Bad Brokers

According to FINRA, D. Allen Blankenship appealed an Office of Hearing Officers decision to the National Adjudicatory Council after being barred from association with any FINRA member in all capacities for engaging in a pattern of unsuitable trading in Class A mutual fund shares.

The findings sta...

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According to FINRA, D. Allen Blankenship appealed an Office of Hearing Officers decision to the National Adjudicatory Council after being barred from association with any FINRA member in all capacities for engaging in a pattern of unsuitable trading in Class A mutual fund shares.

The findings stated that Blankenship engaged in unsuitable short-term trading of mutual fund shares, selling shares that had been held a year or less. Blankenship also engaged in mutual fund switching, using proceeds from sales of one mutual fund to switch to a mutual fund in a different fund family, thereby imposing new sales loads on customers and garnering new commissions for himself. The hearing panel found that Blankenship had no reasonable basis for believing that the short-term trading and mutual fund switching were suitable for any customer.

Additionally, because most of Blankenship's mutual fund purchases—96 percent—were made in increments below $20,000, his customers missed breakpoint discounts to which they were entitled. Breakpoints provide reduced sales charges for larger purchases, and by making purchases in smaller increments, Blankenship's customers paid higher sales charges than necessary.

The overall result was that customers paid more than they should have for their investments, while Blankenship received more in compensation than he should have. Such a pattern of trading is unsuitable for any investor because it enriches the representative at customers' expense.

The findings also stated that Blankenship facilitated the unsuitable trading by circumventing his member firm's supervision. Blankenship broke up almost all his mutual fund purchases into multiple consecutive transactions of less than $20,000. The firm's automated system for flagging mutual fund transactions for review was not triggered by purchases below $20,000, allowing Blankenship's unsuitable trading pattern to evade detection.

Additionally, Blankenship failed to complete and submit to the firm for review and approval a form required to ensure that customers received appropriate disclosures and pricing on their transactions. This deliberate circumvention of supervisory systems demonstrates that Blankenship knew his trading pattern was problematic.

The findings also included that Blankenship caused his firm's books and records to be inaccurate by falsely marking mutual fund transactions as unsolicited when they were not. This false marking further concealed the true nature of his trading pattern from firm supervision.

The sanction is not in effect pending review by the National Adjudicatory Council. Investors should understand that an appeal does not indicate that the findings are incorrect, but rather provides the respondent an opportunity to challenge the decision before a higher regulatory authority.

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According to FINRA, Peter James Fetherston appealed a remanded Office of Hearing Officers decision to the National Adjudicatory Council after being barred from association with any FINRA member in all capacities for providing a partial but incomplete response to a FINRA request for information durin...

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According to FINRA, Peter James Fetherston appealed a remanded Office of Hearing Officers decision to the National Adjudicatory Council after being barred from association with any FINRA member in all capacities for providing a partial but incomplete response to a FINRA request for information during its investigation into whether he had misappropriated customer funds.

The findings revealed that Fetherston received three checks made payable to him personally totaling $89,000 from two long-time customers, a married couple. Shortly afterward, Fetherston's member firm conducted an internal investigation into his mutual fund-related activities and discharged him for violating firm policy related to mutual fund purchases and sales.

The married couple was among the customers impacted by Fetherston's mutual fund conduct, and the firm reimbursed them for costs incurred. During a call relating to that reimbursement, the couple notified the firm that they had given Fetherston three checks made payable to him—one to pay for commissions they allegedly owed, and the others so he could buy investments for them.

When the firm contacted Fetherston about the checks, he told it he invested the funds in a "fixed investment" but had no proof. In fact, Fetherston had deposited the checks into his personal checking account and used the funds to pay his personal expenses—conduct that appears to constitute misappropriation of customer funds.

The firm filed a Form U5 disclosing Fetherston's termination and noting that the customers complained about providing checks made payable directly to Fetherston for what he said were commissions and investments, and that the firm had settled the complaint for $89,000. This filing triggered FINRA's investigation.

FINRA requested that Fetherston identify and provide certain information about medical expenses he purportedly paid with the funds from the three checks. Fetherston produced personal bank and credit card statements. However, Fetherston used the vast majority of the customers' funds to make payments to a credit card account for which he did not provide statements.

