Zipper entered the industry in 1981, and in 2004 was registered with FINRA member firm Dakota Securities International, Inc.
April 2016 Dakota/Zipper AWC
According to the April 2016 Dakota/Zipper AWC, under the heading of "RELEVANT DISCIPLINARY HISTORY" is the following disclosure:
In March 2010, FINRA issued an AWC (2008011681701) wherein DSI was censured and fined $5,000 for failing to retain outside emails exchanged between a DSI registered representative and a DSI customer that related to DSI's business and for inadequately enforcing its written supervisory procedures for the retention and review of emails, from July 26, 2006 through July 31,2007, in violation of Section 17 of the Securities Exchange Act of 1934. Exchange Act Rule 17a-4, and NASD Rules 3110, 3010 and 2110.
On or about January 27, 1989, FINRA accepted an Offer of Settlement wherein Zipper was censured and fined $1,000, jointly and severally with Vanguard Securities. That firm, acting through Zipper, effected transactions in non-exempt securities while failing to maintain sufficient net capital to conduct a securities business.
On or about October 31, 1994. FINRA imposed a censure, $5,000 fine and suspension from association with any FINRA member in any capacity for five business days, for Zipper's failure to honor an arbitration award. On or about April 17, 1995, the U.S. Securities and Exchange Commission sustained the sanctions.
On or about November 17. 1995. the Florida Department of Banking and Finance entered into a Stipulation and Consent Agreement. Zipper agreed to cease and desist from any and all future violations of Chapter 517, Florida statutes, and the rules thereunder, and pay a $ 1,000 fine. Zipper violated the terms of his registration agreement, failed to timely notify the Department of a FINRA action. and failed to satisfy margin deficiencies in a manner prescribed by the Federal Reserve.
On or about November 24. 2009, the Florida Office of Financial Regulation entered into a Stipulation and Consent Agreement. DSI and Zipper were jointly and severally fined $5,000 and required to amend DSI's written supervisory procedures to be consistent with its practices and comply with the independent testing requirements pursuant to NASD Rule 3011. DSI and Zipper had failed to provide independent testing of DSI's anti-money laundering compliance program in 2006 when Zipper had tested the program and failed to enforce DSI's written supervisory procedures.
As synopsized in "Disciplinary and Other FINRA Actions" (FINRA, June 2016) under the headings "Firms Fined, Individuals Sanctioned":
Dakota Securities International, Inc. (CRD #132700, Miami, Florida) and Bruce Martin Zipper (CRD #1019731, Miami, Florida) submitted a Letter of Acceptance, Waiver and Consent (AWC) in which the firm was censured and fined $10,000. A lower fine was imposed after considering, among other things, the firm's revenue and financial resources. Zipper was fined $10,000 and suspended from association with any FINRA member in any principal capacity for one month. Without admitting or denying the findings, the firm and Zipper consented to the sanctions and to the entry of findings that the firm failed to preserve and maintain all business-related electronic communications. The findings stated that a firm registered principal used text messages in connection with the firm's securities-related business. The firm failed to capture the text messages, and failed to retain and preserve the text messages for the required period and in a non-rewritable, non-erasable format. Moreover, the firm and Zipper knew that the principal was using text messages to conduct firm business. Zipper, in his capacity as the firm's chief compliance officer (CCO), was the person responsible for ensuring that the firm preserved the registered principal's text messages. The findings also stated that the firm and Zipper failed to establish, maintain and enforce an adequate supervisory system to ensure that business-related text messages were subject to retention and supervision. The firm's written supervisory procedures (WSPs) were also inadequate in that they failed to require capturing, retention and preservation of all securities business-related electronic communications.
The suspension is in effect from May 31, 2016, through June 30, 2016. (FINRA Case #2013035303301)
On or about January 27, 1989, FINRA accepted an Offer of Settlement wherein Zipper was censured and fined $1,000,jointly and severally with Vanguard Securities. That firm, acting through Zipper, effected transactions in non-exempt securities while failing to maintain sufficient net capital to conduct a securities business.
On or about October 31, 1994, FINRA imposed a censure, $5,000 fine and suspension from association with any FINRA member in any capacity for five business days, for Zipper's failure to honor an arbitration award. On or about April 17, 1995, the U.S. Securities and Exchange Commission sustained the sanctions.
On or about November 17, 1995, the Florida Department of Banking and Finance entered into a Stipulation and Consent Agreement. Zipper agreed to cease and desist from any and all future violations of Chapter 517, Florida statutes, and the rules thereunder, and pay a $1,000 fine. Zipper violated the terms of his registration agreement, failed to timely notify the Department of a FINRA action, and failed to satisfy margin deficiencies in a manner prescribed by the Federal Reserve.
On or about November 24, 2009, the Florida Office of Financial Regulation entered into a Stipulation and Consent Agreement. DSI and Zipper were jointly and severally fined $5,000 and required to amend DSI's written supervisory procedures to be consistent with its practices and comply with the independent testing requirements pursuant to NASD Rule 3011. DSI and Zipper had failed to provide independent testing of DSI's anti-money laundering compliance program in 2006 when Zipper had tested the program and failed to enforce DSI's written supervisory procedures.
As synopsized in "Disciplinary and Other FINRA Actions" (FINRA, June 2016) under the headings "Individuals Barred or Suspended":
Bruce Martin Zipper (CRD #1019731, Miami, Florida) submitted an AWC in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for three months. In light of Zipper's financial status, a fine of $5,000 has been imposed. Without admitting or denying the findings, Zipper consented to the sanctions and to the entry of findings that he willfully failed to timely amend his Form U4 to disclose unsatisfied judgments against him. The suspension is in effect from May 31, 2016, through August 30, 2016. (FINRA Case #2015046512101)
The April 2016 Zipper AWC includes this paragraph:
I understand that this settlement includes a finding that I willfully omitted to state a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this omission makes me subject to a statutory disqualification with respect to association with a member.
The April 2016 Dakota/Zipper AWC and the April 2016 Zipper AWC do not indicate that Dakota and/or Zipper were represented by legal counsel during the investigative or settlement phases of the two matters and no attorney's signature is indicated acknowledging the AWCs on Dakota's or Zipper's behalf.
A Misunderstanding: Only the Beginning
After Zipper entered into the two 2016 AWCs, he attempted to withdraw the April 2016 Zipper AWC. Two things appear to have prompted that request. One, Zipper apparently did not comprehend that the finding of a willful failure to timely disclose the cited judgments subjected him to a statutory disqualification; and, two, that notwithstanding his settlement(s) with FINRA, the self-regulator was continuing to investigate Dakota. After FINRA denied Zipper's request to rip up his AWC, he appealed to the Securities and Exchange Commission ("SEC"), which he pursued on a pro se basis.
September 2017 SEC Opinion
As set forth in the "Background" section In the Matter of the Application of Bruce Zipper for Review of Action Taken by FINRA, (Opinion, SEC, '34 Act Rel. No. 81788; Admin. Proc. File No. 3-17963 / September 29, 2017) (the "September 2017 SEC Opinion") [Ed: footnotes omitted]:
A. Zipper entered into the AWC following FINRA's examination of Dakota in 2015.
FINRA's Department of Member Regulation ("Member Regulation") conducted an examination of Dakota in 2015. On August 10, 2015, Member Regulation sent Zipper an Examination Disposition Letter (the "EDL") about the results of its examination. As relevant here, Member Regulation found that Dakota had failed to ensure that Zipper and another associated person had updated their Uniform Applications for Securities Industry Registration and Transfer ("Forms U4"). Member Regulation said it would caution Dakota for that misconduct rather than refer it to FINRA's Department of Enforcement ("Enforcement"), but noted that the caution "does not address, limit, or in any other way impact" other investigations. Zipper later denied receiving the EDL at the time, and said he was unaware that Member Regulation thought a caution was the appropriate response to Dakota's misconduct.
Following the EDL, Enforcement twice requested under FINRA Rule 8210 that Zipper appear for testimony under oath and provide information and documents with respect to Zipper's failure to update his Form U4 to include three judgments or liens against him. Enforcement subsequently presented Zipper with a draft AWC in which Zipper would agree that he "willfully omitted to state a material fact on a Form U4" and that "this omission makes me subject to a statutory disqualification with respect to association with a member." Zipper would also "specifically and voluntarily" waive the right to appeal the AWC to the Commission or to a U.S. Court of Appeals. And he would consent to a three-month suspension from association in all capacities and a $5,000 fine. Zipper accepted the AWC on April 1, 2016, and FINRA's National Adjudicatory Council Review Subcommittee accepted the AWC on April 22, 2016.
Although Zipper knew or should have known from reviewing the AWC before signing it that his suspension subjected him to a statutory disqualification, he told FINRA afterwards that he had not realized that was so, or that Dakota would have to submit a membership continuance application detailing the terms of his proposed continued association with Dakota. On May 5, 2016, Zipper exchanged emails with Kevin Rosen, the FINRA counsel with whom he had negotiated the AWC. Zipper said that he would not have agreed to the AWC had he known he would be subject to a statutory disqualification. Rosen directed Zipper's attention to the AWC's language pertaining to the statutory disqualification, and reminded him that they discussed it during settlement negotiations. Zipper then denied that he had understood that he would have to file a membership continuance application to remain associated with Dakota after his suspension, and he sought to "withdraw" from the AWC. Rosen again explained that Zipper had been made aware of the statutory disqualification and membership continuance application issues. Rosen also informed him that "[t]he AWC is final and not subject to your withdrawal." Zipper's 90-day suspension ran from May 31, 2016, to August 31, 2016.
On July 29, 2016, Dakota Securities International, Inc. (the "Firm"), submitted a Membership Continuance Application ("MC-400" or "the Application") to FINRA's Department of Registration and Disclosure. The Application seeks to permit Bruce Zipper, a person subject to a statutory disqualification, to continue to associate with the Firm as a general securities representative. On July 12, 2017, a subcommittee ("Hearing Panel") of FINRA's Statutory Disqualification Committee held a hearing on the matter. Zipper appeared at the hearing, accompanied by the Firm's acting chief executive officer at the time, Robert Lefkowitz ("Lefkowitz"). Ann-Marie Mason, Esq., Katayna Moore, Esq., and Sora Lee, Esq. appeared on behalf of FINRA's Department of Member Regulation ("Member Regulation").For the reasons explained below, we deny the Application. Zipper engaged in serious misconduct since his disqualifying event by associating with the Firm while suspended, and Lefkowitz -- Zipper's supervisor and the Firm's chief compliance officer at the tim ---- permitted Zipper to do so. Moreover, the Firm has not demonstrated that Zipper's current proposed supervisors have the necessary supervisory experience and independence to supervise Zipper, the Firm's owner. Finally, the Firm's proposed heightened supervisory plan, which the Firm revised both at and after the hearing, lacks sufficient detail and the necessary stringency required of a heightened supervisory plan for a statutorily disqualified individual. We therefore conclude that the Firm has not demonstrated that it is in the public interest for Zipper to continue to associate with the Firm, and deny the Application.
1. From May 31, 2016 through August 30, 2016. while statutorily disqualified and suspended in all capacities, Bruce Martin Zipper conducted a securities business, engaged in clerical and managerial activities on behalf of Dakota Securities International, Inc. ("Dakota"), and continued to associate with Dakota in violation of a suspension order he had entered into with FINRA. As a result, Zipper violated NASD Membership and Registration Rule 1031 and FINRA Rule 2010, and acted in contravention of Article III, Section 3(b) of FINRA's By-Laws.2. During the Suspension Period,1 Dakota permitted Zipper to associate with the firm and engage in a securities business and clerical and managerial activities on behalf of the firm in violation of the FINRA suspension order. As a result, Dakota violated NASD Membership and Registration Rule 1031, FINRA Rules 8311 and 2010, and acted in contravention of Article III, Section 3(b) of FINRA's By-Laws.3. During the Suspension Period, Dakota failed to establish and maintain a supervisory system reasonably designed to ensure regular review of electronic correspondence and that individuals subject to a suspension were not acting in a capacity that required registration or otherwise acting in contravention of the suspension. As a result. Dakota violated FINRA Rules 3110 and 2010.4. Further, from February 22, 2016 through November 16, 2016. Zipper and another associated person of Dakota caused the falsification of Dakota's books and records by misidentifying the broker of record for hundreds of trades. As a result. Zipper caused Dakota to maintain inaccurate books and records in violation of FINRA Rules 4511 and 2010, and Dakota maintained inaccurate books and records in violation of FINRA Rules 4511 and 2010, and Section 17(a) of the Securities and Exchange Act of 1934 (-Exchange Act") and Rule 17a-3 thereunder.= = = = =FOOTNOTE 1: The "Suspension Period" refers to the time period of May 3 I, 2016 through August 30, 2016, when Zipper was suspended in all capacities pursuant to a Letter of Acceptance, Waiver, and Consent entered into with FINRA on April 22, 2016 (hereinafter, the "AWC"). Due to the nature of the agreed willful violation in the AWC, and during the Suspension Period due to Zipper's suspension from associating with a F1NRA member, Zipper was subject to a statutory disqualification from association with any FINRA member (pursuant to Article III, Section 4(a) of F1NRA's Bylaws of the Corporation).
