[ by Howard Haykin ]

Today we conclude our coverage of FINRA's Quarterly Disciplinary Review for January 2013, which calls attention to recent disciplinary actions involving alleged misconduct by registered representatives ("RRs").  Today's cases involve:  (i) abusing postings on internet message boards;  and, (ii) improperly engaging in private securities transactions and willful failures to disclose material information on Form U4. 

To access Parts One and Two, go to:    [FINRA Disc. Priorities - First of 3 Parts, 2/5/13]      [FINRA Disc. Priorities - Second of 3 Parts, 2/6/13].

To access the FINRA publication, go to:      [FINRA Quarterly Disciplinary Review, January 2013].

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Case 7.  Posting Unwarranted and Misleading Statements on a Message Board.    An RR posted comments to a message board that allegedly contained unwarranted and misleading statements.  The RR signed off on his postings under different author names.  It appears the RR was trying to procure investment-banking and consulting business from a publicly traded company. 

During a 4-day period, he posted 13 comments to a message board relating to discussions on this company, signing off with 6 author names.  Some postings purported to converse with his other postings - each "authored" by different 'alter-ego'''.  The representative posting unwarranted and misleading statements that expounded on the prospects of the publicly traded company, while trying to make it appear as though his different alter-egos were in agreement. 

The RR took additional actions, including the following:

• RR made misleading statements like:  "this one looks like a gem,” and “looks like the real deal.”
• RR tried to preserve his identity by making the posts through multiple non-firm-provided email accounts - a violation of his firm’s procedures.
• RR used non-firm-provided email accounts to communicate with reps of the publicly traded company regarding firm-related business matters. 
• RR gave the impression in some emails that his member firm had provided the email account - conduct that also contravened firm policies.

Violations and Sanctions.   Such alleged conduct by an RR would be in violation of NASD Rule 2210(d) (communications with the public – content standards) and FINRA Rule 2010 (ethical standards).  The RR agreed to a $20K fine and a one-year suspension in all capacities to settle FINRA charges.

Case 8.  Improperly Engaging in Private Securities Transactions and Willfully Failing to Disclose Material Information on a Form U4.   An RR allegedly borrowed funds and executed a promissory note (presumably with a customer of the firm) without informing his employer firm, while also willfully failing to amend his Form U4 in a timely manner to disclose civil litigation, a civil settlement and a bankruptcy filing.

The RR solicited 2 individuals to lend $500,000 to him and his brother in exchange for a 6-month promissory note that was to pay 14% interest. The RR neither informed his employer firm of this transaction nor obtained the firm’s prior written approval. 

While employed with the same member firm, the RR failed to repay the note within the required time period, and the 2 lenders sued the RR in state court, claiming more than $535,000 in damages. agains, the RR willfully failed to amend his Form U4 within 30 days to reflect this later litigation.  When he later settled with the lenders - agreeing to pay a lump sum of $220,000 and issue a $120,000 promissory note - he again willfully failed to update his Form U4 within 30 days - this time for the settlement.  At a later date, the RR filed a voluntary petition for bankruptcy protection under Chapter 7 of the Bankruptcy Act.   And yes, the RR willfully failed to update his Form U4 for this filing, as well.

Violations and Sanctions.   Such alleged actions by a registered individual would violate several rules.  (i) Not informing an employer of outside business activity would violate NASD Rules 3040 (private securities transactions) and 2110 (ethical standards).  (ii) Failure to timely update one's Form U4 to disclose civil litigation, a settlement and a bankruptcy filing would be considered willful and would violate Article V, Section 2(c) of NASD’s and FINRA’s By-Laws (applications for registration), NASD Rule 2110 (ethical standards), IM-1000-1 (filing misleading registration information) and FINRA Rules 2010 (ethical standards) and 1122 (filing misleading registration information).  

The RR agreed to a 5-month suspension in all capacities to settle FINRA charges.  

[C-I Note:  Why this miscreant was not barred from the industry by FINRA is beyond me.  He presents a 'clear and present' danger to any customer with whom he comes into contact and demonstrates no intention to change his ways.  If not now, when would it be appropriate to throw him out?]