Initiated By
FINRA
Allegations
SECTION 5 OF THE SECURITIES ACT OF 1933, FINRA RULES 2010, 3310(A), NASD RULES 1017, 2110, 3010(A), 3010(B), 3011(A) - A MEMBER FIRM, ACTING THROUGH ITS PRESIDENT/CHIEF COMPLIANCE OFFICER (CCO)/ANTI-MONEY LAUNDERING COMPLIANCE OFFICER (AMLCO), DAVID DELANEY, FAILED TO CONDUCT ADEQUATE DUE DILIGENCE TO DETERMINE WHETHER THEY WERE PARTICIPATING IN A SCHEME TO EVADE THE REGISTRATION REQUIREMENTS OF SECTION 5 OF THE SECURITIES ACT OF 1933 BY SELLING SHARES OF LOW-PRICED EQUITY SECURITIES THAT WERE UNREGISTERED AND NON-EXEMPT. A FIRM CUSTOMER HAD OBTAINED ALMOST $2.4 MILLION THROUGH THE SALE OF THESE SECURITIES, WHICH CEASED ONLY WHEN THE FIRM'S CLEARING FIRM RESTRICTED THE CUSTOMER'S ACCOUNTS. THE FIRM, ACTING THROUGH DELANEY, RELIED ON OPINION LETTERS BY ONE COUNSEL REPRESENTING ALL OF THE ISSUERS, WHO WAS LATER FOUND TO HAVE ISSUED INACCURATE CORRESPONDENCE TO THE OVER-THE-COUNTER (OTC) MARKETS AND FAILED TO NOTE THE CONTRADICTION IN THE CUSTOMER'S ACTIONS AND REPRESENTATIONS. THE FIRM, ACTING THROUGH DELANEY, SOLD ALMOST A BILLION SHARES OF COMMON STOCK ON BEHALF OF THE CUSTOMER THAT WERE NOT REGISTERED WITH THE SEC, AND NO EXEMPTION FROM REGISTRATION APPLIED TO SUCH SALES. THE FIRM, ACTING THROUGH DELANEY, FAILED TO ESTABLISH, MAINTAIN AND ENFORCE ADEQUATE POLICIES AND PROCEDURES, INCLUDING WRITTEN SUPERVISORY PROCEDURES (WSPS), REASONABLY DESIGNED TO ENSURE COMPLIANCE WITH SECTION 5 OF THE SECURITIES ACT TO PREVENT THE SALE OF UNREGISTERED SECURITIES NOT EXEMPT FROM REGISTRATION. DELANEY WAS PRIMARILY RESPONSIBLE FOR ESTABLISHING, MAINTAINING, AND ENFORCING THE FIRM'S SUPERVISORY SYSTEM AND WSPS. THE FIRM, ACTING THROUGH DELANEY, FAILED TO DEVELOP AND IMPLEMENT ANTI-MONEY LAUNDERING (AML) POLICIES, PROCEDURES AND INTERNAL CONTROLS REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH THE BANK SECRECY ACT AND IMPLEMENTING REGULATIONS. DELANEY WAS RESPONSIBLE FOR THE ADEQUACY OF THE FIRM'S SUPERVISORY PROCEDURES AND THE CONTENT OF THE FIRM'S AML COMPLIANCE PROGRAM. THE AML PROCEDURES FAILED TO ADDRESS THE DETECTION, MONITORING, ANALYZING, INVESTIGATING, AND REPORTING OF SUSPICIOUS ACTIVITY IN THE CONTEXT OF ITS SECURITIES LIQUIDATION BUSINESS. THE FIRM AND DELANEY SHOULD HAVE DETECTED THE SUSPICIOUS NATURE OF CUSTOMERS' LIQUIDATION OF LOW-PRICED SECURITIES, INVESTIGATED THE ACTIVITY AND MADE SUSPICIOUS ACTIVITY REPORT (SAR) FILINGS AS NECESSARY BUT INSTEAD, PERMITTED THE CUSTOMERS' SUSPICIOUS TRADING ACTIVITY TO OCCUR AND FAILED TO REPORT ANY ACTIVITIES THROUGH A SAR AS NECESSARY. THE FIRM, ACTING THROUGH DELANEY, EITHER FAILED TO IDENTIFY OR IGNORED RED FLAGS INVOLVING NUMEROUS INSTANCES OF SUSPICIOUS ACTIVITIES, AND THUS FAILED TO SUFFICIENTLY INVESTIGATE AND, IF NECESSARY, REPORT THESE ACTIVITIES IN ACCORDANCE WITH ITS WSPS, THE REQUIREMENTS OF THE BANK SECRECY ACT, AND IMPLEMENTING REGULATIONS. WHEN THE FIRM BECAME A FINRA MEMBER FIRM, IT AGREED, AS PART OF ITS MEMBERSHIP AGREEMENT THAT A REGISTERED REPRESENTATIVE WOULD BE SUBJECTED TO HEIGHTENED SUPERVISION. THE FIRM'S WSPS REQUIRED REGISTERED REPRESENTATIVES WITH PRIOR DISCIPLINARY DISCLOSURES TO BE PLACED UNDER HEIGHTENED SUPERVISION INCLUDING INITIALING ORDER MEMORANDUM TO EVIDENCE REVIEW AND APPROVAL PRIOR TO THE EXECUTION OF TRADES EXECUTED BY THE REPRESENTATIVE BUT THE FIRM FAILED TO CAUSE THE ORDER MEMORANDA TO BE INITIALED PRIOR TO THE REPRESENTATIVE'S EXECUTION OF TRANSACTIONS OR TO VERIFY HIS CUSTOMERS' ACCOUNT INFORMATION. DELANEY ASSIGNED ANOTHER PRINCIPAL TO CONDUCT THE HEIGHTENED SUPERVISION BUT THE PRINCIPAL WAS NOT CONSISTENTLY AVAILABLE TO IMPLEMENT SUCH SUPERVISION BECAUSE HE REPORTED TO WORK ONLY TWO OR THREE DAYS PER WEEK AND ALSO RELIED ON DELANEY TO NOTIFY HIM IF ANY OF THE REPRESENTATIVE'S ACCOUNTS EXHIBITED THIRD-PARTY TRADING AUTHORITY ALTHOUGH DELANEY WAS PROHIBITED FROM DIRECTLY SUPERVISING THE REPRESENTATIVE IN THE FIRM'S MEMBERSHIP AGREEMENT. [CONTINUED IN COMMENT]
Resolution
Decision & Order of Offer of Settlement
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$40,000.00
Sanctions
Suspension
Registration Capacities Affected
ALL CAPACITIES
Duration
TWO MONTHS
Start Date
9/16/2013
End Date
11/15/2013
Registration Capacities Affected
PRINCIPAL CAPACITIY
Duration
13 MONTHS
Start Date
11/16/2013
End Date
12/15/2014
Regulator Statement
(CONTINUED FROM ALLEGATIONS) THE FIRM, ACTING THROUGH DELANEY, FAILED TO ENFORCE ITS WSPS AND IMPOSE HEIGHTENED SUPERVISION ON THE REPRESENTATIVE.
WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, DAVID C. DELANEY CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS THEREFORE HE IS FINED $40,000; SUSPENDED FOR A PERIOD OF TWO MONTHS FROM ASSOCIATION WITH ANY FINRA MEMBER IN ALL CAPACITIES; AND SUSPENDED FOR A PERIOD OF THIRTEEN MONTHS FROM ASSOCIATION WITH ANY FINRA MEMBER IN A PRINCIPAL CAPACITY TO RUN CONSECUTIVELY FROM THE TERMINATION OF THE TWO-MONTH SUSPENSION IN ALL CAPACITIES.
THE SUSPENSION IN ALL CAPACITIES IS IN EFFECT FROM SEPTEMBER 16, 2013 THROUGH NOVEMBER 15, 2013. THE SUSPENSION IN A PRINCIPAL CAPACITY IS IN EFFECT FROM NOVEMBER 16, 2013 THROUGH DECEMBER 15, 2014.
Broker Comment
(CONTINUED FROM ALLEGATIONS) THE FIRM, ACTING THROUGH DELANEY, FAILED TO ENFORCE ITS WSPS AND IMPOSE HEIGHTENED SUPERVISION ON THE REPRESENTATIVE. WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, DAVID C. DELANEY CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS THEREFORE HE IS FINED $40,000; SUSPENDED FOR A PERIOD OF TWO MONTHS FROM ASSOCIATION WITH ANY FINRA MEMBER IN ALL CAPACITIES; AND SUSPENDED FOR A PERIOD OF THIRTEEN MONTHS FROM ASSOCIATION WITH ANY FINRA MEMBER IN A PRINCIPAL CAPACITY TO RUN CONSECUTIVELY FROM THE TERMINATION OF THE TWO-MONTH SUSPENSION IN ALL CAPACITIES. THE SUSPENSION IN ALL CAPACITIES IS IN EFFECT FROM SEPTEMBER 16, 2013 THROUGH NOVEMBER 15, 2013. THE SUSPENSION IN A PRINCIPAL CAPACITY IS IN EFFECT FROM NOVEMBER 16, 2013 THROUGH DECEMBER 15, 2014.
