Bad Brokers

According to FINRA, Nikolay Zotenko was assessed a deferred fine of $10,000 and suspended for one year for drafting and sending retail communications about a private placement investment that contained misleading statements and were not submitted for firm approval.

Zotenko drafted and sent retail...

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According to FINRA, Nikolay Zotenko was assessed a deferred fine of $10,000 and suspended for one year for drafting and sending retail communications about a private placement investment that contained misleading statements and were not submitted for firm approval.

Zotenko drafted and sent retail communications concerning a private placement investment opportunity to prospective retail customers without submitting the content for firm approval. The communications contained statements that were misleading, unwarranted, and not fair and balanced. After sending the communications without approval, Zotenko submitted the content for approval, and the firm denied approval, informing him that the communications contained several issues, including impermissible promissory statements.

Despite the firm's denial, Zotenko sent the communications using the firm's internal system to additional prospective customers. To circumvent the system's restrictions on unapproved communications, Zotenko falsely affirmed that he did not intend to send the campaign to more than 25 recipients. However, he sent the additional communications in multiple separate batches to 25 recipients at a time, each time falsely indicating the messages were intended for no more than 25 recipients.

The additional communications also indicated that Zotenko's colleague was the sender, even though Zotenko sent all the emails through the firm's system. Zotenko obtained his colleague's permission to send the emails using the colleague's name, but the colleague was not aware Zotenko entered false information into the firm's system or that the firm had previously denied approval of the proposed content.

This conduct demonstrates multiple levels of misconduct. First, Zotenko sent unapproved communications to customers. Second, the communications themselves were misleading and contained impermissible promissory statements. Third, after the firm specifically denied approval, Zotenko circumvented the firm's systems by falsely representing that he was sending to fewer than 25 recipients. Fourth, he misused a colleague's name as the sender. Each layer represents an escalation of the violation.

The deliberate circumvention of the firm's approval system is particularly egregious. Zotenko knew the firm had denied approval, understood why (the communications were misleading), and deliberately found a way around the system to send them anyway. This shows intentional disregard for firm policies and investor protection.

For investors, this case illustrates the importance of being skeptical of investment communications that make promises or guarantees. Promissory statements in investment communications are prohibited because they mislead investors about potential outcomes. Investors who receive investment solicitations should verify they come from the representative's registered firm and should be wary of communications making unrealistic promises. The suspension is in effect from May 16, 2022, through May 15, 2023.

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According to FINRA, Bennett Robert Zamani was assessed a deferred fine of $27,500 and suspended for 14 months for operating an undisclosed outside business activity and using unapproved electronic communications with customers.

Zamani owned and operated a company offering subscription-based inves...

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According to FINRA, Bennett Robert Zamani was assessed a deferred fine of $27,500 and suspended for 14 months for operating an undisclosed outside business activity and using unapproved electronic communications with customers.

Zamani owned and operated a company offering subscription-based investment content without providing notice to his member firm. On the company's website, which Zamani established and operated, he maintained a blog with investment-related content and a publicly available YouTube channel with investment-related videos. Zamani published content to the blog under his name or an alias and appeared in videos on the YouTube channel. He also authored newsletters with investment-related content that he distributed to subscribers. While registered through the firm, Zamani earned approximately $360,000 from this activity.

Zamani submitted compliance questionnaires to the firm falsely stating he had fully disclosed his outside business activities. The investment-related communications he disseminated to the public, including firm customers, failed to comply with FINRA content standards because they contained misleading and promissory statements and made recommendations without providing a sound basis for evaluating the facts.

Additionally, Zamani used a personal text messaging application not approved by the firm to engage in business-related communications with firm customers. These communications included securities recommendations, account performance, account fees, and market events. In certain text messages, Zamani obtained personal confidential information from firm customers, including driver's license information, dates of birth, and social security numbers. Zamani also submitted compliance questionnaires falsely stating he did not use personal electronic equipment to conduct firm business.

This case involves multiple serious violations. The undisclosed outside business activity generated substantial income ($360,000) and involved investment content directed at the public and firm customers. The content was misleading and violated FINRA standards. The false compliance questionnaire responses demonstrate intentional concealment. The use of unapproved text messaging for business communications prevented the firm from supervising his communications and maintaining required records. Obtaining sensitive personal information through unapproved channels created cybersecurity and privacy risks.

For investors, this case illustrates the risks of financial professionals who operate investment content businesses outside their firm's supervision. Investment recommendations and content provided through such businesses may not meet regulatory standards and may be misleading. Investors should be cautious about following investment advice from newsletters, blogs, or social media unless the content has been approved by a registered firm. The suspension is in effect from May 16, 2022, through July 15, 2023.

