Bad Brokers

According to FINRA, LPL Financial LLC was censured and ordered to pay $982,354 in restitution to customers for failing to establish and maintain a supervisory system reasonably designed to supervise registered representatives' recommendations to customers to rollover 529 savings plan investments fro...

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According to FINRA, LPL Financial LLC was censured and ordered to pay $982,354 in restitution to customers for failing to establish and maintain a supervisory system reasonably designed to supervise registered representatives' recommendations to customers to rollover 529 savings plan investments from one state plan to another. No fine was imposed in recognition of the firm's extraordinary cooperation through voluntary participation in FINRA's 529 Plan Share Class Initiative.

The firm was found in violation of supervisory obligations related to 529 plan rollovers. LPL sold 529 plans that offered sales charge waivers or Class AR shares when a customer held Class A shares in one state-sponsored 529 plan but decided to roll over the shares into another state's 529 plan. However, the firm did not establish and maintain a system to determine that the waivers were applied to each eligible transaction or that eligible customers received Class AR shares.

Specifically, LPL had no policies or procedures to identify those 529 plans that offered rollover sales charge waivers or Class AR shares. The firm failed to adequately notify and train its representatives regarding the availability of sales charge waivers and Class AR shares. Likewise, the firm failed to adopt any controls to detect instances where it did not provide customers with available waivers or Class AR shares in connection with eligible rollovers. As a result, LPL failed to apply available sales charge waivers or recommend Class AR shares to thousands of transactions with an aggregate principal value of approximately $28 million, which resulted in the firm overcharging customers $982,354 in front-end sales charges.

When families move to a different state or find a 529 plan with better investment options or lower fees, they may roll over their existing 529 plan to a new plan. Many 529 plans offer sales charge waivers or special share classes with lower fees for customers rolling over from another 529 plan, recognizing that the customer is transferring an existing investment rather than making a new one. These waivers can save customers significant money. This case demonstrates that firms must have systems to identify available discounts and ensure customers receive them. Investors considering 529 plan rollovers should ask whether sales charge waivers are available.

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According to FINRA, MML Investors Services, LLC was censured and ordered to pay $617,726.28 in restitution to customers for failing to reasonably supervise registered representatives' 529 plan share-class recommendations and for failing to reasonably supervise mutual fund and 529 plan transactions f...

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According to FINRA, MML Investors Services, LLC was censured and ordered to pay $617,726.28 in restitution to customers for failing to reasonably supervise registered representatives' 529 plan share-class recommendations and for failing to reasonably supervise mutual fund and 529 plan transactions for available breakpoints. No fine was imposed in recognition of the firm's extraordinary cooperation through voluntary participation in FINRA's 529 Plan Share Class Initiative.

The firm was found in violation of supervisory requirements in two key areas. First, regarding 529 plan share classes, MML's supervisory systems and procedures were not reasonably designed. The firm failed to provide supervisors with adequate guidance and information necessary to evaluate suitability of representatives' share-class recommendations and failed to provide representatives with guidance regarding share-class suitability factors specific to 529 plan investments. Although supervisors were required to review and approve all 529 plan transactions, procedures did not specifically address the relationship between account beneficiary age, years until funds would be needed for education expenses, and share-class suitability. Supervisors approved 529 plan Class C share transactions without access to or consideration of beneficiary age, a relevant suitability factor. Moreover, the firm conducted no training for representatives regarding 529 plan share classes.

Second, regarding breakpoints, MML failed to reasonably supervise mutual fund and 529 plan transactions for available breakpoint discounts. The firm's supervisory system was not reasonably designed to identify and apply all available breakpoints. The firm required representatives to complete breakpoint worksheets for Class A share purchases, but did not require and representatives often could not complete worksheets for direct or automatic contribution transactions made subsequent to initial investments, because such contributions were sometimes made without representative involvement. The firm relied on an exception report to identify missed breakpoints, but this report only captured transactions of $500 or more. Consequently, the firm failed to have a system reasonably designed to aggregate customers' contributions to mutual funds and 529 plans for breakpoint purposes if contributions were less than $500. Breakpoints are volume discounts that reduce sales charges for larger investments, and investors should understand how to qualify for them to minimize costs.