by agreeing to the AWC he "made a deal with FINRA enforcement . . . to settle the issues confronting Bruce Zipper and Dakota Securities relating to [the 2015 FINRA] exam."
at Pages 3 - 4 of the September 2017 SEC Opinion
[Z]ipper argues that he entered into his AWC with a misunderstanding of what issues his AWC was resolving, and without knowing that Member Regulation viewed Dakota's misconduct as less serious than his own. He also asserts that FINRA is engaged in a cover up and is "hell bent on destroying both [him] and [his] firm." Zipper asks that we "review" his "case," compel FINRA's Boca Raton office to provide him with internal emails and other communications, and initiate an investigation into FINRA. FINRA moves to dismiss.
The SEC dismissed Zipper's application. In offering its rationale, the SEC found, in pertinent part, that [Ed: Footnotes omitted]:
Zipper's AWC is valid and enforceable, and his appellate waiver is binding. The record does not support Zipper's contention that he executed the AWC based on a misunderstanding. The AWC specified that he had "read and underst[oo]d" its provisions, could "ask questions about it," had "agreed to its provisions voluntarily," and had only been induced to sign by "the terms set forth herein and the prospect of avoiding the issuance of a Complaint." The AWC also made clear that he would be subject to a statutory disqualification and that he would waive his appellate rights. And it focused on his own misconduct in not updating his Form U4 -- not Dakota's misconduct related to Forms U4, or either of their misconduct related to other exceptions FINRA found in its Dakota examination. Nor did it purport to preclude FINRA from examining Zipper or Dakota with respect to those other exceptions. Despite Zipper's assertion that he did not receive the EDL before entering into the AWC, he offers no evidence that FINRA misled him about how serious it considered his misconduct and Dakota's misconduct respectively. For these reasons, we find that Zipper's AWC is binding and that he waived his right to appeal the AWC to the Commission.
Bruce M. Zipper has sought a stay pending his appeal of FINRA action denying him permission to continue to associate with a FINRA member firm notwithstanding his statutory disqualification. Zipper became statutorily disqualified from associating with a FINRA member firm after he entered into a Letter of Acceptance, Waiver, and Consent ("AWC") with FINRA finding that he willfully failed to disclose certain material information on his Uniform Application for Securities Industry Registration or Transfer ("Form U4"). Dakota Securities International, Inc., a FINRA member firm of which Zipper was chief executive officer and chief compliance officer, submitted a membership continuance application asking FINRA to permit Zipper to continue associating with it despite his statutory disqualification. FINRA denied the application on October 2, 2017. Zipper appealed that decision to the Commission and, as relevant here, moved to stay the effectiveness of FINRA's denial pending the outcome of his appeal. Because Zipper has not met his burden of establishing that a stay is warranted, his motion is denied.
Likely To Succeed Prong(i) there is a strong likelihood that the moving party will succeed on the merits of its appeal; (ii) the moving party will suffer irreparable harm without a stay; (iii) any person will suffer substantial harm as a result of a stay; and (iv) a stay is likely to serve the public interest.
Zipper's stay motion fails to address the Exchange Act Section 19(f) standard. Despite making multiple filings in support of his stay motion, Zipper identifies no reason why he is likely to succeed in challenging the NAC's determinations that he violated the terms of his suspension, that his proposed supervisors lacked the necessary experience and independence, and that the proposed heightened supervisory plan was inadequate. Accordingly, we find for purposes of this motion that Zipper has not even raised a substantial question on the merits, let alone shown a strong likelihood of success.
Although Zipper's claims that his firm will be forced to cease operations absent a stay are somewhat vague, they do not appear entirely speculative. In its opposition, FINRA does not dispute that it has given Zipper and Dakota "a deadline to submit a plan to stay in business in Zipper's absence." Nor does it disclaim an intention, as Zipper asserts, to "shut down" Dakota or put it "out of business" if it fails to do so. Ultimately, we need not decide whether Zipper has satisfied his burden of establishing an irreparable injury because any harm to Zipper is outweighed by the other factors.
Page 8 of the November 2017 SEC Order[A]ccordingly, we find that any relief staying FINRA's denial of the MC-400 application while the Commission considers Zipper's appeal could endanger investors. It would allow Zipper to continue to associate with Dakota "without the protections provided by FINRA's membership continuance application process, which considers the public interest when weighing whether to allow a proposed association that is otherwise prohibited." The public interest and the risk of harm to others therefore do not support Zipper's motion.
[H]e was induced "to accept a flawed agreement" because FINRA told him that he could not withdraw from the agreement the day after he signed it. The September 29 opinion addressed Zipper's argument that "he tried to withdraw from the AWC 'the very next day after it was signed,'" but he appeared to raise that issue in an attempt to demonstrate that his appeal was timely. The Commission stated that Zipper's purported attempt to withdraw from the AWC the day after he signed it did "not change the fact that he did not file his application for review with the Commission within thirty days." Now, Zipper clarifies that he seeks relief on the ground that FINRA should have advised him of his options after he sought to withdraw from the AWC.
FINRA Rule 9216 provides that staff "may prepare and request that the . . . associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive" certain rights -- including "any right of appeal to . . . the SEC" and the right "to otherwise challenge the validity of the letter" -- "if the letter is accepted." The Rule provides that once the "associated person executes" the AWC, "it shall be submitted" to FINRA for acceptance or rejection." Furthermore, "[i]f the letter is accepted by the National Adjudicatory Council, the Review Subcommittee, or the Office of Disciplinary Affairs, it shall be deemed final and shall constitute the complaint, answer, and decision in the matter." Rule 9216 does not address the "withdrawal" of an executed AWC before FINRA accepts it or whether a purported withdrawal has the effect of revoking FINRA's power to accept the AWC.Zipper appears to have executed his AWC on April 1, 2016, and FINRA appears to have executed it and thus accepted it on April 22, 2016. In its reply brief in support of its motion to dismiss, FINRA stated that the "first documentary evidence" in the record of Zipper's attempt to withdraw from the AWC was a May 5, 2016 email. It did not address directly Zipper's claim that he sought to withdraw the day after he signed the AWC. Rather, it said that whether "Zipper attempted to void his AWC a day after its execution or on May 5, 2016 is irrelevant" to the timeliness of his application for review. As a result, FINRA has not responded previously to Zipper's claim that he sought to withdraw from the AWC the day after he signed it and that FINRA did not properly advise him of his options at that time.
= = = = =
at Pages 2 - 3 of the January 2018 SEC OrderFootnote 6: Exchange Act Release No. 24173, 48 S.E.C. 689, 1987 WL 757592, at *1-2 (Mar. 4, 1987) (setting aside NASD's findings of violations and imposition of sanctions following an offer of settlement where NASD did not allow respondent to withdraw settlement offer after he submitted it but before NASD accepted it); see also id. at *1 n.1 (exercising the Commission's discretion to entertain the appeal even though it was filed twenty days late); id. at *2 & n. 6 (declining to consider whether NASD could implement a policy of refusing to allow a respondent to withdraw a settlement offer prior to acceptance "without amending the NASD's Code of Procedure pursuant to Section 19(b)" of the Securities Exchange Act of 1934).
February 5, 2018: SEC Order Denying Second Motion for StayNASD ACTION AGAINST DAVID L. TURNIPSEED SET ASIDE; PROCEEDINGS REMANDEDThe Commission set aside disciplinary action taken by the NASD against David L. Turnipseed, of Morehead, Kentucky, formerly a registered representative with two NASO member firms. The proceedings against Turnipseed were remanded to the NASD.The NASD sanctioned Turnipseed pursuant to an offer of settlement which, at the NASD's instance, provided that it could not be withdrawn without the NASD's written consent. After nine months had elapsed without NASD acceptance of his offer, Turnipseed attempted to withdraw it. However, the NASD refused since Turnipseed had not obtained its written consent. It finally accepted Turnipseed's offer two months later.The Commission concluded that, in sanctioning Turnipseed pursuant to his offer of settlement, the NASD had not applied its rules in a fair manner. It stated that the NASD was not entitled to bind a respondent to his offer for such a long period of time. It also noted that the NASD did not contradict Turnipseed's assertion that his determination to settle the NASD's proceeding "was based on the repeated assurances of an NASD official that settlement was the only way the matter could be quickly resolved." (Rel. 34-24173)
Although I have been bludgeoned into submission by the motion practice attendant to this matter, I would be remiss (and, you know, who the hell wants to be remiss in this day and age, right?) if I did not note one interesting aspect of the SEC's analysis in its February 2018 SEC Order [Ed: footnotes omitted]:Bruce M. Zipper has again asked for a stay pending his appeal of FINRA action denying him permission to continue to associate with a FINRA member firm despite his statutory disqualification. We denied Zipper's first request for a stay in November 2017 because he had not established that a stay was warranted. Zipper contends that a stay is now warranted because the Commission directed FINRA to respond to Zipper's motion for reconsideration of the Commission's opinion rejecting his appeal of the sanction that subjected him to the statutory disqualification. But that order does not establish that a stay is warranted in this case; it identified issues raised by Zipper's reconsideration motion, directed the parties to address those issues in briefs that would not otherwise be authorized by the Commission's rules, and invited the submission of supporting evidence. Because Zipper still has not established that a stay is warranted, we deny his second motion for a stay.