Without the relevant credit card statements reflecting the charges or the list of medical expenses FINRA requested, FINRA was unable to determine whether Fetherston used the funds to pay medical expenses as he claimed. Furthermore, FINRA had to exert significant regulatory pressure to obtain even the partial information Fetherston provided, including issuing numerous follow-up requests and threatening sanctions.

The majority of the hearing panel found that FINRA failed to prove that Fetherston converted or improperly used customer funds or provided false or misleading information, and dismissed those causes. The Hearing Officer dissented from this decision. The bar was based solely on providing an incomplete response to FINRA's requests.

The sanction is not in effect pending review. This case illustrates the critical importance of providing complete responses to FINRA requests, particularly when investigations involve potential misappropriation of customer funds.

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According to FINRA, Kirk James Crossen was named as a respondent in a FINRA complaint alleging that he borrowed a total of $400,000 through three loans from a customer without firm authorization and concealed the loans by making false statements on annual compliance questionnaires.

The complaint ...

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According to FINRA, Kirk James Crossen was named as a respondent in a FINRA complaint alleging that he borrowed a total of $400,000 through three loans from a customer without firm authorization and concealed the loans by making false statements on annual compliance questionnaires.

The complaint alleges that Crossen's member firm's written supervisory procedures did not allow Crossen to borrow from the customer, a trust, because neither the trust nor its beneficial owner was an immediate family member. This prohibition is consistent with industry standards that generally restrict borrowing from customers to specific categories such as immediate family members or lending institutions.

At the time of the alleged loans, the beneficial owner was 84 years old and suffering from diminished capacity. These circumstances create heightened concerns about potential financial exploitation of a vulnerable senior. Diminished capacity can impair an individual's ability to understand financial transactions and make informed decisions, making such individuals particularly vulnerable to exploitation.

The alleged loans totaling $400,000 represent a substantial sum that could significantly impact the senior beneficial owner's financial security. When registered representatives borrow from elderly customers, particularly those with diminished capacity, it raises serious questions about whether the loans were truly voluntary and in the customer's best interest.

The complaint also alleges that Crossen concealed the loans from his firm by falsely stating on annual compliance questionnaires that he had not borrowed money from customers. If true, this concealment demonstrates knowing violation of firm policies rather than inadvertent failure to disclose. Annual compliance questionnaires specifically ask about borrowing from customers to enable firms to identify and address prohibited transactions.

It is important to note that issuance of a complaint represents FINRA's initiation of formal proceedings and does not represent a finding that the allegations are true. Crossen is entitled to defend against these allegations through the disciplinary process.

However, investors should be aware that borrowing by registered representatives from customers, particularly elderly customers with diminished capacity, presents serious red flags. Such arrangements create conflicts of interest and potential for financial exploitation. Customers should be extremely cautious about lending money to their financial professionals and should report any such requests to the firm's compliance department and to regulators.

The allegations in this case, if proven, would represent serious violations of professional standards and firm policies, as well as potential elder financial exploitation. The outcome of the disciplinary proceeding will determine whether the allegations are substantiated and what sanctions, if any, are appropriate.

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According to FINRA, Gustave James Schmidt Jr. was named as a respondent in a FINRA complaint alleging that he engaged in a course of conduct that deceived investors by making material omissions regarding compensation he and his member firm would receive in connection with various private placement o...

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According to FINRA, Gustave James Schmidt Jr. was named as a respondent in a FINRA complaint alleging that he engaged in a course of conduct that deceived investors by making material omissions regarding compensation he and his member firm would receive in connection with various private placement offerings, and willfully violated Regulation Best Interest.

The complaint alleges that Schmidt recommended that his customers make purchases of interests in pre-IPO companies through various private placement offerings with a total principal value of $437,100. The offering documents disclosed that Schmidt and his firm would receive "up to ten percent" placement fee from sales of the offerings.

However, Schmidt allegedly knew that the offerings' issuer had promised to pay the firm—and thus Schmidt—in addition to the maximum ten percent disclosed to investors, an additional five percent fee, as well as half of any profits collected by the issuer. This undisclosed additional compensation is significant because it creates conflicts of interest that investors need to understand when evaluating recommendations.

