Bad Brokers

According to FINRA, Craig Jay Sherman was assessed a deferred fine of $5,000, suspended from association with any FINRA member in any principal capacity for four months, and required to complete 40 hours of continuing education concerning supervisory responsibilities for failing to reasonably discha...

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According to FINRA, Craig Jay Sherman was assessed a deferred fine of $5,000, suspended from association with any FINRA member in any principal capacity for four months, and required to complete 40 hours of continuing education concerning supervisory responsibilities for failing to reasonably discharge supervisory responsibilities specifically assigned to him.

Sherman failed to reasonably investigate potential churning or excessive trading by two registered representatives and failed to review representatives' emails as required. His supervisory failures allowed these two representatives to excessively trade customer accounts, ultimately charging customers more than $300,000 in excess commissions and fees in less than six months.

Sherman did not identify that the two representatives were engaging in excessive trading despite multiple opportunities to do so. Moreover, when red flags of excessive trading were specifically presented to him, Sherman failed to reasonably investigate them. This allowed the harmful trading to continue unchecked while customers incurred devastating losses.

Sherman's complete failure to conduct any reviews of representatives' emails compounded the problem. Had he reviewed emails as required by his supervisory responsibilities, he would have discovered several serious problems. First, the emails would have revealed that the two representatives were recommending securities transactions in accounts despite not being registered in the customers' home states. Second, he would have discovered that a third representative falsified the firm's books and records to make it appear he was the customers' registered representative of record when he was not actually making the securities recommendations. Third, email reviews would have shown that the two unregistered representatives were communicating with customers, sending new account forms, and asking customers to deposit funds.

Sherman knew that the two representatives had been unable to obtain registrations in many states after they joined the firm. He also knew that the third representative, who had virtually no experience and was recruited by one of the unregistered representatives, became registered in many of those same states shortly after the others were unable to do so. Despite these obvious red flags suggesting the unregistered representatives might be improperly conducting business in states where they lacked registration, Sherman did not investigate by reviewing emails or contacting customers.

Had Sherman contacted customers, he would have learned that the two unregistered representatives, not the third representative of record, were actually making securities recommendations. This scheme allowed the unregistered representatives to effectively continue their business in states where they were not registered by using a complicit third party as a front.

The four-month suspension and requirement to complete 40 hours of continuing education reflect the seriousness of Sherman's supervisory failures and the substantial harm to customers that resulted.

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According to FINRA, Albert Lewis DeGaetano was assessed a deferred fine of $7,500 and suspended from association with any FINRA member in all capacities for six months for executing securities transactions in customer accounts without authorization and for making materially inaccurate statements con...

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According to FINRA, Albert Lewis DeGaetano was assessed a deferred fine of $7,500 and suspended from association with any FINRA member in all capacities for six months for executing securities transactions in customer accounts without authorization and for making materially inaccurate statements concerning his firm identity and job title.

DeGaetano executed securities transactions without speaking to any customer representative after speaking with an employee of a customer who was not an authorized party on the customer's accounts. The unauthorized transactions included purchases of exchange traded funds and bonds with a total principal value of approximately $7.2 million and generated approximately $113,000 in total trading costs. The firm reimbursed the customer for these trading costs, but the unauthorized trading represented a serious breach of DeGaetano's obligations.

In addition to these large unauthorized trades, DeGaetano executed unauthorized securities transactions with a total principal value of approximately $30,721 in three other customer accounts, demonstrating a pattern of trading without proper authorization rather than an isolated incident.

Unauthorized trading is a fundamental violation of customer rights. Customers must authorize transactions in their accounts (unless they have granted written discretionary authority, which was not the case here). By executing trades without speaking to authorized representatives on the accounts, DeGaetano exceeded his authority and exposed customers to unwanted market risk and trading costs.

DeGaetano's violations extended beyond unauthorized trading to misrepresentations about his identity and employment. He used the online interface of his firm's clearing firm to order business cards identifying himself as a senior vice president of the clearing firm. However, DeGaetano was never associated with or employed by the clearing firm and did not hold the title of senior vice president. Despite this, he used these fraudulent business cards when meeting with customers and others.

