NJ-based Seaboard Securities, along with 2 Registered Principals and an RR, settled FINRA charges they participated in the illegal sale of unregistered, thinly-traded securities for firm customers.  Customers reaped proceeds of over $3.8 million, the firm earned $400,000 in gross commissions. 

    Seaboard's Sanctions.  (i) $125,000 fine;  (ii) Retain an independent consultant to conduct a comprehensive review of the adequacy of the firm’s AML program and its pols, systems and procedures, and training re: determining whether securities are freely tradable.  (iii) Consultant will report to FINRA on these issues and make recommendations.  (iv) Firm will submit to FINRA a certified written implementation plan based on consultant’s final recommendations. Until written implementation report is submitted, firm is prohibited from selling any securities deposited in certificate form or by Deposit Withdrawal At Custodian (DWAC), unless stock has been held in an account at the firm for at least 1 year - and firm retains opinion from outside counsel that stock may be sold in compliance with Section 5 of the Securities Act of 1933.

    Individual Sanctions.   Principal Anthony DiGiovanni Sr. was suspended as principal for 45 days, and is jointly/severally responsible for $10,000 of firm's fine.  Principal/Compliance Officer Sonya Still was suspended as principal for 30 days, and is jointly/severally responsible for $10,000 of firm's fine.  RR Anthony DiGiovanni Jr. will pay $35,000 in fines and disgorgement, and suspended for 45 days.

    Alleged Violative Actions.   By participating in the distribution of unregistered, thinly-traded securities for customers, firm failed to adequately ascertain the registration or exemption status of the shares.  They didn't ask customers how they came into possession of their shares of unregistered stock, their relationships with the relevant issuers, or any other relevant facts or circumstances that could have revealed whether the shares were, in fact, exempt from registration. 

Instead, firm, acting through RR DiGiovanni, accepted the self-serving statements of its customers and counsel that the shares were exempt.  Firm, acting through Principal DiGiovanni, failed to adequately supervise RR DiGiovanni in his participation in the sales of unregistered securities.  Principal DiGiovanni reviewed the firm’s trade blotters on a daily basis and was aware of the customers’ trading activity and he approved new account documents that raised red flags - but he failed to take any action to investigate or prevent the firm’s or DiGiovanni Jr.’s participation in, and illegal sale of, unregistered securities.

The firm, acting through Compliance Officer Still, failed to establish and maintain adequate pols and procedures, including WSP's, for the possible sale of unregistered securities.  Further, Still had failed to develop and implement AML pols and procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act (BSA) and implementing regulations.  Also through Still, firm either failed to identify or ignored red flags involving numerous instances of potentially suspicious activities - and thus didn't investigate or report these activities in accordance with the firm’s WSP's and BSA requirements.  The firm and Still also should have detected the suspicious nature of the customers’ liquidation of their penny stocks, investigated the activity and made the appropriate SAR filings.

[FINRA Case #2007008724801, October Disciplinary Actions])