Bad Brokers

According to FINRA, Frank J. Bodi has been fined $7,500 (deferred) and suspended from association with any FINRA member for one month for exercising discretion without prior written authorization in customer accounts.

While Bodi had previously discussed the trades with customers, he did not speak...

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According to FINRA, Frank J. Bodi has been fined $7,500 (deferred) and suspended from association with any FINRA member for one month for exercising discretion without prior written authorization in customer accounts.

While Bodi had previously discussed the trades with customers, he did not speak with them to obtain authorization on the specific days he executed the trades. None of the customers provided prior written authorization for Bodi to exercise discretion, and his firm did not accept the accounts as discretionary.

Discretionary trading authority allows representatives to make trading decisions without obtaining customer approval for each specific transaction. However, this authority requires explicit written consent from customers and firm acceptance because it gives significant control to the representative.

Even when customers generally approve of an investment strategy, representatives must either obtain approval for each trade or properly document discretionary authority. The fact that trades were previously discussed does not substitute for proper authorization.

Investors should clearly understand whether their accounts are discretionary or non-discretionary. In non-discretionary accounts, your representative should contact you before executing trades. If trades are being made without your specific approval, verify whether you have signed discretionary authorization documents.

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According to FINRA, Danielle Marie Freeman has been fined $5,000 (deferred) and suspended from association with any FINRA member for one month for improperly removing and retaining customers' nonpublic personal information.

Days after being informed that her firm was terminating her association, ...

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According to FINRA, Danielle Marie Freeman has been fined $5,000 (deferred) and suspended from association with any FINRA member for one month for improperly removing and retaining customers' nonpublic personal information.

Days after being informed that her firm was terminating her association, Freeman transferred copies of thousands of files from firm systems to her personal cloud storage site. The files contained nonpublic personal information including Social Security and tax identification numbers, driver's license numbers, and financial account numbers.

Freeman then shared access to this information with a former registered representative from the firm. She retained the information until the firm detected the removal and requested deletion, after which she executed an affidavit attesting to permanent deletion.

This conduct violated both customer privacy and firm policies. Customer personal information is protected by regulations including Regulation S-P, which requires firms to protect customer nonpublic personal information.

When departing employees take customer information, it exposes customers to identity theft and other risks. Even if the information is not misused, the unauthorized removal and sharing violates customers' privacy expectations and regulatory requirements.

Investors should know that their personal information is protected by regulations, and firms must safeguard it even during employee transitions. If you have concerns about how your information is being handled, contact your firm's compliance department.

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According to FINRA, Christopher James Christensen has been named as a respondent in a FINRA complaint alleging that he failed to provide documents and information and failed to appear for testimony as part of an examination.

The complaint alleges that FINRA opened a cause examination after the pa...

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According to FINRA, Christopher James Christensen has been named as a respondent in a FINRA complaint alleging that he failed to provide documents and information and failed to appear for testimony as part of an examination.

The complaint alleges that FINRA opened a cause examination after the parent company of Christensen's member firm declared bankruptcy. Christensen was the founder and CEO of the company, which through various subsidiaries raised millions of dollars from thousands of investors purportedly to invest in real estate projects.

After receiving requests for documents and to appear for testimony, Christensen's counsel requested an indefinite stay pending the conclusion of other proceedings. FINRA denied this request, but Christensen still failed to provide the requested documents and information and failed to appear for testimony.

The complaint alleges that Christensen's failures significantly impeded FINRA's examination and deprived it of material information regarding his alleged outside business activities and private securities transactions.

It is important to note that the issuance of a complaint represents FINRA's initiation of formal proceedings and does not represent a determination of any allegations. Christensen is entitled to respond to the charges and present his defense. Investors should monitor developments in this matter for updates on the proceedings.

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According to FINRA, Kevin John Herne has been named as a respondent in a FINRA complaint alleging that he willfully failed to disclose a felony charge on his Form U4.

The complaint alleges that the State of Texas issued a criminal complaint charging Herne with Continuous Violence Against the Fami...

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According to FINRA, Kevin John Herne has been named as a respondent in a FINRA complaint alleging that he willfully failed to disclose a felony charge on his Form U4.

The complaint alleges that the State of Texas issued a criminal complaint charging Herne with Continuous Violence Against the Family, a felony offense under the Texas Penal Code. Herne allegedly was aware of the felony charge when he appeared in court and signed a bail bond stating he had been charged with a felony offense.

However, the complaint alleges that Herne failed to amend his Form U4 to disclose the felony charge within the required 30 days and failed to disclose the charge to his member firm for more than two years. Ultimately, FINRA advised the firm of the charge, and the firm filed a Form U4 amendment on Herne's behalf.

The complaint alleges that the felony charge was material information that a reasonable employer, customer, prospective customer, or regulator would have viewed as relevant to Herne's business and employment.