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According to FINRA, UBS Financial Services Inc. was censured and ordered to pay $4,059,652.95 in restitution to customers for failing to establish and maintain a supervisory system reasonably designed to supervise 529 plan share-class recommendations. No fine was imposed in recognition of the firm's...

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According to FINRA, UBS Financial Services Inc. was censured and ordered to pay $4,059,652.95 in restitution to customers for failing to establish and maintain a supervisory system reasonably designed to supervise 529 plan share-class recommendations. No fine was imposed in recognition of the firm's extraordinary cooperation through voluntary participation in FINRA's 529 Plan Share Class Initiative.

The firm was found in violation of supervisory obligations related to 529 college savings plans. UBS did not apply its supervisory controls to off-platform 529 plan transactions and did not adapt its share-class suitability procedures to 529 plans. The firm's supervisors were permitted to approve new 529 plan recommendations and authorize creation of mirror accounts at the firm after a general review of the 529 plan application and the firm's new account application. However, these documents were not designed to detect potentially unsuitable 529 plan share-class recommendations. Although supervisors were required to conduct a suitability review, no specific suitability review of the recommended share class was required.

Initial contributions at account opening were done directly at the 529 plans and were not subjected to the share class calculator or transaction restrictions that UBS required for mutual funds. Although the firm applied its supervisory controls for mutual funds to subsequent recommendations effected through 529 plan mirror accounts, the firm did not adapt those controls to 529 plan investments. The firm also did not adapt its mutual fund share-class suitability guidelines to 529 plan investments. UBS's written supervisory procedures did not reasonably address the relationship between 529 plan account beneficiary age, investment time horizon, and share class costs.

This case represents the largest restitution amount among the firms involved in FINRA's 529 Plan Share Class Initiative, highlighting the significant financial harm caused by unsuitable share class recommendations. Section 529 plans are important vehicles for college savings, and the selection of the appropriate share class can have a substantial impact on investment returns over time. Class C shares generally have higher ongoing expenses than Class A shares, making them less suitable for long time horizons typical of young beneficiaries. Investors should carefully review 529 plan share class recommendations and ensure they align with their beneficiary's age and time until college enrollment.

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According to FINRA, Wells Fargo Advisors Financial Network, LLC and Wells Fargo Clearing Services, LLC were censured and ordered to pay $3,367,929 jointly and severally in restitution to customers for failing to establish and maintain a supervisory system reasonably designed to supervise representat...

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According to FINRA, Wells Fargo Advisors Financial Network, LLC and Wells Fargo Clearing Services, LLC were censured and ordered to pay $3,367,929 jointly and severally in restitution to customers for failing to establish and maintain a supervisory system reasonably designed to supervise representatives' 529 plan share-class recommendations. No fines were imposed in recognition of the firms' extraordinary cooperation.

The firms were found in violation of supervisory obligations related to 529 college savings plans. The firms shared written supervisory procedures that did not reasonably address the share-class suitability factors specific to 529 plan investments. The procedures for 529 plans did not specifically address the relationship between account beneficiary age, the number of years until funds would be needed to pay qualified education expenses, and 529 plan share-class suitability. Instead, the procedures merely referenced suitability factors generally applicable to all investment products, such as fees and expenses, investment objective, and risk tolerance.

Additionally, the firms' electronic alert system did not include parameters to identify 529 plan share-class recommendations that appeared to be inconsistent with the age of the account beneficiary or the account's stated investment horizon. As a result, the firms failed to provide supervisors with the tools to alert them to Class C share recommendations that may have been inconsistent with the account beneficiary's age. Class C shares typically have higher ongoing expenses and shorter suggested holding periods than Class A shares, making them generally unsuitable for young beneficiaries with long time horizons until college.

This case is part of FINRA's broader 529 Plan Share Class Initiative, which resulted in nearly $17 million in restitution to approximately 10,000 investors across multiple firms. The initiative demonstrates FINRA's commitment to using targeted examinations, or "sweeps," to identify systemic issues across the industry and ensure harmed investors receive restitution. Investors with 529 plans should review their account statements and share class selection to ensure they are not paying excessive ongoing fees due to unsuitable share class recommendations. Parents and grandparents saving for college should ask their financial advisors to explain the differences between share classes and why a particular share class is recommended based on the beneficiary's age.

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According to FINRA, Rodney Deleths Washington was barred from association with any FINRA member in all capacities for refusing to provide documents and information requested by FINRA in connection with its investigation.

Washington was found in violation of FINRA's rule requiring associated perso...

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According to FINRA, Rodney Deleths Washington was barred from association with any FINRA member in all capacities for refusing to provide documents and information requested by FINRA in connection with its investigation.

Washington was found in violation of FINRA's rule requiring associated persons to cooperate with regulatory investigations. FINRA initiated an investigation into whether Washington had engaged in an undisclosed outside business and other potentially violative conduct. During the investigation, FINRA requested documents and information from Washington. However, Washington refused to provide the requested materials, obstructing FINRA's ability to investigate potential securities violations.

The obligation to cooperate with FINRA investigations is a fundamental requirement for all individuals associated with FINRA member firms. This obligation exists because self-regulatory organizations like FINRA depend on the cooperation of industry participants to effectively oversee the securities industry and protect investors. When individuals refuse to provide information or documents, they impede FINRA's ability to investigate potential misconduct, determine whether violations occurred, and take appropriate action to protect investors.

Refusal to cooperate with FINRA investigations typically results in a bar, which is permanent absent an application for reentry after a specified period. A bar prohibits an individual from associating with any FINRA member firm in any capacity, effectively ending their career in the securities industry. Investors can check whether a financial professional has been barred or has other disciplinary history by using FINRA's free BrokerCheck tool at www.finra.org/brokercheck. This case serves as a reminder that securities professionals must cooperate fully with regulatory investigations. Investors should be aware that a bar for failure to cooperate often indicates that an individual had something to hide, as those with nothing to conceal typically cooperate with investigations. The bar protects investors by removing from the industry individuals who refuse to be held accountable.

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According to FINRA, Thomas Patrick Barton III was barred from association with any FINRA member in all capacities for electronically signing the names of individuals on five fictitious insurance policy applications without their prior permission and submitting the forged applications to an insurance...

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According to FINRA, Thomas Patrick Barton III was barred from association with any FINRA member in all capacities for electronically signing the names of individuals on five fictitious insurance policy applications without their prior permission and submitting the forged applications to an insurance company.

Barton was found in violation of ethical standards prohibiting forgery and fraud. On each fictitious application, Barton designated his own bank account for the automatic premium payments. None of the individuals whose names he forged had authorized Barton to sign their names on the applications, and none of them had discussed purchasing insurance through him. The scheme came to light when one of the individuals contacted the insurance company and inquired about why she and her spouse had been issued policies they never requested.

When confronted, Barton claimed the policies had been issued by mistake, but he did not disclose that he had created a third unauthorized application. Several weeks later, demonstrating a pattern of continued misconduct, Barton created two additional fictitious policy applications. This conduct represents a serious breach of trust and demonstrates intent to defraud, as Barton stood to benefit from the premium payments being drawn from his own account, suggesting a scheme to generate commissions while controlling the payment mechanism.

Forgery and the creation of fictitious applications are among the most serious violations in the securities and insurance industries because they involve intentional dishonesty and breach of fiduciary duty. Such conduct directly harms consumers and undermines the integrity of financial markets. The bar in this case is appropriate given the intentional and repeated nature of Barton's misconduct. Investors should be vigilant about unauthorized accounts or insurance policies opened in their names. Regularly reviewing credit reports and monitoring for unexpected insurance policies or account statements can help detect identity theft or forgery. This case serves as a warning that individuals who engage in forgery and fraud face permanent removal from the industry. Investors should verify that any insurance policies or investment accounts were properly authorized before making premium payments or deposits.

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According to FINRA, Gaetano Salvatore Ciambriello was barred from association with any FINRA member in all capacities for failing to appear for on-the-record testimony requested by FINRA during the course of its investigation.

