Initiated By
FINRA
Allegations
SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934, SEC RULE 10B-5, NASD RULES 2110, 2120, 2210(D)(1)(A), 2210(D)(1)(B), 2310(A), 3010(B) - ANTONY LEE TURBEVILLE, IN CONNECTION WITH THE PURCHASE OR SALE OF COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS), DIRECTLY OR INDIRECTLY, BY THE USE OF MEANS OR INSTRUMENTALITIES OF INTERSTATE COMMERCE (INCLUDING BY TELEPHONE), OR OF THE MAILS, KNOWINGLY OR RECKLESSLY EMPLOYED DEVICES, SCHEMES OR ARTIFICES TO DEFRAUD; MADE UNTRUE STATEMENTS OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS MADE, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING, CONCERNING CMO INVESTMENTS; OR ENGAGED IN ACTS, PRACTICES OR COURSES OF BUSINESS WHICH OPERATED, OR WOULD OPERATE, AS A FRAUD OR DECEIT UPON HIS CUSTOMERS. TURBEVILLE EFFECTED TRANSACTIONS IN, OR INDUCED THE PURCHASE OR SALE OF, SECURITIES BY MEANS OF MANIPULATIVE, DECEPTIVE OR OTHER FRAUDULENT DEVICE OR CONTRIVANCE. TURBEVILLE, KNOWINGLY, WILLFULLY OR RECKLESSLY, MADE MISREPRESENTATIONS OF MATERIAL FACTS AND OMITTED TO DISCLOSE MATERIAL FACTS IN CONNECTION WITH THE OFFERS AND SALES OF CMO INVESTMENTS TO CUSTOMERS. TURBEVILLE MADE MATERIAL MISREPRESENTATIONS AND OMITTED TO DISCLOSE MATERIAL INFORMATION AT LEAST NEGLIGENTLY, AND IN SO DOING, VIOLATED HIS OBLIGATION TO OBSERVE HIGH STANDARDS OF COMMERCIAL HONOR AND JUST AND EQUITABLE PRINCIPLES OF TRADE. A MEMBER FIRM, ACTING THROUGH TURBEVILLE, RECOMMENDED HIGH-RISK CMO INVESTMENTS TO ELDERLY AND/OR RETIRED CUSTOMERS WITHOUT A REASONABLE BASIS FOR BELIEVING THAT THE INVESTMENTS WERE SUITABLE BASED ON THE CUSTOMERS' DISCLOSED AGE, INVESTMENT EXPERIENCE, INVESTMENT OBJECTIVES, FINANCIAL SITUATION AND/OR RISK TOLERANCE. TURBEVILLE MADE MISREPRESENTATIONS, OMITTED MATERIAL FACTS AND USED MISLEADING STATEMENTS IN LETTERS SENT TO CERTAIN CUSTOMERS WHO INVESTED IN THE CMOS. THE FIRM, ACTING THROUGH TURBEVILLE, FAILED TO ENFORCE ITS PROCEDURES REGARDING SAFEGUARDING CUSTOMER INFORMATION. TURBEVILLE WILLFULLY VIOLATED SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934, SEC RULE 10B-5, AND NASD RULES 2110 AND 2120.
Resolution
Decision
Bar
Bar (Permanent)
Registration Capacities Affected
All Capacities
Duration
Indefinite
Start Date
4/16/2015
Sanctions
Monetary Penalty other than Fines
Amount
$28,657.93
Sanctions
Restitution
Amount
$1,620,100.00
Sanctions
prejudgment interest
Regulator Statement
EXTENDED HEARING PANEL DECISION RENDERED MAY 31, 2012 WHEREIN TURBEVILLE IS BARRED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY, ORDERED TO PAY RESTITUTION TOTALING $440,600, JOINTLY AND SEVERALLY, TO CUSTOMERS AND ORDERED TO PAY COSTS OF $27,047.55, JOINTLY AND SEVERALLY. ON JUNE 12, 2012, TURBEVILLE APPEALED TO THE NATIONAL ADJUDICATORY COUNCIL (NAC).