Additionally, DeGaetano inaccurately referred to the clearing firm as his employer in calls he made to his former firm and another individual. These misrepresentations created confusion about who DeGaetano worked for and what his actual position and authority were. Customers and others who received his business cards or heard him describe himself as a senior vice president of the clearing firm were misled about his true employment and title.

Misrepresenting one's employer and title is serious because customers make decisions about whom to trust based in part on the firm affiliation and position of the representative. The clearing firm's reputation may have given customers false confidence in DeGaetano's authority and oversight.

The six-month suspension reflects both the unauthorized trading and the misrepresentations about employment and title. Investors should verify representatives' employment and titles through FINRA's BrokerCheck system.

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According to FINRA, Stacy Leflore was suspended from association with any FINRA member in all capacities for six months for making reckless misrepresentations in a loan application and loan agreement submitted to the Small Business Administration to obtain an Economic Injury Disaster Loan. In light ...

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According to FINRA, Stacy Leflore was suspended from association with any FINRA member in all capacities for six months for making reckless misrepresentations in a loan application and loan agreement submitted to the Small Business Administration to obtain an Economic Injury Disaster Loan. In light of Leflore's financial status, no monetary sanction was imposed.

Leflore misrepresented that she was the owner of a personal shopping business that had earned revenue and incurred costs. In reality, she did not have a disclosed outside business activity with her firm and did not have a business eligible for the Economic Injury Disaster Loan from the Small Business Administration.

Leflore had established a personal shopping business years earlier that she intended to reinstitute as a business after the expected closure of the branch at which she worked. However, the business had never earned any money and was completely inactive at the time she applied for the loan. Despite knowing her business was inactive and had never generated revenue, Leflore represented on the application that it had earned revenue and incurred costs.

Based on Leflore's misrepresentations, the Small Business Administration approved her loan application. Leflore then signed a loan agreement with the Small Business Administration while affirming that the representations in her applications were correct, even though she knew they were false. Subsequently, the Small Business Administration provided Leflore with a $2,000 loan.

By signing the loan agreement while affirming false representations, Leflore compounded her initial misrepresentations on the application. She had an opportunity to correct the false information before accepting the loan but instead affirmed its accuracy and accepted the money.

The Economic Injury Disaster Loan program was designed to help businesses that were suffering economic injury due to the COVID-19 pandemic. By misrepresenting that her inactive business had earned revenue and incurred costs, Leflore fraudulently obtained money intended for legitimate businesses that genuinely needed assistance.

This case is similar to other Economic Injury Disaster Loan fraud cases FINRA has prosecuted, involving representatives who made false statements to obtain relatively small amounts of money from the program. While $2,000 may seem modest compared to larger frauds, the principle is the same—making false statements to obtain government benefits reflects dishonesty that creates concerns about fitness for the securities industry.

FINRA sanctions individuals for misconduct that reflects on their character and honesty, even when it does not directly involve securities transactions. Representatives who are willing to lie on government loan applications may also be willing to engage in dishonesty with customers.

The six-month suspension is longer than some other Economic Injury Disaster Loan cases, possibly because Leflore signed the loan agreement while affirming the false information, adding another layer of misrepresentation.

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According to FINRA, James E. Kelly was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for two weeks for engaging in a commission-sharing agreement with a registered representative of another firm without reflecting it on his firm's books and...

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According to FINRA, James E. Kelly was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for two weeks for engaging in a commission-sharing agreement with a registered representative of another firm without reflecting it on his firm's books and records.

Kelly received customer referrals from another registered representative who was registered through an affiliate of Kelly's firm. When these customers purchased variable annuity contracts through Kelly, he sent the referring representative checks totaling $118,007.95, representing about half of the commissions Kelly earned from the sales.

This commission-sharing arrangement was not reflected on Kelly's firm's books and records. While commission sharing between registered representatives can be legitimate, it must be properly documented and disclosed to ensure firms can supervise the arrangements and prevent inappropriate compensation practices.

