by Bill Singer
FINRA Regulatory Cases Analyzed by Bill Singer. Major SEC Case Explained. E*Trade Problems Disclosed.
July 22, 2010
NEW FINRA MONTHLY DISCIPLINARY CASES
NOW ONLINE AND ANALYZED BY BILL SINGER
Regulatory lawyer Bill Singer has analyzed and posted the latest crop of FINRA disciplinary cases.
http://www.rrbdlaw.com/enforcement-actions/index.php?cid=1
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Significant New SEC Ruling:
Compliance Officer Slammed Over Emails and Instant Messages
http://www.brokeandbroker.com/index.php?a=blog&id=488
vFinance Investments, Inc. ("vFinance" or the "Firm"), a Financial Industry Regulatory Authority, Inc. (FINRA) member firm and a registered broker-dealer, and Richard Campanella, the Firm's former chief compliance officer and later president (together with vFinance, "Respondents"), appealed a Securities and Exchange Commission (SEC) administrative law judge's (ALJ's) Initial Decision that found that vFinance willfully violated Section 17(a) of the Securities Exchange Act of 1934 and Exchange Act Rules 17a-4(b)(4) and 17a-4(j), by failing to preserve and promptly produce electronic communications regarding its trading in the securities of Lexington Resources, Inc. ("Lexington"), and that Campanella willfully aided and abetted and was a cause of these violations.
The ALJ ordered Respondents to cease and desist, censured Campanella, and fined the Firm $100,000 and Campanella $30,000.
The SEC was equally upset about the Respondents assertions that they had engaged in good faith. Particularly irksome to the SEC was the Respondents' stance that they had to watch what they made independent contractors provide. Worse, the SEC was clearly troubled by the Respondents' encouragement of Thompson to seek independent counsel, a factor that was apparently exacerbated by the representation that the computers in the branch office were Thompson's "personal property."
The SEC admonished that it has long held that the designation of an independent contractor has no relevance for purposes of the securities laws. The SEC held that Respondents knew that Thompson was routinely using his blast.net account for Firm business, a fact more than sufficient to alert them to the possibility that the Firm was not capturing all of his business correspondence. Yet, because Respondents did not inform the compliance auditor about the blast.net account, his audits never focused on it. Further, Campanella's supposed stern warnings to Thompson about the use of the blast.net account was seens as a recognition that Thompson's was using blast.net messages for business correspondence. However, in spite of Thompson's refusal to heed Campanella's warnings, Campanella never imposed the threatened discipline on Thompson, nor implemented a system to preserve Thompson's business related blast.net messages.
The SEC found that the Firm also knew about, and Campanella expressly authorized, Thompson's storage of business-related IMs solely on his own computer beginning in 2003, although its own compliance policy required hard copy preservation. Moreover, electronic storage of these IMs violated the Exchange Act record retention requirements (in a non-rewritable, nonerasable format and available to the Commission at all times).
READ BILL SINGER'S COMPREHENSIVE CASE ANALYSIS AT:
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BrokeAndBroker Broke the E*TRADE Story First!
May 5, 2010 Blog Was Ahead of the Curve:
Here's what BrokeAndBroker.com published on May 5, 2010 at http://www.brokeandbroker.com/index.php?a=blog&id=394.
ON JULY 19, 2010, BROKEANDBROKER PUBLISHED THESE REGULATORY STORIES: