FINRA

FINRA RULE 2010 AND NASD RULES 2110, 3070, 3010(A), AND 3010(B): SANDERS WAS THE CHIEF COMPLIANCE OFFICER (CEO) AND MANAGER OF HIS MEMBER FIRM AND HAD SUPERVISORY RESPONSIBILITY OVER ALL BUSINESS CONDUCTED BY THE FIRM'S REPRESENTATIVES, EXCEPTION REPORTS, CUSTOMER CORRESPONDENCE, AND CUSTOMER COMPLAINTS. THE FIRM'S CLEARING FIRM GENERATED REPORTS WHICH IDENTIFIED ACCOUNTS THAT MET PRE-DETERMINED CRITERIA, INCLUDED TURNOVER RATES, COST-TO-EQUITY AND COMMISSION-TO-EQUITY RATIOS, COMMISSIONS, AND LOSSES. THE REPORTS RAISED SIGNIFICANT RED FLAGS INDICATIVE OF POSSIBLE EXCESSIVE TRADING OR CHURNING BY NUMEROUS FIRM REGISTERED REPRESENTATIVES. SANDERS WAS UNAWARE OF THE EXISTENCE OF THE REPORTS UNTIL FINRA DISCUSSED THEM WITH HIM. EVEN AFTER HE LEARNED OF THE EXISTENCE OF THESE REPORTS AND BEGAN TO REVIEW THEM, SANDERS FAILED TO ADEQUATELY MONITOR THEM AND RESPOND TO THE CONTINUING INDICIA OF EXCESSIVE TRADING. SANDERS WAS NEVER CONCERNED THAT ANY OF THE REPRESENTATIVES WERE ENGAGED IN EXCESSIVE TRADING, NEVER QUESTIONED A BROKER ABOUT THE LEVEL OF ACTIVITY IN HIS ACCOUNTS, AND ALMOST NEVER, IF EVER, CONTACTED A CUSTOMER TO INQUIRE INTO THE LEVEL OF TRADING. INSTEAD, SANDERS ASSUMED THAT THE FIRM'S CLIENTS WERE INTERESTED IN ACTIVE TRADING. THE FIRM HAD AN EXTREMELY HIGH LEVEL OF CANCELLED TRADES, MANY OF WHICH WERE DESIGNATED BY THE FIRM AS CUSTOMER RENEGES. MANY OF THESE SUSPICIOUS CANCELLATIONS INVOLVED THE SAME REPRESENTATIVES. SANDERS FAILED TO CONDUCT ANY MEANINGFUL INQUIRY INTO THESE CANCELLED TRANSACTIONS AND ACCOUNT OPENINGS. SANDERS WAS NOT CONCERNED THAT THE CANCELLATIONS WERE POTENTIALLY INDICATIVE OF UNAUTHORIZED ACTIVITY, INSTEAD ASSUMING THAT CUSTOMERS WERE RENEGING ON TRADES AND ONLY CONTACTED CUSTOMERS IN WHAT HE DESCRIBED AS A FEW INSTANCES. THE FIRM'S SUPERVISORY PROCEDURES ESTABLISHED CERTAIN CONDITIONS FOR PLACING REPRESENTATIVES ON HEIGHTENED SUPERVISION. SANDERS WAS RESPONSIBLE FOR IMPLEMENTING AND ENFORCING THE HEIGHTENED SUPERVISION PROCEDURES. SANDERS FAILED TO PLACE ANY OF THESE REPRESENTATIVES ON HEIGHTENED SUPERVISION. AS CEO OF THE FIRM, SANDERS WAS RESPONSIBLE UNDER THE FIRM'S WRITTEN PROCEDURES FOR MAINTAINING COMPLAINT FILES AND COMPLYING WITH THE REPORTING REQUIREMENTS FOR COMPLAINTS. SANDERS FAILED TO REPORT CUSTOMER COMPLAINTS THAT WERE NOT REPORTED AS REQUIRED UNDER NASD RULE 3070(C). THE FIRM ENTERED INTO SETTLEMENTS OF CUSTOMER COMPLAINTS AND SANDERS ALSO FAILED TO REPORT THESE SETTLEMENTS UNDER RULE 3070(C).

