October 28, 2013
Email blasts -- some find this a very effective way to market their brokerage practices and to communicate with their clients. On the other hand, FINRA may find such mass communications as little more than an opportunity to pull you over to the side, write you up for a host of infractions, and send you on your way much poorer if not much wiser.
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, John A. Nobile submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of John A. Nobile, Respondent (AWC 2012030487401, October 21, 2013).
Nobile entered the securities industry in 1987 and by September 2011 he was associated with FINRA member firm Kovack Securities, Inc. The AWC asserts that Nobile had no prior relevant disciplinary history.
The AWC asserts that on a nearly daily basis from September 2011 through June 2012, Nobile sent a targeted email blast communication to about 124 retail customers and potential customers. The email blasts are characterized in the AWC as "business-related written communications that constituted correspondence and sales literature, and included third-party research and recommendations to purchase and sell securities (''written communications")."
And now the cascade of compliance and regulatory failures begins.
The AWC alleges that Nobile did not have prior approval by a Kovack registered principal before distributing his written communications. Also, some of Nobile's written communications that disseminated/used third-party research reports lacked the signature/initial demonstrating approval by a Kovack registered principal.
Failure To Disclose
Further, the AWC alleges that Nobile's written communications presented oversimplified claims which omitted material information.
SIDE BAR: Some written communications referencing:
- principal protected notes ("PPNs") allegedly failed to disclose:
(1) PPNs terms and structures can be complex;
(2) early redemption by the investor can result in potentially significant loss of principal;
(3) principal protection generally applies only if principal protected notes are held to maturity; and
(4) tax consideration may be complex and uncertain.
- principal protected CDs ("PPCDs") allegedly failed to disclose market, liquidity, credit, and performance risks.
- investing in shares of stock allegedly failed to disclose, where applicable under IM-2210-1(6), that:
(1) at the time the sales literature was published, the member was making a market in the securities being recommended, or in the underlying security if the recommended security is an option or security future, or that the member or associated persons will sell to or buy from customers on a principal basis;
(2) that the member and/or its officers or partners have a financial interest in any of the securities of the issuer whose securities are recommended, and the nature of the financial interest (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), unless the extent of the financial interest is nominal; and
(3) that the member was manager or co-manager of a public offering of any securities of the recommended issuer within the past twelve months.
Additionally, the AWC alleges that some written communications failed to provide a sound basis for evaluating the facts.
SIDE BAR: One written communication contained the following statement deemed by the AWC to lack a reasonable basis:
''The Chinese middle class is exploding and Apple's revenue from China is also going through the roof; it's now Apple's second biggest market next to the United States."
Finally, the AWC alleges that some written communications contained exaggerated, unwarranted or misleading statements or claims
SIDE BAR: One written communication contained the following purportedly unwarranted and/or misleading statement and claim:
"Earn greater of 12% or 100% upside in SPX with unlimited upside."
FINRA Spells It Out
As a result of the foregoing conduct, Nobile violated FINRA Rule 2010, NASD Conduct Rule 2210(b)(1)(A), NASD Conduct Rule 2210(d)(1)(A), NASD Conduct Rule 2210(d)(1)(B), NASD Conduct Rule 2711(h)(13), and NASD IM- 2210-1.
In accordance with the terms of the AWC, FINRA imposed upon Nobile a $10,000 fine and a 10-business-day suspension from association with any FINRA member in all capacities.