FINRA Hits BD for Reps’ Excessive and Unsuitable Trading: Enforcement
In another enforcement action, the SEC charged a sales assistant with taking funds from brokerage customers.
FINRA ordered New Jersey-based broker-dealer Buckman, Buckman & Reid, Inc. to pay approximately $205,000 in restitution to seven customers for failing to reasonably supervise two former registered representatives who recommended excessive and unsuitable trades in multiple customer accounts.
As part of the settlement, FINRA also required the firm to review and revise its supervisory system and written supervisory procedures. FINRA previously barred both registered representatives from the industry.
Additionally, FINRA sanctioned Harry John Buckman, Jr., a senior vice president and one of BBR’s owners, for failing to supervise the two registered representatives, both of whom reported directly to Buckman. FINRA suspended Buckman from associating with any FINRA member in any principal capacity for three months, assessed a $20,000 fine, and required him to complete 40 hours of continuing education concerning supervisory responsibilities.
“A firm and its supervisors must be vigilant in identifying and responding to unsuitable activity such as excessive trading and unsuitable concentration of customer accounts, which can result in significant customer harm,” said Susan Schroeder, FINRA’s executive vice president of the department of enforcement.
According to Schroeder, FINRA has prioritized ensuring that affected customers receive full restitution, the firm fixes its supervisory flaws, and the responsible supervisor is held accountable and receives additional training.
“Due to the firm’s financial condition, FINRA did not impose a fine in addition to these other sanctions – the firm’s limited resources are better spent on remedial measures designed to prevent similar misconduct in the future,” she added.
FINRA found that BBR and Buckman failed to identify that one of the now-barred registered representatives had engaged in frequent and short-term trading of Unit Investment Trusts (UITs) and other long-term investments with significant up-front costs. From 2013 to 2014, this rep’s excessive trading of UITs and other long-term products caused his customers to pay approximately $210,000 in commissions and resulted in losses of approximately $163,000.
BBR and Buckman also failed to identify that the second barred registered representative had excessively traded three customers’ accounts. For example, this rep made more than 130 trades in the account of an 89 year-old retired customer during a one-year period. BBR and Buckman also failed to reasonably supervise this rep’s recommendations that four additional customers purchase concentrated positions in a single, speculative security.
In settling this matter, BBR and Buckman neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
SEC Charges Sales Assistant With Misappropriation Scheme
The Securities and Exchange Commission charged a sales assistant with misappropriating funds from brokerage customers of a registered broker-dealer with which she was associated.
The SEC’s complaint alleges that Kimberly Sredich, who was a sales assistant to a registered representative associated with a registered broker-dealer firm, sold securities in at least 15 customer accounts and misappropriated the proceeds of the sales.
In her capacity as a sales assistant, Sredich was permitted to communicate directly with brokerage customers and had direct access to customer brokerage accounts.
According to the complaint, Sredich misappropriated at at least $339,725 from customers, most of whom were elderly. The SEC says the majority of the affected customers ranged from 67 to 91 years old.
The complaint alleges that Sredich forged customers’ signatures and used blank letters of authorization previously signed by customers to transfer funds to a company she controlled. She then allegedly transferred most of the misappropriated funds to a personal bank account.
Sredich and her husband used these customer funds for numerous personal expenses, including mortgage payments, credit cards bills, fast food, and large cash withdrawals.
The SEC seeks a permanent injunction against Sredich to enjoin her from future violations of the federal securities laws. The SEC further seeks an order requiring Sredich to pay disgorgement, plus prejudgment interest, of the ill-gotten gains that she received through her fraud, along with the imposition of civil penalties.
In a parallel action, the U.S. Attorney’s Office for the Eastern District of Michigan filed criminal charges against Sredich, who was arrested by the FBI.
SEC Charges Microcap Fraudster With Running a Pump-and-Dump Scheme
The SEC charged David Loflin for his role in a pump-and-dump scheme in the stock of Greenway Design Group, Inc., a Phoenix, Arizona company that was secretly controlled by Loflin’s now-deceased business partner.
According to the SEC’s complaint, in 2013, Loflin helped his business partner gain control of Greenway, using a front company to hide his partner’s identity.
Loflin then created back-dated convertible promissory notes to document debts owed by Greenway that could be repaid with the company’s stock. Loflin purchased portions of the notes, converted them into stock and prepared all of the paperwork.
According to the SEC, Loflin secured false attorney opinion letters in order to obtain stock certificates and deposit them for sale with his brokerage firm. The letters and paperwork contained false and misleading information, meant to give the impression that Loflin was permitted to sell the shares into the open market.
The complaint also alleges that in 2015 and 2016, Loflin and his business partner orchestrated a promotional campaign, including blast emails, to tout Greenway shares and pump its stock price and trading volume. This allowed Loflin to dump his Greenway shares during and after that campaign for about $152,000 in trading proceeds.
Without admitting or denying the allegations of the complaint, Loflin consented to the entry of a judgment barring him from serving as an officer and director of a public company and from participating in any offering of penny stock, and ordering him to pay disgorgement with prejudgment interest and a civil penalty in amounts to be determined by the court.
SEC Halts Misappropriation and Fraudulent Securities Offering
The SEC obtained an emergency asset freeze and temporary restraining order to halt an ongoing fraudulent securities offering that was attempting to conceal an investment advisor’s misappropriation from certain hedge funds.
From mid-2017 to the present, Eric Lyons – along with various investment advisor entities with the name Synchrony that Lyons controlled – engaged in a scheme to misappropriate assets from hedge funds Lyons and these advisor entities managed, according to the SEC’s complaint.
The SEC alleges that Lyons transferred hundreds of thousands of dollars from the Synchrony hedge funds to Lyons’ personal bank accounts to pay for personal expenses, including rock concert tickets, Broadway shows, clothing, jewelry, vacations, kids’ summer camp fees, sailing expenses, and personal rent and car lease payments.
Further, the SEC alleges that Lyons replaced some of the misappropriated money by engaging in a securities offering fraud. According to the SEC, Lyons obtained approximately $300,000 from an investor based on false and misleading statements about other potential large investors and a fabricated $100 million business valuation.
In total, the SEC’s complaint alleges that Lyons and the Synchrony adviser entities raised approximately $700,000 from their misappropriation and securities offering fraud schemes.
The court entered an order granting a temporary restraining order, asset freeze, and other emergency and ancillary relief.
The SEC’s complaint seeks injunctive relief, disgorgement of ill-gotten monetary gains, plus interest and penalties. The SEC’s complaint also names as relief defendant Synchrony Global Macro, LP, which holds investor assets.
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