Bad Brokers

According to FINRA, David Jerome Ferneding (CRD #2165740) of Flower Mound, Texas, was suspended from association with any FINRA member firm effective March 1, 2024, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554.

FINRA Rule 9554 provides an expedit...

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According to FINRA, David Jerome Ferneding (CRD #2165740) of Flower Mound, Texas, was suspended from association with any FINRA member firm effective March 1, 2024, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554.

FINRA Rule 9554 provides an expedited proceeding through which FINRA can suspend individuals and firms that fail to comply with arbitration awards, mediation settlements, or related financial obligations. This rule is a critical enforcement tool that ensures the integrity of FINRA's dispute resolution process. When an arbitration panel renders an award in favor of an investor, the respondent, whether an individual broker or a firm, is required to comply with the terms of that award within a specified time frame. Failure to do so triggers the Rule 9554 process.

In Ferneding's case, the suspension was imposed in connection with FINRA Arbitration Case #22-02207. Unlike some of the other cases in this report where suspensions were imposed and then lifted, Ferneding's suspension appears to still be in effect as of the date of this report. This means Ferneding is currently prohibited from associating with any FINRA member firm in any registered capacity. He cannot solicit customers, execute trades, provide investment advice, or perform any other regulated activities.

The ongoing nature of the suspension indicates that the underlying arbitration obligation remains unsatisfied. Under FINRA's rules, the suspension will remain in place until Ferneding complies with the arbitration award, reaches a settlement with the claimant that is acceptable to FINRA, or the matter is otherwise resolved. If Ferneding continues to fail to comply, the suspension may eventually be converted to a permanent bar from the securities industry.

For investors, this case highlights both the power and the limitations of the arbitration process. While FINRA can suspend brokers who fail to pay arbitration awards, collecting on those awards ultimately depends on the financial ability and willingness of the respondent to pay. Investors who prevail in arbitration should be aware that enforcement through Rule 9554 is available but that collection may require additional effort. Investors who worked with David Jerome Ferneding should verify his current status through FINRA's BrokerCheck. This matter is tracked under FINRA Arbitration Case #22-02207.

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According to FINRA, Matthew Grady (CRD #4362567) of Sterling, Massachusetts, was originally suspended from association with any FINRA member firm on December 14, 2017, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554. The suspension was subsequently l...

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According to FINRA, Matthew Grady (CRD #4362567) of Sterling, Massachusetts, was originally suspended from association with any FINRA member firm on December 14, 2017, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554. The suspension was subsequently lifted on March 15, 2024.

FINRA Rule 9554 allows FINRA to impose suspensions on individuals and firms that fail to satisfy arbitration awards and related financial obligations. The rule serves as a critical enforcement mechanism to ensure that the FINRA arbitration process leads to actual remediation for harmed investors. Without the ability to suspend non-compliant respondents, the arbitration process would lack the enforcement teeth necessary to make investors whole.

Grady's case is particularly notable for the extraordinary duration of his suspension. Originally imposed on December 14, 2017, and not lifted until March 15, 2024, the suspension lasted more than six years. This is one of the longer suspension periods reported in this monthly disciplinary report. The case was associated with FINRA Arbitration Case #15-01468, with additional references to ARB170025 and 20170543574, suggesting the matter may have involved multiple proceedings or cross-references.

The six-year duration of Grady's suspension underscores the tenacity of FINRA's enforcement process. Rather than allowing the suspension to lapse or expire, FINRA maintained it throughout the entire period until the underlying obligation was satisfied. This demonstrates to both industry participants and investors that FINRA is committed to enforcing arbitration compliance, regardless of how long it takes.

For investors, this case offers several important lessons. First, it shows that the FINRA arbitration process can ultimately result in compliance, even when initial efforts to collect on an award are unsuccessful. Second, it illustrates the significant career consequences of failing to comply with an arbitration award. During the more than six years of his suspension, Grady was unable to work in any registered capacity at a FINRA member firm. Third, it demonstrates that investors should not give up on collecting arbitration awards even when compliance is not immediately forthcoming. FINRA's Rule 9554 enforcement process provides ongoing pressure on non-compliant individuals to satisfy their obligations. This matter is tracked under FINRA Arbitration Case #15-01468.

