Initiated By
FINRA
Allegations
WITHOUT ADMITTING OR DENYING THE FINDINGS, GOODRICH CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT ON BEHALF OF CERTAIN CLIENTS, HE SOLD CERTAIN SHARES OF AN ISSUER WHOSE SECURITIES WERE NOT REGISTERED AND WERE NOT SUBJECT TO AN APPLICABLE EXEMPTION FROM REGISTRATION, IN CONTRAVENTION OF SECTION 5 OF THE SECURITIES ACT OF 1933. THE FINDINGS STATED THAT GOODRICH'S CUSTOMERS DEPOSITED AND SOLD LARGE BLOCKS OF THE ISSUER REPEATEDLY. THE CUSTOMERS COMPLETED DEPOSITED SECURITIES QUESTIONNAIRES, IN WHICH THEY INDICATED THAT THEY ACQUIRED THE SHARES IN PRIVATE TRANSACTIONS FROM OTHER MEMBERS OF THE GROUP. THEY GAVE NO EXPLANATION OF THEIR BUSINESS ACTIVITIES AND GOODRICH'S MEMBER FIRM AND GOODRICH DID NOT ADEQUATELY INVESTIGATE THE TRANSACTIONS TO DETERMINE THE BASIS FOR THE REPEATED ISSUANCE OF LARGE BLOCKS OF STOCK. DESPITE THE PRESENCE OF RED FLAGS, THE FIRM APPROVED THE SALE, CONCLUDING THE CUSTOMERS WERE NOT ACTING IN CONCERT. THAT CONCLUSION WAS NOT REVIEWED OR REVISITED, EVEN AFTER SIX OF THE CUSTOMERS SOLD ABOUT FOUR MILLION SHARES SIX DAYS LATER, ALL IN ONE DAY. GOODRICH TOOK AND EXECUTED THE SELL ORDERS IN TWO GROUPS. THE FIRST WAS COMPLETED WITHIN A MINUTE AND A HALF AND, AN HOUR LATER, THE SECOND WAS COMPLETED WITHIN ONE MINUTE. GOODRICH FAILED TO UNDERTAKE SUFFICIENT EFFORTS TO ASCERTAIN WHETHER THE STOCK COULD BE PROPERLY SOLD, AND ACCORDINGLY DID NOT SATISFY HIS DUTY TO CONDUCT A REASONABLE INQUIRY, WHICH IS A CRUCIAL PART OF THE BROKERS' EXEMPTION.
Resolution
Acceptance, Waiver & Consent(AWC)
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$10,000.00
Sanctions
Suspension
Registration Capacities Affected
ANY CAPACITY
Duration
30 DAYS
Start Date
12/1/2014
End Date
12/30/2014
Regulator Statement
FINE PAID IN FULL ON NOVEMBER 24, 2014.
Broker Comment
MITIGATION STATEMENT OF DARREN C. GOODRICH RE: AWC 2010023220505. MR. GOODRICH SUBMITS THIS MITIGATION STATEMENT, IT DOES NOT CONSTITUTE FACTUAL OR LEGAL FINDINGS BY FINRA, OR REFLECT THE VIEWS OF FINRA OR ITS STAFF. MR. GOODRICH'S EFFORTS TO COMPLY WITH SECTION 5 INCLUDED CAREFULLY FOLLOWING ALL OF THE FIRM'S COMPLIANCE POLICIES AND PROCEDURES RELATING TO COMPLIANCE WITH SECTION 5 INCLUDING THE FOLLOWING: MR. GOODRICH CONSISTENTLY UTILIZED THE FIRM'S CLIENT QUESTIONNAIRE (THE DSQ) THAT INCLUDED QUESTIONS INTENDED TO DETERMINE TRADEABILITY OF THE SHARES AND TO IDENTIFY OTHER REGULATORY RED FLAGS. THE DSQ UNDERWENT SEVERAL ITERATIONS TO IMPROVE INFORMATION GATHERED, AND MR. GOODRICH PROVIDED SUGGESTIONS TO COMPLIANCE THAT WERE INCORPORATED INTO THE DSQ. WHEN REVISED FORMS WERE ADOPTED, HE IMMEDIATELY USED THEM. IN AUGUST 2009, THE DSQ WAS EXPANDED FROM A 1-PAGE DOCUMENT TO A 4-PAGE DOCUMENT THAT INCLUDED 21 QUESTIONS INTENDED TO DETERMINE TRADEABILITY. THE ADDITIONAL QUESTIONS INCLUDED SUGGESTIONS FROM MR. GOODRICH AND ASKED, REASON FOR DEPOSITING