by Howard Haykin

Richard Botkin agreed to a $15K fine and a 4-month suspension to settle FINRA charges that he participated in private securities transactions without first providing written notice to his firm or obtaining its approval.

BACKGROUND.    Botkin, a resident of Granite Bay, CA (near Sacramento), has 30 years of experience with 7 firms. Botkin, who holds the Series 7, 63, 3, and 65 licenses, was associated with Morgan Stanley from 2008 until his termination in June 2015 because of the misconduct described herein. Botkin then went to Stifel, Nicolaus, and he remains associated with that firm. Botkin was previously disciplined by FINRA in April 2011 for improperly sharing in a customer's losses.

FINRA FINDINGS.    In September 2012, Botkin sought and received Morgan Stanley's approval to participate in an outside business - a production company designed to create a documentary film. Shortly thereafter, in January 2013, he began selling shares in the production company, including $170,000 worth of shares to 4 MS customers and another $75,000 worth of shares to 2 non-customers.

Botkin participated in the customers' and non-customers' investments in the production company, in the following ways:

• by advertising the production company to potential investors’
• by communicating with investors about their investments;
• by receiving investment checks from the investors and depositing them into the production company's bank account;
• by sending subscription agreements and suitability questionnaires to each investor, who then mailed signed copies back to Botkin; and,
• by running the production company in his role as one of only 2 managing members.

Morgan Stanley prohibited its registered reps from participating in private securities transactions (“PSTs”) without providing prior written notice of the transactions to the firm and obtaining the firm’s approval. However, Botkin did not provide written notice to, or obtain Morgan Stanley's approval for, the $245,000 worth of investments he raised from January 2013 to August 2014.

Botkin compounded his violative actions by submitting false responses on the firm’s 2013 and 2014 annual compliance attestations regarding his participation in private securities transactions.

When the firm U5'd Botkin, it expressed concerns about Botkin's "conduct in connection with an outside movie project, including not adhering to limitations imposed on his participation by the firm, not fully disclosing his activity to the firm, and raising funds from clients and others." 

FINANCIALISH TAKE AWAYS.    When reviewing cases, I try and figure out who was at fault. Did the firm fail to supervise? Did the broker try and pull a fast one on his firm? Did FINRA levy an appropriate sanction?

In this case, I got to say that Botkin got what he deserved. And Botkin could not have been surprised by FINRA's sanctions - after all, Morgan Stanley U5'd him for failing to disclose his PSTs. And having spent his entire career with wirehouses, Botkin had to know an 'Outside Business Activity' from a 'Private Securities Transaction'.

So, I'm guessing that Botkin decided to go 'whole hog' into the film production business because he sought out a new career as he approaches his eventual retirement. Funny thing, though. Botkin got bitten by movie production even though he's from northern California! Go figure.

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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2015045890001.