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According to FINRA, Leonardo Hernandez III (CRD #4807141) of Lynbrook, New York, was suspended from association with any FINRA member firm effective March 20, 2024, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554.

FINRA Rule 9554 establishes an expe...

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According to FINRA, Leonardo Hernandez III (CRD #4807141) of Lynbrook, New York, was suspended from association with any FINRA member firm effective March 20, 2024, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554.

FINRA Rule 9554 establishes an expedited proceeding for suspending or cancelling the registration of individuals and firms that fail to comply with arbitration awards, mediation settlements, or other financial obligations from FINRA's dispute resolution process. This rule is part of FINRA's broader commitment to ensuring that the arbitration system delivers meaningful results for investors. When an arbitration panel awards damages to an investor, the respondent is expected to comply promptly. Failure to do so triggers the Rule 9554 enforcement process.

Hernandez's suspension was imposed in connection with FINRA Arbitration Case #23-03107. The case number indicates that the underlying arbitration was filed in 2023, and the suspension followed relatively quickly in March 2024. This relatively short timeline between the filing of the arbitration case and the imposition of a suspension for non-compliance suggests that the respondent may have failed to comply with the award or settlement promptly after it was issued.

During the period of suspension, Hernandez is prohibited from functioning in any capacity at a FINRA member firm that requires registration. This includes all customer-facing activities, supervisory functions, and any other roles that depend on maintaining an active securities registration. The suspension will remain in effect until Hernandez satisfies the outstanding arbitration obligation or the matter is otherwise resolved. Continued non-compliance could lead to additional sanctions, including a permanent bar from the industry.

For investors, this case reinforces the importance of the FINRA arbitration process as a means of seeking recovery for investment losses caused by broker misconduct. FINRA's willingness to impose suspensions on individuals who fail to pay arbitration awards provides a meaningful incentive for compliance and gives investors confidence that favorable arbitration outcomes will be enforced. Investors who have worked with Leonardo Hernandez III should verify his registration status through FINRA's BrokerCheck tool and review their accounts for any concerns. This matter is tracked under FINRA Arbitration Case #23-03107.

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According to FINRA, Seth Horowitz (CRD #2557141) of Syosset, New York, was suspended from association with any FINRA member firm effective March 15, 2024, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554.

FINRA Rule 9554 provides a streamlined proces...

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According to FINRA, Seth Horowitz (CRD #2557141) of Syosset, New York, was suspended from association with any FINRA member firm effective March 15, 2024, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554.

FINRA Rule 9554 provides a streamlined process for FINRA to take action against individuals and firms that fail to comply with arbitration awards, settlements, and other financial obligations arising from FINRA dispute resolution proceedings. The rule allows FINRA to impose suspensions without the need for a full disciplinary hearing, reflecting the straightforward nature of the violation: either the individual has complied with the award, or they have not.

Horowitz's suspension was imposed in connection with FINRA Arbitration Case #23-02637. As with other Rule 9554 cases, the suspension will remain in effect until Horowitz satisfies the outstanding financial obligation. The inability to work in any registered capacity at a FINRA member firm creates significant pressure on the suspended individual to comply. For many securities professionals, the loss of the ability to earn a living in their chosen field provides strong motivation to resolve the outstanding obligation.

It is notable that Horowitz is from Syosset, New York, the same location as Ned Adam Seitler, who was suspended for failure to provide information in this same report. While there is no indication that the two cases are related, the fact that multiple individuals from the same area appear in the same monthly report illustrates the breadth and scope of FINRA's enforcement activity.

For investors, this case provides another example of FINRA's commitment to enforcing arbitration awards. The arbitration process serves as the primary dispute resolution mechanism for investor complaints against brokers and brokerage firms. When investors prevail in arbitration and receive awards, they have a reasonable expectation that those awards will be paid. FINRA Rule 9554 helps ensure that expectation is met by imposing real consequences on individuals who fail to comply. Investors who worked with Seth Horowitz should check his status on BrokerCheck and review their account activity for any concerns. This matter is tracked under FINRA Arbitration Case #23-02637.

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According to FINRA, Jeffrey Richard Nemesi (CRD #6350639) of Raleigh, North Carolina, was suspended from association with any FINRA member firm effective March 1, 2024, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554. The suspension was subsequently ...