Zipper also has not demonstrated irreparable harm. To establish irreparable harm, Zipper must show an injury that is "both certain and great" and "actual and not theoretical. We previously characterized as not "entirely speculative" Zipper's claim that FINRA threatened to "shut down Dakota Securities or put it out of business" if he could not " 'present a plan' demonstrating its 'ability to stay in business' without him being associated"-including by finding registered principals or representatives to replace him. But in a subsequent filing, Zipper stated that Dakota hired a "new CEO and compliance officer." And according to Zipper, FINRA staff "feel confident" this individual is running Dakota Securities "properly." Zipper's second stay motion does not address the possibility that FINRA might require Dakota to shut down, so these developments have apparently mooted any concern about that injury. Zipper has identified no other injury that meets the standard for irreparable harm. As a result, we find that Zipper has not demonstrated irreparable harm.
Respondent Bruce Zipper improperly associated with his firm, Respondent Dakota Securities, during a three-month all-capacities suspension. Dakota did not adequately supervise Zipper, allowing him to associate while suspended (and later while statutorily disqualified) and to falsify firm books and records by misidentifying the responsible broker for hundreds of trades. Zipper is barred from associating with any FINRA member firm in any capacity, and Dakota is expelled.
Will this ever end? Frankly, the answer seems obvious. It will not. It cannot. It is a curse for eternity. There is this boulder. There is this steep hill. There is a contest of wills between an overly clever man and the all-powerful gods. Although I usually delete footnotes, given that we are up to 151 in the June 2018 FINRA OHO Decision, I figured, what the hell, I mean, c'mon, 151 footnotes and counting? And this is only some lousy FINRA OHO Hearing Panel Decision. Imagine when we wind up at the NAC. Imagine when we wind up at the SEC. Imagine when the whole thing is remanded and we start all over. Wow!!:
Dakota emphasizes that it has separated itself from Zipper, removing him from ownership and relocating its operations from Zipper's living room to a separate office.149 But any benefit stemming from the fact that ownership of the firm is no longer directly in Zipper's hands is diminished by the fact that ownership was transferred to Zipper's wife.150 Despite this purported transfer, Dakota's financial reports and information continue to be provided directly to Zipper.151 We find it unlikely that much has truly changed at Dakota.
Zipper's reconsideration motion clarified that his argument sought relief on the ground that FINRA should have advised him of his options after he sought to withdraw from the AWC before FINRA accepted it. He does not contest our finding that the AWC contained an appellate waiver. Rather, now he contends that FINRA's failure to advise him that he could withdraw from the AWC evidences its "bias"; he also says that he misunderstood the consequences of the AWC, and signed the AWC under coercion or duress. We directed the parties to address the contentions raised in Zipper's reconsideration motion. FINRA has submitted evidence rebutting Zipper's claim that he attempted to withdraw from the AWC before FINRA accepted it, and has represented that had Zipper done so during that period it would have allowed him to withdraw the AWC. Zipper has not substantiated his claim that he sought withdrawal during that period. His other arguments do not furnish a basis for reconsideration. We therefore deny his motion.
Member Regulation recommended denying Dakota's application. A subcommittee of FINRA's Statutory Disqualification Committee (the "Hearing Panel") scheduled a hearing for July 12, 2017. FINRA notified Dakota that both Zipper and "his immediate supervisor should plan to attend" and "should be prepared to discuss the events surrounding his disqualifying event, his proposed duties at the firm, and the manner in which he will be supervised."On June 28, 2017, two weeks before the hearing, Lefkowitz offered, and FINRA the next day accepted, an AWC in which he consented to findings that he permitted Zipper to associate with Dakota improperly during Zipper's suspension. Lefkowitz consented to a $5,000 fine and a five-month suspension from associating with any FINRA member firm in a principal capacity. Lefkowitz's suspension ran from July 17, 2017, to December 16, 2017.On July 12, 2017, the Hearing Panel held a hearing at which Zipper and Lefkowitz testified. Dakota proposed in light of Lefkowitz's impending five-month suspension that Elizabeth Dianne Alexander and Drew Alexander (no relation), two registered representatives, serve as Zipper's primary and alternate supervisors. Neither appeared at the hearing. During the hearing, members of the Hearing Panel observed that Dakota's supervisory plan lacked sufficient detail to explain how the firm and the proposed supervisors would conduct heightened supervision of Zipper. The Hearing Panel permitted Zipper and Lefkowitz to revise Dakota's plan during a break and present the revised plan before the hearing concluded.In a post-hearing submission, Zipper acknowledged that Dakota had been "terribly unprepared to answer the questions relating to . . . supervisory plans." He sought and the Hearing Panel granted permission to submit another revised plan.
