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Pinnacle Partners Financial Corp. Expelled by FINRA

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A FINRA hearing officer has expelled Pinnacle Partners Financial, Corp., a broker-dealer based in San Antonio, TX, and barred its President, Brian Alfaro, for fraudulent sales of oil and gas private placements and unregistered securities. In addition, Brian Alfaro was found to have used customer funds for personal and business expenses. As restitution, Pinnacle and Alfaro are ordered to offer rescission to investors who were sold fraudulent offerings and refund all sales commissions to those customers who do not request rescission.

On the day Alfaro and Pinnacle Partners were to appear before the hearing panel, Alfaro decided not to attend the hearing. As a result, the hearing officer issued a default decision.

The hearing officer found that from August 2008 to March 2011, Alfaro and Pinnacle operated a boiler room in which approximately 10 brokers placed thousands of cold calls on a weekly basis to solicit investments in oil and gas drilling joint ventures Alfaro owned or controlled. Alfaro and Pinnacle raised over $10 million from more than 100 investors, and that Alfaro diverted some of the customer funds for unrelated business and personal expenses.

The hearing officer also found that Pinnacle and Alfaro included numerous misrepresentations and omissions in the investment summaries for 11 private placement offerings, including grossly inflated natural gas prices, projected natural gas reserves, estimated gross returns and estimated monthly cash flows. Pinnacle and Alfaro deliberately attempted to mislead investors by deleting material, unfavorable information from well operator reports and providing investors with maps that omitted numerous dry, plugged and abandoned wells near their projected drilling sites. In addition, Pinnacle and Alfaro distributed an offering document claiming that a previous venture had distributed more than $14 million to its investors when the actual distribution was less than $1.5 million.

The hearing officer decision also notes that from January 2009 to March 2011, Alfaro misused customer funds entrusted to him with the belief that the funds would be used for drilling and production in the wells in which their ventures invested. The funds were used for Alfaro’s personal expenditures and for business purposes that were not related to the purposes of the customers’ investments. When projects failed or were failing, Alfaro concealed his misuse of customers’ funds by persuading them to transfer their investment to his other oil and gas ventures. In one instance, Alfaro collected more than $500,000 in subscription costs for a well that was never drilled, and used those funds for unrelated personal and business expenses.

In April 2011, FINRA had suspended indefinitely Pinnacle and Alfaro for failure to comply with a FINRA Temporary Cease and Desist Order prohibiting their fraudulent misrepresentations. The suspension resulted from FINRA’s Notice of Suspension, which alleged that Pinnacle and Alfaro had continued to make fraudulent oral and written misrepresentations and omissions in connection with their offer and sale of certain oil and gas joint interests, and had otherwise failed to comply with the terms of the Temporary Order FINRA issued on January 21, 2011.

FINRA was represented at the hearing by Mark Dauer, Enforcement Deputy Chief Litigation Counsel, and Robert Long, Enforcement Senior Regional Counsel.

With a default decision, unless the hearing officer’s decision is appealed to FINRA’s National Adjudicatory Council (NAC) or is called for review by the NAC, the hearing officer’s decision becomes final after 25 days.

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Pre-IPO Facebook Fraud Halted in Miami

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Allen Weintraub, charged with an ongoing fraudulent scheme of selling securities of an investment vehicle that he falsely represented owned pre-IPO shares of Facebook, Inc., was the subject of an April 4, 2012 Order to Show Cause and Other Emergency Relief (“Order”) by the U.S. District Court for the Southern District of Florida in Miami.

The Court’s Order temporarily freezes the assets of Weintraub and certain shell companies through which he apparently operates. The order also directed Weintraub to demonstrate, among other things, why he should not be held in contempt for violating the Court’s Final Judgment in SEC v. Allen E. Weintraub and AWMS Acquisition, Inc., d/b/a Sterling Global Holdings, Case No. 11-21549-CIV-HUCK/BANDSTRA (S.D.Fla.), which was entered on January 10, 2012 (Final Judgment). The Final Judgment enjoined Weintraub from violating, among other things, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The Commission’s motion for an order to show cause alleges that in February 2012, Weintraub, acting through an alias, William Lewis, and through entities named Private Stock Transfer, Inc., PST Investments III, Inc. (PST Investments), and World Financial Solutions, defrauded investors by selling them worthless shares in PST Investments. Weintraub had falsely represented that he would sell the investors pre-IPO shares of Facebook, Inc., and that PST Investments had an ownership interest in Facebook stock. The Commission’s motion also alleges that Weintraub was utilizing the website privatestocktransfer.com to perpetrate his scheme. The Court’s Order directed that this website be deactivated. The Division of Enforcement urges anyone who believes that Allen Weintraub may have recently defrauded them to contact John Rossetti, Senior Counsel, at 202-551-4819.