Ultimately, Schmidt allegedly received at least $19,888.05 in undisclosed compensation from these transactions. The failure to disclose this compensation meant that investors did not have complete information about the financial incentives influencing Schmidt's recommendations.

The complaint also alleges that Schmidt willfully violated Regulation Best Interest by failing to fully and fairly disclose in writing material facts relating to conflicts of interest. The undisclosed additional compensation created conflicts where Schmidt had financial incentives beyond what customers understood, potentially influencing his recommendations.

Additionally, the complaint alleges that Schmidt failed to conduct a reasonable investigation or due diligence to understand the offerings and reach a reasonable conclusion that they were in the best interests of at least some investors. Regulation Best Interest requires representatives to have a reasonable basis to believe that recommendations are in customers' best interests based on the potential risks, rewards, and costs. Without conducting proper due diligence, Schmidt could not have satisfied this obligation.

Private placement offerings, particularly in pre-IPO companies, carry substantial risks including illiquidity, lack of public information, and potential for total loss. These characteristics make due diligence and complete disclosure of conflicts particularly important.

It is important to note that issuance of a complaint represents FINRA's initiation of formal proceedings and does not represent findings that the allegations are true. Schmidt is entitled to defend against these allegations.

Investors should understand the importance of complete disclosure of compensation and conflicts of interest, particularly in private placement offerings where risks are substantial and information is limited. Questions about undisclosed compensation should be reported to firms and regulators.

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According to FINRA, Spartan Capital Securities, LLC, along with principals John Dennis Lowry and Kim Marie Monchik, were named as respondents in a FINRA complaint alleging willful violations of Regulation Best Interest, dissemination of false and misleading information in violation of the Securities...

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According to FINRA, Spartan Capital Securities, LLC, along with principals John Dennis Lowry and Kim Marie Monchik, were named as respondents in a FINRA complaint alleging willful violations of Regulation Best Interest, dissemination of false and misleading information in violation of the Securities Act of 1933, and supervisory failures.

The complaint alleges that the firm made recommendations of securities with a total principal value of over $24 million to 191 customers, the majority of whom were retail customers, through 16 private placement offerings. The firm, through Monchik, allegedly lacked a reasonable basis to believe these recommendations were suitable or in customers' best interests because it failed to conduct reasonable due diligence on the offerings. The firm allegedly generated over $2.4 million in placement fees from these unsuitable recommendations.

The complaint also alleges that in connection with the offer and sale of membership interests in three unregistered private investment funds (the Atlas Funds), the firm, Lowry, and Monchik recklessly or negligently disseminated false and misleading information to investors, violating Sections 17(a)(2) and (3) of the Securities Act of 1933.

Specifically, the private placement memoranda allegedly misrepresented that the Atlas Funds would not profit from any markup charged to customers in connection with their investments in the offerings. Further, supplements to the PPMs allegedly misrepresented the price at which the Atlas Funds purchased membership interests in pre-IPO shares and from which entity they acquired those interests.

These misrepresentations were allegedly material facts that a reasonable investor would have viewed as altering the total mix of information available. The firm, Lowry, and Monchik allegedly obtained money by means of the untrue statements when they raised capital from Atlas Fund investors and obtained placement fees, markups, and management fees.

In total, the Atlas Funds and its manager, at Lowry's alleged direction, charged customers $3.25 million in markups, which directly benefitted Lowry who allegedly owned and controlled those entities. This resulted in concealing Lowry's additional compensation and the full extent of his economic self-interest in the offerings.

The complaint further alleges that the firm willfully violated its disclosure obligations under Reg BI by failing to fully and fairly disclose in writing conflicts of interest associated with its recommendations. The offering documents allegedly did not disclose Lowry's ownership of the Atlas Funds and economic incentive to have firm representatives recommend the private placements, or Monchik's role managing the Atlas entities while performing due diligence on the offerings for both the Atlas Funds and the firm.

Additionally, the complaint alleges supervisory failures by the firm and Monchik, including failing to establish a supervisory system reasonably designed to achieve compliance with Reg BI's Care Obligation, failing to conduct reasonable due diligence, and failing to establish written conflict of interest procedures.

It is important to note that issuance of a complaint does not represent findings that allegations are true. The respondents are entitled to defend against these allegations. However, the scope and severity of the allegations—if proven—would represent serious violations harming investors.

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According to FINRA, Kim Marie Monchik, along with Spartan Capital Securities, LLC and John Dennis Lowry, was named as a respondent in a FINRA complaint alleging willful violations of Regulation Best Interest, dissemination of false and misleading information in violation of the Securities Act of 193...

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According to FINRA, Kim Marie Monchik, along with Spartan Capital Securities, LLC and John Dennis Lowry, was named as a respondent in a FINRA complaint alleging willful violations of Regulation Best Interest, dissemination of false and misleading information in violation of the Securities Act of 1933, and supervisory failures.

The complaint alleges that Spartan Capital Securities made recommendations totaling over $24 million to 191 customers through 16 private placement offerings. The firm, through Monchik, allegedly lacked a reasonable basis to believe these recommendations were suitable or in customers' best interests because it failed to conduct reasonable due diligence on the offerings.

Monchik's alleged role was critical to the violations. As the individual responsible for conducting due diligence on behalf of the firm, Monchik allegedly failed to perform reasonable investigations to understand the offerings and reach a reasonable conclusion about whether they were in the best interests of at least some investors. This failure allegedly resulted in unsuitable recommendations to 191 customers, the majority of whom were retail investors.

The complaint also alleges that Monchik, along with the firm and Lowry, recklessly or negligently disseminated false and misleading information to investors in connection with the Atlas Funds offerings. The offering documents allegedly contained material misrepresentations about markups and the source and pricing of investments.

Monchik's role allegedly created significant conflicts of interest that were not properly disclosed. She was responsible for managing the Atlas entities while simultaneously being responsible for conducting due diligence on the offerings on behalf of both the Atlas Funds and Spartan Capital Securities. This dual role created inherent conflicts where Monchik was evaluating offerings for a firm while also managing the entities offering the investments.

The complaint further alleges supervisory failures by Monchik. As the individual responsible for maintaining and updating the firm's written supervisory procedures, Monchik allegedly failed to establish, maintain, and enforce written conflict of interest procedures. The firm allegedly had no written policies or procedures addressing identification, disclosure, or mitigation of conflicts of interest, including conflicts arising from the firm's sale of private placements issued by affiliated entities, Lowry's ownership and control of the firm and the Atlas entities, and Monchik's dual responsibilities.

Additionally, the complaint alleges that the firm and Monchik failed to establish a supervisory system reasonably designed to achieve compliance with Reg BI's Care Obligation as it relates to private placement offerings. The alleged supervisory failures included failing to conduct reasonable due diligence, failing to maintain records reflecting due diligence, and failing to reasonably respond to red flags concerning the private investment funds' ownership of pre-IPO shares.

It is important to note that issuance of a complaint does not represent findings that allegations are true. However, the alleged supervisory failures, if proven, would represent serious breakdowns in the firm's compliance and supervisory systems.

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According to FINRA, First Trust Portfolios L.P. was fined $10 million for providing excessive non-cash compensation including gifts, meals, and entertainment in connection with the distribution of First Trust investment company securities, and for related misconduct including falsifying expense reco...

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According to FINRA, First Trust Portfolios L.P. was fined $10 million for providing excessive non-cash compensation including gifts, meals, and entertainment in connection with the distribution of First Trust investment company securities, and for related misconduct including falsifying expense records and sending false information to client firms.

Between at least 2018 and February 2024, First Trust wholesalers regularly violated FINRA Rule 2341 by providing to client firm representatives gifts that significantly exceeded the annual limit and meals and entertainment that were so frequent and extensive as to raise questions of propriety. FINRA Rule 2341 prohibits payments or offers of non-cash compensation subject to specified exceptions, including gifts not exceeding $100 per person and occasional meals or entertainment that are not preconditioned on achievement of sales targets.

