by Howard Haykin

October 2017 was another big month for FINRA sanctions against individuals caught engaging in undisclosed Outside Business Activities (“OBAs”) and Private Securities Transactions (“PSTs”) – 13 cases, in all. In each case - except for one involving a supervisor who failed to fulfill his obligations - the brokers engaged in these extra-curricular activities without bothering to inform (or gain approval from) their broker-dealers.  

Refer below for brief case studies pertaining to OBAs. Click here for October FINRA Cases pertaining to PSTs.

FINRA Rule 3270. Outside Business Activities of Registered Persons.  

No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of Rule 3280 shall be exempted from this requirement.

CASE STUDIES FOR OCTOBER 2017

1.  Scott Garrison (AWC #2015046500801), a resident of Bakersfield, CA, has 32 years’ experience with 6 firms. He agreed to a $10K fine and a 4-month suspension to settle FINRA charges that he engaged in an OBS with a company through which he conducted insurance sales - including sales of equity-indexed annuities - for compensation, and never provided his member firm (LPL Financial) with written notice of his involvement with the company.  

• Garrison also “lied” about OBAs on his Annual Compliance Questionnaires (“ACQs”)

2.  Satya Shaw (AWC #2016050095801), a resident of Lutz, FL, has 24 years’ experience with 8 firms. He agreed to a $10K fine and a 6-month suspension to settle FINRA charges that he engaged in OBAs without seeking prior approval from his member firm (Center Street Securities).  

• Shaw was a member of 6 limited liability companies, one of which received compensation in connection with the marketing of insurance and preparation of tax returns.
• Shaw held a management role in the remaining five companies, which his wife owned for the purpose of renting real estate.

3.  Howard Lawrence Hull III (AWC #2014038992501), a resident of Costa Mesa, CA, has 19 years’ experience with 3 firms.  Hull agreed to a $20K fine and a 3-month suspension as a principal to settle FINRA charges that 2 registered reps associated with his member firm participated in PSTs that Hull approved but failed to supervise, and failed to record on the firm’s books and records.

• Moreover, registered reps provided Hull with written disclosure of outside business activities (OBAs). Hull approved of these activities at the time they were disclosed but failed to conduct the review of them as Rule 3270 required.
• These violations occurred at HLH Securities, where Hull was an owner of the firm, served as the firm’s VP, CCO, and FinOp, and was the sole registered principal responsible for all areas of the firm’s supervision, including its WSPs and maintenance of the firm’s books and records.

4.  Ronald Nabors (AWC #2016052567201), a resident of Savannah, GA, has 7 years’ experience with 1 firm.  Nabors agreed to a $10K fine and a 12-month suspension to settle FINRA charges that he engaged in an OBA and received compensation from the business without providing prior written notice to his member firm (Thrivent Investment Mgmt).

• Nabors also willfully failed to amend his Form U4 to disclose the fact that he was the subject of an investigation by a federal grand jury for possible felony charges, was being charged with a theft-related felony and pled guilty to a theft-related felony.

5.  Bae Keun Yu (AWC #2016047873501), a resident of Los Angeles, CA, has 17 years’ experience with 5 firms. Keun Yu agreed to a 4-month suspension to settle FINRA charges that he formed a company to invest in Korean securities and opened a securities account at a Korean broker-dealer without disclosing his involvement with the company and his securities account at the Korean broker-dealer to his member firms (Kayan Securities; SH Investment & Securities).  [No fine was imposed in light of his financial status.]

• From November 2013 through March 2017, Yu purchased shares in Korean IPOs for Optima Koam, the firm he created, and then sold them after the companies were listed on the Korea Stock Exchange.

6.  Matthew Tucci (AWC #2014042567601), a resident of New York, NY, has 17 years’ experience with 4 firms.  Tucci agreed to a $10K fine and a 4-month suspension to settle FINRA charges that he engaged in OBAs involving real-estate ventures without disclosing his participation to his member firms (Tradition Asiel Securities; Avatar Capital Group).

• Tucci served as the operating officer, secretary, treasurer and sole member of each of these entities, and received income from each entity.
• In 2012 and 2013, Tucci falsely represented on 2 compliance questionnaires (ACQs) for one of his firms that he was not engaging in any outside business activities.

7.  William Kimberlin (AWC #2016049233701), a resident of Plano, TX, has 23 years’ experience with 2 firms. Kimberlin agreed to a $15K fine and an 18-month suspension to settle FINRA charges that he solicited and accepted a total of $30,000 in loans from 2 customers in violation of his member firm’s procedures which prohibited accepting or giving loans to customers under all circumstances.

• Kimberlin also failed to disclose to his firm (MetLife Securities) his participation in 2 outside business activities (OBAs) - one involving real estate investments, the other involving sports officiating.
• Kimberlin’s loans involved elderly customers of the firm – 71 and 76 years of age. He never repaid either of those loans.
• Kimberlin also falsely certified on firm ACQs he had not and would not engage in the prohibited practice of borrowing money or securities from a client. [He probably also “lied” on the ACQs about outside business activiites.]

These cases were reported in FINRA Disciplinary Actions for October 2017.

For details on any of these cases, go to ...  FINRA Disciplinary Actions Online, and refer to the Respective AWC #.