FINRA fined and/or suspended 2 firms based in southern California - Midas Securities and World Trade Financial Corporation ("WTF") - and 4 Registered Principals - Jason Adams, Frank Brickell, Jay Lee, Rodney Michel - on charges related to sales of unregistered securities.  Respondents appealed the decisions.

Midas, WTF and Brickell ... allegedly sold and transferred unregistered shares of a security but failed to establish that the stock was exempt from registration pursuant to Section 5 of the Securities Act of 1933.  They also failed to prove that they were entitled to rely on the brokers’ exemption contained in Section 4(4) of the Securities Act of 1933.  Their intent was to shift compliance responsibilities to 3rd parties.

Midas, WTF, Lee and Michel ... allegedly relied completely on 3rd parties to determine whether shares were freely tradable, ignoring their obligation to determine whether shares were part of an unlawful distribution and provided no meaningful mechanism to detect whether any of the unregistered securities they sold were exempt from the Securities Act’s registration requirements.  They also failed to establish and maintain a system and WSPs to ensure compliance with Section 5’s registration requirements.

Adams and Michel ... ignored key “red flags” that should have prompted them to investigate whether RR's under their supervision were participating in an unlawful distribution, and that they knew Brickell was engaged in the sale of unregistered securities and failed to conduct, or direct him to conduct, any inquiry into whether sales of securities complied with Section 5’s registration requirements.

WTF, acting through Adams and Michel ... failed to reasonably supervise Brickell’s sale of unregistered shares.

Midas and Lee ...  failed to reasonably supervise firm brokers in the sale of unregistered securities. 

FINRA Sanctions.   The National Adjudicatory Committee (NAC) imposed these sanctions following appeal of an Office of Hearing Officers (OHO) decision:

• Midas Securities, LLC - fined $80,000 .
• World Trade Financial Corporation fined $45,000. 
• Both firms were prohibited from receiving and selling unregistered securities until they obtain an independent consultant to review their procedures.
• Adams fined $20,000, suspended as principal for 30 business days.
• Brickell fined $15,000, suspended in any capacity for 30 business days.
• Lee fined $50,000, suspended as principal for two years.
• Michel fined $30,000, suspended as principal for 45 days. The firms

This is FINRA Case #2005000075703.   For further details, go to:  [Disciplinary Actions for May 2011]