On December 30, 2011, the Court entered an order granting the Commission’s motion for summary judgment against Weintraub and his shell company, Sterling Global. In its Order, the Court found that Weintraub deceived the public by making false and misleading statements regarding Sterling Global’s ability to purchase and operate Eastman Kodak Company and AMR Corporation. The Court’s January 2012 Final Judgment permanently enjoined Weintraub and Sterling Global from future violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-8 thereunder, and ordered them to each pay a civil money penalty in the amount of $200,000. See Litigation Release 22225 (January 11, 2012). [SEC v. Allen E. Weintraub and AWMS Acquisition, Inc., d/b/a Sterling Global Holdings, Case No. 11-21549-CIV-HUCK/BANDSTRA (S.D.Fla.)] (LR-22343)

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Do-It-Yourself IRAs Result in Litigation

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Lawsuits targeting custodians of self-directed IRAs made the news this week, in a Wall Street Journal article titled “New Suits Over Do-It-Yourself IRAs.”

A self-directed individual retirement account (SIDRA) is an IRA held by a trustee or custodian that permits investment in a broader set of assets than is permitted by most IRA custodians.

SIDRA investment options may include tax lien certificates, promissory notes, real estate, businesses, and LLCs.

The Retirement Industry Trust Association reports that self-directed IRAs have grown rapidly in the past three years, and now make up an estimated 2% to 5% of the $4.6 trillion held in IRAs overall.

According to the Wall Street Journal, experts expect to see more SIDRA lawsuits, as regulators fight investment frauds involving older Americans’ retirement savings.

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

SEC Suspends NY Attorney Living in Boca Raton

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William J. Reilly, a New York attorney residing in Boca Raton, Florida, is suspended from practicing as an attorney before the Securities and Exchange. Judge Donald M. Middlebrooks of the U.S. District Court for the Southern District of Florida entered a judgment on April 16, 2012, enforcing an order entered by the Securities and Exchange Commission.

The judgment finds that on October 27, 2009 the SEC suspended Reilly from appearing or practicing as an attorney before the SEC, with the right to apply for reinstatement after three years. In the Matter of William J. Reilly, Esq., Admin. Proc. 3-13666 (Oct. 27, 2009). The judgment further finds that a registration statement on Form S-8 filed with the SEC on June 21, 2011 incorporated as an exhibit a legal opinion letter signed by Reilly. By this conduct, Reilly knowingly violated the terms of the order suspending him from appearing or practicing before the SEC as an attorney.

The judgment entered by the court under Section 21(e) of the Securities Exchange Act of 1934 requires Reilly to comply with the SEC order. [SEC v. William J. Reilly, 9:11-CV-81322-DMM (S.D. Fla.)] (LR-22336)

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

SEC Charges optionsXpress in Naked Short Selling Scheme

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The Securities and Exchange Commission today charged an online brokerage and clearing agency specializing in options and futures as well as four officials at the firm and a customer involved in an abusive naked short selling scheme.

The SEC’s Division of Enforcement alleges that Chicago-based optionsXpress Inc. failed to satisfy its close-out obligations under Regulation SHO by repeatedly engaging in a series of sham “reset” transactions designed to give the illusion that the firm had purchased securities of like kind and quantity. The firm and customer Jonathan I. Feldman engaged in these sham reset transactions in a number of securities, resulting in continuous failures to deliver. Regulation SHO requires the delivery of equity securities to a registered clearing agency when delivery is due, generally three days after the trade date (T+3). If no delivery is made by that time, the firm must purchase or borrow the securities to close out the failure-to-deliver position by no later than the beginning of regular trading hours on the next day (T+4).

The former chief financial officer at optionsXpress, Thomas E. Stern of Chicago, was named in the SEC’s administrative proceeding along with optionsXpress and Feldman. Three other optionsXpress officials – head of trading and customer service Peter J. Bottini and compliance officers Phillip J. Hoeh and Kevin E. Strine – were named in a separate administrative proceeding and settled the charges against them for their roles in the scheme.

According to the SEC’s order, the misconduct occurred from at least October 2008 to March 2010. In September 2011, optionsXpress became a wholly-owned subsidiary of The Charles Schwab Corporation.

