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Regulatory Sanctions

Registered Principal Used Undisclosed Brokerage Accounts for IPO Investments

May 22, 2017
FINRA rules generally prohibit associated persons from purchasing shares in IPOs – especially when they involve hot issues – but that didn’t stop this individual from participating over a span of several years.


by Howard Haykin


Patrick Horsman, a registered rep and registered principal, agreed to pay about $31K in fines and disgorgement, and to be suspended in any capacity for 10 business days, to settle FINRA charges that he purchased shares in 11 IPOs in 3 personal brokerage accounts held at 3 member firms – other than the one he’s associated with.


BACKGROUND.  Patrick Horsman, who resides in Bar Harbor Islands, FL, entered the securities industry 2003, and became registered as a General Securities Principal (Series 24) in December 2006. Since May 2007, Horsman has been registered with Blue Sand Securities, a FINRA member firm. He had no prior disciplinary history.


FINRA FINDINGS.    While associated with Blue Sand, from November 2010 through April 2015, Horsman purchased shares in 11 IPOs in three brokerage accounts held at Merrill Lynch, Morgan Stanley and Fidelity Brokerage. The first such IPO took place on 11/18/10 involving 600 shares of GM. The last IPO was on 4/16/15 involving 150 shares of Etsy. In most instances, the newly-issued shares were sold (or flipped) within days of the purchase. By participating in 11 IPOs while registered with Blue Sand, Horsman violated FINRA Rules 5130 and 2010.


In addition – and it shouldn’t come as a surprise – that:


  • Horsman opened 2 accounts at Fidelity in early 2014, and didn’t notify Blue Sand until 12/28/14.
  • Horsman opened 2 accounts at Morgan Stanley in July and September of 2014 and didn’t notify Blue Sand until 12/31/15.
  • In each case, he orally disclosed the existence of those 4 outside brokerage accounts, and not in writing as required by NASD Rule 3050(c) and FINRA Rule 2010.


SO, WHAT’S WITH BLUE SAND SECURITIES?    FINRA tells us that Blue Sand Securities got VERBAL NOTIFICATION about this Florida broker/principal’s 4 brokerage accounts – up to 19 months after the fact. A review of FINRA BrokerCheck indicates that Blue Sand has never been sanctioned by FINRA – so we probably can presume that the firm fulfilled its regulatory obligations and:  (i) obtained the notification in writing, and (ii) obtained duplicate statements.  If not, then Blue Sand bears some negligence in this case.


SO, WHY SUSPEND HORSMAN ONLY 10 DAYS?    Don’t understand FINRA’s confounded sanction. By all measure, Horsman should have been suspended more than 10 days. Horsman is a registered person – a principal since 2006 – who went out of his way to surreptitiously open outside brokerage accounts and to participate in 11 IPOs – including Alibaba Group - over an extended period (4-1/2 years). FINRA and Blue Sand would have been right to have “thrown the book at” Horsman – who demonstrated little integrity.


If  I were representing an individual who had been charged by FINRA with ANY VIOLATION, I would cite this case in my arguments as justification for leniency. 


This case was reported in FINRA Disciplinary Actions for May 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016048854001.