Decision

Bar (Permanent)

All Capacities

6/22/2015

Monetary Penalty other than Fines

$5,408.70

ON AUGUST 4, 2014, THE DEPARTMENT OF ENFORCEMENT MOVED TO DISMISS THE CHARGES IT BROUGHT IN THIS PROCEEDING AGAINST A RESPONDENT, WHO RECENTLY PASSED AWAY. COUNSEL FOR THIS RESPONDENT HAD REQUESTED THE DISMISSAL. THE COUNSEL FOR A RESPONDENT IN THE MATTER CONSENTED ON BEHALF OF HIS CLIENT. THE REMAINING TWO RESPONDENTS, INCLUDING BRIAN SANDERS, DID NOT RESPOND TO ENFORCEMENT'S INQUIRY REGARDING THEIR VIEWS WITH RESPECT TO THE PROPOSED DISMISSAL. THE HEARING OFFICER FINDS THAT GOOD CAUSE HAS BEEN SHOWN FOR DISMISSAL OF THE CHARGES AGAINST THE DEAD RESPONDENT, AND THE MOTION IS GRANTED. THE CHARGES AGAINST THE RESPONDENT ARE DISMISSED. THE CAPTION IN THIS PROCEEDING IS ALSO AMENDED AND WILL NOT INCLUDE THIS RESPONDENT IN THE FUTURE. HEARING PANEL DECISION RENDERED MAY 4, 2015. THE SANCTIONS WERE BASED ON FINDINGS THAT AS THE CHIEF COMPLIANCE OFFICER (CCO) OF HIS MEMBER FIRM, SANDERS FAILED TO REASONABLY SUPERVISE REGISTERED REPRESENTATIVES AT THE FIRM. THE FINDINGS STATED THAT SANDERS FAILED TO RESPOND TO RED FLAGS INDICATING THE STRONG POSSIBILITY THAT THE FIRM'S REGISTERED REPRESENTATIVES WERE OPENING ACCOUNTS WITHOUT AUTHORIZATION, ENGAGING IN UNAUTHORIZED TRADING, AND ALSO ENGAGING IN EXCESSIVE TRADING. SANDERS ALSO FAILED TO SUBJECT REGISTERED REPRESENTATIVES TO HEIGHTENED SUPERVISION WHEN THEY SHOULD HAVE BEEN UNDER THE FIRM'S WRITTEN SUPERVISORY PROCEDURES (WSPS). CONSEQUENTLY, 13 BROKERS MET THE FIRM'S CRITERIA FOR HEIGHTENED SUPERVISION, BUT SANDERS FAILED TO SUBJECT AT LEAST A DOZEN TO HEIGHTENED SUPERVISION. THE FINDINGS ALSO STATED THAT SANDERS FAILED TO REPORT NUMEROUS CUSTOMER COMPLAINTS TO FINRA THAT HE WAS REQUIRED TO REPORT. THE DECISION BECAME FINAL JUNE 22, 2015. PURSUANT TO FINRA RULE 9221(C), THE HEARING PANEL HAS DETERMINED THE CLAIMS AGAINST SANDERS ON THE RECORD AS TO HIM. THAT RECORD INCLUDES EVERYTHING IN THE RECORD FROM THE CASE PRIOR TO THE SEVERANCE OF THE CHARGES AGAINST SANDERS (DISCIPLINARY PROCEEDING NO. 2009016159110), ALONG WITH ENFORCEMENT'S SUBMISSION AFTER SEVERANCE (DISCIPLINARY PROCEEDING NO. 2009016159111).

