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, William M. Lefkowitz submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of William M. Lefkowitz, Respondent (AWC 2011027593201, June 28, 2012).

Background

Lefkowitz  first became registered in 1985 as a General Securities Representative and, in 2001, also as a General Securities Principal - since 2003, he has been registered in those dual capacities with vFinance Investments, Inc. (the "VFI").  According to the AWC, in 1991 Lefkowitz entered into another AWC with FINRA that alleged Free-riding and Withholding violation for which a Censure and $3,000 fine were imposed.

Rotten Apples

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During May and June 2008, without a customer's prior knowledge, authorization, or consent, a VFI registered representative made two purchases of 2,500 shares of Apple computer stock at a respective cost of $474,000 and $444,000.  The AWC alleges that the customer, who worked for an international company in Thailand, ultimately sustained a loss of about $37,000 but that the registered rep earned about $16,200 in commissions. As a result of the alleged unauthorized trades, FINRA charged the registered rep (who was supervised by Lefkowitz) with a violation of NASD Conduct Rule 2110 and IM-2310-2.

First Rotten Apple

The AWC alleges that prior to the first May 2008 trade the largest trade in the customer's account was a  2006 stock purchase for $205,200, which was also the last six-figure purchase in the account prior to the unauthorized trade. Further, the AWC alleges that the customer's account balance was only $45,000.

Consequently, the first May 2008 Apple purchase represented ten time the account's total equity. Moreover, the initial Apple purchase was made on margin, never paid for by the customer, Lefkowitz did not request a Reg T extension, and after seven-days from the date of purchase the position was involuntarily sold out for non-payment.

In response to Lefkowitz's queries about the busted trade, the registered rep explained that the customer had difficulty wiring funds. Clearly, FINRA was troubled by the disclosure that Lefkowitz  never contacted the customer for verification, a fact that appears exacerbated by the resulting $10,000 loss to the customer and about $9,000 in commissions to the registered rep.

Second Rotten Apple

About a month after the first busted Apple trade, the registered rep submitted the same order for the same customer in June (at a cost of $444,000), and Lefkowits approved the trade without insisting that the registered rep assure sufficient funds were in the customer's account.  FINRA further alleges that Lefkowitz did not question the registered rep as to the circumstances for the resubmitted order. This second trade was never paid for and Lefkowitz did not seek a Reg T extension on behalf of the customer.  After this trade was busted for non-payment; the customer incurred a $27,000o loss and the registered person earned $7,200 in commissions to the registered person.

In response to Lefkowitz's query as to why this second trade failed, the registered person again gave the difficulty wiring explanation coupled with a representation that he expected covering funds to shortly arrive. The AWC asserts that, yet again,  Lefkowitz never attempted to contact the customer.

Sanctions

The AWC alleges that Lefkowitz failed to reasonably supervise the registered rep in violation of NASD Conduct Rules 3010 and 2110.  In accordance with the terms of the AWC, FINRA imposed upon Lefkowtiz a $5,000 fine and a 30 calendar-day suspension from association with any FINRA member firm in any principal capacity.

Bill Singer's Comment

You sort of have to wonder why anyone would want to be a supervisor at a FINRA member firm these days.  Bad enough that the courts seem content to leave you naked and bleeding in the Street if you try to fulfill your compliance role (READ: "New York State's Top Court Tells Wall Street Compliance Pros To Be Afraid, Be Very Afraid": ("Street Sweeper" May 11, 2012), but then there's the willingness of a lot of major firms to throw you under the bus when the regulators come a knockin'.  Just imagine how uneasy the heads of a lot of supervisors must be at firms such as JP Morgan, Barclay's, Goldman Sachs,Morgan Stanley, and the like in this day and age of Occupy Wall Street and the hub-bub of election season with politicians looking to generate headlines.

All that aside, I could sort of give Lefkowitz some benefit of the doubt for the entire first Apple trade. Of course, I'm sure that the victimized client now wishes that he had paid for those shares.  Nonetheless, if the AWC is to be believed, there's little refuge for any professional compliance officer, supervisor, or manager to seek in light of the circumstances of that second trade.