Initiated By
FINRA
Allegations
FINRA RULE 2010, NASD RULES 2110, 3010, 3110: BURKS WAS HIS MEMBER FIRM'S PRINCIPAL RESPONSIBLE FOR CONDUCTING DUE DILIGENCE ON AN OFFERING AND APPROVED THE OFFERING AS A NEW PRODUCT AVAILABLE FOR HIS MEMBER FIRM'S REGISTERED REPRESENTATIVES TO SELL TO THE FIRM'S CUSTOMERS. BURKS ALLOWED THE FIRM'S REGISTERED REPRESENTATIVES TO CONTINUE SELLING THE OFFERING DESPITE THE ISSUER'S ONGOING FAILURE TO MAKE THE LATE INTEREST AND PRINCIPAL PAYMENTS IN EARLIER AFFILIATED OFFERINGS. BURKS FAILED TO HAVE REASONABLE GROUNDS FOR ALLOWING THE FIRM TO CONTINUE TO SELL THE OFFERING. RED FLAGS CONCERNING THE DELINQUENCIES AND DEFAULTS OF EARLIER AFFILIATED OFFERINGS SHOULD HAVE CAUSED BURKS TO CONDUCT ADDITIONAL DUE DILIGENCE INTO THE OFFERING TO DETERMINE IF IT WAS ALSO SUSCEPTIBLE TO DELINQUENCIES OR DEFAULT. BURKS FAILED TO CONDUCT ADEQUATE DUE DILIGENCE OF THE OFFERING BEFORE ALLOWING THE FIRM'S REGISTERED REPRESENTATIVES TO SELL THE OFFERING. BURKS FAILED TO MAINTAIN A SUPERVISORY SYSTEM THAT WAS REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND REGULATIONS AS THEY RELATED TO THE DUE DILIGENCE OF PRIVATE PLACEMENTS. BURKS MISTAKENLY MISCLASSIFIED RECEIVABLES AS ALLOWABLE ASSETS OF THE FIRM, A RENT RECEIVABLE FROM A COMPANY MANAGED BY HIM AND A RECEIVABLE FROM AN INSURANCE AFFILIATE OF THE FIRM, AND THESE RECEIVABLES ARE CONSIDERED NON-ALLOWABLE ASSETS FOR NET CAPITAL PURPOSES; CONSEQUENTLY, THE FIRM CONDUCTED A SECURITIES BUSINESS WHILE IN NET CAPITAL DEFICIENCY. BURKS TRANSFERRED FUNDS TOTALING $22,300 FROM A COMPANY HE MANAGED TO THE FIRM'S OPERATING ACCOUNT IN ORDER TO PAY THE RENT RECEIVABLE, WHEN THAT CONTRIBUTION WAS IMPERMISSIBLE FOR NET CAPITAL PURPOSES; ACCORDINGLY, THE FIRM CONDUCTED A SECURITIES BUSINESS WHILE IN NET CAPITAL DEFICIENCY. BURKS AUTHORIZED THE FIRM'S FINANCIAL OPERATIONS PRINCIPAL TO FILE QUARTERLY FOCUS REPORTS WHICH CONTAINED INACCURATE NET CAPITAL COMPUTATIONS AS A RESULT OF THE MISTAKENLY MISCLASSIFIED RECEIVABLES.
Resolution
Acceptance, Waiver & Consent(AWC)
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$10,000.00
Sanctions
Suspension
Registration Capacities Affected
ANY PRINCIPAL CAPACITY
Duration
SIX MONTHS
Start Date
3/21/2011
End Date
9/20/2011
Regulator Statement
WITHOUT ADMITTING OR DENYING THE FINDINGS, BURKS CONSENTED TO THE DESCRIBED SANCTION AND TO THE ENTRY OF FINDINGS; THEREFORE HE IS SUSPENDED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY PRINCIPAL CAPACITY FOR SIX MONTHS. IN LIGHT OF BURKS' FINANCIAL STATUS, A $10,000 FINE WAS IMPOSED. THE FINE IS DUE AND PAYABLE IMMEDIATELY UPON RE-ASSOCIATION WITH A MEMBER FIRM FOLLOWING HIS SUSPENSION OR PRIOR TO ANY REQUEST FOR RELIEF FROM ANY STATUTORY DISQUALIFICATION RESULTING FROM THIS OR ANY OTHER EVENT OR PROCEEDING, WHICHEVER IS EARLIER. THE SUSPENSION IS IN EFFECT FROM MARCH 21, 2011, THROUGH SEPTEMBER 20, 2011.
Broker Comment
STEVEN BURKS HAS WORKED IN THE FINANCIAL SERVICES INDUSTRY FOR OVER 36 YEARS AND HAS NEVER HAD A CUSTOMER COMPLAINT. HE HAS OVER 11 YEARS EXPERIENCE AS A BANK TRUST OFFICER AND 25 YEARS AS A REGISTERED REPRESENTATIVE AND REGISTERED PRINCIPAL IN THE SECURITIES INDUSTRY. HE IS A GRADUATE OF THE ABA'S NATIONAL TRUST SCHOOL AND COMPLETED 2 OF 3 YEARS AS A CFA CANDIDATE. ADDITIONALLY, HE HOLDS SERIES 7, 8, 24, 53, 63 AND 65 FINRA LICENSES.
THE REPORTED VIOLATIONS OCCURRED INSIDE A FINRA REGISTERED BROKER/DEALER WITH AN 11 YEAR OPERATING HISTORY. MR. BURKS WAS ONE OF THE OWNERS AND CONSIDERED A CONTROL PERSON. THE RULE VIOLATIONS ARE A RESULT OF MARKETING AND SALES OF MEDI-CAL CAPITAL HOLDINGS CORP VI. ACCORDING TO FINRA, THE FIRM OPERATING UNDER THE CONTROL OF MR. TIM CULLUM, CEO AND MR. BURKS, PRESIDENT, FAILED TO PERFORM ADEQUATE DUE DILIGENCE AND MAINTAIN A SUPERVISORY SYSTEM DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND REGULATIONS. THE FIRM AND OVER 50 OTHER BROKER/DEALERS WERE INVOLVED IN THE SALE OF NOTES ISSUED BY MEDICAL CAPITAL CORP.
FINRA CLAIMS CERTAIN MISSED INTEREST PAYMENTS ON PREVIOUS PROGRAMS IN LATE 2008 SHOULD HAVE ALERTED BROKER/DEALERS TO PROBLEMS WITH MEDICAL CAPITAL. WHILE ACKNOWLEDGING SLOW PAYMENTS, MEDICAL CAPITAL AT THE TIME ASSERTED TO THE BROKER/DEALERS THAT THE SLOW PAYMENTS WERE A RESULT OF THE CALIFORNIA STATE ASSEMBLY FAILING TO PASS A BUDGET WHICH CAUSED MEDICAL REIMBURSEMENTS FROM MEDICAL TO BE TEMPORARILY SUSPENDED. UNTIL THAT TIME WE HAD NOT EXPERIENCED ANY LATE OR MISSED PAYMENTS FROM MEDICAL CAPITAL HOLDINGS, I THROUGH V. IN HINDSIGHT, IT WAS A MISTAKE TO CONTINUE TO PARTICIPATE IN MEDICAL CAPITAL VI. IN JULY 2009, THE SEC CHARGED OFFICERS OF MEDICAL CAPITAL CORP. WITH FRAUD.
NET CAPITAL CALCULATIONS ARE AN ACCOUNTING CONCEPT RELATED ONLY TO SEC AND FINRA REGISTERED BROKER/DEALERS. THE PROCESS ESSENTIALLY DEFINES ALLOWABLE AND NON-ALLOWABLE ASSETS FOR CAPITAL CALCULATION PURPOSES. FINRA, DURING A ROUTINE FIRM AUDIT FOUND THE FIRM HAD MISCLASSIFIED TWO RECEIVABLES AS ALLOWABLE. AT THAT TIME, THEY DETERMINED THE RECEIVABLES AS NON-ALLOWABLE IN SPITE OF THE FACT THAT THE FIRM HAD A 10 YEAR HISTORY OF CLASSIFYING THOSE RECEIVABLES AS ALLOWABLE AND HAD NOT BEEN QUESTIONED IN PREVIOUS FINRA AUDITS. NET CAPITAL CALCULATIONS IN A FULLY DISCLOSED FIRM ARE AN INTERNAL CALCULATION THAT HAS ABSOLUTELY NO EFFECT ON CUSTOMER ACCOUNTS OR FUNDS.
BASED ON THE ABOVE FINRA RULE VIOLATIONS AND WITHOUT ADMITTING OR DENYING THE FINDINGS, MR. BURKS WAS FINED $10,000 AND SUSPENDED FROM SERVING IN ANY PRINCIPAL CAPACITY IN ANY FINRA REGISTERED FIRM FOR 6 MONTHS.