Ciambriello was found in violation of FINRA's rule requiring cooperati...

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According to FINRA, Gaetano Salvatore Ciambriello was barred from association with any FINRA member in all capacities for failing to appear for on-the-record testimony requested by FINRA during the course of its investigation.

Ciambriello was found in violation of FINRA's rule requiring cooperation with regulatory investigations. FINRA's investigation related to a Form U5 filed by Ciambriello's member firm stating he was discharged for reasons including engaging in an outside business activity (OBA). Form U5 is the Uniform Termination Notice for Securities Industry Registration, which firms must file when a registered person's employment terminates. When a Form U5 discloses termination for cause or other potentially violative conduct, FINRA typically investigates to determine whether securities violations occurred.

As part of its investigation, FINRA requested that Ciambriello appear for on-the-record testimony to answer questions under oath about the circumstances of his termination and the alleged outside business activity. On-the-record testimony is a formal investigative tool that allows FINRA staff to ask questions and obtain sworn testimony about matters under investigation. However, Ciambriello failed to appear for the scheduled testimony, obstructing FINRA's investigation.

The requirement to appear for testimony is a critical component of FINRA's investigative authority. Without the ability to question individuals under oath, FINRA would be unable to effectively investigate potential violations and protect investors. Failure to appear for testimony is treated as a serious violation because it directly impedes regulatory oversight. Like refusal to provide documents, failure to appear for testimony typically results in a bar from the industry.

Investors should understand that when financial professionals fail to cooperate with investigations, it often suggests they have something to hide. A bar for failure to appear prevents the individual from working in the securities industry, protecting investors from someone who refused to be held accountable. Investors can check whether their financial advisor has been barred or has other disciplinary issues by using FINRA's free BrokerCheck tool. This case reinforces that cooperation with regulatory investigations is non-negotiable, and those who fail to cooperate face career-ending consequences.

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According to FINRA, Daniel Della Rosa was barred from association with any FINRA member in all capacities for failing to provide information and documents and for failing to appear for on-the-record testimony requested by FINRA in connection with its investigation of his sales practices.

Della Ro...

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According to FINRA, Daniel Della Rosa was barred from association with any FINRA member in all capacities for failing to provide information and documents and for failing to appear for on-the-record testimony requested by FINRA in connection with its investigation of his sales practices.

Della Rosa was found in violation of FINRA's rules requiring cooperation with regulatory investigations. FINRA initiated an investigation into Della Rosa's sales practices and requested that he provide information and documents relating to his responsibilities at his member firm, his customer accounts, and communications with customers. This type of information is essential for FINRA to evaluate whether a registered representative engaged in unsuitable recommendations, misrepresentations, unauthorized trading, or other sales practice violations that harm investors.

However, Della Rosa failed to provide the requested information and documents, preventing FINRA from obtaining critical evidence about his conduct. Additionally, FINRA requested that Della Rosa appear for on-the-record testimony to answer questions under oath about his sales practices. Della Rosa also failed to appear for the scheduled testimony. This dual failure—both to produce documents and to appear for testimony—represents a complete refusal to cooperate with FINRA's investigation.

Sales practice investigations are among the most common types of FINRA investigations because they directly impact investor protection. When FINRA receives customer complaints, arbitration filings, or Form U5 disclosures suggesting problematic sales practices, it investigates to determine whether violations occurred and whether disciplinary action is warranted. The investigative process depends on obtaining documents such as customer account records, correspondence, and order tickets, as well as testimony from registered representatives about their recommendations and interactions with customers.

When an individual refuses to provide any information or testimony, FINRA cannot complete its investigation or make findings about the underlying conduct. However, the failure to cooperate itself constitutes a serious violation warranting a bar. Investors should be aware that individuals who refuse to cooperate with investigations are prevented from continuing in the securities industry, removing a potential threat to investors. The bar protects investors by ensuring that those who refuse accountability cannot continue serving customers.