Zipper admits that he emailed customers repeatedly while he was suspended, and that in these emails he recommended specific securities transactions. Zipper also emailed customers with account updates, and emailed third parties about firm-management matters. He also spoke with customers on the phone and maintained Dakota's main office and proprietary documents in his personal residence. The record supports a finding that Zipper engaged in functions that were part of the conduct of a securities business. 20 As a result, Zipper, associated with Dakota in a manner inconsistent with his suspension from association with any FINRA member in any capacity.
As to Zipper's intervening misconduct, "we have consistently recognized that, in order to ensure protection of investors, a self-regulatory organization . . . such as FINRA may demand a high level of integrity from securities professionals." We have considered violations of a bar order to be serious misconduct,60 and the same is true with respect to violations of a suspension order. Zipper's serious intervening misconduct-and his continued belief that he could contact customers to recommend securities despite being suspended -- supports the NAC's finding that Dakota did not "demonstrate that [Zipper] can comply with FINRA's rules and regulations."We likewise agree with the NAC that deficiencies in the supervisors and supervisory plan that Dakota proposed counseled against granting Dakota's application. Here, the proposed supervisors lacked the experience and independence necessary to stringently supervise Zipper or to reliably implement any supervisory plan. These concerns were well documented in the record and may serve as a basis to deny the application. So may the inadequacy of the proposed supervisory plan. The final plan provided no guidance about where Zipper and his supervisors would be located, how the supervisors could insure the necessary scrutiny of his activities, how much time they would spend doing so, or how they would be compensated for doing so. It also provided insufficient detail about how they would review his communications, document compliance, and ensure that his Form U4 remained updated. We find that FINRA properly determined based on the evidence before it that Dakota failed to meet its burden as to this specific application, and that it did so in a manner consistent with the Exchange Act's purposes.We reject Zipper's argument that FINRA's denial acts as a "permanent bar," and thatthis "penalty" is "excessive." As we have said, "FINRA does not subject a person to statutory disqualification as a penalty or remedial sanction," but rather "by operation of" statute. Nor did FINRA impose a penalty by denying Dakota's application. FINRA simply determined, in this case, "that it would not grant relief from a disqualification previously incurred." Another firm that proposed adequate supervisors and a supervisory plan tailored to Zipper's situation might show that Zipper's continued association would be in the public interest.
From September 2013 through November 2015 (the "Relevant Period"), Zipper, Dakota's President, CCO, and AMLCO, failed to implement and enforce a reasonable anti-money laundering ("AML") program, in violation of FINRA Rule 3310(a) and (b) and FINRA Rule 2010. During the Relevant Period, affiliates of one of Dakota's owners in Venezuela and Panama engaged in trading with Dakota and each other that presented Zipper with red flags of suspicious activity. Zipper, however, failed to address those red flags. In addition, in 2013 and 2014, Zipper failed to ensure that there was independent testing of the Firm's AML system, in violation of FINRA Rule 3310(c) and FINRA Rule 2010.Further, Zipper failed to implement an employee AML training program during the Relevant Period for Dakota's Caracas branch office in violation of FINRA Rule 3310(e) and FINRA Rule 2010. Zipper also failed to establish and maintain a system, including written procedures, reasonably designed to supervise the Firm's Caracas branch office or the Firm's foreign bond business, in violation of NASD Rules 3010(a) and (b) and FINRA Rules 3110(a) and (b) and 2010. Additionally, he failed to register Dakota's Caracas branch office and its Brickell Avenue office of supervisory jurisdiction with FINRA, in violation of Article IV, Section 8(a) and (b) of FINRA's By-Laws, NASD Rule 3010(a)(3) and FINRA Rules 3110(a)(3) and 2010. Zipper also failed to inspect the Caracas branch office in violation of NASD Rule 3010(c)(1)(B) and FINRA Rule 3110(c)(1)(B) and FINRA Rule 2010.
