FINRA

FINRA RULES 2010, 3310, NASD RULES 3010, 3110: DURING THE TIME REGISTERED REPRESENTATIVES AT A MEMBER FIRM WERE SOLICITING CUSTOMERS TO PURCHASE A COMPANY'S STOCK, SIMONETTI KNEW OR BECAME AWARE THAT THE COMPANY, A PUBLICLY TRADED COMPANY BASED IN CHINA, HAD PAID THE OWNERS AND OPERATORS OF A BRANCH OF THE FIRM $350,000 FOR CERTAIN UNSPECIFIED SERVICES. WHEN THEY SOLICITED CUSTOMERS TO PURCHASE THE COMPANY'S STOCK, TWO OF THE OWNERS AND OPERATORS AND REGISTERED REPRESENTATIVES WORKING UNDER THEIR DIRECTION DID NOT DISCLOSE TO CUSTOMERS THAT THE OWNERS AND OPERATORS OF THE BRANCH, WHO WERE THE PLANNED OWNERS OF THE FIRM, HAD RECEIVED $350,000 IN COMPENSATION FROM THE COMPANY. INFORMATION WAS MADE AVAILABLE TO SIMONETTI THAT INDICATED OR SUGGESTED THAT THE FIRM'S CHIEF COMPLIANCE OFFICER (CCO) WAS NOT ADEQUATELY DISCHARGING HIS SUPERVISORY AND COMPLIANCE RESPONSIBILITIES. NONETHELESS, SIMONETTI TOOK NO ACTION TO SUPERVISE THE BROKERS TO REASONABLY ENSURE THAT ALL BROKERS, INCLUDING TWO OF THE BRANCH OWNERS AND OPERATORS, DISCLOSED ALL MATERIAL INFORMATION REGARDING THE EXISTENCE OF THE CONSULTING AGREEMENT AND THE $350,000 PAYMENT FROM THE COMPANY WHEN THEY SOLICITED CUSTOMERS TO PURCHASE THE COMPANY'S STOCK. COUNSEL FOR A PUBLICLY TRADED COMPANY BASED IN CHINA, REFERRED FOUR CHINESE CUSTOMERS TO THE FIRM. THE CUSTOMERS ALLEGEDLY WERE CURRENT AND FORMER EMPLOYEES OF THE COMPANY. THE COMPANY'S COUNSEL HANDLED ALL OF THE ACCOUNT OPENING MATTERS, INCLUDING OBTAINING CUSTOMER SIGNATURES ON NEW ACCOUNT DOCUMENTS AND SUPPORTING DOCUMENTATION. NOBODY FROM THE FIRM SPOKE TO THE FOUR CUSTOMERS OR ATTEMPTED TO CONFIRM THE ACCURACY OF THE INFORMATION ABOUT THE ACCOUNTS BEFORE APPROVING THE ACCOUNTS TO BE OPENED. NOBODY FROM THE FIRM EVER HAD ANY DIRECT CONTACT WITH THE CUSTOMERS DURING THE TIME THE ACCOUNTS WERE OPENED AT THE FIRM. THE FOUR CUSTOMERS DEPOSITED COLLECTIVELY OVER 3.8 MILLION SHARES OF COMPANY STOCK. PURSUANT TO POWERS OF ATTORNEY OBTAINED TO CONTROL THE SALES OF THE STOCK ON BEHALF OF THE FOUR FIRM CUSTOMERS, THE COMPANY'S CHIEF EXECUTIVE OFFICER (CEO), THROUGH COUNSEL, DIRECTED ONE OF THE OWNERS AND OPERATORS OF THE BRANCH TO BEGIN TO SELL THE SHARES FROM THE FOUR ACCOUNTS. THE FOUR CUSTOMERS SOLD OVER $23 MILLION OF COMPANY STOCK COLLECTIVELY, ALL ON INSTRUCTIONS FROM THE CEO. THE TRANSACTIONS WERE THE ONLY TRANSACTIONS IN THE FOUR CUSTOMERS' ACCOUNTS. THE SALES BY THE FOUR CUSTOMERS GENERATED OVER $1.1 MILLION IN COMMISSIONS FOR THE FIRM, AMOUNTING TO APPROXIMATELY 75% OF ALL COMMISSIONS THE FIRM EARNED FROM FEBRUARY TO AUGUST 2010. DESPITE KNOWING THE FIRST COMPLIANCE OFFICER WAS NOT ADEQUATELY DISCHARGING HIS COMPLIANCE RESPONSIBILITIES AND DESPITE MULTIPLE RED FLAGS THAT SHOULD HAVE ALERTED HIM TO TAKE ACTION, SIMONETTI FAILED TO MONITOR, ANALYZE AND INVESTIGATE THE SUSPICIOUS TRANSACTIONS IN ORDER TO DETERMINE IF IT WAS APPROPRIATE TO FILE A SUSPICIOUS ACTIVITY REPORT (SAR-SF) FORM. THREE OF THE OWNERS AND OPERATORS OF THE BRANCH PARTICIPATED IN SECURITIES TRANSACTIONS FOR WHICH THEY WERE ENTITLED TO COMMISSION COMPENSATION. THE FIRM DID NOT PAY THE COMMISSIONS DUE DIRECTLY TO TWO OF THE OWNERS AND OPERATORS OF THE BRANCH. INSTEAD, BY AGREEMENT, THE FIRM, THROUGH SIMONETTI, AND THE THREE OWNERS AND OPERATORS OF THE BRANCH AGREED THAT $350,000 IN COMMISSIONS AND EXPENSES WOULD BE PAID DIRECTLY TO ONE OF THE OWNERS AND OPERATORS. THE FIRM WIRED $350,000 TO THE INDIVIDUAL'S PERSONAL BANK ACCOUNT. THE FUNDS WERE NOT WIRED TO A BUSINESS ACCOUNT. THE COMMISSIONS DUE TO THE THREE OWNERS AND OPERATORS EXCEEDED $350,000 AS OF THE DATE OF THE AGREEMENT. THE BOOKS AND RECORDS OF THE FIRM DO NOT REFLECT SPECIFIC AND ACCURATE COMMISSION PAYMENTS TO THE THREE OWNERS AND OPERATORS FOR COMMISSIONS EARNED IN FEBRUARY AND MARCH 2010. [CONTINUED IN COMMENT]

