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FINRA Enforcement Actions 2017 Archives

Garden State Securities, Inc. - Traditional and Non-Traditional ETFs Suitability Issues

Garden State Securities, Inc. - Traditional and Non-Traditional ETF Suitability Issues - South Florida FINRA Arbitration Attorney:

Garden State Securities, Inc. (CRD #10083, Red Bank, New Jersey) submitted an AWC in which the firm was censured and fined $25,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce a reasonably designed supervisory system and WSPs regarding the sales of leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs). The findings stated that the firm did not have WSPs that specifically addressed the suitability or supervision of non-traditional ETFs. In addition, the firm did not have a system that enabled its supervisory personnel to adequately review nontraditional ETF transactions to ensure their suitability. The firm relied on supervisory staff to conduct a manual blotter review to detect potentially unsuitable non-traditional ETF transactions. However, this manual blotter review was an inadequate means of reviewing non-traditional ETF trades. In fact, the firm's blotter did not even differentiate between traditional and non-traditional ETFs. The firm also did not have any exception reports specific to non-traditional ETFs, and failed to implement any system to monitor nontraditional ETF holding periods and losses. The findings also stated that the firm executedshort sale orders in an equity security and failed to properly mark the orders as short.

FSC Securities - Boca Raton, Florida Selling Away, Fraud and Misrepresentation FINRA Arbitration Attorney

FSC Securities Corporation (CRD #7461, Atlanta, Georgia) submitted an AWC in which the firm was censured and fined $200,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce a supervisory system that was reasonably designed to review and monitor third-party check requests from customer accounts. The findings stated that a registered representative associated with the firm sold memberships in an investment fund created by a former firm representative. Without the firm's knowledge or approval, the representative sold memberships in the fund, which was not an approved product for sale, and the firm did not therefore supervise the representative's sales. In connection with the representative's sale of the fund memberships, the representative submitted to the firm Letters of Authorization (LOA) signed by each of the 15 firm customers, which authorized in aggregate approximately $1.6 million to be transferred from their firm brokerage accounts to a bank account the fund controlled. The findings also stated that the fund ultimately lost millions of dollars through speculative trading and other investments. To cover up the losses, the former firm representative created false account statements that fraudulently reflected fictitious assets and investment returns. The former representative made these false account statements available to the fund investors through its website. The firm's customers who invested in the fund suffered significant losses.

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