1. Newbridge CEO Failed to Control Firm's 'Wayward' Principals.
   
2. Principal Reviewed Daily Trading, But  Missed 'Big Picture'.
3. FinOp with Same Firm as in #2, Also Missed 'Big Picture', Along With Failure to Maintain Minimum Net Capital.

For complete details, click onto:  FINRA's Disciplinary and Other Actions for October 2010.

    AML Issues.   As noted in exit conference reports, firm's responses to FINRA, and the SEC’s written findings, is should have been abundantly clear to the CEO that:  (i) firm's AML compliance practices, overseen by its CCOs and AMLCOs, were deficient and effectively disregarded by these principals;  and, (ii)  FINRA expressly identified firm customers who had problematic backgrounds and/or engaged in suspicious transactions.  Yet, in spite of that knowledge, CEO took no affirmative steps to ensure that CCOs and AMLCOs were performing their delegated AML functions.  Finally, CEO Goldstein knew that one of the CCOs/AMLCOs had a FINRA disciplinary history and had engaged in supervisory deficiencies.

    Customer Complaints.   Firm, through its CCOs/AMLCOs, once again, failed to report numerous customer complaints and other reportable events, and failed to amend (or submitted late amendments for) numerous Forms U4 or U5 regarding these disclosable events.  Last, but not least, firm, through the CCOs/AMLCOs, was not making the necessary filings but did not take any affirmative steps to ensure that they were performing reporting functions.   (FINRA Case #2007007151706)

    2. Principal (El Dorado, CA) fined $20K, suspended 6 months as principal.  Was supervisor of member firm’s sales and trading operations, and direct supervisor of an RR who effected pre-arranged and fictitious trades in CMO's through the firm’s proprietary trading account.  The transactions appeared to close-out the firm’s holdings in those securities, generating profits for the firm and the trader.  But they were sham because firm remained the beneficial owner of the securities and the purported transaction profits concealed actual and substantial losses.  Principal Martin limited his reviews to daily trade blotters, which didn't enable him to observe patterns of fake trades that were conducted over extended periods.  (FINRA Case #2008012444203)

C-I Note:  This writer has for years advocated testing of transactions from multiple perspectives - because the risks are multi-dimensional.  Take retail sales, for example:  Daily trading logs can reveal solicited orders that were erroneously marked as "unsolicited" - i.e., where "unsolicited" orders in a particular security are executed across several of the RR's accounts for unrelated customers.  On the other hand, Monthly statements can reveal undue concentrations, excessive trading, and unsecured debit balances. 

    3. Principal (Lafayette, CA) fined $8K, suspended 6 months as FinOp.   Was her member firm’s FinOp - the same firm as in Case #2.  As FinOp, she monitored firm’s financial condition and minimum net capital.  Proprietary trades by an RR involving CMOs appeared to remove beneficial ownership of the CMOs from the firm, but they were sham transactions because the securities remained in firm’s inventory.  However, because FinOp Mello and other principals failed to extend the scopes of their reviews beyond the daily trade blotters, they failed to detect fraudulent trading patterns over time - which covered up firm losses and risk.  As a result, firm failed to maintain minimum net capital on on multiple days - i.e., FinOp failed to discern the true effect of the RR's trading on the firm’s net capital, which caused the firm to conduct a securities business while in violation of SEC Exchange Act Rule 15c3-1.  (FINRA Case #2008012444202)