NAC DECISION RENDERED APRIL 16, 2015 WHEREIN THE FINDINGS MADE AND THE SANCTIONS IMPOSED BY THE HEARING PANEL ARE AFFIRMED THEREFORE, TURBEVILLE WAS BARRED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY AND REQUIRED TO PAY, JOINTLY AND SEVERALLY, $1,620,100, PLUS PREJUDGMENT INTEREST, IN RESTITUTION TO HIS CUSTOMERS. TURBEVILLE WAS ALSO, REQUIRED TO PAY, JOINTLY AND SEVERALLY, COSTS TOTALING $28,657.93. THE SANCTIONS WERE IMPOSED BY THE NAC FOLLOWING APPEAL OF AN OFFICE OF HEARING OFFICERS DECISION. THE SANCTIONS WERE BASED ON FINDINGS THAT IN CONNECTION WITH THE PURCHASE OR SALE OF COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS), TURBEVILLE'S MEMBER FIRM, ACTING THROUGH TURBEVILLE, FRAUDULENTLY MADE MATERIAL MISREPRESENTATIONS OF FACT AND OMITTED MATERIAL FACTS THAT MISLED EIGHT SENIOR AND RETIRED CUSTOMERS CONCERNING THE RISKS ASSOCIATED WITH CMOS, IN WILLFUL VIOLATION OF SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934, AND RULE 10B-5. THE FINDINGS STATED THAT THE FIRM, AGAIN ACTING THROUGH TURBEVILLE, RECOMMENDED THAT THE SAME EIGHT CUSTOMERS PURCHASE HIGH-RISK CMOS WITHOUT REASONABLY BELIEVING THAT THE SECURITIES, INCLUDING THOSE PURCHASED ON MARGIN, WERE SUITABLE FOR THESE CUSTOMERS BASED ON THEIR DISCLOSED AGE, INVESTMENT OBJECTIVES, FINANCIAL BACKGROUND, AND RISK TOLERANCE. THE FINDINGS ALSO STATED THAT THE FIRM AND TURBEVILLE MADE MISREPRESENTATIONS, OMITTED MATERIAL FACTS, AND UTILIZED MISLEADING STATEMENTS IN LETTERS SENT TO SOME CUSTOMERS. THE FINDINGS ALSO INCLUDED THAT THE FIRM, ACTING THROUGH A REPRESENTATIVE, FAILED TO SUPERVISE REASONABLY THE FIRM'S ACTIVITIES, AND THAT THE FIRM, ACTING THROUGH BOTH TURBEVILLE AND THE REPRESENTATIVE, FAILED ALSO TO ENFORCE THE FIRM'S PROCEDURES FOR SAFEGUARDING CUSTOMER INFORMATION, BOTH IN WILLFUL VIOLATION OF FINRA RULES. EACH MONTH FOR TWO YEARS, A REGISTERED REPRESENTATIVE WITH ANOTHER MEMBER FIRM, WHO WAS RETAINED BY THE FIRM AS A CONSULTANT, PURCHASED THROUGH HIS MEMBER FIRM LARGE BLOCKS OF CMOS - PRIMARILY INVERSE FLOATERS AND SOME INTEREST-ONLY SECURITIES - WHICH HE THEN SOLD, AFTER CHARGING MARK-UPS, TO THE FIRM. IN TURN, THE FIRM SOLD THE CMOS IT PURCHASED FROM THE CONSULTANT TO ITS CUSTOMERS, AFTER CHARGING CUSTOMERS ADDITIONAL MARK-UPS. IN TOTAL, THE FIRM PURCHASED $63,547,632 IN CMOS THAT IT THEN SOLD TO ITS CUSTOMERS, EARNING THE FIRM MARK-UPS TOTALING $1,906,322. THE FIRM ALLOCATED CMOS TO THE ACCOUNTS OF ITS CUSTOMERS BASED ON THEIR RELATIVE "BUYING POWER," I.E., THE AVAILABLE CASH OR MARGIN THAT THEY HAD TO PURCHASE THE BONDS. THESE CMOS, HOWEVER, WERE NOT HELD IN CUSTOMER ACCOUNTS FOR LONG. TO CREATE BUYING POWER, THE FIRM EACH MONTH ALSO SOLD LARGE BLOCKS OF CMOS FROM CUSTOMER ACCOUNTS. IN TOTAL, FOR TWO YEARS, THE FIRM SOLD $62,348,009 IN CMOS FROM CUSTOMER ACCOUNTS, EARNING THE FIRM ADDITIONAL MARK-DOWNS TOTALING $266,252. THE BAR IS IN EFFECT AS OF APRIL 16, 2015. ON MAY 15, 2015, TURBEVILLE APPEALED TO THE SECURITIES AND EXCHANGE COMMISSION (SEC). THE BAR REMAINS IN EFFECT PENDING THE APPEAL. ON AUGUST 5, 2015, THE SEC ISSUED AN ORDER GRANTING TURBEVILLE'S REQUEST TO WITHDRAW HIS APPLICATION FOR REVIEW. THE DECISION WAS FINAL ON OCTOBER 5, 2015.