The violations were egregious and systematic. On more than 25 occasions, two First Trust wholesalers provided client firm representatives courtside basketball tickets at a cost of approximately $3,200 per pair. Over an 18-month period, various First Trust wholesalers provided one client firm representative entertainment including tickets to more than 20 concerts and sporting events with a total value exceeding $31,000.

The gifts far exceeded even the higher limits recently proposed by FINRA. In May 2025, FINRA filed a proposal with the SEC to increase the gift limit to $250 annually, and in September 2025, FINRA filed an amended proposal further increasing the limit to $300 annually. First Trust's gifts exceeded even these proposed higher limits by substantial margins.

Additionally, First Trust wholesalers preconditioned gifts on sales targets. A First Trust wholesaler preconditioned a gift of tickets to a professional hockey game on a client firm representative selling $1 million in First Trust products to his customers. This preconditioning violates the rule's prohibition on tying non-cash compensation to achievement of sales targets.

The firm's misconduct extended beyond providing excessive gifts and entertainment. First Trust wholesalers falsified internal expense records relating to more than $650,000 worth of non-cash compensation provided to client firm representatives. This falsification concealed the true nature and extent of the gifts and entertainment from the firm's internal controls.

Furthermore, First Trust sent client firms false and misleading information about non-cash compensation provided to their representatives. First Trust omitted more than $500,000 worth of gifts, meals, and entertainment from reports to client firms, preventing those firms from supervising their representatives' receipt of non-cash compensation.

First Trust also failed to establish, maintain, and enforce a supervisory system reasonably designed to achieve compliance with non-cash compensation rules and expense-related recordkeeping requirements. The firm's inadequate supervision enabled the widespread violations to continue for years.

Non-cash compensation rules exist to protect investors by preventing financial recommendations from being unduly influenced by excessive gifts, entertainment, or other perks. When representatives receive substantial gifts and entertainment from product sponsors, their recommendations may be influenced by gratitude or desire for future benefits rather than solely by customers' best interests.

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According to FINRA, Bananafina LLC, a funding portal based in North Miami, Florida, was expelled from FINRA funding portal membership after the firm failed to provide documents and information requested by FINRA during an investigation into one of its offerings. The firm initially cooperated with th...

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According to FINRA, Bananafina LLC, a funding portal based in North Miami, Florida, was expelled from FINRA funding portal membership after the firm failed to provide documents and information requested by FINRA during an investigation into one of its offerings. The firm initially cooperated with the investigation but ceased doing so after providing only a partial and substantially incomplete response to FINRA's requests.

This case underscores the critical importance of regulatory cooperation in the securities industry. When FINRA opens an investigation, member firms and funding portals are obligated to fully comply with requests for documents and information. This obligation exists because FINRA serves as a self-regulatory organization tasked with protecting investors and maintaining market integrity. Without the ability to obtain complete and timely information from the entities it regulates, FINRA cannot effectively carry out its investor protection mandate.

A Letter of Acceptance, Waiver and Consent (AWC) is a settlement mechanism in which the respondent neither admits nor denies the findings but agrees to accept the sanctions imposed. In this case, the sanction was expulsion, which is the most severe action FINRA can take against a member. Expulsion means that Bananafina LLC can no longer operate as a FINRA-registered funding portal, effectively shutting down its ability to facilitate securities offerings through the crowdfunding framework established under Regulation Crowdfunding.

For investors, this case serves as an important reminder about the risks associated with investing through funding portals. Funding portals are online platforms that facilitate securities-based crowdfunding, allowing companies to raise capital from everyday investors. While these portals are required to register with FINRA and the SEC, registration alone does not guarantee that a portal is operating in full compliance with securities laws. When a firm stops cooperating with regulators, it raises serious red flags about the firm's operations and the integrity of the offerings it has facilitated.

Investors should always verify that any funding portal they use is currently registered and in good standing with FINRA. They can do this by checking FINRA BrokerCheck, a free tool that provides background information on financial firms and professionals. This case also highlights the importance of diversifying investments and conducting thorough due diligence before committing funds to any crowdfunding offering. If a firm is unwilling to be transparent with its own regulators, investors should question whether that firm is likely to be transparent with them.