STATE OF ILLINOIS, ILLINOIS SECURITIES DEPARTMENT

THE DEPARTMENT RECEIVED A COMPLAINT FROM AN ILLINOIS INVESTOR WHO ALLEGED THAT HIS ITRADEDIRECT.COM SALESPERSON REPRESENTATIVE, PAUL SHECHTER, HAD NOT FOLLOWED CERTAIN INSTRUCTIONS REGARDING THE MANAGEMENT OF HIS INVESTMENT ACCOUNT. AFTER THE DEPARTMENT'S INVESTIGATION, PAUL SHECHTER BRIAN SANDERS(MR. SHECHTER'S SUPERVISOR), AND ITRADEDIRECT.COM(COLLECTIVELY, THE "RESPONDENTS") ENTERED INTO A CONSENT ORDER WITH THE DEPARTMENT WHEREIN THE RESPONENTS NEITHER ADMITTED NOR DENIED THE ALLEGATIONS OF FACT OR CONCLUSIONS OF LAW MADE THEREIN, BUT DID AGREE TO CERTAIN UNDERTAKINGS. THE DEPARTMENT ALLEGED THAT SEVERAL MONTHS INTO THE RELATIONSHIP BETWEEN INVESTOR AND RESPONDENTS INVESTOR HAD A SIZEABLE QUANTITY OF SECURITIES TRANSFERRED INTO HIS ITRADEDIRECT ACCOUNT. PRIOR TO THE TRANSFER INVESTOR AND MR SHECHTER HAD DISCUSSED A TENTATIVE PLAN ON POSSIBLY LIQUIDATING A PORTION OF THE STOCK TO BE REINVESTED ELSEWHERE IN THE MARKET. AROUND THE TIME OF THE STOCK TRANSFER INVESTOR HAD ALSO INSTRUCTED SHECHTER TO CEASE MARGIN TRADING. SOON AFTER THE STOCK TRANSFER ALL OF THE STOCK WAS LIQUIDATED AND THE PROCEEDS USED TO REINVEST THROUGH INVESTOR'S MARGIN ACCOUNT. THE DEPARTMENT ALLEGED THAT THIS CONDUCT CONSTITUTED A VIOLATION OF SECTION 12.F OF THE ILLINOIS SECURITIES LAW OF 1953, AND THAT MR. SANDERS AND ITRADEDIRECT, WHICH LED SUPERVISORY AUTHORITY OVER MR. SANDERS, HAD VIOLATED SECTION 8.E(1)(E)(I) OF THE ACT FOR FAILING TO SUPERVISE MR. SHECHTER. RESPONDENTS AGREED TO CERTAIN UNDERTAKINGS INCLUDING PAYING THE INVESTOR RESTITUTION OF $150,000.00, RETAINING AN ADDITIONAL PRINCIPAL AS PART OF ITS COMPLIANCE AND SUPERVISORY TEAM, AND REVIEWING CERTAIN ACCOUNTS MANAGED BY MR. SHECHTER. THERE WERE NO FINED OR COSTS LEVELED AGAINST ANY OF THE RESPONDENTS.

Consent

Restitution

$150,000.00

FINRA

NASD RULES 2110, 3010 - RESPONDENT, ACTING ON BEHALF OF HIS MEMBER FIRM, FAILED TO CONDUCT AN ADEQUATE DUE DILIGENCE INVESTIGATION IN CONNECTION WITH THE PARENT COMPANY'S PRIVATE PLACEMENT IN ORDER TO ENSURE THAT IT DID NOT CONTAIN INACCURATE OR MISLEADING STATEMENTS AND MISCOMMUNICATIONS TO POTENTIAL INVESTORS.

Acceptance, Waiver & Consent(AWC)

Civil and Administrative Penalty(ies)/Fine(s)

Suspension

WITHOUT ADMITTING OR DENYING THE FINDINGS, SANDERS CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS, THEREFORE, HE IS FINED $10,000, JOINTLY AND SEVERALLY, AND SUSPENDED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY PRINCIPAL CAPACITY FOR 10 BUSINESS DAYS. SANDERS' SUSPENSION IN ANY PRINCIPAL CAPACITY IS IN EFFECT FROM DECEMBER 17, 2007, THROUGH DECEMBER 31, 2007. FINES PAID ON JANUARY 26, 2009.

NASD

NASD RULES 2110 AND 3010 - SANDERS, ACTING ON BEHALF OF HIS MEMBER FIRM, FAILED TO ESTABLISH AND MAINTAIN A SUPERVISORY SYSTEM, AND FAILED TO ESTABLISH, MAINTAIN AND ENFORCE WRITTEN SUPERVISORY PROCEDURES REASONABLY DESIGNED TO PREVENT AND DETECT UNAUTHORIZED TRADING BY REGISTERED REPRESENTATIVES IN THE FIRM'S HAUPPHAUGE, N.Y. OFFICE.

Decision & Order of Offer of Settlement

Monetary/Fine

$17,500.00

Suspension

WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, RESPONDENT CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS; THEREFORE, HE IS FINED $17,500 JOINTLY AND SEVERALLY AND SUSPENDED FROM ASSOCIATION WITH ANY NASD MEMBER IN ANY PRINCIPAL CAPACITY FOR 10 BUSINESS DAYS. THE SUSPENSION IN ANY PRINCIPAL CAPACITY WILL BE IN EFFECT FROM APRIL 2, 2007 THROUGH APRIL 16, 2007.

THERE WERE MATERIAL INACCURACIES IN NASD'S COMPLAINT AGAINST ME. THOUGH COUNSEL ADVISED ME THAT I HAD A WINNABLE CASE HERE, UNFORTUNATELY, I COULD NOT AFFORD THE EXPENSE TO MOUNT A VIABLE DEFENSE. GUNNALLEN HAD AGREED TO PAY THE FINES IF I TOOK THE AWC DEAL.