[ by Howard Haykin ]

FINRA announced on Thursday that it has expelled Melville, NY-based EKN Financial Services, Inc. for numerous compliance violations and for permitting its CEO to act as a supervisor after he had been barred from acting in that capacity by the SEC. 

Backgrounds of Respondents.   EKN Financial Services, Inc. has been a FINRA member since late 2001.  As of 9/19/12, when the firm submitted an Offer of Settlement, the firm employed 41 RRs and maintained one office location in Melville  - within range of FINRA's District 10 Office in Manhattan.  EKN's primary source of revenue is equity trading on an agency and principal basis.  In addition, it handles fixed income trading, prop trading and private placements.

CEO Anthony Ottimo first became registered with the NASD in late 1997.  He's been associated with ekn since 2001.  Ottimo and for President Thomas Giugliamo, as employees of EKN, are each subject to FINRA's jurisdiction.  They each own about 45% of EKN through their ownership of EKN's parent company.

FINRA Findings and Allegations.   From 2008 through 2011, CEO Ottimo allegedly acted in a supervisory role even though he had been barred by the SEC from associating with any broker or dealer in a supervisory capacity.  He also conducted business for the firm even though he was not properly registered in that capacity.  

During the relevant period, EKN and President Giugliano repeatedly misrepresented to FINRA that CEO Ottimo no longer was acting as EKN's CEO, or as a principal, or as a supervisor.  In 2011, EKN again lied to FINRA examiners reporting that, since 2008, it had "never filled" the CEO position - yet, the apparent reality  was that Ottimo conducted business as the firm's CEO, EKN's own documents indicated that from 2008 through 2011, Ottimo was listed as EKN's CEO and was operating in that capacity. As CEO, Ottimo supervised other EKN personnel, negotiated and executed agreements, controlled its finances, retained signatory authority over its bank accounts, and represented himself as EKN's CEO to its clearing firm and other third parties.
 

FINRA Further Found That ...  EKN, Ottimo and Giugliano, who was aware of EKN and Ottimo's regulatory violations, committed numerous AML violations, including:  failure to establish an adequate AML compliance program;  and, failure to detect and report suspicious activity. 

e.g. -  EKN customers attempted to inject several hundred million dollars of bogus bonds into the U.S. financial system.  The firm received a "red flag" warning flag for this transaction, but they did not follow up on the probable suspicious activity.  Moreover, EKN allegedly failed to meet minimum net capital requirements during certain periods, from September 2008 to November 2010. 

Furthermore, Giugliano allegedly committed these additional violations:

• prepared inaccurate net capital computations; 
• failed to accurately report its net capital deficiencies to the SEC and FINRA;
• failed to accurately record expenses and liabilities in its books and records.
• Acting through Giugliano, EKN failed to report to FINRA, which would have made this information publicly available through FINRA BrokerCheck, that Ottimo and Giugliano each had hundreds of thousands of dollars in unsatisfied judgments and liens.

 
FINRA EVP and Chief of Enforcement Brad Bennett, had this to say about the Respondents: "Ottimo and Giugliano both were defiant of an SEC order and their subsequent and persistent lies to regulators were nothing short of brazen. Not only did they hide the fact from regulators that Ottimo was acting as CEO, the firm was also fully aware they had significant AML problems and net capital deficiencies, yet chose to completely ignore any sense of responsibility to follow securities rules and laws."
 
FINRA Sanctions. With neither admitting nor denying the FINRA charges, all 3 respondents agreed to settle with FINRA by accepting the following sanctions:

• EKN Financial Services, Inc. .was expelled.
• Ottimo was barred from the industry.
• Giugliano was barred from acting in  a principal capacity, was suspended in all capacities for one year and was fined $150K.

For further details, go to:   [FINRA News Release, 10/18/12] and [FINRA Complaint].