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CEO to FINRA: Go Ahead and Sanction Me for Violating Membership Agreement
by Howard Haykin
Furthermore, it was a foregone conclusion that whatever fines and suspensions were meted out by FINRA would never be paid or served.
In June 2018, Garry Savage Sr. agreed to pay a $30K fine and serve two suspensions – 5 months in all capacities, and 3 months in any principal capacity – to settle FINRA charges that, among other things, he and his firm engaged in unauthorized sales of real estate investment trusts (REITS), which constituted a material change in his firm’s business operations.
WHAT WENT WRONG. Savage was the firm’s CEO, President, Chief Compliance Officer (CCO) and principal owner of Wall Street Strategies, which was permitted under its Membership Agreement to engage the following types of business: (1) mutual fund retailer, (2) broker or dealer selling variable life insurance or annuities; and (3) broker or dealer selling tax shelters or limited partnerships in primary distributions.
On January 15, 2015, Savage requested in writing a change in the Firm's Membership Agreement to include the sale of real estate investment trusts (REITS) and alternative investments – stating his belief that the additional product lines did not constitute a material change in the Firm's business operations and, therefore, did not have to file a Continuing Membership Application (CMA).
► FINRA's Membership Application Program (MAP) staff denied the request, advising that the proposed changes did constitute a material change.
On October 15, 2015, Wall Street Strategies submitted a request to FINRA staff for a materiality consultation, appealing the initial determination.
► FINRA's MAP staff confirmed its original decision and advised the firm not to engage in sales of the products.
Nonetheless, Wall Street Strategies engaged in more than 50 transactions with customers totaling approximately $4 million, involving the sale of oil and gas interests, private placements and non-traded real estate investment trusts. Savage effected several of these transactions himself.
► Savage caused his Firm ... to engage in sales of securities products that the Firm was not approved for pursuant to its Membership Agreement - thus violating NASD Rule 1017 and FINRA Rule 2010.
FINANCIALISH TAKE AWAYS. The actions by Wall Street Strategies and Savage were clear violations of FINRA rules and apparent pushbacks to the directives of FINRA’s MAP staff. And FINRA then engaged in mere formality when it disciplined Garry Savage Sr. in June 2018.
WHY SO?
- In June 2016, a FINRA arbitration panel ordered Garry Savage Sr. (CEO/President/CCO/principal owner), Garry Savage Jr. (EVP, FinOp) and Wall Street Strategies to pay $750,000 in compensatory damages, interest and attorneys fees, related to REITS and other investments sold to firm customers. Yet, that award was never paid.
- In May 2017, Wall Street Strategies operated with a net capital deficiency of between $130,000 and $150,000 while it executed 7 securities transactions on behalf of customers. At no time did either Savage (Sr. or Jr.) ever notify the SEC or FINRA of the firm’s net capital deficiency.
- In June 2017, Wall Street Strategies filed Form BDW, withdrawing its registration as a broker-dealer.
So currently, Garry Savage Sr. and Garry Savage Jr. are suspended indefinitely from the industry, while Wall Street Strategies is no longer in business.
GOOD LUCK COLLECTING ON THOSE SANCTIONS AND ARBITRATION AWARDS.
This case was reported in FINRA Disciplinary Actions for August 2018.
For details the case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2017052426201.