The SEC’s Enforcement Division alleges that the sham reset transactions impacted the market for the issuers. For example, from Jan. 1, 2010 to Jan. 31, 2010, optionsXpress customers including Feldman accounted for an average of 47.9 percent of the daily trading volume in one of the securities. In 2009 alone, the optionsXpress customer accounts engaging in the activity purchased approximately $5.7 billion worth of securities and sold short approximately $4 billion of options. In 2009, Feldman himself purchased at least $2.9 billion of securities and sold short at least $1.7 billion of options through his account at optionsXpress.

According to the SEC’s order, by engaging in the alleged misconduct, optionsXpress violated Rules 204 and 204T of Regulation SHO; Feldman willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b-21 thereunder; optionsXpress and Stern caused and willfully aided and abetted Feldman’s violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5 and 10b-21 thereunder; and Stern caused and willfully aided and abetted optionsXpress’ violations of Rules 204 and 204T.

In the separate settled administrative proceeding, Bottini, Hoeh, and Strine consented to a cease-and-desist order finding that they caused optionsXpress’ violations of Rules 204 and 204T of Regulation SHO and ordering them to cease-and-desist from committing or causing violations of Rules 204. They neither admitted nor denied the SEC’s findings. (Rel. 34-66814; File No. 3-14848 and 33-9313; File No. 3-14848)

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Goldman Sachs Lacked Adequate Policies for Research “Huddles”

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Goldman agreed to pay a $22 million penalty and consent to a censure, a cease-and-desist order, and undertakings to settle SEC charges that the firm lacked adequate policies and procedures to address risks associated with weekly “huddles.” Huddles were a practice where Goldman’s stock research analysts met to provide their best trading ideas–frequently material, nonpublic information about upcoming research changes–to firm traders and later passed them on to a select group of top clients.

Goldman also agreed to review and revise its written policies and procedures to correct the deficiencies identified by the SEC. The Financial Industry Regulatory Authority (FINRA) also announced today a settlement with Goldman for supervisory and other failures related to the huddles.

The Commission’s Order finds that from 2006 to 2011, Goldman held weekly huddle meetings in each of its research sectors, sometimes attended by sales personnel, in which analysts discussed their top short-term trading ideas and traders discussed their views on the markets. Beginning in 2007, Goldman began a program known as the Asymmetric Service Initiative (ASI), in which analysts shared information and trading ideas from the huddles with select clients. The huddles and ASI were extensive undertakings by Goldman and were created with the goals of improving the profitability of the firm’s traders and generating increased commission revenues from ASI clients.

Research analysts were made aware of the importance of huddles and ASI to Goldman and to their own evaluations and potentially their compensation. The huddle program created a serious and substantial risk that analysts could share material, nonpublic information concerning upcoming changes to their published research with ASI clients and the firm’s traders. The risks were further increased by the fact that many of these clients and traders were frequent, high-volume traders. Despite those risks, Goldman failed to establish adequate policies or adequately enforce and maintain its existing policies, to prevent the misuse of material, nonpublic information concerning upcoming changes to its research.

The Order also finds that Goldman conducted limited surveillance of trading ahead of research changes, but did not perform any surveillance specifically related to huddles. Furthermore, Goldman’s surveillance of trading ahead of research changes was not reasonably designed to ensure that analysts were not prematurely disclosing material research changes to firm traders and clients, either through the huddles, ASI or otherwise.

In 2003, Goldman paid a $5 million civil penalty and disgorgement and interest totaling more than $4.3 million to settle SEC charges that, among other violations, Goldman violated Section 15(f) of the Securities Exchange Act of 1934 (the Exchange Act) by failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information obtained from outside consultants concerning U.S. Treasury 30-year bonds. In re Goldman Sachs & Co., Exchange Act Rel. No. 48436 (Sept. 4, 2003). Goldman settled the SEC’s 2003 proceeding without admitting or denying the findings.

The Order issued today finds that Goldman willfully violated Section 15(g) of the Exchange Act (previously Section 15(f)). The Commission censured the firm and ordered it to cease and desist from committing or causing any violations and any future violations of Section 15(g) of the Exchange Act.

Goldman was ordered to pay a civil money penalty of $22 million, $11 million of which shall be deemed satisfied upon payment by Goldman of an $11 million civil penalty to the Financial Industry Regulatory Authority in a related proceeding.

In addition, Goldman agreed to complete a comprehensive review of the policies, procedures, and practices relating to the findings of the Order, and to adopt, implement and maintain practices and written policies and procedures consistent with the findings of the Order and the recommendations contained in the comprehensive review. In June 2011, Goldman entered into a consent order relating to huddles and ASI with the Massachusetts Securities Division (Docket No. 2009-079).