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According to FINRA, William Thomas Hobdy was assessed a deferred fine of $5,000 and suspended for 30 days for engaging in undisclosed outside business activities without providing prior written disclosure to his member firm.

Hobdy controlled businesses that were active and in good standing with t...

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According to FINRA, William Thomas Hobdy was assessed a deferred fine of $5,000 and suspended for 30 days for engaging in undisclosed outside business activities without providing prior written disclosure to his member firm.

Hobdy controlled businesses that were active and in good standing with the New Mexico Secretary of State and constituted business activities beyond the scope of his employment with his firm. These outside business activities were created to pursue different business ventures outside of the securities industry, such as the management of short-term vacation rentals and music.

While these activities were not securities-related, FINRA rules still require representatives to disclose all outside business activities to their firms. This disclosure requirement exists for several reasons. First, outside activities can create time commitment issues that interfere with a representative's ability to serve investment clients properly. Second, even non-securities businesses can create conflicts of interest or reputational concerns for the firm. Third, firms have a general obligation to supervise their representatives' business activities.

The management of short-term vacation rentals and music businesses may seem unrelated to securities activities, but these ventures require time and attention that could detract from serving investment clients. Additionally, if these businesses had financial difficulties or legal problems, they could reflect poorly on the representative and the firm.

The fact that Hobdy took steps to formally organize these businesses (filing with the Secretary of State and keeping them in good standing) indicates he knew they were substantial activities requiring proper structure. This makes the failure to disclose them to his firm more problematic, as it suggests intentional non-disclosure rather than simply forgetting to mention a minor hobby or side activity.

For investors, this case illustrates that financial professionals may have outside business interests that divide their time and attention. While vacation rental management and music businesses may seem harmless, they can interfere with a representative's ability to provide attentive service to investment clients. Investors should ask their financial professionals about outside business activities and consider whether those activities might affect the level of service and attention they receive.

The relatively short suspension and moderate fine reflect that these outside activities were not securities-related and did not appear to involve firm customers or create direct conflicts with Hobdy's securities business. Nevertheless, the failure to disclose violated FINRA rules and prevented the firm from properly supervising Hobdy's activities. The suspension was in effect from June 6, 2022, through July 5, 2022.

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According to FINRA, Blakely Chapman Page was assessed a deferred fine of $5,000 and suspended for six months for making negligent misrepresentations about an investment fund's performance to prospective investors.

Page formed a hedge fund (the feeder fund) designed to pool investor funds and inve...

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According to FINRA, Blakely Chapman Page was assessed a deferred fine of $5,000 and suspended for six months for making negligent misrepresentations about an investment fund's performance to prospective investors.

Page formed a hedge fund (the feeder fund) designed to pool investor funds and invest in another, unaffiliated hedge fund (the master fund). The marketing materials for the feeder fund included performance numbers for the master fund that were provided by the master fund itself. However, these performance numbers significantly overstated the master fund's historic rate of return, a material fact.

Page did not independently verify the accuracy of the performance results provided by the master fund but asked others to conduct due diligence. He distributed the marketing materials containing the materially inaccurate performance numbers to more than two dozen prospective investors. Page also exchanged emails with multiple prospective investors affirming the accuracy of the master fund's performance results as set forth in the feeder fund's marketing materials.

Critically, Page continued affirming the accuracy of these performance results even after others at the feeder fund received information that called those performance results into question. Page did not review that information because he relied on others to do so. This delegation of responsibility for verifying material information is inadequate when directly communicating with prospective investors about performance.

Seven different investments were made in the feeder fund totaling approximately $1.7 million. When the master fund stopped providing continuing performance information and other customary investment materials, the feeder fund redeemed its investors' investments and the investors received full redemptions. While investors ultimately received their money back, they made investment decisions based on materially false performance information.

FINRA found Page's misrepresentations to be negligent rather than intentional, meaning he should have known the performance numbers were inaccurate but did not deliberately mislead investors. Nevertheless, negligent misrepresentations violate securities laws because representatives have a duty to ensure that information they provide to investors is accurate.

For investors, this case illustrates the critical importance of independently verifying performance claims, especially for hedge funds and alternative investments. Past performance is one of the most important factors investors consider, so accurate performance information is essential. Investors should ask how performance figures were calculated, whether they have been independently verified or audited, and whether the representative personally verified the information rather than simply relying on the fund manager. The suspension is in effect from June 6, 2022, through December 5, 2022.