SHARES; DATE SHARES WERE ACQUIRED; AMOUNT/MANNER OF PAYMENT; WHO SHARES WERE ACQUIRED FROM; NUMBER OF SHARES OWNED OR CONTROLLED, NUMBER OF SHARES THAT HAD BEEN SOLD BY ACCOUNT HOLDER IN THE PAST; WHETHER THE DEPOSITED SECURITIES WERE RESTRICTED; WHETHER ISSUER'S SEC FILINGS WERE CURRENT; WHETHER THE ISSUER WAS EVER A SHELL; WHETHER THE ACCOUNT HOLDER HAD EVER BEEN AN OFFICER, DIRECTOR, AFFILIATE, CONTROL PERSON OR 5% OWNER OF THE ISSUER; WHETHER THE ACCOUNT HOLDER HAD ANY RELATIONSHIP WITH ISSUER OR ITS CONTROL PERSONS; AND WHETHER THE ACCOUNT HOLDER HAD MADE ANY PAYMENTS TO ANY OTHER PERSON IN CONNECTION WITH THE SALE OF THE SHARES. MR. GOODRICH ENSURED THAT DSQS WERE COMPLETED AND SIGNED BY HIS CLIENTS. IN MAY 2010, THE DSQ WAS AGAIN REVISED AND EXPANDED FROM FOUR TO FIVE PAGES. THIS FURTHER REVISION INCLUDES 38 QUESTIONS AND WAS ADOPTED BY THE FIRM'S CLEARING FIRM. MR. GOODRICH COOPERATED WITH THE FIRM'S COMPLIANCE AND ADMINISTRATIVE STAFF AND ASSISTED WITH THE FIRM'S UTILIZATION OF A "STOCK CERTIFICATE CHECKLIST" AND "DUE DILIGENCE PACKAGE" THAT DOCUMENTED THE COLLECTION OF INFORMATION RELATIVE TO EACH TRANSACTION THAT MR. GOODRICH WAS INVOLVED IN, INCLUDING THE STOCK CERTIFICATE NUMBER, NUMBER OF SHARES, STOCK POWERS, OPINION LETTER, WHETHER THERE WAS A VISIBLE LEGEND, AND WHETHER A DSQ WAS SENT TO THE CUSTOMER. SIMILARLY, MR. GOODRICH COOPERATED WITH THE FIRM'S COMPLIANCE AND ADMINISTRATIVE STAFF AND ASSISTED THEM IN CONNECTION WITH THE ASSEMBLAGE OF "DUE DILIGENCE" PACKAGES FOR EACH TRANSACTION THAT HE WAS INVOLVED IN, WHICH INCLUDED THE DSQ, THE SECURITIES CHECKLIST, ANY NOTES/MEMOS TO FILE, ANY POWERS OF ATTORNEY, ANY EXISTING OPINION LETTERS, AND CORRESPONDENCE WITH CUSTOMER AND TRANSFER AGENT. AS PACKAGES WERE REVIEWED BY THE FIRM'S COMPLIANCE OFFICER, MR. GOODRICH ANSWERED ALL QUESTIONS THAT AROSE AND OTHERWISE COOPERATED WITH COMPLIANCE. MR. GOODRICH BELIEVED THAT HIS FIRM'S COMPLIANCE PROCEDURES WERE ADEQUATE. MR. GOODRICH LEARNED IN PHONE CONVERSATIONS WITH OTHER TRADERS THAT THEIR FIRMS DID NOT UTILIZE INCOMING STOCK QUESTIONNAIRES OR OTHER COMPLIANCE PROCEDURES ADOPTED BY THE FIRM. THUS, MR. GOODRICH REASONABLY BELIEVED THAT HIS FIRM'S COMPLIANCE PROCEDURES WERE ADEQUATE AND EXCEEDED INDUSTRY STANDARD. THE CUSTOMERS WHO SOLD STOCK OF THE ISSUER REFERENCED IN THE AWC HAD UNDER 1% OF THE TOTAL VOTING STOCK. THE RELATED DEBT CONVERSION TRANSACTION WAS PREPARED BY A PROMINENT SECURITIES ATTORNEY. ALL OF THE TRANSACTIONS IN QUESTION WERE REVIEWED AND APPROVED BY HIS SUPERVISOR. MR. GOODRICH HAS NO PRIOR DISCIPLINARY HISTORY. ADDITIONALLY, MR. GOODRICH COOPERATED FULLY WITH THE STAFF IN ITS ONGOING INVESTIGATIONS WITH REGARD TO ALL AWC ISSUES. FINALLY, THE FIRM HAS INITIATED MULTIPLE ENHANCEMENTS TO ITS PROCEDURES AND SUPERVISORY SYSTEMS FOR COMPLIANCE WITH SECTION 5, AND MR. GOODRICH CONTINUES TO FOLLOW AND SUPPORT ALL OF THESE ENHANCEMENTS.