We find that (1) Zipper breached the terms of the AWC, and therefore violated FINRA Rule 2010, by associating with Dakota during the Suspension Period; (2) Zipper violated NASD Rule 1031, Article III, Section 3(b) of FINRA's By-Laws, and FINRA Rule 2010 by engaging in activities requiring registration during the Suspension Period; (3) Dakota violated NASD Rule 1031, Article III, Section 3(b) of FINRA's By-Laws, and FINRA Rules 8311 and 2010 by allowing Zipper to associate with the firm and engage in activities requiring registration during the Suspension Period; (4) Dakota and Zipper violated FINRA Rules 4511 and 2010, and Dakota willfully violated Section 17(a) of the Exchange Act and Rule 17a-3 thereunder, by misidentifying in Dakota's books and records the representative of record for certain trades entered before, during, and after the Suspension Period; and (5) Dakota violated FINRA Rules 3110 and 2010 by failing to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules. Accordingly, we bar Zipper in all capacities for his violations under causes one and two (unitary sanction), and cause five, and we expel Dakota from FINRA membership for its violations under cause three, cause four, and cause five. Zipper and Dakota are ordered to pay, jointly and severally, hearing costs in the amount of $6,077.55, plus appeal costs of $1,545.67. Zipper's bar and Dakota's expulsion are effective immediately on service of this decision.
Registered securities association expelled firm from membership in association, and barred firm's president from association with member firms, for misconduct related to president's continued engagement in firm's business while suspended and statutorily disqualified from association; for books-and-records violations; and for supervisory violations. Held, findings of violation are sustained in part and set aside in part, the sanctions are set aside, and the proceeding is remanded for a redetermination of sanctions.
Fourth, we set aside the finding that Zipper and Dakota violated NASD Rule 1031 when Zipper engaged, and Dakota allowed him to engage, in activities requiring registration during the Suspension Period. NASD Rule 1031 provides that any person engaged in the securities business of a FINRA member firm and functioning as a "representative" must be registered with FINRA, and that the person must pass a qualification examination before the registration may "become effective." Zipper held several FINRA registrations with Dakota during the Suspension Period, including as a general securities representative as required under NASD Rule 1031. The NAC offered no authority or reasoned basis for its conclusion that a person suspended from associating with any member firm, who is nonetheless "registered," violates NASD Rule 1031 by engaging in conduct requiring registration. Nor are we aware of any case holding that a person who is suspended from association but who is not ordered to requalify by examination violates NASD Rule 1031 by engaging in such conduct. Accordingly, Zipper and Dakota did not violate NASD Rule 1031 through Zipper's conduct while suspended.
Because we set aside the NAC's finding that Zipper and Dakota violated NASD Rule 1031, we remand for the NAC to determine the appropriate sanctions for applicants' violations of Article II, Section 3(b) of FINRA's By-Laws and FINRA Rules 8311 and 2010 only. We do not hold that the sanctions the NAC imposed for those remaining violations were excessive or oppressive; rather, we hold that the NAC should determine in the first instance the appropriate sanctions for the remaining violations without considering any violation of NASD Rule 1031 or separate misconduct related to the registration rules.
The NAC held "that Zipper's and Dakota's misconduct in falsifying the firm's books andrecords was intentional, pervasive, and carried out with the specific intent to mislead regulators" and it "therefore bar[red] Zipper and expel[led] Dakota." But we cannot tell from the NAC's analysis whether it imposed these sanctions because applicants' intentional and pervasive recordkeeping violations-carried out with an intent to mislead-demonstrated that a bar and expulsion were necessary to protect the public, or instead solely because they had committed that misconduct. We remand for the NAC to more clearly explain the basis for its conclusion that the books-and-records violations warranted a bar and expulsion.
The NAC expelled Dakota for its supervisory violations. It based this unitary sanction on all of Dakota's supervisory misconduct, which enabled the books-and-records violations and also "enabled Zipper to continue associating with it, and engage in activities requiring registration, throughout his three-month suspension." We cannot tell from this statement whether the NAC based the unitary sanction for the supervisory violations in part on a finding that the supervisory violations enabled a violation of NASD Rule 1031. Because we have determined to set aside the finding that Zipper and Dakota violated NASD Rule 1031, we remand for the NAC to clarify the basis for its determination that Dakota's supervisory violations warranted an expulsion and, to the extent necessary, to determine in the first instance the appropriate sanction for the supervisory misconduct without considering any violation of NASD Rule 1031 or separate misconduct related to the registration rules.