Initiated By
FINRA
Allegations
JOHNSON WAS NAMED A RESPONDENT IN A FINRA COMPLAINT ALLEGING THAT HE MANIPULATED THE MARKET FOR A COMMON STOCK BY SOLICITING CERTAIN CUSTOMERS TO BUY, WHILE SOLICITING OTHER CUSTOMERS TO SELL, THE STOCK AT INCREASINGLY HIGHER AND ARTIFICIALLY INFLATED PRICES, FREQUENTLY EFFECTING MATCHED ORDERS AMONG HIS OWN CUSTOMERS, IN WILLFUL VIOLATION OF SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 10B-5 THEREUNDER. THE COMPLAINT ALLEGES THAT JOHNSON SENT MEMBER FIRM CUSTOMERS THIRD PARTY RESEARCH AND SALES MATERIALS CONCERNING THE STOCK THAT WERE RIDDLED WITH MISLEADING, EXAGGERATED AND UNSUPPORTED CLAIMS AND FAILED TO DISCLOSE MATERIAL INFORMATION. THE COMPLAINT ALSO ALLEGES THAT JOHNSON SOLICITED CUSTOMERS TO PURCHASE SHARES OF A STOCK WHILE FAILING TO DISCLOSE THAT HE WAS SIMULTANEOUSLY SELLING HIS AND HIS WIFE'S PERSONAL HOLDINGS OF IT. BY KNOWINGLY, OR AT LEAST RECKLESSLY, FAILING TO DISCLOSE THIS MATERIAL CONFLICT OF INTEREST, JOHNSON WILLFULLY VIOLATED SECTION 10(B) OF THE EXCHANGE ACT AND RULE 10B-5 THEREUNDER. THE COMPLAINT FURTHER ALLEGES THAT JOHNSON DISCLOSED TO HIS CUSTOMERS CONFIDENTIAL MATERIAL NONPUBLIC INFORMATION CONCERNING A PROSPECTIVE OFFERING OF SHARES OF A STOCK WITHOUT THE REQUISITE PERMISSION FROM HIS FIRM AND WITHOUT AN AGREEMENT FROM THE CUSTOMER TO KEEP THE INFORMATION CONFIDENTIAL AND REFRAIN FROM TRADING SHARES OF THE STOCK UNTIL THE INFORMATION HAS BEEN DISCLOSED PUBLICLY. IN ADDITION, THE COMPLAINT ALLEGES THAT JOHNSON INTENTIONALLY MISIDENTIFIED THE BROKER OF RECORD ON ACCOUNT APPLICATIONS AND ORDER MEMORANDA SUBMITTED TO THE FIRM IN A SURREPTITIOUS ATTEMPT TO COVER UP HIS VIOLATIONS OF STATE REGISTRATION REQUIREMENTS.
Resolution
Decision & Order of Offer of Settlement
Bar
Bar (Permanent)
Registration Capacities Affected
All Capacities
Start Date
2/18/2016
Regulator Statement
Without admitting or denying the allegations, Johnson consented to the sanction and to the entry of findings that he manipulated the market for a common stock by soliciting certain customers to buy, while soliciting other customers to sell, the stock at increasingly higher and artificially inflated prices, frequently effecting matched orders among his own customers, in willful violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and violated FINRA Rule 2020. The findings stated that Johnson sent member firm customers third-party research and sales materials concerning the stock that were riddled with misleading, exaggerated and unsupported claims, and failed to disclose material information. The findings also stated that Johnson solicited customers to purchase shares of a company's stock while failing to disclose that he was simultaneously selling his and his wife's personal holdings of the stock. By knowingly, or at least recklessly, failing to disclose this material conflict of interest, Johnson willfully violated Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder and also violated FINRA Rule 2020. Johnson and his wife sold approximately 139,500 shares of the stock for approximately $181,857. Johnson generated gross commissions of $4,400 for his member firm from his customers' corresponding purchases of the stock. Some customers purchased shares of stock on days where Johnson failed to disclose his or his wife's contemporaneous sales of their stock shares. Eventually the shares purchased by these customers declined in value substantially and their (unrealized) losses as a result of the adverse interest sales totaled over $120,000. The findings also included that Johnson disclosed to his customers confidential material nonpublic information concerning a prospective offering of shares of a company's stock without the requisite permission from his firm and without an agreement from the customer to keep the information confidential and refrain from trading shares of the stock until the information has been disclosed publicly. FINRA found that Johnson intentionally misidentified the broker of record on five account applications and over 100 order memoranda submitted to his firm in a surreptitious attempt to cover up his violations of state registration requirements. Johnson was the broker responsible for the accounts of some customers. However, Johnson was not licensed in the states where these customers resided. Johnson solicited or placed a total of over 100 trades, including trades involving shares of the stock for which he manipulated the market, for the customers. Each time, Johnson's principal, who entered all of Johnson's orders, put down on the order memorandum that he or another representative, not Johnson, was the associated person responsible for the account. Johnson was aware and agreed to the practice of falsification of firm books and records. As a result, Johnson caused the firm's books and records to be false.
Broker Comment
FINRA'S ALLEGATIONS CONCERNING MY CONDUCT ARE DRAMATICALLY OVERREACHING, MISQUOTE CLIENT AND OTHER COMMUNICATIONS AND INTENTIONALLY OMIT CONTEXT. I LOOK FORWARD TO THE OPPORTUNITY TO FULLY DEFEND THIS MERITLESS ACTION AND EXPECT TO BE FULLY VINDICATED.