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According to FINRA, Marcella Luz Cofre was assessed a deferred fine of $5,000 and suspended for two months for falsifying a customer's signature on an insurance application submitted to her member firm's insurance affiliate.

Cofre electronically signed the customer's name on the insurance applica...

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According to FINRA, Marcella Luz Cofre was assessed a deferred fine of $5,000 and suspended for two months for falsifying a customer's signature on an insurance application submitted to her member firm's insurance affiliate.

Cofre electronically signed the customer's name on the insurance application with the customer's consent but did not indicate that she was signing the application on the customer's behalf. Based upon the application, the firm's insurance affiliate issued the customer a life insurance policy.

While the customer consented to Cofre signing the application, the failure to indicate that she was signing on the customer's behalf makes the signature a falsification. Insurance applications and other financial documents require signatures to verify the identity of the person completing the form and to create legal obligations. When someone other than the customer signs without clearly indicating they are signing as an authorized agent or representative, it creates a false document.

The proper procedure when signing on behalf of a customer would be to indicate "[Customer Name] by Marcella Cofre" or similar language clearly showing she signed as the customer's representative. Without such indication, the application appears to have been signed by the customer directly, which is false.

This type of falsification, even when done with customer consent, can cause several problems. First, if questions later arise about whether the customer actually consented to the application, there will be no documentation showing that the representative, rather than the customer, signed. Second, if the application contains information the customer did not personally verify, they may later claim they were unaware of what was submitted. Third, insurance companies rely on the signature to verify the customer reviewed and agreed to the information on the application.

While this violation appears to involve a shortcut taken to expedite processing rather than fraud, it still constitutes document falsification. The customer ultimately received the life insurance policy they wanted, and there's no indication they were harmed. Nevertheless, the falsification violated FINRA rules and firm policies.

For investors, this case illustrates the importance of personally signing financial documents and reviewing them carefully before signing. If a representative offers to sign documents on a customer's behalf, the customer should ensure the representative properly indicates they are signing as an authorized agent. Customers should be wary of representatives who take shortcuts with documentation, as such shortcuts can lead to disputes or compliance problems later. The suspension is in effect from June 6, 2022, through August 5, 2022.

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According to FINRA, John Michael Derbin Jr. was fined $2,500 and suspended for 10 business days for impersonating a customer on a telephone call to a financial services company. FINRA considered that Derbin's member firm had already sanctioned him with a $5,000 fine, 30-day suspension, forfeiture of...

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According to FINRA, John Michael Derbin Jr. was fined $2,500 and suspended for 10 business days for impersonating a customer on a telephone call to a financial services company. FINRA considered that Derbin's member firm had already sanctioned him with a $5,000 fine, 30-day suspension, forfeiture of commissions, and required training.

Derbin's customer wanted to transfer her retirement plan from one fund provider to another. Derbin attempted a three-way telephone call with the existing fund provider, the customer, and himself for the sole purpose of determining the type of retirement account the customer had. However, the customer did not answer the attempted three-way call.

On the ensuing phone call between Derbin and the fund provider, Derbin identified himself as the customer. He provided the fund provider with the customer's date of birth, social security number, maiden name, and account number to convince the fund provider that he was the customer. Derbin then asked the fund provider what type of retirement plan the customer owned. The fund provider did not provide this information and instead requested a call back number, which Derbin declined to provide. The fund provider refused to provide the information and alerted Derbin's firm.

When the firm confronted Derbin, he twice falsely stated that he believed the customer was on the line when the call was made to the fund provider. This false statement compounds the violation by demonstrating Derbin lied to his firm about his conduct.

Customer impersonation is a serious form of fraud that violates customer privacy and creates significant risks. By obtaining access to customer account information through impersonation, representatives could make unauthorized changes to accounts, withdraw funds, or obtain sensitive information for improper purposes. Even though Derbin's stated purpose was simply to determine the account type to facilitate a legitimate transfer, the method he used was improper and created potential for abuse.

The use of the customer's social security number, date of birth, maiden name, and account number during the impersonation is particularly concerning because these are the exact types of information used to verify identity and gain access to accounts. If Derbin was willing to impersonate a customer for a seemingly innocent purpose, it raises questions about whether he would do so for other purposes.

For investors, this case illustrates the importance of protecting personal information and being aware that representatives should never impersonate customers, even for seemingly legitimate reasons. If a representative needs account information, they should obtain proper authorization or have the customer make the call themselves. The suspension was in effect from June 21, 2022, through July 5, 2022.

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According to FINRA, Jared Eli Ellis was assessed a deferred fine of $5,000 and suspended for five months for willfully failing to timely amend his Form U4 to disclose that he had been charged with four felonies.

Ellis learned that he was charged with a felony for domestic assault but did not disc...

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According to FINRA, Jared Eli Ellis was assessed a deferred fine of $5,000 and suspended for five months for willfully failing to timely amend his Form U4 to disclose that he had been charged with four felonies.

Ellis learned that he was charged with a felony for domestic assault but did not disclose the felony charge on his Form U4 until over two years later. On a separate occasion, Ellis was charged with three felonies for domestic assault but did not disclose the charges until over four months after learning of them.

Form U4 is the uniform registration form used by the securities industry to register individuals with regulatory authorities. Question 14 on Form U4 requires registered persons to disclose criminal charges, including felonies. Individuals must amend their Form U4 within 30 days of learning about events that require disclosure.

The disclosure of criminal charges is critical for investor protection. Felony charges, particularly those involving violence like domestic assault, raise serious questions about an individual's character and fitness to work in a position of trust handling other people's money. Firms and regulators need timely information about criminal charges to evaluate whether the individual should continue in a customer-facing role and whether enhanced supervision is needed.

Ellis's delays in disclosure were substantial: over two years for the first charge and over four months for the three subsequent charges. These were not minor oversights but prolonged failures to disclose serious criminal matters. The fact that all four felonies involved domestic assault is particularly concerning because it demonstrates a pattern of alleged violent behavior.

FINRA found the failures to be willful, meaning Ellis knew or should have known about his disclosure obligations but failed to comply. Willful violations are more serious than negligent violations because they demonstrate intentional disregard for regulatory requirements.

For investors, this case illustrates the importance of reviewing a financial professional's Form U4 disclosure record through FINRA BrokerCheck. Criminal charges, especially felonies involving violence, are serious red flags that investors should consider when deciding whether to work with a financial professional. The fact that some representatives fail to timely disclose such charges makes it even more important for investors to periodically check their financial professional's BrokerCheck record for any new disclosures. The suspension is in effect from June 6, 2022, through November 5, 2022.

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According to FINRA, Jordan Ross Helfgott was fined $5,000 and suspended for 45 days for forging seven signatures of a firm customer and his son on a variable life insurance application and related documents.

Helfgott forged signatures on four documents: three times on a variable universal life in...

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According to FINRA, Jordan Ross Helfgott was fined $5,000 and suspended for 45 days for forging seven signatures of a firm customer and his son on a variable life insurance application and related documents.

Helfgott forged signatures on four documents: three times on a variable universal life insurance application and four times on three documents evidencing receipt of the policy. He submitted all of the forged documents for processing. While the customer authorized Helfgott to purchase the variable universal life insurance policy on his behalf, neither the customer nor his son gave him permission to sign their names on any of the documents.

Document forgery is a serious form of fraud that violates customer rights and creates false records. Insurance applications and policy receipt documents require signatures for important legal and compliance purposes. The signature on an insurance application verifies that the applicant reviewed the information, understands the policy terms, and consents to the purchase. Receipt documents verify the customer received the policy and related disclosures.

When a representative forges these signatures, even with general authorization to purchase the policy, it creates several problems. First, it falsely represents that the customers personally reviewed and signed documents they never saw. Second, if questions later arise about whether the customers understood the policy terms or received proper disclosures, there will be no legitimate signed documents to refer to. Third, the insurance company relies on these signatures to verify proper procedures were followed.

The fact that Helfgott forged seven separate signatures across multiple documents indicates this was not a one-time shortcut but a pattern of falsifying documents. The customer's son, the proposed insured, apparently never authorized any aspect of Helfgott's actions yet had his signature forged multiple times.

While the customer wanted the policy and authorized Helfgott to purchase it, the forgery of signatures still violated securities laws and insurance regulations. The proper procedure would have been to have the customer and his son actually sign the documents or, if signing on their behalf was necessary, to use proper powers of attorney or indicate that Helfgott was signing as their authorized representative.

For investors, this case illustrates the importance of personally reviewing and signing all financial documents. Representatives should never sign customers' names to documents, even when customers have authorized the underlying transaction. Customers who discover forged signatures should immediately report them to the firm's compliance department and to regulators. The suspension is in effect from June 21, 2022, through August 4, 2022.

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According to FINRA, Palmery Robert Desir was fined $5,000 and suspended for four months for excessively and unsuitably trading a customer's account. Restitution was not ordered because the customer initiated an arbitration pertaining to Desir's excessive trading.

