The "Rogues" Report
SRO Trends
The "Rogues" Report is intended to provide a roadmap for identifying "topical" or novel regulatory causes of action and the remedial measures that one may expect an SRO to impose when activity is found by the staff to be irregular or improper.
Still another emerging trend in regulatory circles for rule violations is the requirement that a firm retain an independent consultant to either create appropriate procedures or, alternatively, assess and evaluate remedial written supervisory measures adopted by the firm as a consequence of adverse regulatory findings against the firm.
Going back to an example from my May 3rd posting about a firm whose general counsel and chief compliance officer were censured and suspended for unsuitable variable annuity switches, in the same matter in which the firm's general counsel was sanctioned, the firm was fined $550,000 and required to retain an outside consultant to review its policies and procedures relating to the sales and supervision of variable annuity transactions (In the Matter of David A Noyes & Co.).
In still another blow to Oppenheimer & Co., the firm was fined $4.15 million for violations of anti-money laundering rules and a "break-down" of operating procedures during the conversion of brokerage accounts acquired from another broker-dealer in connection with a merger. The firm also agreed to an undertaking that required submission of a report on the firm's AML policies and procedures, and the implementation of any policies, procedures and practices recommended in the report.
Charles Schwab also came under criticism by the regulators, and was fined $1 million for supervisory and control violations concerning accounts of customers maintained at the firm that were managed by non-employee investment advisors, and for failure to protect customer assets. Schwab was also required to retain an outside consultant to review its policies and procedures concerning disbursement of customer assets and detection of potential misappropriations.
Finally, Merrill Lynch was fined $10 million and censured for failing to deliver prospectuses and product descriptions to customers, as well as other supervisory and operational lapses. Among these other lapses was the failure to comply with an undertaking that arose as a result of a 2000 disciplinary action, to report a significant number of litigation and arbitration judgments, to preserve certain emails, and to update employee information in the securities industry's central personnel database. Again, in addition to cash, as part of the consent agreement, Merrill Lynch agreed to retain an independent consultant, subject to approval by NYSE Regulation, to review the firm's policies, procedures, and supervisory systems governing the mandatory reporting of customer complaints and other information. The consultant's final report must be issued to both the firm's chief executive as well as NYSE Regulation. Merrill Lynch has agreed to undergo a thorough review of other areas of the firm that were responsible for the violations and to make the necessary modifications to ensure compliance with NYSE Rules and federal securities laws.
Bottom line is that there appears to be no slackening of the regulatory enforcement initiatives of the past several years, and, if anything, they appear to be gaining new traction as the penalties escalate with alarming inflationary rapidity. Coupled with the changing of the guard at a number of SROs, and the designations of new head's of enforcement who wish to leave their mark and imprint, the industry should anticipate that there will be no abatement in the immediate future of either the scope of enforcement actions or the repercussions for perceived violations.
A blind squirrel can find an acorn. Yes, NASD now is sometimes hiring a third party consultant in compliance issues; but is that really new? It seems to me that I long ago noted a coincidence of an NASD staffer retiring from NASD and taking a position at a firm that was coincidentally settling an NASD case against the firm.
Of course, one view is that firms with the most compliance problems are the ones who could be most advantaged by the hiring of an NASD examiner wearied,as I became (as a state examiner), of life on the road. I left the state when my wife's boyfriend complained about my protracted abscences.
And one would hope that NASD is not requiring the hiring on NASD alums as a sine qua non for settling an NASD investigation.
"Hope springs eternal," doesn't it?
[ NASD Registered Rep? ]Maybe/Maybe Not) (Variable Annuity Agent Maybe/Maybe Not) In Switch, Company Sues NASD For Fraud, Says NASD Aided FBI In Creating Bogus B/D
posted by Mark Astarita
In an unlikely lawsuit,a private company is suing the NASD for securities fraud. A small cancer-research firm called Shimoda-Atlantic, based in Bentonville, Ark., filed a lawsuit against the NASD on Wednesday because, the company says, the self-regulatory organization helped several men, allegedly employed by the FBI, to create and perpetrate a fraudulent securities scheme against the company Shimoda alleges that the FBI operators, with the help of the NASD, committed fraud against the company by posing as NASD-registered brokers, working for an NASD-registered broker dealer called Talon Holdings, and pretending to secure $3 million in private placement funding for Shimoda. The alleged FBI agents were named in the suit as John Firo a/k/a Thomas Faro, and Robert Betes a/k/a Robert Brewer. Also named in the suit were Patrick Joseph Lochrie,The Mix Group of South Florida Talon Holdings and Mohammed Galani a/k/a Mohammed Gilani.
According to the lawsuit, filed by attorney John Dodge of Little Rock, Ark.,"NASD senior managers and/or directors instructed subordinate staff at NASD in Dallas, Texas, in Washington, D.C., and in New York to create false registrations for these defendants, all the while knowing that they were intentionally facilitating bogus operations and operators, regardless of their ulterior motives." What's more, the NASD allowed the defendants to operate without a fidelity bond in place—something that is supposed to cover monetary damages to an injured third party—violating NASD Rule 3020, the suit alleges.
The NASD declined to respond to repeated questions about the case or about cooperation between the regulatory body and the FBI, saying it doesn't comment on pending litigation. The Arkansas offices of the FBI said they had been instructed to direct all inquiries on the matter to the Washington FBI offices, which could not immediately respond to requests for comment.