Acceptance, Waiver & Consent(AWC)

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

$10,000.00

Suspension

ALL CAPACITIES

THREE MONTHS

2/6/2012

5/5/2012

Undertaking

[CONTINUED FROM ALLEGATIONS]: BY ARRANGING FOR A LUMP SUM PAYMENT OF $350,000 OF COMMISSIONS AND EXPENSES TO ONE OF THE OWNERS AND OPERATORS ALONE IN A PERSONAL ACCOUNT, SIMONETTI CAUSED THE FIRM'S BOOKS AND RECORDS TO BE FALSE OR MISLEADING IN NOT REFLECTING THE ACTUAL COMMISSION PAYMENTS TO EACH INDIVIDUAL REPRESENTATIVE ASSOCIATED WITH THE PURCHASE AND SALE OF THE SECURITIES. WITHOUT ADMITTING OR DENYING THE FINDINGS, SIMONETTI CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS; THEREFORE HE IS FINED $10,000, SUSPENDED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY FOR THREE MONTHS, AND UNDERTAKES TO COOPERATE WITH FINRA DEPARTMENT OF ENFORCEMENT STAFF IN ITS CONTINUING INVESTIGATION OF A MATTER, INCLUDING THE PROSECUTION OF THE MATTER BEFORE A FINRA HEARING PANEL, BY, AMONG OTHER THINGS, MEETING WITH AND BEING INTERVIEWED BY THE STAFF WITHOUT FINRA'S RESORTING TO RULE 8210, AND TESTIFYING TRUTHFULLY AT THE HEARING OF THE MATTER. THE FINE SHALL BE DUE AND PAYABLE EITHER IMMEDIATELY UPON REASSOCIATION WITH A MEMBER FIRM FOLLOWING THE THREE MONTH SUSPENSION, OR PRIOR TO ANY APPLICATION OR REQUEST FOR RELIEF FROM ANY STATUTORY DISQUALIFICATION RESULTING FROM THIS OR ANY OTHER EVENT OR PROCEEDING, WHICHEVER IS EARLIER. THE SUSPENSION IS IN EFFECT FEBRUARY 6, 2012 THROUGH MAY 5, 2012.