In the SEC’s action, Goldman admits to the factual findings to the extent those findings are also contained in Section V of the Massachusetts Consent Order, but otherwise neither admits nor denies the SEC’s findings. (Rel. 34-66791; File No. 3-14845)

Securities Litigation and FINRA Arbitration

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Miami Ponzi Scheme Targeting Cubans Ends in Jail Term

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Gaston E. Cantens was sentenced to five years’ imprisonment followed by three years of supervised release for conspiring to commit mail and wire fraud in violation of 18 U.S.C. §371 involving a $135 million securities offering fraud and Ponzi scheme targeting Cuban-American investors primarily from South Florida.

Cantens, who is now 73, served as president of Royal West Properties, Inc. (Royal West), a Miami-based real estate developer that purchased and resold thousands of parcels of real estate on the west coast of Florida. Cantens funded Royal West by offering investors no-risk promissory notes that promised investors annual returns of 9% to 16% purportedly backed by recorded mortgage assignments.

On January 25, 2012, Cantens pled guilty to a criminal Information filed by the United States Attorney for the Southern District of Florida. According to the Information, beginning in 2008, Cantens made numerous material misrepresentations to investors about the financial health of Royal West when Cantens knew that Royal West, among other things, paid existing investors with new investors’ funds, assigned the same collateral to multiple investors, assigned investors to non-performing or non-existing mortgages, and failed properly to record mortgages and other interests in the public records, causing investors to have unsecured legal interests in the mortgages and parcels.

On March 3, 2010 the SEC filed an injunctive action that named Cantens and his wife, Teresita Cantens, as defendants. The SEC’s complaint alleged that Cantens and his wife violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

On March 24, 2011, both Cantens and Teresita Cantens each consented to entry of a Final Judgment of Permanent Injunction and Other Relief in the SEC action. In addition to being enjoined from further violations of the federal securities laws, Cantens and his wife were ordered to pay full injunctive relief and disgorgement of $5,276,750, along with prejudgment interest of $88,297.62.

The Order forgoes seeking payment of civil penalties under Section 20(d) of the Securities Act and Section 21(d) of the Exchange Act based on the Cantens’s asserted inability to pay as evidenced by their sworn financial statements and supporting documents submitted to the Commission staff.

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

SEC Charges George Elia of Oakland Park with Fraud

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The Securities and Exchange Commission charged that a South Florida investment manager defrauded investors by making false claims about his investment track record and providing bogus account statements that reflected fictitious profits.

In the complaint filed in the U.S. District Court for the Southern District of Florida, the SEC alleges that since 2005, George Elia and International Consultants & Investment Group Ltd. Corp., pulled in at least $11 million from investors by falsely claiming annual returns as high as 26%, and that Elia transferred more than $2.5 million of investor funds to two entities he controlled, Elia Realty, Inc., and 212 Entertainment Club, Inc.

Elia, age 67, and until recently a resident of Oakland Park, Florida, told investors that he had extensive experience in day trading stocks and exchange-traded funds, but his trading resulted in losses or only marginal gains, and the quarterly account statements he sent to clients overstated their returns, the SEC alleged.

According to the SEC’s complaint, Elia typically met and pitched prospective investors over meals at expensive restaurants in and around Fort Lauderdale. The SEC said his clients typically came to him through word-of-mouth referrals among friends and relatives. A significant number of the victims of his scheme were members of the gay community in Wilton Manors, Florida.

“Elia’s blatant fraud and cruel deceptions have wrecked the lives of investors and their families,” said Eric I. Bustillo, Regional Director of the SEC’s Miami Regional Office. “This is a sad lesson that investors must always be skeptical of claims of high and steady investment returns, even when the manager is recommended by trusted friends or members of one’s own community.”

In a parallel criminal case, the U.S. Attorney for the Southern District of Florida announced that Elia was indicted on April 5 on one count of wire fraud.

The SEC alleges that Elia and ICIG operated through an informal “Investor Funding Club” and through funds including Vision Equities Fund II, LLC and Vision Equities Fund IV, LLC. It alleges that Elia sent one investor a statement for the first three quarters of 2009, showing returns of 3.48%, 3.48%, and 3.52% respectively. The SEC alleges the statement was false and misleading because the returns exceeded Elia’s trading gains for the period. In at least one instance, the SEC alleges Elia reassured an investor by showing him falsified statements that grossly overstated account balances.

The SEC’s complaint charges that Elia and ICIG violated antifraud provisions of U.S. securities laws and that Elia aided and abetted violations by the firms. The SEC is seeking permanent injunctions against Elia and ICIG, disgorgement of ill-gotten gains plus pre-judgment interest, and civil penalties. The complaint also named Elia Realty, Inc. and 212 Club Entertainment, Inc. as relief defendants.