The substantial amount of money involved—over $118,000—demonstrates that this was not an occasional informal arrangement but rather a systematic commission-sharing practice over multiple transactions. Splitting commissions roughly 50-50 with a representative who was making the referrals created financial incentives that should have been transparent to the firm.

Variable annuities are complex securities products that involve insurance and investment features. They generate substantial commissions, which is why they are frequently sold by registered representatives. When commissions are shared with referral sources, this can create incentives to refer customers to particular products or representatives based on compensation rather than suitability.

The requirement that commission-sharing arrangements be reflected on the firm's books and records serves several purposes. It allows firms to ensure that compensation arrangements comply with industry rules and firm policies. It enables firms to monitor for potential conflicts of interest or unsuitable recommendations driven by compensation incentives. It also ensures accurate recordkeeping for regulatory examinations.

By keeping the commission-sharing arrangement off the books, Kelly prevented his firm from supervising this aspect of his business. The firm had no way to know that Kelly was paying out half his commissions to a referral source, which could have raised questions about whether the referrals were appropriate and whether customers understood the compensation arrangement.

The relatively light sanctions—a two-week suspension and $5,000 deferred fine—suggest FINRA considered mitigating factors, possibly including that both individuals were registered representatives (as opposed to sharing commissions with unregistered persons) and that there was no finding that the underlying sales were unsuitable. However, the requirement to properly document commission-sharing arrangements is fundamental to supervision and recordkeeping obligations.

Investors should understand that registered representatives earn commissions on many products, and these commissions can influence recommendations. When commissions are shared with referral sources, this can create additional conflicts that should be disclosed.

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According to FINRA, Minh Duc Vo was assessed a deferred fine of $7,500 and suspended from association with any FINRA member in all capacities for four months for engaging in an undisclosed outside business activity, making false statements about it, and misappropriating confidential customer informa...

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According to FINRA, Minh Duc Vo was assessed a deferred fine of $7,500 and suspended from association with any FINRA member in all capacities for four months for engaging in an undisclosed outside business activity, making false statements about it, and misappropriating confidential customer information.

Vo engaged in an outside business activity by accepting an agent appointment with, and receiving compensation from, an outside insurance company without providing prior written notice to his firm. He sold a fixed indexed annuity offered by the insurance company to a longtime firm customer even though the insurer was not a firm-approved carrier. Vo received a commission from the insurance company for the sale.

When his firm discovered the sale and began an internal review, Vo made the situation worse by lying about it. He falsely stated that he did not sell the policy, denying the very conduct the firm was investigating. Vo also made false statements regarding his participation in the outside business activity in his compliance questionnaire, actively concealing his misconduct rather than disclosing it.

The violations escalated significantly when Vo learned he would be terminated from the firm. He downloaded non-public customer information for every customer of his firm branch office into a spreadsheet and emailed it to his personal email account. The spreadsheet contained customers' names, account numbers, and other non-public account details provided to the firm in confidence. This included information about individuals who were not even Vo's own customers.

Vo retained this confidential information after his termination, violating the firm's policies and doing so without the customers' knowledge or consent. His actions caused the firm to violate SEC Regulation S-P (Privacy of Consumer Financial Information), which requires firms to protect the security and confidentiality of customer information.

Misappropriating customer information is a serious violation because it exposes customers to risks of identity theft, fraud, and unwanted solicitations. Representatives who take customer information when leaving a firm typically intend to solicit those customers to move their accounts to the representative's new firm. This deprives the original firm of the opportunity to serve those customers and occurs without customer consent.

The combination of violations—undisclosed outside business activity, lying to the firm about it, lying on compliance questionnaires, and stealing confidential customer information—demonstrates a pattern of dishonesty and disregard for customer privacy and firm policies.

The four-month suspension and $7,500 deferred fine reflect the multiple serious violations. Investors should be concerned about representatives who have misappropriated customer information, as this indicates willingness to violate customer privacy and firm policies for personal benefit.

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According to FINRA, William W. LeBoeuf was assessed a deferred fine of $12,500 and suspended from association with any FINRA member in all capacities for 12 months for participating in private securities transactions without disclosure or approval, engaging in undisclosed outside business activity, ...

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According to FINRA, William W. LeBoeuf was assessed a deferred fine of $12,500 and suspended from association with any FINRA member in all capacities for 12 months for participating in private securities transactions without disclosure or approval, engaging in undisclosed outside business activity, and making false statements on compliance questionnaires.

LeBoeuf used his personal email to solicit his firm client, who was also a family member, to invest in a pooled real estate investment fund. He also solicited multiple investors, including firm clients, to invest in convertible promissory notes issued by a software company. He sent emails introducing the investment and recommending specific investment amounts to his investors.

LeBoeuf formed a limited liability company to facilitate investments in the software company and ensured investors' funds were wired to the company. Firm clients invested a total of $750,000 in the software company's convertible promissory notes based on LeBoeuf's solicitations and facilitation.

None of these activities were disclosed to or approved by his firms. LeBoeuf conducted these private securities transactions completely outside his firms' supervision and knowledge, depriving the firms of the opportunity to conduct due diligence on the investments and assess their suitability for customers.

LeBoeuf also engaged in an undisclosed outside business activity without providing prior written notice to or obtaining approval from his firm. While associated with his firm, he filed articles of incorporation for an LLC with the Ohio Secretary of State. He was the authorized signor for the company's bank account and was identified in the company's operating agreement as the member, sole manager, and partnership representative for tax purposes. This business activity should have been disclosed to his firm.

Adding to the violations, LeBoeuf falsely attested on annual compliance questionnaires that he had not used a personal device to communicate with clients using software not available from the firm, when in fact he had used personal email to solicit investments in the real estate fund and software company.

In the course of soliciting potential investors in the software company, LeBoeuf emailed a company presentation to investors that violated FINRA's communications standards. The presentation did not provide potential investors with an adequate basis to evaluate all relevant facts about the investment. It failed to adequately address the illiquidity of the proposed investment or the possibility of investment loss. It also failed to identify assumptions, limitations, impediments, and restrictions that could inhibit achievement of a yearly revenue forecast.

The 12-month suspension reflects the multiple serious violations including substantial selling away ($750,000 in software company investments), undisclosed outside business activity, false attestations on compliance questionnaires, and misleading communications with investors. LeBoeuf stated he did not receive selling compensation, which may have been a mitigating factor preventing an even longer suspension or bar.

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According to FINRA, Aaron Douglas Maurer was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in all capacities for two years for engaging in unapproved private securities transactions by soliciting investors to purchase securities issued by a company of which...

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According to FINRA, Aaron Douglas Maurer was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in all capacities for two years for engaging in unapproved private securities transactions by soliciting investors to purchase securities issued by a company of which he was a 25 percent owner and board member.

Maurer raised a total of $1,100,000 through securities transactions in which he solicited and sold membership units, which were equity interests, in the company to investors. Some of these investors were customers of his member firm. The substantial amount raised demonstrates this was not a small side activity but rather a significant selling effort conducted entirely outside his firm's knowledge and supervision.

Maurer had certified that he reviewed and understood his firm's written supervisory procedures, which prohibited representatives from engaging in private securities transactions whether or not there was compensation paid for effecting the transaction. The firm required all selling activities to be conducted through it. Despite this clear prohibition and Maurer's acknowledgment of understanding it, he proceeded to solicit and sell securities in his company.

Although Maurer disclosed his ownership interest in the company and role as a board member to the firm in an onboarding questionnaire related to his activities, he identified the company as a non-investment-related outside business activity. This characterization was misleading because he was actively raising capital by selling securities in the company. By mischaracterizing the nature of the activity, Maurer prevented the firm from understanding that he was engaged in securities sales.

Maurer did not provide written notice or receive approval from the firm for his participation in the transactions before beginning to solicit and sell investments in the company. The firm had no opportunity to conduct due diligence on the offering, review offering materials, assess suitability for customers, or supervise the sales process.

