The Financial Industry Regulatory Authority consistently takes disciplinary action against firms and individuals for violations of federal securities laws, rules and regulations.
In 2014, Finra brought 1,397 disciplinary actions against registered individuals and firms, and levied $134 million in fines. As a result, Finra expelled 18 firms from the securities industry. In addition, Finra ordered $32.3 million in restitution to harmed investors.
In Finra's latest monthly rundown of actions against its member firms and individuals, several cases involve sanctions arising from failure to flag transactions that should have raised some eyebrows.
In one case, a broker-dealer based in Lake Worth, Florida, and two of its registered representatives—aka brokers—agreed to sanctions handed down from Finra for violations involving penny stocks. In accepting the sanctions, which involve fines and professional suspensions, the defendants are neither admitting nor denying guilt.
Finra accused 1st Discount Brokerage (1DB), acting through brokers—and brothers—Alan Barry Miller and Mark Irwin Miller, of executing "sales of large blocks of low-priced securities without conducting a reasonable searching inquiry" to determine if those stocks were registered or the transactions were subject to exemption from registration under federal law.
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The Finra findings stated that the firm's customers engaged in a pattern of depositing large blocks of low-priced securities in their accounts, liquidating the low-priced securities and then wiring the sale proceeds to an account outside the firm without reinvestment.
According to Finra, 1DB and the Miller brothers helped liquidate roughly 7.7 million shares of nine different stocks, two of which were not registered with regulators. Selling the stocks generated net proceeds of more than $2.7 million for the customers, and commissions for the firm of about $63,000.
The firm was censured and fined $60,000. Alan Miller was fined $10,000, suspended from association with any Finra member for one month and ordered to pay $8,598.86 plus interest, which represents the commission he received for executing trades related to the case.
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Mark Miller also was fined $10,000, suspended from association with any Finra member for one month and ordered to pay $15,969.31 plus interest for the commission he received. Both suspensions ended on June 17.
Calls to Mark Miller and to 1DB's founder and CEO, William "Chip" Corley, were not returned.
When reached for comment about the settlement, Alan Miller said, "Sometimes you have to close the book and move on."
In a separate case, Finra took another Florida broker-dealer to task, for suspicious activity involving overseas investments.
The firm, Global Strategic Investments of Miami, agreed to Finra's sanctions—a censure and $200,000 fine—without admitting or denying guilt.
Finra's findings state that the company launched a new business line that immediately generated the majority of its revenues. Basically, this involved two unnamed accounts of foreign financial institutions in high-risk countries, Venezuela and Curacao. According to Finra, the firm facilitated currency exchanges through the liquidation of Venezuelan bonds.
This matters because, like penny stocks, such trading can involve illegal activity by the investor.
Although Global Strategic Investments' anti-money laundering compliance program met all legal requirements, Finra said the firm "failed to identify the money-laundering risk associated with the Venezuelan bond accounts and their anticipated activity" and failed to modify its protocols to accommodate such activities.
Finra also said the firm relied on the word of its customers and foreign regulation instead of its own due diligence and monitoring systems.
Calls to the firm and its owner, Cesar Gabriel Hernandez, were not returned.
To download the full listing of Finra's June disciplinary actions report, visit www.finra.org/industry/disciplinary-actions and click on June 2015 under the "Disciplinary Action Report—Monthly" section.
—By Sarah O'Brien, special to CNBC.com