According to Shimoda's FDA compliance officer, Jim Bolt, Shimoda was first approached over email by John Firo in April 2005.After a year of negotiations, on May 9, 2006, Shimoda signed a $3 million private placement agreement with one of the defendants, Mohammed Galani, allegedly a wealthy man from Dubai. The next day, May 10, Bolt says the FBI came to Shimoda's offices, told them the deal was off, that they had been dealing with "enforcement officers" and handed them a grand jury subpoena for all of their corporate records, patient records and computer hard drives.
Shimoda also alleges that the NASD, when it got wind of the potential lawsuit, began erasing records of the registrations it provided to the broker/dealer and one of the agents. (According to the lawsuit the NASD issued defendant Talon Holdings with CRD# 126778, and issued defendant John Firo with CRD# 4654582. Shimoda provided Registered Rep. with a faxed copy of a former CRD for the b/d and says it called the NASD broker-check numerous times to verify that Talon had a clean record before doing business with the firm. But "Talon Holdings" and Firo no longer exist in the NASD's official CRD database, records that the NASD says are never eliminated.)
The lawsuit alleges that in the process of securing the financing from Talon, Shimoda turned over proprietary and trade-secret data to the defendants, one of whom—Lochrie—is engaged in competitive business operations through pharmaceutical companies of his own. In addition, they say, if they hadn't been contacted by Talon they would have secured financing from other sources.
Why would the NASD and the FBI want to trick Shimoda? Bolt says they have several theories about that, but he's not sure. "When people start shredding files, they have something to hide," says Bolt.
Article: In Switch, Company Sues NASD For Fraud, Says NASD Aided FBI In Creating Bogus B/D
Copyright: 2006 Prism Business Media
Publication: Registered Rep.
[ NASD Registered Rep? ]Maybe/Maybe Not) (Variable Annuity Agent Maybe/Maybe Not) In Switch, Company Sues NASD For Fraud, Says NASD Aided FBI In Creating Bogus B/D
posted by Mark Astarita
In an unlikely lawsuit,a private company is suing the NASD for securities fraud. A small cancer-research firm called Shimoda-Atlantic, based in Bentonville, Ark., filed a lawsuit against the NASD on Wednesday because, the company says, the self-regulatory organization helped several men, allegedly employed by the FBI, to create and perpetrate a fraudulent securities scheme against the company Shimoda alleges that the FBI operators, with the help of the NASD, committed fraud against the company by posing as NASD-registered brokers, working for an NASD-registered broker dealer called Talon Holdings, and pretending to secure $3 million in private placement funding for Shimoda. The alleged FBI agents were named in the suit as John Firo a/k/a Thomas Faro, and Robert Betes a/k/a Robert Brewer. Also named in the suit were Patrick Joseph Lochrie,The Mix Group of South Florida Talon Holdings and Mohammed Galani a/k/a Mohammed Gilani.
According to the lawsuit, filed by attorney John Dodge of Little Rock, Ark.,"NASD senior managers and/or directors instructed subordinate staff at NASD in Dallas, Texas, in Washington, D.C., and in New York to create false registrations for these defendants, all the while knowing that they were intentionally facilitating bogus operations and operators, regardless of their ulterior motives." What's more, the NASD allowed the defendants to operate without a fidelity bond in place—something that is supposed to cover monetary damages to an injured third party—violating NASD Rule 3020, the suit alleges.
The NASD declined to respond to repeated questions about the case or about cooperation between the regulatory body and the FBI, saying it doesn't comment on pending litigation. The Arkansas offices of the FBI said they had been instructed to direct all inquiries on the matter to the Washington FBI offices, which could not immediately respond to requests for comment.
According to Shimoda's FDA compliance officer, Jim Bolt, Shimoda was first approached over email by John Firo in April 2005.After a year of negotiations, on May 9, 2006, Shimoda signed a $3 million private placement agreement with one of the defendants, Mohammed Galani, allegedly a wealthy man from Dubai. The next day, May 10, Bolt says the FBI came to Shimoda's offices, told them the deal was off, that they had been dealing with "enforcement officers" and handed them a grand jury subpoena for all of their corporate records, patient records and computer hard drives.
Shimoda also alleges that the NASD, when it got wind of the potential lawsuit, began erasing records of the registrations it provided to the broker/dealer and one of the agents. (According to the lawsuit the NASD issued defendant Talon Holdings with CRD# 126778, and issued defendant John Firo with CRD# 4654582. Shimoda provided Registered Rep. with a faxed copy of a former CRD for the b/d and says it called the NASD broker-check numerous times to verify that Talon had a clean record before doing business with the firm. But "Talon Holdings" and Firo no longer exist in the NASD's official CRD database, records that the NASD says are never eliminated.)
The lawsuit alleges that in the process of securing the financing from Talon, Shimoda turned over proprietary and trade-secret data to the defendants, one of whom—Lochrie—is engaged in competitive business operations through pharmaceutical companies of his own. In addition, they say, if they hadn't been contacted by Talon they would have secured financing from other sources.
Why would the NASD and the FBI want to trick Shimoda? Bolt says they have several theories about that, but he's not sure. "When people start shredding files, they have something to hide," says Bolt.
Article: In Switch, Company Sues NASD For Fraud, Says NASD Aided FBI In Creating Bogus B/D
Copyright: 2006 Prism Business Media
Publication: Registered Rep.