The conflict of interest in this case is particularly acute. Maurer was not just selling securities in any company—he was selling equity in a company he owned 25 percent of and served on the board of directors. He had a direct financial incentive to raise as much capital as possible and likely stood to personally benefit from the investments. This conflict should have been disclosed to his firm and to investors.

The two-year suspension is one of the longest suspensions (short of a bar) imposed in these disciplinary actions, reflecting the substantial amount of money raised ($1,100,000), the direct conflict of interest, the mischaracterization of the activity as non-investment-related, and the clear violation of firm procedures that Maurer had acknowledged understanding.

Investors should never invest in securities sold by a registered representative outside the representative's firm unless they first verify the firm has approved the transaction. This case demonstrates why—the representative had undisclosed conflicts and the firm had no opportunity to assess the investment.

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According to FINRA, Robert Anthony Guidicipietro was fined $5,000, suspended from association with any FINRA member in all capacities for four months, and ordered to pay $35,219.74 plus interest in restitution to a customer for excessively and unsuitably trading in an elderly customer's account.

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According to FINRA, Robert Anthony Guidicipietro was fined $5,000, suspended from association with any FINRA member in all capacities for four months, and ordered to pay $35,219.74 plus interest in restitution to a customer for excessively and unsuitably trading in an elderly customer's account.

Guidicipietro recommended that the customer place trades—all on margin—in his account, and the customer accepted his recommendations. The use of margin for all trades in an elderly customer's account raises immediate suitability concerns, as margin amplifies both gains and losses and is typically inappropriate for elderly investors with limited risk tolerance.

Collectively, the trades that Guidicipietro recommended caused the customer to pay $35,219.74 in commissions and fees and resulted in a cost-to-equity ratio of more than 34 percent. This means the customer's investments had to grow by more than 34 percent just to break even after paying commissions and fees—an unrealistic expectation for most investment strategies, particularly for an elderly customer who likely had conservative investment objectives.

As a result of Guidicipietro's unsuitable recommendations, the customer realized a loss of approximately $35,000. This is a devastating loss for most investors, and particularly harmful for an elderly customer who may have limited ability to recoup losses through additional earnings or time in the market.

The fact that the customer was elderly is an aggravating factor. FINRA rules provide enhanced protections for senior investors, recognizing that they may be more vulnerable to unsuitable recommendations, may have limited time horizons for recovering from losses, and may be more susceptible to pressure or persuasion from trusted financial professionals.

Recommending margin trading to an elderly customer is particularly problematic. Margin involves borrowing money from the brokerage firm to purchase securities, using the account securities as collateral. While margin can amplify gains, it also amplifies losses and requires payment of interest charges. If the account value drops significantly, the customer faces a margin call requiring immediate deposit of additional funds or forced liquidation of securities at unfavorable prices. These risks are generally inappropriate for elderly investors.

The 34 percent cost-to-equity ratio, combined with the $35,000 customer loss and the elderly customer's vulnerability, warranted significant sanctions. FINRA ordered full restitution of $35,219.74 plus interest to compensate the customer for the excessive costs incurred. The four-month suspension and $5,000 fine provide additional punishment and deterrence.

Elderly investors should be particularly cautious about recommendations for frequent trading, margin usage, or investment strategies with high costs relative to account size. Family members should help elderly investors monitor accounts for signs of excessive trading or unsuitable recommendations.

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According to FINRA, Ian E. James was fined $10,000 and suspended from association with any FINRA member in all capacities for two months for failing to timely amend his Form U4 to disclose a federal tax lien totaling $59,997.08 and for engaging in undisclosed outside business activity related to a m...

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According to FINRA, Ian E. James was fined $10,000 and suspended from association with any FINRA member in all capacities for two months for failing to timely amend his Form U4 to disclose a federal tax lien totaling $59,997.08 and for engaging in undisclosed outside business activity related to a medical marijuana company.

James became aware that the IRS had filed a federal tax lien against him but failed to promptly disclose it on his Form U4 as required. Making matters worse, he subsequently inaccurately stated on his firm's annual compliance questionnaire that he had made all necessary amendments to his Form U4, even though he had not disclosed the tax lien. This false attestation on the compliance questionnaire showed dishonesty beyond the initial failure to disclose.