Broker Comment
THE FINRA HEARING PANEL DECISION ISSUED ON MAY 31, 2012 IS NON-FINAL AND CURRENTLY UNDER APPEAL PURSUANT TO RESPONDENTS' NOTICE OF APPEAL FILED ON JUNE 12, 2012. WE BELIEVE THE APPEAL IS ULTIMATELY LIKELY TO SUCCEED AS, BASED UPON THE WRITTEN OPINION OF OUR OUTSIDE ATTORNEYS, THERE IS A REASONABLE BASIS FOR AN APPELLATE BODY, WHETHER THE NATIONAL ADJUDICATORY COUNCIL ("NAC") OR A HIGHER AUTHORITY, TO VACATE THIS DECISION ON THE GROUNDS THAT FINRA ENFORCEMENT DID NOT SATISFY THE LEGAL REQUIREMENTS NECESSARY, IN SPITE OF THE PANELS DECISION TO ASSESS LIABILITY AGAINST MR. TURBEVILLE AND THE OTHER RESPONDENTS. TURBEVILLE CONTINUES TO REFUTE THE ALLEGATIONS ASSERTED BY FINRA AND ITS AGENTS. TURBEVILLE DISTRIBUTED CMO DISCLOSURE BOOKLETS REQUIRED BY FINRA (NASD) AND DISCLOSED THE KNOWN CHARACTERISTICS AND RISKS OF CMOS FULLY. ADDITIONALLY, TURBEVILLE ORALLY AND IN WRITING DISCLOSED THE RISKS ASSOCIATED WITH CMOS BEYOND THE REQUIREMENTS OF FINRA (NASD) AND THOSE DISCLOSURES WERE SIGNED BY ALL THE CLIENTS THAT CHOSE TO INVEST IN CMOS PRIOR TO THE EXECUTION OF A SINGLE CMO TRADE IN THEIR ACCOUNTS. MOREOVER, FINRA FAILS TO DISCLOSE IN ITS COMPLAINT THAT IT WAS FULLY AWARE OF TURBEVILLE'S CMO ACTIVITIES SINCE 2002 AND TOOK NO ACTION UNTIL THESE PRODUCTS BECAME A POLITICAL HOT-POTATO. AS NOTED IN NASD NOTICE TO MEMBERS 93-73: "PRINCIPAL PAYMENTS ON CMOS ARISE FROM BOTH THE REGULAR AMORTIZATION OF THE UNDERLYING MORTGAGES AND FROM PREPAYMENTS OF THOSE MORTGAGES DUE TO SALES OR REFINANCING. AS RECENT HISTORY SHOWS, WHEN INTEREST RATES DECLINE SUBSTANTIALLY, MANY HOMEOWNERS CHOOSE TO REFINANCE THEIR MORTGAGES. THIS ACTIVITY CAN RESULT IN CMOS PAYING OFF PRINCIPAL MORE RAPIDLY THAN HAD BEEN ANTICIPATED. THUS, A CMO INVESTOR MAY BE FACED WITH INVESTING HIS OR HER PRINCIPAL AT A CURRENT LOWER RATE. IN A RISING INTEREST RATE ENVIRONMENT, HOMEOWNERS MAY NOT REFINANCE OR SELL THEIR HOUSES AS QUICKLY: THUS, CMO INVESTORS MAY HAVE TO HOLD THEIR INVESTMENT FOR A LONGER TIME PERIOD. WHILE PRINCIPAL PAYMENTS MAY BE QUITE PREDICTABLE FOR CERTAIN TRANCHES OF A GIVEN CMO, OTHER TRANCHES OF THE SAME ISSUE MAY BE SIGNIFICANTLY LESS PREDICTABLE." WITH REGARD TO INVERSE FLOATERS, THE NOTICE TO MEMBERS FURTHER STATES: "AT WORST, RISING RATES WILL LOWER INTEREST PAYMENTS AND EXTEND RETURN OF PRINCIPAL BEYOND THE AVERAGE LIFE." ALL OF THESE RISKS WERE DISCLOSED TO THE CLIENTS BEFORE A SINGLE DOLLAR WAS INVESTED. LASTLY, WE NOTE THAT FINRA UNREASONABLY FOCUSES ONLY ON A PERIOD OF TIME THAT CAN EASILY BE DESCRIBED AS ONE OF THE MOST TURBULENT RISING INTEREST RATE CYCLES IN FIFTY YEARS AND EXCLUDES THE PERIOD OF TIME IMMEDIATELY PRIOR AND IMMEDIATELY AFTER; REASONABLE PEOPLE MIGHT QUESTION THE FAIRNESS OF SUCH A SKEWED APPROACH.