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According to FINRA, Michael John Giovannelli was barred from association with any FINRA member in all capacities and ordered to pay $1,494 in restitution to a customer for making unauthorized trades in an elderly customer's account, providing false documents to FINRA, and providing false testimony d...

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According to FINRA, Michael John Giovannelli was barred from association with any FINRA member in all capacities and ordered to pay $1,494 in restitution to a customer for making unauthorized trades in an elderly customer's account, providing false documents to FINRA, and providing false testimony during his on-the-record interview.

Giovannelli was found in violation of multiple serious rules. First, he made trades in an elderly customer's non-discretionary account without the customer's authorization. These unauthorized trades generated $1,380 in commissions for Giovannelli and caused $1,494 in realized losses for the customer. Unauthorized trading is a serious violation because it deprives customers of control over their investments and can result in unsuitable transactions and financial losses.

Second, and even more egregiously, Giovannelli provided false documents to FINRA during its investigation into the unauthorized transactions. Specifically, Giovannelli provided altered cellphone records to FINRA to make it appear that he spoke to the customer on five of the six dates of unauthorized trades when he did not actually speak to the customer. This fabrication of evidence represents obstruction of a regulatory investigation and demonstrates consciousness of guilt.

Third, Giovannelli provided false testimony during his on-the-record interview with FINRA. He testified that he contacted the customer to obtain authorization prior to each of the unauthorized trades. This testimony was false—Giovannelli did not speak to the customer or obtain authorization before any of the trades. Giovannelli also falsely testified that he did not alter any of the telephone records he provided to FINRA. Additionally, FINRA found that Giovannelli exercised discretion by trading in customer accounts without written authorization and without his firm having accepted the accounts as discretionary.

Providing false documents and testimony to regulators is among the most serious violations in the securities industry because it directly undermines regulatory oversight and the ability to protect investors. The combination of unauthorized trading, document falsification, and false testimony demonstrates a pattern of dishonesty warranting permanent removal from the industry. This case serves as a warning that attempting to cover up misconduct through lies and fabricated evidence will result in severe consequences, including a permanent bar.

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According to FINRA, Hayk Papoyan was barred from association with any FINRA member in all capacities for failing to timely disclose an outside brokerage account to his member firm and for providing false testimony to FINRA.

Papoyan was found in violation of rules requiring disclosure of outside b...

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According to FINRA, Hayk Papoyan was barred from association with any FINRA member in all capacities for failing to timely disclose an outside brokerage account to his member firm and for providing false testimony to FINRA.

Papoyan was found in violation of rules requiring disclosure of outside brokerage accounts and prohibiting false statements to regulators. First, Papoyan opened and funded a brokerage account in his name at another firm but did not disclose the account to his employer firm. Additionally, when opening the account, he failed to disclose his association with his FINRA member firm in his account application. FINRA rules require registered representatives to notify their employing firm of any brokerage accounts they maintain at other firms and to notify the other firm of their securities industry employment. These requirements enable firms to monitor for conflicts of interest, unauthorized trading, and other potential violations.

Second, and more seriously, Papoyan eventually disclosed the account to his firm only after FINRA initiated an investigation. During on-the-record testimony with FINRA, Papoyan falsely claimed he did not know about or control the subject brokerage account. This false testimony represented an attempt to mislead FINRA investigators about his undisclosed outside account. However, during subsequent testimony, Papoyan admitted that his earlier claims were false.

Outside brokerage accounts can be used for various types of misconduct, including unauthorized personal trading, front-running customer orders, insider trading, or parking securities to hide beneficial ownership. The disclosure requirement allows firms to obtain duplicate account statements and monitor for such misconduct. When registered representatives fail to disclose outside accounts, they deprive their firms of the ability to supervise their activities and detect potential violations.

Providing false testimony to FINRA during an investigation is a serious aggravating factor that demonstrates a willingness to lie to regulators to avoid accountability. While Papoyan eventually admitted the truth, his initial false testimony constituted obstruction of the investigation. The combination of failing to disclose an outside account and providing false testimony warranted a bar from the industry. Investors should understand that financial professionals who hide their activities and lie to regulators pose significant risks and do not belong in a position of trust over customer assets.

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