The Financial Industry Regulatory Authority barred the compliance officer of a Red Bank, New Jersey-based broker-dealer from associating with any FINRA member firm in “all principal capacities” after significant supervisory failures at that firm, which is no longer operating as a FINRA-registered brokerage, according to the regulator.
Although the BD, First Standard Financial, had “held itself out as a legitimate financial services firm,” the firm actually “served as a haven for greedy, dishonest agents who traded clients’ accounts like sharks in a feeding frenzy,” Christopher W. Gerold, chief of the New Jersey Bureau of Securities, said in a statement Nov. 4, around the time the firm withdrew its registration.
The compliance officer, Michael Leahy, on Jan. 3 signed a FINRA letter of acceptance, waiver and consent in which he agreed to be barred from all future supervisory roles at FINRA firms, as well as a $5,000 fine, to settle the alleged rule violations he was accused of. He neither admitted nor denied the findings. FINRA accepted the letter Wednesday.
His attorney, Ross David Carmel, a partner at the New York law firm Carmel, Milazzo & DiChiara, did not immediately respond to a request for comment.
Starting in July 2017, Leahy was registered as both a general securities principal and general securities representative at First Standard, according to FINRA.
From Sept. 18, 2019, through Oct. 8, 2019, Leahy “failed to reasonably supervise PS, a former registered representative, who, while registered through First Standard, engaged in a pattern of unauthorized trading, using margin without authorization, recommending excessive and otherwise unsuitable transactions, and charging excessive commissions in dozens of customer accounts,” according to the FINRA letter.
Leahy was, at the time, the “sole principal at the Firm and the only individual responsible for supervising PS” during that period, according to FINRA, which alleged he was “aware of multiple red flags of PS’s misconduct.”
Those “red flags included: daily trade blotters that showed frequent in-and-out trading and commissions often exceeding 5%; numerous customer complaints alleging unauthorized trading, unauthorized use of margin, and excessive commissions; and notification from the Firm’s clearing firm of potential unauthorized trading by PS,” according to the FINRA AWC letter.
What’s more, “Leahy did not investigate those red flags or otherwise take reasonable action to curtail PS’s pattern of misconduct,” FINRA said, adding: “As a result of Leahy’s failure to reasonably respond to those red flags, PS’s misconduct continued unabated until the New Jersey Bureau of Securities summarily revoked PS’s registration” in New Jersey on Oct. 8, 2019. Leahy’s actions violated FINRA Rules 3110 (regarding supervision) and 2010 (regarding standards of commercial honor and principles of trade).
PS was the only registered rep trading customer accounts who was left at the firm as of about Sept. 18, 2019, after an “exodus of registered representatives and principals” from First Standard, according to the FINRA letter. There had been about 58 registered reps at the firm when Leahy started there, FINRA noted.
The PS that FINRA was referring to was Philip Joseph Sparacino, who was recently barred by FINRA from acting as a broker or associating with a BD firm, according to BrokerCheck. FINRA had previously barred ex-First Standard rep Gabriel Block from acting as a broker or associating with a BD firm, according to BrokerCheck.
Although Leahy was barred by FINRA from serving in a supervisory role, it did not bar him from serving in other capacities at FINRA member firms. However, he is no longer registered as a broker, according to his profile on BrokerCheck’s website.
On Oct. 31, 2019, the New Jersey Bureau of Securities issued a Summary Revocation Order against First Standard, revoking its registration in that state for, among other things, engaging in what the agency called a “fraudulent course of business that consisted of excessive, unsuitable, and frequently unauthorized short-term trading in customer accounts that generated commissions for First Standard and its agents at its customers’ expense.”
First Standard filed a Uniform Request Withdrawal from Broker-Dealer Registration on or around Nov. 5, 2019. FINRA went on to cancel its license this month, according to the firm’s profile on FINRA’s BrokerCheck website.
— Check out FINRA Bars Ex-Merrill Rep Who Refused to Testify on ThinkAdvisor.