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January 24, 2013 at 07:54 AM
Recent enforcement actions taken by FINRA and the SEC include fines and suspensions, as well as expulsions, of firms and principals for a wide variety of violations that include misuse of customer shares and funds; misleading sales materials; falsification of records and applications; and the sale of thousands of shares of unregistered stock.
Egan-Jones, Founder Agree to Settle SEC Charges
Egan-Jones Ratings Co. (EJR), and its president, Sean Egan, have agreed to settle SEC charges that they made willful and material misstatements and omissions when registering with the agency to become a nationally recognized statistical rating organization (NRSRO) for asset-backed securities and government securities.
An SEC order that found EJR falsely stated in its registration application that it had been rating asset-backed and government securities issuers since 1995. Actually, EJR had issued no such ratings before it filed its application. In addition, the SEC’s order found EJR to have violated conflict-of-interest provisions, and that Egan caused EJR’s violations.
In EJR’s July 2008 application to become an NRSRO, it claimed to have 150 outstanding asset-backed securities (ABS) issuer ratings and 50 outstanding government issuer ratings, and also claimed to have been issuing credit ratings in these categories continuously since 1995. Egan signed the application, certifying it as accurate.
In actuality, EJR was not eligible for an NRSRO registration in either category, because it had not issued any ABS or government issuer ratings made available through the Internet or any other readily accessible means. In addition, the SEC found that EJR continued to make material misrepresentations about its experience in the annual certifications that followed, as well as making other misstatements in SEC submissions. It also was found to have and violated recordkeeping and conflict-of-interest provisions governing NRSROs, thus evading standards intended to safeguard credit rating integrity.
To settle the charges, EJR and Egan agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO. The firm and Egan also agreed to conduct a comprehensive self-review and correct the deficiencies found by SEC examiners in 2012, and provide the SEC with a report that Egan is to sign under penalty of perjury enumerating the steps the firm has taken to comply. Neither EJR nor Egan has admitted or denied the findings. Westor Capital Group, President Targets of FINRA Actions
FINRA moved against Westor Capital Group and Richard Hans Bach, its president, chief compliance officer and operations principal, on charges that the firm failed to deliver securities to customer accounts, kept customers from taking out their own money and engaged in other violations of federal securities laws and rules.
In one instance, Westor refused to allow one customer to withdraw $97,000 from his account and, without customers’ permission, also misused 65,000 of their fully paid shares to effect and cover another client’s short sales.
Westor mainly trades in microcap securities through its own accounts, which are held at several different brokerage firms. According to FINRA, it lacks the ability to track and reconcile its customers’ stock positions, enabling it to cover up its own improper use of securities.
FINRA sought a temporary cease-and-desist order (TCDO) against both the firm and Bach to prevent further misappropriation and misuse of customer funds and securities during the time required for a formal disciplinary proceeding to occur. It also filed a complaint against both, in which they were charged with failing to allow customers to withdraw account balances and deliver securities, misusing customer securities, failing to maintain physical possession or control of securities, and for operating an unapproved self-clearing business.
Both Westor and Bach can file a response and request a hearing before a FINRA disciplinary panel.
