FINRA

FINRA RULE 2010, NASD RULES 3010(A), 3110(A), CAUSED HIS MEMBER FIRM'S VIOLATIONS OF SEC RULES 15C3-1, 17A-3, 17A-5, 17A-11, FINRA RULE 2010, NASD RULES 3010(A), 3110(A) - CRAIG A. ROTHFELD CAUSED HIS MEMBER FIRM TO CONVERT COMPENSATION IT HAD PREVIOUSLY PAID TO EMPLOYEES INTO FORGIVABLE PROMISSORY NOTES TOTALING APPROXIMATELY $9.8 MILLION IT HAD ISSUED TO THESE PERSONS AND FAILED TO PROVIDE FOR THE APPROPRIATE PAYMENT OF TAXES WITH RESPECT TO THE COMPENSATION AND TAX LIABILITIES. ROTHFELD MET WITH THESE INDIVIDUALS AND ARRANGED FOR THEM TO EXECUTE THE NOTES. ROTHFELD ALSO EXECUTED THE NOTES AND THEIR SUBSEQUENT AMENDMENTS ON BEHALF OF THE FIRM. ROTHFELD CAUSED THE FIRM TO CLASSIFY THESE NOTES AS ASSETS ON ITS BALANCE SHEET DESPITE THE UNDERLYING LOANS RELATED TO COMPENSATION ALREADY EARNED BY THE EMPLOYEES; THE WIDE RANGING AND VIRTUALLY INEVITABLE CIRCUMSTANCES UPON WHICH THE LOANS WOULD BE FORGIVEN ENSURED THERE WAS NO UNCONDITIONAL OBLIGATION FOR THE EMPLOYEES TO REPAY THE LOANS; AND RE-PAYMENT OF SEVERAL YEARS' WORTH OF COMPENSATION BY THE EMPLOYEES WAS UNLIKELY. HAD THE FIRM APPROPRIATELY BOOKED THESE LOANS AND TAX OBLIGATIONS AND PROVIDED FOR THE PAYMENT OF THE APPROPRIATE TAXES, ITS BALANCE SHEET WOULD HAVE REFLECTED SUBSTANTIAL LOSSES IN ADDITION TO THOSE IT WAS ALREADY EXPERIENCING. ROTHFELD CAUSED THE FIRM TO MISSTATE ITS BALANCE SHEET AND OTHER BOOKS AND RECORDS. THE FIRM CONDUCTED NON-DEAL ROAD SHOWS ATTENDED BY ISSUERS SEEKING FINANCING AND THE FIRM ALSO PROVIDED THIRD-PARTY RESEARCH TO INVESTMENT FIRMS. THE FIRM OFFERED THESE SERVICES WITH THE UNDERSTANDING THE INVESTMENT FIRMS COULD COMPENSATE THE FIRM BY DIRECTING THIRD-PARTY PRIME-BROKERS AND/OR CLEARING FIRMS TO REMIT FUNDS DIRECTLY TO THE FIRM OR ON A SOFT-DOLLAR BASIS. ROTHFELD CAUSED THE FIRM TO IMPROPERLY CLASSIFY THESE RECEIVABLES AS ALLOWABLE ASSETS FOR NET CAPITAL PURPOSES, THEREBY MISSTATING ITS FINANCIAL AND OPERATIONAL COMBINED UNIFORM SINGLE (FOCUS) REPORT AND NET CAPITAL CALCULATIONS BY AT LEAST $1 MILLION ON A MONTHLY BASIS. LENDERS EXTENDED LOANS TOTALING $675,000 TO THE FIRM AND WERE TIMELY SUBMITTED TO FINRA FOR APPROVAL AND WERE APPROVED; BUT THE FIRM FAILED TO OBTAIN FINRA APPROVAL FOR THE EXTENSION OF THE LOANS ON A TIMELY BASIS. ROTHFELD CAUSED THE LOANS TO BE TREATED AS ALLOWABLE CAPITAL SO THAT THE FIRM OVERSTATED THE AMOUNT OF NET CAPITAL IN ITS FOCUS REPORTS AND RELATED CALCULATIONS BY $675,000. A CLEARING FIRM LOANED THE FIRM $1.5 MILLION IN THE FORM OF A FORGIVABLE NOTE TO INDUCE THE FIRM TO ENTER INTO A CLEARING AGREEMENT WITH THE FIRM WHICH IT DID WHICH ROTHFELD CAUSED THE FIRM TO RECORD THE NOTE AS AN ALLOWABLE ASSET EVEN THOUGH THE LOAN HAD NOT BEEN FORGIVEN AND WAS MISSTATED ON ITS FOCUS REPORT AND RELATED CALCULATIONS. THE FIRM LOANED $850,000 TO A RETIRED FIRM OFFICER; THE LOAN WAS PARTIALLY REPAID AND REDUCED IN PRINCIPAL AMOUNT TO $740,000. THE FIRM ENTERED INTO AN AGREEMENT WITH THE OFFICER TO CHANGE THE UNCOLLATERALIZED LOAN TO A COLLATERALIZED LOAN WITH ASSETS CONTAINED INTO AN ACCOUNT MAINTAINED BY THE INDIVIDUAL AND A RELATIVE AT ANOTHER FIRM. ROTHFELD CAUSED THE FIRM TO CLASSIFY $600,000 OF THE LOAN AS AN ALLOWABLE ASSET ALTHOUGH THE LOAN'S COLLATERAL REMAINED IN THE NAME, POSSESSION AND CONTROL OF THE INDIVIDUAL AND RELATIVE. THE COLLATERAL WAS NOT OF SUFFICIENT QUALITY TO BE DEEMED AN ALLOWABLE ASSET UNDER THE NET CAPITAL RULE AND THE FIRM SHOULD HAVE TREATED SUCH AMOUNT AS A NON-ALLOWABLE ASSET, CAUSING THE FIRM TO OVERSTATE THE AMOUNT IN ITS FOCUS REPORTS AND RELATED CALCULATIONS. IN CONNECTION WITH EACH OF THESE MISCLASSIFICATIONS, ROTHFELD CAUSED THE FIRM TO MISSTATE ITS FOCUS REPORTS, NET CAPITAL COMPUTATIONS, BALANCE SHEET AND OTHER BOOKS AND RECORDS. ROTHFELD CAUSED THE FIRM TO FAIL TO NOTIFY REGULATORS OF THE NET CAPITAL DEFICIENCY ON A TIMELY BASIS. [CONTINUED IN COMMENT]

Acceptance, Waiver & Consent(AWC)

Bar (Permanent)

All Capacities

Indefinite

6/21/2012

OTHER CASE NUMBER: 2011029001301. ALLEGATIONS CONTINUED: ROTHFELD FAILED TO DEVELOP AND IMPLEMENT A SUPERVISORY SYSTEM WITH RESPECT TO THE FIRM'S FINANCIAL AND ACCOUNTING FUNCTIONS REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH SECURITIES LAWS, REGULATIONS AND FINRA RULES APPLICABLE TO THE MAINTENANCE OF MINIMUM NET CAPITAL, PREPARATION OF FOCUS REPORTS, BOOKS AND RECORDS, AND EMPLOYMENT COMPENSATION RECORDS.WITHOUT ADMITTING OR DENYING THE FINDINGS, ROTHFELD CONSENTED TO THE DESCRIBED SANCTION AND TO THE ENTRY OF FINDINGS; THEREFORE, HE IS BARRED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY.