roles while disclosing passive investments suggests Daley understood he had disclosure obligations but attempted to minimize or conceal the extent of his outside activities. A truly inadvertent failure would typically involve complete non-disclosure, not selective disclosure of only certain aspects of the activity.

Neither outside business activity involved firm customers, which somewhat mitigates the seriousness of the violation. However, the failure to properly disclose these activities still violated FINRA rules and prevented the firm from properly supervising Daley's activities and evaluating potential conflicts.

For investors, this case illustrates that representatives may have outside business interests that create conflicts or divide their attention. Investors should ask their financial professionals directly about outside business activities and whether those activities could create conflicts or affect the representative's ability to serve clients. The suspension was in effect from June 6, 2022, through July 5, 2022.

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According to FINRA, Sanjay Bhargava was fined $5,000 and suspended for three months for participating in private securities transactions away from his member firm without disclosure.

Bhargava played a role in establishing a relationship between a real estate company specializing in preserving and...

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According to FINRA, Sanjay Bhargava was fined $5,000 and suspended for three months for participating in private securities transactions away from his member firm without disclosure.

Bhargava played a role in establishing a relationship between a real estate company specializing in preserving and operating historic real estate and another registered representative at his firm. The other representative established a limited liability company to pool investment funds to invest in a private placement offering issued by the real estate company. The offering related to a hotel and offered the possibility of tax credits for qualifying investors.

Bhargava communicated with the real estate company regarding the offering and discussed how investors in the other representative's LLC would become investors in the offering. He forwarded offering documents for the LLC to six individuals, none of whom were firm customers. These individuals ultimately invested $341,250 in the LLC. While Bhargava did not receive compensation related to the LLC or offering, his participation in these activities without firm disclosure violated FINRA rules.

Additionally, Bhargava misrepresented to the firm in an annual compliance attestation that he did not engage in any private securities transactions. This false attestation compounds the violation by demonstrating intentional concealment rather than inadvertent failure to disclose.

Private securities transactions, also known as "selling away," must be disclosed to firms even when the representative receives no compensation. Firms need to supervise these transactions to ensure they are legitimate and appropriate. Bhargava's participation in setting up the relationship, communicating about the offering, and forwarding offering documents constituted participation in private securities transactions that required disclosure.

The fact that the six individuals who received the offering documents were not firm customers doesn't eliminate the disclosure requirement. Representatives must disclose their participation in securities transactions regardless of whether those transactions involve their own customers. The disclosure allows firms to evaluate whether the activity creates conflicts, involves fraudulent investments, or otherwise raises concerns.

For investors, this case illustrates that private securities transactions can involve legitimate investments, like this historic hotel offering tax credits, but still violate rules when not properly disclosed. The violations occur because lack of disclosure prevents firms from supervising the transactions and protecting investors. Investors should conduct all securities transactions through their representative's registered firm, not through separate arrangements. The suspension is in effect from June 6, 2022, through September 5, 2022.

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