The customer's account had an ave...

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According to FINRA, Palmery Robert Desir was fined $5,000 and suspended for four months for excessively and unsuitably trading a customer's account. Restitution was not ordered because the customer initiated an arbitration pertaining to Desir's excessive trading.

The customer's account had an average equity of approximately $700,000, and Desir recommended that the customer place trades with a total principal value of $3,860,000. The customer relied on Desir's advice and accepted his recommendations. Collectively, Desir's recommended trades caused the customer to pay over $134,900 in commissions and other trading costs, resulting in an annualized cost-to-equity ratio of 20 percent. This means the customer's account would have had to grow by more than 20 percent annually just to break even.

Excessive trading, also known as churning, occurs when a representative trades a customer's account primarily to generate commissions rather than to benefit the customer. A 20 percent cost-to-equity ratio is extraordinarily high and clearly excessive. For context, a conservative long-term investor might expect annual returns of 6-8 percent. When trading costs consume 20 percent of the account value annually, the account would need to generate returns far exceeding normal market returns just to avoid losses.

The $3,860,000 in total principal value of trades in an account with $700,000 average equity represents extreme turnover. This level of trading activity suggests the account was being churned through frequent buying and selling of securities, each transaction generating commissions for Desir while devastating the customer's account through trading costs.

The fact that the customer has initiated an arbitration indicates they recognized the harm caused by this excessive trading and are seeking to recover their losses. Arbitration is the process most customers use to pursue claims against their brokers and firms for misconduct.

For investors, this case illustrates the devastating impact excessive trading can have on account performance. High levels of trading activity, particularly in accounts meant for long-term growth, should raise immediate red flags. Investors should carefully review their account statements to understand total trading costs as a percentage of account value. As a general rule, if annual trading costs exceed 4-5 percent of account value, the trading is likely excessive. This case's 20 percent cost-to-equity ratio is spectacularly high and clearly unsuitable. Investors experiencing high levels of trading activity should question their representative and consider whether the trading serves their interests or primarily generates commissions. The suspension is in effect from June 21, 2022, through October 20, 2022.

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According to FINRA, Camille Cordova was assessed a deferred fine of $5,000 and suspended for three months for making unsuitable recommendations for a family trust formed by a senior married couple. Restitution was not ordered because Cordova's member firm compensated the trust in connection with set...

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According to FINRA, Camille Cordova was assessed a deferred fine of $5,000 and suspended for three months for making unsuitable recommendations for a family trust formed by a senior married couple. Restitution was not ordered because Cordova's member firm compensated the trust in connection with settlement of an arbitration claim.

Cordova and another registered representative at the firm recommended that the trust purchase a deferred variable annuity for approximately $540,000 and fund that purchase through two withdrawals from an indexed annuity owned by the trust. Cordova completed and signed the application for the variable annuity as the primary financial professional.

Cordova and the other representative were aware that funding the purchase of the variable annuity with withdrawals from the trust's existing annuity could result in negative tax consequences for the trust. They were also aware that their recommendation to purchase the variable annuity would not be suitable if it caused negative tax consequences. However, neither Cordova nor the other representative researched how the trust might purchase the variable annuity without negative tax consequences.

Instead, the other representative recommended that the trust withdraw funds from the indexed annuity via two checks payable to the trust and immediately endorse the checks as payable to the firm to fund the purchase of the variable annuity. The other representative mistakenly believed that having the trust immediately endorse the checks as payable to the firm would avoid adverse tax consequences, but did not confirm that belief. Cordova knew of and acquiesced to this funding recommendation without doing any of her own additional research.

The withdrawal of funds from the indexed annuity were, in fact, taxable events that resulted in negative tax consequences to the trust. These adverse tax consequences could have been avoided if Cordova or the other representative had recommended the new variable annuity be purchased as a tax-free 1035 exchange, but they failed to research that option.

A 1035 exchange is a provision of the tax code that allows tax-free exchanges of certain insurance products, including annuities. By failing to research and recommend a 1035 exchange, the representatives caused the trust to incur unnecessary taxes on the annuity withdrawal, making the overall recommendation unsuitable.

For investors, particularly those with trusts or complex financial situations, this case illustrates the importance of working with representatives who thoroughly research tax implications before making recommendations. Annuity exchanges and transfers can have significant tax consequences, and representatives must understand these consequences and structure transactions to minimize unnecessary taxes. The suspension is in effect from June 6, 2022, through September 5, 2022.

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