FINRA’s Latest Disciplinary Actions Reveal Interesting Enforcement Efforts
From the Desk of Jim Eccleston at Eccleston Law Offices:
FINRA (the Financial Industry Regulatory Authority) recently published its disciplinary and other actions for July, 2014. Several financial services firms and registered representatives were barred from the securities industry, sanctioned or fined. Let’s highlight some of the more interesting actions.
First, a New Jersey adviser named James Bracey IV agreed to the sanction of a bar from the securities industry. Without admitting or denying the findings, he consented to findings of fact, including that he received a $175,000 loan from a customer of his brokerage firm without notifying the firm or obtaining its approval. He obtained the loan in connection with one of his unapproved outside business activities, about which he also failed to notify his firm. Finally, Bracey falsified the customer’s written wire transfer instructions in order to execute an unauthorized transfer of funds. In short, the allegations, if true, taken together and even separately, would form the basis for the adviser to be barred from the industry.
Second, a Philadelphia broker named Sean McDermott was sanctioned for deficiencies in his supervision of a broker at his firm. Specifically, McDermott agreed to a sanction of a $15,000 fine, a one-year suspension from serving in any principal capacity, and a requirement that he re-take and pass the qualifying examination for him to serve as a principal (the “Series 24” examination). Without admitting or denying the findings, McDermott consented to findings of fact, including that he was aware of a registered representative’s involvement in a limited partnership investment, whom he was charged with supervising, yet failed to recognize several red flags concerning the registered representative’s activities. McDermott further consented to the fact that, if he had investigated, he could have detected the representative’s fraudulent misrepresentations and omissions of material facts. FINRA also focused on McDermott’s lack of email surveillance. Specifically, McDermott knew that the representative used an outside email account for his limited partnership activities, yet McDermott failed to review those emails. Email review is a critical part of a supervisor’s job duties, and it should be no surprise that FINRA identified that deficiency.
Third, a Riverside, California adviser named David Trocasso was fined $10,000 and suspended for three months. He consented to findings of fact related to his failure to report material information on his Form U-4, which in turn becomes information available for the public to view. Specifically, Trocasso “willfully failed” to update his Form U-4 to disclose that he had filed for bankruptcy protection. This disciplinary action should remind reps that important financial information, like filing for bankruptcy, being the subject of liens, or having a judgment against them, always must be reported in a timely fashion in order to avoid disciplinary action.
Fourth, a St. Louis broker named Michael Wurdinger agreed to a six month suspension from serving in any principal capacity, and was required to re-take and pass the qualifying examination to serve as a principal. In light of Wurdinger’s financial status, no fine was imposed. This was another interesting failure to supervise case. Wurdinger consented to the entry of facts, including that he failed to address numerous red flags indicating that debenture transactions that he actually approved indeed were unsuitable for the customers, or might have involved misrepresentations and omissions. FINRA faulted Wurdinger for a limited review – he simply confirmed that “the forms submitted with the transaction were filled out in full.” Unfortunately, the numbers involved were large; $4.3 million in sales to customers. FINRA also took issue with the fact that Wurdinger had no prior experience in reviewing securities transactions for suitability, and that he lacked a basic understanding of the requirements for suitability. Those suitability requirements included “the customer’s investment objectives, risk tolerances, financial conditions, ages or liquidity needs.” Nor was FINRA pleased to learn that Wurdinger did not understand the unique features and risks of debentures.
As one can see, FINRA’s publication of its recent disciplinary actions sends a message as to what is not in compliance with securities rules and regulations. Both reps and their firms should pay attention to the message.
The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.
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