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According to FINRA, HB Securities, LLC, a broker-dealer based in Newport Beach, California, was censured and fined $70,000 for permitting a statutorily disqualified individual to continue associating with the firm and directing key aspects of its securities business. The firm was also required to ce...

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According to FINRA, HB Securities, LLC, a broker-dealer based in Newport Beach, California, was censured and fined $70,000 for permitting a statutorily disqualified individual to continue associating with the firm and directing key aspects of its securities business. The firm was also required to certify that it has no unregistered individuals acting in a capacity that requires registration and no statutorily disqualified persons associating with the firm.

A statutorily disqualified individual is someone who has been barred or suspended from the securities industry, or who has certain criminal convictions or regulatory sanctions that prohibit them from associating with a FINRA member firm. Allowing such a person to participate in a firm's business is a serious violation because the disqualification exists to protect investors from individuals who have demonstrated a pattern of misconduct or untrustworthiness.

In this case, the findings revealed that the disqualified individual exercised significant control over the firm's operations, working through Seung Hoon Kang to direct the firm's operating budget, approve expenses, determine how much net capital the firm should retain, and decide the timing and amounts of firm distributions. The individual also directed personnel decisions, including hiring and compensation, as well as collection efforts on outstanding accounts and other key aspects of the firm's securities business. This level of involvement effectively meant the disqualified individual was running the firm despite being prohibited from doing so.

The firm also allowed Kang to act in a principal capacity without being registered with FINRA as a General Securities Principal. Kang formed and participated in a management committee that had explicit control over firm management decisions, exercised control over the firm's finances, and directed key aspects of the firm's securities business, all without holding the required registration.

For investors, this case is a cautionary tale about the importance of knowing who is running your brokerage firm. Investors have a right to expect that the individuals managing their broker-dealer are properly registered and have not been disqualified from the industry. FINRA BrokerCheck is a valuable resource that allows investors to research the background of financial professionals and firms, including any disciplinary history. This case demonstrates that some firms may attempt to circumvent industry rules designed to protect investors, making it all the more important for investors to stay informed and vigilant.

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According to FINRA, Seung Hoon Kang of Beverly Hills, California, was assessed a deferred fine of $50,000 and suspended from association with any FINRA member in all capacities for 24 months for his role in permitting a statutorily disqualified individual to direct the operations of HB Securities, L...

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According to FINRA, Seung Hoon Kang of Beverly Hills, California, was assessed a deferred fine of $50,000 and suspended from association with any FINRA member in all capacities for 24 months for his role in permitting a statutorily disqualified individual to direct the operations of HB Securities, LLC. The suspension is in effect from September 3, 2024, through September 2, 2026.

The findings revealed that Kang served as a conduit through which a statutorily disqualified individual exercised substantial control over HB Securities. The disqualified individual, working through Kang, directed the firm's operating budget, approved expenses outside of the budget, controlled the firm's net capital decisions, and determined the timing and amounts of distributions. The individual also directed personnel issues, including the hiring of firm employees and the amount and timing of their compensation, as well as the firm's collection efforts on outstanding accounts.

Additionally, Kang acted in a principal capacity for the firm without registering with FINRA as a General Securities Principal, a violation of FINRA registration rules. Specifically, Kang formed and participated in a management committee that had explicit control over firm management decisions. In practice, Kang exerted authority over the responsibilities assigned to that committee. He exercised control over the firm's finances, actively engaged in personnel decisions, and directed key aspects of the firm's securities business, all without holding the required registration. The firm was aware that Kang was not registered with FINRA in any capacity but nonetheless allowed him to actively engage in the management of the firm's securities business.

This case highlights several important lessons for investors. First, FINRA registration requirements exist to ensure that individuals managing a securities firm have met minimum competency standards and are subject to regulatory oversight. When someone operates without proper registration, investors lose the protections that come with that oversight. Second, statutory disqualifications are imposed because an individual has engaged in conduct that makes them unfit to work in the securities industry. When a disqualified person is allowed to run a firm through a proxy, the very purpose of the disqualification is undermined. Investors can use FINRA BrokerCheck to verify that the individuals handling their investments are properly registered and have clean regulatory records.

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