Initiated By
FINRA
Allegations
Felix was named a respondent in a FINRA complaint alleging that he falsified his member firm's books and records by misclassifying hundreds of thousands of dollars of his personal expenses as business expenses of the firm on its general ledger and in other of the firm's books and records. The complaint alleges that Felix grouped his personal expenses along with apparently legitimate business expenses of the firm in broad general expense categories, causing its books and records to be inaccurate by significantly overstating its business expenses in those categories and by understating its distributions to Felix. Moreover, Felix caused the firm to file inaccurate quarterly FOCUS reports that significantly understated the amount of compensation paid to him and overstated the firm's other expenses. By virtue of the foregoing, the firm willfully violated Section 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3 and 17a-5 thereunder. Further, because the firm's violations of the Exchange Act were willful, it is subject to statutory disqualification under Article III, Section 4 of FINRA's By-Laws and Section 3(a)(39) of the Exchange Act. The complaint also alleges that Felix provided false or misleading information in written response to FINRA requests for information and documents when it requested that he identify whether purchases made at certain vendors represented his personal expenditures or, if not, to describe the business purpose of those expenses and to provide documentation. The firm's auditor had required it to reclassify various purchases made at those same vendors. The complaint further alleges that Felix provided false or misleading information to FINRA during on-the-record testimony when asked whether he understood that the firm's auditor had required him to reclassify $200,000 in expenses. Felix falsely responded by testifying that the reclassification occurred because, the firm "changed from a C corp. to an S corp." In addition, the complaint alleges that Felix failed to produce documents and information requested by FINRA that were material to its investigation of Felix and his firm.
Resolution
Pending Appeal
Bar
Bar (Permanent)
Registration Capacities Affected
All Capacities
Duration
Indefinite
Start Date
5/26/2021
Regulator Statement
Hearing Panel decision rendered July 1, 2020, wherein Felix is barred from association with any FINRA member in all capacities and ordered to pay half of the total costs in the amount of $12,585.39. The bar was based on the finding that Felix failed to produce an IRS transcript requested by FINRA during the investigation of this matter. In light of the bar, the Panel assessed but did not impose a suspension and fine against Felix or the requirement that he requalify as a FINOP. The suspension, fine, and requalification requirement were based on the findings that Felix and the firm made and preserved inaccurate and false expense records, causing the firm to maintain an inaccurate general ledger and file inaccurate quarterly FOCUS Reports. These findings stated that Felix recorded personal expenses as firm business expenses in the firm's general ledger. The Hearing Panel found that Enforcement failed to prove that Felix provided false or misleading information and testimony during the investigation. Those charges were therefore dismissed.
Felix appealed the decision to the NAC on July 27, 2020.
NAC decision rendered May 26, 2021 wherein the findings made are affirmed and the sanctions imposed by the Hearing Panel are affirmed. The NAC rejects the argument that an independent bar is warranted for the causes arising from Felix's misclassification of personal expenses as business expenses.
On June 28, 2021, Felix appealed the decision to the SEC.
SEC Case #3-20380: SEC decision rendered November 25, 2024, wherein the findings and the sanctions imposed by the NAC are sustained in part and set aside in part. On the basis of the SEC's opinion, it is ordered that the findings that Felix refused to cooperate with investigative requests, and the bar it imposed for those violations, are sustained. It is further ordered that the findings that Felix made false entries in his member firm's general ledger, and caused the firm to maintain inaccurate books and records and file inaccurate FOCUS reports are set aside. The NAC did not impose sanctions for those violations in light of the bar. Therefore, the SEC exercised its discretion not to remand for further proceedings in light of its decision setting aside certain of NAC's findings.
Case #25-1038: On January 24, 2025, Felix appealed the decision to the U.S. Court of Appeals, D.C. Circuit District of Columbia Court of Appeals. The bar is in effect pending the review.