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According to FINRA, Jeffrey Richard Nemesi (CRD #6350639) of Raleigh, North Carolina, was suspended from association with any FINRA member firm effective March 1, 2024, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554. The suspension was subsequently lifted on March 15, 2024.

FINRA Rule 9554 allows FINRA to suspend individuals and firms that fail to comply with arbitration awards and related financial obligations. This expedited proceeding is designed to enforce compliance with the outcomes of FINRA's dispute resolution process, which is the primary forum for resolving disputes between investors and their brokers or brokerage firms.

Nemesi's case is notable for the very short duration of his suspension. Imposed on March 1, 2024, and lifted just two weeks later on March 15, 2024, this represents one of the shortest suspension periods in the current report. The quick resolution suggests that Nemesi moved promptly to satisfy the outstanding arbitration obligation once the suspension was imposed. This pattern is not uncommon in Rule 9554 cases, where the imposition of a suspension serves as the catalyst that motivates the individual to comply with the award.

The underlying matter involved FINRA Arbitration Case #21-02754. The arbitration case was filed in 2021, and the award or settlement was apparently not satisfied until early 2024, suggesting a period of approximately two to three years between the initiation of the arbitration and the eventual resolution of the compliance issue. While this timeline may seem lengthy, it is consistent with the typical pace of arbitration proceedings and subsequent enforcement actions.

For investors, Nemesi's case offers an encouraging example of the enforcement process working as intended. The imposition of a suspension under Rule 9554 prompted relatively swift compliance, resulting in the lifting of the suspension within two weeks. This demonstrates that the threat of being unable to work in the securities industry is an effective enforcement tool. Investors who are pursuing or considering arbitration claims should take comfort in knowing that FINRA has mechanisms in place to enforce compliance with arbitration awards. This matter is tracked under FINRA Arbitration Case #21-02754.

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According to FINRA, Donald Lee Smith (CRD #1134141) of Erie, Pennsylvania, was originally suspended from association with any FINRA member firm on March 27, 2023, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554. The suspension was subsequently lifted...

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According to FINRA, Donald Lee Smith (CRD #1134141) of Erie, Pennsylvania, was originally suspended from association with any FINRA member firm on March 27, 2023, for failure to comply with an arbitration award or related settlement pursuant to FINRA Rule 9554. The suspension was subsequently lifted on March 14, 2024.

FINRA Rule 9554 establishes an expedited proceeding for enforcing compliance with arbitration awards, mediation settlements, and other financial obligations arising from FINRA dispute resolution proceedings. The rule allows FINRA to suspend or cancel the registration of individuals and firms that fail to satisfy these obligations, creating a powerful incentive for compliance. The suspension remains in effect until the individual either satisfies the obligation or the matter is resolved through other means.

In Smith's case, the suspension lasted approximately one year, from March 27, 2023, to March 14, 2024. This duration falls in the middle of the range observed in the current report, which includes suspensions lasting from as little as two weeks to more than six years. The underlying matter involved FINRA Arbitration Case #20-01072, which was filed in 2020. The timeline from the filing of the arbitration case in 2020 to the lifting of the suspension in 2024 spans approximately four years, illustrating that the full arc of an arbitration case, from filing through enforcement of compliance, can be a lengthy process.

Smith's CRD number, 1134141, suggests he has been registered in the securities industry for a substantial period of time, as lower numbers generally indicate earlier registration dates. His experience in the industry makes the failure to comply with an arbitration award particularly significant, as long-tenured professionals are expected to understand and honor their obligations under FINRA's rules.

For investors, this case provides another example of FINRA's enforcement of arbitration compliance leading to eventual resolution. The year-long suspension period demonstrates that while compliance may not always be immediate, FINRA's enforcement mechanisms do work over time. Investors who prevail in arbitration should remain patient and persistent, knowing that FINRA will maintain enforcement pressure until the obligation is satisfied. Investors who worked with Donald Lee Smith should verify his current registration status through FINRA's BrokerCheck system. This matter is tracked under FINRA Arbitration Case #20-01072.

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According to FINRA, M1 Finance LLC was fined $850,000 in connection with the first FINRA enforcement action related to social media influencer marketing by a broker-dealer. Between January 2020 and April 2023, M1 Finance paid social media influencers to promote the firm and its services to the publi...