It is important to note that the issuance of a complaint represents the initiation of formal proceedings, not a determination of the allegations. Herne is entitled to respond to the charges. Investors may wish to monitor this matter for further developments.

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According to FINRA, Santiago J. Torres Jr. has been named as a respondent in a FINRA complaint alleging that he failed to provide information, documents, and on-the-record testimony requested as part of an investigation.

The complaint alleges that FINRA opened the investigation after reviewing a ...

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According to FINRA, Santiago J. Torres Jr. has been named as a respondent in a FINRA complaint alleging that he failed to provide information, documents, and on-the-record testimony requested as part of an investigation.

The complaint alleges that FINRA opened the investigation after reviewing a Form U4 amendment filed by Torres's member firm disclosing a customer complaint. The customer complaint allegedly stated that Torres misappropriated funds from the customer, who was Torres's wife's cousin, and other family members.

FINRA's requests for information and documents were allegedly relevant to determining whether Torres misappropriated funds or forged customer documents. Torres's testimony was also allegedly material to completing the investigation.

The complaint alleges that Torres failed to comply with these requests, preventing FINRA from completing its investigation into the serious allegations of misappropriation and document falsification.

It is important to note that the issuance of a complaint represents FINRA's initiation of formal proceedings and does not represent a finding as to any allegations. Torres is entitled to respond and present his defense. The underlying allegations of misappropriation have not been adjudicated, and investors should monitor this matter for further developments.

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According to FINRA, Network 1 Financial Securities Inc. and its Anti-Money Laundering Compliance Officer (AMLCO) Michael Robert Molinaro have been sanctioned for developing and implementing an AML compliance program that was not reasonably designed to achieve compliance with the Bank Secrecy Act (BS...

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According to FINRA, Network 1 Financial Securities Inc. and its Anti-Money Laundering Compliance Officer (AMLCO) Michael Robert Molinaro have been sanctioned for developing and implementing an AML compliance program that was not reasonably designed to achieve compliance with the Bank Secrecy Act (BSA) and its implementing regulations.

The firm was censured and fined $400,000, while Molinaro was suspended from association with any FINRA member in any principal capacity and as an AMLCO for three months. The investigation revealed significant deficiencies in the firm's Customer Identification Program (CIP), which failed to reasonably verify the identity of foreign customers opening accounts and customers investing in initial public offerings for small-cap issuers.

Perhaps most concerning, the firm and Molinaro did not establish policies and procedures to detect and report suspicious transactions related to the firm's investment banking business. Despite having knowledge of AML red flags, Molinaro never conducted an AML investigation concerning any of this activity.

Additionally, the firm failed to maintain a supervisory system designed to review and retain electronic communications, including off-channel communications such as personal text messages and third-party applications. The firm did not take steps to check whether registered persons were using unapproved communication channels, resulting in unretained business communications about share transfers, PIPE deals, and financial advice about IPO investments.

Investors should understand that AML compliance is a cornerstone of financial regulation designed to prevent money laundering and terrorist financing. When firms fail to implement proper AML programs, it creates opportunities for illicit activity that can harm innocent investors and the integrity of financial markets. This case underscores the importance of robust compliance systems and the personal accountability of compliance officers in maintaining them.

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According to FINRA, United First Partners LLC and Elizabeth Anne Dickerson have been sanctioned for multiple supervisory failures, including inadequate oversight of outside brokerage accounts and research department information barriers.

The firm was censured and fined $215,000, while Dickerson w...

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According to FINRA, United First Partners LLC and Elizabeth Anne Dickerson have been sanctioned for multiple supervisory failures, including inadequate oversight of outside brokerage accounts and research department information barriers.

The firm was censured and fined $215,000, while Dickerson was fined $5,000 and suspended from association with any FINRA member in any principal capacity for one month. The violations revealed systemic failures in the firm's supervisory framework.

The investigation found that the firm's procedures failed to identify steps to verify receipt and review of duplicate statements for outside brokerage accounts. Dickerson relied on a manual process to request statements but did not track which statements she requested or verify their receipt. For approximately a year during the COVID-19 pandemic, Dickerson failed to review any outside brokerage account statements while working remotely, despite knowing statements were being sent to the firm's office.

Critically, the firm and Dickerson failed to establish policies restricting information flow between research department personnel and sales and trading staff. There were no physical or information barriers, and research analysts regularly circulated pre-publication draft reports to sales and trading staff for input, including on recommendations. This practice creates serious concerns about potential front-running and conflicts of interest.

The firm also failed to report TRACE-eligible transactions, municipal transactions to RTRS, and provide customers with accurate options confirmations. These reporting failures undermine market transparency and regulatory oversight.

For investors, this case highlights the importance of information barriers within brokerage firms. When research and trading departments can freely share information, it creates opportunities for abuse that can disadvantage retail investors who don't have access to the same advance information.

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According to FINRA, Tradeweb Direct LLC has been censured and fined $65,000 for violating Municipal Securities Rulemaking Board (MSRB) Rule G-14 by failing to include the Non-Transaction-Based Compensation (NTBC) indicator when reporting municipal securities transactions.

The firm failed to inclu...

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According to FINRA, Tradeweb Direct LLC has been censured and fined $65,000 for violating Municipal Securities Rulemaking Board (MSRB) Rule G-14 by failing to include the Non-Transaction-Based Compensation (NTBC) indicator when reporting municipal securities transactions.

The firm failed to include the required NTBC indicator on customer transactions that did not include a mark-up, mark-down, or commission when reporting to the MSRB's Real-time Transaction Reporting System (RTRS). This reporting failure resulted from a technical error associated with the firm's transition to a new clearing firm.

Accurate trade reporting is essential for market transparency and regulatory oversight. The NTBC indicator helps regulators and market participants understand the compensation structure of trades, which is important for evaluating execution quality and detecting potential conflicts of interest.

Following discovery of the issue, the firm remediated the technical error and began properly including the NTBC indicator on affected reported trades. This case serves as a reminder that firms must carefully test their systems during technology transitions to ensure continued compliance with reporting obligations.

Investors should be aware that trade reporting requirements exist to protect them by ensuring transparency in the markets. When firms fail to properly report transactions, it can obscure important information about how trades are being executed and compensated. While this particular violation was technical in nature rather than intentional misconduct, it demonstrates the importance of robust compliance systems during periods of operational change.

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According to FINRA, Redbridge Securities LLC has been censured and fined $475,000 for failing to establish and implement an AML compliance program reasonably designed to detect and report suspicious transactions, among other violations.

The firm's AML program was found deficient in multiple criti...

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According to FINRA, Redbridge Securities LLC has been censured and fined $475,000 for failing to establish and implement an AML compliance program reasonably designed to detect and report suspicious transactions, among other violations.

The firm's AML program was found deficient in multiple critical areas. The written procedures did not reasonably address how the firm would detect or investigate red flags, failed to identify specific alerts and reports used to identify potentially suspicious transactions, and did not describe how such alerts should be utilized by AML analysts. As a result, the firm failed to detect or reasonably investigate red flags in connection with customer deposits and trading activity in low-priced securities.

The firm also failed to establish procedures to reasonably assess identity verification risks when opening accounts for customers domiciled in China, many of whom had known connections to issuers. The Customer Identification Program procedures did not describe how to investigate red flags of identity theft during account opening. Furthermore, customer due diligence procedures did not require creation of risk profiles, and the firm failed to identify or follow up on instances where customer activity was inconsistent with stated financial resources.

The firm's independent AML testing was also deficient, with no reasonable test conducted in 2019 and 2020, and no independent test at all in 2021.

Additionally, the firm failed to maintain a supervisory system reasonably designed to prevent market manipulation. The written procedures did not directly address market manipulation, and even exception reports related to wash trading were insufficiently reviewed.

This case illustrates how interconnected compliance failures can create an environment vulnerable to financial crime. Investors should understand that AML compliance protects them by ensuring that the firms they work with are vigilant against money laundering, identity theft, and market manipulation.

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According to FINRA, Robert W. Baird & Co. Incorporated, as successor-in-interest to Hefren-Tillotson, Inc., has been censured, fined $100,000, and ordered to pay $557,830.64 plus interest in restitution to customers for violating Regulation Best Interest's Compliance Obligation.

The investigation...

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According to FINRA, Robert W. Baird & Co. Incorporated, as successor-in-interest to Hefren-Tillotson, Inc., has been censured, fined $100,000, and ordered to pay $557,830.64 plus interest in restitution to customers for violating Regulation Best Interest's Compliance Obligation.

The investigation found that Hefren-Tillotson's registered representatives recommended that customers open Portfolio Review Program accounts enrolling them in an advisory service, even though customers were already receiving those services through existing or simultaneously opened accounts. These customers did not receive any additional services by opening these accounts and paid $557,830.64 in unnecessary account fees.

The firm's written supervisory procedures were not reasonably designed to achieve compliance with Reg BI's requirement that account-type recommendations be in the customer's best interest. The procedures provided no guidance regarding factors to consider when recommending Portfolio Review Program accounts and did not require representatives to consider whether customers would benefit from a new account when already receiving those services.

Following its acquisition of Hefren-Tillotson's brokerage business, Baird voluntarily discontinued charging Portfolio Review fees and recommending these accounts.

This case is particularly instructive for investors because it demonstrates how Regulation Best Interest protects them from paying for services they don't need. Reg BI requires broker-dealers to act in their customers' best interest when making recommendations, including account-type recommendations. When firms recommend accounts that provide no additional benefit while charging additional fees, they violate this fundamental obligation.

Investors should carefully review any recommendations for new account types and ask specifically what additional services or benefits they will receive that they aren't already getting.

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