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know did business with George Elia. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

SEC Approves Social Media for Financial Disclosure

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Public companies can now use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD), says the SEC, as long as investors are notified of company communication plans.

Regulation FD applies to social media and other emerging means of communication used by public companies the same way it applies to company websites, according to the SEC. The announcement clarifies that company communications made through social media channels could constitute selective disclosures and, therefore, require careful Regulation FD analysis.

“One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information,” said George Canellos, Acting Director of the SEC’s Division of Enforcement. “Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don’t know that’s where they need to turn to get the latest news.”

Regulation FD requires companies to distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively. It is intended to ensure that all investors have the ability to gain access to material information at the same time.

The SEC’s report of investigation stems from an inquiry the Division of Enforcement launched into a post by Netflix CEO Reed Hastings on his personal Facebook page stating that Netflix’s monthly online viewing had exceeded one billion hours for the first time. Netflix did not report this information to investors through a press release or Form 8-K filing, and a subsequent company press release later that day did not include this information. Neither Hastings nor Netflix had previously used his Facebook page to announce company metrics, and they had never before taken steps to alert investors that Hastings’ personal Facebook page might be used as a medium for communicating information about Netflix. Netflix’s stock price had begun rising before the posting, and increased from $70.45 at the time of the Facebook post to $81.72 at the close of the following trading day.

The SEC did not initiate an enforcement action or allege wrongdoing by Hastings or Netflix. Recognizing that there has been market uncertainty about the application of Regulation FD to social media, the SEC issued the report of investigation pursuant to Section 21(a) of the Securities Exchange Act of 1934.

The report of investigation explains that although every case must be evaluated on its own facts, disclosure of material, nonpublic information on the personal social media site of an individual corporate officer — without advance notice to investors that the site may be used for this purpose — is unlikely to qualify as an acceptable method of disclosure under the securities laws. Personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

FINRA Fines David Lerner Associates $2.3 Million

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David Lerner Associates, Inc. (DLA) of Long Island was fined $2.3 million by FINRA, the Financial Industry Regulatory Authority, for selling municipal bonds and collateralized mortgage obligations (CMOs) to retail customers at unfair prices, and for supervisory violations. In addition to providing restitution to customers, the firm’s head trader, William Mason is suspended and fined $200,000. The ruling resolves charges brought by FINRA’s Department of Enforcement in May 2010.

The panel found that from January 2005 through January 2007, DLA and Mason charged retail customers excessive markups in more than 1,500 municipal bond transactions and charged excessive markups in more than 1,700 CMO transactions from January 2005 through August 2007. FINRA rules require that the amount of a markup must be fair and reasonable, taking into account all relevant factors and circumstances, including the type of security involved, the availability of the security in the market and the amount of money involved in a transaction.

The hearing panel decision notes that DLA’s municipal bond and CMO trades reflected a pattern of intentional excessive markups. The municipal bonds and CMOs in the transactions were all rated investment grade or above, and were readily available in the market at significantly lower prices than DLA charged.

The panel noted that DLA charged markups on the municipal bonds ranging from 3.01 percent to 5.78 percent and charged markups on the CMOs ranging from 4.02 percent to 12.39 percent. Regardless of whether a DLA customer bought as much as $225,000 or as little as $8,000 of a CMO, the price was marked up “without consideration for the amount of money involved in the transaction.” The hearing panel concluded that as a result of the unfair markups, the customers received lower yields than they would have received if the markups had been fair and reasonable.

The panel also found that DLA’s supervisory system for its municipal bonds and CMOs was inadequate on several levels. DLA failed to establish and maintain adequate procedures to monitor the fairness of pricing for municipal bonds and CMOs, and failed to have adequate procedures in place to ensure that it recorded the time that the municipal bond orders were received from customers. DLA also failed to record the order receipt time of municipal order tickets.

In determining the sanctions, the panel took into consideration DLA’s relevant disciplinary history. Despite having received a Letter of Caution raising FINRA’s concerns about DLA’s markup practices after a 2004 exam, and after having received a Wells Notices concerning the matter in July 2009, DLA continued its unfair pricing practice. The panel’s decision notes that “in keeping with their unwillingness to accept responsibility, DLA has not taken any corrective measures to improve their fixed income markups policies and practices.”

Unless the hearing panel’s decision is appealed to FINRA’s National Adjudicatory Council (NAC), or is called for review by the NAC, the hearing panel’s decision becomes final after 45 days.

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.