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According to FINRA, M1 Finance LLC was fined $850,000 in connection with the first FINRA enforcement action related to social media influencer marketing by a broker-dealer. Between January 2020 and April 2023, M1 Finance paid social media influencers to promote the firm and its services to the public. Over that period, approximately 1,700 influencers participated in the program, resulting in over 39,400 new customer accounts being opened through influencer-driven referrals.

FINRA found that the influencer posts used to promote M1 Finance were not fair or balanced, as required by FINRA Rule 2210, which governs communications with the public. The influencer content contained exaggerated, misleading, and promissory claims, including claims about the firm's margin lending products. These types of communications are prohibited because they can give investors unrealistic expectations about the risks and returns associated with financial products and services. FINRA Rule 2210 requires that all communications with the public, including those made through social media, be fair, balanced, and not misleading, and that they provide a sound basis for evaluating the products or services being offered.

Critically, FINRA found that M1 Finance failed to review or approve the influencer content before it was published and disseminated to the public. Under FINRA Rule 2210, member firms are required to have a registered principal review and approve retail communications before they are used. By allowing influencers to post promotional content without prior review, M1 Finance failed to ensure that the communications complied with applicable regulatory standards. Additionally, the firm failed to retain copies of the influencer communications, violating FINRA Rule 4511 and Exchange Act recordkeeping requirements.

FINRA also found that M1 Finance failed to establish and maintain a reasonable supervisory system to oversee the influencer communications, in violation of FINRA Rule 3110. A firm that engages influencers to promote its services must have procedures in place to ensure that the content is reviewed, approved, and retained in accordance with applicable rules. M1 Finance's failure to do so resulted in violations of FINRA Rules 2210, 2010, 3110, and 4511, as well as applicable SEC rules.

This landmark case is significant because it establishes that FINRA will hold member firms accountable for the content produced by paid social media influencers, just as it would for any other form of advertising or retail communication. Investors should be cautious about financial products promoted through social media and should always conduct independent research before opening accounts or investing based on influencer recommendations.

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According to FINRA, MMA Securities LLC (CRD #44254), based in New York, New York, was censured, fined $30,000, and required to certify remediation of the issues identified in a Letter of Acceptance, Waiver and Consent (AWC) issued on January 5, 2024.

FINRA found that MMA Securities failed to esta...

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According to FINRA, MMA Securities LLC (CRD #44254), based in New York, New York, was censured, fined $30,000, and required to certify remediation of the issues identified in a Letter of Acceptance, Waiver and Consent (AWC) issued on January 5, 2024.

FINRA found that MMA Securities failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with rules governing outside business activities (OBAs). Outside business activities refer to work that a registered representative performs outside the scope of their relationship with their employing broker-dealer. FINRA Rule 3270.01 requires firms to evaluate and document their assessment of these activities to protect investors from potential conflicts of interest.

Specifically, FINRA found that MMA Securities failed to evaluate and document its evaluation of OBAs disclosed by its registered representatives. The firm approved OBAs without properly assessing whether the activities would interfere with or compromise the registered person's responsibilities to the firm or its customers, or whether the activities could be viewed as part of the firm's business. Additionally, the firm did not evaluate whether outside activities should be restricted or prohibited, or whether they should be treated as outside securities activities with transactions recorded on the firm's books and records.

Without admitting or denying the findings, MMA Securities consented to the sanctions and the entry of findings. The firm was also required to implement a supervisory system reasonably designed to achieve compliance with FINRA Rule 3270.01 going forward.

This case serves as an important reminder for investors about the significance of outside business activity oversight. When brokers engage in activities outside their primary employment, there is a risk that those activities could create conflicts of interest or divert attention from their obligations to clients. Firms are expected to have robust procedures in place to review and monitor these activities. Investors should be aware that they have the right to know about their broker's outside activities and should ask questions if they have concerns. Checking a broker's record through FINRA's BrokerCheck tool can reveal disclosed outside business activities and help investors make more informed decisions about who manages their money.

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According to FINRA, UBS Financial Services Inc. (CRD #8174), based in Weehawken, New Jersey, was censured and fined $100,000 pursuant to a Letter of Acceptance, Waiver and Consent (AWC) issued on January 5, 2024.

FINRA found that UBS failed to include the Non-Transaction-Based Compensation (NTBC)...

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According to FINRA, UBS Financial Services Inc. (CRD #8174), based in Weehawken, New Jersey, was censured and fined $100,000 pursuant to a Letter of Acceptance, Waiver and Consent (AWC) issued on January 5, 2024.

FINRA found that UBS failed to include the Non-Transaction-Based Compensation (NTBC) indicator for reports of municipal securities transactions with customers that did not include a mark-up, mark-down, or commission to the Municipal Securities Rulemaking Board's (MSRB) Real-time Transaction Reporting System (RTRS). The NTBC indicator is a critical data point in transaction reporting that helps regulators and market participants understand the nature of compensation arrangements in municipal securities trades.

The findings stated that all of the affected transactions occurred in non-managed accounts. The root cause of the violation was a coding error: when designing the logic for the firm's electronic reporting system, UBS incorrectly excluded the NTBC indicator for all transactions in non-managed accounts. This systematic programming error led to widespread reporting failures across a significant number of municipal securities transactions. UBS subsequently corrected its reporting logic to address the issue.

FINRA also found that UBS's supervisory system, including its written supervisory procedures (WSPs), was not reasonably designed to ensure compliance with RTRS reporting requirements. Specifically, the firm lacked any supervisory reviews or written procedures relating to the NTBC indicator. This gap in supervision allowed the reporting error to persist undetected. Since the matter was identified, UBS has taken steps to enhance its systems and procedures by adopting and implementing a quarterly supervisory review for accurate reporting of the NTBC indicator.

Without admitting or denying the findings, UBS consented to the sanctions and to the entry of findings.

This case highlights the importance of accurate transaction reporting in the municipal securities market. Accurate reporting supports market transparency and helps regulators monitor trading activity. For investors, the case underscores how even large, well-known firms can experience systemic compliance failures when technology systems are not properly configured and when supervisory procedures fail to include checks for specific regulatory requirements. Investors in municipal securities should understand that regulators like FINRA and the MSRB work to ensure firms report transaction data accurately, which supports fair and transparent markets for all participants.

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According to FINRA, Landolt Securities, Inc. (CRD #28352), based in Antioch, Illinois, was censured, fined $25,000, and required to certify remediation of the issues identified in a Letter of Acceptance, Waiver and Consent (AWC) issued on January 16, 2024.

FINRA found that Landolt Securities fail...

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According to FINRA, Landolt Securities, Inc. (CRD #28352), based in Antioch, Illinois, was censured, fined $25,000, and required to certify remediation of the issues identified in a Letter of Acceptance, Waiver and Consent (AWC) issued on January 16, 2024.

FINRA found that Landolt Securities failed to establish, maintain, and enforce a reasonable supervisory system, including written supervisory procedures (WSPs), to supervise the electronic communications of its registered representatives. Under FINRA Rule 3110(b)(4), firms must have procedures in place to review the correspondence and internal communications of their registered representatives to detect potential misconduct and protect investors.

The deficiencies identified were extensive. The firm's WSPs did not identify the personnel responsible for reviewing emails and did not state how frequently reviews should occur. The WSPs provided no reasonable guidance on how to conduct reviews or address issues identified during the review of electronic communications. They also did not require that reviews be conducted or supervised by a registered principal, which is a key safeguard in the supervisory process.

Additionally, the firm's WSPs did not include any criteria for identifying potentially problematic emails, did not describe what issues or red flags reviewers should look for, and did not explain whether and how potentially problematic emails should be escalated for further review. In practice, the firm's email review was equally deficient. The reviews were not conducted or supervised by a registered principal, and the firm did not regularly review, assess, or update the keywords used by the firm to flag emails for review.

Without admitting or denying the findings, Landolt Securities consented to the sanctions and was required to implement a supervisory system reasonably designed to achieve compliance with FINRA Rule 3110(b)(4).

This case is instructive for investors because it reveals how weak supervision of electronic communications can allow potential misconduct to go undetected. Email reviews are a frontline tool for firms to catch unsuitable recommendations, misleading statements, or unauthorized activities by their brokers. When firms fail to properly monitor these communications, investors may be exposed to increased risk. Investors should be aware that firms are required to maintain robust communication review systems, and failures in this area may signal broader supervisory weaknesses at the firm.

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