James only belatedly disclosed the lien on his Form U4 after FINRA inquired about it with his firm, suggesting he would have continued concealing it had FINRA not discovered it through other means.

Beyond the disclosure failure, James engaged in an outside business activity related to a medical marijuana company without providing written notice to his firm. Through an entity he owned, James made a capital contribution to the medical marijuana company in the form of a promissory note in exchange for partial ownership interest. He also formed and became the managing member of a new LLC to engage in operational activity for the medical marijuana company.

James expected to serve as the company's chief financial officer and expected to obtain compensation both in that capacity and in connection with his ownership interest in the company. This was not a passive investment but rather an active business role that required disclosure to his firm.

The business relationship ultimately soured. James, through the entity he owned, filed a lawsuit alleging that the medical marijuana company and its founder breached agreements he had executed, preventing him from obtaining the future profits he had anticipated. James received a monetary settlement in connection with the lawsuit.

The involvement with a medical marijuana company raises additional concerns beyond typical outside business activities. While marijuana businesses are legal in some states, they remain illegal under federal law, creating compliance and regulatory risks. Financial institutions, including FINRA member firms, face challenges in servicing marijuana-related businesses due to federal banking restrictions and anti-money laundering concerns. James's firm should have been informed of his involvement so it could assess these risks and determine whether the activity was appropriate.

The combination of failing to disclose a substantial tax lien, lying on compliance questionnaires about making required amendments, and engaging in undisclosed outside business activity involving a marijuana company warranted the $10,000 fine and two-month suspension.

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According to FINRA, Pasquale James Rappa was fined $5,000, suspended from association with any FINRA member in any principal capacity for two months, and ordered to complete 20 hours of continuing education concerning supervisory responsibilities for failing to reasonably supervise a registered repr...

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According to FINRA, Pasquale James Rappa was fined $5,000, suspended from association with any FINRA member in any principal capacity for two months, and ordered to complete 20 hours of continuing education concerning supervisory responsibilities for failing to reasonably supervise a registered representative who excessively and unsuitably traded in customer accounts, including accounts of senior investors.

Rappa was directly responsible for supervising the representative, who was under heightened supervision at the time of the violations. Heightened supervision typically occurs when a representative has previous violations, customer complaints, or other red flags that require closer monitoring than standard supervision. The fact that the representative was under heightened supervision makes Rappa's supervisory failures even more serious.

Despite the heightened supervision requirement, Rappa was aware of multiple red flags of excessive and unsuitable trading in customer accounts but failed to reasonably investigate and take appropriate action to address those red flags. Two of the affected customers were senior investors, who are entitled to enhanced protections under FINRA rules given their vulnerability.

Had Rappa reasonably investigated the red flags he observed, he would have learned that the representative was excessively trading customer accounts. The trading resulted in annualized turnover rates and annualized cost-to-equity ratios that far exceeded typical benchmarks for excessive trading. These metrics are standard tools supervisors should use to identify potentially excessive trading.

When a supervisor is aware of red flags but fails to investigate, this allows harmful conduct to continue and expand. Rappa's failure to act permitted the representative to continue excessively trading customer accounts, generating commissions for the representative while causing losses for customers.

The requirement for heightened supervision exists specifically to provide additional oversight for representatives who pose elevated risks. When heightened supervision is ordered but not properly implemented, it defeats the purpose of this enhanced protection. Firms and supervisors must take heightened supervision seriously and actually conduct the enhanced monitoring and investigation that the designation requires.

The two-month suspension in principal capacity means Rappa cannot serve in supervisory roles during that period, though he can continue working in non-supervisory capacities. This sanction targets the specific area where he violated his obligations. The requirement to complete 20 hours of continuing education on supervisory responsibilities is designed to ensure Rappa understands his obligations before resuming supervisory duties.

This case illustrates that supervisors cannot ignore red flags, particularly when representatives are under heightened supervision and customers are seniors. Supervisors must investigate suspicious patterns and take action to stop unsuitable conduct.

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